Author: Collective 54

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Seven Things to Keep in Mind When Scaling Your Accounting Firm

Man in blue collared shirt looking at papers while sitting at his desk.

How to Scale An Accounting Firm to Sell: Know the Growth Facts

Boutiques are attractive to potential acquirers when they are growing. And your growth rate is determined based on growth in revenue and profits. Also, growth is relative. It is relative to the other boutiques in your space and the growth rates of an existing practice inside of a market leader. You are attractive if your accounting firm is growing more and faster relative to the alternatives.

Most professional services firms are private. Therefore, data on growth rates are hard to come by. Accounting firms often think they are growing and scaling nicely, only to learn later that this isn’t the case. And finding this out during due diligence is embarrassing.

If you are devising a scalable plan for your accounting firm so that you can sell your business, remember that growth is relative. Scaling a business takes time. A year or two of great results does not mean you have a sellable boutique.

Case Study: When a Scalable Plan Leads to an Unsellable Firm

I was recently involved in an auction of an IT services company. This company had a strategic relationship with the software provider Tableau. They helped clients use their data to make better decisions through data visualization. The investment bank running the auction touted the boutique as a high-growth firm. 

When I met with the management team, they were proud of their accomplishments. I was presented with slide after slide of steep revenue and profit growth. And this growth was accelerating. I had looked at a few firms in this space and had an unfair information advantage. This boutique grew revenue at 22 percent per year and had done so for about three years. The problem was that their boutique competitors were growing their top lines at twice that rate. 

You see, the data visualization space was hot. A rising tide was raising all ships. When I dropped out of the bidding process, they were insulted. I explained my rationale and provided my evidence. They claimed that my comparisons were not apples to apples, that the firms I compared them to were not “pure plays.” 

This firm was not able to find an acquirer. It appears that I was not the only one with a command of the facts. And the story gets worse. The data visualization space cooled off. Tableau, the golden goose, stopped laying eggs. As their growth rate and scaling slowed, so did the growth rate of its service partners. 

What is the moral of the story? Know your facts. Growth is relative. When creating a scalable plan for your accounting firm, you have to look at your business from all sides. Don’t take your revenue or profit growth at face value. Compare it against competing professional services firms and determine where you truly stand in the market. 

Seven Growth Benchmarks to Consider When Scaling a Business 

Here are a few growth benchmarks for you to consider if you are wondering how to scale an accounting firm to sell at a later date. These are specific to NAICS 54—the professional services industry. And they are specific to the segment—that is, boutiques with between 5 and 250 employees in the United States. 

Proceed with caution. These numbers can change a lot based on the submarkets. For example, law firms are different from marketing agencies and so on. 

  • A five-to ten-year track record of consistent growth; 
  • Greater than 30 percent top-line revenue growth; 
  • More than 75 percent gross margins; 
  • Forty percent EBITDA margins; 
  • More than twelve months of forward visibility; 
  • One year of payroll in cash on the balance sheet; 
  • No debt. 

A boutique under five years old will have a tough time selling. One without five to ten years of solid growth in revenue and profits is unsellable. Unfortunately, many boutiques have remarkable top-line growth but no profit growth. This is a deal killer for most. These firms have not decoupled revenue growth from head-count growth. Until they do, they should not try to sell an accounting firm.

When they do, gross margins and EBITDA margins will jump. That is the time to sell. This is when they have a proven, scalable plan and business model. Lastly, forward visibility must be at least a year out. Investors are not going to take your word for it. Performance relative to your scalable plan will be a much-scrutinized item.

Wondering If Your Scalable Plan is Working? Ask Yourself These Questions

When scaling and growing an accounting firm, you need to make sure your scalable plan will hit the growth benchmarks required to sell the firm. Ask yourself these questions to determine if your scalable plan is working for your business: 

  1. Are you growing revenue at a faster pace than competing accounting firms? Have you been doing this for years?
  2. Are you growing your profits faster than your competitors? Have you been doing this for several years?
  3. Are you growing your revenue faster than the practice inside the large market leaders? 
  4. Are you growing your profits faster than the practice inside the large market leaders?
  5. Are you increasing your cash balance to cover payroll for twelve months?
  6. Do you have at least twelve months of forward visibility? 

If you answered no to more than half of these questions, your scalable plan and growth story needs more work. 

Developing a Successful Scalable Plan: Remember Growth is Relative

Growth matters when scaling a business to sell it later. A lot. And relative growth matters even more. A decade of market-beating growth will command an excellent price and excellent terms. 

And profit growth is as important as revenue growth. This indicates that you have cracked the code. You are one of the few who broke the link between revenue and head-count growth. Be sure to run a tight ship. Be prepared to demonstrate reliable forward visibility and plenty of working capital as part of a scalable plan.

For more insights on how to scale an accounting firm, join our mastermind community today. Collective 54 is the first mastermind community for founders and owners of professional services firms. Members enjoy multiple benefits, including peer-to-peer networking, live expert instruction, and small group learning. 

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Episode 80 – How a Founder of an HR Consulting Firm Escaped a Lifestyle Business

Member Case with Sue-Ellen Watts

Scaling a boutique beyond a lifestyle business takes money and commitment. On this episode, Sue-Ellen Watts, Founder & Global CEO at Wattsnext Group, sheds light on how she embraced a lifestyle business to fund a new venture that she can grow and scale. 

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that aren’t familiar with us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm, bigger and faster. My name is Greg Alexander and I’m the founder and I’ll be your host today. 

And on this episode, we are going to discuss what to do if you’re trapped inside of a lifestyle business. A lifestyle business is something that is a great business. Happy clients, happy employees, decent income. But it’s really not going to scale beyond that. And it’s certainly not going to be something that is a sellable asset in the future and not an asset that can create generational wealth.

 Nothing wrong with the lifestyle business. I mean, who doesn’t want a great lifestyle? But if your aspirations are more than that, sometimes a lifestyle business can actually be a trap because things are good and it’s tough to walk away from things that are good. You only walk away from it if you want good to become great and we have a member who’s our role model on the call. Her name is Sel Watts, and she has just about the most courageous story of anybody I’ve ever heard of someone who was trapped in a lifestyle business and was so determined to get out of a lifestyle business, she made some dramatic changes to her life, and I thought she would be a great person to have this conversation with. So, Sel, it’s good to see you. Thanks for being here. 

Sel Watts [00:01:55] Thank you Greg. 

Greg Alexander [00:01:57] And if you wouldn’t mind, maybe provide an introduction of yourself and a little bit about your story to the audience. 

Beginning in HR

Sel Watts [00:02:04] Yeah, sure. Well, I started my first services business in Australia 15 years ago. It’s an HR consulting business, people performance and engagement. Basically, we work with small to medium businesses and fast-growth start-ups in everything relating to their people. And when I started that business, I had really nothing going for me at all. I had no qualifications. I had never been in business or grown up in a family business. I was in a new, new city or new city in Australia. I didn’t have any contacts or networks. It was the start of the global global financial crisis and I had no money and I had a three month old baby.

 And so I really if I’d asked a business coach whether I should start a business, I’m pretty sure anyone would have said, “You have nothing going for you”. But I did have two things. One was I had a really clear vision of what I wanted to create. And at the time, I wrote this vision to say that I wanted to build this company to be internationally respected and and to disrupt the HR industry. Because I got into the industry because I really didn’t like it at all. And I felt that it was misunderstood and could be could be so much more beneficial to companies. 

So I had – So I had a really clear vision and I had a bucket load of naivete. I just I had no idea at the time that I had all those things going against me or that I didn’t have anything really going for me at the time. I just didn’t realize that it wasn’t actually until five years in when people started asking me to talk about the business, that I was preparing my talks and realizing that I actually didn’t have much, much going for me at the very beginning. So. So anyway, I mean, I think it’s when you have less to lose, it’s easier to be naive. I don’t really have that luxury now, but I always had big plans from day one and I had so many people knocking me all the time saying I’d never be able to do that. I ended up having three sons every time I fell pregnant, ome people would say, “Well, are you going to close that little business now?” No one ever thought that it was going to become anything. 

And anyway, for the first five years, I just put everything into it all my time. I really just spent every cent and every spare second outside of raising babies into this business. And I, you know, I really didn’t have any idea, but I’ve always invested in coaches, mentors, conferences, like really addicted to self-development. And so once I got five years in, I was sort of starting to burn out a bit. 

And I – and I had this coach said, you know what? You need to start taking something from the business. You need to get yourself a nanny. You need to buy a house that’s more suitable for, you know, a growing family. You need to just get some things around you that will make it easier. And that was – that was the best advice, because it was one of those things where I wasn’t willing I didn’t want to do that. I just wanted to keep putting into the business. But it was taking its toll. And once I did that, I was then able to take it to another level and and that was really exciting. And I was sort of thinking, well, like we’re growing fast. I had another baby and I kept it going. We just grew year on year, but it was always and so. 

So what happened then was I started to have a nice lifestyle. So for the first time in my entire life, I could afford to have some nice, nice things. I bought myself my dream car and we started to go on some family holidays and I started to shop in the expensive shops and you know, it was great. I had grown up pretty in a difficult time. I had a difficult childhood. So this was this was starting to be like, oh, this is interesting.

 And I remember – I remember a time when I was like, it’s funny because, before, every time, every month, every client, when every time I hit budget, everything was a bonus. Because when I started, I didn’t I didn’t have any idea what I was going to have to achieve anything. But once I started living, the lifestyle every month was I have to get this budget, I have to win this client because I had created this lifestyle and it was it was fine. I could afford it. 

But it did change my feeling about the business. And then I hit my ten years and I was just a bit over it, to be honest. I was very proud of what I’d done. I’d built the business from nothing, with nothing, and I’d had three children at the same time. And and as I said, I’d I’d had so many people tell me that I was everything that I was doing was wrong and that I was selfish and I was a bad mother. And like, it just went on and on and on. So I was really proud. But I was – I think now I was burnt out and I felt like I wanted to I wanted to be involved in something that was more exciting, if you like. So I sort of where I got to. 

Greg Alexander [00:07:36] Yeah. So let’s let’s jump in there because there was a lot and there was a great story. And your story is very similar to many that wind up trapped in a lifestyle business. They hit that ten year window. I don’t know what it is about ten years, but there’s something about that ten year mark that everybody says, hmm, maybe I want to do something more interesting. 

So the next part of the story, as I understand it, I’ll give you a chance to explain it, is, is that you walk away from the nice house, the nice car, the wonderful family shopping in the fancy shops, and you literally get on a plane and fly to New York and start over. So pick it up from there, please. 

A new career in a new town

Sel Watts [00:08:13] Yeah. So I didn’t come to New York till I was 35 and I kept coming -was so when I was starting to get really burnt out and sick of the business, I kept coming to New York three or four times a year and stay for three weeks. People were saying, What are you doing over there? I don’t know. I mean, I think I was really just running away from the business, to be honest. And I was here and I just felt like, oh, my gosh, this is the entrepreneurial playground of the world. I want an opportunity. This is the – this is the big pond that I need to be in. This is where I need to be. And so I spent two years commuting.

 So I lived in New York, my family was still in Australia, and I would fly back every six weeks to see the kids basically. And then I would come back and try and see if I could get my company – what’s next? Started in the US in New York, and I’d spend the days, you know, going from meeting to meeting people telling me over and over again, “You’re never going to make it here. We don’t need your services here”. And I’d get on the subway at the end of the day, and I’d cry all the way back to wherever I was staying and, you know, and then I’d get back up again and – and do it all over again. 

And I did that for two years. And  – and at one point, I said to the kids, Look, I really want to I really want to try and do this New York thing. But there’s three things that could possibly happen from this one, I could go and make it, and it’s a huge success and we make lots of money. It’s amazing. Two, I go and I can’t make it and I come home with maybe a little bit less money and amazing experience or I lose everything we have the house, the businesses, everything, and they were like, “okay, have a crack mom”. 

So I was like, okay, everyone knows what I’m doing and I walked away. Now an interesting part was putting when I stepped away from the business in Australia is everything I wanted. I wanted to go and get out of it and go and do new things. And at that point, I had invested in another company in an IoT GPS tracking company, which is I’m still in and growing. But that wasn’t that. I still it wasn’t what I wanted to spend all my time on. 

But when I left, I stepped out of the business. I was surprised by how I reacted because this was my decision. I wanted this. I was going to New York, but when I would sit in the board meetings in Australia, I was like a toddler crying because someone had stolen my toy. I found it really hard to adjust to being the founder and no longer the CEO and people coming up with ideas and implementing things that I didn’t like. And that was a real adjustment. 

And what I learned from that was, you know, people can’t do it as well as I can do it. And I think this is what traps people in businesses. And I realized that if I wanted to go and chase my dream in New York, I had to be okay with them doing 70%, maybe even 60% of what I would do. I either stay in the business and it’s 100% how I want it or I keep the business. It funds me to go and do my dream and it’s not quite as good but get used to it. And I did. And now that I think doing a better job than I was. 

And so anyway, I kept trying and I really didn’t think I was going to make it. I, I was constantly with my coach saying, I don’t know if I can do this. It’s just I can’t seem to get any, any runs on the board. And he just said to me, You just got to find another way. You got to find another way. 

And this was not just business. It was how do I relocate? How do I relocate my boys? How does the education system work? The finance system? How do I get a visa? It was just overwhelmingly massive. And at the same time, everyone was saying, What are you doing? Don’t you miss your kids? How can you be away from them? You know, just enormous criticism. Anyway, I got them here unbelievably, and they arrived six weeks before COVID hit. So they got here. I got them settled, got them into school. And I was ready to just. Hit the ground running and that weekend everything shut down and they were home-schooled for 18 months. 

How to view your business

Greg Alexander [00:12:23] My goodness. The timing of that is just unbelievable. And yet you – and yet here you are. You persevered through all of that. 

Sel Watts [00:12:33] Yeah. I mean, there were lots of people saying to me, when you’ve got to come home, it’s it’s irresponsible. And also, obviously, their dad is in Australia and he – he couldn’t fly, was going to come here every six weeks. Those ten months when he couldn’t come, couldn’t seethem. So it was a lot of pressure on the family. And here I was with suddenly three kids at home being homeschooled and-  and me trying to get a business off the ground, which had just tanked because, you know, I hadn’t had enough of a runway. And and and I’m not domestic at all. 

