Ric Payne's Blog: The Consulting Accountant

The title of this post is something Mark Twain said many years ago. It is indeed time to pause and reflect for many firms in the accounting profession. The economy is tough, it’s hard to attract and retain talent, baby-boomers are looking to retire in the near future, clients are hurting, competition both within and from outside the profession is intensifying … need I go on.

Despite all of this I’m reminded of words that I have been chanting for as long as I can remember: in any industry, at any time, there are some businesses that out-perform the rest by an order of magnitude. The accounting services sector is no exception.

In his best selling book Good to Great, Jim Collins makes the insightful point that the reason we don’t see many great companies is because the vast majority are quite good. Good, he says, is the enemy of great. Collins’ book is a must-read for anyone serious about improving the economic performance of their business and who want to escape from the sea of sameness that characterizes most industries. He also has a website that’s worth visiting (www.jimcollins.com).

For the most part, mature industries, e.g. the accounting profession, tend not to be hotbeds of innovation. Rather, the “rules” of the game are well known and practiced and most firms are reasonably good at playing the game by the rules they all know. This is why the vast majority of firms drift aimlessly in the sea of sameness.

Mankind exhibits a heard mentality. People, by nature, tend to feel comfortable going with the flow and as long as they’re performing more or less at the same level as others around them they’re content with life. The wide availability of inter-firm comparison data and best practice benchmarking studies might even contribute to industry malaise because they give comfort to the 68% of firms that are content to be within 1 standard deviation of average performance.

However, the great firms view benchmarking studies in a totally different light. They are the ones that leap ahead of the pack, not by following “best practice” performance but by innovatively creating and defining “best practice”.

Clayton Christensen in his seminal book, The Innovators Dilemma: When new technologies cause great firms to fail, noted that new entrants are much more likely than incumbents to innovate. Although Christensen is not talking about the accounting industry his observation explains why new kids on the block often seem to be able to create a firm that has a refreshing feel about it that appeals to both customers and team members and represents a viable alternative to established practices.

These firms experience rapid growth and often race past established firms with respect to profitability, the ability to hire and retain talent and the quality of new business they attract. They exhibit a vitality that older firms lack but once the new order has become established, complacency inevitably sneaks in, a fear of losing market share emerges, innovative energy subsides and opportunities are ignored and missed. The firm settles comfortably into the role of being an accounting business like all the others and gets more or less the same results as all of the others. Best practice in that context becomes nothing more than “typically quite good practice”.

Notwithstanding the above comments, studies of best practice can be very useful to identify potential and in particular to show under-performing firms that there is room for improvement. But they can also serve to stifle innovation by encouraging firms to mimic the strategies and operations of the best performers and while this might help the under-performers lift their game it manifests a me-too industry that exhibits very little product or process innovation.

There is no panacea for migrating a good firm to a great firm. Many roads lead to the desired destination and each individual firm needs to decide what road suits and then set out on the journey with confidence and conviction.

My advice is to look at metrics from benchmarking studies from a holistic perspective and use that information in conjunction with innovative “out-of-box” thinking to decide how to implement change in the way you operate your business.

One of the world’s best studies of accounting firm performance is the annual The Good, The Bad and The Ugly of the (Australian) Accounting Profession (sorry if you’re not an Australian firm) study carried out by my friends at Business Fitness. The 2008 study has just opened and I urge every firm in Australia to participate in the study. There is no charge for participating and you will receive a bucket load of value:

• Insights from leading industry commentators (e.g. me!!!) with the theme “How to Use Benchmarking to Frame Your Practice”.
• Your firm’s ranking plus Comparison Tables highlighting your results as either ‘Good’, ‘Bad’ or ‘Ugly’ against all firms, firms in the same revenue group, by location and charge out rates.
• Efficiency Factor™ (a pretty cool Business Fitness innovation being a one-number summary that brings together profitability, productivity and financial management efficiency to paint an overall picture of how good your firm is on multiple management fronts) together with a one page report highlighting your firm’s efficiency result against the high achieving firms.

The survey closes on August 22, 2008 so get it done now. The small amount of time you put into completing the survey will yield an extraordinarily useful report that will be invaluable for your strategic planning. Perhaps more importantly, the process will give you insights into your own business (one of which might be how little you actually know about it) that will give you reason to pause and reflect on what you could and should be doing to migrate your firm from good to great. In my next post I will be giving you a raft of ideas you can implement right now to accomplish that goal.

