Raising the Bar for Talent with Jeremy Dubow

Hello and welcome to the Big 4 Transparency podcast. I'm joined today by Jeremy Dubot, the founder of NDH, which has since been sold to private equity and rebranded as Prosperity Partners, an amazing firm in Chicago. I've had a lot of conversations with people from your firm who have nothing but good things to say, and I had the pleasure of sharing the stage with you as a co-panelist at Private Equity Summit. So thanks for joining. Dominic, thanks for having me. As you mentioned, Jeremy Dubot, the CEO and co-founder of Prosperity Partners. First off, it's good to be talking to you the week before Christmas. I see you're casual with a cooking the books sweater focused on Enron, and my background of course is Arthur Anderson, where I began my career. So I very much appreciate that. And just to make sure that I'm sharing the stage appropriately, I dressed a bit casually today as well. So no sport coat, a little bit different than when we were sharing the stage over at Accounting Today's PE conference. So anyway, thanks for having me. I appreciate it. Always good to see you and good to talk to you. Yeah, my pleasure. You immediately blew me away when we had the opportunity to chat before the panel. You're a very natural speaker. Very kind of... I don't know. I was just kind of like, it feels like a crime not to be recording this when we were speaking earlier. And so now we're recording it. So maybe to kick us off, you actually founded your own firm, which would have been back in 2003, I believe. How do you think the landscape for entrepreneurship in accounting firms has evolved from that time to today? Yeah, no, I appreciate that. So you're right. My background and experience was indeed Arthur Anderson. And then when Enron happened, I moved over to Deloitte in May of 2002. I remember the three days of technically being unemployed before Deloitte took all of the... In Chicago, at least, the tax professionals. And I was there for nine months before leaving and in doing something that I think not enough accountants probably have done because it is such a competitive landscape and difficult to secure work, build a business, address HR, address all the complexities of running a business. But at 26 years old, I left Deloitte with two of my colleagues from Anderson and then Deloitte and built a business that we called NDH and we had three people on day one. And I like to joke around that our mission statement back in 2003 was incredibly sophisticated. It was, could we possibly earn $1 more than if we were being paid by Deloitte? And if we did that, it was ultimately going to be successful. And as it turned out, we succeeded. Probably just barely in that first year. But back then, the landscape was incredibly different than it was today. First and foremost, we didn't talk about capacity constraints. We didn't talk about the labor shortages. Technology was something that you acknowledged, but you didn't really lean into. And so it was a very different environment where the focus was on bringing in work, doing it well, supporting your people. Not all that complicated. And by the way, we were tax people. The tax code was even a whole lot simpler back then than it is today. You could have five years of experience and arguably be an expert in tax, whereas today, of course, that's not the case. It probably takes 10 plus. The learning curve is steeper than ever. Obviously, as you know better than I do, the fight for talent is fierce. But one thing that has changed in a positive way is the demand for our services. The demand for accounting services is greater than it ever has been. So if you can find the capacity or create the capacity through things like technology, automation, offshoring, there is plenty of opportunity for work so long as you can continue to service it well. So very, very different environment today than it was back in 2003 when my world was simpler and the accounting profession was simpler. But at the same time, it creates huge opportunities for firms that do it really well. Yeah, very well said. So you think that it's basically changed from a demand constraint to a supply constraint essentially? Without a doubt. The world continues to expand. Our clients get more sophisticated. Our wealthy clients are getting wealthier. And the demands for what we do simply increase, whether it's additional service lines, more of the same support, but clients that have more of it, whether it's more sophisticated businesses, more wealth, family office structures, you name it. The demand for what we do is, again, at an all-time high. The challenge, as you know from all the employees that you talk to, the challenge is providing the service at a high level, being proactive, and being at the top of your game in a labor constrained environment where everyone wants more people to be able to do what they can do. Do you think starting a firm with three people is like the right play? Because we hear all these stories of like, oh, you know, I founded a firm myself or things like that. And then they bring on partners later. I feel like certainly, you know, the revenue threshold for it to make sense with three people seems a lot harder. But then at the same time, you know, as a solopreneur myself, I think there's a lot of kind of like downsides to just starting something all by yourself as well, where there's a kind of inability to fill in the gaps where you might be lacking, right? Where it becomes a lot more difficult to do that. So yeah, I'm curious to hear about the three people start of a firm. Look, I think today it would be very difficult to start a three person accounting firm and have the belief that you can get to scale. You know, first and