A desire for growth is often taken for granted at accounting firms — but should it be? Consultant and accounting journalist Seth Fineberg examines what growth both can and should look like at different firms, and why it may be time to revisit your growth mindset.
Transcription:
Dan Hood (00:03):
Welcome to On the Air with Accounting Today. I'm Dan Hood. It's taken for granted that accounting firms should be pursuing growth but all things that are taken for granted, the idea deserves a little bit of scrutiny. Should growth be the all and a known if so he's all growth. The same here to help us explore these questions and more is Seth Fineberg. He's a well-known journalist, consultant and thought leader in the accounting profession. A former editorial chief at AccountingWeb, and before that technology editor here at Accounting Today. Seth, thanks for coming up.
Seth Fineberg (00:28):
Thanks for having me, Dan, and just for everyone at home this has been a bit of a long time coming. I know during my time at county today, we did a fair amount of these, so it's real nice to be on this side of things talking to you.
Dan Hood (00:50):
The you go. Excellent. Yeah, well we talked to Seth a lot but not on the record. So this is important. So we're going to keep it clean. We're going to keep it PG for the audience here, but let's dive into growth. Let's talk about growth now. And I mentioned, sir, this is an idea that a lot of firms say, Hey we got to be growing. We're pursuing growth, we have growth strategies. They set up very serious plans around it. Why do firms want to grow? It seems like a silly question, but it's worth examining and that's sort of what we're doing today. Why do firms want to grow? Why do you think that's a consistent thing they're aiming for?
Seth Fineberg (01:20):
So the ones that do, and I think right now in the profession, Dan it's kind of split. You have the firms who are very growth minded and are putting plans in place to do that and others that are just really like, man, I just want to make it through this year. I want to make it through this season. I'm had three years of hell of just, and then really there's kind of some existential questions going on as particularly in the C p A profession, it it's by and large populated with pretty small firms. And so they have to figure out, well, what do I want to do? Do I want to grow or do I want to figure out basically just how to stay in business? And for some of them, that is why they want to grow. They're like, man, if I'm going to stay in business, I kind of have to grow.
(02:21)
So what does growth mean? And I think it means a couple things. For some the natural is like, let's merge in. Let's figure out who is out there in the world. Let's hire someone like an Alan Colton or a transition advisors or someone out there that can help me to figure out is there a partner out there for me and that I can merge in? And you sort of grow that way. Others might be just through service. Cass obviously is kind of the big shiny new thing for some to get their heads around. Easier said than done. Growth does not come easy or overnight. And you have to have leadership that if they, they really have to have an understanding of, well, why, of course they need to grow, but second, okay, in what way are we going to do that? Is it going to be sort of wide or deep?
Dan Hood (03:27):
You, you've laid it out neatly. There's a huge amount there though, to unpack. I'm no not sure where to start because there's so many things to touch on. There's a
Seth Fineberg (03:34):
Lot because it's not really a simple, it's not a answer, it's not a simple topic, but it really does hit at the heart of just the only very existence of your practice.
Dan Hood (03:48):
What are you doing? What doing with your firm? Why are you coming to work every day? What's your goals? And I want to go back to something you mentioned right off the top, which is the distinction between girls, girls, growth, grills, let's have a lot of growth. And keeping up your head above water, there's a certain degree to sharks. You got to keep moving forward just to, you got to keep off the inflation. For instance, in this, which hadn't been an issue for a gazillion years, but the last couple of years has suddenly become a big issue. Your revenues need to be eighties
Seth Fineberg (04:16):
Are back.
Dan Hood (04:17):
So yes, suddenly stagflation hadn't seen that thought, right? But they retired that word. But certainly that makes that a big issue, that keeping making sure that you're keeping up so that you can keep up with salaries for your staff, keep up with literally the cost of your building and office supplies and the software that you're more likely to be buying on a subscription basis. Now, are we
Seth Fineberg (04:36):
Keeping an office that, does it fit into our growth plans to have a physical building <laugh> location?
