To move beyond being a scrappy small firm, you have to change the way you think about a host of things, suggests Brannon Poe of Poe Group Advisors.
Transcription:
Dan Hood (00:03):
Welcome to On the Air With Accounting. Today I'm editor-in-chief Dan Hood. At the start of a firm's lifecycle, growth is pretty much just about adding more clients or maybe sometimes charging current customers more, but there comes a point at which that changes at which further growth becomes dependent less on how many more clients you can bring in, though that still plays a role, but more about changes to the way you think about your firm and your business and how you operate.
Here to talk about all that is Brannon Poe, he's the founder of Poe Group Advisors and the founder of also the Accounting Practice Academy. He's been advising firms on M&A, practice management and more for over two decades. Brannon, thanks so much for joining us.
Brannon Poe:
Thank you for having me on. Daniel, it's a pleasure to be here.
Dan Hood:
Well, we talked a little bit about this topic a little bit in a previous podcast and in one of your podcasts, and it is for us, it's I think a fascinating area when firms reach this point where what got you there won't get you further. And so I'm psyched to have you on to talk a little bit about it because you've said some things about it that fascinated me and I think I wanted to share with the audience here, maybe we just do a little bit of Levi level setting here and say when firms first start out, what are the key drivers of growth for a baby accounting firm?
Brannon Poe (01:13):
Well, I think what you're talking about is somebody who's starting from scratch, which is a really scrappy endeavor unless they kind of start with an anchor client and they're just starting from scratch. I think picking a niche is a good way to go, just picking a specialty and trying to do some marketing and advertising in that space to get clients. But then I think in this day and age, there's a little bit of a shortage of talent and getting clients is probably not as hard as it was 20 years ago. So what I think is the biggest first step with someone who's growing is just getting a really good assistant, and I've seen that work extremely well. And so that's the first hire usually is a good assistant could take some of that administrative burden that frees up the owner to grow to another level, and then maybe hiring a staff accountant would be the next step and so on. But yeah, that's my hat's off to all the startups out there. It's a scrappy endeavor, be willing to work long hours and make it happen.
Dan Hood (02:41):
But in the end, as you talk about that, that hiring is a crucial at all levels of growth hiring to make sure that you have the capacity and everyone knows about the terrible capacity problems we're having currently, but that hiring is a classic issue at any level. But at the small firm, what you're doing is you're freeing yourself up to do more work when the owner gets that staff accountant so that they're not doing the accounting work. If they can go out and find more clients and then advise them at a higher level when they're getting the administrative help so that they don't have to waste their time on the administrative stuff so that they can do more work, the more client work themselves. But there comes a point at which you really can't add more people to do more work without some other things going on. Right? It's not simply, you can't just grow to the point where you have six or 7 billion people all working for one accounting firm. Well, for a bunch of different reasons, and I think that's won't work. We're going to talk about why it won't work. Maybe what are some of the signs where you've reached that point where everyone just doing some work isn't a model for where a firm's going to work, where your growth is really going to stop or become something awkward and unmanageable?
Brannon Poe (03:50):
Yes. Well, I think it happens at different revenue levels for different people, but I think where I see it be fairly common, where we see people get stuck is when they get to about six to eight people on the team. And that tends to be like million, maybe million and a half in revenue, maybe less. And it's the thing that scrappy sort of startup mentality is what powers the business to get to that point. It's the sheer will of the owner to get it there. And it requires a lot of doing a lot of self-reliance. But then at that point then there has to be a shift where you have to really learn to let go of more and more. And I believe that growing a business is actually more about the process of letting things go than it is of new things. And so that letting go does not feel normal for someone who started done that startup piece. It's like, oh, you mean don't say yes to every client?
(05:12):
Don't say yes to every new prospect. Don't say yes to working more hours. You have to start putting guardrails up. You have to start creating filters for your business. You have to start figuring out, okay, who else can do this? I can't do everything, so what else can I let go of? You have to actually start letting go of billable hours often. So the owner may have tried to maximize their own production for years and years and suddenly they've got to realize like, oh, I really need to spend time focusing on building my team and nurturing that team, and I need to spend time on marketing or that sort of work and sort of that higher level business development work to get the clients that will take you to the next level. I have to start thinking about pruning my practice. The clients that I started with really don't fit our business anymore. So maybe you have to let go of some clients. Maybe you have to revisit your pricing model. Maybe you have to let go of entire segments of your business. So I could kind of go on and on about this. Stop me.