When I was in practice many years ago I vividly recall walking into the office very early one morning not long after the beginning of a new financial year and finding one of my partners staring vacantly out the window of his office.

I asked him what he was thinking about and his response surprised me. He said, “I’ve just realized that I have another 25 years of doing the same thing over and over again, it’s quite depressing!”

We got to talking about life goals and aspirations and he confided in me that when he was at school he decided he wanted to be a Chartered Accountant and that he’d set himself very specific goals at various stages of his early career.

For example, his first goal was to get a job with a CA firm after graduating from high school that would allow him to study for his degree part time [goal accomplished], then to complete his degree as quickly as possible while getting good grades and working diligently for his employer [goal accomplished – he was an outstanding student and employee], then to complete his Professional Year for full CA qualification [goal accomplished], then to get noticed in the firm and assume ‘manager’ responsibility with the goal of early admission to partnership before he was 30 [goal accomplished].

Now, at the tender age of 33 he felt he’d run out of goals! He didn’t aspire to be the managing partner, he had already built and/or inherited a full book of business, he was busy all the time, often doing things he really didn’t get must satisfaction from and as a new financial year dawned, he couldn’t see what was going to change.

My recollection of this meeting jumped into my mind when I was reading an article written by Peter Drucker called Managing Oneself that was published in the HBR in March-April 1999.

“When work for most people meant manual labor there was no need to worry about the rest of your life. You simply kept on doing what you’d always done and if you were lucky enough to survive 40 years of hard work in the mill or on the railroad you were quite happy to spend the rest of your life doing nothing. Today, however, most work is knowledge work, and knowledge workers are not “finished” after 40 years on the job they are merely bored.”

“We hear a lot about mid life crisis of executives. It is mostly boredom. At 45 most executives have reached the peak of their business careers and they know it. After 20 years of doing more or less the same kind of work, they are very good at their jobs. But they are not learning or contributing or deriving challenge and satisfaction from the job. And yet they are still likely to face another 20 if not 25 years of work. That is why managing oneself increasingly leads on to begin a second career.”

I refer to this phenomenon in one of my Boot Camp presentations as career peaking. A career peak is a point in your life where you feel your career ceases to hold the allure it once had. A time when you don’t feel inclined (or can’t think of how) to set goals you really want to strive for and which therefore act as a motivational force for you. At this point in your career you go to work because you need to make a living to maintain your lifestyle (you “do it for the money” as David Maister so eloquently says.) If your career is within striking distance of your planned retirement date you can put up with the boredom but if it’s 20 years this side of retirement you have a personal challenge that should be managed.

Some people career peak early in their life and others peak later but from talking to lots and lots of people in the profession I believe it’s the norm rather than the exception. Personally I have career peaked twice, once as a university lecturer when I left to become a partner in a public accounting firm then subsequently I moved to start Results Accountants’ Systems with Paul Dunn. Each time I dramatically changed my career and each time I personally felt I moved to another level of personal accomplishment if for no other reason than I had a new set of higher goals to achieve.

In his article, Drucker talks of three ways to develop a second career. They are: (1) change jobs – move from one organization to another; (2) develop a parallel career e.g. become the part time CFO of a nonprofit organization and (3) create a new organization e.g. by becoming a social entrepreneur or active philanthropist (Bill Gates is an example.)

I’ll leave you to read Drucker’s article if you’re interested but I think there’s another variation on his first two ways and that’s to find a new career or focus within your existing business.

For example, you might do something like transfer 50% of your work commitments to another partner or manager and dedicate that time to building a “new” practice within a practice by bringing on new clients (or old clients with a new service offering) who you really get a kick out of working with because they have potential to grow, are keen to have your assistance and are willing to pay for that privilege.

Another variation might even be to transfer all (or most) of your clients to someone else and start from scratch. Remember how much fun you had in your early days of building your business.

If you’re a managing partner and you sense that one of your colleagues is suffering from career peak perhaps you could engage in some useful mentoring to help him or her understand the condition and put some professional development goals in place.

