Author: Collective 54

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Episode 85 – Why Waiting Too Long to Sell Your Firm Could Be Very Costly – Member Case with Craig Dickens

The ability to sell your firm will be impacted by the environment. There is a good time to sell and a not so good time to sell. On this episode, Craig Dickens, CEO at JD Merit & Co., will shed light on the financial market trends and how it influences your exit strategy. 

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that aren’t familiar with us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. My name’s Greg Alexander. I’m the founder, and I’ll be your host today. And today we’re going to have a conversation around some financial market trends. And the reason why we’re talking about this is because there’s a good time to sell your firm and there’s a bad time to sell your firm. Sometimes the sun is shining and sometimes it’s a little cloudy. It’s always good to know kind of what the trends are. And the best way to do that is to speak to people that are actively in the market managing these types of things. And we’ve got a great role model example today. His name is Craig Dickens. Craig is with JD American Company, which is a boutique investment bank. And he probably has his pulse or have the pulse of the market and his finger on the market better than most. So we’ve invited Craig to come speak to us today and share with us kind of what’s going on. So with that, Craig, if you wouldn’t mind, please introduce yourself to the group. 

Craig Dickens [00:01:35] Yeah, terrific. Craig Dickens, I’m the CEO of JD Merritt. We’re a middle market investment bank. We focus on four areas, predominantly technology, consumer products as well as infrastructure and the built environment, as we call it. And obviously, pro serve is a market that we’re involved in as well. 

Greg Alexander [00:01:57] Okay, great. So we’re talking in May of 2022 and let’s start at 30,000 feet. So it seems like if you pay attention to the public markets anyways, it’s a different world we’re in right now. So what’s your perspective on things? 

Craig Dickens [00:02:15] Yeah, I guess I got to put a little bit of a backdrop on that because we came off of a record 2021, a lot of transact transactions. M&A activity was unprecedented, capital gains taxes were looming. So I’m still reflecting back to that wonderful time. And then we have, you know, a Ukraine war situation, inflation that’s somewhat out of control and stock market getting pummeled pretty hard. So I guess the keyword here right now is uncertainty. Yeah. And, you know, markets never react favorably to uncertainty. And I think we around here called quarter one the big horns. Yeah. Everybody was waiting to see how the dust settled a little bit. So really an interesting time in the market. Yeah. 

Greg Alexander [00:03:04] You know, for whatever reason, I don’t know how this happened to me, but the times of the greatest prosperity for me were times like this. So I’m old enough to remember the meltdown of the dot com. And I was in the tech industry at the time that I started my boutique just before the financial crisis of 0809, and then I launched Collective 54 and three months later covered it. So my timing hasn’t always been great, but what I found during those time periods is it’s a great shakeout, if you will. Firms that maybe aren’t for real kind of go away. So if you can build a great firm in those conditions, supply and demand actually goes to your favor because there’s far fewer firms, quality firms anyways available for purchase and you can really stand out. And Craig, one thing that I like about you is that you advise your clients to focus on what you can control and to prepare for this. And you talk about reverse engineering your exit, which is just such a catchy way of describing this. So could you expand upon that a little bit? 

Craig Dickens [00:04:14] Yeah, I think, you know, each one of us that’s running a business in these times, right. You know, we need to focus on the things we can control because we can get overwhelmed by what’s going on around us in the process. So again, just to maybe bucket the good news, right, especially thinking about boutique owners, we’ve got rapid rise in digitization. We’ve got a distributed workforce that needs training, I.T. consulting, etc.. And then ultimately the consumer or the customer has been trained to engage our services without us necessarily being in the room. Yeah. And then you have the great resignation, right? So in many ways it’s so hard to hire talent that you have to rent it so pro serve. You know, there’s to your point among the disruption, among the uncertainty, there’s plenty of opportunities and plenty of good news, if you will. But then we’re hit with some of the bad news that we tend to. Right. Interest rates, inflation, I mentioned a few of them. And the inverse of of the great resignation is that many of us are having trouble scaling because we can’t hire the execution and delivery teams that we need to. So, you know, I can only focus on those things that that I can control. And in this case and in this environment, we really have to go back to the best offense is a good defense. We need to prepare ourselves for good times or bad times. And to your point earlier, Gregg, be that standout, right? Be that leader or not that neutral or that laggard to whatever industry or vertical we’re serving so that they see us as head and shoulders above. And again, not to overused the sports analogies, but, you know, we’ve got to be prepared. Those folks that prepare are going to win and those folks that prepare are actually going to get a deal done. Those accidental tourists that have an ally show up on their desk and say, you know, you know, fortune, whatever is going to buy me, you know, that is the rare the rare situation. It’s truly that prepared that that get to a deal. 

Greg Alexander [00:06:27] You know I’ve heard you say on our member calls this term post-transaction economics and for those that might be hearing that term for the first time to find that term force or terms, I should say yes. 

Craig Dickens [00:06:42] So most of us have spent a career operating in our giftedness, in our in our in our specialty. Then we learn as we go how to grow companies. And, you know, exiting a company is a very different exercise and requires some different skills. And we always think about us, right? The marketplace is going to want us. Microsoft is going to buy us. Right. It’s it’s very me centric. But really, I think the most effective and the highest priced deals are where the team gets together and says, okay, what is different about our company? What is the leverage of Bill about our company? And most importantly, who will buy us? And that’s a deep exercise. Right. And you almost want to really strategically analyze those people in what we call the buyer universe, because, of course, everyone wants to sell to Microsoft or Accenture or whomever is their, you know, their ideal, but reverse engineering that and really analyzing the value and showing your buyer the inherent value of when they buy you and they pour water on you, how you will grow in their ecosystem, then you become much more valuable in their eyes. And if we can do that with ten or 12 different acquirers, now we have a rodeo, and that’s where the true outlier multiples come from. 

Greg Alexander [00:08:04] Yeah, it’s a great example. It’s it’s value based selling in many ways. I mean, when you own me, Mr. Acquirer, you know, you can triple me or quadruple me, whatever. And then what’s that worth today? That’s an interesting thing to think about. 

Craig Dickens [00:08:18] What I would add to that Greg, just real quick, I would almost on that omni account based selling side of it, almost treat your acquirer as if you’re analyzing like you’re going to sell them something and then plug you in as the product. Right. And so then you’re highly focused on what you can do under their umbrella with their sales team, with their capital resources, with their technology. And even though you might be a puzzle piece, you know, I’ll give you an example. We we sold a company. It was a small $8 million company, but they had a puzzle piece to an email distribution issue that a big player needed to compete with Brand X. And that puzzle piece became so valuable that, you know, they went up into the double digit multiples to buy that company. So that’s the kind of reverse engineering, if you can get into their kitchen, so to speak, and find out their pain points or the aspirin that they need, that’s that’s huge to value. 

Greg Alexander [00:09:13] So when I speak to members during office hours, which is an opportunity for members to speak to me, those that want to anyways on a 1 to 1 basis. And we’re having the conversation regarding exit. There’s three questions that come up every time. So first is what’s my firm worth? Second is who’s going to buy it? And the third one is, when should I sell it? And I want to spend a moment on that because there’s usually some type of life event that get somebody to think about selling their firm. The most common one is age. They get up, you know, in the 50, 6070s, they want to retire. Most of their net worth is wrapped up in their firm and they need to sell that, generate the capital to retire. And unfortunately, sometimes they don’t think about it until it’s too late and they say, okay, I want to sell my firm in a year. Meanwhile, it’s a non sellable asset because there really isn’t a firm. There’s a brilliant founder with a bunch of helpers and there’s nothing there for. Somebody to buy. So you mentioned that sometimes our timing can be off. So there’s this issue about trying to time a sell around. Retirement is a is a puzzle to me. What advice would you give our listeners around retirement and exiting and and trying to thread that very difficult needle? 

Craig Dickens [00:10:38] Yeah, I think, you know, there’s some fundamental ideas and concepts that people should, should think about as they look at the age question. You know, the facts would tell you and I’ll give credit where credit is due. John Warrillow, who wrote the book Built to Sell, did a survey, and 75% of entrepreneurs equate the sale of their business with retirement. Hmm. So and then they have a number, right? 65 or whatever their retirement number. But what if the market’s not going to favor you at that point? You know, the advice we give entrepreneurs and entrepreneurs by nature, you know, we wouldn’t be doing the things we do and running process of companies and building and growing and scaling companies if we weren’t optimists. But I think many times entrepreneurs wait too long, wait too long to sell and wait too long to adjust their business in a downturn or a slowing growth environment. And that’s really while it’s it’s pretty boring, right. But, you know, 3 to 5 years out from your desired event, you should be getting some advice, some counseling to say, okay, you know, when’s the right time? And just like, you know, I’ve got some friends who bought Apple stock and sold it at at a decent number and then it went up another $100 and they were all upset. You kind of need to leave a little juice in the orange, so to speak, when you’re selling your company. So waiting too long really spells a discounted value. But selling early, as long as you know your number, for what it’s worth, and who the buyers might be. And you run a good process, you know, ultimately, I think you’ll be happy with that outcome even if you have to retire a couple of years early. 

Greg Alexander [00:12:16] Yeah. You know, I was on John Morello’s show and I’ve read his books and I think he’s great and he contributes so much to all of us. One thing that he says often is what what the business is worth to you and what the business is worth are two different things. And if you know what the business is worth to you, you have a number, as you just mentioned, and somebody comes along and they’re willing to offer you more than that. Then you sell it. If the business if you know what the business is worth to you and the offers are below that, then you don’t sell it or you adjust your expectations. So this idea of knowing what your number is, it’s a hard thing there to really calculate. And at least and I think I’m similar to many of our members and that I’m an eternal optimist and an entrepreneur in my blood as well. My number keeps moving all the time. So how do you how do you get a first time founder going through an exit for the first time to get to a number that they’d be willing to accept? 

