The Modern CPA Success Show: Episode 97
Are you looking for ways to improve performance and deliver value to your clients? Tom and Adam welcome back Ron Baker, founder of the VeraSage Institute, for the second episode in this two-part series. Ron discusses how after-action review, a tool for learning and improving, can be applied in a variety of contexts, from sales calls to client delivery. Ron emphasizes the importance of mastering the after-action review internally before implementing it externally with clients and the importance of guiding clients toward their desired future, rather than just providing day-to-day services.
Tom (00:00:21) - So welcome to the Modern CPA Success Show. We're excited today to have a guest back for a second time. So this is part two with Ron Baker. Um, I'm Tom Wadelton. I am a virtual CFO with Summit CPA Group. Um, I'm joined by Adam Hale, who is also, um, with our firm. Adam is the, uh, Chief Operations Officer and in charge of delivering CFO services. Adam, welcome. Today, thanks to for those who, let me give you another brief intro for Ron in case you don't remember from the last time. Um, so Ron Baker is the founder of the RIS Age Institute. He's also the author of seven bestselling books, including Value Pricing, a Radical Business Model for Professional Firms, and then also a follow-up book Times Up the Subscription Business Model for Professional Firms. And he's also a faculty member of the Professional Pricing Society. Ron, welcome back.
Ron (00:02:22) - Thanks, Tom. Thanks, Adam. Glad to be here.
Tom (00:02:25) - And those who listened to the first episode. And if you haven't, I really encourage people to do it. There was so much to unpack that as we got to the end and said, okay, we really do have to end this, but please come back cuz we want to talk more about this. If you don't mind, one of the places I'd like to start, we touched on this idea, the after-action review, that we love the concept and Ron, Adam and I talked about it after and he actually challenged me to say, why don't you think through how we could really implement this here? As I mentioned before the show, one of the challenges I've had is exactly what you said other people say, which is a lot of our services we call Evergreen for a reason they don't tend in, in a project. And that's one of the places I've gotten stuck is how do I apply this when you don't say, okay, there's an endpoint that I can easily go back and say, how do we do start to finish? I'd love to hear more about, so how do you apply after-action review in that kind of environment?
Ron (00:03:12) - Right. I think you'd have to look for when you achieve certain milestones in the project, mm-hmm. , you could do an after-action review on the progress up to that point. What the after-action review is trying to do is two things. One, it's trying to capture the knowledge that the knowledge workers actually learned on the job. And the only way to do that is to do the job, but then we have to step back and reflect on it. At some point in an engagement or in client service delivery, whatever, we should step back and go, okay, what have we done so far? Did it meet expectations? And how could we do it better next time? And that knowledge is critical. I mean, that's part of the firm's intellectual capital, it's part of its structural capital that can be reused on other engagements. So that's one purpose of the AAR.
Ron (00:03:59) - The second purpose is to increase future performance, improve future performance. And out of all the tools that we use in our management toolkit, time sheets and annual performance appraisals, none of them improve future performance. After-action reviews do because they actually give you the granular knowledge that you need to discuss how a project went, what went right, what went wrong, how did it compare to what we expected on this project, and how could we do it better next time? The Army, which is one of the main users of the after-action review, has a great saying: "We never want to build the same bridge twice." So if a platoon builds a particular type of bridge on one side of the world, then on the other side of the world where there's another platoon, the first thing they're gonna do is they're gonna go read after-action reviews on building that type of bridge before they go out and build theirs.
Ron (00:04:55) - That's gonna make them not only more efficient, but it's gonna make the bridge more effective as well because they've captured some of that tacit knowledge that's sticky in people's brains that you can't really pull out. You know, it's the difference between reading a book by Tiger Woods on how to play golf his way and going out and playing with Tiger Woods 18 holes and getting in all those situations that aren't in the book. Sure, he can help you with. And that's tacit knowledge, and the after-action review does a great job at capturing that.
Tom (00:05:26) - Okay.
Adam (00:05:26) - Yeah. Whenever I think about it, and I did challenge Tom afterwards, like, "Hey, how can we use this?" because we are just so fluid in everything that we do. There's no start and stop date to what we're doing. But I think that whenever I think about it, it also applies to how we work with our clients. So, and what I mean by that from a delivery standpoint is, you know, you get to the end of the month, and I think a lot of times, because we are an evergreen service, we get just kind of caught up in the day-to-day. So, "Oh, another financial statement, onto the next one," and we just kind of inventory them and move on. But I think that the concepts there and the methodology really applies because we always talk about, "Hey, you shouldn't be spending more than, like, 10 minutes explaining what happened in the financials." And I think that in your book, you mentioned that their breakout was 25, 25, 50. Is that right?
Ron (00:06:20) - So can you explain? I think it's 50 in total. Oh, okay. Yeah. Percentage. Percentage. You're right. Percentage is yes.
Adam (00:06:26) - Yes. I thought it was like 25% what happened? 25% why it happened, and then the other 50% like, "Hey, let's just focus on what we learned and how we can do better." Right? Yep. That's right. And so, and, and so I think about that if we just use those concepts in our delivery model, you know, whenever we're trying to show value to the client and help them through transformations and things of that nature. And we definitely wanna dig a little bit more into the value prop and in terms of transformations for our clients. But I think that's one way to do it is through these, um, taking that methodology. By taking that methodology there and just kind of looking at the financials and going, "Okay, this is what happened. Cool. Let's just take a few minutes there."
