[INTRO]

[0:00:00] ANNOUNCER: Welcome to Branch Out, a Connection Builder’s podcast. Helping middle-market professionals connect, grow and excel in their careers. Through a series of conversations with leading professionals, we share stories and insights to take your career to the next level. A successful career begins with meaningful connections.

[INTERVIEW]

[0:00:20] AD: Gale, welcome to the Branch Out podcast. I'm looking forward to the conversation today. 

[0:00:23] GC: Thanks, Alex. Me, too. Thanks for the invite. 

[0:00:27] AD: Why don't you start with Gale and just share a little bit about yourself and the experience that you have to give our listeners a little sense of who you are. 

[0:00:32] GC: Sure. My background starts with an accounting major in college. Then I became a CPA, auditor with Arthur Anderson in Price Waterhouse. I pivoted my career 180 early in it and went into technology sales, marketing, and new product development with IBM for a dozen years. Then about another decade with venture capital back startups. When the dot-com bust happened, I started this consultancy. What I do is work with CPA firms to transform them into high-growth environments. 

[0:01:05] AD: Let me even ask a couple of things about your background, your experience first. Why did you pivot out of accounting? Walk us through a little of what was going on for you at that time and what made you want to go down the path you are? Then ultimately, how did you get to the point where you're spending your time doing strategic consulting? 

[0:01:19] GC: Well, the way that I got into accounting was circuitous. I was actually going to be a piano performance major. I play classical piano in college. Then when we were ready to declare our majors, they said, “What language are you going to take?” I said, “What do you mean language?” They said, “Well, you have to take a foreign language.” I had taken nine years of French from third grade till 12th grade, and I couldn't speak any French. I was very bad with languages. They said, “The only college that or degree where you don't need a language is the business school.” I said, “Well, sign me up for that.” 

Then when I had it accounting 101, I was like a duck and water. I was so committed that I actually sat for the CPA exam before I graduated from college. My trajectory was, I was going to be a partner in a big eight accounting firm. That, of course, did not happen, because I moved from Cleveland to Atlanta, because I hated the weather in Cleveland. What happened is, I was a Yankee in the south, and a female in public accounting back in the day. It didn't go well. 

Culturally, it was not a good – it was a very harsh environment. That's when I was looking in corporate America and stumbled on to IBM. They said, “Well, we would like for you to come into IBM and sell big mainframes. I said, “Excuse me, I'm a professional. I'm a CPA.” It took them about a year to convince me that, “We can teach you how to be analytical. These are just big accounting machines, but we can teach you how to sell.” That was the beginning of the pivot in my career. 

When the dot-com bust happened, Alex, there wasn't anything left in tech world. I knew at that point how to start companies and grow companies. I had actually started my own company once back in the 90s and grew it and sold it as part of that whole repertoire of experience. I said, “Maybe CPA firms and law firms would be interested in me helping them grow.” I did a lot of interviews in law firms and CPA firms. I found that the lawyers were not ready for me. 

They were not as developed in their interest of the principles of strategic growth, but the CPAs were very interested and didn't know how to do it. Therefore, for the last many years, that's what I've been doing is transforming them from a tactical approach to growth, banker, breakfast, lawyer, lunch, catch one fish at a time to a strategic growth, which is really all about leading growth, not just doing it and capturing markets at a time, not just one fish at a time. 

[0:04:01] AD: Let's dive into that, strategic growth. What does it mean to you and ultimately how is it accomplished? 

[0:04:05] GC: The strategic growth is first and foremost, it's the most profitable growth. As a result of that, it's not just the top line, but the bottom line. It's not growth for growth's sake, but it's truly growth and profitability and financial health. It's also the fastest growth because it's the most efficient growth. When I talk about efficiency to CPAs, they think of me talking about the delivery of their services. 

I'm not talking about that. I'm not talking about service delivery. I'm talking about driving demand. When you grow strategically, you can capture exponentially more growth in the same amount of time as you do, catching one fish at a time. It's like catching fish in a big net. It's sustainable and it's the fastest growth, because – it's fast because of this whole efficiency factor. It's sustainable, and it's fast, and it's efficient. 

[0:05:01] AD: You said something I thought was really important. It's growth not just top line, but bottom line. It's being thoughtful about what the growth looks like, right? Not growth just for growth's sake, and not growth where you're only looking at a single metric. Tell me a little more about that. What does that mean and how do you think about that? 

[0:05:16] GC: When you take a look at growing something when you're first getting it off the ground or you're pivoting your strategy in the market, it's not going to be the most profitable for a short amount of time, until you find your strategy or recraft your strategy. Then it becomes the fastest growth. The reason why this happens, is because if you're catching one fish at a time, basically what you're doing is you're hanging out your shingle as an individual contributor and you're doing banker, breakfast and then lawyer, lunch and client, cocktails. It's come all commerce. You're a generalist. You're hanging out at the country club, blah, blah, blah. 

