Episode 31: The Boutique: 5 WAYS TO REMAIN RELEVANT TO YOUR CLIENTS

Scaling a boutique requires creating new service offerings. Firms that keep bringing the same thing to clients, over and over, stall out due to client fatigue. Building a system to continuously listen to clients and develop new offerings is key.

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that to scale a boutique, it is required to develop new service offerings. Firms that keep bringing the same thing to clients over and over stall out due to client fatigue. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg took his firm from one offering at launch to 100 offerings at Exit. Greg, good to see you and welcome.

Greg Alexander [00:01:13] Sean, it’s good to be with you today. I look forward to today’s episode.

Sean Magennis [00:01:16] Greg, the other day, we were meeting with an entrepreneur who was inquiring about growth capital from Capital 54. Her firm is nine years old and she asked you how you broke out of the complacency trap. You answered her by saying, we went from a one hit wonder to a firm with a greatest hits album. Can you explain to the audience what you meant by this?

Greg Alexander [00:01:43] Sure. So I launched SBI in 2006 with one service offering. It was a methodology to interview and hire salespeople. It was a hit. It got me on the main stage keynoting the INC 500 show, got me on TV and on the bestseller list. It generated lots of clients and it got me in the door of top companies. As we began servicing clients in this niche, we noticed our clients had other problems. For example, you could hire a great salesperson, but if you did not train him, he would fail. We would bring this to the attention of the client and because they trusted us, they acted on it. Unfortunately, at that time, this meant they hired other consulting firms who specialized in that problem area. I felt this was revenue that was rightfully ours as we identified the need. Yet we did not have service offerings in these areas, so we missed out. This prompted me to build a system to continuously listen to clients and develop new offerings. This significantly increased our addressable market and was a main contributor to our future growth.

Sean Magennis [00:02:55] Excellent, Greg. And when you say we built a system to continuously listen to clients, what do you mean?

Greg Alexander [00:03:02] Yeah, we did five specific things, and I’ll walk you through each one because this will be helpful to the audience. So first we created a client advisory board. This consisted of a mix of current and past clients. We met periodically through the year whereby they told us the problems they were having, their priorities and goals, and described for us the solutions that they were looking for. Number two, we created a post project review process. In practical terms, this meant we did an autopsy on project objectives, timelines, profitability, budgets, deliverables and adherence to our SOPs. This often led to ideas for new service offerings. Number three, we initiated a client satisfaction program. This consisted of sending client personnel a questionnaire from time to time. And some of the questions were defined to get input on our product roadmap. Number four, we obsessed over our win loss program. After every sales campaign, the client told us why we won and the client told us why we lost. This was a treasure trove. Often we lost because we lacked the capability the prospect wanted. We immediately built that capability and watch the close rate improve as a result. And number five, we sent the team to conferences and these were not conferences for our industry. The sales effectiveness industry. No, we went to the conferences our prospects and clients went to. We would deconstruct the speaker decks, the agenda, the trade show floor, the sponsors. This told us where the market was heading. It told us what our clients were focused on and we would build offerings directed at these top priority items. And I should say this was a lot of work. But I can tell you, it taught us a very important lesson that I’d like to share with the audience. The lesson is your opinion doesn’t matter. The only thing that matters is the clients start with the big question what does the client want? And expand your offerings to make yourself more valuable to your clients. They will reward you with their budget dollars.

Sean Magennis [00:05:17] This is so excellent, Greg. And right on. So start with the question. What does the client want? And do five things to find the answers. One, create an advisory board. Two, conduct post project reviews. Three, execute a client satisfaction program for and this is one of my favorites, perform win-loss interviews after each sales campaign and five attend the conferences your clients attend.

Greg Alexander [00:05:51] You got it partner.

Sean Magennis [00:05:51] Perfect Greg. So, great takeaway value for our listeners. And now a word from our sponsor, Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

John Amos [00:06:25] Hello, my name is John Amos and I’m the founder and owner of Invex Technology Solutions. Index is a veteran on small business that provides cloud cybersecurity and big data services for the federal government and commercial businesses in the Washington, D.C. metro area. Our clients turn to us for help with designing and building and operating their systems in a secure cloud environment. We apply industry best practices to deliver cloud based systems that meet the client’s goals and objectives while complying with rigorous security constraints. If you need help with moving or operating your systems in a secure cloud environment, reach out to me www.Invextechs.com or drop me an email at [email protected]

Sean Magennis [00:07:09] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit Collective54.com. This takes us to the end of the episode, as is customary, we end each show with a tool. We do so because this allows the listener to apply the lessons to his or her firm. Our preferred tool is a checklist and our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions in this instance, if you answer yes to eight or more of these questions, developing new service offerings is not getting in your way. If you answer no too many times you have a lack of new service offerings, which is a problem. Let’s begin.

Sean Magennis [00:08:10] Number one, is your growth dependent on increasing revenue from existing clients?

Greg Alexander [00:08:17] And in scale, it has to be.

Sean Magennis [00:08:18] Yep. Number two, do you need new reasons to remain relevant to your clients?

Greg Alexander [00:08:25] All the time.

Sean Magennis [00:08:27] Number three, do your clients eventually get fatigued? Number four, do you know what your clients need?

Greg Alexander [00:08:37] Now, let’s be careful, audience, don’t be arrogant here. You think you do, but you only know the answer to that question if you ask him relentlessly.

Sean Magennis [00:08:44] 100 percent. Number five, can you continuously learn what your clients need?

Greg Alexander [00:08:50] It’s right under your nose to do some of the basics.

Sean Magennis [00:08:53] Yep. Six. Would your clients participate on a client advisory board?

Greg Alexander [00:08:59] You’d be surprised. Clients love to do that. They if you have a good relationship with them, they’re happy to participate.

Sean Magennis [00:09:05] Number seven, can you implement post project reviews?

Greg Alexander [00:09:10] Well-worn territory, lots of best practices available.

Sean Magennis [00:09:13] Yep. Number eight, can you perform client satisfaction reviews after every project?

Greg Alexander [00:09:20] Also c sats everywhere.

Sean Magennis [00:09:21] Got to do it. Number nine, and you perform when the reviews after every sales campaign?

Greg Alexander [00:09:28] You know, I’m shocked at this, but I would tell you that within collective 54 as an example. I’d say less than 10 percent of members do that religiously, and it’s such a shame to missed opportunity.

Sean Magennis [00:09:38] It’s a huge missed opportunity and a missed opportunity for your sales professionals who really get a tremendous amount out of it. And number ten, are they relevant industry conferences that you can attend?

Greg Alexander [00:09:51] You know, the people that put on those conferences know what they’re doing. Right?

Sean Magennis [00:09:54] They sure do.

Greg Alexander [00:09:54] So they think long and hard about that agenda. So if there’s a topic on that agenda, you can guarantee that your clients care about it.

Sean Magennis [00:10:00] I love that idea. And in summary, if you have one thing to sell and deliver, scale will be very hard. Expand your offerings, increase your addressable market, be more valuable to your clients, accelerate scale through service offering development. If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. Greg, great to be with you. I’m Sean Magennis. Thank you for listening.

Episode 30: The Boutique: Scaling the Sales Function in a Professional Services Firm

As a firm scales, it must make a significant change to its sales strategy. On this episode we discuss how the sales strategy changes at different stages of a firm’s lifecycle.

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I am Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that as a firm scales, it must make a significant change to its sales strategy. The sales approach in a small young firm becomes obsolete when scale becomes the focus. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg built the legendary sales team at SBI, which led to record setting scale, you’re in for a treat today. Greg, good to see you and welcome.

Greg Alexander [00:01:15] Sean, my boy, it’s good to be with you. Today’s topic is my favorite thing to talk about. There simply is nothing more important to a professional services firm than the sales strategy.

Sean Magennis [00:01:29] Greg, amen. This topic is the most requested topic from our listeners. I’m thrilled to have you share your knowledge in this area today. Let’s get straight into it. I opened by stating that the sales strategy needs to change when scaling a firm becomes the focus. Can you explain why this is?

Greg Alexander [00:01:50] Sure. So let me frame this up for the audience. So boutiques have a lifecycle. I like to say they grow scale and exit over the course of time. At each lifecycle stage, the sales strategy goes through a dramatic change. For example, during the growth phase, virtually all the selling is done by the founders. In the goal is opening new accounts. During in the scale stage, the selling effort is split between the founders and the employees. In the objective is expansion revenue from existing clients. And during the exit stage, all the selling effort is done by the employees with zero involvement from the founders. The goal in this stage is to prove to a buyer that the firm is not dependent on the founders to grow revenue. So given these dramatic changes in who does the selling in the goal of the selling effort, you can see how the sale strategy must change.

Sean Magennis [00:02:46] OK, I get the framing of the idea sales strategy changes at different stages of a firm’s life cycle. However, I’m not sure I understand why it needs to. Why can’t a founder who is successfully growing his firm just keep doing what he is doing?

Greg Alexander [00:03:06] Because he cannot outhustle the law of big numbers. It is easy to go from one million to three million in revenue. Just close a few big deals and you are there. But it’s very hard to grow from 10 million to 30 million. The amount of deal volume this requires outstrips the capacity of the founder or the founders.

Sean Magennis [00:03:26] Greg, tell me why that is.

Greg Alexander [00:03:28] All right. Let us think about the amount of effort it takes founders to generate enough new business to scale the law of big numbers says the owner needs to get in front of a lot of prospects. This requires a marketing push in time for word of mouth to spread articles get written and published, speeches at conferences get made, podcasts, get produced and books get written, social media accounts get filled with posts. This wider net catches a lot more fish. Yet these fish now need to be qualified. Our peace require well written responses. Competitive bake offs required decks to be created. Sales opportunities must be managed with care. Relationships need to be nurtured. Lots of miles get logged and many Hotelbeds get filled, references need to be contacted, etc.. I’m exhausted just talking about it. Opening new accounts is a lot of effort and is very expensive. If the sales strategy, when trying to scale means doing more of this, it just won’t work. Yet many boutique founders approach to scaling is working harder, not smarter. So they just keep doing this kind of activity and eventually they burn out. This is when revenue growth flatlines.