I have had the opportunity over the years to get close to several hundred partners in accounting firms and I’m amazed at how many of them related to the story I opened this post with and the concept of career peaking.

When I ask “what are you doing about it?” Their answer is almost always along the lines of “there’s not much I can do because I have made a commitment to my colleagues and I owe it to my family to put my head down and deal with it.” But this does not solve the problem. Career peaking leads to resentment, discord, leadership malaise and under-performance not only by the person concerned but also from the people he/she works with.

I’d be interested in your thoughts.

I recently posted a blog that talked about a recession being a time of great opportunity for business and I thought it might be useful to share some ideas on why this is so and what you can do to take advantage of the situation. I have written this post from the viewpoint of how you might talk to your business clients.

In good times every man and his dog can run a successful business and many will even to be in great shape. But good times hide from view the real weaknesses that exist in so many businesses and they also hide from view underlying strengths. When the going gets tough both the strengths and weaknesses are revealed.

A recession is a time when the business landscape is cleansed. It’s a time in the economic cycle that presents you with an opportunity to lay the groundwork to build your bottom line by addressing the things you should have been doing right irrespective of economic conditions. For already well run business it is a time for them to drive home their advantage by focusing even harder on the things that have made them successful. What follows are some thoughts on how to do that.

Your pricing strategy. Typically people think nothing comes to rest on the bottom line unless it first appears on the top line. That line of thinking leads to the mistaken belief that revenue is the major profit driver and a price reduction enables you to hold or even grow market share and thereby maintain profitability. It isn’t that simple.

If you’re servicing a market where price elasticity is high or at least rising because of the recession (i.e. customers become more price sensitive in tough times) then some price reduction might make sense but if you try this and don’t see an increase in sales (both in terms of revenue and units shipped) then market demand may not be as elastic as you think so don’t continue with it. Furthermore, in tough times customers tend to have smaller order sizes which means your cost of supplying the order is relatively higher (this would be obvious if you used activity based costing) with the result that if you discount your price, your margin shrinks even more.

It’s fair to say that typically customers do become more price sensitive during a recession but not as much as many business people think. However, rather than drop your price it is far smarter to explore ways to introduce a lower priced alternative to your main service or product with some “value” removed. In other words maintain your margin on your main lines and introduce a lower priced alternative to service your price sensitive customers. In other words, give your customers two opportunities to say ‘yes’ instead of either ‘yes’ or ‘no’.

My candid view is do not consider a discounting strategy unless you can introduce an additional lower priced alternative or you have a cost advantage over your competitors and you have available capacity and the demand for the product or service you offer is sensitive to price.

Because price cutting is so transparent it is by far and away the easiest initiative for competitors to copy so the minute you do it you not only lose margin on all your sales but you’ll probably lose some of your physical volume as well. At the end of the day, the game of business is about the bottom line, not the top line.

You should jump on to GamePlan (the pricing & volume calculator in the GamePlan Tools module) to see the impact that a price reduction has on the need for additional sales to maintain gross profit. For example, if your GP% is 30% a price reduction of 10% (a common discount used) will require a 50% increase in sales to maintain your gross profit (it’s even higher than this if your GP% is less than 30%). Quite frankly, it would be amazing to achieve a 50% increase in sales from a 10% price reduction during an economic boom but you’d have to be living with the fairies to believe that would be possible in a recession.

GamePlan’s pricing & volume calculator will also show you that as long as you hold your price (and therefore your margin) your competitors could take 33% of your business before your gross profit declines—this is most unlikely to happen but to the extent you do lose some business you just might find it’s from customers who are not profitable for you in any event—this is discussed below.

This is not to say pricing is irrelevant. Pricing is a critically important issue in any economic environment and there are some pricing and related product bundling strategies that should be especially considered in a recession but I will be spending some time on that at our up-coming training programs in the US later this year so for now let’s move on.

So if price is not the answer, what is?

Identify your very best customers and your most profitable products and/or services then focus all your attention on both of those elements of your business. If you do a thorough analysis of your customer base you will inevitably find that between 10–30% are unprofitable for you, a great starting point for this is to do a Pareto Analysis that will tell you what percentage of your customers contribute 80% of your revenue and a separate analysis of the percentage that contributes 80% of your gross profit. Get rid of the low profit contributors or allow your competitors, who are implementing a price reduction strategy, “win” them. You’ll benefit in two ways: first, your immediate profitability will improve because you are generating quality revenue by ridding yourself of unprofitable business and secondly, you’ll ultimately gain market share when your competitors go out of business as a consequence of them trying to service your bad customers on their lower margins.

