Episode 1: The Ideal Team Structure

Episode 1: The Ideal Team Structure

“The first thing you've gotta master is you've gotta master leading yourself. So that's about self-discipline, that's about the experience, that's about controlling your feelings, and so you've gotta lead yourself and then to lead others, that's another level again.”

Welcome to The Wize Guys podcast! In this, our very first episode, I chat with Ed Chan, founder of Chan & Naylor, an accounting firm with offices in major cities around Australia that services thousands of clients. Jamie Johns also joins us. He is the founder of Sky Accountants, recognized as one of the top 57 accounting firms worldwide.

Ed and Jamie, along with me, your host, Brenton Ward, founded Wize Mentoring to help Accounting and Bookkeeping firm owners scale their businesses.

Find out to become a better leader, team structures, and productivity. Also, learn useful tips on how accounting firms can foster healthy team structures today!

Timestamps:

0:35 - The concept of an ideal team structure

6:00 - Analogy of water getting through the pipe

7:05 - The importance of pushing the work down

8:48 - Reasons why you should have the people in the right seat

9:23 - Getting the resource mix right

10:42 - How to implement a ‘no-blame culture’

14:42 - How to manage teams

16:54 - Becoming a better leader for your firm

20:09 - 3 common areas to focus on

23:52 - Top-down VS bottom-up management

28:24 - How timesheet creates a system-dependent firm

Quotations:

“Focus on the problem, focus on fixing the problem, and focus on finding solutions to the problem…” - Ed Chan

“People don't lead companies, they lead their managers.” - Brenton Ward

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Download the full transcript here.

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Chapters

• 0:35 The concept of an ideal team structure
• 6:00 Analogy of water getting through the pipe
• 7:05 The importance of pushing the work down
• 8:48 Reasons why you should have the people in the right seat
• 9:23 Getting the resource mix right
• 10:42 How to implement a ‘no-blame culture’
• 14:42 How to manage teams
• 16:54 Becoming a better leader for your firm
• 20:09 3 common areas to focus on
• 23:52 Top-down VS bottom-up management
• 28:24 How timesheet creates a system-dependent firm

Transcript

“The first thing you've gotta master is you've gotta master leading yourself. So that's about self-discipline, that's about the experience, that's about controlling your feelings, and so you've gotta lead yourself and then to lead others, that's another level again.”

Brenton Ward: So big, welcome! We've got Ed Chan here with us today. How are you, ed? 

Ed Chan: Hello Brenton! Hello everyone. Nice to be here. 

Brenton Ward: Before we dive into it, can you give us a little bit of a recap, ed, as to what the ideal team structure is, where it came from, and what it means to an accounting and bookkeeping firm? 

Ed Chan: It starts with managing traffic flow. There are two types of traffic that come into an organization. That communication kind of traffic requires someone with good communication skills and a good level of interpersonal skills. That's not everybody. Certain people have that and others don't.

The other kind that comes into your organization is to do with doing the work. The mistake that most people make or most accounting firms make is that they don't understand this and they hire the wrong people for the wrong tasks. If you keep people in the right seat and the right bus, working with their flow, then they're not only happy and happier, but they're much more productive and they'll stay much longer.

Communication is to do with things like emails, advice, phone calls, meetings, and explaining things to a client, basically. Some of us have really good skills in that area, and some of us don't have as good skills in that area. I encourage everyone to try and not be something that they're not. So, stay in your flow. Be honest about your strengths and weaknesses. This is not about the orange people being better than the green people or the orange people being better than the blue people in this slide. It's nothing to do with hierarchy. It's just that we all have different skills. If you stay in your flow and you stay in the area that you're really good at, then not only can you contribute a lot more, but you're gonna be a lot happier. 

Often when accounting firms say to me things like, ‘I can't find staff,’ it's because they haven't created the architecture first before they start building. Do you know what I mean? Then, when you build a house, you go to an architect and you design the architecture first, and then you hire your builder and your, your carpenters and electricians to build according to that infrastructure or according to that plan. Most accounting firms don't have a plan. So they just hire people depending on what they think the workload is. Often I've seen accounting firms with too many staff and they're still not being able to get through the work, and yet I see firms who've got very little staff in terms of the number of staff per turnover, and they're getting through a huge amount of work. The reason for that is that because of this ideal team structure, you're having people in the right seat and the right bus. 

