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Jeff Phillips is the CEO of Padgett, one of the largest tax and accounting firms in North America. He also founded the recruitment platform Accountingfly in 2012 and has been recognized as one of Accounting Today’s Top 100 Most Influential People for helping solve the hiring challenges of CPA firms. In this episode, Jeff and Stuart discuss combining work with vacation while being remote, the story of Accountingfly, and what it takes to be a great leader. They also talk about holidays, Jeff's trip to Costa Rica, and how taking mangoes from someone's tree is acceptable.
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 00:00:06.449 [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. Today I'm joined by Jeff Phillips, CEO of Padgett, one of the largest tax and accounting firms in North America, serving the specific needs of small businesses. Jeff founded the recruitment platform Accountingfly way back in 2012, and has been recognized as one of the top 100 most influential people for helping solve the hiring challenges of CPA firms. Since then, Jeff and his team have been working directly with firms to help them transform their processes and culture to embrace remote talent. It's my pleasure to welcome the CEO of Padgett and the founder of Accountingfly to the Accounting Leader's Podcast, Jeff Phillips. Jeff, welcome. So Pensacola is your hometown. You haven't moved far from your original place of birth. Is that true?
Jeff Phillips 00:01:12.616 That's true. I live in my hometown. My wife is from here. We wanted to raise our children here. But I've lived in Austin, New York, Dallas, and went to college in Texas. And so during the early part of my career, I worked for a lot of really cool companies, and got to see a lot of awesome things, especially in the dot-com startup world. But when my wife was pregnant with our first son 13 years ago, we decided to move back home. It's a beautiful little town. It's on the Gulf of Mexico. It's kind of under the radar, but it's got white beaches and a lot of great history. So my parents and my in-laws live down the street. It's good, man.
Stuart McLeod 00:01:54.416 Yeah. That's a very family-oriented lifestyle. And what do you do off the coast there? Is it a big sailing town, or what's the leisure sport of choice?
Jeff Phillips 00:02:06.740 It's a huge sailing bay that we live in. Actually, last summer, the America's Cup team, this was their practice--
Stuart McLeod 00:02:14.999 All the Aussies on the American team, eh?
Jeff Phillips 00:02:18.071 Yeah. Is that right? I don't know much about the--
Stuart McLeod 00:02:20.433 The American team had like two Americans in it. [laughter] The rest were Kiwis and Aussies.
Jeff Phillips 00:02:26.994 They maybe changed the name then. So they were all living here in Pensacola. I don't sail, but I love to get in my boat and go beach hopping and cruise, and do some fishing. A lot of golf around here. It's warm nine months out of the year here. It's really pleasant in the spring and the fall.
Stuart McLeod 00:02:47.693 What sort of boat you got? You got a big sink boat, do you?
Jeff Phillips 00:02:50.339 I don't have a-- did you say a steamboat? Did you say a steamboat?
Stuart McLeod 00:02:52.658 Sink boat.
Jeff Phillips 00:02:53.419 What's a stink boat?
Stuart McLeod 00:02:55.561 Sink boat. Well, it's either a sailing boat, which don't sink, or a sink boat that sinks because of the diesel. [laughter] Haven't you heard that before?
Jeff Phillips 00:03:03.419 That's got to be an Australian term. Right?
Stuart McLeod 00:03:08.058 It probably is. I don't know if it's-- I don't think it's meant to be derogatory. Maybe some sailors, friends of ours, started that term and sort of a bit of a jab at those that need [most motors?]. Yeah. [laughter]
Jeff Phillips 00:03:26.851 I have a motorboat, a motorboat that's good for fishing and just cruising around. It's got a little door off the side that my kids can jump into the water on with a ladder. It's fun to just go out and spend the day. We'll go cruise to a beach and set up a little camp, and spend the day and play and eat, and go home kissed by the sun and exhausted at the end of the day.
Stuart McLeod 00:03:53.405 That's amazing. And having your family close by must be great for the grandkids and the grandparents and all of that. That's a very well-considered arrangement you got there.
Jeff Phillips 00:04:09.209 I'm assuming you don't have any family in Tahoe, other than your immediate family.
Stuart McLeod 00:04:14.025 That's right. That's right. We have a small family. So my sister is seven years younger, who lives in Hobart. My father passed away 22 years ago. Amanda is an only child and her parents in Melbourne. So part of us moving 10 years ago, it is this year, to the States was we didn't really have-- we had our parents, the kids' grandparents, obviously, but it was not like your situation where they were down the street and it's like, "Here you go, Mom, have the kids." And it's not that we moved away from them deliberately. We wouldn't do that. Hi, Mom. We just felt a bit like you with travels and everything, pre-kids, it's sort of your town starts, even Melbourne, starts feeling small when you're drinking with the same people at the same places that you were 20 years ago. It's like, "Okay, hang on. Something's got to change here." Right? And so we did. Yeah.
