242 The Wealth Ladders of Accounting Firms

A quote. In college, I first heard Jason Fried from Basecamp talk about how making money is a skill like playing the drums or piano that you can get better at over time. That resonated with me immediately. I wouldn't expect to be able to sit down at a piano for the first time and immediately play and could play a concerto. Today we're exploring the skill of business building with a blog post that burned down the Internet a few years back. I really like it. It's like the best encapsulation of the difference between a super progressive firm and a more traditional firm these days. Specifically how it applies to how you productize and find higher leverage ways to make money. So I'm going to run you through it today. Come on in. Let's talk about making the money. The blog post in question is called the Ladders of Wealth Creation, A step by step roadmap to building wealth, written by Nathan Barry. He's kind of like an early Internet think boy. He's the founder of ConvertKit, the email marketing tool. And this whole notion of wealth ladders and like this concept has been kicked around for years. And it dawned on me lately that it's actually very relevant to the ways that we talk about accounting firms making money. Not even just accounting firms, but accountants and how they progress through their career. If you haven't heard of this one before, the whole concept of wealth ladders. I will put an image of this doc that I'm scribbling on right now in the show notes. It may be helpful to visualize these ladders. I'm also making some notes on them as we go. Coming to you from Austin today. Right works. No, right now is the name of the conference. Audio only listeners, as usual, missing out on unstoppable vibes. Okay, so this whole ladders of wealth creation thing, what does this mean? Well, basically he outlined four ladders. And these are ladders like the ladder you would step up to get to a high thing. Not like fish ladders. Think construction ladders. So four ladders. The first ladder is trading time for money. The second ladder is building your own service business. The third ladder is developing productized services and the. And the fourth ladder is selling products. And throughout this, there's some vernacular here that we kind of throw around a lot, but it goes a little deeper into like, what does that actually mean in the context of running a business. And I'm gonna talk today specifically about what that means in the context of running an accounting firm. But those are the four ladders. And each ladder has A sequence of rungs. And the bottom rung of each ladder is like the easy one, and you build to the next rung. So, very basic example, starting simple here, the very first ladder of four is called Time for Money. And the very first rung of the first ladder is an hourly job working for a company. You go to work for McDonald's, whoever it is, basically all that's asked for you is that you show up consistently, you're reliable, and you learn new skills along the way. That is the bottom rung of the first Time for Money ladder. The next rung salary. Working for a company, basically the same thing, but your sal. Now, instead of hourly, maybe that gave you a little bit more control over your time in most cases, probably not. In my experience, most salary jobs are just hourly jobs where they assume that you work 40 hours, but in reality, you work more than 40 hours. Just me? Was that your experience? Maybe it was just me. Second ladder here. And this is where most accounting firms live today. And we're Only on Ladder 2 of 4. Second Ladder, your own service business. Nice work. You were so good at doing it for somebody else that now you're going to do it for yourself. This involves setting up a company, finding clients, creating proposals, pricing your services, hiring employees, establishing an online presence, and all the admin that comes from running your own business ops, the accounting of your business, taxes, that sort of thing. And so the second ladder of developing your own service business at the very bottom rung, the entry level here is hourly work for clients. I'm just gonna. I'm just gonna spoil this for you. Right now we're on Ladder 2 of 4, and there are 12 rungs after this. But the rung we're on now is hourly work for clients. And this is where 80% of accounting firms live these days. I can speak to us. I don't know what it is. Elsewhere in the world, 80% of firms are still living in the very bottom rung, the most basic version of running your own business. And most of y' all are fairly progressive. A lot of y' all who maybe aren't running your own firm yet are accountants who have a progressive mindset but may feel a little bit stuck in your current circumstances. Sidebar. Can I tease this yet? Is it time? Oh, am I gonna get in trouble for this? Sidebar. Okay, I'll give you the sidebar. Working on a wee project. Okay, here's the thing about all the content I do. It attracts very progressive firms. Folks that are excited about doing this stuff better in a more sustainable way. But a byproduct of all this stuff that attracts firm owners is we also attract a lot of progressive accountants. If I was an accountant and somebody was putting out stuff like this, man, I would've ate it up. And then I would've gone back to my firm and been like, okay, listen, listen, listen. I got all these great ideas and I know there's a lot of you listening who do that. And this is your