Sean Magennis [00:04:59] Yep. My my goodness, Greg, now that you lay it out like this, it is obvious that when trying to scale boutiques need to redesign the sales strategy. Greg, what should they do?

Greg Alexander [00:05:12] So let me flip the table and ask you a question, Sean. What is the primary difference between a growth stage firm and a scale a stage firm?

Sean Magennis [00:05:23] Let me think on this. Well, at the risk of stating the obvious, I would say the primary difference is the number of clients and the number of employees,

Greg Alexander [00:05:33] Atta boy. You’re correct. The scale stage firm has more employees and more clients. This means that the sales strategy during scale switches from hunting to farming. The driver behind scaling revenue growth is generating lots and lots of revenue from existing clients. Gone are the days of depending 100 percent on the partners to bring in new clients during the scale stage, boutiques should generate approximately 80 percent of their revenue from existing clients and 20 percent from new clients. This is the complete opposite from the growth stage, whereby it was 80 percent of the revenue from new business and 20 percent from existing clients. And guess who sells to existing clients, it’s the engagement team, not the founders of the boutique. The engagement team is working day to day with the client, building the relationship and uncovering new projects in the process. And the best part is this kind of selling farming is much, much easier. In fact, Salesforce.com recently looked at their customer data and suggested it’s about seven times easier to win a deal from an existing customer than it is from a prospect.

Sean Magennis [00:06:54] Greg, you’re so right. I can speak from experience that this is true. In fact, it might be conservative. Selling to existing happy clients almost is not selling. It just happens so naturally

Greg Alexander [00:07:08] It does.

Sean Magennis [00:07:11] And now a word from our sponsor, Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

Jay Smith [00:07:37] Hello, my name is Jay Smith. I’m the co founder and president of Sales at Security Seven Networks. Security Seven Networks is a managed cyber security service provider. We help our clients protect their businesses and prevent cyber attacks. Our clients rely upon us to protect them from the constantly shifting digital threat landscape. We’re able to do this by providing security thought leadership around compliance and security operations. If you need help protecting your business from cyber security threats, reach out to me at [email protected]

Sean Magennis [00:08:11] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit Collective54.com. You know, and unfortunately, we are running out of time and this takes us to the end of this episode, we could discuss the how to portion of this for hours. We will do so on a future episode. Let’s bring this home, Greg. As is customary, we end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist and our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these question, your sales strategy is scaling. If you answer no too many times your sales strategy is more than likely getting in the way of your attempts to scale. Let’s begin.

Sean Magennis [00:09:23] Number one, are you generating a lot of business from existing clients? Number two, have you reduced your need for new clients substantially? Number three, do you understand your share of wallet for your current clients?

Greg Alexander [00:09:44] Just a quick explanation there, share of wallet says client X, Y, Z spends X amount of money on this particular area. What percentage of that spend are you capturing? That’s what share of wallet means.

Sean Magennis [00:09:58] Great point. Great number four are your current clients up to date on your full capabilities?

Greg Alexander [00:10:05] Yeah, this plagued a lot of boutiques.

Sean Magennis [00:10:07] Yep.

Greg Alexander [00:10:07] They bring it out new services and their, quote, legacy clients are unaware of them.

Sean Magennis [00:10:12] Number five, are you investing non billable hours directly into your existing clients?

Greg Alexander [00:10:18] So notice the word investing there.

Sean Magennis [00:10:20] Yes.

Greg Alexander [00:10:21] Many times boutique owners look at their utilization report and they say, hey, we’re 80 percent utilized. We have 20 percent waste. I don’t look at it that way. If the 20 percent of non billable hours is an investment into existing accounts to gen up new business, that’s not a negative. That’s a positive.

Sean Magennis [00:10:35] Yeah, I think that’s golden. Number six, have you redesigned your business development process to prioritize existing clients? Number seven, have you trained your employees on the new business development process? Number eight, are your delivery teams gold and measured on finding new opportunities?

Greg Alexander [00:11:01] Now, this will be controversial. The people that are in the, quote, delivery side, those that are tasked with being on time, on spec, on budget, they’ll say we shouldn’t be gold on finding new sales opportunities. And I disagree. During the scaling stage, their contribution to sales should be recognizing new client opportunities. And they don’t have to close them. You know, they can kick them up to the partner or they can kick them up to the BD person. But it’s their job to have the ears open where when they’re on the client site.

Sean Magennis [00:11:29] Absolutely. And I love your comment that you always make to me. Everybody should carry quota.

Greg Alexander [00:11:33] Yep.

Sean Magennis [00:11:34] Number nine, are the employees who are best at business development, your cultural heroes?

Greg Alexander [00:11:40] So important. So it sends the message, right?

Sean Magennis [00:11:42] Absolutely. And number ten, do you make sure that your current clients know how important they are to you?

Greg Alexander [00:11:50] Never take a client for granted.

Sean Magennis [00:11:52] Absolutely. So in summary, as you scale, life gets easier. You have happy clients, they buy more from you. They refer their friends to you. You win more business as word of mouth spreads the brand, your win rate goes up and your cost to acquire clients goes down. Make sure this is happening at your firm during the scale stage switch from hunting to farming. If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell Professional Services Firm. I’m Sean Magennis. Thank you for listening.

Episode 29: The Boutique: The 5 Competitors Boutiques Must Defeat to Grow.

There are 5 competitors’ boutiques must defeat to grow. On this episode Collective 54 founder Greg Alexander discusses a playbook to defeat these competitors.

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal for this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that there are five competitors boutiques must defeat to grow. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg has developed a playbook to defeat these competitors. I will ask him to introduce his competitive place to you today. Greg, good to see you. Welcome.

Greg Alexander [00:01:05] Hey, Sean, it’s good to be here today.

Sean Magennis [00:01:06] OK, Greg, let’s dove straight in. Tell us who these five competitors are.

Greg Alexander [00:01:11] OK, so the five competitors are in order of importance. Number one, do nothing. This is the project that went away because of a competing client priority. Number two, internal resources. This is internal client staff who think they can do what you do better than you do it and it’s quote-unquote, free. Number three boutiques. These are firms like yours in size and specialty. Number four, market leaders. These are the mega-firms that have offerings in your niche. And number five is other. This is the other ways clients can solve the problem. Often there is more than one way to skin the cat, so to speak.

Sean Magennis [00:01:53] Excellent. So there’s a do-nothing, internal resources, boutiques, market leaders, and others. What I find fascinating about this list is three out of the five are indirect competitors, do nothing, internal resources and other. These are often overlooked, but can embrace a deal from the sales pipeline in a real hurry. Greg, you mentioned these are in order of importance. How do you assign this relative importance to them?

Greg Alexander [00:02:25] I assigned relative importance based on the frequency they show up in sales campaigns. And this is determined during the win-loss review process. For example, we have learned that boutiques will compete with do nothing about 40 percent of the time. Sometimes it’s as high as 50 percent of the time. You’ll compete with internal resources about 30 percent of the time, boutiques, about 20 percent of the time, market leaders about five percent of the time and other about five percent of the time,

Sean Magennis [00:02:57] hmm, this is super interesting. My hunch is our listeners are not conducting win-loss reviews and they don’t know how they compare to these benchmarks. That should be a takeaway for all our listeners. OK, now that we know who the competitors are, how do we beat them?

Greg Alexander [00:03:18] So that is a big question requiring a long answer. Given our time constraint all I can do today is introduce the plays to run against each. Is that OK?

Sean Magennis [00:03:26] Yes, I completely understand.

Greg Alexander [00:03:27] All right. First up is do nothing, which again is 40 to 50 percent of your deals. Whether you know it or not, the way to beat do nothing is to calculate the cost of inaction for the client. This dollar figure will prove to the client that your project deserves their full attention. It is a priority and that is the goal, getting the client to prioritize your project above the other things they may be spending their time on.

Sean Magennis [00:03:51] Greg, I remember this play from another episode titled Are You Losing to Do Nothing? For those listeners interested in learning more about this, I would direct you to that show. It’s excellent. OK, Greg, what’s next?

Greg Alexander [00:04:06] Next up is beating internal resources. As a reminder, this is internal client staff. I realize it’s weird to think about the client as a competitor, but they are about 30 percent of the time. The way to defeat internal resources is to establish a deadline that the project needs to be completed by. You see, clients think they can do what you can do. However, they will never be able to do it as fast as you can. Why is this? They have a day job. This project is not the only thing on their plate. They can only dedicate a portion of their time to it. You, on the other hand, can dedicate your team to it and therefore it gets done much faster. Cell speed in this situation, deadlines are a wonderful way to defeat internal resources

Sean Magennis [00:04:54]  This is a perfect example and it makes complete sense. OK, next up is the boutiques. How should our listeners compete with firms that are just like them?

Greg Alexander [00:05:05] The silver bullet in this situation is the guarantee. Simply offer your client a money-back guarantee for any reason, no questions asked. Most owners of boutiques are risk-averse. They have limited resources. They have limited amount of money, limited amount of staff. The idea of putting fees at risk makes them very uncomfortable. The threat of not getting paid scares the, you know what out of them. By guaranteeing the work, you separate yourself from the boutique competitors. They are unlikely to match this offer and it sends a powerful signal to the client. And that signal is Mr. Client. We only get paid if we make you successful.

