Transform Public Accounting: Continuing the Conversation with Ron Baker

John Randolph and Ron Baker dive back into part 2 of their discussion on Episode 43 of CPA Life, covering the challenges faced by CPAs, such as the moral injury the profession inflicts, the shift from fee-for-service to the subscription model, client advisory services, and more. They discuss the importance of niche expertise, the value of transformations over transactional services, and strategies for retaining talent in your firm. Discover how advisory services are evolving and the potential for the subscription-based model to elevate the profession, with insights on improving the profession while enhancing client relationships.

Transcript:

Thanks for tuning in to CPA Life, where we now rejoin John Randolph for part two of his conversation with Ron Baker. They pick up with the moral injury plaguing CPAs, talk about the importance of niche expertise, and look at the shift from fee-for-service to a subscription-based approach, as the profession continues its evolution towards client advisory services. Welcome to CPA Life.

If I were to go through your new house and change all your light bulbs, screw in new individual light bulbs, and 50 percent of them popped out, blew up, I probably couldn’t blame the light bulb. I’d blame the electrical system, and the electrical system in our cases, our business model that we sell time or fee for service. And that’s, it’s dispiriting, it’s moral injury, that’s what we’re suffering from, not burnout.

Yep. Ron, it’s interesting that you bring that up and you go down that path, because one of the things that I, and maybe it’s, I grew up my whole life playing baseball, played it through college, played a couple years out of college, and I’m a statistic person. I measure everything.

Sabermetrics!

Yeah.

Tell me your—what’s his name? What’s the guy who did Sabermetrics?

Oh my gosh. I can’t think, if you wouldn’t have said it.

Bill James.

Yes.

Bill James. My co-host, Ed Kless, who by the way is in Allen, Texas, so you’re probably similar, close.

Yeah. We used to live in Allen, or pretty close to Allen.

Okay. His son’s a baseball player at Allen High School, the biggest marching band in the world. From what I understand, I’ve seen it, it’s amazing. But anyway, he’s a big Sabermetrics guy. When I was at his house once, he brought out the stuff from the 1970s that you ordered from Bill James, from a little ad in the back of a magazine, and he had all this, and I’ve become a huge fan of Bill James and listened to him on some podcasts. He’s a brilliant guy. So I totally understand Sabermetrics. Yeah, that’s really cool.

Just absolutely love—as a firm we track a lot of stuff. Individually I track probably more than we do as a firm because I just, and we talked a little bit about this a minute ago, the ability to go back and look at the tape so to speak, I think is critical. So one of the things that we did about two or three years ago was we just started tracking, because again, the only space that we play in on the recruiting side of our business is public accounting. So all day long, we’re speaking to public accounting people. That’s all we do. We’re not speaking to controllers and CFOs and financial analysts or credit—we’re speaking to people in public accounting.

So we started tracking, I asked my team, for three months, we’re going to track this: where in the conversation does “I hate what I do, get me out of public accounting,” come into the conversation? Where does it come in, and how often does it come in? 83 percent of the time, that’s the conversation within the first 10 minutes. Now we don’t tell people, hey, this is all we do. But through the course of conversation, it’ll come out either, hey, if I make a move, I’m not staying in public accounting, or I’m looking to make a move, get me out of public accounting. And the conversation at that point we start to have is tell me why. Tell me what you don’t like. Tell me what drives you up a wall. Tell me what pulls your hair out, that makes you dread going into work right now. “Tracking time, timesheets, work life balance. Everything is focused on getting the work out the door. Bill bill bill.”

That’s the frustration. And usually we’re speaking to people that have 12, 24, 36 months or more, anywhere from one to 20 years in the industry. And we’ll flip the question a little bit after talking about the pain and say, okay you’ve been there for two years, four years, eight years, whatever it may be you’ve been in the industry. What’s kept you there? Obviously you don’t hate everything. Tell me why you stay. And it gets back to what you just said: “I love helping people. I love the fact that there’s variety in the work. I love the fact that Tuesday doesn’t look like Monday and this Tuesday will not look like next Tuesday. I love the fact that I can make an impact on somebody’s life if I’m working with a small business that’s having some challenges or problems.” All of those things. And what we try to get them to realize is, look, what you’re telling me is You don’t hate what you do. You hate where you do it.

