Ditching Hourly

[00:00:00] jonathan: Hello and welcome to ditching hourly. I'm Jonathan Stark. And today I am joined by interviewer Peter Mobley, Peter, welcome to the show.

[00:00:08] peter: Thank you. It's great to be here. It's quite an honor, actually.

[00:00:12] jonathan: Oh, that's nice. So for folks who are just hearing your name for the first time, can you tell them a little bit about who you are and what you do?

[00:00:18] peter: Yeah, what's funny is you and I probably have a similar background. I started coding websites from the age of 14 years old. Started getting paid by businesses who at the time was about like maybe 20 years ago now having a website was a luxury, in fact, as back in that area mobile development wasn't even invented yet really.

[00:00:43] And that's where I started a huge passion for marketing and helping businesses grow. And since then I've been marketing businesses for a global fortune five thousands had fortune 500 clients throughout the years, but now being, a business owner and doing it on the agency side, I really want to focus on helping B2B S and that's where we found our niche.

[00:01:09] jonathan: Okay. And the reason I introduced you as the interview is because you reached out to say, Hey, wouldn't would you be open to me interviewing you? That sounds confusing. So Peter interviewing Jonathan to get at some of the specific things that sometimes we don't get to when I get interviewed and on another podcast, because they aren't really familiar with a lot of the basic stuff.

[00:01:32] So we spend a lot of time on that and then don't always get to nitty gritties or specifics. I try to but sometimes they're just not ready to hear the really specific details. So this might be one of those episodes where it gets super tactical and specific. But let's just yeah, let's just leave it there.

[00:01:48] Where should we start? Like, where is the, what was the thing that inspired you to reach out.

[00:01:52] peter: Yeah. So that's a great question. You constantly hear these stories with you on other podcasts and you introducing your stories and where you've discovered this. Oh, rat race of hourly building and, being an agency owner, and you were part of a I think it was a software company that you were with before managing a team and you were going through this struggle.

[00:02:18] I could really hear it in your voice through this, through these podcasts and how hourly billing isn't the right way to go.

[00:02:25] And you brought it to the owner and you asked him at your old firm. And you showed him what the problem was for hourly billing and how to bring it over or what, why value pricing should be the way to go.

[00:02:40] And he agreed with you. What's amazing. Is you stopped there. I wanna hear more.

[00:02:46] jonathan: Okay. So

[00:02:48] peter: yeah.

[00:02:48] jonathan: yeah, it's I, my it's been so long. That was like 2005 or yeah, 2005, when that conversation would've taken place. And I, in my memory you're summarizing it very well at it's compressing a few things on the timeline that I think would be important to separate. So while I was at that firm and when I had that epiphany, I brought it to the owner, Chris, and he was like, he understood in theory, but then he was his, I think his exact question was, but how would we do that?

[00:03:20] And at that point in time, I had not discovered value pricing. I just knew that hourly was causing all of the stress and problems that the typical agency or dev shop would face. And instead, and I was like, okay, I identified the problem. But at that point in time, I did not have a solution.

[00:03:39] I didn't know what the solution was. I knew it was fixed bids of some kind, but I'm pretty sure I did not discover value-based fees by Allen Weiss until after I moved from Atlanta to Rhode Island back home. I'm pretty sure that's where I found that book and I'm pretty sure that was the first time I had ever heard of it.

[00:03:54] So it's probable even if I had been aware of it at the time, there's a difference between knowing the problem and then knowing the solution and then implementing the solution. So he got it in theory, but it was how would we switch to fixed bids? We've tried that and it's not gone well.

[00:04:10] And my answer was I don't know. So rather than be up nights, worried about, 10 people's mortgage, instead of just my mortgage, I was like, maybe I should test this out my own first. So that was the Genesis of that. There were other things going on we were, my wife got a job back home, so there's a few things going on that at the time, that made sense for me to go solo. Yeah. Okay. So does that change anything.

[00:04:37] peter: I think so. So if I remember. Your exact question or rather a summary of the question you asked him, or rather he asked you was how do we transition where the hours were baked into everything about the business in our culture, the processes, even the calculation of profitability, to some approach like to value pricing.

[00:05:00] jonathan: yeah, the software, we had a bunch of software systems. The employee incentivization is saying that, the employee incentives were based around billable hours. So yeah, it was like everything, everything was, it was a core assumption. It was like, assuming we were gonna have internet access. It was just that, it's just an assumption.

[00:05:17] And you built on top of that, almost like that platform. I would look at it now as a business model almost. It's not quite, but it's almost a business model. It's we're gonna bill by the hour for our time. And

[00:05:27] peter: Yeah. And today the software is almost like SAS subscriptions that's baked in,

[00:05:32] jonathan: so it did take, so I went solo and since I didn't have any baggage, I didn't have any minds to change. My mind was already changed. And then I found this book, which became my Bible for probably three years. I figured it out, and the, it took me probably, it's hard to remember exactly, but I remember it taking a really long time, probably more than a year for me to really get my head around the why conversation and doing scope last, instead of trying to solve problems in my head, in the sales meeting and trying to come up with scope, even though I knew that I wasn't gonna base my price on scope, it was such an ingrained habit to try and uncover scope in the sales meeting, that it took me a really long time to wean myself off of that approach.

[00:06:18] And instead hunt for value the entire time and not worry about the scope because the scope is indeterminate until we figure out what the value's gonna be like. You can't have a, you, it makes no sense to even float a price. If it's unclear what the outcome is worth to the buyer. So that took a long time.

[00:06:35] Am.

[00:06:35] peter: I think you and I both struggle with that. Probably more so myself in trying to solve the problem in that meeting and stepping back is, really valuable to be able to do that.

[00:06:47] jonathan: . Yeah. So then the other thing that comes up is over time now I've been doing this. What is it? Can I do the math? What year is it? 2 22. So what's that 16 years later. And primarily I work with people who are soloists or really small firms. And it's one thing I noticed a couple of phases I went through.