life and you are rolling a boulder up your hill. The reality is, for accountants who don't own their own firm, who tune into my content, at least 90% of the accountants tuning in are like, boy, that sounds nice. But that's not a reality for me, buddy. The project we're working on is to make that a reality for you. I got loads of really progressive firms in my audience that are stuck hiring via traditional channels. Robert. Half hiring randos off of, you know, job sites. What if we all just did a little inside baseball, kept it all in the family. Progressive firm. What if you just hired the progressive accountant who also tunes into this stuff and is really mad or frustrated that the rest of their firm just doesn't get it? You know, they're stuck in that legacy firm? That's the thing. That's what we're doing. It's as simple as that. Now the reality here, that's this two sided market. You got the firm side and you got the applicant side on the firm side. I know a lot of firms want to hire progressive accountants. So initially I'm only opening this up to the applicant side because if you're open to me helping you find a better gig, I want to hear from you. I think this will be ready. We actually got a banging landing page for this. I think this will be ready by the time this episode drops. I will put a link in the show notes. If you are tired of rolling a boulder up a hill and want to potentially explore something different. No big commitments. We'll send you a short list of firms. Do you want a warm intro to any of these folks? If you do, you can opt in, simple as that. And I can tell you from firsthand experience just how frustrating it is to work for those firms who are at the bottom rung and haven't developed from there. So we are on the second ladder. Your own service business, bottom rung, hourly work for clients. Second rung is charging by the project. So rather than charging just by the hour, you're moving a little more towards charging for the outcome, getting the entire thing done. I ran a firm with 1800 clients. And when I bought it, it was an hourly firm. And we did the really hard thing of getting to that second rung. We gave everybody prices up front. If there was a, you know, huge scope change, then, yes, we changed the price. But we made that very, very hard change, which for a bunch of clients and a whole lot of inertia going in one direction, that change was hard, but 1000% worthwhile. The third and last rung on this second ladder is managing a team to do service work. So the third rung is not you charging hourly for your work or you charging for a project. The third rung is you managing the team that does all of that stuff. And when it comes to small firm running, not a huge amount of people that are totally out of doing the work of the firm. I would argue, and a lot of people love to dunk on firms and dunk on firm owners as if they're incapable of this. I, I would argue the reason that that is the case is a lot of people enjoy doing the work. Are the people that maybe can't get out of their way enough to, to get there even if they want to, potentially. But the reality is, most small firm owners, they come into the profession, they enjoy doing the work, they want to go do it for themselves. And then as soon as they start a business, people are like, it's not a business unless you get out of doing the client work. You're like, I like doing the client. What do you mean? I like talking to clients. I'm not allowed to do this. Now let me be. If no one else has told you this, let me be the first one to tell you. You can do client work till the end of time. The only situation where that's problematic is when you want the things that, you know, managing the business and not working in the business. When you want all of the things that, that might enable, but you also want to do all the other stuff. Like, that's where we get in trouble when you want to do all of those things. The reality is if you're working in the business, you're going to have less time to work on the business. If you just work on the business, you're going to lose touch with some of the things that are involved in working in the business. The only way we get in trouble is when you, like, try to do all of those things, but then you end up doing all of them kind of badly, right? Because you just can't, you can't do all the things. So that's the third rung of our second ladder here, working on the business. And the vast majority of accounting firms, they're living on this second ladder. This episode is sponsored in part by Cloud Accountant Staffing. Tell me how this resume sounds. Graduated with an undergrad in accounting in 2012. 