Tim Williams: You don't walk into a Apple store and say, I really like this new iPhone. But before I pull the trigger, I need to know what was Apple's actual cost, right? Sellers generally do not disclose their costs to the buyer. Somehow in our business, that's become normalized.

Chris Do: Today on our podcast, I'm thrilled to welcome Tim Williams, who's a luminary in the world of branding and marketing. As the founder of Ignition Consulting Group, Tim has revolutionized how professional services approach positioning and pricing. His groundbreaking book, Positioning for Professionals, has become a must read for anyone looking to carve out a unique space in a crowded marketplace. Tim's expertise doesn't just stop at consulting. His insights into value based pricing and specialization have transformed businesses worldwide. Tim, welcome to The Futur.

Tim Williams: Wow, thanks, Chris. That's a great way to start. I appreciate that.

Chris Do: Thank you so much. Well, our mutual friend, who I have great admiration for, Ron Baker, said, you must talk to this person. So here I am. I'm so thrilled. I think you and I have done a little dance in terms of like getting our time in sync, and here we are. So I know that you speak a lot about pricing and positioning strategies for agencies. And before we go a little bit deeper here, can you just tell us a little bit about your background and your experience in the agency world?

Tim Williams: Yeah, I'm a career agency guy. I figured early on if I wanted to be serious about this business, I should go to New York and do it right. So I joined up with a multinational agency world in New York. And from there, later in my career, I head of several independent firms. I was a partner at my own firm and then decided about halfway through my career that I wanted to hang out a shingle on and do consulting work thinking that, uh, the agency world could benefit from the same kind of advice they give their clients about branding and positioning. So I established Ignition Consulting Group to work exclusively with agencies, marketing, communications firms on business strategy, positioning strategy. And then later I decided to, uh, get into the world of pricing, which was an interesting thing. I never thought would be part of my career trajectory, but I now have come to believe that it's probably the most important issue facing our business today. So I'm, I'm happy to be in that space.

Chris Do: And there's a lot of commonality, I think, here. So we're going to probably geek out a lot on pricing. But for people who might not know this, this about me, I used to work in advertising. I'm a service provider, production, post production company to ad agencies. So it's kind of shocking to me that they need help with pricing because it seemed like from our side of the fence, they made all the money. So what is the problem with agencies and how they traditionally price their services?

Tim Williams: Well, yeah, they've got big problems trapped on the hourly rate treadmill. The history behind this and I don't know if this is the right place to do it, but I think most agencies do not have a historical perspective of how we got to where we are today because if you turn the clock back to the golden days of madmen, agencies were wildly profitable businesses. The average agency profit margin at the time was 30%. So, and agencies had nice, luxurious offices earning good salaries and attracting the very best talent in the business. What happened was when we decided to split our business apart and in effect balkanize our business model, we split out media and other disciplines from creative which now puts us in a mode where there's no real such thing as a full service agency, except if you're very small, but that the multinationals are now split up into various disciplines where the average fortune 1000 company has an average of 17 agencies. I mean, some have many more, some have hundreds of agencies.

So anyway, when we made that decision, we had to go looking for a different compensation model because commissions no longer really worked. If you move the media business out outside to another company, then then you've got to look for another revenue model. And David Ogilvy of Ogilvy and Mather, fame is claims and true is the father of the fee system.

It was his idea to adopt the same methodology as law firms. And his idea was, let's just build by the hour. We'll do timesheets, keep track of our time. But agencies made this decision on their own in the early 1980s and had to go out and sell this idea to clients. And so now we're trapped in a model that, that we introduced and we, I think often lack the perspective that, well, wait a minute this isn't a model that's being forced on us by our clients. This was our idea. And so now we're in a position of having to defend what's become a very bad idea.

Chris Do: Okay. So I have to ask you this question and this might be a little clickbaity, but I'm going to ask it because I have friends who own agencies. Is advertising dead? As we know it, given the economic situation you talked about in terms of also how people are consuming content and the traditional advertising models have, from my perspective, have been disrupted a bit.

Tim Williams: Sure. Well, it's been fashionable for many years to write articles, and I'm probably guilty of it with that headline, right? The agency business is dead. And you could certainly make the argument that the traditional model is is long dead. And now that AI is on the horizon, it's forcing a reevaluation of the entire business for sure. So I guess my short answer is yes, it deserves more explanation. But the business model itself is certainly dead and the revenue model right alongside.

Chris Do: Okay, so as an agency insider and an expert on ad agencies, are you seeing massive shutdowns or acquisitions and mergers? Because if profit margins have shrank, the business model is in trouble, the pricing model is in trouble. What is happening? Like, we're here in 2024. Give us a snapshot of the landscape of ad agencies. It's been a number of years since I've been involved.

Tim Williams: Yeah, well, I mean, you see it in the business press, the headlines that just as you said, there's been massive consolidation agencies trying to save their way to success. In effect, brand names that have been around more than 100 years are now disappeared and are being merged into more digitally centric agency brand names, the likes of a J. Walter Thompson, right? And Young & Rubicam and, you know, the stars of, of Madison Avenue now really as brands really kind of no longer exist. So the problem is agencies have been very slow to adapt to the changing landscape. The change in media habits, you know, what happened with the birth of the internet, the explosion in unlimited numbers of new media channels, where agencies just can't apply the same kind of thinking to marketing problems and now with, you know, bring AI back into the conversation with the billable rate model, are you now going to bill by the nanosecond? I mean, how do you monetize what AI can do in terms of what humans, knowledge workers used to do?

