EE018 – Kirk Bowman – Visionary of Value

Tony: Welcome to Exceeding Expectations, the show about creating exceptional experiences for your customers. The guests on the show typically have the mindset of loving to over deliver on their customers’ expectations. They are always trying to think of creative ways they can do this for the customers they work with. Often, it results in great testimonials, positive word of mouth spreads about them, which is, I think, what we’re all striving for. In this week’s edition, I speak to a guy called Kirk Bowman, who has a podcast called The Art of Value, which is all about value pricing. If you’re not familiar with what value pricing is, this episode could be very educational because he lays out exactly what it is and why we should all be switched into it and gives some very good reasons. So Episode 18, with Kirk Bowman from The Art of Value.

On today’s edition of Exceeding Expectations, we have a man by the name of Kirk Bowman. How are you doing Kirk?

Kirk: I’m doing very well Tony. Thanks for having me on the show.

Tony: I’m really, really pleased you accepted my invitation because as we would speak, and just now before we started recording, Kirk, for those of you who aren’t aware, Kirk has a podcast called The Art of Value. I’ve listened to nearly 100 episodes of that show and I only discovered it probably less than six months ago. So, in the last four months, you’ve completely disrupted my normal podcast listening. All of the other shows that I usually listen to, have all gone by the wayside. I’ve just been listening to yours.

Kirk: Well, thank you very much. That’s a very kind thing to say. Not to have a pun, but I’m glad you found it valuable.

Tony: Yeah. Well, they’ve definitely been valuable. So, lets just launch straight into it. For those people who aren’t familiar with The Art of Value, how would you describe your show?

Kirk: So, The Art of Value is based on the business model of value pricing. It is a business model, meaning, it’s not just how you charge your customer. It’s something that you decide to implement, and it affects everything in your business, from your mission, down to the most minute tactical details. That business model, if I were to define it is this; that in order to set a price, we first need to determine what is valuable in the eyes of the customer. In other words, we need to understand value from their perspective. Once we do, then we’re in a position to set our price based on the value that we’re going to create for them not on, for example, hours, which is an input, or some type of deliverable, which is an output but based on outcomes. What is the desired result the customer wants to achieve? How is that valuable in their eyes? That’s the basis for how we set a price.

Tony: Typically, I’m guessing when you first started the show, was the aim to help mostly sort of accountants and lawyers? Or was it to just kind of help anyone?

Kirk: The aim is to help anybody who might call themselves a service professional. So, I do focus on the accounting and bookkeeping market. But, I also work with lawyers, software developers, creative types and anyone who the first answer to the question, ‘How would you price this?,’ or ‘How would you charge?’ is ‘Well, I just track my hours and multiply it times my hourly rate.’ If that’s you, the show is for you.

Tony: So, most people listening probably are very familiar with the hourly pricing model. Can you explain why that is doing a disservice to your customers?

Kirk: It is. I’ll kind of start with a catchphrase that I didn’t even know it was good. I was actually on another show and I said it on the show. Afterwards, the host said, ‘Man, that was really good.’ I’m like, ‘All right, I’m going to keep that.’ It was this, ‘Hourly billing requires a calculator. Value pricing requires courage.’ In other words, if you’re going to bill by the hour, all you need is third grade math, because that’s when they introduced the multiplication tables, at least when I was in school. But, if you want to price based on value, you have to have courage, because it requires you to step outside your comfort zone, especially at first. So why is hourly billing so bad?

The biggest reason, and I could probably do a whole hour just on this topic, is because there is a conflict of interest between the customer and the professional when you bill by the hour. Let me explain. When you bill by the hour, it’s in the customer’s best interest for it to take as few hours as possible to get a lower price. By the way, that’s just being a good steward. All customers want to maximise the value and lower the price. We all do that. But for the professional, it’s in your best interest to have as many hours as possible, for maximum revenue. Well, how can you provide a service when the way you bill puts you at odds with your customer? They want as few hours as possible. You want as many as possible. That’s a conflict of interest. I don’t care how ethical you are, it’s still a dilemma that you have to wrestle with. There are other things we can get into such as it focuses on the wrong thing or nobody is really accurate with their time tracking, and so on and so forth. But, for me, it’s that one thing, you’re not aligned with your customer. When you’re not aligned with your customer, you’re not putting their best interest ahead of yours.

