#BKOT EP 05 IS BIGGER ACTUALLY BETTER?

This series is focused upon describing how the offshore team is transforming the landscape of accounting practice. This is the fifth episode in the series, where Mike Goossen, CPA and Shawn Parikh, President of Entigrity speak with Phil Whitman, CPA and President of Whitman Business Advisors and David Wolfskehl, Managing Partner of WBA. In this half hour discussion they discuss various perspectives of accounting firms, whether the trend of those firms that are already big and still getting bigger is a good thing for the profession. There are sure some pros and cons, this podcast is all about them.

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#BKOT 05 BUILD A KICKASS OFFSHORE TEAM

IS BIGGER ACTUALLY BETTER?

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David: Sure, I’m Phil Whitman, President and CEO of Whitman Business Advisors and we are a firm dedicated to helping CPA firms grow. Uh, we’ve developed something that we call our Six Pack Services, so we help firms with mergers and acquisitions, talent acquisitions, training & coaching, we do partner retreats, practice management consulting and we have something that I’m excited to share with you, it’s called the practice growth multiplier. PGM for short. That PGM is the ability for firms of all sizes to leverage the skillsets that are available that they don’t have on their team so that they could bring bottom line revenue without adding one new staff person or one new client. 

Mike: Hmm, that does sound interesting and great! And so Shawn with Entigrity, give us a little bit of insight on what your company does about, Shawn. 

Shawn: So I’m the chairman of the company, Entigrity. We are an Offshore Staffing company, we are headquartered out of Houston, Texas and we have a small team of 8 people here in the United States and we have about 600+ people in India. Primarily, I mean not primarily, but exclusively, we work with accounting firms, right now in US and Canada. We work with almost 700+ accounting firms and we have been in business for about 8 years now and our focus has been to help accounting firm with number one challenge of finding and retaining quality staff. 

Mike: Great, okay well today’s topic that we’re gonna go with is, question today we’re gonna answer is – Is Bigger Actually Better? Now we have a lots of different contrary views, we’ve both positives and negatives and all the types of things and so we’re kind of have a general kind of conversation about that and how that fits in the big scope of our industry and what’s going on. And so to kind of kick us off I have Shawn who will introduce the topic and will take it from there. Go ahead Shawn. 

Shawn: Sure Mike, thank you! Before we even get into the topic that ‘is bigger, better?’ I’d like to put this little perspective. Probably 4-5 years back, I think Jim Crammer, host of Mad Money coined this term called FAANG5. Which, you know, signifies these five big technology companies called Facebook, Apple, Netflix, Google and Amazon. And during that time, their market cap was about $1.1 Trillion, and people started believing that they have reached their peaks and a saturation point and you know, look at them now. They have become six times in their market cap from where they were in probably 2013 or 2014. So whether if it’s bigger, it’s better or not but for sure, bigger is getting bigger. And, well, why bigger is getting bigger? There are some reasons around it, I mean, I was reading an article probably two to two or three days back, of one of the developers, was one of the early developers of Amazon which mentioned, I mean, now he's no more a part of Amazon, and he used to be the next colleague to Jeff Bezos. He mentioned that Amazon is using every data point to sell their private, private label on their platform. So the rules of the game are changing. You know, traditionally what we learned in economics was, there is a marketplace and then there are buyers and sellers. But what happens when Marketplace itself become a buyer or and a seller? So in a nutshell, these big players are dominating the space, although they claim, you know, they claim to generate lot of opportunities for small business, like Amazon claims that they are giving opportunities to hundreds of thousands of business. But nobody knows how many small businesses are getting disrupted. So whether it is good or bad, the fact right now is bigger is getting bigger. And because of their deep pockets, because of the changes in the rules of game, because of their deep spending in R&D, because of the huge cash on their balance sheets and because of multiple reasons like that. So definitely, bigger is getting bigger. From what we understand. 

