In our latest podcast episode, Maureen talks with Ed Kless, senior director of partner development and strategy at Sage, a Center for Innovation Partner, about antifragility and how companies and CPAs can become antifragile during this time of disruption. Listen to the full podcast here.
Maureen: Welcome to leading forward the Virginia Society of CPAs podcast, where we focus on innovation leadership and the CPA profession. I'm your host, Maureen Dingus. And I invite thought leaders for sure, casual conversations on topics and trends important to the success of the CPA profession. This episode is part of our series on how the via CPA members are managing and even thriving during the COVID-19 pandemic. Thanks for listening. And I wish you all could help. Well, today we have Ed Kless on our podcast. Ed is the senior director of partner development and strategy at Sage. She said, that's the official title. So I'd like to know what the unofficial title is
Ed: Unofficial title that I, that I've been using for about a year now is Metta Consultant. Okay.
Maureen: And you follow up with, and that means
Ed: Yes. And that means, which is, which is why I change, what like that, because people ask, well, what does that mean? So then you can have a conversation and it's because what I have been doing really for the last 17 years at age is I have been a consultant to other calls. So I'm a consultant to consultants. So therefore Metta consulting. And oftentimes what I'm consulting about is the art and practice of consulting. Right. Right, right. So there you go. So that's, that's where the medic consultant came from. I've I think I've also decided that if I ever write a book, that'll be the title. Yeah. There you go.
Maureen: I love, I love the idea of having a a title, your job title that just takes you to the next question. So that's like the key to consultants. Right? Get them, get them talking. Absolutely. All right. So today, when we were today, I'd like to dive into the topic of antifragility or companies being anti-fragile. And this is a term that I've just started to hear in the past few months as our world has been very disrupted. And it's another way of thinking about kind of coming, I would say, coming coming out on the other end of I don't, I don't know if crisis is the right word or change or disruption but it's, it's very intriguing and a bit heady, so to speak, but we're going to try to dive into it just a little bit and then give a little bit of some examples of how our members, our CPA members might apply this in their world. So just to kick it off with the basics, what does antifragile mean?
Well, antifragile is a term that was created by a guy by the name of Nicholas Nassim Taleb. Who's written several books, including the book called Antifragile. He, his first book was Fooled by Randomness and then his next book in was called The Black Swan. The Black Swan was also a term that he invented at which we could perhaps get back to. Cause all of these things are related, but antifragility specifically refers to the fact that there is no opposite. There's no antonym for the word fragile. Have you say, what would be the opposite of fragile? Some people might say robust or strong, but that's not really the case because when you have a package that comes to your house and it's marked fragile, it means don't shake this package because it might break robust or strong. Doesn't have the context of the opposite, which would mean shake this and it gets better.
So abuse this package and somehow this will improve it. And that's what he was getting at. And the notion that what we should be looking for is to design systems and perhaps even organizations that are anti-fragile that get better when they are subjected to some kind of a test. There's lots of examples of it. The, the, probably the easiest one to think about is are the human body. We are, our bodies are antifragile when, when we subject them to exercise lights, amount, light amounts of exercise and abuse our muscles in a sense and get sore that is what's building additional muscle tissue. So that's an antifragile type system. Now, if you do, let's take a StairMaster. If you do a thousand steps up the StairMaster at a foot, a piece that's good. Or, but what one step at a thousand does, it is not helpful.
So that's, that's one of the things that's different is that it's small, short, incremental things. Other great examples of antifragile systems are the w the airline system, right? We have, I think it was 2017 or 2018. There were zero deaths in commercial aircraft. And that is because the system is anti-fragile. It improves when we have crashes as macabre as that is to say, but it's the learning that we collectively do as a, as an inward, they do as an industry, as a species that makes it more safe when things go wrong. And I think why it's, it's beginning to emerge Marine, why you're probably hearing more and more about it is because we have had this situ COVID-19 as well as perhaps the unrest with the, the, the protests that have happened, where we're seeing our system put stresses on us. And what is it that we are doing to create organizations that respond not, not just survive through, but actually get stronger and emerge stronger when subjected to a test like the airline system. Right. So it's not just what
Maureen: Doesn't kill us makes it stronger, but it's really, actually, it sounds like intentionally allowing for that step back sometimes. So you can jump forward. Would that be another way to think about it? Yeah.
