With football and midterm elections in full swing, everyone’s keeping tabs on their competitors. Sure, competitive intelligence has its merits. But, suppose you turned the tables and asked yourself: “Where do our competitors think we are vulnerable? How would they try to put us out of business? Which of our shortcomings would they highlight, if they were bidding against us to win the same new client?”
As we head into the fourth quarter, now is a great time to take the outward-looking-in approach. Some call it “red teaming”— when you have people within your own organization (i.e., “the Red Team” — simulate your toughest competitors to see where you’re most vulnerable. But, red teaming is more than just competitive intelligence, which we’ll discuss in a minute.
Red teaming: Not just for the military
Red teaming began as a military tactic for armies to simulate how enemies might attack them and how those enemies could be thwarted. Red teaming has since been adopted by the business world and other types of organizations. Essentially, an organization sets up a “red team” to challenge its own effectiveness by assuming an adversarial role or point of view. It is particularly effective in organizations that have fixed ways of approaching problems.
Red teaming requires you to build of model of your perfect enemy/competitor before someone else does it for real. The key is to build your ideal competitor from your clients’ perspective. What are you not delivering to them that a formidable rival could be delivering? If you’re not sure what your clients really want, there’s no better way to find out than by asking them.
As discussed in my earlier article, Divinely Discontent Clients, it’s human nature for client expectations to keep going up no matter how well you serve them. And for that reason, you cannot rest on your laurels.
Tech companies have long hired “ethical hackers” to stress test their software and their security systems for weaknesses and vulnerabilities. Amazon, Google and Toyota, among others, use this type of critical thinking to stress-test their strategies and new product offerings, to uncover hidden threats and to discover missed opportunities. Many venture capital firms use a similar approach to vet potential startup companies in which to invest.
The idea is to be a disruptor, not the one being disrupted. As the old saying goes, “You’re either at the table, or you’re on the menu.” Which would you rather be?
Red teaming helps you overcome blind spots and biases that we tend to fall back on when making big decisions or tackling complex problems. For CPA firms, red teaming is a great annual exercise and something we do at our firm. Assign a person or small team of people to say, “Here’s how I would beat you if I was a competing firm. How would we build a perfect competitor that could put us out of business? What do they do? How do they do it?”
Like many professionals, CPAs are very good at giving advice, but not very good at receiving it or doing a self-diagnosis. Most find it hard to be objective when talking about their own firm.
As the old expression goes, “the cobbler’s children have no shoes.”
Not a finger-pointing exercise
To make red teaming work at your firm, you can’t put people on the defensive about their own performance or turf. If there’s a weakness or a gap at your firm, don’t frame it as an individual’s or department’s fault — frame it as a firm-wide issue. People are more likely to be on board with red teaming when they can focus on a common threat and work together to answer such questions as:
• “How can we do better as a firm?”
• “How would someone else beat us?”
• “What would they do?”
It’s a lot easier to design a perfect game plan, when you have no baggage and a blank slate.
If you’re a small or midsized firm, ask yourself, “What would a rival firm do if they wanted to put us out of business in the next three to five years?” Start by targeting all your pain points and your clients’ pain points. Ask your clients directly, “What are your biggest frustrations with our firm? What can we do better to help you?”
Maybe they’re irked by how long it takes your team to get back to them. Maybe they’re not thrilled with your client portal, your document collection process or your new client onboarding protocol. Whatever their pain points may be, use that feedback to build a new firm that alleviates them.
At our firm’s annual planning retreat we ask every attendee to design a perfect competitor that could put us out of business. We ask ourselves:
• “What is it that makes this competitor so dangerous?”
• “What makes them the biggest threat?”
• “How do they do it? How do they put us out of business?”
As an objective outsider, you’re free of all the internal baggage that derails so many offsite meetings and internal innovation initiatives. From this perspective, it’s easier to be honest about your gaps and weaknesses and what you need to do to become better.
In our firm’s case, we realized we could grow much faster if we had access to more capital. One of the key tenets of our business plan is to achieve inorganic growth through expansion. But it’s very hard to do mergers and acquisitions with limited access to funding. We realized that if someone else came into our market with a little more money and the same strategy, they could damage our growth plan. I realized we really had to step up our banking relationships. We know the strategy works, but we need access to capital to drive it.
Here’s a simple worksheet you can use to get the ball rolling at your firm’s next retreat. Feel free to change or add vertical columns.
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Where are we now?
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What are perfect competitors doing?
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Source: L&H CPAs 2018
It’s really difficult to get 10 partners in a room and say, “what should our firm look like?” Everyone’s going to be posturing and defending themselves. But, when you ask everyone, “Who is the perfect competitor that could put us out of business?” suddenly everyone has a common enemy and has to pull together to beat them. Here’s the best part. When you’re building your perfect competitor, you’re actually restructuring your own firm to be the best it can possibly be.
Suggestion: Before your firm has its next offsite retreat, have everyone read a copy of Bryce Hoffman’s book Red Teaming.
The red teaming process is complete when you look at the ideal firm you have created and agree that this new firm could easily put your current firm out of business. You also know the process is completed when you have clearly identified how that ideal firm would do it. You need both of these perspectives in order to reverse-engineer what needs to happen at your firm.
Everyone’s complaining about all the changes in the profession — automation, fee compression, hiring challenges, etc. — but what are you doing about it? Post the attributes of your ideal competitor (i.e., your ideal firm) in your company cafeteria. Make sure everyone understands: “This is who we’re going to become going forward.” For more on adapting to change, see my recent Accounting Today articles: Autopsies without Blame and Are You Committed to Being a Better Firm or Just Interested?