Now it’s time for this week’s guest, Ron Baker. He’s the founder of the VeraSage Institute and we met at the QuickBooks Connect Conference a few months ago and I’m so excited he’s with me here today. So Ron, one question I never got to ask you when we met was how did you get into accounting?

Ron: My dad was a barber so he was my first introduction from the inside of a barber chair to an entrepreneur. He used to come home and sit in the kitchen table and do his deposits and I used to like to do it for him because I could add pretty fast and he used to let me do the deposits. And one night I’m sitting there and I’m looking at an envelope and it says “Pisenti & Brinker, Certified Public Accountants”. I’m probably on 8th Grade, maybe 7th, I don’t remember, and I said “Dad, what’s a certified public accountant?” And he said “That’s somebody who charges an awful lot of money.” And I thought to myself, well, that sounds interesting.

So I started talking to those CPAs from that firm, Pisenti & Brinker, I think that firm stills exists in Santa Rosa, California. When they were in my dad’s chair getting their hair cut I had a captive audience, I started talking to them about their job and what they did and what it was like. They guided me basically so I knew at the age of 15 I wanted to be a CPA. At the age of 15, I was actually doing tax returns for people in high school and actually was doing my dad’s books and a lot of his friends’ books who also owned hair salons and also, I actually even defended some IRS audits. At the age of 16 and 17 I had power of attorney and the IRS would let me sit there and be the representative for the client.

John: Wow, I am such a slacker, man. I was playing video games.

Ron: This whole time what am I doing, I’m billing by the hour and I’m keeping a timesheet. Because I didn’t know any better, that’s what everybody told me and when I went to the Big Eight that’s what they told me. So it wasn’t until I got on my own that I figured out it was a really crappy customer experience when you look at it from the customer’s standpoint.

John: Yeah. So what’s some of the cooler things that you’ve gotten to do or experienced from this wage on war on the billable hour and time sheet and who, if you will.

Ron: Well, I’ve traveled the world, I’ve been literally around the world. I think I’ve been to Australia 16 times since 2000 and I’ve been all over Europe, all over Canada, just working with all different types of firms, getting to meet some terrific people and probably the most fun is literally getting into arguments with people. There is still a ton of skepticism around it and as you can imagine we’ve heard every single argument under the sun. One time in VeraSage we had a joke that we’d give anybody a million dollars who could throw an objection at us for why this couldn’t be done that we hadn’t heard before. And I have to admit, somebody did come up to me and say, “Well, God doesn’t want me to do it.” I didn’t have a good response to that.

So I think it would be just traveling the world because I love to travel and see different things and experience different cultures and I’ve gotten to meet colleagues from around the world and that’s been really exciting.

John: Yeah, that’s so fun. Do you have a favorite place or two, places that you’ve been?

Ron: Yeah, I have to say I love Rome, I think Rome is probably my all-time favorite city although Paris would be real close behind it. And then I love New Zealand, I think New Zealand is just a gorgeous country. I’m pretty sure that’s what the Lord did on the seventh day, he created New Zealand. And Australia, I’ve been all over Australia with my good friend down there, John Chisholm, and he’s taken me to the various wine regions all over the country, it’s just awesome, because I live in Wine Country in Northern California.

John: Right. You just got to get to New Zealand, that’s the kicker.

Ron: Yes, it’s a bit of a flight. My colleague’s down there right now and he flew from Dallas, that’s like 17 hours or something. It’s torture.

John: Yeah. I remember my wife, a couple years ago we went to Australia. We saw the sun rise and then got on the plane and flew to LA and saw the exact same sunrise on the same day and I was like “What the hell? This is ridiculous.”

Ron: That can double your billable hours, though, think about how great that is. You can just send a bunch of accountants on airline flights to make it go all sorts of time.

John: I just charged 36 hours on accounting on one day. That’s great, that’s very, very funny.