Mike: Right. Yeah. So thank you. That's a good direction. Right. That is the case. Things seem to be getting in that area, especially bigger and bigger and bigger. So. So, Phil, how does that fit into our topic today, what you're thinking?

Phil: Yes. So first and foremost, I'd like to premise that at Whitman Business Advisors, you'll hear us saying all the time, it's your life. And I'm sure we've got plenty of CPA’s on the phone right now viewing this. And it can be that their desire is to remain small. Others might desire to merge up or a smaller firm might desire to merge additional partners in and grow that way. And we're not going to be sitting years telling you that you're a nail and we're a hammer and you must merge and you must grow and you must be bigger. But today, I'm going to take the position that bigger is better. And my colleague and partner, David Wolfskehl is going to take the position maybe bigger isn't better, at least when it comes to the CPA firm arena. So I'd first like to start out by saying bigger firm - bigger clients, bigger clients - bigger fees, bigger fees - greater opportunities, greater opportunities for your partners and for your people. Additionally, when you look at a bigger firm, they have the ability to service a client in more ways than just tax and audit. They have specialty tax services. We know firms that have sales development training. We know other firms that have all sorts of specialty credits. Not to mention things like cyber security. H.R., Consulting, Technology, Assistance & support, recruiting. I mean, it just goes on and on and when you're bigger, if you're a small firm and you go bigger. Well, you know what? You could take off that administration hat. You don't have to worry about H.R., I.T., finance facilities, marketing, business development that becomes someone else's baby. You go to a large firm. They got an H.R. department. Maybe they got three people, five people, ten people, twenty people. Same thing with marketing. Same thing with I.T... So now what are you going to do with all that extra time. From that time that you spend running your firm, which clearly is not the best value use of your time? OK. Your best value. Use of time is servicing your clients. Creating new opportunities and bringing business in. So all that goes away. And how about this bigger firm, probably a greater chance to recruit and retain talent. But what that does is it creates a challenge, even the bigger firms that we work with. It's not like people just coming across their plate. There's a shortage of talent. We're a near full employment. And, you know, you don't have many passive candidates out there. I mean, candidates that, you know, are on the market while the candidates are passive. They're in seats. They have their butts in seats. And you got a prime out and create an opportunity that's really compelling. Otherwise, by their very nature, they are staying put. So when I look at even the bigger firm, an organization like Entigrity that does offshoring and has twelve hundred plus staff members available, and people have this wrong connotation of what it means to offshore. I mean, they think that there's the work goes into a big pot and whoever's available takes their work and who knows who's doing their work. And I know because we have clients that have begun the process of using Entigrity and Entigrity works with more than 500 firms nationwide helping them support the new business development that they bring in. So many times I go out to firms small and large and you know what they say? We've had to turn off the business development spigot because our concern is we're going to bring in the work and we don't have the engines, we don't have the horses, we don't have the ability to get that work done. So, no, we're not growing. Costs continue to grow. Salaries continue to increase. And top line revenue is growing. But partners are making less money. So the offshoring opportunity is one that provides incredible leverage and the ability to never have to turn off that business developments spigot. The last thing I'd like to highlight before I'm going to give David an opportunity to dispel what I've just outlined to all of you is built in succession and transition. Okay, For those of you that are sole practitioners or small firms that have not developed your bench of future partners. You may have bought your practice from someone who came before you. You may have built your practice on your own or with a partner or two. But who is going to buy you out? Who is sitting there ready to carry on what you've built? While we're in an environment that is changing, the CPA firm industry is one that itself right now is in transition. When you look at the traditional bread and butter firm that does tax and audit and nothing more, no advisory services, those firms are in a very dangerous place. Small changes can have incredible impact. Look at artificial intelligence, look at Blockchain and everyone was thinking, yeah, that's 10 years away. And now it's happening right now, right this very minute. There's real time auditing. OK. And what we know is there have been times before when the biggest of firms, the Big 4, came down to eat your lunch, whether you were a mid-size firm or a small firm. And when you were competing in a marketplace and the Big 4 can come in with a fee proposal, that's the same or sometimes lower than yours. Whoever's making that decision. For them, it's easy because no one is going to fault them for saying, oh, I think we should go at PriceWaterhouse instead of Whitman Business Advisors or whoever the mid-size firm might be. So I think that for the reasons I've outlined, bigger fees, bigger clients, more service offering abilities, getting out of that you need resource and administration business, the ability to recruit and retain people better and succession and transition. That's why at this very moment I think bigger is better. David? 

