Reprinted with permission from CPA Practice Management Forum.

In the October issue of CPA Practice Management Forum, my article on the importance of financial analysis to firm growth left some readers less than totally convinced.

One partner responded, “Gale, I read what you wrote about using financial analysis to develop our growth strategy. Quite frankly, I would rather just go out and find some leads. Financial analysis sounds good in theory. But can it really help me grow my niche? Can you show me?”

You bet I can! Let’s look at how some firms have grabbed the financial analysis bull by the horns and run with it. Check out these real life examples in a variety of service lines and industries.

Employee benefit plan audits (EBPA). The analysis conducted by Firm A revealed a 20 percent difference in realization rates between two client groups using its EBPA service. The firm was aware that for one group (those clients where the firm also performs the financial statement audit), benefit audits were used as a loss leader. However, the firm had no idea how deep the discounting had gone. The “price it to get ‘em in the door” strategy had degraded over the years to almost giving the service away for free. Time for a re-think!

Technology.A number of years ago, Firm B positioned itself as a leader in services for software, hardware, telecommunications, and other tech companies. However, according to an in-depth analysis, the bulk of the revenue was now coming largely from social media-based technology companies. Without that data, the firm could not have known that it was sitting on an important niche. Now, rather than throw a net widely across all technology, Firm B is focusing its growth efforts on the sub-niche and redefining its market.

Manufacturing.Firm C used financial analysis to learn which of its manufacturing clients had an overseas presence. The managing partner was surprised to learn that more than half had some type of global involvement. As a result, the firm began to develop an international strategy in its manufacturing niche, using this information to point the firm in the right direction.

Financial services. Firm D gathered data on its financial services clients, which included mortgage companies, brokers, RIAs, and private equity groups. Surprise! Two clients—both mortgage companies—were responsible for generating 40 percent of the revenue from the niche. Another 100 small clients made up the additional 60 percent. With the bulk of its clients spread wide and thin with no significant concentration, Firm D focused its market research efforts to prove whether additional mortgage companies were the buyer group to develop. Oh, and by the way, they were also surprised by low realization rates identified in some of the other sub-niches, which led to a pruning of the client base.

Audit.Financial analysis in Firm E revealed that this firm’s realization rate was 10 points lower than its peers. Further analysis, sorted by industry, revealed inconsistent methods and audit inefficiencies in two of its industries. Working with those industry leaders, the audit leader implemented lean/six sigma techniques to increase audit realization rates in those niches.

Real estate. Firm F was able to confirm that its strong suit within the real estate industry was shopping centers. Based on the numbers—and subsequent Research Calls^SM in the real estate market—the firm saw no reason to move away from shopping centers. Leaders pursued growth by identifying new channels of distribution to further strengthen this important sub-niche.

Client accounting services.Similar to Firm D, which learned that two clients were generating 40 percent of revenue within a single segment, Firm G used financial analysis to discover that two nonprofit organizations were each responsible for $100,000 in revenue. The remaining revenue was divided among 50 small clients representing about a dozen other industries. Rather than attempt to serve this hodge-podge of retail, travel, service, and restaurant clients, Firm G used its knowledge and track record to successfully attract more CAS services in nonprofits.

Tax practice. Drilling down into its individual tax practice, Firm H uncovered significant realization differences among partners. It was basically a free-for-all with partners using their own strategies (some more efficient than others) to bill for 1040s. The analysis led to a change—moving low-end, individual tax returns out of the hands of partners and into a tax-processing center, with one partner leading the service line. Realization rates climbed several points as a result.

Wealth management. Firm I performed an analysis to uncover the percentage of revenue and clients in its wealth management practice currently using the firm for other services. A high number would suggest that partners were successfully serving as a channel of distribution into the wealth management practice. A low number would mean that the firm needed more non-clients to grow its wealth management practice.

Government. Firm J, a specialist in government, shared with me its analysis showing that 100 percent of the government-client revenues were in audit. As the firm’s growth coach, I pointed out that cash-starved states and municipalities might need help in many other areas these days (e.g., budgeting, cost control, and process improvement). By limiting its offerings to low-realization audits, Firm J was potentially missing a huge opportunity. Subsequent research calls proved this and the firm is embarking on a path to bring consulting services to the government market.

Not for profit.Firm K has 10 offices. Its financial analysis revealed significant differences in sub-niche penetration, average client sizes, and realization rates. Armed with this information, the NFP leader crafted a strategy to develop strength in NFP across the firm, based upon the unique strengths in individual offices.

International.Firm L’s financial analysis brought sharp clarity to its current concentration of international work in five countries and three industries. Now, rather than running all over the globe, the firm is developing services, distribution channels, and buyers in these specific areas.

Healthcare.Firms M & N merged. The post-merger analysis indicated potential synergies between M’s hospital segment and N’s physician segment. Hospitals have been buying up physician practices recently, which led the firm to launch a new merger & acquisition service in the healthcare market.