So I was way out of learning. I had to learn to cook and use the washing machine. And I was nearly every day I was like, oh my gosh, I’m failing. But it was because I wasn’t doing anything that I was good at. But everyone was saying, you know, this is terrible. You need to come home. And I was I commuted for two years. I’m not going home. I’ll never get back here. And I really believed in the comeback. And I have a very romantic view about New York and – and being an entrepreneur in New York. And so we just stuck it out. 

And I think our – our Aussie culture made it really easy, made it easy for us. We were sort of very relaxed about everything. And, and the Wattsnext in Australia funded – has funded me to be here. So my core company is the reason that I could do it. And I think if I’d sold that company I wouldn’t have had the funds to do what I’ve done. And you know, it’s a good company to get through any sort of economic crisis because either business is booming and they need staff and they need help with that growth or the world is falling apart and they need to work out what to do with their people. And so we we sort of can get through those rough, rough times. But the two businesses in Australia thrived during that time. 

Everything fell apart here. But I knew it was just a matter of time. I knew I just needed to ride it out, you know, deal with the fact that I felt like I was pouring all my money down the New York drain and my counter in Australia was horrified by what I was doing and -and I was like, you know what? I started this business and I, I spent ten years like working nonstop and raising my children so that I could, you know, have the freedom to live, dream – live my dream. And this is it right now. And – and I believe I’d back myself. I believe that, you know, I’ll get through it and, you know, be successful. 

But it’s – it’s been an incredible journey. And I think that being able to look at what’s next because there were times when I really hated the business and I was just over it. And so many things that happened in the time that I’d had it and so much in my own life had changed. And I it – it took some time for me to sort of put a different lens on and look at it in a different way and see it.

Here’s a good example. I used to call my business my baby. I’m sure you’ve had lots of people talk about, Oh, my business, my baby. And I remember one day because in 2016 I nearly lost everything. I had a really tragic year and I was sitting at home and I was looking out at my car and I was thinking, You know what? I’ve always called my business my baby. 

But babies run your life. They tell you when you can sleep, when you can go out. They are in charge. And I thought, this isn’t right. I looked at my car at the window. I thought, No, this business has to be my vehicle. This is the vehicle that’s going to take me where I want to go. And I need to make sure it’s healthy and running well. And I can bring on passengers and get rid of passengers. But it’s – it’s a vehicle for me. And when I changed, when I realized that that changed everything to me, I looked much more strategically at my lifestyle business and what was possible for me, and I think that helped a lot. 

Finding your business courage

Greg Alexander [00:16:34] It’s such a fascinating story. So to dramatically summarize, the way you got yourself out of being trapped in a lifestyle business is you got on a plane and flew to a strange place, brought your kids with you and started over that. Yeah. Fair to say. Yeah. And do advise that type of boldness to other members that might be trapped in a lifestyle business and – and what gave you the courage to do it? Because it would have been easy just to coast. 

Sel Watts [00:17:04] Yeah. I mean, it’s interesting because at tough times when I’ve been here, I’ve thought, well, I could go back to Australia and have all the money I need and not really have to work that much and go to the beach. And I’d have a pretty nice life, but. I think most business, most people that start their own business or most entrepreneurs don’t do it for the money. 

They do it for the challenge and that ability to see what’s what’s possible and what they can achieve. And I think that that’s never-ending. It doesn’t matter how successful you become or what goals you hit, you always want to see what else you can do so that the whole coasting was just – it didn’t even I didn’t even consider that it was only those few tough times when I burnt the dinner and I was really struggling. And then I was like, I should probably I could go back.

 But I think for people that are I mean, I know my story is very extreme and I think people have and also like when I started this journey, I was like 42. So I was like middle of my age. Like my age. My kids are 15, 13 and nine. You know, most days I had a lot of great reasons why not to do it. You know, the kids are in the middle of their school and, you know, I’m too old and all of those things. But I think that I’m a big believer that you should never settle in your life and that you should chase your dreams and you should not think about what society expects of you.

You shouldn’t think about the top, like what how old you are, and just go for it and back yourself. And, and as we say in Australia, have a crack and know that if it doesn’t work out you’ll be okay. If you’ve been able to be an entrepreneur in any capacity, my belief is that you’ll be okay. So when I started I had nothing and I never had anything growing up. Everything I built, I built myself on very shaky foundations. So I was like, Well, if it doesn’t work out or if I lose everything, then I just start again. 

And so there’s this just belief that I’ll work it out. But there’s the worst possible thing that could happen is if I just settled and I knew that there was I had so much more potential and I didn’t do it because I was afraid. Yeah. And when I think about, you know, my kids and I, I remember thinking to myself, if I could only teach them one thing, what would it be?

And it was to chase their dreams. It’s like just no matter how unlikely it is, no matter what someone says, just do it. Because even if you don’t make it, the journey will be well worth it. And then I thought, I can’t tell them to do something that I’m too afraid to do. I can’t say go and live my dreams because I was too gutless to do it. So I was like, I’m going to give my kids a front row seat indream chasing and and have a go and and we’ll and we’ll just go for it. And the journey’sbeen incredible. 

Conclusion

Greg Alexander [00:19:58] Yeah, well, listen, I could talk to you about this forever. It’s such a great story. And we have the member Q&A. I’m sure this will be an incredibly powerful thing, but we are out of time. But so, listen, on behalf of the members, I just I want to thank you for contributing because I think you’re an inspiration. I think sometimes people settle, and I think it’s a real tragedy not to chase your dreams and to have the courage to do it, which you clearly have so far. So thanks for inspiring all of us. 

Sel Watts [00:20:29] Thanks, Greg. I appreciate the time. Greg Alexander [00:20:32] Okay. And for those that are interested in topics like this, I encourage you to pick up a copy of our book. It’s called The Boutique: How to Start Scaling of Professional Services Firm. And for those that might be interested in joining a community and meeting extraordinary people like Sel, consider joining our mastermind community, which you can find at collective54.com. Thanks again, Sel. We’ll talk to you soon. Thank you. Bye bye.

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The Importance of Networking in Entrepreneurship

Businessmen networking with each other

Networking is an Entrepreneur’s Best Asset

When working with boutique owners, I’m often asked, “What’s the best way to help my business grow and become successful?” The answer is business networking. To be an entrepreneur and lead your professional services firm to success, you need to network. 

Many founders and owners of professional services firms fail to recognize the importance of networking in entrepreneurship. It is possibly your best asset in driving your firm. Why? Business networking allows you to connect with and learn from others that share common challenges, experiences, and goals. Not only will you create relationships, but you’ll get the opportunity to learn from the successes and failures of others. 

Still unsure about why networking in entrepreneurship is worth it? Let’s look at what benefits it provides. 

How Business Networking Can Benefit You During Your Firm’s Lifecycle

Business networking must be part of each stage of the business lifecycle journey. You are wrong if you think you’ll only need to network during the growth stage. Boutique owners often fall into the mindset of “going it alone.” Yet, running a firm requires advice and support from many others throughout the journey. 

Here’s how networking benefits entrepreneurs during each stage:

Growth Stage

The United States Bureau of Labor Statistics claims that approximately 20% of small businesses fail in their first year. Yes, many factors can lead to this happening, including cash flow problems and insufficient product or service demand. Yet, a failure to network can be included in this list. 

If you want your professional services firm to see its second birthday, business networking can help you do that. By joining a mastermind group or attending industry events, you can better grow your business. 

Here’s how: 

1. Gain Access to a Growing Network

Successful entrepreneurs start networking close to home. Capitalize on your existing contacts, whether they’re friends, family, or the guy you met on vacation last year. This is how you open doors and expand your professional network when growing your business. Being an entrepreneur means accessing a complex system of connections that provide access to human, social, and financial capital. 

2. Bring Your Concept From Idea to Reality

Business networking also helps you bring your idea from concept to reality. When you have access to an extensive network of connections in the same industry or a similar one, there is a wealth of knowledge at your fingertips. You can harness the intelligence and experience of others who are in or have gone through the trenches like you. This allows you to transform your ideas into tangible business options and implement them faster.

3. Helps You Find the Right Team

It is a myth that great firms are started by a single brilliant person. To grow your professional services firm, you need the right team of people working alongside you. Networking and building professional connections will help you find these individuals. 

When speaking with boutique owners, I remind them that it takes a team to realize a dream. You need to pick your business partners as carefully as you choose your spouse. 

Scaling Stage

Scaling a business requires time, effort, and plenty of advice. This is when you will need to put systems and procedures in place to continue on the path of profitable development. During this time, you will define your core values and develop your firm’s client experience. Essentially, it is your firm’s make-or-break period. 

Leveraging a mastermind community when scaling a firm is extremely important. Learning from peers and mentors helps you find the right people and strategies to scale your firm even further. This is a time for continuous education and accessing collective knowledge. Scaling a business should never be a solitary task. The more support you receive through networking, the more successful you will be. 

Selling Stage

Networking continues to be beneficial even for entrepreneurs looking to sell their boutique firm. Creating a business exit strategy needs to be done with consideration and thought. Speaking to your professional network can open up opportunities for new exit strategy perspectives. Perhaps a connection will even introduce you to a potential buyer for your firm. 

Why You Should Join a Small Business Networking Group

Joining a small business networking group or a mastermind community like Collective 54 will help you grow, scale, and sell your firm bigger and faster than ever. We offer peer-to-peer mentoring, small group learning, and our C54 Business Exchange to encourage member’s firms to hire one another. Many of our members succeed by tapping into  business networking opportunities within our community. 

The importance of networking in entrepreneurship is clear — it empowers you with the tools, knowledge and relationships you need to drive your firm toward success. Boutique founders and owners who join mastermind communities are given the guidance they need to earn more, work less, and sell faster. 
For more insights on how to capitalize on networking to grow your business, join our mastermind community or purchase The BOUTIQUE: How to Start, Scale, and Sell a Professional Services Firm.

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Episode 79 – How to Attract an Unconventional Buyer for a Tough-to-Sell Small Consulting Firm 

Member Case with Marc Weiss

A strong market position can indicate excellent competitive positioning. On this episode, Marc Weiss, CEO of Management One, shares how he positioned his small consulting firm for a successful exit with an unconventional buyer.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. My name is Greg Alexander and I’m the founder and I’ll be your host today. And on this episode, we’re going to discuss market position. What I mean by market position?

 Well, some boutique founders want to sell their firm someday and positioning their firm in such a way that makes it attractive to a potential acquirer requires some thought. And there’s lots of ways to do this. And some are traditional and some are unconventional. And there’s a particular set of best practices, if you will, to – to leverage when you’re a smaller firm and you have a unique set of possible acquirers. And today we’ve got a guest who – who did exactly this and successfully exited recently. And we’re very fortunate to have him with us today and hear about his story. His name is Marc Weiss. And Marc, would you – first, welcome – and would you properly introduce yourself to the audience? 

Marc Weiss [00:01:33] Hi, everyone. Greg, thanks for having me on today. Appreciate it. Marc Weiss, the CEO of Management One and founder. In the process of selling, we’re almost ready to close, so there’s no flag. So I feel pretty comfortable about it. So we’re good to go. Glad to share my experience. Thank you. 

Management One

Greg Alexander [00:01:54] So, Marc, just for  context, would you explain what Management One does? 

Marc Weiss [00:01:59] Management One provides inventory planning for independent specialty retailers. So we typically service the mom-and-pop marketplace and we forecast their sales and their inventory. And therefore, we’ve created one of the most sophisticated cash flow tools ever used in – in retail. So a retailer knows, you know, how much business they’re going to do. We do a break-even analysis to know what their financials look like and they spend more money on inventory than anything else. So we can manage the proper flow and investment in their inventory. They can have a very positive outcome on their cash flow. 

Greg Alexander [00:02:35] And Marc, you founded this firm when?

Marc Weiss [00:02:36] 35 years ago.

Greg Alexander [00:02:41] Yeah. So it’s obviously a great success story to stay in the business for 35 years. And the retail sector is is really saying something. 

Marc Weiss [00:02:50] Andwith one product!

Greg Alexander [00:02:51] Yeah, really. I mean, that’s really it’s amazing in retail, let’s just say, has gone through quite a transformation over time, probably more so than any other industry, right? 

Marc Weiss [00:03:01] Yeah. The last five years have been remarkable. COVID accelerated everything like it did many industries. But, you know, a lot of things are bouncing back to the way they were a little bit. But it’s all about adaptability. And one of the things that we really work hard to do is adapt and change. And actually we didn’t have to change for almost 30 years. Know what we did really worked – was just a matter of upgrading our technology. But fortunately, right before COVID hit, we decided to change our platform and and did, you know, created, you know, really created a lot of disruption in our own company, but put us in a position to be where we are today and actually put us in a better position. So… 

Deciding to sell 

Greg Alexander [00:03:44] Yeah. So first question for you is. You’ve been doing this for a long time. Obviously love doing it. Why did you decide to sell? 

Marc Weiss [00:03:55] A couple of reasons. One is we’d gone to Cuba right before COVID, and I got Legionnaires disease from one of the hotels. I was really sick, and I was about 12 hours away from being put on a ventilator. So I remember making a promise to myself that if I was given another chapter in my life, I wanted to do something with it. So, you know, I hit I’ll hit 70 this year. And I also felt like some of the passion was starting to go away. 

And I asked my cousin, who’s a successful doctor, I said, why are you – He retired at 65 – As to why did you retire? He said, I didn’t, you know, I stopped reading the journals and I felt like I couldn’t be the best doctor for my patients. And I knew it was time to quit. And I feel like I kind of hit the same stole things. He has to go back to business. But what we do fundamentally I’ve been doing for over 35 years and the people we’ve hired actually are doing a better job at it than I am, and I feel good about turning it over to them and I feel like I would be in their way and I’ve contributed to the level I want to. I want to do something else now. 