Chris Do: Okay, so fans of our channel and our podcast are going to know my position on this in terms of the billable hour and why that might not be the best thing for you to do. And it's surprising to me when I try to make a very clear logical argument about why this doesn't work, I think creative people would embrace the idea, but in fact, I think maybe 20, 30 percent of them think that this is, the evils of capitalism and that there's some other model and they're just like trying to tear it apart. So I'm going to step out of this argument and ask you to present your perspective on the billable hour.

Tim Williams: Sure. Well, I've been doing this for probably 12, 15 years now and I started down this path by making a philosophical argument against hourly billing. And showing why it's suboptimal, why it, the roots of it are the Karl Marx theory of labor value, that, uh, the, the labor theory of value and, you know, what happened in terms of the pricing revolution that's happened in the last 20 years.

And so you can make a strong philosophical argument of why it's suboptimal. And I've heard you do that very convincingly, but I'll tell you where I am now. I am trying to just cut to the chase and help professional firms understand that what clients buy is not efforts and activities. What clients buy are solutions to business problems.

And the simple fundamental change we need to make is to move away from the concept of billing for inputs and bill for outputs, right? So not activities and efforts, but actual deliverables. And this is a fairly easy change. This doesn't require the agency to blow itself up and to resign clients and to do much in terms of changing their, their internal operations.

It's a simple change to just orient the business around. Well, wait a minute, set a charging for the person and the time let's charge for the deliverable and the solution. So you, you price the program or the product. Not the person or the hour. So agencies get that. And I can now really not worry about making the philosophical argument because they're primed for a better business model.

They've watched their margins decline very steadily, and they know that there's got to be a different way and a better way. And let me also say that out what I now, what I call output based pricing is the way the rest of the business world prices, right? I mean, when we buy any product or service, it's usually a fixed price for what it is we're buying.

You don't walk onto a BMW showroom and say, I really love this new X5, but how many hours did it take to build it? There's a price and you make the decision, which model do you want? Which options do you want? Fixed price for fixed scope is the equivalent of that in our business. So agencies get that.

And rather than stand up and say, you know what you need to stop doing time sheets, you need to kill the billable hour, which freaks everybody out and makes them feel like they couldn't possibly run their business that way. I simply say, look, keep doing timesheets if you want, you don't need them, but stop pricing based on time. Start pricing the output, not the input. The deliverable, not the time.

Chris Do: Do you think that agencies gave a lot of resistance or pushback to this concept? And if so, like, what do you attribute as the factors in which they're able to ultimately embrace this, aside from what you just said in terms of how you're packaging this information?

Tim Williams: Yeah, well, a lot of the resistance is force of habit, right? We as a business have trained, and of course, you know, the larger agencies are always dealing with procurement people. And we just got to keep in mind, this is our system. So many agencies throw up their hands and say, oh, you know, pricing, we have no control over that.

What are you talking about? Our clients dictate to us what they're going to pay us. And so, they feel like they're victims of a system that they have nothing to do with, which is just absolutely nonsense. It's our system. We made the decision to migrate to the billable hour. We have taught that to our clients so well that procurement departments have constructed all their internal processes completely around internal billing.

So guess what questions they want to ask us and guess what kind of information they want? It's all around this system of selling time. So what I tell agencies is guys, this is our system. We made this decision. It wasn't always this way. We were paid in a different way, 40, 50 years ago. And so now we're going to be, now we're changing the pricing paradigm again.

And now it's your job to go out and show your clients that you're pricing in a different way. And the fact that you are maybe still in the vanguard and that it hasn't had complete adoption, far from complete adoption in our business, is a competitive advantage, not disadvantage. You want to differentiate your firm, you want to stand out, well here's yet another way to say, look, among other things that makes us different, we don't approach compensation, remuneration the same as other agencies. We do it differently. We've got a better way.

Chris Do: So it sounds to me like the problem is because this is the way it's done we feel like this is the way it can only be done. So we had to kind of break our pattern of thinking, our habit. And you also said that we've done a really good job as in the agency space to teach our clients how we want to work.

And so if we taught them that we can unteach them, now we can teach them a new way. And it just takes a little bit of courage and there's an advantage here. Now I want to share with you a little personal story here. So not only have agencies taught their clients, they've taught their vendors to work in the same way.

Right? It's like, if it's good for me, it's good for you. So when we submitted a bid for producing a commercial that they had written a script for, they wanted to see line by line where all the money went as if they're going to manage that. So one day I wake up and I tell my producer, don't bid this way anymore.

I want you to give a one page estimate based on scope. And unless they break the scope, this is the price. And if they want to know the hourly rates or what we're paying people, then they have to agree that if we go over, they'll pay the extra, which they don't want either. So they wanted their cake and eat it.

So here's the pushback. My producer says, Chris, this will never work. This will never work and they're going to come and they're going to ask me, like, give me a breakdown. I said, well, when that happens, let's get on a phone call and I'll handle that objection. He goes, okay, it's your business. You want to commit suicide, that's your business.

Go for it. He submits the bid and here's the thing. Here's the drum roll for everybody. They didn't even ask. They did not even push back. We submitted the proposal. We made the pricing formula completely opaque. And we just said, we're going to do this for this amount of money. Are we in or are we out? And surprise, surprise, that became the new way.

