Join Joe Woodard as he speaks with Rob Nixon, Founder and CEO of Panalitix, a coaching and professional education community for accountants and author of Remaining Relevant: The Future of the Accounting Profession.
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Session Transcript
Joe: Thank you for tuning into this episode of the Scaling New Heights Podcast. During this episode, we're going to have a conversation with Rob Nixon.
Rob Nixon, though he addresses accounting audiences, is not an accountant. But he has forged a niche to be one of the world's foremost authorities on how accounting firms can
Scaling New Heights Podcast
achieve peak performance. He is the author of a couple of books, including Remaining Relevant, his most recent book, and Accounting Practices Don't Add Up - Why They Don't and What to Do About It. Nice long title but a very, very meaty book. He is the founder of Panalitix, a coaching community and resource center for accounting firms, and accounting firms deploy the resources of Panalitix throughout the globe.
Before we get into our conversation with Rob, who presented at Scaling New Heights 2016, on “The Now Firm Leader and Being an Innovative Firm Right Here, Right Now”, I'm going to talk a little bit about what it means to be proactive in light of all of the trends that are taking place. Rob’s emphasis, as you're going to hear in the interview, is about taking the principles that we see coming around the corner and deploying those principles in the here and now. And there's a lot of overlap, in my personal opinion, between Rob's approach of “Firm of Now” and Intuit’s emphasis on “The Firm of the Future”, where Intuit says, “The future is now. It's just not evenly distributed.” That, of course, is Intuit quoting that famous quote about appropriating the value of future trends and seeing what's around the corner.
So I’m going to talk a little bit about “The Firm of the Future”, its pillars, and the challenge that Intuit, and, by extension, Ron Baker and Paul Dunn, have made to the accounting profession. Then we're going to bring Rob on to drill down on how we can deploy those principles that are coming around the corner in the here and now.
Let’s start with “The Firm of the Future.” What is the firm of the future as presented by Intuit? It is a firm who has deployed the three pillars, key pillars, that will position them not only to compete effectively in the future, but to begin appropriating the future’s opportunities in the here and now. Those three pillars - the firm is in the cloud; they’ve fully embraced cloud technology. That’s pillar number one. And that doesn't just mean that I emphasize the value of cloud accounting technology over desktop accounting technology. It's much bigger than that. It means that my firm not only has all of its documents and as many of our clients' documents as possible in the cloud, it means that we leverage the unique qualities of the cloud for extreme levels of efficiency and automation, so that we can more reasonably, economically, and viably maintain the books on behalf of our clients or have the client do the same with us having visibility and, with the access to that accurate and real-time information, provide value added services.
We're going to get there in just a minute, but let me drill down, because that was a mouthful on what the cloud offers. So many times we limit cloud to accessibility of data. It's almost become synonymous with anywhere, anytime access. But that is only the very beginning of the cloud journey and the cloud opportunity. The cloud offers levels of integration and innovation that were not available on the desktop. Brad Smith used to say quite frequently, and I thought it was a very profound quote, that hard drives are prisons for data and if we can get that data liberated out of these prison cells and into the secure, but yet accessible world of the cloud, then integration can kick in on levels we could not experience before.
Third party products that integrate with QuickBooks Online are often offering automation at levels we've just not seen anywhere in the history of the profession. Bank feeds have been around for a while; they’re getting better and better and better. But now we have the ability to parse data off of an image of a document, whether it's scanned or taken with our phone, and we have the ability to automatically retrieve documents, like Hubdoc does, from a wide range of resources, pull those in, and then deploy them against automation technologies, creating what we have found to be in certain laboratory cases up to 80% automation of the entire bookkeeping process.
Now with this automation that the cloud offers, we can elevate our role beyond trading keystrokes for dollars, beyond data entry, to data curation, which includes data validation and data verification. Those are not the same thing. One is making sure the process works correctly, the other is sampling against source data to make sure that the data is verified. And then here's the biggie – interpretation. Because once we have access to accurate and real-time information, where this automation is proven to be more accurate than data entry, faster, and more economically viable for us and the client, we finally have what we call the Holy Grail - accurate and real-time financial information that we can use to provide trusted advisory services for our clients. And that's pillar number two.
