The Epic Practice – Part 3
In Part 3 of his series on laying out the foundational qualities of creating a practice that matters, Joe Woodard discusses the 5 pillars (characteristics) of bandwidth. Part 3 of the series is a continuation of Episodes 8, in which Joe lays the foundational qualities of an Epic Practice from the main stage of "Scaling New Heights 2016." Joe will wrap up the series in this episode with the 5 final qualities every practice should strive to achieve to become differentiated, effective, innovative and… EPIC.
Link to Joe's podcast: http://scalingnewheights.libsyn.com/episode-12-joe-woodard
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Full transcript of the episode follows:
Thank you for tuning in to this episode of the "Scaling New Heights" podcast. During this episode, we are going to cover the final five pillars or characteristics of an epic practice. This is Part Three of a three-part series that began with my key note presentation at Scaling New Heights 2016 when I laid out key characteristics of the epic practice. Then we began to break down the foundational characteristics one at a time over Part Two, where we cover the first five, and Part Three, where we're going to cover the remaining five. If you missed last week, if you missed part two, I’d recommend that you go back and catch that episode, actually every episode in this three-part series.
In part two, we covered the characteristics of the Epic Practice, of purpose driven, cutting edge and powerful systems, empowered teams, proactive, and unique and differentiated. We tied all of those into one of the pillars, perhaps what you might say the cornerstone of all pillars, value pricing, and that's going to be one of the five that we're going to cover in today's characteristics. The five for today are bandwidth (what a strange one to have as a pillar of an epic practice, we'll explain this in just a minute), analytical, goal setting (that's around client work), value pricing, and courage.
Let's get right into sixth, the sixth pillar of an epic practice, bandwidth. In the transportation industry there is a concept called adaptive capacity. Ron Baker and Paul Dunn talk about this in their book The Firm of the Future. Adaptive capacity is the set of empty seats that the bus companies or the airline companies leave on their planes so that those last minute tickets can go to people who value them the highest, who have the emergency last minute need to get from point A to B. Without adaptive capacity there would be a couple of problems.
One, the airlines would not be able to accommodate this need, which is plentiful within the space. So there would be a need without any supply, demand with no supply. That's just bad economics. And then the airlines would not be able to value-price the seats on the plane.
We know that those last minute seats are much more expensive because they're higher value and therefore they make the airline greater amounts of revenue. You might say, "Okay. Well, that's great, but there's risk in that. What if those seats go empty?" We've all been on flights before where you could tell there were a few seats that were empty. Now, if half the plane's empty, that wasn't adaptive capacity; that was just undersold.
Where there were just a couple of seats empty and there were no standby passengers to take care of, there were no frequent flyer high profile VIPs to take care of that benefited from those seats, and no last minute tickets sold, in those cases the airline flies their own passengers, handles transfers from oversold flights on other airlines, or even flies the employees of other airlines. All of that generates revenue and allows them to accommodate needs that help everybody in the equation including the whole of the airline industry.
Let's just say that none of that happens and that seat actually goes empty. What if that happened in your practice? That you maintain a certain amount of bandwidth, you don't sell every single capacity that you have? I almost said every hour that you have, but we're trying to get away from that in a value priced model. You don't work your way all the way up to the limits of your capacity, because doing so hurts you in two ways. You cannot take care of the high value client or the high value engagement. Where there are needs, there are demands that you cannot anticipate. You're just simply not there for your client the way you need to be there for your client. There's a work/life harmonization problem too, right?
Beyond that you have no time left over to invest back into your own firm. It is a classic example of The E-Myth by Bill Gerber, and there's an E-Myth for Accountants that is co-authored by M. Darren Root. You've got the E-Myth problem where accountants are the worst for working only in and very little on their businesses. They do this even whenever the firm gets to be larger and they can delegate more, because we're not trained to and it's not ingrained within us to provide or allow for adaptive capacity.
You can take this extra bandwidth and work on sharpening a marketing campaign or even just developing one, or doing a lunch and learn where you can educate your team members or just build team camaraderie. You can read a really good book on leadership if you are in leadership of the team, or in your technical area of knowledge if you're not. Technical is always a good place to use adaptive capacity.