Individual buyers

Greg Alexander [00:05:03] Great. Okay. Next question is sometimes boutiques the typical exit path, which you didn’t take and why I find your story so interesting as either sell it to a private equity firm, they sell it to a large strategic, they sell to their employees. Those are those are the three most common ways. Right. You sold it to an individual. Which is really brilliant. So tell everybody a little bit about this individual, how you met him, how this whole thing unfolded. 

Marc Weiss [00:05:35] Yeah, it’s, you know, just the serendipitous story I, I had gotten. We get we get offers. We have three or four offers a week. We might turn them all over to our president. He looks at them, examine them. And, you know, he said, Marc, when you’re ready to sell, let me know and I’ll start pulling the trigger.

 But there was one in particular that came through for some reason. The email struck me in a way that it was written that I actually responded, which I never do. And we kind of got into a conversation. This was about 21 months ago, and we just kind of hit it off. And I said, Well, what brought you to us? Why are you – why do you want to buy my business? And he said, Well, one of my good friends was an MBA, owns a retail business in Seattle and, you know, COVIDhad hit. And we were I think it was like maybe June or July of 2020. And she said, oh, she said, “I work with a I know you want to buy. I know you’re looking to buy a business. I work with a business that maybe they’re interested in selling”. And he said, “Well, what what’s good about – why do you believe in this business?” And she said, “They’d bethe last people I’ve fired before I had to turn off the lights”, I’d be the last person. And he said, nobody ever talks about their vendor that way. So he said, “I was blown away. I respect her a lot. She’s a bright person. She uses data effectively. So I decided to reach out to you.” And so from that conversation, our relationship grew. 

I wasn’t ready to sell then it was COVID, I knew I had to lead the company out of it because we’re in retail. We were we were hit hard, you know, in the early days we were, but we had rebounded by December. We had all our business back, but we stayed in touch. 

And then an interesting thing happened. And so I we use EOS and in December of this year, my my son who runs our planning department now he’s in charge of product development. We are actually developing new products. He called me and he said, Dad, who do I report to? And I said, We report to Mike,, Who’s also a member of the 54 He’s on the the scale side. 

And he said I dont know who to report to. And I said, well you report to Mike. He said, Well, you’re interfering too much. So that night I went to bed and recognized that I really am not the kind of CEO I hoped to be. I really can’t stay, keep my hands out of the cookie jar. And I woke up the next morning, called this individual and said are you still interested in buying the business. And he said, yes. And I said, here’s my number. And he said, I can make that work. And there we are. 

Greg Alexander [00:08:18] Wow. It’s really amazing. I mean, what I love about that story is this started by a happy customer. 

Marc Weiss [00:08:26] Yeah. Started by a happy customer. Yeah. 

Greg Alexander [00:08:28] I mean, that phrase “that they’re the last vendor I turn off before I turn off the lights.” I mean, that’s quite a phrase. So I mean, we’re talking a lot. 

Marc Weiss [00:08:36] We’re very fortunate. We have a lot of raving fans. A lot of our business comes from independent retailers who are in market or carrying our our budgets around with them. And other people ask questions and we get a lot of business just by the referral system within our clients. Our clients have been very loyal and very I’ve told our clients that I saw when I started the business 35 years ago, who’vegone through their own sales. 

Qualifying individual buyers 

Greg Alexander [00:09:01] Yeah. So also we’re talking to Marc Weiss right now about how to position your company for an exit, how to make your company attractive to a potential acquire by having a great market position. And we’re reminded of the obvious, which is build a great company first, have – have fans instead of clients. And it makes it a lot easier to sell your firm when you’re ready to sell your firm ass Marc is his healthcare and his willingness, their desire to retire. 

Okay, so let’s come back to this individual sometimes. Like, for example, if I got approached by an individual, I would be skeptical because the number I would have in my head is typically would exceed what an individual can afford. So how did you qualify the individual that they had the funding to pull the deal off? 

Marc Weiss [00:09:50] Yeah, that’s a great question. It because it’s – it’s a, I guess the word genre, but it’s a whole niche that I never knew existed. It’s called self funding. And this individual’s got a group of people who invest with him and literally pay his salary to help find a business in all his expenses for two -. they give him a two year window to do it, and he was very close to buying another business. But the seller jumped the price at the end of the deal by 30%, and he said,” No, we’re not going to do that.”

 That was after they invested a lot of money in due diligence. So there is he’s self-funded and there’s a lot of them out there. I just happened to follow in No. One. I was kind of curious about it, and I was I did some research about it and that’s it’s – t’s a more robust industry than I knew about. And I talked to one of the person buying the business. I talked to one of his key investors. And I said, because it was hard for me, Greg, even today, I mean, I’ve gotten to know this person over the last two and a half years. Well, I’ll just get his name’s Nate, so it’s called by his name. I’ve known Nate for two for over 20 months, and it has really been a great journey. 

So, you know, I felt like there’s good chemistry. He really got to understand who we are. And it wasn’t just a transaction for me. It was also needed to be a – it needed to be the culture needed to be sustained. I mean, he’s for 35 years in a company, you feel like you’ve built a great culture. We don’t have a problem attracting people. There’s a lot of good we’re a virtual company, so a lot of good things about the company that I wanted to stay in place. And I was afraid if I sold it to a private equity firm, you know, it wouldn’t be there. You know, you and I had talked about an Aesop or something like that, but I wasn’t going to get the kind of money out of it that I wanted. 

So these self-funded opportunities are there and they’re real. And when I talked to one of his investors, I found out that they’ve been in this for 20 years and they’ve done 52 of these transactions on these businesses with capital. So that was important to me, that they’ve kept all the businesses, they help them. They haven’t gone in to change them. They look for businesses that help other businesses succeed and other people succeed. And they they seem to, at least on the surface, share our core values. 

Greg Alexander [00:12:15] Yeah. And what did they find attractive about your firm? 

Marc Weiss [00:12:21] What they found attractive? It was the opportunity of what we were doing. We didn’t have a lot of you know, the competition in our space is really people who use Excel spreadsheets. And we’re much more sophisticated. We have much more sophisticated information. You know, we’ve got they call it greenfields. We’ve got 860 clients. We’ll hit 1000 this year because we’re at a growth rate of about 35%, 33% last year, 35% this year. 

So I think they saw the real opportunity and that we are in a market that’s underserved. I mean, there are literally hundreds you know, there’s I think close to 100,000 businesses that fit into our model. And we’re also in multiple verticals. So, you know, we do everything from college bookstores to a mom-and-pop dress shop or men’s store on the street. 

So we’re we’re – we’ve got – we’re in over 22 verticals. So we’re, we’re pretty diverse, which allows us to sustain ourselves in, in, in any almost any economic area. And, you know, I was reading Chapter 29 and one of our our best year retention was actually in 2008, you know, when people would, you know, when economic – when there’s economic turbulence or recessions, they’re a friend to us. So I think the other part of it is we’re pretty much a recession proof business. 

Greg Alexander [00:13:42] Interesting. And without violating any confidentiality agreements, I’m sure you’re governed by… in terms of the structure of the deal. Were you able to get enough cash at closing that made you happy? Was there an earn out? Like what were some of the terms? 

Marc Weiss [00:14:04] So yeah, it was kind of an odd thing. I have to be careful what I talk about, but I had a happy number that I had to walk away with – the net number. And so we’re, we’re, you know, so I got the net number – and I also I also got a I have also an equity, you know, business on top of it. Okay. So I own about 7% of the business after the deal’s closed. So I get another bite of the apple. 

Self-funding groups

Greg Alexander [00:14:27] So these self-funding groups, which this is a breakthrough for many of our listeners because they have firms similar size to yours and they might be, in some cases, too small to attract the right type of investor that they may want to sell to. Because for them, like you, it’s more than just a transaction. So these self-funding groups are funded well enough to get to your happy number? 

Marc Weiss [00:14:52] Yes, they’re well-funded. Nate’s going to have, I think, seven investors and he’ll be the majority shareholder. But and, you know, I been one of his key investors that I talked to said he’dwrite a check tomorrow for the whole business. But so they like the business. They like the model. 

We also have a great management team. They want to buy businesses where they don’t have to do anything except invest in the resources that’ll help the business grow. You know when you’re a small business, everybody works a lot of hours and you’re overworked. And that’s true in our business. So my team does an amazing job and we just launched a new platform which really stretched our resources. 

So I think that they’ll be able to bring resources to bear that’ll help the whole company. So I think they work for businesses where there’s an opportunity to add resources in the right place. There’ll be a board of directors. So I think that, you know, we fit that kind of – we fit that that model. Part of what they like about us is that Nate can come in and replace me as the CEO. Mm hmm. He’s already bought into our ten year plan. As a matter of fact, he came back to me and he said, you know, EOS goes out ten years, but I’m thinking about where Management One can be 15 or 20 years from now. So that was music to my heart. 

Greg Alexander [00:16:08] Yeah, for sure. 

Marc Weiss [00:16:09] And I think that I think that. So therefore I think there’s a real opportunity for these self-funded businesses. And by the way, I’m getting just in the time that we took – I signed a letter of Intent February. I’ve gotten two or three requests from different self-funded groups almost weekly since then. So they’re out there. 

Conclusion 

Greg Alexander [00:16:32] That’s interesting. Well, Marc, we’re at our time allocation here, but you’re such a great member. You have such a generous spirit and you’re always willing to contribute. So on behalf of behalf of the membership, I appreciate you coming on the show today and sharing your wisdom with us. 

Marc Weiss [00:16:49] Again, if anybody has any questions or thoughts or anything, just feel free to contact me. I’m happy to share my journey. And one thing I want to say, Greg, is I really thought hard about making sure the pipeline’s full when you sell it – our pipeline is full! So when they takes over, I’m going to feel very good because he’s got a whole rush of business that I wish I was here to participate in, so… 

Greg Alexander [00:17:11] Oh, that’s fantastic. All right. Well, listen, for those that are interested in this topic and others like it, you can pick up a copy of the book. Of course, it’s called The Boutique: How to Start Scale and Sell a Professional Services Firm. And for those that are not members yet but might want to be and meet inspirational leaders like Marc. Consider joining our mastermind community, which you can find out. Collective54.com. Thanks again, Marc. Appreciate it. Marc Weiss [00:17:36] Thank you. Have a good day. All right.

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How to Avoid Costly Mistakes When Selling a Business

A man wearing a grey suit jacket and maroon sweater looking at a stack of papers

How to Avoid Costly Mistakes When Selling a Business

Selling a business is a high-risk, high-reward initiative. I want to spend some time on the common mistakes made when selling. I hope that by reading this, you can avoid these land mines. Every situation is different. Yet, these are the most common mistakes I see owners of professional services firms making.

Avoid These 7 Costly Mistakes When Selling a Business

When selling a business, you must do it on your own terms. You started a professional services firm that you built from the ground up. Trying to sell a boutique that is not worth buying or rushing into a fast sell without knowing the buyer can lead to failed business exit strategies. That’s why you need to avoid these costly mistakes.

1. Being Uncertain About Reasons Behind Sale

First, boutique owners are unclear about what they want from the sale. If you are unsure of who you are, you will be unhappy with the sale. If you do not know where your business is headed, you will be unhappy with the sale. No amount of money will change this. After the sale is complete, there is no going back. Be sure that you know what you are doing before you start down the path of selling a business.

2. Selling an Unsellable Business

Second, sometimes boutique owners try to sell an unsellable business. Most boutiques are unsellable. It is not enough to have a successful boutique. Your professional services firm needs to be attractive to a buyer. This requires you to look at your business as an investor would. 

An investor starts by listing all the reasons not to do a deal. The boutique owner starts with a list of all the reasons to do a deal. This gap often cannot be closed. Before trying to sell, be sure that you have something worth buying.

3. Looking For a Fast Sell

Third, it takes years to sell a business. Yet some owners try to sell their boutique in a matter of months. This tends to result in many failed attempts, or worse, a lot of forced sales. The process of selling a business takes about nine months. However, the process of preparing to sell takes two to three years.

A good business exit is a sale that happens on your terms. It takes time to stack every card in your favor. And, as they say, you have only one chance to make a first impression. It’s best to be ready.

4. Underinvesting in Succession Planning

Fourth, boutique owners underinvest in succession planning. This results in seller’s regret. After you sell, you will want to see your boutique do well without you. You will have many employees you care about who are still employed by the boutique. If you hand over your business to a stranger, they may destroy it. 

A large bank balance will not compensate you enough for this tragedy. Spend years grooming your successor. Make sure that your successor builds on what you have already created.

5. Pursuing a Business Exit Strategy Alone

Fifth, entrepreneurs think that they can sell their business on their own. Doing so can result in tactical execution errors that can cost the owner millions. Boutique owners are usually entrepreneur founders. They are very different from hired-gun CEOs. 

Founders have a high risk-tolerance level and supreme confidence in their abilities. They often approach the selling of their business as another problem that has to be solved. They assume that they can figure it out without expert advice. This is a mistake. 

Exit strategies are not an area to go cheap. Hire the best advisers that money can buy. Let these advisers guide you through the process.

6. Taking Feedback After the Sale Personally 

Sixth, boutique owners get attacked after the sale, and they take it personally. Those whom you are leaving behind will be jealous. They will feel cheated and underappreciated. They begin to tell a story that is not based on fact. Rather, it is a story they need to tell to make themselves look and feel good. Do not take it personally. 

This is just business. You created the wealth, and you are the one to realize it. Those who helped you do this have benefited and will continue to benefit in the long run. Remember to sleep peacefully at night. The only thing that matters is what you see in the mirror. 

7. Not Knowing Who is Buying the Business

Seventh, be sure to understand who the business is being sold to. And what their motives are. This is particularly important if you are on an earn-out or are rolling some equity. This prevents unwanted surprises from cropping up. Once you sell it, the buyers own the assets. They are entitled to do whatever they want with it. If you disagree with their plans, do not sell it to them.