Adam (00:07:14) - This is why it happened. And then, more importantly, we're trying to be really, you know, forward-focused. And so if we spend the majority of our time working with our clients, just having conversations on what we learned and how we can do better, I think that's a way where we can kind of keep the value going. And it's also a great opportunity to check in on how we're doing with our client instead of us doing it outside of the meeting. We can do it right there in the call. So I think whenever I was reading through that in the book, I thought that was a way that I was thinking about how to apply it.
Ron (00:07:46) - Well, that's a great point because doing the after-action reviews with the client is stellar. I mean, that first off, it's unique. No other firm, not many firms out there do after-action reviews with their customers. So that's a huge point of differentiation. But I would warn before you try and take an after-action review externally to your customers, get really good at them internally. Mm-hmm. They're an internal tool. They weren't designed to be an external tool, but we've learned that they can be used for that. But you've gotta get a culture of after-action reviews into your internal operations. It's gotta become part of the DNA. And look, it took the US Army 16 years to do this from the end of the Vietnam War to the first Iraq war. They had a hell of a time implementing it because the system pushed back.
Ron (00:08:38) - You know, the system, the system is where your firm's culture is. Yeah. When we talk about culture, it's your system, it's how people interact, it's how work is organized. And if you introduce something foreign into that system and the system doesn't understand it or doesn't agree with its purpose, it's going to push back and reject it. The system has a mind and rhythm of its own. This is something that Drucker, Deming, and all those guys talked about who were into systems thinking. So the after-action review, I think, has to be really well done internally before you start to bring it to customers. I wouldn't start with customers; I'd start with your own firm.
Tom (00:09:20) - Interesting. The idea of milestones, if we can explore that just a little bit. Because I'm trying to think of what granularity, we often talk about the meeting cadence. So, for example, in a month, I meet with most of my clients once per week, and it may go from sales pipeline to the next week might be forecast and month-end, and then to a financial statement review, and then maybe projects potentially, there's also a cash flow meeting each week during that time that someone else is doing. And that's kind of the cadence all year. You have an annual plan and things. I'm curious, Ron, would you think if you're good at this, then you do it after each one of those meetings and you do it quickly or look back at the month? Or how might you help us think through what you pick out as a milestone and how you might do that?
Ron (00:10:03) - Yeah, I think wherever lessons are learned, I think an after-action review could be useful. And this is part of the culture, just like, "Hey, let's do an AAR on that sales call we just had, or on that meeting with the customer we just had, or on that report we just delivered, or the boardroom meeting that we sat in." And anytime where there are lessons, where you can actually take the time, and this is why it's not done, guys, because it's not billable. Let's face it. Yeah. It's not billable. So we're not willing to take the time to step back and go, "Okay, we just did something, or we just did five things with this customer over this last quarter. What did we learn? How did it go? Okay. How did it compare to, you know, the first question in the after-action review is, what were the objectives of this mission?" And almost every time I've facilitated after-action reviews, and that means I've facilitated, I was not involved in the engagement at all. And in fact, a lot of times, I'm not even part of the firm, but I do the facilitation. When we get to the very first question, "What were the objectives of this engagement or of this meeting or of this project?" nobody knows.
Tom (00:11:18) - Mm-hmm.
Ron (00:11:20) - Nobody knows. Okay. That's the first thing we need to work on. Every, you know, the Air Force has a great saying. Every time wheels go up, we know why. Mm-hmm., we know why we're flying, we know why the wheels are going up. We're gonna attack, we're gonna do an air show. Whatever it is, there's an objective.
Tom (00:11:38) - Yeah. We don't do that because we're not taking the time. Just like you guys said, we're phonetically going from one project to another, one project to another, one phase to another without stepping. We just need to step back. What that rhythm and cadence says, you're gonna have to figure out. But I think there's, we're knowledge workers. Yeah. We're constantly learning on almost everything we do. And even if you did it, like I sat in, and I think I might have mentioned this on the last show, I don't remember, but the ICU ward in my local hospital does an AAR at the end of every shift. So every eight or 10-hour shift, they circle the chairs. Now, I'm not saying do this every day, but like in a tax season, you could do a few during tax season and not just talk about one client, but talk about how tax season is going, right? Yeah. Where are the bottlenecks, how's the workflow, what's the throughput? Like, all of those issues would come out and it would actually improve future performance, yeah.
Tom (00:12:40) - This helps a lot. And what you've got me thinking, I'd love you telling me that no, you don't have to do it every single time you do one of these things, but it could be multiple times during the year that, you know, you take a stop once in a quarter and say, "Okay, financial statement review," and maybe you don't include the client, but maybe there is a point in one of these meetings to say, "Hey, here's what we're trying to get done during these meetings. Are we missing anything here?" And maybe you find out them saying, "You use a lot of words when you describe financial statements, but I don't really understand it, and we're not talking enough about the story behind it." Maybe the feedback you get from the client. Sure. And you could take that into a meeting saying, "What we're trying to do, if it's this, and it doesn't appear that we're hitting all the marks." And I could see saying, "Okay, pipeline taxes, there could be multiple things you could do to pull those things together."
