Hourly Billing Is Nuts

0:00I'm Mark Andy for CFL Bookshelf. If David Letterman were here, he'd say my next guest needs no introduction. If you are familiar with the world of value pricing, Jonathan Stark is an expert on value pricing and he approaches this topic from a software development perspective, yet those in accounting, law, and other professional services have been transformed by his writing and speaking over the years. I'll get to his book in a minute, but his podcast is called Ditching Hourly, and listen to this. He's recorded more than 500 episodes, 500, and South Goat has even been on more than once. But on this episode, I'm focusing on his book, Hourly Billing, is Nuts, which came out 10 years ago. So you're not in professional services, don't worry, you will still learn from Jonathan as I have. Jonathan Stark, a value pricing likable expert, author of Hourly

1:08Billing is Nuts, that's coming up next on CFL Bookshelf. I am deeply engaged and connected to the post-production process of every show we do, yeah, call me a perfectionist. And as I was listening to this interview, I just kept thinking, dude, Jonathan Stark, he is so intelligent, and he's likable, he's easy to trust right from the beginning. He just has this natural gift of sharing truth without beating you me over the head with it. And oh yes, the voice, oh my gosh, the voice, it's a cross between a late night at an talk show host with several dashes of NPR. Accordingly, I absolutely loved this conversation. And since we're talking Hourly Billing,

2:13let's beat up on our beloved friends in the legal industry. In the mid 1980s, my husband and I were lawyers with three young children in South Florida. One day, I asked my husband to drop one son at preschool because I had to accompany another son to school in a different direction. My husband replied, you ready for this, Jonathan? I said, yes, you take him. It will cost me $272 in lost time. Is that classic? Yeah, I mean, I hear it all the time from students who are people who come to me, a lot of times people will come to me after they've had the realization that taking their kids to Disney feels like losing $200 an hour on top of the vacation. And they're stressed out and trying to bill hours while they're there at night. It's just it's no way to live. Yeah, so I've heard variations

3:14on that many times over the years. Your mission statement, I quote, I consider my mission in life to rid the world of Hourly Billing. And I know if you're work, you are a great spokesperson in this space. That is your mission. The question I have is, have you fulfilled it? Or is there still a lot of work to be done? I mean, I picked a big one. I don't think I may ever see the I might not live long enough to see it actually come to full fruition, but it seems like things are moving in the right direction. And I'm certainly not the only person out there, you know, Ron Baker, Blair Anzad class, Tim Williams, Alan Weiss, the list goes on and on and on. I'm not the first person to take aim at time sheets or the billable hour for sure. So I think as a group, there seems to be some changes taking place. Am I right on this? Aren't you the first

4:19person to talk about this topic with a tech background? Am I right? As far as I know, yeah, I don't know anybody else who's talked about this. There are some others that were around the same time, but you sort of early students of mine, early people that I spoke with who picked up the mantle as well. But I'm not aware of anybody in the software. I'm sure there is someone, but I'm not aware of anybody who made it their mission or was teaching other people these things. There were certainly other surely other people in tech that were not billing by the hour, but not very many of I would love to be a fly in the wall in some of your sessions that you do with anyone in your audience. I would like to know what are some of the frequently asked questions, not when you got started, but more recently, and maybe the last two, three years, what questions just keep coming

5:19up on this topic that you think you mean you still don't get it? Do those questions exist? Yeah, it's not always phrased the same way, but there's a big one around the idea of being unable to break the internal assumption of some kind of cost plus pricing, where people they can't understand how value-based pricing works, or they think it's just hand-wavy, persuasive, you're tricking, the buyer, or something like that. All these different questions will come up that are kind of in that category, and they're just not understanding what I believe to be self-evident, but it's obviously not self-evident. It's that cost doesn't justify price. All these people think their costs justify a price, and maybe they do justify the price, but a justified

6:20price is different than an acceptable price. Acceptable prices come from starting with the value and working backward, or you just luck out in the prices that you're setting are low enough that they're acceptable. So that mindset of understanding, you know, Ron actually says it really well, I'll see if I can paraphrase them. Cost doesn't determine price. Price justifies cost. So if value is x, and price is therefore, let's say one-tenth of x, smaller than x, then you say, okay, given that one x, what cost can I sort of bring to bear to justify this price or to deliver the value? So it is a massive mind shift that I probably thought I understood five times before I got to the point where I was like, okay, I do actually have this internalized, because then you start seeing it everywhere in your own purchasing behavior, and when that happens,

7:24you're like, okay, now I get this. But until then, people just have a really hard time not considering their costs when calculating their prices. Attorneys, one more time. It may feel like, seem like I'm picking on the legal profession, but in December, Rita Gumpther, I call her Miss Reverse Income Statement, and she wrote a book, sing around corners, written five or six books. But in a, I want to say it was in December, and let me go to my notes. She states that the billable hour as a fundamental unit of business or professional services is so widespread that it's difficult to remember it is a fairly recent innovation becoming prevalent in the 60s and 70s, okay? Before that, many lawyers and other professionals build for outcomes achieved or services rendered not from time. Interesting.

8:31She goes on to say later in the article that she believes that AI is possibly going to kill the billable hour. Now, what I found provocative about this story is that as of last week, there are over 355 comments to her blurb. Do you think AI is going to have an impact on the billable hour? Is that a fair question to ask? So let's divide it up a little bit, because it probably 50 people sent me the other way. Oh, you're okay, all right. Yeah, and if you Google around for now, there are Reddit threads about it, legal and law-focused Reddit threads, where the debate sort of gets sidetracked into real lawyers better than artificial intelligence. And that's debatable. Of course, the lawyer is going to be on the lawyer's side,

9:32and the AI people are going to be on the I side. Truth is probably somewhere in between, and it depends on the area of law. But none of that matters. That's not the question. The bigger question is, why in the world would you do anything to increase your productivity if you bill for your time? AI, in some cases, is a huge productivity enhancement. It's not great at everything, not even close, but it's really good at certain things. Just like buying a faster computer is good if you're processing videos or audio, just like whatever. Any kind of creating systems, having boilerplate code or using open source software or all of these things that save the seller time, they don't want to do that if they get paid for their time. They don't want to save it. They want to take as much time as they can get away with, basically, ethically, because if they save time, that just decreases the amount of money they make.