Where you do it. It’s the electrical system.

Yeah, and we’ll ask them, if we can find a place for you that lets you plug in and takes away 80, 90, 95 percent of the things that just drive you up a wall, but replaces those things with the things that just give you fuel for your fire, would you at least be open to hearing about opportunity? We’re not asking you to interview. We’re not even asking you to take a job. Just, would you listen? Would you at least listen? And of that 83%, half of those people say, I’ll listen, because I love what I do. I just, you’re right. I don’t like where I do it.

It’s amazing. Yeah. This is why we joined the profession, worked so hard to become a CPA, and then we get in there and it’s not like it was sold, and we’re not living our purpose and that’s moral injury. I highly recommend the book by, it’s Dr. Wendy Dean, If I Betray These Words. It really, I wasn’t, I heard her on a podcast, but I actually talked about burnout with a DPC doc, and I was giving them statistics from some study and he, we had him on the show and he said, Ron, he said, I really doubt those studies. He said they’re flawed, they’re deeply flawed. And that stuck a bug in my ear. Wait a minute, I’m looking at this with the wrong lens. And then I landed on this moral injury. And I think it’s a much better diagnosis.

I think you’re probably onto something there because again, the conversations, the unscientific conversations we have every single day, they bear that out. They bear it out.

Me too.

They absolutely bear it out. I talked to a guy last week, one of my recruiters talked to him, passed him on to me for a client that we’re working with. Amazing young man. He has been in the industry nine and a half years with the same firm, a top 20 firm, been with that firm for seven years, and he is grossly underpaid, grossly underpaid compared to the industry. He’s working 70 to 80 hours a week. And his mindset, when we started talking to him was, I want nothing to do with public accounting, nothing at all, zero. If what you have is in public accounting, I don’t care what it is. I want out.

And we talked to him, and I talked to him for a while, and he’s ended up leaving public accounting. He accepted an offer on the corporate side of things. But nice young man, very honest about what his frustrations were, but he is one of those guys that, he did everything he could to make it work. Spent seven years with a top 20 firm and they have just ground him up.

We eat our young, we do. We eat our young. We’re just killing them. And it’s, we’ve got to change as a profession and get back to our roots of, hey, we’re here to help people. We’re a profession. We profess something. And what we profess is a spirit of service to the public.

Which I think brings us to a great point to segue to another part of the conversation I want to get your thoughts on because I think it’s something that again you’ve touched on a lot, and that’s the whole CAS, client accounting, client advisory services and I want to make the distinction that those are two very different things.

Yes.

And I think that the firms that are getting it right are embracing, yes there may be accounting in that, bookkeeping. But I think what I’ve seen from our perspective, the firms that are getting it right are truly embracing an advisory mindset which then feeds the fuel of excitement for the people that they have working for them, and they’re no longer just focused on the transaction, but they’re focused on the solution. They’re focused on not just reporting or talking about what’s happened in the past, but let’s look at how we’re going to get there in the future. So talk to me about the entire client advisory, client accounting world, what you’re seeing, is it something that still has a long way to go or have we made more headway there recently than in the past?

Yeah, the shift to advisory has been talked about for a long time. Paul Dunn, Rick Payne came out of Australia, they used to do the boot camp. That was a big thing in the late 80s and the 90s. And this coincided with AICPA Vision Project, if you remember that. So we, as a profession, we’ve been talking about this for 30 some odd years. This is not a new topic. CAS is not a new thing for crying out loud. It’s a very old thing. And I don’t think we’ve done a good job, because to be an advisor, to be a consultant, versus say, being an accountant, there’s a difference. As an accountant, you’re an expert. If I ask you a tax question, an audit question, a gap question, you’re going to give me an answer. And that’s part of your self identity, your self esteem. “Hey, I know this obscure code section” or whatever. But a consultant is not paid to provide answers. A consultant is paid to ask a more beautiful question.

