Looking at them my best guess is that they’d be in their 50’s.  Interestingly, I shared a chair lift with a gentleman a couple of weeks ago and we got to chat about things as you do on a chair lift and he told me he skied most days unless the mountain was closed.  He mentioned in passing that it’s what kept him alive — he said he was 84 and didn’t start skiing until he was 62!  So much for being “too old!”

This reminds me of the question: “when’s the best time to plant a tree?” Answer: “40 years ago.”  Second best time – “NOW!”

Dalton Sherman

The teachers, the students and their parents understandably thought it was a great idea. By the end of the year the students had achieved from 20 to 30 percent better than the other students in the entire San Francisco Bay area!  Everyone was delighted.  However, the Principal called in the teachers and said: “I have a confession to make. You did not have ninety of the most intellectually prominent students.  They were run-of-the-mill students. We took ninety students at random from the system and gave them to you.”

The teachers concluded that their exceptional teaching skill was therefore responsible for the students’ outstanding progress until the Principal said “I have another confession.  You’re not the brightest of the teachers. Your names were drawn out of a hat.”

The researcher concluded that the reason both the students and their teachers performed at an exceptional level is the attitude they each embraced.  They had an attitude of positive expectation and confidence in each other.  They performed well because they believed they could!

I wonder how much of our own under-performance can be attributed to our failure to believe in ourselves and our colleagues.  Henry Ford’s statement: “If you believe you can or you believe you can’t you’re probably right” has become cliche but I think it’s a natural law.  I’d be interested in what you think.

First, it is time centric rather than customer-value centric which means the firm is neither specifically seeking to address nor capturing the value created for and perceived by the customer.  Some customers would be willing to pay more for the firm’s services but are not being asked to and some customers are unhappy with what they are paying but are consuming the firm’s valuable resources that might otherwise be deployed in more effective ways e.g. doing more higher value work for more customers who appreciate value.

If you have customers who would be willing to pay more for your services then so too do your competitors!  Your attention and marketing efforts should focus on these people NOT on the ones who are looking for lower prices.
Customers who are price sensitive are never going to be as profitable to the firm as the former category because they are not good referral sources, they are not inclined to buy additional services, they lower your sense of value and self esteem by constantly questioning your fee and they are more likely to switch to lower cost suppliers.  As Harry Beckwith says in The Invisible Touch “if people come for your price they will leave for someone else’s.”

Second, when the performance of a team member (including the owners of the firm) is judged on the basis of hours billed with little or no attention being given to customer satisfaction, people tend to hoard work rather than look for ways to better identify and meet the long term needs of the customer.  The growth of the firm suffers as a result but as is the case with most lost opportunities, it is not immediately visible.  Paradoxically, striving for high productivity based on hours billed is considered to be a good thing but the celebration hides opportunities for profitable growth from the attention of management.

Third, when time is the focus and customers have a fee expectation that is not too far from what they paid last year there is very little incentive to explore ways in which greater value can be created. By focusing attention on time expended rather than value created a key element of business success is ignored.  Successful businesses in any industry are those that exceed the service expectations of their customers.  These businesses are the ones that enjoy very high levels of customer loyalty and quality referrals, they are also the ones that attract and retain customers who are less price sensitive and who are more likely to buy additional services.  A time-based focus is not likely to result in expectations being exceeded.

A fourth challenge is that as a firm gets more efficient through, for example, the use of technology all or most of the productivity gain is passed on to the customer in highly competitive markets with low barriers to entry (i.e. the accounting profession).  This is made even worse if people are reluctant to delegate so you end up with higher skilled people doing lower skilled work simply because technology makes it possible for them to do it.  In other words, we see higher skilled people doing lower skilled work because they can not because they should.

Contrary to the more popular argument that time-based pricing encourages inefficiency the cost of which is passed on to the consumer,  my research suggests otherwise and that, in fact, it works against the firm rather than against the customer.  Published industry surveys conducted over a 30 year period in Australia (and I suspect it’s the same in other countries) reveal that inflation-adjusted net profit per partner has fallen by 1%.  This has happened despite a massive injection of productivity enhancing technology and a huge growth in demand for accounting services from individuals and business entities.