Sean Magennis [00:05:45] Greg, so true. As president of YPO, I hired many boutiques over the years. I was always very skeptical of those who were unwilling to put their fees at risk, and I gave my business to those who were willing to do so. And truth be told, I paid them in full every time, sometimes more. I cannot think of a single instance where I called the guarantee and demanded a refund. My message to our listeners is the risk is a myth. The reality is the likelihood of clients calling the guarantee is very low. OK, I think the next up is competing with market leaders. This is only five percent of the time. So should-should we skip over this?

Greg Alexander [00:06:32] No, no, no. Yes, it is true. You will run into the mega firms only about five percent of the time. However, these few deals can make or break a year. These are the big deals in the forecast. Just one or two wins a year in this category can turn a good year into a great year. The way to beat the market leaders involves a five-step play. It’s a little tricky, but here are the five steps. Number one, you must establish credibility. The mega-firms will try to discredit you. Number two, deliver a top-quality proposal. This will prove to the client you are credible. It’s a signal to the client that your work will be top quality. Number three, demonstrate to the client that you can complete the work much faster than the mega firms. Big firms are very slow, beat them on speed. Number four, price to work about 25 percent less than the mega firm’s. Market lead are very expensive. The fact that you are in the deal suggests a client is budget-conscious. Big firms are vulnerable because their prices are so high due to the massive overhead they carry. And number five, offer an enjoyable experience. Mega firms are like a tornado when entering the client and are very disruptive. For example, we hear all the time Bain is our pain about how difficult it is to work with Bain Consulting, one of these mega-firms. The advantage of working with a boutique over mega-firm is that it’s just simply easier.

Sean Magennis [00:08:08] While Greg, this is exceptional, five straightforward ways to win those few launch deals every year when competing with these market leading firms. Boy, OK, we’ve got one more. What play do I run when competing with other?

Greg Alexander [00:08:26] OK, so as a reminder, other means, other ways to solve the problem. For example, clients often think they can solve a problem by firing someone and recruiting new talent, or they think they can solve their problem by licensing a new software tool. These other ways to skin the cat show up about five percent of the time. The way to beat other is to do a post mortem highlight to the client. The last time they took this approach, it did not work. For instance, hiring success rates of 50 percent at best. This means solving a problem with new talent has a 50/50 chance of working. And the adoption rate of software tools is a problem that has plagued corporations for decades. It is estimated that most users use about 10 percent of the features and most software tools. That’s 90 percent waste. The odds of success working with you, the specialized boutique is clearly better than a 50/50 proposition, isn’t it?

Greg Alexander [00:09:24] This is a superb way of framing this in the minds of a client relative odds of success. It’s just fantastic. Today we learned who the real competitors are for boutiques, how often they show up, and how to defeat them. That is a ton of value in fifteen minutes. Thank you, Greg.

Greg Alexander [00:09:45] And now a word from our sponsor, Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

Jude Ramayya [00:10:11] Hello, my name is Jude Ramayya. I service here offering biotechnologies. We serve small and midsize businesses looking for a true partner to unlimited potential with digital technologies. These clients turn to us when they want to digitize and automate their business processes so they can scale their business and make it available 24 by 7. We solved this problem by starting with digital strategy consolidation customized for the businesses and implementation of digital solutions with mobile, cloud, web, RPA, and artificial intelligence technologies. If you are looking for a Digital Solutions partner, please reach out to us at www.IMPIGERTECH.com, I-M-P-I-G-E-R-T-E-C-H.com.Thank you.

Sean Magennis [00:11:00] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit Collective54.com. OK, this takes us to the end of the episode, let us try to help listeners apply this. We end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist and our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these questions, you are positioned very well versus your competitors. If you answer no too many times, then you are not positioned well versus your competitors and you are likely getting in the way of your attempts to scale. Let’s begin.

Sean Magennis [00:12:02] Number one, can you calculate a client’s cost of inaction? Number two, can you find a compelling event that puts a deadline on the client’s project? Number three, are you confident enough to guarantee your work?

Greg Alexander [00:12:21] Boy, if you answer no to that when you’ve got a real problem.

Sean Magennis [00:12:23] Yep. Number four, can you establish credibility in the eyes of the client? Number five, can you signal quality to the client by delivering a best in-class proposal?

Greg Alexander [00:12:37] Remember that the first thing, the first deliverable a client sees is your proposal.

Sean Magennis [00:12:42] It’s got to stack up against the big guys, in fact, look better.

Greg Alexander [00:12:44] Yes.

Sean Magennis [00:12:45] And number six, can you deliver much faster than the market leaders in your niche? Number seven, if you earn healthy margins and still be 25 percent less than the market leaders? And I would say every day.

Greg Alexander [00:13:03] Way more.

Sean Magennis [00:13:03] Yeah. Number eight, are you more enjoyable to work with than the market leaders? Number nine, do you understand the alternative solutions to the problem you address?

Greg Alexander [00:13:15] You know, I hear this one all the time. Hey, I lost this deal because they hired a new executive, you know, and then they say, well, I really didn’t lose a deal. Yes, you did. You know, they decided to solve the problem in an alternative way. By the way, hiring a new executive is expensive.

Sean Magennis [00:13:27] Right.

Greg Alexander [00:13:28] Yeah.

Sean Magennis [00:13:28] Yep. That’s a great one. And number ten, will a postmortem revealed to the client that these alternatives have a poor track record? So, Greg, in summary, a boutique must win a high-percent of the time, they are not in enough deals to allow for many, many deals to be lost. No one wins every deal, but that should be the goal. By establishing a competitive playbook, you can make sure that you beat the bad guys. If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. Thanks again, Greg. I’m Sean Magennis and thank you for listening.

How to Reduce Investor Risk When Selling a Business

Episode 28: The Boutique: The Fine Line Between Risk Taking And Carelessness

One of the keys to selling your business is to reduce investor risk and eliminate the risk for the buyer. In this episode, Greg Alexander and Sean Magennis discuss how owners can increase the attractiveness of their firms and the mistakes they must avoid when reducing investor risk. 

Why Do Owners Struggle to Reduce Investor Risk When Selling a Business? 

Sean Magennis [00:00:15] Welcome to the Boutique with Capital 54, a podcast for owners of professional services firms. This show aims to help you grow, scale, and sell your firm at the right time for the right price and on the right terms. 

I’m Sean Magennis, CEO of Capital 54 and your host. In this episode, I will make the case that one of the keys to selling a business  is to eliminate the risk for the buyer. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg has helped many boutique business owners increase the attractiveness of their firms by reducing investor risk. Greg, good to see you. 

Greg Alexander [00:01:05] Thanks, Sean. This will be a controversial episode.

Sean Magennis [00:01:09] I love it.

Greg Alexander [00:01:10] Some of our listeners are running firms that carry a lot of investment risk, and I bet some of them don’t even know it. I might inadvertently call some babies ugly today.

Sean Magennis [00:01:20] Well, the good news is we do not have a live studio audience, so you will not hear the boos. On a serious note, tell us why some boutique owners have blind spots in this area when selling a business.

Greg Alexander [00:01:36] Firm owners think like operators; they do not think like investors. Therefore, they approach a deal with all the reasons it works. Whereby, the investor approaches a deal with all the reasons it will not work. For investors, their number one goal is to not lose money. A return is expected for sure. But the rate of return is considered only after the threat of capital loss is calculated.

Sean Magennis [00:02:05] Greg, you’re correct on this one. Our listeners are owners of firms, but they are also entrepreneurs and founders, and as a breed, we’re an optimistic bunch. We have to be. I can see how this glass is half full mentality can be a hindrance when trying to develop a business exit strategy and selling a business.

Example: How Not to Exit Your Business

Greg Alexander [00:02:26] Yeah. Let me share a story to bring this to life. So a few years ago, a media buying firm put itself up for sale. For those unfamiliar with a media buying firm, these firms buy advertising space for media companies and sell it to advertising agencies. The advertising agency uses the space to place ads for its clients. 

This firm’s specialty was newspapers. This was pre-Internet. A roll-up  of media rep firms was happening. A few large firms are buying up all the boutiques. This owner was getting a lot of interest. Yet, he blew it. He had a golden opportunity to exit immediately for a very high price, and he royally screwed it up.

Greg Alexander [00:03:13] Sadly, he eventually had to file bankruptcy because, as you know, the newspaper advertising business got crushed by the Internet. What was the fatal mistake made by this owner? He was unable to complete due diligence quickly. 

His financials were a mess. His personal life was wrapped up in them. He was unreasonable with his add-backs . His family members were on the payroll and didn’t do any work. His salary was not reflective of the true cost of the position. He took family vacations and charged them as business expenses. I mean, this guy was a real cowboy. All of this could have been worked out. However, a land grab was underway.

Greg Alexander [00:04:02] Speed was of critical concern. The firms, particularly the big firms, looked at his books and concluded it was simply too much work. And it would take too much time to figure out this mess. So they bought this guy’s competitor instead. His competitors were running tight ships and could close quickly. This was a tragic story.

Sean Magennis [00:04:28] Geez, what a shame. So the moral of the story is to run a tight ship. Greg, what advice would you have for our listeners to help them avoid this type of tragic outcome when selling a business?

How to Reduce Investor Risk: Mistakes Professional Services Firms Should Avoid

Greg Alexander [00:04:41] The big lesson here is that there’s a fine line between taking risks and being careless. Entrepreneurs are risk-takers , and therefore they build great boutiques, but this cannot go too far. If it does, once in a lifetime, wealth creation opportunities can pass you by.

Sean Magennis [00:05:03] Greg, give our listeners some examples of how they might be taking it too far. What mistakes should they avoid?

Greg Alexander [00:05:10] Gosh, there are so many. For example, don’t cheat on your taxes. Investors and potential acquirers hate cheaters. Don’t be careless with the law. You know, if you push the limits here and get caught. Lawsuits will get filed against you. These get found during diligence. That can kill a deal as fast as you can say sorry. 

And heaven forbid if you were in the crosshairs of government regulators, you know, then you’re in real trouble. You’re not going to be able to sell. So stay far away from regulators. So those are just a few obvious mistakes to avoid when selling a business.