The reason why strategic growth is what it is and happens more quickly is first of all, you're not just selling anything for anything's sake. You're being very focused about it. In my CPA firms, the first thing we do is financial analysis to see where you're making money and where you're not. I don't want them going out in a market and selling more stuff that's not profitable. They don't think that way. They think that any dollar is a good dollar, and because most of them can't sell in the first place, they price stuff too low. Then they have thin margins that don't need to be thin, because they don't know how to sell. 

The best growth is growth that's leader driven and that means that you're going out into the market and looking at markets at a time and you're specializing in markets at a time. When you specialize in a market, you're spending all of your time in that market and you're not taking your time and spreading it through a lot of markets, because when you do that, it's not accretive, but when you focus on a market, you get that accretiveness in the market. Then you get synergy and presence, and all the things that create that, and as a result of that, you go way deep in the market and you understand at a very granular and deep level, the buyer, the buyer's behavior, where the buyers hang out together, you know all about the market.

The manifestation is that you show people that you care about their market and you care about them. When you do that, there's an accretiveness to that. Then you get more understanding of strategic channels or distribution channels in a market and I don't mean a booth at a conference. I mean, channels where you have alignment long-term in relationships with your channels. You also now automatically achieve specialization which means that you can charge a premium. This contrast between individual contribution, book of business, tactical generalist and the movement too, from there to leader-driven and strategic specialist is what I do with firms and that is where they get the most profit and they get the fastest growth. That's really the secret sauce of growing strategically. 

[0:08:10] AD: I want to play back a couple things that I heard from you and just make sure that I'm hearing it right, but also, I think they're really important points to reiterate on. If we look at in a traditional professional service, I know you were speaking specifically around accounting in this instance, but professional services, as a whole. The model oftentimes is the individual producer, the individual contributor who is building their own individual book of business. Under that they as an individual might see as being just revenue and just to go a place to go spend time, might not be the right alignment on a broader strategic initiative.

When you take a step back and really assess where are we good at, what do we have the knowledge and expertise at, where do we have some of the existing relationships, but really where do we actually make money doing this. How can we make margins, if we become thoughtful and intentional at a leadership level and drive towards that type of growth and those initiatives? The byproduct of that is over time, we as an organization will become – will not only grow faster and more creatively and ultimately generate a better outcome but the reason for that is because, instead of just everyone running in their own direction and doing whatever comes their way we're saying, “No, this is really where we want – this is where we're good at and this is where we want to lean in that.” And it becomes a compounding value over time by picking those specific areas to focus on. Is that a fair way to think about all of that? 

[0:09:35] GC: It is. It has to do, though with what business problem are you solving and therefore what model do you use? When we were a young profession and same with law, but we're younger even than law. We had a franchise in audit that's how we basically started a hundred me years ago. Then tax – oh, by the way, became a natural outgrowth of that. But we had an incredible set of market conditions that over the last hundred years have been, so good that it wasn't necessary to focus and be strategic and specialize. 

If you take a look at the Boston Consulting Group trajectory for the life cycle of a product or a market, basically when we were on our go-go years and our second phase of the life cycle, we didn't need to do this stuff. It was only when we got into cash cow when our margin started to thin and that was probably about 20 years ago. Then fat cat now is where we are today, where the strategic imperative wasn't – find your strategy and go for it and just have this great curve, but now it transitioned a strategic imperative into specialization innovation. Then when we got to fat cow, driving efficiency.

It wasn't that we did anything wrong. It was that we were exactly where we needed to be with the strategic imperative and profitable growth was easy in the go-go years, until we got competitors. Now we have 660 plus thousand CPAs out there and 44,000 CPA firms. I dare say, I don't know the law firm space as well, but it seems like there's a lawyer in every corner. I might be wrong. But at any rate that's when this challenge becomes a business challenge that now you have to look at profitable growth whereas it was a given in years past. 

[0:11:34] AD: I assume this is true the – we’ll call the technology impact that has done nothing but accelerate in this post-COVID world. I assume that exacerbated some of this in ways, right? It's becoming easier to in many ways to service clients on a broader geographic reach, but that also means that there potentially can be some margin compression, because they're additional folks that are now competing for the same markets, but also opens up doors for a lot of opportunities. Is that a fair assessment? 

[0:12:03] GC: It's interesting. We haven't seen the manifestation yet of technology. You've got two questions in there. One is technology and then one is the other's geographical reach. Technology, we haven't seen significantly, yet. We're seeing it in pockets, we're seeing it here and there. We're talking about it and we're utilizing it, but it's not like the wow factor consistently, where one auditor will bid $200,000 for an audit. The other one, will bid 50. I mean we've seen that in New York, hither and yon, among a couple of firms that are very strong with technology, but that other shoe is going to drop and when it drops, you cannot imagine.