[00:07:04] So there's phase for call it. The first year I did really well, I thought I was doing value based pricing. I probably wasn't doing a great job of it, but I was doing fixed pricing for sure. And I was getting better at it. I was practicing it and then I got it down. I was like, okay, I've got this.

[00:07:21] And that's right around the time. I'm gonna say that's probably around 2009. So maybe three years later, I was like, yeah, I know how this works. But then I needed to learn when people were asking me how it works. And I found that it was tougher to teach it to someone than it was for me to figure it out in my one way that would work for me, cuz other people have different constraints, different cashflow issues, different kinds of businesses different marketing approaches that are a good fit for them.

[00:07:44] So it was like the thing that worked for me wasn't didn't work for everybody I worked with. So then there became a phase where I needed to figure out how to apply what I learned. In my own little laboratory into people who are in very different situations, in that whole process of being able to communicate and teach the information is a learning process onto itself.

[00:08:06] And reason I bring that up is because that's the focus on soloists or small firms made that easier because the surface area of exceptions was a lot lower ESP. It was like solo software developers. There's not that many differences between the business of a solo software developer from one person to the other.

[00:08:27] But when you start talking about oh, I've got a photography firm where it's me and two assistants, it's like a very. Set of based propositions. So there was a while where I had to really learn how to teach it, how to meet people, where they were, and give them the information in a way where it was gonna make sense and then hopefully inspire them to take some kind of action and lately, so that was another phase.

[00:08:50] And then lately it seems the questions I've been getting more and more questions, like like my old boss, Chris asked me in 2005 where he was like, okay, I get it. But we have, 10, 15 employees, like, how would I actually make this transition? So I'm starting to I'm at the beginning of the journey, I have some experience, but not as much as I'd like at the beginning of the journey of implementing value pricing in a.

[00:09:15] Decent size agency model, where you've got a bunch of employees and it things like employee incentives start to come up. Things like Morales start to come up. Things like shifting the col culture, start to come up. None of those things mattered with me. I just went solo and I, or with most soloists they can turn on a dime.

[00:09:32] Yeah. So it, so what's your situation in terms of employees or contractors and where your leads come from, what kind of projects you do? So just give people a picture of that kind of level of detail.

[00:09:45] peter: Yeah. Yeah, we could start with probably the projects. What we do for clients is really ship them from this plateau that they've been on for a while and, or they're, or a startup, and they want to get. Really noticed Hey, we figured out our process. We figured out our product, it's gaining traction, but we've, we're stuck in this certain revenue.

[00:10:07] And so we work with businesses who have 10 million per year revenue to get them up to the 25 mark or 25 million to get them up to the 50 or a hundred mark. So our product offerings vary. So it could be website. Could be social media management. It could be outreach campaigns. It really just varies.

[00:10:30] We've even done some really cool website web applications. And we also have a. SAS product that we sell. It's in private beta right now, but it's doing very well. So that's like the product side for our employee situation. Right now we're in a corporate transition structure wise, but eventually we're gonna get into.

[00:10:53] Bringing in employees full time paid by the company. But right now we're very agile in the way that we have 40 individuals across seven different time zones working on different projects as they come through.

[00:11:07] So it's really nice to be able to have that flexibility, but they all build hourly.

[00:11:11] And so how do you incentivize when you're not billing hourly? How do you incentivize people who are coming in now? So that's what we're wondering

[00:11:19] jonathan: let me turn that around. If you were billing yourself out hourly, how would you incentivize them?

[00:11:24] peter: Yeah. So one, one of our clients brought us into this team building exercise with a sister company out in Glendale, California. And this is a Berkshire owned company where Peter Kaufman writes the book for Warren Buffet's Ray hand guy.

[00:11:44] And he was telling a story about how they compensate employees and it's all profit share.

[00:11:52] It's pretty amazing what they do. If the company is performing the incentivize them based on their little, a hundred unit cluster of that group producing that product. But they can get bonuses up to 100% of their monthly salary each month, if they're really performing.

[00:12:11] It's quite remarkable and it works.

[00:12:15] Trader Joe's does something similar, but they don't really incentivize their employees this way, but they do it for their vendors. So they pay 'em a little bit extra to really get the insight knowledge. And that's the whole reason why the flowers are fresh every single day. Or yeah, they bring in the, their flower vendors, bring new flowers in each day

[00:12:38] And they're able to cut cost on certain things and they really pay the vendors a little bit more to get a better product.

[00:12:45] It's pretty amazing, but the same thing can be applied to employees.

[00:12:49] jonathan: Sure. So why not do that?

[00:12:52] peter: We could how do we price in.

[00:12:55] jonathan: so does if you're talking about contractors, on the one hand paying people by the hour is a really, is really bad for them and it's bad for the seller and it's good for the buyer. From a cost standpoint, as long as you're getting the results that you're looking for in roughly in the amount of time or for the amount of money that you wanna spend.

[00:13:14] So you're probably getting a great deal if you're good at project managing and getting people who aren't flakes. So it's not, from a contractor standpoint, I would say it is on the contractors to be the ones to say, no, I'm not doing this anymore. It's a great way to get decent, interchangeable, help, fast and cheap, go to Upwork or have a network of freelancers who don't really understand the value that they're creating for your business or don't care to understand is really, it's not that they couldn't, it's just, they just don't ask those questions.

[00:13:44] They're just more focused on I'm a great copywriter. I'm a great SEO person. And they just do it for essentially cost and they're happy for a while,

[00:13:53] peter: Yeah. For a while.

[00:13:54] jonathan: right? Yeah. Until they start getting, three years later, they start getting undercut by the new crop of freelancers who can charge less.

[00:14:01] Then they start looking for people like me. It's like, how do I escape from Upwork? All right. So on, on the one hand, I would say that, yeah, I would suggest that it's possible that you don't need to change anything. If you decided to value price your clients, it's really, you could incentivize your employees.

[00:14:16] However you want to give them more per hour than they're asking for or whatever, to keep them from jumping ship and going to another client or to keep them available so that, you can, you don't need to keep them busy all the time, at the drop of a hat, they will respond to when you do have a project for them, something like that.

