Transcending Timesheets

David torches Blair's highfalutin notions of timekeeping and offers four instances when timekeeping can actually be used without polluting your pricing.

Transcript

Blair Enns: David, the topic today, at your choosing is time. My first question is time, is it real or not?

David C. Baker: I knew there was no way we get through this discussion without you inserting your nonsensical perspective about is time even real. Could we just skip that? You're like this old guy at the party. Everybody knows anytime there's a new guy that shows up, somebody's going to hear it. [laughs]

Blair: Do not talk about time or diet around Blair. You won't be able to shut him up after that.

David: Yes, but time is real. It is real. You want more detail?

Blair: No. You know this joke between us and me and many other people. It's like, when I was writing, pricing creativity, I went down this rabbit hole caused by the statement time is money. I realized, "Well, what's time? What's money?" I've spent so much time reading about time and the physics of time, that I just went a little insane over it. Then I dropped it for about a year.

In the last couple of weeks, I've been reading David Deutsch's book, The Fabric of Reality. Last night as I was going to bed, I finished this chapter on time. I'm backing it around at home, but I am not going to drag it. Time. Time is real. That's the answer to the first question. My second question, timekeeping, in an agency, are you for or against it?

David: Can there be a little nuance, please? Does ithave to be yes or no? If it has to be yes or no, then I'm going to say yes, I'm for it but there's a whole lot of nuance around that. People saw the title here, timekeeping, and they're just like, "Really? We really need to talk about timekeeping. Isn't this a podcast of two intelligent-- Stick with me just a minute here.

Blair: [laughs] Go on.

David: Two intelligent people talking about important issues and running your firm. Then they just love this timekeeping thing. It's like throwing a rock in the punchbowl. Why are we even talking about it? My perspective is that pretty much everybody especially you has timekeeping wrong. It needs to be abolished, but it needs to be abolished at the right time and for the right reasons. I leave you with that.

Blair: For the right time, for the right reason, so it does need to be abolished. All right. That's actually a stronger position than I thought you were going to take. Do you want to start with arguments for or against timekeeping? 

David: Oh, I think the against ones because how much time do we have? This is one. There's nobody in the world that loves timekeeping, except that really rare employee that does everything right. Everybody in the right mind doesn't like timekeeping.

Blair: Well, the CFO likes timekeeping.

David: That's true.

Blair: There're people who look at the timesheets, but don't have to fill them out seem to like the tracking people.

David: Everybody hates timekeeping, pretty much without exception. You can address your crowd and talk about timekeeping and how much everybody hates it, and everybody's going to thumbs up. It's like everybody hates it. That's one reason why we shouldn't be doing timekeeping, because nobody's excited about it, except for the tracker people. Those are the people that don't come to the parties anyway, so we don't care too much about them.

Second is that nobody records their time accurately anyway. There's this, I call it, discounting at entry. It's particularly true when you have a time of upheaval and this is what I mean. In an environment where people are worried about losing their jobs, they're going to fill their timesheets with what looks like productive effort, even more than it was actually true.

Then when it's the opposite environment, and they're afraid they're going to get in trouble for spending too much time on something, then they're going to discount at entry. Why should we do timekeeping if nobody does it accurately? That's second reason. The third reason is what happens with this stuff? This is like an executive leadership team, where you throw problems over the wall and you wonder what happens to them. You never see him again.

Blair: You mean, you fill in the timesheet and you wonder, "Who's doing what with this? What decisions are made from this?"

David: Yes. There's no feedback loop. In engineer would call that a feedback loop. We're still blowing estimates regularly and we're not charging clients for the extra time we spent. What's the point of it?

Blair: We're discounting at entry, then we're writing off afterwards excess time.

David: Yes. This is one that is at the heart of why timekeeping sucks, really is that let's say you have a firm that tracks time really well and collects every minute that they spend from a client, then essentially, they're capping their ability to make money. All they can do is just sell all their hours without any leakage and that's it. They can't go beyond that. That's one of the most exciting things about pricing creativity. Some yahoo wrote a book called Pricing Creativity. Those are the reasons why I'm on a roll today. Can you tell?