Ron: I have to tell you a funny story, though, this is one of the most memorable things. I was doing an AICPA talk and you remember that period of time where Arthur Andersen, the whole Enron thing had just broken and it was before Arthur Andersen was indicted. But it was that time period, I think it was a few months where every day you’d pick up the paper and they lost another 5, 10, 20 clients, and there were a lot of jokes going around. Well, it was a Maker’s Mark ad, Maker’s Mark out of Kentucky, I believe. I don’t know if you ever saw this, John, but you can see them online. It was a billboard ad, they ran it at three locations — New York, Dallas, and I think Denver, Colorado. It was a picture of a Maker’s Mark bottle tipped over pouring out and it said “Disappears faster than a Big Five accounting firm.” I cracked a rib laughing at this when I first saw, I thought it was the funniest darn thing, because let’s face it, all humor is critical, all good humor, and should be. That’s the joy that comedians bring to our lives is to look at ways in ironic ways and criticize them.

But the AICPA did not like this ad. They actually walked down because the ad was right close to the New York headquarters so Barry Melancon and the whole phalanx of AICPA executives walked down to the ad agency for Maker’s Mark, I forget who it was, probably on Madison Avenue and said “Look, you need to pull this ad. It’s offensive, this is a terrible time, this is a legacy firm” and the ad agency looked at these guys and said, “It’s not our ad, it’s our client’s ad.” Well, they went to Maker’s Mark and Maker’s Mark, it blew my mind, they pulled the ad. Now, I talked to an AICPA like a week or two after all this happened, this big AICPA event, I’m a keynote speaker, and in the audience are some of those people that walked to the ad agency.

And I said what does it say about a profession that can’t laugh at itself. I said what if every time Jay Leno or David Letterman cracked a joke about lawyers, that the ABA got their undies in a wad. I said we take ourselves way too seriously. And then I asked the crowd, I said who would the public notice first, if CPAs went on strike or garbage men? Let’s stop taking ourselves so seriously. Take the work seriously but don’t take ourselves so seriously where you can’t laugh at yourself, I think that’s a bad harbinger of a profession’s future.

John: Yeah, I couldn’t agree more, man. It’s one of those things like with this whole Green Apple Message, I’ll ask people what are reasons that you don’t share at work and people will say, like this anonymous survey that I have going on on greenapplepodcast.com, and people will say “There’s no charge code for this” or “We don’t get paid to socialize” or things like that. And I say there’s also not a charge code for a smoke break or going to the bathroom but you do that and we’re talking the same amount of time. Yeah, quit letting professionalism suffocate your personality.

Ron: And it’s doubly offensive and this is really why I don’t like the billable hour and the timesheet. We could go down this rabbit hole, I don’t want to go too far down this rabbit hole but here’s the thing, this is a relationship business. At the end of the day being a lawyer, being a consultant, being a CPA is a relationship business and you don’t build relationships by being efficient with people or by staring at clocks. Nobody says about their marriage, “Oh, we have an efficient marriage.” What the hell does that mean? We run away as humans from efficiency, we don’t like total efficiency. That’s why women chase people that drive Lamborghinis because it shows spare resources, right?

John: Right, right.

Ron: That’s just the way that we’re wired. And the problem with the billable hours, it atomizes everything into a six-minute task and professionals aren’t paid for tasks, they’re paid for taking responsibility for producing an outcome.

John: Yeah, that’s exactly it.

Ron: And I think by focusing on the task we have lost sight of what it means to be a professional but also on the outcome to the customer, that’s what we need to focus on.

John: Right, yeah, because it belittles the outcome, it doesn’t value it the way that it should be. Yeah, absolutely, man.

Ron: We have this tedious quest for efficiency in these firms, “Oh, we’ve got to get 5% more billable hours” or “3-1/2% more realization” and I’m thinking great companies don’t care about this. If Walt Disney cared about efficiency your kids would be home right now watching Snow White and the Four Dwarfs.

John: That’s hilarious, that’s so funny, now we get to argue over which four it would be.

Ron: Yeah, which three are we going to cut to make the efficiency experts happy?

John: Right, that’s awesome, man, I couldn’t agree more. And it is interesting how our two messages sort of dovetail, I guess, in a way or one bleeds into the other, so I think that’s cool.