Now, as you can see in front of us, there are two orange people. They are the senior client manager, and the one at the top is in charge of the whole team. So she's like the leader of the team, and she handles the communication with the As and Bs class of clients. Now you've gotta determine what your definition of an A and a B class client is. Every firm is different. 

You can see the assistant client manager is someone who's more junior, obviously. He or she's got the potential to become a client manager because you can see that they've got really good interpersonal skills and they've got really good communication skills, but they may be a little bit inexperienced. So the senior client manager trains the assistant client manager for communication, but the assistant client manager takes care of the C and D class clients. He or she cuts her teeth if you like the C and D class clients with the low-level type of traffic and communication. That frees the senior client manager up to look after the A's and B's at a very, very high level. So they're getting very, very, very good service from the senior client manager. Often, why client managers can't do the high-level work with the clients because they're just bogged down or they're drowning in order traffic and there's no clear separation of communication traffic to production traffic. 

So often, the senior client manager's just doing the grinding work and he or she's not supposed to do the grinding work. He or she's supposed to have the work already in their hands to go and talk to the clients about it. Okay? 

Now, obviously, this is a million-dollar team. Now if your team is 600,000, then often the team leader and the assistant client manager. The green person and the persons that are left are the same people, are the same person because it's reflective of the size of the portfolio of clients. And if it's this is a million dollars and less than that 600, then you won't have as many people in the teams. But the principle is still the same.

What we're trying to get is we're trying to get the water through a pipe and the water has to flow away from each person away from themselves. And if there's a blockage down the pipe, then the water comes back and hits you in the face. And typically if you have the wrong person in the wrong seat down this path, then the work will come back and hit you. 

So for example, if you have too many juniors, then the checking and the reviewing will end up on the senior client manager's desk. and he or she will be bogged down with that. So in that situation, you need a team leader. The green person is someone who's really, really, really experienced, but they just don't have the interpersonal skills to be talking to clients and feel comfortable in a commuting way with the clients. But they're very, very experienced, but they're too expensive as a person, as a resource to actually do the work. Their role is much more valuable in reviewing the work and checking the work. So it's more about quality than quantity. And he or she then pushes the work down to the next level where the work can be done at a lower cost. 

Now, why is it important to push the work down? It's because you're investing in your balance sheet. So you want the accountants below you and the intermediate accountants and the graduates and so forth, you want them to be trained up. So that's investing in your balance sheet, and if you invest in your balance sheets, gonna pay your dividend later on. Of course, from a P&L point of view, it's too expensive for the team leader to be doing basses and bookkeeping and so forth. So the team leader, the green person in this instance, should be reviewing and checking the work, doing the final journals, and the final finishing up with the accounts. 

Also to train the people underneath her or him, and to constantly invest in your people and to invest in your balance sheet. If you spend the effort and the time to train your people and your balance sheet, then it’s gonna pay you a dividend. So this whole idea is to drive the costs of good soul down to the lowest cost person so that you're training the people, plus also from a P and L point of view, it's not costing an arm and a leg to do work that should be done at a lower level. 

That's the spirit of what the ideal team structure is to be able to move the water down the pipe and it doesn't come back and hit the person above with work. Now, if you have the wrong person in the wrong seat, or the opposite of having too many juniors is to have too many seniors and if you have too many seniors, obviously it's gonna cost a lot of costs to actually produce the work. So, you end up paying an accounting rate and cost to do a bookkeeping service. So the cost is too high for the client and for yourself and the individual is not progressing in their career as well. So just getting the resource mix right. 

Then I'll say that again, getting the resource mix right is very, very important. Look, you need to look at your pipeline and identify where the blockage is as to whom you should hire. Often accounting firms hire someone that's inappropriate because of cost. It might be cheaper to hire a less experienced person, but that's really false economy because the work comes back and hits the senior person and lumps it all ends up on their desk. So it's really false economy to try and to hire somebody that's less experienced than what you need in your particular situation. 

Brenton Ward: So there, there's quite a good discussion to be had here, Ed. In relation to the extension of the ideal team, we've done a recap there of what the structure looks like. We have quite a bit of content, obviously in the vault as to how to get that ideal structure in place. But what we wanna talk about today is around playing the ball and not the man. So if you don't mind, we might move to the first bit of discussion around where this concept of playing the ball and not the man has come from, the no-blame culture that you instilled in the firm and the firm that you've coached. 