[00:14:32] You don't have to get too complicated. I think it gets much more complicated when you have full-time employees.

[00:14:38] peter: That's the transition we're thinking about.

[00:14:40] jonathan: Yeah. So the first question is what's your I don't wanna get too into your, like guts of your business. It's not the point of this, but the first question I would ask myself is, do I really need to do that?

[00:14:51] What is the, is there a strategic reason why I need to do that? Or is it what's driving that decision? You don't have to answer that. I'm just, I would just say to myself, is this really how I want to grow the business? Do I want to grow it in this way? Or with the same number of people or maybe even fewer people.

[00:15:08] If I could increase my, continue to increase my revenue with smaller head count, would that be attractive? And if you see I've talked to some people who would say no, the kind of impact, I can't do that because the kind of impact I want to have on the world, it's usually like a big picture mission type person.

[00:15:25] I'll never get there by myself. I need a team of people to execute all these details in order to have a snowballs chance and how of making a dent in climate change or clean water or malaria or whatever the thing is.

[00:15:39] peter: Yeah, it's funny. You mentioned climate change though. A lot of our clients are in that sector. Also funny, you mentioned with going alone. Cause they're, I don't know if you've heard this say, but if you want go fast, go alone. If you want to go far, go together.

[00:15:54] So applicable that's really the reason why we are transitioning to employee based work really to find the talent and to keep 'em there.

[00:16:04] Really thinking about this bigger picture, bigger project, more SaaS product, a lot more SaaS product that we just can't. We can't outsource that. We're trying to build some really cool technology that. It might end up displacing a lot of the content management systems out there that's currently being offered.

[00:16:25] jonathan: Okay. So just to be clear, I wanna make sure I'm understanding you're building software to sell not, it's not software you're building for clients.

[00:16:33] peter: Yes.

[00:16:34] jonathan: Okay. Okay. Just wondering that's what I thought you meant. But yeah that's a totally different business model, completely different business model.

[00:16:40] And it, and you wouldn't be doing value once you got there, you wouldn't be doing value. Presumably, you wouldn't be selling it on a value basis. You'd be selling it on some, either usage or whatever, SAS basis, maybe annual contracts or service level agreements or stuff like that. Which you can still, you can value price anything really, but it does mean that you're going to complicate your sales process quite a bit.

[00:17:04] So if you're doing enterprise B2B sales, it's probably already pretty complicated. So in theory, you, you could and long, like a long lead time. So in theory you could value price clients. It's not traditionally, it's not what you've tra what I've seen traditionally in SAS. And that's more old school, like SAP, stuff like that.

[00:17:22] It's like the newer stuff doesn't seem like it's going in that direction, but that could be

[00:17:26] peter: Oh, it's not

[00:17:27] jonathan: way behind

[00:17:28] peter: Yeah. They're legacy products. We're doing like no SQL databases now where everything's document management instead of table managed, it's pretty fun.

[00:17:38] jonathan: Yeah. Yeah, it's great. I love that stuff okay. So then the question becomes I don't wanna put words in your mouth, but it, the question could become as we, what does the transition look like as we increase our expenses dramatically? Probably right. If you're yeah. Increase expenses dramatically.

[00:17:54] How do we deal with cash flow while we scale up the revenue?

[00:18:00] peter: So then it comes full circle back to your old boss, right? At the software firm.

[00:18:05] jonathan: We

[00:18:06] peter: if you were placed right back, if you're plopped in 2005 and you were responding to, but how do we employ it?

[00:18:13] jonathan: right. Yeah, I would.

[00:18:15] peter: would you answer him today?

[00:18:17] jonathan: Today I would do it in a staged I'm pretty I would say I have a medium risk tolerance and I think that's fair to say. Chris the, my former employer. And, it's you don't wanna crash the plane but you do want to turn it. So I would do it in, I would do it in probably in phases.

[00:18:35] I would probably offer a productized service of some kind. It's probably some kind of discovery, roadmap thing, a fixed price thing that we would be able to put, our best people on get really good at it. Really good at delivering a high amount of value in a small amount of time for a good amount of money and start to wean ourselves off of a hundred percent hourly income.

[00:18:59] And in fact, one of the things that we did do back then, which is fairly common with platform style vendors, we were a file maker development shop. Platform there these days would be Salesforce or Shopify or something like that. And you would, you can offer training on the platform, which was, I think it was reasonably lucrative, but we never took it.

[00:19:19] Super seriously. It was it was like a man. It's nice money when you can get it, but not a huge deal, but it's incredibly low risk and it's all paid up front and. Positions you as an expert for your other work. So I'd probably probably go harder into training come up with that road mapping, productized service.

[00:19:38] And I would over time as we got better at it and got more testimonials about it, I would increase the price and I'd be looking for project that I'd be looking for a new client, not an existing client. I'd be looking for a new client, a prospect to come through that. A, just a obvious home run. Like they come the perfect fit client on a small to medium size project that even if I was wildly wrong and it took us twice as long to do it, as I expect as I would gas in a scope first scenario, I'd say, there's no way we can screw this up.

[00:20:11] If we screw this up, I would give them their money back. I would be so mortified, like professional embarrassment. If we can't do this simple thing and crush it for this client who is gonna stand to gain just a massive business value out of. So I'd be looking for that perfect client where the urgency is really high.

[00:20:32] The expensive problem that we're solving for them is very painful. Like a hu we're losing $40,000 a month because we can't send out our invoices fast enough. And by the time we do they're expired and that people don't have to pay 'em. So we're losing $40,000 a month through inefficiency.

[00:20:48] I'd be like, this is, yeah, this is definitely going, nothing's easy. Nothing's is easy. I think it's gonna be, but that's a no brainer for a file maker firm where you're building a workflow software, or work group software to streamline a workflow. It's like a total slam dunk. And if they stand to benefit, even if we only cut the loss, the breakage in half, they stand to benefit like $20,000 a month in the first year, $240,000 if I'm doing the math.