Ron: Absolutely. I’ve come to believe, John, in all sincerity, that humor is a more influential tool and effective method to persuade somebody than is logic. I can give logic all day about the economics and all the problems, the billable hour and the measurement of time and all of that but when you start mocking it and start making fun of it, that’s what really moves people. That dawned on me, by the way, when I was thinking about the movie, Airplane!. Remember in the ’70s you had all those disaster films, The Poseidon Adventure, and Towering Inferno, and The Hindenburg. There was one like every six months. Then Airplane! comes along, I think 1980, I don’t remember exactly, but they made that movie Airplane! and then Hollywood wouldn’t go near a disaster movie for decades.

John: Totally, totally, because they had mocked it so well.

Ron: They just shut it down, they shut it down. And you can find other examples like that with like comic books and other genres and all of that and I just think humor is so powerful and so effective. That’s why I think our comedians are the canaries in the coal mine and that’s why really I shudder when I think about college campuses and certain comedians won’t play on college campuses because people get offended. Well, you’re supposed to get offended because all humor is critical.

John: Right. I think sometimes too people are looking to be offended. And here’s the thing with that is that they’re not actually offended at the comedian, they’re offended that everyone else laughed at it. Because if a comedian says something and no one laughs at it they’ll be like “Well, everyone else thought it was dumb, too.” But if a comedian says something and then everyone laughs except for you you’re now the outsider, you thought you were in the popular group with everyone else’s frame of mind and now you’re not. You’re actually angry at everyone else who laughed.

But it’s hard to explain that to a drunk person at the 10:00 PM show at a comedy club. Afterwards when you’re standing in the lobby saying bye to people they want to have a talk and you’re like “Just send me an email.” And my comedy’s so innocent anyway but I’ve had like legitimate people want to argue with me over making fun of the flags and marching bands. I don’t know why they’re there and I’ll argue it till the end of time and if you would like to email me, feel free to, but John Philip Sousa never wrote a march going “Wow, I can’t wait to see what the baton twirler does during this one.” It’s like you’re not even making noise, you’re not playing the song, what are you doing? But God bless you.

Ron: I love it.

John: Yeah, but it’s just silly and it’s funny and whatever but for somebody to be offended at that it’s like wow, do you not even just go outside? You could turn on network television and get more offended than that. It’s just crazy.

Ron: If you’ve lived your life and nobody — and I’ve learned this because I take a lot of criticism especially being one of the early pioneers in this. I kind of think of myself as a lead prosecutor trying to give both the billable hour and the timesheet the death penalty and I’ve taken a lot of arrows for this over the years. Oh, your peers, blah, blah, blah, you won’t compromise, you have all of this. But you know what, if you’re not polarizing people you’re not doing anything. You’re just in the middle of the road, it’s melt toast. You want to change the world, I don’t know of any history, I don’t know of any book in the history shelves, John, that’s titled Great Moderates in History.

John: Right, that’s exactly it. If you’re right down the middle you’re completely forgettable. Which I guess is exactly what we’re talking about here is just being you, just being authentic and letting that out. I think that’s awesome.

When you had your own firm or even when you were at KPMG, were you known for any hobbies or passions then?

Ron: Yeah. KPMG is a pretty funny story. In the early days, somebody walked in — I used to work in this department called PBAS, which was the Private Business Advisory Service. We didn’t work on the big public companies, we worked on the smaller closely-held companies so I got to do more audit and tax and consulting rather than just being stuck auditing cash for nine months on Wells Fargo or something.

And a partner from Audit comes walking and now this guy is a young partner, he’s a very good golfer and he says, “Are there any golfers in this new group?” I was in the new group, obviously, and somebody said “Baker says he’s pretty good but nobody’s ever really seen him play.” He came up to me, he says, “Baker, you want to go golfing with me” and I said, “Absolutely.” And people pull me aside including managers and say, “Ron, don’t beat this guy, he’s got a bad temper, that would be a career limiting move. Don’t play well, don’t play well.” And I was pretty good back then, I wasn’t single digit handicap but I was probably like a 12 or 10 or something. I went out and played my heart out and it was the best thing I ever did. Yeah, I beat him but he invited me all sorts of other places because people want to play with people who are good. And so I got on the Olympic Club because of that, I got on these courses that I would never be able to get on if it wasn’t for this taken this risk and everybody told me not to do it, it’s career limiting move but I’m so glad I did.