Tony: There’s a story, which I imagine you probably know, is a story. I don’t know whether this is true or not, but it’s about Picasso. He was painting somewhere in Paris, and a lady walked along and she saw Picasso sitting there painting. She said, ‘Wow Picasso! Would you paint a picture of me?’ He said, ‘Yeah, of course.’ He quickly sketched out and he did this amazing picture in just five minutes. He handed it to her. She said, ‘Wow, that is just phenomenal. How much is that?’ He said, ‘That’s 5000 francs.’ She said, ‘But it only took you five minutes.’ He said, ‘No, madam. That took me my whole life.’

Kirk: Exactly. That’s another one of the disadvantages of hourly billing. The faster you get, the better you get, the less money you make, and it should be the opposite. There are many other stories about this. There’s one that’s attributed to Henry Ford. He had a piece of equipment in the factory that wasn’t running properly. The short version is the guy sent him a $10,000 invoice and Ford complained. Well, the guy wrote back his justification $1 for fixing it. $9,999 for knowing how to fix it.

Tony: Exactly. Yeah. So, I remember hearing on one of your episodes, because you weren’t originally into value pricing. You were sort of almost talking against it, weren’t you? You were at a.. was it a conference or some sort of podcast place where someone spoke about value pricing, which changed your whole views on it?

Kirk: Yes. So the way I got into value pricing, I have been a software developer, now for 25 years. I was at a technical conference back in 2009, and I organised a session on estimating and billing practices for software developers. I took the position, I was one of four panelists, my position was that the only fair way to do it is to bill by the hour, because we don’t know how long it’s going to take. Well, if your billing by the hour, you feel like the way to justify your prices, how long it takes. So that must be fair. But actually, it’s not because the customer needs to know the price before they buy. We do that with automobiles, we do it with groceries, we do it with gas. You name almost anything else, you’re going to know how much it costs before you buy except for professional services.

There was another panelist who presented the idea of value pricing. He said one thing that just rocked my world. He said, ‘If you bill by the hour, there’s an artificial limit on your income.’ He is completely right, because you can only raise your rate so high. You can only bill so many hours in the year. Quite frankly, unless you’re a lawyer, you’re not going to be able to get hourly rates approaching $1000, $2,000 an hour. Even for them, there’s a lot of push back nowadays. But, for people that are not attorneys, you start getting rates close to $200 or higher, it’s just not going to fly. Now, that’s not the only reason but that was the reason that put me on the path. So, I studied value pricing for 90 days, then I made a public commitment on a podcast to switch. We switched my software business and in 13 months, we saw revenue increased by 50% the first year and 70% the second year.

Tony: How did your clients react to it?

Kirk: So when you make the switch, and really it’s a two part thing. The switch is what happens in your mind, it’s your mindset, it’s your paradigm shift, it’s your philosophy of doing business. That is a switch that flips on and in an instant, but then that triggers a transition. The transition takes time. I think it usually takes one to two years.

During that transition, the first thing is start with new customers, ideally, small new customers. Get your feet wet, don’t risk the whole business by trying to switch it all at once. Do it gradually and with new customers, it’s the easiest way. They haven’t worked with you before. They have no clue. If you say this is how I do business, they’ll accept it. Now, they may ask you, ‘well, why don’t you bill by the hour?’ There are plenty of good answers to that question. But, you need to have one. When it comes to existing customers, you need to look for an opportunity to make the transition. What I advocate is actually educating your customers in advance that a change is coming, usually 90 days or so. Ideally, you’ll do it through an email campaign and you kind of got to plan the campaign out. How many messages are you going to have? How many advantages to the customer are you going to educate them on for this change? But ultimately, at least for me, everything I do is project based, it’s the software world. So when one project ends and others about to begin, that’s when I will implement the change. Obviously, I’ll have to explain why. Some customers love the idea that we’re no longer going to bill by the hour, because to be honest, nobody likes to be billed by the hour. Now and you don’t mind to bill by the hour, but to be billed, to be the recipient of the invoice that has hours on it, nobody likes it. It’s a horrible customer experience. So, a lot of them just jumped at it. Others were hesitant because it’s something new and we don’t like change but they tried it and they succeeded.Or they just don’t want to go. For the ones that don’t want to go, you just got to be prepared to refer them to somebody else. By the way, that’s okay. Having a referral to somebody else is part of being a mature business person who says I’m not the best fit for everybody. I’m going to be courageous, and not be scared of not making enough money. I’m going to say we’re not a good fit.

