Prostitutes and Scope Creep

David thinks creative firms can learn something from sex workers about how to run their business.

Transcript

Blair Enns: David, how are MYOB tickets shaping up?

David C. Baker: Oh, really good. I think I only need seven more people before I don't lose my shirt.

Blair: Oh, really, you're seven people from the threshold?

David: Yes, and then anything above that is all gravy. It's still a little nerve-wracking given COVID but seems like a lot of people just want to get away.

Blair: My sense is this thing is really building. I can't get over the number of clients of ours that we talked to who are going to this, there's a real buzz within our client base, and, obviously, there's some overlap between ours and yours. I'm surprised at the buzz going on here. Like I've said to you before, I think the timing is perfect. There's such a need for this, and as more time goes by, I'm like, "I'm not one for FOMO." That's not something I genuinely experience. I understand life is a series of trade-offs, but I'm not having the tiniest little bit of FOMO over not being able-- I'm not going to cancel my trip to Greece or anything. [laughs]

David: It's either be with me or aren't you celebrating some anniversary or something?

Blair: Yes, there's a wedding anniversary. The driving force is a speaking gig in Athens, but my wife and I are going to Santorini for a bunch before, so it's all alike.

David: You'll be fine. [laughs] I'm not feeling sorry for you.

Blair: Okay, well, I'm glad it's going on. Again, I'm sorry, I'm not going to be there, but let's talk whatever it is we do here. I don't want to read out this title. You wrote "Prostitutes and Scope Creep". David, the word is sex workers? Sex workers and scope creep?

David: I'm not taking a lecture from you.

Blair: You saw my tweet the other day?

David: Yes, I did. Something about you want to rename this thing. Are you serious about that?

Blair: Every time I hear scope creep, I want to put a comma between scope and creep, so fix the scope, creep. I haven't figured out how to work the material into the headline, give me enough time, and I will.

David: Maybe using prostitute in the title is considered clickbaity, but it's actually true.

Blair: What do you mean? What's true? Tell the story here.

David: Oh, so back in 2009, I was commissioned to write an article for Communication Arts. I had been writing for them regularly, three or four articles a year, and it was a tight deadline. I was up late night before so that I could get the article to the editor. Just on a lark, I decided to throw a sentence on the end of the article, and I knew the editor, and she was great, and we had a good relationship, and I knew she would think it was just a joke and not publish it.

At the end of the article, I said, "Prostitutes are better at running their businesses than creatives for three reasons." I thought, for sure, she'd get a big kick out of it and not publish it. Well, anyway, it got published. I get all of these notes from people, some really upset about the concept and others thinking it was really funny. That's the story about prostitutes and scope creep. It was never supposed to be published but it was, and so I'm just going to fully lean into this now.

My argument was that prostitutes are better at running their businesses than creatives for three reasons. Here are the three reasons, they get all their money upfront. Full service means full service, and there is no scope creep. I thought that's really funny. I don't know. Do you think it's funny?

Blair: I think it was funnier in 2009, but I still want to insert the comma between "there is no scope, creep". No, there's a clearly defined scope. Knowing nothing about the sex worker trade, speaking for myself here, let's bring it back to creative firms. You put this out there. I remember it generating a lot of discussion, people talked about a lot, I've mentioned it a few times. Where do you want to go with this? So we're going to unpack why scope creep happens, how to prevent it, where do you want to go with it?

David: This will probably be a shorter episode, which is fine.

Blair: You don't have much is what you're saying?

David: No, what I have is really boiled down to essential concepts. It's humorous, but also serious, so there's various ways you can handle scope creep. I tried to think of as many as I could. Some are silly, some are real, but there are really seven ways you can handle scope creep, and I just want to have a bigger discussion about this because in every firm that is not maximizing their financial performance, there is almost always some degree of underpricing and/or over-servicing, which is all tied around scope creep.

I know that this gets pretty complicated when we think about the impact of scope creep and different pricing methodologies and so on, but still there's enough common ground here that I think people will see their situation as we talk about the seven options that there are to deal with scope creep.

If we back up a little bit and think more fundamentally about the sources of scope creep, I can put into two categories the source. Once category is the client. We tend to think of the client as the guilty party or the devil here, the client is forcing scope creep, but it's not always the client, is it? It's not at all. No, in fact, you'll find, in a lot of firms still, the team cares more about quality than the client does, and so they are on their own, without being asked, adding a lot more effort than the client is paying for. That's just another version of scope creep.

