Track 6: From Transactions to Transformations: Charting Success with the Subscription Model

Transcription:

Ron Baker (00:08):

Welcome folks. We're going to go ahead and get started. I always like to joke that I have 50 minutes. I have 50 minutes to convince you of a new business model that overturns not only the billable hour, but even value pricing. That's hard to do. In fact, I don't think it can be done if you can change a mind in 50 minutes, probably not worth changing, but I'm going to give you my best case. So if I were to ask this group, why did you become a CPA or finance professional EA, whatever it is, why are you in this profession? What kind of answers do you think you get? Because I've done this internationally amongst a lot of different professions, not just CPAs, lawyers, actuaries, doctors. What do you think the number one answer we get is money. Money does come up. Security comes up



Audience Member 1 (01:29):

To help



Ron Baker (01:30):

People, help people. How can you help people? If you have 3000 clients and you're working a hundred hour weeks, you can't, and you know what that's called? That's not called burnout. That's called moral injury. When you're not living by your purpose, that's what they call it in the medical profession and that's what they called it after Vietnam. That's where the term moral injury comes from. I think that's where we are. It's not burnout. That's not why people are leaving the profession. We're all type A personalities probably in this room. You're used to hard work. It's not burnout. It's our business models. If I came into your home and changed your light bulbs with brand new ones and 50% of them blew out, do I blame the individual light bulbs or do I blame your electrical system? And the electrical system in this case is the business model. And finally, we have a business model that conforms to why you and I entered this profession to help people. We're moving from transactions to transformations and you're, you're going to hear some very, very controversial things in here today in the next 50 minutes. I don't expect you to believe any of it,



(02:58):

But I do want you to keep an open mind because minds can be changed. It takes a while. It's usually not a burning bush moment. Could be a BFO, A blinding flash of the obvious. But when I've changed my mind on big issues, I've wrestled with it for a long time. So maybe we can start that journey for some of you today, folks. It's business models that are disruptive. It's not ai, it's not new tech. Here's the late founder of Intel, Andy Grove. He said, disruptive threats come not from new technology, but from new business models. Think of what Napster did to the music industry and then who saved it? Steve Jobs said, no, no, don't worry about stealing music. We'll just sell you a song, a pop and a buck. And by the way, you can put it on my iPod and you can make your own playlist and play the music you want to hear for whatever mood you happen to be in.



(03:58):

Now, of course, we stream music. The business model changed. Again, we have Uber, Lyft, Airbnb. The reason they're disruptive is yes, they're tech. They're enabled by tech. No doubt about it. You wouldn't have Uber without the iPhone, wouldn't have happened. The GPS, all of the touch points wouldn't be there, but you still need a business model to bring it to market, and that's where disruption manifests itself. It manifests itself in new business models and business models are highly disruptive because they change everything. So we're not just going to be talking about subscription pricing because this isn't just a pricing change. This is a business model change. It blows up everything including your accounting, your KPIs, how you go to market, your language changes, everything changes. It's a holistic systemized business model change. So if you look at the foundations of a business model, and I just want to run because this is a big, big topic.



(05:10):

This could have been a whole session on itself. People want to dive right into the pricing when you talk about a business model change, but you know pricing's the last thing you consider. It's a lagging indicator. It's the junior partner, your purpose, your positioning, and your strategy or the senior partners. Now, I'm not going to talk about purpose. I'm going to assume that you've seen Simonson X start with Y and people don't buy what you do or how you do it. They buy why you do it. Purpose is your moral DNA. It's what you do, what your firm does without having to think that comes first and then your strategy. You've got to have a strategy and a strategy's not a plan. A plan is predictable. We're going to do this, this, this, and this and this. And strategy is not, we're going to grow by 20% in the next two years. Financial results are the outcome of a good strategy.



(06:09):

They're not a strategy in and of themselves. Planning is predictable. We are going to do the following things. A strategy is not predictable. It's a theory about what your customers will accept. Think about southwest. Southwest had the most bizarre strategy for an airline back in the day. We're not going to fly into Maine airports. We're not going to have a hub and spoke system like every other airline on the planet. We're going to fly the same type of plane. We're not going to fly internationally. We're not going to have first class business class. We're going to serve peanuts and we're not going to compete with the other airlines. We're going to compete with the passenger either driving themselves or taking the bus. So their pricing wasn't against United and Delta and American. It was against you driving or taking the bus, and it still is to this day. It was an insane strategy and everybody in the airline industry told them that just like everybody in the amusement park business told Walt Disney, this will never work. Walt Disneyland never work. They gave him two pages of reasons why he ended up hiring two of 'em as a consultant and went ahead and did it anyway because entrepreneurs are weird. They have a different vision of the future that most people can't even see, and that's what makes our lives better.



