Renew Group: Breaking Free from the Broken Business Model

In this episode, KC Brothers speaks with Shannon Vincent and Colin Dunn, founders of Renew Group, about the challenges of traditional accounting business models and how to transition to a healthier, more sustainable approach. 

They discuss the importance of focusing on the right clients, setting appropriate pricing, and measuring success through metrics that reflect value rather than just revenue. 

The conversation emphasizes the need for accountants to work on their firms, not just in them, and to create a business model that prioritizes firm health and client relationships.

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Transcript

KC Brothers (00:06)
Welcome to another episode of Canopy Practice Success. I'm your host, Casey Brothers, and I'm so excited to be here with Shannon and Colin, the founders of Renew Group. Shannon, Colin, give us an introduction of yourself, a little bit about how you met. guys have known each other for decades. And then the origins of Renew Group.

Shannon Vinson (00:23)
That sounds great. My name is Shannon Vinson. I'm a CPA by trade, calling in from Northern California. Colin and I met in 1996 after we both left public accounting, which is part of the genesis of how we came together to fix broken business models and create better lives for their team and more value for their clients because we're people who loved public accounting, but also didn't love the hours and the stress and some of the cultures in the firms. That's what we've been doing for 30 years.

Colin Dunn (00:52)
Yeah, thanks for having us, Casey. It's great to be here. Colin Dunn, co-founder at Renew. And like Shannon, I'm an accountant. I started in the UK and was almost 10 years in a firm there. Interesting firm, fast growing, lots of exciting stuff happening. But I think Shannon and I are both victims of this broken business model. the long hours and so on. And we found a place where we really enjoyed working with other accountants to help them fix their model and do some really terrific stuff in their firms. Really glad to be here. ⁓

KC Brothers (01:20)
I'm glad to have you both. Just from the brief introduction you gave and the little bit that I knew about you before even hopping on, it just seems like kismet that you guys met each other. Shannon, you're in Berkeley, California. Colin, you were in the UK decades ago, ended up going to Australia where you currently are. But somehow the stars all aligned and you were able to remove yourselves from this broken business model and achieve your dreams, maybe? I just, I wanted to call that out because I just think it's so cool that you guys are on opposite ends of the globe.

and you are making things work and you're doing the things you want to do and you're helping others. And maybe that's our lead into this broken business model, but there's hope. Whatever the status quo is right now, which is this broken business model. Shannon, give us a few characteristics of the typical broken business model.

Shannon Vinson (02:07)
Sure, sure. Thank you, Casey. I would just say touch on that. We love helping people win. And obviously when people win, we win. But it's just awesome to help people win. I think that the broken business model can be summed up in the wrong types of clients, the wrong types of services at the wrong pricing. And it's sort of that all things to all people model. And I think that also relates to a transactional model, which where you have

three, four, nine, and 10, 15, driving you absolutely crazy. And so you end up sort of being, living in this gap of the work that needs to be done and you don't get to be proactive with the right clients. And that's the broken model, which we solve a lot of our problems in our industry and thankfully we're doing it less and less by working more hours. And so we know we need to move away from that for the industry to flourish and to continue to attract the right people to come into the industry.

Colin Dunn (03:03)
it's interesting to think about the fact that the accounting profession is probably the only profession in the world that actually expects to work itself into the ground every year. And it's just set up in that way. Because the model's broken, the only way to succeed using that broken model is to just work more hours. ⁓

KC Brothers (03:22)
I've never heard someone say it quite like you just said, that they expect to work themselves into the ground every year. I get that there are cyclical things, there are seasonalities, and it's not uncommon, we see it every year, to have that influx around tax season. And it's hard to break out of that status quo. It's hard to think creatively, because you're like, how can I think creatively? This is being pushed upon me by government. April 15th is April 15th. I can't think creatively about April 15th.

Colin Dunn (03:52)
You're right. And they can't think creatively until they start saying no, saying no to the wrong sort of clients, saying no to the wrong sort of team members, saying no to work that doesn't make sense for the firm. And when they get very, very focused on designing the model, almost from the ground up and saying, this is who we are. These are the clients that make sense for us. We refer to those as target clients. And here's the way we're going to deliver services to those clients. And we're going to price them at a premium. And then the client has a choice. And so if the client doesn't like that, then

can go elsewhere. But what most accounts are still doing is saying yes to everything. They have a scarcity mindset where we just got to take on more and more.