Strengthen your balance sheet. Many businesses get away with murder in good times. They have way too much debt that is incorrectly balanced (e.g. too heavily weighted to short term), their shareholder distributions (drawings) are too high and their receivables and inventory are poorly managed. This is a time to clean all of these things up. Dispose of unused or under-utilized assets (and under-performing non-core businesses) and if those assets are required for some aspect of your operations, out-source that service. Even if this ends up costing you a little more, the benefit you will get is some debt retirement (assuming the proceeds for the sale of the assets is used for that purpose) and secondly, a reduction in your break-even point (assuming the increase in variable cost does not out-weigh the effect of the reduction in fixed costs) which give you more capacity to deal with sales volume fluctuations. Use GamePlan to make this assessment.

Improve the quality of your financial reporting and financial management processes. In boom conditions people don’t worry too much about the quality of either their financial reporting system or their financial management. As long as there’s money in the bank to pay the bills everything’s OK. Unfortunately when these bad habits spill over into difficult economic times we you have a recipe for disaster.

You should have a full set of financial that are accurate and available within 3–7 days of the end of each month. This is where Principa’s DashBoard comes into it own. A monthly review meeting with your business coach, with the DashBoard at the center of discussion and supplemented with your GamePlan analysis, can make a dramatic difference by helping you keep focused on the things that need to get done in your key result areas—view a video of Bob Bowley talking about the results he has achieved as a business coach using the DashBoard. In addition, a weekly flash report should be available by COB Friday that shows your sales, receivables, payables, cash, sales pipeline, orders on hand, your primary activity metric (e.g. transaction count) and average transaction value. The KPIs will depend on the business but this is an indicative list.

Focus on your core business and supporting operational processes. Successful businesses have a laser-like focus on their core business. This is what makes them very good at it. In difficult times it often happens that people look for non-core activates to boost revenue which distracts them from their main business, confuses their customers and starves their principal activities of resources. My advice: stick to your knitting and concentrate on improving the productivity of your existing processes.

Don’t cut back on discretionary expenses without good reason. In tough times it’s normal to think we should cut expenses because with a gross margin of say 30% then for each $1 reduction in costs we do not need $3.33 in revenue. This is something that can’t be ignored because these numbers speak for themselves. But simply cutting any expense simply because it’s possible does not make sense even though that may appear to be counter intuitive.

A discretionary expense is one over which management has discretion in the sense of that it can be cut, increased or eliminated. Expenses that fall into this category would include R&D, team training, marketing, customer service initiatives, some team salaries and discretionary bonuses and so on. In contrast, non-discretionary expenses are those expenses in respect of which the business is either contractually obligated or are absolutely necessary to “keep the doors open.”

For the most part, discretionary expenses are associated with activities and initiatives that grow the business or to put that another way, they ensure the business will be vibrant tomorrow. In contrast, non-discretionary expenses are the ones that are associated with what the business must do to meet today’s operational needs. Lazy (or ill-informed) business managers tend to look first at discretionary expenses when they launch a cost cutting exercise which is precisely why a business that is going to come out of a recession stronger than its competitors always employs a different strategy. There are always some discretionary expenses that should be cut or eliminated (even in good times) e.g. business/first air travel for short trips, long lunches and $100+ wine, chauffeured limos … need I go on?

You should not cut any expenses that directly impact the strength of the relationship you have with your profitable customers. Nor should you cut the investment you’re making in developing and delivering your most profitable products and services. You will find that as a result of reducing your unprofitable products and purging your unprofitable customers you will have opportunity to reduce some of you non-discretionary expenses. To keep an eye on how your customers feel about you it would be a great idea to implement the Net Promoter Score customer monitoring system advocated by Fred Reichheld and his colleagues that I wrote about in an earlier blog posting.

The key here is to undertake a customer and product line profitability analysis in conjunction with an ROI review of your expense line items and seek out better suppliers who will offer better service at lower prices (remember, your suppliers are also in a recession). This of course is a strategy that should be in place irrespective of the state of the economic environment but good times breed lazy managers.