So I'm a hundred percent here as maybe anecdotal evidence that if you teach your clients, in this case, the agency, we were going to do it a different way they can either agree or not. And it's totally fine. But the pushback that we imagined never came.

Tim Williams: Yeah. You know what? That is exactly my experience, even in the world of, you know, the multinationals. Because I've consulted with some of the largest agency brands on the planet, and they all have the same expectation. Wait a minute this will never work. Our clients will We will be disqualified from this review in the first round. And I say, trust me. Just go with this. We're going to politely disrupt the buying process.

We're going to do what you just described. We're going to go in with a fixed price for fixed scope. We're not going to break down our time on our hours. And agencies are continually shocked and amazed at that lack of pushback that they get. They expect it to be the end of the world. And instead by, by showing our clients and prospects exactly what they get, not all this time that's going to be spent, but what are you going to get for the money?

And as long as you don't change the scope, we're going to guarantee you this fixed price. That's a preferred way of working for most organizations. But most agencies don't believe it until they try it. Like, your same experience.

Chris Do: Right. How will you know if you don't try? You have to try, everybody. The first time you do something, it's going to be a new experience. So, you can also look at the data, which is, okay, our margins are shrinking, our business models changed, our competitors are going out of business. Well, we can keep doing the same thing if we want. That's up to you. That's your right.

Tim Williams: Doesn't seem like a smart idea. Yeah.

Chris Do: Yeah. But how can you price something yet to do? How do you come up with a fixed fee for a scope that we just don't even know how it's going to be done? Isn't that unethical to just make up a number?

Tim Williams: Yeah, well, this happens all the time where agencies are hired for undefined scope of work. Clients say, we're not sure exactly what we're going to need this coming year, but we need a team ready and available to execute. And we'll feed you the work as the year goes on. I mean, what an incredibly bad idea. One of the ways you can approach what's we call that the all you can eat buffet and it's the scourge of our business, right? It's the all inclusive retainer in which your client is in effect, renting people, they're renting a retained team that are available to work in some cases exclusively on this client or 50 percent on this client.

And it's just a recipe for abuse because the client always loads on more work than was ever anticipated. So. The solution in part is to work in phases. You don't agree to a project without knowing what, what the objectives are. So a discovery process in which you uncover what, what needs to be done and what the right solution is.

So that's a phase one. And then you scope a phase two, which is the design and, and, uh, the problem solving, and then you scope a phase three, which is the development and the execution. So you price in phases and you don't know what the price of phase two. It's going to be until you do phase one, et cetera. That's absolutely a necessary thing to do is, you know, price and price in phases, you can't agree to a price without knowing what, what you're going to be doing, but I'll say one other thing. We have a process. I mean, agencies and, and production houses, we have a process for what we do, and we often know, all right, the thinking is going to be custom and unique to this situation in this client, but the process for getting there it's going to be pretty similar to what we have done in similar situations.

And so you do have an idea, enough of an idea that would allow you to offer up some pricing. But we always preach price, offer options, never a single price, never a yes or no, take it or leave it, always options. And so you're giving your client the choice of small, medium, large, premium, medium economy.

Give your client a choice of yeses. Don't not a, not a yes or no, not a take it or leave it. Client organizations, marketers, they all do this. Look at the world's best marketers and actually marketers across the board. They all offer options, whether it's a service or a product you're, you know, sign up for a, cell phone plan or buy a television. There's always options, small, medium, large, extra large. And we preach the same idea in professional services. McKinsey adopted this some years ago. It's, it's part of what they teach their, all their consultants in their sales training always offer options. And the result is that two things, first, it engages your client or prospect in the right conversation, because your options are showcasing outputs, not inputs. They're listing deliverables, not hours and people. So, it sparks the right conversation with your client. As in, which, not, why is this taking so many people and taking so many hours, but, which of these options you think could work best for you. So it's the right conversation and it puts your offering context so that your clients very often will upsell themselves.

You offer three options, but guess what? They'll choose 70 percent of the time, human nature, middle option. Yes. Followed by the cheapest option or the most expensive, most expensive. They don't, they rarely go for the cheapest option when you put it in context and show them what they get and don't get with the money that they've got to spend. So it's very, very powerful tool. And we, we teach that that. We should always, always offer up.

Chris Do: Okay. So we offer option because it's changing the dialogue around the outcomes that the client's buying, not the time or labor effort, which is a very different way of looking at it. So whenever possible offer up multiple things, this is like the Goldilocks concept, right? It is

Tim Williams: The Goldilocks rule. Yeah.

Chris Do: Pretty much. It's like porridge is too hot, too cold. Just right. Bed is too soft, too firm. Just right. And. More often than not, they pick the middle option, so design your options such that you're going to be really happy when they pick the middle or the most expensive, and even the cheap one can actually work for you as well.

Tim Williams: That's right. Exactly right.

Chris Do: And something that I've learned is when you provide options, they don't have to go and price bid you against other people because you've given them three options. Which one works for you?

Tim Williams: That's right. Yeah, we all need context to make an informed buying decision.

Chris Do: And now I want to follow back up with something that you said previously, which was, okay, we don't know the scope. So we're going to do this in phases. We're going to enter into a phased engagement with the client. So we need to first figure out what the heck we're doing. What are the objectives? What are the parameters, constraints, all that kind of stuff? Well, if we eliminate timesheets, which I'm all for, I'm a hundred percent, we at our We don't do timesheets anymore. What are we basing the price on then? Even for phase one discovery, how did we come up with a price?

