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Episode 8: Why you shouldn't bill by the hour

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All Xero In episodes

Hosted by Jeanne-Vida Douglas and Rob Stone

Value-based pricing is a little understood strategy for small to medium businesses. Discover how losing the hourly mindset increases customer - and personal - satisfaction.

In this conversation with Xero In hosts Rob Stone and Jeanne-Vida Douglas, managing partner of Marque Lawyers, Michael Bradley, talks about how he changed from cog in the machine to never wearing a tie.

Episode transcript

Participants: Jeanne-Vida Douglas, Rob Stone, Michael Bradley.

 

RS: Well welcome back to Xero In, I’m your host Rob Stone and it is great to be back again. This time with a new co host, JV Douglas, hi JV.

JVD: Hi there Rob how are you?

RS: Yeah really well, really well, I’m very excited about this new chapter, can you tell me a little bit about your background?

JVD: Yeah absolutely, I’m really really stoked to be here actually, because participating in Xero In is going to be fun, chatting about what I think is the most important part of the Australian economy which is small businesses, yeah?

RS: Me too.

JVD: And just I’ve always been inspired by them, I used to work at BAW magazine, I actually wrote a book a couple of years ago called The Profit Principle, which was about how to start your business, how to turn what you love into what you do and make money from it. It’s been a really strong theme throughout my career, so I’m really, really happy to be here.

RS: I’m excited as well and that’s the type of things that I’m love hearing from all the people that we talk to is you know, why they’re in there, the purpose and aligning all of that.

JVD: And the passion.

RS: And the passion.

JVD: And you know the – the bravery it takes to put your shingle out and say, “this is what I do, this is how I’m going to do it.“ I have so much respect for people who do that, which is why I’m really happy to be here.

RS: Me too, very courageous.

JVD: [Laughs] It’s going to be awesome and you know speaking of courageous, the guy we’re talking to today is amazing. Michael Bradley who I think went through what a lot of people go through in their careers, you start out you’ve either done university, done some kind of trade, you’ve taken that into a career. You’re looking to carry that passion on and at some point you, you just really, you hit the wall.

RS: But then what he’s doing at a professional level to an industry that hasn’t really changed that much, is quite incredible, it’s a – a big story and he’s a maverick.

JVD: He is a maverick, and he’s done something that a lot of us want to do with our lives, and that is we want to change things, you know.

RS: Yeah.

JVD: We – we see where there are problems, we see where there are challenges, whether its professionally or whether it’s with – within the economy, within the way the world functions. We see something that we – we don’t think is right and we do want to change it, and Michael’s actually been true to his word and he’s changed things. He’s – he’s created his own practice where they’ve done away with time sheets.

RS: Incredible.

JVD: It is. It is and I think there’s going to be a lot of listeners out there who are in professional services and – and let me put this – put this totally bluntly, this guy runs a professional services firm without time sheets.

RS: Yeah it’s incredible. He’s got answers to some questions which I – I just, I’m dying to know how do you do it?

RS: And how do you make it so successful?

JVD: yeah, let’s hear from him hey?

RS: Okay let’s do it.

MB: I was managing partner and then I very suddenly stopped being managing partner for reasons not of my own choosing. What was I then, forty three – so suddenly faced with quite a career ahead of me but not doing what I thought I was going to be doing I had the sort of blessing of being forced to think for the first time in my career about what I actually wanted to do.

MB: It didn’t feel like a blessing initially but it turned out that they’d done me the biggest favour of my life.

MB: I have this really clear recollection of a pivotal moment which happened not long before I got booted and I’d been on a holiday. First day back I got out of the lift on my floor and sort of got hit by this wave of despair that just came out of nowhere and I had this sudden thought that I couldn’t think of a single thing that I was going to do coming back into my job from holidays that I would enjoy or that would make me happy and – and sort of I just sort of stopped dead and that took me a couple of seconds for my rational brain to click in and say well that’s just stupid, you’ve got a million things to do, you’ve just been on holiday for four weeks so, you know, you’ll have three thousand e-mails to answer for a start.

And then I just, you know, kept walking.

