What BA’s Can Learn from Small Business Pricing

bigstock_Small_Business_Owners_Of_A_Ca_10122113I like to think of myself as an entrepreneur.  My business mostly consists of some form of consulting, and when I consult it usually has something to do with business analysis.  That combination of perspectives certainly colors my thinking and causes me to see connections between those different domains.  For example, I have often thought that business analysis practitioners can learn a lot from running a small business.

Being actively involved in running a small business (as opposed to working as part of a large business) forces you to understand your customer’s needs and figure out the best way to satisfy them. You tend to focus on the most important aspects of the activities that you do to satisfy your customers needs because you can’t afford to do anything extra. Working in this environment you find that many of the activities that are thought to be essential for effective business analysis are important really only to business analysts.  Or stated more bluntly, you tend to focus on whether you are solving the right problem instead of whether you used the right symbols for your UML sequence diagram.

I came across an ebook a couple of days ago focused on running a small service business but holds a lot of lessons for business analysis practitioners as well.  Breaking the Time Barrier is written by Mike McDerment, Co-Founder and CEO of Freshbooks and Donald Cowper, and tells the story of Steve, a web designer who starts his own consultancy and struggles with the ever present quandary of how to charge for his services.  Having faced this exact challenge myself I was immediately intrigued about the solution that the book described – basically to base pricing on value rather than time.

I started reading the ebook from the perspective of a consultant and a business owner, but suddenly realized that there were a lot of gems buried in the story about how business analysis practitioners can actually make themselves more valuable to an organization without having to justify their existence all the time.

Here’s a collection of some of the good nuggets that I pulled out of the book along with the lesson I think it conveys to business analysts and the organizations that utilize them.

“The value of what I do,” Karen said, “is based on the impact I can have on my client’s business. Impact is how they value my services. So I look at pricing from their point of view. They don’t hire me to design a website for the sake of designing a website. They hire me to design a website that’s going to help them grow their business. I find when I look at it like that—from their perspective—it’s clear I’m not selling time. Instead, I’m selling a solution that is going to make an impact for my client and achieve some business objective.” (Page 18)

BA Translation: BA’s don’t exist to elicit and document requirements.  They exist to understand their stakeholders needs, determine if those needs are worth satisfying, and figure out a way to satisfy those needs,

“Your math may be right, but I’m not a collection of hours,” Karen said. “I’m the accumulation of all my skills and talents. I’m wisdom and creativity. I’ve stopped seeing myself as a punch card. My clients don’t see me that way either. Yes, sometimes, I’ve had to change my client’s mind-set. But it starts with me, first, just as it starts with you. You have to forget selling time. The best thing you could do for yourself is to get the concept of time out of your head.” (Page 20)

BA Translation: Business Analysts aren’t resources, though many organizations still view them, and everyone else that works on projects, that way.  If you don’t want to be viewed as just another resource, stop acting like one.

“Right. Our clients don’t care about our costs. They care about the value we create for them, so that’s what we should be asking them to pay for. But just because my clients don’t care about my costs, doesn’t mean I don’t. I do care, very much. Which is why I see it as my job to look for ways to create value for my clients so that I can charge fees that more than cover my costs, making my business profitable. (Page 27)

BA Translation: If you want to be seen as inherently valued by your organization and not have to justify your existence, create real value for your stakeholders based on what they see as valuable.  Stop trying to convince them that 100 page requirement specs are valuable.  They’re not.

“Maybe. The truth is, I don’t know what the client wants, and neither do you. Which means you can’t really give your client an appropriate price. And when you talk about price before exploring what your client is trying to achieve, you risk delivering a solution that isn’t right for them….The best thing I can do for the client is to help them explore what they want. And it turns out, this initial conversation about their problem is the foundation of my approach to pricing.” (Page 30)

BA Translation: Don’t estimate a project based on what the client asks for, seek to understand what they are really trying to accomplish.  You may be able to satisfy that need with a lot less effort than you originally thought.

“In that conversation I’m probing the client for information. I want to know the pain they might be experiencing, the problems they want to solve. I’ll probe on what their dreams are, their big goals. A lot of the time, clients aren’t clear about what problem they want solved or what their objectives are. If they can’t define success or establish ways to measure success, then pricing is guesswork. That’s not good for either of us. Both of us should know that the price they are going to pay makes sense based on the value they can expect from my services. So I’ll keep nudging that conversation forward until we get some clarity. In an ideal world, the client can express what they’re trying to achieve in a dollar figure, like revenue. Or cost saving.” (Page 31)

BA Translation: Don’t start working on a project until you have established clear, SMART goals with your stakeholders so that you all know what success looks like.

“A friend of mine who is a marketing consultant likes to ask, ‘How much is a client worth to you?’ Usually the answer is more than the cost of her services. So if she can help the business get even one more client, it’s worth it to hire her….By taking this approach, my friend is able to make an intangible benefit real. That’s how you want to handle benefits that are hard to measure. Sometimes it helps to ask: ‘What does success look like to you? How are you going to know you’ve achieved what you want?’ I had one client tell me that he’d know the project was successful if most of his clients thought his website was beautiful. He’d kept hearing that people thought his current site was ugly. So that’s what he really wanted—to change the perception. Going from 25% of people loving his website to 75% was something he could measure, and something he could put a value on. He also knew that a more beautiful site would increase referrals and, therefore, business.” (Page 32)

BA Translation: It’s usually possible to come up with objective measures of value, even when money is not directly involved.

The seven mutual benefits of exploring value with your clients.

  1. Creates trust
  2. Fosters alignment
  3. Helps your client better evaluate vendors
  4. Frames the solution as an investment, not an expense.
  5. Inspires action
  6. Let’s your client make an informed business decision
  7. Establishes a trusted partnership (Page 34 – 41)

BA Translation: These ideas apply to exploring value with your stakeholders as well.

“But these were still vague terms, so I steered the conversation toward their overall business objectives. I wanted them to express some clear goals, not just for the website, but for the company in general.” (Page 44)

BA Translation: Don’t focus on a goal specifically for the project, but what business objective the project will help accomplish.

“You want to consider all the ways you can contribute to the relationship. Sometimes that means tapping in to abilities you aren’t using, or developing new skills. In healthy relationships both parties are growing.” (Page 47)

BA Translation: It’s a good idea to always seek to expand your toolkit.

If you own a service business, are a consultant, or even a business analyst in a large organization, I encourage you to take a look at Breaking the Time Barrier.  At 70 pages, it’s a quick read, and the authors chose to take a value-based pricing approach to the book.  You can download it for free and after reading it, you can return to the page and pay what you think it’s worth.

Comments

  1. This article is probably one of the best I have read, in terms of explaining what a truly effective business analyst does. I work to a principle of trying to add at least five times the value to the business. Sadly the understanding within this article is not common practice in todays market place. A great article.

    • kent says:

      Corey, thanks for the feedback. I agree that what I described in the article is not common practice…yet. That doesn’t stop me from trying to make it common practice going forward.

Speak Your Mind

*