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Scott Scarano is the President of Padgett Business Services in North Carolina. He leads a team of unique advisors who share his passion for helping small businesses thrive. In this episode, Stuart and Scott discuss the impact of social media on productivity, Scott’s journey with Padgett, the parallels between cartels and accounting, and interacting with people in a post-COVID world. Scott also shares his unique story of learning how to run a business and what led him to be a podcast host.
Join Stuart McLeod as he interviews the world's top accounting leaders to understand their story, how they operate, their goals, mission, and top advice to help you run your accounting firm.
Stuart McLeod 00:00:05.705 [music] Hi. I’m Stuart McLeod, CEO and Co-founder of Karbon. Welcome to the Accounting Leaders Podcast, the show where I go behind the scenes with the world’s top accounting leaders. So tell me about your family and your business partners and your experience?
Scott Scarano 00:00:25.251 Well, I’ve got three kids, and I’m married. My wife's from Mexico. She didn’t speak English when we met. She’s very much the listener, and I’m very much the talker. Hence, I have a podcast. And I run my mouth. I’m forever talking. I realize this, too, and maybe you’re a similar way, but I’m lit up and I’m excited when I’m around other people. I’m energized. People energize me. It’s not being alone. It’s not working on the harder things. That’s my operations manager. That’s the other side of the team. That’s the one that lives in Karbon. That part of our team loves that work. Get it done. Integrator. Let’s keep moving things toward the finish line. And I’m out with the next idea. My wife is the same way. She’s the integrator of our household. And my kids, I guess, as they grow, you can tell either who they’re similar to, but then you start learning more about yourself as they’re growing, too. I can see myself in my son every time he does something. And people would say, “I pray for your kids," or that, "You’re going to get what’s coming to you.” Because I was a little shit growing up. I was the Hellraiser, or I don’t know the best way to put it. But, man, he knows how to manipulate and he knows how to push the right buttons in me. But also, just the way he is, and I can be a lot more empathetic because I can relate to what he’s going through sometimes or different things. Not so much with my daughters, but my wife can with them, too. And the one thing I noticed being at home now, too, because we don’t have an office anymore, is I’m starting to notice things, little nuances about their personalities that I didn’t notice. My oldest is in high school, and my youngest is in fourth grade or four years old. So she’s going to be four next month. She’s a little accountant, I think. She puts things in order. She organizes. She’s very deliberate about the colors and the shapes and how things are set up. My son would just throw shit around. And so I could relate to my daughters more so in that respect, though. On that side of their brain, they are very organized. And some might say OCD or some might say an accountant, right? We’re born to organize things.
Stuart McLeod 00:02:40.558 One and the same sometimes? [laughter]
Scott Scarano 00:02:43.106 Exactly. Yeah. Numbers that make sense or things that make sense to them, and they want to organize their environments. But I didn’t notice that when my older daughter was super young because I was always working. Tax returns. Just working forever hours. So being able to find that balance, you can enrich yourself more, too, because I guess I can be a better parent or a better person through them and through their eyes, so. It’s got real deep quick, but that tends to be where I go. And you asked me to talk about the family. Yeah.
Stuart McLeod 00:03:16.833 So in what order are your kids? They start at high school and all the way down to four?
Scott Scarano 00:03:22.439 Yeah. And my son’s in second grade. So they are all in different schools and they have different days off too, which is really hard, right? President’s Day, my son still had school, but my daughter was out, which I guess that’s how it is. And now one’s in year-round school, so every three months, they get a few weeks off, which was great when they were on the same schedule, but now that they’re not, it’s hard for us to travel because one’s in school, one’s not. We’re starting to figure that stuff out. We’re not like the Chad Davis and traveling around in an RV homeschooling our kids, right? And I’m sure you’re familiar with that whole world, too.
Stuart McLeod 00:04:03.739 We had Chad on the podcast not that long ago. I don’t think we’ve-- we haven’t released it yet, but--
Scott Scarano 00:04:09.900 I just had him on and Blake also just had him on as well.
Stuart McLeod 00:04:13.412 Oh, there you go.
Scott Scarano 00:04:14.710 The Adventures in NoCode. That’s his ride, right? And I love his story, though. So we can relate to that. So I don’t know. I’m really impressed with what you guys have done as a company. I’ve never told you this personally, but I tell this to Ian all the time. The vision, the leadership, and the direction that you guys go and take the product. It’s said a lot at our firm, “Our favorite tool that we use is Karbon.” And it’s because it’s made for us. You guys are hyper-focused on our industry and also with delivering a quality product that not only works but is innovative in a lot of ways too. So, I mean, I’m not here to blow smoke up your ass, but I’m--
Stuart McLeod 00:04:59.409 Oh, no. No. [laughter] Over the years there’s been a bit of smoke blown up my ass, but not that often. [laughter] So I appreciate it. We’ll take it. [laughter] I really appreciate that, Scott. I mean, I’ve said this a few times on the podcast, but I don’t know if you ever noticed, but a couple of years ago we tried to branch out the product into other industries and that failed spectacularly. And ever since then, the focus on the industry has absolutely helped us help you. And I think what you’re saying is that really comes across now. We spend a lot of time with people like yourself and our customer base and just make sure that we’re thinking about what you’re thinking about next. [laughter]
Scott Scarano 00:05:46.784 But you’re helping us think about it too, and asking the right questions, or bringing up the articles. I could say this that even before I was using Karbon, those were the emails I kept in my inbox. Those were the articles that I would read because they were about real life. You have written a lot. I mean, you guys still do most of the content yourself, and you’ve written a lot about minimalism-type conversations. And one of them that you read stuck with me. You went black-and-white mode at one point on your phone or that was a suggestion, but there’s just like, I turned off all my notifications at some point last year and it changed my life. And it was reinforced, too, by one of your articles because that was like, “Okay. I’m on the right track here. This is already what I’m doing. And there’s other people talking about this, too.” So it’s like a validation, a reinforcement of something that I already felt and that I was already starting to do. And it was like two of your five or three of the five tips were things that I had just done. And then it was like one of them was go black-and-white mode. And I said, “You know what? That’s probably a damn good idea.” That brings us back to the days where a phone was just a tool and it wasn’t our life.
