Jeff Borschowa: Welcome to the Entrepreneurial CPA Series where we bring you the best and brightest sas solutions for CPAs who want to bring value-added services to their clients. Every episode is an interview with a new solution provider dedicated to you; tomorrow’s CPA. I’m really excited to have Justin Hatch on the show. He is an industry expert in the field of business management. He specializes in software development and financial reporting. Justin has had nearly 20 years of management experience and is now serving as CEO of Reach Reporting where his mantra is “absorb complexity wherever possible.” Welcome, Justin.
Justin Hatch: Hey, thanks very much.
Jeff Borschowa: Awesome! Now, first things first. I usually have a series of questions I go through with my guests. I want to talk to you about what ‘absorb complexity wherever possible’ means. What does that mean to you and why is that so important that we’re talking about it first?
Justin Hatch: That’s such a good question. I started Reach Reporting back in 2015 because in my younger years I had some real challenges with accounting. I didn’t understand what was happening with my books. I didn’t know what the balance sheet was supposed to do. I really didn’t! I only relied on the P&L. I didn’t even know what the cash flow statement was, let alone knowing how to use it. So when I resigned from the company that I was at and decided I wanted to start a business, I thought through all of the pain points that I had dealt with. I mean real ‘shark bite’ pain points that I had dealt with when I was running my business and I thought, “Okay, if there’s any way that I can in some little way affect a small business so that they don’t have to endure some of the pains that I had to endure, and if I can in some way help them to be more successful, then I will have succeeded.”
So, we started to question- what is going to enable us to do that? It really came down to- helping absorb complexity in the financials. I need to know when I look at financials if they are good. Is this a good thing that this is happening? I need to know that first, and if I don’t know that then I am failing, and what’s actually going to happen is I’ll resort to what we always resort to-and that is bank balance accounting. I look at the bank balance and I see whether or not I can purchase a new piece of equipment.
Jeff Borschowa: I love that. Absorbing complexity is one of my favorite topics. I like to talk about eliminating friction and absorbing complexity. One of the things I already know from talking with you and Arthur, I recognize and am almost ashamed to admit, but back in my old days being an accountant, you’d hand a client a spreadsheet or a set of financials and you’d say, literally my script was, “Do you have any questions?” I’m sure there are a thousand things going on in their brain, but usually, they’d say, “No, no I’m good,” and all of a sudden they’re grabbing their coat getting ready to leave.
I love that we talked about the chasm that needs to be bridged. We’re going to cover that a little bit more, but I love the idea that you’re helping translate from entrepreneur to accountant and back, and I just want to point out my perception.
Reach Reporting is not so much about the numbers, but it’s about the relationship between the accountant and the client and helping them understand where each other is at. Is that a fair comment?
Justin Hatch: Absolutely. In fact, what we’ve found is that you can’t ask questions like, “Hey, do you know what’s happening on the balance sheet?” Because as soon as we ask those questions, what happens in our clients psychologically is their ego wants to protect them. We all have an ego when we come across situations like these.
I remember this one time…I was presenting to a board of directors, which included the former CFO of NASA, and there were two guys that were approaching a billion dollars net worth. I mean, these guys are bananas! And so what did I do?! Ego, right. So while I’m preparing for this intro, I pull out all the biggest words that I know. I’m going to make sure to drop those through the whole thing. I’m going to make sure my presentation is as comprehensive as possible. Well, I got three minutes into my presentation and it was Ronald’s Bail that put up his head. He said, “Justin, Justin, we just need to make some decisions. Can you give it to us in a way that we can understand?” I sat back and I thought, “You’ve got to be kidding me. How is it possible that the smartest man that I’ve ever shaken hands within my life is asking me to simplify things?”
Well, it’s not that he couldn’t understand it- that’s not the problem. He certainly could if he had tried. The problem is- he has a job to do. That job, in this case, was to run the business or at least assist the board in running the business. His job was not to try to take the complexity, try to absorb it all, and then figure out which way is up. His job was to make actionable decisions and he needs actionable data for that. It was at that point that I really learned… first of all, you can’t ask questions like, “Hey, do you know what’s happening on the balance sheet?” Because their ego will say, “Yeah, yeah, of course, I do. I looked at it… But that is what I pay you for!” Our ego tends to get in the way when you want to really know if your client understands the data you provide them. When ego gets in the way, everything falls apart. What we need to do instead, as a financial professional, is absorb the complexity and display it in a way that is digestible. If we can do that, it’s golden!