Ed Chan: So what, what I might do is just to explain the no-blame culture, and then we can then go to the slide. 

I often see accounting firms blaming people for problems. Often they don't know they're doing it, it's just through frustration. So it's either in their face or there their body language or when there's a mistake made. The problem with that kind of way of managing people and none of us were taught to manage. We're all taught to do the work. So we went to uni, we came outta uni, we got taught to do the work, and then somehow we ended up as a manager. Then we're expected to manage people, but we were never taught to manage people. Hence we, myself included make a lot of mistakes in trying to progress our careers. One of the biggest mistakes that managers make is blaming people for mistakes. I know it's really difficult cause, if a mistake's made has a domino effect all the way down the line. It's extremely frustrating. 

However, your role as a manager is to get the best out of your people. So it's about productivity and production is the only focus that you should be paying attention to. If you say something or you use body language to upset someone and it affects their productivity because they got upset, then really you haven't done your job. Because your job is to get the most productivity out of the individual. And if that individual got upset and couldn't produce as much or went home was still. We still went home, then there's no productivity at all outta that person. 

So the first thing is, if you create a blame culture, productivity will drop. It would also create another environment, in which nobody will come to you with the problem. So they may know of the problem, but they'll hide it. They'll hide it because they might get blamed for it. A problem with that of course is that if you don't know that it's a problem and you can't fix it. Then it's gonna create a bigger problem later on. So you want to create a friendly environment and safe environment. An environment where it's open, people wanna come to you to talk to you and to get some help fixing the problem. 

So the no-blame culture is extremely important. So that it goes from just your body language that you use to everything as a leader. As a manager you've gotta have a real poker face and you've always gotta be upbeat and you never, never, never play the man, but always played a ball. So focus on the problem, focus on fixing the problem, and focus on finding solutions to the problem, irrespective of how the problem was created or who created the problem. It's not easy to do, I know. It's very, very, very hard to do, especially since we're all people. We all react differently to different circumstances, but as a manager, you have to be very calm and you have to focus on the facts, and you have to focus on finding solutions and not blame. And if you can create an environment where it's open and solution focus and people are looking for solutions rather than looking for problems, then you are gonna have an abundant environment rather than a scarcity environment. You won't have this environment where you, it's very, very tense in the organization and it's stressful. That's created by the managers because employees don't leave companies, they leave their managers. 

Brenton Ward: That's a really important one that we hear that line here and there. But I mean when you boil it down to the culture that's created internally, it definitely is all around how we manage and how we lead our team. People don't lead companies, they lead their managers. 

Ed Chan: Yes. The same person can do so well under manager A and really badly under manager B. It's the same person, and yet there's so much more productivity under A than under B. The only difference is the way the manager is managing the individual. 

We come outta uni, we get experience doing the work, and then some of us are put into a management role and we've never been taught how to manage. Yet this is the area that gets the most scalability, the most leverage and the most productivity is how to manage your people. And your people in our industry fall under the cost of goods sold. If you look at all your costs in an organization, the biggest cost is your costs are goods sold. And that's our people. So it's extremely important that we manage them well because if you are buying some commodity to sell. If you're selling calculators, you buy it for $2, and it's gonna cost you $2. But our costs of goods sold are based on how productive our people are. That's a key to a situation where the calculator you're buying, one-day costs you $2, the next day costs you $3 the next day costs you $50 depending on how productive that individual is. Or how well-led they are or how well they're being empowered to do the work, and how productive they are. 

So it's such an important area that a lot of accounting firms don't put much emphasis on it. They don't put the training and the time into their leaders and managers. 

Brenton Ward: Just on that point, one of the things we wanted to point out is there's quite an in-depth video, but we'll touch on the concept itself here. As everyone can see on the left-hand side here, this is what's called the maturity continuum, which is straight from Dr. Steven Covey's book ‘The 7 Habits of Highly Effective People. 

You can see the 7 habits listed there. But one of the things we do point out here is a lot of this comes down Ed, to becoming a better leader. If we don't focus on our private victories and on bettering ourselves as a leader, we're not gonna be able to move through that continuum to a point where we can have those public victories. And we can work with others to form that interdependence where say that synergizing with other people is the one plus one is five. Can you possibly touch on that journey a little bit for us? 

Ed Chan: Yes, absolutely.