Tim Williams: Well, this goes to the heart of, of modern pricing, the problem most firms have, and by the way, let's, let's just step back and realize that this is, um, almost exclusively limited to professional services and it's surrounding service providers. So I'm, I'm talking agencies, law firms, accounting, architecture, engineering, and I've, I've had clients in all those sectors over the years, all primarily agencies, but we're all, we're trapped in the same outmoded paradigm. Without timesheets, the model that the rest of the business world uses to price is exactly the opposite of how we work.

We do pricing from the bottom up. We start with, with the project or service, and we ask the question how much does this cost us to produce it? We then turn the cost into a price, hoping that that then has value to our client, the rest of business world prices, exactly opposite of that. They start with the customer and they ask the question, what is the potential value of this product or service?

They then establish a target price based on that subjective judgment. They then figure out the cost. So cost after price price before cost, that's just backwards of how we do it. And then they decide, okay, let's do it or not do it. I mean, there's a famous case study about how the iPhone was priced. You know, Steve jobs said that pricing the iPhone was maybe the most important decision they made in the introduction of this disruptive technology.

And how do you think Apple price, the iPhone bottom up or top down? Well, of course they did, they did it right. Right? They top down that's mistake one, is that we approach pricing from the first, the question of what is the cost rather than what should the price be? The second answer is less philosophical. And that is to say, look, any agency or, or allied business that's been around for more than six months or a year, you know, you know what your costs are. You don't need time sheets to tell you your costs. I begin an engagement with an agency. It's been around 40 years and they asked me, well, how, how are we ever going to know what our cost requirements are for, for developing a social campaign if we don't have time sheets? And I just look at him like, really, are you serious? You've been doing this for decades. Are you honestly telling me you don't know what your costs are? I mean, of course, you know, you've been capturing this data by the quarter hour, forever, look in your database, you've got the history, you know what your costs are, you don't need time sheets to tell you your costs, you know.

So that's a, that's a really flimsy argument. And then in the, to look at it in the rear view mirror, like, well, okay, so then once we do the project, how will we know if we made any money or not? If we don't do timesheets and that's got also interesting philosophical answer, which I'll skip past, but a more practical one is, well, look again, once again, you've done this many, many times, you know, on average, what your costs ought to be. And, you know, sometimes you're going to exceed it. And sometimes you're going to go over it. Sometimes you'll come in under it. On average, you know, it's going to play out in a way that's going to allow you to earn a margin. You don't need to know to the penny on every single project, but let me give you my more philosophical answer, which is kind of provocative, which is time is not a cost.

Office supplies is a cost. Rent is a cost. Time is a constraint. We run a fixed cost business. It's a very simple business. We don't have complex inventory and we have to track, we have a fixed staff, fixed set of costs, fixed resources. It's not a complicated business. And our central problem is we view time as a cost. And, and the first step in making the pricing transformation in our brains is to unhook those two concepts.

Chris Do: It's a hard one to unhook because it's so ingrained within our culture to think of professional services as a billable hour, right?

Tim Williams: Absolutely. Absolutely. Yeah, it's, it's tough. It took me two or three years to change my mind about this.

Chris Do: All right. Well, there's a bunch of things I need to follow up with you on. So first, let me just quickly recap is that there's a cost and then there's the difference between what it costs you to produce and value to market. And that's what we determine as the price. Now, this is where the Marxists in the, in the community, which they're all capitalists pretending to be Marxists, which is, well, isn't that completely unethical? If it costs me 200 to make something and the value to market is eight grand, how do I justify that? How do I sleep with myself at night and stare in the mirror? So help them understand that on any level that which you can.

Tim Williams: Yeah, well that's, I mean you said it, that's just capitalism. I mean that's, that's just business. And, to me it's not an, it's not an ethical question. It's just a common sense business question. Because you have to also take that, in context of the, all the times that you underprice and that you leave money on the table or that, that you put in much more effort than you're ever compensated for. Those things kind of all come out in the wash.

I mean, we, we teach this idea of a diversified pricing portfolio where what we want are lots of different sources of revenue and a mix of risk and reward. So you've got some deals and agreements and projects that are priced at high risk, high reward, some medium and some low. But overall it's, you end up with a much healthier margin by doing that.

It's just like how you save for retirement. You know, we don't, we don't put all our money in gold. Or stocks or one company, we spread the risk. We have a diversified portfolio and we preach the same idea of diversified pricing portfolio. So meaning this introduces the concept of sometimes getting paid for outcomes, right?

So performance based. So if you imagine that your pricing portfolio, you have a little slice of it that, that comes from outcome or performance based agreements, then fine, you should do that, but you're not always going to do it. You're going to have some other deals that are very stable and fixed and you're going to have some others.

So, so at the end of the year, you, you know, you've, you've placed a series of small bets on yourself, but you know, they're going to pay off. You're just not sure exactly how and in what way. But the agencies that work this way, that have this diversity in their pricing methodologies are twice as profitable as agencies that are stuck on the billable hour.

The Futur: It's time for a quick break, but we'll be right back.