JVD: So, on that day you kept on walking, but then you actually stopped and you stopped walking down that same corridor and you went out and you started something entirely different, can you talk us through that?

MB: We started the firm seven years ago which for me was after twenty years of conventional legal practice and this – this place was designed as sort of the antidote to all of the poison that we’d experienced. So yeah so we’re very happy.

RS: And it’s part of that – that poison in a traditional professional firm was – I mean timesheets is one of the big things about your practice, what – what in particular didn’t you enjoy about the twenty years?

MB: Yes…

JVD: In a nutshell…

RS: In a nutshell…

MB: Yeah – yeah, they are a big part of it, and – and getting rid of that was a pretty key driver for us. There’s just nothing good about that, the idea of valuing yourself in time units, it’s pretty awful, and having your life governed by a timesheet.

It’s really demeaning and it also creates entirely dysfunctional relationships with clients so you don’t even get satisfaction at that end and they hate it too. So it’s really just a recipe for unhappiness for everyone.

JVD: What were the other things that you really wanted to make part of this new enterprise?

MB: There were three things and they really actually remain the sort of fundamentals of our business,

The most important one was the question of how we would run our business in terms of measuring performance and rewarding it..

We had recognised as being probably the most toxic and destructive aspect of how law firms run, and certainly the one we were in, is that they are – they’re essentially Darwinian business structures.

They call themselves meritocracies, which they are in a sense, but it is – really is about survival of the fittest.

Performance is measured really exclusively in financial terms, whatever anyone says that’s the reality, it’s all about how much money you bring to the table, that’s what gets you into partnership - what gets you equity and what determines your equity share and ultimately how much you’re paid, and it also determines power within the organisation.

That is from our point of view utterly destructive in terms of human relationships and – and happiness.

We’re not particularly interested in trying to measure the value of any particular client or flow of work because we recognise that it’s impossible and open to abuse and corruption. And so the way we look at it is that we’re a partnership, we’ve committed to each other and decided to share our destiny in a business sense.

RS: Question re-record. Now Michael, that sounds great, how do you track everyone’s contribution?

We accept that there will be widely varying degrees of contribution.

Because people will, you know, have good years and bad years but as long as we’ve made good choices in terms of who we choose to be in business with and we all remain committed then that’s fine, that will all even itself out over time and anyway it’s not about the money.

We de-emphasise the money question in our business, we – we’re in business to make a profit but we’re not in business to maximise that profit or to maximise our incomes or to come up with a formula that will accurately divvy up the pie according to what each of us brought to the table because we know that’s impossible and we know that it will deliver nothing but unhappiness to us because we’ve all been in that before.

Self-interest always delivers a poorer result in the long run and – and our experience bears that out, but you know that requires a pretty massive leap of faith and it’s not how businesses ordinarily operate and it’s certainly not how law firms normally operate but for us it’s – it’s a fundamental difference because that’s the difference between happiness and unhappiness for us.

JVD: Can you just take us back maybe to when you started out in your career in professional services?

MB: Yeah, I went through the fairly standard career trajectory, started as a graduate at a firm that offered me a job and went through the usual process of realising that I didn’t know anything, eventually working out how the system worked and the interesting thing about it is the idea of a timesheet is really weird when you first encounter it, this idea of having to fill in six minute units all day long and that that is somehow a measure of success or failure is really peculiar and it takes some time to get used to that because it’s completely foreign to the reasons why you chose to be a lawyer in the first place. I mean nobody chooses to be a lawyer so they can fill in a timesheet.

RS: So you – you spent twenty years in an environment where you were governed by six minute intervals and I – I know…

MB: Yeah.

RS: I know that feeling because I – I started out in a professional firm and as a minion – you know, it was what – what is going on here, I’m in shock, and it took me a lot longer than others to work out how to play play that game of balancing between what’s right for the clients versus – you know, the optics internally to – for your own career.

