Written by Richard Stolz: Published in Accounting Today, November 1, 2012
The straightest path to profitable growth begins not by scouring the horizon for some hot new market, but by looking inward for clues as to why your firm may have hit a plateau. Ultimately, that self-examination might lead you to expand into new markets – or instead to find untapped sources of growth that have been under your nose all along.
The classic impediment to recognizing and seizing growth opportunities, according to consultant Gale Crosley, CPA, is starting with the premise that your current expertise has value in the market. Unfortunately, it might not. “Existing talents aren't relevant because the market doesn't care,” she said. “What the market wants is what you need to deliver.” Doing so might require more than a superficial makeover.
Koltin Consulting Group's Allan Koltin strikes a similar theme. “Instead of saying, ‘We are your audit and tax firm,' you have to think of yourself as being in the business of helping clients with their business and financial problems,” he said. (For a personification of that broader self-perception, see the online sidebar to this article on Lou Fuoco, managing director of Fuoco Group, at AccountingToday.com.)
BEYOND HOURLY BILLING
Another key element of the paradigm shift that some CPA firms need to undergo before they can grow significantly, Koltin asserted, is to supplement the time-based billing model. “Making money unrelated to time,” as Koltin calls it, can involve flat fees for services, performance-based fees, contingent fees and even sales commissions.
Many firms have already begun acting on that idea. More than half of the firms on Accounting Today's 2012 Top 100 Firm list reported they have increased their business in such typically non-hourly-billing-based services as business valuations, forensics/fraud, litigation support, M&A, retirement plans and employee benefits. Other emerging service areas highlighted in that survey that frequently are not paid based on an hourly billing model include business plans, investment services, cost segregation, employment search and “financing arrangements.”
Finding customers for new services begins with your existing clients, said Koltin. He said that he's surprised how rarely CPAs survey their own clients to identify areas of need that aren't being met. Basic elements of a client survey – whether administered through a personal interview or a survey instrument – should include their satisfaction level with current services, and inquiries about other services they may be receiving from other service providers. The follow-up question to responses about services clients are already receiving elsewhere, Koltin said, is “Are these services we should be providing you?” This exploratory process with top clients should be treated more as a brainstorming process than a customer survey, he added.
Along similar lines, Troy Waugh, CPA and chief executive of The Rainmaker Companies, urges his accounting clients to “serve your ‘A' clients as if they were your prospects [i.e., lavish attention on them], and serve your ‘B' clients well enough to turn them into ‘A' clients.” Only after you have adopted that pattern should you focus on cultivating new clients, he suggested.
Charles Hylan of The Growth Partnership shares that perspective, but approaches it from a defensive perspective. “While we are all talking about growth, growth, growth, you can't afford to let any clients fall out of the back door,” he warned. He reminds clients of the classic 80/20 principle, that 20 percent of clients generate 80 percent of the profits.
But Hyland and others also emphasize that focusing on existing clients can open the door to new service niches and new clients, as well. Hylan is a fan of industry specialization. For some firms, the best strategy is to “go an inch wide and a mile deep,” he said.
Many firms have made half-hearted efforts to develop a niche practice. “Ninety-nine percent of the accounting firms that say they have a niche practice really don't,” Hylan said. “The ones that really do are active in that industry and have expertise beyond accounting, auditing and tax,” he said.
The challenge, then, becomes finding a viable niche. Sometimes it just occurs through happenstance, but success is more likely when firms use a comprehensive research methodology.
Crosley guides her clients to conduct research that will allow them to unearth genuine opportunities – both with existing clients and new ones. Simply “hobnobbing with bankers and lawyers” to explore the marketplace is inadequate, she said. “You have to get out there and interview lots of people, all kinds of people.” Besides current clients, those people include thought leaders, university professors, even competitors.
Crosley developed a process she has named “The Research Call.” Its purpose is to help CPAs “learn all you can learn about the ecosystem in which you are swimming” to identify growth opportunities. Although sales leads may be unearthed, they are only a byproduct of the effort.
An interview request can begin with the statement that your firm is expanding its services in a particular sector, and you want to “pick the brain” of the source. People will often agree because, Crosley said, “Accomplished people love talking about themselves.”
At the interview's conclusion, a crucial question to ask is for names of other sector experts for you to contact. After that, the final question can be, “Is there any way I can be of help to you?” Crosley suggested. Typically it won't lead to a new client, but sometimes it will -a bonus, because it wasn't the interview's primary purpose.
Sometimes a probing interview with existing clients will yield insights on desired services that could become a new product line for other existing clients. For example, one of Crosley's clients used to just perform audits for public sector entities. The interview process revealed that one such client, very price-sensitive with regard to its audit, wanted help improving its operational efficiency. The upshot was that the firm packaged the audit with an operational efficiency improvement service, and laid the foundation for a source of profitable growth.
When the analysis of particular markets concludes that a sector shows promise, firms should be prepared to invest in a high-profile leader to champion that niche, urged Hylan. One of his clients that conducts audits for several local hospitals decided to dive deep into the regional health care sector. It did so by recruiting a hospital CEO to lead the practice. That individual was a fixture within the local health care community, sitting on several boards and frequently giving speeches. The investment has led to growth in the number of the firm's health care sector clients, and to the scope of the firm's work for those clients. “They're not just doing the ‘need-to-have' services, but are getting the ‘want-to-have' projects,” Hylan said.
Sometimes those “want-to-have” services require specialized expertise that would not typically exist within a traditional accounting firm. Such services may include R&D tax credit and cost segregation studies.
The firm then faces the build-buy-lease decision with respect to delivering such specialized services – or entirely new services, such as international tax – to attract new clients. For many, the solution is to leverage external service providers, rather than build the capacity internally.
For example, accounting firms that work with Engineered Tax Services, a provider of energy tax services, cost segregation studies and other specialized analytical products, partner with the firm both to expand relationships with existing clients and to give them “a competitive advantage to secure new accounts,” according to Heidi Henderson, the firm's marketing director.
A new accounting service that may be promising in one market may not be in another, of course. “I hesitate to say, ‘This is hot,'” Crosley said. The only way to find out, she said, is to do your homework.