Trailblazer Update: An Australian Black Swan

Nov 1

Matthew Tol, from the Trailblazer firm of Matthew Tol + Associates in Australia, recently sent us an update on his progress since dumping timesheet on July 1, 2007.Sixteen months after what Matthew calls this "leap of faith," the story of this firm corroborates all the others we have heard from who have taken the initiative to transform themselves into Firms of the Future.As I read this, I was thinking of the many consultants from Down Under who still insist you must keep a timesheet to lead a successful accounting practice—Rob Nixon, David Connell, Andrew Ged, David Smith, among others. They don't seem to understand that not all swans are white. Some are indeed black, including ones in their own backyards.How these so-called experts can continue to deny the existence of these Black Swans is a topic that fascinates us to no end. It is very similar to the medical profession not giving up on bloodletting even though antiseptic surgery, along with germ theory and penicilin provided more effective ways to heal patients.It reminded me of what G.K. Chesterton wrote (paraphrased):

If it were true that the man who is trained is the man to be trusted—if the man who saw something every day saw more and more of its significance—the argument for expertise would be unanswerable. But the man who sees and studies and practices something every day does not understand more and more of its significance, but less and less.

In any event, here is Matthew's inspiring journey to emerging, like a chrysalis, into a Firm of the Future.

I must admit, it was a leap of faith to dump timesheet from the 1st of July 2007. My staff were against it (whilst understanding the reasons for it), my clients (in the main) were a little bit sceptical and, to be honest, whilst I was confident it would all work out in the end, I wasn't exactly sure how long that would take.I'm now 16 months down the track and I'm pretty sure the time is up!Taking the step from timesheet which I'd been bought up to believe were the whole raison d'être of our lives as professionals was somewhat daunting. I'd read the books, trawled the internet and spent many hours speaking with colleagues about the whole process. It was still relatively new in the accounting profession in Australia and most of the people I spoke to expounded at length on a whole heap of reasons why it would never work. All of them quantitative.One of the first steps was to get the team's head around it. They too had been inculcated with the belief that everything they did had to have time attached to it. They'd been trained that way, they'd been reviewed that way and they had also trained others in this system. It was, to a large extent, ingrained.Many hours of discussion, mo of new processes by which we could run the business and the methodologies we would adopt with clients ensued. It was actually quite illuminating as it caused us to look, dispassionately, at what and why we were doing things for the people we were doing them for.In many ways, it helped to clarify our culture and business mantra—we like dealing with people we like.We then had to sort out our client engagement process and go through the exercise of discussing this with the clients. This served to help us to uncover and get more confident in the value we provided to them by the processes and procedures we used (our Intellectual Capital if you will). Prior to this, we had not really thought about this as it all revolved around the hour and applicable rate.As part of the engagement process, we moved the clients on to monthly billing which was, again, a difficult process in some ways as they were used to "you work now, bill then and we pay later." Speaking to our customers now, they are very happy with the process—they have certainty, clarity and comfort that they're not going to get "a blister" of an account from us—everything is priced and signed off up front.We then proceeded to get on with doing the work. If I may hark back to the timesheet model—assuming we have 10 staff and they all spend 15 minutes per day in doing timesheet—by dumping them, I freed up and additional 150 minutes per day (12.5 hours per week) which could then be spent servicing customers, training or on business development. All of this came at no additional cost. The month end process of reconciling timesheet, doing bills, reviewing write-offs and sending out the bills was all stopped. This would free up a minimum of an additional 25 hours per month. So, I'm already about 75 hours ahead per month.Couple this with the fact that we don't then have any debtors (all invoices are raised on the day the direct debit comes in) the additional time taken to collect the outstanding accounts has been removed. This would have totaled about 20 hours per month plus the costs of mail, phone calls, faxes etc. I'm now about 95 hours per month ahead with reduced costs.Now, with the extra 95 hours per month I have, we are able to work more on the client and "follow the rabbit down the hole" on issues where we can add value to the customer. The admin team are working on further development of our internal systems and processes which then improves our efficiencies and traps our IC. My team are and have been encouraged to think about what they do rather than just get it out the door so we can bill it. They're coming along really well and developing at a far more rapid pace than that which they were able to before.One other thing we've done is signed up with Principa. We've found their products to be extremely useful in providing high value, challenging proposals to our customers which help them in attending to the raft of issues they need to grapple with as they move their businesses forward.All sounds terrific doesn't it?There have been a couple of pitfalls. We didn't get our pricing right the first time around. This is what I refer to as the "learning premium." We have developed our skills in identifying value AS IT RELATES TO THE CUSTOMER rather than as we perceive it. This is a big issue because, as accountants, we're trained to focus on the quantitative issues of the customer—profit, balance sheet, cash flow and tax. They're all definable, measurable, provable and totally meaningless (in a value way) to the customer. The customer wants your help in understanding their business, working with them to build and drive their business, to think for and with them and to help them develop their own set of skills. You can't really do that by looking at historical figures—you don't drive your car spending all your time looking in the rear-vision mirror!There have been a couple of customers who just "don't get it." Or, should I say, ex-customers. If you're going to do this, be prepared to lose a few on the way. If I can be so blunt, they will more than likely be the customers who you didn't really enjoy/want anyway.There was also a bit of a short term "blip" in the cash flow. Instead of having a succession of big payments coming in, there were very regular smaller amounts coming through. Sure the debtors as at 30 June paid up (eventually—one of them just last week!) but it took quite a while. And I put up with this payment crap for years!As part of our ongoing development of our business, we also spend a fair bit of time on the following:

Team "love-ins" twice a year where it's a full de-brief of what we're doing well and not
Up-skilling our team and up-scaling our IT hardware and software to enable us to be more efficient
Workflow management processes (all our compliance work will be done within five months of year-end) and
More "down time" in the office where people are encouraged to just talk

So then, how are we positioned now? Well, life has become a whole lot more enjoyable. I have employed a General Manager who now negotiates all our terms and pricing with existing and new customers. He is from a banking background and has terrific training for this type of role. The rest of the team (technical and admin) have been freed up to do what they do best—work, think and engage with each other, the customers and the rest of the people we deal with in this business (banks, lawyers, financiers etc). They don't need to be concerned about how much time it takes—it's all about the results. Results are what counts to our customers and that is a large part of how they assess the value of what we do.The team is also more focused on thinking for the customer rather than worrying about the time it takes to do things. Again, a far better result is created.In a discussion with my GM and one of my senior guys this morning we crystallized what it was all about. It's all about qualitative assessment of what we do rather than quantitative measurement. If we concentrate on the qualitative things:

Our internal relationships
Our customer relationships
Creation of value for the customers we are working with
Open, honest and considered responses to customer queries
Proactive, challenging proposals for the customers (as a result of our earlier thinking)
Our relationships with other people who touch our business, and
Fostering and refining a great environment for everyone to flourish in

then the results will look after themselves.All sounds very "new age" doesn't it? Maybe it is. But it works. Very well.Now, for the quantitative types out there, here are the results:

Growth of >30% (increasing)
Profits up a little bit (but a lot more this year)
Staff turnover of zero (actually negative as we've put more on)
Cashflow improved out of sight
Me working about 3.5 days per week (could do less, but I enjoy it)
Average client fee has increased to about $18,300
Debtors of zero
No write-offs
Very collegiate and supportive culture in the place, and
Lots of customer referrals (hence the growth)

So, from a quantitative point of view, I cannot tell you what my profit on any one customer is. I don't care. If we like dealing with them and we believe we are being fairly remunerated for the work we do, that's fine. I'll bet most accounting businesses out there would be able to tell me who their non-profitable customers are without looking at a time costing model—they'd just know.From a qualitative point of view, I'm pretty sure we've got a fair way down the road. We'll never reach the end of it—I don't suffer that delusion—but the whole place is a far better place to be now than when I was keeping track of my life in six minute increments. I recommend it.

It's worth pointing out that this isn't merely a "pricing strategy change." This is a business model change.A business model is the way in which a firm monetizes the value it creates for its customers. What makes the Firm of the Future just such a change is that it is no longer selling time, but rather Intellectual Capital.In a service industry, like an airline, if a seat goes unsold, that revenue is gone forever—it's what economist's call a "rival asset," since it can be used by only one person at a time.But a PKF that knows it sells Intellectual Capital also knows that IC is a "non-rival asset—meaning it doesn't disappear just because it's not being utilized. Therefore, the service analogy of "unsold seats" = "unsold time" doesn't make sense in an IC framework. Just because my book sits unread on your shelf does not mean that someone can't benefit from it during that time.This is an enormous difference in how to think about what you really sell, much more liberating than thinking about the confines of time.Matthew brings up another excellent point—his concept of a "learning premium." We are often asked what are the risks of adopting this model, and there are no doubt some short-term costs.But those must be compared to the mistakes you are making now, not some utopian idea where everything is 100%. You have to consider that learning premium as an investment in a better future. It is, after all, a short-term cost, not perpetual.There are many other lessons I hope you take away from Matthew's experience. Reading our Trailblazers is always exciting, since no two firms take the same path to becoming a Firm of the Future. They are as unique as each butterfly. Or each Black Swan.If I could Matthew, I would hoist a glass of Black Swan wine with you, to congratulate you and your team on your tremendous progress.

Accounting