Clarification by Division

Earlier this week my firm issued a press release announcing the formation of a separate subsidiary for its finance and accounting outsourcing practice.

While this does not change what we have been doing in an already-robust business process outsourcing (BPO) operation, the creation of Fesnak Outsourcing LLC clarifies for the marketplace that our work in this space contrasts with the traditional perception of CPA-firm services. It is not the after-the-fact “write-up work” of yesteryear, and it is far more than just an ancillary service among audit and tax.

We are excited about this latest milestone in the maturation of our outsourcing practice and the ability of our new division to continue capitalizing on the favorable growth trends in finance and accounting BPO.

Read the full press release here.

Fight the Firing at Start-ups

A recent article in Inc. notes that “start-ups fire nearly 25% of their employees during the company’s first year of existence,” compared with less than 7% “let go annually by larger, more-established companies.” The Inc. piece sites a Wall Street Journal article that provides four drivers of this trend:

“Startups’ needs change quickly. Often the skills sought in the beginning of the year aren’t needed six months later when the company’s strategic plan has changed.

First time founders lack hiring experience. When staffing a company for the first time, rookie founders might have no idea which qualities they should really be looking for in employees.

Employees from the corporate world can’t adjust. These hires don’t realize how quickly they’re expected to move on projects, since they might have been used to a slower pace at their corporate job.

Getting fired is viewed as not such a big deal. Since it’s well known that turnover at startups is high, getting fired from a startup is not perceived as a career-ruining moment. This might be how some startups morally justify letting lots of employees go.”

The first three are real challenges for start-ups, but each can be easily solved by outsourcing – while also avoiding the human, financial and societal cost associated with such rapid terminations:

Startups’ needs change quickly. Outsourcing provides scalable solutions that can keep pace with growth, and allows access to a breadth and depth of skills that can be added, deleted or substituted as the start-up’s needs evolve.

First time founders lack hiring experience. An outsourcing firm that provides a fully-managed outsourcing solution for a particular process or functional area – such as finance/accounting, human resources, logistics, or marketing – takes this issue off the table. The entrepreneur does not have to worry about hiring, managing, or firing for non-core functions, and does not have to endure the costs associated with recruiting or the lost productivity from bad hiring decisions.

Employees from the corporate world can’t adjust. Outsourcing providers that work with start-ups have professionals with the required skill sets and sense of urgency. Moreover, they can leverage additional resources when needed to accelerate projects.

These three factors are challenges to start-up entrepreneurs, and outsourcing can solve all of them. The fourth driver, “getting fired (from a start-up) is viewed as not such a big deal,” is not actually a challenge to the entrepreneur, and it is not a perception that outsourcing can eliminate. But it is most certainly a challenge to the people that are fired. I would venture to say that those terminated from start-ups do not agree that it is “not such a big deal,” especially if they are past a certain age… This is a case where outsourcing can help the workforce in addition to the start-up: Join an outsourcing firm, where you are a revenue-producing part of the provider’s core competency, and enjoy a career path that is more stable and progressive, not dependent upon the vagaries of one particular start-up.

Thoughts on the 2013 Digital CPA Conference

Along with three of my Fesnak colleagues, I attended the second annual Digital CPA Conference in Washington, D.C. this past week.

As I wrote in a post recapping the conference for Fesnak’s blog, the first Digital CPA Conference was launched in 2012, in response to the proliferation and maturation of cloud-based technologies, which simultaneously challenge traditional modes of operating in the accounting profession while creating exciting and unprecedented new opportunities. While these challenges and opportunities run the gamut from social media to generational trends in virtual/mobile workforces to efficiencies in document management and workflow, chief among the new opportunities is what the AICPA calls “client accounting services” enabled by cloud-based accounting applications.

“Client accounting services” is the AICPA’s term for finance and accounting outsourcing (FAO), a type of business process outsourcing (BPO). I prefer the term FAO over “client accounting services,” not only because it is more widely known, but also because it more accurately captures the breadth of services provided. After all, it is not just accounting; it is financial management, inclusive of financial planning and analysis (FP&A) and virtual CFO services. And “client accounting services” could be anything; the term does little to distinguish a robust BPO offering from old-school bookkeeping or write-up services – ironic, given the AICPA’s aspirations for “client accounting services” to supplant these traditional services with a more value-added, “trusted adviser” role.

Also ironic is that FAO is not at all new; it has been performed for years, if not decades, by outsourcing service providers such as the Big Four accounting firms and, today, by industry leaders such as Accenture, Genpact and Capgemini. What is new, however, is the concept of FAO as a core service offered by small, mid-size and second-tier national CPA firms. Indeed, there is a vast market opportunity for these firms: While the largest multi-national enterprises outsource to the aforementioned leading providers, emerging growth and middle market companies lag far behind in their adoption of FAO (see HfS Research / KPMG study here, and ACCA / HfS Research study here). As these small to mid-sized enterprises (SMEs) enter the market to procure FAO services, who better to meet the demand than the CPA firms that are already entrenched in these market segments?