Work with your suppliers to find ways that you can help them lower their cost of servicing you. Intuitively, one way to achieve cost reduction would be to put pressure on your suppliers to lower their prices &/or offer better payment terms. That might be possible and should be pursued but it also makes sense to work with your suppliers to find ways to help them achieve cost savings that can be passed on to you as lower prices. Having a good relationship with your suppliers is critical to your continued success when the economy improves and the quality of the relationship you enjoy during tough times will influence that. The last thing you want coming our of a recession is an inability to meet demand because your suppliers are no longer in business or they give preference to your competitors who were kinder to them in the hard times.

Keep your team in the loop. Your team are the key to your success. In a recession people always worry about their job and the last thing you want is your best people jumping ship and joining a more successful so that you’re left with under-performers. Your people need to know what your strategy is and they need to feel confident that their job is not on the line. If they feel secure but at the same time realize that everyone has to pull his/her weight you’ll find they’ll step up to the challenge and you’ll not only be able to grow your bottom line, you’ll build a stronger team that will remain loyal to you for many years to come. You’ll also position yourself nicely to bring on board people who have been retrenched by your competitors so you might want to pick the gems out of that to strengthen your team by letting go people who don’t want to roll up their sleeves and get behind you.

Fred Reichheld is arguably the world’s leading authority on the impact customer loyalty has on business growth and profitability. His thesis is simple: if your business strategy and its execution results in a high proportion of loyal customers who are also strong advocates you are on a success trajectory.

For several decades Reichheld and his colleagues at the management consulting company, Bain & Company, researched this hypothesis. The data they assembled revealed that a 5% increase in customer loyalty could yield an increase in profits of between 25% to 100% and companies with the highest levels of loyalty grew revenue at a rate twice that of their competitors.

In his latest book, The Ultimate Question, Reichheld has gone one step further and has come up with a predictive success index he calls a Net Promoter Score (NPS).

Customers are asked to score their response to the following question on a scale of 0 to 10 where a score of zero indicates the respondent is not all likely to recommend the company while a score of ten indicates extremely likely:

How likely is it that you would recommend this company to a friend or colleague?

The idea behind the NPS concept is that a company’s customers can be divided into three groups:

People who are loyal enthusiasts who not only love dealing with the company but will urge their friends to do likewise are referred to as Promoters. They will indicate a score of 9 or 10 on the scale. Because these people are enthusiastic supporters of the business the profit generated from them is considered to be good profit as distinct to bad profit earned from detractors.

Then you have people who are satisfied but not overly enthusiastic who exhibit transient loyalty and are quite likely to switch to a competitor. These people, described as Passives, score a 7 or 8.

The final group are called Detractors. These are people who are unhappy and often feel trapped in the relationship with the company, they are all people who score on the 0 to 6 range. Even though you may be making a profit from these customers so from a short term economic point of view they may appear t be “good business”, Reichheld argues that this is bad profit.

The NPS is simply the difference between the percentage of people who score themselves as Promoters (9 and 10) and the percentage who score themselves as Detractors (6 and below.) Some companies (in fact many) find they have a negative score and Reichheld found there is a very strong correlation between those with a high score and superior levels of financial performance in their industry.

Reichheld’s research indicates that it is not good enough just to measure the percentage of promoters and to seek to increase that number alone. The companies that have achieved most success are those that have not only improved the percentage of their promoter cohort but have also reduced the size of the detractor cohort. In other words it is the “net” promoter score that is the critical metric to concentrate on.

The Ultimate Question contains a substantial body of corroborative evidence to support the efficacy of the NPS as a predictor of financial success but most of the examples relate to very large corporations e.g. GE, HomeBanc, Intuit, Enterprise Car Rental, Southwest Airlines etc. Interestingly, the concept is now starting to cascade down to much smaller businesses as more people see its potential as a management tool. For case studies and other insights about the value of the NPS metric, I strongly recommend a visit to the NPS web site and while you’re there take a special look at Reichheld’s Q & A page.