Chris Do: Want to make the most of the opportunities coming your way this year? I'd like to invite you to join me inside The Futur Pro membership, your ace in the hole for 2024. With expert guidance and a supportive community, The Futur Pro membership was created as your ultimate business lifeline, and we have years of testimonials from members to prove it. Check it out at thefutur.com/pro.

The Futur: And we're back. Welcome back to our conversation.

Chris Do: So for the people who look at the gap between the price or value to market versus their cost as an evil of capitalism and in some form of exploitation, do we just leave them alone or do you have the, a new way to reframe this as a, you know what, here's another way that you're not being consistent with the way you look at the world? Or do we just like, let them be, lie in their own bed, so to speak?

Tim Williams: It's not typical for buyers to disclose their costs. I mean, sellers to disclose their costs to a buyer. You don't walk into a Apple store and say, I really like this new iPhone, but before I pull the trigger, I need to know what was Apple's actual cost, right? Sellers generally do not disclose their costs to the buyer. Somehow in our business, that's become normalized where we've allowed buyers and most especially professional buyers, procurement types to ask. So what are your actual costs here? Not only ours, but in some cases, what salaries do you pay your people?

What's your overhead? What do you pay your people in bonuses and 401K contributions? I mean really obnoxious levels to which they drill down on our costs. And rather than pushing back and saying, well actually that's none of your concern meaning, none of your business we cave and say, oh, well, okay. If that's what it's going to take to get the business, then, you know, here you go, which is, it's become this, as long as procurement keeps asking and we keep giving, they'll keep asking and we keep giving and it's this vicious cycle that you can't get out of. So what I say to agencies is guys, this is not normal to disclose cost. Other industries don't do it. We're kind of all by ourselves in this bad habit. So take heart in the fact that it's not, it is not typical and not a common business practice in other sectors.

Chris Do: Ask yourself this one question of the things that you buy, like make a list of a hundred things that you buy. How much of those hundred things that you buy services and goods, do you actually know the cost?

Tim Williams: Yeah, answer is zero.

Chris Do: And it's going to be very small, very small percentage. Now, there's many reasons to hate lawyers, but let's just put this in there. Did the advertising industry learn this from lawyers and are lawyers to blame then?

Tim Williams: Well, they certainly learned the billable hour system from lawyers. And even in law, it wasn't always this way. Lawyers prior to the 1940s didn't do timesheets. They did fixed pricing. They do outcome based pricing, especially in the litigation, right, where if they win, they get paid, and if they lose, they don't.

Chris Do: That should be the way.

Tim Williams: And timesheets, this interesting historical fact, were introduced into law firms not as a means of billing, but simply as a means of resource management, resource allocation. They were never meant to be a mechanism for billing. That didn't happen until the 50s and 60s where they, attorneys started doing that.

Chris Do: That makes a lot of sense to me. Hopefully everybody, we can put this issue to bed because you're only shooting yourself in the foot if you wish to continue doing this. Be my guest. So here's something that I think about and, and I'd love to share this with you as a practitioner, as a person who used to do professional services.

I would tell my team, The client has a budget in their mind. They have a pain that's connected to that. The greater the pain, the greater the budget. They know what their budget is, and they play a game with us for us to try and guess at whatever it is based on our hours and our overhead and our cost to produce, our cost of goods sold.

So here's how I want you to run the project. I want you to ascertain what you think the budget is. And then we work backwards from there to figure out how much of that we can spend to produce the work. So it behooves you, the people on the front line, to get the most amount of money that you can so that you have the most resources to produce the work.

I look at this as, and there's two different ways of looking at this. The hourly people will say, this is what it costs, this is a fair amount of profit to make, even if they ask that question. I just look at it, what is the budget? What can we afford to spend given our history and our overhead? And we would just carve out a piece of that, and then we can manage it that way. What are your thoughts on that?

Tim Williams: Yes. And here's another thing you can do. Take that budget. And make it your lowest priced option, or if they're making us guess at the budget, what we think they're telling us the budget is, make that your lowest priced option, and show your client what they can get for that money.

Then in the middle option, show them why that's not enough, that if they spent a little more, they could get what they really intend, which by the way is their real budget, right? That's their real budget. And then show them a premium option in which they get other valuable solutions and outputs that they may not have considered that they're going to look at and say, wow, you know, I might need that, that premium option, because that is probably going to be the most effective solution to my problem. And they will leave that economy option completely alone. It becomes pretty apparent to them. Not enough to get the job done.

Chris Do: I love that. Okay. So you take what you think they told you is the highest budget, make it the lowest option that you have, and then be creative and be innovative. Think of new ideas and other things that if you spend this money, you could get this and then go pie in the sky, premium, balls to the wall, if money were no object what else could we do? And then that is the thing that I love doing. Oftentimes, we're working within constraints when if we free ourselves of those constraints, what else could we do? And I'll give an example to our audience, right? So they can think of this in real terms. Like, what if you could spend time at your client's place of business and helping them to develop systems or teach them how to use what it is that you've created?

What if you develop software or tools that are something that will give them significant cost savings over time? There's all kinds of things that you can do versus the lowest price option.

Tim Williams: Yeah, yeah, I love that. And, uh, you know, my, my experience with that is that, uh, as I've said a few times now, clients will upsell themselves. You don't have to do it. You know, they'll come back and say, We can find a little more money to do what, what you're recommending here.