(07:39):

And your strategy is really, really key. Who are you going after and how are you going after them? And then you need to have a positioning in the market. Are you Morton's or are you McDonald's? They both sell, they both sell meat. But if you're expecting Morton's when you walk into a McDonald's, you're going to be disappointed and vice versa. Got to have a positioning statement and it's got to be focused. I think if CPAs were veterinarians, their sign outside their office would say veterinarian and taxi dermis. That way they could say Either way, you'll get your cat back.



(08:27):

Strategy and positioning is all about trade-offs. You can't be all things to all people. You can't think about the medical profession who started to specialize in the forties way before we did. Our profession started to specialize really in the eighties about the time I entered it, but the medical profession's been doing this for decades. You go to a GP, you know exactly what a GP can do, but more importantly what they don't do, you're not going to get cardiac surgery, you're not going to get your knee replaced, you're not going to get oncology services. Now, they might quarterback those relationships to the specialist. Your firm is defined by what you don't do and the customers you don't serve. Period. That's positioning. Tell me who you don't serve, what type of clients you will not accept. Tell me what you don't do. What type of services don't you offer that has to be worked out?



(09:26):

Notice we haven't touched pricing yet, and now we come down to the business model and there's two fundamental questions I'm going to try and answer for you today. The revenue model question and the pricing model question. Now the pricing model question is actually the easier of the two. How much do we want our people, our customers to pay us? That's not very exciting. Yeah, there's things we can do there. There's strategies we can offer options, we can offer tiers, all of that type of thing. But the more interesting question is the revenue model question. What are we asking our customers to pay for? Is it a tax return? Is it an audit? Is it services?



(10:12):

I contend to you or I pause it to you that it's not, our services are not where our value is. Probably the most heretical thing I'll say up here. It's not about the services folks. It's not they're being rapidly commoditized and they'll be rapidly automated. And I'm not scared of ai. I have future glee, not future shock. I think AI is going to be lovely because it's going to take away all the grunt work nobody wants to do. So we can do higher value things. The problem is we've seen this with tech before, tech automates things and every tech vendor will tell you, we save your time so you can do the more valuable work. And then you know what we end up doing? We get more of the work that you can automate and we never move up to the more high value things.



(11:05):

The subscription model insists that you do that. It's designed around us not doing the things that are least valuable and focusing on those things that are really the most valuable, both at the macro level and the micro level. So I want to focus on the pricing model. Well, the revenue model question, that's where I'm really going to put my focus. So if you think about the evolution of CPA firm, business models and pricing, hourly billing's been around since the sixties. I just read an article that says been here over a hundred years. That's false. It has not. It's been in the legal profession for a hundred plus years. It's only been in our profession since around the sixties. Before that, we had day rates for people, the big eight, big 10, big 12. They charged by the day. And those rates vary if you were a partner, if you were a manager, whatever.



(12:03):

But they were fixed prices, but hourly billing prices based on the inputs, our costs, our efforts are ours. This is why the time sheet was developed also by the legal profession. By the way, the first firm, 1919 in Boston, Massachusetts was the first law firm in the world to simultaneously introduce both the billable hour and the time sheet. Guy's name was Reginald Heber Smith. He was really quite a pioneer. There was a lot to admire about this guy, but it was all based on inputs. That was the price. How many hours did we spend? And then when I entered the profession around the eighties, we moved to kind of a hybrid where we had fixed prices for audits. I worked in audit, we gave fixed prices. There was a fixed price, didn't matter how long it took. Now how did we get the fixed price?



(12:59):

We built it up based on how long it took last year, maybe added a little bit to it, if there was anything outside of scope that of course was billed hourly. But we did use fixed prices. That's pricing based on outputs. Here's a defined scope of work, just like an auto mechanic, here's what I'm going to do, and if we find something else in there that's not in this definition, I'm going to call you and get an authorized change order and then fix those additional issues. Then in the 19, late eighties and nineties, we started to teach value pricing. I implemented value pricing in my firm in 1989.



(13:42):

Got rid of the time sheets shortly thereafter. Not pricing on time, no need to measure time. Now we're pricing the customer. We're not pricing the services, we're pricing the customer because each customer has a different sense of value that rubbed a lot of people the wrong way. I had to build a case for the ethics of price discrimination in effect that price discrimination meaning charging different customers different prices based on their ability and willingness to pay. Remember the outrage over Wendy's when they said, oh, we're going to do dynamic pricing. People went nuts. But all that meant was that during the slack times, we're going to lower our prices. They weren't going to try and they didn't talk about surge pricing like Uber. They talked about dynamic pricing, which is matching supply and demand in real time, and that's what value pricing is. But subscription is different.