Ed: It's so you would intentionally put it under stress. And that is, that is it. That is a key difference versus what we've had now, which was, this was, we didn't intentionally put this under stress, although there was there's one economist who calls what we're going through right now. And I do like this term, the great suppression, you know, it's, it's not really a recession. We, we suppress the economy make with, with good reason or without, we can have that debate another time, but we, we stopped it, it wasn't, it wasn't, which is why I think that what you see happening is very different from 2008, 2008, if you recall, was that there was a drop off of demand and which is what traditionally happens in recession, depression, economic slowdown. What happened this time was on the supply side. We stopped supply. This is unprecedented. That's the word that we no kidding. Right. But, but we don't have experience that doesn't make any sense. Why would you stop selling?
Maureen: Right. Right, right.
Ed: And so it'll be interesting to see what businesses emerge from for the first time, a complete change to the supply being shut down, not the demand.
Maureen: So when you're looking at your the, the CPA firms that you work with, or even the the corporate finance teams that you work with, what are some examples that you've seen where the antifragile concept has been applied intentionally or unintentionally?
Ed: Yeah. And in a lot of cases, unintentionally, or at least not consciously, let's put it that way. It may, there may have been an intent behind, but it wasn't like, Oh, let's make this anti-fragile right. Right. It was, Oh, it turned out to be that way. And I would say that the first thing, and let me deal with the, the, the firm piece of it first. Right. The, what I think that the whole COVID-19 crisis has taught us is that for this, in this particular case, accountants were effectively the first responders to businesses, right. Not the first responders like doctors when they were retreating ill people. Right. And I get that, and I'm not trying to make that equivalency, but I'm, but I'm saying that we, the accountants were in a sense, the first responders with the shutdown and then PPP and all of the legislation. And as one friend of mine, put it so eloquently. You know, if, if the treasury and IRS could stop issuing clarification as to their clarification's, that would be great.
But so they were the first responder for people. And what's first responder is, but it's, it's a relationship, right. And now is the time to double down on the relationships that we had. And I've heard this from multiple people that I talk to is, is, you know, the, the, the customers I call them customers are for a different reason. But the customers that, that we have had a great relationship with, there was no problem with us helping them. Right. It was the customers that we did not have a great relationship that it be, this whole thing has begun to unravel a little bit. And maybe that's a good thing. So there's an example of antifragility right. This notion that maybe, maybe what we're learning is those, those customers and clients that as adventure we're taking advantage of us, we probably should jettison them. Right. We want to make sure that we have enough capacity for the people we truly care about. And that, that relationship piece, now this, this next thing applies not only to the firms, but I also think all of the people in industry and corporate accountants as well, and that is how can you help your company become more antifragile from a finance thing? And I think that one of the key answers is another trend that started before COVID, but now seems to be accelerating as well. And that is the move to a subscription as a, as a pricing mechanism for everything, one of the, the I'm trying to remember some of the stats off the top of my head though, that Zuora, and if you're familiar with Zuora is a company that does subscription-based software. In fact, we at Sage are customers of Zuora because we, we sell through a subscription in a lot of our business units, and they have a, an index of, I think, 700 customers of theirs that they run through. I think 53% of them have not seen a significant impact to subscribe subscriber acquisition rates during this crisis. And in fact, 23% of them have actually seen not only growth, but accelerated growth,
Ed: One of them is a really interesting company that we just think, well, why would they create a subscription in the first place? But they did is Fender Guitar.
Ed: Fender Gatar has seen an unbelievable increase in their subscription rates. And he's like, why would Fender create a subscription model in the first place? And it's because they recognize that people who went out and bought a guitar, the vast majority of them give it up after a couple of weeks, they think they want to play. And then finally in a closet forever until they give that guitar away to somebody else. So fender said, well, then that means they're a one shot deal from a customer perspective. We're never going to sell them anything else ever again. So what, when you buy a guitar, in addition, you also get a subscription for online learning about how to learn, to play this guitar and at different levels. We're also going to say that as you progress, as you get better, or maybe you want to trade your guitar in and get another model that is more sophisticated, or, you know, especially with regard to electric guitars that maybe sound better different amp system. And they now allow you to describe subscribe, not only to their, their lessons, but their hardware, as well as a package deal.