Stuart McLeod 00:06:52.226 I ran across a guy the other day that has still got a Motorola flip. It made me nostalgic. [laughter]
Scott Scarano 00:06:59.811 And you remember those days. But then again, it’s like we still have to appreciate what our phones can do when we need it or when we want to. If we’re stuck in an airport and we want to get something done, our phone can pretty much do everything. And if we want to watch a TV show or communicate with somebody or get on a video call, we got to love what we can do for it. But we can’t let it dictate our next movement, right? And that’s what the notifications used to do, at least for me. It would train me to think in a certain way or do something when that’s not what I was going to do in the first place. I pick up the phone to— I don’t know. I digress. But--
Stuart McLeod 00:07:36.435 No, no, no. Like all tech, there’s upsides and downsides, right? And one of the issues, though, in the world is like we kind of outsource our ethics and morals and lifestyle choices to companies that are arguably-- well, not even arguably. Pretty easy to mount the argument. That they have different stakeholders to satisfy than what we do. So--
Scott Scarano 00:08:05.034 Brainstem hacking. But we’ve got to recognize and be aware of that because there’s still power in those tools as well, right? Just the marketing power of Twitter is beyond brilliant. The way that Twitter is set up, I go in there and everything is positive. It’s like everything is a like. There’s no dislike there. It’s just reinforcing a lot of positive feelings. But then it also drains you. So there’s got to be a balance, a healthy balance, of that whole both sides of the coin, right?
Stuart McLeod 00:08:36.317 But a lot of those tools, the Twitters, the Facebooks, I mean, they arrived not deliberately, but through just trial and error. And human traction drove a lot of their roadmap, right? So for better or worse, for better or worse, that’s the thing. Eyeballs was their number one goal. And if--
Scott Scarano 00:09:02.112 If something was working, then they made it work better, and they continued to push money in that part of the product. “Okay. This is where people’s eyes are. Let’s keep doing this.” And some things were accident. The like button, wasn’t that an accident? And then they drove it really hard. But then it’s pushing something off of the cliff, right, or going a little too far with it. And I think part of it’s our responsibility to find the balance. A lot of people point the finger, but I think both parties are responsible for any negative side of it, too. Because we asked for it, right? We wanted everything in our pocket in our phones. We wanted immediate access to everything. Let me ask, though. You are from Australia or New Zealand?
Stuart McLeod 00:09:47.879 Melbourne, originally.
Scott Scarano 00:09:49.784 Okay. Because your accent sounds sharper than an Australia that I might consider. I feel like to me, I always distinguish New Zealand and Australia with the sharpness of the tone and the words. And they’re a lot tighter. So is Melbourne closer to New Zealand, or is it--?
Stuart McLeod 00:10:10.123 It is closer to New Zealand. But, no, no, well, we should drag out the map. So Melbourne’s about a three-hour flight to Auckland. But at the moment-- but I’ve been in the States for 10 years now. People do point out my-- I don’t notice it. My family doesn’t notice. But people point out my accent. I think I’ve rounded out a little bit to be more understood in America. And so that’s probably the adjustment that you might notice. [laughter]
Scott Scarano 00:10:39.762 I had a very interesting conversation with somebody over the weekend. I took my son to a birthday party. And the guy was from Russia. And thick accent. He’s been here for maybe 15, 18 years. And there’s certain things about how your vocal cord muscles develop at a younger age based on the language you speak and the region and environment that you will never lose that because that’s the way your muscles have grown into your body and developed. So you will never lose that accent as much as you try. You have to intentionally-- actors have to intentionally-- and if you’re not thinking about it and then you go back to your natural speak, it’s just your muscles fall right back into place. It’s like muscle memory, too. So he brought to the pictures of anybody that tries to mimic your accent, if they don’t speak that or don’t have it, they can’t ever get it right. So he used Borat as the example from Kazakhstan. And because he spoke English, and he wasn’t natural to that language, he can do it just like any other American or English-speaking person can, but he can’t do the same accent. So anybody that’s from there can tell the difference. So that was an interesting fact, though, about how our environments develop-- because it’s the same syllable combinations that you have in different words. So it’s almost like a bodybuilder or anybody that’s kind of just building their muscles in a certain way. You just have that muscle memory and that’s just how your vocal cords align, right?
