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Bill Reeb
Superstars vs. operators

The model you choose impacts revenue, expenses, and succession planning. Explore the pros and cons of the superstar and operator business models.

April 8, 2013
By Bill Reeb, CPA/CITP, CGMA

CPA firms, generally speaking, look to one of two strategies to build and operate their firm.
The first of these is what I call the superstar model, and the second is the operator model.

CPA firms usually start out using the superstar model, which can be defined as a model that places a premium on the “extraordinary capability, commitment, aggressiveness, entrepreneurship, and stamina of a few people for its success.” When you are just starting out, or if you are a small operation, this model not only makes sense, but it is very efficient, effective, and profitable.

The second model, the operator model, is the opposite. It can be defined as a model that places a premium on “the extraordinary systems, processes, procedures, and methodology (the infrastructure) of a firm to maximize the potential of the people that work within it.” Here are some differences I see between the two:

  • Superstars look for extraordinary employees to leverage the firm’s processes. Operators look to extraordinary processes to leverage its employees.
  • Superstars believe that the perpetuation of the firm and its future success is heavily dependent on having a natural leader at the helm. Operators believe the firm’s future success is less about the leader and much more about a strong infrastructure with clearly defined roles and responsibilities.
  • Superstars place a premium on adding strong personalities (like business developers and entrepreneurs) to sustain the growth of a business. Operators look for more processes, support, and methodology (like enhancing the firm-wide marketing or compensation systems) to place emphasis and capability throughout the organization to grow the business.
  • Superstars believe that those who are worthy must go through an “eat-what-you-kill” rite of passage. It is a mentality that assumes that cream will rise to the top on its own or only the strong will survive. Operators believe that almost anyone can develop into a technically competent project manager with client relationship responsibility; therefore, career management that provides clear career paths becomes critical to the firm’s success.
  • Superstars thrive on creating, changing, inventing, experimenting, and taking risks. Operators thrive on consistency, controls, setting standards, compliance with standards, continuous improvement, and low risk.

Both profiles are important to building and developing a successful service operation, but the optimum profile differs depending on the maturity of the firm. Consider a continuum, with the left-most point being a superstar and the right-most point being an operator. Startup CPA firms are usually founded on the superstar philosophy, which relies on an individual or two to find the clients, service them, bill and collect, and, in their spare time, run the business. Without these entrepreneurs, there would be no business to transition.

But because the superstar strategy is so dependent on these individuals, successful transition is tricky. As a firm matures and the demand for services shifts from exponential growth to a more methodical and predictable level, firms usually shift to an operator strategy of management, in order to build a firm that can continue through generations of leaders. This operator mentality shifts the firm’s philosophies away from catering to irreplaceable people to developing an infrastructure that creates irreplaceable positions (that a variety of people can successfully fill). A few basic principles of an operator model are:

  • Developing leadership that can successfully function within the existing structure so that the firm’s success will continue.
  • Creating a viable and enduring chain of command with clearly understood and adhered-to roles and responsibilities. This allows a structure that supports new people filling important positions functioning within a range of known flexibilities and limitations.
  • Operating like a firm rather than like a group of individual owners. The firm controls who serves the clients, what services are offered, and what processes and procedures are followed—not the individual CPAs managing the relationships.
  • Transitioning of clients occurs any time the firm decides a client could be better served by other resources (e.g., the skill set of an individual more closely matches the services utilized by that client) or in order to balance the distribution of demand among resources (owners with huge differences in books managed).
  • Developing systems to reward desired behavior and discourage undesired behavior. These systems are built to reflect the current firm strategy, are usually based on objective criteria, reward overachievement, put a spotlight on underachievement, and are put in place to raise the firm’s minimum standard of performance.
  • Developing a staffing model that leverages realization and utilization, while balancing the need for business development, technical competence, project management, client service, and the management of client relationships.

First of all, I want to clarify one point … both models work, and there are successful examples of each all over the country. But, as you can tell from the above narrative, far more money is invested in the firm’s infrastructure in the operator model than in the superstar model. However, that tends to be a short-term difference because I find that, over the long term, the operator-driven firms deliver higher incomes to owners than the superstar-driven firms. Also, my experience shows that the easiest path for successful succession is in the operator model. Although success may flourish in the superstar model, its succession strategy is dependent on finding incoming superstars to take over. This model can be very limiting.

It is hard for a firm to grow beyond about $5 million to $8 million in revenues because firms in this size range grow to the point that there are too many superstars. Inevitably, each superstar:

  • Has a very definite opinion about how the firm should operate.
  • Is unwilling to give up certain privileges of ownership.
  • Believes that the success of the firm is less important than the personal relationships he or she maintains with clients.
  • Believes he or she is entitled to have a say in every aspect of the way the business is run.
  • Is convinced that any compromise to his or her personal strategy of running the firm is doomed to failure.
  • Inwardly (and sometimes vocally) threatens to take his or her clients and leave the next time a compromise is required. This constant posturing often holds the firm hostage.

Editor’s note: This column is an excerpt from the book, Securing the Future: Succession Planning Basics by Bill Reeb.

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Bill Reeb, CPA/CITP, CGMA, is CEO and co-founder of Succession Institute LLC, a consulting firm that specializes in working with CPA firms throughout all practice management areas, including succession management.