Golden Practices

Productivity

An endless number of tools exist to help individuals and organizations become more productive. Like weight loss "solutions," most are a lot more hype than help.

There is, however, one thing that I have witnessed that really does begin driving individuals and groups to improve in their productivity:

Understood and applied facilitation skills.

We all despise poorly run meetings.We all see projects—or parts of projects—fall apart, slip through the cracks, or consume exorbitant time and resources beyond reasonableness. And we see groups come together to accomplish something and struggle to formulate an approach, much less execute it.

My two-year term on the board of International Association of Facilitators, as the US Regional Representative, is coming to a close in April. I will miss the depth of interaction with expert facilitators who teach by example how to maximize results within a given period of time. This wasn't really something I thought facilitation would teach!

One can learn some of this through formal training (more on that below) but I've learned even more from working with volunteers who lead or participate in the various committees of the organization. These people KNOW how to plan and execute. 

I joined IAF to get better at facilitating leadership groups. But in the four years that I've attended conferences and become involved in the organization, I've also been gleaning core methodologies for:

• time management
• task management
• project leadership
• maximizing participation from even the toughest of characters
• managing dysfunction in a group

This was all something of an unexpected find for me.

I expected to learn how to most effectively lead groups in participatory decision-making and healthy dialog, but over the last two years, I've also observed some amazingly skilled project managers guide committees (of scores of crazy-busy volunteers, mind you) through some really complex stuff.

I cannot think of a single firm that couldn't benefit from some skill-building in all these facets of facilitation. In fact, I think these should be core competencies of all leaders in all organizations.

Consider joining IAF and attending conferences of IAF in North America or elsewhere in the world and join Project Management Institute, as well.

This isn't a magic pill. If you're serious about getting the most out of yourself and your team, you need these skills to do so.

Profitability of the Firm

Increasing the profits of your professional service business seems terribly hard. There's this market-share myth that suggests the bigger you are, the more money that goes into partner's pockets. This is only true to a degree. And, sure, with fewer equity partners and more revenues that number will be slightly higher.

But unless you are doing something to completely different with your firm to break out of the pack, the dollars will never be significantly higher. A primary way to break out is to price better. Another way is to BE better. The best way is to be better AND price better.

US income metrics are pretty much the same across the ENTIRE industries of accounting and law.

Unless you are actually selling your firm and slicing up that pie, don't pay too much attention to profit-per-partner metrics because the divisors--the number of partners--are skewed by the equity/non-equity thing and the retired/semi-retired/should-be-retired thing.

Instead of profit-per-partner, let's consider revenue-per-employee. (You can use a full-time equivalent, FTE, number if you like.) In public accounting or law, when you divide gross by employee or net by employee, the numbers are pretty steady whether your firm has 3 employees or 3000.

Average reported sales in accounting firms are $113.8K per employee and average sales in law firms are $162.0K. Most firms fall within $20-30K/employee of these averages which tend to be more impacted by geography than by firm size.

About the only time income/employee is notably higher is in the massive firms who tend to invest better in processes and training and they are more focused on continually teaching their juniors to "do their job."

This holds true whether you look at gross or net revenues because, quite frankly, your costs are pretty much fixed. Just as income/employee averages are consistent from firm to firm, expense/employee averages are, too.

(By the way, what it means when your costs are fixed is that you don't need to bother TRACKING your time to "determine" your costs. You already know them.)

Fun With Numbers - a Digression
Want more operating insights? Divide revenues by number of clients to see the average earned per client. Try looking at this from one sector you serve to another. And then from one "product area" to another. Interesting.

Then divide expenses by number of clients. Look at this by sector and service (product), too. What does this tell you about where you are spending your energy? Is it clear that you should do a lot more of some things and much less of others? Drop a sector or service, perhaps? Or just increase your prices in a certain area or two?

So why do you spend all that money buying time and billing systems, and all that time remembering and entering all those .1 increments again? You already know what it costs, on average, to serve a client or perform a service.

Okay, now back to the program...

Training Investment Correlation with Results
Speaking of training investment, I'll share a startling statistic from the AICPA.

The average investment in continuing education in firms is about .8% of revenues...about the same amount spent on the firm's internet connection!! Something is seriously wrong with this.

While professional service firms invest in about 40-60 hours a year to "maintain" the high level skills needed to do the job of a lawyer or accountant, do you realize that The Container Store invests in 241 hours of training for a first year associate? And 160/year after that?

The average in retail, by the way, is 7 hours per year. The Container Store is breaking out of the pack. Better employees and happier ones = happier, more loyal, and "spendier" customers.

From The Container Store's website:

One of The Container Store's core business philosophies is that one great person equals three good people in terms of business productivity. So, why not hire only great people?

Customer service is The Container Store's core competency, so hiring people who are self-motivated and team-oriented with a passion for customer service is key.

We place so much importance on service that every first-year, full-time salesperson receives about 241 hours of training—in a retail industry where the average is about seven hours. And training continues throughout an employee's career.

Excellent customer service requires a strong dose of both attitude and skill. If skill is a little sub-par, attitude can make up for it. The inverse isn't so true...that's where the "right" person comes in.

Customer Service Pays (oh, and it's the right thing to do)
This post was inspired on reading Gerry Riskin's blog, Amazing Firms Amazing Practices.

In his post, Client Satisfaction May be EXTREMELY Profitable, Gerry picked up on a story about stock prices for strongly service-oriented companies outperforming the Dow Jones, S&P and NASDAQ:

...the authors of a study published in the Journal of Marketing found that companies at the top 20% of the the American Customer Satisfaction Index (ACSI) greatly outperformed the the stock market, generating a 40% return.