Sean Magennis [00:05:45] Those are great examples, Greg, and extremely good reminders.

Sean Magennis [00:05:53] And now a word from our sponsor. Collective 54 is a membership organization for owners of professional services firms. Members join to work with their industry peers to grow, scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

Brenna Garratt [00:06:18] Hello, my name is Brenna Garratt. I own Sustena Group of Business-to-business brand development firm. Most of our clients are mid-sized B2B companies with investor or private equity backing. 

Our key areas of focus are business, and tech-enabled  services, technology, and health care. We work closely with executive leaders and private equity firms. Our clients seek our help when their brand strategy is out of sync with their business strategy. 

We solve these challenges by developing a strategic foundation, the brand infrastructure, and go-to-market brand activation programs to help our clients articulate their business and brand. If you’re interested in learning more, please visit sustenagroup.com or connect with me at [email protected] And lastly, a nod to Collective 54. The organization has been absolutely invaluable to me.

Sean Magennis [00:07:10] If you are trying to grow, scale, or sell your firm and feel you would benefit from being a part of a mastermind community of peers, visit Collective54.com.

Questions to Ask When Reducing Investor Risk and Selling a Business

Sean Magennis [00:07:29] So, this will take us to the end of this episode. And as is customary, we end each show with a tool. This allows a listener to apply the lessons to his or her firm. Our preferred tool to use is  a checklist. And our checklist-style is a yes-no questionnaire. 

We aim to keep it simple by asking only ten yes-no questions. If you answer yes to eight or more of these questions, you have successfully de-risked your deal. If you answer no too many times, you are too risky for investors. So, let’s begin.

Greg Alexander [00:08:05] Number one, do you have five years of audited financials?

Greg Alexander [00:08:10] Yeah. I mean, such an easy thing to do.

Sean Magennis [00:08:12] Exactly.

Greg Alexander [00:08:13] Pay somebody; they can do it. It’s beneficial not only when selling a business , but it also is beneficial as an operator because it gets you thinking about your business as an investor would.

Sean Magennis [00:08:22] Great example. Number two, do you have five years of tax returns? Number three, are you operating according to industry-standard  accounting principles? Number four, do you have a few, if any, add-backs?

Greg Alexander [00:08:39] I mean, don’t be a cowboy.

Sean Magennis [00:08:40] Exactly. Number five, is your personal financial life clearly separated from your business financials? Number six, have you ever been sued? Number seven, have you ever sued anyone? Number eight, are you clear of any outstanding legal action?

Greg Alexander [00:09:05] If you have any, settle.

Sean Magennis [00:09:07] Yep. Number nine, are you using industry-standard  legal contracts with clients, employees, and suppliers? And number ten, are you compliant with your industry regulations?

Sean Magennis [00:09:24] In summary, do not give a buyer a reason to say no when selling a business. Run a tight ship. Run your boutique by the book. Operating in the gray area will make a potential buyer nervous. And any gain from doing so is just not worth it.

Sean Magennis [00:09:44] If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled “The Boutique How to Start Scale and Sell a Professional Services Firm.” I’m Sean Magennis. Thank you for listening.

Episode 27: The Boutique: The Subtle Art of Scaling Your Culture

As a firm scales its culture erodes. Bureaucracy creeps in as a firm gets larger. The owner shifts from an inspirational leader into a law enforcement officer which is not healthy. On this episode, we discuss how to build a great culture in professional services firms.

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I am Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that as a firm scales its culture, erodes. Bureaucracy, creeps in as a firm, gets larger, this converts the owner from an inspirational leader into a law enforcement officer over time, which is not healthy. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg, while owner and CEO of SBI, built one of the great cultures in professional services firms, he has much to share on the subject. Greg, good to see you. Welcome. Great subject.

Greg Alexander [00:01:21] Yeah. Sean, it’s good to be with you. I’m looking forward to today’s conversation.

Sean Magennis [00:01:25] Excellent. Greg, let’s start with an understanding as to why affirms culture erodes as it scales. Why does this happen?

Greg Alexander [00:01:34] You know, the reason is pretty simple. Founders of boutiques did not know how to scale a culture. And the root cause of this is there’s very little material available to founders on this subject. And most founders do not recognize the importance of scaling a culture until it’s too late.

Sean Magennis [00:01:50] And why is it important to scale a culture?

Greg Alexander [00:01:54] Culture defines how things get done, and defining how to do things matters, especially as the firm gets larger. There is more work to be done by more people. A hazing culture gets in the way of scaling because employees do not know how to behave. And when this happens, founders react by installing bureaucracy with lots of procedures and rules. This turns him or her into a law enforcement official. And once rules replace creative freedom, politics creep in and politics destroys firms. Employees shift their focus from serving the client to serving the boss and scale stalls out.

Sean Magennis [00:02:41] Boy, do I understand this one. Greg, you’ve taught our audience about the three life cycle stages of a professional services firm. Those are phase one growth, phase two scale and phase three exit. It appears that culture is a strength in phase one growth, but it becomes a weakness in phase two scale. Why is that?

Greg Alexander [00:03:10] That’s a great observation. You make a very important point here, Sean. The reason culture breaks down during phase two scale is because scaling is messy. The chaotic nature of scaling means that employees work while the system starts to break down due to all the growth. As previous methods are replaced with new procedures to accommodate the scale, employees struggle to adapt. And it is at this precise moment that they need to know how to behave. And this is when a strong culture can be very helpful. For example, let us imagine an exercise, a picture you and I meeting with a firm in Phase one growth. The firm is, let’s say, twenty five employees and has been in business for about five years. We ask each employee the following questions. Number one, what kind of behavior does the firm hire to? Number two, what types of behavior does the firm promote to? And number three, what types of behavior gets people fired? The answer is coming back from this group of 25 employees will be very similar and crystal clear. This will demonstrate employees know how to behave. Now, let us imagine, we are meeting with a firm in phase two scale. Let’s say this firm’s about 100 employees and has been in business for, let’s say, 15 years. We ask each employee the same three questions. What kind of behavior does the firm hire to what kind of behavior does the firm promote to? And what what types of behavior gets a person fired? The answers coming back from this group of 100 employees will be dissimilar and unclear. And this will show that employees do not know how to behave.

Sean Magennis [00:04:59] I can see that. And the hypothetical example makes common sense, but I’m not sure I understand the so what? Why should a listener care if employees do not know how to behave?

Greg Alexander [00:05:12] Good question. The reason our listeners should care is because during the scale phase, they cannot be everywhere and do everything themselves. They need to know their employees are representing the firm the way the founder wants it to be represented. Employee behavior shows up everywhere, shows up in sales calls, in job interviews and client meetings, etc.. If the culture does not scale, the firm will bring in the clients, hire the wrong employees for client satisfaction and so on and so on. And in the end, a eroding culture will result in missed budgets.

Sean Magennis [00:05:45] Yep, OK, I get it now. A strong culture is how a founder can succeed without having to be personally involved in everything. Greg, I recently listened to an interview. An interview you did on John Warrillow’s Built to Sell podcast. It became very popular as thousands of people have now listened to it. One of the reasons it was so well-received is you talked about the famous SBI culture. Would you share some of this with our audience today?

Greg Alexander [00:06:16] Sure, boy, there is a lot to share here, and I should not repeat what I shared with John as listeners of this show can go listen to that one. But let me share some of the story with you here. So my firm, SBI, was in the consulting space. One of the challenges in that industry is very high employee turnover. It is not uncommon for consulting firms to run it, let’s say 30 to 40 percent annual employee turnover. And we ran it less than 10 percent for years. One of the reasons for the high turnover in consulting is big consulting firms fire employees for not being compliant with the procedures in the rules. I mean, these firms have an operating manual for how to eat lunch. It’s insane. Personally, I hate rules. I recruited mavericks and hired rule breakers. My firm only had three rules. This meant an employee back then can only get fired for three reasons. And they were number one, if you steal from me, you’re gone. Number two, if you lie to me, you’re gone. And number three, if you mess with it with another employee’s ideal life, then you were fired. So, for example, if you goose an expense report, you were out. If you lied to me about a project or the outcome of a sales call, you were gone. And as it related to number three, we had every employee tell us what their ideal life was, meaning exactly how they wanted to live in the role the job with us played in that life. If you were someone who caused a teammate to be miserable, you got fired. This meant no midnight emails, no finger pointing, you know, none of that bad behavior. So my basic philosophy was you had lifetime employment with me, if he did not break the three rules, I hired adults and I treated them like adults. I did not question their work ethic and I did not let suspicion destroy trust. It was an innocent until proven guilty culture, not the other way around, as so many companies are. Everybody was clear as to what behavior got you fired. The net result of this was we scaled rapidly, we won big, we won fast, and we won more often than the typical firm. And this is what led to our remarkable exit. In my case, we scaled our culture by keeping it very basic. We prevented bureaucracy from creeping in and we relentlessly eliminated politics from affecting behavior. And I should note, this culture was not for everyone, but that was OK. I liked it that way. I wanted lots and lots of people to tell me I was nuts and that they would never work for me because those that opted into my tribe were my peeps, so to speak. I knew if I could recruit enough of my peeps, I could really do something special. And we did.

Sean Magennis [00:08:59] Greg, this is a great story. And my journey with you is is so bang on with this. I mean, it’s it really, truly is remarkable. I encourage your listeners to look to Greg as a role model in how to really scale a culture. Doing so is very important to be true to yourself and lead with your authenticity. And now a word from our sponsor, Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

Courtney Kehl [00:09:48] Hi, my name is Courtney Kehll. I own Expert Marketing Advisors. We serve B2B tech companies across the U.S. These clients turn to us for help with establishing best practices, growing and scaling up companies, as well as even launching or plugging in holes across there and marketing. If you need help with any of these areas or even interested in partnering, reach out to me at www.expertmarketingadvisors.com.

