Value-Based Pricing and Adapting to Change with Ron Baker

Randy Wootton (00:02):

Hi everyone. This is Randy Wootton, CEO of Maxio, and your host of SaaS Expert Voices, the podcast that brings SaaS experts to you to help us understand where we are today and what’s happening tomorrow. Today I am very excited to talk with Ron Baker, long-time influencer in the broader finance and accounting space. He started off at KPMG as an accountant, spun out his own firm in 1987, Baker and Baird, and then he introduced a concept of value-based pricing which we’ll get into today. In 2000, started a company called VeraSage. In his spare time, he’s written seven books covering the ideas of how do you think about pricing more broadly, business model disruption, and the future of accounting. So please welcome Ron Baker.

Ron Baker (00:50):

Oh, thanks so much, Randy. I’m honored to be here.

Randy Wootton (00:54):

Yeah. I think the other thing which is great is you’ve got seven books. I’ve just tried to get one book out and I can’t get it out, but you’ve written seven books over time. I guess one of the earlier ones was in the Professional’s Guide to Value Pricing and you’ve several other ones, the Firm of the Future, Pricing on Purpose, Measure What Matters, Mind Over Matter, Implementing Value Pricing in the Soul of the Enterprise. Can you tell us a little bit about… You were writing about value pricing before anybody was even talking about value pricing, so clearly there was an opportunity you identified early on, but then what’s been the through line through your book since then?

Ron Baker (01:28):

Really talking about business model evolution. I mean, I think if you look at disruptive threats in any industry, as Andy Grove said, the late Andy Grove, they come from new business models, not new technology but from new business models. You think about what Napster did to the music industry and then Steve Jobs came and saved it with his business model of the iPod and the iTunes store. You can think about Uber and taxi cabs, Airbnb and hotels. I mean, disruptive threats come from business models. That’s how they materialize and what kills you doesn’t look like you a lot of times. So it’s really hard to sometimes identify these threats for an industry because they usually come from the outside.

Randy Wootton (02:13):

Yeah, that’s-

Ron Baker (02:14):

So I was trying to propose a new business model in all of these books and just say, look, the hourly billing method is completely dead. It was practically a hundred years old at the time, and it was time to move on. I mean, the world’s moved on. And of course now with AI, I think it’s even gotten more important to move off of billing based on time for professionals.

Randy Wootton (02:43):

Got it. So that was at the very beginning when you were talking about value pricing, moving from the hourly base model for accountants, CPAs and how they charge for their services. What was the first evolution that you saw as the value pricing? Because we will get to the point of now you’re sponsoring, proposing, supporting subscription billing models for firms, and that’s probably an evolution but that first evolution, what was the disruptive idea that you saw out there and that you started talking about?

Ron Baker (03:13):

Well, it was getting rid of charging based on time and then even more dire for a lot of firms was telling them they needed to get rid of their time sheet. They needed to stop tracking people in six minute increments like they were prisoners. I mean, I think the only place time spent should matter is in prison. What matters is duration to the customer.

Randy Wootton (03:33):

Right.

Ron Baker (03:34):

Look at somebody like FedEx, what do they measure? They measure whether or not they drop it on your doorstep at eight o’clock in the morning. They don’t measure how long it sat on the truck and the airplane and then the sorting center, they care about results, they care about on-time delivery and we just don’t measure that as a profession. And I thought the culprit was the time sheet, I still do. I still think the time sheet is one of the biggest reasons why talent is being driven from the accounting profession. Nobody wants to track their time in six minute units. It’s crazy, it’s stupid and it’s a superfluous data point.

Randy Wootton (04:11):

That’s really interesting. So this idea around outputs. And so the firms that are doing it well, what are they doing differently? I mean, I got it. They got rid of the time sheet but how do they… Because it is a DNA thing. You’ve grown up as an accountant and I guess even as an accountant, you’re dotting i’s and t’s, you’re working in the Excel super easy to transfer that to time sheet. It’s very accountable. You can control, it’s very atomic. But as you make this leap to this value-based pricing, this value-based delivery of services, what are some of the ones… The people that are doing it really well, what are they doing differently and how they think about approaching their clients, the structure of the service agreements, etc?

