Scaling Business Advisory: The Value Pyramid for Accountants and Business Advisors (Part 1)

By Posted in - Members Blog on November 23rd, 2015 0 Comments

The first two layers of The Value Pyramid — Real-Time Data and Compliance

Over the past couple of decades accountants have been given a lot of well-meaning but ultimately misguided advice. Here’s just some of the ‘advice’ I’ve
heard:

  • “Forget about being an accountant. Become a business development advisor instead.”
  • “Position yourself as a business coach.”
  • “Bolt this business coaching franchise onto your firm. (Oh, and sign a big cheque for me.)”

Most accounting firms want to provide future-focused advice and business advisory services to a significant portion of their business clients. But industry
benchmarking statistics (such as Business Fitness’ Good, Bad, Ugly survey) show while a small
percentage of firms have succeeded, most have failed.

In fact, only one-in-ten firms has successfully crossed what we refer to as The Value-Add Chasm.

Bad news, right? Well, only if you don’t know where the approaches have failed.

The biggest reason most accountants and business advisors fail at delivering business advisory services is their inability to scale. They can’t
build, market and sell their business processes as an advisory service without needing the most senior people in the firm to deliver it.

Just like the bottle the term refers to, nearly all bottlenecks are at the top. So why promote services to clients that can only be delivered by the most
senior—and most time-poor—people in the firm?

It clearly doesn’t make commercial sense.

We’ve seen it happen so often over the years that it’s impossible to ignore. We’ve thought a lot about this dilemma, and tried to diagnose where the
various business advisory approaches have fallen short. And in doing so we’ve developed a model that identifies and explains how you can add more value to
your business clients while still hitting the sweet spot of value versus scalability.

This model, which we call The Value Pyramid,identifies seven layers of value that can be scaled by varying amounts.

Let’s start with the least valuable.

Layer #1: Real-Time Data

Gasp! Are we saying that cloud accounting, bank data feeds and the modern ways of doing bookkeeping and accounting are no longer important? Of course not.
Having up-to-date numbers based on data coming straight from your bank accounts into your accounting system is crucial for your business.

What we are saying is that it’s no longer ‘the next big thing’. Not only is it old news, it’s a commodity. As Xero CEO Rod Drury said at Xerocon
in Melbourne earlier this year, “Cloud happened”. Your clients can get cloud-based bookkeeping services from a multitude of providers, and the downward
pressure on fees is remarkable, especially with offshoring driving down labour costs.

So if you’re not providing (or at least strongly recommending) cloud-based accounting systems to your business clients, I’m not sure what decade you’re in.

Admittedly, ‘the cloud’ still has the ‘gee whiz’ novelty factor in some quarters. But think back to when mobile phones and smartphones came onto the
market. At first they were cool, bright, shiny and new. Now they’re everywhere. (In fact, there are more mobile phones on the planet than toilets.)

The good thing about this Real-Time Data value layer is that it’s scalable. You only need technicians—in-house, outsourced or a combination of both. We see
firms around the world using a wide variety of resourcing approaches in this area.

But high scalability combined with low perceived value isn’t the mother lode, is it?

Let’s keep looking.

Layer #2: Compliance

Compliance has been copping a “Compliance is dead” battering for years now. But watching the public practice accounting sector respond to this looming
threat reminds me of the ‘boiling a frog’ analogy. You know the one: Put a frog in a pot of boiling water and it will immediately jump out. But if you put
it in a pot of cold water, and then slowly raise the temperature of the water, the frog won’t sense any danger and will eventually be boiled to death.
(Please don’t try this at home.)

For decades, compliance has been a profitable business model for accountants. It has always felt… ‘comfortable’. And it’s easy to see why:

  • It’s easy to scale (by delegating it to less senior staff).
  • Everyone needs it done.
  • It creates ‘sticky clients’ who come back year after year (which creates nice recurring revenues).
  • It used to be difficult for clients of firms to shop around and compare value.

A lot has changed in the compliance space recently, especially with the combination of automation and legislative changes to simplify compliance and tax
lodgements happening internationally. But in some areas it has become more complex (for example, Self-Manager Super in Australia).

Unfortunately, if accountants have noticed the change, many haven’t sensed the danger. We’ve now entered the Compliance 2.0 Era, and those who don’t get out of the Compliance 1.0 Era quickly are likely to get cooked.

But regardless of the level of complexity, compliance is still another a commodity—a grudge purchase. And the only way to differentiate it is by price.

So why do we place Compliance above Real-Time Data in The Value Pyramid? Because the consequences of not meeting a client’s obligations are high.
Get compliance wrong, and you could lose far more than a client.

While many firms still derive a significant portion of their fees from these first two layers, rather than progress to the next few layers (which are quite
achievable, as we’ll explain in Part 3 of this series) they immediately jump to the top two layers, encouraged by business coaching franchises and related
advisors.

This is a mistake. Why? Because although they can be highly valuable to businesses, Strategy and Innovation advice is inherently difficult to scale beyond
the most senior (i.e. experienced and talented) people in the firm.

And we’ll talk about those challenges in Part 2 of this series.

In the meantime, we’d love you to share your experiences with us in the Comment section below. Have you tried breaking out of ‘the compliance box’ with
your clients to deliver higher-level advisory services? How did you go? What were the wins? The hurdles? The lessons?

We’d love to hear your thoughts.

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