Craig Dickens [00:13:23] Yeah, that’s the great you know, the number one deal killer is seller expectations. Right. And we see it all the time. You know, we have people put it on a piece of paper, the old envelope test write, you know, my number is 30 million. And when we’re haggling, when we’re up around 60 million, and it’s still tough to make that decision. Right? Well, wait a minute. You said 30. Yeah. You know, so it’s tough and it’s an emotional decision. And I would say that I guess if I go back to the fundamental playbook, right. You got to get a valuation. If you’re serious about knowing what you’re worth, you have to get a valuation and bake that into your budget. And really, that will also give you not only the fundamental value, but it’ll give you those market indices. And if you do it for three or four years, right, you can you can begin to see how the market is is valuing your type of company or your sector or, you know, the various anomalies in the market over time. So that’s that’s number one. Got to do it. Number two, having a conversation with your investment banker and then in particular your CPA and saying, okay, I’ve got the tax man, right. He’s always in every transaction. So knowing your net after tax proceeds is huge. Everybody says, oh, the top line number is 60 million. We’ll have half that as an earn out and all sorts of structure. Right. It’s a very different equation. And if Uncle Sam is going to take, you know, up to half of it, you need to know the net number. And then really the third piece that we have, everybody go through is you have to sit down with your wealth manager. They’re going to run something called a monte Carlo, which is going to tell you under certain conditions in the market, if we plan on taking that wealth and you plan on living to 87.3 years old. Right. Here’s what you’ll have to live on. Yeah. Those fundamental decisions and those kind of things that owners need to do. You’d be surprised how many? Don’t really do that. Yeah. They get into a transaction and then they become confused as to what to do when really these are things that you don’t even need an ally. You don’t even need to be in process. You just need to go out and know your worth, know how much you’ll need, and then how much on an after tax basis you’ll need. Then you can start to deal with the emotional issues of, you know, yeah, I might be a little married to my team, I might be doing too much. I don’t have a strong management team, right, to really start to engineer your exit and think like an investor. Yeah. Versus just a lifestyle. Yeah. 

Greg Alexander [00:15:55] Well, listen, I could talk to you about this forever, but and I look forward to our member Q&A coming up. But we’re out of time. So, listen, your commentary on market trends. You know, I think you said the key word here is uncertainty. And that’s the market that we’re in. However, you know, if you adhere to Craig’s advice and I’d advise all of you to do that, it’s a 3 to 5 year look. And in three or five years, things will be very, very different. So taking some of these best practices and implementing some of them now makes a lot of sense. So so Craig, on behalf of the membership, appreciate you contributing today. 

Craig Dickens [00:16:31] Thanks so much, Greg. Enjoyed it. 

Greg Alexander [00:16:33] Okay. All right. And for those that are interested in this topic and others like it, pick up a copy of the book, The Boutique, How to Start Scaling, sell a professional services firm and for those that might see value and meeting people like Craig and being part of a community of preserve, boutique founders and leaders consider joining our mastermind community and you can find it at collective54.com. Thanks again. Take care. 

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Managing Interest When Selling Your Business

Man with grey hair and beard in a business suit shaking a younger man’s hand, while they are surrounded by colleagues.

You are probably receiving some inbound interest in your boutique. Managing this interest correctly is very important. You get only one chance to make a first impression. There are large sums of investment capital available today. This dry powder needs to be deployed. As a result, investors have built marketing teams. These teams spend all day, every day, reaching out to owners like you. Do not overreact to calls coming in from those interested in purchasing your firm. These firms are kissing a lot of frogs. It’s up to you to manage and generate sustained information in your business. 

Importance of investment bankers when selling a business

How should you manage interest in your firm? Be careful not to reveal too much information too early in the process. The idea is to create some competitive tension among possible bidders once you’re ready to sell. The best way to do that is to hire an investment banker.

For those who are unfamiliar with the term investment banker, let me explain. An investment banker works for an investment banking firm. For example, John Doe works for Goldman Sachs, J.P. Morgan, Morgan Stanley, and others. John gets hired to advise companies looking to sell, or buy, companies. In your case, John would help you determine what your firm is worth. 

He and his team would prepare the marketing materials. He would reach out to a group of

potential buyers. And for those interested, he would manage what is known as a process. This involves items such as arranging management meetings, reference calls, and so on. Ultimately, the investment banker is charged with getting you the best deal. They are your representation when selling your business.

Boutiques and investment bankers

Boutiques undergoing the process of selling without a banker are making a mistake. The amount you save on commissions pales in comparison to the amount the banker makes you. For example, banker’s fees can range from 1 percent to as high as 10 percent of the sales price. If you sell for $100 million, this is real money. However, it is not uncommon for a banker to raise the purchase price by 30 to 50 percent. What is better for you: paying 0 percent commission on a $50 million sale or paying a 3 percent commission on a $100 million sale? 

The first-time seller benefits from a banker in more ways than price. Boutique owners selling a business for the first time are inexperienced. They make costly mistakes that prevent a sale from closing. Selling for the right price is one thing. Closing the sale is another. Many deals have fallen apart late in the process due to an inexperienced seller. An investment banker will make sure that you do not shoot yourself in the foot. Deciding on which banker to hire is a difficult decision. 

Tips For Selling Your Company 

Here are some things to be aware of when selling a company. Look for a banker with relevant transaction experience to represent your boutique. For instance, an IT services firm should choose a banker who has sold many IT services firms. Look for comparable transactions over the last four to five years. Do not settle for industry-specific experience. Be sure that the experience is niche specific. Also, size is critical. Investment bankers doing billion-dollar deals are not for you. They are unlikely to take on your project. And if they do, you will be dealing with the junior varsity team.

Look at the dealing background

 Look for broken deals. Ask the banker how many of their assignments do not close and why. Speak directly to the owners of these companies. Hear from them why they were unsuccessful in their attempt to sell their businesses. Seek to understand the process to develop a comprehensive buyer list. Selling boutiques is harder than selling companies with major brand power. The list of possible buyers is very long. No one banker can possibly know all the potential buyers. You need to understand how their process will surface a deep buyer pool.

Source different buyers 

It is important, for instance, that the banker sources both strategic buyers and private equity buyers. Dig into the valuation range they give you. It is necessary to know how they reached these figures. Of course, it comes down to the team. Meet the actual people who will

be working on your deal. As you can see, much goes into the banker selection process. However, the most important lesson is to hire one. This is not the time to do it yourself.

Another mistake made in managing interest is scaring buyers away. Boutique owners often do not have realistic price expectations. A buyer calls, the owner is flattered, and they blurt out a very high number. The buyer politely gets off the phone quickly. They feel that there is no way to get a deal done. The price is way too high and the owner seems nuts. They move on to the next name on the call sheet. Your boutique is your baby. You believe that it is unique and is worth a lot. 

However, you do not determine the price when selling a business. The market does. Your boutique is worth what someone is willing to pay for it. Nothing more and nothing less. It may make sense to suggest an initial price. This is, however, later in the process. And, please, if you do, be sure it that is market based and realistic.

Structure for success

Buyers care a lot about deal structures. In some cases as much as price. Be careful not to scare buyers away with an unrealistic structure. It is important to understand how deals like yours are structured. For instance, selling to private equity often requires rolling over some equity. If you are unwilling to do this, many private equity firms will walk away. Or, if selling to a market leader, they will likely require an earn-out. If you are unwilling to accommodate an earn-out, your buyer pool will shrink. The market will dictate the terms. Understand the common structures and try to align with these practices.

This will prevent you from running off possible buyers. Also, understand that prices and structures change a lot. Boutique owners often overreact to opening bids. They get emotional during the process. Opening bids are not insults. They are just data inputs. The price you get should increase as you go through the process. As competitors compete for your boutique, prices go up. 

Unfortunately, some boutique owners get outmaneuvered by savvy buyers. At times, acquirers will throw out a big number, pending due diligence. The owner’s ego becomes inflated, and they let the fox inside the hen house. The potential buyer proceeds to lower their number based on diligence findings. To the owner, it feels like a bait and switch. And, in this instance, it is. Just remember, the sales process is a nine- to twelve-month roller-coaster ride. Stay in your seat with your seat belt on.

Attorneys and accountants 

Sometimes deals take too long and cost too much. This happens when the owner does not understand roles. A banker is not a lawyer. The banker will find you a buyer and get you a deal. The attorney(s) then need to negotiate the terms. This is an additional cost and takes some time. And, like choosing a banker, selecting the right attorney matters. Do not go cheap here. You get what you pay for. The last thing you want is a lawsuit two years postsale trying to claw back proceeds. Hire the best attorney you can find and let them do their job. And then there are the accountants. 

Deal Structures

Deal structures can impact the tax bill a lot. You will want to keep as much of the proceeds as possible. How the transaction is booked can make a big difference. For example, did you know that a dollar amount will be assigned to your non-compete? This dollar amount will be recognized as ordinary income and not capital gains. You will pay ordinary income taxes on that in April. I did not know this at the time of my sale. But my tax lawyer and accountant did. And they negotiated down this tax liability, which saved me a lot of money. Again, you get what you pay for. Hire the best advisers you can.

As you can see, there is a lot to consider when managing interest.

Are you prepared to do so?

1. Are investors inquiring about buying your firm?

2. Are you making a good first impression by not divulging too much information too early?

3. Have you created the appropriate amount of competitive tension among the buyers?

4. Do you know who the right investment banker is for you?

5. Have you hired them?

6. Do you have a realistic, market-based price in your mind?

7. Have you waited the appropriate amount of time before suggesting a price?

8. Do you understand the typical deal structures for boutiques like yours?

9. Are you prepared to engage and let prices drift up over time?

10. Have you hired the best attorneys and accountants to complete the transaction?

If you answered yes to eight or more of these questions, you are prepared to manage interest well. You are likely to make a great first impression.

If you answered no to eight or more of these questions, you are not prepared to manage interest well. You are likely to run off potential buyers during the process.

Summary 

You get only one chance to make a first impression. There is a lot of available investment capital. The phone is going to ring. The email in-box is going to get pinged. The social media invitations will be coming in. Be extra careful to avoid the common mistakes made by first-time boutique sellers.

