As part of our series about strong CEOs, I had the pleasure of interviewing Stephen King, CEO and founder of GrowthForce.
From startups to working with Fortune 500 executives, Stephen King brings a unique combination of vision, foresight, and experience to help small businesses run better, grow faster, and make more money. Regarded as one of the accounting industry’s top thought leaders, he’s currently serving as President and CEO of GrowthForce, one of the nation’s largest cloud-based accounting service providers.
A highly energetic and motivational business leader, entrepreneur, and speaker, Steve has a passion for helping businesses and nonprofits reach their growth potential. His ability to visualize the future of accounting and assemble a highly qualified and motivated team has led GrowthForce to become one of the nation’s largest cloud-based bookkeeping, accounting, and controller service providers.
Thank you so much for your time! I know that you are a very busy person. Our readers would love to get to know you a bit better. Can you tell us a bit about your backstory and how you got started?
I’m the eldest child of two Irish immigrants who immigrated to Queens, New York, in the mid-1950’s. My first job was helping my dad do the books for his Knights of Columbus poker buddies. I went to Pace University in NYC and paid my own way by working full-time at night on Wall Street and as a bookkeeper for a CPA firm. In 1982, I got a job at Ernst & Young’s as an intern working for the managing partner in the NY office building on a relational database that was what LinkedIn is today. After two years of audit, I became the first Senior Consultant in a new accounting system design group that would grow to hundreds of professionals.
In my last six months I tried to build an outsourced bookkeeping, accounting service that offered something CPA firms didn’t have. But the technology wasn’t ready, and I ended up giving it to a college roommate after one year.
One week after I gave a month’s notice to Ernst & Young, I got a call from a partner I knew, who told me that Amnesty International had proposed that Ernst & Young build an accounting system. I became the person in charge of all the money for the next seven years, both spending and raising $20M a year as CFO and Director of Development.
In 1995, I discovered Netscape and the World Wide Web. I immediately saw that as what I needed for that outsourced bookkeeping idea I had earlier. So I gave six months’ notice and started a company called Virtual Growth in New York’s Silicon Alley, providing bookkeeping, accounting, and controller services to web developers. We ended up raising $43M in VC funds from top firms and growing from a startup to 235 people in seven cities.
After 9/11, Paul Sarvadi, the CEO of Insperity which was one of our investors, came to our rescue. I moved to Kingwood, Texas, and became President of the Financial Management Services Division. Later, I got a chance to buy the company back and started GrowthForce across the street as a partner with Insperity.
Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lessons or takeaways you learned from that?
When I became a manager at Ernst & Young, I was promoted over the person who trained me. I thought, “I’m going to be the best and coolest boss you’ve ever had. I’m going to leave you alone, you won’t even hear from me!” Four months later the person quit! I thought “Why? I thought I was doing the right thing.” As it turns out, the employee felt like I was ignoring her and didn’t care about her.
Basically, I had achieved the exact opposite result that I had set out to achieve as a manager. At that point, I realized the true power of a human capital strategy and the importance of employee recognition. When a manager ignores someone, the likelihood of disengagement rises by 40 percent — a sobering statistic. That’s not to say that you should micromanage by any means, but if you want employees to be happy, engaged, and productive, be sure to keep lines of communication open and offer feedback — both constructive criticism and praise — often. Not the funniest mistake, but certainly a big lesson learned there.
Is there a particular book that you read, or podcast you listened to that really helped you in your career? Can you explain?
Simon Sinek’s Find Your Why. People do not buy what you do; people buy why you do it. I learned that you don’t try to sell your services — you should sell the reasons why you do the service. I learned that people make decisions based on emotions, not on their surface-level pain. You have to dig down into what emotional impact your why has, because that’s really how they make spending decisions. It was really eye-opening.
Are you working on any exciting new projects now? How do you think that will help people?
It’s a fact that in service business, people drive profits, so we’ve developed The One Page Scorecard [Guide] to help Business Owners and CEOs understand how to measure this. Both in service businesses, and nonprofits, the biggest expense is people. Usually, it’s 70 percent or more of the expenses when you add in all the benefits.