Why were these situations so surprising to their respective firms? Because in a typical book of business model, partners know their own client-base numbers. However, most firms have not analyzed their numbers by service line or industry to help them look for patterns and draw conclusions. More often than not, firms rely on anecdotal information and erroneous conclusions.

What is the takeaway from these examples? It is not just about growth; it is about focused and profitable growth. And, without the benefit of financial analysis, it is difficult to point your strategy in the right direction.

Don’t let the difficulty of the task deter you. Take a crow bar to that computer if it won’t spit out the numbers. Do the analysis by hand if you have to. Find someone in the firm who can swing around Excel Pivot tables. Dig in, get the facts, and use them to grow your firm. You will be glad you did!

No matter how good your kid is at soccer it’s still an extracurricular activity as long as she’s in school and nobody’s paying her to play, right?  Helping her see that school comes first is part of your job as a parent.

Part of your job as a change agent in your firm is embracing the idea that the pursuit of growth is an essential part of what you do – not an extracurricular activity.

If you are a leader of a service line or industry, whose purview includes growth and profitability, you’ve got to fully own that role.  “I’ll do my best as head of the tax department” isn’t enough.  It’s a matter of actively accepting responsibility for a revenue stream and its attendant profitability.

Once that culture shift is in place, it’s all about the nitty-gritty of growth.  And that starts with one critical task – financial analysis.

For many CPAs these are dreaded words.  Many don’t see the relevance, others don’t want to do it, and others don’t know how to analyze the viability, stability and profitability of a business – in this case their own.

More often than not, they’ll attempt to move on. “Let’s forget financial analysis, and it will go away. Let’s just go do some marketing.” But think about it. Pretend for a moment that you are brought in as the new leader of a company. You wouldn’t barrel into the market with no analysis. The Board of Directors would surely not tolerate that approach!

All of this is especially perplexing in view of the fact that these same CPAs would never recommend that a client embark on a product or service expansion without a comprehensive analysis of revenues and profits.

Roadmap required

Much as you would rely on a roadmap to ensure that you reach your destination, financial analysis gives you a comprehensive view of where you’ve been and where you should be heading.  It’s the very foundation of building a successful strategy. It also helps avoid random side trips.  For example, if your firm is in Wyoming where an oil and gas boom is under way, it might be tempting to conclude that expanding your contractor business is a strategic move.

But a careful financial analysis might reveal that, in fact, contractors are your least profitable buyer group.  Where do you go from there? Let the numbers lead you.  Does 90 percent of your revenue come from 50 percent of your clients?  Or is it the other way around?  What is the realization rate of your clients by buyer group? By service? By partner?

Decisions about how and where to drive growth will emerge.  For example, let’s say your real estate realization is 50 percent but is responsible for most of your revenue.  Health care, on the other hand, shows modest revenue, but a higher realization and growth rate.  Armed with data, the once obvious choice may appear less obvious.

Is there an app for this?

There’s no “easy button” for conducting a thorough financial analysis – no app that instantly reveals the required content and data points.  What complicates matters even more is that, if you’re like many CPAs, you may never have learned the art and science of financial analysis during your training.

On several occasions I’ve observed an uncomfortable embarrassment factor around this.  CPAs realize they need to know and apply this method, but they have no idea how to go about it.  Some are naturals and figure it out beautifully on their own.  But for others a conversation on this topic yields the unmistakable deer-in-the-headlights look.

If you find yourself in the latter group I recommend finding an expert – perhaps someone already on your staff – who is skilled in Excel pivot tables, and understands financial analysis.  (Most MBAs have this knowledge.)

You’ve only just begun

I can’t guess the number of times I’ve sat with partners – successful partners of successful firms – and watched them cringe when I recommend a deep dive into financial analysis.

“But Gale, we’ve done revenue segmentation just as you recommended.  Isn’t that enough?”  No it is not, thank you.  In fact, once you’ve identified the sources of your revenue you’ve just taken the first step in the growth process.  Next you have to parse each of those superficial numbers to discover what they reveal and the direction they will lead.

Dig for the data, apply critical thinking, commit to the effort and you’ll discover valuable nuggets upon which to develop your growth strategy!

A niche, the dictionary tells us, is an ornamental recess, usually in a wall, that holds a statue or other decorative object.  But in recent years niche has taken on a more generic meaning as a suitable place for someone or something. In accounting, niche has become synonymous with specialty. Accounting firms are routinely advised to build and grow niches in areas such as international business, health care, the nonprofit sector, etc.

I’ve been a strong proponent of specialization, advising firms to move away from a commoditized “something for everyone” model.  The problem is that as they’re currently envisioned and pursued, niches may limit your thinking about growth.

There are three reasons – (1) the term niche is often too narrow and self-limiting, excluding major revenue segments like audit and tax, (2) many times nobody owns the financial success of each (3) firms are mired in tactics rather than strategy.

