Would You Rather Be At The Dinner Table Or On The Dinner Menu?
I was recently asked “why is growth important?”
“All businesses need to be young forever. If your customer base ages with you, you’re Woolworth’s.”
— Jeff Bezos
During my 47 years in the accounting profession, I was with two firms, CohnReznick and Grant Thornton/em>, that, as I reflect on them, were clearly disruptors in the day.
In 2002 (when I joined J.H. Cohn), the firm had three offices. Revenues were $52 million, and the firm was ranked #43 nationally. We were stuck in the middle like an Oscar Meyer sandwich as we were considered a small firm that lacked “market permission” to handle sophisticated clients. When clients wanted to raise capital, the investment banking community would say “Who is J.H. Cohn?”
The firm’s leadership had a number of big thinkers who weren’t afraid to take calculated risks (not ranch bets) and wanted to be a marketplace disruptor:
- We determined that the greatest opportunity for the firm was to become a much larger player – a national firm.
- The economy was beginning to show signs of fatigue and we were concerned about our earnings.
- The profession, while doing well because of SOX (a short-lived earnings pop that gave firms pricing power) was coming to the realization that robust revenues and profits (pre-financial crisis) were not sustainable.
- The Giant Eight had dwindled to the Giant Five (soon to become Four because of Arthur Andersen’s demise) and it was obvious that the mid-market market was going to be underserved.
- Advisory and Consulting capabilities.
- Industry specialization and distinctive service characteristics.
- Mergers and acquisitions for geographic expansion and strategic service add-ons.
- Brand recognition including a national spokesperson.
- Over the next ten years, we:
- Grew our Advisory and Consulting practice to about 10% of firm revenues.
- Got very serious with industry specialization.
- Consummated 15 mergers/acquisitions.
- Retained Joe Torre who did a marvelous job in raising our marketplace awareness.
Together with organic growth, the firm rose to $250 million in revenues and was ranked #22 nationally. We were picking up larger clients and attracting quality laterals. Most important, our bottom line began to get very healthy.
While proud of our accomplishments, we still hadn’t become a Top Ten firm. To accelerate our growth in one quantum leap, we decided to explore a three-way merger that would disrupt the profession and leapfrog us over our competition. The three firm deal eventually was reduced to two firms and CohnReznick was borne. Today, ranked #14 nationally, revenues are approaching $700 million with 19 offices. A Top 10 firm is now insight. If you ask me if the firm would do it all over again, the answer is a resounding yes! The firm is well on the path of creating a national brand, has begun to move the client base uptown and has begun to attract better quality laterals. Kudos to a disruptor! Grant Thornton’s story was not much different except that, in the day, its disruption played out on much bigger stages – the U.S. and international markets. It had two key moves: Play internationally as one global brand (circa 1985). Capitalize on the unfortunate Arthur Andersen opportunity (circa 2001). Leadership at Alexander Grant saw a marketplace opportunity for an international network:- The firm tried to do a merger with both Main Hurdman and Laventhol Horwath – both firms had strong international associations and marquee clients.
- Unfortunately, the partners weren’t making market partner compensation.
- The firm believed it could build off a strong national brand with about 40 U.S. offices.
- The firm wanted more than an international association (Tansley Witt) which wasn’t driving much business.
- The firm wanted to be a major attest, tax and advisory firm that could serve public companies.
- The firm found a like-minded U.K. firm (Thornton Baker).
In Our Opinion, there are eight keys to becoming a disruptor:
- A shared vision about the future and the strategies with accountability that will get the partners there.
- A sound economic model that rewards performance.
- First class partners that understand how to build lasting relationships with clients and contacts.
- A growth and business development culture that includes everyone with their capacity and skill set.
- Marquee clients.
- The ability to demonstrate that it is different, that it brings value to all clients that adds to their success.
- Smart mergers and lateral hires that add to its strength, improves its weaknesses and expands its footprint.
- Consistent and persistent leadership. Disrupting comes from five key ingredients:
- Building a truly unique firm. An example would be building out a firm that becomes the mid-market resource for liquidity and capital markets consultation and access (which also feeds transaction advisory services).
- Creating a firm that provides value beyond comparison. The key here is industry specialization that includes deliverables such as suggestions for EBITDA and working capital improvements.
- Cross selling which is the low hanging fruit. Hold annual client clinics to find pain points and how you can help.
- Pursuing mergers and acquisitions for geographic expansion and strategic service add-ons.
- Originating new work. Everyone has a role. Some are rainmakers, some are “mistmakers” and others play a support role.
- Diversifying with Advisory and Consulting capabilities such as outsourced CFO services, cybersecurity, transaction advisory, wealth management and bankruptcy/restructuring.
In Conclusion
Over the years, there have been a number of great CPA firms that were disruptors. Top of mind are Rothstein Kass (hedge funds) and Kenneth Leventhal (real estate). These firms thought out of the box. They made a difference in the profession. Growth was an integral part of their success.
From disruption comes growth which is important because client perception is that bigger is better and, therefore, bigger is, in fact, better. That’s not to suggest that better isn’t better (better is always a good thing), but if you are not getting bigger, you will have a challenge as size sells and because clients/prospects respect big and, more importantly, buy big, known brands. The supposition is that if you are big, you must have impressive clients and credentials. Finally, disrupting is very difficult to achieve unless there is a commitment at the very top of the firm with goals and individual partner accountability.