Blair: Just to summarize your four arguments against timekeeping, everyone hates it, except for the people who don't show up to the parties, the trackers. People don't record their time accurately and I think I've told the story before about, I had a client who said, "Yes, we got rid of timesheets because one of my partners is adamant that timesheets are lies and one of our company values is we'd never lie."

[laughter]

David: I love that. That's great.

Blair: They don't record their time accurately. There's no perceived feedback loop. It's like, "I'm filling this out and it's like, who knows where the information goes or what people do with it." To capture ability to make money at this point where all you can do is sell hours. You can't transcend that idea of selling hours. If those are the arguments against it, I think you said, if you had to be put on the spot, you would say, "Yes to timekeeping." What are the arguments for it?

David: Well, the arguments for it primarily are around a feedback loop and I love the higher principles associated with pricing methods. That's the kinds of things that you talk about but my objection to that is really where it falls in the process. You have all these firms who hate timesheets and are drawn to the idea of making money, but they don't solve the basic problems first.

They aren't even getting paid for what they're doing yet and my perception of the issue is that if you don't solve that first, then you are seldom going to effectively implement better pricing methods because what you're really doing is closing a gap that should be closed in other ways. Just honestly, if we step back from this and say, "All right, is there a relationship between timekeeping and profitability?"

Blair: Great question.

David: I'd say, "No, at least I've never discovered one." Some of my clients who are religious about timekeeping aren't making a lot of money and some of my absolutely most profitable clients don't do any timekeeping at all. I don't think there's necessarily a connection there, but it's worth thinking about what are some of the basics you need to do. If you're going to aim to run in the Olympics, there are some things you need to do first. Anyway, that's of the point.

Blair: You and I have a mutual friend who a while ago, he said to me, "Hey, I'll bet you, if you just track where you spend your time, Blair." He didn't say do timesheets, but he said, "Track where you spend your time for a month and I'll bet you, you make an extra $100,000 a year just by tracking where you spend your time." I thought, "Okay, challenge accepted. I'll start tracking my time. Magically $100,000 will fall from the sky." I got like two days then I thought, "Screw this. This is not worth $100,000. I did not become an entrepreneur so that I could track my time." [chuckles]

David: What's the lesson? That you're just the typical rebellious principal who doesn't want to do it either or what?

Blair: I'm a little pleasantly surprised that you don't see a correlation between time tracking and profitability. I guess, if I'm fully honest, I suspect he was probably right, but it just wasn't worth it for me. If I think of an unprofitable firm out there who is not doing the basics right, I think that advice would probably apply, would it not? If you're not even profitable, if you're not getting the basics right, start by tracking your time and maybe there's some information in there that will cause you to make some very obvious decisions that will help steer you towards profitability.

David: Right. Let's say you had a child who was this all hypothetical. Let's say you had a child who was in their upper teens and they had a part-time job, but they always wanted more money from you, they never seem to have enough money leftover. You felt like there was a problem that they weren't aware of. Wouldn't one of the first things you might recommend is that they have a budget that tracked the inputs and the outputs? Now, that's a very basic-- It could be viewed as a little bit of an insult to say that to somebody. Especially if you said that to an older adult who should know that, but that's really what timekeeping is. It's one of those basic things.

Pricing is not about inputs, but time management is about input and it's a good place to start. All of this started to really gel for me and I've been thinking about this for many, many, many years, obviously. Recently I was reading this article about where time really began to change things and society. If we get past all this COVID stuff and then if the world heats up and we're all gone at some point and then somebody from Mars comes. I made a lot of assumptions in there, just so you know.

Blair: Keep going.

David: Somebody comes back from Mars and looks at our world, they're going to see some parts of the world with massive buildings like Dubai, New York City, Hong Kong. Those are the places where they were most ambitious. They wanted to make a statement, and so on. If you go back millennia, what were the tallest buildings? The tallest building was the pyramid of Egypt.

Then after that, between the 14th and 19th centuries, all the tallest buildings were churches. What was at the very top of every church? It was at some point in starting in the 14th century, it was a clock. What did the clock do? I grew up in an environment like this, where and over in Europe, this is still the case where you heard the bells ring at the top of the hour, the bottom of the hour, sometimes 15-minute increments. That's what regulated commerce. It's what enabled people to organize society and it's what actually, just in part, helped bring in the industrial revolution where we had all of this happening.

