TFYW#084: The Reason Some Changes Don’t Work

Apr 19, 2024

This week, I am getting into how to make changes in our firms.

Down Round

In 2019, one of my tech clients was raising funds.

It was their third round of fundraising, and they were struggling to find investors.

The company had already raised nearly $3M with very little revenue.

It’s not uncommon for tech startups to need a few rounds of pre-revenue funding, but the issue was that the company was entering its seventh year of operations with little to show from its prior investments.

Current investors who had previously given money twice were saying no.

New investors were hesitant to give funds at the stated valuation.

It took a little time, but the board and management realized we didn’t have a fundraising issue; we had a proof of concept issue.

Given the track record, people weren’t confident they would see a return on their investment.

The board decided that to get the funds needed, we needed to complete a Down Round.

A down round is when current shares are offered at a lower valuation than previous rounds of investment.

The company decreased its valuation to interest more investors.

But they did something else.

New advisors and board members were also hired to avoid repeating the same problems.

More transparency was offered to the investors with quarterly reports and more consistent general meetings.

After a few months, we raised the funds and closed the round.

The biggest success of the round was not the cash raised, but the strategic changes that we completed.

Changes Everywhere

Growth in my firm was not linear. I would venture to say that growth in almost all firms is not linear.

Constant realigning and adjusting are required for real firm growth.

Your pricing, service delivery model, employees, and tech stack and workflows that got you to one level won’t get you to the next.

Firm growth is synonymous with constant changes.

I’ve found that the two biggest variables that require the most assessing and changes are:

    1. The Right Pricing
    2. The Right People

Pricing

Pricing is what we get hung up on the most.

Most firms need to increase prices.

And I am talking about a 50% to 100% price increase, not the ‘to match inflation’ increases.

A few months ago, I discussed how to start charging for freebie services – but today, I want to go behold that.

Too many firms hesitate to make significant prices due to the fact that ‘clients won’t like it.’

It is an excuse instead of dealing with the real issue.

 

If you don’t remember anything else from this newsletter, remember this:

 

Don’t conflate not wanting to impact the clients with not knowing how to effect change.

 

Increasing your prices involves

    1. communicating effectively with your clients and
    2. determining what you will do differently so you don’t keep running into the same issue.

When we say, “The client won’t like it,” we’re really saying that we don’t have a plan to replace them.

We get hyper focused on the immediate actions and impacts and lose sight of the long-term play.

At times, we get frustrated that we’re not growing but continue to surrender our growth levers to assumptions and falsehoods.

So, instead of solving the problem of ‘having to keep the client,’ we need to solve the problem of consistently finding better revenue.

If we don’t solve the right problem, we’ll undoubtedly find ourselves in the same situation in the future.

And this was the key I discovered in failing to make changes.

If we haven’t gone through the whole change management process, it won’t work.

We need to identify what needs changing and the mindset and environment that created what we don’t want.

The thing about increasing prices is that if we don’t figure out a lead generation system to get predictable new leads, the resistance to charge clients properly will remain.

You won’t magically change and recognize your worth until you have sufficient leads. Period.

Those who advise raising prices without a plan to generate new leads usually don’t have skin in the game or are in a position where they don’t worry about lead generation themselves.

Raising your prices is less about minimizing the number of clients leaving and more about creating new systems to find higher-paying clients.

People

The second thing that many firm owners struggle with is team members.

Many firms have okay employees. They get the job done, but engagement is low, and they’re just punching the clock.

The thing that needs to happen is that those low performers need to be fired.

But we hesitate because we don’t know how we’ll replace them.

Now, I understand that there is a talent shortage, but that is an excuse to explain why you’re not taking action.

The real issue stems from either (1) our firm is not an attractive workplace or (2) our lack of systems to leverage a hybrid onshore/ offshore team.

Good talent, in addition to a salary and basic benefits, wants a flexible place to learn and grow.

Some firms get caught thinking that their talent pool exists in the 10-mile radius around their office.

Not only do remote or hybrid firms create a more sustainable talent acquisition model, but it is also one of the top asks from accounting candidates.

If you’re hanging on to the quiet quitters in your firm, it’s not because there are no good talent prospects around; it’s because you can’t or won’t accommodate remote teams.

Dealing with low performers is less about the right training and motivation and more about being confident in the value you offer employees.

You’ll stop worrying about cutting B players when you know you can offer a place for A players.

I hope that helps refine your thoughts about making changes in your firm.

Build the firm you want.

Mark

P.S. Email Mark@FirmNexus.com with something that you want me to talk about. I’ll add it to the list. 

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