Ric Payne has been thinking about how accountants build better practices for decades. If you have been in the industry for a while, you likely know about Ric Payne.
He co-founded Results Accounting Systems in 1992, ran the Accountants Boot Camp across multiple continents, and worked with thousands of firms around the world.
His conclusion? High-performing firms are selective about who they work with.
This is the sixth episode of the Power of Focus series on The Accountant’s Flight Plan, where we explore how CPA firm owners use focus as a strategic advantage. In this episode, Ric walks through his 11-point client selection framework, the same framework he developed while running a multi-million dollar public practice in Australia and later refined through decades of consulting. He also shares a white paper on client selection, available as a free download here that you can use to score their own client base today.
The conversation also features Ian Brennan, director of Accounting Practice Academy (APA), a PGA workshop. Ian and Ric discuss how intentional client selection is foundational to everything else a firm tries to do; from pricing and marketing to advisory services and succession planning.
As Ric puts it, if you don’t know who your ideal clients are, you don’t have a strategy. And without a strategy, you are simply at the mercy of the choices made by your competitors and your most frustrating clients.
This conversation covers:
- How the 11 client selection criteria work together to define a firm’s entire strategy, not just its client list
- Why patient entrepreneurs who build their businesses slowly outperform those who act before thinking
- How one UK accounting firm replaced ten 1,000-pound clients with one 10,000-pound client without losing revenue
- Why pruning the client base creates a profitability increase even when it causes a short-term revenue dip
- How personality, growth mindset, and business longevity factor into evaluating a prospective client
Ric’s core insight is one that the best CPA firm owners already know intuitively, but rarely act on
systematically: your business has been perfectly designed to produce your current results.. If those results are not what you want, something in the design has to change. Client selection is a powerful place to start.
This episode is for firm owners curious about how strategic client selection creates pricing power and referral momentum, practitioners ready to build a client base that supports an advisory practice, CPA firm leaders wondering how to increase net profit without simply chasing more revenue, and accountants who want to build a practice they are genuinely excited to show up for.
BOOK RECOMMENDATIONS
Playing to Win by Roger Martin
The E-Myth Revisited by Michael Gerber
TIMESTAMPS:
0:00 – Introduction to The Accountant’s Flight Plan podcast
0:14 – Brannon welcomes Ric Payne, the very first guest of this podcast (2013)
0:43 – Ric’s background: Principa, Results Accounting Systems, Accountants Boot Camp
1:20 – What Ric is up to now, including a Vancouver seafood business
1:57 – Introduction of Ian Brennan, Accounting Practice Academy director
3:11 – Overview of the episode: client selection and Ric’s white paper
4:02 – How Ric’s own $4-5M practice sparked the thinking on CPA firm client selection
5:47 – Stratifying clients: only 4-5% are open to advisory at any given time
6:42 – Why having no client criteria means having no strategy
7:33 – Steve Jobs on what not to do: the decision framework that changed Ric’s approach
9:01 – The four growth profiles: fast-start satisfier, opportunistic harvester, & the patient builder
13:12 – Why the patient builder accounting firm outperforms everyone else over time
15:15 – The founder’s gap vs. the Midas gap: two very different CPA firm outcomes
16:58 – Pivoting your practice: why results may dip before they rise
18:28 – Brannon on pruning: how creating space enables the patient builder model
19:07 – Baker’s Law: bad clients drive out good clients
20:54 – Why partners with lower utilization often have the highest net profit per partner
21:56 – The virtuous circle: better clients, better work, better referrals, better pricing power
23:18 – Systems theory: your CPA firm is perfectly designed for the results it gets
25:39 – The first step for any firm owner ready to start this journey
26:58 – John Wooden’s definition of success and why it applies to accounting firm owners
28:36 – Where to start: let go of the clients who drain energy and treat your team poorly
32:53 – Case study: UK accounting firm replaces ten 1,000-pound clients with one 10,000-pound client
37:01 – Dealing with imposter syndrome when stepping into an advisory role
41:11 – The 11 client selection criteria: the full walkthrough begins
43:37 – Criterion 1: businesses in operation for at least three years
47:07 – Criterion 3: pleasant, outgoing personality and why it predicts business success
47:58 – Criterion 4: growth mindset and willingness to listen
50:15 – Criterion 6: technical competence and the mutual commitment statement
51:36 – Criteria 9-11: robust business model, capitalization, and scope for differentiation
57:05 – Roger Martin’s Playing to Win [https://www.amazon.com/dp/142218739X ]and how it applies to accounting practice management
1:00:44 – Brannon on how the criteria tie back to personality, results, and client experience
1:02:22 – Why Ric sees Poe Group Advisors as uniquely positioned in the accounting M&A space
1:03:14 – Tech stacks are window dressing: what buyers actually look for in CPA firm value
1:05:46 – APA lesson: You cannot market your accounting firm if you don’t know who your clients are
1:08:13 – How to find Ric Payne and access the client selection white paper
TRANSCRIPT
[0:00] BRANNON: I’m Brannon Poe, and this is the Accountant’s Flight Plan podcast, where you can enjoy engaging conversations about mergers and acquisitions in accounting, practice management. Listen in on strategies to build a more fun and valuable accounting firm.