Jeff Phillips 00:05:19.881 I always tell my kids that they have to leave when they're 18 and it's time for college. They can't stick around here. They've got to go away. I don't want them to go away, but I think you have a richer life if you travel and if you move around. And my wife and I, we did our share of that before we met each other and got married. And if you want to come back, come back. But don't live here your whole life. That's what I always tell my kids.
Stuart McLeod 00:05:45.062 Gap year is not such a thing here, is it? That year, between high school and college. You typically go straight to college, don't you?
Jeff Phillips 00:05:55.046 Yeah. You typically go straight to college. And I was not ready for that. And I don't think anybody is. And I think if I could have done it all over again, I would have worked on an oil rig, or done manual labor or something for a year, and then really appreciated the opportunity of a college degree.
Stuart McLeod 00:06:11.795 Yeah. No. I wonder if it's got anything to do with sort of the very rigid sporting path that America has. Right? If you've got any talent, you're going straight from high school into college on a full scholarship, and there's no fucking around in the UK pulling beers for three years, is there?
Jeff Phillips 00:06:34.971 What does the gap year look like where you grew up?
Stuart McLeod 00:06:38.584 I didn't do it. But yeah. So honestly, Aussies, we do a big swap with the UK. There's a me and Aussies that go to the UK and try and shag a lot of English people, and all the English people come to Aussie and do the opposite. That's all it is. That's what happens. And there's some beers that are pulled in the meantime.
Jeff Phillips 00:07:04.976 So Australians, they're 18 years old, they finish high school, and they move to the UK for a year and just party? That sounds awesome. Can we do that? Can we do it when you're 45?
Stuart McLeod 00:07:16.089 I reckon we should. We can't do the shagging. Divorce is too expensive. And nobody will have us, anyway, Jeff. Let's be honest. And--
Jeff Phillips 00:07:25.507 I would like to go to England, though. Listen, let's ditch this podcast and I'll meet you in London in 48 hours. How about that?
Stuart McLeod 00:07:32.649 Let's do it. Well, we don't need to do it in July. So summer is the best time to visit London. It's amazing and we, selfishly, we've got a team that's ever expanding in the UK. And we're translating the product into French and starting up there. So I'm going to spend, with the family, we're going to spend two weeks in the UK in July and do a little bit of travel in Europe, as well. But that should be really fun. I think sort of our rebellious year is this year with travel. We're trying to cram three years of travel into one.
Jeff Phillips 00:08:13.932 Us too.
Stuart McLeod 00:08:15.849 Have you spent much time in Europe and UK or Australia or any of those?
Jeff Phillips 00:08:21.182 No. I mean, I'm jealous that you're taking your family with you. One of my dreams is to spend a summer in France and take my kids and my wife, and learn how to cook, and live in Provence. That's one of my bucket lists. But we did go to Costa Rica for spring break 10 days ago and had probably the best family vacation we've ever taken.
Stuart McLeod 00:08:41.451 Whereabouts in Costa Rica?
Jeff Phillips 00:08:43.920 We stayed at a resort called El Mangroove. It's in the northwest part on the Guanacaste Cost area of Costa Rica near Liberia. Hermosa Beach, Coco Beach. We were on a beach called Panama Beach. It was great. It was warm, sunny. The people are amazing. We ate seafood. We jet skied and boated and fished and went to bed early. We went to bed about 8:30 every night and just got a good night's sleep. It was the best.
Stuart McLeod 00:09:17.266 One of the things, Jeff, we have to talk about is remote work and the Great Resignation. Costa Rica is the place that I would choose to live. See? See what I did there?
Jeff Phillips 00:09:28.902 It's called a segue.
Stuart McLeod 00:09:30.884 That was the worst segue I've ever seen in my life. [laughter]
Jeff Phillips 00:09:34.356 In the biz, it's called a segue, Stuart.
Stuart McLeod 00:09:36.676 Oh no, I'm [inaudible] business, so it doesn't matter. So we had a fantastic holiday, like you. Actually, it was five or six years ago now. [Me there?], I was going to look it up, but [inaudible]. But yeah, we had an amazing two weeks down there. I think you're the third or fourth person that's mentioned Costa Rica. Our accountant, Bruce Phillips, God love him, just bought a house down in Costa Rica in Tamarindo.
Jeff Phillips 00:10:01.466 Nice.
Stuart McLeod 00:10:02.094 Yeah. Right. So I think we should do the podcast. [inaudible] go in the UK, Costa Rica. You were tempted to look at the real estate down there?
Jeff Phillips 00:10:09.766 I want to go back. I didn't look at the real estate where I was at. I don't think it's going to be in my wheelhouse right now. But I want to go back so bad.