And they've seen subscriptions go through the roof. Now they did do something really smart, which was created for the first month. They a free subscription during, when COVID started for people who wanted to learn to play guitar. Well, what they found is that a large percentage of them, I don't have the numbers in front of me, but a large percent of the after that first month have actually gone on and said, yup. And there's lots of people want to, nothing but time, especially on the weekends, right? Even those of us working at home, I was a great time to learn how to play guitar, your commute. You don't have to commute anymore. So there may be an hour or two a day that you have that you didn't have access to beforehand. This is, this would be a good time. So I just think it's really fascinating that companies can come up with this Porsche Passport.
They they've actually renamed it. Remember the name that they, that it was used to be called Porsche Passport, which was to subscribe to Porsche, not a car. It's not a lease. You subscribe to Porsche and you can change whatever model you want as many times as you want. And I think it's like the high end is this $3000 or $4,000 a month, which is expensive, but it includes absolutely everything. The only thing that you put into this car as additional gasoline, that's it, all maintenance is covered under the subscription. Insurance is covered under the subscription because you don't own the car. It's, it's not a lease, but so you're just subscribed to Porsche. Right. Right, right. And here's the interesting stat from that. What Porsche found after doing this for about two years is that 80% of the people who were using Porsche Passport were new to the brand.
That's, that's a mind blowing statistic. Right. But relating this back now to the antifragility piece, subscription models are more anti-fragile because when you are subjected to stress, you must come up with new and creative and innovative ways of dealing with the problem. And one firm that I worked with a guy by the name of Garrett Wagner he's with a company called C3 Advisory Garrett, we've actually done a podcast with him. So yeah, there you go. Okay. So great. So there's another great tie in, so he, he has a COVID-19 support subscription that his created, and they have a basic, a premium and a strategic, I think it ranges from like 125 a month to 500 a month. And you get different levels of engagement with, in some cases with an attorney, not just an accountant, because that's his model, which has been, you know, cause it's beyond just accounting. He really wants to be a true one-stop advisory place. That if you, if you've got something that's related to COVID-19, we handle it for you. Right.
Maureen: So what are the things that you're making me think about with being an Antifa, having that antifragile type front, you know mindset is that some of these changes that you're talking about, they take a lot of thinking that maybe some people would say, Oh, I don't have time to work that into my day to day. Whether it's, you know, what you were saying before of the deep relationship with the clients, you know, that's, you know, people need to make time to do that. People that have delayed moving to the cloud that takes time to make a transition. So the, this doesn't happen just with the, you know, snapping your fingers. It takes some time to really dedicate to creating these systems, creating these new ideas and products that will based on what you're saying, really pay off in the end. So it is that investment upfront.
Ed: Yeah. And, and it's, it's in a word that we all know about and, and, you know, take this the right way. But CPAs have sucked that for a long time and that's marketing, right? It is, it is truly an investment in marketing beat. And this is w I think one of the challenges that, that many people in the accounting profession, especially those in private practice that have had is this idea that marketing equals lead generation, that we hire a marketing person so that we can get more, more leads. Right. And that's, that is lead generation is, but a small component of marketing. And this is where you have to go back to the Peter Drucker stuff and the four PS of marketing, you know, price, promotion, place, position. These are the, these are the product. These are the things that you have to have in place that are far beyond just lead generation and the, like putting a subscription model in place, you know, CPA is, especially in private practice are like, well, this is how we've always done it. Our business model is this, as we sell time and they're stuck and you'll, you're never going to emerge out of that by just thinking, well, if we just get more, if we just get more customers, we'll be fine. Right, right, right. You have to emerge out of what is it going to be the changes to your business model? And you've got to hire a marketing person who is not a CPA that you allow to change your business model. Right. Right. And
Maureen: Maybe fail at some of first attempts because how do you grow? Right.