Jeff Borschowa: I love that. So that’s a big key topic, and a key takeaway for the audience is -absorb complexity. I think a lot of us want to earn that billable hour rate that we have, so we spend a lot of time thinking about the exact right word.
There is a famous mathematician, Blaise Pascal. My favorite quote of his is, “Pardon the length of this letter. I would have made it shorter if I had more time.” I think that’s what we tend to focus on- making it easy for us. We write this long report. Business owners want that dashboard.
I remember attending a Summit where they said, “You need to focus on the thunk factor.” Basically what they meant was, when you dropped your report, it should ‘thunk’ and make a big sound when it hits the table. So, I invested in dividers and graphic design and I’d produce reports this long, and in hindsight, I realize, “Wow! I was being really mean!” It was proving I was the smartest one in the room and no wonder they didn’t have questions for me.
Justin Hatch: Yeah, that is so interesting. There’s an anecdote that we love. We pre-build a lot of the reports that we create, and the reason why is because of the psychology behind dissemination. As the client, I need to absorb it in a way that I can understand, and sometimes that has to be pretty basic. But even if my intelligence level is pretty high in the accounting space, I still want the information given to me in a ‘milk before meat’ fashion. I don’t want to have to burn a whole bunch of calories trying to understand things. So, the key thing is to start with the drivers and start with the most digestible information first.
The anecdote that I love to tell is the story of a rally car driver. You’re the rally car driver and I’m your navigator and we’re in a city that I’ve been to a million times. I grew up in the city. I know everything about it. You have never been here before and I’m trying to tell you that there’s a red light up ahead. It all relates to a pyramid called the dikw pyramid or the knowledge pyramid which has four levels.
On the bottom level, is data. If I give you the detailed information about the red light on the data pyramid, you’re a smart guy, I know you could figure it out. But I’m going to give it to you in IP addresses and GPS coordinates. I’m going to give you binary on, off. I’m going to give you the hex code of the color of the light.
Jeff Borschowa: Basically in morse code! (laughter)
Justin Hatch: Yeah, exactly! I’ll communicate it in excruciating detail. If I give this data to you, of course, you can figure it out. Of course, you could take the time and you could pull out whatever sheets and maybe have some stuff memorized and you could figure out that there’s a red light ahead. But the problem is, you’re driving a rally car at who knows how many miles per hour towards this red light. So instead of me communicating on the data level, which can be quite overwhelming and confusing, I need to go up a level. So, I’m going to go up to the level of information.
The information level is a completely unique level from the data level. The information level says, “Okay, on the corner of fifth and main is a red light.” Well, that’s great. I’d love to know that there’s a red light on the corner of fifth and main, but I don’t know where either of those are and not only do I not know where either of those are, I don’t know where I am! Now, that’s way better still than the data level.
Jeff Borschowa: It’s accurate but not really useful, right?
Justin Hatch: Exactly. So, I can pull out a map, but the problem is you are driving a car.
The knowledge level is saying something very, very different. It’s absorbing complexity and giving one critical thing- and that is, context. The knowledge level says, “There’s a red light ahead.” You’ve absorbed so much complexity here! You’ve absorbed the IP addresses, the GPS coordinates, the binary, all the other stuff, and you’ve also given context ahead implying that I’m approaching this red light now.
There’s another level, and this is where it gets a little bit dangerous. I actually recommend to most people, don’t ever try to operate, or I should say, very seldom try to operate, in the wisdom level. That’s the top level.
The wisdom level says, “Depress breaks immediately.” The problem with this level is, if I get into the wisdom level then I’m taking the liability myself. That’s dangerous, and I’m assuming that I know all of the factors. That’s dangerous too. We could be dealing with slippery roads. We could be dealing with a semi behind us that if we depress breaks immediately, we may be able to stop, but he’s not going to be able to. You know? And so only the driver, only the CEO, really knows that critical information and so what we need to say is, “There’s a red light ahead.” We need to give the information, give the context, but help them to be able to make that decision.
Jeff Borschowa: I love that, and I think that’s where a lot of accountants get nervous because they’re worried about the liability of the wisdom level. What happens if I do press the brakes and something goes wrong, or how hard do you press them? I think that’s fascinating, and again, it’s tangengentle to what we usually talk about. The context of this show is- we want to help CPAs add value-added services and I think honestly putting something in their hands like Reach Reporting, without that little bit of context, could put them at that danger level. It’s kind of like childproofing the house and you overdo it. You know?