Pillar number one - I'm in the cloud; I'm fully leveraging the cloud. Pillar number two - with the accurate and real-time access to financial information, I become a trusted adviser. As a trusted adviser, I elevate my role from a backward-focus to a forward-focus. And, with the complementary solutions of real-time and accurate information through automation and financial analytics with solutions like Fathom, I'm able to provide business analytics, key performance indicators. I'm able to provide financial reports in a format that my client will understand, and I'm able to monitor my clients’ financial statements with alerts and dashboards allowing me to provide very specific information that my clients need, without having to review all of their financial information every single day to monitor the activity. That would be cost prohibitive.
So now I can play a forward-looking role. And, with solutions like LivePlan, I can even layer business against the key performance planning and forecasting and budgeting onto this accurate and real-time information, weigh that against the key performance indicators, the benchmarking, the business intelligence, and the financial analytics of a solution like Fathom or Corelytics, and then I can contribute to my client's success.
At Woodard, our vision statement is to transform small businesses through small business advisors and we aren't going to transform small businesses just by keeping them compliant and accurate. Compliant and accurate are two incredible goals, but they're not transformative. They focus on small business essentials and survival and administration and again, they are extremely important. But if our vision statement at Woodard is to be fulfilled through the advisors that are in our Institute, in our Network, and attending our conferences like Scaling New Heights, we have to become agents of transformation. We will only do that when we adopt a forward-looking focus.
I have to speak to something here. The theme of Scaling New Heights 2017 is Face the Yeti. Strange theme for a conference, right? It's because as we climb to new heights in our practice and we define that climbing to new heights based on the impact, the effectiveness we have on our clients, so as we are more and more effective for our clients, and we’re contributing to their success, we are Scaling New Heights in our practice. But to do that, we must overcome the fears that stand between us and the summit. The Yeti represent those fears. If we can overcome our fear of inadequacy in forward-looking consulting services, then, and only then, can we become agents of transformation.
As a profession, we feel extremely competent looking at the past and it makes us very nervous looking at the future. But, unlike any point in history, we now have the tools at our disposal, like business analytics, business planning solutions, forecasting and budgeting solutions, that will allow us to move beyond where we are and embrace an entirely new model. We don't have to be MBAs to do it and we don't have to have had ten years of experience as CFOs in private industry to do it. Yes, those things give certain people a competitive edge and it may be that when you get to certain points you're going to network with those people that have those levels of experience. But every bookkeeper on the planet with the right technology in hand can scale those heights and be agents of transformation to small business. It is an exciting time to be an accountant.
The third pillar of “Firm of the Future” is online connections and communities. That's different than online technologies. We're talking about marketing your practice in a future-focused way. I have no problem with traditional marketing methods. I have no problem with outbound messaging. I have no problem even with certain kinds of call campaigns, mail campaigns. Those still have a place. But the “Firm of the Future”, the firm that reflects the future model, is a firm building online communities through content-based messaging, so they're telling their story on platforms like Facebook, Twitter, Snapchat, LinkedIn, and they're telling a coherent story across these social platforms, not just shouting things or re-tweeting things and definitely not doing it in unprofessional ways, like unfortunately you see so many people doing in the space - blurring those lines between the deeply personal and the professional.
If you stay professional, if you tell a coherent story, and if you wrap that story around the effect that you want to have on small businesses - the specific way you're an agent of transformation, that story will resonate. It will become attached to your brand and your brand will then become synonymous with the benefit I receive as a small business owner or that my client receives if I refer to you. And you will grow your practice.
