Organizational Design of Modern Practices

Hello everybody. Welcome to today's webinar brought to you by Intuit and Karbon. It's part of one of the Firm of the Future webinars that we're doing. Let's just go to the next slide. Today we're talking about organization design of modern practices. Again, today's webinar is brought to you by Intuit QuickBooks online. Go check out QuickBooks online at qbo.intuit.com. It's also brought to you by Karbon, go to karbonhq.com to learn more.

Today's webinar is part of our June webinar series all along the discussion topic of business strategy. We've already done several of these, we've got one more ready to go. First was embracing change across the firm. You can check out that article, we'll post it up soon on firmofthefuture.com. Scaling your business, why, what, and how. Again that's also another article that's on the firmofthefuture.com. Today we're talking about organizational design and then on June 30th, find and focus on your niche. Again if you want to check out Karbon related events go to karbonhq.com\events. T 

Few things before we get started, few tips and tricks to get you going. We are using GoToWebinar today. You can expand and collapse that control panel with that orange button there on the top left. You can close in the apps that might slow your connection, this might be Skype or other instant messaging or so forth because then it will sound garbled. I'll try to take questions as we go today. It's a shorter session today, hopefully probably around a half hour or so. Go ahead and ask questions as we go and I'll try to address them as we go through today's topic.

Who am I? My name is Ian Vacin. I'm a cofounder and also Vice President of Product Marketing here at Karbon. I've been here with Karbon for well over a year now. Before that, I've worked at places like Intuit. Recently the QuickBooks ProAdvisor Program, worked across many different products of QuickBooks. I was there for almost a decade. Been in the industry for well over fifteen years. Been in the tech industry for well over twenty five. My email is there, ian@kabonhq.com. Feel free to reach out to me after the webinar. Got any questions, concerns, thoughts, and so forth, and I'll be happy to answer them.

Today, we're not going be giving a demo on Karbon. If you want to check out Karbon, which is task management for accountants. go to karbonhq.com. Go to karbonhq.com\events, we give demos every Tuesday and Thursday. Karbon is a place for you to manage all of your work, bring all of your inboxes for you team together so you can know what client communications and how projects are changing, all that flows into projects which are then managed by checklist so you can have your processes set in order. That automatically flows to deduce, you know what to do next, be able to see what is being done or needs to be done across the team. We bring that altogether across any platform, everything is searchable, everything is at your fingertips so you can follow whether or not anything is going to fall between the cracks and make sure you're getting along the high priorities within the business. Again check out karbonhq.com or go to karbonhq.com\events to get a demo.

What are we talking about today? Today, we're going to go a little more theoretical than what we may have done in the past. We're specifically going to look at what we've seen over a lot of the research that Karbon's done as well as what I've seen while I've been out on the road for the last year meeting with well over six hundred firms. A little bit of what we see in terms of their structure and ultimately what changes over time. I'm going to synthesize that down into what are the seven key takeways for you to consider on how you should manage what your organization structure is, but ultimately manage the business from an org design perspective. Then we're going to do a quick wrap-up.

Let's just jump right into it so that way we stay on time. A little bit about the theory overall. One of the things that I've had to do over the years was to continually look at the accounting professional market and understand how to segment the market down. Three things popped up that ultimately influenced how one can be bucketized or how those organizations are changing between those different firms. The three different vectors that you look at are one is the breadth of services offered. That means we're going to go through what are the seven different types of services you can offer, but the ability to serve those influences other factors especially the number of employees. The number of employees dictates not only again how much you can cover but again, at what level of depth you can cover it.

The next one is really the knowledge of the employees that you have. Those that are more specialized, more mature, more senior are able to handle more things with more clients and handle the variability, however, the cost of those employees obviously goes up, the more and more knowledge that they have. Hopefully you're translating that into your services in terms of value pricing and what you're setting is your service cost because you're able to provide more from one person than you could from several more junior staff. These three things influence ultimately the type of organization design that you might have. I'm going to show you how that comes to bear here over the next few slides.