John: Yeah, that’s so good, man, and it also teaches you like if this is where everyone else is going you should probably pause and be like “Is that where we’re all supposed to be headed? Are you sure?” and just do what’s in your gut and you buried that guy and now look. That’s really cool.

Ron: I have to say and some of your listeners may know this but this guy’s name was Gene O’Kelly and the only reason I bring that up is because he wrote a book called Chasing Daylight. He had a brain aneurysm, I think it was, and he was given a six-month diagnosis to live and he wrote a book about it when he was dying and the first words of this book, John, was something like “I was lucky I was told I had six months to live.” And what he was saying was “I wasn’t struck by a bus, I had time to prepare for my death” and he talked about how he did, it in a very methodical CPA way he talks about preparing for death and I tell you, the book is profound. He passed away before he finished it so his wife ended up writing the final chapter or so. But it’s called Chasing Daylight and it’s a profound book. I was just honored that I got to play golf with this guy because the title comes from chasing daylight when you’re on the golf course and the sun’s setting and you’re trying to finish, that’s why he called the book Chasing Daylight.

John: That’s so wow, that’s huge. And I got to imagine that your relationship in the office, I’m sure you got to meet other people in other departments and hang out with them and get to know each other.

Ron: I did, even though I didn’t work in those departments. You get the ribbing from your colleagues, “Oh, Baker’s going out to play with the other guys”, the tax guys or the tax partner whether they’re sucking up or whatever. It’s a private course. I’d never be able to get all of it. Of course, I’m going to go.

John: It’s not sucking up when I beat all of them.

Ron: There were some good golfers in this group, I was not the best golfer. As you can imagine when you get to that level you’re probably a really good golfer. At least I got to play with them.

John: That’s fantastic, though, man, and really cool. That’s great. I guess one thing that I always struggle with or debate is just how much of it is on the firm itself to create this culture or how much is it on the individual to maybe create a small circle of their own or even just be a part of willing to commit to that culture that’s created?

Ron: That’s a fantastic question and one I grapple with a lot because I’ve seen it both ways. I’ve seen rogue employees, star employees, the kind of people that are just your top performers that you don’t want to lose and they start a mutiny. I actually had one here in Napa, in the firm, who went up to the partners and said, “Look, unless we stop billing by the hour and unless we stop timesheets, I’m out of here.” And so this firm changed because this girl was a star and everybody knew it.

Now, that’s really hard to do, it takes a lot of courage. I put more of the owners on the firm leadership but I’m not sure if the vision’s there in our profession anymore. Their vision seems to be so narrow and so petty, all we need is up proficiency 5% or up billable hours 3%, it’s like really, that’s your vision? That’s not why people go to work for Google because they have good processes, they go to work for Google because they have a chance to change the world or put a dent in the universe if you’re at Apple, and I just don’t think we have that type of vision anymore. I think our vision has become so narrow and so utilitarian, we don’t have those big dreams anymore about changing the world or shooting a man to the moon. And that’s a lack of vision on leadership’s part and I don’t know what to do about that because it’s really hard to get people to change.

John: Yeah, it definitely is and it’s almost like anything outside of that box is frowned upon in the biggest way because anything creative, anything that’s not the norm that’s been done for thousands of years when you technically get to the basics of accounting, just like, gosh.

Ron: Yeah, we’re like penguins, firms are kind of like penguins, standing on the iceberg waiting for the first one to jump in. The number one question we get from firms is who else has done this? Really, does that really matter? You don’t want to be the first to try anything? If that was the case we’d all be in caves rubbing rocks together still. It’s an anti-innovation culture and that’s what scares me about the future because innovation is where it’s at and marketing are the two basic functions according to Peter Drucker and time and efficiency is the antithesis of innovation. People who dreamed up the Boeing Dreamliner, think about what that must be like, they probably sat at their desk with their feet up staring at the sky, coming up with this great idea. You can’t go into an innovation lab and say, “Come on, you guys, I have a great idea by 8:30 A.M., it doesn’t work that way. And I think that’s why we so lack innovation in our profession because we’re so driven by the clock and constantly producing and that’s the antithesis of innovation.