Ron (00:13:24) - Right. And that's the beauty, the other beauty of the after action review, just like that ICU ward I was talking about, I sat in on one of their after-action reviews, and I'm watching medical professionals in obviously a life and death critical situation sitting there in front of their bosses, the two lead doctors of the shift, admitting errors they made. It creates a psychological, a psychological safe space. You know, we talk a lot about these days about psychological safety, being willing to admit mistakes because it's not a blame game. The tool is a learning tool. It's not, "Hey, Baker, you really screwed up on that." It's all about trying to help one another improve in the future. And that astonished me that somebody would sit there and admit a mistake in front of their boss, knowing that they weren't gonna get nailed on their annual performance review, you know, three months later or whatever. It was just, wow, because we're all trying to improve and so they all helped one another. We don't do that in CPA firms. I mean, I look back at my big eight career and think, if we would've done after-action reviews, if they could have said, "Hey, Baker, before you go out and do this particular aspect of the audit, go read these five after-action reviews," I would've been a hell of a lot more effective.
Tom (00:14:46) - Interesting.
Ron (00:14:47) - I wouldn't have had to reinvent the wheel. I wouldn't have had to second guess. I wouldn't have had to look up last year and what did they, you know, what did we do, Sally? Right. Same as last year. I would've been a more effective professional, and I might have found better ways to do things.
Adam (00:15:03) - Yeah. I mean, whenever you're talking about the objective, especially, I mean, it sometimes whenever you think about objectives and you're doing a task return or a task, and I know a lot of times we're doing projects within our space, but for us, it is that evergreen solution. So whenever I think about our objective, I think it comes back to that word transformation. And, you know, and we are guides, and we're helping to transform our clients. Now, it's not necessarily, you know, we don't promise from an ROI perspective that I'm gonna turn you into a 50 million company or you're gonna make 30 million. Sure. At the bottom line, we need to understand what the client's goals are, and then we're trying to draw the straightest line from one side to the other. So I know you talk a lot in the book regarding the transformation. Do you mind just digging into helping people understand, because I think the hardest thing to get started and, you know, I think after reading the book, I mean, everybody's like, "Yeah, subscriptions the way to go. This is what we should be thinking about." But how do you get that value? How do you get that value across or the model across to a client to help them understand what transformation means? How do you get the US to understand what transformation means, let alone the client?
Ron (00:16:15) - Yeah. We first have to get the accountants to grasp it rather, right? So if we go back and back up to the definition of a business model, a business model explains where revenue will be earned when products and services are provided for free. So if you gave away your products and services, what would you charge for? Well, the natural landing places are experiences, customer experiences like going to Disney World or going to a concert, whatever, or even higher-level transformations that guide the customer from where they are to where they want to be, some desired future state. So you guys, if I go to a golf pro as a 20 handicapper and I say, "I know you provide lessons for a hundred bucks an hour, but I don't care about your lessons. Make me a single-digit handicapper, and I'll give you 10 grand," would that golf pro work differently with me than if he was just charging me for the lessons by the hour? I think it would do the golf.
Adam (00:17:28) - Absolutely.
Ron (00:17:28) - Yeah. What do you think it would do to the golf pro, and what would the golf pro have to do as a professional golfer to size me up? Can this guy really become a single-digit handicapper? Because that's huge, right? Getting into the single digits is like a Richter scale. Right? And you can be a 12 handicapper, but to get to that nine, that's a huge leap. Yeah. Right. So he's gonna first have to judge me physically and mentally. Do I have the capability of doing this? Measure my swing, whatever they do. But then he's gonna work with me differently. It's not gonna be focused on each lesson. "Half our hour's up, Ron." Yeah. He's gonna go out and play with me, probably to see how I do in certain situations on the course. In other words, he's gonna be a real professional. He's gonna take responsibility for creating a result. Now, I could fail. I could fail, but if he sizes me up and he gets me to that result, I'll gladly pay him.
Adam (00:18:34) - What if some of those results are just doing some of the blocking and tackling, you know, like, I need this role. So, for instance, I'm thinking about a client that I have in mind. It's a prospect. They're growing exponentially both on the top line and the bottom line. And there's an opportunity to work with them. And in most instances, I would come and I would, you know, kind of that transformation that you're talking about, we try to hit that goal. You know, you say, "Hey, I want to be, you know, I want a super low handicap." I'm saying, "Hey, where do you want to be in three to five years?" And they're saying, "Hey, I want to exit, or I want X amount of profitability, whatever that is." And it's our job to, again, just draw that straightest line between where they are now and where they ultimately want to be, to your point. But in some instances, in this space, we find that there are a lot of just day-to-day things that have to happen. It doesn't mean that they're not part of that transformation. But particularly again, in this client, very excellent bottom line, top line. And they just need somebody to kind of cover the middle ground and make sure that it doesn't get broken. So how do I express value to somebody like that outside of just, you know, knocking out their day-to-day stuff?