Get the best experience when selling your business 

Selling your company is going to take experience. It’s also going to take experience to get your boutique to the point where it’s ready to sell. You’ll want the best information out there on business valuation, and to take you through the process of selling. 

For more insights into how to upscale your consulting business, listen to the Collective 54 podcast today or join our mastermind group.

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Episode 84 – A Marketing Agency’s Approach to Sharing Equity with Key Employees – Member Case with Kelsey Raymond

There are many ways to split up a partnership. And the equity split needs to evolve over time. On this episode, Kelsey Raymond, Co-Founder & Chief Executive Officer at Influence & Co., shares how she successfully replicated herself by developing a key employee into her COO, so she can run the business on her own terms.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that aren’t familiar with us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. My name is Greg Alexander and I’m the founder and I’ll be your host today. And on this episode, we’re going to talk about ownership, structure, the right one, how to split up equity and all of the associated challenges with that. And the reason why members should care about this topic is because converting income into wealth is how boutique founders realize their dreams. Generating a high W2 or K-1 is easy. Most of our founders are exceptional people, and generating high incomes has not been a challenge for them. However, building a large balance sheet is hard. Net worth Trump’s net income and net worth is generated from ownership. We want to make sure that our scaling activities are producing lots of personal, net worth and wealth for our founders. And sometimes that requires sharing equity with others that can help grow the pie, so to speak. So therefore, the right ownership structure is so important. So we have a role model today, Kelsey Raymond. And Kelsey is an expert on this. And she’s someone who has created wealth for herself and converted income into wealth. It’s built an amazing business. And she’s going to tell us a little bit about her journey and how she pulled this off because so many of us are trying to do it. So. Kelsey, welcome to the show and please introduce yourself. 

Kelsey Raymond [00:01:58] Thank you. Thank you for having me here. As you said, my name is Kelsey Raymond. I’m the CEO and founder of Influence and CO, which is a content marketing agency. And yeah, I have been doing it for about ten years and have learned a lot and made a lot of mistakes along the way. So hopefully others can learn from some of those. 

Various Speakers [00:02:21] Okay, great. And I wanted to talk a little bit about equity and equity splits. And as I understand it, but I’m sure there’s more to the story that you have a CEO, I believe her name is Alyssa, and she’s been pretty important to you. And and you have shared some wealth with her. As I understand it, she’s an equity owner in your firm. Tell us a little bit about how that evolved over time and and why you decided to go that route. 

Kelsey Raymond [00:02:53] Absolutely. So the first iteration of this, from the beginning of the company, since we started turning a profit, my former co-founder and I decided that it was important to align incentives with the whole team. So we from the day that we started turning a profit, we allocated 10% of the company’s profit for a profit sharing pool to pay back to the rest of the team. This was always, you know, communicated as this is at our discretion. If we have a really bad quarter, it’s not going to happen. You know, don’t count on it. Don’t go plan to, you know, put a pool in the ground or anything like that. But but so from there, that was a way that, you know, even as a small team of 12 people, we had this profit sharing pool and everyone got different amounts determined by their role, their seniority, their performance. And it was paid out on a quarterly basis. Mm hmm. Alyssa was our first ever full time employee. So she’s been here since day one. I very much consider her, you know, an unofficial co-founder from the beginning. So as that her profit sharing amount was always the highest or on the higher end of everyone else on the team. And over time, we saw that one way to really show her how much we valued her was to give her a guaranteed amount for that. So it changed from, hey, you’re going to get some percentage to, you know, we’re allocating 10% for the whole team. 2% is just for you. So, you know, every quarter you’re going to be getting 2% of the profits. But at that time, it wasn’t equity. It was really I think most people would call it phantom stock. So if she chose to leave the company, that was going to go away. So I share this is kind of a an evolution over time of both Alice’s role changing in the organization and really, you know, her stepping up more and more. I wanted to tie her in more and more as her role changed. So once she became the CEO, I really, you know, and my co-founder left. So that’s a whole other story there. But I really, really saw that it would make sense for her to have some true equity. And one of the reasons for that is that we were having conversations that we were open to the idea of selling the business at some point. And based on her, the profit sharing structure that she had, she wouldn’t have been included in any exit, any sale. And so went to her and said, you know, I really would like for you to come in as an equity partner. You know, up until this point, we’ve just we’ve given you this 2%. If you want to buy in at, you know, up to 5%. I’d like to welcome you to do that. And the way that we structured it is that we only asked her to pay 20% of that purchase price for the equity that she was buying upfront. And then the rest was paid out of the proceeds of her distributions. So that really allowed for. Her to have true equity in the company without having to come up with a bunch of money upfront, but still having some skin in the game since, you know, I had brought a lot to the table when we had got the loan and everything like that. So that’s kind of the evolution over time. And then we actually did end up selling February 4th. Melissa and I are still running the company, so it’s an interesting structure. But with that, you know, her her return on what she invested to become a true equity partner, she said, is, you know, the best investment she’s ever made. Times 1000. So it all it’s all worked out really well. And it made me really happy that, you know, that opportunity that made me more wealth worth selling that business, that she was really included in that because she’s been so key and so integral to the organization. Yeah. 

Greg Alexander [00:07:04] Well, so first off, congratulations on your sale. We’re very proud of you. And I hope it was everything you dreamed it to be. But I will say I’m glad you’re still running the shop. And and it sounds like you’re going to go on a journey. Did you sell to a private equity firm? 

Kelsey Raymond [00:07:18] We did. We did. It’s an interesting, interesting structure, which I think is probably pretty standard. But, you know, part of the value was in cash up front, but then part of it’s in over an hour now and part of it is enrolled equity. And so that’s where, you know, Alicia is still included in that as well. So that’s, you know, rolling that into hopefully something a bigger pie in the future. 

Greg Alexander [00:07:39] Yeah. So your incentives remain to be aligned and hopefully the second bite of the apple is even bigger than the first bite of the apple, as they like to say. Okay, so I loved the story on how it evolved over time and the vision that you had from the get go of aligning incentives and setting aside this profit sharing pool. And then when you decided that this one individual was worth buying in and having real equity coming up with a creative, creative financial structure to make that happen, because sometimes when when members try to do that, they go to people and they make the offer, but the people don’t have the money. And it. Exactly. It’s prohibitive. Right. So and I did that with my firm and it worked out really well. There are some challenges with that. I’m sure you uncovered, for example, you probably had to have a partnership agreement at that point that that, you know, governed what you can and cannot do because you now have a fiduciary responsibility to it, to another party. So you had to weigh all the headache of doing this with the benefit. So what was kind of your pros and cons analysis there? 

Kelsey Raymond [00:08:43] Yeah, that’s a great question. I think the the biggest pros and cons analysis was. Replacing a. Like. I know. I think that she is absolutely capable to go out and start something of her own. Not even if it would just be a competitor. She could start any company. Yeah, she’s incredible. And so knowing that she’s going, she. She knows her value enough that even if she loves working with me and we love, you know, everything that we’re doing together, she knows that she could do something on her own. And so that was, you know, the biggest thing in the pro column is what can I do to make sure that she knows she’s valued and that, you know, she’s going to stick around for the long term. So that was the biggest thing I will share, that I had an instance with an employee that was leaving who also had a guaranteed portion of profit. This was our former CMO and she had asked when she was leaving, Hey, can I can I buy that portion like I’m leaving? And I know that that goes away, but I think the company is going to continue to do really well. So can I buy in and get that percentage? And the answer to that was no, because there wasn’t value there to me, because she wasn’t remaining on. Right. And so with Alissa, I really was looking at is this going to keep this person motivated and incentivized to stay with the company? And looking at, you know, if I knew that if we were going to sell someday, I needed her in my court on that. I needed it to be something that she was excited about as well. And so having those incentives aligned for her on a potential sale was really, really important to that as well. Yeah. 

Greg Alexander [00:10:29] What’s so great about the story is that her investment and the equity she got as a result of that materialized. Exactly. Yeah. Sometimes I hear, unfortunately with other members when investments made and you’re making an investment in illiquid private company. So everything has to go right in order for that to get liquidated and in it turn into real money, which it did in this case, which is such a great example of that. Sometimes when private equity makes an investment in a firm like yours, they want meaning the new investors want a broader set of owners. They sometimes they set aside, for example, I don’t know, maybe 10 to 20% of the equity in stock options. And they want to spread ownership across instead of just you and Alissa, maybe you, Alissa, and three or four others that that happened in this case. 

Kelsey Raymond [00:11:21] It didn’t. The conversation that we did have is that they are creating a liquidity pool, liquidity bonus pool for when the that second bite of the apple when it the entity as a whole because we’re rolled up with a few other agencies now sells again they’ve asked me to identify a few other people in the organization that I think are other other people that we really want to make sure are incentivized to stay, that they see that same vision and that they would be included in that liquidity bonus pool. That, though, is different than equity because they would have to be remaining at the organization during that time frame for that to materialize for them. 

Greg Alexander [00:12:07] Okay, I see. So they are aligning incentives and doing it with a liquidity bonus pool as opposed to the stock option, which sometimes happens. But I’m glad to hear that they did that. You know, you mentioned something about your CMO and her wanting to buy her phantom stock, but then leave and you had the wisdom not to do that. When I see people doing that, they create this thing called debt equity. And debt equity is when somebody owns a piece of your firm, but they don’t work there. So they’re really not creating an equity. And when you go to sell the firm down the road, it becomes a real problem because somebody says, okay, I’m paying this amount of money for this piece of equity, but there’s not there’s no one behind it. Yep. Did you get lucky there? Did somebody give you that advice? Have you you know, how did you know enough not to do that? 