I mentioned before, when you look at firms overall, it really comes down to how you're serving your clients and what buckets of types of offerings that you're going to be providing. I've broken it here from audit through essentially IT consulting. The more accounting experience you need to have translates from right to left. Typically the cost of an hourly billing would also increase from right to left starting at maybe thirty to forty bucks an hour at the lower end there but all the way up into hundreds of dollars per hour for the audit-related work. If any of you are wondering what's defined underneath all of those, I've put this up here to give you some understanding of that.

When you're looking at these different services, if you're going to try to do all of these things, it's going to require a lot more head count, a lot more expertise, and ultimately, a lot more bandwidth across the firm. That's why we look at these service offerings to understand if you're an accounting firm and you're going to be doing accounting tax, bookkeeping, and maybe payroll, then you've got your arm cast around quite a bit of services that you're going to do for any given client. Whereas if you're doing a CFO advisory work and you're just focused on advisory, you can be much more focused and have a much more nimble organization.

What do I mean by that? From time to time, we look at the average size of a firm, and inside the US in North America, the average size is typically three people per firm. Now, if you went to Austral-Asia, that size will [inaudible 00:07:06] to being six people per firm. If you're in the UK for instance, it'll be a bit smaller, maybe four or five people per firm. The average firm size dictates really about how much you can do. Those of you that are by yourself know that you can only work so many hats in order to service your clients. Therefore, your organization design is limited because well it's just you, but you're having to wear many different hats of the firm and so you're acting like many different types of people and you're ultimately going from a hierarchical standpoint in terms of what you can do.

Now, the firm size then drives a bit of the first category. There's two different groups. There's generalists and there's specialists out there, and you know who you are. If you're a specialist, you're getting an over majority of your revenue based on one of these different service types. You might be a fully focused audit firm. You might be a tax-only accountancy. You might just be doing advisory or you might just be doing, it might be a payroll company or you just might be a consultant doing set up and training and the like. When there's an over majority of revenue focused on that, what you typically see is that the firms are more specialized so they have more senior staff. They're smaller in size, typically less than twelve people. The people that are managing each client are managing them holistically. Meaning that when I'm working with client XYZ, Joe on the team is focused wholly on offering or being able to satisfy that. Specialists are generally more focused. I'm going to talk about that again. These are what we call verticalized firms. We'll see how that plays out in terms of the structure.

Now, if we go and we look at the more generalist, this is where we're hitting our accounting firms and we're also hitting out outsourced bookkeepers. What's happening here is the larger the firms are in size, so if you're a boutique firm and have six to twenty employees, the more services you can offer. For an accounting firm, it starts from understanding that you can solve accounting jobs and then generally you're offering tax. Then you might branch out to offer payroll and bookkeeping. The more and more the services you offer, the larger and larger your firm has to become and the more horizontal the firm becomes, and I'll show you what I mean by horizontal, and therefore, it's going to have more of a hierarchical structure with a classic partner-manager and a doer structure. That's what's going to create these departmentalizations within a firm.

The same thing applies with outsourced bookkeeping. On the simple side of things, they might just be focused on bookkeeping, but most likely, it's bookkeeping and payroll, but then as the firm grows and we've actually seen the emergence of these franchise firms now, then it branches out and does advisory work and then possibly accounting. It has the same sort of component that's at play here. The larger the firm is in terms of headcount, the more services it can offer, the more it can do for an individual client, and therefore the more it starts to transition from a verticalized firm into a horizontal firm.

What do I mean by that overall? Let's take a look. It's interesting when you look at firms and you look at ... This doesn't apply just to accounting professional firms, this also applies to small business overall. There's generally a factor of one to six. When you're managing more than six people, it becomes very difficult ultimately to get things done but also to manage the employees themselves. You have so many one on one meetings. You have so many things to track, and generally what happens is when that six to eight person threshold for one person on an oversight responsibility exists, the group starts to break down into having more manager and doer relationship. You start to get this spread of a hierarchy that resumes. A lot of people will talk about having flat organizations and everyone is reporting to one person, it becomes a bit unfeasible or unmanageable once you cross that sort of mythical six to eight person barrier.