Top 10 Business Exit Strategy Questions to Ask When Selling a Business

There are other mistakes to avoid. Every situation is different. However, these are the most common mistakes that boutique owners make. If you are considering selling a business, ask yourself these questions to make sure you are avoiding these exit strategy mistakes:

  1. Do you know what you want from selling your business?
  2. Do you know what you will do after your business is sold?
  3. Is your business attractive to a buyer?
  4. Do you have a sellable boutique?
  5. Do you have a handpicked successor?
  6. Is the successor ready to take over?
  7. Do you have an all-star team of advisers to help you?
  8. Are you prepared for the postsale criticism headed your way?
  9. Do you understand to whom you are selling your boutique to?
  10. Do you know their motives for buying?

How to Sell a Business: With Purpose and Patience

You are building a business you could run forever. You are also building a business you could sell tomorrow. If you decide to sell, you want to do so on your terms. Give yourself plenty of time to avoid these common mistakes when selling a business.

For more insights on how to develop a business exit strategy, join our mastermind community. Collective 54 is the first mastermind group for owners of professional services boutiques. Contact us today to learn more about how our community helps businesses like yours.

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Episode 78 – How a Consulting Firm Underwent Organizational Redesign toSuccessfully Deal with Pricing Pressure 

Member Case with Jeff Pedowitz

Labor is the biggest expense for a boutique and has the biggest impact on profitability. On this episode, we interview Jeff Pedowitz, President & CEO of The Pedowitz Group to discuss how they creatively redesigned their organization to solve increasing pricing pressures.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those not familiar with us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. 

My name is Greg Alexander. I’m the founder and I’ll be your host today. On this episode, we’re going to discuss organizational structure, and this is a very important topic for boutique pro serv firms because we are people businesses. And how you organize your labor dictates a lot of things such as your profit margin, your client satisfaction scores, your employee engagement scores, etc. 

So it’s a really big subject and we’ve got a great member to be our role model today. His name is Jeff Pedowitz and he has a company called the Pedowitz Group. And Jeff’s with us today. Jeff, how you doing? And please introduce yourself to the audience. 

Jeff Pedowitz [00:01:12] Thanks, Greg. Definitely glad to be here. Hello, everybody. So I am Jeff Pedowitz. I am president, CEO of the Pedowitz Group. We build digital revenue engines for our customers. So for all those businesses out there, we’re constantly trying to drive revenue in the digital world. That’s what we specialize in. We do strategy, technology and execution and end-to-end shop. 

Determining the right organizational structure

Greg Alexander [00:01:35] Okay, very good. So, Jeff, the reason why I asked you to be on the show today is that your firm has scaled to a very nice size. You’ve been at it for a long time. And you’re on the journey now of restructuring organizationally and leveraging different talent pools. And I would love to maybe start off at a high level and have you explain to the audience, you know, why you decided to come up with a new organizational structure. What led you to that? And then we can dive into, you know, how you went about determining what the right approach was for you. 

Jeff Pedowitz [00:02:11] Sure. Well, I wouldn’t necessarily call it new because I’ve had the relatively same hierarchy in place for a while. You know,we promoted some people and moved some things around. But one of the things I started doing a few years ago was really developing a core team around me and delegating the day to day responsibilities, including sales.

 So today I have a full executive team. I have a technology officer, I have a marketing person. I have chief strategy officer, chief financial officer, Chief Services Officer and they are all essentially running the business and providing the guidance and the leadership and the vision. But I can step away. They can run the business now and all the tools to do so.

 So that was really an important part of our scale, was really getting me out of that entrepreneur organization where everything that you run for me, we still we’re dealing with some, some legacy issues and married people and working at it for a long time. But we’ve really turned a corner on that.

 So even before the great resignation hit,because we work with technology now, our resources are in high demand. I mean, for years we recruited they command very high salaries and a premium. And up until last year, we actually had very, very low turnover. We were running about 5% per year, which in the consulting advertising industry -that’s fantastic. 

Greg Alexander [00:03:33] That’s best in class for sure. 

Jeff Pedowitz [00:03:35] But last year it caught up with us. Solast year we and our services team, we ran about 40% turnover. And most of that was just great resignation combined with some of the bigger technology vendors who are also our clients like Salesforce, Adobe, werepaying ridiculously high salaries, things that even at our size we just could not compete with. And we were already paying our people very well.

 So while we certainly have, I would say now year over year, our average salaries increased 30% from where we were a year ago. As you know, growing in professional services, you know, where you don’t just have 50% less margin – want to just want to double the salary in a low cost format- well we had a resource last year that was making 100,000 and my client was paying me 200,000 an increase into 130.

 Maybe they’ll pay to 60, but they’re not going to pay much more in that. And they’re not going to pay 300,000 for the same person that was doing the same job. Now, if we redesigned the services and added more value, of course they won’t. So it’s a matter of we’re trying to rebuild the plane while our client  -I have existing market conditions that enterprise customers for discerning and they also know they can get the labor if they need it to, by going offshore. 

So we’ve had to retool and strategically rethink how we want our labor force to be. So what we decided a year ago was for the lower end type of work, the execution work, data management, reporting, research, execution type of activities. We’re going to move those offshore. So we’ve been setting up resources in Colombia and then we want the people that are here to be the architects, the strategists, the engagement managers, the account managers, the people that are very client facing to be very versatile. And we will happily continue to pay them even more money than they’re making now because the value proposition will be there and then we’ll be able to kind of bifurcate.

 So we’ve been able to continue to be a competitive -pay the people that are really delivering value really, really well. And more than that now. And at the same time, move some of the other labor that we’re overpaying for because we’re able to turn that around and get value living out offshore.. 

So the net effect is we’re already doing pretty well with our gross margin. We’re running about 52%, but we should be able to get up over 60% by the -by the end of next year. And then we’ll be able to take some of that free flowing capital from the margin and reinvest it not only inthe employees, but into additional sales and marketing that will fuel our growth. 

Strategy versus execution 

Greg Alexander [00:06:12] Great story, great rundown and so many things to ask you about. The first question I’ll ask is when does when deciding what is kind of high end strategic work versus low end execution work, drawing that line and therefore determining what could be sent offshore? Sometimes our members struggle with that. They tend to think that everything is strategic. Even the tactical execution is super important, and oftentimes it is, but sometimes the clients aren’t willing to pay for it. So how did you draw the line between what to keep onshore and what to move offshore? 

Jeff Pedowitz [00:06:49] It’sthe very last thing that you said. It’s what are the clients willing to pay for custody? It doesn’t matter what we think t -he client is, what makes the market and the client who determines what the value is, not us. So if the client says, I’m only going to pay – I’m not going to pay more than $50 now for email execution. We can think it’s as strategic as we want to be, we can talk about deliverability but the client is still oing going to pay us $50 an hour

So we’ve been able to get pretty good information from our customers. And just seeing as the deals come in, what clients want, pay for what they’re not. Yes, because we work with a lot of technology and we now support over 600. 

For new technology. And it comes out like, let’s say some of the new ADX technology comes out for things like Snowflake or merchant platforms. Clients will pay a premium for that, for a short period of time, right. Until they get up and running. And then they view it more as a commodity. Then they will then want to drive the cost.

For ongoing OpEx to support and maintain technology in our business. Clients do not consider that to be strategic. Architecture isstrategic, Figuring out what systems to invest in, how they should fit together, how data should flow , business processes ,t he math, the technology – that is strategic. Running and supporting the technology itself is not strategic. 

Greg Alexander [00:08:11] Interesting. And sometimes clients might not know, but they think they know. So they might say to you, Hey, Jeff, I’m only willing to pay 50 when? Because it’s not strategic, but you know it is. Do you let the client stub their toe or do you -do you speak up in that scenario? 

Jeff Pedowitz [00:08:30] I think it’s it depends on the situation and what else we’re doing with the client. And it’s a bit of a give and take., But I think there’s a healthy  -we want to be respectful. We challenge our clients and let them know, know ultimately we’re trying to build a long term relationship.. 

And it’s also about the people and the personnel over doing the work. Even more important than the work itself.. You know, in consulting and such a relationship business, actually, one of the biggest challenges we have is a resource gets assigned to that project. And the client, they want that working really well, but the client doesn’t like it when that resource changes and gets to account because they become very attached and they’re convinced that nobody else in our team could possibly do that, even though that’s not true. 

But it’s just that trust and that bond gets built. So I do think that in so much it’s not just the type of service, it’s the person and the skill and the value of your trusted advisor to your customer. Then the client will tend to pay more for someone that they trust versus someone, of course, if they don’t.. 

Choosing offshore regions

Greg Alexander [00:09:32] Yeah. Now, once you decided what needed to be moved offshore, there’s a lot of choices there in lots of parts of the world. What part of the world did you choose and why did you choose it? 

Jeff Pedowitz [00:09:44] So we deferred to last year, so we started trying out different contractors in different parts of the world. So India was definitely an area that we know and we’re still using a bit more as a partner. Costs are higher, but we know what we’re getting. We work with ad some firms over in the Asian region, particularly in Cambodia, which is an emerging market, there’s a lot of strong tech talent that people are very good. But the time zone challenge was was difficult. 

We work with a lot of marketing teams in our business and it’s a little bit different than, let’s say, I.T. projects. The collaboration is more in real time. It’s not a follow some type of approach. But we can start something, we send it offshore, they work on it while we’re sleeping and come back the next day. The clients wanted me today and use time zones and collaborate, so we were having difficulties getting the resources over in Cambodia to work on our time zone – the costs were fantastic work and labor. At 15 or $20 an hour., highlyskilled, college educated, smart people, but not the time zone. We had been familiar with Colombia and the Latin America market for a while. We have a couple of our competitors that work down there. We’ve caught some good things, so we started looking into it. 

And then the more that we talked to different resources, we became more convinced that that would be a good market for us to enter into. It’sbilingual, college educated, good culture, hard working family values, which are very much in line with our approach and our value system. So, you know, this has not been without its challenges. Our original goal was to get this up and running in the first quarter of this year. We had a very good recommendation from-  from one of our investors and he was going to work full time for us.

 He had set up an 800 person shop down in Colombia over the last five years. So he was an expert down there, you know, unfortunately had a personal family situation. So he had to opt out after just a week on the job so that we were scrambling. But we were able to, through our professional networks… We reached out, people were great. We actually got eight referrals on different resources to use down in Colombia. We interviewed them all. We selected one and we’re now working with this partner account to set us up. So by the end of this week, we’ll have our first two full time people hired and our plan is to have 20 people by the end of this year. 

Deciding on direct hire

Greg Alexander [00:12:10] Wow. That’s an aggressive plan. And did you decide to hire a firm and partner with a firm? And did you decide to hire directly, you know, one at a time kind of thing? 

Jeff Pedowitz [00:12:23] We split it so that we – we are working with a firm called SolvoConsulting. So they are basically doing all the recruiting and it’s they are technically managing all the employees or their employees. We pay them and then they pay the employees. But we employees are fully white label so they are notworking for anybody else but we don’t have to deal with the benefits or paying taxes in Colombia or doing any of things we pay them. 

However, we also have the option as we start to build our practice areas to convert any of these people into actual TPG employees at any time. So we thought this gave us the best of both worlds. It gave us expertize down in there and mitigating our risk at the same time. 

That way we don’t have to set up a Latin America LLC. We don’t have to deal with paying taxes and doing all that stuff in a foreign government. But we still get the talent and the labor and the partnership and all the resources as if they were our employees. So obviously, check back in with me in 3 to 6 months as we get this up and running, because its still relatively nascent,. I certainly don’t want to tell everybody that we’ve cracked the code. We’re really just getting started on our journey. 

Learning to ask for help

Greg Alexander [00:13:31] Yeah. Yeah. Well, the reason why I wanted you on the show is sometimes many people need to be doing what you’re doing, but they’re not even getting started on the journey. I mean, most of our boutique founders are in similar situations where they have clients that are willing to pay a premium for some services, but commodity prices for other services. 

And unless you get to some version of this, then you’re going to have a tremendous margin squeeze and it could put the business at risk, especially in this high inflation, high wage inflation, great recession environment that we’re in. My last question, Jeff, regarding this particular avenue here is, you know, you said you got a bunch of people to go talk to and you interviewed them all. What did you learn during that interview process and what advice would you give to a founder who’s starting on this journey about how do you even know what good looks like? 

Jeff Pedowitz [00:14:21] Well, first of all, I was pleasantly surprised at the sheer response that we got, because at the time that the person opted out was one of these things where I at -at that moment, I certainly was not an expert in offshore labor or working with Colombia in particular. 

Whether or not whether we go there, you know, this is still really important. Where do we find resources? So yeah, I suppose it was a momentary situation, where am I? But I think like any entrepreneur, that faded pretty quickly. Right. Okay. But this is still the right decision for us. Let’s move forward. Let’s just start reaching out and asking for help. And I think one of the first things I was surprised, pleasantly surprised about was how much help there was – just by asking the question.

 And I think that’s one thing I’ve learned. I wish I would’ve learned this earlier in my career as a CEO – how and when to ask for help? You know, I was on my own a lot. I made a lot more mistakes that were made because I didn’t think that there was anybody I could turn to. 

So having networks like Collective 54 is great because I realize there’s a lot of people out there, that can help. You just have to be willing to ask the question and to listen., Sso myself and my business partner, who’s my chief service officer, we listened. We took copious notes, we interviewed and we learned that there’s… We learned a lot. We learnedthat much like the states, there are different ways to do this. You can go the route like an ADP, you can hire direct. 

We learned about different parts of the country and what each country, not just Colombia, but different countries and what they brought to the table. And I learned that there’s four different taxing authorities within Argentina and it’s incredibly complicated. I learned there certain provinces to stay away from and certain not to. And so, I mean, it was very, very educational over the course of two weeks.

 And so ultimately, you know, given everything else that we have on our plate right now, we decided going with someone that already knows how to do this and do this well, even though we’re going to be paying a little bit more – like if we were to go down and hire people directly in Colombia ourselves, we would probably pay them an average of 18 to $20000 per year for a college graduate. That person that has similar skills to what we have here in the US that’s maybe making 120,000. With the service we’re usingsing the margins areup 30 to 50%. But it’s still very, very cost effective. We’re still be able to make great margin, but may take care of all the headaches for us. 