Dan Hood (04:45):
Well, and that goes right, there's that fundamental distinction. What is growth? When we say growth, we sort of just blanket things, but there is that. There's just keeping going. And then let's, for the poll purposes of this discussion, let's say that's not growth. Let's say that's keeping things going, keeping your head above water, keeping a steady state where you keep up with the rising tide of inflation and all the other pressures there, but you're not necessarily aiming to outpace them and to really expand enormously well. So let's focus more on that. Let's where people who are looking to grow a lot and then you get into why are you looking to grow a lot? And you mentioned some of the areas where you talk about m and a for instance, that often is a response to succession issues. Some people want to retire they need people to take their positions, but there aren't there because we're having a terrible troubles bringing new partners and new CPAs into the profession. So you look at something like that. What are the other reasons why you might want to aim for that kind of large scale growth? If we're we, you like said succession is one, what else have you got? Well,
Seth Fineberg (05:42):
Look I think that the next clear plan is competition. You know, have to be able to, if you're staying and doing this, again, there's, outside of keeping your head above war, if you're like I looked, we're hit a point where it is kind of a grower die situation where it's like if we're going to continue have any kind of continuance of our brand, of our firm, it's kind of the only real solution to staying for another five, 10 years. Not that everyone is really thinking of these five and 10 year plans these days. I think those days are gone. I think you're probably in your firm planning, you're looking maybe three or five and then figuring it out from there. You know, might have some idea of what the next 10 years might look like. But these days, man, when I first started covering the profession 20 years ago, sure these 10 year plans were pretty common. And when it came to growth and just business overall, you could map that out and it sort of made sense. You're like, okay, yeah, if we do this and this, we'll get there by, if it's 2010 by 2020, we'll be here. Probably nowadays you just can't even fathom that. So
Dan Hood (07:10):
<laugh>, right? But I mean that's a reflection of the increased pace of change. You just have no idea what things are going to be like in five years, what's the point of making a plan for
Seth Fineberg (07:16):
That? But this factors into any kind of growth plan if you're thinking, okay, yep, we have a growth plan as a firm, whether you're a six person firm or a 60 person firm. And as you know, if you hit a certain point sort of staff-wise and client-wise, like we're either going to stay right here and figure out how to maybe go deep and do more with less, that kind of thing. Or we're going wide, we're going to be in other locations, or we'll have at least another practice who specializes in X because we can't really see building that
Dan Hood (07:51):
Well. Yeah, I mean one of the things that's interesting is as you look at growth, one of the reasons to be thinking about growth, whether you want to pursue it or not at an accelerated rate is that it brings within all kinds of other things. You mentioned office space, right? That's less of a concern these days with more people being virtual. But there are things like how many software licenses will you need if you intend to grow beyond a certain size? Will you be able to find the staff to staff a larger firm in order to find the bodies to do the work that you'll have to do more of if you want to have growth. So it puts the pursuit of that. You need to know what you're doing about it. If you're going to make some plans about how you run your business on a day-to-day
Seth Fineberg (08:28):
Basis, and to that point of you need to know what to do about it, you might have spent, again, the last three or five years just with your head in a certain place and now you're kind of calming out and thinking, well just very existentially, where do I want to be? I think most firms right now aren't necessarily happy where they're at and they're figuring out, well, okay, what's sort of the next for me? So obviously technology decisions are, we could dive deep into that, but by and large, when you're thinking growth mind, if you are a growth-minded firm, you need help. You're not going to do this on your own. You have to be maybe even possibly even outside of the profession to just get some guidance there. And this is kind of a double-edged sword, but as VC money is kind of private equity, money is starting to creep in to help with some of these.
(09:30)
Well, if we are going to grow, we might need some capital to do that. And again, I think we're it, it's very interesting times, man. I don't think in our time covering the profession, we haven't really seen private equity sort of enter the way that it is now. And it's because, well, okay look, we want grow and we want to be in a certain place in the next three to five years. That's some of the help that you're getting and others is just more advisory. You need someone to guide you on that path. Cause firm leaders I don't think are fast. I don't know that they're entirely equipped for that next phase.