Technology has resulted in an improvement in output per person that’s reflected in higher revenue based performance metrics such as revenue per person and revenue per partner.  But these metrics are misleading indicators of performance because technology improvement has flattened organizations by enabling higher skilled and experienced people to do what lower skilled people previously did and could continue to do!  As a result, average labor costs have risen, leverage (i.e. team members per owner) has declined, owners are working longer hours and profitability per owner in real terms has declined.

On the surface, time-based pricing appears to offer no incentive to improve efficiency but in my experience, most accountants are honest ethical people who do not expect customers to absorb the cost of their own inefficiency.  And if that’s not enough then the possibility of losing a customer (or having an unpleasant confrontation) if price is considered to be “too high” tends to drive prices down and results in the firm, not the customer, absorbing the cost of inefficiency. This incidentally is reflected by write-offs of between 5-20% that are common in PSFs.

A fifth challenge with time-based pricing is that it is not possible (without further analysis) to use it to identify the most profitable customers or service lines because the cost of resources other than labor used to deliver the services are for all intents and purposes ignored—they are just assumed to be recovered through the direct labor cost multiple used to set the charge rate.

Although time and billing systems have become commonly known as “a costing system”, that is not the case at all.  Let’s face it, they’re a pricing system.  When people talk about the “value” of WIP they are actually talking about “the amount we have charged to tasks performed for clients and hope to recover” it is not a “cost we have incurred and hope to recover.”

Because management’s attention is not being drawn to its most profitable (and by implication least profitable) clients and services these are going unnoticed.  I consider this to be one of the main reasons so many firms are failing to achieve their full potential and importantly, why they continue to service clients they should have fired long ago.  But the solution to this weakness is not to trash time-sheets in my view.  The solution is to design time recording systems so that they are a source of valuable management information rather than as a pricing system.

I will address how that might be done and how to undertake an analysis of client profitability in my next post.

Where work is done should not be of any concern as long as confidentiality is preserved, it is competently done and it is cost-effective.  What seems to me to be the important issue is that this work is low value and it becomes high cost when it is not performed with lower cost resources.

Think back to the mid 70’s to the mid 80’s.  At that time, many firms were generating quite substantial fees from write-up work and they saw the “computerization” of bookkeeping as being a threat to their revenue and their “control” over clients.  Indeed, they should have been concerned.  The emerging hardware and software technology was quite obviously going to change the ball game because of its functional power and affordability.  However, those people who resisted this evolution went nowhere.   In adversity there is always opportunity and those firms that embraced it and looked for ways they could actually help their clients implement IT solutions and then re-deploy their resources in higher-value service activities have prospered.

Throughout history we’ve seen major shifts in employment that precede new waves of economic growth as new technologies change the shape of the playing field.  For example in the 1930’s there were 30 million people employed in farming in the US.  Within 50 years that number had dropped to 3 million but during that time farm output increased tenfold!  Where did the displaced farmers go? Manufacturing of course.  Then, again citing US data, in the 60’s 40% of the workforce was employed in manufacturing but by 2000 employment in that sector had dropped to 20% even though output had increased fourfold.  Interestingly, total employment in 2000 was at historical highs so what happened to all the people who were displaced from manufacturing? Answer: they re-skilled and were re-deployed in other industries.  This cycle has been going on since mankind started playing around with fire and wheels.

The big lesson here is that technological innovation radically changes productivity AND industry structure which leads to unemployment which in turn frees up resources that are then able to be utilized doing much more valuable work for clients.  That in turn leads to an increase in wealth and the standard of living for most people.  In other words, a rising level of unemployment is a lead indicator of impending economic growth and new wealth creation!

However, not everyone immediately participates in the growth in wealth.  Success goes to those who adapt and learn new skills the fastest.  Their economic potential is driven by how quickly they abandon old ways of doing things and adopt new innovative ways to use their intellectual and physical resources.