I don't want to imply that the client is always the problem here, but it is still something that must be dealt with. I think when you hear these different reasons and different approaches, your job is to decide what is your philosophy on scope creep. By the way, I should just mention that I don't really care if individual projects are profitable. I just don't think that matters. What really matters is the entire relationship with the client. When we're talking about scope creep, we're really not talking about it at a project level, but more the client relationship level.

Blair: Yes, it's like tangent when you are employing value-based pricing, getting paid for the value that you create rather than the inputs or the outputs. If you're taking on more risk for potentially more reward, you increase the risk that a project isn't going to be profitable. As long as you have a mechanism built in, like an after-action review, to review every project after it's delivered and the pricing, and say, "Did we price this properly?" et cetera, then you grow from there.

You just embrace the idea that you just stated, David, that not every project has to be profitable. We aim to get to this place where they're almost always profitable, but we allow for mistakes as long as we're growing. We're reviewing those mistakes and growing. Sometimes we've just made a mistake in scoping it, and it's a rare mistake and we review, we learn our lesson, and we'll scope it and price it better next time, but in some firms, it's just systemic, isn't it?

David: Yes, absolutely.

Blair: Have you ever heard out of the mouths of agency principals, or rather key team members, people proudly say, "We underpromise and overdeliver"?

David: Underpromise and overdeliver. Have I ever heard them say that?

Blair: Yes. We underpromise, we don't promise too much, but we always overdeliver. I've heard people say that. I've seen it on websites. "We underpromise--" That's an overpromise right there when you say we underpromise and overdeliver. Then you're saying the culture of your firm is to allow for scope creep. That's what I hear when somebody says, "We underpromise but we always overdeliver." That's where the profit goes.

David: It comes from some psychological stuff, it comes from where you learned, it comes from how much work you have and how much you can waste, your theory of constraints. It's such an interesting topic to me. When somebody hears the phrase "scope creep", they know exactly what we're talking about, they think, but they haven't really carefully articulated how they view scope creep, their own particular perspective on it. That's what I'm interested in surfacing for people as they go through this.

Blair: When you're faced with uncertain scope, you're saying that you can see seven different options that people have when they're faced with uncertain scope. What's option number one?

David: Option number one is that you just instinctively need to shoot really high in the pricing to protect yourself. This is one of my favorite arguments around scope creep, because if you have a client that's very specifically pushing you to give them a price but you don't feel like you have enough information at the moment, you're argument to them is, "Listen, the only way I can emerge from this request that you've given me is to shoot really high because I can't risk not covering all the time and I don't have enough information yet to know what you need, so I'm going to have to shoot really high, and that's uncomfortable for me, and it's really not in your best interests. Maybe we should do something else."

That's the first argument. That's the first option, is to say, "Okay, well, you've given me somewhat of a scope but it's not real clear, there's a lot of questions I still have about this. I'm going to have to protect myself and shoot really high." That is one option that you have when you're trying to deal with the scope creep issue.

Blair: It gives you a buffer to work with, but you're still working with loosely defined scope, so you're not fully protected unless you just go an order of magnitude higher, or multiples, super high.

David: Yes. Maybe just historically you just say, "Listen, similar clients that we come across like this, we've taken a bath, a 20% bath. We're just going to have to add that," but it's all just guesswork. All that guesswork to the degree that you're protecting yourself is not in the client's best interest because they are potentially paying way more than they need to just because you have to protect yourself.

Blair: We've talked about this before but extra margin built into the job gives you a tool with which to improve client loyalty because a problem arises and whether it's of your doing or not, you have the wherewithal, the margin to go ahead and fix the problem. There's lots of reasons to price high. You're saying you're protect yourself from scope creep by shooting really high in the price. If the client is demanding a price from you, you say, "Okay, I got a price. It's really big. Here it is, X?"

David: Right.

Blair: What's option number two?

David: Option number two is the opposite reaction. You have the exact same scenario but instead of shooting really high to protect yourself, you shoot really low because you want to get the job and you're just kicking the can down the road because you don't know the specifics, but you know you have underpriced this thing because you want to get the job and you're already setting yourself up for many difficult conversations down the road where you have to come back and say, "Well, listen--" Like you're going to have to nitpick them on everything related to scope creep and it's going to really piss them off.

You could be doing it with the right heart, but some firms are just deceitful about this. They just intentionally underbid something and they pretty much know or assume that they're going to have to make some changes, but at that point, the client is already too far into the relationship, they can't just switch to another horse. They feel like their hands are tied and they resent it. It's a terrible way to get this work because it sets up a bad relationship with a client that's not likely to continue very well.