At the end of the day, we're talking about a concept also covered by Ron Baker and Paul Dunn in The Firm of the Future called intellectual capital - that value that remains in your firm when all of the people leave. It's all of the stored intellectual property that can be appropriated by anyone within the firm, all the infrastructure in systems that don't rely on a single individual, and having adaptive capacity left over that did not result in client demand. Even if you take work/life harmonization out of the equation, you say, "Okay, you've already allocated all the resources and all the time that you need for your personal life.” You still need to invest in the intellectual capital of your firm. That's how an epic practice behaves.
Next, there is the analytical and here we're talking about the measurements of ourselves. We're telling clients all the time that they need to measure their business proactively, that they need to use financial statements to determine more about their business than just cash position and net income (and that on the cash basis). We're coaching them, we're educating them, we sit down with them at least once a year (most of us) and we deal with those kinds of questions. But how many of us don't analyze ourselves?
Twice within the last month I've had the privilege of standing up in front of some of the leading accounting professionals in two of the nation’s largest markets. I've asked the entire room to give me just one key performance indicator for the accounting profession, and there was silence. I'm not going to say that everybody in that room couldn't have answered the question or that there weren't certain people in the room who couldn't have answered the question.
My point is, if you were to ask a question that was related to their subject matter expertise, their area of specialized knowledge or just their area of applied knowledge, something that reflects the world they live in every day, some questions about S-Corp tax filings, or some question about QuickBooks desktop local area network best practices, and there would have been hands that would have shot up all over the place.
When you ask, "How do you measure your own firm? Give me one key performance indicator"… if they were using those key performance indicators on a regular basis the hands would have shot up everywhere. I know that's not scientific data, that's anecdotal data, but I have read scientific data to back up the fact that the accounting profession is sorely, sorely lacking, even to the degree of irresponsible, on the way that we measure practices, our own practices. We're simply not trained to do it, and for whatever reason we're not motivated to do it.
The Epic Practice understands how to measure itself. The Epic Practice... I'm not going to actually cover all of the technical aspects, because this is not a podcast episode on how to measure the performance of an accounting practice. Maybe that would be a great episode coming up in the future, but there are resources that are plentiful on this – books and articles, or just start Googling. Find those measurements that matter, dismiss those that don't – and we're going to talk about one that doesn't when we get to value pricing – and begin to apply them to your firm. In other words, eat your own dog food.
Begin doing what you're trying to challenge the client to do. Run your own firm through some business intelligence software, and there are those that integrate with almost every general ledger platform in plenty. Find one. Look at what's happening with your own business as you see trends, as you see projective as well as historical analytics. There are even some great cash flow projection tools that can make you sleep better at night. The Epic Practice measure itself and sets goals for the practice to advance itself, and then uses some of that adaptive capacity we talked about to work on accomplishing those goals.
That's a great Segway into to eighth pillar of an Epic Practice - goal setting on the client's behalf. Once you've nailed that down for yourself, you've locked it down, go to the client and start setting goals. Understand what their key performance indicators are for their industry. Understand what the benchmark measurements and industry standards are that they need to level against, and help them to set goals. If you have a client who is in the wholesale or distribution business, have them set goals around reducing shelf life, reducing scrap or waste or obsolescence, or maybe streamlining their supply chain.
Whatever the industry, find out what matters, find out what will move the needle, and then help them move the needle, help them pull the levers. Become business coaches. I hate to use this term because it's loaded with all sorts of bad examples that wouldn't apply here, but become management consultants. If that term's just too loaded for you, become a consultant to your client in the way that they manage their business, so that you can not only accurately determine what happened in the business as a really good historian, but determine and impact what happens in the future of that business as a coach, so that you can increase the wealth of your client.
We have the ability to do that. Either you already know the levers that need to be pulled and you just need to be more purpose driven, which was the first pillar of an epic practice, or you just need to educate yourself on the levers that need to be pulled. It's not rocket science, it has absolutely nothing to do with complexity. Reducing shelf life or increasing accounts receivable turns and reducing bad debt, there are strategies that are proven around every one of these wealth generating levers. All we have to do is make the investment, so that we are proactive (pillar number four), purpose driven, (pillar number one), and we have the adaptive capacity so that we can invest in learning about these things and being proactive. You can't be proactive without the adaptive capacity, which is bandwidth (pillar number six), and then we can set the goals and help our clients to achieve those goals.