MB: I learned the game fairly quickly. It is really interesting to me that there are certain practical realities to it, one of which is that you can’t actually make a fee target day in day out without cheating and – you know, nobody will acknowledge this but that’s – that’s the truth of it…

RS: You heard – you heard it here first, wow…

MB: Exactly, yeah – it’s tacitly celebrated within professional firms, sometimes explicitly celebrated but – but it is the only way you can actually achieve those – those benchmarks and to do that of course you have to park a part of your morality, your ethics, because it’s wrong. It’s not the kind of thing most people would do in their normal life because it’s actually lying and cheating but you sort of train your brain to switch into a different gear when you go to work because the moral foundation of that place is different from the outside world. And to succeed you have to do that, there is no other way.

JVD: Was there a turning point or an ‘aha’ moment where all of this – this kind of frustration or toxicity came to a head?

RS: And did you start realising that – you know, that you were being conditioned?

MB: I don’t think I ever realised it, I don’t take any personal credit for any of this, for me there was just a combination of circumstances and stage of life. Looking back one thing I do realise is that I ended up with the same beliefs that I started with, it was just a process of being convinced that I was wrong, that my beliefs might have a sort of an abstract validity but they don’t work in the real world.

That’s one of the things that sustains the institutional organisations over many generations, that each person coming in, or most people coming in, tend to be fairly idealistic and keen to do the right thing but they walk into a structure in which there are many people who started out the same way but have learned to think in a different way and it’s difficult to fight against that to sort of maintain belief in yourself.

JVD: I don’t know if you have the answer to this Michael but why do we keep taking the best and brightest graduates that we have from high school and putting them through these – this university only to bring them into a profession that just tears them apart.

MB: I think it’s just an incredibly powerful paradigm that sort of sustains itself through generations and law firms offer a – quite a bit like casinos, I mean they operate at a high level of status so, you know, it’s a desirable prize to get in.

MB: So you start as a lawyer and then you very quickly start to collect the trappings of that and you’re in an environment where status is critical, you know, hierarchy is very obvious and overt, the trappings of status like who gets which office and so forth, and promotions, that’s all an explicit part of the culture and there’s an incredibly strong force to conformity, so the pressure on you to conform in every respect, how you dress, how you look, how you talk, how you write, what you think – it’s really intense and you either go along with that or you get out, or you’re pushed out.

So good money, high status, high profile work, you know, in shiny office towers and so there are lots of sort of external reasons to feel like yes this is good and really in a sense it would be churlish not be happy. So the legal profession is full of people who are convincing themselves day to day that they’re happy or that if they’re not happy then they have no right to not be happy and it’s really hard to walk away from that.

And so there’s sort of a general acceptance that as you learn it’s an ordeal but the rewards make that ordeal okay although in truth they don’t but that’s the equation that you’re asked to accept and many many people do. The cost of that is very high rates of mental illness and suicide and, you know, just awful unhappiness.

RS: So, Michael,there’s one thing knowing what’s wrong with a system from which you come from but then when you’re starting your own shop up I mean to have the courage to not use that existing system. Could you talk us through the thought process that says you know what? I am going to do it differently this time.

MB: I had thought actually for quite a long time that there must be a better way of engaging with clients than time costing. It had always struck me as odd that you had a market place where every provider was doing the same thing and every customer was expressing their dislike and I felt that there must be a possible alternative, there must be a different way of doing it which would create enormous opportunity for anyone who was brave enough to try it.

So that sort of came back to the surface for me when we decided – a group of us decided we were going to leave. The immediately obvious question was how would we attract clients and I know enough about marketing to know that you need a differentiator if you want to stand out in a crowded market place. In a legal market place – so what law firms do mostly is try to look like each other, so there’s – and they do it very well.

RS: Safety in the herd.

MB: Yeah, I was looking for - for differentiators to enable us to hit the market hard and make a splash, and the pricing thing was really the most obvious.

So that – that took on central importance for us in – in designing our new business.

RS: It’s a bit more of a mundane question but, you know, I’m an ex accountant. When you’re pricing something to your clients, you’re not using a cost plus model. But then do you then have to keep going back and resetting the expectations of the client if the matter becomes more time consuming. How do you budget your staff’s time?

MB: So we value price, so it really bears no relationship to a cost model at all. We’re looking at price entirely contextually which means you can get an entirely different result for the same piece of work in two different contexts.

I think the best way to explain it is that both we and the client bring to that conversation a perspective on value.