I want to talk a little bit about growth. I encourage you to listen to Episode 3 of this podcast series, you can drill down on this more, but you market primarily to have the practice you want, not primarily to grow your practice. What I mean by that - if you market and you have just the right kind of client standing at your front door waiting to get in, it will give you the freedom you need, the economic freedom you need, to push the client that isn't an ideal client out the back door. We keep clients who are not ideal, and we sometimes even keep clients who are toxic, because we simply cannot afford to let go of the revenue, not without significantly disrupting our infrastructure. Marketing gives you the clients you want. It's a constant flow of the ideal kind of clientele into your practice and it's a positive pressure to push the non-ideal out.
Growth is not a bad element and it's a fantastic benefit. You control how much or how often and how wide you leave that front door open. The wider you leave it open, the bigger the practice you have. I want to stress, you're still in control of that valve. I strongly encourage you not to grow too quickly; grow systematically, grow against your own business plan. Do not outgrow your capital and maintain your service quality level as you grow.
So, the three pillars of “The Firm of the Future” per Intuit are - embrace cloud technology and fully leverage that cloud technology to provide accurate and real-time information for your clients. The second pillar - using cloud technology and the real-time and accurate financial information it provides, become a trusted advisor to your clients, become an agent of small business transformation. The third pillar - build online communities and in those online communities share your intellectual capital, establish your brand, and reinforce the positive impact that you have on small businesses. In effect, tell your transformation story.
With those three pillars top of mind and with the understanding that we are to embrace those and reflect the future in the here and now, it is a perfect time to bring on Rob Nixon, who's going to talk about his concept – Firm of Now
Rob, welcome to the Podcast!
Rob: Hey Joe, I’m super excited to be here and talking to your audience. It’s going to be awesome!
Joe: Fantastic! So, I’m going to get right into the questions, because we have about twenty minutes to talk with you and I know you have a lot to say.
This first one I'm going to ask is very broad, but given some of the statements that you made at Scaling New Heights here just about a month ago, I know you've got a lot to say on this topic. What changes are you seeing in the profession right now?
Rob: Yes, so as I mentioned at Scaling New Heights, we've got a lot of movement in technology at the small business end, particularly cloud accounting. Just to recap the statistics I put out, for New Zealand, we have about 40% of small businesses on cloud accounting, about 25% in Australia, about 5% or so in the United States, about 6% in United Kingdom, and about 2% in Canada. In my part of the world, Australia and New Zealand, we lead the world on penetration of cloud accounting in the small business market. That has ramifications through to the CPA profession. For example, what we've seen are some problems arising; there’s a lot of opportunity with this, particularly with real-time information and real-time data, but there's a number of problems coming through. One of them is that compliance is getting commoditized. The bread and butter work, the go-to, the have-to work that all CPAs must do, is getting commoditized by technology. That's a big problem.
That then brings on new nimble players in the market. We’re seeing examples, a couple of examples already come before us with like an Uber for accounting, where we're seeing apps matching CPA to consumer or CPA to business. So these nimble players are tech-savvy and low-cost, and we’re seeing advertisements where, “We'll do compliance for half as much and twice as fast.” So that's a challenge. That is a big challenge for the profession as technology erodes barriers to entry.
We’re seeing clients having more information than ever. Consequently, they're asking questions and every stop and that's because of Google and the Internet. We’re seeing the business clients specifically wanting more help in the business advisory space, but most CPAs are not equipped to become the trusted advisor that they have the title of. And this has ramifications through to training people. The way most CPAs are trained, who might be a partner today, they might be 40-50 years old - the way they were trained is vastly different to the new workforce coming through. They will be trained differently; they will be trained on mobile phones for example, with apps and e-learning, not classroom. They learn differently.
And lastly, another challenge coming through, is how do we actually capitalize on this cloud thing, because if it's not correctly managed, as I mentioned at Scaling…. You know, we’ve seen in New Zealand a dramatic drop in profitability for partners of accounting firms, where we have the highest levels of penetration, because they didn't price up front, because they didn’t re-adjust their cost structures as they got more efficient, and because they didn't refill the capacity gap with new services or new clients.
So, technology is driving all this change and it's going super, super fast, Joe. This is five or so challenges, problems that are happening and changes that are happening right now, and it is going to grow exponentially, these changes, as well.