Tony: On your show, you’ve interviewed people from many different industries. It’s by no means just accountants and lawyers and so on, I know. You’ve also haven’t taken any easy pass, because I remember hearing a least one show, probably more, where you interview people who are very much against value pricing. So how, if you could maybe kind of sum up, did it end up that they agreed with you? Or were they still adamant that value pricing was just not for them?

Kirk: So, it’s interesting. I think of two guests that I’ll use to kind of answer your question. The first I’m not going to name just because the part of the show I’m going to describe we did not air, but I’ll explain why. So I had a guest on, he had been referred to me by someone in a mastermind group. He has a very successful software business. I interviewed him about their company culture and I just made the assumption. Nobody could be this successful and bill by the hour. Well, we got two thirds of the way into it, turns out he does and he’s proud of it. So basically, I just kind of had to edit that out and leave the rest. The rest of it was great content. I didn’t raise the question with him because I didn’t figure out. I didn’t ask because I made an assumption. So it was unfair to spring that on him on the show, right? So I just let that go. But now, I think of another guest. I will tell you the name of this one, Tim Dietrich. Tim is a fellow software colleague of mine. I had Tim on the show twice. The first time I had him on was, I think the name of it was A Contrarian View of Value Pricing, or something like that. If you just go to my website and search for Tim, it should come up in the shortlist of shows. But anyway, Tim was against it. I interviewed him about why he was against it.

He knew that’s the conversation that we were going to have. He was willing to have it. I thought it was helpful to educate my audience because some people are on the fence. So after a while of hearing me talk about ‘it’s so good, it’s so good, it’s so good,’ they needed to hear the opposite point of view to help them make a decision. Then about a year later, I had Tim back on the show. During that years time, he made the switch and he now pretty much does all value pricing. So, I actually planted the seed with him. Then a year later, he made the switch.

Tony: What was it that changed his mind?

Kirk: I would have to go back and look at the particular episode. But, I think he just began to realise that, one, he was short changing the customer. It’s a horrible customer experience to bill by the hour. Nobody likes it. But, two, he was undercutting his own income, he was not in a position to make the dollars that he was worth. He was not capturing a fair portion of the value he was creating for the customer. I think once he did a couple, he goes, ‘wow,’ plus the projects run easier. Value pricing requires great project management. But, if you can do that, projects are easy. By the way, the customers are usually happier too.

Tony: Are there any industries where pricing by the hour does make sense?

Kirk: I don’t think so. But, there are some industries where I think even making the request is harder. So, one of the ones where I just can’t stand it, is construction. Okay, trades, that kind of stuff. I think like an individual house painter, it’s easy for them to make the switch. But, I’m thinking about construction companies who build schools or hospitals or office buildings, that kind of thing. There is so much deep tradition there. That industry, man, they’re just nickel and dime literally. They have to show their costs and their markup. The whole model for submitting bids and all that and history is based on it. So, I don’t think they can change. I would love to see it, but I’m just…nobody in the industry will listen anyway. That’s probably the reason it won’t change. Nobody will listen. If somebody would listen, somebody would figure out how to do it differently. But, Nobody in the industry is willing to listen.

Another example that I’ll use, one of the questions I would get sometimes is; ‘what about people where essentially, you show up, you’re with them for 60 minutes, 90 minutes, then you leave? So for example, a massage. If you get massages, a lot of times those are done by the hour, or hour and a half or something like that. What I realised was, in that particular case, time to me is the packaging. I don’t think their billing by the hour is the packaging, right? In other words, in my mind, I’m not paying for the 60 minutes, I’m paying for a great massage. If I don’t get a great massage, one, I’m probably going to tip less and, two, I’m probably going to go to somebody else.

Tony: I’d imagine there aren’t any kind of statistics about this but for businesses or industries, like accountants, have many of them now changed over to value pricing, or is hourly pricing still the majority?