foremost, technology is such a big part of it. You need the time, the energy and the resources to figure out the optimal tech stack for your business. And just to put it in perspective, it took our private equity transaction for us to really invest the time more so than the dollars. It's easy to spend money, but to really invest time in technology, we needed a third party to change the risk profile for us to really dig in and say, we're going to do the hard things today to ensure we have the best unified tech staff that will take us into the future. In 2003, when we first started, it was go find your tech software, find your accounting software, figure out how to use it and go with it. When you have hundreds of people in your organization, you need a tech solution that looks much different. So first and foremost, technology is different. Secondly, in this industry, you've got to find a way to use automation and offshoring. Notice I didn't say AI. We're using AI in certain unique ways, but AI in and of itself is not right now the solution to solve all our problems. Using automation and offshoring gives us what we call the operational leverage to create that capacity to do a little bit more. So that to me is our big focus. The world was just simpler in 2003. My job was to bring in work, do the work, maybe hire a person every once in a while, teach them, train them. And if I do all of that really well, things are going to work itself out. Whereas today, you can't have a successful business, whether it's one person, three person, 3000 people, unless you're spending as much time on technology, organizational leverage at people as you do on actually doing the work. So it's just everything is more complicated right now. Yeah. Yeah. Competition is for sure increased substantially. And then like you said, I really like the term operational leverage where or organizational leverage either one, but anyways. But I really like the term of kind of leverage being applied to literally everything where it's like, yeah, to compete, you have everyone's kind of being put into subspecialties and technology is being applied to everything to keep building the machine that makes the money basically. Right. It's like constantly tinkering on this thing, whereas it's not just, yeah, I'm just going to go out. I'll do the work. I'll come home. I'll do my client calls. It's definitely evolved quite significantly. That being said, I think that, you know, there's a lot of things that have kind of reduced the barriers to being able to do the work properly and like getting review and things like that. So like, in your opinion, you think it was easier to start a firm back in 2003 or right now? So I think it's easier to start the firm when you're young and dumb. So it's not so much that it's 2025 versus 2003. In 2003, I was 26 years old. Yeah. I wasn't married, didn't have kids. It was just easier to take a risk and focus on what I did well. I was a good service provider. I wasn't a strong owner of a business. I probably wasn't a great manager of people. I had absolutely no idea what it meant to find and source the best technology. I barely knew how to sign my name to a lease. And so it's a different time and that's how the focus has to, that's how you have to focus on it. Because today, of course, life is much more complicated. But the same basic constructs from 2003 apply today. I need to hire good people. I need to train them. I need to retain them. You know, everything that you spend time on is people and we do as well. And so, of course, today compared to back then, I need experts in different areas. We've got a much bigger business. We've got a client accounting services, a test services, M&A readiness, valuation, all of these things that I'm not necessarily personally an expert on. And so we have to have people in our organization who are experts and who can be leaders. One thing we did really well from 2003 is we knew we had to focus on our next generation. I learned that at Arthur Anderson. I know you've got the cook in the books, I swear. But you learn really early on that investing in your people is the most valuable thing you can do. And so today, 23 years later, I'm a bit older than 26, but what I can tell the people that look at our business is we have got the next generation of leaders. All right. So yeah, 20 years into your career, you know, you've been building this thing, building this thing. And then you decided to make a pretty significant change when you did accept, you know, external investment into the firm. I'm curious to understand a little bit more. And I mean, we've talked about this at the panel, but to share with the audience, what drove that decision to make a change? And then how did you even select the partner? Because by 2023, I feel like it was starting to heat up a little bit where there were probably multiple firms interested in what you were doing. Yeah, we were the fifth or sixth accounting platform to be private equity owned. So it was definitely early innings when we did our deal. And I think there's a couple explanations for why we decided to go in that direction. First off, at the end of 20 years, we had built a successful accounting firm. So it certainly wasn't successful in 2003 at 26 years old. But in 2023, 20 years later, we had built a very strong business with a great group of partners, great people, and great clients. But there were a couple headwinds in the industry, and I mentioned some of them earlier. First off, technology. We really needed to change our risk profile to make the changes with technology to position our business for the next 20 years. And when you're working on the business, working on the business, working in the business, it's tough to do all of