14 years experience now the last five with US public accounting firms. Software experience, QBO, Xero, Netsuite. Bless your heart. Bill.com stripe shopify, Gusto, Justworks rippling full cycle accounting. Oversaw the monthly close and review. Onboarded new clients, coached and trained staff. Oversaw a small team of bookkeepers getting stuff done. Not bad, huh? That is a real resume from Cloud Accountant Staffing. A super talented accountant in the Philippines that could join your team. Not this person specifically because this ad read might be old, but to find the accountant of your dreams, all you gotta do get on the horn with Cloud Accountant Staffing. Talk about what your needs are. They've got recruiters on the ground in the Philippines. They'll find you somebody great. You get some resumes, you do some interviews. You wanna know the wild thing? You don't pay a dime until you decide to hire somebody. Literally. What do you have to lose? The only reason you're going to end up cutting a checked cloud account staffing is if you got somebody that you absolutely love. So why not? I shared before I hired a bunch of people in the Philippines. Completely changed how we approached staffing our onshore firm. Give it a try. Link to Cloud Accountant staffing in the show notes. This episode is sponsored in part by Live flow. The spring G2 little award badges just came out. You know G2 like the software platform review platform? What? The software review platform just going to read you the spring little award badges that LifeFlow won. Leader. That's all it says. Just leader. Spring 2024 next one. Best estimated ROI, best usability, most implementable, Best relationship and momentum leader. All those just from Spring 2024. Liveflow. It takes your QuickBooks data, syncs it out to Google sheets or Excel, whichever flavor you prefer. And obviously the kids are loving it. Cause they're burning down G2. Big news lately is they now support Excel suite Score. Huzzah. And shortly before that they released consolidations. The ability to roll up different company chart of accounts. Like whether they have matching chart of accounts or not. They give you a super straightforward way to consolidate those things. Man, when I was running a firm we had like 20 plus company consolidations that were so much bloody work to roll up. We actually stopped doing it monthly because it was just taking so much time. And we said we're only going to give the consolidations quarterly because we can't be bothered to do it. This makes all that way easier and because it will actually sync that data out, like live in real time on an ongoing basis. You can even do some cool like near real time consolidated stuff. Pretty wild. Learn more about this one. The link in the show notes. But the third ladder called Productized services, what does that even mean? Well, the first rung on this ladder is called Fixed scope for a fixed price. I'll give you some of the description from the blog post here to kind of clarify how this is different from the previous ladder. Up until now, each sale has been made by talking to customers or an employer directly, in person or over the phone. But to truly reach new levels of income, you need to learn a different lesson. How to sell without ever talking to the customer. Our goal is to scale sales to new levels. That means removing every possible bottleneck on the productized services. We'll remove the sales bottleneck, then on the next ladder we'll remove the product delivery bottleneck. And the hard thing can be here when we look at all the productized solutions and we're like, well, I'm not going to be like bench. I'm not going to be like QuickBooks Live Bookkeeping because they're like setting the bottom of the market, like bottom of the barrel pricing. And they're just going to keep getting better because they can develop tech to make it more automated and all that stuff. And I can't do that. So I shouldn't be competing with those productized services. But all that being said, what I don't think we should shy away from is finding productized ways to solve problems specific to the type of client that you support. So if beekeepers have very specific compliance challenges and they got to complete this form every single quarter, and we can hire an engineer to make like a pretty turnkey way of gathering all the information that I need and then electronically filing this quarterly compliance thing that they have to do every single time. The fact that there are other productized services out there doing things in scalable ways that don't feel personal, the fact that all that stuff's happening out there doesn't mean that it's not worthwhile for me to invest in developing a productized service. I do agree that there's risk of making it all feel so impersonal that someone just goes, well, why don't I just go to like the mass, like general solution, like, you know, bench or something like that, that will do all this stuff for me. You can't make it so impersonal and so generic that you're no different. You know, then you're like a bad version of productized solutions, right? And this is why we still have to be for someone specific. We need to be thinking about how we can solve a more specific person's problems. But if you have something of value that people will happily pay you for, that, say, productized service man, do it, do it. Like that is the. That's. These ladders are like the development of the business skill and being able to productize what you do like that is the next step. It doesn't have to be bookkeeping. It doesn't have to be tax. It is what is a problem that my customers have that I can solve. It's as simple as that. So the progression from just time for money, going to work for somebody else, getting paid hourly, getting paid salary to your own service business, charging by the project, charging by the hour, managing a team to do service work, the next skill to learn after that is how do I get a little bit more productized about what I do? And the most progressive firms you see out there, they do talk a lot about productization and getting very explicit about your service lines and scaling the fulfillment and how all of that work gets done. So like the progressive firms you hear from, they are leaning more into, I guess, a productized