If you think about McKinsey, they have a bunch of snot nose MBAs. They don’t know crap about the business world. They go into these businesses that have been around for decades or generations, and families, but what McKinsey does have are more beautiful questions. And you’ve got to ask a question, but to ask a question makes you look ignorant, not a good image for an “expert.” So I think that’s the biggest mindset shift that we have to overcome is we don’t have to have all the answers when we go into consulting, we just have to have more beautiful questions. The customers know the answers. If you ask a beautiful question, it’s great, because it leads to new thinking, new ideas, new creativity, all of that, but we’re caught up in the expertise mode. That’s one thing.

The other thing I’d say about the cast thing is, I have a very provocative definition of a business model, and that is, in essence, a business model explains where revenue will be earned when services are provided for free. Now, John, stick with me. If you gave away the tax, if you gave away the CAS, gave it away, the services, all the things on your to do list, paying bills, AP, AR, payroll, it’s all free. What would we charge for? What would we monetize?

That’s a great question.

My answer is transformations. We are poised to guide our customers from where they are, to some desired future state, to where they want to be. From to from smoker to nonsmoker, from overweight to fit, from cash flow worries to a year in the bank cushion or whatever. And we do these transformations every day as CPAs. We already do this. We just don’t use the language. We help our customers retire sooner, we help them grow their business, make it more valuable so they can sell it at a higher price. We help their kids get into college, at least financially, maybe not academically. We help them plan their legacy for after they’re gone. How much is Warren Buffett, Bill Gates and Mark Zuckerberg, how much time and money do they spend on their legacies? Foundations, estate planning, multi generational planning. This, when you guide a transformation, you’re touching the customer’s soul and the services become a means to an end.

Our value is not in our services. It’s not in our scope of work. We have to get away from that. Scope of work is meaningless. The services are meaningless. What matters is guiding those transformations. And we can do it over and over. We can do serial transformations from womb to tomb. We’re one of the few professions that can help people become healthier, wealthier, and wiser to borrow from Ben Franklin. And yet we don’t message like this. We don’t market like this. We don’t talk like this. And if we did, I claim we’d have three or four or five times the pricing power that we have, by being on a fee for service like the doctors are: I’m only getting paid when I sell a pair of hands.

That’s way too limiting as a professional. When we don the mantle of a CPA, we’re so much more valuable than our scope of work. So much more valuable. We can have conversations, we can have meetings, just showing up being a sounding board, being a financial psychiatrist, having a couch in our office, our clients can lay down and bare their soul. We know more about our clients probably than their doctor does. Not their hairdresser, by the way, but their doctor for sure. But we just don’t, we’re not living up to our full potential. So I think the next iteration in the economy is the transformation economy. Real smart companies are going to be about helping their customers become a new you.

I’ll just give you a real quick example. If I went to a golf pro and said, look, I’m a 15 handicapper, but I want to be a single digit. I can give you golf lessons, 150 bucks a half hour or whatever. I’ll give you 10 grand if you make me a single digit handicapper. Now forget about the pricing example. I’m not arguing for a contingency price, right? But would that change the relationship between me and that golf pro?

Absolutely.

If he thought I could do it, if he thought I could do it, if he thought I had the swing mechanics and I just needed some fine tuning or whatever, he’d probably be pounding on my door at seven in the morning. Hey Baker, get out of bed We’re gonna go play 18. He’d play with me. Now, if he could get me there in a month or two weeks, would I gladly pay him 10 grand? Absolutely. Absolutely. But we don’t have that focus, and we should because we can do that. We can guide those transformations as long as you have a motivated client. And that’s where I think the subscription economy comes in, because now it’s not about the fee for service. It’s not about the transaction. It’s about the relationship. And with a subscription model, you’re building lifetime annuities that are more valuable than the cost to acquire them. So it changes the focus from the math of the moment, the rate per hour, the profit per job, profit per customer, all that out the window, and now your big metric is customer lifetime value. And firms that are subscription are selling between five and 14 times revenue compared to one times revenue, if you’re in an hourly mode, or maybe two or three times, if you’re a value pricing firm, because recurring revenue is far more valuable to the market than reoccurring revenue, which has got one and dones, and like a rash, reoccurring revenue, you never know when it’s going to come back, but recurring revenue on a subscription model, that’s incredibly valuable.