[00:21:17] Yeah. So it's if we couldn't do this for, 50 grand, then we don't deserve to call ourselves. So that's what I would look for. I would look for an obvious home run project for a, an ideal value buyer and just knock it outta the park. Put best the best people on it. I would take my very best developer or to put them on it.

[00:21:41] Just be like, plan it out, not waterfall, but plan out what we're gonna do. And then, yeah. And then the job becomes making sure you can manage the client around scope creep, right? Cuz then you get a fixed price and it's like, all right, the faster we get to this success criteria, the happier everyone's gonna be.

[00:21:59] peter: Yeah, and I see scope creep either making or breaking firms.

[00:22:03] jonathan: Of course. And usually when people have tried fixed price before they did cost plus, and since they didn't uncover the desired well, since they couldn't have possibly uncovered all of the scope, first, the price is always too low. So that the scope is just, it just, it's always too low because they're, they agreed to this list of orders that the client self prescribed, instead of backing up and saying, wait what are we actually trying to solve here?

[00:22:27] And finding a better way, a cheaper way, a faster way. Cause that's less risky for everyone. And it can be just as profitable if not more profitable. So yeah that's the, that was, that's probably, that's another thing. I think that is a, it takes us as a skill that takes a little bit of time to figure out is when you switch off of hourly, when every bit of scope creep is gonna be money in your pocket, eventually you're gonna have a flight with the client about it, but today it's money in your pocket.

[00:22:52] And flipping it so that every hour you or your employee works is you losing money. All of a sudden you get really good at controling scope creep

[00:23:01] peter: so that's great for the software side. We're not the software that we develop. Isn't, we're saving money for the client. It's really trying to find new revenue and grow their income.

[00:23:14] jonathan: Yep.

[00:23:14] peter: So it's, a different problem. They don't have anything to lose. They only have things to gain.

[00:23:20] jonathan: And so when in a conversation like that, the conver the conversation is okay, why are you talking to me? So you how do I wanna do this? So you are, you be the client and I'm you, and you brought me in to talk to you. Why are you talking to me? Or people like me.

[00:23:36] peter: I heard you were the best is what they usually tell me.

[00:23:41] jonathan: nice.

[00:23:42] peter: and I

[00:23:42] jonathan: said you were expensive, but worth it. That's great. And I love the sense of humor that does help a lot in these kinds of conversations. I would drill into that. I would say who's that's awesome. Who can I thank? And they would, maybe they would be able to tell me and it'd say, oh we did that thing where we moved a needle that contributed to a big downstream success for that company. And what you wanna find out is cuz unless you're like a. Frontline sales person. You're probably not gonna have any direct impact on revenue. It might maybe if you're doing a cost cutting type of thing or streamlining, you could, but in a scenario like you're describing anybody, that's upstream from revenue way upstream, like branding people and strategy people and, real designers like high end designers and, position, blah, blah, blah, all that high end stuff.

[00:24:29] It's how do we know that this new logo is gonna translate into going from 10 million a year to 25 million a year or this new brand strategy? And it's not up. It's great question. You tell me.

[00:24:41] peter: So for consumer brands in our experience, this is why we stayed far away from consumer brands. Is there, know that works. It's harder to convince a B2B type business that, rebranding, repositioning figuring out what their niche is really driving it down. And and then sharing that story.

[00:25:01] The story is. Is part of our process and then telling, and developing and telling the why they do what they do. That's where the, it all gets mushy for them. They're like, ah, that doesn't make sense. How would that even equate to revenue? New revenue coming in. And often what we'll find is it takes about 18 months for us just educating the client potential client at that point to, okay, now we get it.

[00:25:27] Now we wanna spend the money. How do we get started?

[00:25:31] jonathan: Okay. So when people come to you, what do they think you do? If one of your past clients was recommending you to me, they would say, oh, you gotta hire these, this what? Marketing firm, digital transformation agency. What is it?

[00:25:43] peter: Yeah. Marketing firm, would be the best to describe us, but,

[00:25:47] jonathan: All right. So why would

[00:25:48] Anyone talk to a marketing firm? So like you're talking to high level executives, they are busy people. Why would they spend an hour of their day talking to you? There's a reason. What's the reason

[00:25:58] peter: It's they have a problem. They have a problem somewhere in their business and they've, they're not coming to us first. They're coming to somebody else and it's usually another client of ours that we've done a great job for. And. They're explaining the problem to them.

[00:26:16] And they don't necessarily want to hear it.

[00:26:18] It's like a buddy of theirs, or they've met at a trade show or conference or something and our firm comes up. You should go talk to these guys and tell them your problem. And that's the introduction happens. We have a one page website

[00:26:32] jonathan: nice.

[00:26:33] peter: and it's really a go away website.

[00:26:35] jonathan: Yeah. Good.

[00:26:37] peter: There's maybe 70 words on it.

[00:26:39] We just haven't had time to build it out.

[00:26:42] jonathan: no, that's actually not a bad thing okay. So you're re so you get referred. So like past client is talking to a potential new client and recognizes that the potential client has a problem that you solved for the past client. That was confusing, but is that accurate? Okay. What is the problem that the new person is describing that the old person recognized.

[00:27:07] peter: Yeah. So a lot of times it comes down to brand and how they're telling their story to their potential clients were, which are also businesses.

[00:27:16] So without getting into our client list, there's a particular company who does kitchen builds up, build outs for restaurants. And they pitch some of the largest chains.

[00:27:31] No, just facts is they pitch the largest chains in the country, in the United States and they go through and do not one or two restaurant buildouts they build out full stadiums and coliseums. They work on hotels. They work They don't really touch mom pops. They're a chain type of outfit.

[00:27:52] And the funniest thing, they probably B bring in about $12 billion a year in revenue. And they were having a presentation deck issue. They didn't know how to tell a story. They built it out in a word and we came in and understood what they were asking for. And we showed 'em a sample of what could possibly be.

[00:28:15] And they loved it.

[00:28:16] And this is like more of a regional office. This wasn't even the corporate office that deck got sent around the country. And now they're using it everywhere.