The first one, shoot high to protect yourself. The second one, shoot low to get the job knowing you're going to screw them later. That is the actual modus operandi of some firms. I just think it's wrong.

Blair: I don't see it a lot in the creative firm space and where I do see it, I see these people-- and I tend to side with them much of the time. I see them rationalizing it as, "Well, this is the game that procurement forces us to play." From my point of view, when you're in these battles with procurement, the gloves are off and every tool is a viable tool.

I wouldn't personally do it, it grates against my personality but I've seen clients do it and I've fully endorsed it. If this is the game that you have to play, that they are making you play, then play the game, and it's basically the change order strategy of business.

David: See, I got you wound up again talking about procurement. Every time that topic comes up, your heart goes faster and your voice is raised.

Blair: I'm doing another podcast, I've recorded all the interviews with procurement people and that's dropping soon.

David: Yes, but keep your anger over in that podcast, not in this one. It's like, "Okay, I know I signed the Geneva Convention, but I am going to torture this guy." The rules are out. This is procurement. Forget it, anyway.

Blair: Ryanair, I think of the business, Ryanair works that way. "Oh, you want oxygen?"

David: "You want to wear your shoes on board? Oh, that's another $5."

Blair: 5 euros. Dealing with uncertain scope creep, strategy number one is just shoot really high pricewise to protect yourself. Strategy number two is the inverse of that, is just lowball everything and lean on change orders. Say, "Well, that's out of scope, I'll get you a change order," etcetera. What's strategy number three?

David: This strategy number three is done mostly by software engineering firms. They're building some digital product or digital property or something like that.

Blair: I sense a sprint coming.

David: Yes, exactly. They dive. The third option you have to deal with the scope issue is just to go talk the client into an agile relationship with an unending stream of sprints. It's what? $18,000 a month or every two weeks for three people or whatever it is in your world. This can actually be a wonderful way to not leave money on the table, but you're really capping how much money you can make.

The problem with this, if you think this is a solution, is talking a client into this because they have to trust you completely, and they have to be able to push back on the potential criticism from within the client side about this. Obviously, it's a viable option, but it's a very different way of thinking. It caps how much money you can make and it requires deep trust in the relationship.

You're not saying, "Okay, it's a $780,000 web project, this is everything that's included, it's going to take this long, and here's the scope. As long as we don't extend the scope, then this is exactly what you're going to pay." In a more agile relationship, you're just saying, "We're going to use our best efforts and we're going to work on the most important things every sprint, and we're just going to get things done, and we're going to check-in. There might be a total cap on the value of it, but scope is not a carefully defined part of all of this." I don't like this approach, but a lot of software engineering firms are using it.

Blair: We did an episode called Five Levels of Pricing Success, and this is level two. It's basically maximum labor arbitrage. It's maximum utilization. You're fully utilized, and if you're selling time, to be fully utilized is the dream, and then you get to this and it's like, "Oh, I'm realizing the dream," but there are firms over here making multiples of what you're making. You've maxed out that model. There are other models.

I'm with you. I think there's a time and a place for these, for selling sprints. I think some clients are more open to it. It tends to lend itself to software development. Part of me maintains that I think software developer firms tend towards sprints because the owners tend to be engineers who are more risk averse and they want to push all the risk to the client.

I'm willing to eat those words one day, but I still think that's the main reason why there's a preference for sprints, but yes, you can see the pluses and the minuses in this model. That's a third way, a third strategy for keeping scope under wraps and it does a good job of achieving just that. Okay, no scope, that's fine. We've got a pricing model that works with that perfectly and if the clients willing to go along, that's not so bad.

David: Yes, exactly, and more and more clients are.

Blair: What's number four?

David: Four is, and this is the one I really like, it's to sell a paid diagnostic or road mapping process that fits with developing your own way of working. It fits in with the whole model discussion that we talked about, but essentially selling a paid, not an unpaid, but a paid diagnostic to determine scope. The idea is that let's say it's a really great potential client relationship and they've told you what they have for this, they've set aside 800,000 for this and they want to use you, but they just want to check a box and say, "What are we going to get for this $800,000?"

Well, your best option at that point is to say, "Okay, let's peel off X amount." Maybe it's, I don't know, $60,000 or something, "and let's dive in really deep and map this whole thing out." Let's figure out exactly what you're going to get for this, and if we spend the first X amount on this diagnostic, we can spend the rest of the money so much smarter. This is much better than the next alternative we're going to talk about because you're not giving away your time.