In their place I propose redefining niches to revenue streams or revenue segmentation.  These are inclusive of all chunks of revenue, enabling specialized growth across all service lines and industries, and giving you the firepower to grow your firm.

Niches are Narrow, Segments are Broad

Case in point.  Firm A leaders tell me that they are eager to establish niches in litigation support and risk management.  Fine, I say.  But growing two niches (any two niches) is not sufficient to grow your entire firm.

“What about audit and tax?” I ask.  They may not be commonly considered niches, but they are key sources of revenue that cannot be ignored.

I introduce the concept of revenue streams by helping Firm A create a simple spreadsheet.  Rows represents service lines (assurance, small business services, tax, consulting, etc.) and columns represent industries or other buyer groups (banking, hospitality, construction, international, etc.).

The resulting totals are revenue streams or segments, showing the amount of revenue currently generated by segments, both in dollars and as a percentage of the firm’s overall revenue.  Also – and importantly – there is a total row and total column to enter the anticipated percentage growth for each segment.  You know where you’ve been and where you’re headed – a strong start.

Assigning Accountability

The spreadsheet also has a column for the name of the firm leader who will champion each revenue stream.  Linking revenue and profitability to individuals addresses another problem with niches, which is that nobody is responsible for their financial success.

Too often niche building is seen as an extracurricular activity – a good thing to do when you have extra time, but no one’s real duty.

Assigning a leader introduces accountability, which is a start.   Otherwise, partners sit around a conference table nodding in agreement that construction or education are niches worth pursuing.  But little gets done.

As intuitive as this sounds, it’s foreign thinking in most firms.  I recently sat with a partner who had been assigned to lead a particular segment.  My task was to help him dig into his segment and identify pathways to growth.

The first question I asked was how much revenue his segment had generated in the previous year.  (You can’t grow unless you know your starting point, right?)  To my surprise I was met with a blank stare.  He hadn’t a clue. Here’s the takeaway – without a solid understanding of past performance and a strong segment leader at the helm, meaningful growth is not likely.

Strategy Trumps Tactics

Finally, growing revenue and profit is all about moving away from tactics and toward larger strategies.

A typical tactical approach is to “do things” like attend contractor association meetings and write articles for construction publications.

But how do you know that you’re speaking to or writing for the buyer groups who want what you’ve got to sell? Or that you’re speaking or writing about what they want to hear?  There’s nothing wrong with these tactics.  But they must be part of a larger strategy whose purpose is to align likely buyers with services and channels of distribution.  The process is rooted in a thorough financial analysis of each revenue stream, and driven by a deep thirst for knowledge and nuance.

This approach is part of a comprehensive growth model.   Rather than pluck a niche or two from the air, I recommend firms take a more holistic approach, growing each service line and industry with its own unique strategy. Sustainable growth will only occur when you study where you’ve been and become an expert in where you want to go.  A niche visibility program won’t get you there, but a strategic revenue segmentation approach can!

Billy Crystal said it best, “Change is such hard work.”  But oh how satisfying it is when the change you make leads to the success you seek.

One of the most profound changes firms can make is in the way they look at the market.  Historically accountants develop an offering, and then present it (“Tah-dah!”) on a silver platter to buyers whom, we hope, want and need it.

I propose a different approach, looking at the market from the outside in.  It’s a way of seeing things from the eye of a potential buyer rather than from your eyes.

The concept involves strategically assessing the needs of a target market, then aligning your services to those needs.

It’s more than a subtle change in semantics.  Looking from the outside in represents a 180-degree change in perspective.  Developing service lines and industries/buyer groups that respond to market needs gives you distinct advantage over firms offering generic inside-out services to every and all buyers.

Strategy

The “outside in” dynamic is supported by a simple graphic to illustrate the strategic elements of growth.  Picture three circles aligned horizontally with arrows between them, from left to right.

The far left circle represents services you should provide.  The middle circle is the distribution channels that help you and buyers find each other.  And the far right circle is the targeted buyer group for those services.

Changing the service or buyer group necessarily changes the distribution channel.  If we develop a new service, the distribution channels could change. That’s because the new service may be of greater interest to a different buyer group than past offerings.  And different buyer groups have different channels.

Here’s a case in point.  Firm Z has traditionally done financial statement audits for construction companies, and their most powerful distribution channel is sureties and brokers.

Having made a decision to start looking at its opportunities from the outside in, Firm Z studies the marketplace and identifies a need among contractors for forensic services.

Such services may not be of interest to sureties, which were the distribution channel for audits.  But forensic services could be of considerable interest to a new distribution channel, such as lawyers defending contractors.

The content of the three strategic circles is dynamic and will change as your firm’s approach to growth matures.

Where Do I Start?

To fully leverage the potential of “outside in” thinking, it’s essential to start fresh.  Wipe off your mental white board of misconceptions and take a new look at the marketplace.

