Consulting Bills: By the Hour Or Value-Based?
Corrections or additions?
These Survival Guide articles by Peter J. Mladineo were published in
U.S. 1 Newspaper on July 15, 1998. All rights reserved.
Commerce Department: What’s Next?
The kill date of the New Jersey Department of Commerce
and Economic Development has been set. Starting September 1,
Christie
Whitman and Gil Medina will head its replacement, the New
Jersey Commission on Commerce and Economic Development, a
public/private
partnership. And amid the back-patting, one exporter thinks it means
curtains for the state’s efforts at foreign trade.
“This would probably work as well as a privatized division of
motor vehicles,” says Tony Corsini, a vice president of
L/C Expeditor, a Manhattan firm that helps small and medium-sized
exporters deal with letters of credit. “My perception is that
this is a way to get it off the bottom line of state expenditure.
If I’m a small to medium-sized company looking to export and want
to use the resources of my state, where do I go? I no longer have
the Department of Commerce.”
Corsini is on a New Jersey Technology Council panel on Tuesday, July
21, at 8:30 a.m. at Liz Claiborne in North Bergen. The program,
“Global
Strategies for Your Multinational Customers,” features moderator
Geoffrey Brooks, president of Brooks Industries; John
Caldwell,
a partner at Woodcock Washburn; and John Bailye, president of
Dendrite International. Call 609-452-1010 for more information.
Medina heralded the new commission as the solution to “an
intransigent
bureaucracy that does not allow us the ability to react quickly to
help businesses.” Stephen Kukan, executive director of
Prosperity
2000, called the new commission “the ultimate in terms of being
responsive to economic development questions and servicing clients
who are interested both in retention and retraction.” (U.S. 1,
February 18, 1998.)
Corsini thinks that this language is euphemistic for cost-cutting.
“I have to take a very skeptical view,” she says. “It’s
not going to be a good measure for the people who have to keep that
business wheel going. It’s going to derail those people who might
have considered going overseas. And if they can’t open up new markets,
where are they going to sell? Are they going to leave New Jersey?”
Corsini fears that the new commission’s public/private status will
force it to shift into survival mode — to the detriment of the
state’s services to businesses in foreign trade. “Is their
business
going to be financing themselves and keeping themselves afloat or
is it going to be to help New Jersey businesses do business
overseas?”
Although she classifies herself as a political independent, Corsini
feels the governor’s recent trade missions abroad were minor
consolations
to the foreign trade sector in the state. “I applaud those efforts
but that’s a small portion of the job,” she says. “The larger
portion is to make sure that if I am a small to medium-sized company
and I need some help, I have to know and feel certain that I have
resources to depend on.”
The core of the problem is that many businesses, especially small
ones, need all the help they can get in overseas trade. The commerce
department’s matchmaker programs, she feels, were instrumental for
many companies involved with foreign trade. “If I personally
didn’t
know how to reach prospective clients I could go visit them as part
of a group, or they would take my product, or include it in a
catalog,”
she says. “I could get visibility. You need that helping hand,
it’s not around the corner. You can’t just pop it up on the Internet
and fill an order.”
“All the other countries make a point of sending people over to
the U.S. and they are selling their country and they are selling the
benefit of doing business for their countries and they have
incentives.
My question is, in this new arrangement where is the incentive for
the businessman?” Corsini, 51, has a management degree from St.
Peter’s College and spent 20 years in the export business and is also
treasurer of the World Trade Association of New Jersey.
Perhaps most offensive to Corsini is the timing of this privatization.
The government, she feels, is deliberately “sliding it” past
the cognizance of many small businesspersons during the midsummer
lull. “And then all of a sudden we’re going to come back to
reality
and somebody’s going to say, `No we don’t have this anymore.’ It’s
going to be another change that happened when somebody wasn’t
watching.
If I were to be an advocate for the small to medium-sized business
I really don’t think that this is going to be helpful. I hope I’m
wrong, but I just don’t see it.”
— Peter J. Mladineo
Top Of PageShort On Cash? Buy a Business
If you have a spare $100,000, Mark Damon suggests
using it for a downpayment on a business. “The basis for wealth
in the U.S. is owning equity interest in a profitable company,”
says Damon. “Every dollar under the corporate roof translates
into six to ten dollars in market value.”
Damon tells the Venture Association of New Jersey how to buy a company
using small amounts of up-front cash on Tuesday, July 21, at 11:30
a.m. at the Governor Morris Hotel in Morristown. Call 201-267-4200
for more information.
Damon is a 65-year-old native of Israel and Harvard Business School
graduate (Class of 1956). The first part of his career was spent as
a senior financial officer of several major companies, including CBS,
where he was assistant controller of broadcasting operations. Then
he switched to the financial community as chief investment officer
of a large venture capital investment firm, Small Business Investment
Center of New York. “I was the person responsible for finding
investment opportunities, analyzing them, and submitting
recommendations,”
he says. “During three years with them I must have reviewed 500
companies and recommended nine.” After the SBIC, he joined the
investment banking firm of John Nuveen & Co, and eventually, Merrill
Lynch.