What that translates into accounting professional firms that we see time and time again is it starts to break them down from a one person doing everything to a, in the most sophisticated firms, you have this partner and manager and then doer relationships. Again, if you're by yourself or you're self-practitioner, you're always wearing with every single client all three of those hats. You run the business overall making sure that the business is growing, understanding profitability, understanding both the sales and marketing, all the different functions of the business, but you're also having to manage the firm and manage the work. You're doing that from client to client, but then you're actually doing the work which means you might be doing the accounting, the bookkeeping, the payroll, whatever it might be in order to service that client.

For firms that are getting larger in size, again, these are more those accounting and bookkeeping firms that have gotten up into that sort of boutique or mid-sized level. Now what's happening is you're getting partners that are on top that generally at a six to one ratio with managers underneath and then possibility departments underneath that which are the doers overall. That's what's generally translating into this organization design that fits features on one side, what we call verticalized firms, and on the other side, horizontal firms. Vertical firms, to get a little bit more detail on that, and again, those who are more specialized are going to be typically more in that verticalized firm. Those that are more generic or generalized are going to be in that horizontal side. There's process for both. We're going to talk through that and that's going to lead to our seven key discussions here in a second.

In a vertical firm, what you have is a pool of resources, a pool of specialists. Each one of those people can wholly own a client on their own. They may not have to depending on the size of the firm. There may be work that's passed in between but there's generally one person who owns the client. They might be doing tax and accounting advisory work. They have the chops to be able to do everything the client is going to need to do. That pool of resources is distributed based upon the clients that come in through the door and we're going to talk about some implications on that in terms of production planning, for instance.

On a horizontal firm, it starts to look like more of an assembly line or a manufacturing facility where you now have departments that are wholly focused on one of those client service stacks or in terms of some sort of niche focus that the business might have. You then are bringing in more junior people to do the lowest level of the work here on the doing side. Whether it be accounting, whether it be payroll taxes, and the examples I've given. As the organization gets bigger and bigger, then there becomes this management way that sits in between and then the partners then overseeing the clients holistically, but those clients are then being served by multiple different departments to get the work out of the door.

As we see firms growing, they're moving from a more verticalized approach initially and then typically when they hit a size of in the teens, they generally find themselves having to break that apart and it becomes more of a hybrid approach where it then ultimately on the larger side will have to form into this sort of horizontal departmentalization. That's really because you're looking for, on the left hand side, you'll have more specialization and you're able to capture more revenue by offering the specialized services from really senior staff members where when you go in the horizontal, it becomes more of an economies of scale approach and it's simplifying the work and then handing it off between what might be cheaper resources that you might have that are able to do those certain jobs at high velocity and high volume, therefore creating this horizontal approach.

Understanding where you are within that helps you to determine how am I going to price things, how much work can I take into the pipeline, and ultimately, if I want to grow, how do I want to grow there because you'll inherit barriers by having a verticalized firm. Because it's really hard to get specialized in senior headcount, it becomes more and more difficult to manage over time from a flat organization structure, while when you're moving to a horizontal firm, you need to be cognizant of how do I lower my cost of my headcount overall, how do I ensure that it's all being done and the work's being done appropriately and that quality, which is why that management layer comes in and that is all being steered from a collective standpoint from the partners that sit at the top.

Again, a bit theoretical but it helps to understand the complexities you might be facing as you're changing your business over time as it's drawing and some of the different factors that you have be aware of and while you're feeling tension possibly or some adversity within the firm based on your old way and where you may be headed. That is a bit of the theoretical discussion and how that has implications when thinking through where you're going to grow your firm and how you're going to grow it

Let's go to seven things to consider. I wanted to simplify that back, so taking it back from the theoretical and going right into what are the seven things that we see from firms that are making the transition and becoming more progressive in modernizing, and going back to what the first slide was around firm of the future. There's really seven different categories I brought up. The first one, I see that from that discussion of horizontally and vertically created firms. Again vertically is again where you have specialists that can control the entire client and own that relationship and do all the things versus a horizontal firm where you have department set up. That ultimately you're passing work between one another in order to service the client holistically.