[0:14] BRANNON: Welcome to the Accountant’s Flight Plan podcast. Today I have a truly special guest. This is someone who’s been part of this podcast since even before it existed.
[0:23] BRANNON: We have Ric Payne back with us today. If you’ve listened for a while, you’ll know Ric was our very first podcast guest. You can go all the way back to 2013 and listen to those first couple of episodes we did with Ric. He was generous enough to help me kick this off.
[0:43] BRANNON: A little bit about him, if you don’t know him: he’s the co-founder and CEO of Principa. Before that, he co-founded Results Accounting Systems back in 1992, which ran the well-known Accountants Boot Camp around the world. Before that, he was a partner in a mid-size public practice and a senior lecturer at the School of Business at Southern Cross University in Australia.
[1:12] BRANNON: Ric has been thinking about how accountants build better practices for decades. We’re excited to have you back, Ric. Now you’re doing some consulting, if I’m not mistaken. Do you want to give us a little touch on what you’re doing currently?
[1:20] RIC: I didn’t know you were going to mention that. I still have clients. I’ve kind of retired from what I used to be doing, but I still have a bunch of accounting firms that I work with or mentor in some way. I also have some business interests and investments. One of them is a seafood distribution business based in Vancouver, which is where I am at the moment.
[1:52] RIC: I didn’t think I would jump out of accounting into fish, but it’s probably not a bad transition.
[1:57] BRANNON: I like the shirt you’ve got on. “Eat fish!” So for people in the market for some seafood… I want to mention too that we have a face that might not be familiar to a lot of people on our podcast, and that’s Ian Brennan. Ian heads up our Accounting Practice Academy. Ian, Ric, and I have had a lot of conversations about our academy, and Ric’s been really helpful in steering us in that regard as well.
[2:30] IAN: Appreciate it. I’ve been helping coordinate and run the workshop Accounting Practice Academy since its inception in 2020 with Brannon. It’s been so meaningful to be able to learn from both of you and also transition that information into the hands of firm owners. Excited to be on this episode. Excited to work with Ric and Brannon, and we definitely have some great info and tools coming through this episode.
[3:11] BRANNON: I’m excited. We’ve got a really cool topic. If you’re not watching this on YouTube, you can follow along as best you can without seeing some of these visuals. We have visuals to share, and we’re going to talk about client selection and what that does to a firm. Ric has a really cool white paper that he’s shared with us, and we’re going to share that with everyone. It’ll be in the show notes on how you can grab it.
[3:40] BRANNON: Let’s get into it. Let’s talk about client selection. Do you want to go ahead and show those graphs, or would you like to chat a bit to set this up for our audience first?
[4:02] RIC: Maybe just a brief introduction so that people understand where we’re coming from. In the white paper, you’ll see I wrote a little bit about how I came to realize that client selection was critically important. Sometimes when you’re in business, you stumble over things you tend to take for granted. When I was in practice, we had a practice that was, by today’s standards, relatively small. We were doing around $4 to $5 million in revenue, which back in 1983 or 1984 was still a decent-sized firm.
[4:35] RIC: We had about 900 clients who had businesses in one form or another. There were a lot of sole practitioners, quite a few large construction companies and truck distribution companies turning hundreds of millions of dollars in revenue. So we had this wide spectrum of clients, and we were attempting at the time to transition our business away from the smaller individual tax clients. Those smaller clients, both business and individual, we knew for a fact that we were not bringing our best selves to them. We were so much more skillful than the work we were getting paid for.
[5:47] RIC: So we started to stratify our clients. Of those 960 clients, at any given point in time, probably only 4 or 5% of them would have been open to what we would call business advisory or business consulting services. That’s not to say that a year later, another 4 or 5% might be interested.
[6:14] RIC: What happens in life and in business is that life is a moving parade. Somebody might think they don’t need any advice from their accountant on how to run a better business. But in 12 months, things change. The business grows to another level. They lose a couple of key employees, they lose a key customer, and all of a sudden they say, maybe I don’t know as much as I thought I did, and maybe I need a little help. That’s why we have to be quite patient when developing a business.
