Pollen and the Professions

What’s in the Wind in the Accounting Profession?A question posed recently by an accounting profession publicationI was recently asked to answer the question of What’s in the Wind in the Accounting Profession? I believe such questions are naively complex. I feel it leads to a drumming simplification of MeTu (aka me too) thinking. The collective of the various professional press and media along with national and state association leadership tends to rework an all too common concert of sound bites and feel good Kumbayah designed to placate the rank and file while providing a spin that there is something significant just around the corner if we could just stretch a little. This pandemic of Pabulum for the Professions eventually annoys even the most infrequent of listeners.Now that I have that off my chest, I will share the following thoughts of What Should be in the Wind in the Accounting Profession? In my view, what is (and should be) in the wind is simply Pollen.Profits over Production: The debate about effectiveness (doing the right things) over efficiency (doing things right) is over. The corollary is that firms need to focus. Focus on profits over production. Focus on Results over efforts. Firm leaders need to focus on profit improvements over gross billable hours. Customers do not care about the hours one works; they care about the results that are delivered. Effectiveness is far more superior then efficiency.Efficiency is always a ratio and never, in and of itself, ever an output. FedEx is far more effective then the postal system. In order to be effective, they had to seek better outcomes and certainly FedEx improved its efficiency in the process of effectiveness but envision that FedEx designed a package system but still used the Pony Express instead of a fleet of planes? The result would have been highly efficient (they know where each and every package {and its horse/rider} but it would have failed as it is ineffective today to transport packages in such a manner. In essence, firms need to stop orgasming over top-line growth and instead need to focus on profit improvement.Opportunities Abound: True professionals are naturally observant: Too many firm leaders look at their markets as closed pools of opportunities. They naively seek growth at the expense of competing firms. In fact I have heard partners of established firms specifically target another firm’s customers and operated as if all members of our Profession were competitors instead of colleagues. This is utter nonsense and such thinking destroys our Profession.The first canon of our Profession as outlined in the AICPA’s Code of Professional Conduct (Principles) notes that we have an obligation, as members, to promote the well being of our Profession. This includes both improving the Art of Accountancy and, likely more importantly, to Cooperate with Each Other. We aren’t cooperating if we are poaching.Learning and expanding by observation is simplistically easy yet requires infusing effort into the process. We grow our firms by investing in the opportunities we find and the ones we create. Waiting for the phone to ring is not a marketing and growth strategy. Firm leaders must learn to create their own futures.Smart real estate developers have learned to look for leading indicators about where to build and what to build. For example, when it comes to mixed-use commercial style real estate what do you believe are the leading indicators as it relates to capturing early-stage value? It isn’t zoning or demographics. And, it isn’t merely location, location, and location. These indicators are either lagging (zoning changes occur after someone has figured there is a better use, acquires or options the property, and then seeks the changes they seek) or they are coincident, meaning they help us concurrent with the changes in the market. Neither of these is leading (predicting where the values are headed). It turns out that one of the best leading indicators is to watch where the artists go.Artists are relatively poor (economically) and need to find inexpensive and creative spaces for their studios and residences. Artists seek out great value. Artists then tend to invite other artists to share their spaces. These new artist colonies begin a following. At some point these colonies of people draw the attention of supporting and cottage companies; (from creative coffee shops to stores to restaurants to dry cleaners) entire communities follow the artists to their new neighborhoods. And artists are creative and innovative as it comes to the quality of life of their buildings and neighborhoods driving up values by driving away dirt, dust, and decay. Artists, it turns out, are a great leading indicator for real estate developers who desire to be early adopters of profit opportunities by merely observing their own communities and where the artists are headed.Firm leaders need to approach their growth the same way. Look for the leading indicators. Look for your firm’s equivalent of artists. Look for the innovators, the inventors, the new immigrant businesses, the prospects that are expanding, and look for value when others are blind to its beauty. Firm leaders need to get of out their offices and look around. They need to be active members in their communities and seek positions of influence in fledgling industries.Firms mature, as do their clients.   