Stuart McLeod 00:10:20.555 I think just the people and the place just bring your family together. Right? It's just--
Jeff Phillips 00:10:27.427 It just works. I mean, we took a tour with this wonderful guy who's driving us around in a Toyota Land Cruiser. And we're going to this park where we were going to go horseback riding and ziplining. And he was telling us about all the fruit that is just natural to Costa Rica, like cashew fruit, mangoes, etc., etc. And he said one of the things about Costa Rica is if somebody has a fruit tree in their yard, they don't mind if you just pick one off. He goes, "Here, I'll show you." Pulls over the car and takes a big stick, throws it up at this mango tree, and knocks down about 10 mangoes, and brings them into the car, and says, "Here you go." And we ate them in the car.
Stuart McLeod 00:11:11.556 [laughter] You'd get shot if you do that in Florida.
Jeff Phillips 00:11:14.153 Oh yeah, Florida, we could do a whole podcast on how weird Florida is. Happy to do that, by the way, if you want. And not talk about accounting. But yes, you would get shot in Florida, maimed.
Stuart McLeod 00:11:26.982 Yeah. [laughter] It's a different culture. I think in Aussie you'd be like, "Oh, fucking mate, whatever, can't be bothered." We could do a cultural comparison. On the West Coast of the States, there'd probably be some kind of city ordinance that would stop you from dropping the mangoes in case you got hit in the head and you had to sue for liability or something. Right? So you wouldn't be allowed. [laughter]
Jeff Phillips 00:11:56.389 This is true. That sounds very Californian.
Stuart McLeod 00:11:59.347 You can only drop the mangoes between the hours of 9:00 to [inaudible] [laughter] and they have to be tested.
Jeff Phillips 00:12:09.626 I asked the guy, we said, "What would the homeowner say if she saw you?" And he said, in English, he said, "She might yell at me. But I'll say, 'It's no big deal. Pure vida, pure life.'" That's what they say in Costa Rica. So turns out they do kind of get pissed off if you steal their fruit. But you just tell them, "Pura vida," and then everything's fine.
Stuart McLeod 00:12:29.737 Well, there's something to be said for a country without military.
Jeff Phillips 00:12:33.870 And they're bordered by pretty hostile places with high military, I believe.
Stuart McLeod 00:12:40.140 So they're just like, "Eh, you guys are right. You guys go and fight. We'll sit here and sit on the beach, go surfing."
Jeff Phillips 00:12:47.819 Drink out of a coconut and go surfing. Speaking of the Great Resignation, I don't want to work anymore. I just want to go back there.
Stuart McLeod 00:12:55.538 But if you're going to work, pretty good place to do it.
Jeff Phillips 00:12:59.109 Yeah. Well, look, I know people that work all over the world, remote, for accounting firms. They live on beaches and you can work from a hut in Costa Rica as long as you have a good Wi-Fi connection and the right laptop.
Stuart McLeod 00:13:13.667 That's right. Elon's fixing the world's internet. Right? So once you got a solid, you're sweet, you're good. You're good to go. And I have a theory, though, Jeff. What do you think of this? So you are absolutely right. You can work wherever you like. But the world work environment is not ready for people to work on the beach, on the boats, in the hut. I don't know why. Well, I do know why, I guess. Because it's so ingrained into us that beach equals holiday. Right? That as soon as you turn-- if I change my background [inaudible]-- if I change my background, then you think that I've sort of got my shirt off and sitting on a beach somewhere. I should do a podcast outside, I guess. But you go into that mindset. "Oh, I'm interrupting his holiday, I'm intruding on his family time." So I think people that do choose to live in amazing places, there's still a lot of bias around whether they're actually working. "Oh, he's fucking around and not doing much. Oh, hard life, is it, Jeff? Just gone from pool to beach today, have you?"
Jeff Phillips 00:14:34.225 I definitely think it's a career-limiting move right now, the way you described it. But you should also have professional standards. You could live on the beach, just have a fake background, and put a shirt on for your client meetings. I mean, come on.
Stuart McLeod 00:14:48.855 The computers look after that, surely, these days. Anyone can put a shirt on, surely.
Jeff Phillips 00:14:53.832 When we first started doing remote hiring at Accountingfly, that was the biggest fear. I would go to these conferences for traditional CPA firms here in the States and say, "There's a very compelling reason to stop hiring in your city. And that compelling reason is there's not enough people there to fill all the open jobs." So we would say, "It's really simple. If you look nationally, and you don't care where they work, you'll probably fill the job. It's that easy." And this fear of not seeing them, not having my thumb on the employee, and knowing exactly what they're doing at all time, that was the resistance, across all industries. Although I think ours was the last to truly get on board with this.
Stuart McLeod 00:15:39.915 Yeah. COVID left the world with no choice, didn't it?
Jeff Phillips 00:15:44.524 It did. It was the greatest thing that could have happened for remote work in the accounting profession, because everybody realized, wait a second, there's no one at the office. We're making more money than we did last year. I guess we can be productive from home, after all.