So … here’s a thought.  Why not take a look at outsourcing and instead of focusing on the implementation challenges that are inevitable with the introduction of any new way of working look at the huge upside your mastery of this service offers.  The challenges you might experience will be the source of your competitive advantage because most of your competitors don’t have what it takes to risk embarking on such an initiative (for the record, history reveals that not embracing change is far riskier than embracing it but let’s keep that to ourselves!)

There are several proven successful outsourcing solutions out there one of which is offered by Rydge Business Management—it’s run by wonderful people I’ve known for nearly 20 years based in Melbourne.  In the US I like Xpitax based in Boston, MA and in the UK I’m impressed with IRIS’s solution. When (not IF) you successfully overcome any outsourcing challenges you’ll be able to create a business model that has outsourced compliance capacity at its core with high value-added, premium priced services wrapped around it.

However, I want to SCREAM a word of warning. DO NOT, I repeat, DO NOT implement outsourced tax returns as an opportunity to do more returns at a lower price in order to build your practice.  That is a very un-smart (un-smart is code for “dumb” or “really silly”) thing to do because all you’ll achieve is the opportunity to do more work at a lower margin for people who come for price and will leave for a price.

One of our favorite mantras at Principa is “you are only rewarded to the extent you add value to those people you’re privileged to serve.”  If you want to create more value for yourself you need to create more value for those you serve and they include your team members, your clients and your business partners.  I believe outsourcing is one way you can position yourself to create more value for all stakeholders in your firm.

In the context of selling service (or ideas as part of services!) I and many other people have written lots about the importance of empathy, of getting into the skin of the other party, of refining your listening skills, of being interested rather than interesting, of using the “right” questioning techniques etc, etc.  All of this should, I believe, be taken as a given.  But I have been thinking about this issue very deeply in recent months and especially about my own experience and that of others I have read or heard about and I believe that the real key to your success as an adviser turns on whether you have a wider and deeper concern for others and that turns on who you are (and can become) rather than what you know.

Let me put that another way.  If your motive for going to work each day is to earn an income and to do that you know you need to generate fees and to achieve that you realize you need to sell your services to clients then you’ll probably be less effective than you could be, you’ll find yourself doing less interesting work that is below the value you could deliver, and your practice will not grow as fast or as far as it has the potential to.

On the other hand, suppose you go to work each day to make a difference to the lives of the people you come in contact with and that includes your family, your friends, your team members, your partners, your clients, your vendors in fact everyone with whom you come in contact.  The minute you move away from a perspective of what you do to one of why you do it I believe you’ll achieve much greater success financially, but more importantly, personally.  In short, you’ll be happier in yourself and with your life.

Now here’s the question you might like to ask.  I came across it after reading Harold Kushner’s book “When All You’ve Ever Wanted Isn’t Enough“ (good book BTW) – the question is: Does it make a difference how I live my life? We really need to revisit our priorities, our values and the virtues we choose to guide our behavior.  Kushner’s main idea is that if we define our success as being outside our self e.g. career, money, possessions, lifestyle, popularity or accolades our life will become increasingly self-serving, hollow and frustrating–whatever we “achieve” is never enough!

A US longitudinal study done with 1,500 university graduates tracked their wealth accumulation progress over a 20 year period.  Group A graduates represented by 1,245 of the 1,500 in the study selected careers that, in their opinion, paid good money and had the best prospects of giving them financial success and security.  The remaining 255 graduates chose careers that were aligned with their personal passion and said that they would worry about the money later. Of the 1,500 students 101 had become millionaires by the 20th year of the study and interestingly only one of them came from Group A!  This observation lends weight to the idea that when you focus on a career choice orientated towards the accumulation of wealth rather than the pursuit of a higher order personal goal that you are truly passionate about the probability of financial success is likely to be lower.

Here are some thoughts for the day: step outside of yourself for a moment and think about what you see, do you like it? Are you having fun at work, at home, at play? Is your primary motivation to make a difference to the lives of other people? Do you have “balance”? Does the way you have chosen to live your life positively impact the people around you? Does it positively impact you?