Dan Hood (10:15):
Well they're certainly better equipped to help their clients do it. It seems that they help themselves do it right? That's the great, yeah, this
Seth Fineberg (10:21):
Is their own business. It's like
Dan Hood (10:23):
Mm-hmm their client's business, oh, I know everything you need to do. And they're great at it but they're less good at helping themselves. It's interesting you talk about private equity and I want to dive more into that. I want to dive more into the sort of responsibilities that come with a growth mindset but we need to take a short break. Alright. And we're back. We're talking with Seth, accounting, thought leader consultant Bon vivant. We're talking about growth and what a growth mindset looks like. And I always should be clear, I we're saying, is growth necessary? Do you need to grow? And I don't think there's any question that some degree firms need to grow, obviously just to keep the lights out, just to keep with things. And there's certainly plenty of reasons to want to grow beyond that, but we just want to sort of dive into what it means and what you should be thinking about and all the sort of unspoken assumptions that go along with it.
(11:13)
We talked, you mentioned before, the break that private equity money coming into the county, it never has before. The closest we have is the rollups consolidators of the late 1990s, but even that was very different from today. But I wanted to return to that in part because when you take private equity money, it's ownership. They take ownership and they come with some specific needs. One of the things they want is growth. And that means if you're taking that you are tied to growth to and to their notion of growth. Obviously this will vary from firm to firm depending on the deal you make. But the notion is you are then tied to a growth mindset. You have to provide it. And that's a responsibility that for many firms they don't have. They can sort of say, well, this year we're going to focus on growing big and this year we're not.
(11:58)
We're going to consolidate or we're going to stay small or we're going to focus on our people and that sort of stuff. So I wanted to talk a little bit about what are some of the downsides of a strongly growth focused minds mindset. If a firm says we really want to grow, and so they take on private equity, am I right? That means they're then beholden to the needs and goals of that private equity firm. And what are some of the others you see if they're saying, Hey, we're committed of growth, what should firms be aware of when they're looking at that? What sort of, I don't want to say downsides, but the challenges that come along with it.
Seth Fineberg (12:30):
Absolutely. Well, definitely with private equity, I think it cannot be overstated. And by the way, before I may, not to make this about me, but prior to covering accounting I was an editor at the Venture Capital Journal back in the nineties, back at the real heady days of BC money funding, funding, tech funding, the dot coms funding. Well, unfortunately, the first big bubble that happened, and I saw it coming because I was behind the editor's seat and talking to the investors and talking to the companies that many of whom sort of fell victim. And it's just the idea that you have this sort of third party now kind of demanding an ROI because they're an investor now and they'll probably put people in charge that maybe didn't know very much about accounting before or other than what they've learned, they're not accountants, they're not anything other than your investor partner.
(13:32)
Now I don't want to get too into a good fell's moment, but you know, are beholden unto your benefactors now in a way and good year, bad year, whatever. You've got to show that you have a growth plan and you've got to hit your marks every step of the way. And that's something that I think, again, thinking about c p A firms, who are you in growth mode? Again, maybe you're an eight or 10 person firm and you want to see getting to the next level or you're a 50 person firm, seeing, getting to the next level you know, might not be used to the pace that you are now going to have to and some of the obligations that you are now going to have. So that in terms of downside, that's one that taking on that dynamic comes with a certain amount of risk. And obviously just the whole nature of venture capital and private equity in general is taking on a certain amount of risk for that higher return. So you might not be prepared to grow directions that you necessarily want to. Hopefully you maybe have a good partnership
Dan Hood (14:46):
But either way you've given up some control.
Seth Fineberg (14:48):
Exactly. I was just about to say that. So the control that you once had in, you're the managing partner or partners in a firm and you're kind of used to steering things and maybe you even took it over already from some retiring person or persons. And so now it's your job and has been your job to steer this ship forward and growth is your plan. Definitely do your homework on whoever it is that you're going to partner with. Second is, I mean, technology can't be overstated. I'm not saying tech is a way to grow, but what you have in place, you may want to take a really good look at what you have or maybe don't have. You mentioned software licenses in the past and I think that the days of that are waning. I think that obviously the relationship with vendors I think it's become kind of more essential. And I know we may get to that on another talk. I don't want to get too into the weeds on vendor relationships, but it is something to consider as a growth-minded firm, what relationships do you have in place now and are those partnerships going to help you on your growth path? What is missing, I should say? So it's not necessarily a downside, but it is something that too strongly consider that maybe you hadn't so much in the past.
