February 8, 2007

H & R Block

And the man behind the brand is...
Henry Bloch

Henry Bloch does his own tax return. And he urges every American to do the same, "People should really fill out their own returns when they can because it'll teach them a lot about economics. There's nothing like getting into your own tax return to teach you where your money's going." Fortunately for his business, many Americans ignore his advice.

Henry and his older brother Leon borrowed $5000 from a great-aunt to start the United Business Company in Kansas City in 1946 to provide advertising, accounting and legal services for small businesses. The first year was so bad Leon bailed out and went to law school.

Twenty-five year old Henry Bloch carried on during the lean year of 1947. He lived on $50 a month from the GI Bill and $15 he received for keeping the books at a hamburger stand. Then his entrepreneurial brother Richard joined him from the University of Pennsylvania. Richard built the business and Henry managed the accounts.

As a courtesy Henry and Richard Bloch did tax returns for their clients.
In 1954 they made $1800 for 300 returns. It was not worth the effort and they planned to abandon the service. But many clients appreciated the little extra and one persuaded the Blochs to take out a small ad in the local paper. If it failed the Blochs could leave the tax return business in good conscience.

But they made $25,000 in the short tax season and instead of dropping their tax business they dropped everything else. The Blochs changed the last letter of their corporate name from "h" to "k" to avoid any pronunciation problems in H & R Block. The Blochs were so successful in Kansas City they decided to open a New York office in 1956.

Neither brother wanted to leave Kansas City so they alternated in New York for two weeks at a time. They grossed $50,000 but only broke even with the expenses. Clearly one brother would have to relocate to New York. Still, neither one would leave.

So the Blochs took an ad in the New York Times to sell the business. The only respondent was two CPAs who offered $10,000, which was all they could afford. They weren't going to sell at 20¢ on the dollar so they charged the new owners 5-10% above gross revenues. As Henry later pointed out, "They became, in effect, our first franchise, though at the time we didn't know what a franchise was."

The new tax preparation service encountered vocal opposition from lawyers and accountants who considered tax returns their business. But the Blochs did the finest work possible at a fair price and they stood behind their work.

Two things were in the Blochs' favor. Americans were realizing a rapid increase in income and the tax laws became increasingly complicated. All H & R Block tax preparers were trained thoroughly in an 81-hour program their first year and annual refresher courses thereafter.

The Blochs worked to make a visit to the taxman as painless as possible.
They offered free coffee (eight million cups were served by the early 1960s) and playthings for the kids (over 100,000 crayons were distributed during the same time). H & R Block preparers were friendly but serious. A typical session took 45 minutes and cost around $40.

H & R Block was carried for years by word-of-mouth advertising but wide-scale ads began appearing in 1970 with Henry Bloch as his own spokesman. Bloch became so popular he began appearing in other companies commercials as well.

But it wasn't an ideal time for expansion. The Tax Reform Act of 1971 lopped three million taxpayers off the rolls, exactly the people H & R Block served.
The company would have to become less dependent on seasonal tax preparation. The early acquisitions, including a door-to-door handbill delivery service, were unsuccessful.

But Personnel Pool of America (employment agency), Compuserve (data transmission) and Hyatt Legal Services all did well. Through the expansion H & R Block remained a family business. Richard retired in 1978 after being diagnosed with terminal lung center which he has successfully battled.

Henry, who retained 45% of the stock when the company went public in 1962, and his son Thomas have managed the more than 9000 H & R Block offices since 1978.

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