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Protecting Our Clients: Incentive Alignment

Calendar Icon 02.17.2021
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When my cofounder Corey Quinn and I started The Duckbill Group, one of the key questions we worked through was this: “How can we be certain we’re serving the client’s best interests at all times?”

If you’ve ever worked in a decent-sized company, you know firsthand that this isn’t always so obvious and clear-cut. Many teams within larger companies have misaligned incentives from their customers. For example, a call center that is measured on call time may push to end calls faster at the expense of the customer’s satisfaction. Even minor misalignments can lead to serious problems, and we were cautious about that.

Given that we were dealing with our clients’ money, we never wanted our loyalties to be in question. Instead, we wanted our clients to have absolutely no doubt that when we recommended something, it was because it was in their best interests—and not because we were getting a kickback behind the scenes or anything.

I Made the Client Happy and Nearly Got Fired for It

Some years ago, I was working at a technical consulting firm and was assigned to a well-known company as a subject matter expert. The client had hired my employer to do a complete overhaul of how they monitored their global infrastructure.

A short while into the project, the client had a major shift in business priorities—to the point that they no longer needed a solution to the problem I was there to solve. Still, they were happy to keep me around to maintain what they had. 

Knowing how much more expensive I was versus what they now needed, I wrote up a new job spec for a much more junior (and less expensive!) person that could meet their needs and assured them my firm would be able to provide such a person in my place.

The client was thrilled.

My employer was livid.

While I left the client in good hands, my reputation inside my employer took a significant hit and I lost the trust of the executives. I resigned shortly thereafter.

Despite serving the client’s best interest, I did so at the expense of my employer’s (short-term!) best interests. My client’s interests and my employer’s interests were misaligned. In making the decision to replace myself, I was serving the client’s interests. In practice, had my employer not been so short-sighted, they might have seen the goodwill generated from my action was worth far more than the billable hours they lost.

This event formed much of how I think about consulting and client relationships.

Unquestionable Incentives

When you have a client, you have a duty to protect their interests. In fact, it’s in the definition!

Protecting Our Clients: Incentive Alignment

Protecting the client, to us at Duckbill, is about more than giving good advice, being proactive, and being generally good at what we do. Sure, we do all of those things. But for us to protect our clients, our clients also need to trust us.

Which brings us back to the early days of starting Duckbill: How do we ensure we are always protecting the client to the best of our abilities? 

We decided five things right away, which form central tenets of Duckbill today.

1. We are not AWS partners or partners with anyone in the space.

Once you’re in a partner program, your loyalties become divided between the client and the partner. As we want our incentives to be unquestionable, we knew that we could never partner with anyone or any company. Our independence ensures alignment.

2. We are not venture-backed.

Taking venture capital means committing to hypergrowth—which means capturing as much value from a relationship as possible and lowering our cost structure to near-nothing. In such a situation, the client will inevitably be harmed. Instead, we stay small, grow sustainability, and hire experts.

3. We charge for our services on a fixed-fee basis only.

While many solutions similar to ours in the market charged a percent of savings, we realized that we’d inevitably end up in a debate with the client over how realistic our identified savings were or about excluding some savings opportunities because the client’s team already knew about them. Charging fixed-fee skips all of that. But it’s also important to us that we charge a fair price for our services. After all, we provide incredible results. Every single customer of Duckbill has realized savings of at least a 550% ROI. We’ve had some as high as 73,300%. No, I’m not exaggerating.

4. We have a strong guarantee on our services.

If a client isn’t happy with our work and we can’t make it right, we simply refund the entire engagement fee. When you remove financial incentives from a conflict, the conflict has a way of resolving itself rather smoothly. (To date, we’ve never been in this position!)

5. We do not provide implementation of our findings.

Having seen so many consulting firms provide an assessment where the results just so happen to recommend hiring their firm for a larger, more expensive contract… that didn’t sit well with us. By not providing services to implement our findings, we’re not incentivized to paint a more/less dire picture than reality calls for, and there’s no reason to suspect our findings are a ploy for a larger-but-unnecessary project.

Incentives Matter

A story from the book Freakonomics has always stuck with me. Paraphrasing a discussion on the misaligned incentives with residential real estate brokers and homeowners, the authors noted that if a house were to sell for $300,000 and the broker receives 6%, the broker makes $18,000. Seems like a match made in heaven, incentive-wise: You’ve got a house to sell, and the broker only makes money if they sell it.

However, if the house were to take an extra week to sell but at a higher price of $310,000, that extra week is worthwhile for the home owners—but not for the broker, who only makes an extra $600.

Looking at this story, it’s clear that the initial perspective of incentives is at odds with reality. As it turns out, the broker is incentivized for a quick sale while the homeowners want a high sales price. 

In this way, the real estate broker has an opportunity to put their own interests ahead of their client’s. While I’m sure most brokers would never do such a thing, even the opportunity for it to happen raises enough doubt in the client’s mind about what the incentives truly are.

Incentives matter. When incentives are aligned, clients are protected.

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