Art Of Value

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Why Value Is Important for Software with Wes McClure – 004

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Since software development is a technical craft, it is easy to focus on the details instead of the big picture. However, failure to focus on why the project is important can doom the endeavor before it starts. By starting with the value to customer, software development has a higher chance of success because every action contributes to the primary goal.

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This episode is Part 1 of a two-part series. Listen to Part 2: Value Pricing vs. Agile Development

Making a Commitment to Value

  • What is the most important thing you can share about pricing?
    • Step back and make a commitment to value.
    • If you can do one thing to improve your business, approach it from a perspective of what is important.
    • This commitment allows you and your customers to be successful.
    • Reflect on your work by asking yourself:
      • What was this worth to my customer?
      • What impact did the final product have on them?
      • Was it worthwhile?
    • You will have some of that information, but you will be surprised what you do not know.
    • The not knowing is what should concern you. Are you doing something worthwhile for your customer?
    • It may not have been sustainable for them.
    • If it is not sustainable for them, it is not sustainable for you.
    • Wes came to value pricing to solve the problems that arise from hourly billing.
    • The best way to assure you are committing to what matters is to price by value.
    • Do not proceed without ensuring that the value of the project will exceed the price to the customer.
  • What is one problem with charging by the hour?
    • It shifts the focus to how much time is spent.
    • It detracts from focusing on value.
    • You cannot assume the value is there.
    • It's in the customer's best interest to limit hours, which can jeopardize a software project.
    • In the consultant's mind, it is easier to say “yes” to items that are not aligned with value since it adds hours.
    • Time is irrelevant, and it is good for the customer to reap the rewards sooner.
    • Keeping up with the latest in technology is time-consuming but allows you to innovate.
    • In an hourly billing model, there is a lack of incentive to innovate because there is no direct compensation.
    • Consultants have the opportunity to hone ideas. You need to sculpt away the parts that will not add value.

Reframing the Conversation

  • Why do you change I need, I want to I think I need, I think I want?
    • People actually mean, “I think”, so having someone repeat it is valuable.
    • If you do what they ask and it is not needed, it is not helping them.
  • What should someone do if he is afraid to ask value questions?
    • Anyone making the transition knows how this feels.
    • It is a muscle that needs to be trained.
    • Have the patience to understand that you are not going to get it right the first time.
    • You will continually perfect how you approach things with a commitment to value.
    • Think out loud about the mistakes.
    • Do not steer yourself down the solution path.
    • Practice out loud with confidence.
    • Ask why questions.
    • Meditation can help.
    • Sit in a quiet space (even for just 5 minutes) before a value conversation to reduce the mental turmoil.
    • Meditate on why “why” is important and why you are committed to value.
  • What is one of your favorite questions to ask during a value conversation?
    • Determine if you are you working with someone who is accountable to results.
    • If you are only finishing tasks, you will not be able to have an impact.
    • Who decided this was the path to head down? (This will let you know if other people are involved.)
    • What can we do to include them, to understand what they think is important?
    • Who is going to sign the agreement?
    • Would you sign a legal agreement with someone to whom you have never spoken?
    • What impact is this project going to have on your organization?
    • Who are the operational and financial decision makers for this project?
    • Listen to find out if they have responsibility and authority. If they have the responsibility without authority, it is a problem.
    • What impact is the work going to have on their customers?
    • Think beyond the paycheck to the results to be delivered.
    • Who will be using it and for what will they be using it?
    • Steer the questions back to why.

Overcoming Challenges to Value

  • What is the biggest challenge for a software developer to adopt value pricing?
    • There is a lot of fear moving from a model where you had no risk to a model where you are sharing the risk.
    • If you knew what was worthwhile to your customers, how hard would it be to deliver?
    • As a competent professional, are you worried about what is necessary to get them the results they need?
    • 80% waste keeps you from the 20% that would add value.
    • A fixed price based on effort is completely different from a fixed price based on results.
    • Part of pricing is understanding what your risks are.
    • There is enough margin in this model to adapt for the unknown when you are focusing on results.
    • If the project is worth less than the price, the customer is not going to come back for more.
    • Effort-based models can bite you – you are taking on more risk than you think you are.
    • Blame can happend in an hourly model (who said what when).
    • Over 50% of software projects are over time, over budget.
    • An HSD (high satisfaction day) for Wes is when the customer explains the impact the solution had.
    • If you can adapt and incorporate something new, you can maximize the value.