I think that what you’re saying has a lot of legs to it, but I think the challenge is that when we get back to you is the mindset. And the reason why I say that, Ron, is we were talking a little bit about how we rolled out last year, an advisory piece of our business called Talent + Advisory. And our focus with that is, yeah, we’re going to roll in some of your talent acquisition needs. You need to hire three, four, five people. Yes, we’re going to roll that in. But at the end of the day, all we’re doing at that point is we are reactively taking care of the problem when it arises. We’re sitting back and we’re waiting for you to get the flu. And the minute you say you get the flu, we’re going to jump in and we’re going to help you get better from the flu.

Our desire with this model has been to partner with clients and look, let’s figure out now if you’re Deloitte and you’ve got all this internally in your organization, or EY or Grant Thornton or Baker Tilly, great. But if you’re a 22 person firm, if you’re a 18 person firm, you don’t have the resources to do that. So let’s sit down and let’s figure out one, how do we sell you better in the marketplace? Number two, how do we keep your people longer? How do we engage with them better? How do we brand who you are internally and externally so that it resonates better? How do we tell your story internally and externally? Because the goal through this is to stop the back door from spinning so that the front door doesn’t have to come open so much, and we keep people in there engaged with who you are.

Now, when we talk to clients about that, man, they get it. Yeah, they get it. But then we start working with them, and the first thing they want to know is, okay, so when can we start interviewing candidates? If we don’t have an opening, or if we’re not projecting something or a need, until middle of Q2, we’re going to build a pipeline. Let’s focus on other stuff. Let’s talk about how we get you to the desired state of not having to deal with the capacity issues you’re having with, not having to deal with, let’s get you to the desired state of people not leaving your organization. Voluntary turnover is one thing. Involuntary turnover is another, let’s reduce that voluntary turnover. If we can get it to zero, let’s get it to zero. But the mindset constantly goes back to the transaction.

Right? It’s a very difficult thing to overcome. We are so used to the only way we get paid is when we do something to or for the customer. And we’ve got to change that mindset because I think the other issue with this is, I see a lot of marketing messages and I’m sure you do too, John, about the problem. CPA firms love to say, we solve your problems. We’re your solution to problems. And that’s great. We’re great problem solvers. We can get the IRS off your back, blah, blah, blah. But if all we’re doing for our customers is solving their problems, we’re just reverting ’em back to the status quo. We’re not advancing them. I want to advance them. I want to transform them because when you transform a customer, when you guide, when you get them to that capacity where they have spare capacity, they’re not running around with their hair on fire, they have time to take that, the good customer that comes in and needs that last minute airplane seat, right? The last thing I want to hear from my dentist, if I have a toothache, is oh, we can fit you in three weeks. No, not good. You better have capacity the day for emergencies. You always have to have spare capacity. And boy, if we could get there, if we could guide transformations, then the services become a means to an end. The customer’s the product.

I like that.

The customer’s our product.

And I think there’s a lot of truth to that. You talk about building in that spare capacity. There’s a firm that we’ve had on the podcast by the name of Audit Club and they’ve rolled out a—

Oh yeah. Vanover. Chris.

Yeah. Chris Vanover. And I like, when Chris and I were talking about their business model, how they’re basically a four day a week business model. And I asked him, I said, what if there is that person that absolutely needs you on Friday? And he said, we’re available on Friday. It’s going to cost, but we’re available. And if you want to pre purchase that, meaning you don’t just want a seat on the plane, you want first class, or you want the option to even upgrade to business class if you want to, there’s a cost to it that is a part of your package. And I think that there’s a lot of sound reasoning behind that because now you start getting into saving time, not stressing, having that insurance policy. And I’ve said for a long time that I think people will pay top dollar to save time and be able to get the attention they need when they want it and when they need it.