John: Yeah, that’s exactly right, I love it. It certainly is on the firm leadership but like you said, it can start from the bottom-up for sure. I’ve had some guests on the podcast even where the culture that they work in is really bad for that but they’ve created their own little small circle and you just develop that trust over a little bit of time and then you’re like “Oh, this sis someone that I can actually open up with and share with” and I think it’s cool.

Ron: Yeah, you can do it in your own sphere of influence, I’ve seen that too. Maybe you co-opt a partner who agrees with you and you guys work differently on your clients, that can work too. But it’s really hard to change, as you know, to change a profession because professions are kind of designed to protect and defend the status quo, they’re not designed to crush that status quo-like business enterprises.

John: Right, we’re both on the same side on that, that’s for sure. But yes, slow and steady wins the race, right?

Ron: Absolutely.

John: So are there any firms or companies that you’ve seen out there that are doing some cool things or some examples of things that people are doing to create that culture?

Ron: Yeah, there’s actually quite a few. And I can’t point any top ten firms that are doing this although I do think some of the Top 10, even the Big Four, do some innovative things but none of them, none of even the Top 100 have done what I’m advocating which is both getting rid of the hourly billing and the timesheet, I think they inextricably linked. Now there are some Top 100 firms that do value pricing and they do it really well and they do it on a large chunk of their base but they still keep time. But we have infiltrated the Top 200 and there are firms in other spaces like in the advertising world and the consulting world who are doing some really cool things. But I’ve got a lot of colleagues in VeraSage that run firms and they have some really innovative programs and they do some really cool things.

I’ll just give you one example. There’s a firm in London called O’Byrne and Kennedy and it’s a chartered accounting firm. Paul O’Byrne was a good friend of mine and he passed away way too young, 2008, from cancer. But his partner, Paul Kennedy, another Paul, continues to run the firm and these guys they don’t do basic compliance work, they do real consulting work and they’ve done this now for like almost 20 years and they’re 100% value pricing, no timesheets and they developed all sorts of innovative programs. Just a few examples, they created their own knowledge banks, so they capture knowledge, they award like Boy Scout, Girl Scout badges for different levels of competence.

But this is what’s cool, John, when you move up in their firm, let’s say you move up from a junior tax preparer — I’m just making this up — to a senior managerial tax you get the new badge but you have to give up the old one. In a lot of firms there’s way too many surgeons piercing ears. I see way too much low-level work being done by high-level people which is a complete waste of talent. And also, this firm created an MBA program, it’s not an official educated curriculum and all of that, but it’s an MBA program they offer to their clients and non-clients and they’ve been doing it now for ten years and it’s incredibly successful. It gives them incredible stature in the marketplace, really differentiates them, and it’s a tough curriculum. I’ve been through it and I’ve taught a couple things at it and I’m just really impressed by this firm, they’re constantly tinkering.

And he does one more thing that’s incredibly innovative and this will make your jaw drop. Every year he sits down with every single one of his clients and the first question out of his mouth is, “Should we continue this relationship?” He puts every single relationship at risk every year because he says, “Look, nobody owns a client” and sometimes they want to get rid of us and sometimes the firm wants to get rid of them for whatever reason. So he says, why not just bring it out into the open? When I tell that story to CPA firms they shudder at that thought.

John: Right, right, but it’s being human and it’s being authentic and it’s just letting down your guard and not pretending to be super accountant of the universe. And you know what, it’s like hey, maybe you’re a bad client, maybe we’re bad accountants or consultants.

Ron: Or you’ve outgrown us.

John: Yeah. I don’t know but then it’s not weird or awkward and people are sneaking around behind and then all of a sudden out of nowhere you’re slammed, T-boned by “What, you’re leaving? Why? I thought everything was great.” No, we’ve hated you for years.

Ron: The CPA firm is like the husband, right, he’s the last to know. And Paul says, look, this is like renewing our vows and I think that is incredibly brilliant.

John: Yeah, that’s great. And I have to imagine that leads to higher retention because then there’s an open conversation of “Everything is great except for this little piece” and “Oh, well then let’s fix that.” Cool. Rather than letting that little piece grow like a cancer that just eats away at everything, it’s just like you nip it in the bud right away and there we go. That’s awesome.