that. So changing the risk profile was really important to allow us to make the technology moves. Secondly, something that you know, as well as anybody in the industry, is all of a sudden the labor constraints became very real. We just had less people and you wanted to ensure that we were the best place for our people to be and to be able to retain our talent without the risk that we were seeing in the industry. I recognize that my people are being asked to or being attempted to be poached every single day of the year, probably 10 times throughout their day. And so I wanted to make sure that I had a place where we can offer equity compensation, have the most competitive pay package in the industry. And so despite the fact that we had an incredible retention rate, and our retention rate was well above 90% historically, which I'm very, very proud of, we wanted to ensure that we can carry that into the future. And so the private equity deal allowed us to have competitive market compensation based bonus commission policy where applicable, but also to pay equity compensation to essentially every person in our organization so that when we have future success is measured by an increase in the enterprise value of our business, or in simple terms, an increase in stock price, everyone shares and participates. Yeah. Yeah. So I think that's going to be like a huge future movement in accounting where I think the pressure to do that is only going to continue. And it's on the basis of firms like yours, I think, where that is being seen. And so once talent has sufficient number of opportunities where that's in play, I mean, it's going to become incredibly difficult to compete at that point. So you're almost kind of the challenger on that front where, you know, it's not even that you're reacting. It's like, I think that you're almost like among the firms that are creating that pressure to bring that next level, which ultimately is going to be better for accountants everywhere. And I've long argued might also be better for partners, even though you may be sharing some of that compensation, but like firm economics can justify it if you no longer have to pay these crazy recruiter fees all the time, if your, you know, if your retention goes way, way up, if your customer retention goes way up, right? Like I think every time a manager who's in charge of a customer relationship leaves, that's a catalyst for the person to reevaluate, well, do I just do I still want to stay here? Do I want to go with that manager that I really liked who's going over to said competitor firm? Right? So it really feels like you were part of what is kind of raising the bar on that talent front. But beyond just offering equity, you also communicate it very well. So that was a large basis of what I kind of presented on a PE summit. But you know, there's a big difference between the top firms who took private equity investment when it comes to job satisfaction, who are actually outperforming non PE backed firms versus the firms who took PE investment and things are not going well, because actually frequently among the worst rated firms by job satisfaction, there are also a handful of PE backed firms in there. So it feels like there's a split. And one of the things I think is potentially responsible is communication around that equity value. So what is it that Prosperity Partners is doing on that front? So first off, I'm going to take one step back, because I think you mentioned a lot and I want to highlight a couple of those points. So, you know, on the concept of is, is equity compensation good for the it's good for everybody, right? It allows our people to potentially get paid beyond market. And to your point, it's one of the big reasons that we did this. It allows our team to participate, share in the upside of a business and feel like they're part of something. It's pretty cool to be a partner in the business 15 years earlier than what you might have made as when you might have made partner in the old school model. And so this concept of, you know, how do you get paid more quickly with liquidity events over time, I think is very exciting for our team. They are also fully bought into what we're trying to accomplish, which is we're trying to do all of these internal initiatives in order to increase the stock value of our business. It's not going to just go up by accident. It's not going to go up just by landing a few more clients or being more efficient. You have to look at everything that you're trying to do within your organization in order to get the most out of it. So, you know, a lot of people from the outside say, well, hey, private equity is potentially going to be really bad for accounting. We've seen it in other industries, the doctor industries in accounting right now where it's labor constrained. What it's doing is it's making businesses like mine and my peers be substantially stronger and better businesses than they ever were before. Focused on technology, focused on training and how you deliver service. All of those things have to be done incredibly well and you're willing to invest and spend money to do that. So this concept of is, you know, why did we get into this? We ultimately got into private equity in order to be able to offer equity to all of our people to make this job more interesting and exciting and hopefully rewarding for all of our people. And that's kind of where one of the reasons, yes, what were the reasons that we did it? Well, that was a big part of it and our team is seeing that. Now the second part of it you asked about, which was communication. So we believe in being transparent. Why have a stock price if you don't disclose what it is? Obviously we're a closely held, privately owned business. We're