Now, here we are in the 21st century saying timekeeping is for idiots. We shouldn't be doing it. Everybody hates it. It's not accurate, and so on. I agree with that sentiment but the problem is that a lot of firms are still in the dark ages. I've measured this now with thousands of firms. This is even worse outside of developed cultures but in developed cultures, the average firm and the marketing digital advertising space is capturing 42% of all the time rather than 60%.

There is still a value to this basic concept of timekeeping. Let's not make timekeeping, how we think about pricing forever, or even do timekeeping forever. Let's just do it temporarily for only once. There's only one good valid reason for timekeeping and it's this, it's to improve the next estimate and make sure we're getting our time covered. Then let's build on that with package pricing, all the things that you talk about. Let's not try to run before we can walk well. That's the heart of what I'm trying to say.

Blair: I love that you say use timekeeping to improve the next estimate. I think that's the right way to think about things. Instead of trying to make sure that the job that you're currently working on that you've already scoped and priced is accurate, you take that feedback, and you roll it into the decisions that you make in the future.

David: Right, otherwise, you use it as a weapon, and then nobody likes it, they feel like they're being judged by it. If you have a manager who has to look at somebody's timekeeping records to determine if anybody is good or efficient or creative, that's a lousy manager. That's just not even necessary. If we use it as a weapon like that, then people don't have any incentive to be accurate. Let's just say, "Hey, whatever it takes it takes. Don't worry about it." Let's just track it, and then check ourselves against whatever the estimate was. Then let's let this feed our pricing methodologies so that we can get even better at this.

I want to flip this around and ask you a question. I think I know the answer to it but I'm not positive. You would say that good pricing methodology would, in quite a few cases, not correlate with the hours. In other words, let's say somebody has in their head, a $200 an hour rate for the firm, and they look at how many hours it took and really they got paid more than the hours it took. That could in some situations to be very fair to the client and very fair of the agency. You wouldn't say necessarily that it would ever be fair for the agency to not at least get paid for their time, would you?

Blair: Generally speaking, no. The idea, if I'm understanding correctly, is that we're using time to better understand our costs not to set our price. When we're doing an analysis of the prices that we have been paid, we want to make sure that the prices that we are commanding more than cover the cost of our time. You could convert this to an average hourly rate or bill rate or something and you could have this target of at every hour that we're spending, we want to make sure that across the firm, we're getting more than x per hour on that.

My observation, it's really hard for a firm to do that cost management thing with time and money, and then really resist the urge to factor it into how you set the next price. Does that make sense?

David: It does, yes. I don't have the answer to that one. I don't. I completely understand what you just said and I think it's true. You and I would agree that the ultimate goal would be for a firm to seldom if ever track time and be making good money and be doing really exceptional work that delivers value to a client. We would both agree with that I think. Along that way, and I don't want to speak for you next year, but along the way to that goal, I think it's okay in certain, and I've listed for those cases, I think okay it's to track time temporarily for the right reason.

Blair: Let's talk about those four right reasons. What's number one?

David: When you're introducing a new service offering, and you just really aren't sure what the typical scope is and Ideally, if your positioning is good, then the relationships that you have from one client to the next are becoming a little bit more similar. It does make sense to at least understand the basic parameters of a service package. The pricing might be quite different based on the value you're producing, something you talk a lot about, but understanding the inputs might be useful. When you're introducing a new service offering, or I guess just spot-checking it, that would be one case where it seems to me this feedback loop of timekeeping might be useful. That's one.

Blair: We're delivering this thing for the first time or the first few times, and we want to make sure that we've done an assessment of our costs, and we want to make sure that the price is a healthy amount in excess of those costs. Let's just measure it for a few times.

David: Right. Knowing that we're not going to do it for long, just one or two or three times.

Blair: Okay. Where else does it make sense to measure time?