Ron Baker (04:47):

For value pricing, it was just a different mindset. It’s more of an entrepreneurial mindset than a production mindset. It’s more of being a true professional. Definition of a professional, somebody who’s accountable for creating a result, not performing a series of tasks. If I want a series of tasks, I’ll hire a day laborer. Walk my dog, mow my lawn, clean my gutters but if I hire a professional, I’m looking for some type of outcome, perfect eyesight from an eye doctor, that type of thing. And the problem with the time sheet and the billable hour, the mindset that it creates is that’s what we sell. If you make people track six minutes of every day, they think that’s their inventory. That’s not their inventory. Knowledge and expertise and wisdom is their inventory. That’s really what they’re selling and that can’t be denominated in time. It’s plunging a ruler into an oven to determine its temperature. It’s the wrong measuring stick. And so the firms that get it right have made pricing a core competency. I mean, Randy, there’s been a pricing revolution going on in corporate America, in fact, around the world since about the mid-80s. Organizations like the Professional Pricing Society and others. Today I can get an MBA in pricing, I can get a master’s, I can get a PhD in pricing because of behavioral economics and price theory and economics, they’ve blended and we know a lot more about pricing than we did even 35 years ago. It’s been elevated into the C suite in corporate America. Usually, you’ll see pricing teams in corporate America. These people are not finance people, they’re not cost accountants, they’re professional pricers. And I mean, give you one example. UPS, I think has about 225 of them and that’s all they do, is price.

Randy Wootton (06:31):

Yeah. In fact, just two examples of that. One, I was at Salesforce and we were trying to transform the way that we package services. So you buy your software and you get your service. The old legacy on prem model was you paid 15% for maintenance and support. As people migrated to the cloud, so going back to your point, SaaS being an accommodation of both, SaaS delivery, so software delivery over the cloud as well as a business model which is the subscription paid out of OpEx, not CapEx. It carried a lot of the legacy on prem models with it. One of them was pricing, and we actually hired a pricing expert to come in and help us think about how could we reframe the services that we were offering because there was a lot of value that we were delivering as Salesforce beyond just the 10% of the software which everyone had been trained for. And so we created an ala carte menu. We let people have a point system. I probably overcomplicated it, but to your point, we had a couple pricing experts come in and help us. Similarly, at Maxio, when I came on board, the board said to me, “Randy, we need to rethink our pricing.” And we hired two experts to come in and help us look at what we were doing. We did a bunch of research. We launched new pricing last year, and after a year of being on as CEO, we did a refresh. So I think you’re absolutely spot on, Ron, in terms of pricing being a capability that you either build in house or rely on experts to help inform and do pricing studies, seeing what’s happening. I think we were sharing an article about the recent increase in SaaS prices. You’re seeing a lot of pressure on public companies to increase their revenue and profit and often, the number one lever is raise price.

Ron Baker (08:14):

Yep.

Randy Wootton (08:14):

So.

Ron Baker (08:16):

Absolutely. In fact, that would be another theme of the books but just my advice generally to firms and even CFOs and industry, is we got to move off this cost plus pricing model. Price is not determined by the sum of your costs plus a desired profit, prices justify costs incurred. They don’t determine price, they justify costs. So what you should do is you should start with customer value and work backwards because it’s customer value that sets the ultimate upper bound of your price. People think it’s the competition, it’s not. Otherwise, there wouldn’t be companies like Apple, Disney, FedEx that can command a huge premium. It’s in the value to the customer. And then it’s that price where you say, “Okay, now at this price, can we produce this product or deliver these services at the cost it’s going to take and live with the profit that we make?” And that chain is completely different than cost plus accounting which starts from the premise, “Oh, we have costs and profit desire, so the world owes us a living.” The world doesn’t owe you a living, it was here first. Just because a business has costs and desired profit doesn’t mean it’s going to produce something of value. Otherwise, no business would go bankrupt.

Randy Wootton (09:35):

Yeah. And I think very similar as we’re thinking about software and positioning, what is the price you pay? Almost every incremental unit is very low cost but you’ve had all those initial investments in terms of software and people and building. And so, framing the conversations in terms of value and having to have that value conversation throughout the relationship with a customer. So that time of renewal is something that is a non-issue because you continue to educate on value. Well, maybe let’s do a shift because I’m new to the selling to the CFO and the ecosystem, and you’ve been in this space for a super long time, primarily focused on the accounting and the accountancies, helping them to invent themselves. One of the themes that I heard about recently was this idea of client advisory services 2.0. And when we chatted, you were like, “Randy, this whole CAS 2.0 thing has been going on for 30 years and we haven’t made any traction with it. It’s a bunk of bunk.” So can you give me a little bit of background in terms of why you think it hasn’t made progress in 30 years and what needs to be true for people to really be able to embrace and move the idea of the CAS 2.0 forward?

Ron Baker (10:41):

Yeah, and when I say CAS hasn’t made progress in 30 years, I don’t necessarily mean the accounting compliance. Oh, we’re really..

