Reprinted with permission from Accounting Today.
From the outside it might appear that public accounting is much the same as it has always been. CPAs pursue traditional activities such as tax, audit, and consulting services. To build their business, they lunch with lawyers and attend after-hours cocktail receptions.
Yet beneath this familiar scenario, our profession is undergoing a seismic shift, one set in motion by changing market conditions, technological advances, demographic transformation, and other factors. As a result, much about the way we practice is being forced to change. That’s certainly the case when it comes to growth.
‘Change before you have to’
Jack Welch, the former General Electric CEO turned guru, urges business leaders to “Change before you have to.” That’s advice accounting firm partners should heed.
The traditional growth paradigm in public accounting isn’t just showing a little wear and tear, it’s close to collapsing under the weight of outdated assumptions and strategies. The marketplace of today is complex and only growing more so. An accounting practice’s growth strategy requires more than an old-school, boots-on-the-ground approach that relies on traditional referral sources to build business.
For years, ideal market conditions meant firms didn’t have to go far—or do much—to bring in business. But that’s no longer the case. Today’s accounting marketplace is sophisticated and fiercely competitive, with low margins and deflated pricing.
Old-model, new-model – what’s different?
Our traditional growth model has featured:
- Individual contribution – partners each have their individual books of business and are measured on retaining and growing these books one client at a time
- Tactical – a primary activity was banker breakfasts and lawyer lunches, designed to cultivate referrals one new client at a time
- Generalist – hang out a shingle to all comers, then wait for the phone to ring
- Boots on the ground – face to face meetings with prospective buyers one at a time
The new model for growth is vastly different:
- Leader-driven – when leading growth, not just doing it, partners are converted to business unit leaders who own the profitable growth of a service line or industry
- Strategic – the objective of leaders is to conquer markets one at a time, not just referred new clients one at a time
- Specialist – the faster way to growth is through focus on particular industries and buyers groups instead of all comers
- Technology-centric – using the capability of today’s technologies enables us to increase market size and melt away geographic borders to find buyers in far-flung places
In addition to market complexity and the need for more sophisticated approaches, another key dynamic is the large numbers of Baby Boomer-era partners who are retiring or planning to in the near future. Up and comers are taking over our firms, and they are much more tech-savvy that their elders. They generally don’t have limitations in their thinking about geographic borders the way Baby Boomers do.
And this leads me to another big shift in the marketplace, taking place at the intersection of geography and technology. While markets have traditionally been defined by local geography rather than by buyer group or industry, this place-based view often no longer applies.
Technology gives us the ability to serve clients in real time in any country in any time zone. In the past, your competition was defined by your ZIP code. Today many of the few hundred thousand CPAs worldwide could be competing for your clients’ business. The result is a shrinkage in the size of our local markets. And market size is the number one indicator of good market conditions. Many of those markets are starting to look like Swiss cheese, with far flung competitors cropping up and eating holes in what would traditionally be our prospective buyer markets.
A clothing manufacturer in Beijing can select an accounting firm in Boston because the Boston firm has carved out a successful niche in the ready-to-wear market. And working with the Boston firm is no harder than what working with the firm next door used to be. Capabilities such as cloud-based applications, portals, mobility, Skype, and social media provide real time, shared access to clients, colleagues, and financial information.
So now what?
In view of this altered landscape, our approach to growth must shift as well. Banker breakfasts and lawyer lunches are no longer enough. Sustainable growth demands building an empowered leadership team that can drive growth from every area of the firm, creating a profitable high-growth legacy in the process.
Partners have traditionally prized the deep, personal relationships they forge with clients. It’s been an effective way to grow an individual book of business, but it’s no longer enough for sustainable long-term firm growth. We need to replace outdated individual tactics with a strategic, leader-driven approach. The game today is football, not golf. Winning requires individuals working as a team to achieve a common goal, not a group of “teammates” working in silos to achieve individual goals.