David: I think a young employee that's getting into the groove and applying the unique processes that you use, just to build up this database of how they work and cadence and so on, not an experienced employee. That's a ludicrous idea to me to bring in an experienced employee and ask them to do timekeeping except in a couple of rare cases. The new employee just joining your team, this is their first real job, I could see that as a second reason, not long-term, just short-term. Then you sit down and talk about it and say, hey, maybe this was a little too much time or did I estimate this wrong? Just to facilitate some useful conversations early in their career, that'd be the second one.

Blair: That's interesting. I'd never thought of that before. It seems to make sense to me, though, you get a sense of how quickly somebody moves, how adept they are at the task they've been assigned to do. What's number three?

David: Number three is when your firm is growing really quickly. I say this because, and there's a cut-off point here, it has nothing to do with money, it's about body count. If you are adding more than 30% to your staff load in any given 12-month period, weird things happen. Those things are, you tend to not be quite as careful when you hire somebody, so someone might slip through the cracks and you might not know it. Second, you don't give them as much rope to just get up to speed at the firm. Instead, they get dropped behind enemy lines, and they don't even know their team members quite as well, because you need their work right away.

There isn't time to just let them play around and get up to speed. The other thing is that people don't absorb the culture quite as quickly. Absorbing the culture, it's a process that you can't really put all kinds of checklists, it just happens organically. When a firm is growing that quickly, the processes tend to spin a little bit out of control. That's where you might slow things down a little bit, improve your information, your data set, just for six weeks or something. That would be the third reason.

Blair: That makes total sense to me too. You and I have seen this many times as a firm for whatever reason is growing very quickly on the revenue side. They make all these very quick moves on the cost side with the assumption that, okay, I think we're keeping the costs in line, but you never know that you are and because you're letting go of so much. I am struck by the words like spinning out of control. It is this loss of control. It's like your gauges no longer work when you're growing that quickly. You're flying on intuition and you're thinking, "Oh, I think it's still profitable." Then you get this period of rest, you get the gauges restored and you go, "Oh my God."

David: What happened.

Blair: Look at what just happened. Yes. What's the fourth case you want to make for timekeeping in it?

David: The fourth one and here's where I'm cheating because this tends to apply to almost every firm. I think it's over 80% of firms are not getting paid for all their time. They're leaving some money on the table. There's a calculator on my website, it's free if you want to play with it, it just there's five inputs and it tells you what the economic viable output is compared with what it actually is, and then takes a stab at guessing why that might be the case.

This goes back to the percentage I mentioned earlier that the average firm is billing for 42% of the time. It's not because they're not busy, they're busy. It's the difference between capturing 60%, 42% is that they are underpricing some things and over-servicing things. When I say underpricing, I just mean they're not getting paid for all their hours. I'm not even touching the notion of underpricing in terms of capturing the value that they're creating for clients, which is even something else, I'm talking here about fixing those basic things.

You've got somebody who's stealing electricity. They don't have a meter on their home. The first thing we've got to do is we're not just going to charge them a bunch of money, we're going to put a meter on and see how much electricity they're using. That would be the fourth reason why you do timekeeping, but then it's just, you keep measuring it, and then once you've got the problem fixed, then you drop it again.

Believe me, the cool thing about this is that almost all humans are willing to do something temporarily for some big gain and the big gain is I don't have to do timekeeping anymore. Oh, what do we need to get to get there? Well, we close our utilization gap and then we stop again and everybody is so happy, they don't have to do it. I don't track my time, well, we know you don't track your time, you just admitted it to the entire world.

[laughter]

Blair: I want to push back on this a little bit.

David: Tell me where you're wrong. Go ahead.

Blair: Let's say you come into my firm and you do a total business review and you say to me, "Blair, look, you're only, in Blairtopia/Blair America Industries, you're only capturing 42% of your time. You're only billing 42% of the available time," and I say, "Yes, but look here, David, I'm billing it at $1,000 an hour." Do I still have No problem?

David: Well, yes, you're just throwing hypotheticals at me. That is absolutely true, but it just isn't usually the case. The firms that have a utilization problem also have a utilization problem at a pretty low hourly rate. In other words, if their hourly rate really captured where they should be in the marketplace, they'd have an even bigger one.