KC Brothers (04:31)
How long do you think it takes from the moment they jump off the metaphorical cliff of, I'm gonna start saying no right now. I'm willing to enter this timeframe of ambiguity where I don't know where work is gonna come from or if I'm gonna have enough work to keep the lights on. I'm gonna trust you, Shannon and Colin, and I'm gonna move towards this. Have you seen Transrend? How long that lasts?

Shannon Vinson (04:54)
Sure, I think our starting point, and it's a great question Casey, is when we have our firms do what we call a Pareto analysis, which is essentially let's divide your client base into revenue zones by the number of clients. And oftentimes what you see is a lot of firms have what we call these insanity zone clients, which are going to be $500 or less or $1,000 or less depending on firm size. It's usually transactional tax work.

where they do the returns for three and four, 15, but then they answer free questions outside of those deadline periods. What we want to do is move to a model where we're taking on clients that only want to work with us year round. And that's really the focus, right? Like year round clients, year round value. And typically to answer a question directly, it's going to take at least two to three tax seasons because most of the practices we work with, the firms we work with,

You know, they've been around two to three decades. And so they can definitely take a big clip out of that tax season pain in year one by establishing minimum prices and also target pricing, establishing target clients, minimum clients. But it takes a couple, two to three tax seasons to really transform a model. Our saying around that is, listen, this didn't get created in one tax season. You're not going to solve it in one tax season.

KC Brothers (06:13)
Does that mean you're taking a hit to revenue for two to three years?

Shannon Vinson (06:17)
Colin,

that one.

Colin Dunn (06:19)
Almost certainly not. the interesting thing and what I love about your question, Casey, is it starts with mindset and courage to just jump into something different and saying, well, there is a better way. So how do they do that? Well, they learn from their peers and a big part of this having the confidence to say,

we're going to do something different is hearing from other people who've gone before them and done it. And what they will hear from from other people, other firms in renew is, yeah, one of the first things we did was we realized we can't deal with all of these clients. And so maybe they made a cut at the bottom end, but they align that with price increases for the rest. In virtually 100 % of cases, they will be at least revenue neutral with fewer clients immediately in year one. ⁓

KC Brothers (07:02)
the first question that Shannon answered. ⁓ I honestly wasn't anticipating Shannon you to say two to three tax seasons, but as soon as you said that didn't take one tax season to create this, was like, well, duh, Casey. I had a really good feeling that my second question to you, Colin, was going to be answered the way you answered it. But I asked it because I know people listening would be like, but I'm scared. can I, Shannon, you just said two to three years. How in the world can I do that and justify it? But Colin, when you say that

Like we're not doing one part of this one year and then waiting a year to execute on pricing strategies. It's done in tandem. What are some of the other benefits you see when doing this? Because again, you've mentioned other characteristics of the broken business model and with that initial move, right, to say, okay, we're gonna eliminate these clients and then simultaneously increase prices for these ones.

⁓ what other things are corrected or, or are there other action items that you do in that initial process? Maybe that first tax year to correct some of these broken business models characteristics.

Shannon Vinson (08:09)
Sure, I would say first of all, one of our principles is making the firm the number one client. And so if you have a healthier firm, i.e. a firm that's not running around trying to be all things to all people, then you can create more value for the right clients and for the team members. I think Colin's spot on, mean, firms don't go backwards. They make more money because then they can create value for the right customers and they work 40 hours a week. So some of the benefits are...

Like we literally have firms in the first tax season who will call us and say, I have a bunch of anxiety because I'm not overwhelmed with phone calls and emails. And you're like, that's an amazing thing.

KC Brothers (08:47)
It's muscle memory. It's like, I'm interpreting this bad thing as a signal of good things and you're having to disconnect that for them. That's so interesting.

Shannon Vinson (08:57)
Yeah, because they get addicted to the stress and the anxiety and the phone calls and canceling dinner with their families and all those sorts of things. Now all of sudden it's like, I'm home for dinner. I'm literally out of conversation this morning with a firm in Oregon who is one year out and said, yeah, my wife was so amazed that I was home for dinner and we could watch TV together in the evenings. I think the benefits are less work, less stress.

healthier firm, and it needs to be explicit, then you can spend time on the right clients because so many firms come out of Ford 15 and they say, gosh, I haven't gotten ahold of my eight clients for two and a half months. And this eliminates that, which takes us to working with clients all year round.

KC Brothers (09:37)
I've never actually heard someone say what you just said too about being addicted.

