By Paul Latham
Do your business owner clients need to improve strategic focus? If they don’t they will probably not be maximizing their business value.
This is an area that CPAs often over-look when they are advising their clients. It’s almost always of massive importance to the business value of your clients – and you have a fiduciary duty of care to help them maximize business potential.
You should start to help them by asking the question – “what’s your strategic focus – is it to add more value – or get more efficient – or do you actually need to separate?”
This involves some logical thinking with your client: Ask them:
“Why do your customers primarily buy your product or service?”
There are 5 potential answers – Customers primarily buy:
- Only because of the Benefit offered + they do not care at all about the Price
“Yes please – I just want that latest gizmo and I really don’t care how much it will cost”.
- Mainly because of the Benefit offered – but Price is a secondary consideration.
“Yes please – I want your tax planning service because the benefit is you will save me a million dollars of tax – but I am not buying the service for any price – how much will it cost?”
- The Benefit offered – and the Price are equal buying considerations
“Yes please – I really want my house painting and your work looks great – but before I buy I am going to compare the price with some other decorators”
- Mainly because of the Price – but the Benefit is a secondary consideration
“Yes please – go ahead and prepare my tax return for last year – I like your service, but if you increase the price I will move to another CPA who can prepare the same return for a cheaper price”.
- Only because of the Price we charge + they do not care at all about Benefit (don’t see any difference in benefit from our product or service compared to others).
“Yes please I will have that bottle of water because it is the cheapest – and I can’t tell the difference between this water and the other bottles”.
You should allocate your own products or services into one of the above 5 areas. As a generality – Most businesses find that their products or services fit into categories 2-3-4 (and very few will fit into categories 1 or 5).
If products or services mainly fit into Areas 1-2 – then the strategic focus should be obvious. These are “star products” and that business should focus on the benefit and improving their ability to add value.
In the example above it would be better for the tax planning business to focus on offering even better tax saving solutions and ideas (to add-value to their clients) rather than focusing on being more efficient (nobody cares whether they save a million dollars one day earlier – or one day later – they just want to save the million dollars!).
If products or services mainly fit into Areas 4-5 – then the strategic focus is also obvious. These are “cash cows” and that business should focus on the price and improving efficiency and effectiveness.
In the example above it would be better for the tax return business to focus on making sure that the tax returns are prepared 100% accurately and on time and for the right price. It is impossible to add value to something that happened last year (tax planning impacts what happens next year).
What happens when a business offers both service types?
But what about if your products or services fit into Area 3 – or perhaps you have some services that fit into both Areas 2 and 4.
In that case the business strategic focus must be to “Separate”.
If the business has products or services in Areas 2 and Area 4 separation is easy. They only need to make sure that they have different people accountable and responsible for providing either one service or the other – but never both (unless the business is too small to properly separate responsibilities).
If they don’t do that then your client will usually end up with what we call “Monday – Friday Syndrome”:
- “Monday I concentrate on adding-value”
- “Tuesday I concentrate on being more efficient”
- “ Wednesday I try to add some value”
- “Thursday I am fairly efficient”
- “By Friday I do neither very well”!
The answer here is obvious – the business owner needs to get their people focused on whatever is the strategic imperative and what the person involved (personally) does best. If they do that the business client will improve performance dramatically.
Where the business has products or services in Area 3 the answer is usually to really try and separate the service itself.
Think of your service like jumping over a high jump bar
Let’s say the bar is set at 3’ and the business is going to charge $3. This is what normally happens.
The business is so focused on clearing the bar that they don’t stop at jumping 3’ – and in fact they end up jumping 4’ or perhaps even 5’ for the customer.
The business problem is not jumping too low – their problem is jumping too high.
Typically service businesses (like CPAs) will jump 5’ for their customer but only charge the $3. They do too much for the money. This is because they have not properly separated the service (or worked hard enough at defining and separating the differences).
What the business owner needs to do is to really define the differences between 3’ and 4’ and 5’ offerings – and separate the differences properly and then offer the customer choices – as shown in the illustration below (aimed at a CPA business).
In our experience 99% of your service-based business clients would strategically benefit from better separation of their products or services. In so doing – they will both add more value (where appropriate) and get more efficient (where appropriate).
So – a key rule of strategic advice – think: Add-Value? – Efficient? – Separate?
If you are a 21st Century CPA you have a fiduciary duty to help your business owner clients to maximize business potential and you should be encouraging your best clients to improve strategic focus – and we can show you HOW.