[00:28:26] jonathan: One.

[00:28:28] peter: no, not even the free one. So they paid us for our work on the full deck.

[00:28:31] jonathan: Okay.

[00:28:31] peter: This came from a regional, small little regional office that got sent up.

[00:28:35] The ladder sent up the ladder to the corporate headquarters, and now they're using a company wide. Throughout the whole region. Now, if I had priced it for the headquarters, it would, we'd be having it a very different conversation.

[00:28:49] But we, we, I personally find a lot of pride in being able to tell those types of stories, because it helps those clients so much.

[00:29:00] Just if they only, if we can only just teach them this one little thing. They'll figure a lot more out on their own and oh man,

[00:29:10] jonathan: Yeah.

[00:29:11] peter: satisfying.

[00:29:11] jonathan: Yeah. It's like you unlocked this genie or something. It's like you unlocked the treasure chest. And you're the key. How much is the key cost? Nobody else's key works. It's based on how much treasure is in there. That's how much the key is worth.

[00:29:25] peter: And sometimes we don't even know how much it's worth. Yeah. You can always scope it out. But at the end of the day, you don't know what the actual effect's gonna be. We're not fortune tellers.

[00:29:35] jonathan: And that's why you can't charge the full amount. You discount it by uncertainty, you discount it for risk. You discount it for the fact that you can't guarantee that this slide deck, yeah. This deck is going to double your revenue. Like you don't know that you can't control it. And that's why you can't charge $6 billion for the slide deck.

[00:29:54] But if they believe to get to pull it back to this sort of, friend of a friend who referred you, the question becomes you. You want to see what the connection is in their mind between the thing they want. You wanna find out what they want and you wanna find out why they think you might be the key to unlocking it.

[00:30:12] What is the reason in their mind that they think it's worth spending an hour of their precious time investigating this key? Why do they think that there's a connection in. And it could be as simple as your, this past client just swore up and down that this is the thing to do. So you, okay. So what we did for them was X, Y, and Z.

[00:30:32] Do you believe that would help Mo you know, move you along if see, use the word convince a while back, which is not my favorite. I wouldn't try and convince anybody of anything. I would say you convince me that we can satisfy you. That's cause I want a hundred percent customer satisfaction.

[00:30:49] It drives me crazy when I don't satisfy customer, it keeps me up nights. So I want to have some level of confidence before I get into this situation that I have a chance and pro hopefully a good chance of satisfying this client. And if I don't feel that confidence, I'm not gonna take them on. I'm not gonna write the.

[00:31:07] I don't wanna find out the hard way and then feel like I should give their money back or have a fight with them or something. I wanna be reasonably confident. And, I know what I'm doing. I wanna be reasonably confident that this customer is satisfiable in a way that is within my capabilities. I can't double their revenue with a slide deck, but what can I guarantee?

[00:31:26] I could probably guarantee things like your sales people will be able to deliver the, this presentation clearly. In 15 minutes to any buyer in your market and they will understand your value proposition. You can test for that. And you could probably guarantee it just by, like getting those people involved in the process.

[00:31:45] So you could say in the meeting the slide deck meeting, what do you think, dear Mr. Perspective client, what do you think would happen if these 18 month sales cycles where people are just not getting it? What would happen if you could collapse that down to 15 minutes and at the end of the 15 minutes, the customer clearly understands your value proposition.

[00:32:04] Not that they're going to buy. But they clearly understand it. They're comparing you to the right alternatives. They're not comparing you to the wrong things. What would that do for your bottom line? What would that do for the confidence of your sales staff? What would that do for productivity of your sales staff?

[00:32:20] How many more clients could you see per year if your existing sales team, if you collapse their time, commitment by a factor of five, would these things be valuable? Yeah, they would. Okay. And you can guarantee those things you can, or at least you can have a high degree of certainty that those will be business outcomes that you can provide.

[00:32:37] I'm putting words in your mouth, but I would imagine that's true.

[00:32:39] peter: Yeah, very

[00:32:40] jonathan: All right. Yeah. So you could theoretically value price that you could also productize it. And since you're going in a product direction, that's almost an interesting approach to productize it and have it segmented based on the buyer.

[00:32:56] So it's like value pricing in groups, the way maybe an airline would do it. Where, if you self-select into first class, you're gonna pay $3,000. If you self-select into business, you're gonna pay 1500. If you self-select into coach, you're gonna pay 500

[00:33:12] peter: No. It's funny. You mentioned that, cuz that's part, some of the stretch we use with our clients, for their clients, they see these different levels. They're like no, I deserve the higher level because I need it.

[00:33:24] I didn't even know I wanted it, but now I do.

[00:33:27] jonathan: When I compare it to the other two, this is the one that I would prefer. And, maybe the money is just not that relevant. It's, even though it might be double or triple or more, it's money's not the big concern. I want the experience to be better.

[00:33:39] peter: We also have to be careful with the productizing, the service, because then it becomes commoditized.

[00:33:45] jonathan: Say more.

[00:33:46] peter: When you're comparing, oh, I can't really be specific for your trading. But say website design will just make it basic. I need a five page website. All right. That'll be this much.

[00:33:57] jonathan: oh yeah no, I, no, not like that. So some I've seen people use something called menu pricing. I think that's what it's called, where they're like each page of the website's a thousand dollars. Each logo is 25, 2,500 each, where they're picking and choosing like a buffet

[00:34:12] peter: Yeah. Nickling and dying.

[00:34:14] jonathan: that's bad.

[00:34:15] That is, I think that's bad. I, you could in theory, build a business in that way, but that's not what we're talking about. This that's not an expertise based business. So if you bundle together like an ideation workshop or some kind of strategy, Two day strategy retreat. That's more like that. So like it's not, it might be difficult even to find another marketing agency that would do something packaged in that way.

[00:34:40] Certainly it'd be, there are gonna be fewer of them that have the foresight package things together like that. And then once you have that thing, the other thing is what you'd need to do. No matter what business is, you need to differentiate from the competitors in a way that's meaningful to your ideal buyers.