From 1996-2003, the portfolio outperformed the Dow Jones Industrial Average by 93%, the S&P 500 by 201%, and NASDAQ by 335%.

This concept and quote comes from an article on the Consumerist (neat site, by the way) called How To Beat The Stock Market: Buy Companies With High Customer Satisfaction Scores.

From the article, cumulative performance is shown here:

To tie all the elements in this post together--service, training and profitability--Gerry's advice is less talk and more action. He writes:

Don’t bother disseminating this information to your people in order to encourage them to focus on enhancing client satisfaction.

Their consequential improved knowledge on the subject will do little.  It takes results (client satisfaction) to get results (improved profitability). SKILLS rather than knowledge with be essential to achieve the desired outcome.

It is possible to break out of the pack when it comes to increasing the value and performance of your practice. "Leveraging" people and time is "a" way but it has big limitations (number of people x hours in a day).

Between improved pricing approaches and delivering greater customer experiences, there are several firms busting out of those common profitability metrics. Some trailblazing firms' stories are listed on VeraSage's website and we (VeraSage) are learning about others almost daily.

When Time is (Too Much) Money

A really interesting comment about the mindset of professionals who charge by the hour really got me thinking.

Bob Sutton has a post about The Billable Hour Turns People Into Workaholics in which he wrote:

...how people in jobs where “time is money” fall into a trap: They start devoting more time to their jobs, and less time to “unpaid” activities like family, friends, and leisure.

I think there's a lot to this.

I'd like to add another key thing or two that often lose out when competing for attention against a chargable hour. These things are 1) desirable forethought before undertaking an activity, and 2)appropriate time for reflection on or about the activity after it's done.

Neglecting both of these exercises impacts so many things: staying sharp and on top of our game; being as organized as we can possibly be; effectiveness; learning from our experiences; and thinking of how we can do better.

That ol' chargable hour sure has some nasty side effects!

Accountants Round Up

Today is a very special day!

My associate, Sue (over there in the picture), and I are really excited to "unveil" our new blog: Accountants Round Up (pun intended!) that is aggregated accounting industry news. Shortcut URL is accountantsroundup.com.

Here's the powerquote about why we've created this:

"Accountants Round Up is created to introduce more accountants to the blogosphere. Skeptics by nature, they’ve been slower to understand and utilize this technology than many other industries, including law. While this is probably a result of information overload, we aim to show them how much more quickly and easily they can stay abreast of news for their own industry," explains Michelle Golden, president and CEO of Golden Marketing, Inc.

"Our hope is to also demonstrate just how useful RSS technology is for professionals who want to stay attuned to the industry news of the clients whom they are privileged to serve—specialized knowledge being a core element of high level service."

We won't claim originality, though. We were clearly inspired by the wonderful job Nancy Stinson does over at the Stark County Law Library blog providing similar information for the legal profession. If I have no other blog reading time in my day, I am sure to skim Nancy's aggregated news to be sure I'm catching the best posts of the day. The Stark County Law Library blog has been going strong for many years.

Maybe one day, Accountants Round Up will be that same sort of "can't miss it" resource for CPAs and Chartered Accountants, too.

Hope you like the new blog. We're pretty excited about it. Sue manages it and does a really great job. She posts a few items a day. There's about 2 months' worth of content out there now, so please go check it out! And if you like it, it's available by RSS feed or email through FeedBlitz.

Happy reading!

(See our press release on the launch: Download accountants_round_up_launch_pr.pdf )

Fly on the Wall #4: What Happens When People Are in Your Lobby?

It happened again.

I was visiting a new client. No one knew me yet. The receptionist was fine. Greeted me as one would expect. I was a little early so I expected to wait. She asked if I needed anything and made sure I was comfortable. Then she continued her work.

As I waited for about 10 minutes, I observed that the lobby served as part of the office traffic pattern as well as an open elevator bank. The seating faced the traffic flow.

As more than a dozen people went through, I smiled politely and watched each one. Here's what I took in:

• More than a dozen people passed by, in both directions, within 10 feet of me.
• Most people walked at a slow to moderate pace with the exception of one woman who bustled through.
• Most people looked down as they walked through.
• Not one person met my eyes or glanced in my direction...nobody said hello or otherwise acknowledged my presence.
• People passing each other did not exchange greetings or smile at each other! Nor did anyone speak to the receptionist.
• No one smiled, whistled, seemed amused, had a spring in their step, or in any way displayed that they were enjoying their day.

What are your impressions about this firm? (I know what mine were!)

Does this seem like a nice place to work? A friendly environment? Like people you want to work with?

What if you were an important prospect? How about a highly desirable job candidate? A perfect referral source?

Could this be your firm? Wouldn't you be mortified?

Do you pay attention to the experience of someone in your lobby? Do people behave the same passing by an occupied lobby as when it is empty?

When people come visit you or your business, it makes you a host. Would you walk in your front door and pass a stranger in your living room without greeting them?

5 minute marketing idea:
E-mail your entire team and remind them to go above and beyond to be friendly and outgoing when people are waiting in your lobby. Link them to this post to save some time typing...

Resolve to Improve Profitability

Want to be more prosperous in 2007? If you're really ready to move the needle on your firm's profitability, this post is for you.

The most impactful way is to implement Value Pricing. And recognizing that you may not be ready to abandon billing by the hour, that's fine, you don't have to jump in the deep end of that (wonderful) pool just yet...but keep reading because this one action will help your improve profits no matter how you price:

Get a Handle on Scope Creep: Use Change Orders

If you bill by the hour, do you ever have write-offs? Time you "can't" bill? My bet is that you do. Sure, some of that time stacks up because it took, in your own judgment, more time than it "should have" to do the work, so you don't charge it to your client.