(14:42):

Subscription is a periodic payment that the customer makes in exchange for recurring. In other words, we're constantly adding value, a frictionless experience, and ever increasing value. Were constantly what Walt Disney called plussing the offering. We're adding things to the park to delight and surprise the customers. So they always come back and serial transformations. Now, I know that definition is a mouthful and I apologize for it, but each one of those words is a suitcase word. It needs to be unpacked. Each one of those words is doing a lot of work. Serial transformations, folks, we're headed into a transformation economy.



(15:30):

That's where we're going. Subscription's probably just a way station, but it glides the path to make it easier. Our real value as professionals is what Ben Franklin said. Keep people healthier, wealthier and wiser. Doctors play a role, obviously healthier. We play a role wiser and wealthier hopefully, and that probably benefits their health, but we don't use this terminology of transformations. So my favorite definition of a business model, I'm going to show you in a minute because it's the most evocative definition I've ever read, but first I just wanted to show you because your accountants, you got to have either a financial statement or a spreadsheet within the first 15 minutes. They tell me I don't have to say anything. This is why subscription's different and has nothing to do with gap. Notice that we're not trying to match costs to a revenue to an SKU, to a product, to a service. There is no matching in subscription, just like there's no scope in subscription. The second most controversial thing I'll say today, no scope in subscription, none. Whatever the customer needs when they need it, they're covered. I'll explain more, I promise. But notice that this starts with ARR backs out churn, lost customers and ends with annual recurring revenue.



(17:15):

The expenses are categorized to facilitate the computation and KPIs, which by the way are well flushed out in the subscription business model. I mean, Andreessen Horowitz has got report after report after report about the KPIs they use to judge and value subscription businesses, whether they're startups, mature, whatever phase they're in, and they're really good and they're empirically tested. We don't have to reinvent the wheel here at all with KPIs and not one KPI has anything to do with time because what you're doing in this model is you're building lifetime annuities that are more valuable than the cost to acquire them.



(17:59):

That's a different profit formula. This looks at profit as a portfolio the same way you look at return on your investment, whether it's your IRA, your personal investment, whatever. You have some things probably in your portfolio that are high risk, that are high reward, too medium risk, medium reward, low risk, low reward government CDs, right? What you care about is the return of the whole portfolio. You're not trying to break it out. We don't break out profit per job, profit per customer, profit per hour, even dumber trying to run an income statement for every hour in your firm. How the hell's that work? Never understood that. How can you possibly have an income statement for every hour in your firm? Makes no sense whatsoever.



(18:52):

This is a different model and the KPIs are different. And since I've written a book on this and been talking about it, people come up to me and say, oh, we do subscription. Our customers pay us monthly. Well, that's just the payment term. If all you're doing is taking your annual price and dividing it by 12, you've just done a payment term. You haven't done subscription. My asset test for is your firm truly providing a subscription offer. The first question I have for you, do your customers know they subscribed to your firm? Do you know you subscribed to Amazon Prime, Hulu, Disney plus, Netflix, or any other subscription ink? There's a million of 'em. Yeah, you probably do know who you subscribe to, and if you don't, you can buy an app or get an app, Experian and a bunch of others that will show you, and we'll even cancel your subscriptions for you, which is the second question in the asset test.



(19:54):

Can they cancel at any time? Subscription is easy on, easy off. There's no lock-in period. There's no minimum term, nothing that violates the spirit of this model. This model is easy on, easy off. It's customer centric, it's relationship based. It's not transaction based. Are you continuously plusing your offering? Are you continuously offering new things? And folks, it doesn't have to be services. It can be starting a CFO round table, CEO, round table. It can be a book of the month club ways to leverage your intellectual capital. It could be a community online, it could be get togethers with your best customers, whatever it is. It doesn't have to be selling a pair of hands. And then do you track these KPIs? And I'm not going to go through all these KPIs. I think you already know them. And if you don't, you're quick reads, you can study up on them real easy. But these are different KPIs. Notice not one of them deals with time.



(20:55):

Time is irrelevant here. Time is neither a cost, nor is time value. Time is simply a constraint. That's it. Time's a constraint, folks. It's not our most valuable resource. It's a constraint that we're all subject to. We only get 24 hours. We can't hoard it, sell it, store it. That's it just passes. You can't manage it. Time management's by the dumbest thing I've ever sat through in my life. Really stupid, completely stupid. You can't manage time, you manage your energy. It's a completely different paradigm. So my favorite definition of a business model comes from Richard Ramel. He's a strategist. He's written a few books on strategy. In essence, a business model explains where revenue will be earned when services are provided for free. Now, when I entered the profession, we some of the big eight, luckily we didn't do this, but we saw others do it. They would give a proposal for an audit at close to a zero price. What were they trying to do? They were trying to get the tax and the consulting work. So they put a price of zero on the audit that conveys a little something about its value to the marketplace when the providers put a zero price on their product, but be that as it may. That's what they did. Now this is asking you, what if the tax and the consulting were free too?