It comes back to the ideal team structure to get complementary skills working together. You'll get that synergy, you'll get that one plus one is five, and it starts with dependence. Dependence is when you are junior, you're learning the job, and you are dependent on everybody around you to teach you how to do things. So you've gotta master that first. 

There's a journey that you go through and the one in the middle is called independence. So that once you've learned how to do something, then you are independent of anybody else that's around you. But leadership is really about interdependence. It is the third level up. Once you get to interdependence, that's when you are a true leader. 

Leadership is about a public victory. Yes. It's also about understanding the people around you. The fundamental to that is some of those things that he's got in there seek to understand before being understood. Seeing it from the point of view of the people that you're leading, not from your own point of view. Leaders are very, very good at that. ‘Cause, they have to lead people. The best way to get the best out of people is to understand what buttons to press with them. Not everyone can do that. 

Most people see things from their own point of view and they do things too, it's called self-interest, if you like. Most people rely on self-interest and that's below that interdependence level. But if you wanna be a really good manager, you gotta transcend from independence to interdependence. Independence is where you're working on your own and you're quite experienced to work on your own. But that's not leadership. Leadership is interdependence where you understand the people around you and you're bringing them with you, taking them, with you on the journey. 

Brenton Ward: Yeah. So I just wanna continue on that discussion because big emphasis and focus for our team clinics going forward, Ed is gonna be around this topic of leadership and becoming better leaders so we can lead our teams better.

I just wanted to drill down in terms of some of the keys of leadership as an extension of that maturity continuum there. When we try to dissect leadership internally within our own businesses and how we look at it ourselves, there are three common areas that we focus on, which are leading yourself, leading others, and then the ability to lead your results. So would you mind touching on a little bit of those? I'm sure it's repeating some of what you just said, but I think it's really important to make an important point to make how important these three areas are. 

Ed Chan: Yeah, sure. Brenton. 

Obviously, the first thing you've gotta master is you've gotta master leading yourself. So that's about self-discipline, that's about the experience, that's about controlling your feelings, and so you've gotta lead yourself and then to lead others, that's another level again. The ones that are really good, the ones that can bring the whole three together, and that's where the bullseye is. But one other thing which is the blue section is about results. And often people create an environment where it's about being right not about having the right results. So they argue over their ego because of their ego about being right and not about the right results. I keep emphasizing to the leaders in our group that it's not about personalities, it's not about who's right or people's pride and ego. It is about results. The results should be the thing that determines the outcomes. 

So if you're faced with making a decision on something, the thing that should determine the right answer is productivity and results, not your pride and not your ego. You find that leaders are very, very good at putting themselves second to what's important, which is about productivity and results and not their own ego and their own pride. That's very, very difficult to do, Brenton. It's because often it is about self-interest and pride and ego that we fight the hardest for. But if you wanna be really a really good leader and bring those three things together, you have to put results as the focus of the decision-making of every single decision that you're gonna make. It's gotta be based on the outcomes and the results. And if you do that, then it takes away a lot of the confusion about the decision-making process. Sometimes it's confusing, is it just my pride that I'm fighting for? Or if you put outcomes and results as a focus of your decisions, then it makes management so much easier. 

Brenton Ward: Yeah, and I think given it is such a difficult thing to do, as you mentioned there. We need to put the systems in place where we can, which takes the difficulty out of that and puts it back onto the system and back onto the results or have the mechanism there that can show the results. So it does allow that process and that journey to happen a little bit easier. 

One of those big things you talk about is bottom-up versus top-down management. So I think in terms of focusing on results and leading results, this is one of the biggest things managers can do to successfully implement what we've just spoken about. Would you mind touching on this concept a bit?

Ed Chan: Yeah, absolutely.

I find that when accounting firms try to manage with a top-down philosophy, they do it by control and command. So they try and get out there and tell everyone, ‘This is the way I want you to do it, and you know, it's non-negotiable and otherwise, you're out.’ They do it by control and command. But the problem with that is that your bandwidth is only so much and you generally run out of capacity. The only way that you can hold a whole thing together is to work longer hours and do it by brute force. You just can't scale your business if you do it by brute force because it's only so many hours in a day and you'll run out of hours in a day. 

Typically an accounting firm that does top-down management reaches about one to $1.2M per partner, and then they hemorrhage and they can't grow it beyond $1.2M. But you find that those who practice bottom-up management go way beyond that. So our own firms can get to $5M without needing another partner. It's because they run it on bottom-up management. 