Randy Wootton (10:41):

Correct.

Ron Baker (10:47):

…good at that.

Randy Wootton (10:48):

Yeah.

Ron Baker (10:49):

And we can take somebody’s back office and make it our front office and they outsource their accounting. That’s all fine. But to me, that’s just bookkeeping. I mean, the fact that we have so many CPAs out there being involved in that type of work, I have to say, it gives me incredible pause because it’s having surgeons pierce ears. I didn’t become a CPA to do bookkeeping work. Sorry, I just didn’t and it’s not to belittle bookkeeping, it’s incredibly important to have clean financials to make better decisions for the future and all of that, have correct data, but you don’t need a surgeon to pierce an ear. This is why doctors have physician assistants and RNs, and this is why our profession has bookkeepers that can do a lot of this work or accounting people, they don’t need to be a full-fledged CPA. I mean, it’s a separate topic, but the real thing that CAS, where CAS has not taken off is the advisory.

Randy Wootton (11:43):

Right.

Ron Baker (11:44):

We say, “Oh, we want to not just report on history, we want to help our customers make history by being involved in strategic decisions and helping them with that.” And I think that’s falling flat on its face in most firms, not all firms. I’d say about 20% of them do it really well but the ones that do it really well are specialized. They’re the ones that know everything about, say microbreweries because that’s all they do. If I see a firm that says, “Oh, well, we can do…” You go on any firm’s website and look at the industries they serve, and you’ll see 40, 50, 60 things that be, construction, real estate, medical. And it’s like, “Wait a minute, how can they be experts in all these areas, they’re a 50-person firm?”

Randy Wootton (12:32):

Right.

Ron Baker (12:32):

It’s just impossible. I think if CPAs were veterinarians, their signs would say veterinarian and taxidermist. That way they could say, either way, you get your cat back. I mean, they just try and be all things to all people.

Randy Wootton (12:47):

Got it. So forecast to work, going along that path that we were exploring before, the distinction between a series of tasks versus result orientation. One of the keys is vertical expertise.

Ron Baker (13:01):

Right.

Randy Wootton (13:01):

So understanding the nuances. I used to talk about that with selling, you could sell into travel but selling travel is super different when you’re selling to hotels versus airplanes versus car rentals, butts in seats versus heads in beds. And the language you used, the way how they thought about getting people, the acquisition costs were all very unique to the sub verticals. And so what you’re suggesting is that the 20% of accounting firms that are doing well by being advisors is they have context, industry context. Probably, they know a bunch of people and they’ve got a bunch of… They’re able to do pattern matching. It’s like the consulting firms, and they come in and they do strategy. Well, part of the reason they can be super successful is strategy at Bain, BCG and McKinsey is because they’ve done hundreds of these strategy projects. So they have a specific area of expertise. Are there other things, so in addition to the vertical focus because our listeners are primarily SaaS folks, so if they were looking to hire a firm, a CPA firm, they would look for CPA firms that have specialized focus in SaaS. What are the other characteristics of the 20%, the winners, that have evolved their model to this CAS 2.0 and they really are advising because there’s a series of early stage companies that don’t have CFOs or fractional CFOs until they’re about 30 or 40 people. So they’re really relying on the CPAs to be their partners and not just do the bookkeeping and making sure people are getting paid, but help them think about their business even maybe even raise money. So again, for our early stage type CEOs, early stage CFOs, the partners they’re looking for, what are the other characteristics that you’ve seen of the successful firms?

Ron Baker (14:46):

Yeah, that’s a great question. Again, I’d look for that deep expertise because let’s face it, if we were diagnosed with a particular type of cancer, we would travel to Rochester, Minnesota to consult an oncologist at the Mayo Clinic in our particular type of diagnosis but I’m not going to do that for a general physician. So the first thing I’d look for is deep expertise. How many people do they serve in your industry? And I wouldn’t put up… I would never go near a firm, I won’t go near a plumber who tries to charge me by the hour because that tells me they’re not sophisticated business people. If a CPA firm in this day and age is still charging by the hour, they’re dinosaurs and we just haven’t held the funeral yet. I mean, that is something, I think that would be a major leading indicator of their business…

(15:37):

How can they tell you how to run your business if they can’t run their own, type of thing? So I’d look for a firm that gave you pricing options or maybe offer subscription and also gave you a fixed price, so you’d have certainty in your accounting costs.

Randy Wootton (15:53):

And so specifically that’s for an audit, you’d say, “Hey, here’s the size. We are-

Ron Baker (15:53):

For everything.

Randy Wootton (15:58):

Okay.