(22:33):

Now what would you charge for? That's a provocative question. And questions are how we get to deep transformations, not answers, questions. A more beautiful question is how we really engage and really get going with a transformation. Because without a beautiful question, an answer has nowhere to go is just an answer. This is a beautiful question and it fits with my favorite definition of what it means to be a professional. Everyone in this room is a professional. That means we're not day laborers, were professionals. And according to Michael Hammer, a professional is someone who is responsible for achieving a result rather than performing a task. If I want a bunch of tasks done, mow my lawn, walk my dog clean my gutters, I'll hire a day laborer.



(23:37):

If I'm looking to get an outcome with an eye doctor, chiropractor, surgeon, CPA lawyer, I'll go to a professional. Because we are responsible. We are professionally and ethically responsible for creating an outcome, not performing a task. And the single worst thing that the billable hour model did to the professions is it turned everything into a task. Every little thing in six minute increments, and this is going on today in the medical profession. It's called the fee for service model. It's just a derivative of the billable hour. Folks, your doctor only gets paid when they do something to you, not when they do something for you. And according to the 10,000 diagnostic related groups that they have 10,000 billing codes, they don't get paid for you to call them. They don't get paid for them to FaceTime you to look at your rash in real time and maybe give you a prescription online. They only get paid when they perform a procedure or order a test or come in for an office visit. This is a fee for service treadmill and it causes a ton of moral injury in the medical profession because there's things that they can do where they don't need to see you all the time.



(25:06):

We need to get back to thinking about outcomes and what I'm going to call transformations because that's why we became accountants. It's we have the rare and privileged position of being able to guide our customers from where they are to some desired future state. And when you think about that and you say, wow, that sounds really airy fairy out there. Everyone here does it every single day. You help your customers grow their business. You help their businesses become more valuable. You help them grow their wealth. If you're into financial planning, you help them make more money, less write-offs. You help them with better cashflow, better decision making with more up-to-date reports. There's a million ways you offer transformations. If you do estate planning, you're helping them plan their legacy for after they die. How much do you think Warren Buffett, Mark Zuckerberg, and Bill Gates spend on their legacy?



(26:13):

Do you think they view it as a commodity, not a chance? The services in all of those transformations are simply a means to an end. It's the end that we're focusing on. It's like when a loved one has a baby. You don't want to hear about the labor pains, you want to see the baby. But in a fee for service business model, you know what we're doing. We're not only measuring the contractions, we're charging for them in six minute increments. It violates what it means to be a professional. And I think that's our pipeline problem. Not so much entering the profession, but people leaving after a few years. It's moral injury. It's not burnout. I'm tired of this diagnosis that's a hundred percent wrong. It's not burnout. In some cases it might be, but it's moral injury. This is not what I signed up for. And when you dig down deeper, burnout is kind of like blaming airplane crashes on gravity, burnout, stress, it's ubiquitous. It was a terrible diagnosis for ulcers and cancer. It's a terrible diagnosis for why people leave the profession. It's moral injury. Much better theory, much better as house would say, diagnosis.



(27:36):

So let me unpack the word transformation, and it comes from this book. I'm showing you a book that was published in 1999. That means it's 25 years old. Why would I show you a 25-year-old business book? Most business books have a shelf life of roughly a newspaper, not this one. In this book, Joe Pine and James Gilmore laid out what they call the progression of value. Sometimes they call it the hierarchy of value. And they basically said, if you extract commodities, if you sell wheat, lumber, oil, you're in the commodity business. It's very hard to differentiate a commodity and you have very little pricing power and it's kind of almost irrelevant to the needs of the customer. And at each one of these levels, they ask themselves, how do we commoditize commodities? Well, they said, well, if you take various commodities and put them together, you could make bread.



(28:46):

I could take some wheat, some flour, some other ingredients, and I can make bread. Now I make a good tangible good that I can sell that's a bit more differentiated than just the commodities because I put 'em together. And that gives me a little bit more pricing power. Have you walked down a bread line or a bread aisle recently or a milk aisle? All the different types of milk. That's what they're trying to do. They're trying to get more pricing power. They're trying to differentiate themselves with different types of milk. But what happens when your goods become a commodity? How do you decommoditize a good? Well, then you wrap services around it. Subway will make the sandwich for you with all the individual components, just like Starbucks will make the cup of coffee exactly the way you want it. So services are delivered and that gives you more pricing power.