Stuart McLeod 00:12:22.767 That’s interesting. I mean, I notice even listening if I fall back into bad habit and look at the Australian newspapers and watch a bit of Australian TV; it is actually grating the accent now. I probably notice it similarly to what people from other countries do. I don’t know. I’ve become too American, perhaps. And so when we moved here, my eldest was two, and at that stage, the youngest was only six months. So even at two, when Georgia goes back to Australia, which we haven’t in a couple of years, obviously, she falls back into an Australian accent and me and my wife will do the same very quickly. But Archie, who is a US citizen, and Martha, who didn’t have that muscle memory at six months, seven months, she’ll stick to her American accent. It is quite interesting. [laughter]
Scott Scarano 00:13:18.809 Well, it’s an empathy part of how we are as well. And this was part of that conversation I had over the weekend. It was like whenever I’m around somebody, even if I don’t speak the language or wherever it is, you start to develop mannerisms and saying things a certain way and a certain twang. Because I’m in the South, North Carolina, there’s just certain things that I say. And when I’m with my wife or her family, even though I still don’t speak a lot of Spanish--
Stuart McLeod 00:13:48.490 I was going to say. I was going to ask you how your Spanish was. [laughter]
Scott Scarano 00:13:51.358 It’s terrible. I think in colors and numbers; I don’t think in words. So it’s hard for me to-- but not for lack of effort. Or at least I speak with an accent, even though I’m not speaking Spanish. Sometimes when I’m speaking English-- my mom would notice that when I’m speaking to my wife. And I don’t do it intentionally, I just do it as like it’s just what we do. So that might play into kind of how-- I just had an interview with Guy from Practice Ignition, and I noticed there’s certain things I’ll say. When I was editing, I heard myself say certain words that I wouldn’t normally say, but because he was saying toward the middle to end of the episode, I’m saying different things. And not intentionally, but that’s just how it was coming out. There’s certain things I’ll pick up on or the way that certain people talk, you pick up the things that you like or just to relate better, right? I feel like that’s finding some kind of common ground. But speaking of Practice Ignition, they are Ignition now. They just had a recent round, and y’all just had a recent round of funding. Some big news that came out recently.
Stuart McLeod 00:14:58.473 I mean, I’ve caught up with Guy briefly and said congrats on his success, which is fantastic for industry. I get why they would sort of try and broaden out and go a bit more horizontal. If you’re going to stick to sort of that quiet niche area of lead management and proposal management, etc., that’s a reasonably thin slice of workflow. And so it makes complete sense for them to expand out horizontally and take on some of the others that offer that kind of software.
Scott Scarano 00:15:40.890 Well, there’s different ways to define the vertical, right? Your vertical, you go really deep in with the industry and trying to solve the industry problems. They’re trying to solve a specific problem that could be related to different industries. But like you said, a little bit more horizontal than vertical. But it’s still a-- I guess it’s not necessarily-- you can’t call it a vertical. I try to steer away from niche because Ackerman always says niche on my podcast. My co-host, he says niche and it’s niche. And so I just try to say vertical. Yeah. So--
Stuart McLeod 00:16:18.466 It’s definitely niche in Australia. We get asked this a fair bit and one of the reasons that we’ve eliminated sort of moving beyond accounting, at least in the medium term, is accountants’ work-- I mean, the practice management bits are pretty similar, right? Everybody needs time billing and fixed fee and you raise an invoice and you get paid. That’s all fine. It’s pretty straightforward. But accounting workflow is actually really unique. I don’t know if you’ve ever thought about it. So if you look at a-- compared to legal practice management or engineering or architecture or even wealth management, accountants-- say you’ve got 10 staff. I don’t know. What, 1,000 clients? 500 clients per 10 staff, say? Something like that.
Scott Scarano 00:17:09.367 Well, we only have 110 and I got 8 staff, so.
Stuart McLeod 00:17:13.544 Well, there you go. So depends on how far you move up in the value chain, right? But even in your case, 100-plus clients. Say four or five jobs per client, right? So you’ve got, call it, 500 jobs a month. And if you scale that to 1,000 clients, it’s 5,000 jobs per month that get opened and closed, hopefully, touch wood, every month or each quarter thereinabouts. So that’s a pretty high volume of workflow that Karbon has been built to manage, right? You look at an engineer or some of those others that I mentioned, some small legal firms with 10 staff, they might have 10 jobs total. [laughter] One matter per person or say even five matters per person. So the aspects of workflow, like the scheduling, the budgeting, the staff allocation, the resource management, the task management, it’s actually really unique to accountants. We haven’t come across any other segment - dare I say, niche - that has that kind of volume. And I don’t think it was good management. It was a bit of luck. Well, it’s not luck. Because we focus so much on the customer initially, we spent thousands of hours working with people like yourself, really understanding that aspect of the workflow. And that’s why hopefully you see in the product - [laughter] touch wood - that even with it, as volume increases, the team is able to manage it pretty well, and--
Scott Scarano 00:18:59.697 Scalable. Yeah.
Stuart McLeod 00:19:01.190 Yeah. And we’re scaling up to sort of-- there’s six, seven, eight hundred thousand employees and some of our customers now, and they’re still able to manage it, right? And that can quickly get pretty unwieldy.
