Accounting For Growth

Accounting firms, large and small, are battling for the business of small business. What do these firms really have to offer?

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In 1977, when Heath L. Kline, chief executive officer of Priority One Electronics, hired Neal Elias, the head of a small certified public accounting firm, he thought he had his accounting problems licked. Elias would provide Priority One, a wholesale distributor of computer components in Chatsworth, Calif., with tax auditing, and accounting services, as well as act as an all-purpose business adviser. But with Priority One's sales growing at more than 134% compounded annually, the job became too much for one man to handle. So, in 1983, Kline decided to hire another accounting firm to help out. The only question was, which one?

Letters were sent out to Big Eight accounting firms, asking if they had any interest in serving Priority One. Although Kline knew the Big Eight firms were courting smaller companies, he was surprised by the intensity of their response.

"They wanted us, and they let us know they wanted us," Kline remembers. "Immediately, they called and asked, 'Can we get to you today? Tomorrow?' They inundated us with booklets, then told us this was just the beginning of what they could provide. They spent hours learning about our particular business, then talked with me in person. They asked us if we had questions, then called to see if we had more questions." In the end, Kline settled on Arthur Young & Co. "They called the most often -- as late as 10 p.m.," Kline says "It's their persistence that did it."

Ten years ago, such dogged pursuit of a small company's business by Big Eight accounting firms was unusual, despite the fact that, under the American Institute of Certified Public Accountants Code of Professional Ethics, CPA firms could respond to inquiries from prospective clients. Direct solicitation was prohibited, but that part of the hallowed canon is kaput, thanks to a 1977 U.S Supreme Court ruling that allows professional service firms to advertise. The present AICPA code permits CPAs to make cold calls on prospective clients, conduct direct-mail campaigns, and even take out ads in newspapers and magazines.

In short, accounting firms are now doing what other businesses have been doing for years -- competing. They are pressing the flesh, engaging in price wars, trying to out-razzle-dazzle each other. Out are the green eyeshades. In are words like "marketing," "targeting," and even, in certain circles, "penetration." As Richard A. Connor Jr., of CPA Marketing Systems (a division of Synergy Corp.), a consulting firm in Springfield, Va., says, "Some of these firms are real piranhas."

With their new-found aggressiveness, the accounting firms hope to gain a chunk of the small business market -- something they considered "small change" just a few years ago. "The Big Eight," Connor says, "knows what it's looking for -- tomorrow's Apple, Xerox, or IBM."

And to find them, they're going to great lengths, as the case of Deloitte Haskins & Sells's hot pursuit of Catalyst Technologies Inc., in Sunnyvale, Calif., illustrates. About two years ago, Jack Peth, the partner in charge of small-business services for Deloitte in San Jose, Calif., heard about Catalyst, a company that nurtures startups by providing them with centralized financial and clerical services for 6 to 18 months. After that, they strike out on their own. Great idea, Peth thought. Great source of new clients, his colleagues at Deloitte agreed.

Landing the Catalyst contract became, for Peth, a mission. His first step was to meet with John Anderson, Catalyst's executive vice-president, then with Nolan Bushnell, the corporation's founder and owner. Would those two men consider hiring just one accounting firm to serve all the companies under Catalyst's wing? Peth wanted to know. They would, Anderson and Bushnell responded. So Peth set out to assemble an "engagement team," Deloitte's version of a strike force.

"We had two tax people, two or three small-business department personnel, a management consultant, all the people we thought we would need to be responsive to Catalyst's management," Peth recalls. "We wanted to have enough contact with them, [because] we knew they weren't going to make a decision in a one- or two-hour meeting."

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