Shannon Vinson (09:41)
Yeah, you just get addicted to the insanity, right? Like you're just so used to always being chaotic that you don't know what to do with yourself with a little bit of quiet.

KC Brothers (09:52)
This doesn't mean less value, less impact. It means less busy work. It means better use of your mental capacity. I don't want people to think that, okay, I'm logging less hours, therefore I'm a less valuable.

Colin Dunn (10:06)
Casey, I think it means more impact, more value. I would agree. Yeah. And to Shannon's point, so many accountants, you know, with all good intentions are just so overloaded with lower level clients because they've had the mindset, we just need to bring in that more work, work, more revenue to pay for people who maybe they shouldn't have had in the first place on their team. But suddenly once they remove some of that noise, they look at their client list and say,

Goodness me, I've actually got some really good clients here who I need to be having better conversations with. Once they settle and figure out that they've got a bit more time on their hands and they start to reach out to those clients, the clients respond really well. Casey, I love where you're going with the question. The reason people became partners in firms was because they wanted to do really interesting and valuable things with their clients. And sometimes you've got to let go to be able to move forward and do that.

KC Brothers (10:57)
Shannon you've said a phrase a couple times now you can't be all things to all people. This is a true concept in so many areas of life and I think about this I just I want to say it's just to help drive home that metaphor. This is true in marriage too. I can't be all things to my husband or he can't be all things to me. He can't be my girlfriend. He can't be my running buddy. He can't be my co-worker like he is my husband and I need to let him excel in that domain.

And when I try to put on girlfriend responsibilities to him or different things, right, it can really impact that relationship. And that is the same concept. When you are trying to be all things to anybody and you're accepting any kind of work, it limits you from being able to perform optimally, to be able to dig in and be an expert, maybe even to, and in that regard, have a level of confidence.

that can guide you towards taking these leaps of like, no, this is a strategy I need to execute on and all of the above.

Shannon Vinson (11:55)
And I think one of the things that we drive home at Renew is let's start looking at different ways of measuring the firm. And one new way is looking at revenue per client. they don't like average revenue per client. one of the things that Renew would want to do is drive up average revenue per client rather than just revenue or number of clients, right? Like it's critical, put another way, do more substantive work.

for fewer clients.

KC Brothers (12:27)
Yes, 100%. I'm a daughter of an entrepreneur mother and I've mentioned this several times on the podcast because I think that is a common side effect characteristic of entrepreneurs in general is not understanding the value that they're providing or not putting them in a space where they can delegate appropriately for certain things, whether that's to technology or to lower level staff. And then therefore,

pricing themselves, valuing themselves appropriately. Shannon, Colin, how often do you feel like firms readily have the ability to find that data? Or do you guys have to kind of help them sort through their data to find revenue by client?

Colin Dunn (13:07)
They're usually able to find the information that they need reasonably easily.

KC Brothers (13:13)
And are they just not using it or what's?

Colin Dunn (13:15)
No, they're not using it. and, yeah, one of the most common pieces of feedback we get is this is so fascinating to look at this Pareto analysis and these model firm metrics that we show them. And yet they're accountants, they have all of that information there. But I think Casey, it's just a function of they're too busy to think about what do need to look at here.

KC Brothers (13:18)
at their fingertips.

One

of the things I've talked about within our product, you know, not being an accountant and not having ever worked in an accounting firm, but the little bit I do understand is just what you said is that because that's business, it's hard to make time to dig into your data. And if you don't have systems to help your data work for you, it's even harder to be like, I need to take a moment away from the work, especially man, especially if you're billing per hour and you're like, but this isn't billable. This be, I can't go look at my data. It's not billable.

and it's not bringing me revenue. What's your response to that?

Colin Dunn (14:06)
They need to work on their firm rather than their firm. And you mentioned the entrepreneurial effect and it's when we think about most firms that start up, they're typically accountants who were working for somebody else who woke up one morning and said, I can do this better than the partners in this firm. Yeah. So let me go and hang up my mshingle and to pay for their expenses and put bread on the table. They've just got to go out and grab clients.

KC Brothers (14:25)
I hear that all the time.

Colin Dunn (14:35)
That's how it starts until they put a stake in the ground and say, no more of this. We need to design this differently from the ground up around a set of metrics that makes sense. Then it's just a hamster wheel.

Shannon Vinson (14:46)
I

think that's a great point. think Casey just said piggyback on what Colin said. A little bit of it is saying, hey, you've got to spend at least four hours a week working on your own business because accountants default to getting the client work done. The challenge is too many clients, right? Just like we've been discussing. Operating from the principle of making a firm that I'm one client. It's just like you're saying like a healthier spouse is a better spouse. So a healthier firm is a better trusted advisor.