Kirk: Hourly pricing is still the majority. So if you, and I forget what the curve is, but it’s kind of the product life cycle. We’re not on the bleeding edge anymore, but we’re still on the leading edge. So right now, just the fact that you value price is a differentiator. It actually can be part of what sets you apart from your competition and allows you to offer something different to your customers. Now, it requires more than just that, but it can be part of it. But, it’s not taken hold to the point where people are going all right, I got three that value price and two that are hourly price. Now that’s not happening right now. There’s so much resistance and there’s really a conflict within the industry.

So for example, I’ve spoken the last couple years at Intuit QuickBooks Connect Conference. In November is when they do their US conference, and I speak there. There are probably half a dozen sessions every year on value pricing by me and others. But then, there’s other sessions, where they talk about time based billing. QuickBooks actually bought a company called TSheets that does time tracking. So there’s definitely that conflict, there’s that friction. We’ll see how it plays out. We feel like, and I say we meaning me and my colleagues that all kind of preach this message, we feel like the domino is tipping, but we know we’re in it for the long game, not the short game.

Tony: You’re part of an organisation called VeraSage. Are they very much in favor of value pricing?

Kirk: Very much so. In fact, VeraSage was founded by Ron Baker, who has written six books, one of which is called Implementing Value Pricing, and the other is called Pricing on Purpose. Essentially, what Ron wanted to do is create a think tank of people who agree that time billing sucks. You need to be able to price the customer upfront. That’s part of a positive customer experience. So one of the tenets, if you will, of VeraSage, is we want to eradicate the billable hour in all the professions. So we have fellows, it’s a think tank, so we have senior fellows, practicing fellows, etc. We have people that are lawyers, accountants, software developers, creatives, kind of those four disciplines are the ones we focus on. We each, some of us have consulting practices, some of us actually are accountants or are software developers.

Every two years, we actually come together and do what the label says, we think. We come together for usually a couple days, every two years to share ideas and brainstorm. What have you learned the last two years? What have you tried that failed? What have you tried that’s been a wild success? So for example, we’re going to be gathering in Melbourne, Australia in November 2019 again. There will probably be about 10-12 fellows there, and it’s actually going to be open to the public. So we don’t have registration for that available yet. But, keep an eye out on the VeraSage site, on the Art of Value site, if you have any interest in that at all.

Tony: Is VeraSage sort of quite International?

Kirk: Oh, very much so. In fact, two years ago, the VeraSage, we call it the VeraSage Symposium, this biannual gathering was here in Allen,Texas, where I live. In conjunction with that, I did a conference right before it, which was just The Art of Value Conference. I would say half the attendees were International. Now, I would say they were all from English speaking countries, so meaning primarily New Zealand, Australia, UK. But yes, easily a third to half of the attendees were International.

Tony: Is there sort of majority would be people such as accountants? Or is it quite widespread over many different professions?

Kirk: I would say it’s probably 50% accountants and the rest are the other three, meaning lawyers, software and creative.

Tony: So just before we move on from value pricing. For people who are intrigued by the whole concept of value pricing, because I’m guessing a lot of people listening to this are probably not so familiar with it. Apart from listening to your podcast, which would be the obvious place to go to, where else would you recommend that they could find out more about it?

Kirk: Obviously, there are some other resources out there. So one book that I highly recommend is Implementing Value Pricing by Ron Baker. Now, I will preface it by saying Ron is a scholar, so he spends the first two thirds of the book, the first 200 pages, setting up why value pricing is the way to do business and why hourly billing sucks. Then he spends the last third explaining how to implement it in your business. It’s a heavy read, but it’s probably the best book on the subject. Another book and it doesn’t address value pricing specifically, but it’s a great mind set book. If you’re going to try to make a shift, I really like Win Without Pitching by Blair Enns. You can find that on Amazon, or winwithoutpitching.com. Those are a couple of good resources. You mentioned The Art of Value show, my podcast. Another podcast that’s done by Ron Baker and my colleague Ed Kless is called the Soul of Enterprise. You can find that at the soulofenterprise.com. So those are maybe four resources you could get started with. But if you Google value pricing, there is more and more content coming up. I’m amazed how much content there is now compared to 10 years ago when I was making the switch.

Tony: So it sounds like people are slowly moving towards it more and more?