[00:34:55] So you always have to do that anyway. So it would be if those pieces are in place, any business wants to have those pieces in place, but for service business to productize, I don't, I've never seen it. I've never seen like brand damage to them. This is commodity apples to apples. I can compare this directly to IDOs version of this or whatever.

[00:35:16] peter: Oh, I can almost compare it. So when it. Harm the business. That's where actually we come in because they've failed with another agency. We come in and fix a lot of the issues that were built. It's really easy to mess up a brand

[00:35:33] And what we tell clients is that it's really it's a lot easier to develop a good brand into something that's Memor.

[00:35:41] But if there's issues with the brand, say you have horrible customer service and the customer service person just hangs up you every time you call in or something ridiculous that harms the brand. Everything goes back to the attachment to the brand. Every it's a total of touchpoints that a particular customer might have with a brand is their idea of how they feel about something.

[00:36:05] For that brand. So we often come in and we will we'll end up fixing that. So that could place back to your point about reducing costs for a particular client. But yeah that's a lot of the times what we do for the website portion the SAS product that we're developing. It's designed to really focus on speed for mobile applications.

[00:36:29] So you're think you, you read those books with O'Reilly in the Mo mobile development world being responsive.

[00:36:35] We're we take that and we take it a step further and we actually have testing to test the website, make sure it loads within, one second. And to be able to have that responsiveness improves the brand image and a lot of these especially for B2B.

[00:36:52] Cause they're so far behind for marketing. It's really easy to go and look, let's just load up your site. Let's do a speed test. Oh, it took 17 seconds for your website to load. Do you think your client's. Where your potential customer is gonna get frustrated with that? Absolutely. why do we have such a slow website?

[00:37:11] I've always hated buy our website. You should redesign our website. that's ends up going in that conversation. So yeah, we, we fix a lot of issues that come from them hiring other firms.

[00:37:23] jonathan: Okay. That's interesting, it's it? From a productization standpoint. So from the problem with productized services In my experience is not that commoditization. It's more that you're just leaving money on the table that you could have perhaps grabbed if you value priced each engagement individually.

[00:37:43] So the trade off with the productized service is that you are making the sale process much easier. So the process, so if you have a sales team, a productized service would be like why would we do that? But if you are a 10 person, 15 person fine lake or dev shop who has no sales people.

[00:38:01] And I, when someone says to you, Hey, what if people could just check out on your website and give you $15,000 for this thing that you know, is a fixed scope then? Sure, man. Instead of having meeting, after meeting and scope, and then having a project and the project, maybe going outta control and risk all the risk.

[00:38:21] So for certain people, a product I service is really interesting. It's also a stepping stone into product. You already have product idea, but it's also, it can be a stepping stone into a product where you create a productized service and then you automate the whole thing. And now you have a SAS, or even if it's a one off purchase.

[00:38:37] So anyway it's if we're getting back to what I do, if I was gonna go back and, transition, if I could go back in time and transition the firm it would look like it would look like more productized services and just waiting, knowing what a dream value pricing client looks like when they walk through the door and then value pricing that, and then trying to get more dream clients like that to walk through the door.

[00:39:02] peter: Yeah, I think Ryan Berman would call those whales. He said go look for a whale, two K, get it up front, build whatever they think.

[00:39:12] jonathan: that's a model. Yep. That's a model. Get, have a couple projects a year, solo person have a couple projects a year, maybe three projects a year, all in six figures. No employees.

[00:39:22] peter: So I do have a question about the front payment. How did you come up with that?

[00:39:28] jonathan: Oh, that's directly Allen Weiss advice. So that piece is the concept. There is that it's so unusual that it will almost certainly be the thing that they negotiate instead of the price.

[00:39:42] So it gives you something to concede in a negotiation without lowering your fees.

[00:39:47] peter: So you would never redline that requirement.

[00:39:50] jonathan: Never it depends on your risk tolerance. So as the seller, right? So I wouldn't want a million dollars paid to me upfront. I would actually want that spread out. So if the engagement was so gigantic and there was no way to phase it, honestly, there probably is a way to phase it. And that's what I would do instead is phase the project.

[00:40:10] But if for some reason it needed to be all in, like we are going to create a virtual or augmented reality mobile application for mobile phones in, oh, I don't know. I can't even think of a retailer best buy is gonna create an AR app that their customers can use to shop the store, way finding they're gonna remove all signage.

[00:40:34] And then you're just gonna, and all sales people, and people are just gonna walk through the store with this best buy app and it's gonna integrate with all their back end, all that stuff. There's just be hard to phase that it would take a really long time there that's a big bite. So

[00:40:48] peter: peace. Apple. Be good.

[00:40:51] jonathan: funny.

[00:40:52] So yeah, I would probably pass on that job. I'd be like, you know what? I don't want the pressure. I don't want the risk, the money. Money's nice, but I don't need to be worrying about that. As a solo person taking, I think, the biggest, I would start to feel uncomfortable at a half a million.

[00:41:05] It's eh, let's phase that up. I even I've had ones where people were like, yeah, it's 200 grand and I'd just be like, eh, let's do it in three payments. Let's do it in four payments or whatever. And, but in general, it's I think a great starting point unless you've got some good reason not to, I would, I guess I would put it like this.

[00:41:19] My default stance is to put it in at a hundred upfront thinking you're probably gonna have to. And if you don't and a surprising number of times, I'd never a surprising number of times. I did not have to negotiate that point. They just say checks in the mail. But if it gives you something to talk about gives you something to concede negotiation without lowering the price.

[00:41:40] So that's why that's there.

[00:41:42] peter: We have something a little similar to value pricing. It wouldn't be necessarily value pricing, but the collection of payment

[00:41:49] We set minimums.

[00:41:51] So we won't even discuss project unless it's 25 grand.

[00:41:55] jonathan: yeah, exactly. Same here.

[00:41:56] peter: And then monthly like a routine retain service. So we're there as an expert throughout the process, and that's a monthly see like 2,500 bucks a month and allows us to, cover our costs for time and educating the client on these new newer technologies that they just haven't had any exposure to.