approach to getting things done. But the fourth ladder and kind of the final ladder has six rungs. It's called selling products. And most of us, like, if you came of age in a service business and you've never done this, the notion of selling a product is kind of unthinkable. Like. Like we're just used to selling our time. That's all we've ever known how to do, right? And just like you're not going to be able to rock up to a cello and play something amazing, you know, the first try. This is genuinely a skill that is learned. So nobody knows how to do this until they figure out how to do it. So selling products is leaning even further into, like, adjacent businesses, to tax services, to bookkeeping services, that sort of thing. Like, what are the other problems that these people have that can be solved not by a productized service, but by a product, just a straight product. That product means something that somebody can buy, then go use and requires very little to no incremental effort from you. So bottom rung on this ladder, digital products, ebooks, courses, downloadables. I know some of us have Dabbled in this to varying degrees of success. But digital products are an example of something that can work while you sleep. Somebody can turn up, buy, buy, it doesn't take any more effort from you. Next rung is products sold in an existing ecosystem. This is like, you know, an app store or a plugin store or something like that. Somebody else has a platform or an ecosystem where you can turn up with the thing that you are selling and sell it within that. Opportunities here could be, you know, plugins or apps that you know, integrate with QuickBooks that do some very specific to your specialization type of job. Like if beekeepers need this additional thing that you know, say QuickBooks doesn't do, maybe that's launching an app that you get on the QuickBooks Marketplace and people pay something to use that app and it augments, you know, the experience that they get in QuickBooks. Third rung here is physical products and E commerce. Maybe there's a version of that that makes sense. Honestly, I know nothing about that and I can't even put my finger necessarily on a single firm that's like done a successful version of physical products to accompany what they do in their firm, Digital Products. Last I heard, Brandon Hall's firm, they were doing, I think it was north of a half million a year selling digital products. Stuff that people could come and buy and consume on their own. And so that's an example of a firm that has gotten to the fourth ladder selling products that the hardest thing to do, but the highest leverage thing to do. Right. The fourth rung on this ladder is a software service launched with consulting services. An example of this that comes to mind, tax planIQ is a tax planning software, but there's a very heavy kind of consulting element to it. So it's a software specifically for managing the life cycle of a tax planning tax advisory engagement. But, but because a good number of the folks that come to use that tool like don't have experience pricing out one of those engagements, a big part of what that tool is is actually consulting with like a coach to help them sell more profitable engagement. So it's like SaaS. It's like software, but it's also sort of paired with people who will help you through that process. And so it's got some of the upside of software while still being hands on to a degree. The fifth rung after that then is just SaaS. It's pure software. Example somebody that's done this. Well, how about Hector Garcia and right tool, Right. So Hector creates and he still runs a firm. Hector is known for his YouTube content, how to use QuickBooks, stuff like that. He sees, man, all of these changes would just make QuickBooks better. So they build right tool, a chrome extension that genuinely changes QuickBooks. It changes things in the UI to do the stuff that he wants it to do. That Intuit isn't building into the product. That's pure SaaS. That's him. Someone who serves. He has a firm, so he serves clients, but he also serves accountants because he creates content for accountants and he sees the accountants needs and understands this tool isn't doing what we need it to do. So I'm going to create a solution that makes it what we need. He identified the problem and he shipped a compelling solution for it. Right? Like there's a great example of somebody that's done that in a meaningful way. This episode is brought to you in part by Teamup, helping you recruit top Filipino accountants without any ongoing monthly fees. The difference between Team up and all the other offshoring options is that Team up helps you hire staff directly. No middleman. You work directly with your new hire in the Philippines. Hire the person, not the company. Guys, gals, gang. Here's just a few reasons to hire directly. You have access to higher level talent. Makes sense. You have complete control over team culture and training. They keep 100% of what you pay them and it's a lot more affordable for you. So you can retain your team for the long term. Team up can source accountants with experience working at US or Australian firms familiar with tools like Xeroqbo and Dex. Also recruit specialist roles, team leaders, tax specialists, administrative assistants. Thought experiment. What if you had an executive assistant for the first time this tax season? Just. Just throwing it out there. What would they do? Start at that email video