In 1988 Damon took early retirement from Merrill Lynch and is an
financing
advisor to small, privately held businesses. Damon claims to have
purchased 10 companies when he was employed and now has equity
ownership
in two businesses. He knows quite a bit about family business, too.
“The wealthy part of my family is in the private banking industry
in Switzerland,” he says.
If a deal is sweet enough, Damon explains, a business owner will agree
to sell for a limited downpayment — in exchange for an installment
plan and an agreement that the new business owner won’t take too much
money out of the business as a salary. “The installment method
will create double the investment income from the payout formula
compared
with what he could have earned on an all-cash deal,” says Damon.
“You have to make an offer that the seller and his advisors cannot
refuse.”
A person with “limited capital” ($100,000 to $500,000),
“an
average ability,” and “above average determination and ability
to run a business,” Damon insists, can become a multimillionaire
in six to eight years with a modest downpayment. “If you earn
a salary of $200,000 that’s dollar-for-dollar,” he explains.
“However
if you buy a decent-sized business it is worth five, six, or ten-times
earnings.”
“The average price of a share listed on the New York Stock
Exchange
is selling close to $30,” he says. “That means every dollar
of net value translates into $30 of market stock. Every dollar under
the corporate umbrella is worth $6 to $10 in market value and that
is the key to wealth creation. Even top officers of the largest
companies
derive the bulk of their wealth not from big salaries, but from stock
options.”
However, not all of Damon’s message is a sunny beach. Damon is wary
of globalism. The “high-cost producers” such as the U.S.,
Canada, western Europe, and Japan, he fears, are “going to face
brutal competition with the low-cost producers,” such as Mexico,
China, and other Pacific Rim countries. “You know what they pay
a worker?” Damon gripes. “We’re going to become a bunch of
hamburger flippers in a service economy.”
— Peter Mladineo
Top Of PageConsulting Bills: By the Hour Or Value-Based?
Consultants are like lizards, says Alan Weiss.
While their reptilian counterparts respond only to light, consultants
tend to respond only to the traditional pay-by-the-hour contract.
This per diem billing structure “is ingrained to the extent
that is imprinted on the cerebral cortex of most consultants,”
he says. “It’s like their reptilian brain won’t let them move.
The fact of the matter is they have an inferiority complex. They only
think they’re valuable when they show up, and really that’s when
they’re
least valuable.”
Strong words — but words that have paid off for Weiss. The author
of seven books, including two McGraw-Hill titles, and the owner of
a successful consulting practice, Weiss boasts a seven-digit income.
His success, he claims, stems from his decision to open his practice
based on the premise of getting paid by the job, not by the hour.
“When I went out on my own 13 years ago I decided I was going
to be paid for my work, not for my time,” he says. “Here’s
my unscientific observation: I would say that about 50 percent of
everybody calling themselves a consultant does not know what they’re
doing, but 90 percent of the buyers have no way of knowing that. And
that’s why you have so many loused-up consulting projects.”
Weiss, president of Rhode Island-based Summit Consulting Group, speaks
about value-based pricing at the Institute of Management Consultants
on Monday, July 20, at 6 p.m. at the Forrestal. Call 732-972-0549
for more information.
Weiss, 52, got his undergraduate degree in political science from
Rutgers (Class of 1968), a master’s from Montclair State, and late
in his career, he received a Ph.D in psychology from California Coast
University. He started his career in Princeton at Kepner Tregoe.
“I
wound up heading its Asian/Latin American division,” he says.
Since 1985 Weiss has been an organizational development consultant
but has diversified his practice. His efforts to train consultants
at value pricing are now beginning to rival his regular practice,
he says. “Large companies like McGraw Hill and Hewlett Packard
have hired to me to change their internal consulting
relationships.”
His books have also been doing well. His most successful title,
“Million
Dollar Consulting,” is published by McGraw-Hill, and has been
reissued recently. His newest title, “Money Talks,” is about
public speaking, and is published by McGraw-Hill.
Weiss’ method is simple in theory. Value-based pricing works backwards
from the traditional per diem method, he explains. First, the
consultant asks the prospect what they want to accomplish and why
it’s important. Then, the consultant develops a method to measure
the success of the project. Lastly, the value of the project is
quantified,
and from that figure the consultant writes a proposal stipulating
a fee. “The discussion is never about fees and always about
value,”
says Weiss. “That’s why I’ve been able to establish a seven figure
practice working by myself.”
This method generally requires more time to close the sale. “You
have to be willing to be patient and develop a relationship so you
can establish conceptual agreement of what’s needed,” Weiss says.
“The proposal is a summation not an exploration.”