Chris Do: Yeah, you had said something and I want to circle back to which is, okay, this works for professional services and you mentioned certain types of people like lawyers, creative people, those, do we exclude people who are trades people? Like we have an audience of people who are maybe carpenters or plumbers and electricians. Are they considered professional services people or are they something else?

Tim Williams: Well, they're service businesses. They're services businesses and I could argue that advertising is not really truly professional services because we're not accredited, you know, lawyers and accountants and engineers are accredited, so they truly qualify as professional services. We're a service business that masquerades as professional services. Plumbers and carpers would be true service businesses, right? But they face the same questions and issues we do, right? There's the famous story, you know the plumber story, right? About You have trouble with your washing machine, and you call the plumber, and they show up, and they get out their flashlight, and they crawl under the machine, and you hear a one pound, one thud, and plumber re emerges and says, okay, that'll be a hundred dollars,

and, uh, you say, well, wait a minute, you've only been here for, for two minutes, you know, and plumber says, well, yeah, okay. So I'll charge you ten dollars for the time and ninety dollars for knowing where to hit, right? He's called the problem. So they, they, the same thing, right? They're selling the solution to a problem, not the time they spend. And I think we, as consumers are all bothered by a trades person that shows up and. And spends the time, but doesn't solve the problem.

Chris Do: Yes. So I want to say this as a buyer of services, whether we categorize them as professional services or not, I have a lot of anxiety when people show up and it's going to be hourly, gives me a lot of anxiety.

Tim Williams: Yeah, me too. I won't hire them.

Chris Do: Right? So it's like, okay, are you eating a sandwich? Are you working on the problem? What are you guys doing? And I'm sitting here looking at my watch and worrying about, my gosh, the bill's going to be crazy. So I would just prefer to say, you know what? We don't know what your problem is, but it's going to be 300 bucks. It takes me two minutes or 10 hours. I'm going to fix this so that you can get back to your normal life because if you've been without a toilet or running water, it can be a massively disruptive thing to your day to day.

And I'd rather just pay that. And so I think I would feel much better as 99 percent of the world gives you fixed fee pricing. If it's this kind of problem, it's going to cost this. Unless there's something that we don't know about, uh, where we have to like do all new piping or something, then it's going to be this price. Yeah. So they can apply these principles as well.

Tim Williams: Absolutely. As a buyer of those services, I insist on a fixed price. I won't hire an hourly plumber or electrician or contractor.

Chris Do: Like my landscaping guy. Same thing.

Tim Williams: Yeah, landscaping. Good, good is a great, if we've got time for it, a great story about landscaping. And this, I had this experience. You call a landscaper and say, I need somebody to mow my lawn, trim my bushes. They say, great, we bill by the hour. Well, okay, 40 dollars an hour. You call the next landscaper, they show up and they survey the, the, your yard and they say fixed price, 200 for, to do all this. Better, right?

So one is inputs, the next is outputs. Third landscaper shows up, true story. These guys say, okay, we can see what needs to be done here, but so we understand you travel a lot. You're gone a lot, right? You're not, you don't know if a sprinkler is going to go down or, uh, or are the windstorms going to blow down a tree, right?

Yeah, I'm gone a lot. That would be fantastic. And they say, okay, so tell you what, we'll sell you green and clean. We'll sell you best curb appeal on the block. You'll never have to worry about dead bush, broken sprinkler, all taken care of, all responsibility, 400 dollars a month. So they're selling an outcome and you've got the choice, right?

Whether you want to pay for inputs, outputs, or, or an outcome. But that illustration I think is it works in any business, right? And so I chose the outcome guys. I paid the premium price because it's worth it to me because of my personal situation. It wouldn't be right for everybody. But I would never hire the input guys.

Chris Do: For sure. It's either the middle one, the output person or the outcomes person. And depending on the, the, uh, peace of mind factor and the price premium that we're putting on it. But something's real interesting as you illustrate this, people nod their head, like we totally understand this. We get it. I'm all on board. And they're like, but what I do can't be done this way.

Tim Williams: Of course.

Chris Do: They always do that. So when you hear.

Tim Williams: I've heard it all, right?

Chris Do: Right. When you hear one of your clients that you're consulting with, when you hear that, like, how do you help them to solve this problem? Is there a tool or framework or some questions that you get them to start thinking about that? Then it becomes pretty clear what the path forward is?

Tim Williams: Yeah. I mean, everybody's. Got a pushback, like, it's different in my town, or it's different in my industry, or, right? So, I come back to the work of Peter Block. I don't know if you're familiar with, with him and his book, The Answer to How, is Yes. To me, those questions are all manifestations of disbelief.

It's not a real concern that, you know, it works in the United States, but it would never work in the UK, you know, that's nonsense. That's just them asking a question that shows they're not, they're not persuaded to the paradigm shift. They haven't changed their mind yet. They haven't changed their mental map. So I go back to that. I go back to the paradigm, to the mental shift. And I don't try and address the question of their particular industry. That's how I dealt with it over the years.

Chris Do: So I might borrow this from you. So your response is when they're like, how do you do it for my industry? You're like your biggest problem is you don't want this to work.

Tim Williams: Yeah, you don't believe it. You don't believe it What else do we need to talk about so you can believe this?

Chris Do: Okay, so you put your energy into getting them to believe it or not, and then once they believe it, then the answer becomes pretty obvious.