David: My name’s David Wolfskehl and I'm a senior managing director at Whitman Business Advisors. And when I think about and no disrespect to Shawn or Phil, but bigger is better is like so two thousand eight or whatever that song is. Right. That's about yesterday, right? Because yesterday the smaller firms couldn’t compete, yesterday the smaller firms had to be dependent on their local marketplace for staff, for clients, for those type of things. But bigger isn't better anymore. Bigger gives you more bureaucracy, bigger gives you more bricks and mortar, which makes it much more difficult for you to be nimble and take advantages of the opportunities. Right? Nimble doesn't bigger oftentimes does not bring higher profitability because you have these layers of management. Bigger doesn't get you the culture that as a smaller CPA, I've built my career around. I've built my family. And when I talk about family, not my personal family, but my work family, my client family and bigger doesn't allow me to have culture. The business processes that fit my family. And so I don't believe that bigger is better anymore. I believe that's 2008, because how the smaller firms compete with larger firms, we outsource our staffing. Not looking at our little local market and putting an ad in the newspaper like we used to. We outsource. We offshore our staffing to a firm like Entigrity. We offshore our non-core businesses. So I need a business developer. I go find one, right. And perhaps I use social media or other tools that are in 2008 to compete with the big guys. So I believe that in today's environment, smaller gives you the ability to be nimble. Technology gives you the ability to be anywhere in the world. And if Entigrity brings us staffing in India, we can compete with the big guys, with the quality of staff. We can use social media to compete and not own, and we can find resources anywhere in the world now instead of in our local marketplace. And so I think bigger is better is a two thousand eight equation.

Phil: So, David, if I can ask you then. So I'm a partner in a small firm and I get a business development opportunity to do a 30 or 40 thousand Dollars audit. And part of that requires an SSAE16 SOC 1 type to want it. And my guess is you as my partner, just as I would probably scratch our heads and say what's in SSAE 16, soft one tied to one. So let me ask you this. I'm in my big firm and I walk across the hall and I talk to my Q.C. technical guru or I pick up the phone and I call the national office. And they say, hey Phil, don't worry. You know, I talked to Mike Goosen guy, Mike. You know, he's the expert in SSAE 16, type 1, SOC 1, type 2 audits. What are you doing? 

David: So what am I doing? So first of all, even though the person in your big firm might be sitting right next to your office, second, do that for you. There's a chance you don't even know who that person is. And there is a chance when you call the national office, when they look at their priorities, maybe your audit is the most important. Maybe it's not. So just because you think that they’re next door to you. And that gives you a huge advantage. I don't believe so. Whitman Business, we’ve developed that Practice Growth Multiplier to give those smaller firms access not only to things like additional revenue sources, but also expertise that is ready to help them no matter where they are. Because this is 2020. The world is flat. Geography means a lot less than it did back in the day when bigger was better. Shawn, any thoughts? 

Shawn: So just to kind of balance the perspective, of Phil and David, I'm going to begin to debate on whether big is better or not, but definitely small is more beautiful than bigger. Right David?

David: Absolutely. 

