[IMGCAP(1)]The business world was never simple, but it has never been as complex and dynamic as it is today.
For decades, two key factors—technology and globalization—have driven profound change throughout the business world including the mid-market. And both will continue to do so – at an ever-increasing pace.
In an earlier article, I indicated that not one firm is top of mind when it comes to owners/operators of mid-market companies (see We Still Don’t Have a Mid-Market ‘Category Killer). If one of the Next Six or one of the other Top 100 firms who aspire to be a Next Six wanted to “disrupt” the marketplace and become the mid-market “category killer,” it had to have:
• capital markets skills and credentials (at least in certain industry sectors)
• a national and global brand, and
• industry specialization.
This article addresses the national and global brand. If you want to build a mid-market sustainable brand and perhaps eventually the “category killer” and attract larger, more complex clients with the potential for significantly higher fees and better margins, you must begin to look at a national and global footprint.
A one-office firm (even one based in Manhattan) is not going to cut it. Without a national, and eventually a global brand, your firm will never be able to “run with the big dogs.”
So here is the question to ask yourself and your partners: Should we begin to build a national and, yes, a global brand? If your answer to this question is either maybe or yes, in our opinion you need to slowly and deliberately undertake a geographic expansion with the understanding that you must eventually become a Top Ten player with scale in each city you have an office.
Most CPA firms generally start out as firms that operate with one office in one city. Sometimes these firms take some baby steps toward geographic expansion by venturing out to contiguous locations. While small satellites generally don’t generate significant revenues or huge margins, they do provide a larger pool of talent to pull from and help absorb firmwide overhead. They also give your firm more boots on the ground that will help with brand recognition.
If you had a clean sheet of paper (i.e., you were starting from scratch) and an ideal set of facts and circumstances, arguably you would eventually build your firm in the 11 major U.S. financial centers where a large percentage of the private and public capital markets reside, as summarized below:
• Los Angeles
• New York
• San Francisco
• Washington, D.C.
You get into these major U.S. financial centers through a combination of internal transfers, lateral hires and merger combinations.
The first step towards global geographic reach is usually for a CPA firm to join an international association or alliance, which among others include:
• BKR International
• DFK International
• HLB International
• Kreston International
• Leading Edge Alliance
• MSI Global
Today, many firms outside of the Giant Four have promoted a primarily “defensive” strategy toward international client service. In our opinion, to move from a defensive posture in response to the changing global environment in which clients and prospects operate, mid-market brands need to be proactive and go on the “offense” in developing and promoting their international services.
The Next Six firms are currently in the international client service mode—some through associations or alliances, others through international networks. All of the Next Six will ultimately need to market their firms as one global brand through an international network (as opposed to an association or alliance).
That’s the gold standard for international client service. The Giant Four, as well as RSM, Grant Thornton, BDO, Baker Tilly, Crowe Horwath and Moore Stephens, have already established such networks. Kudos to all of them. It’s not an easy or inexpensive task to either build or maintain.
Nevertheless, these international networks have enabled these eight mid-market sustainable brands to establish the perception that they are global organizations that can handle clients’ needs for seamless worldwide accounting, tax and advisory services. We want to emphasize the word “perception” because it is just that. Perception. Local member firms in these global brands don’t share profits. Having said that, perception is reality and one worldwide brand resonates on the big “stage” and enables you to “run with the big dogs.”
For a CPA firm, a global network with consistently applied standards significantly reduces risk. However, this one-firm international branding comes with increasing legal liability risks and quality control issues. From the perspective of clients, these global brands provide seamless services from professionals who collaborate across the world.
To attract clients (particularly marquee brands and credential builders) that are doing, or will be doing business internationally, you will eventually have to expand your reach globally in arguably eight key international cities:
• Buenos Aries
• São Paulo
International Business Centers
As a firm begins to implement global geographic expansion, it also needs to start building international resources and capabilities in the U.S. This requires that your CPA firm create an “international” culture within your partner and staff ranks that begins by establishing international business centers in key U.S. cities to drive implementation. IBCs operate as matrix teams that need to develop a performance management and compensation plan which focuses on five key measures:
• New full-service clients
• Sale and delivery of international services
• Increased referrals
• Improved client satisfaction
• Enhanced brand awareness
All IBC activities need to focus on achieving measurable results in these five areas. Finally, each IBC needs a champion who will be responsible for driving the local business plan and supporting nationally coordinated initiatives and programs. These champions require international experience, solid knowledge of the international association, alliance or network and relationships with partners throughout the world. They need to share a commitment and energy as well as a mutual respect of each other.
Again, there is a huge opportunity for one of the Next Six or one of the other Top 100 firms to “disrupt” the marketplace by establishing a national, and eventually a global brand and ultimately becoming the mid-market “category killer”. Will one of them seize the opportunity? We think so. Stay tuned!
Dom Esposito, CPA, is the CEO of Esposito CEO2CEO, LLC. Dom, voted as one of the most influential people in the profession for two consecutive years by Accounting Today, authored a book, published by www.CPATrendlines.com, entitled “8 Steps to Great,” a primer for CEOs, managing partners and other senior partners. In Our Opinion, is a continuing series for top CPA firms where Dom shares perspectives and experiences that he hopes will be considered by CPA firm leaders. Dom welcomes questions and can be contacted at email@example.com or (203) 292-3277.
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