Reprinted with permission from CPA Practice Management Forum
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 five 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.
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.