Debunking Myths of Subscription Model, with Ron Baker

Announcer: 

Welcome to The Lawyerist Podcast, a series of discussions with entrepreneurs and innovators about building a successful law practice in today’s challenging and constantly changing legal market. Lawyerist supports attorneys, building client-centered, and future-oriented small law firms through community, content, and coaching both online and through the Lawyerist Lab. And now from the team that brought you The Small Firm Roadmap and your podcast hosts 

Jennifer Whigham (00:35): 

Hi, I’m Jennifer Whigham. 

Zack Glaser (00:36): 

And I’m Zack. And this is episode 441 of the Lawyerist podcast, part of the Legal Talk Network. Today, Stephanie interviews author Ron Baker about his new book, and they discuss the subscription-based business model. 

Jennifer Whigham (00:49): 

Today’s podcast is brought to you by Posh Virtual Receptionists, Clio, & LawPay. We wouldn’t be able to do this show with author support, so stay tuned. We’ll tell you a little bit more about them later on. So Zach, we’ve had several episodes now where we are talking about healthy strategy, and I doubt anybody is out there asking, why are you focused so much on strategy? Because I think most attorneys are strategic and they understand. But I did want to talk a little bit about what I think is important to create a healthy strategy. And part of that is examining your discomfort. 

(01:31): 

Unexamined discomfort doesn’t make a good business strategy. I mean, sometimes we feel uncomfortable, and then you’ll get that feeling and you’ll make up the facts to go along with it because you don’t know why you’re feeling uncomfortable. So you get a cut on your hand, you don’t know where it came from, and you start to think, oh, I must have hit it on the counter earlier, did you don’t know, but sounds right, right? Same thing happens. I think mentally you might think something I’d like to hire, but it doesn’t feel right, doesn’t feel right right now. And that’s intuition possibly. But it is a feeling and it’s important, but it’s not a strategy. When you rely on your unexamined discomfort or your gut feeling, you will make sloppy decisions, which is not to say it’s not important to have those things right, but they should be the launching pad for your strategy. So when you get that inkling and instead of making up the facts to justify the feeling, actually figure out what those facts are. So with the hiring thing, are you uncomfortable with hiring because you’re afraid of giving up control? Are you afraid of your careful decisions? Being questioned by another person, which can feel uncomfortable, but is not inherently bad? So figuring out the facts, writing them down, looking at your vision, your goals, and then building the plan from there. To me, that’s a smart strategy. 

Zack Glaser (02:53): 

And so that’s what we’re kind of going for is that’s one of the reasons we write our vision down. That’s one of the reason we write our goals down. This makes me think of the anxiety that I deal with a lot of times, and it’s unattached anxiety. And I think you and I have discussed this before. 

Jennifer Whigham (03:07): 

Oh yeah. 

Zack Glaser (03:07): 

Unattached anxiety that just exists because of a chemical imbalance or something like that in my brain, and I feel it in the top of my back, and I’ll wake up in the middle of the night and feel that my mind goes and finds things to be anxious about. So thinking about that unexamined discomfort, in order to get past that, I can feel that anxiety. But if I just let it run rampant, then I’m going to get anxious about things I shouldn’t be anxious about, and more importantly, I’m going to take action on things that I don’t actually need to take action on. And so thinking about that in the terms of your business, if you have that anxiety, if you have those, that discomfort, and you go and try to find something that’s making you uncomfortable, then you’re going to take unthoughtful and unstrategic actions. Whereas if you just say, hi, I’m anxious, hi, I’m uncomfortable, 

Jennifer Whigham (04:08): 

And I don’t know why yet, because you may not know why yet, right? That’s okay to say 

Zack Glaser (04:14): 

And go back to your touchpoints. Go back to the things that got you here, the goals that you’ve already written down, the values that you’ve written down. And I think it’s important to remember that we do make a lot of our decisions based on our values. 

Jennifer Whigham (04:30): 

And one thing too, I was going to say, and something you said just sparked this for me, your discomfort, your anxiety also can affect other people in your business. So there are stakeholders involved in your business and your strategy. It’s not just you having this anxiety. So even if you’re a solo, those stakeholders might be your family. I mean, they could be the people you lease the building from. With every strategy in every decision, there is a rainbow of people affected by it. You won’t make everyone happy. But the saying that business isn’t personal, I mean, we know that’s old news by now. Business is personal. So as you’re thinking about this unexamined discomfort, this anxiety, this unattached anxiety where it’s coming from, also think about as you make the strategy, who are you affecting by not examining that discomfort? And I think you will find that there are a lot of people you’re affecting. And this is not to make you guilty or scared or anything like that. It’s just to make you sit with a discomfort. Because discomfort isn’t bad. 