Sean Magennis [00:10:14] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit collective54.com.

Sean Magennis [00:10:30] OK, this takes us to the end of this episode, and as is customary, we end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist. And our style of checklist is a yes, no questionnaire. We aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these questions, your culture is working for you. If you want to know too many times, culture is more than likely getting in the way of your attempts to scale. Let’s begin.

Sean Magennis [00:11:12] Number one is your culture important to the success of your boutique? Number two, does every employee understand the way things get done around here? Number three, does every employee understand what you are trying to accomplish? Number four, does every employee understand how they personally contribute to these goals? Number five, is it clear which behaviors are awarded? And number six, is it clear which behaviors are punished? Number seven, is it clear which function inside the boutique is the dominant function? Number eight, is the leader of that function, the leader of the boutique? Number nine, is the culture scaling naturally the way you want it to? And number ten, are you nurturing the culture as you scale?

Greg Alexander [00:12:21] You know, nine and ten are related and worth adding a little something to them. So cultures should scale naturally if the culture is healthy. Yep. Then people are going to take ownership of it and they’re going to scale it for you. If that’s not happening, then it’s upon it’s the responsibility of the founder to nurture it. You know, almost think about it like a plant. You know, you’ve got to fertilize it, you’ve got to water it. And there’s things you can do to nurture the culture to make sure it’s happening.

Sean Magennis [00:12:51] Critical. Great finishing comment, Greg. So in summary, culture allows a boutique to retain its identity as it scales. Culture is a welcome substitute for bureaucracy that can plague scaling boutiques. If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. I’m Sean Magennis. Thank you for listening.

Episode 26: The Boutique: 2 SALES TOOLS TO WIN BIGGER, FASTER, AND MORE OFTEN

There are two sales tools that allow boutique founders to win bigger, faster, and more often. On this episode we discuss how to increase sales effectiveness of professional services.

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that there are two sales tools that allow boutique founders to win bigger, faster and more often. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer, Greg is arguably the world’s leading expert in sales effectiveness in the professional services industry. Today, he will share some of this magic with you. Greg, this is your baby. Good to see you.

Greg Alexander [00:01:14] Hey, Sean, I’m excited about this episode. These two simple tools are powerful, yet for some reason they are not used with as much discipline as they should be. So hopefully this show will help with this.

Sean Magennis [00:01:26] OK, Greg, let’s jump straight in. What are the two tools?

Greg Alexander [00:01:29] OK, so the two tools are the demographic profile and the psychographic profile.

Sean Magennis [00:01:35] And give me a simple working definition of each.

Greg Alexander [00:01:38] OK, a demographic profile is a description of a particular type of client based on unique identifier such as gender, age, industry, job title, geography, etc. It focuses on quantifiable attributes and is objective. The psychographic profile is a description of a type of client based on unique identifiers as well. But in this case, it’s things such as wants, needs, goals, challenges, priorities. It focuses on qualitative attributes and is subjective.

Sean Magennis [00:02:13] And why should leaders of boutique professional services firms care about these two tools?

Greg Alexander [00:02:19] These tools help leaders of boutiques win bigger deals win these deals faster and win them more often.

Sean Magennis [00:02:27] Greg, how do they do that?

[00:02:29] Selling services is much harder than selling a product. When a prospect buys a product, they put their trust in the product itself. When a prospect buys a service, they put their trust in the people delivering the service. Therefore, establishing trust is essential to win bigger, faster and more often. The best way to establish trust is to know the client better than they know themselves and without question know the client better than the competitors. There is an old saying he who knows the client best wins, and I believe that

Sean Magennis [00:03:05] Some of the old sayings are the best. I think this one was tested recently during the pandemic and it held up. When you must limit human contact, guess who you let in the bubble? The people you trust. Greg, demographic profiles and psychographic profiles are not new tools. Did you know the Englishman John Gaunt invented demography back in 1662?

Greg Alexander [00:03:31] I did not, but nice pull.

Sean Magennis [00:03:35] Did you know that the use of psychographics in the marketing of services began at Stanford University in December of 1917?

Greg Alexander [00:03:42] I did not know that. But I see you are a power user of Wikipedia.

Sean Magennis [00:03:45] Thank god for Wikipedia. I bring up these stats to prove my point. These tools have been around forever. If they truly can help win bigger deals faster and more often, you would think they’d be used more often. However, when I look at firms, they are either not present or if they are present, they are used incorrectly. Why is this?

Greg Alexander [00:04:09] In my opinion, the main reason is founders, especially are domain experts. They are not business experts. Let me explain myself, so, for example, if I asked an owner of a cyber security firm about the technicalities of network security. They could talk to me for weeks, however, if I asked the same owner to describe their client profile, it would be a 10 minute conversation. Because they are not business experts, they do not understand that knowing the client deeply is the key to growing revenues with new and existing clients. Most of them are technicians of a sort, domain experts, but they are not business people, so to speak, meaning worldclass a generating revenue and profits. To grow a firm, a founder must be great at both he or she must be skilled at working on the business in addition to working in the business.

Sean Magennis [00:05:04] OK, Greg, I think we’ve established what the tools are and why they’re important and why they are underutilized. A percentage of our audience are overachievers. They will get off this podcast and immediately go to work on creating these tools. How can they get started?

Greg Alexander [00:05:22] Geez, I would need a day long workshop to do this justice, but let me give the overachievers a cheat sheet. So let’s start with a demographic profile. So make a list of all your clients, current and past. Identify the decision maker, the person who bought your service for each one document the following race, age, gender, ethnicity, industry, title, education, geography and income level. Use the 80 20 rule. What is common among each of your clients? This will get you to a V1 of a demographic profile. You should have. You should have all this data inside of your internal systems. If you do not, these days there is no privacy and you can find it in all the social media platforms. Let’s switch gears to the psychographic profile, which is much harder. Take a statistical sample from the above, say maybe 30 clients or so, and interview them. Ask them about, what are their wants or their needs or their desires? What are their goals, maybe immediate, intermediate and long term, what are their challenges standing in the way of accomplishing these goals? What are their priorities? And how do they set priorities? What interests them inside and outside of work? What is their attitude? Are they optimist or a pessimist? Are they activists or passivist? Use the 80-20 rule here as well, what is common among each of your clients, this will get you to a V1 of a psychographic profile.

Sean Magennis [00:07:04] That’s very helpful I got that, very practical, and once they have the two tools built, what do they do with them?

Greg Alexander [00:07:11] Everything. I mean, there is no part of a boutique. This information will not change. I mean, every sale script changes, every process to deliver a service gets rewritten to reflect this enhanced understanding of the client. The firm should change its marketing messages, its price positioning, their hiring profiles of staff. I mean, the list goes on and on. To win bigger, to win faster and more often, requires a boutique to obsess over the client every little detail. Without this information dynamically updated regularly, you are not client focused. You are throwing darts against the wall, hoping something sticks. Here’s little fun thing to do at the next staff meeting when sitting around the table, be sure to have one seat at the table empty. Put a sign in the seat that says client when the team is trying to make a decision turned to the client who now has a seat at the table and ask what would the client say if he or she was in the room? This signals to everyone that the client is at the center of everything you do.

Sean Magennis [00:08:16] This is just fantastic. It’s brilliant and a good reminder of two tools that have been best practices for decades. Thank you, Greg. And now a word from our sponsor, Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

Josh Mastel [00:08:54] I’m Josh Mastel, the CEO of UpRoar Partners, which is an outsourced sales solution for leaders of B2B organizations across the U.S.. At the end of the day, there’s only one reason why companies and teams missed their revenue targets, and that’s because of a lack of quality opportunities inside their sales pipeline. We fix this exact problem for our clients by deploying our sales methodology that’s been proven and executed by our team of salespeople. And the whole goal is to remove all of the hassle of generating sales opportunities completely off of your plate.. So if you have a dry pipeline and you’re not confident that you have enough, that that’s enough opportunities to get you to your revenue number by the end of this year, get in touch with us at www.uproarpartners.com or my email at [email protected]

[00:09:37] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit the Collective54.com. OK, this takes us to the end of the episode, let us try to help listeners apply this. We end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist and a style of checklist is a yes no questionnaire. We aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these questions, then your ideal client profile is working for you. If you answer no too many times, then your ideal client profile is not working for you and you are likely getting in the way of your attempts to scale. Let’s begin the questions.

Sean Magennis [00:10:44] Number one, you have a demographic profile of your target client?

Greg Alexander [00:10:50] And it’s important to mention this is the client you want. Not maybe that’s different than the client you currently have.

Sean Magennis [00:10:57] Number two, do you have a psychographic profile of your target client? The same thing.

Greg Alexander [00:11:03] Correct.

Sean Magennis [00:11:03] Number three, do you have an elevator pitch that speaks directly to the target client?

Greg Alexander [00:11:09] That’s oftentimes a humbling experience.

Sean Magennis [00:11:11] Yep.

Greg Alexander [00:11:12] Record yourself as to what your elevator pitch is and pull out your demographic and psychographic profile and say, how would this sit with them? Oftentimes it’s off.

Sean Magennis [00:11:20] Number four, do you understand the personal goals of the client?

Greg Alexander [00:11:25] People of people, people buy from people, so personal goals are just as important as professional goals.

Sean Magennis [00:11:31] That’s right, great point. Number five, do you understand the professional goals of the client? Number six, do you understand the obstacles preventing the client from accomplishing their personal goals? And number seven, do you understand the obstacles preventing the client from accomplishing their professional goals? Number eight, do you understand the likely objections that your client is going to submit to you?

Greg Alexander [00:11:57] Right, so if you understand their obstacles professionally, personally and make your pitch, you should you should be able to anticipate what are they…

Greg Alexander [00:12:05] Exactly.