But what about all that time that accumulates because of unanticipated work you did either (a) thinking that it would be "just a tiny amount, no big deal" but...it grew or, (b) you didn't know about it because somebody else did it, or (c) you just didn't take the time to call the client to discuss this "extra" work before you started doing it and so you feel bad charging them later.

As you should. It's unauthorized work, right?

After all, You wouldn't appreciate being charged for something you didn't know was coming, either. Sometimes we bill it anyway, but each time it is a risk met either with understanding or annoyance. Usually annoyance. Clients leave over this stuff.

The hardest thing, in my mind, about Value Pricing (which we do here) is the same, exact thing firms that bill by the hour struggle with. Change Orders.

Firms tend not to use them much because it doesn't SEEM as detrimental at the time when you have the hourly cushion to fall back on. Plus, Change Orders mean that you must actually think through any extra work you are about to delve into, talk with the client FIRST to discuss "what it might take" and then receive PERMISSION to proceed.

This may be called a "change order," "work order," "revision of scope," or "new project" and it is a crucial part of successfully managing a customer's expectations. This should be a formal and regular process in your organization.

Skipping this step is a costly mistake. It either costs you in collections or it costs you in client relations.

An irony I see is that practitioners sometimes become ANGRY and RESENTFUL of their clients as they begin to gripe about unexpected billings. "Oh, they are fee sensitive," we hear. Or, "they don't appreciate how hard we worked for them." Sometimes decide this makes them a "bad client." And firms fool themselves into believing that the client's imminent departure is good for the firm.

HUH?? This is a problem on the service provider side. It's an expectation problem. It's really bad for the reputation. And it kills a potential referral pipeline, to boot.

Without trying to quantify the cost of a damaged reputation and lost referral revenue--both big numbers, to be sure--let's just focus on the proportion of write-offs that can be recovered by checking scope creep once and for all.

Most firms seem to have WIP write-offs of 10-20% of gross. Most firms we work with tell us that about a third of this is efficiency related...they just ran up more time than they should have. The other 2/3 is truly money left on the table for failing to talk to clients in advance of additional work being performed.

One $8M dollar firm we know that had a staggering $2M in WIP write-offs for 2005 is confident that well over $1M could have been kept if they'd had a handle on their scope creep because most of it was work that was outside of their very clearly defined engagements. They are fixing this and you can, too.

How? Step up project management and communications:

1. think through what IS and is NOT included in your project before you start it -- I cannot over emphasize the importance of this step
2. talk to everyone involved in the project at the outset to be sure everyone completely understands #1
3. create the expectation internally that anyone performing work not first approved by the client is putting the both the client relationship AND the firm's financial health at serious risk
4. put in place an appropriate communications channel to assure that associates and staffers bring to the attention of their supervisors/managers/partners any potential changes in scope
5. be sure the the person with client relationship responsibilities has enough information to set the client's expectation about the financial or other impact of this change
6. contact the client and get approval (written is always most appropriate) before tackling the work

I bet my 2007 revenues that if you take these steps, that your existing projects will be more profitable. And a lovely side benefit is that they lay excellent groundwork for Fixed Price Agreement work should you move to that model somewhere down the road.

In the event you'd like to read more about other ways to improve profits, see my previous post, Profitability Through Pricing.

Best Wishes for Greater Prosperity in 2007!

Ways to Use RSS Even if you Don't Want to Blog

I've been speaking to a lot of audiences lately about using the web and blog technology to operate and market more effectively. I totally understand there is a lot of resistance to blogging, especially by people who are amazingly busy as it is (and who isn't??). Blogging does take a good amount of time.

But when giving presentations that discuss all the different ways RSS technology is useful, I've been observing that my audiences are genuinely surprised at what can be accomplished -- and in a very cost-effective manner.

It helps them see RSS in a whole new light.

There is a fantastic post by Vancouver Law Librarian that lists 10 uses for RSS. And only one of these is outbound marketing. Just one.

So if you are an attorney, accountant or other professional service provider scrunching up your nose at the mere mention of blogs because you think it's just a time-consuming method of marketing (that reaches only the My Space crowd), think again.

Directors of First Impressions Really Are

Gerry Riskin is right on with his receptionist post today. He was inspired by Seth Godin's post, "Receptionists."

Results Accountants' Systems (the Bootcamp folks) got it right when they recommended the position be called Director of First Impressions and gave dozens of ideas for how this DoFI could assure a superior experience for customers.

Receptionists are a leading indicator of doing business with a company or firm.

The receptionist, even in a couple moments, reflects the company's culture, personality, quality, accountability, intelligence, warmth, and care.

I called a Top 100 CPA firm in the East that I had thought was pretty savvy and "got it." But my impression of the firm was lessened significantly by the tone and demeanor of the receptionist who sounded inconvenienced to have to answer my call. She sounded like she hated her job. She couldn't get me transferred fast enough cutting off my polite "thank you."

I thought, "This is the firm's idea of an appropriate way to present themselves to callers??"

I've been extremely impressed at times when I've called firms and been greeted especially pleasantly. I've been able to sense that the receptionist had a smile on her face or was genuinely invested in getting me to the person or the information I needed. THAT is what we're after.

Just as Gerry describes being the recipient of a regular string of compliments, I always tell the person I'm calling when the receptionist is exceptional. The most recent such instance was on June 26 when I did so by e-mail. This is exactly what I wrote moments after calling a law firm:

BTW, your receptionist today was absolutely fantastic. Commendable. And she deserves a pat on the back. I speak with a lot of firm receptionists and she stood out in a very positive way. After being extremely helpful and courteous as I worked through a list of 4 or 5 people to potentially speak with, I thanked her for her excellent help and she, in kind, thanked *me* for my patience. Wow. It was no problem at all I assure you and she made it a very pleasant experience doing everything she could to assure that I was taken care of.