(29:39):

It's much more relevant to the needs of the customer. And now you're in a better positioning because you're differentiated with different types of services. And when I looked at this graph in 1999, I said, CPAs are there. We deliver services. We're professional service firms. No, we're not. We're professional knowledge firms, not service firms. And then Pine and Gilmore said, well, what happens when your services become a commodity? They said, well, then you start to stage experiences. You take those products and services and you stage an experience around it like Disney or Escape Rooms or I mean there's a million of Rainforest Cafe, Hollywood Cafe, all of that, all of these experiential type things that we can do. Now, Disney cruises would be in that category. Disney specialized vacations, which are outrageously expensive by the way, are in that category. Disney weddings, which are even more outrageously expensive if you do it at Walt Disney World. That's an experience.



(30:50):

And experiences are memorable, and we all take something different away from an experience like going to a concert, right? We're all moved in different ways. But then they asked a really provocative question, what happens when your experience becomes a commodity? Been there, done that, got the T-shirt and they laid out 1999. Mind you, well, if you guide transformations now you're at the highest point of value. There's no more pricing power and there's no more points of differentiation. This is guiding the customer from where they are to some desired future state. And when you do that, the customer is the product. We're changing the customer. The services that we're creating and delivering are a means to that end. They're a means to an end. In other words, it's not what we should be focusing on. We shouldn't be talking about scope of work and oh geez, if you open up another account, we have to go to the Department of Paperwork and get a change order and no, we need to stop and we need to start focusing on transformations because we're one of the few professions that can do it.



(32:06):

How many here have been to a Starbucks reserve? There's a couple in Seattle. There's one big one in Chicago. I would Google that one. If you want to take a look. It's like five stories. Howard Schultz called it the Willy Wonka of coffee. Now that's really cool. I could probably drop a hundred bucks and I can buy booze there too on one of the floors I think. And they have bands and music and all that. It's still an experience. You know why Starbucks can't really transform us? Now it can in a minor way. It can make us coffee aficionados. Just like a winery can make you a wine aficionado or your favorite cigar store can make you more knowledgeable about cigars or whatever. Those are transformations don't get me wrong, and they're meaningful and they're more valuable than the products and services themselves, but Starbucks really can't make a major transformation.



(33:03):

They're just not poised to do it. And we are. We're already there. We're already doing it, but we're like fish and water. We don't know we're wet and we don't use this language to convey that value to our customers. So let me give you a couple of different examples of how I see this unfolding in our profession, and that's by looking out to other professions. I don't benchmark within the industry. Don't do that. Why would you want to benchmark mediocrity? If you're going to benchmark, look at other industries. Look at leaders and companies that you admire. I've always admired Disney and Lexus and LL Bean and Nordstrom and Neiman Marcus and American Express. These are the service leaders of the world, literally early, and I've learned a ton from them. This company since Sam Lifestyle, looked around at the eyewear business getting contacts and glasses and said, this is a terrible customer experience.



(34:07):

You got to go to here to get an eye exam. You got to go over here to pick out your lenses, get your frames made, have 'em sent in the mail, or go back and pick 'em up and there's just a lot of useless shoe letter. We're wasting the customer's time. We need to make this simple. 2016, they launched since Sam Lifestyle, I think they've got different plans. I think it's around 80 to 120 euros a month. They're the Nordic country's largest eyewear. They have brick and mortar chains and they say, if you need multiple eye exams in a year, you're covered. If those change your prescription, we'll change up to five lenses for you all inclusive, no more running around, no more doing this and that, getting this paperwork and this and that. Nope, you're covered. And you know what? Everybody in the industry, which is a very mature industry by the way, like ours, eyeglasses very mature.



(35:02):

You know what? Everybody told sin Sam, these young founders, this will never work. Who's going to subscribe to eyeglasses? That's stupid. Who's going to subscribe to a razor blade? That's stupid. And then Dollar Shave Club sells to Unilever for $1 billion and crushed Gillette's market share of razors from 70% to, I think it's around 20% today between Dollar Shave Club and Harry's. When I first saw razor blade subscriptions, I said, this is the dumbest thing in the world. Boy was I wrong. I was the dummy. We love subscriptions. They're easy. They save us time. This was launched in 2016. By 2021, they had 280,000 subscribers by 2023, 745,000, and I just read their most recent numbers. They're projecting 1 million for 2025, and they have a churn rate of 2.28%. And you know why? Because the founder said, we are not selling eyeglasses. We are selling perfect eyesight.