If you are a vertically focused firm and you're looking to grow and you're looking to maximize profit, then you're on a path of specialization. The reason for that is each one of your headcount is going to cost you essentially possibly more and more on each one or at a higher rate than it would be if you're bringing in junior staff or you've got to bringing in junior staff and then training them aggressively to be able to reflect the cost that a small business is willing to pay to have the expert in their corner to assist them. That expert not only has to be an expert in possibly whatever the service is they're providing but they have to have the ability to be able to span across all the services to be able to be not only the account manager but the accountant, the bookkeeper, and what not, all those different roles, so the adviser for that particular business.

This is why we see firms that are maturing that are sitting here. They're becoming more and more specialized over time. We talked about in the next webinar around find and focus on your niche, when you're finding and focusing on your niche, you're going down the specialization path. You're figuring out what you do well. You figure out the market that best understands that respect and has a high willingness to pay for it. Therefore, you're able to then marry the knowledge that you have with the employees that you hire where the clients are going to respect and pay for that overall.

The issue comes in with this type of organization structure is that it does have a ceiling it appears in terms of how big that organization is. That's not to say that we haven't seen or I haven't seen firms who again focus on advisory services that aren't up to a hundred people in size. There are a few that exists, but the problem comes into the management of that becomes much much more complex and finding staff that can do that work becomes quite hard. The easier path is generally those firms tend to transition from that vertical approach into horizontal. If you're horizontally built firm, and again we see those of all varying sizes but generally they have to have headcount usually in this scale of three or four or more and that sort of departmentalization can be at the very basic just accounting and bookkeeping, or sorry, bookkeeping and payroll.

This is where these firms are finding they're able to get economies of scale by having really, really, really well-defined processes. They can then hire more junior staff and train those in those processes and then have tools and technology to be able to oversee the fluidity of that work and the quality that's ultimately been contained. As those firms get larger and larger and larger, the separation of jobs becomes broader and broader whereby they then have individual people that are focused on onboarding, individuals that are focused just on the account relationship side, folks that are doing marketing for instance or sales, accounting department, bookkeeping department.

As you can imagine, if you think of a boutique firm to a medium sized firm to one of the large three hundred firms, that stratification gets broader and broader and that hierarchy gets thicker and thicker. That's because again, to drive higher and higher profit, it's about creating the mechanism or the machinery to be able to do those client services over and over again at lower cost while being able to capture the same amount of revenue. Sometimes, the revenue might go down a bit because the cost are going down even further. Again, you need to think of where you are in each one of these camps and where your end state is going to be and where end goal is going to go because it's going to change who you're trying to hire, at what rates, and the processes that you want to be able to drive within the firm overall. That's the first one which is optimized for efficiency. Again, just a reminder, this is what it looks like in terms of vertical versus the horizontal, and you guys get the idea of what we're talking about here overall.

The second one I want to bring up here that we see time and time again that people are struggling with is they're not focusing on running the practice like a business. It's interesting because a lot of you out there will provide fantastic advice for your small businesses, helping them operate their firm at the highest levels that they can but not taking a step back to think about your own business and running it like a small business because indeed, your accounting practice is a business. This goes back to understanding that you got to have dedicated resources for key functions. Again, even if you're a verticalized firm, what you might do in a vertical perspective in terms of serving your clients doesn't mean that you under serve your business.

For those of you that are self-practitioners, this means you're not necessary dedicating resources but you're dedicating time. For those of you that are bigger in size, then you might be dedicating actual resources to do this. A firm really can operate on what we call six different pillars in order to be a small business that's functioning well. I'll throw in a seventh here because I'm going to replace the sixth with a seventh. One is, you've got to have strategy. You've got to have sales and marketing. You've got to have operations. You've got to have a finance function, an HR function. Then what I call either research and development which is a standard product based firm or in our case, service delivery which is what we do with our clients in providing those services overall.

