Beyond The Billable Hour

How to get to the point where you have more to sell than the founder's time.

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"NO ONE WHO CALLS BURSON-MARSTELLER," says Paul Franson, head of a California public relations agency, "expects to meet with Mr. Burson or Mr. Marsteller."

Burson-Marsteller, the world's largest public relations agency, has 1,800 employees, 45 offices in nearly two dozen countries, about 300 clients, and $105 million in billings. Founder Harold Burson, 65, as good as he is at public relations, just wouldn't have the time to give every client a piece of his day.

More surprising, however, is the fact that few people who call The Waggener Group Inc. expect to meet with Ms. Waggener.

The Waggener Group, of no immediate threat to Burson-Marsteller's preeminence in the industry, has 21 employees in a single office, serves close to a dozen clients, and will probably bill $2.5 million this calendar year. As good as she is at public relations, founder Melissa Waggener, 32, also lacks the time to render professional service to every client.

Burson's company, headquartered in New York City, is 33 years old; Waggener's, in Portland, Ore., is barely 3. B-M seeks multinational corporate clients like AT&T and Union Carbide; TWG so far serves only such West Coast technology companies as Microsoft Corp. and Sequent Computer Systems Inc.

For all their differences, however, the firms are alike in this respect: their founders have managed to overcome the obstacles that keep most professional-service firms -- in public relations, law, architecture, accounting, and other areas -- from ever growing beyond the limits imposed by the time constraints of the founder. It's no small feat.

Any professional-service firm has just one thing to sell -- time -- and usually that means the founder's time. "My rate is $200 an hour," says Ted Pincus, a public relations veteran, "and even if I doubled it, there's only so much I can earn working a certain amount each day."

This singularity -- time as product -- makes professional-service firms easy to start. Tag "& Associates" to your name and you're in business. Nor will you need much seed capital. "What does it take to get into this business?" asks the head of a large agency. "A typewriter and a telephone." Up to a point, such companies are easy to run. An independent accountant, say, who bills at $100 an hour might gross $170,000 a year -- enough to support himself and a good secretary/assistant. A former White House official turned lobbyist can probably afford a staff of three or four on what he will bill. In either case, the organization is small, and there is very little to manage.

The point that often escapes the professional's notice, however, is that very little value is being built. He or she is getting paid for the time, but where is the equity growth? So long as the professional stays in what amounts to a solo practice, says Steven Appel, managing director for small business at Arthur Andersen & Co., the accounting firm, "he or she is the business. There's nothing to sell."

"It's sad," adds Paul Alvarez, chairman and chief executive officer of Ketchum Public Relations, a $14.5-million agency that expands through acquisition. He sees lots of small-agency owners who try to sell, often so they can retire. But unless the owner wants to stay with the agency after the sale, Alvarez says, the business he may have spent years building has no value to an acquirer. "What would we be buying?" he asks. "Some word processors, some desks, and a lease."

There's a difference, in other words, between delivering a professional service and building an organization to deliver the service. The Waggener Group built that distinction into its operations from the beginning.

Steve Ballmer, vice-president of systems software at Microsoft, a major account for The Waggener Group, called Melissa Waggener one day to say that he couldn't work with Pam Edstrom, the account manager. He wanted Waggener herself. Waggener went to Edstrom and told her she had a problem at Microsoft. "I could have argued with Steve," says Waggener, "saying Pam is good; I'll work with her. Or I could have done the work myself. But that's not my reponsibility. My responsibility is to say to Pam -- and it was a horrible conversation for me -- 'There's a high-level person at a client who has trouble dealing with you. You've got to fix it." Edstrom fixed it.

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