I was talking to a managing partner yesterday who had 300 tax returns to do and it would have taken days and days and days. One programmer wrote an AI module. He said to the managing partner, “Come on. Let's go have a cup of coffee.” He hit the start button on the computer and 20 minutes later they were back and the returns were done. But that's only the beginning. I hear the anecdotes right now, so that's one thing. 

Technology relative to geographic dispersion has created a very interesting dynamic. When I came from tech, we were all virtual. Our tech companies were all virtual and the last company I worked for was about a 250-million-dollar company. We had 28 locations and 37 different practices. We didn't have any offices. We had seven hoteling hubs. When I came back over to CPA land and I saw this Brick-and-Mortar, I said to myself, “Why?” 

Then I realized when I was back over here for a while that we were geographic centric, because we were hanging the shingle out and we had enough fish in the pond in our local geography by going to the country club and banker breakfast etc. that we didn't need to reach out geographically, so it didn’t matter. But as we got more and more specialized for those firms that were really forward thinking and realizing that specialization shrinks your pond. You go from I can service anybody in Atlanta, so I'm just going to serve as real estate in Atlanta. Well at some point there aren't enough fish in real estate in Atlanta to actually sustain the model.

The more forward-thinking firms were – because their markets were too small now, were the ones that were going regional and national. Okay. That was before COVID. Then when COVID hit, everybody said, “Wait a minute. Wait a minute. We don't have any talent.” “Oh, well, we can go anywhere.” It took a little time for us to get comfortable, but now the geographic borders are thrown off, Alex. They don't exist anymore, except in anybody's mind. It was only in their mind that it existed in the first place. So, that's what's going on there.

[MESSAGE]

[0:15:11] ANNOUNCER: This is Branch Out, a connection builders podcast.

[INTERVIEW CONTINUED]

[0:15:19] AD: Do you think, that opens up the door for greater specialization, niching down if you will,  that will arguably drive higher margin in higher specialty, but really does create a different business model than the traditional regional accounting play or professional services as a whole? 

[0:15:37] GC: Absolutely. It's because efficiency, remember it's specialization innovation and efficiency that is quite critical as a strategic imperative for fat cats else, they go the way of the computer mainframe or the buggy whip or the blackberry. I could name – there are dozens of these examples. The ones that know this, are the ones that are getting on it and are recrafting their strategy so that they stay relevant. 

The ones that aren't will be going the way of the buggy whip, because, yes, it's a completely the landscape and private equity which we probably ought to talk about today too, is changing the landscape so radically, so quickly that it's just going to look it's the fact that we are in the fat cat status with our poor offerings. We have the requirement to shift our strategy. Then we got all this money coming in at the same time and technology, as well. I haven't seen any market in my entire business career that is more disrupted than the CPA profession, right now.

[0:16:49] AD: I completely, agree. I think it's professional service as a whole. I think, CPA is the leading front on that, but it is what I'm seeing. It sounds like, you're seeing the exact same thing here. There's so many different variables and dynamics coming together at once. There are multiple catalysts, if you will, that are unquestionable – everyone knows these transformations have been happening in some way at some pace for a little bit of time, but the number of catalysts that are hitting all within a relatively tight time window. It's going to cause a complete transformation of what the industry, as a whole looks like. What historically might have taken 10, 15, 20 years to transform. I think you're going to see it in more of a five, seven, 10-year time frame.

[0:17:35] GC: I believe you are right. In fact, it's already happening. I look at some of the firms that are out to lunch. It's like the boiling frog in the pot.

[0:17:45] AD: They’re going to jump out or they're going to be lunch soon enough.

[0:17:49] GC: I'm good. Then all of a sudden, I'm not good. 

[0:17:53] AD: Let's talk about that. What are some of the impediments that you're seeing to really implementing strategic growth and why is it that some folks and some firms are getting on board with it, and others are out to lunch, if you will?

[0:18:05] GC: The biggest impediment right now, Alex is that we have a staffing shortage that it's the worst I've ever seen in my career. As a result of that there's no future thing going on. All these things are going on around us, but we don't have the time as a profession to notice them in particular, because we just need to get the laundry out the door. Therefore, the focus right now is on outsourcing and technology as the ways to get that done and that's all about fulfilling demand. When you have to fulfill demand to this level, you just shut down the driving demand machine, because you have no bandwidth left.