10:35So whether it's AI or something else, I've said many times in the past couple of years that AI is definitely not going to help the billable hour. That's for sure. I just want to give you some praise and some kudos on your podcast. Now, I'm going to be embarrassed if you say which one mark, because it's whichever one I was looking at. But I noticed some of the names you've had on. Okay. Seth Godin. All right. I mean, what a name drop. Jason Cohen. Now, I can't say I've met. I've met John Warlow. I've met him in Toronto at a vet and a super nice guy. Obviously we're talking about Ron Baker. But man, Seth Godin, was that a fun interview or not? Oh, yeah. Well, here's a funny backstory. First time we interviewed him twice. That was on the business of authority. Oh, thank you. Rub it in twice. Well, the first time is important to note the first time. I was a huge Seth Godin fan for a long time. Been following him for years. Asked him to come on

11:39the inaugural episode of a new podcast. And he said, I'll be happy to come on your 100th episode. 100th. Okay. Yes. So two years later, I emailed him back and I said, I'm sure you don't remember me, but you said you would happily come on our 100th episode of this podcast. It's coming up. Would you still be interested in doing that? And he said it deals a deal. So I had maybe been collecting notes for a year of things I wanted to ask him that I hadn't heard him say a hundred times on other podcasts. So I had a list of really interesting questions. But I was super nervous. And sent you know, send him the Zoom link and all that stuff. And we're and I'm prepping with my co-host Rochelle before the call. Seth pops in 15 minutes early. Oh, no. And he says, I've got a busy day would be okay if we start now. And I it was like I had been pushed out of an airplane without my parachute on all the way. It was like, that's fine. Whatever's going to work

12:40for you. And we just that you can probably hear it in my voice that I was borderline panicking for the first 10 minutes of that interview. But he did he did a unbelievable like the answers that he gave were so great. He's a deep he's a deep thinker. I mean, he is a he's a reader. I like the way he he's so articulate as well. But yeah, he can go off script. Not everybody can go off script. That reminds me of the interview with Ram Sharan. Don't know if you've heard of him. And I was written a ton of books. Great management thinker. And he logged in about 15 minutes early. And I was already stressing. Can you hang back up and call. And so I went ahead and accommodated him. He was actually early. He did he thought his time was messed up and he was traveling on the road. Well, let's jump into your book. And and I was teasing a little bit.

13:43It's like what is he going to he's he's heard these questions a gazillion times. So I just want to state I did reread the book. I read this when it pretty much when it came out. And so I ended up rereading it. It's a quick easy read. And by the way, I give it five stars easily. And even though it's short, it's it's just I mean, it's there's no fluff in this book. There's there's no wasted words. I would say this Jonathan, if you're getting paid by the word, you wouldn't make very much off this. But but the impact per word per section is excellent. That's good to hear. I I had so near the beginning of the book, you talk about really that the you have five reasons why hourly billing just doesn't work. I do have my favorite two. Now you wrote this book a number a year ago. Can I hear you've got a list of one through five is number one first or or by the

14:47or has that list expanded or is it maybe a little bit different from when you wrote this book. Yeah, that's fair question. It's been ten years. This is the July, I think, will be the 10-year anniversary. So I definitely couldn't tell you in order what the five were, but it and it has expanded over time as a given talks on the subject. And I keep adding to the the what's wrong with hourly billing list. But certainly I'd be willing to bet that on that list of five is that it puts an artificial ceiling on your income, which is why would you do that. Another huge one for me, this was actually bigger for me at the time when I was really trying to figure this out, trying to figure out what to do instead of hourly billing. The big thing was that the financial incentives are misaligned between the client and or the buyer and the seller, the client and the and the and the provider in my case was doing software development. And it kept on leading to trust fractures

15:49where things would take longer than I expected. The client would be okay with that at first, but then it would start to get irritating and they'd start to question your ability to accurately estimate how much not how long it was going to take you, but how much it was going to cost them because the the price is now revealing itself over time, three months, six months, nine months. The price is still being revealed, even though they decided to purchase months earlier. So it creates this incentive. I mean, the financial incentive misalignment is as simple as this. The slower I go, the better it is for me and the slower I go, the worse it is for the client. So how do we I want I wanted to fix that because I found it very difficult to deliver the kind of customer satisfaction I wanted to deliver. Hourly billing was really causing me to it was preventing me from delivering high levels of customer satisfaction because the price kept changing as the things took longer. So yeah, I mean, there obviously there's a whole there's

16:50what were your two favorites? I would really get down to one because it's stung at the time. I've built by the hour and you may be shocked. I've built by the hour three times in my career, three, not bad, three times. Number one was my very first project and by the way, I don't recommend this at home. You're listening out, don't do this at home, but I was moonlighting and you shouldn't do that because I had a very important W2 position, but the job was for me to help five buyers of a business. It's a manufacturing up in Wisconsin. They needed a million dollar loan and they also needed my help to set up their little, I call it MRP system light LIT. And so I'd never done a project like that before. So I asked Bob, the owner, the majority owner, what do you want me to bill you? He said, well, my CPA bills $75 an hour is that good for you?