Stuart McLeod 00:15:58.733 And there's these great softwares you can do to keep your virtual thumb on knowing who's doing what, when, why, and how. [laughter] You'll appreciate this. There's a whole lot of side effects, and some manageable easily, some within your control, some not. But when I was in the UK end of last year, what we heard was-- and inflation is an issue throughout the world, [inaudible] Pakistan at the moment [for places?]. But what we heard from the firms that were outside of London, right, like coastal or up north, say, past Manchester and places like that, was essentially, I'm sort of paraphrasing, but they're like, "These fucking London firms are coming to the regions, taking out staff, and paying the London prices, and they don't even have to move." So the [inaudible] or both, so they were like, "We've been doing remote work all this time. The London firms are waking up, and they're having an impact on us and our staff. So we need to find even more ways to improve retention and attract talent." So that was quite interesting, I thought. And I'm sure it happens in America. But I guess it's just the size of the UK, and the way that the sociodemographics work, that it was more obvious.
Jeff Phillips 00:17:40.297 If I understand what you're saying correctly, the exact same thing is happening here in the United States. So back when we started remote hiring for our clients in like '15 and '16, you could hire a remote CPA or a bookkeeper for a little bit of a discount over the average market, or the mean market. But when the industry started to adopt remote work more at scale, the California firms started setting the wage rates. And so a lot of firms that used to be hiring remotely, we started losing their staff, because the California firms and the New York firms were getting people in Minnesota and Oklahoma and Nebraska at Los Angeles wages. And so one of the things that we just have to be upfront about when we talk about the Great Resignation, at least in accounting, is you have to pay market rates. Just like London setting the market rate in the UK, Los Angeles is setting the market rate. We have hundreds of stories of LA-based firms and New York-based firms taking people from big CPA firms in the middle of America. They're getting 40% pay raises and now working from their house.
Stuart McLeod 00:19:00.761 Well, that's good. Good on them. I mean, well, I guess COVID is reducing the geographical borders of A, the world, but particularly the countries that you and I operate in the most. Right? And I don't know, generally, I think that's a good thing, particularly in the US with relatively minimal social safety nets, and high price of insurances, and those kinds of things. I mean, a more equally distributed wage, generally speaking, should be a net-net positive outcome.
Jeff Phillips 00:19:40.087 I think it is. And it doesn't matter if we like it or not because it is what it is. And yeah, we get yelled out a lot by managing partners with small firms who want to hire a bookkeeper, and we tell them what it's going to cost them, and they think that we're price gouging. It's like, "We didn't set that." It's like a home-- hiring people is like selling a house.
Stuart McLeod 00:19:59.428 Hiring people is like selling a house. By [inaudible]. [laughter]
Jeff Phillips 00:20:05.870 The market wage is determined by market, not by your opinion, or how you feel about it. And same with selling your house. You can ask 50% over, but you're not going to get it. The market decides that. And wages are decided by the market, as well.
Stuart McLeod 00:20:23.216 So what do you think of this theory, right? Here's another half-assed theory by Stuart. It's not the Great Resignation, it's the great shuffle, because resignation would imply a decline in employment. But I think what's really happening is people are shuffling. Or perhaps I need to find a better word, having a double take, or at least a think about their life, their career, their values, and their lifestyle. And matching those objectives with their employer and vice versa. Right? Employers are matching their ethics, morals, lifestyle ideals with their employment base. I guess, we are privileged in terms of operating the knowledge economy. We don't have to go to factories to make a living, and forever grateful. But in the knowledge economies. I think that that's generally true. If you wake up one morning and your employer requires you in the office five days a week, having been home for the last three years, you're going to have a good hard think about it, aren't you? That might suit you. It might not. And you'll pretty quickly find somewhere that suits you better.
Jeff Phillips 00:21:47.837 You absolutely will, including entrepreneurship. I mean, I don't have the numbers on this, but my hunch is that the Great Resignation is really code for reevaluating my life and my career. I wonder if it will lead to a rise in entrepreneurship. I'm very curious about that for my role at Padgett, and just one inside the accounting profession. But I'm hoping to see a lot of people start more firms in the profession as a result of this.
Stuart McLeod 00:22:17.341 That would be good. I think more firms are good. I've got [inaudible] and look this up. Lucky, can you look this up when you get this and have to cut these things out? But I don't reckon the accounting industry, by number of people, has grown at least over the last five years. Like one in, one out, at the most. There's that many, and I shouldn't generalize but I'm going to, old white guys that did have one foot on the golf course, have now got two. And the influx from academia into accounting-- and the general life path of your dad as an accountant was you go and work for his firm for 35 years, and he might let you become partner when he gets his handicap down. Right? Those days are gone. And new firms, new, interesting firms, new exciting firms, new tech, progressive firms - ready, here's another one for you, Jeff - like those at Padgett, encourage people to come into the industry. Right? It's got to be interesting and worthwhile. And more and more, people need purpose, rightly so, in their work environment. Right? And if you can provide that through an interesting firm, a firm that does good, a firm that helps interesting clients, let's do it. I'm all for it.