As a result, only the firms that know this are guarding against it. They're the ones who don't ride, I call it a rollercoaster strategy that most firms ride which is, if you look at the year-over-year growth percent for our top firms. Yeah, most firms, average firms, they just ride market conditions. They're riding market conditions. Now, we're at the highest level of organic growth year-over-year in 2021 versus 2022 that we've been in, in the last 30 years. 

Everybody's happy about this and focus rightly so on the business problems at hand, which is, we can't get staff, we've got a prune the bottom, we have to drive our top clients more efficiently, blah, blah, blah. That is the reason why we don't have except for the exceptional firms. The A plus firms and the A firms, really a lot of focus on strategic growth. If I were a managing partner, I'd be doing it very differently than what our most of our managing partners are doing it. 

[0:19:50] AD: Let's dive into that in a moment. First, I want to point out and just use an analogy for our listeners in this idea of you’re either heads down, you're hunting for business. You're either, where we're at right now is there's so much demand that there is no one focused on creating future demand because the just fulfillment of the existing demand is the challenge. I look back in my previous work in doing investment banking deal work and for anyone who's listening, who's been involved in deal work specifically, if you've been at a smaller boutique investment banking firm. 

One of the biggest challenges was always the really heavy cycles of revenue and work versus the drought between, because everyone gets so heads down and so focused on the deal of the opportunity that's sitting right in front of them, that it becomes all-consuming and no one's out planting the seeds for growth and doing the initiatives and the work that it takes to understanding, that demand isn't something – it's not something you can turn on and expect to have it happen tomorrow. 

It's something that takes months or years of planning and initiatives to watch it come to fruition. If you end up spending 12, 24, 36 months being heads down, because I've just got too much else going on that I have to focus on the demand in front of me. I understand, you have to service clients, you have to service what's there. There's no question around that. However, there has to be a balance behind that and recognizing that the longer your heads down, the harder it's going to be to pull your head back up and actually make those plans in knowing that there is a cycle behind when those, ultimately come to life.

[0:21:21] GC: Absolutely. Well, the same thing that you saw in investment banking is exactly what I'm seeing right now in the CPA profession. As a result, when I talk to firms, the firms that hire me are not the firms that are ignoring it. They're the ones that want to always be on the road to continuous improvement of strategic growth. When everybody else wakes up they're going to look around and say, “Oh, my goodness. What happened here?” They're the firms that are getting either private equity investment, or investment from other areas, or they are self-funding their investment, but they're focused in things that others aren't, relative to strategic growth.

[0:22:03] AD: Let's talk about that for a moment. The capital needed for growth, whether that be direct investments in growth initiatives or whether that be the investment in the people that you need to be able to do those initiatives. Have you seen – I’m not trying to single out any firms, as much as just saying, it's an industry as a whole. We've gone through professional services, as a whole and accounting in particular, has gone through some of the frothiest times that they've seen in ever. 

I know many firms that are taking that capital and really looking at it more as an increased distribution, increased compensation for the current year, rather than recognizing that that's a great opportunity to invest in the future. Have you seen that like – what you're just thought on that, the general investment and what folks should be doing with this increased level of revenue and ultimately profitability?

[0:22:55] GC: The answer to the question is, when you get a pile of money you have choices about, strategically where you're going to go, right? Strategically, where you're going to grow is obviously, you're going to get your talent all buttoned down. Making sure that the people are going to be with you. But in addition to that, that doesn't produce strategic growth, that produces a better engine. Now, the question is, what kind of people? The same with technology. You've got six technology enablers right now, anywhere from data analytics through AI, machine learning, RPA, cyber security, continuous audit and blockchain. 

The question is, which of your services are you going to infuse with which of these technologies? Then which of the industry business use cases are you going to infuse the money in? Those are the critical factors to driving strategic growth. You could say, we're going to offshore, we're going to use bots, we're going to do this, do that, do the other. We're going to enhance our people's side. But a lot of that is strategies at the gross level, right? When we have strategy development for growth, what that means is that we have to look at the markets and the services more granularly and specific, that we are going to match to those overall umbrella initiatives. 

Now, in the past, most of our strategy has been in the CPA world looked at from the inside-out, like we get the partners around the knights of the roundtable table. Then everybody has an opinion about which people, which technologies, which markets, which services and so forth. Then the loudest voice wins, right? But what I teach firms is to look at the markets from the outside in. Go out in the markets, each of your markets, and then evaluate the business use cases for what kind of technologies and people you're going to need for the business use cases. Then those inform the strategy, and which kind of people, and which kind of technologies, and which kind of industries. I call that, looking at the market from the outside in.

We are not a profession that looks at the market from the outside-in, because we are just like most professions. We are me-centric. I'm suited up. I've got my skills. Now let me go find someone who needs them. The problem with that is it's not scalable. When you hit about 10 million in revenue as a CPA firm and then especially at 20 million and above, although, I've worked with firms that are a hundred to 200 million and still are wandering around, but nonetheless, and most of my clients by the way are in the top 100. 