This is the response I received:

Thank you SO much for your compliment of our receptionist. Amelia is filling in for Natasha who is on vacation. I will pass along your commendation to her.

Hmmm, while I hope I didn't cause such a positive spotlight on Amelia that it made Natasha look poor in comparison, it occurred to me that I had never been greeted quite as warmly by the firm before by phone or in person. (they are a client...names have been changed)

Two very different experiences within the same firm...

I have also reported, though, when the receptionist is a distinct "downer." I think a firm needs to know. Kinda like telling friends they have spinach in their teeth. This doesn't happen often, though. In fact, I probably pass on mentioning some instances that are borderline. You would want to know, wouldn't you?

So how many compliments do you receive about your receptionist(s)? Do you pass them along? (positive reinforcement is SO powerful).

Or do you get no remarks? You ought to consider making a change.

Negative remarks? Stop reading blogs immediately and start writing your next job ad for a superstar receptionist!

Under-delegation Hurts Retention, Profitability and Marketing

Professionals understand delegation is beneficial, yet few are compelled to do enough of it. Let's see if some of the thoughts below help create more movement toward delegation behaviors.

In my previous post entitled "The Profitability Problem" I touched on several factors that deserve much deeper discussion. Leverage aka "delegation" is one.

In a comment to that post, David Maister suggested that I skated over the topic of delegation (or leverage)--that I "gave up" and suggested firms just won't get better at this. And he is right, it deserves deeper discussion. I promptly sketched out some thoughts right then and there, but I didn't finish constructing the post until I saw David's post today (which I cite below).

My thoughts fall into 3 major categories:

1. delegation & profitability
2. delegation & marketing, and
3. delegation & personnel retention

What's Behind Exemplar's Approach?

For anybody wondering "what is the deal?" with the rebel firm, Exemplar Law Partners, the Adam Smith Esq. blog features an OUTSTANDING post getting to the heart of it all.

ELP is the law firm that has completely re-engineered the traditional law firm operating and pricing models. Bruce MacEwen interviewed ELP CEO Chris Marston and he tells the story beautifully.

I think MacEwen summarizes it well:

Is Exemplar the most unorthodox law firm I've ever encountered?  Are a passel of the ills besieging our profession to be laid directly at the doorstep of the billable hour?  Do a large cohort of clients prefer fixed fees?  Can, in fact, high-end legal services be priced that way?  Has Chris Marston drawn a line in the sand?   Yes, in spades, to all.

Fly on The Wall #2: If Internal Communication is Poor, Can You Still Have a "Great Culture"?

"We have a unique and special culture here at our firm," the principal told me. And, in fact, they do. No, really.

• The work hours aren't super high (compared to industry averages).
• The people treat each other with respect (most of the time).
• They operate as a business and not "silo" practices.
• They have all the requisite "fun" events and even enjoy horsing around in the office sometimes.
• The pay is pretty decent (though definitely lower than the local Big firms). (Actually, the firm is finding it quite a strain to even try to keep up with rapidly escalating salaries.)

Despite that somewhat lower pay, most people stay because they believe the culture is quite a bit better than a lot of other places.

As a result, a few years back, the firm's owners started talking about that great culture. A lot. In recruiting. In marketing. And to each other. They wear it like a badge. A shield.

But taking their positive culture for granted is very dangerous.

When owners believe their firm is "all that" with regard to culture, they tend to behave as though they don't need to keep working at it. (hmmm, reminds me of a lot of marriages...)

Firm culture, like a happy marriage, is not static. Enough withdrawals from the "emotional bank account" of either will erode a positive situation.

This "fly on the wall" will share some of the culture impairing blunders committed by firms who think they are "there" when it comes to their culture--but who are slowly undermining their great culture with these behaviors.

Most of these problems involve failure to communicate personally with people about important things such as:

#1 - Notifying people by memo or e-mail about their colleague, even manager, having been "let go"

#2 - Relying on the informal gossip chain to replace formal presentations of "state of the firm" or goals, visions, and other important news or changes

#3 - "Leakage" of preliminary information (often by owners to select team members) about pending policies, pending raises or bonuses, or other critical economic information, such that a mention or two to friends means pretty soon the whole firm "knows" -- often it isn't even final so the info may be wrong(!)

#4 - Rolling out new programs or policies by memo or e-mail with no formal presentation to personally introduce it, frame it with appropriate background information, answer questions, and create enthusiasm

#5 - Not telling people (hopefully publicly!) that they have done a great job

#6 - Not telling people privately AND constructively how they could do something better

#7 - Telling people anything personal, corrective, or negative by e-mail (and cc'ing others is a very, very bad idea)

I hear and see so many instances of these types of things from non-owner professionals and, while they also talk about the benefits of their culture, they are strongly aware that their culture sure isn't "all that."

In fact, they are reminded of it each time someone goes on and on about the firm's great culture. That's when their eyes start rolling.

Make sure eyes aren't rolling in your "great firm."  If they are, be sure to do a reality check to see if your firm is sending mixed messages, not practicing what you preach, or not living up to the values you state that you hold.

APPENDED 6:50pm:

Wow, Allison Shields of the Legal Ease Blog just posted a handful of great additions to the 7 items above. Other additions are welcome, too, our lists are certainly not exhaustive. If you blog with new items, please be sure to post a trackback here and on Allison's blog so people can find them!!  Thanks Allison. Very strong additions, indeed.

Benchmarking and Lagging Indicators

A lot of people land on my blog searching for information on CPA firm partner salaries and other firm management metrics.