Kelsey Raymond [00:12:55] Yeah. I’m trying to think. I think the biggest thing for me because this I respect the heck out of this for this woman that asked. The biggest thing for me, though, was also kind of creating a precedent for if I said yes to that, we had other people that were involved in profit sharing that may also want to buy in. I’d have to have a really good reason to tell them no if they were still with the company. And I let someone buy in who’s not with the company. So I think that was a big case of it is thinking through, you know, doing this for one person on our leadership team, anything that has anything to do around compensation, equity ownership, I assume that everyone else knows everyone else’s business. Yeah, because I think that’s the only way you can make smart decisions is if I assume that if I tell her yes, she’s going. You go tell every single other person on the team, which she wouldn’t have. But if I make that assumption, then I can make the decision through that framework of what I be willing to do this for every person that asks. And if the answer is no, then I need to be really careful about setting that precedent. Where was Alyssa? She was the first employee on the team. I think many people probably assumed she was an owner even when she wasn’t. And so telling the team the why behind Alyssa is the only one that was given that opportunity was a very easy explanation and something that I knew I could stand behind. 

Greg Alexander [00:14:22] Yeah. And they were probably happy for. 

Kelsey Raymond [00:14:25] Absolutely. They were excited because I think, you know, they also saw that as great a loss is not going anywhere. We don’t want her to. 

Greg Alexander [00:14:31] Yeah, exactly. When you weren’t selling the equity to Alyssa, how did you put a price on it? 

Kelsey Raymond [00:14:38] Yeah. So this is going to be I’m going to try to sell the short version, but interest. What made this even more interesting is that I started the company with two founders back in 2011. Two other co-founders. One of the co-founders owned a. Basically what turned into a private equity firm. It wasn’t a private equity firm at the time. It was kind of like an incubator. It was very unique model. And so he brought all of the money to the table. And myself and the other cofounder were the ones executing. That was in 2011. I had a very, very small percentage of the company over time, seeing that this other co-founder brought the money to the table, wasn’t involved in operations at all. My other co-founder wanted to do something different. It seemed like the timing was right for me to buy both of them out. So I bought both of them out in 2018. Alissa bought in in 2020. So what we were able to do is I said, you know, I would feel comfortable giving you the same deal that I got. So let’s look at the multiple that I bought it on of EBITA and apply that to our last trailing 12 months EBITA and use that same multiple. So we both agreed that was a fair way to do it because it was basically the same that I bought in at as far as the multiple. And she thought it was a really fair deal as well. 

Greg Alexander [00:16:02] Yeah, very good. So you had the good fortune there of having precedent, you know, and you were generous enough to give her the deal that you got instead of trying to mark up her deal. Yeah. Which is fantastic. And the proper way to handle that. So. Well, listen, I could talk to you about this forever, but we’re. We’re at our time limit here. I do look forward to the member Q&A, which we’ll do here in a few weeks. But, you know, the way that these collectives work is people like you deposit knowledge into the collective body of wisdom, and we all benefit from that. And every time a smart person does that, the whole membership benefits. So. So Kelsey, I literally on behalf of the membership, your story is fantastic. It’s inspirational, it’s educational. And I just wanted to thank you for contributing today. 

Kelsey Raymond [00:16:44] Absolutely. It’s fun to get to talk about these things. And like I said, I’ve learned a lot. So anytime other people can learn from the things I’ve learned along the way, I appreciate it. 


Greg Alexander [00:16:52] Okay. Fair. Fantastic. Okay. And for those that are listening, if you want to know more about this subject and others like it, pick up a copy of the book, The Boutique How to Start Scale and Sell a Pro Serv Firm. And if you’re not a member and you’re listening to this and you want to meet brilliant people like Kelsey and hear these types of stories, consider joining our mastermind community as you can find out, collective54.com. Thanks again. Have a good rest of your day.

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Redesigning Your Business Development Process to Scale

A group of business professionals meeting in a boardroom.

As  your boutique graduates from start-up to scale, business development needs to change. The primary difference is that at scale, firms have an established client roster. This means that they can generate revenue from existing clients. Start-ups spend their business development efforts exclusively on acquiring new clients. Scale firms split their time between acquiring new clients and developing existing clients. This ignites growth. Why? It is a lot easier to sell to existing clients.

How your scalable plan changes post-start-up

The cost to acquire new clients is expensive. It takes a long time. Start-up companies need to get in front of the new client. This requires a dedicated marketing push and time for word of mouth to spread. Articles must be published, speeches made, podcasts produced, books written and social media posts made. This wide net approach will catch a lot of fish that need to be sorted and qualified.

On top of this, RFPs require responses. Competitive bake-offs require decks to be created. Opportunities must be managed with care. Relationships need to be nurtured. Lots of miles get logged and many hotel beds get filled. References need to be contacted. I am exhausted just writing about it. All these activities take a consistent level of effort. This requires staff, time, and budget. It is very expensive. 

Once you start scaling your business, this starts to change. True, a steady stream of new clients is necessary for a healthy scale boutique. However, these boutiques also count on repeat business from their existing customers. This revenue reduces the urgency of seeking out new customers. And it costs much less to generate; thus, it spikes profits. This blog will focus on generating revenue from existing clients. This is the scale activity. 

How to make a business development plan work

To start creating a scalable plan, you need a budget. Scaling a business for growth requires a business development budget which should include both dollars and hours.

Here, dollars refers to the discretionary funds you will use to invest in your existing clients. Your hours are the non-billable time that your staff will invest in those existing clients. When scaling their business, many boutiques incorrectly assume that business from existing clients just happens. This is not true. These clients will require investment in time and money. 

Case study: Energy efficiency inspection business

Let’s take a look at a hypothetical example to demonstrate scaling a business for growth. We’ll use the energy efficiency inspection industry as an example. A business in this industry provides energy audits for companies looking for a way to reduce their utility bills. The technicians from this energy efficiency business have been cross-trained in the firm’s business development process. 

While delivering the work, they are listening for new opportunities. The technicians’ expense reports are heavily monitored. However, the goal is not to reduce expenses but to increase them. 

The technicians need to make the client feel important. They should show up to every meeting with Starbucks for everyone. The technicians should act like team members, not salespeople. The clients trust the technicians because they are not salespeople. These technicians often point out needs that the client was unaware of. These leads fill the funnel. In some cases, they convert to billings instantly. The cost to acquire this type of business is very little. 

Share of wallet

Boutiques are often horrified the first time they do a share of wallet exercise. This reveals how much of a client’s total spend is spent with you. Boutiques assume that they are getting 100 percent of a client’s business. They are not. Clients have new needs all the time. They give business to other firms without you even knowing about it. Why? They are unaware of your full capabilities. Unless something is seriously wrong with the relationship, this should be yours. Capturing this low-hanging fruit is a simple way to scale. 

Building a scalable plan

Capturing this low-hanging fruit requires that you first ask yourself some questions. Which of your clients could give you additional business? How could you invest to capture this business? Which activities are you most likely to succeed at? 

The solution to this problem is easily implemented. Start by doing a share of wallet exercise. This should include current and previous clients. This will produce a list of accounts you should invest in. Focus first on your current client roster. You have a team deployed there right now.  Redesign your business development process to focus on identifying new opportunities. 

Train your team on the new business development process and get them to find new opportunities with your existing clients. Afterward, continue your scalable plan by examining your previous clients. Nurture these relationships. Invest non-billable time in activities that these clients would value. Develop a business development process that is specific to those clients. Train a team in that business development process and task them with reactivating these dormant clients. 

Boutiques should generate approximately 80% of their revenue from existing clients and 20% from new clients. If your numbers differ significantly, rethink your business development efforts. 

How do I know when I’m ready to scale my business? 

There’s no hard line that marks when you transition from a start-up to a scaled business. You don’t magically wake up one morning with enough clients that you can slow down your rate of client acquisition. The most important thing you can do is communicate constantly with current clients. You need to understand their business nearly as well as they do. You need to have a deep understanding of the role that your business plays in theirs. 

Still uncertain? Then try taking this quick self-quiz below. If you answer “yes” to eight or more of these questions, then it might be time to consider yourself a scaling business and start focusing more on client development.

1. Are you generating a lot of business from existing clients? 

2. Have you reduced your need for new clients substantially? 

3. Do you understand your share of wallet for your current clients? 

4. Are your current clients up to date on your full capabilities? 

5. Are you investing non-billable hours directly into your existing clients? 

6. Have you redesigned your business development process to prioritize existing clients? 

7. Have you trained your employees on the new business development process? 

8. Are your “delivery teams” given goals and measured on finding new opportunities? 

9. Are the employees who are best at business development your cultural heroes? 

10. Do you make sure that your current clients know how important they are to you? 

Get the best scalable plan for your consulting business 

Scaling your business will take hard work and patience. You need to make sure your business development process is flexible enough to grow over time, and that you have the right team members to support and help you thrive, no matter what challenges you take on. 
For more insights into how to upscale your consulting business, listen to the Collective 54 podcast today or join our mastermind group.

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Episode 83 – How a Brave Founder Scaled his Software Development Firm by Confronting his Blind Spots – Member Case with Alan Haefele

Acquirers want to understand your methodologies, how often they are updated, and what changes are coming in the future. On this episode, we interview Alan Haefele, Owner & Managing Director of Haefele Software, to understand how to integrate continuous improvement as part of a company’s culture and DNA.  

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that aren’t familiar with us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. My name is Greg Alexander. I’m the founder and I’ll be your host today. And on this episode we’re going to discuss continuous improvement. Now, why are we going to talk about continuous improvement? Well. Many times, clients and prospects have a mentality that says, What have you done for me lately? Buyers of boutique professional services very often are purchasing what you’re going to become, not necessarily who you are today. I wouldn’t go so far as to say that yesterday was worthless. But, you know, if your business depends on generating recurring revenue, expansion, revenue from existing clients, it’s very important that you continue to evolve. And one of the ways to do that is through continuous improvement. And it keeps you on the leading edge. It makes your services and your people interesting. It makes you attractive to prospects, talent, maybe even a potential acquirer at one point. So we have a role model for us today. His name is Alan Haefele, and Alan is, we believe, an expert on this subject. And his firm follows a continuous improvement methodology, so to speak. And I’ve asked Alan to come on the call here and talk to us about that today. But before we jump into the details, Alan, if it’s okay, would you mind giving a proper introduction? 

Alan Haefele [00:02:04] Yes. Thanks for having me, Greg. Yeah, slight pronunciation on the name, but Alan Haefele.