Scott Scarano 00:19:15.023 I wouldn’t know what we would do without-- and I don’t say this, again, for the smoke thing. But I don’t know what we would do without Karbon because it’s the backbone-- and I’ve used this-- I’ve got the anatomy of a firm in my head, and I do this on a presentation that I do, but I use Karbon as part of the backbone of the skeleton because of your branding as well. It just is a perfect fit for the anatomy of a firm. That’s kind of how it started. Karbon’s the skeleton. The backbone. Practice ignitions the heart pumping the cash and the blood in. The veins. The blue ones are Xero, the red ones are gusto/ADP. And forecasting is the eyes looking forward. I haven’t really figured out if that’s live plan, or-- I’m pretty sure that’s the live plan, the looking forward. I’ve got different things in the works for different body parts. But I got to introduce some color in there. I don’t know where [Liscio?] fits in, but I think [Liscio?] is a splash of color and I need some liveliness there.
Scott Scarano 00:20:10.701 So you guys are the backbone of the firm. And I think of it like the back office, the backbone, and I think the branding, it all kind of just fits to each other. And obviously, I don’t know if that’s what you had in mind, but that’s what I think of when I see the logo. I think that you need a strong back office, especially to handle the workflows. And it’s a difference between like you guys are focused on us as a firm and our employees and our workflow and our back office. This conversation come up a lot, but it’s like Liscio’s is focused on the client. But you guys have introduced some things too, that are client-facing. The biggest lift for us last year was using client tasks during tax season. That changed everything. The way that worked and the way that that flowed. It was just something little that we started doing, but it made such a huge difference in how tax season went, even for a firm like ours. We don’t have a crazy tax season. We don’t do an insane amount of tax, but it’s still a different workflow and a different adjustment to the regular year. Just the monthly work that we’re doing.
Stuart McLeod 00:21:17.351 Yeah. Just, again, trying to move-- accounting is more of a volume game than a lot of other professional services. And I think that’s where we really try and focus hard and help with that volume and help you manage it. And you mentioned the money we raised. And that’s to be used for-- we’re tripling the size of the company this year, and a lot of those are in engineering and development, product and design. And you’ll see us accelerate the platform pretty rapidly.
Scott Scarano 00:21:54.445 Will we finally see the organizer? Will we finally see that this year? Or the calendar integration? I mean, I get really pumped up when you do your vision board and when you talk about the vision of the company. And then I stall out and I forget half of the shit because I never see it.
Stuart McLeod 00:22:11.200 That’s okay. It’s all right. The calendar was supposed to go up on our stage environment recently. I don’t know whether it made it up yet. But it’s imminent, let’s put it that way. [laughter]
Scott Scarano 00:22:23.491 I was really into time blocking. And after I read A World Without Email, and I started getting the team into being very attentional about their time, I was really pumped that they could plan out all of the work that they’re going to do in that week and just load it up on their calendar. And so I’m still really excited about that. And being able to plan their week can be so much more effective for anybody that’s doing any deep work. And I think that it’s going to lend itself to being a better tool to reinforce those habits. And it’s hard for most people to plan these days because we’re so reactionary to whatever comes up, this email or that, and I want to be able to turn alerts off and just have them go deep into whatever job they’re doing and then pick up the next one. And if they have some kind of alignment with their workflow and their time and their calendar to manage it, a lot of people like to downgrade the fact of tracking time and billing on time and all that, but I think you need to manage your time because it’s not a renewable resource. So you need to be effective in managing it so you can do the things that you want to do outside of work and not have to just always be catching up, so.
Stuart McLeod 00:23:34.397 So you’re saying time is like coal? [laughter]
Scott Scarano 00:23:36.548 Yeah. It’s not renewable. Time is diamonds, not coal, right? Diamond in the coal mine is the time. The coals just the money.
Stuart McLeod 00:23:47.353 Well, in terms of time management, yeah, I mean, 80% of our customers are fixed fee, but still measure some amount of time, essentially for internal purposes only, not for billing or anything like that. I mean--
Scott Scarano 00:24:05.572 Last year around June or July we started using your tool. And, I mean, it’s super easy. And the team didn’t complain about it. They actually like it because now they have a record of how long something should take them, and they’re paying more attention to the time that they’re spending. I mean, it’s going to help us with profitability. There’s going to be certain metrics I know that Ian has promised and that things we’ll be able to see in the reporting to be able to price better too. So just internal metrics. It’s not to bill the client and it’s not to reprimand anybody for spending too much time on something or too little or this is our time budget. We don’t know what our time budget is. We want to be able to price effectively, too. So it’s like kind of reinforcing a price, or if we need to adjust something with a client, that’s an anchor. That’s something we can hang our hat on to say, “All right. Well, why is this one so much more time, or why are we spending more time on this client within the same industry as all these others?” And usually, it’s a common-sense answer or not, and sometimes we’ve got to dig a little bit deeper. Where’s the nuance there? So it’s just a good metric to use as a positioning tool or for profitability sake. I’m always tired of the time conversation. This has been something that me and Ackerman talked about for a whole year. They’re dead set on its only prisoners that track their time. That’s what they say.
Stuart McLeod 00:25:29.439 Is he still anti-time, is he?