[6:42] RIC: The other thing we discovered at the time was that we did not have in our minds a clear definition of what some people call an avatar: what a candidate for business advisory services might look like. We had no criteria. If you’ve got no criteria, you can’t have a strategic target or strategic objective in mind. To put it another way, you just don’t have a strategy. Their strategy was: if they have a heartbeat and a pocketbook, they become a client. And that might be the worst decision you could possibly make.
[7:33] RIC: I’m reminded of one of the famous sayings attributed to Steve Jobs: it’s not the decisions to go ahead that were important, it’s the decisions on what not to do that were responsible for Apple’s growth. I think that is critical to the conversation we’re having today. If you try to be all things to all people, you will end up being nothing to anyone.
[8:02] RIC: So we started to develop some client selection criteria, and the impact on the practice from a profitability standpoint was absolutely astounding. It became a cornerstone of the philosophy we took to the Accountants Boot Camps, where we dealt with literally thousands of firms around the world.
[9:01] RIC: Once you decide to focus on two types of clients, that decision is no less important than choosing what product line you’re going to sell. And once you’ve defined your clients, you then know exactly what you need to do to deliver value. I thought an interesting way to introduce this would be to look at the growth profiles of different sorts of practitioners. We’ll start with that, and then you’ll see where I’m coming from when we go through the client selection criteria.
[10:03] RIC: Reality doesn’t manifest in the form of a nice, straight, linear growth pattern. Things get in the way. Usually when a new firm starts up, it can experience pretty rapid growth in part because there’s always someone in the marketplace looking for an alternative provider of services. So they quickly get what you might call the low-hanging fruit. But then things can slow down after that.
[10:38] RIC: I call those people “fast-stop satisfiers.” They often come out of an existing firm. They have some experience behind them. They decide that life would be much better running their own business, making their own choices and determining their own destiny. Sometimes they find out pretty soon that they’re working for an imbecile, which happens to be themselves. They’re perhaps very good accountants, but not suited to developing a business.
[11:09] RIC: Those people can tend to get to a transitional point where they get busy, they’ve got one or two people working for them, they’re doing most of the work themselves, and things get in the way of focusing on growth and selecting better clients. Their firm just slows down and reaches a peak. It can stay like that for a long time. The end result is those people are not terribly excited about where they are in relation to where they might have otherwise been.
[12:06] RIC: Then you’ve got another type: the person who jumps out of the gate and grabs everyone who has a heartbeat and a pocketbook. They get to a point where they just fizzle out. It gets too intense to run at that type of pace. They burn their employees, who leave quickly. They lose a handful of their better clients. The high flier often just disappears into the woodwork, or more concerning, they go and find another high flier, they form a partnership, and the reality is, if you put two people together who don’t have a clear strategy, you often just get one big mess.
[13:12] RIC: That certainly is not what we want to see. But then we have a fourth type, what I would call the patient builder. They start with a very clear strategy in mind, which is centered around the type of business they want to build. That in turn determines the type of clients they intend to service. The type of clients they service determines the type of services they need to deliver, which then determines the prices they can charge and the margins they make. The patient builder will tend, over a longer period of time, to outperform all of the other business profiles.
[14:12] RIC: The key element, in both my experience and observation, is to be very careful about who you select as a client. If you don’t have a clear definition of the clients you’re targeting, it will be impossible to develop a strategy. And if you don’t have a strategy to drive the choices you make within your organization, you will necessarily be at the effect of choices made by your competitors or by the client set you do happen to take on board.
[15:15] RIC: My interest in this whole topic is to explain why the patient builder is a much better growth profile to pursue. The opportunistic harvester, who believes there’s plenty of money to be made, will hit what I call a “founder’s gap.” They’ll get to a point where they’re doing most of the client work, they get busy, they make a reasonable to quite good living, and then everything just sort of slows down.
[15:45] RIC: The patient builder, on the other hand, will take longer to get to early results, but will see exponential growth in their firm after that. They’ll be able to take on better team members, pay them more, charge more for their services, and get better referrals. Those people will then hit what some might call a “Midas gap.” They start making a serious amount of money. In today’s terms, I would say that’s at least $500,000 to $1 million-plus in net profit per year. And almost every time, those firms have a very clear picture of their strategy and their client base.
[16:58] RIC: So that’s where we also need to remember: if you’re going to pivot your firm, if you’ve hit that transitional point where the growth is slowing down, you need to understand that the pivot may not result in a growth pattern as dramatic as what I just described right away. But you may need to accept a reduction in results for a period of time before you start to see the payoff. In other words, this is where a firm needs to place a few bets.
