What Are Accountants Good For?

““I let my accountant do my taxes because it saves time –sometimes as much as 10 years.”” – Milton Berle

You know what they say about lawyers (the only thing sadder than four lawyers trapped in a burning car is three lawyers trapped in a burning car) and economists (you can line them up – every single economist in the world – head to head, and they still wouldn’t reach a conclusion). But what do you say about accountants? Especially when they end up running your business?

In 1984, 25-year-old Martin Diedrich, who grew up picking coffee on his family’s Guatemalan coffee farm, opened his first coffee store in Irvine, California. By 1991, the company had four stores earning $125,000 on sales of $3 million. Diedrich was working hard for his money, staying up late, living in his parents’ house.

He found help in the person of investor Paul Heeschen, who gave Diedrich $1million and recruited a tax accountant to run the company. Heeschen and his number-crunching hires opened up new locations but failed to make them work. In 1996, they took the company public and raised $12.6 million. Losses piled up, however, and the stock price tumbled.

Just before the whole thing collapsed, the company’s board made a “last-ditch” change by doing something that should have been done in the first place. They got rid of the CPAs and hired a couple of managers who knew nothing about money but everything about what the business was about: selling food on a franchise basis.

Both had serious prior experience, including senior positions at Taco Bell Worldwide. The Taco Bell duo embarked on an ambitious project of fixing and expanding the business by selling inexpensive franchises ($30,000 each) to experienced entrepreneurs who were able to buy them in groups.

The result? Six mega-franchises totaling 472 stores have already been started, and another 1,000 are planned.

I Can Vouch For It From Personal Experience – Watch Out For These Guys.

It’s a common story. Entrepreneur starts company. Company gets too big for one man to handle. Professional managers (in this case accountants) take over. Business tanks. Original (or new) entrepreneur takes over. Business is saved.

I’ve seen it from afar and have experienced it firsthand. My first big opportunity in direct marketing came as the result of the firing of a bureaucrat.

About six years ago, I was involved in the acquisition of a European business that had been grown by an entrepreneur who sold it to a financing group that hired a team of accountants to run it. At the time of the sale, it was worth about $10 million. By the time the professionals got through with it, it was seriously unprofitable.

That allowed us to cut a very good deal for ourselves. We got half the business for agreeing to fix it. Our first decision was to get rid of the number-crunchers who were running it. To take their place, we promoted a young marketer, hungry and smart, with a strong interest in proving his worth.

Today, this is one of our best-run businesses and our most profitable overseas operation.

I could give you other examples. And maybe I will some other time.

Here’s what you need to remember. At some point in the growth of your business (usually when you have between 25 and 100 employees), everything will be “beyond you.”

You will feel the need to bring in a strong administrator, someone who understands the science of business, who can organize and coordinate everything, and can rescue you from the stuff you hate to do (and don’t do well).

My advice is this: Resist the urge. If you want someone to take over as CEO, select a marketer. A business that strives toward growth and profits is always superior to one that aims at order and rationality.

Remember, an accountant’s (or lawyer’s) job is to advise you. The CEO’s job is to make the business work. You need good numbers to do a good job, but what you need even more is the wisdom and experience you already have.

There is something in the heart of an accountant (or any administrator, for that matter) that is bad for business. It is a sort of arrogance. And it has an evil twin in the accountant’s mind: the idea that you can grow a business by the numbers.

Businesses can be driven by marketing and led by product development. But systems and policies can’t keep them alive– for very long.

No, They Are Not All Bad . . .

Yes, there are some good accountants running businesses. I have the pleasure of working with one right now. His great strength, however, is that he recognizes his limitations. He focuses on keeping costs down and making the business work harmoniously. But he doesn’t pretend that is enough. He is also learning the selling and product side of the business. It’s not natural for him, but he’s a bright guy and (I’m happy to report) the business is doing OK. Eventually, he will be a fully rounded CEO. And when he gets there, I hope he’ll have the wisdom to be careful about how much authority he gives his number-crunchers.