Performance

Professional Competence

Here are the startling results of the definitive study on human performance. It is so dramatic, it may be difficult to believe. But it’s true. The focus of this article is a Pareto chart. It’s essentially first cousin of the 80/20 rule.

How much difference is there between an elite tax professional & an average tax professional?

QUITE A LOT. The best tax professionals (or best performers in any profession) are 100 to 1000 times more competent then average performers. There is so much difference between the handful of top performers and the 99.9% of the rest of the population, it can be hard to believe. But, so was gravity. Don’t be a skeptic.

A few outliers outperform the entire population by leaps & bounds. There is so much difference, top performers and average performers can’t even understand each other. It is not unlike IQ in that regard.

if you are not satisfied with your attempts to recruit candidates that rank at the very top of their profession, this study & the chart will explain why.

Competence is on the left of the following chart, and population is along the bottom.  This web site is not wide enough to graph the entire population. In reality, the population reaches far to the right where it comes to en end at 357,825. Imagine the line along the bottom running for four or five more feet.

Performance Chart

Performance 1

The left axis is competence presented as performance. It runs from 100% (most competent) to zero % at the bottom (most incompetent). The bottom axis runs from 0 population on the left to 357,825 population on the right.

Key takeaways

    • The total population of tax professionals is 357,825
    • 357,825 perform worse than 10%.
    • 9175 rank perform better than 10%.
    • Roughly a thousand perform perform below 90%
    • 2,000 above 80%
    • 3000 above 70%.
    • 5000 above 50%.
    • 2.3% perform above 10%.
    • Only 10,734 perform better than 10% competence.
    • 347,091 perform  below the 20% competence
    • Only 53,673 perform better than 50% competence.
    • 304,432 perform worse than 50% competence.

That tells the entire story.

According to Rutger Hoekstra, there are 100,000 multinationals, all hungry for elite tax talent. But there are only 53,000 tax professionals that perform better than 50% competence, there aren’t enough to go around. Obviously, you realize the tax professionals available to do your tax work are perform significantly worse than 50%.  

That’s a problem Ellis can solve.

We perform at or near the 100 percentile. Following are the performance charts of our founder, Robert Ellis.  Note they all all rank him in the top percentile.

Intellect Chart

Brilliant intellect is absolutely necessary for superior professional performance

Performance 2

Experience Chart

The value of pertinent experience that improves performance in a trade or profession doubles every ten years. It grows geometrically. This plays a very large role in professional performance

Performance 3

Startling numbers.

  • There are 367,000 professionals in the tax industry
  • 1,100 rank above 99% performance
  • They are the cream of the crop
  • 356,000 rank below 3% performance
  • 9,910 rank between 99% & 3% performance
  • 11,000 rank above 3% performance
  • An average tax talent performs below 2% performance
  • The Global 2000 share the top 11,000 tax professionals
  • None are left over for your closely held business
  • 001% of the population rank in the top 1 % on performance.

What this means

Out of 367,000 tax professionals, only 5,000 perform above the 50 percentile . The other 362,000 all perform below the 50 percentile. That means, there is one high performing tax professional for each of the Global 5000, which is where they work. The follow the money, and the big paychecks reside with the Global 5000. The tax professionals left for you, rank below 50%.  That means, you are scraping the bottom of the barrel & getting the very worst performers.

That means the top performers, all 5000 of them, are working for the Global 5000 because that’s where they make the most money.  The remaining  tax professionals, in the bottom 50 percentile, which is all you have access to, have no mastery of tax law. The tax code is reputedly 77,000 pages long. Add in litigated cases, IRS Regs, Rev-profs, etc. & you’re at mote than 300,000 pages. The 362,000 tax professionals that remain, can’t even prepare tax returns without the assistance of their tax program diagnostics. Diagnostics won’t allow them to file a return without clearing all diagnostics. That gives them the unearned reputation of  competence..

Ellis

I rank at the top of the top percentile of intellect, intuition, experience. Only 1,100 out of 367,000 tax & accounting professionals rank in the top percentile on professional performance. I’m one of them. We are one of the premier U.S. tax & accounting firms for privately owned businesses in the world.

At Ellis we provide the best professional performance available to privately owned businesses. Performance is wildly misunderstood. We define it as the culmination of intellect, intuition, experience. Performance is generally synonymous with expertise. Our founder ranks in the very top percentile on all those measurements, and we have staff that rank in the top 25%. That is the definition  of competence.