Ron Baker (16:00):

For everything.

Randy Wootton (16:01):

For each of those but let’s move into this idea of subscription. Because even I, I mean I’m in subscription, where all I do is help companies do subscription. Until I talked to you, I had not heard of firms offering successfully subscription business model. What does that look like? Like a retainer fee is $5000 – $10,000 a month and for that, you get these set of services. I mean, obviously the challenge for the firm is that a client starts sucking up too much time that they’re not able to deliver it. So how does the subscription business model work where it’s good for the client and good for the firm?

Ron Baker (16:33):

Yeah, and my model for this Randy is the concierge doctors and the direct primary care doctors. Concierge doctors usually target the 10% of the top wealth earners or income earners in the country because their prices are like 40,000 per family per year, but they’re your concierge doctor. They take care of everything that you need medically that they can do. Now, a general physician can’t do oncology, they can’t do cardiac surgery. You’re going to be taken to a specialist but they’re going to quarterback that relationship. Well, since concierge doctors hit the scene in 1996, their baby cousins have been rising up and they’re known as direct primary care physicians. So DPC docs, and they charge anywhere from a hundred to $300 a month. So this is having a range of restaurants at various value and price points or hotel brands, that type of thing. You have the Ritz Carlton, and then you’ve got the Hilton Garden Inn and the DPCs are in that middle space and at the bottom of the space. But the thing is, again, whatever you need that they can do, there’s the constraint, is you’re covered. So if you get audited, if we defend audits in the firm and we do your taxes, you’re covered. So you’re giving the customer simplicity, you’re giving them convenience, you’re giving them peace of mind, you’re giving them insurance that they’re going to be taken care of no matter what, and you’re there for them. And because the model requires less customers, you always have capacity to deal with last-minute issues because you’re not running around with your hair on fire trying to serve 22,000 customers. We CPAs, we just can’t have an impact on people. If we have too many customers, if we reduce our customers, then we can have a bigger impact on their life and therefore, create more value and therefore charge 2x, 3x, 4x more than we’re charging now because customers will pay to avoid… I mean, they’ll pay to save time, basically. We will pay a fortune to save time. Think of what we pay in convenience to save time. You might subscribe to your vacuum cleaner. You might pay for a Clear at the airport. We’ll pay a fortune to save time and the profession’s not tapping into that.

Randy Wootton (18:51):

Well, let me ask you this, because one of the things that we wrestled with at Salesforce, we were trying to create monetized services was you gave people credits, tokens, they could use them for different types of services and they would expire over a period of time. And you were trying to do that to manage the amount of commitment you have in the marketplace. And what you end up with is, well, at the end of every quarter, people are like, “Oh gosh, I need a Salesforce audit.” And now, you’re working 140% because everyone wants to redeem their tokens. I would imagine with a advisory services doing a subscription model, there are crunch times throughout the year where you got to get your audits done, you got to get your end of year reports done, you got to get your quarterly reports done.

(19:33):

So part of the challenge is planning for the peaks of demand. You’re going to have valleys which you’re out playing golf and doing all that fun stuff but how in a subscription model is a firm… I mean, clearly as a client, I don’t care except for when I call and say, “Hey, I need an audit, or I just got called in because they’re going to get audited. I need you today.” And you’re like, “Well, sorry, I got four other people that I got to support.” So how does a firm manage that capacity challenge successfully, the intersection between supply and demand?

Ron Baker (20:02):

Right. It’s a great question. And look, my question is how do they do it now with the billable hour? The fact is they don’t. It’s all crap shoot with the billable hour. They never really know. At least with subscription, you have a very planned capacity. You know what is definitely coming in and then you can always reserve capacity for things that are going to come up at the last moment because they always do. Because again, we’re working with fewer customers. Just to give you an example of this, a general physician in the United States has a panel of patients at 2,400. This is why you get to spend five minutes with your doctor because they’re on a fee for service treadmill. They’re only paid when they do something to you while the direct primary care physicians max out at 600 patients, that’s 75% less. But that means their offices don’t have waiting rooms, that means they’ll come to your office, they’ll come to your home. The average appointment with a DPC doc is two hours. I know because my dad is a member of one and he spends an hour and a half, two hours with his doctor because they’re there not just to get you well when you present with an illness, they’re there to keep you healthy. And that’s a different mindset and we-

Randy Wootton (21:09):

Totally. I’m going to sign up. This is great. I love the idea.

Ron Baker (21:13):

This is fascinating. Amazon just recently purchased One Medical which is the largest DPC practice in the United States.

Randy Wootton (21:21):

Yeah.