About Wes McClure

Wes McClure is a software developer whose purpose is to help people improve how they create software. He applies the principles of value to software development. He studied computer science at the University of Nebraska and has been a .NET developer for many years.

The Value of Your Brand with Melissa Hawks – 003

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Your story is the core of your brand. If you know your story, you can tell your audience. If the audience connects with your story, they will share your message with others. On the flip side, if you do not have a story, you do not have a brand. Melissa Hawks explains the value of your brand to your customers.

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The Definition of Branding

  • What is the most important thing you can share about pricing?
    • Whatever your business, you have a brand.
    • Your brand has a story.
    • That story helps you connect with your audience.
    • Your story has value.
    • The value of what you have to offer is monetary and intrinsic.
  • How do you define branding?
    • Branding is bigger than a story.
    • Your story is a huge part of your brand.
    • “Brand” can be a cold, scary word.
    • Your brand's story is warm and personal.
    • Knowing your story helps your customers determine your value to them.
  • How do you work to help a customer discover their story?
    • Melissa uses a series of questions, leading customers to an understanding of their story.
    • Like therapy, she guides her customers to the answers.
    • Melissa is a brand therapist.
  • Why is creating a brand important to a small business?
    • It makes you distinctive.
    • It would be rare for you to have a skill or service that no one else has.
    • Your story is how you differentiate yourself from others.
    • Once your audience chooses you, they retell your story to their circle of influence.
    • Pricing sustains your story.
    • Apple is a great example of a company that understands its value both as a brand and pricing.
    • Understanding your audience helps you determine how to price your product or service.

The Impact of Pricing on Branding

  • How has value pricing changed the way you do business?
    • Before learning value pricing, Melissa charged by the hour.
    • She was pricing all her customers the same (musicians, artists, nonprofits and corporations).
    • Since learning value pricing, Melissa now provides a proposal based on the customer's needs and budget.
    • Instinct plays a role in pricing, based on what kind of energy the customer will require from her.
    • She offers different levels of engagement to customers to allow them make a choice.
    • You should not take every customer who comes your way.
    • Serving your customer well means knowing if you are a good fit for each other.
  • How has value pricing helped you improve the business of your customers?
    • For her creative customers, it has influenced their business model; they want to use value pricing also.
    • Understanding pricing is part of helping a customer create a brand.
    • Understanding your value is part of developing your brand, both pricing and intrinsically.
  • What has been the direct impact of better pricing on your business?
    • Pricing has enabled her to stay in business and beat the failure rate for new businesses.

Social Media Is Part of Branding

  • What is one of your best stories about creating value for a customer?
    • A nonprofit customer needed a social media report.
    • The report explained who the audience was, the performance on various social media platforms, and a plan to engage better.
    • The director stated that he finally understood how social media worked.
    • The company and Melissa both were happy with the price.
    • Melissa was happy with the amount of work she contributed, and the customer was happy with the value.
  • What is one of the biggest mistakes entrepreneurs make with social media?
    • Companies are not engaging their audiences; they are talking at them.
    • Social media is a conversation.
    • Ask questions of your audience.
    • Comment on the things your audience says.
  • What is the best social media strategy, being relational or sharing content?
    • It should be a balance.
    • You have to figure out who you are on social media.
    • Curate content and share your content as part of a conversation.
    • Slow organic growth creates a real audience who cares about your brand.
  • Does a good social media strategy help support your pricing?
    • Social media strategy creates brand ambassadors.
    • Those ambassadors support your story, value and pricing.

About Melissa Hawks

Melissa Hawks is a brand specialist at Hawks & Rock and a staff writer for Bedlam Magazine. She loves to connect a brand with its story and then the story with its audience.

The Value of Project Management with Ed Kless – 002

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What is the essential ingredient for a successful project? You may be surprised to learn it is having a value conversation. In fact, Ed Kless says you can get so good at having a value conversation that project management becomes irrelevant. Before a project begins, you need to ask the customer why the project is important and what success looks like.