[00:42:15] Which is, it's just nice. They understand the value that they're getting out of it. And we are able to cover our cost.

[00:42:23] jonathan: Yeah. You've probably heard me say before that I, at certain points stopped doing projects and only started just doing advisory retainers. And that was a amazing period. I was like, I could spend all of my time. Keeping super up to date on the cutting edge of mobile technology from every angle and really tested out, kicked the tires, maybe even code some demos, just so I really understood, whatever it was could have been, the pebble API for, the first batch of smart watches or, Alexa building Alexa skills and, whatever security stuff, all these different things, obviously response to design and all that.

[00:43:01] But that was earlier. And then, just keeping my finger on the pulse of the state of the art and then taking my knowledge of my, two or three. Concurrent advisory retainer clients and being like, how does this matter for this client? Who's in the photography space? Does any of this matter?

[00:43:17] And so I could filter sift through all that stuff and pull out the diamonds that were like, you guys need to look at this, the AR kit or something, or face facial recognition that, those, these are gonna be amazing. Or maybe we should get rid of SLRs and just buy iPhones, for various reasons.

[00:43:33] peter: It becomes a science for project, even we don't know if this is gonna work, but what if it does

[00:43:38] jonathan: yeah.

[00:43:38] peter: Especially on the branding side.

[00:43:40] jonathan: Yeah,

[00:43:40] peter: cool experiences you can make now with technology and it's just blowing up so much.

[00:43:45] jonathan: It's I don't even know what I would be. There's so many things going on in tech. I can't even, I don't even know if I was still doing that stuff. There's too many things to focus on. It's amazing between AI and crypto and it's just crazy.

[00:43:57] peter: Yeah. Do we have one, one more some time for one more

[00:44:00] jonathan: Yeah, please.

[00:44:01] peter: It comes back to what you're doing today.

[00:44:03] If you weren't doing, obviously you're not doing software development anymore, maybe in advisory, but why coaching? Why, what, what made you get into this? Was it hourly billing all the way that getting people off of that the addiction, I guess

[00:44:21] jonathan: yeah, the Giled hamster whale is

[00:44:22] peter: And then if you weren't coaching, what would you be doing instead?

[00:44:25] jonathan: Oh. I go through these, I go through these phases, like 10 or 12 years. Like my superpower is knowing what I want to do. I work with enough people to know that's pretty rare. Like when I see my next big thing, I immediately get I'm like, oh, this is it. Yeah, this is it. And for a while it was music.

[00:44:44] I took that really seriously for a long time. Then it was a software development phase where. I had been working on computers since the eighties, but I, I never got paid to do it until I was in my twenties. And then I took that super seriously Forno, another 10, 12 years mobile happened.

[00:45:00] I'm like, this is it. So I got into mobile for another 10 ish years. And, it was at the top of the S-curve I was getting bored of it. All the new phones were basically the same, there was the web two companies had basically taken over the walled gardens were up and it wasn't fun anymore.

[00:45:18] It just wasn't, it wasn't that interesting. And I looked at, voice stuff and AI and ML and VR and all, and I was like, eh, doing blockchain. I was like, do I really want to get on this like hype cycle wave again, just ride the hype cycle into the next thing. And then the next thing, and then the next thing.

[00:45:34] peter: Now it's web three.

[00:45:36] jonathan: Yeah, which another one I'm like, oh, it's it's worth reading about it. It's got my attention. It's very, there's some, there's a couple of really interesting things about blockchain that I, that if you try and dig through all the hype and the spam, there's some really interesting things that could happen.

[00:45:51] But that aside, I was just not excited about it. And I was like, but I knew I was excited about this sort of wasn't even a side hustle, but enough people had, can I please pay you to coach me how to do this stuff? And I'm like, that's a good signal. and I had a lot of fun doing it and it felt much bigger.

[00:46:09] Picture felt more evergreen. It was just more fun. It was just, it felt I've always loved writing. I knew it was gonna involve a lot of writing. And so I was like, yeah, just gonna, I'm gonna write about this from now on. Until maybe the next 12 year cycle ends. And I'm like, eh, I've said all I can say here I've laid the groundwork.

[00:46:25] The material is out there. The podcast episodes are out there. Do I really need to be saying the same thing over again for another decade? Maybe, but I'm, if knowing me at some point I'm gonna get shiny object syndrome for the what next decade and I'll pivot or something. We'll see.

[00:46:41] So what would I be doing? Watch this space? NFTs. I dunno.

[00:46:47] peter: tuned.

[00:46:49] jonathan: Right? Stay tuned. It could very well be helping agencies with employees transition, cuz there's we didn't even talk about if you did, how would you, the way that I would want to the model that I've only seen once that I think is the most appropriate model for employee incentivization in that doesn't sound right today.

[00:47:07] But for incentivizing employees, In a value based model either feels like some kind of significant profit sharing like you already described. But the other one is the other one is that they, you don't worry about utilization employee utilization, which is heresy. You don't worry about that. And when they accomplish the, when they deliver the outcomes that you requested of them, they can go home, they can punch out, they get the rest of the week off.

[00:47:33] So it, that puts the, that aligns the incentives between you and the client and the employee and you, where you just want this stuff done as, as fast as possible without sacrificing quality or whatever the parameters are. Maybe you do want something. Fast, quick, and D we just need quick and dirty, do it quick and dirty.

[00:47:51] And you can go home for the rest of the month or whatever it is. But I think that's where I would experiment with someone who, if someone really wanted to experiment. Value based employees or I don't know what to call it. It would look like that. Where, when they're done, but when they're not done, they're not going home.

[00:48:10] So be very careful what you agree to employee the power is yours.

[00:48:13] peter: Yeah. And you can't really get away with that for tax reasons.

[00:48:17] jonathan: With contractors, you might be able to, I, it boils down to, I don't think value pricing and employees makes a lot of sense.

[00:48:24] peter: I don't think so either it has to come to with a bonus incentive system.

