Founders ask Collective 54 this 18 times in our records. Most are asking what the number is. The more useful question is which of the two variables behind the number they actually control.
The mechanics are less mysterious than the number feels.
Think about selling a house. The agent pulls the homes that recently sold in your neighborhood, calculates a price per square foot, applies it to your house and recommends a price. Investment bankers do the same with companies. They pull the boutiques that recently sold in your category, express the price paid for each as a multiple of EBITDA, apply that multiple to your firm and recommend a price. The category is the neighborhood. The EBITDA multiple is the price per square foot. And as with a house, the number moves at the margin: a firm growing 30 percent may carry a higher multiple, a firm with flat revenue a lower one.
So the practical first step in getting a valuation is not hiring anyone. It is assembling the comparables yourself: which firms in your category sold, at what price, on what terms, who represented them, who bid, who won and why. Comparables set the terms too, not only the price, which matters more than most founders expect.
You would not want your house compared to an apartment. The same risk applies to your firm, and the cost is larger than it looks.
Greg Alexander's own firm, SBI, was initially placed in the sales training category. That was wrong. SBI did not train sales teams. It was a management consulting firm specializing in sales effectiveness, and the correct comparables were other management consulting firms. At the time, sales training firms traded at five and a half times EBITDA and management consulting firms at nine times. On top of that, sales training firms were not perceived as high growth, while SBI had a ten-year compound annual growth rate of 30 percent. Correctly placed in the high-growth category, the multiple moved from nine times to eleven.
Two corrections to the comparables roughly doubled the multiple paid, which meant tens of millions of dollars of additional wealth. Nothing about the business changed. Only its category did. Which is why the useful question is not only what your firm is worth, but whether the category a buyer will sort you into is obvious, and whether it is the right one.
Founders ask what multiple the market is paying. It is the wrong end of the equation to spend energy on.
Take two firms, each with 20 million dollars of revenue. One is technology-enabled at 30 percent EBITDA margins, so it produces 6 million dollars of EBITDA. The other is AI-enabled at 60 percent margins, so it produces 12 million. At the same 12 times multiple, the first exits at 72 million dollars and the second at 144 million. Same revenue. Same multiple. Double the price. The reason is margin expansion, not multiple expansion. Demand for AI-enabled firms often does support a higher multiple too, but that part is optimism. The economics are the part you can underwrite.
Greg Alexander sold SBI in 2017 for 162 million dollars, at approximately ten times EBITDA, with 100 percent cash at close and no earnout and no equity roll. He offers that as a calibration point rather than a victory lap. Had SBI been a labor-based, founder-dependent firm with thinner margins, it would likely have sold for roughly half that on the same revenue. Had it been an AI-enabled firm selling in 2024 or 2025, it would likely have sold for roughly twice that, even with the multiple unchanged.
Labor-based firms negotiate for price. Technology-enabled firms earn price. AI-enabled firms compound it. Where your firm sits is what the Era Framework describes.
A valuation is one side of a two-sided coin. The other side is the terms, and two deals with the same headline price can produce very different outcomes depending on where the risk lands.
In labor-based firms, buyers assume risk first and protect themselves accordingly: modest cash at close, earnouts often running three to five years, aggressive performance hurdles, and retention requirements for the founder and key partners. From the buyer's side that is rational. They are not buying a durable engine, they are underwriting continued behavior. From the founder's side, liquidity is delayed and the upside is uncertain. This is how a founder gets market terms on paper and still feels shortchanged after closing. The risk was priced, just in the structure rather than the headline.
Technology-enabled firms rebalance it: higher cash at close, earnouts of one to three years, clearer performance definitions, and a higher likelihood the earnout is realized. The earnout stops being the buyer's primary risk mitigation and becomes a shared upside mechanism. In AI-enabled firms, buyers stop asking whether the business will survive and start asking how fast they can scale it, which shows up as much more cash at close and short earnouts or none. Earnouts are not inherently bad. They are problematic when they compensate for a fragile operating model, and the mistake is blaming deal structure for what is really a model problem.
Terms are also comparables-driven, and that steers you toward a buyer type. When Greg required payment in full up front, no earnout, no equity rollover and no transition employment, the strategics passed because their comparables told them to, and the private equity firms passed over the equity roll. The investors who fund management buyouts had done many deals on those terms, so they did the deal. Pursue the buyers whose customary terms match your reasons for selling. See also who the right buyers are and what you want from the exit.
Three things change your valuation and are entirely upstream of the process.