In today’s competitive environment it’s risky at best for one “lone ranger” partner to know what nobody else knows and to sell what nobody else can sell. Individual hunters got the job done back in the days of less complexity and simpler markets. But to make the turn, those hunters must transition to become leaders of the hunt, getting other hunters aligned with their vision, especially if the other hunters would rather sit around the campfire than charge forward.
With geography no longer in play (i.e. the local CPA gets the local business) firm leaders need to rally their hunters around a target, such as specific buyer groups or industry niches. Failure to do this leads to everybody hunting everywhere and anywhere without focus, risking shooting one another and bringing in little in the process.
Many firms inherently know that specialization is important. The reason is that we are in a mature market. Many years ago the Boston Consulting Group discovered the product life cycle concept, which is the foundation of product management. They explained that early markets are often generalist one-size-fits-all. But as markets mature and competition increases, in order to sustain growth and profitability, organizations need to morph into specialization or get stuck in a price commodity-cellar with ever decreasing profits. But while most firms have adopted specialization at some level, most of them have gotten stuck with one foot in the traditional, generalist world and the other in a specialist world.
The pursuit of growth must be as sophisticated and disciplined as the delivery side of your operation, with a robust process that includes identifying roles, goals, processes, resource deployment, profitability, etc. All of this activity must be driven by empowered leadership.
I frequently get SOS calls from panicked firms. “Gale, we need you! Competition is fierce, and we’re getting hammered on pricing. Help us increase our marketing so we can grow.” The first thing I tell them is that marketing does not grow anything. Growth is a function of three necessary and integrated disciplines—marketing, sales and product management. And it must be consciously and continually led.
Many years ago, building upon the growth principles used in the most sophisticated corporate environments, I designed The Practice Growth ModelSM. Although somewhat foreign to accounting, it has been common in the corporate world for decades. While CPA firms had their noses to the grindstone honing services, corporate America was advancing its business and growth processes. In the words of IBM CEO Ginni Rometty, “It’s not about product innovation so much anymore as about innovating business models, process, culture and management.”
The engine behind sustainable firm growth is leadership, which gains momentum from four levers—
- Market strategy leadership.
- Industry/buyer group leadership.
- Service line leadership.
- Large opportunity leadership.
Let’s take a closer look at each of those four levers.
Market strategy leadership. Strategy trumps tactics. That’s why the most cutting edge growth-driven firms are changing the role of the marketing director. Heretofore, marketing has been viewed as a tactical machine, tasked with activities such as printing brochures and sponsoring events as the firm strived to gain visibility and market position. But the most advanced firms know that visibility doesn’t grow anything. It’s just one piece of a far broader mission – growing the firm. This requires a leader tasked with leading and supporting firm-wide growth, not just marketing. You’ll see people in these firms with titles such as Director of Practice Growth or Chief Growth Officer. It’s reflective of a much broader, strategic mission to grow the firm. This includes guiding and supporting service line and industry leaders to discover their unique growth strategies. The strategies include innovation of services, matching these innovations to specific industries and buyer groups, and helping partners discover and align their interests with distribution channels – ways that buyers find us in great quantities.
In years past, it was good enough to find one buyer at a time. Now it’s imperative to up the objective to a strategic level and find buyers in great quantities. A perfect example is a firm with a dental niche. The niche leader identified a major provider of dental equipment, and upon interviewing the VP of Sales discovered that achieving his sales goals could be enhanced by pointing out accelerated depreciation benefits to the dentist. Our niche leader was asked to join the equipment provider’s sales people all over the region in meetings with dentists. This led to the firm finding dentists in great quantities through this distribution channel, and alignment of their interests with ours.
Industry/buyer group leadership. Specialization, not generalization, fuels sustainable growth in mature markets. Rather than owning a book of business, or focusing on merely becoming famous in a market, leader-driven growth requires that partners instead own a segment of the firm’s revenue and profitability, becoming responsible (and accountable) for specific industries/buyer groups, also known as revenue segments.