Scott Scarano 00:25:32.900 Oh, they’re so anti-time, but they might be the only ones. On our podcast, we have interviewed a lot of different people, and there’s nobody that-- there’s only maybe him and one other firm that doesn’t even pay attention to time. And it used to be me, [laughter] but now we’ve gone to the dark side, as he would say. I don’t think so. Like I said, it’s the renewable resource, and-- it’s not a renewable resource. Once the time’s gone, it’s gone. You can’t get that back. People and time is what we focus on. Or we don’t really focus on them, in particular, but it’s trying to shift the conversation to people now because that seems to be the hot topic. I got somebody leaving our firm, taking another job. She gave us plenty of notice, but now I’m starting to see how bad the market is. This isn’t knock on wood. I would say knock on wood until this happened yesterday, but it’s the first time now we’ve got to think about hiring since the beginning of COVID. We took on two new people early on, fully remote, and it worked out great. But now one of them wants to go back to an office environment or a work environment that is not remote, and we don’t have an office anymore. So that’s kind of interesting to see the other side of it that an employee prefers that, too.
Stuart McLeod 00:26:49.191 You spoke about it earlier, being around people gives you energy that you feed off that. I don’t know about you, I certainly miss-- we’re starting to travel again. I miss the travel and seeing the teams and spending time with customers and employees in-person. I think that’s the bit about my job that I enjoy the most. And during COVID, you’re not receiving that energy. And, yeah, it’s different. I wouldn’t say it’s depressing or anything. I would say that it’s sort of oriented to the way that I’m not. And I’m looking forward to getting back out to see people.
Scott Scarano 00:27:32.527 I’m looking forward to the Karbon event. I don’t know if it’s Karbon X or if it’s something else, but--
Stuart McLeod 00:27:38.950 Karbon X? Yep. Karbon X.
Scott Scarano 00:27:41.227 I was looking forward to that back in 2020, but now been pushed, and now we’ve got it on the calendar, right? It’s coming up.
Stuart McLeod 00:27:49.062 It’s on the calendar. June 3. June 4.
Scott Scarano 00:27:52.412 Right before ENGAGE.
Stuart McLeod 00:27:53.822 Exactly. That’s not a coincidence. So you should be able to get-- on the Sunday, you make your way down the hill from Lake Tahoe down to Reno and hop on one of the many flights that go down to Vegas ready for--
Scott Scarano 00:28:08.428 I got my whole month planned out. I’m going to there, to ENGAGE, and then to Mexico for the rest of the month. That’s where we go visit my wife’s family. And we got our house there. We’re going to stay there and be off the grid. That’s going to be the last hurrahs is you guys and then ENGAGE.
Stuart McLeod 00:28:24.431 Hopefully, they’re very, very different events. That is a deliberate strategy. Karbon X is limited to 100 people. We cannot fit more than 100 in the venue locally. And so that’s a pretty deliberate strategy. We really want to keep it very intimate and have--
Scott Scarano 00:28:46.485 Fireside.
Stuart McLeod 00:28:47.539 Yep. Very much. So we’re going to do a live podcast. So many audience members that have been on our podcast. And so perhaps we can get a bit of a panel going on stage and do a live podcast. [laughter]
Scott Scarano 00:29:01.903 Oh, I can bring my mics. I always travel with my mics now. Yeah. This podcasting world has changed things for me. I used to say Xero made the accounting world a lot bigger and smaller at the same time. And now I say that same thing about the podcast, right? And I don’t know if you can relate, but it’s like as you start to get your head out of your own ass and you see what everything else is going on, then the world’s so much bigger. But then everybody’s connected and everybody knows each other and then it feels a lot smaller, too. Even though it’s geographically spread out, it feels a lot smaller. It feels like the room is bigger and smaller at the same time, almost. So I’m always excited to see people in person. All the interaction on here is great. Because we’re all connected, we can all communicate like this. But then it’s not the same as being in person. A little bit of a difference there. But we try to be more intentional with the team. We have our Tuesdays and Thursdays; we call them Together Days. And it used to be an hour that we would spend just bullshit and just kind of talking about different things. We’ve got these little table topics that we ask and we just start the conversations. And we don’t really make it about anything, but it’s just there. Now we do it for half-hour because an hour was just starting to get to be a little too much. But if we need an hour, it’s fine. If we want to turn on-- we started watching that PBC show that FloQast produced. We used to watch The Profit with Marcus Lemonis. And before that, we watched Game of Thrones when we were back in the office. That was fun. But now we’re trying to make it at least somewhat aligned with what we’re doing, or not to say educational, but edutainment, right?
Stuart McLeod 00:30:40.599 Tell us a bit about Padgett, then? We should do that because it’s a fantastic success story. So tell me how that sort of came about originally? And you’ve got an interesting structure and a very deliberate way that you organize the operations and a wonderful community as well. So there you go. There’s four questions in one.
Scott Scarano 00:31:04.672 So the franchise itself was-- and if we start back maybe 10 years ago, 15 years ago, bringing on new franchisees, things were going well. But they were on a proprietary system. It was its own accounting system. Weren’t using any other platform. It was just a write-up platform. And they had good reporting tools, but a good foundational way of approaching small businesses and working with small businesses. Focusing on the client, billing on fixed fees, and not hourly rates, and kind of doing things standardized across all clients to focus on just good systems in place, right? The game changed a lot in the last 15 years. You know that. Everybody knows that. And they were kind of left in a bit of a darkness to which way to go forward. And I’m a younger person. I have my ear to the streets. And I don’t know what I attribute a lot of the change, too, but I think my parents mostly. My podcast is Sons of CPAs, right? My dad was a CPA. My mom’s a bit of a homegrown programmer. And my dad used to work for my grandfather’s CPA firm, and then they have their own software business now. Turned into now they have a GL accounting platform for non-profits.