Sean Magennis [00:12:06] Good point. Number nine, do you understand the client’s top priorities? And number 10, do you understand the emotional makeup of the client?

Greg Alexander [00:12:17] Goes to client experience, right.

Sean Magennis [00:12:18] This is fantastic. Greg, thank you. In summary, know thy client. Get inside their hearts, their souls and their minds. Try to know them better than they know themselves. Take this knowledge and drive it into everything you do. When a prospect bumps into you, they should say to themselves, these people, get me. If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. Thanks again, Greg. I’m Sean Magennis and thank you for listening.

Episode 25: The Boutique: The Hero Syndrome: A Dirty Little Secret About Professional services Firms

There is a dirty little secret about owners of boutique professional service firms. It is called the Hero Syndrome. If left unchecked, it will prevent you from scaling your firm. On this episode we discuss how to deal with this problem.

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54, and your host. On this episode, I will make the case there is a dirty little secret about owners of boutique professional services firms. This dirty little secret is called the hero syndrome, and if left unchecked, it will prevent you from scaling your firm. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg has some great suggestions on how to deal with this problem. Greg, great to see you, and welcome.

Greg Alexander [00:01:09] Sean, it’s good to be with you. Boy, what a topic we have today. I love that we tackle issues on this show that most shy away from.

Sean Magennis [00:01:18] Exactly, Greg. Excellent. Let’s start with the definition. What what is the hero syndrome?

Greg Alexander [00:01:25] The hero syndrome is when the owner of a professional services firm has his or her identity wrapped up in the firm. The clients and the employees need the owner, and this makes the owner feel like a hero, the hero style owner gets his or her personal validation from owning the firm, and it is appropriate to call it a syndrome as it leads to sickness and eventually death because the owner becomes a severe bottleneck.

Sean Magennis [00:01:57] And Greg, why do our listeners, owners of boutiques, suffer from this?

Greg Alexander [00:02:03] Man, why does the sun rise in the east and set in the west? The hero syndrome is part of human nature, I think. Founders of boutiques are human. This means they want to be part of a tribe, they want to be recognized. They want to feel needed to feel as if they matter. Owners of boutiques like all of us suffer from insecurities. And one way to deal with these insecurities is to build a firm completely dependent on the hero, the owner, our listeners. I mean, it is not a joy entering the battle as a hero and saving the day. I think human nature is why this happens repeatedly.

Sean Magennis [00:02:46] And you call it a dirty little secret. Why is the hero syndrome kept a secret?

Greg Alexander [00:02:54] In my opinion, there are two primary reasons why this is not openly discussed as often as required. First, it takes an above average level of self-awareness to recognize this problem, and in my experience, self-awareness is lacking. And a lot of founders, I think many of our listeners are suffering from the hero syndrome right now. Yet do not know it. Maybe this show can bring some awareness to this issue and the second reason this is kept a secret is no one wants to admit they’re holding their firm back because they like being the hero. I mean, it’s embarrassing. Imagine a staff meeting whereby the owner stands up and says to employees, I have an announcement to make. I’m an egomaniac and I love being the hero. Therefore, I’m unwilling to get out of my own way. And you are just going to have to deal with the consequences and the poor results.

Sean Magennis [00:03:49] Yeah, that would be super embarrassing. I can see why this is a dirty little secret. Let’s give the audience the benefit of the doubt and assume they are aware of the issue. What can they do about it?

Greg Alexander [00:04:04] The answer to this question is the best founders work themselves out of a job, they make themselves obsolete and build firms that can succeed without them. This is when hyperscale kicks in.

Sean Magennis [00:04:16] Aha. Found founders need to go from the hero to the invisible man.

Greg Alexander [00:04:22] That’s well said.

Sean Magennis [00:04:22] And how do you do this, Greg?

Greg Alexander [00:04:24] Boy, I could teach a week long course just on this subject. We only have a few minutes left on this show. So let me let me give you some quick suggestions. Let’s see. There is four things that come to mind. Number one, I would recommend stop being a control freak and try to replicate yourself in your employees. If an employee can do what you can do, 80 percent as well as you can do it. That’s a good thing. Do not feel threatened by this. Number two, it may be faster for you, the founder, to do something yourself, and you know that if you do it, whatever it is, you know, it will be done correctly. However, this is flawed thinking. Yes, it will take time to teach someone how to perform a task. And in the beginning, the employee will screw it up. But eventually you will replicate yourself and others to the point where you are no longer a bottleneck. Third, recognize there is a business case for eliminating you as the hero. Profits will go up when you do this. As the owner, you are the most expensive resource in the company. When you do something, the cost of completing the task is very high. The quickest way to destroy profits in a process of firm is to have senior people doing junior task work. And lastly, number four, the tactical program to launch is an employee certification program. An employee certification program proves to a founder that employee has reached a level of competency. If done correctly, an employee certification program can rapidly scale a boutique. Employee certification is a big topic, and we should reserve a future episode just to discuss it, to get it out here, every employee in the firm would be in a learning path certifying their knowledge. For example, the practical understanding of the subject matter, also certifying their skill, for example, their ability to do something. This approach systematically replicates an owner’s knowledge and skill into every employee in the firm over time and in perpetuity. And obviously, this removes the hero slash founder from being a bottleneck.

Sean Magennis [00:06:48] Excellent, Greg. So stop being a control freak, remove yourself as a bottleneck, and recognize the profit potential of doing so and roll out an employee certification program.

Sean Magennis [00:07:06] And now a word from our sponsor, Collective 54. Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

Bryon Morrison [00:07:32] Hi, this is Bryon Morrison, CEO of Proxxy, your executive multiplier. And if you’re a Challenger executive running today’s small to medium-sized business, that’s going to be tomorrow’s next big thing. Proxxy is here to serve you. We provide a full-service chief-of-staff solution that gives you an experienced, well-trained professional to take over, automate those routine tasks while also providing strategic counsel and operationalizing your great ideas so you can keep driving your company forward. This is not a fractional executive that’s going to run out of time or cost you too much, and it’s not a virtual admin you’ll end up managing. Proxxy as a team and technology-based approach that gives you 24/7 coverage and gives you back at least eight hours each week. So if you want help from a pro that isn’t trying to climb a ladder or get more budget, get started with your own Proxxy chief-of-staff at www.remotechiefofstaff.com.

Sean Magennis [00:08:33] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit the Collective54.com. OK, so this takes us to the end of this episode, and as is customary, we end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist and our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these questions, this strategy is working for you. If you answer no too many times, this strategy is more than likely getting in the way of your attempts to scale.

Sean Magennis [00:09:31] So let’s begin question number one. Do you feel like you must do everything yourself? Question number two, do you feel like you must be in every key meeting? Number three, do clients require you to be directly involved in their projects? Number four, do your employees come to you for help constantly? Number five, do you have to micromanage everyone? Number six, do you have to review everything before it goes out? Number seven, are you working too much? Number eight, is it faster to just do the work yourself? Number nine, do you feel like it will get done correctly only if you do it? And number ten, are you turning over employees?

Greg Alexander [00:10:38] So number ten’s interesting if you have a turnover problem, it’s because people arn’t growing inside your firm. Yep. Nobody wants to be a robot of the founder.

Sean Magennis [00:10:47] Exactly. So, in summary, boutique owners do suffer from the hero syndrome. This is because of human nature and founders seeking emotional validation from their role as hero/owner. This insecurity gets in the way of scaling the firm because owners become a bottleneck. The founders who scale their firms make themselves irrelevant building firms that can succeed without them. If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. I’m Sean Magennis. Thank you for listening.

Episode 24: The Boutique: Are you Losing to “Do Nothing”?

Boutiques lose more deals to a competitor we call “Do Nothing” than any other competitor. On this episode, we discuss how boutique owners can improve sales results by defeating this pesky competitor. 

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that boutiques lose more deals to a competitor we call do nothing than any other competitor. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg has helped many boutique owners improve sales results by defeating this pesky competitor. Greg, good to see you and welcome.

Greg Alexander [00:01:06] My man Sean, good morning. Good to be here.

Sean Magennis [00:01:08] OK, Greg, let’s jump in. Can we start off with a description of the competitor we are calling, “do nothing”?

Greg Alexander [00:01:16] Sure. So do nothing refers to the project that went away. The prospect did not hire a firm any firm. They just decided not to move forward with the project. In other words, they decided to do nothing.

Sean Magennis [00:01:28] Got it. The quirky name makes perfect sense. And Greg, you feel this competitor is the top competitor boutiques must defeat to grow. Why do you feel that way?

Greg Alexander [00:01:39] So founders of boutiques are time starved. They have too many things to do and not enough time in the day to get them all done. When they pursue new business, the pursue takes up a lot of time. If this time spent does not produce revenue, it can be devastating. Fifty percent of all lost deals are lost to do nothing in the professional services game. This stat was true in my firm and it is proving to be true in the firms led by collective 54 members. Defeating this sneaky competitor will save Founders’ a ton of time and boost revenue.

Sean Magennis [00:02:11] Wow, 50 percent is a big number. This just became a priority for many of our listeners. Before we get into the recommended solution, can you share with the audience the root cause of this issue?

Greg Alexander [00:02:24] Sure. So the root cause of the problem is founders of boutiques are peddling solutions, looking for problems. They are selling vitamins when they should be selling painkillers. Let me explain my analogy. People buy painkillers when they are in pain. When someone is in pain, they do not decide to do nothing. They buy immediately. In contrast, people buy vitamins occasionally. It is an optional activity, maybe tied to a New Year’s resolution or some new health kick. However, many people, when faced with the decision to buy vitamins, just decide to do nothing. It’s not urgent. Boutique Founders’ can get enamored with their solution. They think every prospect needs it, and they are surprised when many prospects decide not to buy it. They have a solution looking for a problem to solve. This is the root cause of this issue. Vitamin instead of painkillers.

