Value Added: Looking for a new bottom line led him to comfortable profits


Tom Raffa, left, and his wife and business partner, Kathy, purchased a knockout mansion in Kalorama for $5 million last fall. (Astrid Riecken/For The Washington Post)
Thomas Heath
Reporter March 24, 2013

Tom Raffa is a peripatetic sort who sees business opportunities in everything. Then he acts on them.

Restaurants. Wealth management. Human resources. A frozen yogurt shop. Insurance. Nonprofit consulting. Accounting. Executive recruitment. Coffee bars. Raffa is just one of those people who are always on the hunt for investments.

Thomas Heath is a local business reporter and columnist, writing about entrepreneurs and various companies big and small in the Washington Metropolitan area. Previously, he wrote about the business of sports for The Post’s sports section for most of a decade. View Archive

Not everything he has touched has been successful. There was that pension-consulting firm that imploded. His try at online bill paying was a misfire. And, let’s face it, restaurants don’t last forever.

“I have more failures than I have had successes,” he said over dinner recently in Dupont Circle.

But Raffa has built a profitable — if eclectic — empire around accounting and its related businesses, which are hugely important but not exactly the stuff that sizzles cocktail conversation.

What caught my attention was the way he has managed to instill incentives into what is traditionally a dry profession through what I call mission-driven capitalism.

Aside from his coffee and yogurt forays, his palette of accounting-based businesses grosses $40 million a year. Eighty-five percent of that comes from clients that are nonprofits. Those businesses fulfill Raffa’s desire to do more than just fatten the bottom line.

“Making money is third, fourth or fifth on our list,” Raffa said. “It’s the result. It’s not the why. The why for me at Raffa PC is advancing the community.”

I believe most successful businesses advance the community simply by employing people, paying taxes, creating goods and services, and being a good citizen. But Raffa’s definition of community advancement is more associated with cause and effect. It can mean helping a charter school become more efficient and reduce the waiting list for entrance. It can mean allowing your employees to use as much work time as they wish to help their favorite charities, or showing a foundation how to cut its overhead by outsourcing its accounting. Sometimes it just means writing a check, like the $250,000 Raffa gave to the Catalogue for Philanthropy.

Giving has a way of giving back. The Georgetown graduate, 58, and his wife and business partner, Kathy, purchased a knockout mansion in Kalorama for $5 million last fall.

The Raffas, I estimate, earn a seven-figure income from their companies, which employ more than 250 people, most of whom occupy 31 / 2 floors on L Street NW, just a couple of blocks off Connecticut Avenue. The rest work in Rockville.

Raffa’s professionals make anywhere from $60,000 a year to well into six figures.

“We all make good livings at Raffa, but we do much for the community,” Raffa said. “We give so much time and money away. Businesses can be run to make a good living, but you don’t always have to make profit the only goal.”

Some of his philanthropy makes good business sense. Raffa said allowing employees the ability to work on their community passions as well as their jobs creates more balance and improves motivation.

“I have very low turnover,” he said.

Raffa’s knack for sniffing out opportunities started at Georgetown, when the Brooklyn native answered a newspaper ad for a payroll job at a retail company called Up Against the Wall. It paid $3.60 an hour.

Even though he knew nothing about accounting, Raffa went to work.

“I figured it out,” he said.

Up Against the Wall was a Georgetown-based retail chain co-founded by local businessman Chuck Rendelman, who is well known around Washington and founded Fro-Zen-Yo yogurt shops and Zombie Coffee (both of which Raffa is involved in). Rendelman eventually paid Raffa’s tuition bill at Georgetown, which kept Raffa at his 40-to-50-hour job at Up Against the Wall.

After college, Raffa entered the world of finance, starting with Coopers & Lybrand accountants, soaking up everything as he pushed forward on big accounts such as Planning Research Corp. and Lockheed around the time of its merger with Martin Marietta. He earned about $90,000 a year, helping with acquisitions and finding ways for firms to save on taxes.

He opened his own firm in 1984 in downtown Washington, subletting space from a friend who had a placement agency. He lost $30,000 his first year out on his own, but he stuck with it, and the firm started growing, moving into those unglamorous businesses that spring from accounting.

He always networked like mad. When a neighbor asked him to help him buy a restaurant, Raffa used the venture to make contacts in the restaurant world. He eventually owned a third of a (now-defunct) Woodley Park French bistro — known as Montmartre — that earned him $20,000 a month on a single initial investment of $35,000.

Underneath the feel-good exterior of his mission-driven capitalism lies a hard business core. When the chef at Montmartre, for instance, declined to make burgers and sandwiches to draw the lunch crowd from the nearby Wardman Park Hotel, Raffa and his team fired him.

“When you get tied to something and you don’t make adjustments, the business can fail,” Raffa said. “You have to be nimble.”

His “aha” moment that led to nonprofits was not a shot out of the blue, but rather a gradual realization that there had to be a better metric for success than a big office and fat salary.

“I was really looking for something that was a different metric from the bottom line,” Raffa said. “Nonprofits measure successes in terms of effective outcomes. Can you find a cure for cancer? Can we reduce homelessness? How can they get more food to people in need?”

As his accounting practice gradually grew, he spied niches that were going unfulfilled in the nonprofit sector. He wasn’t sure they would be profitable, and they weren’t right off the bat. But Raffa believe that if he filled a vacuum, profits would follow.

“My firm started a technology group because I didn’t see anybody else who was helping community groups in a technical way. I started human resources for nonprofits because no one was in that niche. People didn’t see there were needs there.”

Eventually, the firm gained a reputation in the nonprofit sector, and it now boasts a client list of 500.

Tom and Kathy Raffa own more than 50 percent of the business; the rest is owned by some Raffa staff partners.

To keep things lively, Raffa keeps investing in interesting stuff. He has teamed up with his old boss and mentor, Rendelman, for a 25 percent ownership in Rendelman’s local Zombie Coffee chain. He also has bought one of Rendelman’s Fro-Zen-Yo franchises, with a prime location near Verizon Center.

It’s been a long, successful climb for both since they were Up Against the Wall.

For previous Value Added columns, go to washingtonpost.com/
business.

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