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I sat down with Steve Stagner, CEO of Crete, an AI-powered roll-up deploying $500+ million to modernize the accounting industry. Backed by ZBS Partners, Thrive Capital, Bessemer Venture Partners, and others, Crete is acquiring US accounting firms and transforming them with OpenAI-powered tools. Steve brings battle-tested insights from building a single $1,300 franchise to leading Mattress Firm, a $3.8 billion Fortune 500 giant.
Q&A with Steve Stagner
The following is a summarized and adapted transcript of the podcast
Miguel Armaza: You've mentioned a core principle of "people, process, and technology" - in that order. How did you develop this framework, and how does it apply to AI transformation at Crete?
Steve Stagner: Over my career, from moving from Excel-based inventory systems all the way to signing a deal with Steve Ballmer and Microsoft Dynamics for an enterprise system with thousands of stores, I've learned that in every single case of big technology integration, it starts off with excitement about the new system. But then very quickly you end up in the valley of despair.
It's mainly because people have ingrained norms in the way they do things. When I was CEO of Mattress Firm and we launched Microsoft Dynamics - spent like $12 million on it - my people were very frustrated. There was a lot of chatter about how I'd made a big mistake. When we investigated, surprise surprise, it wasn't the technology - it was the training.
So I've developed this formula: people, process, and technology. The technology is an enabler and it's always great, but if the people don't understand how to use it, they're not going to use it. And if the data isn't clean and mapping clearly, then it's not going to be productive.
At Crete, we're on the precipice of the greatest transformation of technology in probably the history of the world with AI entering the space. But we're making sure it's done in a way that will be adopted with quality. We're process mapping everything, bringing people along, testing small, learning and adopting. I call it crawl, walk, run.
Miguel Armaza: Many people are excited about AI but also afraid, especially regarding job displacement. You say AI is an amplifier rather than a replacer. Can you elaborate?
Steve Stagner: Look, when the printing press came out, there were concerns about how that would change the world. Same with the production line, the internet, and now AI. AI doesn't invent anything - it basically predicts based off the data it has.
I'm not going to say that humans won't be at risk of losing some jobs. I think humans that don't embrace AI will be at risk of losing jobs. But you have this PhD in your pocket now. You have this opportunity to leverage technology as a thought partner and then do the more valuable work that's possible.
Take tax returns as an example. I've had a pretty complicated tax return over the past three years - roughly 500 pages. I have a partner at a top 10 firm who works on my account. Every year I get a list of things to turn in and a bill that's expensive. What I haven't had is any tax planning. So much of that work - transferring numbers - can be automated. If AI can take all this data, normalize it, validate it, and tick and tie it up, then professionals can focus on the insight and exciting things like tax planning and growing the business.
If you look at it as something that's just going to take away what you do, you're looking at it the wrong way. We've got to look at how we can leverage it to create more value and do more valuable things.
Miguel Armaza: What specific efficiency gains are you seeing at Crete with AI implementation?
Steve Stagner: We're trying to make existing tools more productive rather than just creating an AI agent to do all the work. Take the trial balance, for example. We've developed tools that can go into a business, take messy data in a trial balance, and normalize that data. This becomes the foundation for business tax returns, audit testing, and opens the door for advisory work.
Our early tests are showing 30 to 50% time savings on mapping and normalizing data. For audit testing, that can be done very quickly now - probably saving 25 to 30% of time so humans can focus on evaluations of what's not accurate. For tax software, once audit testing is done, we can pull that data in and automate much of what's filled out on a tax return.
The next game changer is working with AI to look for and spot areas to advise the client based on tax law and business insights. Of course, you would never do that without validating and verifying, but if it can save you time on all that mundane work, it frees you up to do more important work and opens up capacity.
Miguel Armaza: How does Crete's "partner equity" model differ from traditional private equity roll-ups?
Steve Stagner: What we do, which I think is unique - it's the most unique thing I've seen - is when we partner with you, your incentives stay in your firm. You get access to our platform, success, talent, tools and technology, and even access to value creation with a premium multiple later in life. But you get to keep your local culture.
Not only do you keep it, but you're not put inside the whole platform so you don't have this drifting mindset. If you believe in your success, then we are going to invest in your success. You get distributions on your own firm just like you do today, and you get to realize the profit of your firm.
We deliver playbooks, not rule books. In a traditional model, they come in and deliver "here's how it's going to be." We deliver suggestions - playbooks that you can choose to join. The onus is on me to provide the data to say this plan works, I've tested it, I've proven it. It's not for everyone, but if you care about your culture and brand and the ethos of entrepreneurialism, then we're probably a good fit.
Miguel Armaza: What's driving the resurgence of roll-ups in professional services?