Jeff Phillips 00:23:41.955 I'm excited about a change in firms that probably has started with software companies, with the cloud being adopted, and a couple of the ones you've worked at and started, and the adoption of remote work. And where it used to be, you start a firm and it was like, "I'm going to go after clients in one gas tank around my office." And that's driven by the fact that we used to do pickups and drop offs. And so what's changed is, and this is what I think is really exciting, is I can go and build an accounting firm that serves the dental offices around the entire United States footprint. Or I could go serve advertising agencies.
Stuart McLeod 00:24:24.166 You could do kids-- dental offices that just serve-- that are specialists in children's dental. Right? You could make a huge living with a niche inside a-- or a niche, as you would say, a niche inside a niche inside a niche. Right? And as long as, yeah, I mean, COVID sort of knocked the restaurant industry around. And if you're a fully restaurant, there's probably an argument to say that that wasn't a great idea. And why stop in the American borders? Right? You can do accounts, perhaps not accounting, but you can do accounts anywhere in the world. Right?
Jeff Phillips 00:25:02.349 You can do CAS anywhere in the world. Taxes is more complicated. But okay, that's fine. Although I do have a friend who has a firm, and she herself is a digital nomad. She just travels the world. And she has a tax accounting firm that only does expatriate, US expatriate taxes. And her employees are all, "No, you must be a digital nomad. That means you do not have a home. You just travel the world." And that's her accounting firm.
Stuart McLeod 00:25:29.806 There you go.
Jeff Phillips 00:25:30.698 But the rise of entrepreneurship is a lot of fun. And there's a lot of firms that are coming up. I mean, the whole industry is coming up for sale. There's a lot of firms for sale. They're not going to get the multiple that they were hoping they could.
Stuart McLeod 00:25:46.218 No. Because they still [have servers?] in their cupboards. That's why.
Jeff Phillips 00:25:51.233 Right. And they're still in the one gas tank mindset, so.
Stuart McLeod 00:25:56.033 Well, it is a battery mileage now. Right? You can--
Jeff Phillips 00:26:00.598 One charge?
Stuart McLeod 00:26:01.892 One charge. Exactly. Thank you. One charge distance.
Jeff Phillips 00:26:04.873 I want to get ahead of that trend. And one of the things that-- we haven't rolled this out, but I feel like for Padgett has a unique place in this. We want to go-- we want to go find those who are reshuffling and reevaluating their career and want to be entrepreneurs. But we want them to not have to start at zero because I think that's really hard to start an accounting firm at nothing. We're going to go help them buy and due diligence on a firm, maybe in their market, or maybe in their niche, and then help them transform it into a modern firm. Get them set up with Karbon. Get them set up with cloud accounting. And give them our playbook. My hope, it still hasn't really been fleshed out, but my hope is that there's enough people who want to be entrepreneurs. I think there are. And we know there's a lot of firms. So we want to somehow be that conduit between the demand for entrepreneurship and the supply of firms that are out there.
Stuart McLeod 00:27:03.843 And also the knowledge curve. Right? If you can sort of start halfway up the knowledge curve, why wouldn't you? And there is an easy argument to make that accountants aren't naturally entrepreneurs. They tend to be more risk averse. If you can take away some of that risk, that's an easy seller.
Jeff Phillips 00:27:28.670 I think so. I mean, more to come on it. It's kind of my dream for that company, and I hope we can pull it off. But you got to have the market on both sides, and they're there. And they've been doing that for 60 years, [limiting?] that knowledge curve for firms. But we have to modernize, too. We're a one gas tank firm. We were. And we're modernizing what we do.
Stuart McLeod 00:27:54.216 So what was the foundations of Padgett? What's the story from then to now, Jeff?
Jeff Phillips 00:28:01.567 It started in Athens, Georgia. Before, it was a franchise. This man, Walter Padgett, was doing gas station accounting and their taxes, but it started with accounting. And then in the 80s, some new owners turned it into a franchise model. In the 70s, 80s, 90s, there were a handful of big franchise-type companies in our space. And a lot of them have disappeared.
Stuart McLeod 00:28:26.236 H&R Block was probably the most well known. Right?
Jeff Phillips 00:28:30.465 They have thrived. But in the small business accounting and taxes realm, those companies have gone by the wayside. They never adapted. And Padgett kept adapting. H&R Block is a kind of a role model for us. We don't want to position ourselves too closely to them. But they do personal taxes. Anyway, so the company just scaled and added lots and lots of-- I mean, they sold probably 600 franchises in Canada, in the United States, over a 30-year period. And then my team got there 18 months ago. And really, take all the good things that Padgett has. They're so good at helping an entrepreneur run a firm, make money in the tax business, in the accounting business. But what I learned from building Accountingfly and from my friends in the industry about implementing cloud accounting, and implementing better processes, implementing remote work, and contractor accounting, that was what we've brought to the table. And then now this next phase that I mentioned, where we want to go and match entrepreneurs with existing firms, help them buy them, get them in business for themselves.