I did on the main channel recently. Get help with that stanky ol inbox. I digress. Team up recruits these talented folks for a flat one time fee of 4,000 US American dollars. That's it. 4K one time. Somebody at Robert Half just did a spit take Robert Half reference. We ever gonna get Robert Half to sponsor this spot? Not anymore. And they can connect you with an affordable employer of record if you need help with payroll and compliance. Once you hire that person. Big fan of hiring in the Philippines. You know I did a bunch of that. Check out the link in the description to learn more about Team Up. This episode is sponsored in part by Melio. If you have small business clients, and I know you do, you know just how hard it is for them to track all their payables and receivables, especially when they're doing it manually. Now there's an easy to use solution that turns all that tedium into an easy task that only takes a few minutes each week. 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To ensure a smooth onboarding process, I'll put a link in the show notes where you can sign up for that webinar and get to know this platform. That's a game changer. Spots are limited. Make sure you claim your seat as AP thanks to me. Leo, Check out that link to the webinar down in the Show Notes. Who are other accountants that have launched like notable adjacent businesses that we've talked with Mitchell Baldrige. We've had Mitchell on the podcast in the past. He works with real estate folks in his firm and then he launched a cost seg firm alongside it. That's probably a productized service because cost segs are still pretty hands on but more scalable than traditional accounting firm work. I would argue in pretty much every way. Ashley Francis Ashley Francis has AI, education, content, kitchen table automations. That's probably a digital product is probably where I'd put that. She you've got things that you can buy that are one off things. I think you've got other things that are like sort of email journeys for me that would fall into the digital product bucket. The last rung on the ladder here, the sixth rung past SaaS is marketplaces and social networks. So that's like you know, Facebook, Twitter, what's a marketplace? Shopify, you know, like ebay, Fiverr, A place where you connect people, that sort of thing. What's the closest thing accounting gets to that? If you're building a community that could potentially take on more of the life of, you know, say A social network. So let's say I'm going to launch a community, a membership community for beekeeping business owners. And that community continues to grow and grow and it kind of evolves into something that looks a little bit more like a social network that then becomes like a platform where people can buy ads and like that social network kind of takes on a life of its own. Now this blog post was done in 2019, and the one thing it misses that isn't really here, that wasn't really a thing in 2019 so much as it is now is communities. And I've been talking about communities the last few weeks. I'm running a four week live workshop in my membership community right now about how to launch your own community in your accounting firm. But I would plug membership communities probably somewhere between the third and fourth ladders because membership communities still require your input. But the awesome thing about membership communities is members glean value from each other, not from like the big boss, you know, running the whole thing. And there are a whole bunch of different types of communities you can have, you know, a service community where you're pretty much just running a business, but in a community and everybody comes to you and you're the one giving out all the value. A membership community is one that's focused on peer value and what members can get from each other. And so the folks who can create those are the ones who are the hubs for like minded people who would benefit from connecting with each other. So your job is to enable connections, but not to really deliver the value on an ongoing basis. So I would argue a membership community is kind of like between the third and fourth ladders. And we now have a whole bunch of firms that are exploring building membership communities. As I've been talking about this, I've also heard from a bunch of folks who have come out of the woodworks saying like, yeah, we're already doing like a version of this and it's pretty cool. And this is a super cool evolution of accounting firms finding new higher leverage ways to make money. I get really frustrated when I think of just how little has changed since the Internet came around. And it's like, oh, we all run our firms the same way still. You still do business with just the people across town and whoever they refer to you. And it's like, man, you've got the most powerful communication engine the world has ever seen. I could put out a single tweet about beekeeping that can attract all these people that have such niche nuanced problems. And we now have this power, but we're not really doing anything with it still. Right. You think about the way that we learn and the stuff that we consume these days. Like, everybody consumes new media. You listen to podcasts, you follow people on social media, you read their newsletters, and you build these asymmetrical relationships with people that you trust. And that's now how we learn, that is dismantling traditional media. Like, we are consuming stuff