[17:56] RIC: In particular, with the current interest in moving into advisory services, it’s important to understand that you cannot just decide to do it on Friday and start seeing results on Monday. It will take a good deal of time. In fact, I would say give yourself three years to really start building that competency and capability within your business. I would emphasize: don’t succumb to the narratives from what I call the tool makers, the people who say invest in their tool, share dramatic dashboards with your clients, use AI to get actionable insights, and watch your profit go through the roof. I have yet to see that happen.
[18:28] BRANNON: Rick, I have a question. When you look at that graph and you get to that transformation spot, the dip, I think what we’ve seen is that’s where pruning comes in. It’s almost like you’ve got to create the space and capacity so you can become a more patient builder. Sometimes you have to clear away the things that are not serving the practice the way they once did. Is that pruning part of this equation?
[19:07] RIC: I think it’s an essential part of the equation. I’m reminded of Steve Jobs’ comment: it was the decisions of what not to pursue that were responsible for the performance of the business, not the decisions to go ahead. Ron Baker has this really good concept he calls Baker’s Law: bad clients drive out good clients. If you’ve got clients who don’t share your growth aspirations, then you’re just treading water with them. The best you’ll ever get from them is what you’re getting now.
[19:57] RIC: We found in our own firm that at any point in time, a relatively small number of clients are ready to move into advisory. There are some people who will never be interested. Those are the ones you need to let go of, and share them with competitors you don’t particularly favor. They will be delighted to take on board those clients, because it will be a perfect fit with the type of business they’ve currently got.
[20:54] RIC: I’m absolutely convinced that the way in which you allocate your resources, one of which is your time, will dramatically improve your profitability. And what’s interesting: on every peer firm comparison analysis I’ve been privileged to look at, what we see is that the firms where the partners have lower utilization, in other words, they have lower billing levels compared to other firms, have the highest net profit per partner. The reason is they’re working more on the business than in the business. They’re designing a business that works so they don’t have to work as hard.
[21:56] BRANNON: Ric, one of the things you’ve always said to me is that firm owners need to recognize they’ve perfectly engineered a practice that matches exactly what they’ve been aiming at. To develop a new vision, they need to create the space to lean into that. I love how in this white paper you’ve talked about the virtuous circle: better clients turns into better work, turns into improved learning for you and your staff, turns into pricing power, turns into better referrals, turns into better clients. If we focus on the clients, we create space to really focus. We start to see this spiraling upward.
[23:18] RIC: What you opened with is the key element of systems theory. To reiterate: if people take nothing else away from this podcast, it is important that they understand their business in its current state has been perfectly designed to get the results they’re currently getting. If you pause for a moment and think about that, that’s how adaptive complex systems work. You can have all the aspirations in the world, but when you’ve got a particular way of doing things, that particular way will produce the particular results you’re getting. Starting with client selection is a very good place to start, but there will inevitably be a bit of a dip. You have to give up something in order to get something better.
[24:43] RIC: And I think, Brannon, related to this: some good people leave the profession because of that exhaustion. If they took on board a different way of looking at how you build a business, they would stay in the profession, enjoy it more, and provide much better opportunities for the people working with them.
[25:19] BRANNON: I’m curious: what would you recommend as the first step for somebody looking to start on this journey?
[25:39] RIC: The first step is to sit down and really think about what you said so correctly: to realize that what they’re getting at the moment is due to the choices they’ve made in the way the firm is operating, the role they play in it, the people they’ve hired, and the customer set they serve. All of those factors have an impact.
[26:31] RIC: With any change management system, you could argue you can start at any one of those areas. For example, just working on your own mindset: what do I want my business to look like when it’s done? I love that question from Michael Gerber. What type of clients do I want to work with? What type of value do I want to create? How much money do I want to make? What team members do I want to employ?
[26:58] RIC: I’m a huge fan of John Wooden’s definition of success. John Wooden was the famous UCLA basketball coach who won, I think, 10 national titles. It took him about 15 years to win his first one. He was a classic slow builder, but after he won the first one, he went on to win almost 10 in a row. His definition of success, which I would ask anyone to embrace, is the feeling you get when you experience the satisfaction of achieving something that is a worthy objective. It’s not how much money you made, it’s not how big your firm became. It’s what impact have you had on the people who work with you, the clients you’ve worked with, your relationship with your family.
[28:36] RIC: My view, to answer your question in a somewhat long-winded way, is that a great starting point is to look at the clients you’re currently servicing. Not necessarily to let all the ones you don’t want go immediately. If 50% are not really what you want, don’t let 50% go all at once. Start by letting go of the ones who really drive you and your team crazy: the ones who complain about your services, who account for 80% of your scope creep, who don’t pay well and treat your team members with no respect. Get rid of those people first.