There hasn’t been a good way to measure the impact of a human capital strategy, so we built a One Page Scorecard for our clients to help them see it. The AICPA says that 68 percent of the value of a company is its people. They suggest a required footnote disclosure for employee turnover, because the companies that have the most profits have low unplanned turnover (keyword here being unplanned).
Our scorecard helps you see the impact of investing in your people, their training, and their efficiency — revealing the impact of having clear, written goals and getting discretionary effort. All the human capital aspects we talk about increase in productivity and training.
Thank you for that. Let’s now shift to the central focus of our discussion. Extensive research suggests that purpose-driven businesses are more successful in many areas. When you started your company what was your vision, your purpose?
It’s the same as it is today. And in fact, my vision and my purpose were started when I had that CPA firm in Hoboken. What I wanted to do was be able to help business owners remove the burden of building and maintaining an accounting department so they can focus their energy on doing what they do best to build their business. Our mission is to help leaders make smarter decisions by having data at their fingertips.
Do you have a №1 principle that guides you through the ups and downs of running a business?
Enjoy the journey and look forward to coming to work every day. If you’re happy every day, you’ll have a happy life. Another principle in the business world is that people drive profit. Your people are an asset. Recruit for behaviors and cultural fit, and invest in people skills so that they can grow.
Lead generation is one of the most important aspects of any business. Can you share some of the strategies you use to generate good, qualified leads?
There are three main lead generation channels for us: client referrals, inbound marketing techniques, and affiliate partners.
It starts with our happy clients, who send us referrals. Our clients are happy with the value they are getting out of our services, and they give us great referrals. That’s the best compliment we can get.
We also use inbound marketing techniques to help educated business owners and nonprofits toward a better way to manage their financial management operations.
Another way we generate leads is referrals from CPAs, and especially CFOs. We are different from traditional CPA firms because we focus on management accounting, so business owners can make data-driven decisions. We recruit dedicated professionals that are passionate about helping small businesses and nonprofits change the way they run their financial operations.
If a fellow CEO asked you for advice about whether to bootstrap or look for VC capital, how would you help them weigh the pros and cons of that decision?
I’ve done both. I have lots of experience in multiple companies that I bootstrapped, and my investors were MasterCard and Visa. I’ve also raised $43 million from blue chip venture capitalists, like Bessemer and Citibank. The most important advice I have is to make sure you raise enough money the first time so you don’t have to go back to your investors to ask for more money, because they become vulture capitalists instead of venture capitalists. And what that means is they start to require preference items –they have a preference over everybody else as to how they get their money out. It’s called a double-dip. They get their money out, and then they share in the remaining profits, so they get paid twice before I get paid once. After raising $43 million in venture capital funding, I owned 6 percent of virtual growth. Now it’s a job. I was passionate about the vision, but it was hard. It was a job.
What measure do you use to determine the value of a company? What advice would you give to other leaders about how to get an optimal evaluation of their business?
There are a lot of different valuations, and I’m not an evaluation expert. However, I know that the companies that do land at the highest end of the market are the ones that have the highest EBITDA. Well-run companies have 12 to 15 percent EBITDA. If you want to be at the top of the market, you want 15 to 20 percent EBITDA. You also want a recurring revenue model, because if you have some predictable results, you’re going to get a higher valuation.
Basically, what’s important is to develop a great management team, investors invest in management. That’s really what they’re looking for: a well-developed management team, and clear, written goals that are cascaded down throughout the company. If you have personal development plans for everyone, you’re building on those people’s skills.
How would you advise a founder who initially went through years of successive growth but has now reached a standstill? From your experience, do you have any general advice about how to boost growth and restart their engines?
Businesses rise to the level of competency of the managers. This is an example of the Peter Principle. So, if you get to a point where you’re a million dollars and you’re stuck, or you’re $5 million and you’re stuck, it’s because the leadership has risen to their highest level of skill set. The first thing to do is look at the top and make sure that person is in the CEO’s chair. GrowthForce is a great example of this. Right now, we are focusing on preparing for a two-day retreat to talk about what pivots we need to make in 2021 to continue to grow and respond to the changes that have happened in the marketplace, like COVID-19. If I didn’t have a leader for operations and a leader for sales and a leader for marketing, I would have to be filling those jobs. I would be closing sales. I would be generating leads. I would be worrying about making sure the clients are happy. If you’re stuck, you must look at your management team and see which skill sets are missing. Usually, it’s the financial skill set because a chief financial officer is expensive.