Anyone can recognize a change is afoot after the proverbial tipping point where the innovators and early adopters have paved the way for the following majorities. The best firms and best firm leaders are at the left-hand edge of the diffusion curve. These mavericks inherently understand there will be many investments that fizzle and only a few that sizzle. It is those profits from the sizzling hot successes that drive the firm’s future value and growth. Legislation and Regulatory Issues: Together with my VeraSage Institute colleagues, I have the opportunity to speak to and meet with thousands of fellow CPAs and CAs each and every year. One of our favorite questions to ask our audiences is: Have you recommended our profession to a loved one during the past year? Across the board and regardless of country (most common are USA, Canada, UK, Australia, and New Zealand) we receive positive responses from 10-15% of the participants. Inversely, this means that 85%+ of our fellow professionals have not and in reality do not recommend our profession to loved one (defined as a person one knows and cares about - unlike say a high school or college student sitting through some mind numbing “Feed the Pig” commercial).This decline in advocacy about ones chosen profession is a leading indicator that something of a cancer must be present that is stripping away our enjoyment about what we do and how we do. Failure of firm (and profession) leadership to adequately diagnose and then cure this disease suggests the end is closer than we think to losing ourselves and becoming a trade or job rather than a career and profession. Personally, I do not want to see our profession go the way of the Scribe’s and be relegated to pages in a history book and postage stamp.When asked why participants avoid recommending our profession, the most common responses include: regulatory overload, work load compression, and the sins associated with hourly billing as it relates to technological improvements and efficiencies via technology (think about the reduced time it takes to complete a tax return using software today then say 30 years ago when we filled in bubble sheets on CompuTax forms, or even 50 years ago when we prepared returns by hand and typed the values onto the forms).Lets look at regulatory overload. This includes government regulatory matters from the SEC, the PCAOB, the IRS, the FASB, the AICPA SSARs, the GAO, the DOL, the 50+ State Boards of Accounting, the IFRS, and all other bodies deemed capable of dolling out but never retracting rules and regulations that impact what we do and how we do it. There is no joy in contorting ourselves to please the whims of bureaucrats residing in such cities like Nashville (home of NASBA), Washington, D.C., home of the federal morass of death by regulatory action, NYC and RDU (home of the AICPA). Such regulators act like they can use rules and procedures to triumph over common sense and good judgment. They can’t; but they sure try.Leaders of our profession should seek ways to reduce the complexities of rules and regulations in exchange for more principled driven decision making that promotes the right answer, with the right disclosures, with the right outcome, so that users of our reports and services may make informed judgments about the economic activities of the businesses and individuals we represent.   Far too often, the so-called leadership of our profession is to cozy with regulators and rule making bodies and, in fact, support additional complexities under the misguided notion that more is better when in reality simpler is better.As it relates to workload compression, this too is a function of an overzealous regulatory and ill informed bureaucracy and/or legislative body (or bodies). Much of this compression came about during the TRA 86 when fiscal years for pass through entitles was essentially abolished. This shifted more audit and assurance work along with the tax work to the front half of the year rather than allowing for a smooth seasonality of services. This has increased our need for people in narrow time frames and then we face an excess capacity of human capital in others. Firms burn out their people increasing the chance that our actually “best and brightest” leave our profession as it lacks the enjoyment they hoped to achieve in life. Firm leaders should continue to pressure their local, regional, and national officials to return to a time when natural business cycles could be used for associated filings and reporting periods.Finally, the toxic nature of timesheets and billable hours drive talent from our profession. Time-based billing is the antithesis of professionally based pricing. Hourly pricing where one is compensated based upon recorded time does not align with the goals and objectives of our customers. Our customers desire a result. When we are compensated based upon our inputs and not our results, we are apt to add useless procedures, steps, and complexities that drive the billable hours up and hence charge the customer more. Also, timesheets are full of lies as people are unable to really capture in (6 minute) increments what they really do all day and so they tend to make a lot of it up. Ric Payne (the smart founder of Principa) has suggested that over time the lies balance each other out (e.g. I work a little for free for client A today and bill my time to