About My Discovery

Several years ago, I ran across an  article in Business Insider that completely captivated me. Here is what caught my eye. “A new study provides evidence that individual performance doesn’t fit on a bell curve (with its stable average and limited variance), but follows a distribution in which the average is unstable, the variance is infinite and the prevalence of outliers is much higher … There was consistently a sizable number of outliers, ‘elite performers” in each profession that accounted for the lion’s share of output while a majority of workers performed below the mathematical average.” (Business Insider)

That hit like a bolt of lightening.  It summarizes the concept perfectly.

Over time, I found other references to this phenomenon.

Steve Jobs

Also years ago, I was attracted to a quote by Steve Jobs about software developers. It stuck in my mind, so after the Business  insider article, I searched it out and researched the circumstances. I soon found a bevy of similar quotes. Jobs was obviously an extremely bright guy, so I’m not surprised he figured it out through observation. But I am surprised no one took him seriously.

    1. “An outstanding programmer is 25 times better than an average programmer.” (Steve Jobs).
    2. “Now, in software, and it used to be the case in hardware, the difference between the average software developer and the best is 50:1; Maybe even 100:1. (Steve Jobs from the lost interview.)
    3. “The difference between’ a superb programmer and an average programmer is 25:1.” (Steve Jobs)
    4. “I found that there were these incredibly great people at doing certain things, and that you couldn’t replace one of these people with fifty average people.” – (Think Like Steve Jobs, p91)
    5. “I was convinced the best people can achieve exponentially more than the merely competent or capable.” – (Think Like Steve Jobs, p92

Nassim Nicholas Taleb

You can find a decent discussion of this phenomena in Taleb’s book, Black Swan. At location 5280 in Black Swan, Nassim Taleb briefly discusses extreme outliers in a Pareto Chart.

Derek Thompson

Derek Thompson’s book, Hit Makers. “One fifth of the movies took four fifths of the box office. In book publishing, 90 percent of revenues come from about 10 percent of books. In digital markets, it’s even more extreme: 60 percent of all app store revenue comes from just 0.005 percent of companies. For hit makers, the vast majority of bets are failures. The difference between a great year and a terrible year in publishing might come down to a tiny minority of deals.”

Vilfredo Federico Damaso Pareto

Vilfredo Federico Damaso Pareto was an Italian engineer, sociologist, economist, political scientist, and philosopher. He made several important contributions to economics, particularly in the study of income distribution and in the analysis of individuals’ choices. But he missed the big picture.

Perry Marshall

“Top performers are not twice as good as average performers. It’s more like 100 times better. Everything that matters in business isn’t linear, it’s exponential. 80/20 is about Power Laws –powers of 10. You should always think in multiples of 10.” (Perry Marshall, 80:20 Sales & Marketing.)

Peter Thiel

Also, take a look at the Pareto curves on pages 85 & 89 of Peter Thiel’s ‘Zero To One.’ Substitute ‘performance’ on the X axis (or left margin) & ‘total population’ on the Y axis across the bottom. “This Pareto principle has been extended to mean that 80 percent of sales often comes from 20 percent of products.”

After running tests on professions with derailed performance re odds available, professional sports, I turned my attention to the tax profession  here is what I found

    1. Average tax talent performs at 5% of the best talent.
    2. Top tax talent outperforms the average tax practitioner by 20 to 500 times.
    3. The unavoidable conclusion is, there aren’t enough elite tax professional to supply the Global 2000
    4. Less than 0.001% rank in the top percentile on performance.
    5. Only 0.28% of the population rank above 50% on performance.
    6. Less than 7% of the population rank above 10% on performance.

Some people knew a Long time ago

“Four-fifths of everybody’s work must be bad. But the remnant is worth the trouble.”–Rudyard Kipling

“Using the standard that 90% of science fiction is crap, then 90% of film, literature, consumer goods, etc. is crap.” –Theodore Sturgeon

Expertise / Outliers

In every profession or trade, there are very few experts who perform vastly better than the average. The best performers are 100 to 1000 times better than average performers. Pareto charts reveal this previously masked truth. A few outliers, a few experts, outperform the population by crazy, unimaginable degrees.
• Less than 0.001% rank in the top percentile on performance.
• Only 0.28% of the population rank above 50% on performance.
• Less than 7% of the population rank above 10% on performance.

In the tax industry …

• 367,000 population
• Only 367 out of 367,000 perform in the top 1%.
• Only 10,276 out of 367,000 perform better than 50% on performance.
• Only 25,690 our of 367,000 perform better than 10% on performance.