You need to be able to study the past to help predict the future. I like to suggest that people look at profitability on all the work that they do, and then look at the bottom 15 percent and then reprice it and re-scope it (or transition them out so that you can replace them with higher margin business). You need to ask yourself, what do you want to get done? And then start to create scorecards for that.
What are the most common finance mistakes you have seen other businesses make? What should one keep in mind in order to avoid that?
They don’t ‘fire’ clients or products or services. They think that all clients are created equal and all employees are created equal. You have to look at the lowest profit margin business, the ones that are dragging you down and either increase the price or re-scope or transition to another service provider.
OK, here is the main question of our discussion: Based on your experience and success, what are the five most important things one should know in order to succeed in the modern finance industry? Please share a story or an example for each.
1. Get the right mindset: Get the data at your fingertips to make smart, strategic decisions. This is not the time to make decisions based on emotions. Your emotions and your guts are absolutely going to be important — your spidey sense as I call it — but using that alone is a recipe for disaster. You’ve got to combine that with data, and you’ve got to figure out what’s reality. Are you in survival mode, restructure mode, or strengthening mode?
2. Focus on cash flow: Proper cash flow management can make or break your business. There are three reasons businesses fail: cash flow, cash flow, and cash flow. Get ahead of your cash flow. Get a 13-week forecast and have that data at your fingertips. You need to see your cash flow forecast. You have to be implementing your best practices on billing, payments, and collections, and you need to be automating and integrating everything you do to help, with an eye toward improving cash flow.
3. Cut costs and lower overhead: Lower your overhead. Get the right data to see your overhead and indirect costs. Cut these first: your non-profit drivers. Leverage outsourcing. See if you can leverage outsourcing as a competitive advantage to turn your back office into a strength and save you 30 to 40 percent more than hiring somebody in-house or without the expertise that allows you to scale. Use outsourcing to turn a fixed cost into a variable cost so that when your revenue goes down, your costs go down. You don’t want fixed overhead if you can avoid it.
4. Recognize and reward your people: Look at your “above the line” people — who you depend on to make money — to see who you need to keep and who to fire. Figure out who your best performers are, study the behaviors of their best performance, and then recruit for those behaviors. Reward the people who contribute the most to profits and move the people out who don’t fit your culture.
5. Play offense: Automate the whole back office. Implement a budget and get clear written goals for everyone in the company, because Harvard says the simple act of writing down the goals will increase your likelihood of success by 82 percent. Now is the time to get back on offense and get stronger. Assess where you are and where you want to be.
Which tips would you give your colleagues in your industry to help them to thrive and not burn out?
You need to work to live, not live to work. So that means having something to look forward to. For me, it’s my garden. When I don’t get out in the garden and get my fingers dirty and get into nature, I come into Monday morning and my weather is storming. I think you’ve got to step back. My wife and I went to Miraval for a weekend getaway, when I came back, I felt the best I’ve ever felt. I mean, the whole week was a happy week. I was literally walking out of here on Friday thinking, This is the best day I’ve ever had a GrowthForce. We had a fall festival that was really fun. And then I got to do this interview with you guys, and now I’m getting ready for this great weekend.
You are a person of great influence. If you could start a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)
As I hit age 60, I often think about what I want to do when I retire at age 70. One of the things that I’ve really loved about coming to Texas from New York is the whole approach toward community service and nonprofits. This is a small government state, and what they do is put a lot of money into nonprofits and social service agencies. Businesses have a part of their mission just to help community nonprofits with whatever they do. For example, right now, we have three boxes to accumulate gently used clothing and furniture for an organization serving adults with learning disabilities. I think if you can use your capitalism to help make the world a better place, you should make the world a better place. In my mind, we have kind of a social responsibility to pay back to the community, not just to make a profit.
How can our readers follow you online?