Wednesday, January 20, 2010

Are they REALLY an ideal prospect? – PART 2

I used to work with a good number of clients in the San Francisco Bay Area, and many of them were located within, or operationally connected to, Silicon Valley. The unique nature of the environment meant that there was a strong possibility that a new business venture would either expand rapidly or expire quickly with hardly a whimper; the employees immediately dispersing and reattaching themselves to the Next Big Thing.

Many national law and accounting firms recognized the upside potential and invested millions locating satellite offices in the area. Out of the many start ups arose Apple, Oracle and hundreds of other highly successful technology businesses. In the years following hundreds of millions of revenue dollars flowed to those firms that had placed their bets on the valley’s entrepreneurs.

How does this relate to you? Here’s a story to illustrate one possibility: Frank worked for one of the big accounting firms in Silicon Valley and experienced the explosive growth in his firm’s office. In 1999 he and his wife felt the whole California scene was becoming a bit much and moved back to Texas to be closer to family. He set up a one-person practice and began doing exactly what thousands of other accountants do – 1040s, small business compliance and tax, some transactional services and providing advice and counsel to his client base.

Frank didn’t forget what he’d seen in Silicon Valley and he began networking with start up and new business forums. He didn’t invest much of his time, maybe 5%, in this effort, but he’d seen enough successful entrepreneurs to be confident he’d know one when he saw one, and he felt he had been around enough business plans to have a good idea when a winner appeared. So, he was patient and kept his eyes open.

His patience was rewarded when he ran across a small company with some unique approaches to robotic miniaturization. Frank approached the engineer who was the force behind the effort and offered his services at a greatly reduced price in exchange for assurances of a continuing relationship if success was forthcoming (“we’ll bet on the future together”). A deal was struck and to fast forward to today, the little business became a big business and Frank’s firm’s annual billings for that one account are now approaching $200,000. Plus, out of that relationship have come several lucrative referrals. Ten years later, Frank’s one person firm is now a very profitable medium size firm.

The bottom line is that a really great prospect may not just be the one that offers immediate substantial billings, but may additionally be one offering a significant future upside.

How might you expose yourself to the entrepreneurs in your area? If you are in or near a large urban area there are seminars, incubators, on-line groups, etc. Could you provide a free or low cost presentation to help them create an accounting structure suitable for businesses with the potential of rapid growth? Perhaps a seminar discussing basic approaches to wealth retention for the suddenly successful? How about strategies for extending the life of first stage(s) investment cash? Venture capital ins and outs? Bank line strategies for rapidly growing businesses?

It goes without saying that for every so-called can’t miss venture twenty will fail and one might make it. But, if you invest just a small fraction of your business development time – like Frank did – in future winners, the payoff can be huge.

If you never hit one, well, you’ll have met some interesting people. Perhaps REALLY interesting. I mean, how boring can someone be who claims to have invented an implantable recorder so the implantee can actually re-live their alien abduction in stereo and HDTV once they get back to earth? (yes, someone actually invented that device)

A clever strategy employed by an accountant in Sacramento, CA is to approach patent attorneys with the goal of creating a relationship that can lead to growth opportunities with the attorney’s clients. I am told this tactic has worked very well for him. A nice collateral benefit of this methodology is that the attorney in all likelihood has a pretty good idea of not just the client’s financial condition but also an opinion of their intangible qualities, such as focus, dedication, maturity, energy, drive, reasonableness and other factors that can impact the probability of future success.

A more difficult challenge (because larger accounting firms have worked this ground for many years) is establishing relationships with venture capital firms and/or individuals. Obviously, these firms (as well as angel investors, later round financing entities, etc.) work very hard to separate the wheat from the chaff because their livelihood depends upon it. Many of them prefer to have “their” CFO installed to watch the investment, and there is no doubt they can greatly influence which accounting firm is hired by the company being financed. If you can nurture one or more of these relationships the upside can be dramatic.

However you identify your future growth prospect, at least charge enough to absorb your overhead and don’t commit to more than you are truly willing to do. Finally, get the agreement in writing. Create a suitable engagement letter detailing what you are going to do for the client and what you’ll receive in return.

Yes, they are long shots, but the payoff can be huge. The secret is to be selective and only devote a small percentage of your time chasing them down.

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