Actually, I think of this paid diagnostic as something you ought to be doing even if you're not going to do the work itself. Pretend that there's a very capable client that comes to you that has an in-house department. They're going to be doing the work that you're recommending, but they need an outside objective voice on this. Actually, this should probably be your most profitable project ever, this diagnostic or road mapping. You do this, you hand it to them, and then they implement it.

Whether you implement it or they implement it doesn't matter. This is probably the best way to not lose your shirt, to get paid for your thinking, and so on. Paid diagnostic determined scope, that's the fourth one.

Blair: If you have to do a whole bunch of work to write a proposal, a whole bunch of research, diving into the client's situation to scope price and write a proposal, then you should get paid to do that work. The way you get paid is you sell a diagnostic. The language might sound something like, "Okay, there's a lot of information we need to gather to be able to scope this properly. Let's take a small amount of your budget and let's engage for a couple of weeks. We have this thing, it's called an X road mapping playbook development, et cetera, whatever it is. It's diagnosing and prescribing, coming up with a plan that allows you to scope it, and then we'll present the findings and recommendations, included in the recommendations, different ways you can engage just to implement those recommendations.

"

David: Yes, exactly right.

Blair: What's the number five?

David: Number five is, to do the same thing to figure out exactly what the client needs, but to put it into a 90-page proposal that you're not getting paid for.

Blair: Is this the spoof part of the episode?

David: This is when people need to pause and go listen to-- what was the name of that one?

Blair: Secrets Behind the Killer Proposal, and then Secrets Behind the Killer Website.

David: Ah, our very best work.

Blair: We're done giving away secrets, or are we?

David: A long-ass unpaid proposal. This is the old way to do it, and there are very few firms doing this now, but you still see it. You still see it a lot with PR firms. You see it in industries where procurement is really there all the time. It's more common with government-related work, where you don't want to get burned and they're not going to pay for a diagnostic, and they're not going to do an agile approach, and you don't want to shoot high to cover yourself because they won't accept it. You don't want to shoot low because you're afraid you'll lose your shirt.

You decide to put a scope around losing your shirt. You turn three people loose for 10 days and they write this 90-page proposal, unpaid, and then the client accepts it or they don't accept it. If they don't accept it, you don't get paid. Here's one little note, though. If you are doing these long-ass unpaid proposals, then the price of all that work needs to be built into the price of the project. If the client says yes, we accept it, then bam, all that time you've already spent needs to get paid for. That would be one way to minorly correct this bad instinct that you have.

Blair: I just throw up in my mouth a little bit when we talk about this. It's great to hear you say that you don't see this much anymore. I hadn't stopped to think that, but once you said it I thought, "Oh, yes, things really have changed," and I'm not sure what's changed. Maybe we've made an impact in the world, David, but maybe things have just changed. We don't encounter that a lot. It's still out there and maybe it's the type of firm that isn't coming to us for training. People losing their shirts on 90-page proposals it's not nearly as common as it used to be.

Again, that might just be selection bias. I don't know. Maybe listeners let us know. Do you throw up in your mouth a little bit when we talk about 90-page unpaid proposals or is that the norm for you?

David: Or are you following every word we mentioned in that earlier episode and you just now figured out that we were kidding with everything we said in that?

Blair: We're talking about seven options when you're faced with uncertain scope, and we're now on number six. Second last one.

David: If this is really an issue for you, or you're constantly struggling with scope because you don't want to lose money, then I would say one of the things you ought to consider is to look at your service offering design because the tighter you're positioning, then the more predictable your work is for clients, and the less you need to rethink scope every time.

One of the solutions is a long-term, deeper sort of a solution if you keep facing this scope thing, and that's how you work for clients and why the work you're doing for client A is so unlike the work you're doing for client B. Obviously, the recommendations are going to be different in every case, but the way you approach it and the process you use, the framework, how much time you spend, you should start to see those patterns. Great positioning always needs to grow and move over into your service offering design, too.

This is just one of those notes just to get people thinking that maybe the issue is not scope creep, maybe the issue is service offering design. Then you could fix that, tighten that up a little bit. It's not going to be a quick fix, obviously, but something over three or four months you could start thinking a little bit differently about this. You could talk more about it on the website, set those expectations differently, and be more in charge rather than just sitting there and waiting for a client to tell you what they need when that may not be in their best interest.

Blair: This is interesting to me. You're saying, don't miss the cues that the market is telling you like a constant scope creep. If you're solving the same problem over and over again, something is fundamentally amiss. What is fundamentally amiss? What is the market telling you about the way you package up your services or even what your services are?