Justin Hatch: You can’t get the fire extinguisher when you need to! (laughter)
Jeff Borschowa: Right, who bubble wrapped the fire extinguisher! (laughter)
Justin Hatch: Yeah, exactly. It’s so true. What we have set out to do is to say, “Is there a way that we, as a bunch of goons with the software, can really enhance the relationship between client and advisor?” Because honestly, when we started back in 2015, we thought we could make an AI software that took away the value of the CPA- that the software could do what the CPA/ the CFO does.
Jeff Borschowa: I love this! Oh, we’re gonna have a very different conversation today Justin, because I feel like there’s a butt there…
Justin Hatch: There definitely is.
Jeff Borschowa: Okay, before we go to the butt, one of the things I hear all the time and over and over. There’s study, after study, after study, that the CPA will be replaced by the computer, and in one UK study, there’s like a 95% chance that the CPA will disappear. But I think again- there’s the data, there’s the information, the knowledge. I don’t know that we’re at that point where we can replace wisdom.
So, you started out to eliminate the need for a CPA. What did you find in that? And this is a safe space, so everybody be nice to Justin.
Justin Hatch: Seriously! Actually, what I realized was the true nature of my ignorance. I realized that not only is AI not even remotely what any of us think AI is, and I can say that decidedly. We’ve explored it exhaustively. Just because a computer can give you a possible outcome doesn’t mean that’s the right thing. What a lot of people are saying is, “The computer would operate on that wisdom level, because the computer can think through all of these other scenarios way faster than I ever can.” But that precludes the notion that that has to be programmed. There has to be somebody who’s already predicted, “Okay, if this, then this. If this, then this.” That’s basically what the CPA has to do. We’re just not even close to there yet. If the technology is there in the next 10 years, I would be astounded. If we’re there in 20 years, it would still be a miracle.
The fact is, we have so many decisions that need to be made and it’s so much more than financials and operations. It’s all of these factors coming together. What we realized was, we had created health dashboards and vetting dashboards that would give you a percentage ranking and we still have them. Some of these are pretty cool, but the problem is as soon as you deviate even in the slightest- if you are a service company and you have a flawless perfect inline service then we can sort of help you, but as soon as you add one inventory item everything goes out the window because now you’re not just service.
Anyway, there’s a whole spectrum of these little bits of functionality that ruin that. Our human brains are phenomenal, especially the brains of CPAs because they’re very specifically educated to look at things in a certain perspective and you can’t replace that with AI.
What we realized by the end of 2015, was that we need to desperately enhance this relationship between the client and CPA. People aren’t realizing how valuable their CPAs are. So now what we do is, instead of trying to leverage over them and trying to take over their job, we say no, no, no- we’re going to make their job as easy as possible, so that they can reach as many people as possible because they’re critical in this, in these scenarios.
Jeff Borschowa: I love that, and in my discussion with Arthur before the show, that was one of the big ah-ha’s for me was that within Reach Reporting you can toggle and see the numbers behind, but then you can also come back up. I think that’s where we add the most value as a CPA, is being able to translate and absorb that complexity and show the client where the gaps and the hurdles are going to be.
I’d love your take on this. A lot of CPAs are nervous, because they are not an expert in that specific thing, they don’t know the industry. One of my favorite comments is, “You’re the expert as the CPA. You’re the expert at business in general. Your client is the expert at their business and your job is to help them cover the financials.” Would that be a fair statement in your opinion?
Justin Hatch: I think what we really need to look at is, how do we really begin to effectively consider ourselves as their advisors? We’re the ones saying, “Listen, we’ve been standing on this financial watchtower and we see the army is coming and financially we need to be prepared. I’ve been through financial battles my whole life, so I have more experience than anybody else in this room.” It’s not an ego thing, it’s a fact. This is where I spend a lot of my life. I am trying to help advisors be confident in how amazing they actually are! I don’t think a lot of advisors realize how unique their skills are. If anybody’s listening to this, take this from me. I talk to probably a dozen different CFO/ CPAs a day, so I’ve talked to thousands, and I can count on one hand the ones that have been overconfident. Most of them are under-confident in their skills. It’s not that their skills aren’t there, it’s that their confidence isn’t. Please, please be confident. Your client really wants your confidence and they want to hear what you have to say. They desperately need it.