Ron Baker (21:21):

For $3.9 billion. If you’re a Prime member, you can subscribe for 144 bucks a year, and you have your own DPC. And this isn’t just virtual, they have brick-and-mortar offices. You can actually go see them.

Randy Wootton (21:36):

I used to actually, I hadn’t realized that was a DPC but I used to belong to One Medical primarily because I wanted to have access. I traveled all the time and I wanted to have access to a consistent system when I was in New York, Boston, and Atlanta, if anything were to happen but I also appreciated being able to get the appointments same day. That’s really-

Ron Baker (21:56):

That’s how they manage their-

Randy Wootton (21:57):

Go look it up.

Ron Baker (21:57):

Capacity.

Randy Wootton (21:57):

Yeah.

Ron Baker (21:58):

Because they work with fewer customers, so they always have capacity. And you should always have capacity anyway. I mean, the last thing you want to hear from your dentist with a toothache is we can fit you in two weeks, that’s not acceptable.

Randy Wootton (22:09):

Yeah.

Ron Baker (22:09):

I mean, my eye surgeon did that to me and I blew my top. I said, “Why don’t you have a subscription program so I can cut to the front of the line?”

Randy Wootton (22:17):

Yeah.

Ron Baker (22:17):

And he said, “Oh, like concierge doctors.” I said, “Yes, because there’s a segment of your customers willing to pay for it.”

Randy Wootton (22:25):

Yeah. It’s the willingness to pay, segmentation of your customers. If you think about the… It’s interesting because as we think about our customer base, we have large customers and you do your unit cost economics and you figure out what you’re able to do and how much are you going to invest and to ensure that they’re happy and you’re going all in. And for your smaller customers, a lower price point, small customers don’t have small needs. They still need things. And so you have to be really deliberate, intentional, and creative in how you create scaled services so that they feel like they’re getting what they need. But I do think to your point, there is this differentiation in willingness to pay and understanding and who’s willing to pay for what and to your earlier point, save time is just a great point. So maybe making… Well, I guess one last, to close off on that, do you have a general sense in terms of what an average firm sizes, how many clients they would have, and if they were to shift to the subscription model, what that would look like? So the analog to the general physician of 2,400 clients to DPC of 600 patients, what does that look like in a firm?

Ron Baker (23:33):

In a firm, yeah. That’s a really hard, because as you know, the accounting profession is so bifurcated between.

Randy Wootton (23:41):

Right.

Ron Baker (23:41):

The top 10 and then the 100, then the 200. I mean most firms are sole proprietors for crying out loud, with really even no team members. So for them.

Randy Wootton (23:41):

Right.

Ron Baker (23:51):

And we’re seeing the same thing with subscriptions that we saw with the transition from hourly billing to value pricing, it’s the smaller firms doing it first.

Randy Wootton (24:01):

Okay.

Ron Baker (24:01):

Innovation is never a top-down process, is always bottom-up. And so we’re starting to see the smaller firms experiment. And I actually believe bookkeepers are going to jump onto subscriptions probably faster than CPAs. First off, because they already have fewer customers than CPAs. Second off, they have a stronger relationship with them because usually they’re out in the coal face. They’re working with them day in and day out and the customer will usually call the bookkeeper first. The CPAs think they call the CPA first, they don’t. I got news for them, they call the book… If they have one, they’re calling the bookkeeper first, as first point of contact. And that just shows you the relationship is much stronger with the bookkeeper than the accountant.

Randy Wootton (24:41):

Well, that’s interesting. And that obviously then they’ll need a technology to help them manage their subscriptions and that’s where Maxio can play. But if we went back to the firm and you had written a book about The Firm of the Future, and we had talked about these that have deep expertise, they charge by services, and that’s where we got down this path. Is there any other dimension or component you would layer in to thinking about for a CEO of a software company as they’re evaluating a firm, it sounds a little bit like a really strong bookkeeper is a good place to start before you hire that fractional CFO and that bookkeeper can help you move from cash accounting or accrual accounting. Are there some other dimensions you would offer for best practices for early stage startup guys?