Weiss uses psychology to close sales: He proposes several different
solutions for prospective clients. “I call them a choice of yeses
— a very subtle but very powerful change of psychology for a
client.
Instead of a client saying, `Should I use Dr. Weiss?’ The client says,
`How should I use him?'” Buy that guy a terrarium.
— Peter J. Mladineo
Top Of PageCommon Law Employees
What do Microsoft, Exxon, ABC-Capital Cities, and New
York Life Insurance have in common? They were all sued by freelancers
and temps who claimed that they should have been remunerated like
regular employees. This is not hard to do these days, because the
fine line between independent contractor and employee is getting finer
while the definition of a “common law employee” seems to be
expanding.
“If a plan fails to define the eligible class of employees or
contains an ambiguous definition,” writes attorney Stephanie
Monique Bosworth of the Web Network of Benefits Professionals,
“all employees, even those who mistakenly thought that they were
independent contractors, may claim benefits unless there is proof
that the employer intended a more limited class. Evidence of an
employer’s
intent may include employment agreements, board meeting minutes,
established
practices, insurance contracts, informal communications, a handbook,
and other plan provisions.”
The Web Network hosts a seminar on worker classification issues with
Linda Newman, a senior counsel for American Reinsurance Company,
on Tuesday, July 21, at 8 a.m. in the offices of Smith Stratton at
600 College Road East. Call Bosworth at 609-987-6672 for more
information.
A worker is common law employee when “the employer has the right
to exercise control over the work process (i.e. the manner and means
by which a worker performs a job) and the result,” writes
Bosworth.
Here are a few selected factors that a court would cite as proof that
the worker is an employee:
The employer requires the worker to wear a uniform or adhere
to a dress code.
There are substantial similarities between the nature of
the worker’s responsibilities and those of other workers the employer
considers employees.
The employer reimburses the worker for expenses that are
normally included in the contract price.
The worker exclusively works for the employer for a an
indefinite
period.
The worker uses equipment provided by the employer.
The worker receives performance evaluations.
Also, writes Bosworth, it is important for employers to makesure that benefit waiver agreements are easily understandable.”Forthis purpose, an employee must be capable of understanding theagreementterms, have adequate time for consideration, but be informed of hisor her right to seek the advice of legal counsel and have anopportunityto do so.”Employers should also “train lower level managers and fieldoperationsto assume that a worker is an employee, unless there are legitimatebusiness reasons to treat the worker as an independentcontractor,”Bosworth writes.And when reclassifying employees, employers should make sure thatall reclassifications are made “consistently with respect to allsimilarly situated workers.”For more information about this issue, contact the Web Network throughBosworth 609-987-6672. The network is recruiting members in thebenefitsarena.Top Of PageBiotech HR StrategiesHow a biotech firm in Biotechland attracts and retainsemployees will be the subject at the New Jersey Technology Councilmeeting on Thursday, July 16, at 8:30 a.m. The speakers are JosephMollica, Pharmacopeia’s CEO and president, and Ken McCarthy,the firm’s human resources director. Cost: $40. Call 609-452-1010.McCarthy explains that the job of convincing people to work thereis helped by Pharmacopeia’s reputation in its industry. “Whenwe bring folks in and they see the kind of work that we’re doing andthe people that we have here, it is very attractive. We tend toattractthe kind of person who likes visibility, growth, and science inleading-edgeareas.”The firm recruits chemists and biologists, sometimes directly fromthe universities — even though it doesn’t exactly have to.”Folkswho are interested in combinatorial chemistry kind of get steeredtowards us,” says McCarthy. “That word-of-mouth reputationhas helped us tremendously over the years.”But the challenges with retention can only expand like the rest ofthe company. Pharmacopeia, with 205 regular employees in its Princetonarea offices, is in danger of losing the small company atmospherethat is so attractive to scientists. “We tend to work in teamsof 6 to 12 people on a project,” says McCarthy. “Scientistsfeel that they’re a major part of each project that we’re workingon. They get to see the impact of their work.”Another human resources challenge was delivered in June, whenPharmacopeiacompleted its acquisition of Molecular Simulations Inc. in San Diego.This move added more than 300 new employees to its roster, and officesacross the United States and abroad.”I’ve got a lot more areas to cover,” says McCarthy. “Thechallenge for us is how to integrate companies and maintain culturesand synergies.”McCarthy, 42, has a BS in industrial and labor relations from CornellUniversity (Class of 1978) and has spent his entire career in humanresources. His resume includes stints with Gene Labs, in Redwood City,California, and Schlumberger’s electronics group in San Jose, Albany,and Poughkeepsie. He has been with Pharmacopeia for two years.”It’snice to be in a situation like I’m in, an HR executive who has thiskind of atmosphere to work with,” he says. “But we’re alsopretty selective. But we have been successful over time so we canafford to be that.”Next StoryCorrections or additions?This page is published by PrincetonInfo.com— the web site for U.S. 1 Newspaper in Princeton, New Jersey.
