Leading M&A and growth consultant Allan Koltin of the Koltin Consulting Group discusses the key planks of a strong platform for firm growth.
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Dan Hood (00:03):
Welcome to a special edition of On the Air with Accounting Today — we're live recording, live at Accounting Today's first inaugural Firm Growth Forum. We're very excited to have with us Allan Koltin. He's a leading expert on M&A, PE, all sorts of succession planning and growth issues for accounting firms. He was a keynote here today. We're very excited to have him — Allan, thanks for joining us!
Allan Koltin (00:21):
Dan. Thanks for having me.
Dan Hood (00:23):
A lot of what you spoke about in your keynote focused on growth and how to achieve profitable growth at great firms. So let's talk about, when you think about it, what are some of the keys to strong growth at accounting firms?
Allan Koltin (00:35):
There's many, Dan, but if I could only pick a couple. I think the first one is probably partner compensation, because people say to me it's not about partner comp, it's always about partner comp. And if the reward system doesn't reward origination of new business, it won't happen. I think the second thing is the culture. It's a culture of growth and people understand why we're growing and why it's good for everyone. And I think the third one is the willingness to invest. The willingness to invest deeply in different growth initiatives. Right.
Dan Hood (01:11):
Well, it's interesting because weirdly, that an area where that becomes sort of contradictory, right? Partner comp's a huge issue. But a lot of that investment, at least traditionally, has come out of the partners, has had to come out of the partners' pockets.
Allan Koltin (01:22):
You nailed it. There's a visual I use, it's called innovation versus profitability. And as managing partners or firm growth leaders, you're always balancing that. You're keeping the troops happy because they want to see their earnings go up. But there's a part of it you have to pull back to reinvest in the business.
Dan Hood (01:41):
And that's an important, just that general message of investing in your business, working on your business as opposed to working Yes. In your business. That's clearly right. That's part about that part of that growth mindset, right? Yes. The understanding that tomorrow may be more important than today. I want to talk a little bit, cause you spoke about it during your keynote about the role of sales and marketing in building growth and strong growth in particular. Yeah. You can talk a little bit about that.
Allan Koltin (02:03):
The old adage, you can't win without a ticket. So I think a lot dream about it, but they don't plan it out. They don't figure out how to deploy resources. They are not strategic. They go after anything. And as you know, when you try to be everything to everybody, you end up being nothing to nobody. So it's figuring out what are the best niches, the best industries, the best kinds of clients. At the same time, it's getting rid of the worst kinds of clients and continuously trying to grow, not for growth's sake alone, but to grow, to be a more profitable firm. As we talked about. Bigger isn't better, better is better.
Dan Hood (02:44):
And having a strong definition of better has to be a part of that, right? Yes. Knowing what, it's not just more money, as you say.
Allan Koltin (02:50):
Yeah. There, there's firms where they just don't have alignment. The first thing I always look for before we get to growth, are the partners on the same page? Do they all want the same thing? Are they willing to support it, not just with capital, but by their behaviors of what they're going to do during the year? We're going to grow out, we're going to acquire wealth management practice. Well, if there's a group of partners that have wealthy clients, but they're going to sit on the sideline, that's not good. Right?
Dan Hood (03:19):
Got to have everybody working on, I love, one of my favorite examples is that sort of not everybody being in was talk to firms and they say, yeah, we want to grow 10%. You say, all right, well how are you going to get there? Who's in your pipeline? And they say, what do you mean? They don't have a pipeline? They haven't measured it. They haven't. No, not everybody's on board. They don't have a plan.
Allan Koltin (03:35):
Exactly. Some firms define growth as just raising rates. I mean, raising rates is good, but if your inventory stays the same, you're not really growing, you're just maintaining. And what happens when a couple big clients sell their business? What happens when a couple competitors steal work because they can do it cheaper.
Dan Hood (03:54):
It's that It's the sharks. Yeah. You got to keep moving all the time. Yeah. Which is difficult. I mean, cause it's very comfortable to sort of sit and say, one of the things you mentioned, I've heard you say this a number of times, but it's absolutely true, is that today's pretty good things are we're doing very well, most profitable years, last three years, most profitable ever. That's an enemy of growth in a weird way.