Ron (00:19:51) - Mm-hmm. Right. I think when you think about transformations, they have the possibility of including three different types of assurance. And we tend to use these three words as, you know, the same. Like they all mean the same, but they don't. So assurance with an I is when we pay money for, you know, let's face it, we buy insurance for things we don't want, right? Yep. So we as CPAs provide that level of insurance. We're gonna take care of your accounts and your compliance, and we're gonna keep the IRS off your back. And if they do contact us, we'll handle it. Right? We, and all of that, that's a form of insurance. And that is baked into all the day-to-day stuff. All the compliance that we do, we just remove that headache from them, right? So we provide insurance.
Ron (00:20:42) - Now, you can step up to the second level, which is assurance with an A. Now, I know when we hear that as CPAs, we think audit, right? Oh, that's aur. I'm not talking about that. Assurance is a feeling of satisfaction. It's an emotional feeling. It's, you're in good hands, we're gonna take care of you. And if something does go wrong, we're gonna guide you through it. So a great example is Progressive has these mobile crash units, Progressive Insurance. And when you're in an accident, you call them, that mobile unit is dispatched. They, you know, they sit you down in the van, they give you a cup of coffee if you, if you can, you know, if you're functioning and, um, you know, they calm you down. They do the inspection of your car right there. Most of the time they cut you a check right there, or say, which shop do you want to take it to?
Ron (00:21:30) - And they'll just get it paid and they'll rent you a car. I mean, you're just in good hands. You're in a very stressful situation. They take the time to nurture you and care for you and, you know, fix you as a person, not just your car. And so that's a level of assurance. Now, if you're a member that subscribes to a firm, you have that level as well. And then the biggest form of insurance is with an E. And that is to secure an event, a situation, or an outcome. And that's my golf pro example, right? He's going to get me to a single digit, he's gonna guide that transformation. Now, look, we might not get there. I might not be willing to play enough or whatever. And okay, if he doesn't get me there, maybe he gets me to a 10:00 AM. Am I still gonna pay him?
Ron (00:22:27) - Probably pay him something, right? So, I mean, but, but the point is, we're professionals and we're paid for delivering a result, not just time. Yeah. You know, I mean, that's what customers are coming to us for. And we're too caught up in fee for service. Oh, scope of work. Oh, well, you added more employees, or you grew your top line, so we have to charge you more. That's just another way to repackage time, guys. That's just another way to repackage time. And, you know, how much I hate the billable hour. So that just makes me cringe as a professional. I'm not even talking as a pricer and suboptimal pricing and cost-plus pricing, which I despise as well. I'm just talking as a professional. We're paid to deliver a result, a result, not to do a series of tasks. And the transformation focuses on that.
Ron (00:23:22) - And if we do our customer selection right, and we have the right strategy and we're onboarding the right customers, then we're gonna be able to do that. And that's gonna create a heck of a lot more value to talk about how our firm can get you to that desired future state. Sure. We can still talk about the day-to-day insurance with an I, yet we'll do all that. We'll make sure your compliance is up to date. We'll make sure you have good financials to make really good decisions, but we don't just focus on the history here. We help you make history. We want to know what your future goals are so we can guide you to those transformations. 'Cause we're one of the few privileged businesses that can do that. We can guide our customers into a desired future state. That's a privilege. Mm-hmm. And we have the capability of doing it serially over and over from womb to tomb, from retirement to death.
Adam (00:24:19) - We just need to record you, Ron, and then play you as a preamble to every sales call. Just like that first five minutes. That way, we can set the tone and the mood. Everybody knows like, "Hey, this is the value we bring and how we bring it." Because I do think that's one of the hardest things for folks in this business that are trying to switch from time and billing to a subscription model. I think it's a couple of things. It's one, how do I, you know, so back to your time conversation, it's really like, hey, if I'm not just trading time for dollars, now I have to determine what the objective is and then sell that value. You know, that's hard for them. And then on the back end, of course, they get scared about scope creep and access and things of that nature. Mm-hmm. That, um, you know, obviously is a big concern for a lot of CPA firms, especially when you get more junior people on your team and you're kind of leveraging down. So how do you, uh, you know, I think you did a great job kind of explaining the value proposition, but how do you handle the scope creep question whenever it's like, you know, getting us over the hump of doing the subscription-based billing?
Ron (00:25:32) - Well, you know, the scope creep, there is no scope creep, scope creep in a subscription, or there shouldn't be, at least not the way we teach it. Because it's, again, it's not about the services we do whatever the customer needs that we're capable of doing. So the scope limitation is what are you capable of doing from a due care perspective, right? We're supposed to provide due care to our customers, right? Do no harm, only do things that we're experts at doing. If we're not experts, we should be outsourcing it to another CPA. This is just like doctors. A GP is not gonna perform cardiac surgery, but a GP will take you to the cardiac surgeon, sit in with the appointment, and he'll quarterback that relationship just like we do with lawyers, insurance brokers, bankers, whatever. And that's the limitation. I mean, our customers aren't gonna ask us for flying lessons or cooking lessons.