Shawn: We can all agree to that. So, I mean, putting, I mean, my perspective, over this topic is of course agreeing to what Phil is saying, that you should have all you should be aspirational of becoming bigger. I mean, growing your firm, you always want to I mean, have that aspiration to grow. And I mean, they build your practice, acquire practice, add more services, add more clients, you know, increase your fees. So that way. I agree that you should have that aspiration of growing. But when I look at this specific topic from the standpoint of economy, well, consolidation brings, you know, less jobs. Consolidation means lesser opportunities. Consolidation means driving towards monopoly. Let me give an example of Intuit They started this business of live bookkeeping. Well, I personally feel. I mean, they might be doing, you know, everything legally, correct? They have you know, they have lawyers getting paid $1200 an hour. So they might have researched this, you know, a lot more than us. So but I think morally, they are hurting the community of accountants and those who really built Intuit. 

Phil: Well, it's very interesting you say that because when I look at our profession, you're right, the very people that CPA firms rely on for their technology, whether it's, you know, a CCH, you know, a Thomson Reuters, regardless who it is. Many of these organizations, you can outsource your work to them. So we frequently talk about new competition coming to town to challenge the CPA firm arena. And it's the very people that we pay and support. Yeah. And the people that we rely on that now we're becoming even more reliant on, you know. And who knows? Maybe one day with tax simplification, we're not needed and they’re all that's needed. So, you know, getting back to the bigger versus smaller. Obviously, I said it's your life. But the one thing that I know is the greatest challenge our profession has faced year in, year out, whether it's like David said, 2008, that was yesterday. And here we are it’s 2020. This is today. If offshoring is not part of your strategy you will not grow in a sufficient fashion that's possible. There's what's possible and there's what's probable. I know this. If you're not pushing to grow your revenues, OK, you're going backwards. OK. Because costs are rising and it's even more challenging today in the staffing arena than it was pre 2008 and we saw a same day offers a most peaceable candidate within 10 days is off the market, sometimes sooner.

Shawn: And Phil, then to support that argument, I mean, when we started this probably seven, eight years back. Well, I'm originally from India, so I have looked in, you know, how Big 4 and larger firms are setting up their offices, you know, in India. And today, if you see each of the Big 4 has thousands of employees in multiple cities just catering their U.S. business. So, well, what we realized is because Big 4 and larger firms, top 100 firms I am talking about has deep pockets. So they have this money to kind of send managers to India, you know, spend some money, invest the money before they actually started, you know, producing results. This type of resources, you know, small and mid-size, some doesn't have if they want to hire five or ten people or fifteen people, then go to India. And, you know, don't get a part of the bureaucracy and take care of this compliances and, you know, take those local challenges on them. They’ll prefer that, you know, let's not grow. Or don't let us to keep the staff, because ultimately the dilemma is this. You know, sometimes I have been talking to small firms like you and they say that sometimes I get clients, but I feel that if I add staff and if the staff is not fully utilized, you know, it is I'm not going to make any profits out of that client. So it's like chicken and egg situation to hire staff or do have clients? And ultimately, you are not doing both. So. So that's where, you know, we started this business coming back to the point. We started this business that if we can and this is how I always try to put it, that we are democratizing global access of staffing for small and mid-sized and regional accounting firms, which was never available to them probably before we started. So that's what we are trying to do so that they can stay in competition, just like, you know, technology which used to be proprietary to larger businesses are now, you know, becoming are now being available to small businesses and small firms. We also wanted the success to be available to even small and regional firms. And that's where we came up with this idea. Let's see if we can do something that we help them in hiring the staff, which matches their quality and requirement and they work from our secured office in India. And if somehow we can win trust, probably this is the best thing that we can provide to our clients. And I mean, it has been great since we started. Everybody is appreciating not that we had few complaints, but yes, all in all, it has been a very, very gainful and help. I mean, have encouraging experience working with accounting firms. So concluding, well, our objective is, you know, we want to help small and mid-sized regional firms so that they can have the same level of competitive advantage that larger firms have, as you know, they can take being small they can still cater to the clients that they want. They can still charge the fees they want and they can still run and you know, they can run in those markets that they want. So as David said, I would reinforce that the choice is important. What they want to do. They want to stay regional, they want to stay local or they want to have a presence in multiple states. Choice is them - technology, staffing practices should be available to them and Whitman Business Advisers, for that matter I gave you this example probably couple of days back, compensation planning, talent planning. Nobody has H.R. in small firms. Nobody has, you know, advisor to decide how a partner should be paid or how a senior manager should be paid in longer run. That's where Whitman Business Advisor kind of come in and coach, you know, or otherwise. This was only a privilege of, you know, regional firms or I mean, larger firms for that matter, that they can hire counsels and advocates for, you know, doing this. So what Whitman Business Advisors somewhere is doing, apart from mergers and acquisitions or advising on succession planning, is helping small firms to stay in business, to stay in you know, to stay in competition. 