in much more nuanced ways. And if I'm trying to get in front of beekeepers, they want somebody to come along and tell them how to do accounting, how to do tax, like, how to manage all of that stuff in their business. But we're not putting ourselves out there. Like, we're not leaning into what the Internet can enable. Online communities are a great example of, like, something that's gotten really hot in the last few years. That is just a higher leverage way for accounting firms to make money. And I love kind of like pushing up against the ceiling of what an accounting firm ought to be doing. Like, what do you mean? Like, launching this community platform inside of my own firm. Like, how does that even work? How do you even structure that? Like, I would probably put it in a separate entity. Like, you can get, like, stuck on all the minutiae of that, But I think we're generally too ingrained in what traditional services are. Rather than get to a more specific type of client, just learn what their problems are and solve their problems. And you'll find that actually accounting and tax work is, like, the, like, hardest thing imaginable to scale. And so if that's the core of your business, it only ever gets better from there. Like, that is genuinely the very hardest thing to scale is that technical work. So the more we can lean into those other problems, the more we can, like, build scalable solutions. Right. One other thing from this blog post that I wanted to share, and I will link the blog post in the show notes. It's really cool. Eight kind of maxims, eight principles to grow your wealth and income over time. Thinking about these ladders and how you progress through the ladders. Number one, extra time and money need to be reinvested. So think about what is going to get you to the next rung of the ladder to be able to make money more efficiently, to learn the skills required to make money in a higher leverage way. Number two, you can skip ahead. That is, you can skip several rungs, but you still have to learn the lessons from each step. So all these things kind of build on each other. And if the notion of selling a product feels extremely foreign, it's because you got to build to it and you got to learn that skill. Like, nobody rolls out of bed knowing how to do that thing. I myself am learning how to do this stuff for the first time. I shared the hiring thing today. We've got a SaaS platform. What a te. Another tease. We got a double teaser today that's gonna be coming out very soon. In fact, we've now rolled out alpha access to, like, 20 people. It's pretty exciting. That's a sidebar. I'm learning how products work. Like, I'm trying to develop that skill myself. So you can skip ahead, but you kind of gotta learn, like, what are the skills required for each step along the way? Number three, apply your existing skills in a new way to build wealth. All the things we're capable of doing right now are what enable us to do that next thing really, really well. Who's selling compelling products around accounting and compliance for beekeepers? Probably nobody. Like, the more specific you get, the lower hanging the fruit is. If there's nobody even having those super specific, nuanced conversations for that type of person on social media, I can assure you nobody is building really cool products for them. Like, that's an opportunity. Number four, there's a difference between working for a better wage and truly building wealth. Number five, use an earlier rung on the ladder to fund the next one. Number six, moving between ladders often means a decrease in income. Yeah, you're kind of like changing how you invest in things, Right. And it's not always gonna pay off right away. Number seven, each step is easier with an audience. Boy, I can attest to that big time. So much of this stuff gets so much easier when you have an audience. When you've built up a group of people who trust you makes a huge difference. Number eight, it takes longer than you think, but the results can be incredible. Not everybody is wired this way, but I am. I am very like, personal growth minded. Not like business growth minded, but personal growth minded. I want to keep finding better ways to do what I do. Higher leverage ways to help people. And this la. That's why this ladder thing just really resonated for me. There are people who, you know, doing hourly work for clients. There's people who will be excited about doing that and can do that until the end of time. That's hard for me though, to imagine, like, doing that same thing for a really long time. And this visualization was. It's an interesting way to think about just how you upskill yourself to run a business in a higher leverage way. I will put a picture of this ladder into the show notes. This is one of those things where I'm like can I get this across via podcast or do they need to see it? If you do wanna see it I'll put an image of that there. I'll link the job thing I mentioned below and also link the original Wealth Ladder blog post. Super good. Really fun read. You all know I totally geek on the folks who are running accounting firms in cool innovative new ways. Not to replace doing the regular work but like to help people in an even higher leverage way. Like to get you even more folks the help that they need because oh my goodness is there a shortage of good accessible help from advisors for SMBs these days? Right? That's all I got. Thanks for coming and hanging today. I'll see you next one.