I'm not a big fan of benchmarking one firm against another and spending undue time studying lagging indicators. I believe, instead, that there is significant benefit of benchmarking the firm against itself and it's goals, over time.

That being said, for those seeking metrics by geography, firm size, etc., the AICPA's PCPS section has made its 2003 and 2004 MAP Survey results available to anyone (perhaps for just a limited time).

The reports can be viewed here: http://pcps.aicpa.org/Resources/National+MAP+Survey/PCPS+Complimentary+Results.htm

When viewing these reports, just remember that reviewing lagging indicators won't help you improve. Also remember that the firms you are comparing yourself against are all chasing the same types of improvements you are chasing.

Focus on setting goals and measuring wisely chosen leading indicators if you want to change your firm.  (Hint: chargeable hour goals are NOT leading indicators.)

Measure today against tomorrow. I know it goes against accounting principles, but don't worry about prior years...

Lawyers Leaving Hours Behind

I'm pleased Robert Ambrogi and Patrick Lamb posted about Exemplar Law Partners -- a new firm not charging by the hour.

Awesome! This is a better way of doing business that is gaining momentum across multiple professions including law, accounting, advertising, IT and consulting. Even I've been working (for years) toward being 100% fixed price and am in the process of transitioning the last of my hourly buyers to fixed pricing.

But let's talk more about law. Here are 3 more examples:

I had the pleasure of meeting some St. Louis attorneys last week, Simon Passanante, a more than 30-person firm, who are litigating IP matters on a contingency model just as they do product liability cases. Truly not expecting an affirmative answer, I prompted: "Tell me you don't keep time sheets...?" to which John Simon, Tony Simon and Erich Vietch answered, "No, only when we absolutely have to on a class action." I confess, the employees that I saw all looked, um, happy...

David Ambrose runs a small real estate finance firm in Portland, OR, that is moving to a fixed price/no timesheet model. They were featured in CNN Money/Fortune Small Business a couple months ago, here. This is a good story covering his many considerations in the shift.

And then there is Sherman & Jeffries, a family law firm in AL. They have a blog that is really good, here it is. Michael Sherman says their firm works entirely on a fixed price basis and would never go back to hourly billing. (Sherman was at the original LexThink in 2004.)

There are certainly many more who deserve kudos and are worthy of study as they are absolute trailblazers adopting these business practices despite great skepticism from their peers.

CPA Tim McKey (who runs a practice in Baton Rouge, Louisiana with no timesheets and 100% value pricing) is the newest fellow of VeraSage. He said it best when he told Ron Baker: "I'd sleep under a bridge before I'd go back to running my firm under the old method." 

Edu Debt Influences Job Choice

In my (lengthy) post the other day about The Profitability Problem, I cited some average education debt amounts from memory because I couldn't recall where I saw them.

Just found it on Ernie Svenson's blog and my numbers were actually a little conservative.

"About 80 percent of law school students obtain loans to pay for law school, and the average loan debt is $76,763 for private law school graduates and $48,910 for public school graduates."

The Law.com article Ernie points to (that I just now read) further supports my assertion about the state of the profession:

"While law school costs have exploded, associate compensation has not. According to the National Association for Law Placement (NALP), the median salary for first-year associates in private practice in 2004 was $80,000, the last year that figures for comparison were available. The 2004 number represents a 60 percent increase over the median salary in 1990, which was $50,000.

"Between 1990 and 2004, inflation totaled 45 percent, which means that in 2004 an associate would have needed a salary of $72,400 to have the same earning power of $50,000 in 1990, regardless of the much greater law school costs."

More....

"Even at the nation's biggest firms -- those with more than 501 attorneys -- salaries in 2004, which averaged $125,000 (not including bonuses), have risen just 78 percent since 1990, compared with the 267 percent increase in the cost of public in-state education and the 130 percent escalation in private law school education.

"There's a major concern," Sebert said. "If you graduate with average private law school debt and earn something other than the average salary, you are going to have trouble."

"The prognosis also is bleak for new attorneys in smaller firms, who typically earn much less than those at large firms. The median salary for first-year associates in firms with 26 to 50 attorneys was $65,000 in 2004, just 44 percent more than the median salary at those firms in 1990, which was $45,000. Beginning lawyers at law firms with two to 10 lawyers earned $48,000 in 2004, compared with $30,000 in 1990."

And finally....

DEBT INFLUENCES JOB CHOICE

The effect of burdensome student loans on the legal profession is a subject that NALP currently is grappling with, said executive director James Leipold. His group is planning a summit next year with other legal organizations that will explore the ramifications to the legal community of ballooning law school costs and debt. Anecdotally, however, he said that more graduates are entering big-firm practices with the "deliberately stated goal" of paying down debt and then leaving.

So perhaps NALP and firms will conclude that the legal profession should price more similarly to the medical profession. (You have to know how much I hate using HC as an example because of what insurance has done to cloud transparency of how much we are actually paying for what.)

Just look at the fact that you don't pay for the amount of time the doc spends with you, but for all the collective wisdom and tools of their expensive education and environment in which they operate (ha! no pun intended).

Law or accounting...think about it. In most cases, you offer a lot more value than just your hour.

Every hour is NOT equal.

Some hours are rather unproductive. But, in another mere hour, you can provide life altering advice. When you do, isn't it worth more than a few hundred dollars?!

Shortcomings of Financial Statements

Bruce MacEwen at Adam Smith Esq. has an exceptional post today about the shortcomings of traditional accounting methods in today's more knowledge-based business environment.

He refers to a Business Week Online cover article, "Why The Economy Is A Lot Stronger Than You Think" that describes the failure of income statements & balance sheets to take into consideration intangible things such as innovation and product development, brand building, employee training, etc.