Scott Scarano 00:32:30.085 So I grew in a house that was just very much against Intuit altogether. Well, they were against Intuit because of the way into it ran as a company. I don’t know. Because he still used QuickBooks at home. So I knew QuickBooks and I knew of that. But I think it was like they saw it as a competitor almost, or just Blackbaud, Raiser’s Edge, and different things because they have a non-profit GL software. So maybe they saw it as a competitor maybe. So we were using QuickBooks at our firm, at least in our office. I don’t know if I’m weaving too many stories together, but that’s sort of like-- my head is more toward the be different or be on leading edge or be new and find better ways to do something that you get the same outcome, but a lot more effective. And the real lightning in the bottle was Xero for us and ZenPayroll at different time. But when I found Xero, that’s what really changed our firm, in particular, because it was cloud-based. Built from the cloud.
Scott Scarano 00:33:32.975 You were at Xero. I mean, this was back in 2014. I mean, I don’t think we crossed path then. But that was when we found Xero, and that’s what changed everything for our office. And then Padgett would notice that we were doing things vastly-- and we grew like at a very rapid rate. Our firm or our office was maybe 90,000 a year in billings when I started working there with the other guy. And we grew very, very fast. In a very short period, we went from there to maybe 500,000 maybe just in 1 year or 2. And that’s because I could do-- we were able to do a lot more with a lot less. And so we were able to take on a lot more and we had a lot of capacity because Xero made these exponentially amount of time-saving lifts just through simple things that we take for granted now. But bank feeds and cash coding was just an entire game-changer for somebody that is doing a lot of write-up work. So we were able to do-- what used to take us days and days to complete, we could do that in a couple of hours. So it changed us. It changed the backbone of our firm. And then Padgett has kind of taken that model and shifted the way they approach technology.
Scott Scarano 00:34:50.711 You can see - I mean, it’s at least visible to anybody else - the outwardly changes that we’ve had recently. They replaced the CEO. They brought Jeff in, and Jeff is a little bit more connected in this world. They brought in Amanda, and Amanda’s obviously a lot more connected in the cloud world as well. Xero’s been a big partner. Karbon was at our last conference. And a lot of tech and tools that we used at our office has now become part of the franchise-wide system that’s still being redesigned and redeveloped and built back up. Not necessarily from scratch, because like I said, it had a bit of a foundation, but it’s changing. Changing the way that a lot of these offices that are part of the Padgett network, they’re ready to retire. They have been doing-- they’ve been at this-- it’s a 55-plus-year-old franchise. So they are all ready to put in the hat. Throw in the towel. So they’re stuck in an interesting situation because they’re doing a lot of things the old way, but it’s a model of the entire industry, right? The industry needs to change.
Scott Scarano 00:36:02.929 And that’s why we do our-- now I’m weaving a lot of different conversations together, but it’s like that’s why we have our podcast. That’s why me and Ackerman started it. Because we’re somewhat in a bubble of people that are doing things differently. We’re the next generation of accountants that are trying to adopt and find-- and I don’t know all the right answers. And that’s why I’m asking a lot of questions. I don’t know what’s the best way to do something. I know what works for us now, but that could change. So it’s a growth mindset of accountants that want to change and that aren’t stuck and marred in the inertia of, “This is how we’ve always done it and this is what works,” because there could be something that’s better that you just don’t know. So it’s the metaphor for the next generation. Because I saw that in the Padgett world and in the accounting world, there’s no difference, right? The large majority of people are doing things a certain way, and maybe they don’t have any incentive to change or don’t know the way forward.
Stuart McLeod 00:37:01.425 So how did you come across Padgett to give both our listeners an idea of how this sort of came about?
Scott Scarano 00:37:11.173 So I was at Carolina for accounting, and I lost my way at this is UNC, Chapel Hill. I lost my way somewhere. I started selling drugs. I started doing things, and I started writing scripts for movies. But I switched majors. Changed everything. Obviously, when I talk about the selling drugs part, I got kicked out of school. I totally went to the creative side, lost my way, got kicked out of school, and then had to shift back to accounting. Well, with that felony on me, it’s hard for me to get a job at any regular old-- when I went back to the accounting, the safe structure, it was hard for me to work at a larger-- I got job offers, but then the second you have to fill out that background check, it’s-- and then even getting my CPA, I didn’t get my CPA. I’m skipping ahead a little bit, but it was just-- it was easier for me to work at a smaller, local place. And I also saw a lot of opportunity. So I started at this kind of-- I didn’t even know it was an accounting firm, honestly. A guy calls me in to do an interview. I thought he was a job recruiter. And I thought I saw it was a pretty big opportunity. It’s part of a franchise network. There’s a lot more-- they’re working with small businesses. It’s not very corporate. It wasn’t very much like a huge ladder that I would have to climb at a regular firm. And it’s not about them judging me. But it’s like you don’t want to go into something with the wrong impression. So they knew everything about my background from the beginning. And I did work at a couple of CPA firms that knew the background, too. It’s not like they care or don’t care, but you can’t get past that with some people. So that’s kind of how that started. At least that’s why I chose that over the next regional firm. I was offered a job from one to another, and I just saw this Padgett-- he wasn’t going to pay me a lot, but I saw it as a big opportunity for a revenue share to grow his practice, to grow his firm, and I saw that as a new opportunity, right? Doors close, doors open. It kind of worked out to my benefit because I was able to shape and mold how we changed the practice. And he was hands-off. It was we worked well together for the 10 years I worked for him before I bought the practice from him, and he did a profit share with me. And so back in 2015 was when he retired, and that’s when I bought the practice from him. And so I funded the purchase of the practice through the profit share. Well, not through the profit share, but that was how I justified it, right? I grew it, but then I bought it from him. And now that’s how I’m in that world. So I have a franchise, a Padgett franchise.