We really want them to set that for hours a week at least to work on their business, look at their own metrics and make the firm the number one client is critical. And I think also finding a thought partner, whether it's a spouse or a friend or a colleague or whatever it may be, we all need a little bit of accountability. So I think it's important to have that.

KC Brothers (15:37)
And we'll.

Colin Dunn (15:38)
That's a fascinating point, Shannon. So to go back to something that you mentioned before, Casey, what are some of the peripheral benefits of the early work that we do with firms? Sometimes partners will say, okay, I've gone through my client list. Here are the clients that I think probably should go, but I'm scared. But then they go and talk to their team and say, we're thinking of letting go some of these clients. And often the team will say to them, well, you should have done that years ago.

We just don't like these people. They're constantly moaning. They refuse to pay their bills. This is a good thing. That's where they can get some of that confidence from. To Shannon's point on that thought partner, we really encourage them to reach out and get their team involved, get their life partners involved, and connect with other people who are in renew and doing the same things that they're doing.

KC Brothers (16:24)
I love that. Talk to us a little bit more about some of these metrics that you use to measure the success once you're moving away from this broken firm, business model to more the model firm is what you call it, right?

Colin Dunn (16:38)
Yeah. So one of the key ones and Shannon mentioned it is the average revenue per client. Really, really important. Often when we start working with a firm, we'll see that that's, you know, it might be 1500, $2,000 per client. Meaning to have any sort of revenue, you need to have a huge number of clients. And over time, and this is where the two to three tax seasons kicks in, we really want to see that moving towards $8,000 per client and upwards from there. That can be done in a number of ways. So.

You know, revenue growth is one thing, but doing that with fewer clients and adding more value and pricing at a premium will drive that number. Then related to that, we look at revenue per full-time equivalent, looking at the professional teams, how much revenue are they generating from the people that they have. And a good number to aim for there is $250,000 per full-time equivalent.

KC Brothers (17:32)
It's $100,000 more than I heard from a different group two years ago. So that's a great update for me. And I love that trend because when I heard $150,000 per FTE, I was like, that seems low. But that's great.

Colin Dunn (17:48)
Yeah, and one thing that's really important to be aware of is cost of labor is going up dramatically. If firms aren't increasing prices and creating value so they can justify premium prices, then they're going to get left behind, which means their labor as a percentage of revenue will start to increase. And so we want to see that number around about 35%, depending on the size of the firm.

And then the other thing that we look at is the average charge rate. Now, not all firms are keeping time sheets. What we ask them to do if they're not keeping time sheets is just estimate what proportion of your time goes onto billable client work. That allows us to get a surrogate number for that and firms should be hitting $200 an hour on billable.

KC Brothers (18:31)
still recommending that they track time? How granularly? The services, admin work, PTO, what are we talking about?

Colin Dunn (18:34)
Yes, we do.

As long as they're able to get a handle on what is this actually costing us to deliver, and that's the key. Don't keep time sheets so you can price based on the time.

Shannon Vinson (18:49)
I think we work with lots of firms as Colin said that don't complete time sheets. It's a good litmus test and frankly, most partners don't complete time sheets. That's why they started their own firm. When push comes to shove, they can usually get close to what the average charge rate is with some sort of back of the envelope calculations, if you will.

KC Brothers (19:07)
It's not a must, it's not going to break their ability to get to the model for metrics if they're not tracking time. Because the key point here is that again, we're not billing for time.

Shannon Vinson (19:18)
Yeah, I think you said it well, we're billing for outcomes and value, pricing for billing, pricing for value and outcomes if we can manage costs with the time sheet, more power to it.

KC Brothers (19:28)
I think if even the way that I would operate, I don't do a lot of freelance or contract work, but when I have, it's for a project. And then I'm motivated to get it done and get it done well in less time. Other model firm metrics you want to touch on?

Shannon Vinson (19:42)
Yeah, absolutely.

Two key ones just is our goal because we have so many staffing challenges in our industry. Like it's no secret you go to any conference or webinar, we talk about staffing challenges, get together with firms is we need to make the industry more appealing, the profession more appealing to incoming folks. our goal and we do have it where firms work 40 hours a week all year round. That's the impetus behind our ebook, the 40 hour firm and what we talk about. Certainly trying to get

firms to work 40 hours or less all year round. We like to get them to get their subscription revenue to greater than 75 % because those are a little bit related, right? Because if we're serving the right clients all year round and talking about Collins average client revenue being 8,000 or higher, we know we're going to be working with those folks on advisory, accounting, and tax all year round. Let's get that, you know, eight to 10 and we want our subscription revenue at 75 % revenue or greater.