Absolutely true. Addressing this is one of the handful of pet projects of VeraSage, the think tank of which I'm a fellow. We look forward to many more discussions on this topic when our new website goes live at the end of March.

In the meantime, I challenge you to read Bruce's post and consider how much it might change the behaviors of firms' owners toward working on these intangibles if doing so fed more visibly into the measurable value of their firms.

Baker Blogs

Ron Baker, pricing expert extraordinaire, doesn't like the term blog (it's okay Ron, none of us do!) but he's eagerly awaiting the launch of his own blog with the renovation of the VeraSage website. In the meantime, he is guest-blogging on Matt Homann's site: [non]billable hour.

If you don't know Ron or haven't read his books yet, this is a good opportunity to become acquainted with one of the freshest thinkers alive! His teachings sound scary to some, but are highly implementable as I discuss in my recent post about his new book, Pricing on Purpose.

Check him out!

Profitability Through Pricing

In my last post entitled The Profitability Problem, I promised to discuss specific pricing strategies that can improve profitability.

I suggested integrating three approaches to achieve optimal profitability: evaluating the firm’s capacity by knowledge level, specializing in a limited number of practice areas (service or product oriented) and pricing strategically. But there is one other thing....

To be as profitable and successful as possible, no matter how you price--high or low, hourly or fixed by project--the first and most important thing to address is to assure consistent high-quality of service no matter what service is sold, no matter who is delivering it, no matter what price is asked.

These are the 3 Essential Behaviors:

• Positive attitudes all around
• Exceptional expectation management skills (this means creating them and then consistently meeting them)
• Communication whenever change, or the need for change, first becomes apparent if outside of anyone's established expectations

The above list regards INTERNAL behavior just as much as EXTERNAL behavior. This is known as role-modeling. Treat each other as you wish your clients to be treated. (The same principle applies to parenting. If you yell at your children, you shouldn't be surprised when they yell at others.)

Perfect service is possible. It is defined by proper expectation management and, as such, is completely within your control. This doesn't mean you may never err. If you are managing expectations properly, you can promise that if and when you err (everyone is human, after all) the situation will be remedied immediately and completely, without assignment of blame or other uncomfortable moments for the customer. But I digress....

The above behaviors, alone, will set your organization apart in the eyes of those who work for you and with you. These are valuable behaviors that are hard to find in today's business world. I'm not saying that you can charge more if you do these things because, in fact, they are the foundational traits all businesses should be demonstrating, but we know how that goes...(this is why just a few select businesses, like Disney, are so admired).

So if you cannot necessarily price higher because you are doing these really important things, why do them? Do them to create loyalty and, ultimately, demand for your services. When demand is created (people competing for your limited resources) you can charge more and/or grow to meet that demand.

My first recommendation is to work toward becoming a shining example of the Three Essential Behaviors. At first, this will take a lot of effort and focus from everyone in your organization. Selling the idea to your colleagues shouldn't be hard--people need only listen to their instincts to know the behaviors are in the best interest of both the organization and the customer. Why delay? Start now.

If you don't work on the Three Essentials, you can still work on the following, but results will be limited. The effectiveness of the strategies below assume you are doing the Essentials pretty well.

Here are some specific pricing considerations that can be put into practice to boost profitability:

The Profitability Problem

This is my 100th blog post (Is that all?? Feels like a lot more than that!). As a milestone post, I decided this has to be an extra thoughtful one--I hope you'll forgive the length and find it thought-provoking.

What subject is of greater concern to firms than profitability?

I’ve read reports of high-profile consultants recently predicting record high compensation for partners in 2006 and beyond. I’m not sure on which data the forecasts are based, but I foresee the opposite. Here's why:

Employee costs are rising significantly. Firms are reacting, albeit slowly, to the continuing large numbers of non-partner professionals fleeing public accounting and law firms in search of less pressure, more stimulating work, and feeling valued by more enlightened employers. Promotions (some premature) and raises are used to keep key people when talent is at a premium.

For the past 5+ years, we’ve watched with amazement as law associate starting salaries skyrocket, now running between $100-145K/year and more in some top firms in top and even 2nd tier markets.

In return for those salaries, associates are agreeing to meet the demands of unhealthily high billable hour requirements. Many agree to these conditions because they begin their careers with average law school debt of $75K for top schools, and $45K for public universities. The associates hope they will be able to aggressively reduce this debt and pick up some valuable experience along the way.

The associates are probably unaware they walk into the firm already on the receiving end of some resentment from the senior partners who happen to know a few things:

• It wasn’t very long ago that they were making $150K
• These kids have it “a lot easier than we did” and they’re going to make them work hard for their money
• They’ll have a lot of trouble billing the new associate out at the standard mark-up hourly rate because clients won’t pay that much for the limited experience of a new associate. This means more write-offs, or less desire to use these expensive new associates (hmmm, think there will be even less delegation to these new associates when more experienced people can do the work more "efficiently"? That's a bad enough problem already! And how will they ever learn if they don't do the work -- see the catch 22?)
• There will be a lot less money left over for partners once they have raised the pay of all their other associates to get everybody back in-line, sometimes bringing their 4 or 5 year people up tens of thousands to put them appropriately above the new starting rates.

Smaller law firms – those nowhere near this pay amount – are not exempt from these problems. They face the exact same dilemma, just at lower dollar amounts. Proportionately, the impact to profitability is about the same.

CPA firms are some years behind law firms in dealing with this pay issue because new CPAs are nowhere near these starting salaries. But with the recent change in CPA exam requirements necessitating a fifth year in school, accounting grads are now presenting themselves with Masters Degrees meriting higher pay.

Fewer graduates mean everyone is fighting over those who are at all appealing. Rare, also, are qualified lateral hires since so many people are defecting public accounting, more often hired by clients of the firm than recruited by other firms. Headhunters are more brazen than ever.