Zack Glaser (05:37): 

It doesn’t necessarily harm you, 

Jennifer Whigham (05:39): 

It doesn’t harm you. It’s a neutral. The feeling of discomfort is a neutral feeling. It is what we start attaching to it that makes it good or makes it bad. Because you know, exercise, you run really hard. You might feel discomfort in your muscles after, but you feel you might feel proud of that because you ran that race. But if you didn’t run and you feel discomfort and you don’t know where it came from, you’re going to think it’s bad because you don’t have the reason behind it. 

Zack Glaser (06:06): 

I’ve never thought about that before. Is there a value in being what I call good sore in your company when you’ve worked 

Jennifer Whigham (06:15): 

oh, I love 

Zack Glaser (06:15): 

That you’ve run a good deal and you’ve gotten to a bit of a runner’s high, and the next day your legs are good sore. They’re not hurt, but you can feel them repairing and having these uncomfortable conversations, seeking candor. That’s one of our values. Seeking candor with the people that you’re around. Yes, it may make things a little bit painful, but is it a good soar? 

Jennifer Whigham (06:37): 

Ooh, that is brilliant. I sense a new value coming. Good sore. Good sore. And knowing what the difference between that is, and it’s not bad sore, but it’s more where did this come from sore? 

Zack Glaser (06:49): 

Well, there’s a difference between soreness and injury. 

Jennifer Whigham (06:52): 

Yeah, true. 

Zack Glaser (06:53): 

There’s levels of pain. And so in your company, if you’re a good sore, there should be that. Otherwise you’re not growing. But making sure that it’s not injury, not pain, not something that’s going to break your company. 

Jennifer Whigham (07:04): 

Yeah. Oh, I love that. Well, let’s strive to be good sore this week. 

Zack Glaser (07:09): 

Sounds good. 

Jennifer Whigham (07:10): 

Now here’s Stephanie’s conversation with Ron. 

Ron Baker (07:16): 

Hello, I’m Ron Baker and I’m the founder of the Vers Institute and author of the recent book Times Up the subscription Model for Professional Firms. 

Stephanie Everett (07:24): 

Ron, welcome back to the show. You were with us just last year talking about you and I got a heated discussion about both being ready to kill the billable hour. We got a lot of responses and feedback. People were excited they were fired up. So I’m excited to have you back because we’re kind of continuing that thought, but this time maybe a focus on subscription models. 

Ron Baker (07:46): 

Excellent. Yeah, thanks for having me back. Glad to be here. 

Stephanie Everett (07:49): 

Maybe just to kick us off, I mean, maybe we start with just simple enough defining subscriptions and how you think about it and we’ll kind of get into some details. 

Ron Baker (07:58): 

Yeah, the subscription business model is really, I mean, just look out the window. It’s all over the place. I think in five years time, we’ll pretty much have the option to subscribe to everything. I can subscribe to a boat, I can subscribe to a home in over 40 countries. I can subscribe to a fleet of Porsche’s through Porsche Drive. You can subscribe to eyeglasses. I mean, the list goes on and on and on. It keeps growing. It’s projected to be a one and a half trillion industry by 2025, and we’re starting to see it in the professional space. And I just think finally we have the business model that aligns with our rhetoric. We say we’re all about the customer, the relationship. We want to be the trusted advisor, whatever language we may use around that. But then when you look at our business model, we’re monetizing transactions. And finally now we have a model that puts the relationship at the center. So rather than pricing transactions, rather than being on this fee for service treadmill, we can move to a relationship model that gives us predictable revenue that lets us predict our work a little bit better and lets us take care of our customers, which is if you ask any professional why they entered their profession, they’ll say to help people, you can’t help people if you’ve got a thousand customers. 

Stephanie Everett (09:23): 

That was one of my big takeaways when I read the new book that you just published Time’s up to me, what stood out was you have a chance to sell a relationship. And you just mentioned that too, and I think that’s a new way for a lot of people, for lawyers to think about what it is they’re selling. 