Stuart McLeod 00:29:39.204 And do you call them franchises? How many franchises is Padgett up to, and what's sort of the reach of the network, and all of that now?
Jeff Phillips 00:29:49.501 300 independently-owned offices in North America. And most of these firms are probably 50% accounting work, 30% small business taxes. And they do some advisory, and they do some payroll, as well.
Stuart McLeod 00:30:06.021 What's the typical profile of the independently-owned office? What do they sort of look to Padgett for to help them along the journey?
Jeff Phillips 00:30:17.620 They want us to do the R&D, to have a viable technology stack. They want us to be able to answer tax questions that they are getting from clients that they don't have time to research. So we have an entire research staff. They want to be part of a community, which we have an awesome community of our owners. And they want to have a playbook on how to make money in the tax and accounting space. What's interesting is, just like the profession itself, our owners' average age is probably 60 years old. They're ready to retire. So our challenge is--
Stuart McLeod 00:30:52.838 You need to bring in 300 new owners.
Jeff Phillips 00:30:56.151 Right. Really fast.
Stuart McLeod 00:30:58.196 Anybody out there, he wants 300 accounting heads.
Jeff Phillips 00:31:00.638 Does anyone listening to this podcast know 300 accountants that want to buy a firm in the next three years?
Stuart McLeod 00:31:07.078 Six months. [laughter]
Jeff Phillips 00:31:09.078 Hit me up. DM me. So that freaks me out. Because that's kind of our big swing, is can we make that transition happen? And you know how it goes. We have a good plan for it, but you're not going to know how it's going to work until you pull it off.
Stuart McLeod 00:31:26.457 How did Accountingfly fit into all this? Perhaps tell us a bit about that and your passion for that.
Jeff Phillips 00:31:34.386 I truly have a passion for the talent side of our space. Started Accountingfly 10 years ago. Our mission was to solve the hiring crisis that existed in the accounting world. That crisis has actually only got harder. We have not solved it. [laughter]
Stuart McLeod 00:31:55.474 Yeah. I think you need to start a university with 30,000 students to help make a dent. Right?
Jeff Phillips 00:32:05.883 We have had so many interesting stories involving Accountingfly over the years, so many ups and downs. We only want to work with firms. And we are really committed to solving this problem. I mean, the problem is that there's just more jobs than there are people. And the value proposition for working accounting has sucked more and more over time, and the turnover rates show it. The pandemic blew that up. So it's even worse. But we realized that, by being an open firm, and embracing remote work, and making some changes to workplace culture, firms could hire. People want to stay in public accounting, and accounting in general. They want to serve clients. But they don't want to work for shitty employers. And so we wanted to make better employers, then help them hire people. And so it's a great passion of mine. So I still am an owner in Accountingfly. I still speak on behalf of Accountingfly, and on issues related to talent. And Padgett and Accountingfly have a great relationship too, because our firm owners were bought in on remote work, and contractors, and things that Accountingfly does. So it's weird. I started a company, and then grew tired of being in a startup leadership role, and started looking around for something else. And then Padgett found me. It was just the career opportunity of a lifetime, as far as I was concerned. But I still get to be involved in Accountingfly. But my team at Accountingfly runs that now, not me.
Stuart McLeod 00:33:37.869 So through your experience in Accountingfly and Padgett, what makes the perfect firm?
Jeff Phillips 00:33:44.875 That's an awesome question. A perfect firm has a clear sense of who they are, and a clear sense of what they are and what they are not. And you can articulate what you're not. That's hard. People want to take everything in terms of new clients or people. But you've got to chisel away who you are and who you're not. I think there's so much opportunity in firms in being such a great adviser-led company that can charge high rates, and don't race to the bottom. So that's another aspect. It's aggressive, value-based pricing. It's an incredible workplace that is flexible for its people. It's really mission-driven around taking care of its people. If you have those kind of key elements-- and I want to make a last point. Because I see firms make this mistake a lot. It makes them an imperfect firm. Owners in our peer group will hire people, but not delegate authority to them. So we make this mistake of hiring the low-level admin staff, or the low-level tax staff, but we don't hire that critical COO. Or, if you know [Traction?], the integrator role. And then even if you do, they don't delegate. So you've got to get out of your own way as a leader. So I think those elements can make for an absolutely perfect firm. High margins, high prices, a clear sense of who you are and who you are not, and a delegation culture. Those are the, off the fly, the things that I see so often that are troubling when firms are not adopting those practices. And throwing it back at you - you heard my answer - what did you think about that? And what did you think I missed, or did you disagree with any of that?
