Accountants can bring endless value and experience to young entrepreneurs or those branching off to start their own business. Why should an accounting firm seek out these opportunities out, and how can they best work aside these individuals for mutual success?
In this episode of Pulse of Practice “The Philip Brabbs Interview”, Paul Miller, Owner of Business by Design, and I are joined by Philip Brabbs, Managing Director, Center for Value Chain Innovation for Ross School of Business at University of Michigan. Phil has many years of experience starting businesses and running them, and now works with entrepreneurial-minded students at the university, sending them out into the business world. Together, we talk about young entrepreneurs, the needs these soon-to-be prospects have, and their perspectives on business.
Teaching the language of accounting
While Phil Brabbs has built some successful companies that have grown immensely, he still admits he knows very little about finance and accounting. As he prepares BBAs, undergrads, and MBAs to become young entrepreneurs, he sees the potential for accounting firms to come alongside these individuals and help.
“At Ross, I’m taking what I call a literacy, competency, mastery approach to teaching tech and entrepreneurship, and I think we can do the same thing with accounting,” notes Phil. “The literacy is, learn the language of accounting. The competency is, learn how to apply accounting. And then, there’s mastery. Not everyone is going to get to the mastery state, but if you’re a successful entrepreneur, you will. So, start at the very base level as accountants—teach them the language of accounting.”
Phil learned the importance of learning the basics during his third startup.
“We were growing very rapidly,” says Phil. “I had in my mind that, as long as I had customers that were generating revenue for the business, we were being successful. I found out that we were not profitable. We created a profitable business model, but I learned that businesses don’t pay you immediately.
“So as an entrepreneur, you are basically on this journey to build a rocket ship after you already launched. You’re only focused on the things right in front of you. As experts in accounting, you can be the voice that comes alongside at the different stages and says, here is what you need to know at your stage in your journey. Be a voice of reason and help them learn the language. What might be fundamental to an accountant is not for an entrepreneur. I can build product, I can generate revenue, but the accounting side is probably not going to be the strength of most entrepreneurs.”
Goal setting and strategizing on a personal level
The young entrepreneur has money coming in and money that they’re spending. They want to do this in a way that’s sustainable, repeatable, and scalable. As an accountant and an advisor, one thing you can help this entrepreneur with is truly understanding their goal.
“In the last business I started, I was challenged to come up with a goal: what do I want to accomplish by starting this business,” says Phil. “If we came back with a number, we were going to be told to go back to the drawing board. I think where accounting is a lot about numbers, it’s also about what you want to achieve.
“Do you want to achieve growth? Do you want to invest in new ideas and innovation? Or, do you want a business that allows you to not have to work for someone else, and you need to stay level-income? Are you building something for your family or legacy? I think accounting can get personal, as well. If an accountant just says, ‘Here are the numbers, do this and you’ll save money,’ the entrepreneur is not getting much value. The accountants we’ve worked with helped us strategize what we want to do personally.”
“I’ve been in business for close to 30 years, and when I think back to when I was younger, the barrier to entry into being self-employed used to be quite a big higher,” adds Paul. “If I was going to start a business, I needed a space, phone system, all these pieces of equipment. What’s interesting to me now is how low the barrier has gotten. I think it is really unlimited the ways that people can make money and start something.”
Furthermore, to be a true advisor for your clients and help them in achieving their goals, you must understand not only what that goal is, but what their mindset is.
“You have these students who are getting a valuable degree that they can cash in and work for a consulting firm to make 80K or 90K out of undergrad,” notes Phil. “But when I work with these students, they view entrepreneurship as an opportunity to make an impact. They’ve seen how businesses have failed society over the last number of decades, and they ask themselves why they would go in that direction. Why would I go work for someone I don’t believe in? This generation of youth really wants to integrate impact, and work hard to make that impact. They see entrepreneurship as that channel.”
Growing in parallel with your client’s business
One of the things we talk about often with advisory firms is a multi-year relationship with our client. As accountants, we need to set that stage for growth, and as our young entrepreneur client grows, we must grow in parallel with them.
“As we were growing our company, we were growing so rapidly that our consulting group had created something called the seven stages of growth,” says Phil. “At each state, there were different things you’re supposed to focus on. It was instrumental to us in maintain some level of sanity.
“Accountants working with many different entrepreneurs, you’ve seen a vast array of where people are at and where they want to go. Being able to come in alongside them, meet them where they’re at, and get them to that next stage is crucial. Marching with them through those different stages of growth is huge.”
“You don’t have to reinvent the wheel either,” adds Paul. “That’s how I look to teach small businesses, because every problem that you’ve run across in your industry and your history is probably not new. That’s why it’s so important, on the advisory side, that accountants know they have such value and experience to bring to the table, for both young entrepreneurs and anyone starting a business.”
So, why might an accounting firm, especially a smaller size accounting firm, what to pursue one of these young entrepreneurial-minded students to work for their business?
“I think an advantage of taking in this person who is more entrepreneurial is they will challenge you towards growth,” says Phil. “I can see an entrepreneur as somebody that you can bring to your firm and have them focus on business development, because they’re going to want to go out there and create new. They have a growth mindset, and new systems don’t scare them. They’re going to help you move into 2021 and beyond.”