The 2013 Digital CPA Conference provided plenty of great content from thought leaders such as Simon Sinek, Geoffrey Moore, Jennifer Wilson and others, and I appreciate the AICPA’s efforts to help CPA firms leverage new technologies, optimize new service opportunities like FAO, and navigate change and complexity in general. However, I think the Digital CPA conference is already at a crossroads in its short life. Although the conference addresses a range of technology-related topics, the central theme in both 2012 and 2013 has been cloud-based accounting applications as an enabler for developing “client accounting services.” Many of the sessions were geared toward firms that are just now thinking about, or have only recently launched, such initiatives. This is all positive. But as FAO continues to become a more prevalent offering at CPA firms, there will need to be a conference devoted  exclusively to outsourcing, just as there are audit and tax related conferences.

An “FAO Conference” (I’ll leave it to the marketers and event planners at AICPA to come up with a catchy name) should definitely address technology. But as Digital CPA speaker Bill Reeb noted, technology is just a tool. There are so many other areas that could be, and would need to be, addressed in an AICPA outsourcing conference. These include, but are by no means limited to: pricing strategies and contract negotiations; competition from non-CPA firms; the clash between the new outsourcing services and existing professional standards (e.g., for compilations); best practices in various accounting and financial management processes; KPIs for an outsourcing practice; cultural challenges running a BPO operation within a traditional CPA firm; recruiting talent; organizational structure and management of an FAO practice; outsourcing engagement structure and management; etc. (Certain of these topics were in fact part of the 2012 Digital CPA Conference, but at an introductory level only and were understandably not repeated in 2013’s conference, which was again geared toward very early-stage “client accounting services” practices). The Digital CPA Conference could continue to exist separate and distinct from an FAO Conference, with an ongoing focus on emerging technologies across all CPA firm disciplines.

I am not advocating an FAO Conference for 2014; there is not enough time – or, more importantly, demand – to pull it off that soon. But as the next best thing, I would like to see the 2014 Digital CPA Conference evolve to include separate concurrent session tracks for firms that have more mature and robust outsourcing practices, perhaps addressing some of the areas suggested above.

(Disclosure – my Fesnak colleague Nicole Ksiazek serves on the Digital CPA conference advisory panel.)

Outsourcing and Skeuomorphs

So I learned a new word today: skeuomorph. I figured a logical extension of the elementary school advice to try using a new word in a sentence would be to use it in a blog post. And it wasn’t as hard as I thought it would be. In fact, I was quickly inspired.

But first, what is a skeuomorph? According to, a skeuomorph is “a design feature copied from a similar feature in another object, even when not functionally necessary.Wikipedia explains that the term has been applied to material objects since 1890, but is now also used to describe computer interfaces. It was in this context that I first encountered the word – specifically, in a Fortune magazine article by Adam Lashinsky about Apple, which referenced Steve Jobs’ predilection for graphical user interfaces that emulate physical objects (e.g., envelope icons for email, folder icons for file directories, notebook paper background for Apple’s mobile “Notes” app, etc.). After Googling “skeuomorph,” I found a great explanation of the concept on the BBC News Magazine site.

So what, exactly, is the connection of skeuomorphism to finance and accounting outsourcing? As Wikipedia notes, “Even systems that do not employ literal images of some physical object frequently contain skeuomorphic elements… Skeuomorphs need not be visual.” When we explain how our financial management outsourcing solution works, we talk about fulfilling the roles of a bookkeeper, accounting manager, controller and CFO. Because most entrepreneurs and CEOs understand the financial function in terms of these internal positions that historically comprise an accounting and finance department, it has become natural to refer to these same roles when explaining how outsourcing works. But they are only metaphors. By describing and categorizing our services in the context of these roles, we are using skeuomorphs: making the new accessible and understandable by likening it to the old way of doing things. Why? Because what Wikipedia says about interactions with computer devices can be applied to the common view of the finance and accounting function: it is cultural and learned in society, and therefore difficult to remove.

The aforementioned Fortune article notes that, with iOS7, Apple is moving away from skeuomorphism. And perhaps we should start doing the same when we talk about finance and accounting outsourcing. We are not simply filling the old roles of bookkeeper, accounting manager, controller and CFO. We are offering a completely new and better way to meet the need for reliable accounting and disciplined financial management; we are redefining how the finance and accounting function is carried out. As in the very definition of a skeuomorph, a comparison to the old roles is not functionally necessary. The focus should be on activities and deliverables, the skill sets required, and the results sought, not the traditional roles. A recent new client, for example, initially saw a need to fill the position vacated by its part-time CFO – but now realizes that the problems they are trying to solve, and the solutions they really need, require several different people with different skill sets, unlikely to be found in one CFO. For this client, outsourcing is a solution that means more than just plugging the CFO hole; our solution is designed to deliver the necessary financial leadership, technical accounting, planning and analysis skills that are lacking at more than one level in the organization. Our outsourcing solution meets these needs, with fractional time from more than one professional; it does not simply plug one person into a pre-defined “CFO” position.

Apple and other technology designers can only move away from skeuomorphism because digital applications are becoming as familiar as the original physical objects that they emulated. But skeuomorphs provided the bridge from physical to digital that enabled the successful adoption of these modern technologies in the first place. Similarly, the metaphors of bookkeeper, accounting manager, controller and CFO provide a link from the old ways of staffing an accounting and finance function, to the new way of outsourcing it. As it becomes evident that the new way is superior, we, too, can abandon skeuomorphism.