Allan Koltin (04:15):
The feeding at the trough is great. It's like they're almost saying, what's your problem? We just had the best year. What are you telling us? And it's a belief that this will exist forever. Nothing. And I mean, nothing in business is forever. Yeah.
Dan Hood (04:29):
Excellent. Alright, we're going to take a quick break then we're going to come back. Alright. And we're back. We're talking with Alan Colton of Colton Consulting Group keynote at the Firm Growth Forum. We're form, we're recording live there. I want to ask you sort of spin a little bit, pivot to talk a little bit more about hot service areas and hot niches. The whole notion of nicheing, itching and being specialties or focusing on specialties is something a lot of people are talking about, a lot of strong firms are pursuing. Are there particular areas or niches that you see that are strong or exciting the firm should be looking at? Yeah.
Allan Koltin (05:05):
So Dan, it's funny, it's like 31 flavors, the ice cream place. We're all infatuated with the different kinds of flavors. So there's what, those are niches, but the more important is the how. So I'll give you the what if you ask me about the how, because too many great ideas have died at the altar for failure to be able to execute. So as you go around the country, you obviously wealth management, anything dealing with wealth, family office, client, accounting, services, outsourcing, outsourcing, accounting, tax, payroll, hr, technology, permanent, I mean the CFOs suite, all those kinds of things. Cyber, really anything in the technology suite. And the more you can get fees at our maintenance agreements, the better industry specialization. It never goes away. The firm that can be the famous firm and have the famous people in an industry can always command a higher rate. So that's sort of the what, right? Of what's out there. Yeah.
Dan Hood (06:13):
So how do you think, so then what's going on to the how? Don't even need to ask these questions. I can just be like, Alan, you go ahead. How is that
Allan Koltin (06:21):
Is hard because you can't be everything. So you've got to pick out the couple of things and then you've got to put a real budget together of the capital. We're willing to invest, and we've talked about this before, A lot of firms will pick a champion to lead it. Oftentimes the champion has available time because they're not that good at anything else. So we're trying to find something, right? Lots of times the champion is the opposite. They're actually the best player in our firm, but they're so busy, they're not going to spend any time. So they start delegating some of it. I have learned that whether it's a product, a service, an industry specialty, the buck's got to stop here. These three person committees that they form, committees only get things done. If when there's a meeting, one is late and one doesn't know about the meeting, it's got to come to a point and then you've got to put the compensation package together that this can't be a night job or a weekend job. It's got to be their day job. I remember years ago when I was a young accountant, they put me in charge of the law firm services group, and I was scared because they took everything away. And I realized there was no turning back. And I often wondered if I didn't have that element of fear that I can't not get this right, would I have dabbled, would I have gone half speed and hence failed?
Dan Hood (07:45):
Well, that's amazing that they were deliberate, that they understood that because a lot of firms, as you say, I think sort of treated as a night job, right? No, no, no. We still expect you to have 1200 hours to 1280,
Allan Koltin (07:53):
Whatever, keep everything on your plate,
Dan Hood (07:54):
But also build an entire new book of business that brings millions and millions of dollars. So there's a lot of, that goes back to that investment question.
Allan Koltin (08:01):
It is. And the problem is, if you do it with one arm tied behind your back, the competition is going, and so you're almost competing with 50% of the battery that person has. Right?
Dan Hood (08:13):
Right. Yeah. And as you say, particularly in areas like wealth management, there are lots of, it's not just accounting firms you're competing with. There's lots of other competitors out there, and a lot of the new areas that are coming along have that sort of non-accounting firm competition, which you said they're
Allan Koltin (08:26):
Going a hundred percent. When we interview leaders or champions of industry niches, I ask them if they're willing to make that commitment. And in a weird way, I'm trying to assess their risk profile, and if they tell me that they want to start slow and keep everything they have and then migrate, it's probably not going to work. If somebody says, Alan, I want to be the famous person in construction. I'm ready to give up everything I have and go at risk, then you got a winner.
Dan Hood (08:54):
Excellent. It is. It's that depth of investment, depth of commitment is crucial.
Allan Koltin (08:58):
Yes. Yes.
Dan Hood (08:59):
I want to pivot to a final topic, one for which you are the famous person. We talk about being the famous person, m and a as is an area that a lot of us associate you with very closely because you're involved in a lot of the deals. But I don't want to talk specifically about deals. I want to talk about the role m and a maybe should play in a growing firm's approach to growth. If they really want to grow strong, how should they be thinking about m and a? Is it right for them? How do you know if it's right for you, et cetera?
