In this video, I want to talk a bit about strategy. If you want to build a successful, profitable business, whether it's a bookkeeping, accounting or tax professional business, then one of the things you have to figure out right at the start is your strategy. Your strategy is the foundation of the business, the bedrock. Without a strategy, you're just relying on luck. When we think about strategy, one of the key components is pricing. There's essentially three different strategies that you could follow with your pricing. Let me describe those three strategies, then you can choose which one's right for you.
The first one is what's often referred to as low-cost leadership. What that means is essentially it's about being the cheapest. More specifically, it's about being the cheapest because we create something within the structure of our business that's unique, a different cost structure that nobody else can copy, which enables us to be cheap, and nobody else can compete with us. That's something that can be achieved. There is a wonderful business in the UK called Richer Sounds. It was created by Julian Richer many years ago. It's been in the Guinness Book of Records many times for the highest volume of retail sales per square foot of space. Incredible business. They sell TVs and hi-fi equipment much, much less than the High Street chains. How do they do that? They have something very unique about their cost structure that nobody else can copy. They're extremely successful.
However, I would argue that in the accounting profession, I have never come across a business that's managed to pull this off. I'm not sure how you can create a cost structure that nobody can compete with. Sometimes people say to me, "Mark, I can. I'm going to create an online virtual accounting business." Why can't anybody else do that? As soon as somebody else copies your model, they can then compete on price, and you're in a price war. I don't think that's a viable option.
The other end of the spectrum, option two, is to create a highly valuable and differentiated business. Focus on adding value and charging a premium price. I've been fortunate over the last 16 years to work with accounting firms in the UK. What I found is when I look at the most successful accounting firms, the most profitable accounting firms, they all follow option two. They focus on being more valuable and, also, on being more expensive. I would argue that option two will always beat option one in the accounting, tax, and bookkeeping professions. If you agree with that, my question for you is, "What are you going to do to be different and better than everybody else? What are you going to do to add more value to clients?"
There's a third option, and it's what I call the default strategy. It's actually one that most people follow. Let me share with you a story from my own experience way back when I started my firm. It's a mistake that many accountants make. What we do is we look at our competitors, and we try to be competitive compared with the bookkeeper or the accountant down the road, which basically means being cheap. This is what I did. In the early years of my accounting firm, I'd go and see a prospective client. In the meeting, I'd impress them with all my knowledge of tax planning and so on. They very often wanted me to act for them subject to the price. I had to come up with a price. This is what I did, I would do everything I possibly could in the meeting to get a copy of their last set of annual financial statements.
During the course of the meeting, I would flick to the back page, which listed the detailed profit and loss account and pretending to comment on some of the things like margins, but what I was really looking for was that line that said Annual Accounting Fees and make a note of the number, the number the previous accountant was charging. When it came to giving my price, magically somehow my price was 10% less than the previous accountant. I did that for 2 and 1/2 years. In 2 and 1/2 years, I didn't make any money at all. My practice became a complete mess, because one of the things I learned was a crazy strategy. One thing I know is that most accountants are too cheap. They don't know how to price.
The worst thing we can possibly do is try to copy, or even worse beat, the firm down the road. They're already too cheap. We're creating a recipe for complete disaster. We have to focus on being different, being better, and not copying the firm down the road. If you want some more help, I've created a video training program called How to Build a Successful Bookkeeping Business. The training program is actually just as relevant for accountants and tax advisors. In that program we talk much more about strategy amongst other things. To find out more, there's a link somewhere perhaps below this video.