Dan Hood (06:33):
No one's going to do any of that. No one's going to do any of that. I dunno what you're talking about. That's craziness. That is absolutely craziness. No one wants to do any of that. Well, I mean, in a lot of ways, a lot of it feels like taking a step back to take two steps forward, but all they see is the step back, right? Lower billable hours, spending more time, as you say, managing a team or training people or going out and finding the right clients. If I just had a quarter where my revenue was lower because I spent all that time picking a new niche and finding the right people in it, then something the next three quarters could be enormous, much, much more profitable. But that's that one quarter where your revenues are low or your billable hours are low. That seems so terrible.
(07:10):
And again, you used to say, get rid of clients. Oh, that's like asking them to get rid of a child. I mean, how do you pick and choose that? Because in many ways you've worked really hard to get all those things, but it all goes to that notion of you have to think differently about what you're doing. The interesting thing for me is that what it means is you have to stop doing the thing that you were really good at. You have to do less of the client work that you were really good at. That was the reason you got into it in the first place and start doing more of all this stuff that basically everybody who's ever run a business has to do.
Brannon Poe (07:42):
Yeah, exactly. And I mean, there are situations where it's not a one size fits all. If you're not great at team building, maybe you need to bring somebody in or partner with somebody who is, if you're not great at business development, same thing. Maybe you need to bring someone in. So I feel like it's really, it's also important for an owner to really take stock of what their strengths and weaknesses are and focus on letting go of the things that maybe you're not so great or someone else could do better or someone else could do reasonably well if it's something you just don't want to do. So I think the answer is different for different owners, but in general, more and more of that business if you really want to scale and grow. And some people, people are like, I really want to be a craftsman and I want to keep my practice small and I don't want more clients. I actually would prefer to focus down a little bit and do a really high quality job for a few people. And that's okay. I think not everyone wants to scale.
Dan Hood (08:53):
Well, it's worth mentioning. It's one thing for lots of other professions to say that, but in accounting, you can still make a great living with that kind of practice. A comfortable, I think some people call it sometimes called a lifestyle practice where it's more about I want to do good work for people I like working for, and I make a really good living. I may not want to have three summer houses. Maybe I'll only have one summer house, or maybe I'll just go on a really nice vacation a couple of times a year. But it's fascinating. That's a whole topic we could talk about for hours. How do you, perfect craft a perfect firm for what you want. But today we're going to stick with assuming you want to grow, assuming you want to build it bigger. It's interesting, as you say, you've given so many different examples of different things people will need to do as their firm practice gets bigger and as they hit this sort of, and I'm stealing this from you, so I want to make fully clear that I heard this from Brannon earlier.
(09:46):
We were talking about, you're talking about Dan Sullivan's ceiling of complexity. You reach a point where you just can't go any higher because the things that went on before won't support it. And the things you need to do to get above that ceiling or however we want to use that metaphor, you don't have in place, like I said, fully, it's from Dan Sullivan, but I heard about it from Brannon earlier. When you reach that point, the things you need to think about will vary from firm to firm. The ceiling income complexity will look different for every firm there. Anything that's commonly happens for a lot of firms that they should be keeping an eye on.
Brannon Poe (10:23):
Yeah, I think the owner hours tend to just get to a point where they can't do anymore. And I see that's probably the most frequent thing that I see. I had a guy call me, he was probably in his thirties and this was 10 years ago, and he calls me and he says, I think I want to sell my firm. And I said, okay, well, I could tell he was young on the phone. And I said, well, tell me what prompted you to call me? What's going on? And he was just basically burned out and he had built this firm up to a certain point and he just didn't enjoy the practice anymore because he was felt pulled in so many different directions. The client demands were getting, the pressure was increasing and he was working more Saturdays and it was away from his family more and more and he just didn't want to do it anymore.