(36:11):

Which one focuses on the services and which one focuses on the transformation? Continuous perfect eyesight, I mean as best as you can clinically get, obviously completely different model. Same with this MD squared. The country's largest concierge doctor started by a guy named Howard Moran who was the Seattle Sonics team doctor, NBA team doctor. He said, when one of my players gets injured in the game, I run out into the court. I know everything about these guys. I know their health history, I know their medical history, their family history. I know what drugs they take. I know what they're allergic to. I get 'em back in the game really, really fast. He was a general physician and he said, why can't I do this with my patients? And he said, because I have 2,400 patients. The average GP doctor today has a panel of patients of 24 to 2,500 patients. That's why you get to spend five minutes with your doctor, half that time of which he or she is typing into your electronic health record, not even looking at you. One doctor said I'd become a better typist than the doctor because of these electronic health records.



(37:26):

Moran wanted nothing to do with that anymore. He said, I'm going to start MD squared and we're going to limit each doctor to 50 families, husband, wife, maybe a couple kids, 24 grand a year, two grand, three grand per kid. Whatever you need that a general physician can do and bears your scope, you're not going to get surgery. You're not going to get oncology. You're only going to get what a GP can do. Luckily, that's about 80% of your health needs unless you have some types of comorbidities. And he said, what we're really doing here is selling good health. We're not here just to cure you when you present with a sickness, we're here to keep you healthy. We want to see you when you feel fine. And they have to reeducate their customers about that because we're all trained. Only go to the doctor when we feel bad and no, no, these docs want to see you when you feel good so they can keep you that way. That's a perpetual transformation. And I talked to the bookkeeper by the way up in Seattle who was setting up their QuickBooks chart of account, and she would walk into the CFFO with one of the monthly $2,000 checks and she'd go, what did we do for this patient? She's trying to match it to a service, right? And the CFO, whatever the patient needed, they're not paying us for the service. They're paying us to access us when and where and how they need us.



(38:59):

It has nothing to do with the services. The services are incidental. It's the access to us. It's the special lane that they walk right through when they need it. These doctors lock the door behind you. You're the only one in the office. Their average appointment is an hour and a half. This changes the way medicine is being practiced. Anybody want to take a guess? When MD squared was founded 1996, and I wrote about this in a book called Pricing on Purpose, and I was dumb enough because I didn't have the vocabulary to understand what they were doing. You know what I called this retainer based medicine? This is retainer based medicine. No, it's not. There's nothing to work off. They pay for access



(39:53):

And a whole host of other valuable things. It could be nutrition, it could be DNA 23 and me type analysis. I mean, they're constantly plusing the offering. A lot of these docs have blood labs right inside so they can take your blood work, they can do diagnostic. They have not MRI machines, but ultrasounds and things like that, and they're continuously adding that just like Netflix and Amazon constantly come out with new benefits to their prime members. That way when they raise prices, they don't have to say, well, our costs went up, so we're going to have to give you a 20%. No. They show you all the things they've added to the prime membership. Membership has privileges. Here are the privileges we've added over the past year or two, whether or not you've used them doesn't really matter if you think about it because it throws a halo over the prime subscription and it makes it a no-brainer to renew it. It's good health and it's perfect eyesight. That's what the transformation is.



(41:02):

If you're a prime member. Amazon just bought one medical for 3.2 billion. These are direct primary care doctors, which are the baby cousins to the concierge doctors because they're going after. It's just like hotel chains. Hotel chains will have like Marriott's got the Ritz Carlton and then they've got the courtyard. They're going after different price points, different demographics, different psychographics and economic segments. Same thing with DPCs. There's 2,500 independent DPCs across the United States in all 50 states. They're growing like weeds. They cap themselves at 600 patients, not 24, 600. They always have capacity always. My dad's a member of one in South Carolina. Average appointment time with his doctor has been running about an hour. If he's got a problem, he calls up, doctor says, come on down, see you right now. Let's take a look at this. Their patients have less ER visits, less hospitalizations, less comorbidities, and they take fewer drugs.



(42:10):

And trust me, the drug companies know this and they're not happy about it, and Amazon just bought it. And you can subscribe for nine bucks a month and you'll have your own GP, and I think it's five bucks for additional family members. If you don't think this is going to uproot how medical care is delivered in this country, you're not paying enough attention. This is a game changer, man. These DPC docs are pioneers. They're focused on the relationship, but you know what? More importantly, they're focused on why they became a doctor to help people. I can't help people. If I have 2,400 patients and I get to spend five minutes with them, I can help 'em if I can spend an hour with them and get 'em on the right track medically and take care of their bodies and weight and diet and all of that kind of stuff that they do.



(43:02):

It's amazing. The similarities between DPC docs and concierge docs and what we do are mind bending to me and people get all torn up on Well, but if you're charging one price for everybody, what if somebody uses you more or they need more things? And why would we charge everybody the same rate? Well, because there's a flat rate pricing bias built into us humans that basically says we tend to overestimate our usage. Remember when you bought phones by the minute? Now of course you're buying data plans. You always overestimate why? Because you don't want to be nickeled and dined. It's called the taxi cab meter effect. When the cab's sitting in traffic and you're watching the meter spin, you're being nickeled and dime. Customers hate that. And then the last thing is the insurance effect. Because we don't know when we're going to need the dock and how much we're going to need them or where we're going to need them.