Ron Baker (25:22):

Yeah, especially for startups but I think all businesses, CPAs are very capable of helping a business move forward. We provide hindsight which is most of our job. We’re looking backwards with the data. We’re like historians with really bad memories. And with the cloud and real time and SaaS accounting, we’ve been able to provide more real time what I would call insight, but what customers are just begging for and we’re not doing a good job except maybe that 20% is foresight. Helping them strategize about the future. And a lot of CPAs, I think, believe strategy is planning but a strategy is not a plan. A plan is predictable. We’re going to do this, this, this, and this. But a strategy is a theory. It requires you to say, will the market go for this? Will customers go for this? How are we going to implement? Where are we going to play best to our strengths and offset our weaknesses? It’s a theory of the market and the business and we don’t do a good job here. And this is why I think again, CAS has failed the move to advisory. That’s because CPAs consider themselves experts. So if you ask a CPA a tax question, an audit question, they’re going to give you an answer because that’s part of their self-esteem, that’s part of their knowledge base, that’s part of how they perceive themselves. And if they can’t answer it, they’re going to go look it up real quick and get back to you with an answer. But a consultant, like you were mentioning, Bain and McKinsey and all those, these are snot notes kids. 22 years old coming out with MBAs, they know nothing. But here’s the difference, CPAs are paid for answers, at least they think they are, consultants are paid for the question. And what McKinsey has is more beautiful questions because as Socrates said, half the wisdoms in the question, not the answer. It’s like Peter Drucker used to say, when he consulted, he said, I lead with my ignorance because I can’t go in there thinking I know the solution. The customer knows the solution. What you need to do is prod them with more beautiful questions. And I don’t think the profession can get their head around that because they consider themselves to be experts and if they lead with questions, they’re going to feel stupid.

Randy Wootton (27:47):

Wow, that is a really interesting distinction. Do you think part of it is the type of person that is attracted to the accounting profession are those who like certainty? And so.

Ron Baker (27:48):

Oh absolutely.

Randy Wootton (28:01):

Being able to dot i’s and cross t’s and be blind-

Ron Baker (28:05):

And balance. I mean debits equal credits, right?

Randy Wootton (28:09):

Right.

Ron Baker (28:10):

In the real world, Randy, debits don’t equal credits.

Randy Wootton (28:12):

Yeah, right.

Ron Baker (28:13):

The world’s a mess, it’s complex.

Randy Wootton (28:14):

Yeah.

Ron Baker (28:15):

It’s a complex adaptive system and debits and credits just have no room but we accountants, we just love the balance of… This is why I think our profession sometimes would rather be precisely wrong rather than approximately right and I’d rather be approximately right.

Randy Wootton (28:33):

And so for that early-stage startup that’s evaluating a CPA partner, is there a question that you would have them ask to ascertain their strategic chops? Is there a service that you’ve seen some of these top 20% accounting advisory firms offer that would indicate that they’re more able to embrace the questions in the strategy process?

Ron Baker (29:02):

Yeah. Those are really good… That’s a really good question. I would talk to the firm. A lot of firms will lead with their problem solvers. We’re going to come in, we’re going to solve your biggest problems, we’re going to pick the low-hanging fruit. Okay, great. CPAs like lawyers, we’re great problem solvers. You have the IRS on your back, we can get a stay, we can get your bank account restored, all of those things. Great, we’re great problem solvers. But as a CEO of a company, if all you do for me is solve my problems, you’ve just reverted me back to the status quo. You haven’t advanced me. I would ask them, how do you advance your customers? Don’t bore me with how you solve problems because I expect you to be able to do that. That’s a table steak. That’s like a hotel having clean sheets and towels, I expect that. And they’re not going to get any points if they have it. They’re going to get a lot of demerits if they don’t have it. But what I want to know is are you able to guide me from where we are to where I want to be, some desired future state. Help me grow the business, help me get new funding or whatever it might be, an SBA loan, whatever it is, are they able to guide me through those transformations and keep me from stepping on landmines. Those are the types of questions I would ask because way too many accountants focus on problem solving.

Randy Wootton (30:23):

That’s great. I love the distinction that you’re driving. One of the things we talk about in the whole premise of this show is that there’s a disruption in the office of the CFO being driven by technology. But your point which I’m going to add to my future narrative is around business model disruption, which I think is spot on. And then we also talk about the evolution of the CFO. And one of the things we talk about CFO role is moving from the back office to the front office, moving from compliance and governance to actually having a seat at the table with the CRO and the CEO when you’re talking about go-to-market strategies. And the only way you do that is if you take the historical data and you can roll it into a system, not a Maxio system, but one of the FP&A systems where you’re doing planning. But also you can start to think about things like pricing and packaging to our earlier conversation. Where are we today? What are we seeing broadly across our segments, cohorts by customers, by region, by product? What are the experiments we want to execute? What do we want to do in terms of a sales-led motion versus a PLG motion? All of that is something like a CPA could be helping an early stage company do, much like a CFO would help a company in that series C series D zone. So I think this whole evolution of the accounting and finance function and ecosystem moving from just being around compliance to really being around strategy, possibility and creating, I like your language, advancing a company. How do you help the company take advantage of the opportunities, the greenfield opportunities out there? I know as CEO’s, third time CEO gig, one of the things I’m always worried about is I’m missing an opportunity and thinking about the allocation of capital. Are we putting the right allocation in terms of horizon one bets to deliver what we need to for our current customers, horizon two? And do we have enough capacity on the horizon for three bets?