The first is fee quality, because not all revenue is worth the same. Recurring revenue is worth more than non-recurring. A rough balance of 60 percent of fees from existing clients and 40 percent from new is healthier than either extreme, because firms addicted to new-client revenue burn cash to generate it, and firms living off existing clients forget how to hunt. Contracts longer than twelve months, services that build on one another, predictable future fees and cash collected in advance all raise fee quality. Aging receivables and a dependence on short-term debt lower it.
The second is de-risking, because a buyer's default position in diligence is to look for reasons not to proceed. Five years of audited financials and tax returns, industry-standard accounting, few add backs, personal finances kept clearly out of the business, standard contracts, and no regulatory or litigation exposure. The cautionary case in Greg's writing is an owner whose financials were tangled up with his personal life, with family members on payroll who did not work there. In a market where acquirers had clean alternatives, clearing the fog was not worth their time and the deal never closed.
The third is timing, which is largely outside your control. Deal activity in your niche, the point in the economic cycle, multiyear growth in your industry, and whether lenders will lend against an asset-light business all move the price. The right time to sell is when there are large pools of available capital. The wrong time is when money is tight. Know the drivers behind the activity in your category, not just its level.
The comparables method assumes comparables exist. If your firm is unusual, your category thin, or the recent transactions in it distressed or strategic outliers, the multiple derived from them is close to noise. The conversation then moves to cash flow, and to what a specific buyer can do with your firm that no one else can.
The margin argument also has a floor. A firm with high margins and severe client concentration, or with a single relationship carrying a quarter of revenue, will be discounted through structure no matter what the EBITDA line says. Durability is what buyers are pricing, and concentration is the fastest way to undermine it.
And a valuation is not a price. It is an opinion about a price, produced before a single buyer has bid. The number that matters is the one a buyer will commit to on terms you will sign.
A valuation is produced from comparables: the firms in your category that recently sold, priced as a multiple of EBITDA, with that multiple applied to your firm and adjusted for growth. Two variables, and the market sets one. Get the category right first, because being sorted into the wrong neighborhood is the most expensive error available, and correcting it once roughly doubled the multiple paid for Greg Alexander's own firm. Then work on the half you control: two firms with 20 million dollars of revenue and the same 12 times multiple exit at 72 million and 144 million if one runs 30 percent margins and the other 60. Ahead of all of it, raise fee quality, take the risk out of diligence, and pay as much attention to terms as to price.
The same way a house is priced. An investment banker assembles the boutiques in your category that recently sold, expresses the price paid for each as a multiple of EBITDA, and applies that multiple to your firm. Growth then adjusts it. A firm growing 30 percent may carry a higher multiple, and a firm with flat revenue a lower one.
The EBITDA, because it is the half you control. Multiples are set by the market. Two firms with 20 million dollars of revenue and the same 12 times multiple exit at 72 million and 144 million if one runs 30 percent margins and the other runs 60 percent. Same revenue, same multiple, double the price. The difference comes from the operating model, not from negotiation.
Being sorted into the wrong comparables category. Greg Alexander sold SBI, a management consulting firm specializing in sales effectiveness, and it was initially categorized as a sales training firm. At the time sales training firms traded at five and a half times EBITDA and management consulting firms at nine times. Recategorizing the firm, and then recognizing its ten-year 30 percent growth rate, moved the multiple to eleven times.
Not to get an indication of value, and not always to run a process. A banker earns the cost when broad market exposure is what maximizes price. When a founder wants one specific buyer or a small set of them, a banker can add cost without adding leverage. Fragile firms hire bankers to find buyers willing to tolerate the fragility. Durable firms hire them, or replace them, to create leverage.
Sources: Greg Alexander, The Boutique: How to Start, Scale, and Sell a Professional Services Firm (Advantage, 2020), chapter 42 on comparables, the real estate analogy, the SBI category correction and the role of deal terms, chapter 41 on financial market trends and debt markets, chapter 44 on de-risking and add backs, and chapter 32 on fee quality. Greg Alexander, Why Some Boutique Firms Exit Cleanly and Others Never Really Do (Collective 54), for the margin argument, the 20 million dollar revenue comparison at 30 and 60 percent EBITDA margins, the 2017 SBI sale at 162 million dollars and approximately ten times EBITDA with 100 percent cash at close, and the pattern of deal terms across the three operating models. That essay is informed by Collective 54's documented sample of 54 member and alumni exits tracked from 2020 to 2025 across strategic acquirers, private equity platforms and tuck-ins, management and employee buyouts, family offices, fundless sponsors and search funds. The SBI accounts are Greg's own. Greg Alexander, The AI-Native Boutique Firm (Advantage Books, January 2027), for the Era Framework.
Collective 54 is the private community for founders and executives of boutique professional services firms between $5M and $50M in revenue. Members work these answers against their own numbers.