Stuart McLeod 00:39:58.208 That would have been a pretty difficult journey of recovery, I imagine?
Scott Scarano 00:40:02.177 Well, not really. I learned a lot selling-- I mean, I was doing three options back then with cocaine. I was selling different options to people. My margins were great. [laughter] Just to me, the even natural business instincts. And these were decisions I was making, so I was learning a lot about running a business. Maybe not necessarily the best ways ethically, morally, however you want to put it. But I never did anything to anybody that they weren’t going to be doing anywhere else or they weren’t going to be who they were. These were just things that I justified in my head. Now, then again, it’s like I don’t have any regrets over anything I did because I obviously learned a lot from all of that, but not to say that I didn’t take anything away from those experiences. Because you learn how to deal with a lot of different people, all types, across all paths. And I guess that’s how I am who I am today because of all those mistakes along the way, right?
Stuart McLeod 00:41:06.144 So the significant business acumen was gained with some experiences early on life? Pricing. What else? Customers, sales, marketing, of course, business development?
Scott Scarano 00:41:20.398 Margins, profitability. I mean, I could talk about that all day. And it was leveraging, yeah, and investing, and getting some inventory. Employees, stocking, and supply and demand and basically just different-- and it was a collaborative effort, too. It wasn’t competitive, ever. It was always like, “Okay. Distribution. Marketing.” It’s a different part of it. I’m reading a book called Narconomics now, and it talks about the genius of a lot of the cartels. I’m in the cartel portion of it, but it’s probably going to go into all different directions. It’s very interesting, the similarities from Walmart to a drug cartel or the way that they operate and the way they run. Business is business. Demand is demand. People are people. And you have to listen to what the people are saying. I don’t know. We can draw a lot of macro and micro examples. But--
Stuart McLeod 00:42:24.598 I mean, I don’t mean to draw parallels between cartels and accounting. I do notice, though, that accounting is very-- accountants share with their peers a lot more than a lot of other industries. They don’t generally see other accounting firms as overly competitive. Maybe it’s different in, say, the top 200 or something, but the smaller ones.
Scott Scarano 00:42:49.715 Well, it’s a mindset, too. And I think that what you’re seeing is you guys have created a culture of accountants that share. It wasn’t always like that. And I don’t think it always-- it is still like that in the broader sphere. But in the Karbon community, you guys are creating an environment and a culture of sharing and scaffolding is what Ian would use. And everybody’s benefited from that. And this information is not mine. It’s not proprietary. I speak on a franchise at one hand, and that’s all BS when it comes to, “Oh, this is the way we do things. And nobody else should know this.” I think everybody should know everything, so then you could take it your own way and do it the best, right? So, yeah, it’s sharing and it’s--
Stuart McLeod 00:43:34.278 Well, that’s good to know that we’re sort of propagating that kind of behavior. That’s good to know. [laughter] And so you took over the firm. You bought the firm. That was in 2015. And--
Scott Scarano 00:43:47.908 So I bought the firm. We’re at about 1.5 million now, and, sheesh, we were at 1.2 million in 2016. And we stayed there up until last year. So that’s the ceiling I hit as an owner. I didn’t know what I could have done more or less, or I got stuck in the work. I’m out of the work now. I don’t do any client work. I don’t do any taxes or anything like that. I basically just do sales here and there when I feel like it. When I want to. I just spend most of my year doing a podcast and hanging out. But yeah, I mean, now I’m just trying to figure out where my purpose is or where I’m needed. Like, Do we need to hire somebody for sales? Do I really want to continue doing that?" I’m kind of just trying to figure out where my direction is and what my next step is there. So it’s not that I’m disinterested in it, but now we finally got past that 1.2 mark I’m not aggressively trying to grow. I’m not trying to do anything to really scale up because I’m trying to let my team dictate that. And I don’t have it in me to really want to drive the business in a direction that they don’t want to go. So they like things comfortable. They like natural progressions. And just we have a natural abound of clients that we add on every month just by not doing much. We get a lot of inbound leads, and I try to close enough business, but sometimes I dip out and I’ll be traveling or I just don’t really feel like going to my email, and so we just don’t have a lot of business that month. But then sometimes I got to put my nose back in there and start closing some deals and we’ll close a lot of new clients, and then dip back out again, so.