Dan Hood (16:37):
One of the ones that I would throw, you're talking about things you might not have considered that. One of the things we noticed with for instance, with the top hundred firms, you look at the difference between the billion dollar firms on that list and a hundred million dollar firms on that list of one of them is
Seth Fineberg (16:51):
So that big gap or Yeah,
Dan Hood (16:53):
It's still a huge gap. And one of the big places that gap shows up is in staff per partner the big four firms have 15 staff members per partner and smaller firms have seven. It's, and it's almost everywhere.
Seth Fineberg (17:08):
Comparatively smaller or just smaller.
Dan Hood (17:11):
Smaller firms in the top 100. In the top 100, right? Yeah. Have seven. And that's the big, that is a huge chunk. And what it points out to me is that one of the things that people may not think about so much when they think about growing is that one of the reasons accountants go into accounting is they like some of the work, they take satisfaction out of preparing a tax return wealth you're
Seth Fineberg (17:30):
Serving, you're helping other business to do just the same thing to live their dreams.
Dan Hood (17:36):
Whereas the more you grow, the less of that you'll do, the more you'll manage, the more you'll spend your time managing people, setting up projects, selling working within with.
Seth Fineberg (17:46):
And that becomes your life, especially as a managing partner. And
Dan Hood (17:49):
Well really at every level it's becoming directing people. I shouldn't say every level, you're right. It's more at the ownership level, the partner level, manager level, that sort of thing. You're spending a lot less time doing the sort of technical work that I think a lot of accounts really like and that they're good at and having to do a lot more of the managerial work that no one anywhere is good at. No one anywhere is good managing, right? It's a very rare skill. And that's something to bear in mind, I think for people who go up to larger firms. It'll also be then the idea of, right, if you're going to be a bigger firm, you're going to have to have more accountability and more management levels, or you might have
Seth Fineberg (18:21):
To bring in pieces that you didn't think about. People who are cast minded. It's like, do you have someone on staff that knows management, accounting, project management? Maybe not. Maybe you got to go out and get that now. You hadn't thought about that. Missing pieces, as I mentioned with
Dan Hood (18:41):
The bigger you get, the more space there is for pieces to be missing. It's one maybe way put to put it. You got a lot of back office responsibilities. You've got a lot of management, marketing, business development, all sorts of HR becomes suddenly a thing that you'll have to pay attention to that you may never have had to pay attention to before. Exactly. It comes with all those pieces. It's also less easy to maintain sort of intimate client relationships. One of the nice things I think that a lot of accounts like it's being, making a direct difference with someone you see all the time and know very well the bigger you get, the less likely you are to have that. You could certainly arrange to have it, but
Seth Fineberg (19:14):
Yeah, you get that's so I guess back to your sort of challenge, downside, what have you narrative you are getting further as you grow, you do get further and further removed from maybe the thing that you got into accounting to do. You were a little more hands-on and now while somebody else is doing that or you don't quite have that intimate relationship. Yeah, it's a very good point, man.
Dan Hood (19:37):
So obviously no one should grow ever. I think that's our conclusion, right? No one, we just all say things. We are just I, we would, sorry. We would poking at it. I mean
Seth Fineberg (19:47):
Obviously just the way they are,
Dan Hood (19:51):
But obviously no one's not suggesting that premier firms shouldn't grow at both levels at the maintenance level, but also at the high level. There's all kinds of good reasons to grow it more. Money is obviously a big one. That's always a nice thing. But also it's an opportunity to help more people, to bring on more people, to engage with more people. There's all kinds of good things about growth. Sure. Long-term succession planning, et cetera, et cetera, et cetera. So we're not really saying just
Seth Fineberg (20:14):
To know why you really, really just know not to get back, get all Simon Cenek about it. But yeah, you really, really have to know, all right, we're going to do these things over the next three to five years. We want to get to point X. You really have to know why. Because for some firms it's like, yeah, maybe growth isn't the thing. And there's also other ways to grow it too. You can grow services, which is, we can get into the niche conversation
Dan Hood (20:41):
Unfortunately, it's a whole conversation. We'd have to, I dunno if we have time for it, but that's a good point. There are other ways to grow, but I want to maybe take a couple of seconds. Say if you didn't for instance, focus heavily on growth and let's assume it's not a crazy period the last three years where basically people have just been running as fast as they can just to stay in place,
Seth Fineberg (21:00):
Putting out fires.