Reichheld makes the critically important point (page 118) “… measurement alone isn’t sufficient. Just as you plan how to raise your profits, you must also plan how to increase the number and percentage of promoters and reduce the number of detractors.” The beauty of the NPS is that it is a single, customer-centric, metric that everyone in the company can focus on and it is reasonably easy to collect and report in comparison with lengthy so-called customer satisfaction surveys.

By continually monitoring your NPS you can see if your businesses is getting better or worse in the minds of your customers and what impact your initiatives to improve the NPS are having. This involves three specific actions:

Decide what your customer value proposition is going to be for the customers you actually want to service. To help you with this you should review Principa’s business value proposition module.

You need to deliver that value proposition in everything you do with and for your chosen customers and every person in the business must understand what their role is in doing that. Principa’s Towards Awesome Service program is a tool that you can use to facilitate this process and the NPS is a perfect metric to monitor the impact of initiatives such as this to improve your customers’ experience.

Finally you need to systemize your processes so your business is able to consistently and reliably deliver enhanced value to its customers over and over again i.e. develop your customer experience capability and a culture built around it.

All your business clients should be doing everything they possibly can to DELIGHT (not just satisfy) their customers. This is what moves customers into the promoter category and out of the detractor category and it’s particularly important in these difficult economic times. In fact, it’s essential to make this the cornerstone of competitive strategy when everyone else is looking at ways to cut expenses and contract—refer to my blog post Recession is a time of great opportunity. Interestingly, one of Australia’s largest retail groups is very much aware of this and has recently invested in Principa’s Towards Awesome Service program. Right now over 22,000 of its employees are participating is TAS training.

This note is about a Principa Alliance member who turned a practice disaster into an opportunity and picked up more than $100,000 in fees in a year from a most unlikely group of clients.

People come away from our Bootcamp excited by the opportunity they know they have to help their clients dramatically improve their business by applying the leverage points they’ve learnt.  They realize that creating a better and more valuable business does not involve rocket science.  All their clients really need is someone to give them direction, a workable action plan and a process for monitoring outcomes as a basis for holding them accountable for their actions (or lack thereof).

Inevitably, they have several of their “top” clients in mind when they leave the Bootcamp and they can’t wait to talk to them about how they can help.  Their top clients are people with whom they have a great relationship and for whom they are doing valuable work.  They pay their bills, are good referral sources and are a pleasure to deal with.  What better definition could you have for a “top” client.  Life would be great if all your clients were like that!

It sometimes happens, however, when you introduce “new” business development services to your top clients they’re reluctant to move forward with you in this style of business advisory or management coaching capacity.  Naturally this can be disheartening and there’s a risk you’ll conclude that your clients are not suited to this type of service.

I believe there’s a reason for this.  Those clients who show little or no interest in working with you in this capacity are telling you they’re very happy with what you are now doing for them.  That’s why they’re loyal advocates, are easy to work with and are very happy to pay for your services.  Many of them are not looking for more from you, at least not at this time.

On the other hand there are many other clients who you may not feel too close to and who you have probably dismissed as candidates for your business development services.  This group contains some phenomenal opportunities and here’s why.  We’ve done client advisory boards over the years in many countries and we are amazed at how many clients of accounting firms are not aware of the services the firm could provide them.  It does not matter how much promotion you think you do, the sad fact is many people don’t see it, don’t think it applies to them or summarily dismiss it it for some other reason.  If these people seem distant to you it’s usually because they feel that you could be doing more for them but they don’t know what that is and therefore can’t ask for it.  This is why so many studies of what clients think of their accountants come up with the finding that they want their accountant to proactively help them build a better business and would be very happy to pay for it—and who wouldn’t when the return on investment is so high.

People want you to notice them, they want you to talk to them and to show an interest in them personally.  They don’t want to be “sold” something they don’t need but they do want you to take enough interest in them to be willing to spend some time showing them what their full potential is and how they can accomplish that.  As long as they meet our 11 point client selection criteria they are great candidates for business development services.  Of the 11 criteria, three stand out, they are: does their business have development potential, do they have a pleasant personality and are they willing to listen?

And that brings me to Bob Bowley who I posted a blog about in October 2007.

Bob has a firm based in Nelson New Zealand called Bowley Consulting.  A small community of about 50,000 people with a typical mix of small businesses.  It is not a booming community but it’s not dying either.   A couple of years ago two of Bob’s senior people left his firm and within a few months he lost 30% of his best clients who together contributed 80% of his profit!