We focus highly and primarily on just the service delivery which goes back those client services, the seven that I talked about before. Then ultimately, the relationship or the operations side of that with the clients overall. Operations definitely doesn't get a role until we see firms that are really going towards that high single digits or teens where someone's managing the operations at a holistic level which is generally just owned by the owner of the firm. If you look at the other bits, the strategy, the sales and marketing, and even the HR functions, those are generally non-existent or they're outsourced completely.

What I'm saying here is that even if you don't have resource to focus on, you got to spend dedicated time. For those of you who are again running and owning your firms, you've got to take a periodic step back from your business and focus on what is the strategy. It's not just about getting the work done. You need to free up capacity and we'll talk about that in a bit, but you need to free up capacity in order to optimize your firm overall to be able to drive it to a high level success. That might be looking at how we set up organizationally, how we do actually want to be able to function with our clients and be able to drive higher efficiencies with them. There's this point where you should be taking once a month, at least once a quarter, where you can separate from the business and be able to think through where are we headed, how are we going to get there, and what are the things we need to do to ultimately make that happen, and putting that within the goals that you're setting.

The second one which we see time and time again do not exist and only start to really form is really in boutique firms and above. That's sales and marketing. It is a service-oriented and a referral based business and that has to have dedicated time in order to nurture. It's not necessarily saying that you need to go out there and be doing social marketing. You should be however always doing referral marketing. That sales function as well is something to fine tune. Again, if you are going down a value pricing route, you need to understand how it works, you need to learn from your mistakes as you're doing it, and you need to have a plan for each one of those engagements that you go forward. You may not be doing pure value pricing, you may be doing fixed fees, but that's fine. You need to be understanding what services should be offered in there. You should know what packages are presented to each client.

If you're not nurturing your sales and marketing pipeline, every time you're losing a client for whatever reason it might be, again, it may ... A lot of times, it's not within your control, but you then got to go and scramble to go find the clients to be able to fill the gap. I met with a firm just three weeks ago and he had a really good perspective. He said, "I'm always driving the sales side of it because I'm always trying to fill the pipeline with those that I lose or I'm going to replace clients that I can ultimately work with new clients that are going to better work with my business, provide better profitability and the folks that I want to do work with and do business with.

That's how you're able to deal with the client scenario as well as the ones that ultimately walk out the door. If you're not spending dedicated time or having a dedicated person focused on nurturing and dealing with that pipeline, you're ultimately impacting your org design because you're not able to grow the headcount that you want to grow and you're ultimately chasing things that are wasting time than you could be spending time focusing on moving your business forward.

Other functions like operations, human resources, and so forth, those become more mature over time as the client, as the firms get bigger and bigger, and finance should be running your core wheelhouse. What I really want to focus there was really more on that strategy and sales marketing components. Again, for some folks, they say, "Social marketing, I want to do some of that." Go get an intern. Go get a millennial. Go talk to folks or a family member or so forth and just get a starting point. It doesn't necessarily mean that you have to do it. You can outsource when necessary for these key areas if it's not within your sweet spot.

Next one is cross-train key roles. We're going to talk about the hold-up problem here. What's interesting is we see firms that are transitioning from and they're growing quite rapidly and they're moving from a more verticalized approach to a horizontal approach. What's happening here is there are key job functions that exist. It might be that someone has extremely deep tax knowledge or they're the one who's servicing all the advisory service needs for all the clients across the organization. Again, a lot of times this happens in a hybrid organization where they're not having a pool of specialists, but they have some pool of specialists that can do everything but then they have some more junior staff that can only do certain things within the organization. They haven't matured yet to being a fully horizontal firm but they're actually having departments and they're having redundancy within the organizations and the staff.

What happens here is as the company starts to evolve, certain people get either disenfranchised or they feel like they're not able to grow within the firm or they're enticed by other firms out there because again, the talent market is so tough right now for everybody. What happens is if they leave, an entire department, an entire service offering can be pulled out from that organizational role. That's what the hold-up is is now this employee is holding up the organization because you can't service the clients that you have currently in the mix because the key asset or the key resource is no longer to be there in order to get that done.