Kirk: Yes, certainly. Value pricing, I want to say this, it’s not just for people who bill by the hour. For example, one of my colleagues, Mark Styling, he has a PhD from I think it’s Stanford or Berkeley. He has just started a consulting practice on pricing. He’s specialising in hardware companies, for example, companies like Tesla that make cars but a lot of what they focus on are the software upgrades to the car, things like that. He approaches them from a value pricing perspective. In other words, find out what the perception of value is to the customer and then base your pricing on that, not on cost.

Tony: Right. I know that you’re a speaker as well. So is what you speak about, is it just on pricing or do you speak on other topics as well?

Kirk: I would say everything I speak about is related to pricing in some way. There’s probably four major topics that I typically speak on. One is on having the value conversation, how do you talk to a customer? What questions do you ask? How do you ask them? How do you facilitate the conversation to understand value from their perspective? The second is, how do you create options? A big part of value pricing is offering the customer more than one choice. What I say is when you offer the customer one choice, the question they’re answering in their mind is, will I hire you? When you offer them three choices? The question shifts to how will I hire you? You become your own competition. So that’s another topic. Third topic that I speak on a lot is just kind of the whole proposal cycle. How do you put a proposal together? How do you set the price? How do you present the proposal? Then probably the fourth is kind of the project management side. Everybody says ‘well, you’re giving a fixed price, what about scope creep? How do you manage it? So I talked about that. There’s several sub topics within that. But, I’d say those are probably the four big things that I talk on; the value conversation, creating options, presenting proposals, and project management.

Tony: You have a book as well, don’t you?

Kirk: Yeah. I am working on a book.

Tony: Right. Okay. When do you think that would be out?

Kirk: I would love to see myself finish that sometime in 2019. How’s that for a vague answer?

Tony: Is it a much bigger project than you anticipated?

Kirk: it is. I’ve got so many other good projects that finding time, and I’ll just be honest, I’m not already writer, so probably what I need to do is dictate the chapters and then, hire an editor because I just don’t enjoy writing. I don’t mind writing email content for the email list, because those are usually short. But long, written content is just not my thing. I prefer audio and video.

Tony: You mentioned in there when I asked you about what subjects, what topics you talk on, you talked about the value that you can provide to clients. This whole podcast is about giving clients, trying to over deliver and give them much more value than they expected so that you end up with great referrals and testimonials, and people just love working with you. So, what are your thoughts on that kind of whole area?

Kirk: On providing value to the customer, on the value you create?

Tony: Yeah.

Kirk: So I think first of all, you have to believe you create value, that’s where it starts. Everything and pretty much 90% of pricing is head stuff. It’s mindset. It’s what’s between the ears, it’s what you believe. You have to believe you create value. A lot of professionals don’t even believe they create value. Because they don’t believe it, they’re not even aware of the value they create.

So, they have to start with number one, believing they create value. Usually how they come to believe that is they have to look at the work they’ve already done, go back and go, ‘Well, what was the value I created?’ Not what did I deliver to the customer? But what was the customer able to do, because they worked with me? What was the better place the customer was able to get to, because we partnered together, that they could not have gotten to on their own? What was that worth to them not just in dollars, but possibly in time? Or it could be things like employee morale or customer satisfaction, or they got to take their first vacation in five years. Or what are those things? If you don’t know, go ask.

Your best customers, the one you have a good relationship with go, ‘Hey, can I buy you a coffee? Can we have lunch? Can we go play a round of golf?’ and ask them say, ‘look, what has been the best part of working with me?’ They might go ‘well, you respond this or that.“ You go, ‘Hey, I appreciate that. But, what I want to know is, what’s the better place you’re in, because we work together?’ You need to find that out. Once you believe you create value and once you can recognise the value you create, then you’re in a position to have value conversations because you’ve got confidence. You can’t have a value conversation without confidence.

Tony: Yeah. So, then once you understand the value you’re providing, and as you say, you’ve got more confidence in what you are giving, then it’s easier to price yourself properly. But, then you can also kind of hold back almost and give them additional value they weren’t even expecting.

Kirk: Well, certainly. That’s one of the reasons I love using options. Typically, customers are looking for something, there’s a what, and a lot of times when professionals talk to customers, they just talk about the what. For example, in the software industry, I want CRM, I need a CRM system, I need a custom project management system or something along those lines. But why do you need it? I’ll give you an example that I think really illustrates this. I had someone contact me and I can’t even remember the profession now. But basically, they wanted a custom CRM system. I said, ‘Why do you want it?’ I really had to dig and dig. They were not coming up with any valid reasons. Finally, it came up. ‘Well, my competitor has it.’ I said, ‘Okay, well, what advantage does it give your competitor?’ ‘How does it hurt you to not have it?’ Basically his answer was ‘I don’t know, but they have it so I want it.’