David: What the market is telling you is that they value your expertise, but that they don't have a prescribed idea about how you're going to solve the particular problems. I think this is an area where the other branches of the professional services are better at this than we are. We tend to go at it with a blank slate each time, and I'm not sure that's really in the client's best interest.

Blair: What's the root of that, do you think? I was wondering that off the top. Is this a bigger problem for us? Dentists don't have this problem.

David: No, it's pretty clear I'm putting a crown on that molar, but lawyers, accountants, et cetera.

We don't want to reuse things. We feel like part of what makes a solution fantastic is that nobody has thought of it before without realizing that we could probably reuse a lot of not the actual creative, but a lot of the way we work. I just think there's more room for that if we're open to it.

Blair: Then the last strategy for dealing with uncertain scope creep is what?

David: You bid this low because you wanted the work, but your solution to still making money on it is to go to the team and say, "Hey, team, normally I know that when we do an identity, it's $60,000, but we've only got 40,000 for this, so I need you to do fewer options. I need you to work more efficiently. Let's all be careful about how much time we put in this."

I can't even say this with a straight face because it never works. I'm writing an article right now. I haven't figured out all the language so I haven't published it yet. The idea is that you can't find clients that are paying less than your normal way of working and expect to actually make money on that because you have a particular approach, you have a certain thoroughness, certain number of people that need to be involved, and you just aren't very good at pulling that back and saying, "Okay, we can make money on 40 instead of 60." It just doesn't happen.

People aren't happy, they're unsettled, they keep thinking they're not doing a good job. It's in here because a lot of people do it, but it's not in here because it's a good idea.

Blair: We've largely ignored the subject of how scope creep is tied to pricing models. We've touched on it a little bit but I was in a training session this morning with one of our coaches. His day job is running his own agency and he coaches for us a little bit on the side. During one of the breaks, he made the comment that they switched to value-based pricing about four years ago. One of the things he noticed is these conversations around scope creep are a whole lot easier.

That surprised me a little bit. Not a lot, a little bit but when we talked through it, it's if you're going to price based on value, you actually have to have these meaningful business conversations. Conversations where value creation is the focus. You just end up in a depth of conversation and transparency with your client that you wouldn't otherwise. When scope creep starts to happen, you push back on it. The client is usually in alignment.

You're usually fairly closely aligned to what it is we're trying to accomplish and the value to be created that it happens less often. If you have to push back, the client's more understanding. That's what he shared with me. It was something I wasn't expecting to hear.

David: I think we could say pretty safely that the firms that are populated with adults who are willing to have difficult conversations are the ones making more money. A lot of our tendencies around scope creep are designed to minimize conflict, minimize difficult conversations. You need to practice having these in a way that's not at all defensive, that honestly talks about protecting yourself. That's a valid way to approach this and also protecting the client and coming at this without a fear of losing that client relationship. If you have trouble having those conversations, you're not making a lot of money.

Blair: You're saying this issue of scope creep tends to come down to communication and communication skills. Good communication equals no surprises.

David: Yes, and not being too far over your skis. In other words, having your terms such that you're never doing lots of work that hasn't been paid for yet. Because that's another issue that comes up where you'd really like to press the envelope here with a client, but they still owe you a lot of money, and so they have this unmeasured leverage in the relationship. You got to get that back.

Also, just a willingness to, every once in a while, burn a bridge. Not in a way that's unnecessarily provocative or mean in any way, but you have to be willing to protect your firm. Sometimes, it's not even going to make sense to take a stand because by taking a stand, you're actually losing opportunity short term but long term it might make sense to do that.

Anyway, scope creep is a really interesting concept that everybody understands and I just wish we had-- I've never seen a real policy written out about it. I think it'd be good if people thought about it and have candid conversations and at least understand the role of scope creep at their firm, understand what their natural tendencies are in terms of dealing with it, and then maybe adapting to some better methodologies around it.

It's all very interrelated. It's not just one thing. It's related to pricing, staffing, new business. Oh my God, it's like everything's tied up in it. We could talk in lots of directions here.

Blair: That's a great summary. Is there one final lesson that ties this back to sex work?

David: Yes. [chuckles]

Blair: What have you got, Baker?

David: Don't write stray paragraphs in articles without flagging it as not publishable. We had a good laugh about it, but that would be the enduring lesson of all of this. Be careful what you write in an article, especially for something that might get published.

Blair: Yes, lesson learned. Thanks for this, David.

David: Thanks, Blair.