Tim Williams: Right. It's this notion that you will never change your practices until you change your paradigm. Once you do change your paradigm, you can't help but change your practices. And one of the iconic, there are plenty of examples of this in medicine and science. And one of the iconic examples is prior to the 1850s hospitals and doctors and surgeons, they operated with dirty hands. Literally the surgeon would walk in with dirty hands and slice somebody open and operate.

And then the next guy comes in and the same instruments and the same dirty hands. And for thousands of years, doctors operated with dirty hands. Why? Because they are operating under the wrong paradigm about infections. They thought infection is caused by stale air, bad air. Go back and look at medical history and it's, it's crazy.

But then along comes Joseph Lister and the microscope, and he invites his colleagues to look, and you see these little organisms that are circulating down there in this, those are germs, that's bacteria, that causes infections. So germ theory was introduced in which physicians understood that a giant paradigm shift around what causes infections. And so, guess what happens? All the practices change. Hands get washed, instruments get sterilized, they're clean operating rooms. And so when you change your paradigm, you change your practices. And if you don't change your paradigm, you won't change your practices. So these questions about it won't never work for me is simply them saying I haven't changed my paradigm yet.

Because when they do they'll say oh, I could never go back to hourly billing. I could never do that. This is how you feel about it and how I feel about it. We'd commit suicide before we'd bill by the hour. Well, I don't know, that's pretty extreme, but.

Chris Do: That's how passionate you are about that. Well, so here's the problem, though. Just the listener says, hey, I've figured it out. It's, it's, uh, germs. That's what's causing the infections. So the paradigm has shifted. Now, if you're a doctor and you refuse to understand the paradigm, then I believe that's a malpractice at this point, because you have the information.

Tim Williams: That would be malpractice, yeah. Yeah, yeah, that's it. I've never thought of it that way. But yeah, in a way, billing by hours malpractice.

Chris Do: There you go. That'll be the title for this episode.

Tim Williams: I like it.

Chris Do: Okay, so you already know the paradigm. Many people are successful doing this in a lot of different industries. Actually, in the town in which, I'll say it this way, someone in your town who's doing work that's less, like, not as good as what you're doing, a lot of lower quality in your town is applying this and winning in ways that you're not. I guarantee it. Somebody in your town is already doing this. So you're holding on to something for whatever reason, because your identity is wrapped up in this old way of thinking. And it's entirely up to you if you want to change or not. We're just here to help you see the light. And if you want to walk through the door and enter or leave the darkness, that's entirely up to you at this point.

Tim Williams: That's right. And I would say that the decision will ultimately be made for you in terms of the economics of the business. I'll make this full prediction that certainly within 10 years and probably five, there won't be a single agency left on the planet billing by the hour. And the reason I can say that with confidence is AI will be the final nail in the coffin.

It doesn't work. Hours and minutes have never been the right container for knowledge work, and AI is just going to amplify and accelerate that. So that it will become, it won't be a choice anymore. And why not do it now, right? Get on the leading edge instead of the trailing edge because it, it, it, uh, quote, you don't like change, you're going to like irrelevance a lot less.

Chris Do: You mentioned AI. We have to talk about AI. We have to do a little deeper dive because this freaks out the creative community. Some embrace it, some don't. But I want to ask you this question first. I was watching a video that you gave, I think it was in LA in 2014, called Progressive Agency Models under the 4 A's.

And you were talking about a bunch of different things, like pop up agencies, product development, incubators, labs, studios, things that really excite me. Okay, it's been 10 years. How have people fared with this information? And do you see, do you have success stories about people like, yeah, we're doing this?

Tim Williams: That's a really great question, Chris. I mean, certainly there have been a lot of experiments with pop up agencies and agencies developing their own labs and R&D models and things like that, uh, from what I recall in that presentation. But I, I'll tell you, I think what's held them back that the innovation hasn't manifest to the degree that, that it could or should. What that all means is agencies have to develop more of a product mindset, but they're trapped in a service business mindset. And so when they try to develop, when they develop a lab and they start developing products, they just get stuck every time because they keep applying the service business hourly rate model to what in effect could and should be a product business. I mean, this takes us in the new territory, subject of a whole new different podcast. But I mean, the real future of our business is that agencies will in, in very short order, have a fully productized business model.

Right now what we have is a service based model in which we sell capabilities and competencies and bullet point lists of services where our business is headed is agencies that reimagine those competencies and services as solution sets and as products and programs and they price the program. And so it's a whole different way of thinking.

There is a new book, Madison Avenue Makeover, by Michael Farmer, that just came out a few months ago, that tells the story of one agency developing a productized business model, the IPG agency, Huge that they have three main products. And then supporting products underneath that. But if you want to engage them, then, you know, you're going to essentially buy one of these three products in, in one of its forms or iterations.

And there's a lot of productization underway in our business for many reasons, which is great. It's good because it addresses the, you can't run a product business with the billable hour service model, right? It doesn't apply, no longer applies. Completely different rules. So long way of answering why haven't some of these things taken off because agencies have tried to apply service business pricing and and resourcing models to what is essentially an emerging product business.

Chris Do: When you mentioned Huge and productizing and they are like one of three options. What are some of the options? I'm having a hard time wrapping my head.

Tim Williams: Well, like their products are experience transformation, growth creation, and I forget the third, but they're framed in context of client business problems. So the, the agencies that, that go down this path of productization, that the first step is to step back and say, what are the client problems that our firm is best suited to solve? Not just we can do anything for everyone, which is the ill fated full service model, which is a dumb idea that doesn't really ever exist anywhere.