Ron Baker (09:41): 

Absolutely. In the subscription world or in the business model innovation world, this is called the revenue model question. And that doesn’t mean the pricing question. The pricing question is how much do you want your customers to pay or what do you think they’ll pay? But the revenue model question is what do you want your customers to pay you for? And I really as a professional, don’t want that to be services because services are just things that we do to our customers, not for them. It’s kind of like our doctors today are paid on a fee for service basis, which means they have to do something to us in order to get some type of insurance reimbursement or copay rather than doing something for us, which in a broader context means they’re more focused on the presenting problem rather than keeping us healthy. And I think as professionals, we’re much more than problem solvers. 

(10:37): 

I know attorneys, accountants, they’re great problem solvers, and we always will be, and that will always be part of what we do. However, if that’s all we do, then we’re simply reverting the customer back to the status quo. We’re not advancing them. And professionals are in the privileged position of being able to advance their customers, to transform them, to guide their transformation from where they are to where they want to be. Lawyers can do it from womb to tomb, from the day you’re born, retirement planning, college planning to the day you die, and afterwards estate planning. And that’s a privileged position that a lot of other businesses can’t do because they’re tied to a product or service. And when you guide transformations, customers, the product, the services that you provide are just a means to that end. But the ultimate end is transformations. And so what do I want customers to pay me for transformations not services? 

Stephanie Everett (11:34): 

I love that. I think everyone should rewind, listen to it four times and let that sink in. I suspect though, there’s people listening that are like, okay, I see that for the business lawyer. I see that for the employment lawyer maybe representing companies where you have that ongoing relationship. Talk to us for the people who are skeptical that are like, but that’s not what I do. I mean, someone joked with me earlier today and said, is there a world where a criminal defense lawyer has a subscription model for the person that that’s just their business is committing crimes? So does this actually work for everyone or is it more suited for some services over our relationships versus others? 

Ron Baker (12:19): 

No, it will not work for everyone. And I get challenged on this all the time. The great question is how about a funeral home? Do this? But Stephanie, maybe there is a way we’re just not thinking creatively. I love it mean we’re a nascent territory here. This is embryonic for professional firms. The only profession so far that has adopted this with any real momentum behind it has been the concierge doctors and the direct primary care doctors. Now, look, this is a growing field. Amazon just spent 3.4 billion buying one medical, which is the largest direct primary care doctor practice in the United States. By the way, if you’re a prime member, you can subscribe to one medical that’s your own general physician for $144 a year. Huh? That’s 12 bucks a month. Because Amazon’s play is, and I love this, I think this is their play. I’m not sure, I’m not privy to internal corporate meetings, but I think their play, and this is fascinating, the doctors are a lost leader. They want to sell all the drugs and medical devices at the back end through the store. I think that’s the play here. But anyway, concierge doctors have been around since 1996. So this model has proven, there’s tons of empirical evidence behind it, but I do not believe it’s for everybody. You have to have recurring value and criminal lawyers, Appellate lawyers, I think are kind of more transactional. It’s kind of like a one and done thing. You’re probably not going to see it again. Family lawyers, there are some out there doing this 

Stephanie Everett (13:57): 

For sure, because the divorce is the start. A lot of times that leads to a lifetime of disputes with the other spouse, especially if there’s kids. I mean, I would imagine if there’s kids, I mean luckily my warmup marriage ended very nicely because it was done and we never had to really see each other again. We didn’t have kids. But if you have a child, I mean, that’s what I hear from the family law. It is like every holiday, every school issue that pops up or even medical issues, you almost need that person helping you navigate the rest of your life. 

Ron Baker (14:28): 

Plus I can imagine the estate issues too, and the divorce attorney could be a GP and facilitate that relationship with an estate attorney expert, extended family kids. Do you want to have kids in the future? And all of those issues. So there are some firms experimenting with it. In fact, there was a fascinating 2019 article from the A B A that profiled, I think it was about 10 or 12 firms now. They were small firms, but that’s where you always see innovation first is around, it’s always bottom up. It’s never top down. And all of these firms were doing different things. A couple I think were family attorneys, a couple were IP attorneys, but how could a criminal lawyer do it? Probably, couldn’t. 

Stephanie Everett (15:11): 

I guess they have the common, I don’t know the mafia. I mean, there are people who are in 

Ron Baker (15:16): 

The business of crime family. Yeah, just like if a family lawyer had Jlo, I guess that could be a subscription. 