Joe: I couldn't agree with you more than the technological impact on the accounting profession - accountants and bookkeepers - is significant. I really like the way, Rob, you connected it to a fresh commission, that technology is driving us to become trusted advisors. Now that commission has been in the profession for hundreds of years, you can argue thousands of years; we've always had a mandate as members of a professional services community to increase the wealth of and to focus on the benefit that we bring to our client. But now when technology is taking away some of our bread and butter services that are less valuable, it’s creating a positive pressure, kind of forcing the profession into where it needs to go anyway.
You talked a lot about the changes and you talked a lot about the impact on the profession, but now I’d like to ask you what specifically can the accountant do to respond. How can they combat the changes?
Rob: Yeah, absolutely, I definitely can. So here is the chain of events, so everyone gets the picture. Clients, could be a small business or medium business, gets more technologically advanced at their end, so consequently the data integrity is better at the accountant’s end. There's less checking and processing going on, but the really cool thing is that we have real time numbers instead of redundant data, where you might be dealing with a client in August and talking about last year's numbers. It's useless information.
Now we have real time information. The real time information is richer; it's more accurate. Consequently, the opportunity here is where the CPA can step up and be the real time accountant with real time information. That means using that information to your advantage, which is super, super cool, because instead of not helping your client and just being reactive, we’ve got information at our fingertips, in our face, in a browser, on our phone, being alerted, so we can actually predict what's happening with our client. For example, you might see some indicators from your client where receivables are up, payables are up, cash is down and the client may not know it, but you can see it, and inventory may be up as well, but that client is either in a cash flow crunch right now or they're about to be.
This is a massive opportunity; you know, to predict, with analytical data, what's going on with the client, and make a call, send an email, have a meeting, and say, “I’ve just noticed, your receivables are up, your payables are up, your cash is down, your inventory is up. How is cash flow going?” All of a sudden - the relevance! My last book was called Remaining Relevant about the profession; the relevance of the CPA is elevated dramatically and that's why I call it Remaining Relevant. If you use this information that you’ve got at your fingertips, then you will be more useful, more relevant.
So that means: (A) You need the technology to connect with those clients and (B) You need to be able to get on the front foot and talk to those clients. But the big thing here is because of the efficiency gains that technology gives the CPA, you need to start marketing and marketing big time. You need to market your socks off, find new clients, find new services, broaden your services range, as you actually grow your business into the trusted advisor. So combating these changes, and saying, “Okay, that’s opportunity, yes.” If we leave it alone like the New Zealanders did and didn’t price up front, didn't readjust cost, and didn't value add, then you will get profits eroding away. But if you say, “This is an opportunity,” then you can reverse that and you can say, “Well let's really help our clients. Let's use this new capacity.”
I was at a seminar yesterday and one of my past clients said, “Rob, I tell you. I had 12 employees three years. I was doing about 1.2 million dollars in revenue. I switched 95% of my clients across to cloud accounting.” And I said, “Awesome, well done.” And he said, “I’ve now got six employees doing the same amount of revenue and all that labor that I used to have is now my profit.” I’m thinking, “AWESOME”. He said, “The revenue is the same – 1.2 million dollars, but now with six people, I’ve got 200,000 in revenue per person rather one hundred thousand.” So, that's what we can do with this, Joe.
Joe: Brilliantly said. And the whole time you were talking I was thinking “disruption” - which is what we're talking about, this is technological disruption. All disruptions can either be positive or negative and I think, to a large degree, it is how we respond to the disruption that sways it between the negative and the positive. I've often used the analogy for this technological disruption of a wave. A wave can be a destructive energy; it can be a very powerful energy for change for everything from knocking over your same castle to, if it's big enough as we've seen in many areas of the world, to taking over entire cities and destroying entire cities and wreaking mayhem. But the energy of a wave can be a powerful vehicle for enjoyment for the surfer, for the creation of energy and in leveraging the oceans for energy harnessing.