Conclusion

Greg Alexander [00:16:59] Yeah. Yeah. Very good. Awesome. Well, listen, we’re out of time, but on behalf of the membership, I just wanted to thank you for your contribution today. You know, the way ollective works, as you got to contribute to the collective body of knowledge. And you have, you’re always doing that. Today is another example of that. So thanks for being a great member and being here today. 

Jeff Pedowitz [00:17:17] Thank you. I appreciate it. Greg Alexander [00:17:18] Okay. And for those that are interested in this topic and those like it, who can pick up a copy of the book, The Boutique, How to start scale and Sell the Professional Services Firm. And for those that are interested in meeting great people like Jeff, founders of scaling professional services firms, consider joining our mastermind community, which you can find at Collective54.com. Thanks.

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Episode 77 – How a Founder is Scaling Her Marketing Agency by Getting Prospects to Come to Her

Ali Schwanke

Invest in your marketing and let your customers come to you. In this podcast episode, we interviewed Ali Schwanke, CEO & Founder of Simple Strat, to share how this professional services firm elevated its inbound marketing strategy and improved win rates.

TRANSCRIPT

Greg Alexander [00:00:16] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that aren’t familiar with us, Collective 54 is the first mastermind community to help you grow, scale, and exit your firm bigger and faster. 

My name is Greg Alexander, and I’m the founder of Collective 54, and I’ll be your host today. Today we’re going to talk about defining a market. And let me set this up by suggesting why this is important. You know, many like to say, and I agree with this phrase, the riches are in the niches. And as founders of boutiques, our members have to pick the right market. It’s got to thread the needle a little bit. 

It’s got to be big enough to matter but small enough where you can dominate. So we’ve got a great role model with us today, someone who’s got some experience with this, and she’s willing to share her learnings with us. Her name is Ali Schwanke. And Ali, I would love it if you would give a proper introduction to the audience. 

Member Case Study: Ali Schwanke, Simple Strat

Ali Schwanke [00:01:19] Absolutely. Well, thanks, Greg, for being here. Yeah, as Greg said, I am Ali Schwanke, and I’m the founder of a business called Simple Strat. And we are a HubSpot consulting agency that started about six years ago. And we have worked with folks all over the nation in helping them get more out of their HubSpot instance, which is a marketing technology and software platform.

 And also increasing the effectiveness of their content on that platform once they get their bearings under them. So we’ve been doing that for the last six years, but myself, I’ve been in marketing for almost two decades now. 

Greg Alexander [00:01:51] Okay. And Ali, what’s a typical client look like for you? 

Ali Schwanke [00:01:56] Sure. So our clients that have the most success with us are between about five and 200 employees. And they have a strong propensity to grow efficiencies with their business. And they are primarily B2B because they have the need to track information inside of a technology platform and then eventually get the most out of the reporting and analytics that come with that function. 

Greg Alexander [00:02:18] Okay. Very good. So the reason why I wanted to speak to you this morning is I understand that you and your team have been redefining your target market a bit and yet that answer you just gave me was very crisp. You should be proud of that answer. That tells me that you really have given this some thought. 

You mentioned an employee count range, etc. So why don’t we start with what first made you think about maybe redefining your target client and redefining the market that you’re going to compete in? 

Scaling a Business: You Need to Define Your Target Client and Market

Ali Schwanke [00:02:48] Sure. Well, a lot of professional services firms and agencies are not excluded from this. They’re kind of like that  story of the E-Myth, where they have someone who’s really good at a craft, and they just start an agency or start a company. And you go from being able to do the work to thinking about building a company around the work. And once you do that as an agency, you realize that you are competing with everybody and their mother and their son who went to college for social media. 

And the word marketing is so vague, and I think it is for a lot of folks. So when we started saying initially, when Simple Strat started, we were going to focus primarily on helping folks with marketing strategy because there weren’t as many strategy firms out there. What I failed to realize at the time was that strategy is something that is not defined just by marketing. You’re now competing with firms that do business strategy and all these other things. 

So as the firm developed, we found a specific line of success in helping folks navigate HubSpot. And what we realized is, if we can get really, really good at that platform and know it better than any of our competitors and focus only on that platform, we have a competitive advantage of simply focus. And that focus allowed us to then narrow that target market to teams that really appreciate our expertise and have the value and a budget defined for engaging someone like us. 

Greg Alexander [00:04:11] Okay. So the path to getting to it towards this new focus of HubSpot, it sounds like, but I don’t want to put words in your mouth that you were looking at where you were having success and then said to yourself, maybe that’s where we should focus. Is that how it happened? 

Ali Schwanke [00:04:28] It did. I’ll say it happened in a little bit of a backward way. We said initially we became a HubSpot partner. There are lots and lots and lots of those out there. We did that about five years ago, and at the time, I think me and my inexperienced mind was thinking we become a partner. That’s our niche. And we go. 

Well, what happened is we did a lot of things to try and promote that partnership. And I’ll tell you, Greg, nobody cared. Nobody cared. So very similar to the story that you published in Chapter eight of the market when we started publishing content around our competitive advantage and demonstrating that expertise online, that’s when things changed for us and the focus became real. So it’s very interesting. I would do it all over again the same way. 

Greg Alexander [00:05:14] Yeah. So let’s talk about that a little bit, because it’s easy to fire up a spreadsheet and say, “Okay, so there’s 5000 companies to go after. And these are the vertical industries and the geographies and the job titles and the sizes that we want to focus on.” But sometimes, we often forget we have to figure out how we’re going to reach them. 

You know, there’s the TAM (total addressable market), and then there’s the percentage of that TAM that you can reach in boutiques like yours, like the one that I had, like our members. It’s not as if we have a 10,000-person salesforce that can go out and reach all these folks. 

So you started producing content and that content started getting out there. That was your reach. Instead of salespeople, you were using content as to extend your reach. And then that content was attracting people to you. That’s how it was working. Okay. Right. And that must be some great content because there’s a lot of content out there about inbound marketing in HubSpot, etc.. So how did you develop content that kind of penetrated the noise? 

How Simple Strat Brought Prospects to Their Firm Through Great Content

Ali Schwanke [00:06:26] Yeah, I think what we found is there was a lot of companies that are writing similar things. And to be frank, when you become a partner with HubSpot, they do their due diligence in helping you sort of build your business plan and your approach. But I’ll say that I’ve been in this long enough to see that at first they were encouraging you to be called an inbound agency, and then they were encouraging you to position yourself as a growth agency and now position yourself as a robot. 

Well, if you think about this, they’re telling all of their partners similar advice. And so great, we’re now in this sea of competing with each other in these same terms. And we did a little bit of analysis of the market of looking at this sort of unserved population. And that was there are a lot of things you can do in HubSpot, but the number of instances that I have seen where the first thing I say when I open up the portal is what’s going on in here. They don’t want to admit to their agency that they don’t know what they’re doing. 

And so we found if they can find content that’s very basic things like, here’s how to set up your lifecycle stages or, here’s how to have here’s how to do a portal audit. There was no content online for that because that is content you have to see. And we already had an advantage of being able to produce video tutorials. So we just leaned into that and that lesson was people, if they see your expertize online first, they trust you before you even make a sale. 

Greg Alexander [00:07:56] It’s so true. I mean, you just referenced one of the chapters in my book, and a book is a version of content marketing, and people read it. And if it resonates with them, they reach out to us and hopefully become a member. I mean, that’s how it works now. 

You mentioned video. I want to go there just a little bit because a lot of our members, I think, aren’t using video as well as they could. And these days, you know, people are consuming content on their phone. Video tends to lend itself really well to that, particularly short clips. So tell me a little bit about what you’re doing in the video bucket. 

Ali Schwanke [00:08:30] Yeah. So I’ll tell you what we did wrong first. I was a firm believer of video back when I started in 2016. I said, we need video. I hired a videographer. I had planned on selling video services to folks as well. And I’ll tell you, Greg, I think I made a whole $5,000 off of this video person. 

Mostly what they did is produce video for us. And in doing that, what I learned was two things. One, there’s two types of video. One is video that is thought out on how to do something. And then there’s video that’s entertaining and kind of what I would call rabbit hole video. You find yourself watching clips after clips, after clips. 

And so for us to go lean into that video piece was we learned that the video content that was out there, people were talking about themself a lot. They weren’t actually thinking about the viewer first. And so we said if we just create short to the point videos that were well-produced and highly searchable, I think we can win. 

So we put a small bet out. We put a certain amount of very, very low production value videos first and saw those succeed. And then we invested in a full channel and it was about six months until we saw that really kind of transact for us. But once we started getting traffic, then we started talking about how to convert the traffic.

 We didn’t  have this like grandiose thing all at once. We grew as we learned. And I think that’s one piece that makes a lot of folks nervous about video is they want to see results after two videos or three videos. And it’s a cumulative effect that we now dominate the YouTube channel for the search of HubSpot. 

Greg Alexander [00:10:00] Interesting. So a boutique like yours is the dominant player on YouTube. 

Ali Schwanke [00:10:06] If you type HubSpot into YouTube, my face will be on at least four or five of the ten results. 

Greg Alexander [00:10:12] No kidding. Wow. That’s quite an accomplishment. 

Ali Schwanke [00:10:15] At the moment. Like, let’s hope that that continues, right? 

Greg Alexander [00:10:18] Yeah. That’s a little bit of an arms race for sure. Yes. Okay. So you mentioned the next stage was learning how to convert once you started getting the traffic. And that’s a big component about defining your target market, which is what our subject is today. 

You know, sometimes we realize that we have to reach this large market and we’re going to do it through content marketing in all of its forms. And you throw the content out there and all of a sudden you start getting lots of inbound interest. But you’re catching the wrong fish. You can’t win. So how did you learn more about your target market based on what was coming to you in response to this content that you were creating? 

Scaling a Consulting Business: How Simple Strat Learned More About Its Target Market

Ali Schwanke [00:11:01] Yeah, I’m a big believer in constantly observing your audience in the way that they talk. So what a lot of teams I would  think miss when they’re looking at their total addressable market. So for instance, if I said I believe my total addressable market needs rev ops because that’s the buzzword right now. I will tell you in having conversations with sales and marketing leaders, rarely do I ever hear the word rev ops. 

And even right now, if I run a keyword search report on that, the volume is low. And that’s because it’s a word we use to describe it in the marketing industry. But the actual thing folks are looking for is, can I have a function that’s accountable for sales and marketing in my organization? So when we’re looking at the way that your total addressable market talks about their products and their needs and their pains, that’s the content to create. And then you have to sort through and say which one of those is closest to a sale? 

So in our case, if they’re having issues with their sales reporting, that’s a problem they’re looking at solving immediately. If they just want to figure out how to optimize their blogs better, that’s longer to revenue for them. And so they might not be willing to pay as much. So we focused on the content that you see immediate gain and then we’re continue like we have a next thing that we’re rolling out that helps address some of that stuff higher on the. 

Greg Alexander [00:12:23] So some of our listeners right now members are going to say, this is fascinating. I’ve never met anybody who can dominate the YouTube channel like Ali has. And it’s hard to do. And what I’m taking from our conversation is how incredibly focused you are on the client and how you’re outward in and everything you think about. 

That example of rev ops is a great one. I mean, that’s industry lingo, but the clients don’t use it. So it’s not valuable. It’s valuable to the other HubSpot partners, but it’s not valuable to the client. I have some members who say, “I don’t have time for this. You know, I’m super busy. I’m a young growing firm. And who’s got time to do this?” I’m sure your to do list is just as long as theirs. So why do you make time for it? 

Ali Schwanke [00:13:11] So I didn’t have a business that existed when we all saw each other a lot in person. Like, I definitely have been to conferences and I’ve networked and I’ve had a lot of success in that early in my career. But we now live in an environment where you don’t go to one master trade show a year and build all of your leads. We now live in a world where that’s happening every single day, and to say you don’t have time for that is like saying 25 years ago that I don’t have time to go to the largest trade show in my industry. 

And if you don’t have a mindset of value, you will not make time for it. But I will say if you do not create content based on what your audience finds valuable, and you talk a lot about this in the book and we talk about a lot about it in the Collective. If you do not create content based on what your audience is interested in and just what you want to say, it will not convert for you and you will have a failed experiment. 

Greg Alexander [00:14:04] And for those that say I don’t see a client spending thousands and thousands of dollars with me, that came through a social media channel like YouTube. What would your response be to that? 

Ali Schwanke [00:14:19] Sure. Some of this comes down to education of marketing and what it is and how it’s defined. I will say the majority of founders that I have worked with in the professional services industry, their initial perspective of marketing and marketing spend is what I would call direct response. Yeah, I have a coupon. I turn in coupon. I see that coupon led to sale B2B sales. And especially when you’re involving a human in their expertize, there is a high degree of trust. There is a lot. 

It’s actually not marketing at all. What you’re doing is psychologically driven and we are complex beings and we make decisions with our level of logic, which sometimes is zero and it’s all feeling. So if you make them feel that they’re learning things from you and trusting you, you can sell them sometimes whatever you want. That’s not a good practice, but once you gain that trust, then you are simply depositing additional coins in that bank that keeps that trust for a long time. 

Yeah, and that’s again, it’s a mindset. I will say conversion wise though, you do have to have a content offer that brings them value and actually shows a small piece of what you can actually do. It has to be tied to the overall value. And if it’s not, then it’s just a fancy download. 

Bringing Clients To Your Door When Scaling a Business: Knowing Them is Key

Greg Alexander [00:15:34] This has been a great conversation. And just to summarize, you know, Ali started and she had a really large definition of a market strategy which can mean a lot of things to a lot of people. And it was outside of her niche and then she narrowed that down by becoming a HubSpot partner. And then even within the HubSpot ecosystem, if you will, she got even tighter by focusing on a specific type of company to go after. 

And then really what I learned today, which was really fascinating, is the code that she’s cracked, if you will. She’s figured out how to reach this tightly defined market in a cost-effective way with a high conversion rate. And she’s doing that through content marketing, in particular on YouTube. And if you type in HubSpot into YouTube, I mean, she’s going to be the dominant provider there, which is quite a thing for sure. 

So, Ali, we’re at our time commitment here, but the way the Collective works is that we all contribute to the collective body of knowledge. You know, every time a member contributes, the other members benefit. And that’s the give and take nature of this. So on behalf of the membership, I want to thank you, because that was a big contribution. I learned a lot today. 

