EXPLAINING OUR TARGET CITIES
First, we focus on certain cities in the US, ideally with about 500,000 population. There are about 20 of those cities. Next, we seek cities in each of the 4 national time-zones (more on that below). A mid-sized city allows for a local player to gain and hold significant market share. A larger city is likely dominated by a "top 100" firm and a smaller city (town), while easier to dominate, might only allow a nominal upside in the intermediate term. This will be a problem for recruiting the best CPA's unless they happen to be local boys.
Once you dominate your market (say 10% or more) it's easier to grow in another city than to expand your dominance locally. Don't fight for another 2% locally when you can quickly have 5% in another market. We've got some ideas.
TARGETED FIRM TYPES (INDUSTRIES)
In 20 years of practice, we have merged partnerships from a variety of industries, specifically; doctors, lawyers, CPA's, architects, engineers and insurance agencies. Our expertise has to do with partnership equity, so any of these might benefit from M&A. We like CPA firms best because our 3rd party Mediated M&A methodology might also serve their clients. If we make your existing clients bigger, you'll make more money from them--our service becomes one of your offerings to your marketplace. It's still 3rd party, but you get the credit for the introduction.
TIMELINE OF EXPANDED REGIONAL MARKET SHARE
Professional service firms grow when their producers call on and win new business clients in the market space, either by relationship (friends and family) or by reputation. This expansion involves beating competitors that may also have relationships and reputations in the marketplace. This kind of growth (call it "organic") takes time, maybe decades, maybe longer than what's left of your career. It also involves loss; sometimes you win 2 then lose one, so growth, even if positive, may be slow. Another factor is that one (or more) of your local or regional competitors may grow faster than your firm--this could set you back or negate the impact of your now-compromised progress.
FIRM GROWTH BY MERGERS & ACQUISITIONS
Growth by M&A has certain advantages over so-called organic growth. Importantly, you only harvest those firms, those producers, that you know to be viable. Your own recruits may or may not turn out to be top talent. When expanding by M&A, you only target top talent. As your firm grows (by M&A) it becomes easier for other firms to want to join your local dominance. We mediate M&A because the natural tendencies between competitors can be off-putting and once a deal "pushes back from the table" it's hard to re-start.
DURABILITY OF IMPROVED OPERATING MARGINS
Most firms don't have a clear idea what local (or regional) competition costs. You see it only when you try and fail to earn a new account or when one of your clients jumps ship and goes to another firm. Trust me, it costs you something so combining with a competitor saves that expense--some of it. The other immediate savings has to do with "administrative overlap". Another area we see this is in service specialties; when you keep losing business to a local "specialist" that you don't have in your firm, the short answer is to bring that expertise INSIDE. There is a whole category of hard-cost savings with regard to sharing office space and/or adding another market but we'll get to that below.
ENHANCED MARKETING & NEW CLIENT ACQUISITION
It is often a challenge in a regulated industry to pitch your firm as BETTER than its competitors that (from the client's perspective) sell the same product. Since they are pitching their superiority while you are, the best ammo is to have some undeniable advantage (like a practice specialty or an office in another market). Bragging that your firm is very old is not really compelling in terms of innovative modern solutions. Likewise, saying a previous partner is now the governor or senator, misses the point the prospective client is likely exploring.
RAPID RESPONSIVENESS ON PRODUCT & SERVICE OFFERINGS
Within a mid-sized firm, you are likely to have clients in many industries and some of those might merge or expand--maybe just evolve naturally--into new areas of practice that require new services from their historic CPA firm. If you can't quickly step up, this might be where you lose that client. Telling them, "we're thinking about adding a section to handle that" is not the same as "let me transfer you to Mr. Johnson who is our expert". If you think back to clients lost recently, it's almost always a version of this.
BEST PRACTICES RECRUITING & TARGET DEMOGRAPHICS
Firms hire young, green recruits from MBA school because you can re-sell their work at a good margin. At some point, after you've spent money training them, they leave and go to a competitor or start their own firms--with some of your associates and take some of your clients with them. It happens all the time. What you want instead are seasoned CPA's with a customer base of their own. You get those guys from M&A and you can get them THIS year--not by grooming some youngsters for the next several years.
THE IMPORTANCE OF TIME ZONES IN MULTI-OFFICE PLATFORMS
M&A within a single-city market is one thing; regional growth is another. We feel strongly that you need both, unless your firm is already the clear front-runner in your primary market. There are many reasons to expand to the next city or the next big city, but let me add another--time zone. If you add a production market in another time zone, you have added an hour (or more) to your work day. When it's 9am in Portland, it's noon in Raleigh. Such geography gives the east coast a strong afternoon and the west coast a strong morning. For the middle zones; it improves both--without adding hours to the work day.
ANTIQUATED IDEAS OF COMPETITION; INSIDE & OUTSIDE THE FIRM
Without getting too philosophical, humans are selfish and treat each other badly when they perceive themselves to be threatened. Within a firm, we uncover generations of heavy-handed treatment and the associated bitterness and resentment. Expanding the so-called "corporate culture" is almost always a shot in the arm with regard to unwinding these unhealthy situations. Generally the guys on top don't think anything is wrong and the low-level employees below have no power to effect change. Trust me, if you have more than 20 people in your office, you've got some of this going on.
BEST FORMATS FOR PROFESSIONAL SERVICE FIRMS
Most of the professional service partnerships we work with are LLC's. Sometimes other formats, but importantly, everyone knows who owns the place. When that ownership is concealed, it serves nobody. To the uninitiated, secrets feel like power. That's the opposite of truth. Transparency is power, accountability that measures more than performance, but also collaboration and teamwork. As with the silent dysfunction above, the lack of transparency hurts every firm it infects. Again, if you have 20+ people in your shop, you have some of this. The guys on top might try to wait it out and retire; those underlings (likely more impacted by this) will either work half-heartedly through the bitterness or just quit.
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