There's been a continuing change taking place among the most successful accounting firms. They are moving away from an individual book-of-business model and, instead, cultivating revenue segment leaders to drive growth and, increasingly, position the firm for acquisition.
As you've heard me say before, most firms operate like a loose confederation of golfers, where personal score — their individual book of business — matters most. But in today's complex practice environment, characterized by strong interest by private equity, advancing technology and an ongoing talent shortage, more structure — think football not golf — is what's required to manage demand.
Purposeful and leadership-driven
Developing revenue segment leaders, also known as industry or service line leaders, takes you beyond the individual producer to a purposeful, leadership-driven approach to strategic growth. It gives partners a way to evaluate the firm's overall performance, their segment's contribution to it, and where the firm should be making investments.
While firms have partners who oversee fulfillment of demand for tax, audit and consulting services, far fewer have leaders assigned to drive demand in the right markets, for the best clients, with industry-specific services. Responsibility is informal, which often translates to lacking.
Without an organizational framework around driving revenue, accountability is left up to the individual. In my experience, this typically first becomes an issue for firms with between $5-$10 million in revenue. However, I've worked with $100 million firms where it's still an issue.
What does segment leadership look like?
Segment leaders occupy a unique role. With responsibility for the strategic direction and financial health of a specific service line or industry, they essentially serve as presidents of individual business units within the firm.
Many of you have heard about my revenue segmentation matrix as the foundation of a formal alignment of the segment leaders. For those who haven't, it's a spreadsheet with industries listed across the top and services down the rows, with revenue at the intersections populating the grid. Firms are adopting the model to excellent effect, achieving deliberate, scalable growth by analyzing sources of revenue and profit and how they help align strategic firmwide vision.
Parsing revenue segments, not to be confused with market segments, is a proven tool for visualizing income and profitability. But it's not a plug-and-play approach. Perhaps refreshing to note as we witness the rise of artificial intelligence, this matrix operates only with humans at the switch to interpret inputs and strategize directions.
From random to purposeful
Historically, a firm's areas of specialty were based on individual partners' interests or abilities. If a partner came from the construction industry, or had manufacturing experience, those niches became the de facto focus of the firm. There was nothing deliberate about it, and the result was a loose patchwork of specialties.
That was all well and good, until it came time to grow the firm in a more deliberate manner. With the focus on the most likely sources of revenue, market conditions dictate direction, not preferences. When segment leaders embrace responsibility for profitable revenue, the result is a more purposeful, proactive, system of growth.
Revenue segment leadership is particularly valuable for scaling firms in the current merger mania environment. Successfully scaling by integrating the acquired firm into the platform company requires an organizational structure that is formal enough to drive growth efficiently at an institutional, not individual, level.
Other advantages
Cultivating segment leaders lays the foundation for mindful recruitment and succession, ensuring a firm has the talent it needs in areas of focus. Once you have mapped out the matrix (health care, real estate, agribusiness, client accounting/advisory services, forensics, audit, etc.), you can begin to build bench strength in the areas with the most potential, scaling in a predictable manner. It's a matter of organizing your firm so that its future rests in the hands of individuals who are vested with the responsibility and have sought out the skills needed to lead the growth of those industries/service lines.
The approach is hardly revolutionary and is, in fact, how corporate America has long operated, going beyond personal passions to focus on what the business requires. Data-driven and leadership-led, this method leads to a formalized organizational structure that enables you to conquer new markets, and, in many cases, find and merge in firms that meet established criteria, beyond a generic desire for growth.
Therefore, go forth with confidence that you have a framework designed to take you to the very highest levels of success.