(11:18):
And I said, well, when was the last time you took a really good vacation? And he's like, what kind of question is that? And I said, well, before you sell your firm, I would highly encourage you. Just think about this. This is a big decision. And he had also told me he loved his clients, he liked the work, didn't know what he was going to do next. Basically he was burned out. So he actually took the advice and I told him, I said, go on vacation and don't work. Don't take your laptop and work. That's not a vacation. That's just working remotely.
(11:58):
So he actually did it. He came back, came to the practice, he fired a hundred clients, and he basically came up with a whole new strategy on how he was going to operate the practice, who he was going to serve, who he wanted to serve, and he transformed his firm and he's still in practice. So I think burnout is probably one of the biggest things where it is just not working anymore. Because what happens is the owner's to owner's just trying to force it to grow and it just doesn't work. If you keep doing what you've always done, you're just going to be busier and more tired and it's just not going
Dan Hood (12:43):
To work. Right, right. Alright, I want to go further into the thinking process and how owners need to think differently. Obviously, well, we'll talk about it in a second, but we're going to take a quick break first, and we're back, and we're talking with Brannon Poe basically about the fact that more firm owners need to take vacation, need to take some time off. And actually, I'm going to go ahead and say that probably the first thing you need to do, we can all agree that the first thing you need to do to ask yourself is when was your last vacation? And have you, and then just go take a vacation, just start there. But assuming you've done that, come back and you need to think about afresh about your firm, right? The growth you want isn't happening or it's happening at the expense of your health and your life and your family and so on.
(13:28):
How should people start thinking differently? Let's start with, there's a budget, I should say, depending on the firm, there might be a bunch of different issues. But let's say we'll start with structure and governance of the firm. A lot of firms are basically just, I do everything. What I can't do, I pass on to my assistant begrudgingly because I'm not sure they'll do it right, et cetera, et cetera, et cetera. How do you think differently about us structure? How do you structure a firm differently? Put it that way to set yourself up, not just for the growth that you currently have or the too many clients you currently have, but for going beyond that. What are some of the things you need to think about when you're making this first change from, I just started a firm and doing really well and I've got a million clients and two and work to do. How do I structure a firm that will be able to move much further beyond that?
Brannon Poe (14:10):
Well, I think when you say structure, my first thought is like, do I need more owners? Do I need partners? And I think a lot of people think that, oh, I need a partner. And maybe you do, but I think there's a lot of thinking that needs to happen before you do that. That's a big commitment. And you might actually create more problems than you solve with that solution. I think the partnership model in the industry, I'm sure you've heard of all the problems that partnerships can create. My biggest observation is we are in a very fast changing profession, and you've got to be really cautious about who you give your veto power to. So if you take a partner on and that partner, let's say they're really good at systems and processes and just kind of managing the back backend of the practice, well, they might not be really proactively wanting to change things.
(15:15):
Like they may be the type of partner that says, no, I don't think that's a good idea, or, no, I think we need to study that more. And you study it more. And anyway, you can really get somebody that can stall progress if you're not careful. So if you are thinking about a partnership agreement, look at how decisions are made. Do you really want to change? Do you want to give away that decision making power? And I think that's a big consideration. But beyond just that, I think what think first, the first thing you need to do is first of all, realize that you need to change and that change is possible. If you don't believe those two things, then you might as well just keep doing what you're doing until you're really ready to change. Because change is not easy. It takes a commitment.
(16:11):
So are you really willing to commit to change? If so, what you next need to focus on is how do I create capacity so that I can make change? Because change takes a commitment and it takes time, it takes effort and intentionality and it takes energy. So if you don't have any energy, you got to figure out how to get that back first. And that's where the pruning comes in. So what we typically see is that the first step, vast commitment is pruning. And so it may be, okay, the clients that we took on five, 10 years ago, they might just not be a good fit for our practice anymore. I think one of the biggest things I see is people dabble. So for instance, where I'm going with this, so they say, okay, I'm going to get into wealth management. Okay, well, you've just added a whole nother profession to your profession. And if you don't have anyone dedicated to that, that's on you to stay up to date and to launch that business. And what often happens is it will be a half-hearted or a very small segment of the practice. And when you really zoom out and you look at the big picture of your practice and you realize like, oh gosh, I'm earning this much revenue and I'm putting this much time and effort into this segment, maybe I should abandon this segment or sell it.