When I start figuring this out with a firm and I asked them what their hourly rate is, and they say, we don't have one, we don't bill by the hour, yadda, yadda, and I say, okay, well, let's just assume one. Let's assume somewhere between 160 and 200, that would be a good starting place and they still have an issue. Yes, it's a point that doesn't have a distinction, but I appreciate you trying to push me back.

Blair: I'm a big fan of AGI per FTE which is the metric I got from you adjusted gross income or agency gross income. What do you prefer? Your definition of Agency Gross Income is different than adjusted gross income, is it?

David: Yes, it is. AGI stands for Agency Gross Income in our world, adjusted gross income is a tax term, it's a much lower number for any given.

Blair: Okay, define Agency Gross Income.

David: That the total of the fee, plus some markup income. When you pull out a cost of goods sold that's anything purchased on the outside, specifically tied to a project so it doesn't include any salaries.

Blair: For the most part it's fee income plus any markup and markups seems to be, it's not as big a thing as it used to be in some firms. AGI per FTE, FTE is full-time equivalent employees so you take your revenue divided by your headcount and you come up with a number and in your world, you once said to me, years ago, the threshold of respectability is about 160,000 in AGI per FTE. Is that still a number that you would use?

David: It's gone up a little bit? It's more like 180 now, but yes, that's very close to it and if you look at a firm that's delivering that sort of fee billing per full-time equivalent employee, you can almost bet that they have a utilization problem as well. If we want to fix that--

Blair: If they're below that threshold.

David: Right, exactly. If we want to fix it, we've got to get data somewhere and it starts with timekeeping.

Blair: To your point of saying, everybody can do something temporarily and if you gamify this and say, listen, we dropped below a threshold of something. Everybody is doing timesheets, we get above that threshold, you're no longer doing timesheets. The threshold that I like is that AGI per FTE is basically revenue per headcount and so just taking your latest number here of 180, it's basically, if we get a month where we're below 180 and AGI per FTE, it's back to timesheets, everybody.

David: Right, exactly.

Blair: What do you think of that?

David: I think that's exactly the way it should be. Then if you have a couple of stragglers who don't want to do timesheets and say, all right we're going to have pizza, of course, this doesn't work now, but we're going to have a pizza party Friday if everybody does their timepieces. It's like, freakin Fred didn't do his timesheets again.

Blair: No pizza because of Fred.

David: Right. Public shaming.

Blair: You've got basically a hierarchy of how you enforce temporary timekeeping, essentially a ladder. Some of these things are-

David: Start simple, and then somebody dies.

Blair: You've got like between 8 to 10 different steps here on the slide of how you employ timekeeping temporarily. Where do you start?

David: You start by just communicating the purpose and policy really clearly. This is where it's so critical to explain to people listen, we're not going to beat anybody over the head. If it takes you longer to do something than we thought, it's almost certainly a problem with our estimating. All we want to do is we want to improve future estimating so please help us out here. That's where it starts.

Blair: It's management to improve rather than management to prove. Improve over time, rather than--

David: Yes.

Blair: Okay, got you.

David: Good way to say it. Next would be, let's make sure that everybody does it. Wink wink, looking at the principles because the higher up you are on the ladder, the least likely you are to do it. Everybody notices that. This is where we get into the fun where the principal says, "I just don't have time to do it." The principal has his or her executive assistant do it who's just making shit up all the time. Have already spent their time.

Blair: Everybody knows it. It's like, "Okay, we're all doing timesheets and you're not doing. We know you can't stand it."

David: Right. [laughs] If that doesn't work, then throw the problem back to employees and say, "All right, parenthetically, I sound like an angry old white guy, don't I? The world does not need more angry old white guys." He says, "Okay, I'm an angry white guy. I don't want to be mean here so it's in your best interest to solve." This is like saying to your two kids, "All right, you two work it out because if I have to step in, it's not going to be pretty, so you all work it out."

Blair: Here's a sharp knife for each of you, I'm locking in the room, figure it out.