Ron (00:26:30) - They're only gonna ask us for things that we're, or I should say it this way. We're only gonna do things for them that we're capable of doing. And therefore, if we're not capable of doing it, I bet we have somebody in our network who is capable, another CPA firm, another professional, whatever, and we'll quarterback that relationship. But that's the limitation. Everything that we can do under our roof, they're covered if they need it. Not everybody's gonna need it all at once, and not everybody's gonna get audited in the same year or whatever. So, I mean, you're spreading that risk across the portfolio. But you guys, we need to get rid of scope creep because I'm telling you this discussion about fee for service and, you know, oh geez. Oh, you need that. Well, we gotta go to the Department of paperwork and get a change request and blah, this is a crappy customer experience.
Ron (00:27:23) - I think trading dollars for hours is a really bad business model. But I also think trading services for dollars is also a hamster wheel. Just look at the medical profession. This is why your doctor spends five minutes with you because he's gotta see 50 or 60 patients a day. Why? Because they only get paid for performing services. They only get paid when they do something to us, not for us. Yeah. Whereas if you look at the concierge and the direct primary care doctors who are on a subscription model, you're covered for whatever they can do. Period. Period. Done. So,
Adam (00:28:00) - But Ron, we're CPAs. We can do everything.
Ron (00:28:02) - No, we can't. No, we can't. I we're kidding ourselves. We're,
Adam (00:28:06) - I know it's a thing though. You know,
Ron (00:28:08) - I, I just, you know, look, we, we'll look at something and say, oh yeah, we can do that. And you know, we, we'll sit there and tell our client, oh yeah, we can do that. We can do that. And it reminds me, if I'm being wheeled into the OR and my cardiac surgeon's standing over me and says, oh, wow, look at that. I've never seen that before. , I got the wrong guy. Right? I want the guy who's done it thousands of times, not who dabbles in it, you know, on the weekends. And this goes back to the due care issue that if we don't have due care, we shouldn't be doing it. I mean, if you read the AICPA principles, one of the six principles of the profession is due care. It's the overarching principle. And if you read the five pages, it's in my book, I reproduce the whole thing. Um, it's pretty adamant, if you've never done this before, you can't do it.
Adam (00:29:01) - So, what does an engagement letter or statement of work look like for our subscription service? We've fully embraced the subscription-based model, although not to its fullest extent. In our engagement letters, we list all the different services we believe we can provide. There might be a list of 15 items with a brief explanation of what we offer for each. However, we are also careful to clarify what we don't do. For example, while we handle payroll administration, we are not experts in administering HR benefits.
Adam (00:29:50) - We cannot, we are not experts in that. And so, basically that's how we've kind of built out our SOW, and we just say, "Hey, everything within this," and of course, we solicit clients and tell them to call us. We want to be the first call if you have a problem. Those kinds of things. But to avoid really getting abused by, you know, some customers will call you every time a thought pops in their head. And for us, what ended up happening is we had a lot of problems with managing expectations. So, you know, somebody might call Tom, they'll call me up and they'll say, "Hey Adam, Tom is terrible at getting back to me." And I'm like, "Really? Tell me about it." And they're like, "Yeah, I call him all the time. He never gets back to me."
Adam (00:30:31) - So then I go to Tom and I say, "Hey, Ron just said that you're terrible at communication." And he's like, "I talked to him seven times today. I didn't get back to him that eighth time at five o'clock in the evening." And then we'll have other customers that won't call us for the entire month. And you gotta watch that side too. So what we do to kind of circumvent that is we did have those stated meetings, which is a double-edged sword too. 'Cause then you look on your calendar and you wanna throw up 'cause all day long you're kind of like, "Mm-hmm," in meetings. But at the same time, that's it. It's less about scope creep 'cause win some, lose some. So I'm with you with that concept. I'm not really worried about the time. I'm more, you know, in terms of money, I'm more worried about the bandwidth of the team and then managing the expectations from the client perspective. So they're not upset at me because Tom only responded to seven out of eight messages today. You know, that kind of thing. So how do you handle that?
Ron (00:31:27) - Yeah. This has always been an issue, even moving people from hourly to value pricing. When we used to offer unlimited access, you know, meetings, phone calls, and, and, and, and I'm not saying give it away, it's built into your price. Remember, we're commanding, and I know you guys do this really well. I mean, you guys have your pricing I think really well sorted out, but we're talking about a 2, 3, 4, 5 times multiple on what you're charging under value pricing or even hourly billing. 'Cause you're taking care of it now. You also have fewer customers. So hopefully, that takes care of some of that bandwidth issue as well. I think we're kidding ourselves if we think any knowledge worker can handle 200, 300, 400 customers and be a true advisor. We're kidding ourselves, right? I mean, we struggle at 20.
Ron (00:32:19) - Yeah. I mean, you've really got to limit it. And that sounds really low to a lot of firms, I know. But you've got to because I look at a concierge doctor. A concierge doctor limits the doctor to 50 to a hundred patients per doc, that's it. Now that doctor's gonna be able, he's got a lot of spare capacity to handle coming to your house or going to your office or doing whatever you need on a dime's notice, right? Because he's got that spare capacity. When doctors went to this, they were worried about the same thing. They said, "What about the cyberchondriacs that are gonna come in and just think that we have every disease under the sun that Dr. Google told them?" And what they learned is, if you develop a relationship and you're working with somebody, especially if you're guiding these transformations, then this issue is really probably not as big as we think it is. But I would say, yeah, sure, there are toxic customers, there are customers that could abuse it, there are customers that want to call you. I would try and get to the root of why they're calling you seven or eight times a day. I mean, is it OCD or, you know, whatever. But we always have the option to fire them as well if, and we...