Ali Schwanke [00:16:42] Yeah, thank you. I have learned a lot from the Collective and I know other members have as well. So thank you for what you’re doing. 

Greg Alexander [00:16:48] And members I’m sure many of you are anxious to speak to Ali because if she’s doing this for her firm, she can probably do it for your firm. So feel free to reach out to her via the member portal and have a follow-up conversation with her. 

Okay. And for those that are interested in this topic and others like it, you can pick up a copy of our book, The Boutique: How to Start, Scale, and Sell Professional Services Firm. And for those that are listening to this and are not members and are interested in meeting fascinating people like Ali consider joining our mastermind community which you can find at Collective54.com. Thanks again, Ali. Take care. Ali Schwanke [00:17:24] Thank you.

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Episode 76 – How an IT Services Firm Built an Executive Leadership Team – Member Case with Matt Rosen

Matt Rosen

The quality of the executive leadership team is paramount as professional services firms grow, scale, and exit. In this episode, we speak with Matt Rosen, founder, and CEO of Allata. He shares how he structured his executive team to replicate himself, developed a succession plan, and spent time working on the vision of the future.  

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that don’t know us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. 

My name is Greg Alexander. I’m the founder, and I’ll be your host today. And on this episode, we have the privilege of talking to Matt Rosen and the leader of a company called Allata, which I’ll introduce in a moment. We’re going to talk about building a quality management team, and how he’s done that at his firm and hopefully learn a few things along the way. So, Matt, it’s good to see you. Would you introduce yourself to the audience, please? 

Matt Rosen [00:00:54] Yeah. Thanks for having me on the show, Greg. So my name is Matt Rosen, and I’m the founder and CEO of Allata. Allata is a tech consulting firm based in Dallas with offices in Pheonix, Boise, and Provo. And what we do is we help companies with their most complex technology initiatives from a strategy, architecture, development, and data standpoint. 

Greg Alexander [00:01:14] Okay, awesome. And Matt, when did you find the firm to grow? 

Matt Rosen [00:01:18] I founded the firm back in 2006. It was just myself and a developer. And now we’re over 220 people and growing quickly. 

Greg Alexander [00:01:25] It’s an incredible story. It really is. Congratulations on all that. So let me set up the topic because I asked you that question about when you founded it and where you are today because you’ve scaled so fast. And I think one of the reasons why you’ve done that is because you’ve been able to build a quality management team, and I’ve had the privilege of meeting a few of them. 

And it’s a big subject because sometimes, founders that are growing like that hit a bottleneck eventually. And that is, they’re kind of the hero within a group of helpers. It doesn’t work, you know. There’s just too much work for one person. And you got to hire senior people or develop senior people. You have to give them enough autonomy to make the contributions that they need to make, empower them to be successful. And I think you’ve done a really good job with that. 

So I’d like to start with an opening question, which is at a high level, explain to the audience kind of the organizational structure of your leadership team that reports to you by role. Maybe, I don’t know if you need to mention names, what by role? And tell me how you came to that conclusion and why you built it the way you built it. 

The Structure of an Executive Leadership Team Matters

Matt Rosen [00:02:35] So where we’re at today is I really have three direct reports. I have a chief strategy officer and she owns sales,marketing,go to market offerings as well as our partnerships. I have a chief technology officer and he’s really looking forward to the technology direction, what new trends d we should be jumping on. He’s also my personal helpdesk when I run into issues. And then I’ve got a chief operating officer, so the Office Leadership Report is sent to him. 

So I have leaders for four different groups in the company. There’s Dallas, Pheonix, Virtual and Boise, and then he’s got all our back office functions from recruiting, H.R to finance. And so really everything falls to the three of them. And underneath them they’ve got leadership structures and sales and marketing, especially at a delivery level. There’s four group leaders that almost all the consulting resources roll into. 

And then we’ve got practice lead. So for strategy, for architecture, for product and design, for technology solutions and for data, we’ve got vice presidents that head up each of those service lines, if you will, and people are really matrixed across the organization into their office leaders, as well as the practice leaders. 

Greg Alexander [00:03:51] What I find remarkable about your story is you’ve been around five or six years. You’ve grown like crazy, and yet you personally only have three direct reports. Now, I know underneath those three, they have their teams, but that’s pretty remarkable. 

Sometimes I see guys and gals like you with eight to ten , and they’re living almost miserable lives because there are not enough hours in the day. So how did you get it so tight to only three? 

A Professional Services Firm Needs Great Leaders

Matt Rosen [00:04:18] Well, you have to have really good leaders. I mean, that’s really what it comes down to. You’ve got to have people that you can set goals for. You know, I’m not a micromanager. I’m not even really a macro manager. I said high level goals, and I get the heck out of the way. I hire bright people, you know, I do have one-on-ones with the three of them. 

And I probably talk to the layer below them at least every other week. But, you know, we’ve got a real structured way in which we do a sales meeting every Monday. We do an operations meeting every Tuesday. I’m always in on those, or people are sending me a synopsis of them. So it gives me just enough information really to run the firm. And it took a while to really trust folks and hand things off, especially in the sales arena. 

That was based on one of the recommendations you made when I was early on in the Collective was, “You’ve got to stop being the hero sales guy.” That was really hard for me to let go of, but I finally have found a leader who came from a large firm, and she brought a lot of process with her and is now leading the sales team and is a very effective seller herself. 

A lot of it comes down to finding people that are great at doing the things that you don’t or can’t do well, empowering them to do their job, and staying out of their way unless they’re just not meeting their goals. They know that people are going to do things the way you do them. And that’s okay. 

Greg Alexander [00:05:27] Yep. Okay. So, awesome story. I’m really proud of you for what you did on the sale side, and it was hard for you to let go because you enjoyed it. I remember talking just. 

Matt Rosen [00:05:37] I still get involved. I still get pulled in from time to time, but I’m not actively leading sales cycles. I’m spinning them up from time to time but I’m handing them off. 

Greg Alexander [00:05:44] Yeah. And it’s tough to let go of the things that you really like to do. So that’s a great story to hear that you’re doing that. I know that your company is not for sale, but given your growth, I imagine the phone rings. And one of the things that potential acquirers are always looking at as part of their diligence is the quality of the management team. 

So if someone came to you with an offer you couldn’t refuse, you know, some crazy number that you’d be ridiculous if you didn’t take it. Do you know who your successor is and who you would hand the firm over to? Or would you plan on staying after the sale? And then if you were to hand it off, does everybody get pulled up the org chart, so to speak, so that the thing doesn’t fall apart post-sale? 

Matt Rosen [00:06:28] That’s a great question. You know, we’re not for sale. If some crazy offer came along, I would foresee myself sticking around for a couple of years to make sure that there was a smooth transition integration. Ultimately, I built this firm because I didn’t want to work for others, and know I wanted to build a firm that was sustainable and successful with or without me. 

So, you know, there definitely is a succession plan in place that we’re executing on. There’s definitely a couple of folks that could, with some training and tenure, probably step into my shoes. Nobody’s replaceable. It takes time for them to grow into the role. 

And what we’ve got is a really good mix of people that were career consultants and a mix of people that were in the industry. I had a lot of clients that were VPs about those that I was going to work for me. You’ve got this really nice group of leaders that have either consulted their whole careers or sat on the side of the desk of those that we’re selling to. That adds a lot of credibility when working with clients. 

How Professional Services Firm Owners Can Leverage Executive Leadership Teams to Their Advantage

Greg Alexander [00:07:25] Awesome. Glad to hear that. Sometimes when I talk to members and I suggest that they do what you’ve done, I hear particularly from maybe the younger firms, those that haven’t reached the scale that you’ve reached. They say, “Well if I have all these people that are going to do all this stuff, what am I going to do?” Which I tell them, “Hold on, you know, you’ll have plenty. If things go well, you’ll never ask that question again. There’s going to be too much to do.” 

So now that you have put this great team in place and you’ve elevated yourself, what do you personally spend your time on? 

Matt Rosen [00:08:01] You know, I spend my time thinking about where we need to head next. From a company’s perspective, what geos we might want to go into, what offerings we might want to have. I spend time visiting with a lot of our larger clients and spending time with them just understanding what’s important to them. Like a lot of them are my close personal friends. I spend time talking with leaders as they need, you know, strategic advice. 

You know, they might call me and say, “Hey, we’ve got this situation. What do you think?” And they run things by me, you know. By putting this great leadership team in place, it allows me to actually get out and, you know, play a round of golf every now and again, which I hadn’t done in about 20 years. 

So that’s kind of nice fun that, you know, folks like you or, you know, clients that like to get out there as well and enjoy a walk ruined by golf. But, you know, there’s always things you can be working on, looking for ways to make the firm better or, you know, taking leadership courses. 

Um, you know, doing interviews such as this, and really being a thought leader in your space as well as looking for how can you grow the firm maybe through M&A. So we’re actively talking to a couple of companies that might be accretive and be good partners for us as we grow. 

The Importance of Letting Go When Building a Leadership Team

Greg Alexander [00:09:10] Yeah. So listeners what we just heard there is that Matt spends his time on the business, not in the business, spends a little time in the business in the right spots, but he has a team that’s doing that for him. So he’s pursuing the vision, the future. And unless somebody is dedicated to that vision, the future, it never happens. You are just constantly in reaction mode. 

Matt is being proactive now and he’s leading. He’s not managing. There’s a difference between managing and leading. And what we’re hearing from Matt today is he’s leading, which is a great role model for all of us to follow. Got one more question regarding the management team and the structure in particular. 

I know when I went through this process that you have gone through the thing that I was less willing to give up and I clung to the most, which was a flaw, and I didn’t do it the right way. This was a mistake. It came to investment decisions when money was going to get spent. I held on to this money like it was my first communion money. I was unwilling to let anybody, you know, make those decisions other than me. How is that handled in your firm? Do you approve all expenses or do people have authority to do these types of things? 

Matt Rosen [00:10:23] So in this, I would say over the last twelve to eighteen months, we’ve moved to a budget. As long as people are spending what’s in that budget, there is not a problem with it. In fact, they put the budget in, in some respects, to control me from spending too much on different things. 

Greg Alexander [00:10:36] But the budget was for you. 

Matt Rosen [00:10:38] So that was actually from a year ago. But we’re doing a good job and you know, we’re performing ahead of plan as a result of it. So, no, you know, again, that comes back to empowering people. I mean, the only thing I’ve not given up is, you know, I’m the only one that sends wires. 

But other than that, people have corporate cards, they have budgets they can spend on what they need, we have a good controller, you know, authorizes money to go out. And so most of that I’ve given up and people make a lot of decisions where we spend that budget that’s been allocated without my involvement. 

How Does Allata Create a Budget for its Professional Services Firm?

Greg Alexander [00:11:10] Yeah. Interesting. That’s really inspiring. In the budget process,  it sounds like this is a relatively new thing, let’s say, in the last couple of years. So how do you guys create the budget? Is it done once a year? Is it done at the beginning of the year, or the end of the year? How does all that work? 

Matt Rosen [00:11:26] Yeah, it gets done, you know, as the year is wrapping up. So towards the end of 2021, we set the budget for 2022. You know, we reviewed it with the group leaders. You know, we had them put in things that they wanted. We were meeting with sales and marketing and the, you know, the practice leads and everyone kind of put in their wish list, and we kind of whittle it down to what we thought we could spend in addition to where we think we could achieve from a revenue top-line standpoint. 

And so we review it monthly, we do at the end of each month kind of a financial review, see how we’re tracking. And you know, if we’re doing ahead of plan, we might spend more on certain things or make more investments in certain areas. But the big you know, the big thing for 2022 is making sure we’re focused on EBITDA, building a sustainable organization and, you know, spending where we need to and not spending where we shouldn’t. Yeah. 

Greg Alexander [00:12:17] It’s great that you review it monthly. It’s kind of like a variance-to-plan type meeting. 

Matt Rosen [00:12:22] Absolutely. We go through line by line in the major categories, see where we are under, and see where we are over. And you know, we adjust as necessary as we go into the next month, and at least for January, we’re on track. We’ll see how we’re doing for February next week. Yeah. 

Greg Alexander [00:12:36] You know, the hardest part about budgeting for me was the forecasting part of it. You know, it’s easy to look at what’s happened and you can do the variance to plan on that. But then if someone says, “Hey, what’s going to happen in six months?” 

It’s tough because professional services can be a little lumpy. And, you know, it’s not as much forward visibility as we might like. Have you implemented any type of forecasting system that sits on top of the budget that predicts the future? And if so, how’s that going so far? 

Matt Rosen [00:13:02] You know, it’s really a combination of two tools. You know, we’ve got a CRM tool, as most organizations do, and we try and put it in as much as we know. We’ve got, you know, kind of a four-stage sales process and just waited. So, we’ve got that, kind of that weighted pipeline. And we’re always trying to have 2 to 3 X or revenue plan and we do pipeline. It never turns out to be that much because we tend to be a little bit conservative, but we have that weighted forecast of all the deals that are in the pipeline, what’s coming as well as our forecast of what we think clients are going to do between now and the end of the calendar year. 

And then we invest in a professional services automation tool that allows us to see weekly how we’re tracking a plan, making sure hours are up to date. We also have some modeling scenarios where we can figure out, you know, based on the people we have available, you know, what type of team can we put together, what’s their profitability? Because for the longest time we only understood margin at a company level. We didn’t understand it at a project or client level. 

And now we have that visibility and that visibility is allowing us to make smarter decisions. You know, I think about consulting hours. It’s like bananas. They spoil at the end of each month. So you’ve really got to manage them tightly and ensure that you’re watching them and leveraging them and try not to leave anything behind. Yeah. 

Greg Alexander [00:14:15] Question on the PSA platform, which I’m so glad to hear that you’ve installed. I’m a big advocate and I think it really helps, particularly on those two items, project and client level profitability and managing that inventory. What advice would you have for younger, smaller firms on when it’s appropriate to progress to the point where you would install a professional services automation tool? 

Matt Rosen [00:14:41] When the Excel spreadsheet starts breaking. 