(44:01):

We'll pay for access. We're seeing this all over. You see it with clear in the airports. You want to breeze through the line, get clear. There's now one coming out called PS service that has its own separate facility with TSA in it. And when your flight's ready, they take an SUV and drive you plain side and you walk right up the ramp into the plane. And as folks, it's outrageously expensive. It's outrageously expensive. But you know what? There's a lot of people out there as Howard Moran learned with MD squared who have a lot more money than time and he wanted to cater to those people.



(44:45):

Then you have another way to, plus the subscription offering is the wise use of customer time. I've always thought if we're going to track time in this profession, it shouldn't be the professional's time we track. It should be the customer's time We track how much time are we saving them and how much time are they spending with us? And so Joe Pine came up with this framework that I absolutely love. He said, well, you can have time well saved. You can save your customer's time. Don't waste the customer's time. Hint, hint, stop sending them 400 page tax organizers. This is abuse. This is abuse. A concierge doc wouldn't have to send that organizer just like they don't have you fill out the same 50 medical forms every time you come into the office, they already know everything about you.



(45:50):

Don't waste their time. If they could fill out that organizer, they probably wouldn't need to hire you. The other thing we can do is make sure that the time they spend with us meetings zooming, whatever is well spent. In other words, they walk away with something, whether it's feeling good, feeling like they're swaddled in security, if there's any problems, we're going to jump on it. Or tax authorities or compliance issues or whatever it is your firm does. Time well spent with you. And then the biggest bucket of all the most valuable, I should say, is time well invested with you When you're guiding those transformations, when you're taking them from where they are to where they want to be, more profitable, better cashflow, lower ar, write-offs, whatever it might be, and those are all transformations, folks. It doesn't have to be grandiose. There can be little transformations in there too, but that's the time where they see and feel a tangible ROI. And I think Seth calls it return on relationship, which I love because the subscription is all about the relationship. It's not about the services. It's not about the services. They're a means to an end. This guy, Jason, free, you've probably heard of him. He wrote a book called Rework. He's with, what is it? Basecamp, founder of Basecamp, one of the founders. I think all companies have customers. Lucky companies have fans. The most fortunate companies have audiences. You know what makes an audience different?



(47:29):

They pay to spend time with you. That's a privilege. I remember in George Carlin's bio, he was driving to an event and traffic for miles and he had his limo driver pull off and he was just looking at the event in the parking lot and all these people coming in getting out of their car, and they were fancy dressed and they were laughing and having it. And he wrote this. He said, it dawned on me, they are here for me. They're here to see me, one guy, a microphone, and that's it. He said, that's humbling. That's what an audience is. So we don't even like customer anymore. Your firm has members, they're members. Membership has privileges as American Express used to say, and this is where language comes in, this guy. And if you're an EST devotee from the eighties, or if you watch the Americans, then you know Warner Erhardt, all transformation is linguistic.



(48:33):

If we really want to change our culture, we need to change the conversation. What's the best way to change the conversation? The words we use, think about Walt Disney. It's not an amusement park, it's a theme park. We don't have rides. We have adventures. We don't have staff. Sounds like an infection. We have cast members. Cast members are on stage or off stage or backstage. We're selling happiness. That language is used to this day in Disney parks around the world, taught in their three and a half course Disney traditions where they put everybody through it from the janitors to the CEOs and even the construction. People who don't work for Disney go through Disney University so they understand what they're doing and what it means. The purpose behind it, and this is how I think our language needs to evolve from hourly billing to value pricing. We made some great linguistic changes from training to education, right? What's more valuable? Training or education? Education. Why do we use the word training? We train pets, we educate animals. As my late colleague, Paulo Byrne, a chartered accountant out of Britain, used to say, and you can imagine the British, so this is not exactly politically correct, he said, but he used to ask audiences, would you rather have your 13-year-old daughter get sex training or sex education?



(50:08):

And now I think with subscription we're moving to customer success and we're moving to lifetime customer value rather than profit and revenue and billings revenue per person. That's all meaningless under this model. The KPIs, the accounting as you saw, are completely different. We're doing the transformation conversation rather than the value conversation like we did in value pricing. And we're not chasing the right customers, we're choosing the right customers. We're selecting the right customers that are a good fit for us and based on what we do and what we specialize in. So that's how I think our language needs to change. We end at what three 15 have I gone over? Are there any questions? Because folks, I know I've thrown a lot at you in 50 minutes. Again, not trying to change your mind, trying to show you is empirically tested and empirical evidence. As I can muster why I think this is a better business model.