(32:14):

It’s going to be where the company is going to go in the next three to five years that we don’t even know about right now. And so I think to your point, when you’re evaluating a CPA firm is can they be a partner, a strategic partner as you go through these next stages is, and they had to have done it before. They got to be able to show that they’ve done it for some of other folks and help them navigate the process for getting funded, maybe even helping with the pitch decks, how to tell the story with the numbers, helping that early stage founder CEO get funded and stay funded.

Ron Baker (32:47):

Well said. I think I sent you the Peter Drucker’s last public speech.

Randy Wootton (32:51):

Yeah.

Ron Baker (32:52):

And I think that’s a warning to CFOs, I think because Peter Drucker basically came out and told a room full of CEOs, the person that you should listen to least in your organization is your CFO. And I mean that hit me like a ton of bricks when I read this because.

Randy Wootton (33:08):

Yeah.

Ron Baker (33:09):

Like, whoa, he’s banging our industry, but he has a point that we’re so caught up on the past, the data and getting the numbers right that we’re missing the future. Data and knowledge is by definition about the past, entrepreneurship is about the future. And what matters is being willing to take risks. Peter Drucker used to say there’s three types of risks an organization can take. The risks that it can afford to take and obviously should, the risks it can’t afford to take, rolling the hot dog cart against the red light, completely wipe you out. But then there’s the risk a business can’t afford not to take because I’ll tell you, profits come from risk. And I’ve asked Roomfuls of CFOs, Randy, you wouldn’t believe it. Top 50 CFOs, top 100 CFOs. Where do profits come from? You could hear a pin drop and then they’ll say customers, some will say value, some will say revenue minus cost. No, that’s the definition.

Randy Wootton (34:14):

That’s right.

Ron Baker (34:16):

No profits come from risk. That’s the only place they could ever originate because I mean, Steve Jobs wasn’t guaranteed a profit with the iPod, the iPhone, the market could have rejected. In fact, the market did reject a bunch of his products.

Randy Wootton (34:29):

Yeah.

Ron Baker (34:29):

Lisa, Newton.

Randy Wootton (34:29):

Yeah.

Ron Baker (34:31):

It’s an uncertain world. But Drucker said, “Boy if you’re not taking risks if you’re not sawing off the limb you’re on, somebody else is going to do it to you.” I mean, this was Andy Grove’s point again about business model disruption. He said, “If we’re going to be cannibalized, best to dine with friends.”

Randy Wootton (34:49):

Yeah.

Ron Baker (34:49):

Right.

Randy Wootton (34:49):

Yeah.

Ron Baker (34:51):

Let’s eat ourselves before we’re eaten by others so we can control our destiny.

Randy Wootton (34:56):

Well, that’s great. One of my favorite phrases is only a paranoid survives.

Ron Baker (35:01):

It’s his book title.

Randy Wootton (35:01):

You wake up…

Ron Baker (35:01):

Yeah.

Randy Wootton (35:01):

You wake up every morning and you’re like, “Okay, what am I missing? Who’s coming after me? Where’s the competition going?” And I do think, Ron, it can be paralyzing and it can be energizing.

Ron Baker (35:11):

Right.

Randy Wootton (35:11):

And I think the profile of the business leader who finds risk and opportunity and threats as energizing versus innervating are the ones that are going to be successful, I hope. And I know every day, I haven’t nailed it yet, but I think every day I wake up is what makes the job exciting, is the unknown that we get to explore and the bets we get to make. And look, at the end of the day, you as a CEO get paid to make bets and you got to be more right than wrong, but you also have to be able to step up. That other great book, The Hard Thing About Hard Things. Right?

Ron Baker (35:48):

Yes

Randy Wootton (35:48):

You’ve got to make the decision. You can take all the input from the board and your executives and the front lines and analysts, but you go in all in on black. One of my other favorite thoughts is when you’re not CEO, you can always leave a company and blame the CEO. “It’s that knucklehead’s fault. They made the wrong choices, the wrong bets.” If you’re CEO, at the end of the day, there’s no one else to blame you. So it is a lonely job. But Ron, this has been great. I’ve really enjoyed all the insights you’ve given, especially around this idea. I think the key things for me around this business model disruption, the idea of if you’re an early stage CEO or CTO as you’re working with your partner, how to find someone who can really be a partner and not just the bookkeeper, the person closing the books, but really someone can help you on your strategic journey. And then I love all the other quotes that you provided from Drucker and Jobs and others, and the idea that we closed with that profit comes from risks. So how do you think about, thoughtfully the risks that you’re going to take, the amount you’re going to invest, and how do you monitor it over time to ensure you’re getting the expected profits?

