Shownotes
Small businesses are important to the nation’s economy. Over 80% of our gross national product is produced by employers with less than 100 employees and the failure rate is 76% to 90% in the first one to two years. Harry Lay, trusted advisor to CEOs and owner and president of Lay Professional Services, provides services primarily to small businesses to help them accomplish things they can’t seem to accomplish without somebody’s help. Harry says there are lots of companies that are underperforming, and he looks for the willingness and the ability of people to change what and how they do things. In order for them to move from where they are to where they want to be, he offers them the skillsets that they need but don’t have. Harry shares how he leveraged his skill as a CPA into starting his own consulting firm and becoming the trusted advisor to CEOs and business leaders worldwide.
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The Trusted Advisor: Learning From The Voice Of Experience Harry Lay
We’re incredibly fortunate to have Harry Lay, he’s the owner and president of Lay Professional Services, and he’s a good fishing buddy of mine. Harry, thanks for taking the time.
It’s a pleasure to be with you, as always.
Tell us a little bit about your business and who you serve.
Lay Professional Services Inc. is headquartered in Tulsa. We provide services primarily to small businesses. The Chamber of Commerce, define small businesses, employers with 100 employees or less. I work with early stage mature small businesses and I help them accomplish things they can’t seem to accomplish without somebody’s help,
Folks go, “I’m that small business and I probably need some help.” Why should Harry be qualified? They don’t know your history and I do. Let’s dig in a little bit and talk about your journey prior to professional services.
Most people, when there’s something they want to change in their business, they want more income, and they want more sales or more profits. When I talk about I help companies change whatever it is in their company they want to change. That’s a pretty broad statement. I’ve had a pretty broad range of experience by education and training. I’m a CPA, at this stage of my career I’m a reforming CPA. I spent nineteen years in the profession, first of all with Arthur Andersen’s company as an auditor. After a few years there, two of their tax partners and I left. We formed our own firm in Tulsa and after almost ten years we grew to be one of the larger local firms. We were merged with or acquired by BDO Seidman. I was a senior audit partner with them for two more years before I got an incredible opportunity.
In the CPA world, I worked in virtually every industry that specialized in construction type clients, both in commercial and residential real estate, real estate development. My favorite client was Weyerhaeuser, the forestry company. You’ve heard some stories about that. An architecture firm contacted me in Tulsa about 1988 and asked if I would become their president and chief financial officer. I was a single parent with a thirteen-year-old daughter at the time, so I’m not sure why I took that job. I don’t remember what motivated me to do that. It might’ve been my concern about the SEC and their crack down on publicly held companies, but I did take the job. I realized pretty quickly I didn’t know what I was doing. I didn’t know that much about business. That may sound odd for a nineteen-year CPA veteran.
I knew how to audit companies. I knew how to work with companies that somebody else had generated. I knew how to account for transactions. However, how to motivate people and how to attract clients and retain them, I was pretty clueless. Since it was an architecture firm, I knew how to speak accounting, but I didn’t know how to speak architecture. Somehow, they survived me for two years and didn’t run me off. We changed the types of clients we were going after. We’ve got a little company called Walmart and the rest is history. We were lucky to hit them before the growth spurt. In about eight years, we had grown to 600 people with income of close to $100 million in fees and we enjoyed a very healthy profit, well over 35% in an industry that averaged 7%.
When you started out, if you care to share the broad range of revenue when you first came onboard.
The revenue was at $4 million but our clients were primarily local real estate developers. We had one client called Property Company of America. We built multifamily housing facilities for them. We did retain that client for quite a while, but we couldn’t sustain the kind of business that we wanted. With architects, there’s a lot of turnover and the average size of an architectural firms then and now was seven people. A seven-person firm might land a big project like a hospital or an addition to a hospital or a big bank or something, and they have to staff up. They may hire another seven people until that big project is over.
Then they lay those people off back to seven. Numbers-wise with 40 people, we were large and we were decentralized. We were able to focus on the primary owners of that firm and focused on what kind of clients were needed. We went after big box retail and it worked. It was quite a ride, and I learned a lot, made every mistake a leader can possibly make. We hired some consultants to try to help us and they didn’t. We just had to bounce off corners and around office sharp corners and we did okay. We did well.
In the timeframe that you went, somehow or another, you competed for some business for Walmart. If you would go through that process and then why there was an evolution in the relationship?