And one of the coolest things that we do just in terms of talking about the win thing is, you know, lots of firms run their cashflow with lines of credit. As soon as they get their subscription revenue higher than their payroll, twice a month or every two week payroll, it's amazing how much less stress the partners have because they're not coming on their line of credit during the summer or the fall in a transactional model to pay their people. It has a dramatic impact on just the cashflow of the business.

KC Brothers (21:13)
That makes me feel anxious.

Shannon Vinson (21:15)
That's why lots of accountants are grumpy because they're borrowing our line of credit to make payroll.

KC Brothers (21:22)
My goodness, the thing I've tried to talk about a lot is like, accounting firms, you're not a bank. You're not, and you don't need to be. You shouldn't be chasing clients for payments. And I love that you've highlighted that. Isn't it so funny that these trends are so worldwide, that those, that bottom range of your client base are the people who moan about everything, don't make their payments. It's like, they're the problem. Stop passing that problem onto you and your health.

and onto the firm and your ability to provide for your firm members. My goodness.

Shannon Vinson (21:54)
One of the things on the subscription model that we do is our clients bill monthly ACH. There's none of this hubbub about billing and chasing. You have to dictate the terms of the client relationship, right? You don't go to a hospital and tell the hospital how to treat you. Why do accountants let their clients determine how they work with the firm? We got to take charge. We got to dictate the terms of the client relationship.

KC Brothers (22:16)
You can do that appropriately, professionally, kindly. In fact, people are coming to you as a professional. It makes you look more professional when you take the reins and you say, is how we do it. These are our terms. Here's your choice of packages.

Colin Dunn (22:32)
That's a really important point. Just building on the principle of making the firm the number one client, it's super important that they follow through and say, and don't just use that as a motherhood statement, but say, what does that actually mean? As Shannon said, dictating the terms of the relationship. There's only one way in which we'll do the work. We need your information in by this date. Otherwise you're going on extension. This is the price. We're not negotiating the price. We don't cave on our boundaries. You pay by ACH. All of those things are really important.

We find ourselves saying to accountants regularly, you touched on this Casey, there's a reason clients came to you. And so they're not coming to you for a cheap price. They left their previous accountant for a reason and it wasn't to get a cheap price. And if it was, they're not the right client for you.

KC Brothers (23:17)
You reminded me of a really old TED talk I saw years ago by a woman. I forget what her name is, but she talks about power poses and standing in the mirror and looking at yourself and kind of hyping yourself up. These are big decisions and maybe scary depending on where you're at with your firm and your line of credit. Go take a second and go stand in the bathroom and look at yourself in the mirror and do a couple of power poses because you can do it. There's nothing that's stopping you other than yourself.

and there's a better life for you. There's no one that this isn't available to. There's no accounting firm that can't do this. And there's no saying that all accounting firms can't do this. It's not like only a certain percentage of people can do this and whoops, well, now it's only bad clients left. So we're SOL, like no.

Colin Dunn (24:02)
Right. And you know, sometimes the first sale is to yourself. And I think that's what you're alluding to there. And so looking in the mirror and saying the price is $15,000 is a big deal. And sometimes you've got to convince yourself before you can actually relay that to the client with confidence.

Shannon Vinson (24:18)
totally agree with the power pose. I kind of want to do one right now. ⁓ Is not pricing alone is one thing we really encourage firms to do, you know, because why do actors and actresses and athlete tab agents? It's because they're not great negotiators on their own. And we really encourage people to not renew firms. And of course, outside of renew to not price alone. Price with the person on your team, price with your partner, your life partner.

Call your coach, call your friend, whomever it is, and the price always goes up. It never goes down.

KC Brothers (24:51)
They see the value in you that you are discrediting. I love that. That's a good call out. Or call Shannon and Colin at Renew Group.

Shannon Vinson (24:59)
That's right. We love increasing prices. It's one of our core competencies.

KC Brothers (25:04)
well thank you both, it's been a delight

Shannon Vinson (25:05)
Thank you. Appreciate you having us.

Colin Dunn (25:08)
Absolutely. It's been terrific. Love the conversation. Thanks, Casey.