It’s all how you take the energy. Do we harness it, do we ride it, or are we crushed by it? You take sort of, the tsunami approach to the side, you take the sort of normal wave activity, it really all comes down to the way we respond to the wave. That makes all the difference. If we ignore it, it'll run us off the beach, at the worst case scenario. Best case scenario, we engage it and we become surfers. What you're really getting at here is embrace the energy of this technology change. And I like how you focused it on the value of accurate and real-time financials that the technology affords you. You spoke of automation, you spoke of practice efficiencies and those are key as well, but it's that accurate and real-time financial information combination that affords us an opportunity we haven’t enjoyed as SMB accounting professionals perhaps ever, it's arguable. We've had accurate, but it has been client write up, it hasn't been real-time. You've had real time, when people are trying to do their own books but it hasn’t been accurate. Now, we’re back in control of the football and the client has the visibility. And with the automation tools, it's a powerful tool and in our hand.
All right, so all of this culminates in what you are calling “The Now Leader”. Your session that you presented at Scaling New Heights, which was met with rave review, focused on this singular topic - what does it mean to be a “Now Leader”? I know some of elements of the talk and you've covered some of those already in your comments on the Podcast, but can you can you highlight them for us and cover a little bit of what your breakout audience got to hear?
Rob: Yeah, absolutely. And I have to say that, Joe, it was an amazing experience being in the Bahamas, such an amazing place, my first time there. To sort of recap before I get into that on one thing. Because what I find is that a lot of people, a lot of CPAs go, “Oh, okay. That’s great, but that’s happening down the track.” Well, it’s actually not, it’s happening right now, because of two reasons. All this change is happening because of two reasons. One, you've got massive technology companies that are driving this change. Their very relevance, for them, means they must switch their desktop small business clients to cloud accounting clients. We are not going to be able to stop billions of dollars of investment to switch the class. Second reason all this change is happening because of social behavior. What social behavior is saying is, “I want information on my device.” Just look at the social tools, the Facebook's, the LinkedIn’s, where the vast majority of the activity is on a mobile device.
So, we can't stop massive billions of dollars in technology investment nor can we stop social change. So I’m going to suggest we just embrace this, we ride it, as you said the wave, and we really get used to it, but really embrace it and promote it. Like Glenn, who I met yesterday, and he said, “We just decided we're going to promote this.” It took three years to switch his clients across and now, out of his 200 clients, I can count on two hands the ones that are not on cloud accounting.
But with this, it takes a different style of leadership. So we're leading a CPA firm in the old way, and we were very reactive. I’m into my 23rd year of working with CPAs all over the world, Joe, a bit like you, I’ve been doing this a long time. And we used to see reactive partners just wait. They’d wait for the email, the ping, the phone to ring, the client to come in, the government to change the rules after the budget or whatever it is, and say, “Now, we must do this with our clients.” And they’d wait, they’d wait, they’d wait. They’re reactive, a very reactive style of leadership.
With all this change going on, all this opportunity, we need to flip that. We need to flip that to get a more proactive style of leadership and I'm going to suggest that we cover eight key areas in what I'm calling “The Now Leader.”
And the first one is to be purpose-centric - so Purpose Leadership. With this, as a leader, as a partner in the firm, you’ve got a team around and you understand precisely why you're actually doing what you're doing. What is the purpose of this business? It's not a practice - it's time to stop practicing. It’s a business that you're running here; you've been practicing for a long time and you should be good at that bit by now. We've got a business to run. Understanding what's the purpose of this business and leading your team around that.
Second point - Cloud Leadership. Like Glenn I mentioned. Glen took a front foot approach and said, “We're going to lead our clients to the cloud. We’re not going to wait for the cloud companies to switch our clients across. We're going to lead them and we're going to mandate them.” We've had many firms all over the world say, “We have three years,” because it will take you a little while; new clients are easy, just switch them straight across, but it’s existing clients. “Three years. If you don't switch to cloud accounting, you're no longer a client of the firm.” It's that important to do - Cloud Leadership is number two.