What happens is that when you teach them how to look at the market from the outside-in, you have a whole different set of conclusions. You're going to invest in artificial intelligence in audits for skilled nursing facilities. That is one strategic combination. I talk a lot about these three elements of strategy a lot, SCT, I call it. When you know that, it's as immutable as debit is left and credit is right. The three elements of strategy, you know that you have to go into the market and evaluate it from the outside-in. Then when you look at all these strategic choices that you could have, it becomes very clear where you should be and you're deploying your resources in a way where you're connected to where the markets have the best market conditions.

[0:26:42] AD: This may be segue, as well into the next question I have. What are firms that are actually doing strategic growth? Well, what are they doing different? How do they break, through? But maybe the way to tie this in is, what's the difference of thinking that you're seeing, leadership and structure style that maybe helps foster some of that?

[0:26:58] GC: It always starts with the leader. It always does. The leaders focus on strategic growth or lack, thereof. Every firm is different and the way that they achieve the growth is different, but you see certain things that are common. One of the main things you see that are common and this comes back to private equities is that the firm breaks through the nights of the roundtable partner model and segues to the organizational structure model, because the nights of the roundtable model has served us well for a hundred years, but now, the issue is we have to have greater accountability which allows us to have greater results and faster decision-making and leadership development.

If you have nights at the roundtable, you don't need to develop any leaders. You don't necessarily have to be accountable to anybody, but yourself. You don't have a boss. We sit around the roundtable and we're debating the color of the paint on the walls in the bathroom. I overstate, but my point is that when you get into an organizational structure that looks more like the corporate world, which private equities are bringing into our space is that concept. Then your boss is responsible for your success, just along with you. 

You've got somebody else who's accountable for your success, as well. You have now the ability to have an organizational structure for faster decision-making. Then you as a result of that, you have that accountability and faster decision-making better decisions get made. You are focused now on leadership development which you never, through any dollars at for years and years. Now, you have to, but you have to do that, because if you're going to scale a firm, then that's what's needed.

[MESSAGE]

[0:28:54] ANNOUNCER: This is Branch Out, bringing you candid conversations with leading middle-market professionals.

[INTERVIEW CONTINUED]

[0:29:02] AD: The moment I want to dig into some of private equities some of the changes, but the one thing you said that I really want to emphasize, because I strongly agree with it is, decision-making. At the end of the day, good business, successful business is based on making the right decisions, whether that be having the right knowledge, the right information, and making sure that you're thoughtful in that decision-making, but also, the simply the structure that the way that decisions are made. How you get to that decision in the speed at which you get there. 

Not the speed of just trying to make it as fast as possible, just to make it as fast as possible, but rather, having the right facts, the right information in making it in a timely way, so you can remain competitive pivot and make the changes that you need in an organization to be successful. That is certainly something that professional services as a whole in a traditional partnership model becomes very challenging, to make decisions in an expedited way and under a thoughtful process. In that, no matter how smart you are about business, no matter how much about the market, if you can't make decisions, it will never play out well for you.

[0:30:06] GC: Well, the thing about the thoughtful decisions has to do with the really interesting dynamic that, again, we never had to worry about before now, so we didn't worry about it. But when you have a partnership model, what happens is your decisions not only might they be slower, but – and why are they. There's a dynamic here which is a tug in the fabric which is, am I making the decision as an individual who works in the firm or as an owner of the firm because those are two different decisions. Oops, I'm the same person. It's like half of me wants what's best for me, and the other half of me wants what's best for the firm. I'm in this constant and multiply that by 20 partners or 50 partners or whatever it is.

Therefore, like I said. It worked. It has worked. Now, when we have private equities coming in here with all their money and all their best practices from the corporate world and the requirement for strategic growth, which is sustainable, fast, and profitable. If you're not participating in a private equity, like you're not going to be a platform firm or you're not going to be acquired by a platform firm, just take a look at the neighborhood here that you're competing in. The whole neighborhood is changing and you're going to stay there in your nice, comfortable home that you've been in for 50 years, 40 years, whatever, and everybody else around you has changed.

Eventually, in the market you're going to be irrelevant. What I say to firms is, “I'm not here to preach that you should sell to private equity, get a platform firm, or get infused with PE money. That's your decision.” But regardless of whether you stay independent or you play in that other investment world and all the benefits that are accrued, you're going to be competing against it. Your banker, breakfast, lawyer, lunch, individual contributor approach toward growth, that isn't strategic. Although, not totally, because most firms have one foot in the new world and one foot in the old, but that's not going to be good enough. You got to get both feet over into the strategic world and compete in a way where you've never had to compete before.