17:52Or at the time I thought, Jonathan, that's a lot of money. I'm doing the math on my head. Here's where it began to stink. And I hate to sound very egotistical. And by the way, I'm not Missouri great. I am Columbia good. I was fast. I was and even the guy writing the check. He said, man, Mark, he worked fast. And so I was being punished for my productivity. I was being punished for my excellence. They loved the work. We got done probably two months in advance because I was just, I mean, I knew their business model. I'd already helped on. So what it was was I helped sell half the company to a third party. And then my employer sold the other half to this group. And so they like what I did. It's like, hey, can you on the side? Can you do this stuff? And it was all easy. And so I think it's either a bullet point number

18:53three or four of that productivity is, is we're penalized for doing great work. We're penalized for getting good. And of course, now, now when people see my pricing, and sometimes I do get done fast, the joke is, well, that's a lot per hour. And people, they're joking. And I've heard people, I did not come up with this, but I think the comment the old quote is, well, it took me 30 years to figure this stuff out. That takes me 15 minutes to do. And so I again, your list near the beginning of the book is, is excellent. You have a term I love. And I'm sure you get a lot of feedback on it. Fixed Bids on steroids. We typically do a lightning round. And, but this item is so good, so interesting. I love the

19:54wording. Fixed Bids on steroids. Take it away, my straw. What is that? So when I first realized that hourly billing was nuts, I didn't know what to do instead. I had no idea because we had tried fixed Bids before. And it always bloated our faces. We felt like we would have done better if we had just gone on hourly the way everyone else does. And so when I talk about value based pricing, people like, oh, wait, that's fixed Bids. And I'm like, well, it is, it produces a fixed number. It produces a price that you're going to stick to like a fixed bid. But the way that you calculate it is fundamentally different than the way you normally calculate a fixed bid. The way people normally calculate a fixed bid is time materials or cost plus. They're thinking of their costs first. Like we talked about earlier, they're thinking of their their costs first. And then they're adding some like random percentage markup on top of it.

20:57So okay, how does value based work? Well, value based, like it says in the name, you uncover the value of the client's desired outcome, the thing that they believe you can contribute to. And you work backwards from there to come up with a price that is less than the value, obviously. And then you then only then do you said what you're going to do for that amount of money. So you're you're the price that you believe will be acceptable to the client dictates the cost. So if if something's worth $100,000 to a client, then you can definitely charge $10,000 for your piece. Like they think that you're they're talking to you for some reason. They believe that you can help them with this transformation they want. So they're going to give you $10,000. What would you be fist bombingly happy to do for $10,000? Like maybe you'd do it for, you know, something that's going to take you a weekend. And and it's going to move the needle for them. And if I call it

21:59scoping last instead of scoping first, which is what cost plus people to they try and come up with as much scope as they can in a sales interview, which is nearly impossible on a software project, the kind of things I worked on. So it's always too low because you didn't uncover all the scope. And at no point did you try and come up with some clever work around because you'd be penalized for that. So working from a value basis backward produces a fixed bid, but it's fundamentally different from cost plus because cost plus has that whatever plus you pick, the number I've heard the most is 15%. That's your margin. It's not much margin to work with if the scope creeps. Right. That's why you end up going over and feeling like you got killed every time. But when you work backwards from value, you can set much higher prices for the amount of work that you're going to agree to. So the margin margins on both sides of the price, your margin and the buyers margin,

23:00they get much bigger. So it gives you much more flexibility. And even if the scope does creep, because it always changes a little bit, you don't care. It doesn't even matter because you've got so much margin to work with that it's still totally fine. What is value pricing not? Like Mark, this is not value pricing. The mistake that everyone makes at the beginning, including me, for a long time, probably 18 months, thinking I was doing value based pricing. The mistake most people make is they consider, they've decided what they're going to do before they've even set a price. And they're either consciously or subconsciously, they're still setting a price based on your cost on their costs. Now of course, you have to think about your cost because it needs to be lower than the price that you're losing money. But you don't set the price based on it. So it is that in no universe, does value based pricing include

24:04figuring your costs into the price. And that's the thing that takes people like a long time to get used to. And the thing that they, I think the thing that they get hung up on is their identity is IMA Rails Developer. I am a React Developer. So they're a hammer and any problem that comes along looks like a nail. So they don't think creatively enough about how they could solve these problems for the client. And they don't think of things that are outside of their current identity. So if you think, oh, I write code for living instead of advising people about technical aspects of their planned software, you're not going to think it's going to be very hard for you to think of scopes that would fit in a price based on the value. So they're just not thinking creatively enough because they're so used to selling this one thing. I write code by the hour. Here it is. How much do you want? Tell me when to stop. I want to give you just a quick breather. I'm going to help you out a little bit. Just quick,

25:06and you may not need it. But I do want to say you did get something right near the beginning. You did double your income. I think within that first year or there about. So yeah, sir, you did pretty good. I want to read a couple of other lines as we're talking about value pricing. Value is the maximum amount that a consumer would be willing to pay for an item. And it's like, I come, I didn't think of that. That's from Ron actually. But it's in your book. So I think I think I think you did. And because I have it in quotes, but we didn't have to say that, Jonathan, you're fair enough. I'll take the, I'll take the wind value is not an intrinsic property of an item. It's a vague sense of what something is worth. That almost sounds like something Ron. Brother Ron would write. But that's a great idea. I love that. And then also

26:08this is, this is so, so, so healthy. Clients don't want your time. They want their goals achieved. I might even reward it. It's something that one of our former guests said. They want their desired outcomes. But you again, this is, this is all good stuff. I want to turn is. Oh, sorry. Just to put a ball on that section there, pricing is psychology, not math. If you try and turn it into math, you're going to end up trying to justify your prices based on cost. But that's not persuasive. So it just doesn't work. If you, and if you fundamentally believe that there's some math equation that is going to create acceptable prices, you're just wrong. I want to talk a little bit about transitioning. And you have a full chapter. And by the way, these are very easily read. They're digestible. They're extremely actionable. So I loved that chapter on transitioning.