(17:47):
So we see that. I see sometimes that pruning can be large, can be pretty swift prunes. Sometimes you have staff that are causing more trouble and more drama or pulling down the team. So sometimes you have to make some hard decisions about getting rid of some staff, and that's hard. So none of these things are easy to do, but one little trick, I'll give this, this is kind of a nice little, anybody, any business any size can do this is like take your whole team. And we do this probably once a year on our team and we have this tool, and it's really simple. You could take a piece of paper and make this, so we call it the three bucket tool. And each person on the team puts, each task is a task, a list of all the things that you do for your job.
(18:53):
And so I want to get rid of these things, I want to keep these things, I want to delegate these things now or later. So you can actually add some categories too. You could add another column that says things I want to start doing maybe. But you get the whole team to do that. And what we often find is the thing that's weighing a lot of people down could easily be delegated. If we had some more entry level people, we could take those tasks and create a new job. And so it is often if you're, let's say you're an owner or a partner and you're senior manager bogged down with stuff that they shouldn't be doing. If they can get delegate that and clean up their plate, they can clean up your plate. So it just trickles.
Dan Hood (19:45):
Right. Well, what it does, and this I think is one of the reasons why it's so difficult, is it requires you to think very deeply about what you're doing every day and what everyone around you is doing every day and who else, how else could it be done? I think most people end up doing things because they can't think of another way to do it. They're like, well, it's got to be done. I'm the only one, or My name is on the door. It's got to be done. As opposed to saying, well, how else can this be done? Do I actually have to do it? Does it actually have to be done? And that requires a whole set of thinking that requires you to have some time that as you're talking about, to take the time to free up the time to step back and say, yeah, no, I don't.
(20:22):
You're talking about the partner thing. The fascinating thing is I think up until even very recently in some firms, it's still the case that there is work that everyone in the profession just assumes has to be done by a CPA or has to be done by a partner, or has to be done by somebody with a fairly high level of expertise that may or may not be relevant to the task itself. Whereas it opposed to you, you say, well, actually no, you know what? That could done by anybody with a college degree and might be done better by people with certain kinds of college degrees. Client relationships. People will often joke about, you get a theater major to do that, someone who's outgoing and good with people, that sort of stuff. But there is this, people don't naturally think about saying, Hey, I got to find somebody else to do this. I don't want it. And if I don't do it, then I'm freed up to do, as you say, they clean up my plate. I can go on clean up other people's plates or put 'em more plates up,
Brannon Poe (21:16):
Right? And I know it's hard to get really top talent right now. And so the more that you can utilize entry level or lower level talent, the better. That's a very profitable strategy without even touching pricing. And we talked about pricing a little bit, but I think pricing is often the biggest lever people can pull if you want to make some change, because it does two things, it goes right to the bottom line, and sometimes it creates capacity if you do it. So, because not everybody,
Dan Hood (21:55):
I always see sort of anecdotally people say particularly around tax, and you're like, oh, we said we'd triple our fees, figuring that would drive away a lot of our less productive or less profitable clients and none of them left. And it's like, yeah, but you're making three times as much money, so you still have the same problem, but you're getting three times as much money. Maybe that can give you some, buy you some time to think differently.
Brannon Poe (22:19):
Yeah, I would say it's shocking because the clients that we have that have implemented price increases, I've never had a person come back to me and say, wow, we lost a lot more clients than I thought we would. It's always the opposite. It's always like, gosh, I thought we were going to lose a lot more. We barely lost anybody. And so that's overwhelmingly the response that,
Dan Hood (22:48):
But sure, it's just you're wildly underpricing yourself and have been for years, but still, but at the very least, like you said, at the very least, now you're making more money for it, but you still have the crucial problem that you do avoid it by using pricing as a way to get rid of fit clients of now you just have to go out and actually get rid of 'em. So I believe this is a huge topic. We could dive a lot more into it. We've covered a couple of things. We talked about pricing is a big thing, but finding space and capacity to think about change, which isn't the same as capacity for work, but capacity for you as a firm owner or a firm leader to step back and look at the whole thing and rearrange things. Think about your governance. That's a fantastic point about maybe not going in a partnership direction, but if you don't go into partnership direction, I think the assumption's got to be that you're still going to go in a more corporate direction than that. You're going to still have more layers of hierarchy than you might have thought you needed just to make sure you can manage all the work that's going on and take you to a different level. I know you've mentioned a couple of other things that I've missed, and more importantly, are there other things that people should be thinking about as they think about growing to this next stage?