Walmart employed a number of architecture firms and one of the things I noticed when we’d go to Bentonville, some of the brass with whom we dealt, were not in the best of moods all the time, almost depressed. I have this habit of asking clients that are disturbed, “What keeps you up at night?” They responded, “We can’t get enough stores open.”
For the folks that don’t understand why that was important, why was the store opening speed important to Walmart at those days?
Trusted Advisor: At the peak, we were helping Walmart open 300 stores a year which is incredible.
They were opening 40 stores a year, as I recall, which is quite a few back in the late ‘80s but they were growing. Sam Walton would have an annual shareholder’s meetings and we’ll talk about next year’s revenue. If they didn’t open as many stores as he had hoped, they’d fall short of those and had lost some credibility in the marketplace. There were consequences if they didn’t get as many stores open as leadership wanted.
We talked to them about that and about process, and we’ve got the opportunity to take over the Supercenter program to see if we could get as many supercenters open in the next year as they wanted and we did. They gave us Sam’s club and Walmart stores and we’ve got it all. We had to manage their programs and that’s when things really started to happen. We worked with the internal architects and we defined processes and how to get this done. Before long they could open 100 stores a year and 150. At the peak, we were helping Walmart open 300 stores a year, which is incredible.
I know they only had 30 plus architecture firms and there was this typical timeframe to take and go to get a store out of the ground and get it up and operating. What was that typical timeframe?
When we first asked them how long was the process from the time the board said we’d like to open a Walmart store, let’s say in Rolla, Missouri, until the time that they got the keys to that store. That’s the real estate development process. They didn’t know. They talked about how many days it took to build a building, but that was the construction phase of that. I don’t recall exactly how long it was, but it was well over two years before they could get that done and we got that shortened down to less than eighteen months and predictable. There was a process by which they would choose a piece of real estate.
There’s certain criteria that piece of real estate had to meet. Next are entitlements, we had to get permits and all of that. It was his project management and program management and we brought that to the table and worked with Walmart and got it happening. It was an interesting ride and then we’re able to replicate that process to change the Marriott Hotels, Home Depot and even some work with the LDS church. Those four clients generated that close to $100 million in revenue.
We were talking about some of the internal things that you would focus on to make sure that process was adopted and brought forward. One of that you were talking about was a red line report.
That was an internal management and internal for us. Being a CPA, I wanted perfect financial statements. I want balance sheets to balance. I want income statement to be accurate. I want everything to be completely cut off at the right time. As our company grew, the timeliness of the financial statements was more important than the accuracy of them and that drove my accounting department crazy.
Become more efficient and make more money.
We were very bottom line focused. Even though we made a whole lot more money than the average firm, we were constantly looking for ways to improve profitability and we had a profit-sharing bonus plan in place. When our architects understood that, they were looking for ways with which to be more efficient, how to increase our profits because they recognized it really made a difference. We paid our profit-sharing bonuses four times a year, once each quarter.
Some of my architects came up with what we called a red line report. The average age of our architects back then was 26, we had some inexperienced people and they would make the same errors repeatedly and they were constantly getting a red line. We decided to track those and to publish them within the client teams. If Harry made the same recurring error over and over again, Harry may not last long. It became a source of pride within the departments to reduce those red line reports. As a result, we became more efficient and we make more money.
If you were to review that time frame and go key takeaways that if you were called back into a similar firm with a similar challenge in front of them, what are the first two or three things that you would do inside that organization to try to replicate that success?
Most companies have a business model. They have an operating process by which they generate sales or complete projects. I’m not sure that they all have that process documented. In other words, here’s step one, here’s step two, step three, and that finishes a stage and then you go to stage two. Manufacturing companies I’m sure do it really well. It’s probably the first thing I would want to do is, let’s diagram or list all the steps in a given project.
By doing that, sometimes you get from step five to step six. You look at it, especially me when I’m doing it with a client, I’m ignorant about your process. I said, “Bob, why did we do step six, step five, step six, step seven. I don’t understand what value step six is.” You start to explain it to me and go, “You don’t worry. We’ve always done it that way.” By listing that out, you’re looking for non-value-added steps. “If we eliminated step six, what would that cost us?” “Nothing, we’ve got about twenty minutes of time now.”
I’ve done this in my profit improvement services a lot, especially in manufacturing. Even in CPA firms and law firms, there are processes that they use in order to produce things and if I don’t understand the step, I’ll ask and usually they have a good answer. That’s probably where it started, is looking for what are the non-value-added steps we do. The quickest way to do it is as the owner, “Bob, who are the movers and shakers in your firm.” What do you mean movers and shakers?