Steve Stagner: If you zoom out on the industry, there's a talent shortage and this steep learning curve in technology, and private equity has entered the space. So a lot of firms hit walls. I can go across the mattress industry, veterinarian clinic industry, HVAC industry, roofing industry - entrepreneurs start off and build companies to a certain point.
I was that entrepreneur. I built my company to a certain point. To go from zero to 50 stores took me eight years. But to have access to the capital, technology, intelligence, and data-driven decision making that comes with partnering with a private equity firm is a game changer.
These entrepreneurs hit a wall and want to know how to get to the next level, but growth starts to slow. The network effect is really important. We provide that network effect - we've already tested this technology, here we can give it to you. We have access to this data. If you're a mid-size or small firm wanting to access offshore capacity or new technologies, doing it well on your own is extremely difficult and expensive.
Miguel Armaza: You're investing heavily in AI through your partnership with Thrive Capital and OpenAI. Why is this relationship so important?
Steve Stagner: Thrive Capital has invested well over a billion dollars directly with OpenAI. They're one of the top leading investors in OpenAI, so we have a direct relationship. It's really nice to have them because there's a pioneer tax in learning new technologies.
To have some of the leading engineers from OpenAI on our team gives us a potentially disproportionate advantage to get over this pioneer tax that we're all pioneering through as a society and as companies. I call them the Fab Five - I have five engineers working with me directly to walk into firms and provide real-life solutions for their real-life problems.
Miguel Armaza: What market dynamics make you confident about Crete's opportunity?
Steve Stagner: There was research showing that 77% of clients want a greater suite of services, and 80% would switch for best-in-class technology. How amazing would it be as a client to know the status of your tax return all year, to log on and see it like the Domino's Pizza tracker?
We're working with firms directly on client dashboards, and clients are loving it. That gives you a stickier relationship with the client because they now value the information and intel. Consumers always want more information, more transparency, speed, and accuracy. The more you can put that in front of them, that's who wins.
I don't think it's a zero-sum game. There are millions being invested in this space, but for us and our firms, we're going heavy on investing in technology that's going to help the client.
Miguel Armaza: You say not using AI today is like not using the internet in 1990. Can you expand on that?
Steve Stagner: It's very clear that if you're not leveraging AI, you're going to get left behind. It would be the equivalent of not using the internet in 1990. Today we can laugh at that - just saying "I'm not going to use the internet" or "I'm not going to use email." But this is not something we can resist. We need to adopt it, enable it, and get into it.
Harvard or BCG did a study showing AI-enabled workers were 40% more efficient, with two to three times more productivity. Whether those exact facts play out the same way or not, what I can tell you is it's very clear that if you're not leveraging AI, you're going to get left behind.
Miguel Armaza: Beyond just revenue growth, how do you define success at Crete?
Steve Stagner: Our mission at Crete is we wake up every day to accelerate growth. But when I think about growth, I don't think about it just in terms of revenue growth or EBITDA growth. I think of growth more broadly in terms of human growth, client growth, and firm growth.
I call it the triad: client success, employee success, and firm success. That's the triangle I look at. If we're getting more clients and deepening relationships with high satisfaction, that's good. If we're growing individuals with high satisfaction, that's good. I look at financial metrics as a lagging indicator, with the leading indicators being the client and the team. If those two things are moving in a northeasterly direction, I believe the financials will follow.
Miguel Armaza: What leadership lessons from building Mattress Firm apply to Crete?
Steve Stagner: I invested $10 million a year in learning and development for our employees - 200 hours per employee in training. This was public knowledge. We were selling mattresses, which is the most boring thing you could do - you certainly don't need $10 million worth of mattress training.
But we had a 30% higher store average than the average company we bought. Same access to customers, same market, same manufacturers, but 30% higher sales. Why? Because we invested in people.
What I've learned over 25 years is there are three reasons why humans go to work. If you engineer your value proposition as a leader around these three reasons, you gain the holy grail of commitment, not compliance. The three reasons are individual growth, cause, and reward/recognition. If you hit that sweet spot, you unlock amazing things. Lower turnover, better recruiting, people want to enroll and engage in the journey because it sounds exciting - because they can grow, they're changing the world, and they're going to be paid well.
Miguel Armaza: What's your advice for firms considering AI adoption?
Steve Stagner: The biggest mistake would be to wait. This isn't going away. It's like saying in 1990, "I'll wait to see how this internet thing plays out." By the time you realize you need it, you're already behind.
Start small - crawl before you walk, walk before you run. Focus on the mundane, repetitive tasks first. Don't try to revolutionize everything at once. Make sure your people understand the why and the how. Invest in training. And remember, it's not about the technology - it's about how the technology enables your people to do more valuable work for your clients.
The firms that embrace this will thrive. The ones that don't will struggle to compete. It's really that simple.
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