Jeff Borschow: Allow me to share some insight. I’ve analyzed this a lot, and it occurred to me recently. The CPA space is highly competitive. If you think about it, you’ve got steel sharpening steel. You’re ranked according to the percentiles and you know exactly where you rank against other CPAs. I think they lose sight of the fact that as they’re going through their training they’re the elite, of the elite, of the elite, and if they come in second place they feel bad about it and then when they go out into the accounting space they have to compete for their jobs. There are a whole bunch of metrics that are meant to keep them humble, which isn’t their purpose, but that’s the outcome. So, when I talk to a lot of CPAs they say, “Well, you should go talk to Bob, or Justin, or whatever because they know way more than I do.” What they lose sight of is the fact that they’ve gone through and gotten a master’s level degree where most of their clients have at best a grade three understanding of the material.
Justin Hatch: I couldn’t agree with you more. It is a powerful position to be in as an advisor. I recall sitting with my accountant as a 20 year old when he was trying to explain to me the relationship between my various financial statements. That poor, poor man, Glenn. If you’re listening, I’m sorry. I regret all of the trauma I put you through and thank you for all of the time that you gave me. (laughter) I’ll help pay for your therapy and all the trouble I gave you, but he really did help me to understand and gave me perspective that I would never have received otherwise. It was because of him that I was able to start taking my business in a different direction because even though he wasn’t technically advisory, he didn’t even consider CFO level services, he was tax and tax only, but he stepped out of that role and assisted me in a big, big way. His skills and insight as my accountant helped my business life and was incredibly valuable.
Jeff Borschowa: Well and obviously something stuck, because Glenn has clearly helped you understand to a point where now you can turn that complexity into simplicity.
This is one of my favorite parts of the show. Tell me something really cool. What’s the proudest moment that you look back on in your path with Reach. What’s your proudest moment that you’re really excited about.
Justin Hatch: That’s a fun one and immediately as you said that a certain memory popped into my head. Let me give a little bit of backstory.
We started out as a BI solution for small businesses and our plan was to cut out the accountant. We thought, “This was going to be something that every business is going to want in their office. They’re going to run it, and it’s going to be so simple, and they just click two buttons and it’s going to be magic.” Obviously there was slightly more complexity than that. We weren’t idiots, but we were ignorant of how valuable the CPA was. What we found was an audience that came to us and said over and over again, “Hey Justin- It would really help us if you added this feature or that feature into the software, or this feature would help us change the game with our connection with our clients.” At first I thought the right thing was staying power, or grit. That I should just stay on the track I’m on and can’t deviate. I thought I needed to avoid distractions and couldn’t do anything that was going to pivot from our original software.
What we actually realized over time, was there were no real competitors that have created a solution quite like Reach. This is a space that accountants are begging for and our number one competitor would be Microsoft Excel. They have to resort to using Excel because our competitors in the space just can’t help them on the level that they need. What we realized was that accountants had this desperate need and that we needed to pivot our solution to actually target the people we were at one point trying to cut out. That was a bit ‘hat in hand’. We had to do it with some humility and we had to go back to our investors and explain we made a mistake.
One of the proudest moments, honestly, was when we first got our first couple customers that came to us and said, “You guys are different. The functionality of this app is different from anything out there,” and they paid us real money! This was way too long into it. If you ever get the urge to start a software company, I urge you to go talk to your therapist and strongly reconsider! (laughter) This was way too long after we founded the company. Once we found that product market fit, it was almost too good to be true.
Jeff Borschowa: I love that. This is a very safe place and I think our audience will appreciate that candor. A lot of app companies and developers I’ve met get really excited about the software and who it’s going to help but then they lose sight of who’s going to wield that tool.
There’s a commercial on television where somebody’s reading a book and learning how to take out their own appendix… that shouldn’t be the goal, you know!
Justin Hatch: Agreed!
Jeff Borschowa: The way I’m going to put my spin on Reach Reporting- you’re helping the accountant wield that scalpel so they can make decisions. One of my favorite quotes from Perry Marshall is, “You can’t cut business overhead with a hatchet.” It needs to be that precise scalpel. I think Reach is a communication tool and it gives precision where you can help people.
You’ve got a lot of experience, and I want to be mindful of your time. What’s the single best piece of business advice you’ve carried with you, and would you be willing to share it with our audience?
Justin Hatch: That’s such a challenging question because every single component of business has its own list of absolute ‘do’s’ and absolute ‘do not’s’. We’ve been at this for six years and we didn’t really launch our true fully-finished product until the end of year five. We learned the hard way that the only way to survive in this space, no matter what, is long-suffering and grit. We’ve talked to CPAs who are running billion dollar revenue companies and we’ve talked to CPAs who are one-man bands. When you are on your way home and you are confident that you’re going to be out of business that next month and you’ve looked at all the numbers, it all comes down to grit and keep on keeping on.