That’s not going to work because I could have focused on what he asked me to do, and we could have built it. What would have happened at the end of the engagement because he couldn’t articulate why it was valuable? He just thought he wanted it because somebody else had it. If he saw something else somebody had and he started focusing on that all of a sudden, working with me is not important anymore. I would argue it wasn’t very important to begin with. But, I’m just setting myself up and the customer for failure.

Tony: Well, we’ve almost come to the end. It’s flown by. It’s nearly half an hour already. What suggestions would you give to anyone listening as to why it is a good idea to try to exceed what your customer does expect?

Kirk: That’s almost a cliché nowadays. I think of it this way; you go to a website, and they say, ‘Hey, we provide great customer service and high quality and we’re responsive.’ I’m thinking, ‘Oh, great. Thank goodness I found somebody who does that, because last year I was looking for somebody who didn’t do that, and I had a bad experience with it.’ We’re always looking for those things, right? They’re table stakes.

So, exceeding what the customer expects to me, that’s a table stake, you just got to do that. If the customer is not better off in a way they didn’t anticipate by working with you, they’re not going to stick around. So the good news is, I think the best way to over deliver is to just have a fanatical focus on value. That’s what value pricing does. Value pricing starts with value and pricing comes second. It’s not pricing value, its value pricing. If you’re focused on value in a fanatical way, you will just, almost without trying sometimes, wow the customer. So, it doesn’t have to become something you strive for. It becomes a by-product of who you are. That’s why I said it starts with what you believe in your mind set.

Tony: A lot of people, I imagine, will start listening to your show. You’re up to, was it about 130 episodes or so now?

Kirk: That’s right.

Tony: I imagine it must get difficult trying to find new guests. How do you go about finding new guests for the show?

Kirk: It’s funny you say that. I actually, now I recorded, I haven’t recorded any new episodes this year and we’re about 10 days into the new year. I’m probably not going to have a new episode out until probably the latter part of January. But, I’ve already got four themes picked out for the year, and a long list. If I just did one show on each theme each month, I would already have a year’s worth of episodes. You might think that but once you start thinking and your creative juices get going, all of a sudden guests is not the issue. I think the issue becomes being consistent, not getting distracted into doing something else. I’m like a lot of other creative people. In fact, my team members one time got me a shirt that says ‘Easily distracted by shiny objects.’

Tony: Well Kirk, it’s been a pleasure listening to you for the last half hour, a pleasure talking to you for the last half an hour. If people want to find out more about you, where should they go to?

Kirk: I just say go to the website, artofvalue.com or you can email me kirk@artofvalue.com. Of course, I’m on Twitter, LinkedIn, Facebook, but start with the website. That’s where you’ll find the show. We’re also on iTunes so if you want to subscribe, do that.

Tony: Okay, and I’ll put all of those links into the show notes as well. So Kirk, thank you very much for taking the time to be on this show. I look forward to hearing some more great episodes of The Art of Value.

Kirk: Thanks, Tony.

Tony: Thank you.

Next week in Episode 19, I speak with Mark Sanborn. He’s the president of Sanborn and Associates. He’s written many, many best selling books, including, I think his biggest selling book was a book called The Fred Factor, which is all around the area of customer experience. Mark is a very experienced speaker. He’s a member of the National Speakers Association in America and he’s actually in their speaker Hall of Fame. There’s not so many people in that. His list of clients is just, it’s phenomenal; Hewlett Packard, Costco, Cisco, major companies, ESPN, IBM, huge corporations. So, that’s next week with Mark Sanborn. He really comes up with some really interesting concepts and it’s definitely worth listening to.

So, I hope you’ve enjoyed this show. If you did like the show, please join the Facebook group, maybe start a conversation on there about anything you’ve heard in this episode or any other episode. If there’s someone you would like to hear on the show, please do let me know. It will be great if you could leave a review on iTunes. We did a blog recently on how to leave a podcast review so you can find that on the website and in the Facebook group as well. So, hope you have a fantastic week and I’ll see you next week for Episode 19.