[29:40] RIC: That might cause a little bit of a dip, but what you’ll find is your team members will be much happier. When they’re happier, they will be more productive. While you may have had a dip in revenue, you’ll probably see an increase in profitability. These things are obvious. They happen as a consequence of a good choice.
[30:00] BRANNON: They almost seem counterintuitive to a lot of people. It’s like, you mean I have to prune in order to grow? I have to reduce in order to get this thing where it needs to go? It is a leap of faith.
[30:23] RIC: It is the logic. They’ve got to reach that point where they just can’t keep doing what they’ve been doing. If it weren’t counterintuitive, everyone would be doing it and everyone would be succeeding. The outliers are the ones who understand the paradox. That’s why you cannot copy an outlier. One of the reasons I don’t have too much faith in benchmarking studies is that the firm with the highest revenue per employee or the fastest revenue growth is achieving those things because of its cultural profile and the way it’s been designed. All of those metrics are outcomes of the design, but you will never see the design features within any benchmarking comparison.
[32:04] IAN: I think about the paradox of expecting things to change without being a force of change. One of the things you mentioned is that bad clients don’t just leave on their own. They just accumulate. They mount up. They start to take more and more of your time. You somehow open the gates because that’s where the referrals are coming in. It always fascinates me the level of intention that’s required to weed out the clients that aren’t a fit. I’m curious if you’ve seen or learned any crucial lessons when it comes to releasing tough clients, or if there’s a strategy you like to implement?
[32:53] RIC: There are some lessons, and I don’t think we have time today to go into them all. But let me explain some of the strategies I’ve seen successfully implemented. I worked very closely with a firm in the UK doing 500,000 pounds in revenue with two partners. This is going back 30 odd years. They decided they wanted to get into a purely advisory type of business, to complement their compliance work. But they still had to feed their families, so they couldn’t afford to just let all their clients go.
[33:50] RIC: What they did was develop a marketing strategy by selecting clients based on the criteria we’ll go through in a moment. When they brought on a new client, they had a minimum fee expectation, which at that time was 10,000 pounds. Bear in mind the average fee up until then was somewhere between 500 and 1,000 pounds. When they got 10,000 pounds worth of new revenue, they let go of 10,000 pounds worth of their lowest-level clients. The revenue didn’t change. The profit actually improved, because they found they were making more from one 10,000-pound client than from ten 1,000-pound clients.
[34:47] RIC: They went to another practitioner who was happy to take on board those clients and offered to buy them at about 60 pence in the pound. So they systematically, over several years, went through a process of harvesting out the lower-level clients. It worked perfectly. But the key was they had a very simple client selection criterion that sat over all the 11 I’m about to discuss, and that was: we will only take on board a client who is serious about his or her business.
[36:02] RIC: In retrospect, I thought that’s really wise. Because if somebody is serious about their business and realizes it has been perfectly designed to get the results it’s now getting, which are not the results they want, then that person is going to be looking for someone to help them get there. And that’s exactly the slot that firm provided for their clients. Does this make sense?
[36:35] BRANNON: Absolutely. I think it’s brilliant strategy. It takes all the risk out for them. They get to step up into the new client profile they want, and slowly let go of the clients they don’t want. There’s almost no risk. That’s really smart.
[37:01] RIC: There really is no risk. The only challenge everyone has is dealing with imposter syndrome. These guys had been doing good work for their clients, but it was good compliance work. They were now getting into a space they were not familiar with. They were really only one lesson ahead of the client, because they had to invest in their own personal development to get the client conversations going. You can’t just step into an advisory role if you’ve never really been involved in change management processes or communicating with clients at that level.
[38:01] RIC: What they learned, and Brannon, I think this is so important, is that accountants for the most part are really smart people. If they can share common sense with their clients, just a different perspective and a different view, they don’t need a whole lot of tools. They don’t need PowerPoint presentations or fancy brochures. They just need to sit down with clients and help them make better decisions.
[38:28] BRANNON: I think a lot of accountants take for granted the knowledge they have of their clients’ businesses. They assume it’s common sense, but their perspective is typically very different from the business owner’s perspective, and very valuable for that business owner. One of the things we advocated in the early days, and still would, is running a customer advisory board for the clients’ businesses. Great insights can come out of that.