Stephanie Everett (15:24): 

Exactly. But I think it also, it challenges us maybe what you’re saying to think about what is it that we’re selling? And I know some lawyers who’ve started to think beyond that. I sell contracts and they’re saying, well, I know how to keep my businesses clients healthy so I can sell them systems and processes and training and knowledge and resources. One of the things, I mean obviously a Lawyerist, we have a subscription model. People can subscribe and be part of our coaching program. And I’m constantly, part of what I think I bring value to is, is we stay up to date on the latest trends. People, my clients, my lawyers that I work with know that I’m doing the work for them. I mean, they have to do some of the work, but they can come to me and learn the greatest thing. I’m teaching them real time how to use chat G P T, for example, because that’s the latest, greatest tool. We don’t have to go down that rabbit hole, but I think it forces us to think differently about what it is we do and how we do it. 

Ron Baker (16:26): 

Exactly. And that’s the beauty of the revenue model question is what you want your customers to pay for. And because we’re in this position where we can guide the customer just like you do with your customers, I mean, if you think about it, professionals are in this exalted position to help our customers be healthy, wealthy and wise. And wow, that’s kind of sacred. Porsche can’t do that for me, right? Starbucks can’t do that for me, but a lawyer, an accountant, they can and they can do it over and over. And I think that’s where we need to put our focus. And when you start thinking that way, you start thinking about ways that maybe a criminal lawyer could do this, maybe you can subscribe to a divorce is like you said, it’s an ongoing thing. My favorite question when people ask me about that is to say, what would happen if Disney entered your profession? What would they do with the customer experience? What would they do with the pricing? How would they charge? What would they do differently? I assure you it would be completely different 

Stephanie Everett (17:30): 

For sure. So if we shift a little bit and hopefully we’re getting people on board that this is something they should be thinking about, I think then the next step is they go to, okay, well, what is it I’m going to offer? And because let’s just face it, we’re lawyers, and sometimes our minds do this trap with us, okay, I’m going to charge a subscription and for that subscription, you pay me X number of dollars a month, you get 10 hours of calls with me a month. We know that there’s a reaction to define the scope sort of in terms of hours. And I suspect you have thoughts about that. 

Ron Baker (18:08): 

I do. That’s more of a retainer model. In fact, when concierge doctors first came out, it was the team doctor, by the way, for the Seattle Sonics who started MD squared, which is today the largest concierge medical practice in the country. I didn’t learn about this until 2000. And when I first read about what he was doing, he was charging 24 grand a year for a married couple, four or five grand per kid. He limited each doctor to 50 families. That’s it. That’s their maximum capacity. And he’s general physician, so he is on, you’re not going to get knee surgery, you’re not going to get a hip replacement. He’s not going to do cancer treatment. So there’s kind of the confined scope, what it is that you do because they’re specialists. And what was fascinating about it is because I didn’t have a name for it that we’re so limited by our language. 

(19:00): 

I called it retainer based medicine. It’s not a retainer. You’re paying that two grand a month for access to him. When you need him, he’ll come to your home, he’ll go to your office. He’ll even fly overseas if you get sick over there and coordinate your care, get you back or whatever’s best. But the point is not a retainer. We do whatever you need when you need it that we’re capable of doing. Yeah. Now something, because a firm is defined by the customers it doesn’t have and the services, it doesn’t perform with gps, with specialists, that’s very obvious. We don’t do litigation. We don’t do that. We don’t do criminal, we don’t do family law because we’re corporate attorneys or whatever, and that comes down to your firm’s strategy and your firm’s positioning. With subscription. You have to be very, very clear on your position in the marketplace. You want to be Morton’s, you want to be McDonald’s, be a vegan restaurant because you can’t be all three. If you try and be all three, you’ll be lousy at all of them. A brand can only stand for one thing, and you got to be very, very focused. And once you do that, I think subscription becomes a heck of a lot more manageable. 

Stephanie Everett (20:13): 

There’s probably a fear that somebody has right now that says, okay, they’re paying for access. Does that mean I’m going to have that client that calls me all the time? Everyone’s always worried about the person who’s going to abuse the system. They can’t get past that idea. 

Ron Baker (20:30): 

Yep. It’s so funny because when I was studying concierge doctors and direct primary care physicians, they have the exact same fear. What about the cyber contract? They call ’em the person that Googles every disease and then goes into the doctor with all the printout. I think I have this and the It doesn’t happen. It just doesn’t happen. These people, they have their own life to lead. They don’t want to camp out in their lawyer’s office and call you all the time. If they want to talk to you, it’s usually because you’re trying to do something where they want to do something or some emergencies happen and you want to talk to ’em. That is a groundless fear. However, let’s go to the worst case. Somebody is calling you all the time, they’re kind of taking advantage of you. Terminate them. Yeah, terminate. Nobody can abuse you without your consent. 