Having said that, how long should you give yourself to master any skill.  Practice, it is said, makes perfect and yet so often I hear people say “I can’t do this or that” and then give up after one or two attempts.   In my view and certainly in my experience, there are very few worthwhile things in life that are easily accomplished and those that are probably don’t deserve to be listed amongst your achievements.  Not only are challenging goals hard, they also typically cost more and take a lot longer than you expect. But what remains are two words: worthwhile goals.

What makes goals worthwhile is the fact that they are hard but that’s what brings out the best in you and from a business perspective this is also what gives you a competitive advantage.  Most people are happy to plod along living from day-to-day, achieving little but just surviving.  The amazing thing about the pursuit of challenging goals is what you learn from the failure you experience along the way.  If you’re not failing your goal is not challenging enough and the payoff will reflect that.  If you are failing you’ll be learning and getting closer to a higher level of understanding and competence.  Failure is simply a question of attitude; to some people it is seen as a negative outcome to others it is part of their progress towards the desired outcome.  Benjamin Franklin said “I didn’t fail the test I just found 100 ways to do it wrong.”

So, if you want to “learn to walk” at anything in life or in business all you really need to do is practice and never give up. Simple isn’t it?  Just one more thing no matter how hard something might seem to be, someone has probably been there before you and you can learn from their experience.  Don’t re-invent wheels just emulate the behavior of people who have achieved what you seek and take it to another level.

I’ll be having 5 retreats of 7 days each (Sunday to Sunday) starting January 3 and thereafter every two weeks until February 14 and one last one on February 21. But there is going to be a special week.   February 7 is Superbowl weekend here in the US – that is a HUGE weekend! I’ll put on a special retreat starting Feb 4 and finishing on Feb 11 if you’re an Ozzie, a Kiwi or a Pom and you’d like to experience this phenomenon at least on TV with a beverage in hand + a roast Turkey Lunch (the Superbowl is one of those items on your list of 100 things to experience before you die).

You will invest $1,695 per person (in your local currency or £1,050 for UK). This will cover your amazingly comfortable accommodation and “inside” meals that I prepare (or probably buy in) and they’ll be phenomenal! You will need to cover your own travel, entertainment, “outside” meals, beverages, lift tickets etc.   You MUST be willing to share your numbers and your soul to ensure the success of the retreat for you and the other people.  This is going to be a serious executive retreat but it’s also going to be a winter vacation that will unquestionably pay for itself. BTW, if you have never skied and you’d like to learn, this is your chance.

My house is in California but on the Nevada side (2 minutes from my house) you’ll find Casinos (e.g. Harrahs and Harveys) which means gambling (if you’re so inclined), good restaurants and great entertainment.

If you’re interested send me an email and let me know what dates work best for you.  I will then send you details of the program and travel suggestions.  The best way to do this is to email me at ric.payne@principa.net.  Please remember, it will be serious work, it will be bunk style (but very, very comfortable) accommodation and most important will be fun which is what life is meant to, and can be.

Please note I can only accommodate 5 people per retreat so if you’re interested start the ball rolling now.  This will  be a great opportunity to have some fun, to extract from me everything I know, to meet people who share the same challenges as you, to play in a winter wonderland and to develop a workable plan for your for for the next 12 months and beyond.

As far as exclusive retreats go, they don’t get any more exclusive than this.  I think it will be fully tax deductible (that’s for you to judge based on your local tax laws) but I know it will be incredibly valuable.

Ric.

Professional services can’t be seen, smelt, felt, touched or tasted so for the most part people who need them will not be aware of that need.  To address this you need to alert your clients to the benefits that your solutions will provide.  We’ll call this marketing.  But marketing is not selling.  Selling is the flip side of marketing and is the process of helping people move from a mental position of understanding their need to a mental state of wanting your solution.