Brannon Poe (23:56):
Well, I think a lot of people don't think about marketing at all, and I think that's because they believe that, well, I don't really need more clients. I'm too busy. However, you probably make room for really good clients. You'd find a way to accommodate really excellent clients, and most of those come through referrals. And so I feel like take a website for example, that's a marketing typically thought of as a marketing activity, and it is, but if you get a referral, what's the first thing that referral's probably going to do? They're probably going to go and check out your website. So it helps to be really clear about who you serve. It helps to communicate that on your website, and I think that's scary for people to sort of like, okay, this is my target audience. To define that is a little scary. But once you do that, then you start growing with the types of clients that you really want and that you can really grow and profitably serve profitable for them and for you. And so I think that's something a lot of accountants are missing the boat on. It's like it's okay to, even if you don't want to grow your client base in a really fast way, marketing will help you be much more selective and intentional about it.
Dan Hood (25:38):
It's a really important point I think for a lot of firms says, why would I do any marketing at all? There's so much work. Clients are coming at me, all I have to, the current marketing strategy for most firms is picking up the phone. You just answered the phone or more of a likely an email, but it's dead easy. But that only works if you'll take any client who come in, as you say, if you're going for a specific narrow or much narrower client base, which will be more profitable and which will give free you up in terms of capacity and et cetera, et cetera, and make everything in your life better that you have to market to, that's involves serious business development. That's not a, Hey, I'll wait until they call me, kind of thing. It involves as a crucial part of it, identifying, finding, pulling in all the 16, 17 touches that go into each prospecting journey kind of thing. So it's a very different thing,
Brannon Poe (26:31):
And it also can save you time. If you're getting a lot of inquiries and you're spending a lot of time talking with prospective new clients, and then they're not the right clients, but you take them anyway, how much is that costing your firm in terms of time and energy? So by having good marketing, sometimes those marketing pieces include filters that filter out those people. I've got one past client that they have a really nice filter on their website, so if you want to book a call to talk about a tax planning meeting or anything they say right out front, this is our minimum fee. If this is not within your budget, then maybe, I can't remember. Stop
Dan Hood (27:15):
Steaming up our website.
Brannon Poe (27:16):
Yeah, I can't remember how they, it was very it. It probably
Dan Hood (27:19):
Nicer than that, but
Brannon Poe (27:21):
Yeah, done. But it was a filter. It was clearly a filter.
Dan Hood (27:27):
Well, and that's exactly what we're talking for. Our firms need more filters to free up their capacity. As I say, this is a huge topic and we could discuss a lot more, but we're running out time. I won't you give any final thoughts for firms as they look at this ceiling of complexity as they look at this, Hey, I'm getting to this point where growth isn't coming as easily as I want, and I'm looking to be a different firm. What's the final thoughts?
Brannon Poe (27:50):
My final thought is you got to believe that it doesn't have to be that hard. I've sold some really great firms that I had one firm that the guy took three months off. He was a single owner firm, very profitable. I think his net was he grossed over a million dollars a year in profit with that. So you can build a really beautiful CPA firm. It doesn't have to be that hard. It's very possible. Just get out there. That would be my suggestion is don't keep doing it thinking you have to do it a certain way.
Dan Hood (28:28):
If you're willing to put in a little bit of pain, a little bit of work, you can build that kind of firm for yourself. Now that question is, how can I do that myself? But that's the subject of another podcast later on for now. Brannon Poe of Poe Group Advisors, thank you so much for joining us.
Brannon Poe:
Thank you for having me on, Dan. It's been a pleasure.
Dan Hood:
Yeah, and thank you all for listening. This episode of On the Air was produced by Accounting Today with audio production by Adnan Khan. Ready to review us on your favorite podcast platform and see the rest of our content on accounting today.com. Thanks again our guest, and thank you for listening.