Stephanie Everett (21:19): 

Yeah, I love that. Let’s take a quick break. We need to hear from our sponsors. When we come back, we’ll get into the pricing question that I know everybody’s thinking about. 

Zack Glaser: 

The Lawyerist Podcast is brought to you by Posh Virtual Receptionists. As an attorney. Do you ever wish you could be in two places at once? You could take a call while you’re in court, capture a lead during a meeting or schedule an appointment with a client while you’re elbow deep in an important case. Well, that’s where Posh comes in. They’re a team of professional, US-Based, live virtual receptionists available 24/7/365. They answer and transfer your calls, so you never miss an opportunity and you can devote more time to building your law firm. And with the Posh app you’re in total control of when your receptionist steps in. You can save as much as 40% off your current service provider’s rates. Even better, Posh is extending a special offer to Lawyerist listeners, visit posh.com/lawyerist to learn more and start your free trial of Posh Live Virtual Receptionist services.? 

And by Clio. What do solo and small firm lawyers with great client relationships all have in common? They use cloud-based legal practice management software to run their law firms. This is just one finding from Clio’s latest Legal Trends Report. There’s no getting around it… the fact is… when it comes to client expectations—standards are higher than ever for lawyers. Proof is in the numbers: 88% of lawyers using cloud-based software report good relationships with clients. For firms not in the cloud, barely half can say the same. That gap is significant. For more information on how cloud software creates better client relationships, download Clio’s Legal Trends Report for free at clio.com/trends. That’s Clio spelled C-L-I-O dot com/trends. 

And by LawPay. Did you know 80% of lawyers struggle to make their firms profitable? If you want to build a thriving practice, you need the right set of tools. LawPay, the #1 legal payments processor and MyCase, the leader in legal practice management software, have joined forces to offer law firms a complete software solution. Access everything your firm needs to succeed, all in one place. Track time, send invoices, get paid, handle accounting and three-way trust reconciliation, manage client intake, and more—without switching between programs. Plus, access dozens of integrations that seamlessly sync with your current software. Over 65,000 lawyers trust LawPay and MyCase to streamline their firm’s operations. In fact, users get paid 39% faster and gain three billable hours per day on average. So why wait? Learn more and schedule a demo now at LawPay.com/lawyerist. That’s lawpay.com/lawyerist. 

Announcer: 

The Lawyerist Podcast is edited by Britany Felix. Are you ready to implement the ideas we discuss here into your practice? Wondering what to do next? Here are your first two steps. First. If you haven’t read The Small Firm Roadmap yet, grab the first chapter for free at Lawyerist.com/book. Looking for help beyond the book? Let’s chat about whether our coaching communities, are right for you. Head to Lawyerist.com/community/lab to schedule a 10-minute call with our team to learn more. The views expressed by the participants are their own and are not endorsed by Legal Talk Network. Nothing said in this podcast is legal advice for you. 

Stephanie Everett (24:25): 

All right, I’m back with Ron. We’re talking all things subscriptions, which is such a hot topic right now. We have a lot of lawyers that we’re working with that are moving in this direction, so it’s a lot of fun for me, it’s exciting because I think this is, it’s just really cool and I think it provides a great client service. Once people kind of figure out what they’re going to offer, then they always struggle with how do they price it and how do they match that scope of services with the pricing. Because let’s face it, Lawyerist, we’re not pricing experts. So how do you help us there? 

Ron Baker (24:59): 

So we’ve talked about the revenue model. What do you want your customers to pay for? Now we’ve get into the pricing question and some of the pricing strategies around this. I think what the subscription model insists upon is you go to the market with an uncommon offering. I think this goes back to the question, what would Disney do different? Well, they would plus the offering. So I’m going to give you a real quick example of Porsche Drive. Porsche Drive has a subscription plan, 3,500 bucks a month, and I don’t just get one Porsche, I get a fleet of seven, and I can trade out as much as I want. So they’ll white glove out an S U V and white glove my convertible away, and I can change it back again tomorrow if I want. They pay for everything except gas and tolls, everything, insurance, maintenance. 