Ron Baker (37:04):

Right. We can measure risks somewhat like actuaries do but there’s no measurement for risks we don’t take.

Randy Wootton (37:15):

Yeah.

Ron Baker (37:16):

And those are the opportunities. Just on business model disruption, just to give you one success story because it’s in my book, Time’s Up, which is the book on the subscription model and I just love this story because I find it so inspiring. One because it’s rare. It’s really hard to find a story like this. Now, I found about a handful so far, I’m sure there’s a few more handfuls but in 1960s, Randy, you probably remember maybe, I certainly do. There was about 316 department stores throughout the United States.

Randy Wootton (37:46):

Oh yeah.

Ron Baker (37:47):

Your Macy’s, JCPenney.

Randy Wootton (37:47):

Of course. Yeah. Woolworth.

Ron Baker (37:47):

Woolworth, all of that.

Randy Wootton (37:49):

Yeah.

Ron Baker (37:52):

And Dayton Hudson was right in there. They were right in the middle. And the CEO of Hudson at the time said, “We’re watching Kmart rise up Walmart…” Walmart hadn’t entered yet, but he knew there was room at the bottom and he knew that was going to be a potential disruptor. Now, Dayton Hudson financially, is the top of their game. They’re making really good money, there’s no burning platform. There’s… Why change if everything’s going well? And this guy says, “We need to develop a new store that is more towards the bottom end of the market but more upscale than say Sears or Kmart.” And they create a little spin out startup. They gave it a separate name, separate brand, separate entity, and they called it Target.

Randy Wootton (38:41):

Wow.

Ron Baker (38:42):

And of course, in 2000, Target, Dayton, Hudson changed their name to Target.

Randy Wootton (38:42):

Oh interesting. Yeah.

Ron Baker (38:47):

And the rest is history.

Randy Wootton (38:48):

Yeah.

Ron Baker (38:49):

Now, there’s not many CEOs that do that.

Randy Wootton (38:52):

Right.

Ron Baker (38:52):

This guy took a huge risk and he was flying high at the time.

Randy Wootton (38:53):

Right.

Ron Baker (38:58):

And I just love that story and the other stories, Charles Schwab did the same thing when he got into online brokerage but why is it so rare that the incumbents don’t adapt to change, they usually get slaughtered by it.

Randy Wootton (39:12):

Right.

Ron Baker (39:12):

And so that’s why I find those stories so inspiring.

Randy Wootton (39:16):

Well, that’s great. So Time’s Up. So I haven’t read that one. I’m going to put that on my list. But Ron, if people want to learn more clearly, they can find you on LinkedIn. And you also have a podcast a long running podcast. You want to say a little bit about that and what the topic is there and the guests that you have?

Ron Baker (39:33):

I do a live show with my colleague, Ed Klass, who works at Sage Software. And we’ve been doing thesoulofenterprise.com for, coming up on 10 years in July. So we’re coming up on our 500th episode which is exciting. We’ve interviewed many business authors, Gary Hamill and Rory Sutherland. We’ve interviewed many economists and we’ve talked about the subscription model and after action reviews and just all the things that we tend to talk about, what we affectionately call the “F-ing Debate”: efficiency versus effectiveness. And that show is available on all podcast players. It drops Friday, after we record it live, then it drops to all podcast players. People can find that and they can check out the show notes at thesoulofenterprise.com. Like you said, I’m on LinkedIn. I’m one of the influencers. So you can follow me there. I have a hundred or so articles up there. And also I’m on X which is @Ronald Baker, and people can email me too. I’m happy to have a conversation at Ron@Verasage.com which is V-E-R-A-S-A-G-E.com.

Randy Wootton (40:44):

Well, thank you very much Ron and I really do appreciate your generosity. And one day I aspire to have a live show that we drop every week on Friday but right now we’re pre-recording it and getting it out every other week. But it’s been a lot of fun getting a chance to meet people like you. And I’m going to buy that book Times Up and read it and maybe follow up with another conversation. But thank you for your time, really do appreciate it.

Ron Baker (41:06):

Thank you, Randy. I’d love to come back. Thank you.