Dan Hood (21:01):
Yeah, it's all about flame management
Seth Fineberg (21:04):
Pig.
Dan Hood (21:05):
But say here it's a more normal time, let's put it that way. What might be some of the benefits of a lessened focus on growth lu zoom that you're going to make enough to keep the lights on and to keep up with things and to keep salaries growing over time. Cause you need that to keep the talent on. But what might firms be doing? What might firms be focusing on if they're not focusing heavily on growth at all costs? What are some of the areas they might be, if you're going to have some management effort expended on something if you're not expending it on triple digit growth what might you be expending it on?
Seth Fineberg (21:40):
Well, I think just helping your clients maybe with their own growth plans. I mean that's why you're there. Not just to keep them compliant but also to help fulfill that business's plans as well. And so you might develop more of an expertise in something and hire people who have an understanding of a particular industry or industries that you want to dig deeper into and be like, what we've taken on X amount of really just step back, look at your client base there and start thinking about what maybe we do less with these, but maybe more with these. And then think about partnering up and referring some business on to maybe another firm that could help them. And just focusing on the smaller group. Again, this isn't anything necessarily new, anything we haven't seen in the profession before, but that could be a way to sustain your own business without being growth oriented. This is a way to just be like, hey look, we can still keep our revenue at a very keep things humming along and just doing a bit more. And there's a lot of areas too now I know a lot of folks talking about wealth management getting into the mix as a C P A firm. This is particularly on the individual client level and also the corporate level as well. These are things that you could dig deeper into.
Dan Hood (23:17):
Well, deepening, deepening a client relationship, always a good thing. Deepening the skills you can bring to a client and you're using that time to, instead of focusing on bringing a ton of new clients, et cetera, et cetera, if you're focusing instead on fixing your client roster, maybe getting rid of some of the folks you're not serving as well as you'd like to or that you don't want to serve, deepening your relationship with those you do want to keep. Now
Seth Fineberg (23:37):
Obviously, have they helped you? Have they helped you? I mean obviously CPAs are so ingrained in and other clients and doing the best and being that steward and being that just that trusted advisor, what have you but what are they doing for you? You do have the time now I think is a time to really start going, maybe they would be better served or we would be better served as a business.
Dan Hood (24:07):
Everyone would be better off if
Seth Fineberg (24:09):
You weren't here or maybe we didn't do as much with you, whatever. And then you know, can, again, moving away from the growth mindset but still like, hey, we're still a business. You know, don't have to think, well we're either going to grow or we're not going to exist anymore. <laugh>, plenty of firms out there that are like what? But they're also not necessarily just in survival mode either. They're just, okay, maybe growth isn't for me, but we can be doing more with this set of clients than I think or maybe, you know, do have another area or of service that you can offer.
Dan Hood (24:51):
Well, growth is, growth isn't synonymous with improvement. It's one form of improvement but there's plenty of others. You can continue to make the same amount of money or appropriately increasing level of money to stay at the income you want but also deepen your service to clients deepen. You can also just
Seth Fineberg (25:10):
Be better, don't necessarily be bigger.
Dan Hood (25:13):
And you mentioned that one of the things you talk about not working with the people you don't want to work with, that's got to be better for your staff given how difficult it's to find and retain staff. A growth at all costs. Mindset is precisely the kind of thing that turns off a large number of people. We hear constantly that folks, folks don't choosing accounting because they hear about the hours, they hear about the workload, they hear about the craziness, and they're like, I don't want to do that.