I’ll add to that- relationships are everything! So build a relationship with your client, because that will provide so much value in the future for you.
Those are the two that come to mind and I’m sure if we kept probing we would have all of these things that come back from Carnegie and Furr, and from all the different leaders in the space, but ultimately it comes down to staying power.
Jeff Borschowa: Awesome! And for our audience I just want to say I did not coach Justin on this. He came up with the relationships independent. It’s a conversation that I have a lot.
Justin Hatch: You talk about this a lot on the show?
Jeff Borschowa: Yes, relationships. It’s a funny thing because I don’t think most people get how important to the sas companies their relationships with their CPAs are. That can make or break an entire market for a sas company, so we talk a lot about relationships and their importance. I think it’s refreshing in these crazy times. People are trying to compete for attention on social media, so I do appreciate that CEOs like yourself take the time to have a chat with me.
Justin Hatch: Thanks man. Yeah, it’s been fun to hear and see the stuff you guys are doing and see what effect the show is having. It’s pretty cool.
Jeff Borschowa: I do this purely because I’m a nerd and I love to hear what people are doing to innovate, so it’s the best of all worlds for me.
Is there any question that our audience should be hearing from you that I haven’t asked?
Justin Hatch: Yes! Pricing. How much do I, the CPA, charge? I get that question every day from groups. I was asked yesterday from a group that has 800 CFO clients. They asked me how much they should charge. I got the same question the other day from a sub 400 CPA firm, so a massive firm. We give advice to firms that are sub 100, and so on. The only thing I can say, and you’re gonna have to take that little confident pill, and not the drink- not that one- but the imaginary one that’s just in your head. Price high and justify. Price high and justify.
Jeff Borschowa: I love it.
Justin Hatch: It’s so much better for you to have 10 high-value clients than for you to have a hundred low-value plays. It’s so much easier for you. We seem to think that the best way to do it, like all of these sas companies are doing, and they’re really low dollar, and they’re able to scale to everybody in the world and you’re right there. There are some really great cases where people have done that, but the key is your client wants something that they feel is really valuable and so by all means- price high and justify when you’re offering your services to them. It will be worth it for them and for you.
Jeff Borschowa: I love that advice Justin, and I’m just gonna add to it- price high and justify. Whatever you think is a crazy price, double it, because you’re still too low.
Justin Hatch: (laughter) I don’t know enough about the internal books, but yes, I’m sure that’s probably true.
Jeff Borschowa: I’ll tell you something. Just in my experience, accountants are really good negotiators because their primary focus is helping clients reduce costs. So every time they quote a price, they start negotiating downwards and what they don’t realize is it’s nothing to do with their cost. It has everything to do with the value they deliver, so if they charge a higher price then they’ll step up and deliver higher value.
Justin Hatch: Right, and the client will value it more. If you go in as the low ball, then they’re going to value you as a commodity. You may not win all the contracts and that’s going to be disappointing. It is for us anyway. If we’re ever in those situations where we’re doing custom development for somebody and we ‘price high and justify’, we try to keep our software pretty inexpensive, but in terms of custom stuff, it’s very different, and if we lose those clients that sucks, it really sucks, but there’s always more clients and there’re people that desperately need it. Especially in this time with zoom, you can have clients anywhere which is pretty awesome.
Jeff Borschowa: Absolutely. Well, I just want to thank you.
So we’ve been talking with Justin Hatch, CEO of Reach Reporting. Where can our listeners go to learn more about Reach or to follow Reach online?
Justin Hatch: Yeah, thanks. You can go check out Reach at reachreporting.com. We’re on all of the major social channels, so by all means ping us on there. We’d love to chat and hang out.
Jeff Borschowa: Awesome. Well, thank you so much for your time today, Justin. We’ll add the details to our show notes. Do you have any parting thoughts, last comments for our audience?
Justin Hatch: Yes, I am sorry for what I did to you in 2015 and I’ll spend the rest of my career with Reach Reporting trying to make amends on that one. (laughter)
Jeff Borschowa: I want to thank you for that vulnerability. It is a brave thing to do- coming to a den of CPAs and acknowledging trying to try to stamp them out. So thank you for that, and thank you for your time today.
Justin Hatch: You bet. It was my pleasure.