Uncover unmet need by talking to your potential buyers.  Conduct focused Research Calls^SM and interviews to discover the top issues facing a buyer community.  It’s only by talking with a critical mass of individuals that themes will begin to emerge.  That’s when you know you’re getting insight into the buyer group, not just a handful of individuals.  The interview reveals the need and the need reveals the service.

You can also learn a lot about your buyers by talking with different groups about the same offering.  If your interest is in valuation and litigation support, conducting interviews with two different buyer groups can lead you to two very different potential service lines.

For example, a business owner may tell you that he or she wants a quick and dirty determination of value, while divorce attorneys need assistance in valuing assets in divorce proceedings.  Armed with information about their needs, determine which buyer groups are of interest based on those you’ve served in the past, and/or those you wish to serve in the future.

Fresh Eyes Yield Fresh Opportunities

The days of deciding on a specialty, hanging out a shingle and hoping someone walks in the door are over.  Today’s competitive conditions require a more focused approach.

Firms can no longer sustain long-term growth with generic offerings. Instead, you need to align your expertise with demonstrated need.

It’s a breakthrough in thinking that just might yield the breakthrough in growth your firm seeks.

How big is too big?  I’m frequently asked this question by firms that have successfully grown a particular niche.  “Can we expect the needle to continue to rise, or are we relegated to low growth and thin margins?” they wonder.

My answer is unequivocal.  “You bet that Cat can get Fatter!” The key is knowing how to manage this unique stage of growth.  The model I espouse describes four stages in the lifecycle of a product or service – Early, Diamond in the Rough, Cash Cow and Fat Cat.

As it advances through the stages, a product or service contributes an increasingly higher percentage of firm revenue.  For example, a brand new service line that does not yet generate revenue (perhaps a family business offering) might be in the early stage.  A Fat Cat is an established offering (like audit) that yields significant revenue and margins.

The problem, however, is that once Cats become Fat, they tend to become sluggish and commoditized.  Their place in the market is fairly predictable, but so too is the predictability that their margins will decline.

For example, a firm with a construction industry audit niche in the Fat Cat stage knows from year to year the percentage of revenue the service line will deliver. Competition and buyer behavior fall into a predictable pattern.  It seems things will go on this way forever.

The danger of complacence

But they don’t.  Nothing stays the same, at least for very long.  New competitors appear as firms merge and acquire one another and focus more on a specialization, including the one that for so long looked like yours and yours alone.

Without taking proactive steps, that comfortable Fat Cat will whither into a painfully skinny kitty.

Case in point is a firm that had built a solid niche among credit unions.  Revenue and profitability were reliable and a dozen partners were working to Fatten the Cat.  So far so good.  The problem was, nobody owned the specialty – no individual was responsible for the strategic direction of the niche.

As a result there was no one keeping a cautious eye upstream to anticipate changes in the market and sniff out emerging competitors.  The partners who had created the specialty began to retire.  Interest lagged.  Then one day the niche was no more.

Do this, not that

I was asked to help this firm wrest its once Fat Cat from the jaws of the competition.  We had to start from scratch (pun intended) by conducting research calls to learn all we could about market conditions.

We learned that the firm’s formerly industry-leading offerings had weakened substantially.  Competitors had gained a strong foothold, winning business once considered a slam-dunk.

I asked this client some tough questions – the same ones I recommend to you to ensure that a vibrant niche continues to grow rather than slip out from under your grasp.

Have you put artificial borders on your thinking?  Are you limiting your vision of what your service line or industry can become?  Artificial borders can be geographic (“We only serve the Midwest”). They can address sector (“We don’t work in highway construction, only commercial construction”).  And they can be just plain ridiculous (“We don’t do contract compliance audits because our business has always been in financial statement audits”).

Customize by buyer group.  Tailoring your offerings to the needs of your clients shows that you “get” them more than the competition does.  It leads you away from generic, commoditized service and toward customization and client-centric problem solving.

Innovate.  Innovation is a natural outgrowth of customization.  In order to thrive – and survive – you should be bringing new services to market on a regular basis.  A complacent Fat Cat will simply lie in the sun and – struggling to keep one eye open – lazily watch the world go by.  Your job is to plump her up with highly relevant products and services and keep her moving.

Because ‘good enough’ just isn’t

Imagine for a moment that Apple had introduced its revolutionary iPhone in 2007 and deemed it “good enough.”  Consumers would never have known the enhanced functionality of the four subsequent generations – from video recording to faster processing and a larger screen.

But that’s not the half of it.  Apple would not have realized extraordinary profits and investors would have missed out on historic returns.

The takeaway?  Don’t be complacent with your Fat Cat.  Keep your offerings fresh.  Make sure that they anticipate and respond to client need.  It’s true – nothing lasts forever.  But by actively managing your high-performing niche you can extend its life, maybe indefinitely.