Greg Alexander [00:02:12] Oh, I’m sorry. I apologize. 

Alan Haefele [00:02:14] No problem. I ran a boutique, hopefully software. It’s a software consulting firm with a team in London and largely in South Africa, in Cape Town, where I am today. We are about 55 of us and we are specialists in the net. So Microsoft ecosystem and largely specialists in B-to-B, a lot of logistics, financial services and banking kind of clients. And yeah, we’re on this journey to become more and more of a wisdom firm and collective of course is helping us on that. But yeah, that’s us. 

Greg Alexander [00:02:47] Okay. Well, very good. So the team tells me that this concept of continuous improvement is literally part of the DNA of your firm, and it’s very methodical and very structured and disciplined. So maybe as a way to kick this off, if we could maybe start at 30,000 feet and give the audience a feel by providing an outline as to what it is that you do in this area. 

Alan Haefele [00:03:11] Sure. I think by definition in this, it’s hard to be an expert in it because you kind of are always continuously improving. So it’s always hard to say that you’ve done it. But I think, yeah, the the what stood out for me on this topic was actually how we started. It became a value almost. This people over process was almost one of our first kind of catch phrases when we were four or five, six people. And to be honest, I think it was born out of a vulnerability on my side. I actually have no idea what I’m doing. So let me not put let me put draft at the end of everything and let me put version of version number at the end of everything, whether it was our hiring process or our interview process or our initial sales messaging, everything became a version 1.1 or a version 1.6. And out of that, the people of the process became our kind of mantra, and that any process was completely up for grabs to be torn up and redone almost at any time. And that, I think, infused a lot into our culture today, where people are the process is still a very big part of what we do. It obviously manifests differently now 50 to 60 people, but there is this inherent understanding that every process you see is one phone call away. One team’s message to me from being overhauled into version 2.1 or fully overhauled from a version two to a version three. So we’ve got a couple bigger ones. So like our, our career progression is currently on a version four and our sales team is currently on a version three and we kind of each understand what that means. And if you’ve been around long enough, you will know what version two was and you would know what version one was, and we’ll sort of what the features of it that made that version fail or why it became a version two. And yeah, it kind of started with the adage of every feature on an airplane is the result of some tragedy. Right? And it’s almost always having a spirit of, well, the reason airplanes have a fuselage in that position is because some plane caught on flames and killed a whole lot of people. And that’s now why the fuselage is in a different place. So, yeah, we kind of have that mantra kind of baked into a lot of what we do. 

Greg Alexander [00:05:33] Yeah, that’s a great overview and that’s a horrifying example of the fuselage catching, catching fire. But it is a great way to think about it for sure. And sometimes these things are born out of necessity. You know, you talked about version three and version four and version one and how different functions within the company in different people are on different versions, which I find very interesting because, you know, our membership is, is made up of boutiques, which means they’re on their journey. They’re not well-established, mature organizations. They’re rapidly iterating as they move through their lifecycle, grow, scale and exit. And you’re clearly doing that for sure. Sometimes the rate of change can be unsettling for folks and they say, hey, you know, we we just got the new process. Let us run that for a while before we update it. Update it yet again. Have you run into that? And if so, how have you dealt with it? 

Alan Haefele [00:06:34] Yeah, we have run into it. I think doing the iterative approach is more freeing than binding because almost everything is just an iteration, so it doesn’t really matter if you get something wrong in this iteration. So the art is more around, Well, are we changing enough in this iteration that’s worth doing? Okay, cool. Now we’re going to call it version three, and then we normally allocate some kind of a time limit on it. We’ve gotten better at this more recently because sometimes we would let an iteration run for too long because you now move on to another part of the business, and then you don’t look at how that iteration has gone, but we’ve sold it by just being more conscious per area as to how long in iteration is. We’ve kind of learned this a bit from the software industry itself, which is obviously our game in understanding the Agile principles and understanding Scrum and how you build software for a client. And then just retrofitting that mindset onto the other parts of the business, whether it be delivery, technical, finance, marketing and a key part of that Scrum Agile methodology is this concept of a sprint. So how long is the iteration in a software setting? The shorter, the better. It might be a fortnight, but in other parts of the business, a sprint might be more like six months. We might be more like six months. So we’ll, we’ll just get a little bit clearer that, okay, this iteration of this experiment or this initiative that we’re going to do, we’re going to put a time limit on it of about six months. I think that’s fair. Or another one, you might go, look, we’re going to know whether this is going to work within a month. So let’s make this sprint for that classification a month. Whereas in marketing you might go, look, marketing is a bit, you know, if you’re trying something new there, it’s not going to change overnight. You better give it 6 to 9 months. Okay, let’s make that a nine month sprint before we decide if this is a baby in this bathwater, that we need to throw it all out or reassess where we’re at. Hmm. 

Greg Alexander [00:08:29] That’s an interesting answer. I love the fact that you’re having the conversation about, you know, is this really large enough to be an iteration or a version, I should say, and then your time stamping it, you know, I think that’s a great way to to think about this in kind of version control, if you will. What advice would you give members who are wondering how to measure this? So, for example, oftentimes I’m on the phone with members and their profit margins are not expanding. They’re flat, and they think that their profit margins are acceptable because that’s the data that they have and that’s the way it’s always been. But I’m in a luxurious position and that I talk to lots of members and I see profit margins across lots of firms. And sometimes I can see just on this example that there there’s an opportunity for them to expand their margins. But they they’re not doing it because they’re not aware of that. Which begs the question in the context of today’s call regarding continuous improvement, is, is how do you know it’s working, you know, across all the things, everything from how it’s impacting the clients to our impact in the employees to how it’s impacting the firm in the aggregate. How do you measure? You know, after the fact, I guess, the effect of whatever improvement that was made. 

Alan Haefele [00:09:53] You know, it is a lot harder our current iteration and on this I don’t think it is complete. We have it as as part of our sort of okay rhythm that we are assessing which initiatives were previously in play. And we do that as a leadership team or extended leadership team so that you are getting the full spectrum from each angle so that our lead and delivery and head of operations and head of finance and head of marketing and sales are all collectively around the table once a month, sort of assessing the experiments that are at play. So I suppose you could make that into a regular cadence would be monthly with the leadership team or as part of the okay hours. I’ve baked some of this into the okay hours because you make a good point around. A large part of continuous improvement is complacency because you think it’s good enough, it’s fine. And you don’t realize actually no, there is improvement there. And so part of that of baked into the okay where I sort of like a two parter every quarter for every lead, they need to find something on the outside world and internalize it. So in other words, have to try something from the outside, which means they have to go and find that book, read that, listen to that podcast, connect with some kind of external medium in their field and internalize one thing and to try one thing. And then the second is to actually improve something. So that might be something that’s already in the company, but that’s annoying them. So it makes them stop and think about what’s annoying them and then isolate it. And then the next quarter they need to try something and improve something and that improving something is not something that already exists and trying something, they have to go out and find it. So interestingly, collective 54 was my okay, ask me to find something and bring it in because everybody can kind of find this thing. But what is the what is the found to do in this area? And so my one thing for my quarter a couple of quarters ago was, okay, I’m going to sign up for a for another group, see if I can learn something. Yeah. 

Greg Alexander [00:12:01] Well, we’re glad you’re here for sure. And for those that aren’t familiar with OK Arc could you tell everybody what that is? 

Alan Haefele [00:12:09] Yeah. Objective key results. So it’s a sort of a framework of goal setting in a way which helps you outline a set of objectives that you want to achieve. And then as minimalist as you can identify the key results that would indicate that you’re on track for that objective. So it takes some takes some rigor. I would say we’re on across version four at the moment in how it’s defined and how it was used. Our first iteration was far too verbose and far too admin heavy. Now we’ve started right back to a simpler piece instead of objectives for the next quarter per region. And these are the things that these are the key results that would stack up to that objective. 

Greg Alexander [00:12:53] Okay, very good. And Alan, one of the things that drew me to you for this subject was I understand that you do a companywide kind of retrospective every three months. I’d love to hear more about that. 

Alan Haefele [00:13:07] Yeah, a retrospective is a something that we’ve retrofitted from Scrum and Agile, which is at the end of every sprint of built software, a healthy team will have a healthy retro. And a healthy retro is where you are expecting the team to reflect on the last sprint on the last week or two weeks. And you’re mean to get brutal and you mean to say what worked and what didn’t worked and how you can find improvement in the next sprint. So it kind of like bakes in a bit of. Poking and criticism and then finding actions and identifying something that you’re going to change in the next spring. So we’re going to borrowed that and put it to a number of places in the company. So we’ve actually got a a team retro. So how the team as a whole is working for a particular client. So that isn’t necessarily how the client’s output has gone because that’s what way the client is involved. And they’re listening to the to how the sprint is gone. We’ll do a team retro just to understand how the team is feeling generally about that client and the value that we’re adding. And if we are still a match for that client and trying to improve areas of our delivery for a particular client, we will occasion do a client retro, which is probably every six months where we look at all the clients on the roster and we classify them by a bunch of attributes in trying to work out if they are still the right fit for us. In all we are, we performing a wisdom role or we performing a method role just to determine if this client is on the path to being fired or is this the client that’s on the right path? We occasionally do more of like a resignation retro, although I do those more myself, which is sort of like an upgrade from a from an exit interview because I kind of view most resignations as those plane crashes. Right. There’s a resignation that is that is of consequence. That’s not just somebody you know, it’s not it’s a resignation that was avoidable. Then that to me normally highlights a broken process or a broken client selection or a broken something. And then there’s normally some kind of iteration that needs to come out of that. But then you and your point of a company retro are either every 3 to 6 months, depending on how active we are. On the other retros, we have a sort of a company wide survey which just touches on ten sort of high level questions. And then we have the entire company breaks for half a day to a day into groups of ten and we basically run almost a software retro without the leadership team. So it’s very much for the team by the team facilitated by our business analysts as if they were doing analysis with the client, but just on ourselves. And they facilitate a retrospective, which is basically to tease out all kinds of positive feedback, negative feedback, no holds barred, say what you like, criticize what you like. It’s done in a way with sort of sticky notes or digital sticky notes in mirror. We used to do it obviously face to face, which is a lot more fun. And out of the sticky notes you accumulate the sticky notes into themes. So the facilitator will then see there’s a lot of themes around, you know, the staff being unhappy about, you know, meeting more benefits or missing these kind of benefits or pay bans or not thinking our client mixes. Right. Or and you can start to see the outliers like one or two individuals complaining about something that’s new or yeah. So you sort of identify these themes and then the facilitator breaks something to positive and negative. So there’s also a time for positive reflection. So what parts company have you really enjoyed in the last three months or six months? And out of that, loads of feedback. It’s sometimes daunting because sometimes you get feedback you don’t want to hear, I guess. And but in a way it’s about the blind spot. I guess they’re highlighting the blind spot from the team’s perspective or from the lead’s perspective. And we have a. Our latest iteration for the last couple of years, we ask a key question, which is the same question that it’s almost been in since our inception as part of that DNA is. If you had Alans job. In other words, if you ran this company, what would you fix first? So it’s like if paraphrasing other ways along the way, as if Allen gave you the keys to the kingdom for six months. What would you fix first? And it’s a way to get everybody to. Not just criticize because it’s very easy to criticize how the company could be run better or if there’s an issue in some part of the company is too great, like, okay, well, if you if if you have a better idea, it’s not just tell me what your latest gripe is. It’s more if you had my job, what would you fix first? And that’s that’s been really interesting. A lot of times then nobody knows what to say, but occasionally you get a lot of cool blind spot feedback. 