[39:35] RIC: I am an avid user of AI. I think it is phenomenal. But when it comes to developing relationships with clients, I don’t think it replaces the human element. I may prove to be wrong, but until AI develops true sentience, I can’t see it replacing an individual when it comes to helping a client run a better business. The relationship is the thing you’ve got to figure out how to optimize. Getting in front of clients, doing things like customer advisory boards, helping them create an organization with a high level of psychological safety where people can comfortably share concerns: all of those factors tend to be associated with highly profitable firms.
[41:11] BRANNON: Maybe now would be a good time to start talking about the 11 client selection criteria.
[41:11] RIC: So we have here the white paper I wrote some time ago that deals with this issue of client selection. I wanted to start this discussion by defining what I considered, in general terms, an ideal client: somebody you believe you are able to create value for, who acknowledges the contribution you make towards that creation of value. Because the important thing to remember is that you cannot and will not capture value if you don’t first create it.
[42:20] RIC: One of the challenges I think the accounting profession has faced, having relied on the model of charging for time, is that time has gotten in the way of what you’re doing during that time: the value you’re creating. As a profession, we’ve tended to think we were being paid not to play golf but to spend time supporting our clients. But that’s really not what it’s about. It’s what you create during that time that creates value. If you want to make more money, you need to create more value. When you create more value, you will attract more clients who are willing to share a fair proportion of that value with you.
[43:37] RIC: What we came up with in our own firm is that there are 11 criteria we used to select clients. We’ll provide anyone participating in this podcast with a tool they can use to go through each of their clients and ask where they stand in relation to these criteria, and to what extent there is a good or bad fit. Let me run through each of these separately.
[44:09] RIC: The first one: we chose to work with businesses that had been in business for at least three years. There were several reasons for that. When you take on a new client, you’re placing a bet that you will be able to create value for them and that they will stay with you for an extended period of time. Every new client I was looking for, I was thinking about what is the lifetime value they’re going to bring. If somebody hasn’t been in business for three years, they’re probably among the 30 to 40% that fail. From a lifetime value standpoint, they may have been a waste of your time, because you may have made some fees from those three years but there’s nothing after that.
[45:07] RIC: The second reason is that when people start a new business, they think everything is going to be great. They don’t think they need advice or that they can afford it. It’s very difficult to work with someone who believes they already know everything they need to know in order to be successful. Good technicians, as Michael Gerber talked about in The E-Myth, often make poor business managers. They are not good entrepreneurs. They are good technicians. The more they love the technical work, the less likely they are to focus on the business.
[46:23] RIC: So if someone’s been in business for three years, they’ve probably gone through a couple of cycles. They’ve realized that growing a business is harder than they originally thought. Once they get to the end of three years, the probability of surviving for another three years is dramatically higher. So if you’re a betting person, you don’t want to bet on what is likely a 60% chance of loss within three years.
[47:07] RIC: The next criterion: they have a pleasant, outgoing personality. The personal reason for me was that when I was doing this work as a partner in the accounting firm, I had a view that I really only had about 15 years left in my productive life. I just didn’t want to spend that time with people I didn’t enjoy. I enjoyed working with people who were outgoing, happy, and positive. Those types of people also tend to run better businesses. They attract better clients, they attract better team members, and they keep them longer. Those factors alone tend to produce a more robust and profitable business.
[47:58] RIC: The third criterion: they have a growth mindset, and they’re willing to listen. A growth mindset is associated with people who enjoy the game of growing a business, not just the results. They’re in it for the journey. The challenge is this: if you’re working with somebody who believes they know it all and refuses to take your recommendations, or won’t trust you enough to share their deep concerns about operations, people, or customers, you will be wasting your time.
[48:57] RIC: I think this is where some AI solutions will fall flat, because these things are important but they’re not captured in dashboards. They are captured through an interpersonal relationship. Having a growth mindset is important. A positive disposition is critically important. That tends to be associated with people who have a pleasant, outgoing personality and who believe their destiny is in their own hands.
[49:38] RIC: If you’re interviewing a client and you ask them what their biggest challenges are, and they come out with, “Well, if we didn’t have to deal with team members, or banks, or governments, everything would be better,” forget it. They’re not going to take responsibility or accountability for their own choices, and they’re certainly not going to embrace many of your suggestions.
[50:15] RIC: I also put in “technically competent.” What I’m trying to say there is that their track record is good. Before I ever took on board a client, I would go and visit with them, look at their business, and talk to their team members. Bear in mind, we were only looking for clients we were going to charge a substantial fee to. The fact that we would go out and visit with them and look at their financials to see whether we felt we could make a contribution immediately differentiated us from every other accounting firm that would meet a prospective client and rush back to other work.