27:15Now, I want to go back to your workshops. What, when people raise their hands or if you're, if you're in breakout sessions, what are some of the comments like this ain't going to work, Jonathan, because a lot of it is this paradigm they've worked with for years. How many come back and just say this is just not going to work? What are some of the obstacles you keep hearing over and over again, especially more recently? Yeah, I mean, there's an ever, there's two essentially the same thing, evergreen objections, which is like, I understand what you're saying in theory. That's great for you, but it won't work in my country, culture, industry. They think there's some special snowflake situation that it just makes it impossible for them. And so I'll say to somebody said, Oh, that's great for you over the United States, but where I live,

28:15people are very value conscious. And they're, you know, they're all price buyers. And to that person, they say, well, do people buy luxury automobiles where you live? Do people have country club memberships where you live? Do they put their kids in expensive universities where you live? And of course, the answer is yes to all of these things. So I'm like, well, then it's possible that there are non-priced buyers out there, where people who are buying something other than the pure utility of the vehicle, let's say. So I mean, I get this objection so much, I'm not going to say that there's no scenario in which it would be impossible to charge a premium. But we're talking about professional services. It's, I just don't, I just don't buy it, especially, especially, and this is an important caveat. I think exclusively, everyone I work with works remotely. So you're not bound, you're not even bound by your locale at all, unless you want to be, but generally speaking, you're not. So there are people who will pay a premium

29:23for access to an expert, who they trust, who's an authority about something. And if you don't believe that's true, and a lot of people don't, and the reason they don't is because they've never been exposed to those people because they're not presenting themselves to the world in that way. They're presenting themselves in a way that makes them look like a commodity when really they might not be, but that's how they appear from the outside. So when people see a barrel of apples, they're going to buy the cheapest one. But if they want a watermelon, and there's only one of them, and it's $10, and the apple, they might go by the watermelon, but you've got to put yourself out there as unique and different and stand out from the rest of the apples in the barrel. I like your idea. One of your ideas was do a fixed price option, and then you mentioned the 85% rule. Can you, can you address the idea? Because I think this is a very, this is a very clever. It's very innovative. I love the thinking of the 85% rule. So it's, it's pretty strict. In fact,

30:28I'm going to tie it back to something you said we talked about earlier, which is it's cause plus, but the plus you're adding is 85% instead of 15. And people, this freaks people out, but the main, and the main question I get is, well, how do I do this and why is it 85%? Why not some other one? Can I just do 20? And, or can I do 200%? So the premise is this, you maybe believe I am onto something, but you don't really get how to do it. So I say, all right, great. Forget about value pricing. Just do what you always do. Go into a regular sales interview with a new client. Do your normal scope first thing and then come up with an estimate of hours. Let's say it's $10,000. You estimate it's going to be about $10,000 worth of hours, just like you normally would. Now, here's the difference. You, you tack on a fixed price option that is 85% more than that. So 18,500. And, and you say to them, in the, when you deliver it to

31:31the client, you say, well, I estimate it will be about $10,000. I could be wrong. I've been wrong before. If you want to take that option, you can take that option, roll the dice. Maybe it'll end up being a lot more. Maybe I'll hit it. If, or you can take the sure, the, the, the fixed price, the sure thing, it won't be a penny more than this, even if it takes me twice as long as I expected. So I'll take all the risk of my estimate and you can just rest assured that you won't have to pay more than 18,500. And this does a couple of really cool things because in this psychologically to the client, they're now choosing between risk profiles. It's not even what you're going to do. You're going to do the same thing in both models. But it makes explicit to them the risk that they would be taking in the two, the different risks they'd be taking the two options. And it illustrates to the seller the same thing, which one is more risky and which one is less risky. And they're the exact opposite, of course. So then, you know, it's the exact, the seller takes, you know, the risk

32:32profiles are opposite. So they're flipping the risk in those two models. And then the question about why is it 85% went out some different number? And I would say, if you don't set it to 85%, you're not giving yourself enough margin. You are, there's going to be too much scope creep, you're going to end up regretting it. If you set it more than 85%, like double or something, then you're not being honest with yourself. You're underball, you're under lowballing the client, you're underquoting it because you want to get the work. And you know, so consciously that if they start with you, even if it goes way over, they're probably going to stick with you, even if they get cranky. So if you are not comfortable almost doubling your price on your estimate, almost doubling your estimate and setting it as a price, you're lying to yourself into the client. I want to steal your thunder, if I may. Okay. Okay. I can, again, I can hear the objections is 85% that that sounds really cool. Jonathan behind the sky. I'm going to steal your thunder and say,

33:33kids just do it. Just do it because here's why. Now I'm going to talk to me. My close rate, my close rate is nearly 100%. Nearly 100%. Jonathan, brother, what's wrong with that? He's saying that. What am I doing wrong? If my close rate is almost 100%. If you're using fixed prices, value-based pricing, too low, you're leaving money on the table. He's out just like Ron Baker. I share this in a group in Texas and Ron said, dude, you're probably pricing too low. So here at my point of stealing your thunder is so what that first time, you're going to screw it up. Now, when I say screw it up, you're not going to mess up big time. My family and I are not in poverty. We live well. I like what's in my bank account. I like some of my