Greg Alexander [00:18:06] Yeah, for sure. Well, listen, you’re clearly an expert in this area and we’re button up on our time window here. But I look forward to the member session where the members can ask you questions. But on behalf of the membership, I just wanted to thank you for your time today. I learned a lot, you know, courageous and asking that type of feedback and being that open to discovering blind spots, including your own up and down the organization. So really inspirational. Thanks for being here now. 

Alan Haefele [00:18:36] Thank you. Yeah, thanks for the time. 

Greg Alexander [00:18:38] Okay. And for those that are interested in this topic and others like it, you can pick up a copy of our book, The Boutique How to Start School and Sell a Professional Services Firm. And for those that are interested in meaning, leaders of professional services firms like Alan, consider joining our mastermind community and you can find it at collective54.com. Thanks again. Take care.

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Five Valuable Benefits of a Peer-to-Peer Network Mastermind Community

A group of people around a table exchanging advice. ( mastermind community )

What is a Mastermind Community? 

Mastermind communities bring together professionals from a variety of backgrounds to learn from one another and share expertise and experiences. These communities are typically peer-to-peer-based groups, where every participant not only plays the role of a mentor, but that of a mentee as well. The overall goal of a mastermind community is to simply help one another. Whether you’re looking for advice or want to share your knowledge, mastermind communities benefit everyone. While there are numerous benefits to a mastermind community, five main benefits stand out: 

  1. Receiving Immediate Feedback

Have you ever made a business decision that didn’t pan out the way you expected? Maybe you made the decision hoping it would go well, only to realize that you chose wrong? Well, that’s completely normal. As a business owner, you’re expected to have all the answers, but that’s an unrealistic expectation. The notion that one person should be proficient across every avenue of business is far-fetched at best. A team of people, on the other hand, that’s not far-fetched at all. 

One of the greatest benefits of a mastermind community is immediate feedback and insight. Unless you’re attempting something revolutionary, chances are, someone else has already done something similar. Whether it be product pricing or infrastructure management, others have already set the precedent. They can teach you what went wrong with that attempt, and what went right. Learn from their mistakes and successes, and you’re bound to succeed.

  1. Taking a Holistic Approach

Joining a mastermind community allows you to take a holistic approach to everything you do. By collaborating with other minds, you’re bringing in different knowledge, experience and skill sets. For example, accountants are great with numbers. They know everything there is to know about accounting, from financial management to personal investments. However, what happens if they need to solve something that’s not within the realm of their expertise? Perhaps an accounting firm owner has a few employees that aren’t contributing enough and needs advice on how to manage their team. Well, chances are, there’s an owner in your mastermind community that’s willing to share insights with you on team management. Mastermind communities are full of different professional experiences, which in turn allows for a greater variety of perspectives and insights to be shared. 

  1. Rising Above the Competition

Mastermind communities provide a huge advantage that will allow you to rise above your competition and lead the charge in your industry. While your competition struggles with difficult decisions, you’ll be supported by your community. A hundred minds will be with you, supporting you through every challenge along the way. 

  1. Growing as a Person

Many people initially think that mastermind communities are simply for brainstorming. After joining one however, they start to see that that’s not entirely true. It’s definitely great for brainstorming, but it’s also great for your own personal development. Working with other people from other backgrounds is an excellent way to develop new skills. Whether it be new ways to learn, new ways to collaborate, or new ways to teach. The possibilities are endless. 

  1. Support and Celebration

Above all else, mastermind communities are a place in which you can go to receive professional support. Your peers want you to succeed and will celebrate when you do. Mastermind communities are more than just a place to share advice and experience, they’re a place to build and nurture professional relationships of all kinds. 

Final Thoughts

At the end of the day, the benefits of a mastermind community are hard to deny. The simple truth is, 100 minds are better than one. Here at Collective 54, we created the first mastermind community for founders and owners of boutique professional services firms. Our members help one another to make more, work less and get to sell their firms bigger and faster. If you own or lead a pro serv firm, these are your people, ready to welcome you to the tribe. Check it out.  You won’t regret it. 

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Episode 82 – How a Technology Service Provider Transitioned from a Founder Driven Sales Model to a Sales Team – Member Case with Lenka Lechmanova

Boutiques become market leaders by building a commercial sales engine that is capable of scaling. On this episode, we invited Lenka Lechmanova, CEO at V2 Strategic Advisors. She shares how her firm has cultivated a homegrown talent strategy, established sales processes and metrics to benchmark performance, and moved away from partner selling. 

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that aren’t familiar with us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. My name is Greg Alexander and I’m the founder and I’ll be your host today. On this episode, we’re going to discuss a sales and marketing process. The reason why we’re going to talk about this is because on the path of a boutique, from the growth stage to the scale stage to the exit stage, it’s important that a firm moves away from a partner led sales model or a CEO led sales model, and they build a repeatable sales engine of some kind. And that typically involves development of talent, process design metrics, tracking things of that nature. And it can be a stumbling block for some because our founders and CEOs are naturally gifted in this area usually, and they tend to be the chief rainmaker for a period of time, or in some cases, founders and CEOs are more operationally focused, and sales and marketing is a new skill for them, and they have to learn how to do this. And it’s a real challenge, you know, to develop this capability. And it’s essential to scale. It’s particularly essential to exit. And the reason for that is because anybody who might want to buy a firm wants to know that there’s some system in place that is going to be able to predictably and on a regular basis, bring in new clients and expand existing clients. So that’s what I’m going to talk to talk about today. And we have a role model who’s going to be our expert, if you will, and her name is Lenka Lechmanova, that I pronounce that last name correctly. 

Lenka Lechmanova [00:02:15] Yes, you did. 

Greg Alexander [00:02:16] Okay. Very good. And she’s in the middle of this. I’ve spoken to her about this before, and I’m pleased that she’s here and willing to share her experiences so far on this topic. So. So, Lenka, thanks for being here. And would you introduce yourself to the audience, please? 

Lenka Lechmanova [00:02:33] Sure. I’m Greg. Thank you for having me. My name is, as you said, Lenka Lechmanova. I’m the CEO of V2 strategic advisors. We are a technology and management consulting firm focused on Salesforce.com digital transformation projects. And our business was originally founded by by a founder that specifically focused on sales and marketing processes versus AI and operationally founded and oriented CEO that has is not selling or delivering services. Yeah. 

Greg Alexander [00:03:14] So Exhibit A to what I was talking about at the at the beginning and we have many, many members in the collective in a similar situation. So your your topic in your talk today is going to resonate. So I guess let me start there. So for somebody who is a CEO and doesn’t come from the sales and marketing background, but knows that this is a critical thing for your firm, what’s the first thing you did to get familiar with it, to get started on this journey? 

Lenka Lechmanova [00:03:43] You know, truly, it is not what I did, but what the founders did to transfer that knowledge into the organization. And really how it started is they’re recognizing that this is a journey that he needs to take and transition from him running sales and marketing completely to growing the team. I will say in our organization we have tested various models and the one that has proven to be the most effective is really transferring that knowledge to someone within the organization that may not necessarily have the traditional sales background, but really understands what we do and how to sell the value of the organization. 

Greg Alexander [00:04:38] So that’s interesting and that’s encouraging because some would say that somebody who doesn’t come from a sales background is never going to be able to sell. I disagree with that. I think it’s a learned skill and it sounds like you’ve had some success with this in teaching those that don’t come from a sales background but really understand who you are, what you do, your clients, your solutions. They’re having success. 

Lenka Lechmanova [00:05:02] Yeah. I think, you know, it’s recognizing what your business sells. I think you as a business, you have to understand what is unique about what you’re selling in professional services, especially in the niche market. Like we are, we although there’s many Salesforce services providers, we have focused on specific niche market and becomes a lot of enabling a lot of education for our clients. So really that consultative approach, it was key to our sales model there and therefore that transition from founder led sales organization was critical that we bring someone who understands we’ve been there delivering the services to our clients and understands the journey so that value based selling can be created. 

Greg Alexander [00:06:00] You know, in the niche that you’re in, an understanding that niche. So for the audience, maybe, maybe go one level deeper there. What is your specific niche? 

Lenka Lechmanova [00:06:09] Our niche is we focus on a lot on media and entertainment clients or clients in this particular industry. We focus on other we expanded our repertoire, but particularly at the time and were transitioning from our founders based model. We predominantly serviced media and entertainment organization and helping that they are middle office management, standing up and creating digital transformation. And in that particular industry, understanding how ad sales management and digital sales management works is critical. It is not something that you can just you know, it is not just enough to understand the technology background and the sales force. You have to have a specific industry knowledge and understand how those type of clients operate. 