[51:01] RIC: We put a lot of effort into determining whether there was a good fit between the prospect and what we were proposing to do. In fact, we used something called a mutual commitment statement, which set us up for subsequent referrals. While we were doing that, while we were trying to understand what business they were in, we were also starting to get a sense of what value we could bring to the table. If they weren’t technically good at what they did, we didn’t think we could help them, because it’s very hard to go to a client and say, “We can help you if you were a lot better at what you do.” That’s not a great way to start a relationship.
[51:36] RIC: Then we get to the last two, which were more strategic. A lot of businesses fail because they do not have a robust business model. A business model defines the way in which a business creates, distributes, and captures value. That is critically important. Once you get over that concept, you will be able to have amazing conversations with both prospects and existing clients. You don’t need AI to do this.
[52:29] RIC: And the business isn’t chronically undercapitalized. Businesses can be undercapitalized for a couple of different reasons: they’re growing too fast, or they’re growing too slowly. Once again, we have a paradox. Businesses that come out of the gate without enough capital to invest in working capital, as the business grows in revenue and activity, it drives the need for capital. They put up their home and other assets as security for loans. When that security runs out, they get in real trouble. So one of the first things we would do, even before taking on a client, is run some numbers and see what the fundamental issue is with their capitalization.
[53:28] RIC: The next one: the business is not dominated by a small number of customers or suppliers. I’m persuaded here by Michael Porter’s Five Forces of competition. If you’ve got a client who’s in an unattractive industry where the margins are squeezed by either suppliers or customers, it is very hard to find initiatives you could put in place to help those clients. Be aware that this is a serious strategic issue.
[54:24] RIC: The next one: the business has a clearly established market for a product or service. This excluded us from working with highly innovative startups who might have great ideas. We didn’t look for those type of clients as a rule, but if one came into our firm and met all the other criteria, we would have a portfolio of startups we thought were going to be good bets.
[55:21] RIC: Every one of these choices is a bet you have to make about whether it’s going to be a good lifetime value. One example for us was a fellow who was selling an essential oil, and his wife was hand-making labels. He was selling these little bottles at a farmer’s market on the weekend. We backed him because of his attitude, his values, his drive, his energy, his positiveness. He ended up selling that business 30-odd years later for $50 million. He was a phenomenal client. So there is room in your portfolio for a few of those types of people.
[56:13] RIC: The last two are also concerned with what we can do for the client. The business has scope for product or service differentiation through innovative marketing. Peter Drucker used to say the only two profit centers in a business are marketing and innovation. All the rest are cost centers. If you feel there are ways you can help a business differentiate its service, price accordingly, and use innovative marketing methodologies, then this is someone you should seriously think about working with.
[57:05] RIC: And the final one: the business has scope for improved productivity through innovative management, planning, control, or business model redesign. Oftentimes you will find that a business doesn’t have what we would call a management control plan. They don’t have a strategy. Helping them develop and implement that strategy is incredibly valuable. Let me just say before we finish this section: the implementation of a strategy is part of the strategy process. Implementation and strategy are not two separate things. They are part of one process, because strategy is a continuing cascade.
[58:01] RIC: I came to appreciate the work of Roger Martin, who wrote a book called Playing to Win. You start with a winning aspiration, you then make choices about where you intend to play: which customers you want to work with, which geography, whether you want to be at the premium end or the high-volume end. These are all choices. That’s what strategy is about in the final analysis. And the worst strategy you can follow is the “me too” strategy: I’m just going to do what everybody else is doing. Once you’ve figured out where you want to play, the next question is: how can we win in that space? What do we need to do that is better or different from everyone else? Then you ask what core competencies you need in order to win, and finally what management processes and systems you need to exploit those competencies.
[59:22] RIC: If you were having that conversation with a prospective client, I can absolutely guarantee they’re going to want to work with you. Those conversations will be completely insightful. It won’t sound like a packaged sales pitch. The dashboard becomes part of your management control system, where you’re working with your client on a monthly basis to review initiatives, choices, and the metrics you’re using to monitor performance. Those are the type of clients who will be willing to pay you $3,000, $4,000, or $5,000 a month, at least, because that is the type of service they cannot live without.
[1:00:44] BRANNON: I love this. I’m sitting here listening, and it just takes your mind in so many different directions about how this impacts your practice, what types of clients it relates to. This is not only clarifying, but in a way really thought-provoking. I really like how you’ve got some at the top of the list about personality, disposition, and temperament.
[1:01:18] BRANNON: I’m sitting here thinking: yeah, that’s so true. If you think about your clients you really enjoy working with, those do tend to be more successful. I’m thinking of our own client history and track record. I’ve never really thought about the correlation of personality with their success.