34:39toys. And so what if you mess up each time is going to be a learning experience? So just do it. Just try it. And you're just going to keep getting better. Even though you doubled your income, your first year, I have a feeling you're still continually learning. Is this a page? The biggest difference the first year wasn't the money to me. It was the lifestyle change because the clients were all way more relaxed. I didn't have a flight every week about my time sheet. Why did it take so long to do the database import? It took twice as long last week. And even if they didn't call me on it or question anything, I felt like they might be thinking, I would know the database import took twice as long. It's like, it's so I'm afraid that they're going to be upset. Maybe I'll eat hours and they're not even asking for it. That all completely goes away. And you have all the latitude you want to refactor their code or redo a piece of work

35:43that you think you could have done better or rewrite something that you're afraid is going to come back to haunt you later in the project. And you don't have to have a conversation with the client about how, yeah, I know I already built the invoicing system, but I saw a problem that I think would have created an edge case around tax season. So I went ahead and rebuilt it. Here's the invoice for that thing. I didn't even mention to you. So when you have a fixed price, you've got all this latitude to do the right thing in your professional opinion. And the client's not getting punished for it every time. And you don't have to explain to them and educate them about why it was worth their money or anything. So you can indulge your perfectionism or your professional ethics around your work product, your craftsmanship, as much as you want. It is totally up to you to do that. And the client is totally chilled out because they're not getting this random, you know, amount bill every week or two weeks or every

36:46month that, you know, it's a different amount every time and doesn't seem to it doesn't feel like we're getting any closer to the goal. They stop micromanaging you. They stop freaking out. They stop arguing about hours because there are no hours to argue about. And it is, it's the best feeling sitting on the same side of the table with them because the incentives are aligned. We both want to finish as fast as possible now. So anything I do that's going to accelerate that is a win for both of us. One of your comments, I don't disagree with it. I just wanted to hear a little bit more of the why you stayed the policy of not agreeing to deadlines for software projects. I read that and I re-read it and I re-read it and it's like, make sure you ask Jonathan, now explain that. Again, I'm not disagreeing with any. Just, can you elaborate a little bit? Well, think of this, I think this is even in the book. I mean, imagine a wedding planner

37:48being faced with a bride who wants her to promise that it's going to be sunny at the wedding. I would love to promise that this is going to be done on this particular deadline. I would love to promise that it's going to be sunny on your wedding day. But I'm not in control of that because the client, at least in the kinds of work I did, the client was heavily involved. The CEO of the company couldn't have ensured that we would hit that deadline. So what I found is that what's really lurking behind that deadline is with with rare exceptions, it's fake. It comes from them being used to paying for work by the hour and the deadline is really them setting a budget. But it's not real. There is no cutoff, really. So if you remind them and say, look, I am not really in control of this, your team could take two months to QA, the new invoice team module. So I'm going to be waiting. So if you want to hit the deadline, then it's going to be, and I'll help you with this, but it's going to be on your,

38:53it's partly your responsibility. It's partly my responsibility to keep everybody moving forward and keep them momentum going. And I can't, I would love to promise that, but I can't. There's no way. Sometimes there is a situation where, and this has happened for me, where someone needs a piece of software for an upcoming conference, South by Southwest, or for the Olympics, for the next presidential election. And there really is a hard deadline. Like if it's not done by this date, we don't need it. And in that case, I say, all right, well, we've got to make use of the budget or the scope flexible. If the deadline can't move, and I wouldn't pick budget, I would pick scope, I would say, look, we have to make the scope flexible. And we would list out the features or modules or whatever, or we say most priority stuff we work on first. And then we get as far down the list as we can. And then when the event happens, that's it. Event over project over. I hope, I hope hope. There are some people who are ERP implementation specialists listening

39:56who build by the hour. Please listen to Jonathan read the book over. But like I said, I was, I made a decision. Don't bring up ERP implementation people go by the hour, because you'll, you'll go off on a rant. So I'm not going to go there, Jonathan. Okay. You are, you've had blur ends on your show. I will say that I've listened to about the first 70 episodes of the two Bob's. I think it's probably the greatest marketing podcast that both both personalities, they play off one another just brilliantly. The reason I'm bringing up, I'm going to get to the point here. The reason I like Blair is he is a fan of the strategic coach. So I've been three years to coach. And I love Dan Sullivan. Actually, some of my sales, the way I do sales is thankfully

41:02through Dan Sullivan. And you have a chapter. It's 10 questions to ask prospective clients. And it's very, very good. And I want to give you a topic, potential topic. If you and Blair have not talked about it is, is have Blair talk about the DOS conversation and the R level question, because there's some overlap between those two strategic coach concepts and your 10 questions. But your 10 questions, if you are afraid, if you're a little bit intimidated of selling, and again, I'm giving you a little bit of a break here. The chapter chapter is excellent because, for example, this is number one, and this is you, the person selling, talking to the client, prospective client, what would you, what would a homerun look like, look like for you?

42:03Lomba sports guy, the baseball guy, I didn't think of that question. That is a great, great question. Here's another one. What's been, oh my, this is brilliant, Jonathan. What, you don't even know what I'm going to read about. What's been at the top of your to-do list forever? That is a friggin' great question. You come up with that. I mean, fairness, I don't know, honestly. In fairness, I collect things like this. I have an entire book called Learn Your Lines, where I've just collected over the years these great lines to use when clients put you on the spot. If people are looking for, I mean, I think it's free on Amazon. I don't know when this is going to come out, but it's free on Amazon right now, at least in the United States. Sometimes it's 99 cents in other countries. But anyway, Learn Your Lines is full of great quotes from my ex-boss and things I've modified from value-based fees. In fact, speaking of value-based fees, I think there's an entire