Greg Alexander [00:07:04] Okay. Well, that would explain it. It sounds like that vertical industry, knowledge, media and entertainment and how this advertisement is sold was the mission critical skill that your prospects and customers were looking for. So therefore, it makes a lot of sense for somebody who really understand your solutions in great depth to be in the sales capacity, because that’s what the prospects are looking for. Just for context, did you attempt to hire or develop traditional salespeople who didn’t have that industry experience? And it was through that experiment that you learned that that’s what’s required or that it happened more organically, that you promoted some people from the delivery team into sales and they just thrived. 

Lenka Lechmanova [00:07:52] Yes. And I will continue to expand actually on your question, because I think it’s a combination. I think the the yes, we promoted within the organization someone who worked very closely with the founder. And there are actually two aspects to it. One was sales engineering and one was actually that consultative selling. So really understanding the technical nuances and then understanding the value base. But then we also hire from outside for traditional account executive into traditional account executive roles because it was really important that we create a wealth of relationships. Our selling model is also not just purely account based outreach, but it’s also channel. So we do a lot of combination of account based sale as well as channel based sales channel for those who don’t have that model. So we have to collaborate very heavily with the account executives that sell actual sales for software and for in order to be effective, you really need to do both. You need to do prospecting activities as well as growing your relationship in a channel. And therefore, we our approach was to do a combination of few different things. So really having technical experts who can support sales cycles and those were grown within the organization as well as thought leadership. And then we hired traditional sellers from professional services, but none of them were Salesforce experts. We have tried to hire from software companies in the different stages, but those skillsets didn’t necessarily translate well. And. 

Greg Alexander [00:09:52] You know, and a lot of members have that same experience, right? So the lesson for all of us to take care is really understanding the job, the account executive. Job, the sales engineering job, in Lincoln’s case, at the detail level to know what the skills are required. Just because somebody was a successful account executive with X, Y, Z software company doesn’t mean they’re going to be successful with you. I mean, you’re using value based selling consultant to be selling. There’s a channel involved. You know, that’s a very specific job description. And I’m not surprised that the kind of nontraditional person that went into this role is having success. A delivery person in particular, what I would call a delivery person, a technical expert in your language. The question on that, sometimes when you go to technical experts and you ask them to get involved in business development, sales and marketing, they don’t want to. So how did you present the opportunity and encouraged them to to move in that direction? 

Lenka Lechmanova [00:10:58] Well, I think it was kind of a natural transition. You know, we had a couple of team members that been with the organization for a while. And, you know, as every organization, you want to grow your talent and provide opportunities. And some of these opportunities were created by inviting them to sales cycles, helping them scoping, figuring out how we deliver, you know, what are the nuances, what questions do we need to ask in order to successfully deploy our our services? And the final aspect is also that understanding really what makes us unique in a marketplace and documenting it. I think our founder had a specific methodology that he used, and before we transitioned to the sales team to try to sales team, he worked with them for about 6 to 9 months side by side and documenting some of the processes or methodologies, creating a sales structure, taking, downloading what’s in his head that he didn’t necessarily have to put down because it was a little bit more smaller team that was selling or through principal consultants or subject matter experts that were involved. But taking that knowledge and translating into a system, into operating procedures and into best practices. 

Greg Alexander [00:12:34] You know, it’s such a great point, and I’m really glad to hear that you finally took the time to do that. 6 to 9 months of documenting, you know, what was in what was in his head so other people could understand it and do what what he did. For those listening that are in the found role, that want to move to this sales model where other people in the firm can sell as well as you can sell, that’s a that’s a critical best practice to pay attention to. Like if I come to you for a moment so you are a self-described operationally focused CEO. I’m not putting words in your mouth. And we’ve talked about that. And one thing that I’ve always gained from you is that you believe in metrics. And I’m assuming that you have a set of metrics that you’re paying attention to that helps you, you know, learn what’s going on in the sales department. Would you mind sharing some of those metrics with us? 

Lenka Lechmanova [00:13:27] Sure. Absolutely. So even before I transitioned to my current role, I worked very closely with the sales organization on driving behaviors of account executives and the activities that we want to foster. So, you know, for the founders that are looking to establish metrics or stand up to a traditional commercial team, sales team is identifying what activities they would need to what activities they struggle with at a top of the funnel or the middle of the funnel as at the bottom of the funnel. And, you know, drive the metrics around around those weak points in our particular and things, it was a little bit more top of the funnel with we had once we engaged in a client we tend to build trust in relationship of a prospect and we had quite a strong closing closing rate, especially, you know, the founder. But our challenge has always been a little bit more top of the funnel. So the lead generation and therefore when we stood up commercial team, our focus was, you know, it was how do we generate those, those leads? So we focused on measuring prospecting activities, what artists, individual sellers doing in terms of the outreach. To on in terms of their account as well as in their channel relationship. And our big goal was to grow those channel relationships. So we were measuring the expansion, how many new relationships they were forming and how many meetings or calls they were. They were managing over a period of one week, 30 days, and in some instances, what has been happening over the last 90 days. Right. Because certain activities, especially when you have a territory, you have to look at the size of the territory and define what’s realistic, that there is a touch point. So, you know, looking at your territory and saying this is, you know, you have to reach out to all your 50 or 100 accounts every week. That’s probably not realistic. But what are you doing over a period of 90 days? So dissecting that then from prospecting activities, from phone calls or emails, marketing materials, you know, we are trying to generate meetings. Meetings are what form forms that trust provides opportunity. So the second layer was, you know, you do those prospecting activities so you can get meetings. Once you have those meetings, you know, what are their target move channel direct. Either way, they got a result into opportunities and those opportunities ultimately result into converted sales. So it’s a little bit of funnel building through those prospecting. 

Greg Alexander [00:16:30] And four stages activities, meetings, opportunities and then closed transactions. So that’s excellent. I appreciate you. Walk me through that. Well, listen, I could talk to you about this forever, but we’re at our our time window here. But on behalf of the members, I mean, your your story you use case is very interesting. You know, an organization that is transitioned from founder led sales to a commercial sales engine and you gave a lots, lots of stuff to think about. So I appreciate you being on the show today. 

Lenka Lechmanova [00:16:59] Thank you for having me. 

Greg Alexander [00:17:00] Okay, great. And for those that want to learn more about this topic and others like it, I suggest you pick up a copy of our book. It’s called The Boutique How to Start Skill and Sell a Professional Services Firm. And if you’re interested in meeting leaders of other process firms like Lanco, consider joining our mastermind community. And you can find it at collective54.com. Thanks again. Take care. 
Lenka Lechmanova [00:17:25] Thank you.

Don Goldstein [00:19:06] Thank you. 

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Is a Mastermind Community Right For You? 100s of Minds Are Better Than One

A group of people smiling for a business team photoshoot.

Joining a Mastermind Group: Is it Worth Your Time?

People reach out to me after reading The BOUTIQUE: How to Start, Scale and Sell a Professional Services Firm. They hear about Collective 54, a mastermind community specifically for professional services firm owners, and ask me to help them understand if it’s for them. Here’s what I tell them: “Yes, 1000 percent.” 

Running a professional services firm is not easy. In fact, it is too much work for one person. Whether it be deciding on pricing for your services or setting up tech enabling service, decision-making can be very challenging. The pressure to have all the answers can sometimes feel insurmountable, but you don’t need to be making these decisions alone. Countless business founders and owners face the same problem, so why not work together? 

Mastermind communities are peer-to-peer-based groups that allow business professionals from a vast array of disciplines to meet and brainstorm together. These groups are incredibly holistic, for each individual taking part brings their knowledge, experience, and skillset. These communities are predominantly mentorship based, where each person takes on the role of both mentor and mentee. Mastermind communities allow for knowledge and experience to be shared and act as a place where one’s strength is used to develop another’s weakness. 

The reason why mastermind communities work is actually quite simple. A hundred minds are far better than one. Chances are, someone else has had the same problem, or at least one that’s very similar to yours. Looking into how they solved it is an easy way to discover a path that may also work for you. Not to mention, there may be a professional in your mastermind community that doesn’t see your issue as a problem at all. Perhaps the area of weakness you’re working in is an area of strength for them.

The Collective 54 mastermind group allows you to gain a competitive edge by learning from true peers in professional services, sharing expertise and benefitting from our specific programming for founders and owners of boutiques. We offer a modern, time-efficient way to put the power of 100s of brilliant minds to help you. So, is joining a mastermind group like ours worth your time? 

Absolutely. A mastermind group is your greatest weapon if you want to rise above the noise and stay ahead of your competition. 

The Benefits of a Mastermind Community

  1. Receiving Instant Feedback Regularly

When running a business independently, it’s easy to make decisions and wait for results. Suppose it turns out how you intended, great. However, wouldn’t it have helped to know that in the first place if it didn’t go your way? After all, hindsight is always perfect. As part of a mastermind community, you’ll receive instant feedback, almost perfectly replicating that hindsight vision we all wish we had. Perhaps one of your peers has already tried the method you’re considering and, as such, gives you insight into how it will play out. Maybe it worked, but with a few modifications. Instant feedback is an asset that only a mastermind community can provide. 

  1. Strengthening Your Weaknesses

Mastermind communities are more than just places for advice. They’re a place where you can learn from other professionals and turn your weaknesses into strengths. For example, if you’re struggling with the financial aspect of your business, reach out to the financially savvy members of your mastermind community. Listening to their advice and suggestions is the first step to strengthening your skills. Over time, you’ll find that you’re also becoming financially savvy and, as such, have turned your weakness into a strength. 

  1. Motivating and Celebrating One Another

When you join a mastermind community, you’re joining a community that’s solely there to support and lean on one another. When you succeed, your community will be there to celebrate with you, and when your peers succeed, you’ll be there to cheer them on. Being in an atmosphere that’s always positive and moving forward is an excellent motivator for success. You’ll start to find that your community wants you to succeed just as badly as you want to see yourself succeed. Mastermind communities are places in which relationships are built and sustained. 