(25:48): 

I don’t have to worry about any of that stuff. Oil change is all gone. And what’s really neat about that is people ask me, well, how’s that different from buying or leasing a Porsche? Well, it’s not tied to a car. I’m now subscribing to Porsche. It’s a one-to-one relationship with the company. The car is kind of incidental for the cars. It’s more about the relationship. Plus now Porsche knows everything about me before I buy up car from a dealer. Porsche doesn’t really know me right now. They know where I drive, they know what I listen to. They know what restaurants I like, what food I like. I mean, there’s going to be ways to monetize that down the road, and I’m sure they will. So once you plus the offering in a subscription model, you enhance it, you go to the market with an uncommon offering. 

(26:34): 

And the uncommon offering here is when a lawyer tells its customer, whatever you need that we can do, you’re covered. Don’t worry about it. Just like the general physicians do in concierge, direct primary care, whatever you need that we can do, you’re covered. And by the way, what we can do continuously expands. Just like Amazon Prime constantly throws out new benefits like one medical to their members and new movies or new shows that you binge on or whatever, we have to do that too. So the doctors are adding pharmacy and they’re adding X-ray machines or other ultrasound or whatever to their equipment so they can offer more things under their roof. And even if the patient doesn’t use it, it throws a halo over the value proposition and they know if they needed it, they get it instantaneously. And therefore, I think going to the market with this uncommon offering commands uncommon pricing, premium pricing, I think you can get 2, 3, 4 times more than you’re currently getting. 

Stephanie Everett (27:42): 

All right, that’s interesting. And worth some more thought, I’m sure. 

Ron Baker (27:47): 

Yeah, that freaks people out, by the way, because we’re not pricing the services we’re saying to the customer, we’re going to guide transformations. So you know, might need to do one or two things a year where you want to move from where you are to some desired future state. So that’s a big part of the plus offering too. We’re guiding these transformations and those are incredibly valuable. And then the services that we need to get them there to that new future become incidental. They’re not the focus. The focus is in the in-state because what does it mean to be a professional? A professional who’s somebody who’s paid for producing a result, not performing a series of tasks. And the problem we have with our business model now, whether you’re hourly billing or even value pricing to some extent is we’re still being paid for that series of tasks. I want to be paid for the outcome, which is the transformation. 

Stephanie Everett (28:40): 

Yeah, that’s a great reminder. I think the fear that’s coming up is how do we get the clients to buy in and understand it because it feels like a big leap, especially with that premium. Now I’m going to them with this new offer and it’s unsure and it’s probably scary on both sides. And how do we convince the client that we’re worth that relationship? We’re worth that premium plus. And I mean, I guess it’s the transformation piece is probably what you’re going to say, but yeah, 

Ron Baker (29:10): 

Well, the true communicating transformations and talking in that language, I think makes us more valuable right out of the gate. Convincing a customer, a brand new customer to work with, any professional is always kind of an uphill battle. They don’t know us. We’re what marketers call a credence. Good meaning, even after we experience it, we have a hard time judging it. Unlike say an experience good. You know, go to a new movie, you walk out, you know what you thought, a new restaurant, a new play, whatever. Those are experience goods, but we’re credence good. How do I know my vets not screwing up my dog or that my attorney or my CPA is incompetent or I get audited five years down the road? So one of the ways that customers judge a credence good is it’s price. The higher the price, the better it is. 

(29:59): 

Plus it forces us to up our game. Now we have to, I’d say start out with a transformation, jump right out of the gate and do something for the customer that takes them from where they are to where they want to be. It doesn’t have to be something grand. It can be something in their business, something in getting them a will, giving them peace of mind that they’re taking care of or their kids taken care of or whatever it is. But I think that language is so much more valuable and powerful to the customer than sitting around and talking about scope of work, number of hours. You can call me a month that that’s irrelevant. Nobody cares about that. What they care about is some type of result. I go to my eye doctor, I want perfect eyesight. I don’t care about the eye exam. I don’t care about what type of drops he puts in my eyes to dilate them all that I’m looking for. The result, we need to get back to that as professionals because our core being is creating an outcome, not performing a series of tasks that’s for day laborers, not professionals. 