[0:32:22] AD: Let's talk a little more about the private equity element of things. There's a major trend it's accelerating of private equity firms that have an investment thesis in professional services, specifically the accounting industry. They see an opportunity to make investments and grow. One of the major catalysts that, I think firms are seeing is, one level, it's changing the partnership decision-making model. Exactly, what we were talking about, in bringing more of a institutionalized, corporate governance structure that really does have a true C-suite type approach, where there is a decision-making body of individuals that are hyper-focused on growing the business.

Also, a historic underinvestment in infrastructure and the business itself, because it is something that there's been a lot of capital largely, a lot of firms are trying to distribute to the partners, right? As the owner, I want all I can get out of it, but recognizing that businesses need reinvestment. Those are two major elements, I think that they're bringing in. I'd really love to get your thoughts around is, you said it, not everybody has to sell to private equity. However, everybody has to compete in this new model, because if not, you're not going to remain competitive over the long run in doing what you're doing today when everyone else around you is making these changes.

[0:33:42] GC: Absolutely. For example, what's going to happen is, if you're not tuned in and because I spent as much, if not more time in corporate America, especially with VC backed companies. When I came over to CPA land, back from where I started my career. I couldn't believe the difference between the sophistication level with growth of what I knew and CPA firms. I found a market hole. That's when I said, “They need me.” The market hole is one that still exists to a very large degree, but if you're a firm that is going to be competing in against this private equity back firms, what are these firms going to have?

Well, first of all, they're going to have chief growth officers. They're going to have somebody that's responsible for the strategic direction and financial health, of the firm overall, as it relates to how are we going to grow this firm. They're going to have growth leaders. They're going to have service line and industry leaders that are responsible for the strategic direction in financial health of each industry or service line, chunk of revenue of the firm, across the firm from stem to stern, not just oh we have one in real estate and one in audit and that's it. Everybody else does their thing. 

They're going to have pipelines. Pipelines not just for people, but pipelines for business. The opportunity pipelines that we use in corporate America, I brought over 20 years ago, but there are a lot of firms that still don't have an opportunity pipeline. They're expecting some sustainable sales capability. If you have 20% of your partners are master rainmakers. Oh, by the way, they're retiring. Then what sustainable sales function do you have? I mean, we're used to in the corporate world, salespeople. We don't have any salespeople.

We are used to innovating all the time in the corporate world. We're used to having new shiny stuff on the shelf that's differentiated from competitors, all the time. Constant innovation. Well, if you come out of a compliance environment where 80 percent of your revenues are tied to some compliance, you’re calendar-driven, you're always on deadline, you don't have time to innovate and you're not motivated too. Those are the kinds of differences. Oh, by the way. There's another interesting difference that I've noticed as I've gotten to – now, I'm working with private equities both pre and post-investment, as well as their platform firms to get this gap filled, right? 

One of the things I'm noticing is that private equity people are very transaction driven. They're wired that way. That's how they drive profitability. That's how they drive revenue. That's how they are. Being transaction driven means, you spend the least amount of time to get the most return on your investment, okay. Well, over here, we’re a long-term relationship driven. I mean we have clients for 30 years. I was first introduced to this difference when my first private equity that I started to get to know, as a prospect, I said, “Let's get acquainted.” I said inside a Zoom that was an hour because that's standard over here. You spend an hour with somebody.

I kept coming back with each of my prospects saying, “You got 30 minutes.” I'm like, “I got it.” Like, it's just a little example of the difference where the PEs, they’re in the left lane. They’re in a fast lane. Accounting firms are used to being in the right lane. We're not on the shoulder of the road, but we're not necessarily in the fast lane. Those are some of the things I'm talking about. 

[0:37:27] AD: I want to add some color and just my own experience in private equity world in recognizing that as a private capital investor, which is a private equity firm, right? I have a pool of capital that people have contributed to me or are funds largely pension funds that have contributed into some pool of capital that I'm investing. My number one directive as a fund is to invest those dollars and earn a rate of return that is above what I would be able to achieve, elsewhere on a risk-adjusted basis.

Now, what that really means is that, in many ways, it eliminates the emotional side of a business – it steps back and says, “This is the business I can put x dollars in. If I put x dollars in, I have to get x dollars back out over this period of time or achieve this valuation at a certain period of time to ultimately justify the investment I'm doing.” Versus, in that saying, I want to use the word lifestyle business. I don't believe that firms are truly lifestyle businesses. However, I do believe that at times partnership models professional services can have a lifestyle element to it. 

I get to a point where I'm making enough. I enjoy myself. I have flexibility and freedom. I have a nice expense account. I'm spending time golfing and everything's good. That's great for the individuals that are in those positions. The challenge becomes that as a business, as an operating institution that has ultimately a valuable asset sitting there, if the return doesn't justify what amount of asset value is sitting there. Then there's a challenge. That's the emotional part of that. 