David: And, you know, just pick it up on that. I think what we also are doing in this ‘is bigger, better?’ I think what we're doing about that Whitman and Entigrity is perhaps not helping firms grow the top line. But I haven't paid my mortgage with the top line. Right. I think many of the smaller firms, what they care about is the bottom line. And many of our solutions are about growing. And growth is important, but growing that bottom line, because it helps pay for vacations, unlike drawing the top line. So that's my final thought for you fellas. Yes.

Phil: So I guess I kind of like would wrap up, you know, whether you're a small firm, a medium sized firm or a large firm. The challenge we all face is the same. There are regulatory challenges. There are challenges in getting new business. Year after year, the greatest challenge has been in the staffing arena and we're pleased to partner with Entigrity to help our firms, both small and large, plow through the challenges that they face in all these areas. And the one thing I do know is there are firms out there who take the ostrich approach and they put their head in the sand and they are not forward thinking. They made a decision once years ago that offshoring wasn't the right opportunity. And maybe back then it wasn't mature enough. It wasn't a system to ties the way it is today. And I believe for those of you who have taken that approach, you need to take your head out of the sand and take another look. Because as Shawn said, Entigrity's democratization and giving wall firms the ability to have an office offshore that is supporting their efforts could be a critical factor in your achieving the growth that's out there for you. There should be no reason any firm should say to us, I’m flat. Because back in 2008, I said flat is crap and in 2020, I believe the same thing. High growth, high growth. So been a pleasure chatting with you. And hopefully, you know, we've got some listeners out there who are going to take action because to sit and view and listen and go away and go back and do the same thing. I think Einstein said that's sort of like the definition of insanity. Take the steps you need to, to get yourself better, to get your firm better. And I'm here today with some people that can help you in those very, very endeavors.

Shawn: So I think, I think Phil, your words of wisdom are going to have an impactful you know, are going to make an impact and definitely there is lot of message. Right Message for the firm in that, for their business, for their benefit. I mean, if they choose not to act, it's for them. So probably you and me can advocate best practices to grow at the end of the day. And we'll continue to make it to our podcast and to our video and to our chats. And then to you know, they have to take the decision whether it is good for them or not. And if not, you know, best of luck to them. 

Phil: And Mike, I'd like to thank you and Shawn for hosting this and having David and I on as your guest. Hopefully you've enjoyed our conversation, but I do want to thank both of you very much. 

Shawn: No, thanks. Thanks, Phil. Thanks, David, for being with us. Yes. Mike, over to you. 

Mike: Well, yes. What does it say? Gentlemen, thank you for a very intriguing conversation. And I found it very interesting on all sides. I'm sure I'm not where much more on that yet. I'm bigger, better small, whatever the case. But I think regardless of the size of a firm or the goals of the objectives of the firm, there are opportunities to partner with others to take advantage of different services and professions and relationships that are out there in the industry so that you can achieve your goals, objectives that you want for you as your firm, and sort of encourage you to look at all those things.  And that will be a wrap for today. Thank you all for attending. Whoever joined us say I hope you're doing well, you can reach out to any one of us through social media and our Web sites, et cetera. Happy to have you and again. I didn’t introduce myself. I'm Mike Goossen, and I'm happy to have you today in this Build a Kickass Offshore Team, and we look forward to hearing from you again and have a great day.