[1:01:39] IAN: It’s so rich with ideas and options and pathways forward. But all of those threads still come back to one core theme: you need to be intentional about how you’re selecting clients, and what that means for the longevity of your practice.
[1:02:06] BRANNON: Absolutely. And as Rick said, we’ll have a page and a form that you can download. You’ll get all of these resources and have the ability to really dive into them and build your own plan. Thank you, Ric. We really appreciate it.
[1:02:22] RIC: One of the reasons I really do like to work with you guys is that I’ve known Brannon for a long time, and he is the only person I know in the business brokerage space who is genuinely interested in helping prospective clients build a robust business that is scalable. And I would argue that if you’re able to show the value of your business in terms of the lifestyle value its clients have achieved because of the systems you have in place, that would have to be a more valuable firm than one that simply says: we have a whole bunch of clients and we generate $10 million in revenue.
[1:03:14] BRANNON: Absolutely. And it’s funny because I get questions from people who want to understand the value of their business. They ask things like, “Do buyers appreciate my tech stack? Will they really be drawn to this? Or is it just window dressing?” My general answer is: your tech stack might be great, and if it’s the same one the buyer has, that might be a nice thing. But what they’re really looking at is the results of your business. To what degree does that tech stack actually contribute to the success of your business?
[1:03:57] BRANNON: From the buyer’s perspective, what really matters is the quality of the life your business creates, the longevity and culture of your team. They’re looking at things that are truly tangible. To me, this conversation is almost more thought-provoking than it is informative, in a strange sort of way.
[1:04:23] RIC: And that is its purpose. The whole point of client selection is that it forces you to define what strategy is. When you choose where to play, that is fundamentally about what clients you want to work with and why. And once you’ve defined that, all of a sudden you start seeing a strategy emerge. You say: if these are my clients, how do I win with them? How do I bring value to the table? What core competencies and resources do I need to deliver that value? What management systems do I need to create a culture aligned with that strategy?
[1:05:21] RIC: When people talk about being a “technology-forward firm,” to me, that’s not a strategy. Technology and tech stacks are only window dressing in a sense. There are great tools out there, I’m not discounting that. But you can’t run a business on a tech stack. It’s not going to make or break your business. It’s things like this: who are your clients.
[1:05:46] BRANNON: One of the things a lot of people who’ve gone through our Accounting Practice Academy have realized: we have one module on marketing in there, and when we were building the workshop we realized something. If you haven’t done all the work prior to getting to that point in the workshop, you can’t even start thinking about how you’re going to market yourself if you don’t know who your clients are. If you don’t know the game you’re playing, you can’t market effectively. And if you do try to market without being intentional, your marketing is going to reflect that. It’s going to fall flat.
[1:06:49] RIC: That is true. And once you define your clients, that should define your marketing profile. One of the things I’ve emphasized here is the importance of visiting with prospective clients and using qualifying questionnaires. Not everybody gets a position on your client team. Are the clients focused enough for you to get very good at that particular market? Is the market big enough to support a niche, or do you need multiple geographies? All of those are strategic choices.
[1:07:23] RIC: Unfortunately, I think the tool makers have convinced everybody that when you get a particular tool, you’ll have a more valuable business. That’s the message. And I’d argue that the tools are not the real drivers of value.
[1:07:51] BRANNON: I think you’re totally right about that. Those aren’t the real drivers. And remember, Pinocchio’s father was a tool maker. On that note, I think we should wrap this up.
[1:08:13] BRANNON: Man, this has been so informative, Ric. I just want to close off: if people want to find you online, what’s the best way for them to do that?
[1:08:29] RIC: Probably through you, Brannon. I have a website, accountantconsultant.com, or principa.net, which will get you to my blog posts. But I’m in a kind of semi-retirement at the moment, working on a few other projects. If anybody wanted any of the stuff I’ve done, they can contact you, and there’s a good chance I have it. I’ve been working on this for 60-odd years.
[1:09:04] BRANNON: The knowledge is so deep that you have. We are so appreciative that you volunteered to spend time with us and share this with our audience. We will have this white paper, the title of it is “Client Selection: A Major Key for Profitable Firm Growth,” in the show notes as a free download. Please feel free to grab Ric’s client selection white paper.
[1:09:29] RIC: You’re very welcome. I appreciate the opportunity to share some ideas with innovative people who are doing great work for the profession. Thank you so much.
[1:09:51] BRANNON: Thanks for listening to the Accountant’s Flight Plan podcast. You can keep the momentum going by subscribing and sharing your thoughts with us. Visit our website at poegroupadvisors.com for more resources, and tune in next time for more conversations like this one. This podcast was produced and edited by Liesl Epps of Poe Group Advisors. Thanks for listening.