Absolutely, couldn’t agree more. And that’s the other thing the subscription model inspired by the DPC docs do. To the extent that we are going to measure time in this profession, we should measure the time we save the customer. That means no more giving them 400 page tax organizers. This is customer abuse. This is absolute customer abuse. We should know everything already in that tax—plus, by the way, if they could fill that thing out, they wouldn’t need us. So we need to save the customer’s time, and then we need to measure the time they spend with us. Is it time well spent for them when we have a meeting, when we have a phone call?

And then if you really want to take it to the next level, time well invested. And that’s where you get into transformation because now there’s an ROI for them from the time they spend with us, because we’re going to guide this transformation, and we can do these transformations over and over. There’s always something to work on in their personal life or their business life, right? And we can limit to one transformation per whatever. You can put caps around, you can build fences around it, but the bottom line is we should be guiding transformations. we shouldn’t be pissing around with scope of work and how many transactions, and every time you add an employee, you have to go to the Department of Paperwork and get a change order. This all needs to go away. It needs to be a frictionless, convenient time saving, just like Amazon Prime, because I’ll tell you, that’s who we’re being compared with your digital experience in your firm. Customers comparing it to what? Prime.

The ease of getting what you want when you want it.

Yep. Same day.

Yep. Absolutely Let me ask you the same question about the CAS world that we talked a little bit about the subscription and pricing model. When you look at the firms in that space that are getting it right, that delineate clearly between client accounting and client advisory. What are some things you see there? I know that in our space, whenever I talk to firms that I get a sense that these guys get it, one of the things that I consistently see is there is a niche. There is a focus. They know who they are, they know the space they play in, and they don’t jump all over the place. They don’t work with a manufacturing company and then a real estate company and then a retail distribution and then an online e-commerce company. They focus in, we work with e-commerce suppliers that distribute on Shopify. Or I’ve got a client for instance in Austin that they work with vascular surgeons and cardiothoracic surgeons. That’s it. That’s their space.

Yup. The difference between the firms, and this has always been true, John, for as long as we’ve been in the profession, the most profitable firms in the world, by far, not even close, all have one thing in common: They’re niched. They don’t try and be all things to all people. They’ve got their strategy and their positioning very well mapped out. Are you McDonald’s or are you Morton’s? Or are you a vegan restaurant? And too many CPA firms try and be all three. I often joke that if CPAs were veterinarians, they’d have a sign outside their office that said “veterinarian and taxidermist.” That way they could say either way, you’ll get your cat back.

And strategy is all about what you don’t do. Your firm is defined by the customers you don’t have and the services you don’t provide. The medical profession figured this out in the 40s. Think about a GP doc. You know exactly what they can do and what they can’t do. You’re not going to go to a GP doc for hip replacement for heart surgery, oncology, you’re going to find a specialist. Now the GP may quarterback that relationship and get you there. And a DPC doc will go to those appointments with you and sit there and make sure the specialist is aware of your background and medical history and all that. We have a positioning problem in this profession. These are not pricing questions. Pricing comes after you figure out your strategy and your positioning.

Too many people say I’ve got a handful of customers that are a hundred million dollars, but my sweet spot is 20 million. Hey, you’re trying to be Morton’s and McDonald’s. It doesn’t work. Pick a lane. You can’t be both. You can’t sell Chevys and Rolls Royces out of the same dealership. It would be stupid. And you also need to pick a coherent business model. And a lot of the CAS firms that say they do subscription, when you really go under the surface, what they’re really saying is we take a fixed price and we divide it by 12. That’s not a subscription. Subscription means you’ve got to plus the offering. You’ve got to enhance the offering, go to the market with something that’s completely uncommon, which is what the DPC docs and the concierge docs did. And you’ve got to continuously plus it. You’ve got to add just like Amazon Prime is constantly adding new benefits. Even if you don’t take advantage of them, it throws a halo over being a Prime member.

And we don’t think that way as a profession, but we need to up our customer experience game. And that’s why a lot of the firms that are moving to subscription, my advice is actually spin out a brand new firm and put all your great talent over there, and eventually that new firm will cannibalize the old legacy firm. That is by far the most successful way to do that transition, empirically, that we’ve seen so far, because it’s so hard to operate two business models under the same roof. I’m asked all the time, can you do VP and subscription? Yeah. You could also have two spouses. You’re probably not going to like the result though. Focus. Focus.