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Value Is the Work of Creation

  • Why are creating and being an entrepreneur the same thing?
    • Entrepreneur is French and means “undertaker”.
    • An undertaker is one who undertakes; we undertake risk.
    • We create something of benefit to our fellow man.
    • Supply creates demand.

I believe that entrepreneurs continue the work of creation. – Ed Kless

  • How do you define value pricing?
    • A methodology for pricing in which the primary, but not the sole, determinant of the price is the value to the customer.
  • Why is value the primary but not sole factor when setting a price?
    • Value pricing is not a formula.
    • Pricing on purpose or pricing with purpose is probably better terminology than value pricing.
    • Four ways to spend money:
      • Spend my money on me
      • Spend my money on others (gift)
      • Spend someone else's money on me (expense account)
      • Spend someone else's money on someone else (government)
    • Do you like the customer?
    • What is the price of the next best alternative for the customer?
  • Why is it important for a professional to embrace value pricing?
    • It is what is most fair to the customer.
    • Cost-led pricing puts the risk on the customer.
    • If you suck at what you do, you should continue to bill by the hour.
    • The professional should assume the risk.
    • Put the customer first in the chain, rather than the costs.
    • Then confirm that you can justify the costs.

The Definition of Project Management

  • How do you define project management?
    • A project is a temporary endeavor, undertaken to create a unique product, service or result.
    • Two important words: temporary and unique.
      • A project is not an ongoing relationship. It is a short duration.
      • Every project is different.
    • Project management is the ability to educate the customer on what the project is.
    • It is the art of keeping the scope in balance with resources and time (Triangle of Truth).
    • Time is a constraint, not a resource in this theory.
  • Why is the Triangle of Truth an equilateral triangle?
    • The circle inside the triangle is the quality.
    • If the angles are out of alignment, the circle will be smaller.
    • Project management adjusts when the triangle gets out of balance to maintain the circle of quality.
  • Why should change requests happen in advance?
    • A change request does not always involve price; it can be duration.
    • Change orders happen after the work.
    • A change request comes before the work is done, to ask the customer to approve the change.
    • State things upfront and get an agreement before they happen.
    • Pricing happens before the fact. Billing happens afterward.
  • What is the wrong question to ask in project management?
    • How much is this going to cost?
    • The correct question is: What is the value of this to me?
    • The cost is irrelevant; the value is important.

The Impact of Value on Project Management

  • How do the same skills apply to pricing and project management?
    • Having a value conversation is needed at the beginning and throughout the project.
  • How can you “suck” at project management and still be successful?
    • If you get great at the value conversation, you can still be successful.
    • If you can help people understand what the value is, the price will be high enough that your costs will be irrelevant.
    • Great value conversations outweigh poor project management.
  • Why should a project manager practice the value conversation?
    • Unless someone never gets in front of a customer, everyone should try to get better at understanding value.
    • Ask the sales team what the value is to the customer if you are a behind-the-scene project manager.
    • If you do not understand the value of the project, as a project manager, you might be doing something immoral.
    • If you do not know the value to the customer, any work you do might be causing more harm than good.
  • Three important questions with the same answer:
    • What is necessary to keep a project on track?
      • Have a good value conversation and keep the value perspective in front.
    • What is the number one mistake project managers make?
      • Not having a value conversation or not understanding the value.
    • What should you do when a project is off-track?
      • Have a value conversation.

How to Improve Project Management

  • What is the relationship between value and completing milestones?
    • Focus on what is important, which is being effective rather than being efficient.
    • Efficiency is doing the thing right; effectiveness is doing the right thing.
    • Break things down into consumable chunks to achieve the value.
    • Separate time as duration vs. time as effort.
    • Resource planning is needed, but tracking minutes (hours) is not effective.
    • If the time (resource) is significantly longer or shorter than allocated, then you need to have a conversation.
  • How can you anchor the duration of a project?
    • Airline pricing is a great example.
    • When do you want to go? Going in 2 days is a higher price than in 2 months.
    • You can anchor the duration to the price with options.
    • Steer customers to the optimal timeframe in which you want to complete the project.
  • What advice do you have for someone who is struggling with project management?
    • Get better at the value conversation.
    • Relax a little.
    • Anxiety about project management can result in trying to capture everything instead of looking forward in the project.
    • Make sure you are completing the objectives on time; understand why you are not.
    • Get good at conducting an after action review.
    • Be more effective vs. efficient.
    • Keep a value perspective and be effective at creating the value.
  • What is one of your best stories about creating value for a customer?
    • Software implementation for a warehouse in Brooklyn.
    • Warehouse manager could not figure out how to do an inventory transfer in the system.
    • Ed told him, Clearly this is something you do not want to do.
    • The manager's whole body relaxed, and he said, You are right. I hoped I could retire before I had to learn computers.
    • After explaining that was not going to happen, the warehouse manager became an inventory transfer guru.
    • Ed gave the manager a sense of self-worth and dignity.
  • What is The Soul of Enterprise radio show?
    • Talk show with Ron Baker on Voice America.
    • Ed and Ron believe that business has a soul.
    • Professional managers are robbing people of their humanity and creativity through data mining.