Sean Magennis [00:03:16] Yes, Greg, I can see this. So founders can fall in love with their solution. And at times this can blind them to the commercial realities of the marketplace. They get caught up in the technical sophistication of their solution and they do not think about how it will be bought and sold. Greg, I imagine you have some practical advice to avoid this mistake. Please share it.

Greg Alexander [00:03:40] I do. And I’m excited to share it because it’s based on common sense and it is easy to implement. There are four things to do. First, be sure you can state the problem you saw for clients, clearly. This seems like a duh comment, but surprisingly it is not. For example, when I ask a boutique founder what problem they solve for clients, they tell me about their solution. They do not tell me about the client problem. I recently asked an IT consulting firm what problem they solve with clients, and he said we provide cloud migration services. This is not a problem statement. This is a solution description. In this instance, a better answer might have been our clients are trying to migrate legacy apps to the cloud. This is taking too long, costing too much and causing too much downtime. Now, that’s a problem statement and positioning a solution against this has a much better chance of resulting in a win.

Sean Magennis [00:04:33] This is a great before and after illustrative example. The difference between a solution description and a problem statement is subtle, but it’s so important. Greg, you mentioned four things to do. We covered the first. Let’s hear about number two.

Greg Alexander [00:04:49] OK, so the second thing to do is determine if the problem you are solving is pervasive. To grow your firm, you need lots of sales opportunity. If you are solving a problem only a few clients are experiencing, you are limiting your growth. This is a big reason why “Do Nothing” is the number one competitor. A founder gets in front of a prospect, makes the pitch and the prospect says something like, I can see why your solution is very valuable. And if I had the need for it, I would consider hiring your firm. But it does not apply to me right now. Check back with me in six months. You just lost to do nothing. You just wasted your time and a prospect which is never going to buy. If you have to kiss a lot of frogs who never turn into a prince, you will be celebrating your one hundredth birthday before you scale focus only on pervasive problems.

Sean Magennis [00:05:37] Greg, I must admit, I’ve heard many prospects say that to me over the years, almost verbatim. If I think about how many hours I wasted in pitch meetings with prospects like this, I cringed. Anyway, okay I’m hooked on the subject. Tell me about the third idea on defeating do nothing.

Greg Alexander [00:05:56] OK, so number three is proving that the problem is urgent. When a founder pitches a prospect, the prospect is determining if what he is hearing is worthy of making it on his priority list. Prospects just like founders of boutiques are time time starved. If they are going to take on another project, it better be worth it. Prospects prioritize their projects based on urgency. The most urgent go first and get the most budget, the least urgent go last and get the smallest budgets.

Greg Alexander [00:06:29] The action for the founder is to prove that your solution solves an urgent problem and therefore it should be prioritized. Our listeners are wondering right about now how they do this. We don’t have enough time to go into this on this episode. So let me just hit the tips of the wave. To prove you a solution solves an urgent problem, do two things. Number one, calculate the cost of inaction. Make sure the prospects know exactly how much it’s going to cost them if he does not act right now. Number two, show that the pain is getting worse over time. Make sure the prospect knows that if he does not act now, it may be too late down the road. A small problem today will be life threatening six months from now. So let’s giddy up.

Sean Magennis [00:07:19] I had heard the urgency suggestion before, but I had never heard it from a thought leader on how to create the urgency. Calculating the cost of inaction and showing the client the problem is escalating are brilliant ways to get a prospect to move from buy to buy now. Let’s hit the fourth idea.

Greg Alexander [00:07:40] OK. The fourth recommendation to defeat do nothing is to confirm the prospect is willing to pay for the solution. Often founders make the pitch. The prospect says yes, and he sees the price and he changes the yes to a no. When asked what happened, the prospect says we just don’t have the budget for that right now. And guess what? He just lost the do nothing. The fix to this is to confirm that prospect is willing to pay for the solution to the problem. So how does one do this?

Greg Alexander [00:08:10] Every proposal must come with a cost justification and the cost justification must be believable, populated with the prospects own figures. For example, in my time in SBI, we would sell prospect’s projects around sales effectiveness. Each proposal came with the cost justification based on two things. Number one, decreasing the prospects cost to acquire customers and number two, increase in the lifetime value of each customer acquired. These two items were expressed in hard dollars, and the math was based on the client’s current baseline.

Greg Alexander [00:08:47] In each, our fee was placed in this context, the client could clearly compare the benefit in the cost of the project. As a result, we defeated do nothing regularly. I am not sure what metrics our listeners would use in their cost justifications, but I do know they need to figure that out if they are going to defeat do nothing regularly, it is the only way to get the prospect to having high willingness to pay.

Sean Magennis [00:09:13] This is fantastic. So overcome the prospect price objection with a cost justification in the proposal and make it easy for the prospect to have a high willingness to pay. These four ideas state the problem clearly to pursue only pervasive problems, prove the problem is urgent, and use a cost justification to increase the prospects willingness to pay. This will defeat, do nothing and help our audience members grow.

Sean Magennis [00:09:46] And now a word from our sponsor, Collective 54. Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

John Ferguson [00:10:12] Hi, my name is John Ferguson. I’m the CEO TBM Consulting Group. We’re a global operations and supply chain consultancy, serving manufacturers, distributors and field service organizations in North America, Latin America, Europe and Asia. Our primary clients, our C Suite operations executives and operationally focused private equity firms. TBM helps to reduce costs, improve cash flow and to leverage those gains for sustainable, profitable growth. We provide diagnostics, go forward plans and hands on implementation support to create speed, flexibility and responsiveness throughout our client’s manufacturing and supply chain operations. If you need help leveraging operational excellence to accelerate value creation, contact us at TBMCG.COM. My direct email is [email protected] Or you can reach us via 1-800-438-5535.

Sean Magennis [00:11:13] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit Collective54.com.

Sean Magennis [00:11:29] OK, this takes us to the end of the episode, let us try to help listeners apply this. We end each show with a tool. We do so because this allows the listener to apply the lessons to his or her firm. Our preferred tool is a checklist and our style of checklist is a yes no questionnaire, we aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these questions, you are not losing to the competitor called Do Nothing. If you answer no, too many times, you are losing to the competitor called Do Nothing. Let’s begin with the questions.

Sean Magennis [00:12:17] Number one. When you explain the problem to your family, do they understand it? Number two, when you explain the problem to your friends, do they understand it?

Greg Alexander [00:12:29] So the reason why family and friends is here is because they’re not in the weeds, right? So if they can’t understand it or if they do understand it, then, you know, you’re communicating clearly. You know, I will add one little funny story. Yeah. So I used to bring my dog Rocco to work. And if I was in these early days of SBI and if I was pitching on the telephone, if he got up and left, I knew I was in trouble.

Sean Magennis [00:12:52] Rocco was a smart dog.

Greg Alexander [00:12:52] He was.

Sean Magennis [00:12:52] Number three, does the problem exist in more than one industry?

Greg Alexander [00:12:59] This goes to pervasiveness.

Sean Magennis [00:13:01] Number four, does the problem exist in companies of all sizes? Number five, does the problem exist in many geographies? Number six, are clients paying to solve the problem today?

Greg Alexander [00:13:17] Right, which is a great way to judge whether the problem is urgent, if they’re already spending money to solve it, then they’re voting with their wallet.

Sean Magennis [00:13:23] Right. Number seven, have clients been paying to solve the problem for years?

Greg Alexander [00:13:29] Yep another important thing, right?

Sean Magennis [00:13:32] Number eight, if the client does not solve the problem, are the consequences severe? Number nine, is there a trigger event that puts the client into the market for your solution?

Greg Alexander [00:13:44] Right. So a trigger event is is something that happens to the client that causes them to act.

Sean Magennis [00:13:50] And number 10, when clients have the problem, do they work to get it solved by a certain deadline?

Greg Alexander [00:13:56] From from buy to buy now.

Sean Magennis [00:13:58] It’s great, Greg. So in summary, do nothing is defeating you 50 percent of the time, whether you know it or you don’t know it. So to beat this competitor. Be sure to pick a problem to solve that is pervasive, urgent, one that prospects are willing to pay to solve. And be sure you can explain it simply. In other words, start with the problem, not the solution. If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm.

Sean Magennis [00:14:38] Greg, thank you again. I’m Sean Magennis and thank you to our audience for listening.

Episode 23: The Boutique: EXIT HACK: BUILDING A LARGE UNIVERSE OF POTENTIAL BUYERS

A key to selling your professional services firm is building a wide and deep universe of potential buyers. On this episode, we discuss how to develop broad interest with potential acquirers.

TRANSCRIPT

Sean Magennis [00:00:16] Welcome to the Boutique with Capital 54, a podcast for owners of professional services firms. My goal with the show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that the key to selling your firm is to build a wide and deep universe of potential buyers. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s founder and chief investment officer. Greg, maybe more than any other thought leader understands how to develop broad interest in a boutique from potential acquirers. Greg, great to see you and welcome.

Greg Alexander [00:01:06] Thanks, pal. Great topic today. By the end of this show, I hope our listeners learn how to tilt the supply and demand equation in their favor.

Sean Magennis [00:01:13] Amen. So maybe we should start out with that very thing. Supply and demand. How does this economic theory apply to selling a professional services firm?

Greg Alexander [00:01:25] OK. It might not be obvious, so let me explain. Supply and demand will impact one’s ability to sell the firm. Let’s consider first the supply side. If there are many boutiques like yours available for sale, valuations are going down and the opposite is true. If you are the only firm in your niche willing to sell, valuations are going up. And if we flip the coin, and considered the demand side. If the universe of buyers is wide and deep, the chances of a successful exit increase. If the number of potential buyers is small, exiting will be difficult.

Sean Magennis [00:01:58] Excellent. I can see how supply and demand effect valuations and the probability of exiting. This begs the question, how does an owner of a boutique manipulate supply and demand?