not a public company. There are now two public companies, two accounting firms that are public companies. A week ago there was just one. So we, you know, it's kind of, you can measure when we talked based on the latest IPO. I hold town halls quarterly with our team, the managers and up in our organization where we'll have a set agenda, talk about what's happening in our organization, but then we'll also disclose the stock price. So our valuation committee, that's a part of our board of directors, sets our stock price every quarter and then we communicate it to our team. And additionally, I hold the equivalent of town halls. We call them jam sessions. So I know we're, we're very creative. So you know, Jeremy, Jeremy's jam session. So we have a Jeremy's jam session. I hold that every other month with the team and answer questions. Hey, what's on your mind? And you know, we typically have a set agenda and then we end it with probably 10 minutes of, you know, ask me anything, including what I eat for breakfast this morning, if you care, or what was my workout this week, or hey, what's happening in the industry that impacts us? So we have a transparent dialogue. I tend to be as open as I can. You know, the goal is to develop and build the trust in the team. And I spent a lot of time doing that. But likewise, at that meeting, we communicate our valuation and our stock price to the company. Which is quite rare. Like I think the concept of the town halls, right? So like I went from an accounting firm to then working in tech and the town hall and the communication of the valuation and all that is all very, very, very kind of standard in these companies, right? And it's not like giving equity to employees is this grand experiment necessarily either. Like we've seen it in other sectors, just not really in accounting either. And so like, why do you think our industry has been so late to the punch on that? Because again, like you talking about these town halls, like that's probably very unusual in accounting, right? Yeah. I mean, I think it's very clear that our industry is steeped in tradition. It was, you know, you wear a badge of honor that you worked an 80-hour week for a tax deadline and people like to say, well, if I work that 80-hour week, you should. Well, guess what? That doesn't work anymore. Why don't you try to work a few 80-hour weeks for your, see if your team will work 80-hour weeks and see how excited they are about working for your organization for the next several weeks. And Dominic, I'm sure you end up talking to a whole lot of people who have worked that 80-hour or 90-hour plus week and they say, I want to fucking something else to do. This is terrible. And so I, I think that part of the problem historically has been this tradition of we've done it the same way. We're going to have you work so many years, so many hours, you make partner and then at the end of the day, we're going to, you know, buy you out of retirement with a standard formula. So the reality of it is the profession, of course, has been shedding jobs and shedding people. Well, actually there's plenty of jobs, but shedding people and we have to change the way we think about it if we want to have a different outcome. And part of that changing the way we think about it, of course, is give everybody equity in the organization from top to bottom on day one. And I think that's what you're seeing with private equity. The second is be transparent. That doesn't mean you're disclosing compensation to everyone. There's still going to be a closed system on comp, but providing data on where your stock price is to get people excited and motivated to keep doing the right things is something that I view as a no brainer and it's something that we embrace from day one. And in terms of equity, so like for firms who are doing this, a lot of them tend to give it to manager and up. But if I understand you're giving communication below manager as well, and like some form of, you know, different variable reward to kind of mimic that equity. Is that correct? Yeah, that is. That is exactly correct. We have a, you know, we call it an equity compensation, equity compensation, an employee purpose plan, the prosperity employee purpose plan. Technically, it's a phantom plan or a points plan, whatever name you want to give it. The dollars in it are correlated and directly tied to the performance of the stock price. And so ultimately, everyone who has points is going to get a payout based on the number of points they have and tied to the company's stock price. Our stock price goes up, the price per point goes up. So again, everybody is correlated, although they're not technically getting a K1, just like the people that own direct equity in the company, they are still sharing in the same economics. And ultimately, when these individuals are promoted to a manager level and above, whether on the service team or the ops team, they keep their points and then move into the other equity plan that we have. And so yeah, of course, we're going to be totally transparent on the value of the stock price because it impacts every single person in the company. Yeah. And does Prosperity have any retired partners? Today, no. We don't have retired partners. And part of that is when you start the business in 2003 at 26 years old, you got a little bit of room to run. And so we don't have partners. We've acquired nine businesses since April of 2023, fully integrated into our business. Same tech stack, same tech software, finance, HR, etc. And there's certainly some partners at those organizations that are leading and leaning toward retirement. But today, there aren't any retired partners at Prosperity, which makes us a pretty unique business from that