As mid-sized law firms have been experiencing for years, CPAs are starting to feel the pinch to their profits of the domino effect that occurs when your new hires come in at the pay of your more experienced people. Raising everyone across the board is costly. Add to that the skyrocketing cost of health insurance and other fringes and incentives needed to compete for talent in the aggressive talent marketplace and, well, we have a big hit to the bottom line.

The business of predictions is a dangerous one. But I'm going on record as saying: the cost of the knowledge worker in CPA firms is going to continue to rise rapidly. I believe it is reasonable to expect salaries for mid- to high-level non-partners to double in the next 5 years. Someone receiving $50-60 now, would be commanding $100+. Say I'm wrong and they don't go up quite this much. They're still going to go up a lot.

Though salaries will never grow as much in smaller firms, firms will have to pay more in order to keep their CPAs. Remember, firms aren’t competing so much with each other for this talent pool as they are competing with private industry and other, more lucrative, professions, such as law, for instance.

That’s just the employee component. Then there is the growing cost of marketing and the new HR/marketing cost component for recruiting.

So, with all these costs going up, where is all this profitability – that these other consultants are projecting to turn into partner compensation – supposed to come from?

I don’t see it coming from significant new business development for two reasons:

Christmas Decorating Contest Wonderful for Morale

Just got back from Cayman Islands where I had the privilege of working with Deloitte.

I was warned prior to arriving at their office that their "audit department is, uh, having a Christmas decorating contest, and it is over the top."

"How cool!" I thought.

And I was truly impressed. Not just with the degree to which they took their decorations, but with the enthusiasm and energy that the whole contest had generated among all their people from admin team members to partners.

They divided the floor into four teams (quadrants) and they went crazy.

They were kind enough to permit me to take some photos and, honestly, these photos don't do it justice!

With all the recent hullabaloo about the PCness of celebrating Christmas, it is refreshing to see that even major organizations that epitomize diversity are truly in the spirit of the holidays (all of them).

In the proud words of one of the auditors, "There's so much Christmas spirit in our office, it looks like Christmas vomit." 

Always interested in process, I asked, "Who is judging?" "Is there a prize?" "Who do you think will win?"

No one really had an answer and it hit me that it didn't really matter. Though the teams are highly competitive, they weren't competing to win, they were competing to have the most fun...

Awesome.

If you're looking for a fun idea to liven spirits next December, I strongly recommend a decorating contest!

Avoid Having a "Messy" Business by Being More Proactive

Most of us accept the fact that what new business development success boils down to is what partners and team member do (or do not do) on a daily basis.

I just picked up a book (haven't read it yet) called "High Trust Selling" by Todd Duncan. I wasn't exactly in the market for another book on selling, but when I flipped through the book, in Chapter 7 under "To Build Your Business Up, You Must First Clean It Up" a section on proactivity had some items that resonated with me.

"Consider...the following dilemmas that arise from a 'messy' business," Duncan writes. He lists:

• If you can't find the time to do things right, when will you find the time to do things over?
• If you spend most of your time with clients who don't completely trust you, where will you find time to build high trust with the right clients?
• If you don't have time to call your clients back, how will you make time to talk when they call you?
• If you don't have time to make quality sales, does your quantity of sales really matter?

Perhaps it resonates because, in the professions, there exists a huge emphasis on time (and lack thereof) when it comes to being unable to consistently offer quality service (aka developing/securing existing business) or, especially, to develop new business.

Much has been said about most professionals having too many clients, in general. Considering the 80/20 rule (that 20% of your clients represent 80% of your profitability) doesn't it make great sense to trim back at least some of the 80% that drag that profitability level down while also sucking away your time needed to actually advance the business and do work that you enjoy?

If you won't fire those clients, or kindly offer to introduce them to your competitors, then consider transitioning them to up and comers in the firm who might bring renewed vigor to the relationship turning it around into a more profitable one.

Why You Need to Focus on the Experience of Working with You

You keep hearing how you should strive to be like Disney or FedEx or Ritz Carlton. What does that mean? How does that apply to professional services firms?

Simple. People are not stupid. At least not the people you want as your clients.

Seth Godin came through with yet another brilliant post depicting his personal experience with a company who clearly doesn't CARE.

Until and unless someone who has the power and authority to change things in your firm starts ACTIVELY looking into what it is like to be on the receiving end of doing business with your firm -- and starts taking steps to correct service lapses -- the smartest buyers may well exercise their options to use another firm.

Home Depot apparently knows there aren't very many alternatives for shoppers. Or at least they act that way.

Maybe you needn't worry about your customers' experiences because maybe there aren't any other accountants or lawyers in your area...

Decision-Making Approaches

At Mind Tools, you can find very detailed steps for using each of the eight approaches. <---read this "cover page" even though I'll provide links directly to each of their described methods:

• Selecting the most important changes to make - Pareto Analysis
• Evaluating the relative importance of different options - Paired Comparison Analysis
• Selecting between good options - Grid Analysis
• Choosing between options by projecting likely outcomes - Decision Trees
• Weighing the pros and cons of a decision - PMI
• Analyzing the pressures for and against change - Force Field Analysis
• Looking at a decision from all points of view - Six Thinking Hats
• Seeing whether a change is worth making - Cost/Benefit Analysis

A nice summary of these Eight tools for streamlined decision-making. was posted by 43 Folders.

Appreciation to Dennis Kennedy for his post on LexThink! that pointed to this useful resource.

A Key Reason Firm Marketing Efforts Fail

Seth Godin reflected today on a blog post he'd made awhile back called The Myth of the CMO. I hadn't seen it before, but when I read it, it strongly resonated with me related to CPA and law firms.

