Do You Feel the Pain?

By Jim Boomer

CEO

Boomer Consulting, Inc.

Steve Sasson was an engineer who worked for Eastman Kodak in the 1970s. At the time, Kodak held a virtual monopoly over the photography business in the U.S., from cameras and film to flash cubes, photo processing and photo paper. In 1975, while working for Kodak, Sasson invented the first digital camera and demonstrated it to Kodak executives by taking a picture and displaying the image on a television screen. In an interview with the New York Times, Sasson remembered the reaction he received from Kodak executives.

“They were convinced that no one would ever want to look at their pictures on a television set,” he said. “Print had been with us for over 100 years, and no one was complaining about prints; they were very inexpensive, and so why would anyone want to look at their picture on a television set?”

Although Kodak patented the first digital camera, the company refused to market it, preferring to stick to film sales. Through the 1980s and 90s, Kodak wasn’t feeling any pain. They were still working their cash cows: print photography and licensing their digital technology to other manufacturers.

Decades later, Kodak finally got into the digital camera business, but by then it was too late. The market was crowded, and Sony and Canon were the big players in digital photography. Kodak, a company that had been the standard in photography for 131 years, filed for bankruptcy in 2012.

Is growth enough?

We see many accounting firm leaders these days with the same mindset as the Kodak executives. “We’re making money from tax and audit. We’re even growing. Why change?” Their firms may well be growing, but I suspect the growth they’re experiencing is incremental rather than transformational growth. It’s not the kind of growth that will carry them through commoditization and disruption.

Most firms in the Top 100 already offer consulting and advisory services in addition to traditional compliance services, but many small firms still see tax and audit as their cash cows. In many cases, those firms have the knowledge and technical ability to offer higher-value services. But they’ve been serving as technical advisors for so long that they’re loath to challenge the status quo and unsure how to price based on value rather than effort (rate x hour).

Another argument we hear is that firms don’t have the time for advisory services. We liken this to being too busy bending over to pick up $1 bills to reach for the stack of $100 bills on the table. This doesn’t make sense, nor does keeping the status quo because partners can draw a decent salary.

Why transform now?

We’ve been hearing about the commoditization of tax and audit services for years. So why now? Well, in Kodak’s case, it took more than 35 years to go from keeping the digital camera under wraps to bankruptcy.

Remember Blockbuster video stores? In 1999, Viacom held the Blockbuster IPO, valued at up to $4.8 billion. A year later, they received several offers to purchase Netflix for $50 million, which they declined in favor of delivering on-demand movies with Enron Broadband Services (a subsidiary of that Enron). By 2003, Netflix posted its first profit, earning $6.5 million on revenues of $272 million, and Blockbuster decided to enter the online DVD rental market. By 2010, Blockbuster was delisted from the New York Stock Exchange when shares hit an all-time low, and the company declared bankruptcy. The pace of change today is much more rapid.

Most people (and accounting firms) don’t change unless they are forced to, or they see their peers and competitors flourishing under a different model. By the time Kodak got serious about digital photography, releasing its EasyShare line in 2001, it couldn’t make up for lost time. By 2008, 120 million camera phones were in use in the U.S. alone, and digital camera sales were beginning their slow and steady decline. So, will you wait until you feel the pain to get serious about changing your business model? Or decide to be a transformation agent and capitalize on the knowledge and experience you already have in your firm?

The future favors the firms willing to move fast

Kodak and Blockbuster didn’t fail because they lacked talent or resources. They failed because they underestimated how quickly their environment was changing and overestimated the strength of their legacy model. Accounting firms are at a similar crossroads. You can continue to rely on the comfort of compliance revenue, or you can recognize that the profession is shifting toward insights, automation and advisory value at a pace that leaves little room for hesitation.

The firms that thrive in the coming decade will be the ones that reimagine their business model before they’re forced to. You already have the technical expertise, trusted client relationships and operational knowledge to deliver advisory impact. The real shift is committing to change early enough to reshape your future, not reacting to it.

Transformation doesn’t require abandoning what works. It requires having the courage to build what comes next while your current model still performs. If we’ve learned anything from the companies that came before us, it’s this: waiting for pain is the most expensive strategy of all.