When you’re left with 70% of the work but only 20% of the profit the situation is scary to say the least.  Bob could easily have thrown in the towel but he decided to see what he could do with what he had to work with.  Noting that his previous employees had had considerable success with our Business Dashboard and the service protocol built around that product he approached several of the clients he had been left with and to his absolute amazement 11 of them took up his offer and have yielded more that $100,000 in fees in the past year.  Previously he had not considered them as prospects for this type of service and had not even approached them.

The results he has been able to achieve for these clients is as impressive as the results he has been able to achieve for his firm.  Bob kindly discussed his experience with the Dashboard at our Practice 2020 Conference in Brisbane this year.  We captured his session on camera so you can see for yourself how he has used the Dashboard and how you could do the same.

Jim Press, a senior executive at Ford Motor Company, laughed when he heard Henry Ford II announce that Ford would “push the Japanese back into the ocean” with their new vehicle, the Pinto. Realizing the writing was on the wall, Press left Ford in 1970 to join Toyota and went on to become its North American President. By 1971 Toyota had sold more than 300,000 Corollas in the US which was considered “nothing” compared to the big guys and the company was considered to be a mere fly in the ointment (but one to keep an eye on) by the big US car makers.

They held this view despite the owners of Corollas considering the vehicle to have far superior quality and value than anything the US was producing at the time with vehicles in that class (its price was under $2,000). By 2008 Toyota had grown to be the biggest car maker in the world. It is also the most consistently profitable, never having made a loss since 1950 while the others have had a bottom line that traces the path of a roller coaster.

Toyota’s success is generally accepted as being due to its never-ending pursuit of excellence in everything it does. The Toyota Production System (TPS) is the world’s leading “lean manufacturing” system and while other companies have tried to emulate it, few have succeeded.

If you’d like to learn more about Toyota’s success I strongly recommend David Magee’s book How Toyota Became #1: Leadership Lessons from The World’s Greatest Car Company. I’d also recommend Jeffrey Liker’s book The Toyota Way if you have clients in manufacturing and would like to talk to them about the essence of lean manufacturing. I’d also recommend Liker’s book for your own business.

This is all interesting stuff but the big point I want to make is that Toyota’s success is attributed to 4 things:

1. Its total focus on delivering quality to its customers and giving them what they want through a process of continuous consultation and continuous improvement (kaizen). The underlying philosophy of its business model is the customer comes first, employee satisfaction and happiness is paramount and stable corporate management.

2. Its willingness to take a long term perspective on everything it does. It takes quite a long time to figure out what it’s going to do but once it knows that, it executes very quickly and effectively.

3. Its realization that time to market, waste minimization and customer retention drive improved quality and lower cost. At Toyota, management concentrates attention and resources on getting these things right (“it pursues perfection relentlessly” according to Magee) which then drives earnings and shareholder value growth.

4. It gives total attention to detail and makes sure that the “little things” in every facet of its business get done extremely well.

And point 4 brings me to broken windows.

I have just finished reading a fascinating book by Michael Levine called Broken Windows, Broken Business: How the Smallest Remedies Reap the Biggest Rewards.

The broken window theory was first posited by James Wilson and George Kelling in 1982 in an article published in the Atlantic Monthly. They suggested that something as small as a broken window in a community signals a lack of care and attention by the owner. This in turn suggests that more serious infractions such as graffiti, theft and violent crime might also be condoned.

Wilson & Keeling (together with police departments around the world) suggest that if a broken window is left it will not be long before all the other windows are broken. This hypothesis is supported every time you see an abandoned motor vehicle on the side of the road—if it’s left for a few days it’s not very long before everything is stripped off.

When Rudy Giuliani became mayor of New York City in 1994 he and his new police commissioner, William Bratton, decided that they would attack serious crime in the city by eliminating graffiti on the subways and moving the hookers and pimps out of Times Square to make Manhattan more family friendly.

Giuliani and Bratton were laughed at by critics but their actions sent a clear message to criminals and citizens generally that a “zero tolerance” policy would apply to ALL crime in the city. Over the next few years there was a dramatic reduction in the number of murders, assaults, robberies and other violent crimes. Social psychologists argue that by giving attention to what might be regarded as the little things, serious lawbreakers are being sent a message that much harsher penalties will apply to more serious crimes. Furthermore, the law-abiding community also gets the message that someone is in charge and the improvement in the social climate invites community pride which in turn encourages even more community improvement.