If your goal is to grow your firm and you haven’t considered a qualified business developer, you’ve tied one hand firmly behind your back. A business developer (BD) is a professional salesperson hired to sell your firm’s services.

The Big Four and top-tier firms have been using them for decades with exceptional results. Now the strategy has trickled down to ambitious mid-market firms.

With the average business developer, typically paying for himself or herself after a year, there’s little doubt in my mind that it’s a smart long-term investment.

Why Now?

When it comes to growth, we’ve squeezed every last drop of juice out of the orange over the past few years. We’ve cut extra expenses to the bone and we’ve dabbled in sales training programs. For many firms, it hasn’t been enough.

At the same time, we’ve seen a historic level of commoditization of service offerings that have exhausted our ability to sell value, especially because, as CPAs, we never really learned how.

In the absence of that knowledge, partners – even seasoned ones – mistakenly allow client discussions to veer into the direction of price. It’s a swampy area that, once entered, is difficult to navigate and even harder to steer out of.

It’s murky in there. Is the client a Wal-Mart shopper or a Nordstrom shopper? What’s the price expectation and what happens if you don’t meet it? That’s the problem when we focus on price over value. And it’s a slippery slope – a mistake the right professional business developer would not make.

What’s Holding You Back?

One of the biggest misconceptions that keep firms from hiring business developers is the idea that a salesperson needs to be a CPA or have significant technical expertise. Nothing could be further from the truth.

Primarily, a professional salesperson needs to know how to sell. Secondarily, he or she needs to know enough about the subject matter to be conversant with the client and to establish credibility. Especially at the start of the sales cycle, the focus is less on technical knowledge and more on the sales process and experience. It’s a complex dance that involves the development of trust and confidence – a relationship based on an alignment between what the client needs and what your firm can deliver.

Manage for Success

The degree of success your business developer can achieve is closely tied to how you select and manage this individual. Firms often use the wrong selection criteria and, not surprisingly, end up hiring the wrong person.

One big key to success is to seek a salesperson with vast experience in intangible solution selling, with transactions that are about the same dollar value and same sales-cycle length. Also, look for candidates who had good training in a large environment, as well as entrepreneurial success where they were not representing a well-known corporate name that could get them in the door.

It’s much easier to generate leads when you have a big-name bank on your business card, versus a lesser known CPA firm. Educate yourself (my website has lots of articles on the subject) about what to look for and how to manage a business developer.

Make sure your partners understand that, once a BD has been hired, the days of “lone rangers” doing their own thing while holding tight to their own leads are over. It’s not about who gets credit once you’ve got a business developer on board. It’s about creating an environment for success and driving optimal revenue.

Opportunity development starts with a carefully selected team based upon selection factors well beyond technical expertise.

Creating the right environment means supporting your BD with a robust pipeline process and a cooperative partner group putting its faith (and its leads) into the hands of your sales professional. Decide how your shareholders will interface with the BD and their role in ensuring his or her success.

As you would with any new employee, set firm expectations, such as charging the business developer with developing his or her own lead base. Determine and communicate how soon the BD will be expected to generate revenue. I recommend a ramp-up period of one to two years.

You’ll also want to design a solid job description and a compensation package compatible with going market rates. Cost justification comes by evaluating the number of average-size transactions the BD is likely to close in a year. Don’t be shocked if this calculates to a sum that’s equal to or above partner compensation rates.

Using the “S” Word

It’s a funny thing with accounting firms. While they will openly acknowledge the desire for “growth,” the words “sales” and “selling” are often distasteful.

Come on people. This economy – with hints of a thaw but still quite chilly conditions – is no time for semantics. If you’re a mid-market firm aspiring for growth, a full-time expert in driving revenue is a smart and strategic investment. Done right, you’ll outpace other firms that haven’t figured it out yet!

Unconscionable sums of money are squandered every year by CPA firms chasing down unqualified leads. Through my coaching work, I’ve seen the costly results of unfocused lead qualification and it isn’t pretty.

Developing and closing an opportunity is difficult, even in the best of times. The added challenge of today’s highly competitive (and slightly skittish) marketplace underscores the importance of vigorously and purposefully qualifying leads.

What a waste?

Without discipline around lead qualification, firms jump into an unstructured process based more on wishin’ and hopein’ (apologies to Dusty Springfield…) than on solid facts.

Consider a typical scenario. Firm A learns of an RFP for a company that’s grown dissatisfied with its current provider. A dozen firms are bidding on the work.

Firm A goes headlong into the effort, investing 30 hours into a boilerplate proposal that does not win the business. At a $300 hourly charge rate, that’s $9,000 down the drain. Now multiply that by about 10 such undertakings a year and you’re looking at an astronomical sum.

Instead, I recommend a focused process that starts with ensuring that the following conditions are met:

• The prospect must have the money to pay for the service.
• The prospect must be experiencing a degree of pain significant enough to motivate action.
• The CPA firm must have direct access to a decision maker/person of authority.