Ed: Because you've got, you've got to test it. It's objected to that, that test, that crucible of let let's let's, if we're going to fail, let's fail quickly and make adjustments and changes. Right. Right, right. Right. So those are the, those are the things that I think that we've got to look at.
Maureen: So if you were consulting with some of our members and they are thinking, gosh, we need to make a change. We need to, we want to be stronger. When we emerged from this, what ha what kind of cultural things can they start to think about? What, how do they get their, their team on board with this? What would you recommend them to at least start to think about in the next six months or so?
Ed: Yeah. Oh, so a couple of things, and, and look now is also the time to read some books. So if, if this, the notion of antifragile is interesting to you, I certainly recommend Taliban book. It is, it's a, it's a fantastic read. It jumps all over the place. It's, but it's just, it's just a lot of fun. If, if that's not your cup of tea, certainly go to, you know, some of the things that do the executive summaries for books and read, read the information about that. Maybe catch him on some YouTube videos. You can get a concept for it. However, I would say then the other place to go is read teen so's book called subscribed so that you can get an understanding of what subscription is really all about and the changes that need to take place in any model that if you're trying to get subscription, the probably one of the more fascinating the book is toward the end. It might even be in an appendix where he proposes a new income statement. And this is, I think, particularly interesting to accountants, a new income statement, which is required in order to properly understand and measure a subscription based model, as opposed to the traditional. And one of the sentences that continues to echo in my brain from that, that section of the book is that in a subscription model, cost of goods sold is future directed.
And that means the cost of your people, right? So what, what traditional firms have always tried to do is they've tried to line up their costs underneath their revenue and teens, Sue is saying no, jettison that idea, forget that idea, right? What we want is annual recurring or monthly recurring revenue to be constantly increasing and getting larger. And then we, and this has always been true, but this really puts the, puts the, the emphasis on it, that the, the expenditure of costs is future directed and justifies the price. So what CPAs have long been wrapped up in is that costs create price because it's, we measure our number of hours and our costs create our price that, but that's not reality. That's not how it works. The reality is, is that value outside value creates price, and then prices justify your costs. Well, when you're looking at it in a subscription basis, especially with teens, new model, you have to see it that way. And that's a really important insight. So teen so's book subscribed as an important one too. And I, if that's not your thing, you can listen to my radio show with Ron Baker, where we interview teens. So
Maureen: All of the different ways people learn and grow, right. I actually saw on, on YouTube, there were some cartoon explanations of HIV fragile. So if you really need to, if you don't want to read the book or read the executive summary, there are videos that have the little stick figures walking through it, and they have the guy, you know, doing the weights and it's it's, it was fun. So there are lots of ways to, to learn about that topic. So well, ed you've you've given us a lot to think about, and I really appreciate it, but before we sign off, I'd love to know what you've been doing the past few months and the COVID-19 lockdown to survive or not lose your mind.
Ed: Well, you know, w and I know this is a podcast and you're not, but we are on video, just talking to one another. And, and I w before we started recording, I'm in a baseball cap and a Jersey, because one of the things that has changed and certainly for the better is that my wife and I have gone for about an hour walk every morning, pretty much since this, this whole thing has started. We, we, we walked occasionally before that, but this has really been something that's, that's solidified it, so that that's been helpful. And you know, my, my life cause of what I did, didn't change all that much with the exception of, I don't get on a plane four or five times a month. So that's that. And and doing a lot more of this stuff, and I'm trying to adapt and get better at doing online presentations. And again, I know the folks can see behind me, but I have a whiteboard now behind me, and I'm even experimenting with, with a wireless microphone inside my office so that I can walk around and do stuff.
Maureen: Wow. That's amazing. That's great. I think that's one of the the big things that as a an organization that provides a lot of learning, that we are hoping that this is kind of that tipping point where our presenters really take it to a new level of figuring out how do we do this virtual learning? Because it can't just be the it was bad enough when you had the talking head in the PowerPoint. And now to have the talking head on this little screen is people are only going to put up with that for so long. So that's really interesting to hear your, how you're doing that. So, and you're going to be with us in October at knowledge now conference. So I'm excited to hear more from you then. So thank you so much for your time this morning. It's been, it's been really great.
Ed: You're most welcome. Thanks for having me.