client B, and sometime in the future it is reversed). This may be realistically true, but does not cure the challenge of misalignment of interests. Another toxic challenge of the timesheet mentality is that billable hours are rewarded for promotions, partnership, and influence.Too many firm leaders list their billable hours like a badge of honor when in fact they should be ashamed. It is far better to produce results with effectiveness rather than efforts and price according to the value delivered rather then the time invested. I am reminded about the conundrum of hours invested versus the effectiveness of the team member via the following example shared by one of my former firm partners. His wife is a construction project manager. Her supervisor one time confronted her about the fact that the “men” on the job site were spending part of every Saturday working while she did not. The supervisor suggested this looked like she wasn’t pulling her “weight” as a team member and that come bonus time she might not receive an equitable share. Her response was superb. She responded with “if I were as wasteful and inefficient with my work during Monday through Friday, I would have to work Saturdays too.” - How right she was. And how wrong are firm leaders that value the inefficient worker over the effective one because the tool for measurement only records efforts and never results.A final aspect to the tainting of the value of our professional lives is living within the childish nature of our elected officials. Their creation of complex rules and financing regulations designed to reward their patron saints (their donors) end up punishing their people by forcing unwarranted behaviors by citizens in order to minimize their individual tax footprint rather than supporting a culture where people seek to maximize their individual opportunities to expand their financial horizons. Too much of our national GDP is spent reporting and navigating the complex tax code. We need a simpler and fairer method to collect the necessary funds to operate our government.Loyalty and Customer Economics: Firm leaders and members of our profession need to understand and operate within a customer loyalty framework. Too many firms reward the hunt, the capture, and the kill of a new customer while failing to understand why their best customers leave. It is far superior to enhance the value proposition of current customers then it is to invest heavily into new relationships.Customers love to be loyal. Just ask any director of an airline loyalty program. Even if passengers dislike flying, they love ‘’their airline”. Ask a Nordstrom customer about loyalty and they will frequently advertise that they rarely shop elsewhere even if they believe Nordstrom is slightly higher priced (they generally are priced very competitively). Just look at American Express that captures great loyalty from all of their various card levels – from the inexpensive Green Card to the exclusive Black Card, American Express delivers value across the board or its continuing customers would use alternatives.What is frequently missing in CPA firms is a reason for customers to remain loyal. This is partly because our profession focuses on efforts. CPAs extol how hard “we” work rather than focusing on helping the customer achieve her objectives, goals, and desires. When asked to rank those attributes that customers use to select CPA firms, firm leaders respond in the inverse to the customers. CPA firm leaders discuss their technical skills and acumen over their softer skills like communication, awareness, and creativeness. Customers on the other hand respond by relying greatly on communication, creativity, and engagement. Customers struggle to comprehend our technical skills yet too many CPA firm leaders only speak about their knowledge while ignoring their more important competencies.CPA firm leaders need to understand why CPA firms are hired and why we are fired. We are rarely, if ever, hired or fired due to our technical quality.   We are almost never hired or fired because of our price (about 4% of all engagements are decided upon price). We are almost always hired and fired because of our communication skills, our ability be creative, our eagerness to help our customers, and our availability to help them when they want our help and not “after tax season”. Sometimes we are hired because we have nicer furniture or a better location. Sometimes it is because we will meet them at odd hours of the day. Sometimes it is because we offer a solution that others can’t. What I can guarantee you is that you aren’t hired and fired because of price or quality. It is all service related opportunities and challenges that drives customer decisions. Investing in customer loyalty metrics goes a long way to a more profitable firm. Simply remember that a current customer can be 11x more profitable then a new customer.Experiment with Service Offerings: I believe that the best firms are the ones that experiment and expand their offerings. Many experiments will fail to deliver their desired results. That is a price of admission. There are two primary reasons for a firm to explore new opportunities and experiment with creative options: The first is that our complex customer base is not standing still and their wants and needs continue to evolve and if we aren’t at least with them or even better, ahead of them, they will naturally look elsewhere for solutions to their unfilled needs and desires. The second reason is that many members of our profession have signs of ADD. In essence, our best and brightest get bored and bored people become inattentive and inattentive people make mistakes.  