Is it winnable?

I constantly see firms grasping at unwinnable business. In some instances, they have no sense of how to strategically qualify a lead. In other cases, firm principals pursue and qualify leads with their “happy ears” on, hearing only what they want to hear. They are basically in denial about the potential failure of their pursuit.

These are the same individuals who are appropriately circumspect about their approach to an audit. But when it comes to lead qualification, they operate quite differently. Another possible reason for pursuing an unwinnable lead is to develop skills or establish connections. But at a price tag of $9,000 per pop, this is a very expensive way to practice. So, while appropriate some of the time, this should not turn into a steady diet, as it unfortunately has in many firms. In my view, the best reason to pursue an opportunity is because it’s winnable, and you intend to win it.

If you’re doing it for any other reason, I suggest you seriously question the benefit compared to other ways of honing skills or developing relationships. For example, the hours spent creating a proposal could be much better spent perfecting the skills required to make better research calls. This is a much more productive tactic that requires interviewing others in your market—leading to strategy, distribution channels, and real buyers.

By the way, I practice what I preach and will not pursue unqualified leads. If the lead isn’t qualified, it hasn’t earned its right to be pursued.

Fill in the blanks

So what’s involved in qualifying a lead? Interview your buyer early in the process, interview multiple decision-makers if necessary, and don’t hesitate to ask the tough questions. Leads need to be qualified early and hard. Listen to the answers very, very carefully. Once you’ve asked the question, based upon the answer, then dig, dig, dig further. Think Colombo, the popular TV detective. The qualification questions are:

• Why buy?
• Why now?
• Why us?
• Who else?
• Who cares?

Why buy? Another way to phrase this is “Why change?” As mentioned above, you want a prospect with a true need and desire to stir things up. Without that, you’re not going to get a yes.

Why now? Learning why a prospect is ready to make the change now, rather than last year or next year, will reveal both the level of pain and the length of your sell cycle. It will tell you whether you have 3 weeks, 3 months, or 13 months to make your case. This is essential to planning your strategy. This question and the “why buy” question are designed to reveal deep, often hidden, and personal needs. These are the raw materials of building value and preference for your eventual solution.

Why us? Uncover all you can about the prospect’s interest in you and your firm. Do they really understand what you’re all about, or are they burdened by some nagging misconception? Is there any dirty laundry that needs to be aired (e.g., did the business use your firm years ago with an unsatisfying result, or was their sister-in-law formerly with your firm and subsequently fired)? I was working with one team who uncovered the nasty fact that the prospect had little respect for the managing partner. They had to address this before becoming a serious contender.

Who else? This is where you find out about the competition. Ask who else is being considered and why. The prospective client may not wish to answer, but it is part of your due diligence to ask and to expect an answer. The best business developers I know ask such probing questions with confidence—non confrontational, yet assured. When you get the prospect comfortable talking to you about your competition, your strategy and resulting odds-to-win soar!

Sometimes it’s not what we’re thinking, but how we’re thinking that keeps us from the success we deserve.  In this case I’m referring to the limits we impose on ourselves, which I call thought borders.

While not necessarily geographical, they constrain our forward movement much as the absence of a passport prevents us from entering another country.

Learning to identify these artificial limitations and move beyond them is a powerful tool for growth.

Take off your blinders

In order to grow the firm, accounting leaders must constantly assess their markets to craft strategies for short- and long-term expansion.  In my experience many are too quick to dismiss particular services or industries, which prevents them from pursuing potentially lucrative opportunities.

They do this because of mistaken beliefs and negative thinking – thought borders.

One of the most common is summed up in the statement, “We can’t do that because we’ve never done it before!”  The market is screaming for chocolate ice cream, but because firm X has only and always produced vanilla, they erect an impassable barrier between themselves and a world of chocolate-craving clients.

Let’s bring it closer to home.  In your partner meetings you’ve repeatedly discussed the fact that international is a sizzling hot market.  You keep yourself from this vast opportunity because of what you consider logical reasons – you’ve never had a non-U.S.-based client and no one on your staff speaks a foreign language.

But in fact your firm is positioned as well as any to grab some of this global goodness.  Your service lines mesh with potential areas of strong international growth.  Your domestic technical expertise is well established.  And you’re committed mentally and financially to growth.

Opening doors

Once you venture beyond a thought border, the doors will open wide.  For example, while advising a firm that was going through this precise scenario, I introduced them to a provider that specializes in helping other CPA firms break into the global market.  

They do this by providing international tax expertise during the startup phase, a common approach in areas such as cost segregation and tax credits.  It was exactly what my client needed to jump start its global pursuit.

The “We don’t have any international clients” curtain is another that’s easily pushed aside.  The international field is wide open, with nearly 140,000 inbound and outbound international entities in need of service. 