This brings me to three points.  First, your impact as a professional is directly related to the value you bring to the table for the people you are privileged to serve. Second, no matter how talented you are, your impact will be directly influenced by your ability to sell. Finally, you ability to sell, as with any learned ability, will be directly influenced by your willingness to practice to develop your skill.  Here’s my question, how often do you practice for or even prepare for a sales meeting?

Consider this. I read a story recently about Tony Gwynn, a US major-league baseballer who played for the San Diego Padres from 1982 to 2001. He was inducted into the Hall of Famer in 2007 as one of the best hitters in the game with a career batting average of .338.  He was the National League Batting Champion on 8 occasions in his 19 year career.  I take it you understand that he was pretty good!

The key to his success I’m told, is not just his natural talent but also his ability to focus.  Despite his unquestionable skill he would read Ted William’s book The Science of Hitting several times each season.  He watched hours of video of his own game and others.  He’d take the videos with him on the road to study and when he wasn’t swinging his bat in practice, watching videos, or reading about hitting he was talking to his team mates about it and how he could improve. This is precisely the same behavior that Tiger Woods exhibits with his golf.  He practices all the time and if he has a bad round he goes straight to the practice tee and hits hundreds of balls.

Now you may not aspire to the lofty heights achieved by Gwynn and Woods but I think there’s something to learn from them.  You get better at anything when you practice.  Practice may not make perfect but if you aim for perfect and fall short, you’ll still end up with excellent.

Your formal education gave you the basic knowledge you needed to enter the profession. That education together with the continuing formal education you receive as part of your CPE/CPD compliance keeps you technically up to speed and gives you your income.  However, this is never enough to make you a master.  That comes for you own personal development – from reading, watching video programs, attending sales training courses and most importantly from practicing. When you combine your talent with your sales skill you will have a dramatic impact on the people you come in contact with.  Here are two books you could start with.  Dale Carnegie’s How to Win Friends and Influence People and Og Mandino’s The Greatest Salesman in the World. In addition to reading these books take a look at our own sales resources on the website.

Your sales productivity (and your income and professional enjoyment) will explode when you do the following things: (1) be deeply prepared – this will show your prospect that you care, (2) have a clear and definite picture in your mind of what you want and expect the outcome of the sales presentation to be, (3) rehearse every presentation in your mind and with colleagues, (4) develop your listening skills rather than your talking skills, (5) be “interested” rather than “interesting” so that you are able to identify your prospect’s real needs and remember the saying: people don’t care how much you know until they know how much you care and finally (6) ask for the engagement with the use of a statements such as “so <name> having seen what this means for you, when would you like to get started?”

Oh, and one more incredibly important thing, don’t forget to go through your Mutual Commitment Statement as an integral part of the sales process.  This requires practice and when you get it down pat, your financial future will be assured as will that of your clients.

It’s way easier to get more leverage from your strengths than it is to do so from your weaknesses.  This is not to say your weaknesses should be ignored but they should not take up more than 5-10% of your attention, energy and effort.  The whole point of having a team is to surround yourself with people who complement you, who you are able to delegate those tasks that you are not suited to or that you don’t need to do.

In the course of my research on this I came across this vintage Drucker quote:

The great mystery isn’t that people do things badly but that they occassionally do a few things well. The only thing that is universal is incompetence. Strength is always specific! Nobody ever commented, for example, that the great violinist Jacha Heifetz probably couldn’t play the trumpet very well.

To be successful you must focus on and be remembered for your strengths. Are you doing that? And what about your practice – as Jim Collins says in Good to Great, you should ask yourself the question: what are we capable of being really good at (as in “best in the world”)** and then ask yourself: is that something I/we are or can be deeply passionate about? and finally, will people pay for that?

You’ll notice I asterisked my comment about “best in the world”.  I did so because some people will look at that and immediately say I/we can’t be the best in the world and then forget about it.  BUT, it’s not the destination or the goal that’s important in and of itself.  What’s really important is what you and your team become when you set your mind and direct your actions on that goal. Collins and every “management expert” I have ever read or met all agree that having robust, challenging and worthwhile goals are what brings out the best in people and businesses.