About Ed Kless

Ed Kless is the Senior Director of Partner Development & Strategy at Sage Software. He is a Senior Fellow at VeraSage Institute and a talk show host on The Soul of Enterprise. He also ran for the Texas State Senate.

Art of Value Show Promo – 000

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Welcome to the Art of Value Show. My name is Kirk Bowman and this is the show where we discuss all things value pricing.

What is value pricing? It's a business model that will help you create happy customers and make more money in the process.

On the show, we're going to talk to authors, speakers, and thought leaders in the area of value pricing.

We'll explore how do you discover value from the customer's perspective? How do you create options to give the customer choices? And how do you set a price that creates a fair return on investment for the customer?

I've been practicing value pricing in my business for over five years. And now I'm ready to help you do the same.

Join us as we explore the Art of Value.

Why I Switched to Value Pricing with Kirk Bowman – 001

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In 2009, I participated in a panel discussion on estimating and billing practices for software developers. I took the position that hourly billing is the only way to charge customers for custom work. At the same time, another panelist suggested that billing by the hour places an arbitrary limit on your income. This planted the seed to change my business model forever.

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The Story Behind My Switch

  • Value pricing is a business model that determines the value to the customer and then sets a price to create a fair return on investment.
  • I read Value-Based Fees by Alan Weids and several blog articles.
  • I made a public commitment to switch within 12 months on the FileMaker Talk podcast.

If you bill by the hour, there's an artificial limit on your income. – Jonathan Stark

The Principles of Value Pricing

  • Value pricing is a way to better serve the customer and make more money.
  • With hourly billing, it is in the customer's best interest to take as few hours as possible for a lower price.
  • It is the professional's best interest to take as many hours as possible for higher revenue.
  • Hourly billing creates a conflict of interest between the professional and the customer.
  • Value pricing aligns the interests of the professional with the customer by focusing on the value created.
  • There should be high value and high ROI for the customer.

If You Want to Learn, Teach

  • I decided to teach value pricing to learn it. I gave my first presentation at PauseOnError.
  • VeraSage is a think tank dedicated to eliminating the billable hour in professional services.
  • I sought out Ed Kless after reading his biography on the VeraSage website.
  • The first time I used value pricing, I quoted a price twice what I normally would, based on value.

The Results of My Switch

  • There are three outcomes for a customer when switching to value pricing:
    • Embrace the change
    • Refuse the change
    • Make the switch and then stall
  • You will lose some customers.
  • It is better to start with new customers when switching to value pricing. Start with a small one.
  • In the first year, gross revenue increased by 56%.
  • In the second year, gross revenue increased by 79%.

The Disadvantages of Hourly Billing

  • The professional is paid less for working faster with hourly billing.
  • The faster you create value, the more it is worth.
  • Hourly billing focuses on the wrong thing: inputs instead of outputs (results).
  • Customers ask about hours because that is how we have trained them. (The History of the Billable Hour)
  • The customer should focus on the results – only doing work that matters.
  • If you can shift the conversation to value, there will be substantial work that matters to the business.
  • Determining value and setting a price is more art than science.
  • We learn better through conversation and story.

About Kirk Bowman

Kirk Bowman is the founder and Visionary of Value at MightyData, a custom software company in Dallas. After successfully switching to value pricing at MightyData, Kirk started Art of Value to help other professionals learn to price for success. He is also a Practicing Fellow at VeraSage Institute.