Find them by getting creative.  Talk to international lawyers, embassies, foreign chambers, consulates, and globally connected faculty members at local universities.  Get to know your community’s economic development council.  What about sponsors of trade missions?  Port authorities? Consultants who relocate companies and their executives?

Interview existing clients.  You’d be surprised how many of them have foreign-based distribution centers or manufacturing sites that could be the entrée you need.

It’s a small world after all

Another common thought border is related to travel phobia.  The thinking goes, “We can’t send auditors out of town because it costs too much and they hate to travel.”  Welcome to the 21^st century when a firm headquartered in Peoria is no longer limited to clients in the “309” area code!

Technology and real-time communications have done more than perhaps any other factor to expand the scope of our reach.  Sure, face time is essential, especially initially.  But it’s entirely possible to deliver top notch, ongoing client service via email, Skype, cloud computing, and other low-cost, no-travel methods.

Another thought border I’ve identified is the “generic offering” mentality.  It assumes, for example, that all audits are equal.  That may appear true when we look from the inside out.  But that’s not how it looks to your client.  The ability to add value by creatively customizing an audit to your buyer group can give you a significant edge over other firms.  This is entirely possible, even in the world of strict standards!

No stone unturned

Rather than seeing limitations, think in terms of opportunities.  As you eliminate the excuses and constraints, you open the door to exciting possibilities.

Unleash your inner Colombo.  Replace the “no we cant’s” and “we never haves” with creative sleuthing into markets that are best suited for your firm regardless of past experience.  Leverage what you know and what you’ve done to achieve success in new sectors.

If you stay within your thought boarders, I predict you’ll be stuck slogging it out in the price-driven, commoditized competitive trenches with everyone else.  The markets are filled with people suffering from border thinking syndrome.  Move beyond it and find your bright future.

An Internet search for the term “predictable growth” yields millions of links to websites, videos, books, and consultants. There seems to be no doubt about the idea that growth can be planned and charted.

But for accounting professionals who are trying to grow their firms, it may seem that there’s nothing at all predictable about sources of opportunity and how to manage them.

Unleash the power

If that’s your situation, it may be because you haven’t yet unlocked the power of the product lifecycle. In the 1970s, Bruce Henderson of the Boston Consulting Group introduced the concept that products and services have a predictable, consistent cycle.

Some four decades later, the BCG Matrix that he developed remains a popular growth tool. I’ve successfully used an adapted version of the model to assist dozens of accounting firms. It helps firms determine how to grow each service line and industry.

Early, diamond, cow, or cat?

According to the model, products, services, and industries exist in one of four stages, determined primarily by the degree to which they are contributing to firm revenue. I’ve renamed these stages:

• Stage one: Early;
• Stage two: Diamond in the Rough;
• Stage three: Cash Cow; and
• Stage four: Fat Cat.

A service line or industry in the Early stage would be one that generates virtually no revenue. An offering in the Fat Cat category (e.g., an audit or an established construction segment) would be one that contributes significant revenue and margins.

The first step in determining product lifecycles is to gather your partners and break out a whiteboard or create a spreadsheet, placing each of your offerings into one of the four stages. Then repeat the same exercise for your industries (or other buyer groups).

The graph you plot with the data should show climbing revenue as the stages progress. Margin, on the other hand, will climb through stage two, then starkly decline and level off over time.

You’ll get more than a handsome diagram for your efforts. The method can lend sophistication and refinement to your firm’s growth initiatives. Rather than placing all service lines and industries on the table in a heap and arbitrarily deciding which are the best candidates for growth, by assessing the lifecycle stage you will sharpen your approach.

Next step: Action!

Lifecycles reveal each segment’s growth objectives depending on where in the lifecycle each segment resides. In turn, these objectives lead to specific strategies.

The objective in stage one (i.e., Early) is to find an early adopter for your new service line or industry. This is not the time to publish a brochure and announce this new offering to the world. Nor is it the time to optimize revenue or margins. The goal is to find users on whom you can “practice” in order to perfect all aspects of design, promotion, and service delivery.

In stage two (i.e., Diamond in the Rough), the direction should be heavy lead generation. That’s because activities like research calls that result in leads are the same ones you use to discover your growth strategy.

The stage three (i.e., Cash Cow) objective is to specialize and innovate. At this point in the lifecycle, service, or industry markets begin to naturally segment by breaking off into sub-segments that can be further refined.

Your growth goal in stage four (i.e., Fat Cat) changes yet again. At this point, a service or market becomes predictable and commoditized. Instead, you want to innovate and drive efficiency. This will enable you to maintain revenue growth and margin in a stage that’s typically characterized by flat growth and low margins.

For example, use technology and methods that will help you drive the lowest cost per unit in your audits through methods, such as LEAN and Six Sigma.

Innovate by packaging and customizing uniquely for each individual industry. For example, accounting for physicians becomes “Healthcare Accounting” and is packaged with a Year End (financial) Checkup. This is how an Ohio firm distinguished itself in its niche.