Greg Alexander [00:02:10] So this is where the investment banker earns his feet. It is their job to generate lots of demand for your firm. They are skilled at doing this using a variety of methods, starting with market maps, adjacencies, segmenting the private equity investors and many others. They are experts at throwing a wide net.

Sean Magennis [00:02:31] Greg, it’s one thing to build a list and yet quite another to generate real interest from firms on this list. How is this done in your experience?

Greg Alexander [00:02:42] This is where the owner and the banker need to partner. The investment banker will build an exhaustive list of potential buyers. But he or she will need the owner’s help preparing the pitch. An owner can contribute at this stage, by given the banker compelling strategic rationale to buy your boutique and I advocate for developing this deal, rationale for each buyer, for customizing it for that specific buyer. This will increase the positive response rates the investment banker generates.

Sean Magennis [00:03:14] Excellent Greg. So let’s save our listeners some time by giving them some examples of what might go into such a customized pitch.

Greg Alexander [00:03:24] There are many, but here are a few since our show is meant to be short. Maybe buying a boutique opens up a new market for a strategic acquire. Or maybe if I buy your boutique, it will strengthen my value proposition and help me sell more of my core services. At times I must acquire because I’m at a competitive disadvantage in buying new fixes that a common one these days is firms buy boutiques to diversify revenue streams. For example, my firm has too much client concentration and I can buy you. Which brings a whole new set of clients. These are but a few, do you get the picture?

Sean Magennis [00:04:03] I do Greg, so simple and practical examples listeners can use as a starting point. Really excellent.

Sean Magennis [00:04:13] And now a word from our sponsor. Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members join to work with their industry peers to grow scale and someday sell live firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

Brenda Hurtado [00:04:39] Thank you, Sean. Hi, my name is Brenda Hurtado. I’m president of The Point Group. The Point Group is a marketing communications firm built from a different model. We’re an integrated full service agency with strategists from both the agency side and the client side. Our unique combination of business acumen and marketing expertize brings a fresh perspective and approach to find creative solutions that truly make a difference and drive business results. For more than 25 five years, we’ve worked with startups, the Fortune 50 brands to help them enter new markets, position them for growth and improve their customer engagement strategies. At the Point Group, we create work that works to learn more about the company. See us at thepointgroup.com.

Sean Magennis [00:05:23] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit the Collective54.com.

Sean Magennis [00:05:40] So this takes us to the end of this episode. And as is customary, we end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist. And our style of checklist is a yes-no questionnaire. We aim to keep it simple. By asking only ten yes-no questions. In this instance, if you answer yes to eight or more of these questions, you have a large universe of buyers. If you answer no too many times your buyer pool is too small, which means you might not be able to exit. Let’s begin.

Sean Magennis [00:06:21] Do you know how many firms like yours are for sale?

Greg Alexander [00:06:25] Quickest way to find that out is play the role of an acquirer. Pick up the phone, call people and say, hey, you want to sell your firm? I’m interested in buying. And you can get a really quick gauge for how many firms like yours are for sale.

Sean Magennis [00:06:36] Excellent. Number two, have you completed a market map?

Greg Alexander [00:06:42] For those in our family with that term, does Google market map, and there’s lots and lots of how to step by step guides to create one.

Sean Magennis [00:06:49] Correct. Number three, has this market map produced an exhaustive list, exhaustive list of potential buyers? Number four, does this map include adjacent markets?

Greg Alexander [00:07:02] Yeah, and this is important. Don’t think too narrowly. You know, there’s markets to the left and right, a view that also contain possible acquirers.

Sean Magennis [00:07:10] Number five, does the map include private equity firms with a known interest in firms like yours? Number six, have you developed the strategic rationale to buy your firm? Number seven, have you customized this deal rationale for each potential buyer? Number eight, do you know the leading investment banker in your niche? Number nine, have you approached them about representing? And number ten, has this investment banker creatively enlarged the universe of potential buyers for you?

Sean Magennis [00:07:56] In summary, keep in mind that supply and demand will impact your exit. Take the time to strategically approach the market. The goal is to build a wide and deep universe of buyers. There are many more buyers than you likely realize, some of them just might respond well to what you have built. And one of them might be willing to pay you a lot for your firm.

Sean Magennis [00:08:24] If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. I’m Sean Magennis. Thank you for listening.

Episode 22: The Boutique: The Quickest Way to Scale

A change to your pricing strategy is perhaps the quickest way to scale. It does not require an investment to implement and the benefits are immediate.

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to the Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host on this episode. I will make the case a change to your pricing strategy is the quickest way to scale. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s founder and chief investment officer. Greg is truly an expert in the pricing of professional services. Greg, great to see you and welcome.

Greg Alexander [00:01:03] Sean, it’s good to be with you. I look forward to helping our listeners pick some low hanging fruit today.

Sean Magennis [00:01:08] Excellent. And in this instance, I would say the fruit is not low hanging. It’s on the ground. So our listeners just need to bend over and pick it up. Greg, why is a change in pricing strategy the quickest way to scale?

Greg Alexander [00:01:24] Because it does not require an investment to implement. There is not staff to add or service offering to develop, and the benefits are immediate. Charge more today than you did yesterday.

Sean Magennis [00:01:34] And you feel most owners of boutiques mess up their pricing strategy and get this wrong. Why do you feel this way?

Greg Alexander [00:01:41] So there are several reasons. So boutiques often do not know what their services are worth to their clients, and they are often unaware of what clients are willing to pay for the services. Many firms cannot even logically explain to prospects why they charge what they charge. And worse, they cannot quantify the amount of value the prospect receives from an engagement. Too often, the pricing strategy is in without it’s based on intent, internal costs, worse boutiques rely too heavily on what their competitors charge for similar services. And lastly, the BD team are often awful at overcoming sales objections, and they come up in the sales campaigns.

Sean Magennis [00:02:25] You know, wow Greg, I counted seven mistakes firms are making in your response. It appears pricing strategy is a real obstacle, preventing boutiques from scaling. Is there a solution to this problem?

Greg Alexander [00:02:38] Yes. The good news is, is that this problem is simply salt. It takes some sound judgment, but the pricing best practices are readily available.

Sean Magennis [00:02:48] Can you give our listeners a few to get them going?

Greg Alexander [00:02:51] Sure. So the first recommendation is to develop a pricing strategy that matches your business strategy. So, for example, if a firm sells to small businesses, the high volume, low price model makes sense. If you sell complex solutions to large companies, a high cost, low volume approach is best. Another recommendation is to focus on price positioning as it affects perception. And in this context, perception is reality. The price you charge sends a signal to the client. If you price too low, your work will be considered low quality. If you price too high, you will be perceived as being difficult to engage. If you price the same as your competitors, you’ll be perceived as undifferentiated. And one more might be to understand what clients value at the attribute level. A mistake owners of pro serve firms make is they think in the aggregate. When it comes to pricing, be sure to understand what attributes of your offering are valued most in influence to perception of your performance in this specific area. This will result in the ability to charge more. There is more perceived value here.

Sean Magennis [00:04:12] Greg, that’s really fantastic advice. So three specific takeaways that I’m seeing is match the pricing strategy to the business strategy, your price positioning and price at the attribute level, not in the aggregate. Greg, you have an incredible track record and the story of SBI’s  pricing strategy has become legendary in some circles. Can you briefly share it with the audience as a way to bring these ideas to life?

Greg Alexander [00:04:43] Yeah, I think calling it legendary is a bit much, but I can say it was a key to our scaling quickly. So my firm was a management consulting firm and the management consulting industry is structured into three tiers. Tier one of the mega firms think McKinsey and Bain, etc. Tier two are the midsized boutiques and tier three other small startups. So my firm, SBI, was a Tier two management consulting firm, a mid-sized boutique highly specialized in the niche of B2B sales effectiveness.

Greg Alexander [00:05:22] My price positioning approach was to price below tier one, but above tier two. And what signal does this send? It sent the signal that we were the best of the tier two boutiques and this had the good fortune of being true. Thank goodness. The practical impact this had on us was a top one percent profitability. Our prices were compared to the mega firms. They were not compared to the Tier two firms.

Greg Alexander [00:05:54] In essence, we created a new tier like a Tier 1A and the scale benefits of this were huge. We threw off loads of free cash flow, which we plowed right back into the business. And this resulted in scaling much faster than otherwise would have been accomplished.

Sean Magennis [00:06:14] Greg, that’s a great real life example. Thank you.

Sean Magennis [00:06:20] And now a word from our sponsor. Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members join to work with their industry peers to grow scale and someday sell live firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

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Sean Magennis [00:07:39] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit collective54.com.

Sean Magennis [00:07:56] This takes us to the end of this episode. And as is customary, we end each show with a tool. We do so because this allows a listener to apply the lessons to his or her for our preferred tools, a checklist. And our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions in this instance, if you answer yes to eight or more of these questions, your pricing strategy is working for you. If you answer no too many times, pricing is more than likely getting in the way of your attempts to scale. So let’s begin.

Sean Magennis [00:08:36] Question number one, do you know what your offering is worth to clients? Number two, can you quantify the value of your work in hard dollars? Number three, do you know what clients are willing to pay for your services? Number four, can you explain the logic of your pricing in a way that makes sense to clients? Number five, does your price illustrate to the client the link between price and value? Number six, do you charge the most for the service features that your clients want the most? Number seven, do you charge the least for the service features that your clients do not care much about? Number eight, do you allow for clients to choose their price by presenting options? Number nine, is your sales team skilled at overcoming price objections? And number ten, have you built into your system an annual price increase?

Sean Magennis [00:10:03] In summary, know your worth. Do not undervalue yourself. What you do is exceptional. Price accordingly and scale quickly.

Sean Magennis [00:10:15] If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. I’m Sean Magennis. Thank you for listening.