Levine addresses the relevance of the broken windows theory to business in a fascinating manner. Every business has some broken windows and customers notice. As a result, opportunities are lost without anyone ever really knowing why or what they could have done about it. The book is about how broken windows happen, why they are ignored and the consequences when they are allowed to go on unchecked.

Way before Giuliani became mayor and Levine wrote his book, Paddi Lund, an Australian dentist, understood the broken window concept and its relevance to business.

Paddi understood better than anyone (it seems) that people could not make a judgment about how good his dental work was because they were unqualified to do so. If his patients (or prospective patients) could not make this judgment then it would be very difficult for him to differentiate his service from other dentists. This would make it difficult for him to market his business even if he was allowed to by his professional body—which he wasn’t. And even more important to Paddi was the desire to create a business that he and his team enjoyed being a part of—a happiness centered business—if you will.

So Paddi came up with some of the most amazing strategies you could imagine built around giving attention to the little things—he refers to them as Critical Non Essentials—that change customers’ perceptions of him and his business. Things that turn them (and his team members) into raving fans who have enabled him to create a phenomenally profitable dental practice and an equally successful publishing business.

Paddi Lund was a keynote speaker at our Practice 2020 Annual Conference in Brisbane, Australia. He talked about the systems he’s developed and implemented for marketing, customer service and building a harmonious organization. If you’re looking for a way to differentiate your own firm whether you make cars or fill teeth, or you would like to be able to help your business clients look for a different way to get a competitive advantage, you should read his books. With uncertain economic times ahead it’s going to be even more important for businesses to find ways to get ahead of the pack and Paddi holds a key to that.

In a recent interview recorded on one of Australia’s leading radio networks Paddi talks about some of his ideas. Click here to listen.

A friend of mine gave me a copy of a “wish list” he created when he was looking for an accountant to do his work. I thought you might be interested in what he regarded as being important. You could even take it further and ask yourself how you and your firm stacks up. Here is his list:

Simplicity – systems and advice to keep our accounting processes and a hand-over easy.

Truth – if you don’t know the answer, say so. If you make a mistake, say so and let’s move on.

Expectations – accurate estimates of fees and time to complete before the work starts, no more than 10% out when it is finally billed.

Proactive – look over my shoulder and tell me when you think what I’m doing could be improved, share your knowledge and experience with me.

Aggressive – but don’t over-complicate and not at the risk of an audit by the taxation authorities.

Stability and accessibility – a consistent Key Contact person to deal with so there’s no chopping and changing contacts and having to re-explain structures, goals and setup each time. If you do want to change your team members around please introduce me to my new “contact person.”

Fees – reasonable and transparent, don’t make me pay for your mistakes or lack of experience.

Cashflow – ability to balance payments over the year (happy to do that in advance).

Management – if work can be done by a member of your staff that’s fine, but don’t abandon me completely.

Timing & Contact – two main contacts a year initiated by you: tax planning during the last 2–3 months of the financial year and a review meeting within 2 months of you receiving my books.

In response, his new accountant (who incidentally committed to all of his documented expectations) gave him a list of characteristics that reflected what he was looking for in a client:

Trust – I need to be trusted to be able to a proper job.

Openness – In working with any client it is frustrating, and prevents me doing all I can, if you do not give me all the information I need. Because of the nature of my job this requires that you be totally open about your affairs, otherwise I may give inappropriate advice.

Feedback – I would much prefer clients to be totally honest about how they feel about my firm’s performance – feedback (good or bad) is how we’re going to improve.

Defined Expectations – I prefer to know what you expect from me. Do you just want tax returns and no advice, or are you looking for more than that.

Response to queries – Obviously a timely response to requests for information from clients assists me greatly and enables me to provide you with a much better and faster service.

Time frame for work – I need clients to understand that we are all busy and work can’t always be done instantly – I expect my clients to be reasonable in terms of times frames for work my firm does for them.

I would be interested to hear what you think your clients are looking for in the relationship they have with you and, importantly, what characteristics you consider to be important for defining a good client.