Greg Alexander [00:14:44] Which happens early. Yeah. 

Matt Rosen [00:14:48] It was probably better. My team had to push me for years and I don’t mind mentioning the tool. We were able to cut a pretty good deal with them and they had professional services that helped us implement it. The challenge is you do have to take someone senior and have them help line your  implementation. 

So it is an investment, one that I had to be pushed on for a while. I should have done  that sooner. We probably would have actually been a bit more profitable. I probably waited a year or two too long. But now that we have it and we are seeing returns from it, we are capturing time that we weren’t previously. 

It’s allowing us to model up skill sets and understand where we need to be investing. You know, it probably is something we should have done two years prior and my team pushed me for it, but I held off because I wasn’t ready to make the investment. But I’m glad they finally pushed me to do that. That mix of harvest and spreadsheets was no longer getting the job done for 200 plus people. 

Greg Alexander [00:15:44] Yeah, exactly. Well, listen, man, you’re absolutely knocking it out of the park. I mean, every single thing you’re supposed to be doing to be on the business and scaling the business is working really great. And your results back it up.

And I want to, on behalf of the membership, just thank you publicly. This is a big contribution. You’re a role model for many. And hearing your story and how quickly you’ve gotten to this point is an inspiration. So thanks for being on the show. 

Matt Rosen [00:16:10] Yeah, thanks for having me on the show, Greg. Appreciate it. 

Greg Alexander [00:16:13] All right. And for those that are interested in learning more about this subject, building a quality management team, and others like it, pick up the book. It’s called The Boutique: How to Start, Scale, and Sell a Professional Services Firm. You can find it on Amazon. And for those that are listening that want to meet really bright professional services owners like Matt, consider joining our community. You can find it at collective54.com. Thanks again, Matt. Take care. Matt Rosen [00:16:36] Thanks. Take it easy.

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Episode 75 – How a Consulting Firm Leverages Specialists to Increase Scale – Member Case with Cynthia Klint

Cynthia Klint

The engagements you sell determine your market position and the team needed to deliver your service. In this episode, Cynthia Klint, CEO at BRC, shares how she leverages specialists to deliver client engagements and increase sales. 

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that aren’t familiar with us, Collective 54 is the first mastermind community to help you grow, scale, and exit your firm bigger and faster. 

My name is Greg Alexander. I’m the founder, and I’ll be your host today. And on this episode, we’re going to discuss engagement type and how that drives the type of firm you become. And we have a member with us today. Her name is Cynthia Klint. Cynthia and I are going to have a discussion regarding this subject. Cynthia, it’s good to see you. Thanks for being here. 

Cynthia Klint [00:00:52] Sure. Happy to be here. Thanks for inviting me. 

Greg Alexander [00:00:54] And would you provide a proper introduction of yourself and your firm to the audience, please? 

Scaling a Business: Member Case with Biodynamic Research

Cynthia Klint [00:01:00] Sure. As you said, my name is Cynthia Klint. The company that I work for goes by BRC, but the long name is Biodynamic Research. We’ve been in business for about 36 years. I’ve been with the company for 23 of those years. And what we do is we help people understand how injuries happen. And we do that by answering two questions, primarily in a litigation setting. The first question is, did an injury occur, and if so, how? 

Greg Alexander [00:01:29] Wow. That’s a fascinating field. I can imagine the litigation services around that for sure. I hope no one’s ever asking me that question. I hope I never say yes that an injury occurred. 

Cynthia Klint [00:01:41] When people say they haven’t heard of us, I always tell them that they should be glad. It means they’ve probably never been in an accident that required litigation. 

Greg Alexander [00:01:50] Alright. So for context, who is the typical client? 

Cynthia Klint [00:01:57] Primarily, our clients are attorneys. Okay. Although we do work directly from time to time for individuals or insurance companies. 

What Are the Types of Engagements When Scaling a Consulting Firm?

Greg Alexander [00:02:05] Okay. Got it. Okay. So let me set up today’s conversation. Generally speaking, and I admit I am oversimplifying here, but in the time that we have, that’ll work. There’s kind of two types of engagement. 

There’s what I call elephant hunting, and that is a really big engagement. And, you know, they could they could last months, if not years, and cost hundreds of thousands, if not millions of dollars. And firms that have those types of engagements tend to have, relatively speaking, a smaller number of clients. But each client spends a lot of money, and that’s one style of firm. 

In contrast, theother type of firm, which I call rabbit hunters, are firms that do small, quick, inexpensive engagements. But, they do them in volume. And they tend to have lots and lots and lots of clients, but each client only spends a little. 

And the important thing here is to understand what type of engagements you’re selling and, therefore, what type of company you’re becoming. Because in the end, we become who we serve. And I would suggest that scaling a business is easier when you pick one or the other, and it becomes more difficult when you try to do both. 

I’m not saying one is better than the other. I’m just advocating for picking one over the other. So, Cynthia, given my oversimplification, if I was to force you to put yourself in one of those two categories, which category you in? 

Cynthia Klint [00:03:41] It’s a really tough question to answer. And like several members has said that the yes/no is a tough question. I’m you know, I thought about this a lot. I went back and reread the chapter. And if I had to be forced to pick, I would say we’re more like the rabbit. Okay. The both of our cases tend to be quicker turn, lower revenue. But quite frankly, we’re a combination of the two. 

Greg Alexander [00:04:12] You are. Okay. And and that’s okay. I mean, you’ve been in business for 36 years. Obviously, it’s working. Right. So if you have both styles in the firm. Is it true or false that it is  difficult to manage and difficult to scale? 

Cynthia Klint [00:04:35] It is true. I think it certainly complicates the way that you manage the different clients and the way that you manage the logistics in supporting those different clients. 

Greg Alexander [00:04:49] Yeah, and that’s the real challenge, right, because… 

Cynthia Klint [00:04:51] Absolutely. 

Greg Alexander [00:04:52] You have to staff these projects, right? And and it’s a different staffing model, usually in the rabbit space, if you will. A single person might have many, many, many clients. So therefore, he or she is only spending so much time with each client. It’s just mathematics. 

On the other side of it, you know, if you’re in the elephant business, you might have one or two clients and you’re spending a ton of time with those one or two clients. So when you say logistically, it’s difficult to manage, is that what you’re referring to? Are there other logistical items? 

What Difficulties Can You Face With These Engagement Types?

Cynthia Klint [00:05:27] So in litigation, you’re probably familiar that, you know, litigation can drag out for a really long time. And most cases, I would say the desire is to move toward some sort of settlement. And that’s why I say that the bulk of what we do is is really the smaller cases or the quick return cases. 

Logistically, what’s difficult is really maintaining the ability to manage the longer term cases because like you said, we have some cases that literally have been our books on our books for 20 years. But most of them are shorter. 

And one of the things that’s happened in litigation is there’s a push toward a quicker turnaround. And that’s something that we’re really working toward being able to manage because you have to staff or have processes that support. The same client can bring you a rabbit case and an elephant case. 

Greg Alexander [00:06:30] Oh, really? 

Cynthia Klint [00:06:31] And so the thing is, you want to be able to say yes, regardless of the turnaround time. When they come to us, it’s because they need our help. They need us to help clarify what’s happening. Yeah. And so we want to be able to do that objectively, accurately, but we sometimes need to be able to do that quickly. 

So, from a logistics standpoint, it’s about the processes, the staffing, and calendar management. We’re driven by court deadlines. So our deadlines are very much on the outside. And so we have to be in lockstep with our client to make sure that we can meet the deadlines that they’re really subject to. Does that answer your question?

Greg Alexander [00:07:17] In fact, I have several follow up questions, if I may. So now I know why you have both because you have one client that can bring you two scenarios. And I mean, what are you going to do? Tell that client no. Of course not. Right. 

So you have to be responsive to that client’s individual needs. So my follow-up question would be: Does the client understand that what he or she is asking for is two different things? And is he accommodating, or do you have to educate? 

Cynthia Klint [00:07:47] So again, I hate to sound like a lawyer, but yes and no, because they do understand. But oftentimes our clients are under the gun as well. And so they may understand, but it doesn’t change the fact that they need us to help them in that situation. 

And so they often are very accommodating. They work with us. They do their best to create timelines that make it possible for us to do a thorough job, which is something we always want to do and always strive to do. So, they do understand. They do work with us, but sometimes they have no control over that deadline. 

And so, you know, we are here to provide the best answers that we can, not necessarily the answers that they want, but the best answers that we can with the time and the information that we’re provided. Right. 

Greg Alexander [00:08:41] You know, for the listeners, this is a very unusual case. And I’m so glad that we’re on the call today because it’s a rich learning experience. Normally, in normal situations, it’s much easier because there’s a certain type of client, maybe a Fortune 500 company, and they’re only going to do the big projects. And then there’s another type of client, the small business, and they can do small projects. 

And in Cynthia’s case, it’s one client with two different needs. And what makes it even more complicated is that the timeline is dictated by the court’s deadline. It’s not dictated by the project team, and it’s not dictated by the client. It’s dictated by an independent third party. 

And boy, I would imagine that makes it rather stressful. Like, does the working backward from that timeline and that deadline being outside of your control, how do you scope work? 

Scaling a Consulting Firm: How Does Biodyancmic Research Scope Work?

Cynthia Klint [00:09:31] Well, being in business this long, we’ve gotten pretty good at it. So, you know, there’s several components that go into our work product. So ultimately, the work product is the objective opinion of the expert. You know, we employ physicians with engineering degrees as well as accident reconstructionists who are engineers. And so, again, their goal is to understand what happened not only in the accident or in the incident, but what happened to the person. 

And so we’re getting different kinds of materials, legal documents, medical documents. You know, sometimes if there’s a product involved, we may be getting product information. And so what we’ve done is, is really the model that Collective 54 promotes, which is leveraging. 

We have specialists in each of those areas, and so we have nurses who will go through and organize the medical records to make it more efficient for the experts. We have paralegals, so that do the same thing with legal documents and so forth. So scoping, it really is about understanding the volume of the materials and then being able to apply our experience, knowledge, and determine for the client what our timeline looks like. 

And it can be variable because if you have something that, for example, if you have a case with a long medical history, you can have thousands and thousands of pages of medical records that have to be dealt with. And so, our goal is to take our experience and really apply it to that and give the client an understanding of what the timeline can be and what the cost may be as it relates to that. 

How This Consulting Firm Matches Revenue with Expenses

Greg Alexander [00:11:09] Now, with this group of specialists; paralegals, the nurses, the engineers, it’s a fascinating story. I had no idea this existed. It’s really intriguing. Well, maybe I have another question. I was going to ask, How do you match revenue with expenses? 

Because the way it normally works in pro serve is you get a project and it’s worth X amount of dollars. You staff it and that’s your cost and the deltas, your profit. Do you know what the revenue is or are you waiting for the settlement? How does it work? 

Cynthia Klint [00:11:44] So that’s a great question, Greg. We are not on a contingency basis because we are objective. So we’re hired to look at something very objectively. And it is irrespective of the outcome. So we don’t really have a dog in the fight, so to speak. 

Our job is to come in and really give insight and clarity and educate the client as to what happened so that they can make a decision on how to proceed with their case. And sometimes the answer is not what a client may want to hear. And it’s still our job to share that information because that’s helpful information as they make decisions. 

Greg Alexander [00:12:19] Right. 

Cynthia Klint [00:12:20] So the way that the revenue is, we build time and materials  and so we will bill on a monthly basis. 

Greg Alexander [00:12:29] And with these specialists  I mentioned, the nurses and engineers. What was the third one I mentioned?. Paralegals. Excuse me. Are they, you know, I think in senior, mid-level and junior staff and I think about associated cost and rates for that, is it that simple or is it more complicated in your scenario? 

Cynthia Klint [00:12:50] So it actually has several more layers than what you’ve described. So we have our physicians with engineering degrees and that’s really \the most client facing role. So that is the expert that the client is hiring. And so they are the person who is providing consultation and giving an opinion and that kind of thing. 

In that role, they’re acting as what we call biomechanics. So what happened to the person? We also have the engineers and those we have various levels of. Let me back up. The physicians, we have various levels based on experience. One of the big components in an expert’s career is obtaining experience in a testifying situation. 

So giving an opinion is one component, but testifying is another component. And the more senior you become, the more testifying history you build, the more in demand you are. Because you’ve proven that not only can you come up with an objective opinion, but you can communicate that to a jury, a judge or a client. And so the more senior you are, you have a higher billing rate. 

And then we have that same model in our engineering group. Same thing. So the engineers are looking at the vehicle dynamics. So not so much the application of the forces to the body, but more how does the vehicle move? How do the forces apply to the body? And so we have different levels there. 

The staff, the support staff, the paralegals, the nurses, other groups that we have that support. We have a technical librarian and we have a test facility. We have a group that we call the Technical Resource Group. So all of these work in support of these two groups, the physician, and the engineer. And they’re all at a fixed rate by department. 

Greg Alexander [00:14:42] Okay. And that’s how you drive your leverage model. Is through those tiers? 

Cynthia Klint [00:14:49] Yes, absolutely. And the goal is always to get the client the opinion in a way that is least costly to them. Yeah. Because you have a physician at their billing, right. Organizing all the materials. But that doesn’t seem like a very good use of their time or cost. 

Scaling a Business: Engagement Type Determines the Type of Firm You Are

Greg Alexander [00:15:07] Right. Very good. Yeah. Okay. Well, very good. Well, let’s conclude here. So today we were talking about how the type of engagement you market and deliver determines the type of firm you are. And we had a very real case here because it’s not as black and white as we would want it to be. And Cynthia’s thought about this a lot. 

And what I find fascinating about her case as even though it’s a blend, they have figured out a leverage model and they’ve done it through two things: specializing their labor force and working backwards from the client’s need so that they get the client what they need with the right level of investment and money and time. 

This is a really interesting case and I’m not surprised your firm has been around as long as you have. That’s a really specialized service. So, Cynthia, thank you for being on the show. It was, it was wonderful to have you here. 

Cynthia Klint [00:16:01] Thanks. Thanks for having me. 