Stephanie Everett (31:01): 

I feel like it was in the book or maybe one of the interviews I watched with you where you said, are you selling the drill, the hole or the time it takes to make the hole, 

Ron Baker (31:10): 

Right? Right. Yep. And that’s an old marketing crack about people don’t buy drills and drill bits, they buy a hole in the wall so they can hang a picture or a dartboard or do something, right? You’re buying an outcome. And I just think we need to get back to that. I think we’ve lost that because of hourly billing. Everything’s turned into a six minute or 10 minute chargeable task. It atomizes what we do as professionals. We’re so much more than our scope of work as professionals 

Stephanie Everett (31:40): 

For sure. And I guess even in that silly example, it makes me think what I really want is someone to just take care of my house. I would love it if somebody would come every month and check all the things that I don’t even know are a problem and say, Hey, before this becomes a $10,000 problem, we’re going to go ahead and put the putty up now and fix the leak or whatever because I’m not a good fix it homeowner, as you can tell by my language. So what I want to buy is just someone else to take care of me and make sure I don’t get in big trouble. I mean, think that’s exactly what this subscription does. It changes the nature of the relationship between what I’m buying and who now it, yeah, I don’t know. I’m just rambling now. 

Ron Baker (32:24): 

I don’t know if you remember this, but in the book I talk about this company called Hassle-Free Home Services, and they are a franchise business, so they may or may not be in your area, but if they are, they’re like 225 bucks a month and they come out once a month to your home and all those things. In fact, their tagline is, we give you back your weekend because they take that to-do list off of you, and they do every, I mean the smoke alarms, the lights, they’ll fix window screens or they even drain a gallon or cord of water out of your hot water heater, which is a homeowner I didn’t even know you needed to do. Yeah, if you go onto their website, they have a whole list of everything they do, fixed grout leaks, all it’s amazing. But the interesting thing is then when you want to build a new deck or remodel a bathroom or remodel a kitchen, they say, oh yeah, we can do that. 

(33:14): 

We’ll project manage it, we’ll line up the contractors in the area. We know a whole bunch of ’em that specialize in this. Now sometimes they wrap that into your subscription payment. Sometimes it’s just a one-off separate fee. Either way it’s about half their revenue. But the point is they’re only going to do that project if you subscribe. Right? If you’re not a subscriber, they won’t do that just for anybody. So membership has its privileges. That’s the other advantage of subscription. And it’s amazing business because if these guys are in my house once a month, who am I going to hire to build my deck? Of course I’m going to hire them. I trust them. So if somebody signs up for a subscription and you keep them for one year, you have a 90% chance or more of keeping them for life, and that’s incredibly valuable. 

Stephanie Everett (34:05): 

Well, and that probably leads into the final topic that we’ll cover today, which is, as a business owner, once you make this shift, you have to start thinking about your business differently. And that also means measuring your metrics and everything you’re thinking about on the back end is different. And so maybe you could just, there’s a lot, and we don’t have time to get into all of them, but what are some of the kind of key concepts that now we need to be thinking about when it comes to subscription? 

Ron Baker (34:31): 

Because it is a business model change. Just like from going from hourly billing to value pricing as a business model change. This is another business model change, and that means your pricing strategy changes and your revenue model question changes, but also your KPIs change what you measure internally. And Stephanie, if this doesn’t kill off the billable hour and the time sheet, I don’t know what will, by the way, I think chat G P T is also going to kill the time sheet. How do you charge that out by the hour? 

Stephanie Everett (34:58): 

Right? Good luck 

Ron Baker (35:00): 

Right? So the accounting even changes. If you look at the income statement of a professional firm that uses subscription, the starting number is not revenue. It’s beginning annual recurring revenue, and then it backs out what we call churn, which is the amount of revenue from customers who canceled. And by the way, you have to make it very easy for them to cancel, and then it categorizes expenses in a certain way. So you can calculate various indicators such as cost of customer acquisition. It’s called cac, right? And it’s a big term amongst subscription businesses and venture capitalists who play in this market, and then it adds in the customer revenue that you signed up in the period. So you end an income statement, not with bottom line profit, you end with ending annual recurring revenue. So when people come up to me and they say, oh, we do subscription because our customers pay us monthly, that’s not subscription. That’s a financial arrangement, a true subscription business. I always love to ask them. One, do your customers know they subscribe to you? Which means do they know they can cancel at any time? If I subscribe to one Medical, Amazon, Hulu, Netflix, Disney Plus, I can cancel anytime there’s a cancel button everywhere. They make it very simple. And the second question I love to ask people who tell me they do subscription is, what was your ending annual recurring revenue on your most recent income statement? They can’t answer that. They’re not doing subscription. 