Ron: That’s another problem in our profession, I believe. A lot of firms have the growth for the sake of growth mentality. Growth for the sake of growth is the ideology of the cancer cell, not a sustainable profitable firm. A lot of times growth is just a complexity tax, I think you’ve got to do prudent growth where you get the right customers at the right price and boy, growth for the sake of growth is dangerous. You can grow yourself into bankruptcy.

John: Absolutely, yeah. What’s the joke of how to make a million dollars in the restaurant business, you start with two million dollars.

Ron: I remember Richard Branson said something like how does a billionaire become a millionaire, he starts an airline.

John: That’s awesome, same joke then, that’s so good. Very cool, very cool. Well, this was super fun but before we decide to hang out and maybe travel together a little bit or hit the golf course and chase daylight — I love the name of that book, I’m going to have to check that out for sure.

Ron: You’ll thoroughly enjoy it.

John: Yeah, no doubt, man, no doubt. But I have my 17 rapid fire questions, the get to know run, so I hope you got your seatbelt. Let me fire this thing up. You’re going to nail it. We’ll start easy. First one up, pens or pencils?

Ron: Oh, pen.

John: Wow, no mistakes. Look at you, man, look at you. Are you more of a Star Wars or a Star Trek?

Ron: Oh, neither. I know, I’m the oddball here.

John: When it comes to computers, PC or Mac?

Ron: Oh, geez, Mac. My whole professional career I’ve never worked on a PC. I’ve done Mac because KPMG, back in the early 80s, bought Macs even for the auditors, so I’ve only grown up on Mac.

John: Wow, you’ve always been a cool kid. Look at you, man. Do you have a favorite band?

Ron: I guess I’d say Rolling Stones.

John: Okay, solid answer. How about Sudoku or crossword puzzle?

Ron: Neither.

John: Neither, what do you spend your time doing, Ron Baker? When it comes to books, Kindle or real books?

Ron: Kindle. And I thought I’d be the last holdout but I absolutely live Kindle, I love traveling with it, I’ve got my whole library with me. It’s fantastic.

John: Right. Do you have a favorite color?

Ron: Orange.

John: Nice. How about a least favorite color?

Ron: Brown.

John: That’s a solid answer. How about is there a movie that makes you cry?

Ron: It’s a B-rated movie, it’s called The Straight Story. It’s very philosophical but there’s a scene in a bar that if you don’t cry, I’m not kidding, you’re not human.

John: Wow, man, wow. This just trivializes all of my questions now. The next one is jeans or khakis?

Ron: Probably khakis.

John: Even more of a downer, balance sheet or income statement?

Ron: Oh, wow, balance sheet. Both the balance sheet and the income statement, if you’re using that to run your business, it’s like using your smoke alarm to time your cookies.

John: Right. Do you have a least favorite vegetable?

Ron: Broccoli.

John: That’s a solid answer. How about a favorite number?

Ron: Six, it’s supposed to be my lucky number.

John: Is there a reason why?

Ron: I don’t know if that’s astrology or numerology, it’s always been supposedly my lucky number.

John: Cool, man. How about a favorite Disney character?

Ron: I’m a big Disney freak, too. I guess Mickey because he’s so iconic.

John: Sure. All right, we’ve got three more. Do you have a favorite comedian?

Ron: Don Rickles. Don Rickles was hysterical.

John: You want to talk about getting offended, oh, yeah. Two more, one is early bird or night owl?

Ron: I used to be a big night owl but now I have to say as I get older I’m an early bird.

John: You’re shifting. And the last one is favorite thing you own or the favorite thing you have?

Ron: Oh, wow, I got to say it’s my car.

John: What kind of car is it?

Ron: An Acura. It’s very fun to drive. Acura-TL. They’re really well-made and a pleasure to drive.

John: Yeah, man. Speaking of pleasure, this has been so fun. So thank you so much, Ron, for being with me today. This was just awesome.

Ron: Thank you, John, I appreciate it.

John: That was so, so, so good. I liked how Ron said that we don’t build relationships by being efficient. He’s absolutely right. Sometimes the things that don’t have a charge code or considered non-billable are actually the things that really matter long term and if it was up to Ron, there wouldn’t even be a charge code anyway.