You employ 90 people and of those 90 people who are the people who, if they come to you with a problem or the recommendation or concern, you’re going to listen to them. Out of 90 people there might be fifteen that are your key people. That’s who I want to talk to because they’re movers and shakers because they know what’s going on. If I ask them what the problems are, they’ll tell me and that gives me an insight in where to start.
Constantly look for ways to improve profitability.
You went to the architecture firm and at some point you made a decision to start your consulting firm. When you first started your consulting firm, like many consultants, you got to have a client at some point. What was the process like from going from the hubbub of the architecture firm to starting your consulting firm?
To the other CPAs, I’m sure that none of you are going to be guilty of the things I’m going to describe. Bob, I don’t know any profession that works any harder than CPAs, but the CPA profession is steeped in tradition. I was taught, I was coached, I was mentored, I’m stopping short of brainwashed by Arthur Andersen and BDO Seidman. Things like billing by the hour were standard, keeping time sheets, these are principles, these are generally accepted accounting processes and procedures that you do not change.
When I became the president and CFO of an architectural firm, talking about billable hours, realization per hour and costs per hour, they didn’t have a clue what I was talking about. As we were working for companies like Walmart and I’m looking at the amount of hours charged to a job. It just didn’t make any sense to me what’s the correlation between the value we’re providing an architectural client compared to how much time we spend.
Trusted Advisor: If we’re efficient, we could generate a whole lot of value.
We could spend 60 hours on a client and generate very little value. On the other hand, if we were efficient, we could generate a whole lot of value. I started asking clients what’s the output, what’s the outcome worth? We got away from billing by the hour and we billed based on value. It was incredible, what a realization. I’m thinking, CPAs add so much value. What if they tied the price of their services to the outcome that they’re providing for their client? I learned a lot of things in the eight years I was in the architectural industry and I thought, I will be God’s gift to the accounting profession if I go back to them and I want to help them improve their productivity and their profitability.
When I left the architecture firm, I wanted to go help accountants. Try selling consulting services to an accounting firm and the first thing out of my mouth is, we can eliminate timesheets and we’re not going to bill by the hour. Some of them tried to get me committed for being out of my mind. My target market didn’t work out well. I did have a few accounting firms that would employ me, but I had to look elsewhere. I did quite a bit of work with the Tulsa Chamber and became aware of how important small businesses were to the nation’s economy.
In Tulsa, we had over 3,000 members of the Chamber of Commerce and probably 400 of them were the really big employers well over 100 to 200 employees. They were the primary benefactors of the chamber and the rest were small businesses and they didn’t participate in the program. I’ve read that over 80% of our gross national product is produced by employers with less than 100 employees and the failure rate is 76% to 90% in the first one to two years. I wanted to make an impact to small businesses so I targeted smaller firms and that’s how we got started.
For the small business owner, he goes, “I’ve hired Harry,” what should they expect? What’s the process look like?
That depends on where their pain points are. Over the years I’ve learned that most of them are doing business instinctively. They learned it from their dad. They learned from somewhere and they worked very hard, but they don’t have a process that will methodically move them towards the type of company they want to have. I developed some processes based on my experience with the architectural firm. What do they need their company to look like to give them what they want?
We think strategically for a relatively short period of time and then it becomes very tactical.
I called that their vision. My first engagement with the company is centered around a process I call strategic planning. The irony of that is we think strategically for a relatively short period of time and then it becomes very tactical. That’s probably my spear thrust that gets me involved into a company and by the time we go through what I call a strategic planning process, I get pretty well acquainted with the company and they either love me or they don’t.
Fortunately, most of them are pleased with the results and then that gets my foot in the door. The longer I work with a company, the more I can add value to it. The CEO, the founder, will have certainly competencies and capabilities that I don’t have, they will have education and experience that I don’t have. In order for them to move from where they are to where they want to be, invariably, the skillsets that they need, they don’t have. I’m looking for those companies and leadership groups that need the skill sets I have that they don’t have that they need and then it’s a match made in heaven. The sum of my competencies and capabilities combined with yours, the sum of you and me is probably one plus one equals seven.
When you show up at a company and there’s a process, you guys chat and they decide to engage your services. You walked through the door on Monday? What should they expect?
The first engagement is something like strategic planning and I’ve got a fixed process for that. It begins with a three or four-day process. We start internally with helping that leadership group frame and quantify...