Allan Koltin (09:25):
Well, the first thing I would tell you is so many firms don't do it because they say they have their own issues, their own problems. And I say, don't you get it? Businesses are an imperfect creature. We all got stuff. The life cycles of a business, each time you graduate to the next cycle, there's a whole bunch of stuff you got to get rid of and a whole bunch of new things. And somewhere out there is a firm smaller than yours, wishing they had your infrastructure, your resources, and I don't know what it is, but firms that are two to 7 million, 3 million, 4 million, there are firms doing a half a million. A million that would be perfect tuck-ins to them, but they can't see the light of they, right? And then you've got a lot of firms that have this attitude. If it's not built here, it can't be that good. And I'm like, well, how are you going to get better? Everybody's at full capacity. You're just getting bigger. You're not getting better. Here's the list of the things the clients are buying from another third party. Doesn't that bother you? Then let's figure out a strategy, and if we don't have the person in internally, let's go lift that person out. Let's go merge that firm in. That only does that kind of work, right?
Dan Hood (10:40):
Yeah. You're expanding your thing. You're expanding. Yeah. Expanding the pie as opposed to just,
Allan Koltin (10:44):
Yeah, Dan, I thought a lot about this, and I kid, the last two and a half years, there's been more change in the first 132 and a half. Yeah. I think for the first time, we are now being forced to think strategically like a business. I don't think we ever were. I think we had two products, financial statements and tax returns. And for some of us, we thought strategically about creating a better, stronger firm. For a lot of us. We just rode the wave.
Dan Hood (11:12):
It was very simple to hide behind those two things. You could make a lot of money and be a very live, very comfortable life just doing tax returns and financial statements. But yes, as you say, I think that the last couple of years, one have made it clear that that's maybe not that sustainable compliance work is, I don't want to say it's on its way out because I think accountants will always be responsible for it, but it's certainly not going to be a profit center.
Allan Koltin (11:32):
Yes. Yes. A hundred percent agree with you. Excellent. Absolutely.
Dan Hood (11:36):
I want just briefly, because I love this quote, and I'm going to say it though, it's your quote, but I want you to explain, talk a little bit about Martin. You mentioned it some in a weird way, that the ideal m and a candidate is a firm with 50 employees and no client.
Allan Koltin (11:48):
Yes.
Dan Hood (11:48):
I love that quote, but just maybe you could talk a little bit about it actually.
Allan Koltin (11:52):
Sure. Well, truth be known, Dan, you actually said that about five years ago. I got that from you. It's like, it's like re-gifting now. I've re-gifted it back to
Dan Hood (11:59):
You. We're going to discover it with some third party who's now outside like, ah, why'd they steal my quote? I
Allan Koltin (12:03):
Mean, nobody has capacity sitting around. And so m and a, sometimes they'll look at the firm and they'll say, the market's okay, it's not great, but damn, they got a workforce and we can deploy them on clients because we're now a virtual firm. So location doesn't matter, right? So yeah, it's all about winning the war on capacity.
Dan Hood (12:30):
Excellent. All right. With that, Alan, thank you so much. You a great keynote, great kickoff to our conferences. Much thank you for talking to us here. Thank
Allan Koltin (12:37):
You for having me. Excellent. All right. I start my morning every morning, 7:00 AM in Chicago, thinking about you in accounting today, because it's the first email that comes. And thank you for the every day there is something worth reading. Thanks you guys. I don't know how you do it, but there's always great content. And for anyone listening it, www.webcpa.com. Yep.
Dan Hood (13:02):
Or accounting today.com.
Allan Koltin (13:04):
It's the best way to start your morning off.
Dan Hood (13:07):
All right. This is an entirely uncompensated endorsement. Thank you, Alan. I appreciate that. That's great. Part of the thing is there's always something. There's always something that's interesting and exciting going on in the profession, which makes it easy to cover. Thank
Allan Koltin (13:17):
You again. Thanks for having me. All right.
Dan Hood (13:18):
And thank you all for listening. This episode of On the Air was produced by Accounting Today with audio production by Kellie Malone. Thanks to our audience. And thanks to our guest, Allan Koltin, and thank you all for listening.