Now you're scrambling to try and find a replacement for this person. You as the owner have to jump in to that work in order to supplement it until you can actually get a reprieve. The way to deal with this, again, as you're starting to grow and have more headcount, is you've got to cross-train diligently across the different people in organization. This also helps you in terms of being able to form departments as you move forward as your organization grows. It also is a fantastic motivation tool and a way to enrich employees overall, and millennials especially desire and want to have this cross-training to make them more valuable, to make them more needed, and to be able to have more of a footing when dealing with clients overall.

Again, pairing up your employees to be able to understand how to do things outside of their skillset or outside of their comfort zone is a protection method for you to ensure that you're not in situation where you have single point of failure in the firm but it's also a motivation tool for you to be able to help grow your staff and grow their capabilities and ultimately be able to charge more to your clients for the fact that they've got more senior staff and more experts available for you to use at your disposal. You need to be very thoughtful and look at your organization and map it out and understand where do I have single points of failure, where am I having the largest amount of risk overall where if somebody walks out the door, I'm in a lot of trouble.

You either need to take one or two things. You either need to cross-train that or you need to duplicate those resources. Go find somebody that can also do that as well and then lighten the load on the person who's doing it already, but it protects you against the factor of somebody leaving. I can't tell you how many countless firms especially boutique firms, those firms in the ten to twenty-five size frame that really found out about this or dealt with this after the fact and really struggled with it and really slowed their growth down. It's something you need to be thoughtful and proactive on because once this becomes an issue, it's too late and you're going to find yourself in months and months of turmoil and just shear pain as you're trying to keep the person from leaving or finding a replacement as quickly as possible.

The next tip that I want to bring up or the next thing I want to talk about is you need to retool as you evolve. Again, it's all about practice growth, and growth can have different lenses whether it be a higher profitability per client, whether you're growing more clients overall, or again, you're trying to free up time with higher efficiency. What we see again is as firms become more and more efficient, more and more effective, and as they grow, they typically are having to lose staff in order to gain staff that are doing better and fit within the new model of working. Some of you might have seen this chart that I've given before, but typically, when someone modernizes, they go down these particular phases and I don't really want to go into this because it's something we talk about really in the scaling of the firm discussion.

What happens is that as you're evolving the firm, you may be bringing in new processes, you may be bringing in new technology and it changes the way the firm operates overall. That change is quite disruptive. For those of you that have older firms, six years plus, and have had employees that have been with you on day one and have come with you along the path, change is tough. Unfortunately, change doesn't work well with everybody. Certain people like to work a certain way, have a certain comfort with certain technology, and they're just not up for where the firm's going to be tomorrow. That has an unfortunate consequence, and that's where we see the fact that while people like it or not, they undergo this transition of where ten to twenty-five percent of that staff ultimately isn't able to make the journey going forward in that modernization of the firm. That modernization may also include an organization redesign.

At that point, you need to be diligent and thoughtful of who on staff is going to be able to make the journey even before you've actually made the changes. This goes back to change management, what we talked about in business strategy, having a plan about how am I going to work possibly retool and what sort of employees am I going to need in order for me to able to have the design that I need in the future or the firm of the future that I want to have, going back to firm of the future. Even for the firms that believe they can ultimately bring everyone along, they're going to find that there's some tension and some people again just aren't going to make the journey.

While it's unfortunate, what happens is it allows them an opportunity to find folks that are more productive, more efficient, have a changed mindset that's positive, and ultimately can further enhance the process efficiencies that they're trying to drive and ultimately get that firm to continue to redefine itself and become better and better as it moves forward over time. You need to be cognizant of the fact of how are you going to retool from an organization perspective and as a talent perspective for where your path is going to lead you going forward.

The next piece I want to talk about is that your structure is going to impact your production planning and your capacity planning as you go forward. The more and more your firm becomes a machine, for instance, the more and more it becomes horizontal and has departments and has set processes and functions and more of a rhythm and a set behavior and a set pattern, the more and more it's able to be doing more of a push production planning versus a pull production planning. Generally, the push production planning is more applicable for the capacity planning side where most firms are going to be always doing a pull production planning and processing because we're in a service-based business.