One of the things we offer is certainty, and in doing so we take commercial risks.

A lot of the work we do – we had a lot of clients on retainer so they pay us a fixed monthly fee and it covers all of their work or a particular scope of work and it doesn’t matter what we end up doing, that’s what they pay. So because – because what we offer them is the ability to – to fix their legal risks and – and budget for it, and so that’s locked in.

RS: I was going to ask what piece of advice would you give if you wanted to move into value based pricing but for me what I really want to know is, you know, what piece of advice or what type of questions would you ask yourself if you may have doubts?

MB: It’s really hard to step outside yourself and your current environment, and to be objective. You know, it’s extremely difficult, and I think what you have to do is to – take yourself to a point further towards the end of your life and – and try and look back on where you’re at, and think about the choices that are available to you and try to be open minded about that because there are – there are always more of them than you think there are.

JVD: So if – what’s different between the Michael Bradley we’re talking to now and Michael Bradley at forty three?

MB: Well I don’t – I haven’t worn a tie for quite some time. I think I’m down to one suit now which I only pull out for if I have to go to court or to a funeral…

JVD: Hang on, no that’s – that’s ground-breaking.

MB: I – yeah, look I – I mean I’m a billion times happier and certainly a lot more self-aware, and less hung up on my own importance and status, and I think I’m measuring success in life on a completely different standard. I’m still, you know, susceptible as is everybody to external measures of success and the ego feeds and all that, and have to maintain consciousness not to fall into those traps again. But – but yeah I think I’m a rather more balanced human being these days.

MB: One thing that sort of often comes up is, you know, people talk about how brave or risky our decision was to start this firm and to – you know, to be so different and so outspoken about it, and you know, the risks that are attached to that. And I often get approached by lawyers who sort of say to me – you know, really love what you guys are doing, I think it’s great, I wish I could do it but I can’t and I always feel really sad about that because they could.

The lesson in it, I think, is that even if you have a positive idea about how to do something, whether it’s new business or a new way of doing the same old business, and it’s something you really believe in and you’re able to articulate that, then the most profound learning we’ve had is that people will buy into it, that most people want to attach themselves to positive things. The response we got from the market when we started was unbelievably positive, we were just blown away by how much people wanted us to succeed and that has continued to this day. People want us to do well, they like what we’re doing because we like it and because we’re positive about it

JVD: What are you hoping you’ve started?

MB: What I’d love to see is that our business has continued to thrive and continue to be open to change and that we accept that the world is going to continue to change and we should change with it and a culture where we continue to be excited and optimistic about that and not scared of it. To me like that’s the ultimate success for an organisation.

JVD: Well Michael just I – I’d love to wish you every possible luck and good fortune in that endeavour, and – and just thank you so much for – for taking us on this journey and taking the listeners on this journey today.

RS: It’s an incredible story, I mean starting off as being a – you know, a maverick in industry, I hope that legacy flows through. But thank you so much, it’s been great to be able to share this.

MB: Thank you, it’s been lovely talking to you.

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JVD: So wow that was an amazing conversation.

RS: It was incredible. A real eye opener, you know how to blaze your own trail. Break out.

JVD: And also the idea that you’re able to stick to your guns and commit to changing.

RS: Particularly when you got a whole industry telling you, no that’s not how it’s been done…

JVD: It can be done.

RS: And then you go out and you do it completely different. The thing I really loved was at the start, he was like okay, I recognised what I don’t want, and then it started with himself and then it flowed through into his business.

JVD: So many people go into business because of that happiness factor, and the thing that I find really inspirational about Michael is that he went into business not only to make himself happy but he went into business committed to making other people happy.

RS: That’s it. Helping others.

JVD: That gives you reason to get out of the bed in the morning.

JVD: So if you’ve got any questions you’d like answered on the show, please make sure to tweet us, we’re at @xeroin and use the hashtag xeroin too, we’re going to have a listen and see what people are saying.

RS: And don’t forget if you enjoyed today’s podcast make sure you subscribe on iTunes, the link is in today’s show notes, on xero.com so you’ll never miss a show.

JVD: Which would be terrible wouldn’t it. Thanks for joining us.

RS: Thanks JV.

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