standpoint. Yeah. Well, the reason I ask as well is I think that that probably makes it a lot easier to adopt that open, transparent structure. If a partner has retired in the last year, let's say, and now you're allocating like a dollar value to the share price of the company, and they maybe had some predetermined thing that was not reflective of today's valuations, like that could cause kind of some sour grapes, right? And I think that's like a tough thing to overcome. But I think without a doubt, you know, you have to be thoughtful around how you're managing retired partners. Remember, this is a new paradigm with private equity and accounting. And so all of my partners have equity in the business. And so we have plans for retirements and, you know, if they do retire, you know, most agreements have the opportunity to buy them out at current value. Or if they don't, they can keep, you know, their equity until liquidity event. And, you know, there's just a handful of terms on how to deal with it. But again, we want our partners who are either working or potentially retired, focus on once again, how do we increase the stock price of the business? So everything we do legally is geared toward that outcome. Yeah. Well, which I think is a much better way of doing it. If you can get ahead of partner retirements, right? Like if you're at a firm where that hasn't happened yet, and you can move to this kind of stock price type thing, I mean, it makes everything way more open and transparent and ultimately, probably fair, right? Is like, I have a stake that represents this much. We have this fair valuation of things, whereas it's not just like, yeah, we'll buy you out at 1x revenue, whatever that may be at the time, whatever valuations may look like, right? So that's exactly right. It's exactly right that again, you know, if retired partners in our scheme and our approach and our cap table, you know, they ultimately are rooting for the business as much as the partners that are succeeding, which by the way, encourages them to transition their book of business and to continue to be a supporter and advocate for our company. So the way you structure the equity and potential redemptions of retired partners has a direct impact of where your future value is going to be. Again, these are people who have spent lots of years working for our organization. First and foremost, we want to treat them incredibly well. Second, we want to make sure that, you know, the economic outcomes that we're going to have, they benefit from those, they participated and contributed to those outcomes. You know, and third, on the other side of it, yeah, we still want them to be, you know, the best cheerleaders for our organization because they of course have incredible influence on what clients do, both their existing and clients that, um, you know, maybe they're just connected with and our future clients of the business. So yeah, we're, you know, it's easier to, I think, solve that problem when you haven't had those retired partners who maybe have different feelings about what private equity means to the service professionals than partners who have been in the game since private equity and now they're looking at the other side. Well, Jeremy, I really do think yourself and I guess, you know, in extension, your whole firm are like setting the new bar of what excellence in talent management looks like. So I think, you know, A, the mentality of wanting to treat them and include them and that not just being like a byproduct of private equity, like it feels like that was a little bit in the driver's seat, um, of making this decision. And I think you guys are really setting an example that's going to be very important for people to keep in mind if they want to have access and to attract and retain the top talent. Right. So, um, I really admire what you do, um, and you know, it goes beyond that. There's little things like just making it a pleasant work environment. You know, you've got a ping pong table being brought in. I've heard you're a very fierce competitor and you've got that at the office and just like little things like that, I think really matter and make a big difference as well. Uh, look, I, I, I appreciate it, Dominic, obviously you and I have gotten to know each other, um, and, uh, you know, very much respect what you're doing for the profession. Um, I think shining a light on compensation and the studies that you're doing is going to be beneficial for all of us again, just like equity compensation is going to benefit the profession. What you're doing and giving insight is going to be beneficial to the people in the profession as well as leaders like me who are looking at that and saying, are we on the right path? Where should we potentially shift? Um, and then, yeah, my job at Prosperity is to create an environment that is a fun place to work with opportunity to ascend throughout the profession, uh, invest in our people and create experts. And we've got people in the organization who all have different goals and aspirations and our job is to, uh, ultimately give all of them a chance to be successful, whether it's ascending through the company and making partner or being the very best in the role that they have. And I think we've done a really nice job of that and, uh, you know, again, I, it's, it's hats off to, to my team and really all the great professionals that I get to work with every day. Awesome. Well, thank you so much for coming on and sharing. And I will make sure I contact, I link all your contact information in the podcast description, you know, for anyone who's looking to join an awesome team, get in touch and, uh, yeah, I'll catch you all on the next episode. Thanks Tom. I really appreciate it.