Tom (00:33:29) - Have, so one of the things I think people have to get comfortable with in this kind of model is setting boundaries and describing, "Hey, here's what's reasonable." One of our seniors, and I think she's repeating it from something she's heard, but we teach our clients how to treat us. And so if my reaction is to always answer immediately on a Slack message at midnight, they answer, I happen to be up. So I answer them and start doing that within, you're setting an expectation with that client that this is what you should expect to get back from me. And now if I stop doing that, maybe they're unhappy, but I'd have to look back and say, "Well, I did do that upfront." And so there are conversations we have to say, "Hey, what it looks like for me often is let's put that in the forecast meeting that we're having next week. So when you dump on me that you hired three people, fired two, and got a new customer, wonderful. I'm not gonna turn around and revise the forecast via email to you today. We're meeting next week. I'll include that in the discussion." And some of that is helping them understand, here's the right way. So a good customer maybe doesn't understand the boundaries. I think there are opportunities to get them to where it's a manageable piece.
Ron (00:34:30) - Yeah. I mean, we, we, you're right. We have to educate the customer on those boundaries. I mean, nobody can abuse us without our permission. Yes. Right. But I am so reluctant to go too far in that direction because one, one of the things, and this is not personal, you guys, it's not, sure it's not about Summit, I'm just talking about the profession in general. Our customer experience sucks. Our average NPS score in the CPA world is 23. Compare that to Apple. They're in the high seventies or low eighties, BMW, all these great companies that we admire are way up there. We have a really terrible customer experience. And I'm not so much worried about the customer texting me at 2:00 AM on a Saturday. And by the way, if they do, I probably want to hear from them. Something's probably up. Mm-hmm. Something not good. Right. But the biggest complaint in this profession is not that my customer can't get ahold of us. It's that we don't return their calls. Something as basic as that, that's still why we lose so many customers. Just because I call my CPA, I, he never calls me back. It's like, we've got to up our game. And I think subscription forces us to do that. That's what we mean by plusing the experience. Yeah.
Adam (00:35:55) - Yeah. No, that's good. Uh, it's also good to hear our NPS is up into the seventies, so that's awesome. That's awesome. Yeah. Yeah.
Ron (00:36:02) - But, but think about 23.
Adam (00:36:04) - I know. Yeah. That's poor performance.
Ron (00:36:05) - What's that tell you?
Adam (00:36:06) - But, but again, I think it, to your point though, it's hard to get ahold of people. I think the biggest thing is for us is on the advisory side, I don't think that it's as big of an issue. I think where we've had concerns in the past, and I always tell people, don't worry about it, again, win some, lose some, just take care of it. Let me worry about what we're supposed to do and not supposed to do, mm-hmm. But I think sometimes clients have a tendency whenever they see the subscription, it's like, "Oh, well, you did this, can you do that?" And then slowly over time, we end up kind of becoming their personal assistants and it's like, "Well, no. Okay, hold on." You know, and junior professionals aren't really great about understanding where to draw the line or how to set those boundaries or push back. And, you know, before long, you've trained the client that basically, short of doing their laundry for them, you're doing a lot of other stuff that you probably weren't engaged to do in the first place
Ron (00:37:04) - Right. And see, this is a strategy question to me and a positioning question, right? We go back to, are you McDonald's? Are you Ruth Chris, or are you a vegan restaurant? You know, I think strategy in our world means, well, strategy overall means we're defined by the customers and the services that we don't have and that we don't perform. Mm-hmm. And we've gotta be very clear about that. Hey, I'm a general physician. You're not gonna get oncology services. You're not gonna get knee replacements. You may not get x-rays or MRIs. I mean, we gotta be, we're defined by what we don't do. In other words. And there are so many firms out there that position themselves, "Oh, we're a veterinarian and a taxidermist." And that way they can say, "Either way, you'll get your cat back." And that doesn't work.
Adam (00:37:57) - Oh, that's, uh, that's heavy.
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Adam (00:38:42) - You know, another thing that you kind of talk about and hit on in the book that I think is important too is the conversation around metrics and how that all kind of gets worked. Do you mind, I mean, so we've kind of moved from, you know, understanding the value, the transformation, I mean, the concept with the time and billing and moving to the subscription model. But on the delivery side, can you lean in a little bit on, you know, your take on how we're leveraging and using this in our delivery? Because, you know, in the book, you're kind of talking about, you know, obviously, move what you measure, that kind of thing. And we have a tendency, I think, to overanalyze or, you know, it kind of goes into the transformation conversation a little bit. But you just had some interesting points there on the metrics and everything in the book.
Ron (00:39:30) - Well, the great thing about subscriptions, because this model's been around for a while, is that the KPIs are already all fleshed out. Now, I do make a distinction between two different types of KPIs. There are performance indicators, and that always means historical. It could mean real-time if you had real-time data. Like cloud accounting is real-time, but that's still performance because it's about the past, right? And all of those indicators that you see from Andreessen Horowitz and the different VC funds that invest in subscription businesses, they've issued reports. Here are all the KPIs that we look at. So, you know, customer cost of customer acquisition, um, you know, all the different things that they look at, right? Churn, ARR, MRR, all of those different things. That's all been worked out. And I've got a whole chapter in the book on all those.