Audience Member 2 (51:13):

I got a question. There's no way that a firm can just switch over to this?



Ron Baker (51:16):

No,



Audience Member 2 (51:18):

A slow progression. Start with new clients, get some victories and then pick off your existing clients time. Get better.



Ron Baker (51:27):

Bless you. I swear people are going to think I planted you in the audience to ask that question because believe it or not, even after my ending slide, I knew that issue would come up. How do you transition to subscription? Or some people use Pivot. I like swivel better, but that's a linguistic thing. There's three models, folks. Again, this is all empirically tested. There's a think tank out there called Subscribe. It's run by Zuora, and they track this because they have thousands of businesses on subscription. Zuora is the software company in San Francisco that runs the subscription back office. They do the billings, they track the KPIs, they do the financial reports, all of that kind of thing. They say there are three types of models to pivot. The first one is you create a new firm, you spin out a brand new firm and it's a subscription offering.



(52:23):

So you've plused the offering, you've made it better, and then you keep the current firm going, I'd put your best talent, by the way, in the new firm. You keep the current firm going. And then over time, the subscription firm cannibalizes the old legacy firm because as Andy Grove used to say, if you're going to be cannibalized, it's best to dine with friends. In other words, we're a lot better off if we cannibalize ourselves rather than being cannibalized. And usually what kills us doesn't look like us. Nobody in the big music companies was thinking about this little kid, Sean Fanning sitting in a dorm room at the age of 17 creating Napster, but he changed the world and he changed the way music is bought and purchased. That's one model. The second model is we're going to put our toe in the water and we're going to do a gradual pivot.



(53:19):

We might take a certain section of our firm like Cass or Tax and put those folks on a subscription model. Now it's a low risk test, which means what? Low reward. Low reward. Thank you. Profits come from risk. Model three is what Adobe did and a lot of the software companies, but especially Adobe said as of this date, year, year and a half in the future, we're not going to sell box software anymore. Everything's going to be online. Software is a service we're not going to support. We're not going to upgrade the old box software. People freaked out the stock took a nosedive, but Adobe's management was secure because they at tested this. Where'd they test it? Australia. And it was a huge success and they knew Americans would go forward as well. Which one of these three models do you think is the most successful and has the highest odds of success?



Audience Member 3 (54:12):

C,



Ron Baker (54:13):

C. It's A, which one is a sure road to failure. B, trust me. Don't trust me. Trust the evidence. This evidence is out there. It's a create a new firm because new firms are disruptive and you're not tied to the legacy systems. And let just go back and show you one thing about this. I think with value pricing, we're in the early majority, I think about 40 to 50% of the profession is now either offering fixed prices or value pricing, something other than just billable hours. And now I'm asking you to skate all the way back to the left side of the curve and be one of the two point a half percent innovators that adopt this model. It's just a matter of time before this starts to diffuse across the profession. It's going to take a while. I've been banging my spoon on my high chair about value pricing since 1989.



(55:13):

You know how frustrating it is. That's 35 years, folks. And finally, people are seeing it. There's more pricing consultants out there. There's more books out there. When I started my firm, there was nothing. There were no books. There was nobody on the circuit talking about it. I learned it from studying other pricing experts that were making their way into the Fortune 500, into the C-suite through the Professional Pricing Society. But be that as it may common offerings, command common prices. If you just go out in the market and offer the same thing as the CPA firm down, say, we do Cs, we do tax, we do this, we do that, you're going to command a common price. I'm a pricer. I want MD squared type pricing. If that's your strategy to be more boutique, that means you have to have an uncommon offering because uncommon offerings, command uncommon prices.



(56:03):

And I want you to skate back to where I want the profession to skate to where the puck's going, not where it's been. And that's why I'm back over on the far left side of this curve, and that's where I'm at home. And I hope you explore it as a viable option for your business model. You can learn more about subscriptions, the radio show I do with Ed class, the Soul of Enterprise. Go up to the homepage, click on subscription model, and you'll see all the shows that we've done. We've interviewed the four best authors in the world on subscription, Teen Zone, Robbie Kellman Baxter, John Warrillow, and Ann Genzer. Those are the four best subscription authors you'll find on the planet. And we have a lot of information up there about how subscription is different than value pricing, how it changes project management, how it changes, scoping, all of that kind of stuff. And this is how you can get ahold of me. And we have a Time's Up Club. If you get my book, there's a forever free option. You can get additional benefits from that, and I'm happy to talk to anybody. You can email me, you can find me on LinkedIn. I'm one of the influencers on LinkedIn, but email me if you want to have a conversation about this. You're all colleagues, and again, I'm just trying to skate to where the puck's going, not where it's been. I hope you join me. Thank you.