43:06appendix at the end of that book that could have inspired some of the things on that list, because that book was my Bible for like my first two years of offering my own business. So definitely, that book is worth the money no matter what. So if only you just read the appendixes, yeah, appendices. Well, you don't know me. I will read the entire book. It's twice, yeah. We don't have to spend a lot of time on this, because I kind of cracked up, because I would like to, I mean, if we ever go to lunch sometime, if I ever meet you in person, I want to hear some more stories. You talk about startups. And I used to be a senior partner for a large CFO firm before these Nuckelhead terminology of fractal CFOs. So way, way before that's, by the way, that's the most moronic term I've ever heard. But we had a few CFOs that thought, hey, I've been offered some equity if I work at the startup. And we're all saying, no, no, don't, no, don't do it,

44:11don't do it. Because it's like a, it's like a, it's like a black hole. It just sucks you in. And you're going to get, get anything back out of it. I have worked with a couple of startups where I made sure I got paid. And, but I just want to kudos to bringing this up and try to stay away from startups, especially when they start offering you equity, just run. Do you want to add anything to that? Yes. So I'd like to add some nuance to that. So when I wrote that book, I was specifically talking to, and this, this one in particular, specifically for software developers, you were being offered equity to work in tech startups. And the, the main problem there is that there's probably a CTO or someone technical or lead developer who knows what you do. Like, what you do is not impressive to them. So it's, it's making shoes for the cobbler's kids. So

45:13none of your magic tricks are going to impress anybody. Now, CFO at a tech startup probably does have some magic tricks that would impress somebody. And therefore, could just to fly a higher value-based fee. But the equity thing, the real problem with the equity thing for me is that it's almost certain, if you're a consultant, basically, or certainly if you're an enterprise employee, is it is a complete mismatch of risk models. Like, you're talking about people who are risking people's livelihoods and millions of dollars of capital on a moonshot compared to someone who, you know, is a CPA, let's say. And it's just a mismatch of risk models. Yeah. And what you said is true, you're going to be blown away by how chaotic and mega, you know, like the gravity, the black hole of the energy black hole of like, we need more. We need it now. We need it yesterday. You have to fly out here and we got to go to an investor meeting it. There's, it's a frantic energy, which I think a lot of people like. But, you know, if you're trying to build your own solo

46:15business and it's an expertise-based business and you're not in the startup space, you're probably not going to like it. Also, what's going to happen is your name gets more known in your niche. People do seek you out. And what I've been even doing, I'd probably say in the last 10, 12 years, is I tell you what, here's what we'll do. Bob or Sally, here's what we're going to do is just, let's go to lunch about once a quarter. Let's email me. Let me just be a sounding board, because that could lead to a relationship maybe two years down the road. But as I read that, I just thought, no, this is brilliant. Yeah, I want to, I want to be respectful of your time. Can I have about maybe 12, 13 more minutes? Yeah, that's fine. So can we do a quick lightning round? I love lightning rounds. I'm just going to share a few terms. Just give me a quick blurb. Your material doesn't lend itself to one word. So except for one case. So I've got blurbs of words.

47:24So just tell me what comes of mind. Yeah. I have to scratch this one off. I had doubled, I doubled my income. Let's take that off the last bomber. All right. Oh, here's a good one. 100% up front. 100% up front. Yeah. That's another straight out of Alan Way School of sales. And it gives you something to negotiate other than the price. But then when you end up doing it, you'll be surprised to learn that a lot of people just pay you 100% up front and don't even argue about it. I don't know if you're a rugby player, but I'd want you, my rugby team. That's pretty dog on bold, very impressive. Okay, here's another one. Number two, a software project. By the way, this is so poetic. This is really good. The software project is like a lake freezing. Yeah, at some point, you know, it's safe, but you don't know exactly when it happened. So asking someone to sign off on a software project is not smart. It's not good for the client,

48:32and it's going to lead to Nicolin diming after the fact when the inevitable cracks show up. So I say to people instead, charge a premium for your top, maybe give them three options in a proposal. And then the top tier is like a 12 month bug free guarantee, because we know they're going to be surprises. Something this complex system doesn't have no flaws. So instead of trying to make it perfect, and so that it's perfect on launch day, which is impossible. Just address the thing that they're afraid of, which is that they're going to be left high and dry if the quarterly reporting system is broken. So yeah, just that's the lake. You just don't know when it's done. Because sign off is the thing you're trying to get away from, because then I'll say like, oh, well, we'll give you the last payment on sign off. It's like, there's no such thing as sign off in my world. Here's another. I got to like this one. By the way, you gave me some great raw material to work with. You know, good camp wood $3. Camp wood $3. Yeah. So that was a series of emails I

49:34wrote to my daily list, which I just hit 3,500 daily, daily emails. And I had gone on a camping trip in Southern Maine. And it was like every other driveway had these camp wood, you know, camp firewood. So like these bundles of wood that they cleared from their property, and we're just selling at the end of their driveway. And I was so fascinated by it. It was such a commodity. And I just got my brain got working like how if I was one of these, if I lived here, and I wanted to do this, how did I maximize my profits in this very tight, weird little market? And so that was that series of emails came from that. And the key insight from that whole thing is if let's say to summarize it, you could increase your price by 50, sorry, I was going to say 50 cents, but double your profits. So people have to be careful about scaling their costs, like they say, I don't want to scale the business, and they hire a bunch of people. It's like,

50:34all right, well, you scaled your costs. Have you scaled your profit? I don't care if you scaled your costs and your revenue. I still want to know the percentage breakdown of your profit. If you're making less money, profitability wise by hiring a whole bunch of people, I don't call that growth. And I know people would argue that, but I'm I'm I'm feel pretty strongly about that. But the unintuitive thing is you can raise your price just a little bit and double your profits. How about one more? Okay. By the way, how am I doing? Are these good? Is it great? Yeah, is it great? Okay, one more. Yes, eight plus hair. Hair. Hair salon. I'm laughing because I'm thinking a rob. I've been going to rob since 2003. It's like Rob, you need to hear this. Hair salon innovation. Yeah. I don't remember how this came up, but it's a similar situation where somebody basically presented me with a, well, how would this wouldn't work in my space? So I cut