One can observe services in an entire profession moving through the stages. For example, litigation support has just recently entered stage three. Business valuation entered stage four a few years ago. Audit has been in stage four for quite a while. Interestingly, one firm’s stage one could be another firm’s stage four. This is where strategy development becomes even more complex.

Pace

Although there is a predictability to these categories, what’s less knowable is the pace at which a given service or industry will pass through each of the stages.

Certain services or markets move quickly through the lifecycle while others seem to lag. But regardless of the timing, you can use your understanding of lifecycles to drive your #1 objective and relevant tactics.

Forget the random approach to growth. There’s too much competition out there to continue growing on a “whatever” basis. Bring focus and predictability to your efforts by becoming a master of the lifecycle.

Pathways to Growth #8

When firms, like individuals, reach milestones in their lives, it’s a typical time for reflection.  As the venerable metro DC firm Aronson LLC marks its 50^th year in business, reflection on the firm’s success inevitably turns to the contributions of Lisa Cines.

A 29-year veteran of the firm, Lisa served as Managing Officer from 2001 to 2010.  During her tenure Aronson doubled to its present size of $50 million.  Since 2010, Lisa has contributed in her role overseeing the firm’s future growth through organic and merger opportunities. I’ve met few firm leaders who have such a deep understanding of firm wide growth.

As top officer, Lisa helped leverage a penchant for specialization that started with Aronson’s entry into government contracting in the 1980s.  Today, that niche represents 50 percent of web traffic and has evolved into comprehensive service and consulting offerings.

The firm has also pulled ahead of the pack, anticipating emerging needs and meeting them with innovative strategies.  Under Lisa’s leadership Aronson worked to establish its partners not only as competent technicians, but also as thought leaders in niche areas.  These include government contracting, nonprofit organizations, real estate, construction and technology.

How May We Help You?

Aronson has demonstrated a consistent capacity to embrace new approaches, including early adoption of niches.  Proximity to federal government clients led to a specialty in government contractors.  At a time when few firms specialized, Aronson determined that serving government contractors would not remain an audit sideline, but would become a firm niche.

To that end, the firm took a hard look at the contractor market and was not content to deliver the need of the day.  Instead, Aronson listened harder and anticipated more creatively than the competition.  I refer to this as looking at the market from the outside in, with an eye to the client’s needs, not your firm’s current capabilities. In addition, services to clients developed from individual one-off projects to packaged solutions leveraged across the client base.

The focus on specialization extends to how the firm grows its talent.  Aronson established a rotation process that gives new hires exposure throughout the firm’s areas of specialization before they identify a preferred niche.  By the end of their second year, new members are expected to be ready to select a “major.”

This distinguishes the firm from many, including the Big Four model in which new hires are traditionally assigned to a department and expected to remain there.

Even business developers, which Aronson used before it was common practice, are aligned with specific industries and service lines.

Early Adopter

Aronson has been an early adopter of technology and innovation, too, especially around communication.  For example, a firm newsletter was established before these were commonplace.  Currently Aronson is an early user of social media with webinars, blogging, LinkedIn and eblasts to provide two-way communications with clients and friends of the firm. A client who calls for information is not just sent a brochure, but may be directed to a specific blog post or webinar.

Communication is consistent and delivers solid content and peace of mind that comes from association with a reliable source. Consultation and other services are developed with an eye to meeting client needs.

The focus on niches and customized communications led to the development of market segments and thought leadership.  While most firms were busy sponsoring golf tournaments and placing ads in professional publications, Aronson was earning name recognition by publishing and consulting.  The firm’s website reflects that penchant.

Most accounting sites are filled with chest thumping and self-congratulation.  The Aronson home page communicates the firm’s interest in delivering needs-based solutions through relevant news, articles, blogs and links.  

Leveraging Regulation

Another component in the Aronson success formula is the firm’s approach to regulation.  Many firms grudgingly acknowledge changes in the tax code and other regulations, seeing them primarily as an impetus for pursuing CPE.

At Aronson however, new standards drive innovation and thought leadership.  A new regulation is considered a platform for a new consultation or service offering.  For example, new lease standards are closely being watched, as not only with they have a financial statement impact, but will also impact how costs are recovered by government contractors. Regulatory news also becomes a subject of observation and commentary by Aronson experts.  In this way the firm adds value and builds client loyalty.

Half Full?

In conversations with Lisa Cines I was impressed by what I learned about the firm’s focus on innovation, keeping offerings fresh, and establishing niches with creative service offerings and thought leadership.

And although she steers the discussion away from her own role, the impact of Lisa’s contributions on Aronson’s success is clear.  But where I see an impressive firm, Lisa sees a firm with a long way to go before it reaches its full potential. This is the Aronson way – a mindset of continual improvement.

In fact, both visions apply.  At 50 Aronson is well established and respected for its accomplishments, yet its leaders, remain eager to embrace new opportunities and pathways to growth.