In his post, he used Verizon's CMO as an example of someone doing a "great job," but whose efforts are essentially undermined (to the severe detriment of the company) by operational behaviors and management decisions that marketing should influence, but doesn't. Godin wrote:

Is Verizon disdained, mistrusted and avoided because Judy's not doing a great job? Of course not. She's doing a great job.

The reason we hate Verizon is they act like a monopoly, have ridiculous policies, a lousy call center, a bad attitude, plenty of outbound phone spam and crazy pricing.

We hate Verizon because of all the things Judy doesn't get to influence or control....

If I were the CMO of Verizon, I'd fix the call centers. I'd fire people with a lousy attitude who aren't afraid to share it with a customer. I'd reward the great ones (like the installer who came to my new office last week) and figure out how to get every one of their thousands of people to understand that THEY are the marketing department. And I'd shut down the outbound phone spam center immediately.

Until that happens, the CEO is the CMO, no matter what the title says.

Sound like any firms you know? Sounds like scores of them that I know.

There exists incredible disregard for fixing problems with all the things that need to happen to ensure repeat business from existing customers. Initiatives to improve the customer experience (thus increase loyalty and the referrals that loyalty SHOULD lead to) are seldom considered in firms' marketing plans. Truth is, they are seldom even seriously considered at all.

In the rare instances when they are included in formal plans, distinct goals are not usually tied to these initiatives, and even more rare is a true expectation of follow-through.

Now I don't know Verizon's CMO or the politics of the organization. But I think that Godin is giving her a little too much credit in saying she IS doing "a great job" and that "We hate Verizon because of all the things Judy doesn't get to influence or control." Maybe it's the "doesn't get to" part that bothers me.

See, if the CMO were doing an exceptional job, I'd think she'd camp out in the CEO's office until the CEO agreed to solve these critical problems. Or she'd leave the organization. After all, her reputation is at stake.

How can she be successful if these problems aren't addressed?

Answer:  She cannot.

That is how absolutely important operations are to marketing.

So, if you're the CEO (aka managing partner) and the marketer works for you, will you listen? Or will you let the weaknesses continue and end up losing the marketer, losing clients, and missing enormous referral opportunities?

Put Pricing Back in the Right Hands

Last week, I enjoyed a wonderful dinner with my friend Ron Baker who is THE authority on value pricing.

(He wrote Professional's Guide to Value Pricing -- summary found here--and co-authored Firm of the Future with Paul Dunn, as well.)

Ron is always amazing to converse with. We share passionate opinions about the need for the value pricing message to reach not just CPAs and lawyers, but also for the message to reach other industry consultants...particularly those who still encourage, thus mislead, partners to work hard in pursuit of goals based on antiquated measurements of performance (billable hours, hourly billing rates/realization, etc) rather than metrics and goals that actually make sense such as real profitability, quality of life (and practice), customer and employee retention, etc.

Ron's working on his next book, Pricing on Purpose. In the meantime, he pretty excited to introduce the world's first CVOs: Chief Value Officers. CVOs are responsible for researching, determining and continually evaluating the value level of their firms' projects. They are each the final pricing authority in their respective firms!

He permits me to share with you an article he recently wrote on the subject. Remember the 4 P's of marketing? For years I've stood with Ron on the point that we must take the Pricing "P" back from the partners who tend to underestimate the true worth of their work.

These unfortunate people continue to base their entire livelihood on the ridiculous notion that the amount of time one spends doing work for someone is in any way associated with the actual value of that work!

They'd be so much wealthier if they put pricing back in the hands of people who know the marketplace. Ron knows...

Enjoy the article:

Download baker_whos_in_charge_of_value_in_your_firm.pdf

There's Tax Season, Then There's the 'Rest of the Year'

Patterns persist, much to the detriment of CPA firms. As someone who watches from the sidelines and understands the cyclical nature of CPAs' activity and buying cycles, I've got a few observations to share.

Most CPA firms simply don't start their planning early enough.

Of course, given the volume of time-driven work most firms take on, it's extremely difficult to focus on anything but tax returns, 12/31 audits, 1099s and y/e financials between January and April. Add to that the firm's own year-end financials and possibly some kind of motivational rah-rah presentation for the whole firm and there's pretty much no time for proactive work on the firm (this is partly because firms tend not to have very many non-technical personnel to run the business of the firm).

So what happens for most firms is that partners come out of April exhausted, due for vacation, overdue for time with family, and lined up for CPE and conferences in May and June. Most firms will have some sort of partner retreat in May or June to begin planning for the "rest of the year."

Beginning to plan in May or June for 'May through December' is far from ideal. First off, from a marketing perspective, June through Aug is a lousy time to catch your serious business prospects. They're in summer mode, too.

From an operational perspective, if newly established plans include major infrastructural change (new time & billing systems, paperless, etc) July and August are usually evaluation months leaving Sept as a "decision" month and a holiday-filled calendar quarter to implement. Right?

Year after year, not enough happens.

May and June tend to be lost months. July and August are used for evaluating options (and procrastinating on getting started) and September is final decision time ("well, we better move forward, only 3 months left before next busy season..."). This was almost half a year lost, right here!

And we mustn't forget those accounting deadlines in August, September and October! Then it's easy to write off November and December as busy holiday months. So this leaves October. Sort of.

No wonder firms report their progress is too slow or lacking altogether.

This year, plan early and start fast.

Then, for 2006 planning and beyond, hold your strategic and marketing planning retreats in the prior October/November so you can properly budget, evaluate products or vendors in Nov/Dec/Jan, and truly hit the ground running on April 16. (Or May 1 if you'd like to take a few days off...)