They realize that they are best suited to solve a certain set of problems. These seven, eight, nine, ten problems are what we're best at. Now let's develop products and programs that solve these that are designed to solve these problems. And so they're targeting clients who have these problems. Not every client under the sun, not every client who just wants advertising, who wants creative work, who wants an agency, they're targeting clients who have these business problems and their products are designed to solve them.

Chris Do: So I've always wondered this myself, as a person looking from the outside, a shoe is a shoe until there's a story to be told with the shoe. And then there's an anthem that's created for it. And then the shoe is worth way more than what the shoe costs to make. And these brilliant minds working at these agencies came up with these stories. I've always wondered why they don't start their own shoe company. Why don't they have their own product division?

Because isn't it much better? Because, I mean, you get a percentage of the media buy. You get a percentage of the, or you, you recoup your costs. But you don't actually, you're not making anywhere near the kind of money that the company that you work for. And if you have these brilliant minds, why wouldn't you do this?

And there are some small examples of individuals, probably frustrated I imagine, leaving the agency world, starting their own product company, like a real product like Method Soap, I understand, is like two guys, former ad guys, and then Liquid Death is an ad guy, and they just left the system, but they're no longer part of the agency model. It's either they become their clients, but there's not someone in between. Why isn't that the case?

Tim Williams: So yeah, there are examples of that, right? Agencies who've developed their own whiskey brand, and their own retail stores, and things like that, and those are marginally successful. I think they're mostly fulfilled, you know, creative outlets that, you know, agency people want to develop a brand and have some ownership in it. But the thing that I think is more practical and we see more often is agencies doing joint ventures with brands and investing. And this was done with Method, by the way, their agency was Crispin Porter Bogusky at the time, and they took an equity stake

in Method to help develop the brand. And, uh, they retained that equity stake for a long, long time, became worth a lot of money. Agencies like anomaly have done similar things. They help incubate the brand. They invest not only intellectual capital, but actual financial capital in the brand. And so they become business partners with their clients.

Anomaly did it with EOS, the EOS cosmetics brand. The agency bullish in New York has done it with Warby Parker and Casper Mattresses and Harry's Shaving, which is a really interesting idea. It kind of straddles between those two worlds of, yes, we're going to be your, your creative problem solver, but we're actually going to be a business partner with you as you develop your brand. I like that a lot. I think there's a lot of professional fulfillment in that for agency people.

Chris Do: Okay, so it is, is working. The joint venture makes a lot of sense. You get an equity stake. You even put in money and help to develop product ideas. So it's not just promotion. It's, it's really into the product itself, which I love. And I want to, I want to see more of that happen because if advertising or the creatives that work at advertising agencies have that power to shift culture. Why not take a part of it?

Tim Williams: Exactly. And you know, I'll suggest a good podcast guest for you who's done this. Michael Aaron Flicker, who runs a, a firm called XenoPsi in, in New York. Uh, they've done that very thing. They have agency brands and they have product brands under the same company and they've got several successful consumer brands that they own. And their agencies do the creative work for 'em.

Chris Do: So as we're kind of winding down on the podcast here, I would love for you to be able to speak to those agencies who need to hear whatever it is you're going to say next, which is, what is the message, if they don't walk away with nothing else today, what's the one thing you want them to think about going to bed tonight to say, okay, maybe I need to rethink this.

Tim Williams: Well, as I said before i've kind of boiled all this down the arguments for revenue model transformation into this simple idea Just make the the decision and the commitment that that you are going to starting tomorrow starting next week starting with your next pitch with your next client, you are no longer going to price and bill for inputs, you're going to start pricing and billing for outputs. So no more time, no more percent of staff, no more hours. But here's what you get. Here's the deliverable. Here's the output. Here's the thing. Price the thing, not the time. And that simple change, you can do fairly easily, and it's a game changer.

And once you do that, once you do that, you can migrate all the way. To other, you know, pricing methodologies that we also preach, which like subscriptions, it's a big one, licensing, uh, develop some outcome based agreements, but start just with that simple, that one simple change, keep doing time sheets if you want, that helps you sleep better at night, but just don't use the time. Don't use what goes on time sheets to set your price, do that, just do that. And, and that will be a giant step forward.

Chris Do: Yeah, get over that first step and then all these other doors will open up and you're like, wow, okay, I've let go of this. That was wonderful. Well, I've been having a wonderful conversation with Tim Williams. He's the founding partner of Ignition Group. If you want to find out more information about him, be sure you go and visit his website, which is ignitiongroup. com. And while you're there, check out his blog called Propulsion. And if you're so curious, check out his latest book called Positioning for Professionals. Thanks very much, Tim, for being a guest on our show. Really had a really enjoyed our time together.

Tim Williams: Great, Chris. Thank you. I enjoyed it a lot. You asked some really provocative questions and I admire all the work you do as well. So thanks for inviting me. I am Tim Williams and you're listening to The Futur.

The Futur: Thanks for joining us. If you haven't already, subscribe to our show on your favorite podcasting app and get new insightful episodes from us every week. The Futre podcast is hosted by Chris Do and produced and edited by Rich Cardona Media. Thank you to Adam Sanborn for our intro music. If you enjoyed this episode, then do us a favor by reviewing and rating our show on Apple Podcasts.

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