That gets us to the very important pillar number nine. Pillar number nine is to value price. Now, let me talk about the gradations of this, and I would encourage you to go listen to the podcast episode with Mark Wickersham where we drill down really deep on value pricing. First I'm going to dispel a myth and then I'm going to get into the strategy. In that episode, he dispels a myth that small business owners are price sensitive. They are not price sensitive, not according to Mark Wickersham, and I agree, because if they were price sensitive they wouldn't be buying their coffee at Starbucks, and most of them are.
It is that they are value sensitive and they do not see anything different in our cup of coffee. There's no brand distinction, there's not taste differentiation, there's no experience difference, there's no service delivery difference. We are handing them some generic cup of coffee we made out of a 1970 style Mr. Coffee, and saying, "It doesn't work when I try to value price."
Let me tell you how to create a product that will meet the value sensitivity test. It's simple really. It gets back to the goal setting. If you have a product that is stale, that is generic, that everybody else offers, like bookkeeping, tax preparation, even tax planning which is infused with value but is commoditized because there are so many people that can do it… When the knowledge available to deploy your skill, to deploy your profession is plentiful, you cannot value price. In order to value price, you must do two things, you must increase the wealth of the customer and you must do so in unique ways. Unique can be that you have a unique relationship with the client built around a very strongly established brand, brand promise, and brand loyalty. Many times that will carry the day.
The other way to be unique is through highly specialized knowledge, investing in areas of knowledge that are share by no more than five percent of your peers. Now, niche will help you there, but niche is not the only path to get there and it is not the complete path to getting there. We covered this extensively as pillar five of the Epic Practice pillars - to be unique and differentiated, so I won't drill down too much on that, I'll just let you listen to pillar five which is in Part Two of the series.
The bottom line is, if you are differentiated, through a combination of niche and software like we talked about in Part Two or if you are differentiated through highly specialized knowledge that doesn't have a software layer (whatever gets you there), it will not only add new fuel to your marketing campaigns (including your referral campaigns to drive new business), but will allow you to both increase the wealth of your client and to do so in unique ways. Then, when you say to the client, "I intend to charge you a percentage under the wealth that I generate," they don't go to your competitor who is charging a percentage over the cost they incur, get a better price, and get the same result.
I just gave you the secret of value pricing. This is the secret as detailed by Ron Baker and Paul Dunn. You charge a percentage under the wealth you generate, not a percentage over the cost you incur. The client will tend to price you in their minds based on the cost that you incur. It's called the DuPont ROI Model and it's one of the pillars of 20th century, 21st century Western capitalism. It is not compatible with value pricing. Now, it is compatible with fixed fee pricing; in fixed fee pricing I do charge a percentage over the cost I incur and in fixed fee pricing I have an advantage I can play. I can benchmark that cost based on the average industry cost to perform bookkeeping or tax preparation or audit, then I can innovate and create extreme amounts of efficiency largely through technology innovation, drive that cost down below the industry benchmark and get disproportionately higher margins. I am not saying not to do that.
With all of the commoditized offerings that you have in your practice, use extreme efficiencies, technology automation, to create pricing advantage -not competitive advantage, because then you're going to compete based on price, but pricing advantage and profit advantage over the rest of the profession. Enjoy it as long as it lasts, it won't last forever. The profession will just adopt the same price advantage technologies and efficiencies. Eventually, I don't know when that will be, five years, ten years down the way, it will drive everything back down to a lower level of price commoditization. Enjoy it while you have it.
The key is not to make that the only source of profit or even the highest level of your profit strategy. I would go beyond profit, that's very inwardly focused. Don't make it your effectiveness goal. Don't make it the basis of your client relationships. Don't let it define those relationships. Instead, use it as a baseline to provide financial stability for your clients and in order to maintain accurate and real time financials that you need to add real value. Then go in with goal setting and key performance indicators and adaptive capacity, pro-action, distinction, empowered teams, cutting edge systems, and change their world. Rock their world.
When you increase that wealth for the client, you and the client both win when you take your percentage. You can determine what the percentage is and it could vary. The value is always in the perception of the client and you have to constantly reinforce back to the lever you pulled and how it generated certain amounts of wealth. Clients are going to pay based on either of the hard or the soft, meaning the actual dollar of additional wealth that you generated through cost cutting or revenue increase, or they're going to value it based on the way you make them feel, or there's going to be some combination of both.