Pull production production planning is, and I'll show you a screenshot, it's more of a kanban style. It's understanding how many projects can we entertain within the system and we're going to pull those projects through. As soon as one is done, we can take on another. There's only so much bandwidth that every person has. There's only so many clients each person can absorb and manage. When you're in a verticalized firm where everyone is doing everything, it becomes much easier to understand that Joe on staff can only handle five projects. Because each project is more similar, each one has its own amount of time it needs to be spent on each week, and therefore you can understand your capacity relatively discretely by knowing that Jim can handle five, Mary can handle four, John can handle ten, and so forth, and therefore you can use a kanban card style system to be able to manage the production of the work and what needs to get done.

In a larger firm, we talked about medium and large sized firms, you're now in a push production planning wherein by work is going to transition from accounting to bookkeeping to payroll and it's going to bounce between departments and each one of those departments has its own set of resources that can be able to do the work. You then have to map out the work, map out the flow, and then marry the capacity of each department across what can be done there. I do a much longer talk on production planning, which I think again if you're interested in that, you can go check the Karbon website and learn more or you can email me at ian@karbonhq.com. Again, that structure that you have is going to impact which way you're going to be doing capacity planning and how complex your production planning is going to be.

For the basics and for all firms out there, a kanban style will work. This is an example of what we use in Karbon to do that. You're able to then monitor work as it goes to the different phases within the organization. While tax firms are doing things like this in terms of having the stages and the fluidity of the work, and then you're able to manage cards and ultimately how work is transitioning through each step and seeing the progress as it moves forward. It's definitely one of the things to take into consideration at a baseline for vertical and then you're going to have a situation of production planning. It's a little bit more broader in nature and scope when you're talking about more horizontally post firms.

One of the things I want to bring up that really impacts the firm overall from just an HR perspective and it gets exacerbated and gets ... Firms that are growing have a large number of folks on staff, the incentive structures have to change from each particular role. Again, it's not necessarily thought of in smaller firms overall but does have an impact. Whether you like it or not, whatever you're doing to pay people, it's dictating the behavior that they're going to have. A lot of firms that we talk to get really frustrated on why in a vertically focused firm where one person's managing the client, doing everything for that client, how come they're not cross-selling? How come they're not up-selling? How come they're not maximizing the value of that client so the firm can continue to grow?

The reason for that, we have to look at how somebody is being paid. What are they being set up to do and what are they being asked? If you're on an hourly based model and again, I'm clocking in and clocking out, then I'm just worried about did I do the hours that I said I was going to do and am I maintaining the quality and the projects at a level where those clients can continue to pay us? I'm not necessarily going to be incentivized to bring more work in the door because I just want to make sure I've got enough work to fill out my time clock that I've got. When you're in a value pricing model, and again, you don't have a change of incentives so your value pricing to customers but you're doing hourly billing to your employees, they're not incentivized again to further push that value pricing across to the client. They're just trying to fill the hours that they have.

Those firms that are changing the incentive structure, they could possibly be giving a kick back on a singular bonus on whether they upsold or they sold a new client so they get more compensation for that, ultimately, they're not seeing that behavior but when they are doing that, you got to be thoughtful about how to do that. Some people will do residuals on moving somebody up to advisory services when they're only doing bookkeeping. Maybe percentage points or high percentage points on the revenue that's going and ongoing. Other people do a one time kickback or bonus on that. Others give recognition. We'll talk about recognitions here in a second.

How you're paying somebody and how you're aligning that to how you're working with your clients has a significant impact on the end results for how your business is going to grow and how you're able to be able to interface with those clients in new and interesting ways. Be very cognizant of that. We see the firms that are able to springboard from smaller to boutique but even go beyond that. Their incentive structure plays a huge part in how they're able to increase profitability for the client and ultimately grow the client base overall.