Worse, bored team members daydream of better jobs and brighter futures and these daydreams become realities far too often.I have concluded that our professional attention span is about 3 years. This is enough time to learn a skillset, master that skillset, and then teach that skillset to a new person and then be allowed to move on. I see too many firms with team members living the same routine for years and decades to the extent of missing the true needs and wants of their customers. Hence, they become my customers. Times are changing, generational shifts, web 2.0 to 3.0 - go head and add some R&D; experiment with new offerings, and take aware the boredom of our lives. Remember, each new mountain pass travelled generates a new world view and an ever-expanding world view is more necessary today then it ever has been.Networking - Networking is not social media. Although social media is a part of networking it is not networking. Networking encompasses so much more than mere social media. Networking is the act of becoming an integral part of the multi-variant solutions to unknown problems. Thus positioning the professional in the middle of the necessary web of needed information and solutions to an infinite array of challenges.We, as professionals, have the distinct opportunity to provide what I term as “bridges to structural holes”. The “structural holes” as I term them, are the distances between what a customer has and what the customer needs. Of course, one could substitute almost any synonym for customer. The key is that a well-networked professional is the key that opens many doors.Most firm leaders undervalue networking; unless the participant is already a member of leadership. That is unfortunate. Networking should begin from the beginnings of student life, through early careers, into leadership, and into retirement. As Australians are fond of saying, “we all need Mates”. And Mates watch out for each other.Networking is not about just providing referrals or leads. Networking is seeking solutions to problems that possibly don't’ already exist and, concurrently, listening to wants and needs from those who will benefit from connections that we are only to provide.Networking requires dedication and commitment. Networking is not about “you”, it is always about “them”. Networking requires in investment in time and resources. It requires your ears to be always open, your mind to be engaged, and your heart to centered on your clients, friends, and colleagues. Networking isn’t just slapping palms or sharing LinkedIn profiles. Networking is active engagement across all disciplines, across all strata, across all industries, and encompassing all opportunities.Networking should begin even before the beginning of a career. Networking must begin most definitely concurrent with your professional work. Twenty years into a career, the connections made in one’s youth frequently pay dividends. The customers you meet, the contacts that are made, the alumni of your university, the town where you live, and the hobbies that you share are all part of a valuable interconnected web of opportunities and solutions.The most important time for investing into your network is at the beginning of your career. Networking’s ROI is akin to the time value of money. The earlier your investment, the larger your return. Networks expand exponentially. They are not a zero-sum game. Young people must develop a network and they need time and opportunity to learn this craft.Partners and other firm leaders must allow younger professionals time to attend meetings, events, lunches, professional society events, and community activities. Each and everyone one of these avenues provide an opportunity to meet someone whose individual return on investment is multiples greater than the average. And, when this occurs, the net present value of those future transactions is exponential.Yet, such networking activities as described above run counter to the firm’s current objective of maximizing revenues. If, on the other hand, the firm had a long-term profit view, leadership would both understand the value of these early career investments and support return multiples of any “opportunity costs incurred today”.A professional’s value is predicated on their ability to solve expressed and unexpressed customer wishes and problems. If you can’t do this, then the professional is really just a technician; nothing more than a hired gun to perform the work orchestrated by others. There is nothing extraordinary in merely following the recipe crafted by others. The value of a professional is primarily connected with one’s ability to craft excellent resolutions to an ever expanding list of unfulfilled opportunities.My advice is to constantly expand your network, each and every day for your benefit and the benefit of others. In this way, you maximize your opportunities to really make a difference in the lives of others. There is nothing truer than a professional that makes a difference.There you have it. Now you know what I believe should be in the wind of the accounting profession.Now, enjoy your day.