Greg Alexander [00:16:03] Okay. And for those that are interested in this topic, the engagement type and those like it can pick up a copy of the book, The Boutique: How to Start Scale and Sell A Professional Services Firm. You can also find it on Amazon. I’m proud to say we just hit number one in our little niche category. 

And then for those that are interested in meeting leaders of professional services firms like Cynthia, consider joining our mastermind community, it’s collective54.com. Thank you. And Cynthia, have a good rest of your day. Okay. 

Cynthia Klint [00:16:33] Thanks so much. Greg Alexander [00:16:34] All right. Bye bye.

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Episode 74: How a Demand Generation Agency Scaled Its Company Culture With a Remote Workforce – Member Case with Bart Bartlett

Bart Bartlett

The cultural fit of employees, clients, and potential acquirers are all critical to the success of the professional services firm. In this episode, Bart Bartlett, CEO at DemandZen, shares how he instills the core values of the firm within his remote team.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that don’t know us, Collective 54 is the first mastermind community to help you grow, scale, and exit your firm bigger and faster. 

I’m the founder, Greg Alexander, and I’ll be your host today. And on this episode, we’re going to talk to Bart Bartlett from DemandZen. And today, I’m going to talk about culture fit. So, Bart, welcome to the show. 

Bart Bartlett [00:00:45] Thank you, sir. 

Greg Alexander [00:00:46] Good to see you. If you wouldn’t mind, introduce yourself and your firm and tell everybody what you do. 

Bart Bartlett [00:00:55] Sure. So I’m Bart Bartlett, the CEO, and co-founder of DemandZen. We focus on the top of funnel demand generation for B2B tech companies and have done so in one form or another since about 2004. 

Why Culture Fit is Important When Scaling a Business

Greg Alexander [00:01:08] Okay, fantastic. So today we’re going to talk about culture fit. And this is a very interesting subject because as a firm grows and scales, particularly at the exit, and if they’re going to merge with somebody, culture fit, underlining the word ‘fit’ becomes a really big deal. Now, why is that? 

Well, according to a recent article in the Harvard Business Review, somewhere between 70-90% of acquisitions fail. And they cite the reason why they fail is a misalignment of cultures. And then there has been quite a bit of research from the great consulting firm McKinsey on this very subject as well. 

So we’re going to try to unpack this. And when we try to apply the word culture fit not only to an acquisition strategy, whether you’re the buyer or seller, but also on your journey up to that point through the growth and scale stage. 

And I want to start Bart, I’m going to use the ten question checklist in the book here to guide our conversation. And I want to start with question number two, which is: Does the founder’s origin story shed a light on the boutique’s culture? 

So I know a lot about your origin story, and I won’t ask you to recite it here because it’s a long and very interesting story. But let’s focus on whether or not it does shed a light on your culture. So describe DemandZen’s culture fit and tie it back to the origin story. 

Bart Bartlett [00:02:31] Sure. So our culture is really driven by core values and I’m stepping on my words cause I’m not used to having it here, so. And we basically make those a part of the interview process, a part of the onboarding process. And I would say a part of the ongoing process. Right? 

So we try and be values driven as an organization. Iin terms of how that came from our origin, DemandZen basically we merged two other companies. And it’s been almost eight years ago now. And at that point we had about seven people. And after about six months, we basically just surveyed everyone and said, “what’s important to you both personally and professionally?” 

And we synthesize that into our core values, and then we just try and run the business in line with those values, whether it be recruiting or how we interact with customers or the clients that we think we can do the best work for versus clients that we may need to let go. Right. It’s all just sort of values-led. 

Greg Alexander [00:03:36] Okay. And eight years ago, you merged two companies, still a small firm at that point, seven people. Again, what are you guys out now in terms of number of employees? 

Bart Bartlett [00:03:46] We’re at about seventy-five employees. 

Greg Alexander [00:03:48] Okay. So a ten X scale in approximately seven, eight years. And so the culture is going to get challenged when you go through that type of growth. Let’s first talk about when you brought those two companies together. 

Was there a culture fit when you merged them or did the culture need to be adapted to merge the two companies together? 

How DemandZen Built a Culture For a Remote Workforce

Bart Bartlett [00:04:09] So in this particular case, I worked with the prior company as a client across three different startups. So I was pretty familiar with the organization that I was merging into. And on my side, it was just me and an employee, right? So it wasn’t a large company per say. Yeah. And there were maybe five people in the prior company when we merged. So I would say we were reasonably familiar with each other. 

Greg Alexander [00:04:36] Okay. So it was an easy fit because you’d had a prior working relationship. Okay, great. So then everything’s values-driven, which I love. Maybe share a few examples of what your values are now. 

Bart Bartlett [00:04:49] Sure. So first and foremost, we’re results-driven just as a performance-based marketing agency, we have to be. But we also focus on solving problems. That’s essentially what we do for clients is help them solve their demand generation challenges. 

But we also just when we talk to our employees, we’ve been a remote organization for a long time. So we just explain that if you can figure something out for yourself, you know, just Google it. Spend a couple of minutes trying to understand it, and figure it out that that process is a lot more efficient for the business. 

Greg Alexander [00:05:22] Yeah. Sometimes I’m fascinated by the concept that you were remote before all of us were forced to become remote and you ten X’d your employee headcount being remote. 

I hear from members at times that cultures fall away or fall apart when trying to scale a business as much as you have remotely. And you clearly are proof that that’s not true. Did you have to do anything differently given the remote nature of your workforce? 

Bart Bartlett [00:05:47] Well, I would view it more as I’m proof that you can make every possible mistake in the book and survive it while scaling culture and  a business. So, you know, we had to learn to do a lot of this stuff via trial and error. 

There’s a lot of ways you can support disseminating culture remotely. Right. So one, you know, we get on the phone, the senior team gets on the phone with new hires as part of their onboarding process and says, these are our values. This is the story. This is where each of the values comes from and why we think it’s important to the business. You know, we effectively have  to prioritize communicating around our values. 

We also use a micro bonus platform called Bonusly so that anyone in the company can give anyone else a bonus in line with core values at any time. So if you think about it, it’s like a network effect. 

So the more employees you have, the more micro bonus thing you’re doing in line with core values. And then that all goes into a Slack channel. So yeah, so our core values are basically emphasized by our employees all day, every day. 

Greg Alexander [00:06:54] Okay. So I want to make sure I understand that because that’s an innovative way of driving values into the business constantly. So let’s say you and I are employees together at DemandZen. I notice you living the values in some way. You did something that was evidence to me you were living the values. So through Bonusly, I nominate you for a bonus. I award you a bonus. How does it work? 

Bart Bartlett [00:07:15] You award a bonus. You would say, “I’m giving Bart ten Bonusly points.” We call them Zen bucks, I think. And you know, so you get ten Zen bucks for awesome performance or, you know, essentially solving problems or being flexible. 

Greg Alexander [00:07:32] That’s really cool. 

Bart Bartlett [00:07:33] Yeah. 

Greg Alexander [00:07:35] What I like about that is its bottoms up as opposed to top-down. It’s the employees reinforcing the values themselves as opposed to being told to do so by the leadership team. Interesting. 

Bart Bartlett [00:07:44] Well, yeah, we effectively try and come from both directions. Right. Like, I realize it was really important for us to communicate the values as part of the onboarding. So I knew it was in recruiting and I knew it was in training. But essentially, as you come to the end of your first week in training, you’re talking to the three senior managers of the company about the core values and where they came from. 

Greg Alexander [00:08:04] And when you’re in a job interview and you’re assessing someone’s fit, their cultural fit. You know, they’re going to come into the company and fit in and be able to live our values. It’s a tough thing to do in a job interview, but clearly you’re doing it. So how do you incorporate your values into your screening process? 

How to Incorporate Culture Fit and Company Values into the Interview Process?

Bart Bartlett [00:08:24] Well, I would say we do it to the best of our abilities, right? So we communicate the values early and often. We talk about how they’re expressed in the business. And I would say we also try and sort of challenge people a little bit through the interview process to just see if they’re going to fit. 

Greg Alexander [00:08:45] Yeah, you know, in my old firm, we had a very, very thick culture. And at times it was a strength of the times and other times, it was a weakness. We would attempt to do what you’re doing, which is screen for values and cultural fit during the interview process. 

But sometimes we’d make a mistake and a new employee would join. And then the system just rejected the new employee. Like within the first thirty or forty-five days. It was just obvious to everybody, including the new employee, that it wasn’t a good fit. And we had a lot of infant mortality. 

And I look back on it now and I’m glad because it actually helped us. But at the time it was very painful and it caused a lot of grief because we were growing quickly and we needed capable staff to do the work. Are you experiencing something similar to that? 

Bart Bartlett [00:09:30] Oh yeah, absolutely. I wouldn’t say it happens that often, but there are definitely situations where we have employees and we’re like, you know, they’re a decent employee, they’re a good person, not a cultural fit. And sometimes it’s hard, right? 

Like you just, you know that they can’t stay with the organization. I mean, what we try and do is give them coaching and kind of show them where some of the gaps are and then, you know, see if they can make that adjustment. It’s very difficult, right? 

It’s like to some extent, a lot of these things are driven by personality and just that is their approach to communication and it’s hard for tigers to change their stripes when they don’t necessarily want to. 

Greg Alexander [00:10:13] So even if someone is productive, and a good person and all that…I mean, has no ethical challenges, but if they’re not a cultural fit, then you part ways with them anyways, even though they can do the job. 

Bart Bartlett [00:10:25] Yeah. 

Greg Alexander [00:10:26] Yeah. Interesting. That’s a strong commitment to the culture fit. I applaud you for that. Okay. So as you scaled from your seven people to your seventy plus people and you scaled the culture, sometimes I see a few things at work there. 

Legends, cultural legends. So people that were on the journey and they become role models that others look to. And also artifacts, you know, things that are present, that are almost physical reminders of what the culture is. Now that might not be the case with you, given the fact that you’re remote. But let’s talk about each one of those. Do you have kind of DemandZen legends, you know, people that others look up to? 

Legends and Artifacts: Why They Are Important for Culture Fit

Bart Bartlett [00:11:08] I would say we do. But they’re more among the employee population. Right. Like we’ve got senior callers who’ve been with us for six or seven years. And so a lot of that experience comes from, I would say the senior team members. So we sort of have probably fewer founder-led legends. We probably do have more artifacts than you would otherwise expect. 

Greg Alexander [00:11:34] So tell me a little bit about that. 

Bart Bartlett [00:11:37] So we I mean, we realized that to make core values effective, they need to be sort of obvious and repetitive. So there’s DemandZen core value coffee mugs, there’s the DemandZen core value t-shirt, there’s the DemandZen core values screensaver and. 

Greg Alexander [00:11:56] And you found those things to work. 

Bart Bartlett [00:12:00] Well, you know, it’s like marketing, right? We make the impressions. I don’t know if we can truly measure their effects, but yeah, I’d say most people in the company have a pretty idea what our core values are. 

Greg Alexander [00:12:11] Yeah, for sure. And they’re proud to wear the DemandZen t-shirts and drink out of the DemandZen coffee cups and all that. And it’s in you know, it’s a great example. It’s never one thing, you know, it’s the, it’s the accumulation of many, many things that reinforce a culture. 

Okay, very cool. Let’s extend culture. I guess this would be my last line of questioning if I’m moving down the checklist here. Now, extend the culture fit to clients. Are there, is it obvious that there are certain clients that are going to be good clients because they align with your values and your culture? And is that part of how you select clients? 

Is Company Culture Important When Selecting Clients For a Professional Services Firm?

Bart Bartlett [00:12:46] Well, I would say it’s a part of how we choose which clients we want to retain and renew. 

Greg Alexander [00:12:53] Interesting. Right. 

Bart Bartlett [00:12:54] And it’s a complicated dance. So essentially, you know, we have clients who do not communicate effectively. 

Greg Alexander [00:13:03] Yeah. 

Bart Bartlett [00:13:04] And they may be super vehement about how they communicate and how they approach us. Right. But that might not be a fit for just how we do business. And so with those clients, you know, it’s challenging. 

One of our cultural values is being open and honest. So we try and ask the right questions and present alternatives in working with clients. But if they just won’t bite on any of that, they’re probably not a good fit for us. 

Greg Alexander [00:13:36] And it makes it tough to be successful in that setting. I mean, you guys do things a certain way and not that you’re not flexible, but like a basic requirement is communication. And if the client’s not going to communicate, it makes it really hard for you to do your job. Yeah, that’s interesting. Have you ever fired a client because of that? 

Bart Bartlett [00:13:59] Yes. 

Greg Alexander [00:14:00] Wow. That takes a lot of courage. 

Bart Bartlett [00:14:03] Well, we kind of just have to do it right. Like, if you don’t, if you have clients that are continuously challenging and how they interface with your team, at some point, you got to make a choice. Right. 

And we deal with a lot of early-stage startups, right? Yep. So there’s a lot of founders. There are a lot of senior team members who feel incredibly strongly and passionate about what they do. And, you know, I tell people DemandZen is my startup, right. I’m pretty familiar with that mindset. 

But you have to be able to express it in a way that’s healthy for your partners. And if it’s not, then then we just have a choice to make. Right? Do I want to keep the employees who I think are really good at what they do? Or this client who is being an ass? 

Greg Alexander [00:14:47] Yeah. Yeah. Because the employees that are on that client are having a miserable experience. And if you don’t do something about it, you’re going to lose them. Right? Yeah. 

Yeah. That’s great advice. Well, listen, I think we’re at the time window where we try to keep these things short. But today we talked about cultural fit with Bart Bartlett from the DemandZen. And Bart, you’re a great member. I love having you in the group. You shared lots of wisdom with us today. I appreciate it very much. 

Bart Bartlett [00:15:11] Thank you for having me. Greg Alexander [00:15:11] All right. Okay. For those that are listening to this, if you want to learn more about this subject, culture fit, and others, you can pick up our book, The Boutique: How to Start, Scale, and Sell A Professional Services Firm, which I’m proud to say just became an Amazon bestseller in our niche. And if you’re interested in joining our mastermind community, visit us at Collective54.com. Thanks again, Bart. Take care. Cheers.

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