Stuart McLeod 00:35:32.775 No, no, no. Of course not. You know more about running a firm than I ever will, Jeff. But what do we see? What do we see that appears to be successful? I don't know whether it's perfect. But I look at firms like Acuity down in Atlanta. I look at firms like flinder in the UK. I think there's some common elements. Yeah. What do you want out of it? Do you want to grow? Is a perfect firm one that's growing, outsized numbers than the rest of the industry? I don't know. It probably is for me. But my perfect firm is different to yours. Right? So that kind of makes that question a bit interesting. Even any company, you want to work for a company, or firm in this case, that is, as you say, is purpose driven, that has a mission that you can get behind, that you can believe. I think that's got to be the first piece to it, doesn't it?
Stuart McLeod 00:36:36.589 People have woken up in the last 100 years. Right? It was different way back when I was a kid. And you were lucky to have a job. Right? Depression years and all of that. So the economy and the industrialized world has changed dramatically. And no longer are people begging for a job. They get to choose their career and their own success or not. And I think you keep taking that further and further, and it's like, "Well, if I'm going to do something with my life, I want to make it worthwhile. I want to leave a legacy. I want to be part of something that is important and that does good." I'd like to believe that most people in the world think that way. I'm sure there's plenty that don't. But I think, hopefully, there's a majority that do. And I think those firms with purpose, and that look after their employees and their clients, and they have values, I think that's got to be the start for me.
Jeff Phillips 00:37:44.742 I love that answer. And I was going to add, to put a fine point on it, but you said it, is I think a perfect firm accomplishes what you need from it to accomplish for your life. If you've read E-Myth, E-Myth, the whole premise of E-Myth is you start a business, the purpose of the business is to support your personal life. It's selfish in that sense. And you are not your business. Your firm is this supporting mechanism to run your own life. So everybody has different needs and different desires. My wife is a business owner. She started a company 10 years ago. She's an interior designer. And at first, I mean, it's crazy looking back, but she wanted to start it so that we could always send our kids to this school that we wanted to send them to, a private school here. And it's grown beyond her wildest dreams. And our kids did get to go to that school. And she grew it when I was trying to start a company that had a much longer runway. And good for her, and I'm eternally grateful for her for doing that.
Stuart McLeod 00:38:48.747 So there we go. We've established some tenets. Right? Everybody's perfect firm is different to everybody else, and that's perfectly good.
Jeff Phillips 00:38:57.675 Yeah. But you're not going to get staff if you don't have certain elements, though, in light of where we're at. And if you can't hire, you can't get more clients. So there are principles. There are principles here, for sure.
Stuart McLeod 00:39:13.238 You touched on something, and it's something that we talk about internally. Employment is a two-way relationship. Right? You need to get out of your company what you need to get out of it. But vice versa, too. Your company, your firm, your employer needs to get out of you what they need to get out of. And that's why you're paid. And employment allows for propulsion of economies. And whether we like it or not, that's the world we live in, predominantly. You can try and go to Costa Rica and just eat mangoes off the tree.
Jeff Phillips 00:39:52.488 You'll be working there. It's a great relationship. It's the invisible hand. And entrepreneurs start companies and attract investment. And people who don't want to be entrepreneurs find careers, and get paid for their results.
Stuart McLeod 00:40:06.227 Self-awareness in your capacity, in your career. I think, if you're a person that is an entrepreneur, and if you ever do [inaudible], like a lot of entrepreneurs [inaudible] were actually very insecure and vulnerable, but we never liked to show it. And their only way through is just crash. So there's a couple of entrepreneur traits come out. And [threes?] as well. They don't like to show their feelings. They're very goal oriented. And that's great. If entrepreneurship is for you, and you are self-aware enough that you have the resilience and perseverance in order to do so, so you should. But if you're destined to be an employee, embrace it. Right? Don't try and start things that your capabilities are not most oriented towards. Right? So if you're spending your life making up for your natural deficiencies to try and be somebody that you aspire to, because for some other ulterior reason, it's a hard life. Right? Some of the most successful people I've met recently are second and third in charge of companies, of big companies, and they have become filthy fucking rich from being great employees in great companies. And not just rich, but fulfilled, and have done amazing things in companies. You never would have heard of these people, but you've heard of the companies. And these are the people that make the engine turn. Right?
Jeff Phillips 00:41:58.655 That self-awareness is important. I didn't know what it felt like to start a company until I started one. I knew that I wanted to do it, and it crushed me, at times. I mean, it was too much to bear for many, many times. And it wore me out. I love my story. There's some terrible, shitty moments in it, and some super highs. Gosh. But I could write a book about it from that experience, for sure.
Stuart McLeod 00:42:23.872 I know what we can call it.
Jeff Phillips 00:42:25.225 You mentioned the title earlier. Right?
Stuart McLeod 00:42:27.582 Well, that's two titles now. We can call it The Perfect Fit.