Service line leadership. Similarly, in high growth firms, service line leaders own revenue segments, and the associated firm-wide revenue, and profitability for their service line.
Industry/buyer group leaders and service line leaders have two main responsibilities: the overall strategic direction, and the financial health of their segment. It’s the same principle that operates in large corporations where the business unit president is accountable not only for the growth of the top line and the health of the bottom line, but also for the business unit’s strategic direction – a task intended to ensure a bright future.
Industry and service line leaders study market conditions and calculate the impact of shifts in conditions. They understand their targeted industries and buyer groups and what they want to buy. They become experts in identifying the services that will meet the needs of a particular market segment, then adding innovation to distinguish those services. They identify and align interests with the most powerful distribution channels.
Segment leaders inspire and motivate their teams. They operate on the strategy level and teach their teams the tactics to achieve the segment goals. They care more about financial results than about boosting market visibility. They care about segment growth, not just service delivery. Finally, they understand that growth results in more work far more reliably than more work results in growth!
Large opportunity leadership. Large opportunities are most successfully pursued through a robust pipeline management process led by a passionate managing partner. This involves identifying and driving significant opportunities and funneling them through a firm-wide pipeline.
A firm-wide pipeline process forces a regular review of all large, or strategically significant open and active opportunities, regardless of whether a proposal has been issued. The pipeline document, which is basically a spreadsheet, is reviewed during half-hour, bi-weekly virtual meetings with the entire partner group.
The pipeline document is succinct, but tightly constructed to ensure that no opportunities slip through the cracks and that there is no gap between what partners should be doing and what they are doing. Every targeted opportunity is assigned a quarterback who manages the opportunity and reports on progress at the meeting. Pipeline management is a proven and efficient process that requires more discipline than time.
Inevitably, pipeline management reveals evidence of poor opportunity pursuit techniques. This enables the managing partner to direct interventions, which can lead to higher win rates, as well as develop opportunity pursuit skills among the firm’s leaders.
An example of a poor opportunity pursuit technique is incomplete lead qualification. There are many reasons why this happens, such as lack of knowledge in lead qualification, lack of comfort discussing potentially sensitive topics with a prospect, lack of experience in persuading a prospect to reveal information, or just plain lack of practice. But the result is that critical information which informs a win strategy never comes to light. This ends up in surprises later such as decision-makers who pop out of the woodwork, or incumbent providers who are tossed out of the running, but beg forgiveness for poor service, drop their price and re-secure the business.
Pipeline reviews lead to sharing of best practices among partners, increasing the pursuit skills of all team members and higher win rates.
What can you expect?
If your firm opts for leader-driven strategic growth, it will undergo a transformation and become unified in purpose. This approach aligns firms for a more robust and profitable future, one whose success is firmly in the hands of next-generation leaders well prepared by their senior colleagues.
What else can you expect? When you approach growth strategically, you:
- No longer rely on a small number of rainmakers, but instead create growth leaders, and leverage the strength of every member of the firm.
- Know where markets are headed, with the ability to shift strategy accordingly.
- Become an innovation machine, offering shiny new services, resulting in significant competitive strength.
- Drive growth optimally with an efficient, system-based approach.
- Generate financial results that demonstrate profitable growth.
- Secure a bright and sustainable future for your firm.
The trend toward increasing market complexity is here to stay. If anything, forces including firm succession, technology and competition will grow stronger not weaker. But by relying on a strategic, leader-driven approach your firm can stand against the forces of change to grow profitably and sustainably for the long term.
“Teamwork makes the dream work,” as the saying goes. If your firm has the desire to make the transition from a group of individual players to a cohesive, mission-driven team, you’re already on your way. Becoming a growth-centric firm is a marathon, not a sprint. It’s led by nimble, sure-footed leaders who motivate and inspire those from every function within the firm.
Leveraging leadership to energize growth is a new state of mind for many firms. Yet, in my experience, it is proven equally powerful for firms of all sizes. Are you on board?