51:35hair. That's probably the the the origin story there. But I do remember getting off on a on a just had a fun time going down the rabbit hole of what would I do if I basically ran a hair salon? What would I do in my model to scale it up into something very, very profitable? It's commodity business, most cases. So what would I do? You know, it's it's an in person thing. It's not remote. All of these dynamics and expectations around the industry. And so I I came up with I think I ended up with three different possible business models that you could that someone with that skill set could branch into that would have way more upward mobility than the standard unisex hair salon. But it's been a while. I don't know that might have been 2017 when that came out. So you're testing my memory. Hey, I wanted before we wrap up with your favorite books, I want to do a little I don't know how to say this reverse hourly billing. So you've already

52:41heard I kind of I was a little too transparent. I do get mad at these idiots who are ERP elimination implementation specialists who build by the hour. I have by the way I figured out how to handle hourly billers in the legal profession. I think I figured it out. I'm not going to bring it up unless you want to ask. Okay. But it's the it's the in the IT world. I get frustrated. What is your advice to buyers like me for people who build by the hour to feel like you're not going to get burned on the back end? Do you want to hit that? Yeah, I've been there for sure. So one thing would be to insist on an hourly if the you insist on hourly. Okay, then I'm going to insist on hourly not to exceed. Which is the absolute worst thing you could agree to if you're an hourly biller because you get all the penalty of taking too long and none of the reward of

53:44finishing early. Great boy. But if as the buyer, if you want to insulate yourself from the risk that I guess is obvious that it could go way over budget is just okay and not to exceed. Yeah, hourly is fine. 100 bucks an hour that's fine as long as you don't go over the 10 hour estimate and just watch them squirm. So where they'll agree to it and then you'll be fine. But the more sort of collaborative thing that I would do is if you're assuming you're hiring someone who you are not an expert at what they do, right? You're hiring an outside expert. Even if it's a landscaper, you don't really know anything about the right way to maintain your lawn. Make sure that you tell them not what you want them to do but what your desired future state is. I want to feel this way when I drive up to my house and if I don't feel that way, I'm not going to be happy with your service. And then someone, if they were a student of mine, then the next stage would be like, okay,

54:45dear sir, how much is it worth to you, not in so many words, but how much is it worth you to feel that way? And then they can come up with clever ways and be efficient and use special tools and make investments like that to ensure that I feel that way when I come home at five. And, and I mean, as long as I feel that way, I don't care if it took him 15 minutes all a week. I'll still pay $300 a month to feel that way when I get home. So, so what you can do as a favor to service providers like your landscaper or something or whatever, whoever it is, a rougher, say like, this is my desired outcome. If you want to go go around my website, I had a whole issue with the critter removal service because we had squirrels in our garage. And that specifically gives a very good specific example of how how like nuts it is what the service provider was telling me all these details of what they're going to do and these these like materials and supplies he was going to buy. It's like, I don't know, I just don't want squirrels in my garage. Can you get them out or not? And he never said he could. Anyway, so that's a good thing to read. But if you're

55:50hiring people by the hour, try and get them to agree to and not to exceed clause and be really clear about what's going to make you happy and so that they know where the target is that they're shooting for so that they're not just doing their best practices and hoping that it's going to somehow make you happy. I was recently on a phone call listening in one of my clients needed to help whatever the sales tax equivalent is in Canada. We are new firm that I hired hired for them is one of the top seven or eight CPA firms in the United States. And so we got connected with one of their their offices in Canada. And near the end, the partner says, and I bill $400 an hour. And I was just, did she say $400 really? So after the phone call is over, I kind of huddled our little team. I'm really more just in a coaching capacity. I said, here's what you want to do.

56:52Just maybe just in a one-off phone call just ask her now about how much time do you think this will take? Do you have any paraprofessionals? Are you going to be doing all the work or will there be some paraprofessionals? Does that mean they get paid $400 an hour? And if so, we're really hiring you for peace of mind. We could do this, but we might screw it up. So is there anything that we can do to help offload from you? Because I don't think you want to do our grunt work. But I was just I was just thinking this is 2026. I think I need to send her your book. But it's like good grief. I know. So I've had some lawyers come over into the fold for sure. It's the the ideas out there. And I think AI is even accelerating it, especially in the legal field. But yeah, it just makes me get that story. It just made my skin crawl. I would not want to be on the receiving end of that. I mean, if the hourly rate is $10 an hour or something that's immaterial and it could go way over and still be way less than it met, but $400 an hour

57:57without her telling you even an estimate of how many hours it might take. And she's sitting there feeling like she gave you a price, but that'd be like my room for singles. Shingles are 10 cents. There's your price. It's like, well, how many shingles do I need? I can't you haven't even given me the information to do the math. And don't worry. When we hit, when we stop recording, I'm going to even tell you the name of the firm because you may be more shocked. Well, speaking of shock, you're going to just be, I hope you're sitting down. You're going to be shocked that we like to ask people their favorite books. And because you are a writer, I have this assumption that you do like to reach. So may I be nosy as we wrap up? Can I be nosy? It's Jonathan. What are some of your favorite books of all time? All right. Fiction or nonfiction? Both. They both get me because I love them both. All right. So I'll wrap it fire this. So Lord of the Rings was a game changer for me.