Once you and the client are aligned on the value and you're aligned on the percentage under the value that you're going to charge, you can value price. And you can just for fun try to back it back into your realized bill rate and blow yourself away. But don't go crazy on that because the whole point of value pricing is to liberate yourself from the need to track every hour, and the prison of having to track every hour, and just to focus on those measurements that move the client's needle.
I've got one last pillar for you, and that's to be courageous. If everything we've talked about up to this point sounds really exciting, but you have no idea how to take the next step, that's going to be Woodard Institute. We can give you the how, we walk you through it step by step. How to determine your ideal clients, your ideal services, how to sharpen your professional skills, how to market your practice, how to sell within your practice and even to create a practice that someone would want to buy if you don't come along with it. We walk you through how to create a business plan, a market plan, a practice plan, a completion plan. All of that is managed for you in the institute. So, if 'how' is a problem for you, we've got the answer for you.
The bigger problem is not how, the bigger problem is the lack of the tenth pillar, and that's courage. Because being purpose driven and creating a purpose driven culture requires not just knowledge and how to accomplish it, it requires courage to say, "What if my teams don't like the change? What if it's too disruptive? What if it cuts out at the very foundation of my practice? What if I simply don't survive the culture shift?" Or, "What if putting in these cutting edge systems and processes doesn't give me the cost to benefit ratio that I'm looking for, and I just waste all of my time?"
Or, "What if again it's too disruptive and I lose all of the team members I have and my practice crumbles? What if it's too costly and I get halfway through it and realize that I'm in over my head?” On the empowered team, “What if I empower my team member, what if I delegate authority and they don't succeed, and my entire practice is driven down and everybody's demoralized?"
"What if I'm proactive with my clients and they laugh me out of their office? What if they say I don't belong in the boardroom, I only belong in the back office? What if I try to become unique and differentiated and adopt some technical skill that's very different in the space and I don't get it, or I fail because there aren't enough of my peers to lean on, or not enough best practices that are defined? I'm just not a bush beater, I'm more of the person that walks in behind once the roads are paved. What if I create that adaptive capacity and I can't maintain the level of revenue I need to sustain my business?"
All of these Epic Practices face all of these concerns head on. They're courageous. They ask themselves not, "What could go wrong if I attempt to excel and become Epic?" They ask themselves, "Am I willing to stay where I'm at, knowing that where I'm at is my only guarantee?"
Epic is a mindset. Epic is a mindset that says, "I'm going to climb no matter how much the situation intimidates me. I'm going to climb no matter how many times I get knocked down. I'm going to climb no matter how steep the rock-face becomes, how bloody my hands are, how thin the oxygen becomes. I'm a climber."
It is the entire reason that we based Scaling New Heights 2017 around the Abominable Snowman of all the crazy things around which to theme a conference. We're calling it Face the Yeti, because we see this final pillar I'm covering right now, courage, as the key missing piece that blocks accounting professionals from building all of the other nine. We have designed it to help you get over the fear, to face the yetis head on, not armed just with sheer bravado but armed with information, tools, resources, peer to peer interactions and systems necessary to say, "You don't scare me. Roar all that you will roar, shake whatever trees you're going to shake, throw snowballs."
This is what the locals in Nepal say that the yeti does, does all of these things, and they would all tell you the same thing, the yeti does all of these intimidation techniques to scare people off the mountain. Nobody's ever actually been attacked by a yeti, and there's a reason for that, I personally don't believe the yeti is real, okay, so a non-real thing can't actually attack someone. That's to the point, isn't it? That fear is never real in and of itself, and it always exaggerates the real concerns of any challenge that we face.
If you're going to have an Epic Practice, a practice that is defined as purpose driven, systematized, empowered in its team members, proactive, unique and differentiated, that has adaptive capacity, that's analytical, that's goal and effectiveness driven with our clients and then value prices against that goal, stops trading the hours for the dollars, you're going to have to have a firm that is courageous, that is trendsetting, that beats new brush, that knows how to fly. That is the end of our Epic Practice series.
For all of you who tuned in today to today's podcast I want to thank you and I want to encourage you to explore other podcast episodes in this series at Woodard.com. That is the website where you can not only hear every podcast episode in this series, but watch our reality show Tech Makeover and learn more about the annual conference Scaling New Heights. As always we encourage you to stay tuned, stay connected, never stop learning, and scale new heights.