Ron (00:40:27) - Though to me, that's just taking your financial statements and doing KPI analysis, mm-hmm. But that's about the past. The real interesting indicators to me are the predictive indicators. And that has nothing to do with the financials. In fact, you can't get the information off financials for a predictive indicator. Because a predictive indicator is a theory of if we do this, then this, mm-hmm. And if we're talking about customer behavior, then I look at things like turnaround time. Are we delivering on our promises to our customers? If we say you're gonna get your report, your tax return, whatever it is on this day, well, I'm gonna track turnaround time, just like FedEx tracks on-time arrival. I want to look at the NPS score. If we do NPS, I'd also like to look at the customer effort score.
Ron (00:41:21) - How effortless is it for the customers who interact with us, either digitally or, uh, you know, human? Um, how much time do they spend with us? If we're going to track time in this profession, we should be tracking how much time do our customers spend with us and how much time do we save them? I think that would be a very interesting metric because that's focused on the customer, not on what we do internally. Because we have the ability to save them a lot of time. But also, um, what is the time that they are spending with us? I think it was one of the founders of Basecamp who said, "Good businesses have customers, great businesses have fans, incredible businesses have privileged businesses have audiences." And the difference between audiences and customers is we have to pay to get customers' attention.
Ron (00:42:15) - Audiences freely give you theirs. So the audience listening to this podcast comes in every week or whatever your guys' cadence is and listens to the show. You don't have to pay them to do it. You don't have to bribe them to do it. They freely do it. That's incredible. So I like this idea of an audience because what are we doing that's getting their attention? You know, we asked ChatGPT if they ran an accounting firm, if Disney ran an accounting firm, what they would call their team members. And one of the labels was "financial storytellers."
Tom (00:42:51) - Hmm. We've used that term. Yeah. I don't think, sure. I don't think we live up to it, but we have talked about that term we would do.
Ron (00:42:57) - I think that's pretty cool. Yeah. But yeah, so I mean, part of this change that you were asking about before, Adam, is, is, um, language too, right? Yeah. Think about how Disney changed the language. It's not an amusement park, it's a theme park. We don't have rides. We have adventures, right? Um, that we don't have staff, we have cast members. That's a big deal. The language that we use to communicate. And if we communicate in the language of outcomes or transformations, then that's gonna automatically be seen as higher value. So I'm interested in the KPIs that are predictive, um, you know, that can show us or at least attempt to predict customer behavior. And that means we need to measure things that are important to the customer. We need to define success the same way the customer does. So how does the customer measure our success? Well, responsiveness, customer experience. And they're not measuring it, by the way, but they are experiencing it, so they're judging it. Just like we judge the bedside manner of our doctor. We don't measure it. I'm not sitting down with a scale on one to 10 measuring it, mm-hmm, but I'm experiencing it.
Adam (00:44:17) - Yeah. I mean, the reason why I led you down this is because, uh, I agree with everything you said there. I mean, we're firm believers in all that stuff, but you're talking to us, the accounting profession in this book, which is genius. Like people need to like just kind of read it from start to finish, kind of understand and apply those concepts. But I think what's really cool about the book is that everything that you have in there applies to all my customers.
Ron (00:44:46) - Regardless
Adam (00:44:47) - Regardless of what business they're in. They can be service professionals. I can take a piece of those. I mean, and so from an advisory standpoint, whenever people are like, Hey, how do you, you know, unlike Auditor Tax, where there's like all these forms and it's like, this is exactly how you do it. Advisory art. And so there's a little bit of personality and the best way to really anoint yourself with all these different concepts is to read, read, read, read, read, apply 'em to yourself, like you said, even with the AARs. Like, Hey, get really good at it on yourself, and then you can apply it to other people. That's the exact same way I feel about your book, like those concepts and those things we've been doing them for ourselves for a while. And like seeing it all kind of laid out there and understanding it, you'll start to very quickly see where you can apply pieces of that to your clients and really, mm-hmm, upskill your entire advisory. So again, I think that, again, even though we appreciate it written for us, it's like I see a lot of wisdom being able to be applied to all kinds of different industries regardless. I mean, you know, there's pieces of it that just kinda are industry agnostic from that standpoint. Yeah.
Ron (00:45:57) - We always talk about the great duality in everything we teach. Accountants can apply it to their customers as well. So we've talked about a little bit about strategy, positioning, KPIs, pricing. Do you know of a business that doesn't struggle with pricing? All of these things, CPAs are capable. Each one of those things is a little mini transformation. A transformation doesn't have to be really grandiose. It could be, mm-hmm, okay, we're gonna set up some key predictive, what are the three key predictive indicators in your world, Mr. Customer? Now you might have to start from scratch because they're a different type of business, or, or, I mean, I don't know what the KPIs are for an HVAC, you know, person, mm-hmm. But you could test them. You could hypothesize and then test them and see if they work. That's incredibly valuable. So yeah, there is a great duality to all of this. We learned that when we were helping people from hourly billing to value pricing. We said, look, we just taught you all this great stuff about value pricing. Now go help your customers with it.
