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