Stuart McLeod 00:45:30.782 Yeah. Well, that sounds like a pretty pleasant way to operate. [laughter]
Scott Scarano 00:45:34.081 I don’t know. I don’t make it that pleasant sometimes. I just get in my head. My ambition kills me, too, right? I also see where all my peers are or where my firm could be or where the top line could be. But then I want to focus on the bottom line. And it’s like I get pulled in a lot of directions in my head, and I don’t know what the next step is sometimes. Yeah.
Stuart McLeod 00:45:54.172 Being self-aware for that stuff is probably 80% of the battle, right? A lot of us, particularly in the software world, can get caught up in growth for growth’s sake. And I don’t feel like accountants suffer from that as much as us software people, but you should be very deliberate and very focused on what is right for you and your firm, and--
Scott Scarano 00:46:22.714 It’s like the why, right? Why are you doing this? Why are you in this? Is it for the ego? Then, it’s top-line growth, right? Is it for pride and then to look back on some legacy that you’ve left? It’s not always going to be just chasing the dollars, right? It’s got to be something deeper than that and having a mission to accomplish something and to do something. And the journey should be fun to get there, too, I would think.
Stuart McLeod 00:46:46.780 I mean, that was one thing that I probably learnt too late in life. And again, in software, you can take the check, or you sort of view the exit as the goal, right? As I say, I probably should have learnt it a bit earlier, but actually, the goal is the journey. The check, whether it comes or whether it doesn’t, is a by-product of--
Scott Scarano 00:47:11.892 Well, doesn’t it always come eventually? It always comes eventually, in one way or another. If you turn around and look and you’ve got like a family, three kids that are healthy, that’s a check right there, right?
Stuart McLeod 00:47:25.115 That’s the best one. That’s the best one. [laughter]
Scott Scarano 00:47:28.222 And the other check is icing. The big one, the one that’s taped up, that check behind me, is our first sponsor. That’s what I cared about more last year, our first sponsor for the podcast. I cared more about that than about selling a large deal at the firm. It was just one of those things. That it was like, I guess, it’s more about the journey, right? You guys sponsored our podcast, too. And I thought that was baller when Lachlan said, “You don’t need to talk about the product. Just talk about the Accounting Leaders Podcast, the community, the magazine, and then maybe mention the product here or there.” But I thought that was so-- it’s like, that’s a flex, right? You guys know that the content is right and it’s good. Send them in that direction. You don’t have to get them to sign up for a quick trial or an intro or anything like that. And it’s not about the short-term, it’s about the long-term of getting the message out there, and then they will come. And it’s a long game, too, so.
Stuart McLeod 00:48:23.965 Oh, I can’t believe how quickly this hour has gone.
Scott Scarano 00:48:26.506 I told you I got a motor mouth, though. I don’t have a shortage of words.
Stuart McLeod 00:48:30.720 Yeah. No, this is great. It’s been so wonderful. We’ve got to do this again, Scott.
Scott Scarano 00:48:34.778 Yeah. Well, we can have you come on our podcast. You haven’t been a guest on ours. That would be awesome.
Stuart McLeod 00:48:40.720 I’d love to. But I’ve got to deliver tags. Otherwise, Ackerman’s going to kill me. And we’re going to spend three-quarters of an hour talking about tags. [laughter]
Scott Scarano 00:48:51.697 And I’m sure they’re still asking for that, too, but--
Stuart McLeod 00:48:54.692 I’m sure they are. Absolutely. [laughter]
Scott Scarano 00:48:57.374 They are OG Karbon. They were one of your early users. He always has to remind me that he was using Xero and Karbon before I was because I say that we’ve been using stuff for a long time. But he always has to hop on that. He says, “He’s your closer. He comes in when you need to close a big deal.”
Stuart McLeod 00:49:14.854 He does do a great job. We love Bernie and Jason. We have a lot of love and respect for those guys. And I’d love to come on. I’d love to come on.
Scott Scarano 00:49:23.655 So do I. We’re two totally different people. I actually got upset with him because he didn’t mention our podcast on yours when he was on. And he was like, “Well, maybe they edited it out.” And I said, “That’s bullshit. Why would they just edit it out?”
Stuart McLeod 00:49:36.132 We would never not put a plug in. [laughter]
Scott Scarano 00:49:43.496 He said, “Jason, is there anything else you want to talk about?” And then he says, “Well, I have a food podcast.” Like, “He doesn’t want to talk about an accounting podcast,” right?
Stuart McLeod 00:49:51.934 That’s right. I remember. Yeah. He was one of our first. [music] Well, we have to do this again.
Scott Scarano 00:49:58.359 Yeah. Definitely. Yeah. Enjoyed it, Stu. Good to meet you finally.
Stuart McLeod 00:50:03.160 Thank you, Scott. Likewise. Thanks for listening to this episode. If you found this discussion interesting, fun, you’ll find lots more to help you run a successful accounting firm at Karbon Magazine. There are more than 1,000 free resources there, including guides, articles, templates, webinars, and more. Just head to karbonhq.com/resources. I’d also love it if you could leave us a five-star review wherever you listen to this podcast. Let us know you liked this session. We’ll be able to keep bringing you more guests for you to learn from and get inspired by. Thanks for joining and see you on the next episode of the Accounting Leaders Podcast.