David: [laughs] Right. If that doesn't work, then maybe try a little peer pressure envisioning that you're back in your facility again. Then there's this Post-it Note on the exit door that says that "People who didn't do their timekeeping this week yet are these people". If that doesn't work, "the reason you're not getting pizza, these people. It's Joe again". If that doesn't work, then maybe some sort of-- I don't want to go through all these just step by step, but in the end, there's a public hanging in the square.

Blair: It's a head on a pike.

David: A head on a pike. If they know that you're willing to do that, then it's never necessary, because I really would rather people just have some fun with it. Really, if folks understand that it's temporary and the only purpose is to improve the next estimate, you're not going to have a problem with it. Well, I feel. What do you think, Blair?

Blair: Do you feel better? Was that cathartic for you?

David: I feel better. I wish you at some point had admitted that you hadn't thought about timekeeping as intelligently as I have over the years and you'd like to make a public apology. I'll let you think about that and we'll wrap it in at the end of the episode when it airs if that's okay.

Blair: I'm not going to invest that much emotional energy into a topic that isn't real.

David: That you don't care about.

[laughter]

Blair: I'll finish David Deutsch’s book and circle back with you and let you know if he's convinced me time is real or unreal. You've gone through some arguments against timekeeping. You've made the point that in over 1000 firms that you've worked with, you haven't seen a correlation between keeping time and profitability. You talked to us a little bit about the history of churches being the tallest building and how essentially commerce was in-- Was that your point, the tallest buildings were essentially clocks so that the world could function?

David: Right.

Blair: What the hell was your point on that?

David: Yes, exactly. Next time, try listening a little bit better.

[laughter]

Blair: All right. You've listed some cases where you think timekeeping makes sense on a temporary basis and then talked about how to do it. The net takeaway here, if I understand you correctly, Mr. Baker, is-

David: We could have saved a half an hour if you just said-

Blair: Yes, this is like the 240-page book that should have been 24 pages.

David: What is your takeaway? I want to hear this, what is your takeaway?

Blair: My takeaway is, I think you're saying that it makes sense to track time from time to time to get a sense of your costs, but you shouldn't let that tracking of time pollute over into your pricing.

David: Yes, and you can live with that one. You can endorse that.

Blair: Yes, I think I wrote a book about that.

David: Okay.

[laughter]

You find a way to squeeze that in every episode.

[laughter] It's funny. I've talked to other value-based pricing consultants, advisors, authors, and some of them are just adamant in measuring and selling time is an absolute-- There's no reason to ever not only sell time but no reason to track time. I don't believe the former is true. I think there are times when it makes sense to sell time. I think the reality of the audience that's listening here who are dealing with some of the larger advertisers or marketers in the world is you want to do business with some of these organizations. Some of them I wouldn't personally choose to do business with but that's your prerogative.

If you want to do business with them, there's certain services you're going to have to sell on an hourly rate, which seems to imply that if you've got to sell hours, in some cases, it makes sense, you're going to have to track time in some cases. I also think culturally, and this is another takeaway, culturally, I don't think you want to be running that organization where it's all about this tracking this, lie would be a bit of a strong statement, but this really murky, unclear metric of time that we falsify at the entry point, and then we write off later. Do you have any thoughts on that just culturally?

Blair: Yes. I think it's so true. You wouldn't want somebody to look back on their time at your firm and be thinking about all the Fridays, they hung around and couldn't leave until they got their timesheet in. It'd be okay if they thought that you were careful about measuring inputs and that you weren't wasting their time but every once in a while you asked them to just track this so that we can be better at what we do. That would be totally acceptable to me.

What I object to is like what you said just a minute ago, this overall complete dismissal of timesheets. I think, there is a place for them, but they shouldn't be controlling what you do but every once in a while they're useful. It's like their financial statements. They're putting a stopwatch on somebody running a 40. There's a role for them every once in a while.

David: To continue that metaphor of putting a stopwatch in somebody's running a 40, who's doing it from time to time maybe a better metaphor would be a thermometer. Here, let's take your temperature. You shouldn't be expected to have that thermometer in your mouth or other parts of the body all day every day.

Blair: I like that. That's a good way to say it. Maybe we need a graphic.

David: Let's end the rectal thermometer metaphor.

[laughter]

Thank you, Blair.

Blair: Thanks, David.