I do believe one of the biggest transformations that the industry is going to see is that, it's ultimately, a corporate approach. It's that mentality that looks at institutionalized versus traditional partnership. But it really is around, “Okay, we have a business. We have to generate certain returns to make this business make sense. If not, we shouldn't be doing this.” That is a big change from how it's functioned today.

[0:39:29] GC: I will tell you that and I'm not judgmental, either way, about it. I just know it's as different as Saturn is from Jupiter. We are in two different planets. Now, let me say that people that are in our profession, the reason I love this profession and when I came back to it, I said, “I have found my people again.” Is because there are attributes of this profession that are baked into it that are so wonderful. The focus on accuracy versus speed has been an advantage. The focus on trust and being trustworthy people. There are so many things I could go on and on. It has really attracted a lot of people who, when you say lifestyle, something that is you're very proud of yourself actualized and so forth. 

The question becomes one of, how do we keep the good elements that we've always had? How do we infuse the good elements from the corporate world? See, I am multicultural and multilingual or shall I say, bicultural and bilingual, because I’ve come from corporate. I came from CPA firm, then corporate, and then back and see the language of the two worlds, and the culture of the two worlds and I think of my husband and me. We couldn't be more different, okay? We just couldn't be. It's the combination of the two that makes for the strength. 

The reality is that it can be what we want it to be, but we can't change the market and the market direction. The market always prevails. The market is going in this direction. As a result, the area that we have room for improvement and that's basically what we have. We have a beautiful profession here that has room for improvement, because if you take a look at fulfilling demand, most of our focus has been there. A quality control resource deployment, infrastructure, etc. You look at driving demand. We're a 10 out of 10 on this. On driving demand we're about a four, so we've got some area for improvement. We can keep all the good stuff, but we need to get the good stuff in here. I don't mean every firm. I'm saying very broadly that we can get the good stuff in here.

The reason I started this consultancy 20 years ago is for that reason. So, I'm thrilled that we have a situation that we had in Atlanta. When I moved to Atlanta, we had one million people and a nice skyline. Today, after the Olympics. We have six million people and a skyline that would blow the skyline away from the original Atlanta. I've spent most of my adult life here. The results of us having all that money coming in has made Atlanta an international city that has all kinds of good stuff associated with it. 

I look at private equities in the same way. We will still have our good old Southern roots. We always had them. We always will. From Sherman to coming down from the north and burn in the place to the ground and started – the resurgence of Atlanta into a new Atlanta. If we do this right, we're going to be able to get these cultures a respectful and understanding of each other and getting the future where we need it to be.

[0:43:06] AD: Let me ask, what do you see as being one of the biggest challenges for firms that are contemplating the change of the industry and what private equity means for it? 

[0:43:16] GC: It depends upon, they have already invested or it's the spectrum have already invested in our forward-thinking firm to invest in nothing and put it in your pocket and write it out. So, for each firm, it's a little bit different. They've got to ask, whether they want to be a forward-thinking firm and get in that fast lane, whether they want to stay in their comfortable place where they are. That's okay, too. Just look at it for what it is and know how long you're going to be riding it out. 

I have the calls every now and then from sole practitioners, who I used to work with a bag of Pricewaterhouse, now PwC, that want to sell their firm. They have no buyers. The rate, they're going to have to turn the lights out or find a buyer, right? They may find a buyer. Then there's the ones in the middle, who are, “Can we do this? Can we do this alone? Do we have the stuff that it takes to do it?” Alan Colton calls it, door number one, two, or three. I call it, no boulders in the road, lots of boulders in the road, or the – some boulders in the road that you can get the boulders out of the road. The analogy, I've always used, but it's the same concept. 

[0:44:33] AD: I agree with that. One thought, that I want to put out there is the, not every firm has to go to private. I said this earlier. Not everyone has to go, but everyone has to be thoughtful about that. What I do encourage every firm, whether CPA, law firm, or any professional services firm. If you are a partner is to really recognize that at the end of the day there is some level of what I'll call enterprise value. Some value of the business that you have. That value is either going to deteriorate or it's going to increase. Value doesn't sit idle. Value isn't going to just sit stable and idle an infinite period of time. Everything is finite in that case. It's either going to continually grow and achieve greater value down the road or it's going to deteriorate.

Both can be okay if you know what you're trying to do and what the objectives of everyone that's sitting around the table is. I don't believe just standing still and saying, “Well, I don't know.” And not doing anything, is going to help. I think that you have to be thoughtful about whatever pathway you go down and be very, very intentional about what the decisions look, especially the next couple of years, when these changes are going to unfold, a rapid clip.