Number three is Value Leadership. You know, if you look around at your team members, and most of the people at Scaling had team members, look around and it's really only one KPI, one key performance indicator, one question you need to ask all of your accountants, your operators. And that is this, this is the value question. “With what is in front of you right now, the information on your two or three screens in front of you, are you adding value to that?” Yes, or no? And promoting that? Value Leadership- promoting value to your team and value to your clients
Number four, it’s going to be Client Leadership. My metric around client leadership is that every client that you want to keep is buying every service from you that helps them achieve their goals. So you are leading your clients into goal achievement and matching services to those goals. So you have a conversation with the client, “Where are you now, where would you want to go?... Right, you need these things from us on top of the compliance, you have to.” That’s Client Leadership.
Number five – Efficiency Leadership. Driving efficiencies in the firm. You know, if you price in arrears and you're charging by the hour, time and billing, you're not encouraged to be super-efficient because the less time you have on the clock, the less price. So, let's flip that around and you get your entire team focused on reducing client time. Stop over-engineering jobs and getting super, super-efficient in the firm. That’s number 5; we have eight points.
Number six. I mentioned it earlier that with these efficiencies, we need to get on the front foot with marketing; so Marketing Leadership. You know hiring marketing people, generating inquiries and leads, content marketing. Lots and lots of clever ways; I mentioned a number of these at Scaling to grow your firm. It's just not going to happen on its own. It used to happen on its own; you get a few referrals, put the prices up, we grab our five percent. That's not going to cut it anymore in this new world. We need to get on the front foot with Marketing Leadership.
Number seven – Culture Leadership. So your team members, your employees, you know some of them are not going to cut it. So there will be people in the firms, as we discovered at Scaling, that some of the team members don't want to be part of this new world. They may be administrators with their hand firmly on the handbrake of the bus and you want the bus to be projected down the freeway and they’re stopping progress. Well, we may need to change the culture and redesign the culture and the people - more tech savvy, more internet-related, more real-time data people, rather than the old way that we used to do it. So culture needs to change.
Lastly, number eight, is Impact Leadership. Really understanding that you are the trusted advisor by title, but we can actually impact by action. So, if we were to step up and say, “What's the impact we're making on this one client - with their revenue, their profitability, their cash flow, their wealth? What about the team members they employ?” They might have ten people employed. What about the two hundred clients that you've got and the volume of revenue that you've got in there. You might have an average of a million dollars of revenue per client at 200 clients - that's two hundred million dollars of revenue as the trusted advisor; you can positively or negatively impact, positively by doing something, cash flow the same, profit or wealth, the same, and all those people they employ.
So Joe, it really is those eight points – Purpose, Cloud, Value, Client, Efficiency, Marketing, Culture, and Impact Leadership. This is about being a “Now Leader”, stepping up to the plate, being proactive, and building a more vibrant, more exciting CPA firm for you and your clients and your family
Joe: Rob, that was a lot and I know you had about one hundred minutes to cover that at Scaling New Heights, so for you to have covered that in five minutes here is impressive, it’s very impressive. But I will tell everybody, you listen to it again; listen as many times as you need to the Podcast. Just keep replaying; when you have a chance to take the note, write down the eight components of the “Now Leader”. Then, I would encourage you all to act on them. What Rob has told us here on the Podcast is absolutely true. There is a technological change; it is happening now. Your response to it must happen now. But it isn't so much that you're dodging something bad, you're leveraging something good. To ignore it will cause your firm to fall behind.
Rob, I appreciate you coming out to Atlantis to Scaling New Heights recently and I appreciate you coming on the Podcast and challenging us all fresh to be “Now Leaders”. It's been great having you here.
Rob: Pleasure to be here, Joe. I look forward to seeing you again.
Joe: Fantastic, thank you.
Thank you for tuning into today’s Podcast and our conversation with Rob Nixon. For more information about today's episode, to explore other episodes in this podcast series, or to learn more about our annual conference, visit Woodard.com.
As always we encourage you to stay tuned in, stay connected, never stop learning, and Scale New Heights.