The last point I want to bring here is always be motivating. This is more less related the organization structure, though it becomes more and more difficult as the firm gets larger and larger over time. You need to make sure that you keep your best talent satisfied and happy. The first instinct on this is, "Well, I'll just pay them more." That's not necessarily what needs to be done. What I say time and time again, and I'll bring this up here is, if you actually were to go and meet with the staff on a regular basis and express your thanks for a job well done and provide coaching, mentorship, cross-training, so forth, that can go leaps and bounds instead of just giving somebody a gift card or a one-time spot bonus.

Again, we talked a little bit about incentives already, but you need to be ... Again, it's a very, very difficult and dynamic market on talent these days. It's the number one barrier that people are facing hands above everything else. When you've got great employees, you need to make sure you hold on to those employees as best you can. A lot of that comes from just writing a hand-written card. You'll be surprised at how engaging with someone in a very thoughtful manner and taking a little bit of time to get out of the rat race and show appreciation will pay you huge dividends.

One of the things I've done with my staff is I tried to figure out what people like and understand where their passions are and I try to find a gift at least once a year that ultimately exemplifies that passion because it shows that I know them at a personal level. It shows I know what they appreciate and it shows that I have thoughtfulness. Again, people want to work where they feel that they're needed, that they're loved for lack of better words and they're appreciated. Nothing says appreciation more than a little bit of time and effort, at the very base minimum just a handwritten card. Again, just because cognizant of when you're talking about organization, losing key people within that can have a disruptive and massive impact on your organization structure going forward.

I just want to do a quick wrap-up on that overall. We talked about the fact that there's firms and how they can be structured, they can be horizontal which is full departmentalization of the firm, generally seen in larger organizations, generally in accountancies and larger outsourced bookkeeping firms. We see on the other side, vertically post firms with specialists that can do everything and that generally sits within the specialized client service organizations, and the impacts those have and the transition that may occur and how you might be in a hybrid organization as you move up from being six to eight to twelve to sixteen employees in size.

Then how, depending on your size, if you're going to go for efficiencies, it's about creating the machine for a horizontal firm and having lower cost employees but really good processes to really churn the work out. Versus if you're a vertical firm, ultimately optimizing by getting more and more specialists that can do everything and ultimately charging more from a value pricing perspective. You got to run your practice like a business. I can't express enough that sales and marketing got to get someone focused on that. An onboarding specialist again is another critical component, a critical role within the organization. If you don't have the bandwidth to have a person, you need to dedicate your time.

Cross-train your positions. You can't be in a situation of having one person at least that can disrupt the entire organization. If you're evolving and you're trying to grow and you're trying to grow the organization in terms of size, you're going to have to retool and it's going to mean they're going to have to change out some talent. Structure, the structure you're going to have is going to impact how you're going to do your capacity planning and even how you get work done. You need to be deliberate about how you create your incentive structure in terms of how are people paid and what they're being paid.

Again, if you want to cross-sell and up-sell, you got to make it worth somebody's while to think about that while they're doing the work, and you've always got to be motivating as a leader of an organization and being thoughtful about how you're working with your employees. When we bring all those things together, it helps bring a really healthy organization and allows for you to be able to tool that and change it as you do over time and be able to drive more and more effectiveness and efficiencies out of it overall.

Again, today's webinar is part of the business strategies session that we're doing on the webinar series for June. You can check that out at firmofthefuture.com. If you want to check out Karbon specific events, go to karbonhq.com\events. If you want an intro Karbon, we're doing every Tuesday and Thursdays. Again, go to karbonhq.com\events. Our next webinar on Firm of the Future is going to be on June 30th. You can learn about that on firmofthefuture.com. It's on find and focusing on your niche. Really fantastic webinar to check out. I break it down into really the specifics of how to pick your vertical from both a quantitative and qualitative perspective using what you're already doing today.

Again, you can check that out at Intuit's firmofthefuture.com. They're adding more and more content. This will be another one of those webinars that will be up there that you listen to right now so you probably have come to it from there. I want to give you a big thanks from myself and the entire Karbon team. Thank you for spending time today. Go to karbonhq.com to learn more. My email is there as well, ian@karbonhq.com. If after watching the webinar you want to be able to understand or you got some questions, I'm happy to answer them. That's going to be the conclusion of today's webinar.