Since the Big 5 and Global 5000 have a bigger appetite for top talent that 25,690, you will have a hard time trying to find someone in the top 90% to be your tax adviser. Basically all the talent performing above 10% (35,709) are employed by Big 5 accounting firms and the Global 5000. The remainder (332,000) fall into the small to medium sized local & regional tax & accounting firms. These are the people available to advise you on tax.

The Ellis Solution

Ellis CPA is a top performing firm with a national reputation and various areas of expertise. Tax strategist • though leader • leading the tax industry into the 21st century • elliscpa.us • qwktax.com • bizztrategy.com

Our founder & CEO ranks in the top percentile on this chart. But more important, or systems make it possible for everyone on our staff to perform at the highest levels. Our CEO also scored at the top of the scale on exponential experience and intellect. He’s a genius level Mensan. That combination of intellect, aptitude & expertise are the primary determinants in proficiency, competence & performance. Our principal was trained in the Big 5 and in Fortune 500 C suites. He has genuine expertise in tax.

Observations

Noticeably intelligent people have observed over the years that extreme performance exists in the long tail on the left margin of Pareto charts of every profession and every measurable phenomena on earth, such as best sellers and hit records. The 80/20 rule, which scratches the surface of this phenomenon, says, “80% of the land in Italy is owned by 20% of the people.” In the course of my reading, I discovered Pareto Charts were showing some startling things about outliers. Outliers represent a tiny portion of the population but they occupy the the top half of the performance scale. In fact, a mere handful occupy the top 80% of the performance scale. They outperform the rest of the population by unimaginable degrees, from 100 to 1000 times.

Statistics.

• There are 1.4 million accountants employed in the United States.
• 735,399 PTINs have been issued to tax practitioners by the IRS.
• 620,000 CPA’s & EA’s. actively prepare tax returns.
• 239 million tax returns are filed every year.
• 30 million business tax returns filed every year.
• We assumed 367,699 (half the PTIN’s) actively prepare tax returns.

This is how tax professionals rank on performance.

• Less than 0.5% (1,835) rank above 50% performance.
• Less than 0.5% (1,835) rank above midway on performance.
• More than 99.5% (365,165) rank below <50% performance.
• More than 99.5% (365,165) rank below midway on performance.
• 95% of the population rank below 5% on performance.
• 5% of the population rank above 5% on performance
• 0.21% rank in the top 1% on performance.
• 76 rank in the top 1% on performance.
• There are 30 million businesses in the USA.
• 45,508 companies are listed on stock exchanges around the world.
• Less than 0.5% (1,835) rank above 50% performance.
• There are not enough top notch tax professionals to go around the Global 2000.
• There are 1.4 million accountants employed in the United States.
• 735,399 PTINs have been issued to tax practitioners by the IRS.
• 620,000 CPA’s & EA’s. actively prepare tax returns.
• 239 million tax returns are filed every year.
• 30 million business tax returns filed every year.
• Attorneys. 29,688.
• Enrolled Retirement Plan Agents‎: ‎738‎
• Enrolled Actuaries‎: ‎357‎
• Enrolled Agents‎: ‎53,077‎
• Actual number of returns filed – 1,152,000
• 60% get professional help – 691,000
• Number of returns prepared by average successful preparer – 100
• Number of Individuals with Current Preparer Tax Identification Numbers (PTINs) 710,553.
• Number of active preparers: 691,000/100=6,912
• Of 6,912 preparers … only 30 rank above 50% performance (top dot)
• Of 6,912 preparers … only 744 rank above 10.8% performance (bottom left dot)
• Of 6,912 preparers … 3,456, 50%, half, rank below 1% performance (bottom right dot)

More About Ellis
• Genius intellect
• 4+ decades high level experience
• Big 5 auditor
• Fortune 500 C suite
• Attempted LBO
• Power politics – ran for Congress
• Private practice, clients in 46 states
• Deep domain expertise tax strategy
• Top percentile tax aptitude
• Graduated #1 every time

I love this quote: “I think the finance (tax?) field is being overrun with dull and repetitive business people, who are doing the minimum possible to get by, with apathy, and complacence, and generally achieving mediocrity.” Oren Klaff

Expert  Expertise  

Expert: a person who has a comprehensive and authoritative knowledge of or skill in a particular area. I.e., “a financial expert” The four components of expertise are: Intellect + intuition + experience + performance. I personally rank in the top 1% in all four areas. My staff bright as well.

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