Jeff Phillips 00:42:32.125 Hey. We should write it in Costa Rica.
Stuart McLeod 00:42:35.517 Let's do it. Might be a long time in the writing. Now, let's go back. You said something interesting there. You said it crushed you. In what circumstances, or how did it get to that point, do you think?
Jeff Phillips 00:42:51.705 The best book I ever read about leadership and entrepreneurship during my journey building, my company, was The Hard Thing About Hard Things by Ben Horowitz. And what I learned in that book was as the leader of a company, you have to make decisions. And you don't want to all the time, but you have to. And the power of your decisions will ultimately lead to the outcomes of success or failure. So I needed to read that book right when I did. Because every decision we made when we first set out into the market was wrong.
Stuart McLeod 00:43:30.624 [laughter] There must have been one you got right.
Jeff Phillips 00:43:33.802 No. We got them all wrong. I think we were zero for 279. [laughter] And we'd raise money on an idea. We, basically, raised expedition money, which is, "We think there's a problem. If you find us, we will go and build a team and see if we can solve the problem." And we ran out of money really quick. And we hadn't solved the problem. And we built a piece of software that we thought would solve the problem. And we were solving the wrong problem. And the software wasn't effective at solving the wrong problem. And I felt like an NFL football coach who went zero and 16 for six seasons in a row. We couldn't win. We couldn't win. But eventually, it led to a solution which ultimately gained traction. But the damage was done. I was exhausted. So the lesson, though, if you like entrepreneurship, is think MVP, think minimally viable product. Go find product market fit before you take money, or before you take serious money. And don't raise money on a hope and a prayer of a business. You've got to have validation. So now I could do it and be very successful at it, probably, if I did it again. But boy, it was hard.
Stuart McLeod 00:44:49.689 Did that solution ultimately become Accountingfly? Is that sort of the evolution?
Jeff Phillips 00:44:54.153 Yeah. It did. And we were working with a lot of middle market CPA firms, hundreds of them, for our web-based solution. But no one was making any hires on that. We wanted to do this SaaS-based hiring model because we wanted to be a SaaS company. We wanted to get the kind of multiples that SaaS companies get. We kept banging our heads against that. And it just turns out these clients don't want to go through the resumes. They didn't want to go through all the interview process. They want to pay you to do all that manual labor. And so even though that's not the business I wanted to start, we became a service firm. We became a staffing agency, basically. The only survival option we had was to become a service business, and basically, say no to all of those firms we are working with unless they wanted to hire remotely. Because I learned, in this profession, that's the only reliable way to make hires is to stop caring where they work. That was the golden nugget lesson out of all of the kind of the product market fit issues that we had.
Stuart McLeod 00:45:57.312 The insight that you now have in terms of the way the industry works, the way the industry operates, the macro aspects are invaluable. And I'm sure if you wanted to, I'm sure you could monetize a lot of that, but.
Jeff Phillips 00:46:13.576 Absolutely. When I go and talk to firms, I know what I'm talking about. With the money we raised, and-- I mean, we bought Going Concern, which is read by 80% of millennial CPAs. We have a handle on everyone that's a potential candidate in the market. And what I tell them is, "If we couldn't do it, there's no way you can do it." That's why we kind of do what we do now. We want the firms to outsource it to us because we know how to do it.
Stuart McLeod 00:46:41.693 Amazing. That's a fair journey. Jeff, Congratulations on all your success. And as hard-earned as it is, we know we've been through some of those horrifically tough times. And--
Jeff Phillips 00:46:58.352 Absolutely.
Stuart McLeod 00:46:59.997 --it's a testament to your resilience and perseverance and values that many hundreds, probably thousands, of accountants have great jobs, and are fulfilling their purpose. And you should be very proud of that achievement, amongst many others.
Jeff Phillips 00:47:18.801 I appreciate that. I would do it all over again, too. You don't know what it's like to start a business until you start a business. Right? And no one really understands what it's like, except for the people who went through it like you have. And I'm grateful for the lessons that we learned. There's a knowledge, now, that I want to help people with. That is why I was a perfect fit for Padgett. I've worked with all these entrepreneurs who are dealing with the same crap that you've dealt with and I've dealt with. And I've got personal stories, yeah, to help with.
Stuart McLeod 00:47:50.444 Stories to impart. Hey, Jeff. This has been super fun. Thank you for your time today. And can't wait to see you in person, soon [inaudible], on the circuit that's coming up.
Jeff Phillips 00:48:06.418 Yeah. I hope to see you soon, Stuart. I appreciate you asking me to do this. It's an honor. And I'm a big fan of you and your company. And keep doing what you're doing.
Stuart McLeod 00:48:16.136 We appreciate it. Cheers to you.
Jeff Phillips 00:48:18.853 Cheers. Thank you.
Stuart McLeod 00:48:25.932 [music] 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.