[00:48:28] jonathan: It's if you're value, if you're using value pricing, you're trying to scale your in your business in a way that doesn't need more employees. So that's where the sticking point is for a lot of people who have employees is I think they're automatically, they automatically can't see that firing everyone might make the most sense.

[00:48:45] Because they've been trying to scale their hands and now if they're gonna scale their brains these people are all juniors. Let's just say you've got a bunch of mini MES that, that code rails apps, and you're a great rails person. You attracted a lot of attention. You wrote a popular book, you have tons of clients, more work than you can take.

[00:49:01] Instead of increasing your fees. You took on all of this low value work. So now you're swamped. So you hire a bunch of mini MES to code it. They're not, they don't have your expertise. You can't sell their brains in this situation. So it's a little bit of a, it's two different business models fighting against each other.

[00:49:18] But if for whatever reason, you need to have this giant impact and you have to do it with a team, then it's okay, if I was going to align the incentives, it would probably like you said, look like bonuses. Or, yeah. And like I said, like you brought up, I've never tested this with anyone, but it seems like you'd have to stop worrying about utilization.

[00:49:38] And then, figure something out, let them leave early.

[00:49:41] peter: utilization though. You have to keep going. It's interesting how. Law firm actually set up their programs. They'll have, associates the first year, second year, and eventually you start getting into the partners and senior level partners. They all have different shares of the actual law firm itself.

[00:49:58] It's a partnership. They ended up getting bonuses through distributions, but you have to stay with the company for long enough to be able to do that. And you also have to bring a new business. So by training mini Mees, yeah. You're giving them the skills and it takes time to, to bring them through that.

[00:50:15] But then you're, they get to a skill level enough to where they can go out. They're sitting in those meetings with clients, bringing them in and now are going, bringing clients.

[00:50:27] jonathan: yeah, it just feels like a Ponzi scheme to me. it's I know it's not but just, or MLM. It's the way it feels like the old way to build an organization. It doesn't feel like, but maybe it's just me because I'm, I'm biased in that direction.

[00:50:39] peter: How is it any different than say two soul entrepreneurs getting together and starting to copy together

[00:50:45] jonathan: I think that's a bad idea too.

[00:50:46] peter: oh,

[00:50:49] jonathan: I'm but I'm an outdoor cat, right? So that's my personal bias. And that's why I think historically I've wor worked best with soloists and small firms because all of the, all of that culture stuff, I don't have a lot of patience

[00:51:01] peter: Yeah, it takes a lot of time, a lot of effort.

[00:51:04] jonathan: I,

[00:51:04] peter: to branding.

[00:51:05] jonathan: I feel like making the Inc I feel like the incentives.

[00:51:09] I feel like inspiring employees to be their best on your behalf. I feel like these days, the move would be more of a SpaceX kind of thing, like where we are going to change the world or climate change or real mission driven. And that people will, once they, reach that say $75,000, like a bare minimum, trying to get by the adding of dollars on top of that, it has diminishing returns very quickly.

[00:51:37] So whatever the number is, there's some number. Over which extra dollars don't really, aren't really worth the loss of like family time or autonomy. And at a certain point, it's just yeah, I gotta raise. And then it wears off really fast. I feel like the, I feel like if I was going to hire a bunch of employees, I would want to have this really persuasive, powerful mission that they were super passionate about and not underpay them because I know that they're passionate about it, but, but deal with things like employee churn, revolving doors, morale crunch times.

[00:52:11] I don't feel like money, I guess it depends on what level economic spectrum we're talking about, but I don't feel like money is the best solution to that. I think it's a solution to it or it's at best. It's just one solution to it

[00:52:24] peter: Yeah, that's probably why we're getting into product development. The SAS product is we don't really have to even sell it. We just have to make a really good product.

[00:52:36] jonathan: And it'll sell itself.

[00:52:39] peter: Think of any, look at something simple as like Gmail. Google has been providing it for free for what, 20 years now.

[00:52:48] And they just recently converted into, to a business model where. It's selling itself. There's no other comparable email product out there. You can try Microsoft, but a lot of this stuff doesn't talk to each other.

[00:53:03] You have integration issues. It doesn't there's a lot of security issues. It might be getting a little too into it, but if and this another thing we talked to clients about is all good marketing, great marketing, even all it does is make good products succeed faster, bad ones, fail faster.

[00:53:22] That's it. So we could be the best marketing firm for you, but if your product doesn't if it's not useful, if it's not contributing to improving somebody's life, anything, if it's not a good product, we're just gonna make it fail faster.

[00:53:37] jonathan: Yeah. Yeah. There's a perhaps apocryphal story of the Domino's pizza agency. It was just like, they investigated for a while and they're like this pizza, we can't sell this pizza. It's terrible. And they actually, changed the recipe. Cause I just, I don't know if that's true or not, but I think it's a great story regardless.

[00:53:54] peter: It's funny, you mentioned dominoes. I keep thinking about dominoes in, in examples of no, you need accessibility. Look at dominoes. Look what happened. do you see the $1 billion accessibility lawsuit?

[00:54:08] jonathan: no,

[00:54:08] peter: it's the next iteration from responsive development is accessibility. That's a lot of what we focus on as well.

[00:54:15] jonathan: Fabulous. Great. This has been fun. I need to let you get to your weekend recording at five on a Friday.

[00:54:22] peter: Oh, I know. Beer 30

[00:54:23] jonathan: Exactly. But this has been fun. Thanks for reaching out in the first place. Where can people go to find out more about what you're doing, maybe your your, when your SAS is out of beta

[00:54:33] peter: Yeah. If you like to go to our website, it's geo graham.com. It's where one page website is. And then if you like to reach out my email is hello, geo.com.

[00:54:45] jonathan: perfect. All right, Peter. Thanks for joining me.

[00:54:48] peter: It's always a pleasure.

[00:54:49] jonathan: Cool. Have a good weekend. All right, folks, that's it for this week. I'm Jonathan Stark and hope you join me again next time for ditching hourly. Bye.