Stephanie Everett (36:34): 

Yeah, no, that makes perfect sense to me. I think too, just to further this conversation, because this is a message that we’ve been talking about a lot in our community, is that when you have a true subscription business model and are doing the things you are talking about, your business is now more valuable. And as we see regulations are starting to change in the legal industry and the marketplace for buying and selling law firms is I think we think is going to open up if you have this the way that someone’s going to come in and price your business just changed for the better. 

Ron Baker (37:10): 

Yes, we interviewed John Warlow on our show who he wrote the book, the Automatic Customer, which is his subscription book, which is wonderful by the way, highly recommended. But he also wrote another book that he’s very well known for, called Built to Sell, and John actually helps professional firms sell their businesses and he’s got a database of over a hundred thousand sales, and he is seeing multiples in the firms that have subscription business of between five and 14 times gross revenue, not one times the usual, right? Value pricing firms. I’ve seen two, three multiple times multiple, I’ve never seen five to 14 because, and he explains this really well. He says, when somebody comes in to buy your business, they’re going to look at your revenue and they’re going to put it into two buckets. One is recurring revenue, which is the subscription. And because it’s got a track record, because you maybe ran 10 years with a, your average churn rate can be easily computed and all of that. 

(38:12): 

So it can be customer lifetime value can be modeled very easily from that. And then the other bucket they’ll put the revenue in is reoccurring revenue. Now that’s more dodgy. That includes one and done projects. That includes your criminal lawyer, your divorce, doing the one-off divorce work. It’s kind of like a rash, you don’t know if it’s going to come back. So it’s valued a heck of a lot less than the recurring revenue, and the market’s been screaming at businesses for the longest time that we value recurring revenue a lot more. It’s more predictable. You’re starting on the 50 yard line every day with revenue, and that makes it easier to plan the work that makes your cashflow easier, whereas in a transactional type firm, you’re starting on the goal line every day. You have to constantly feed the marketing funnel and leads. Exactly. And this makes life so much easier. Plus it allows you to go deeper with fewer customers and be more profitable. 

Stephanie Everett (39:11): 

I think the point about sales is important too, because you’re not always chasing, I mean you’re still doing sales, but it’s just different. You’re not always chasing that new customer and having to constantly feed the machine because you have relationships with clients and that’s where the exchange happens. 

Ron Baker (39:26): 

You’re not chasing customers, you’re choosing them with this model. Are they worthy enough to be members? 

Stephanie Everett (39:33): 

Yeah, fantastic. This book is, it’s dense, I’m not going to lie to people. There is a ton of information in your new book front. It’s Times Up, the Subscription Business Model for Professional Firms. I love the focus there because you guys do give so many examples for accountants and law law firms, which is just super helpful because sometimes when you read business books you’re like, but how would this work for a law firm? And I love that the message here is, yes, absolutely. It works all day long. And we’ve had some people on the show recently who are doing this in their firm as the proof, like, yes, it works. It’s worth experimenting and trying and always tell people, just get started. Pick a beta. You know, don’t have to go all in on day one, but you can start for sure. 

Ron Baker (40:21): 

You can experiment with it. And I think we’re going to see more and more of it. And like we talked about at the start, I think in five years time we’ll be able to subscribe to almost anything. Now that doesn’t mean ownership’s going to go away. I don’t think ownership will ever go away, but what I do believe is that in five years time, you’ll have the option to subscribe and that’s going to impact your business regardless of whether or not you do anything with this model, because there’s going to be competitors offering it. And if it’s a plus offering, if it’s done right, it’s a real threat. It’s a real threat to the traditional business model, as is one medical with Amazon and these D P C docs. I think that’s going to change the way healthcare is delivered in this country. 

Stephanie Everett (41:05): 

Yeah. Alright. Thank you so much for coming back on. I always love our conversations and I know our listeners do too, because you bring so much value and this is great. I’m sure we’ll bring you back again and we’ll dig in even more. 

Ron Baker (41:18): 

Would love to. Thank you so much, Stephanie. 

Speaker 1 (41:22): 

The Lawyerist podcast is edited by Brittany Felix, are you ready to implement the ideas we discuss here into your practice? Wondering what to do next? Here are your first two steps. First, if you haven’t read the Small Firm Roadmap yet, grab the first chapter for free at Lawyerist dot com slash book, looking for help beyond the book. Let’s chat about whether our coaching communities are right for you. Head to Lawyerist dot com slash community slash to schedule a 10 minute call with our team to learn more. The views expressed by the participants are their own and are not endorsed by Legal Talk Network. Nothing said in this podcast is legal advice for you.