[0:45:46] GC: Very well put. Very well put, Alex. I will tell you that I would give that advice when I facilitate strategic planning sessions, that is exactly what we do is I'm going to shove your nose in it, delicately. I'm going to show you and let's talk about the future. What path are you on right now and is it the path you want to be on? Let's make sure we understand where the path that you are on is going to lead you. 

Is it going to lead you to basically turning the lights out? Is it going to lead you to private equity? Is it going to lead you to being independent, but being thoughtful about driving a leader-driven strategic specialist approach to growth? It's not going to necessarily be, let's ride market conditions in a few years from now when conditions are poor and I look around and I haven't invested anything. Whoops, I got a problem. Let's look at it, thoughtfully. 

[0:46:39] AD: I completely, agree. My final parting question for you is, speculating about what the industry looks like in five to ten years. How would you describe it? If you went to sleep today and woke up ten years later, what does the industry look like?

[0:46:52] GC: We're going to have, being owned by lots of different kinds of people and institutions, entities, private equity, family office, insurance companies, corporate America. Some will still be independent. It's going to be really a patchwork. It's not going to be that standard partner model that it looks like that, homogeneous model it looks like today. In terms of the players, we're going to have lots of technology players, lots. The technology players are technology-centric players like Pilot. Technology-centric players who are accounting firms, but they look like technology firms. It's going to be really interesting. Outsourcing will continue. It's going to continue to morph from it was in one country. Now it's in four or five countries. It could be in lots of different countries. 

AI is the trump card. That's the thing that is going to so change. We're not going to have these requirements to – I use the, preparing a 1040 tax return with the tax software to using an abacus. I mean we're not going to have any abacuses anymore. We don't need them. I don't need to learn how to use an abacus. We can't even imagine what AI is going to look like. It's like, I'm going to talk to my computer and say, “Please, do the next 50 tax returns.” With this piece of software and press the button and they're done. I mean I can't even imagine what it's going to look like, but it's certainly not – I don't even know that we'll know what that this is what we were, to tell you the truth.

[0:48:45] AD: Maybe, I'll talk on to that. I wholeheartedly, agree with your comment of the different owners, if you will. The different – who's actually driving some of these organizations and what that – I think, where it's really going to play into is what services are being offered, right? The traditional services or have a role there. But this goes back to and not just the services, but whatever professionals in there looking like, what is that – that historically a very traditional model and traditional pathway. I think is going to be completely transformed.

I think technology is the ultimate catalyst behind that, but it's also the changing business environment as a whole that is going to open up doors for opportunities. Again, today is a compliance-based business largely to being much more of an advisory consulting fractional service, possibly these different realms that tie in well and are all focused on solving real business challenges, right? That's the goal of what firms are doing today. It's solving business challenges, just it's going to look a heck of a lot different because the environment is going to evolve a lot in the coming years here.

[0:49:47] GC: I'll spend a minute on that because let me paint the picture. Tax. Tax and wealth management are going to be all intertwined. Right now, FYI, the reason why we chose our wealth manager is because it's part of a CPA firm and they already have had the tax and the wealth management so tightly integrated that I hardly know where one starts and the other ends. That's the reason we chose them. They are cutting edge. So, wealth management attacks, all intertwined. Audit, so interesting. A lot of people say, “Well, my goodness. AI is the death knell for audit.” Oh, on contrary, audit is going to incorporate ESG and we're going to have so much non-financial statement auditing, if we do this right, that is going to be an explosion in attestation and assurance.

I'm really excited about that because the fact that we have the model where it's being broken off from the rest of the firms. The audit piece is going to be as exciting to be as the tax and advisory. Then of course, with client accounting services. It's going to be CFO down. We're going to be able to walk into a company and say, just give us your whole department. You don't need to do any of that.

[0:51:02] AD: The office of the CFO, right? Not just the –

[0:51:05] GC: Yeah. The office of the CFO. The CFO and all the way down. The office of this will take over the office of the CFO. You don't need to do anything with that.

[0:51:12] AD: I completely, agree. Gale, this has been a really great conversation. I appreciate you sharing your insights here with us and the knowledge and wisdom you bring. For the listeners, how can they get in touch with you?

[0:51:21] GC: Okay. I'm gcrosley@crosleycompany.com. I also have my website which is crosleycompany.com. I've written 160 articles. They're all up there. I do a lot of LinkedIn and electronic newsletter. I write about, once a month, once every six weeks. Those are the ways to get ahold of me, contact me, say hello, whatever.

[0:51:44] AD: We'll make sure that's linked in the show notes below for listeners. Gale, again, I really appreciate you coming on here today and sharing your wisdom with us.

[0:51:50] GC: Thank you. Thanks for the invite, Alex. Thank you, audience for listening.

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