Seth Fineberg (25:35):
Why don't I want to do that? Exactly. Well, I think that that's changing too. I think the dynamic of the eighties and nineties and that you flow it into the aughts of just the partner path and just the whole path of being a cpa I think has really changed. I think with a lot of the massive aging out of that. The folks who the proponents of, well, this is what you do and these are the hours that you work. And that is definitely changing. You guys have written about that. So it's good to see, I think in our time to see the evolution. It's great. We just sit back behind our desk and we sort of watch all these things happen. But never
Dan Hood (26:21):
Have to quite look for a subject to cover. There's always something
Seth Fineberg (26:24):
<laugh> Not at all, man. Not at all.
Dan Hood (26:27):
Well, but sorry, go ahead.
Seth Fineberg (26:29):
Yeah, I was just going to say, yeah, just to be able to talk about this small sort of aspect of to grow or not to grow and then what do you, well in between,
Dan Hood (26:40):
Well, but this is the pie, as you say, tremendous change going on and it's at points of tremendous change that it is worth having these kinds of conversations saying, what are we doing and why are we doing it? We talk about career paths for everything from career paths to how you serve clients, to how do you grow and what does grow mean, growth mean for you and for your firm. What does your grow, what it mean now? What will it mean in three years? You can pick and choose, you can change it up unless you're tied to a private equity contract, but a deal. But generally speaking, right?
Seth Fineberg (27:07):
And that might be the right path for you. But again, it comes with lots of caveats
Dan Hood (27:12):
And requires thought. Some serious self-examination, what you want, what do your partners want, what does your firm want? What do your staff want? What do your clients want? And in some cases that may be Gogo growth at all kind costs. And in some cases it may be, this is good, I'm going to retire in three years. Let's just keep things ticking over nicely. And in some cases it may be something in between that there's a tremendous opportunity. I want to take advantage of it, but that's it. I don't want to, I'm not out to on front. So again, it's having these kinds conversations, having these kinds of thoughts about it are important though again, we're not saying growth is right or wrong for anybody. Just something you got to be discussing and know why you're doing it.
Seth Fineberg (27:51):
Couldn't have said it better. And I continue to have these conversations with firm leaders, with firm owners and people who are very actively involved in the profession who just, yeah, I mean this isn't stuff that editors think of to talk about. We do speak to the folks who are actively involved in talking about these things too, whether it's on social media or just we get other opportunities to do that. And it is nice to see live events kind of coming back to where you have these in-person conversations.
Dan Hood (28:28):
There you go. Exactly. I could use this as slip in a note about our firm Growth Farm happening May 8th through 10th. But that would be we don't have to
(28:38)
Do that. Don't have to make those kind of plugs. I feel like I'm a guest on my own host, my own podcast here. Yes, I would. Thank you Seth. I would like to plug our firm growth forum, and obviously this is the worst topic to choose to promote the firm Growth Forum is that we are, when we're questioning the value and point of growth. But again, as I said, we don't have, say, growth is bad. You're seen unexamined growth is not a path any firm really can afford to take. Right? You've really got to be, you got to be thinking about what you're doing. Excellent. All right. As you say, these are the great conversations to have. They're they're always a pleasure. Always a great time talking. Any final thoughts on this before we go? I should give you the final word.
Seth Fineberg (29:16):
I think this is something that I think dad and I really could continue to dig into and it's just nice to be able to put these out into the world so that you yourself, can, everyone with your listeners out there can really, I'm sure you've had a lot of these conversations already between with your colleagues, with maybe with your own staff, your own other partners at your firm. But definitely it is a very active time for change and not going into this lightly is no longer or maybe putting it off for another year or some indefinite period of time. It's probably not the best plan. I think now, or now-ish is definitely when you should be having these conversations if you're not already.
Dan Hood (30:14):
Excellent. Excellent. Alright, well you heard it here first. Seth Feinberg, thank you so much for joining us.
Seth Fineberg (30:18):
Thank you for having me, Dan, always.
Dan Hood (30:21):
And thank you all for listening. This episode of On the Air was produced by Accounting Today with audio production by Wen-Wyst Jeanmary. Rate and review us on your favorite podcast platform and see the rest of our content on accountingtoday.com. Thanks again to our guest, Seth Feinberg, and thank you for listening.