Adam (00:47:05) - That's, yeah, absolutely. That's where I get most of the consulting, is applying all this great stuff to ourselves and then go getting good at it, figuring out what works, what doesn't work, how it kind of changes depending on the situation. And then applying it to multiple different customers and seeing how, you know, shades of the same thing can apply to just about anything. And it's been great. So yeah, the book's fantastic from that standpoint. I've got all kinds of yellow highlights, all kinds of talking points with clients. So not only for the team internally on ways that we can get a little bit better, but also how to, um, you know, incorporate some of that into our advisory language that we use with our customers.
Ron (00:47:45) - Fantastic. Our...
Adam (00:47:46) - Members, Ron, our members. Members.
Tom (00:47:49) - Yes. I like that.
Ron (00:47:51) - I like that. It's part of the language change. That's right.
Tom (00:47:54) - Ron, maybe to close this out, maybe a minute or so, for someone who is listening and say, okay, you've piqued my interest. I want to make these changes or things like that, what would you suggest maybe in the next 30 to 60 days as that great kind of first step to really say, okay, if you want to do this, here's what you should really take that next step to do.
Ron (00:48:12) - Well, if they're really serious, well, if they're thinking about it, I'd say go read some books. Yep. Whether it's mine, whether it's, uh, "Subscribe" by Tien Tzuo or "The Automatic Customer" by John Warrillow. Fantastic book, or "The Forever Transaction" by Robbie Kellman Baxter. Or you can go to the Soul of Enterprise and listen to the interviews we did with those authors. Okay. Um, so you could do that if you were really serious, and this is where we get the most pushback, is, okay, how do I pivot to this model? Uh-huh, whether I'm hourly billing now, or even if I'm value pricing now and I want to pivot to subscription, I'm a really big advocate. Me and Ed both and Paul Dunn are really big advocates of spinning out a new brand and a new business.
Ron (00:48:58) - Because I think this is such a different business model that it's really hard to do it gradually in the legacy firm because that requires you to have two different business models inside the same firm. Yeah. And you guys, I'm just, I'm almost convinced of this, that it's almost impossible to run two different business models in a smaller firm. Now, I think the Big Four can do it, and I think Apple can do it, and I think Disney can do it, but they have a lot of managerial talent. In a smaller firm that's constrained by managerial talent and attention, it's really hard to run two different business models. I think it's like having two spouses. You can do it, but you're probably not gonna like the result. So I'm a big advocate of spinning out a new business. And I have to say, a lot of firms that you know, are above, say, four or five partners, they just look at that and they think it's daunting.
Ron (00:49:53) - But you know what? The corporate world does this all the time. Yeah. Look what Toyota did with Lexus. Look what, look what Dayton Hudson did when, and Dayton Hudson was financially very successful, but they said it from a positioning standpoint, we're caught in the middle of the market. You know, Target, Walmart, or I'm sorry, Walmart, Kmart, and then, you know, Nordstrom, Macy's all. So they went out and launched Target, and Target eventually cannibalized Dayton Hudson, and they changed their name. And that was a brilliant, you know, strategy is always brilliant in hindsight. In hindsight, yeah. We can always recognize a brilliant strategy. But the thing about strategy is it's also a theory. You don't know if it's gonna work. Southwest didn't know that their strategy of the same plane, secondary airports, point to point, rather than the hub and spoke, all of the things that make up the Southwest brilliant Strat, they didn't know if that was gonna work, but that was their strategy. And so I think the subscription model forces a new strategy, a new mindset, new KPIs, new accounting, and that's really hard to do whether you're billing by time or value pricing, even hard to do that under the same roof.
Tom (00:51:07) - Yeah. I think that's a great point when you said to spin out a new brand and business, and I know there are challenges. To me, the part I thought of was freedom, right? I'm not looking at my current book and trying to work through how do I do all this conversion, which can be really daunting. It seems easier to say, "What if I just started really small and tried this and kind of worked at it? And maybe the goal is once I perfect it, then I go back and figure out how to apply it." But there is some freedom in trying to do that.
Ron (00:51:32) - There's a reason why when big companies want to truly innovate, they develop skunk works. Yeah. There's a reason for that. That makes sense.
Tom (00:51:40) - Exactly.
Ron (00:51:41) - Because they're not caught up in the legacy systems of the old firm. And, you know, eventually you want to cannibalize the old firm as Andy Grove used to say, you know, if you're gonna be cannibalized, it's better to dine with friends.
Tom (00:51:55) - That's probably a good place for us to end. That is a great summary. I'm really glad that we decided to do a part two, and I'll encourage people again, as I did at the very beginning, if you haven't listened to part one, it's still well worth going through and doing that because Ron, it's a lot of really good insight. Sometimes it's hard to hear how bad we are and what the experience is of our clients, but I think with a solution, a positive forward-looking piece, it's something that we can really grasp onto.
Ron (00:52:21) - Awesome. Well, thanks you guys. I really appreciate this.
Tom (00:52:23) - Yep, thank you. Thanks very much. Thanks.