I’ve been a niche proponent for years in our business and other professional services industry.

Me too.

I’ve been a part of 32 different startups and turnarounds, and I’ve told people for years that the consistent theme for failure in any one of the turnarounds that I stepped into to fix, the consistent theme was trying to be everything to everybody. And for those startups that we had skyrocket, or turnarounds that ended up being great successes, the common theme was we niched. We put a stake in the ground and said, this is who we are, this is what we do, and we do it as good or better than anybody else does it. And it’s amazing when you do that, you don’t have to be the biggest. Your voice even doesn’t have to be the loudest, but since it’s screaming in a room where there’s not a whole lot of other people talking, your voice tends to be one of the loudest in the room.

Yep. So true. My favorite example is if you look at HP, last time I looked, I think they have about 15,000 SKUs, Hewlett Packard. When you look at Apple, they’re fewer than 75.

Wow.

That says it all. Apple’s incredibly focused. It takes the same amount to power an incandescent light bulb as it does a laser, but a laser can bore a hole through metal because of its intense focus. And we’re just not focused enough as we try and be all things to all people, because we like the variety. In fact, when you get into public accounting, that’s what you say. I like the variety. I like working with a manufacturer and then a doctor. And that’s a great for your intellectual curiosity, it sucks for your business model.

Yep. It’s going to constantly keep you jumping. We’ve got a client that is laser focused in the landscape industry. That’s all they work with. They work with landscape firms and commercial landscape firms. They don’t even work with residential landscape firms. Commercial landscape firms. And we placed a guy with them that runs their client accounting services group. Not their advisory group, but their client accounting services group. And one of the first things he did, again, to me, it’s just logical. He said, John, I got in here and we had somewhere in the neighborhood of 116 different clients that we’re doing monthly, quarterly books for, and we’ve got 11 different accounting softwares that they’re running on.

That’s crazy.

Made it very clear within the first 90 days, everybody’s converting to QuickBooks Online. And if you don’t want to convert to QuickBooks Online, then sorry, we can’t support you.

We’ll help you find another firm.

Exactly. He said John, I need my people to be able to finish with Joe’s Landscape Company, log out of that system, log back into a system, and not have to turn their Xero brain off and turn their QuickBooks brain on. Just stay in that lane.

Could you imagine walking into Starbucks with your own coffee machine? Oh, I want you to use this one to make my latte. Not gonna happen, sorry.

No. Absolutely not gonna happen. It’s one of those things that, again, blinding flash of the obvious that sometimes it takes an outsider to take a look in and go this is not working.

For sure.

Ron, I can’t thank you enough for carving out some time to talk about these topics. And there’s so many other things that I may reach out to you and see if we can set up some time to talk about some other stuff, because, there’s a lot of things that we touched on, a lot more topics that I’d like to touch on: Your thoughts on private equity that’s coming into the industry, what you think about that; where is this whole movement going in the mergers and acquisitions that are occurring in the industry; about the employee shortage. All of those things that everybody is trying to figure out what are the answers to. And I think that some of the things that you’ve touched on have a piece of an answer to a lot of those problems. If people want to learn more about what you’re speaking on, writing about, they can obviously find you on LinkedIn or on your podcast, but give us a little bit more information on those different watering holes where you hang out.

You can find me, I’m on Twitter @RonaldBaker. I’m one of the influencers on LinkedIn, so I do posts up there. There’s a lot of content up there. You can email me at RonVerasage.com. Happy to talk to my colleagues anytime. You can also find me at TheSoulofEnterprise.com, which is the radio show I do with Ed Kless that comes out weekly, every Friday. It does drop the podcast, although it is a live radio show on VoiceAmerica, not Voice of America, VoiceAmerica, and that’s probably the best place to find me.

Okay, and Verisage is V-E-R…

A-S-A-G-E. It’s a combination of veracity and sagacity. That’s a portmanteau of those.

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Transform Public Accounting: Continuing the Conversation with Ron Baker

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