58:59Hitchhiker's got to the galaxy of court. Like, you know, I'm a kid of the 80s. So it's all the typical D&D sci-fi related stuff that asthma off all of us. More recently, a list of three business books. I've mentioned value base fees several times. I haven't read the newer editions, but the one that came out around two or the one that I bought around 2006 was my Bible. So great. There's a lot of, of course, the titles value base fees talks about value base pricing quite a bit. But honestly, I think the most important pieces of that book are the marketing pieces. So to me, that's a very important marketing book. If sales is your thing, the secret of selling anything by Harry Brown, especially if sales makes you cringe and you think it's sleazy, you need to read this book if you run your own business. I mean, if you run your own business and you're not doing sales, you're in trouble. And I would say, if you're specifically interested in value pricing, the hardest part of it for most people is to understand how to calculate, how to help the client

1:00:02reveal the value. How do you help them uncover the value? Because they don't know really. They haven't really thought about it. It's a gut instinct. So you need to have them articulate it so that you can actually hit the target that they secretly want you to hit. And there's a book that was at like life changing for me called How to Measure Anything by Douglas Hubbard. And that book will blow your mind from pricing psychology standpoint. It's not about pricing, but it will blow your mind from that standpoint. And then more recently, I just finished probably a three-year binge listen of all of the Disc World books by Terry Pratchett. And that was, I was so sad when I got to the end. I mean, those books, if you like Douglas Adams, that sort of humor, Terry Pratchett is like a master, just an absolute master. So, so great. I just want to say this has been a home run. You are a pro. You're a pro. You're a great writer. And even though I don't walk and live in

1:01:09the space, you're such an incredible ambassador. I love the, I just love listening to you. You're very, very thoughtful and deliberate. And you're interesting to listen to. So I can eat more, more, more. But every day, it comes out every day. Thank you. This means a lot, Jonathan. Thank you. Hey, it's been my pleasure. You are listening to CFO Bookshelf, Life Long Learning for Financial Leaders. And now, back to our host, Mark Gandy. Father died when Ralphie was 11. That was in 1910, rural Colorado. Ralphie, while still a child, was now the man of the family. And he wanted to play that role. If not for the wisdom of his mom, he'd quit school and work to help support his family.

1:02:09However, Ralphie was allowed to work for pay, as long as it was after school, got his chores done. And so he ends up getting a job from Mr. Nutting in UTT, ING. Mr. Nutting, he owned the littleton lumber and fuel company. And he was very wealthy, but he was also very well respected in his community. And even little Ralphie noticed Mr. Nutting was always working, but it was with his head, not his hands, how perceptive for an 11-year-old to notice that Mr. Nutting had a job for Ralphie. Pulled Dandelions before they go to seed. And it was going to be 10 cents an hour. That was agreed upon price. And again, remember Mr. Nutting, he's setting the price not Ralphie. So, Ralphie sticks out his little hand and says, it's a deal. So later the week,

1:03:10Ralphie is nearly done. There's just a small patch left in the corner of the yard and he'd already put in 33 hours. So that's if you're keeping a score at home, that's $3.30. And Ralphie thought the job is really worth $4. Now, don't ask me, how does an 11-year-old know that? That's just the number he had in his head. And that's kind of how he valued the job. So Ralphie starts thinking, you know, Mr. Nutting is rich. He can afford it. Maybe I can stretch out that work, that last itty-bitty stretch a work. Stretch it out for seven more hours. So what's 50 cents to him? So on his last day of the job, on that last little patch, he starts slowing down a lot. He was spending all the five minutes on each plant. Until he hears this voice, it's Mrs. Nutting. She says, Ralphie, come inside, it's hot,

1:04:15and I have lemonade for you. You need a break. Well, he didn't want to, but when he goes inside, he started thinking of father. And father was a very, very upright man, all the way to the end of his death. And he can hear father right now saying in his head, and give a man who's paying you a good day's work. So long, partner. So Ralphie shook his head to Mrs. Nutting and says, I need to get back to work. So this time the pace is at the same pace he had done for the first 33 hours. So Ralphie finished the job. And then it goes to the lumberyard to collect his pay from Mr. Nutting. So Mr. Nutting, he told Ralphie, you did a marvelous job. Well, five dollars kill the bill. Stop here. Stop. Let's take a break. So Ralphie thinks the job is worth four dollars.

1:05:22Now Mr. Nutting's thinking it's worth a dollar more. So here's what Ralphie said. Again, 11 year old kid. No, sir, it was 10 cents an hour. And I only put in 35 hours. So it's $3.50. So let's, let's camera. Let's show Mr. Nutting's face. So he's just, he's thinking about this. And he even says he thought it would be a five dollar job before it even got started. And so he starts to get Ralphie a five dollar gold piece. Now what do you think? Ralphie said, nope, our deal was for 10 cents an hour. Remember, this is an 11 year old speaking. So listen to the advice of Mr. Nutting. I usually figure what a job's worth before I tackle it. Didn't you figure that one? Ralphie. And Ralphie said, I did. I figured four dollars. Now this is gold.

1:06:28Mr. Nutting said that's the way to do business. He puts the five piece back in his pocket and gives him four cartwheels. So listen to what he says. He says a businessman. Again, this is 1910. He says a businessman sets the price on the job in a hired hand. Let's somebody else set the price of his time. One more time. A businessman sets the price on the job in a hired hand. Let's somebody else set the price for his time. I don't think Ralphie ever forgot that. Well, I know that because I read the rest of his stories up until about age 23, 24 and he applied that advice. Again, I love this story. It harkens back to one of Jonathan's reasons why hourly billing is nuts. It punishes increased productivity. No, more like it demolishes it.

1:07:29Jonathan Stark, you are an amazing person. Thank you for your work. We need to call this a wrap. I'm Mark Andy Ford, CEO of Obokshof.