I'll just explain what bottom-up management is. It starts with your capacity planner. So we've got a capacity planner in the, in the vault. So for those of you who have not used a capacity planner, go to the vault and download and play around with it because it's one of the most important pieces of tools that you need to run your business. Because often, I ask firms, ‘When do you hire your next person?’ They always say, ‘Oh, when everybody starts complaining.’ But the problem is that if you do it by emotion and feelings, your workload goes up and down and that's just a normal thing for an accountancy business to do or a bookkeeping business to do. When it's high, everybody complains and then you then go and hire somebody, and then when it comes back down, nobody complains and you'll be over capacity, right? 

Also, it helps you manage your team because if they come to you saying, ‘I need another person on the team.’ Then if you look at your capacity planner and you're within capacity, then you can use facts rather than feelings to manage your business. So it's gotta be a little bit more scientific than just your feelings. It also helps you get your resource mix right because as I said earlier, you can have lots and lots of staff. But if they're not in the right seat and the right bus and they're complimenting each other, then you're gonna have a lot of overcapacities, and yet there's still gonna be a lot of work around that you're not getting through. 

So this is one of the most important tools. We never hire anybody new unless we put the capacity planner first to help us work out the resource mix and the capacity. So we are matching capacity with our resources. You can be under-resourced, so you are under capacity. What happens when you're under capacity is that you won't grow. 

So it's like a cup if you like and the water in the cup is your resource. If you have the water right to the brim, and if you put a little bit more water in, which is the new business coming through, then it overflows and you're effectively pushing new work away. 

Typically it comes out in your body language. So when someone talks, ‘Oh, I'm just so busy.’ Then your body language is saying to your clients, ‘Don't send me any more new clients.’ Often when you don't have your capacity planner and your resource mix right, you get frustrated when you get a new client because you think, ‘Well, who's gonna do the work?’ So that creates all the wrong things within your organization within even you, right?  Then it just flows down from there all the way through the team. So without getting your capacity planner done properly and knowing scientifically or as scientifically as possible where you are, then it's not possible to plan your business or your team structure. 

Brenton Ward: Okay. So the capacity planner forms the foundation for leading the results head and it predominantly focuses on bottom-up management. Are there any other things that managers who are listening in today should be focused on a daily basis to make sure that they are leading with bottom-up management versus top-down? Is there a language thing or principles or certain things they should be doing? 

Ed Chan: Yes. It's called time sheets. I'm amazed that some firms have got rid of their time sheets. 

Brenton Ward: Well, It's a big thing in the industry, isn't it? I mean, there are a lot of people saying you don't need time sheets anymore. And a lot of software providers saying, ‘Hey, if you use us, you don't need time sheets.’

So this is an interesting one there. So you might be playing with fire here, but I wanna hear your thoughts.

Ed Chan: Yes, if you get rid of timesheets, you've gotta manage top down, okay? So you've gotta be controlling command and the over top of everything and make sure that everyone's producing, you're watching them and you can't scale that kind of a business. But if you do bottom-up management, which is timesheets, then everybody fills in their own time sheets. That's a self-managing system so people can manage themselves. 

I've been in the game a long time and I know that days can go by, past hours can go past and often you wonder, ‘Where did I spend that time?’ You lose track, okay? There's a saying that, if you weed the garden every day, it won't get overgrown. So if you do your timesheets every day, then your garden won't get overgrown with weeds. Plus they're managing themselves. So the timesheet is a way for them to manage themselves and takes the pressure from top-down management. 

If you want a business that runs by itself, you want to have a system that is extraordinary, then you can hire ordinary people to fit in within that extraordinary system. If you have an ordinary system, which is top-down management, then you need extraordinary people to run the business. You don't want extraordinary people to run the business because they're very hard to find, they're very expensive and then they leave. Then you are people-dependent, not system dependent. So timesheets allow you to become system-dependent, but not people-dependent. Because if you don't have those time sheets, then you've gotta hire staff that's honest, productive, diligent and you're looking for the extraordinary person. They're very hard to find, Brenton. They don't stay around. So I'd rather be systems-dependent. 

The system is your timesheet and your timesheet is a fantastic tool to help bottom-up management. So they all manage themselves and you as a manager will look at their timesheets every now and then just to check on it. To make sure that they're putting things in and that it forms part of that extraordinary system that I talk about that we're trying to build so that the business runs without the owners.