Benefits of Joining Collective 54’s Mastermind Community

Collective 54 was created specifically for professional services firms. Our group consists of true peers- founders and owners of boutique pro serv firms. Our mission is to help these founders and owners  to grow, scale and sell their firms bigger and faster.

The collective wisdom of our mastermind community combined with expertise sharing and our specific pro serv expert programming truly sets our community apart. Other benefits you can expect from joining Collective 54’s mastermind group include: 

  • Live Expert Instruction: Receive expert advice from other boutique leaders. I teach a live, weekly topic and lead a Q&A session for all mastermind group members as part of our community.
  • Small-Group Learning: We facilitate roundtable sessions so that you and other members can solve problems and design strategies through live, interactive learning and collaboration. 
  • 1:1 Member Connections: Collective 54 mastermind community members are encouraged to connect to leverage an individual’s subject matter expertise or experience. 
  • On-Demand Self Study: Members of our mastermind group can engage with Collective 54’s intellectual property and resources on-demand. Leverage diagnostic tools, templates, and the  Collective 54 podcast series to create your boutique action plan. 
  • Digital First Community: Purposely built for the time-pressed leader, our mastermind community offers in-person and online activities. Engage with Collective 54’s expertise in the medium that suits you best. 

Collective 54: The Peer Mentoring Community Your Professional Services Firm Needs

Solving challenges in your professional services firm is done better and faster with hundreds of minds rather than one. First, find a mastermind community that will fit your needs. Take advantage of peer mentoring and networking opportunities to learn from experts in various subject matter areas. Innovate through collaboration to grow, scale, and sell your firm. 
At Collective 54, we offer three customized membership plans based on your business’ lifecycle stage. Our dedicated focus and support for your goals are what sets our community apart. Contact us today to learn more about how your business can benefit from joining Collective 54.

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Ten Questions You Should Ask Yourself Before Selling a Business

Man in a sports coat shaking another mans hand.

Selling a Business? Chase Your Happy Exit

The reason for selling your boutique is very personal. And it should be. You poured your life into building the firm. Leaving it and handing it to someone else takes much thought. Some owners sell for the money. Others say they are bored or exhausted. Others say that the work became a job. It was not fun anymore. 

Some professional services firm owners are afraid that tomorrow might not be as profitable as today. At times, partners start fighting, and one needs to be bought out. Maybe it is time to retire. Or perhaps you are getting divorced, and the assets are being divided. A health scare causes some to consider selling a business. The list is long.

When selling a business, you should aim for a happy exit. I have met owners who have had happy exits and owners who have had unhappy exits. What is the difference? Those who had happy exits knew why they were selling. Those with unhappy exits made one of the biggest selling mistakes: they did not have a reason.

Happy Versus Unhappy Business Exits: Real Case Example

If you are wondering how to sell a business, your first step is understanding your why. I am fortunate to be one of those professional services firm owners who had a happy exit. I knew why I was selling. Allow me to share my personal journey with you. 

I started my firm to answer a question: “How good am I?” I thought starting a firm from scratch was the purest way to find out. I started with no customers, no product, and no employees. I put all my money into the new firm and rolled the dice. If I blew it all, I was prepared to start over. If I was successful, I could look in the mirror and know what I was made of.

As time went on, I matured. I developed a personal mission statement. I outlined a vision of my future that I wanted to pursue. I determined how I wanted to behave. I codified this into eight core values, and I lived by them.  

I became a skilled decision-maker. I made good choices, which created new opportunities. I met many different types of people. I learned which tribe I wanted to belong to. I discovered how best to spend my time. I knew what my limitations were. 

This led me to goal setting. I settled on a single goal: self-actualization. The concept of full personal potential lit a fire in my belly. I began to evaluate my boutique against this goal. Was being the owner and CEO of this firm helping me self-actualize? The answer was no. 

The firm was providing things to me that were no longer important. My basic needs for food, shelter, and the like were secured for a lifetime. Safety for myself and my family was stable and certain. I had an identity outside of work. My need to belong was being fulfilled elsewhere. And most importantly, I had answered my burning question. 

The firm was thriving. I had become wealthy and had received plenty of recognition. I was validated internally and externally. I had reached the point of diminishing returns. There was nothing left for me inside the boutique. 

After reading a book called Halftime: Moving from Success to Significance by Bob Buford, I realized where my journey needed to go. The next stage in my entrepreneurial journey was not owning a boutique but selling it. I then had my reason for selling a business.  

Top Ten Questions to Ask Yourself Before Selling a Business

When selling a business, you need to have a clear reason. And this reason needs to be personal and well-thought-out. If you are looking for a happy exit when developing your business exit strategy, these are the questions you need to ask yourself:

  1. Do you have a clear vision of your future?
  2. Will selling your business help you to get there?
  3. Do you know the reason why you do what you do?
  4. Would selling a business bring you closer to your purpose?
  5. Do you have a set of core values that define how you behave?
  6. Would selling your professional services firm allow you to behave the way you want?
  7. Do you know the type of community or tribe you want to be part of?
  8. Would selling your firm allow you to spend more time with this community?
  9. Will you be using the proceeds of the sale on more than just material possessions?
  10. Are you prepared to start your next chapter and sell your business? 

How you answer these questions will determine whether or not you are ready to sell a business. For example, if you answered yes to eight or more questions, you know your reason to sell. If you answered no to eight or more, do not sell your business. You are not ready to exit yet. 

Happy Exits Are Possible Once You Know Your Why

Every entrepreneur exits. We all die. You cannot run your boutique from the grave. Most of us sell our firms before we die. There are good exits. Some owners are happy after they sell. There are bad exits. Some owners are unhappy after they sell. 

So what will set you apart from those owners who have unhappy exits? A great business exit strategy starts with a genuine, passionate reason to sell. If you have this, then selling a business is the next logical step for your career. 

Join us today to learn more about how the Collective 54 mastermind community can help you sell your firm faster. Our community offers valuable and irreplaceable collective knowledge from peers and mentors in the professional services industry. 

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Episode 81 – Why, and When, a Professional Services Firm Should bring Recruiting In-House – Member Case with Don Goldstein

Your ability to recruit talent is critical to scaling a market-leading boutique. On this episode, we interview Don Goldstein, CEO of 5Q Partners and he shares how he decided to invest in an internal recruiter and its overall impact on the organization.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that are familiar with us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. My name is Greg Alexander and I’m the founder and I’ll be your host today. And on this episode we’re going to discuss recruiting and in particular how recruiting changes as you move through the three stages of a boutique process, firm grow, scale and exit in the early days. Recruiting is typically done by the founder. There’s a small number of jobs that need to be filled, and he or she can shake the tree, so to speak, and fill the spots. Then you get a little bigger, maybe into the early stages of scaling and the number of jobs to fill and the types of roles multiply. And you start using, using external recruiters. And it’s expensive, but it’s still manageable because you’re not hiring, you know, dozens or hundreds of people. Then, of course, you have a lot of success and now recruiting becomes really difficult. You’ve got to hire dozens, hundreds. In some cases, believe it or not, thousands. And using external recruiters can get very expensive. And sometimes those firms themselves aren’t built for scale. So you bring recruiting in-house and you start making it a core competency of your firm. And given that we’re in professional services where people drive in business, having a talent supply chain is mission critical. So that’s what I’m going to talk about today. And we’re very lucky. We have a great guest who’s in the middle of all this. His name is Don Goldstein, and he runs a cybersecurity firm called 5Q. Hey, Don, it’s good to see you. 

Don Goldstein [00:02:11] Great to see you. Great. Thanks for having me on. Sure. 

Greg Alexander [00:02:14] Would you please provide a proper introduction to the audience? 

Don Goldstein [00:02:18] Sure. So I’m Don Goldstein with five Q. We are a managed security and I.T. services firm nationwide actually now. And we serve primarily the commercial and corporate real estate industry, which is vast and broad. 

Greg Alexander [00:02:38] Right now, Don, we wanted you to come on today because you recently brought recruiting in-house, as I understand it. And I would love for you to explain to our members and those that are listening to this kind of how you used to do it before, how you do it now, and what what caused you to make the recent change. 

Don Goldstein [00:03:01] Sure, Greg. So. When you talk about in your book. That. Personal networks are not scalable for your clients and for your new hires. That is exactly the kind of thing we ran into. So as soon as we hit a certain point there, there really wasn’t anyone else we could turn to within our network. To go find the right people we needed that had experience in the industry and so we had to look at other means to do that. Using outside recruiters can be effective, but when you’re in scale mode and hiring literally dozens of people, that becomes extremely expensive. And it also bottlenecks your people because they’re having to do a lot of the screening and interviewing. So we felt when we hit a certain point, which was right at the end of 2021, we had to make a change in the way we recruited. We were fortunate enough to find a tremendous internal recruiter. Who became available to us and started right at the beginning of December, which was exactly at the time that we were poised to scale in early 2022. So it couldn’t have come at a better time for us. And it’s been game changing, literally. 

Greg Alexander [00:04:35] Okay. So this is a great use case for us. So at the risk of asking a question that might reveal sensitive information and if it does, feel free to decline. Give me an idea of the magnitude, like how many people are you hiring and what do you anticipate the hiring need to be? 

Don Goldstein [00:04:56] I can give you some exact numbers. 

Greg Alexander [00:04:58] Okay. Thank you. 

Don Goldstein [00:04:59] So since the beginning of December 2021, so it is now been. 

Greg Alexander [00:05:05] Five months. 

Don Goldstein [00:05:06] Almost 45 and a half months, close to six months. We have hired 40 people. Wow. With our internal recruiter. 36 are still with us. In other words, I would say of the 40 we had four miss hires. 

Greg Alexander [00:05:22] Wow. 

Don Goldstein [00:05:23] Which we identified quickly and took care of quickly as soon as we identified that we had done a mishire. And that’s going to happen. Sure. In a company like ours, especially where a lot of our people are expected to travel 80 to 90% of the time. And you don’t really know until they come on board how they deal with the travel part of that. Mm hmm. So we hired 40. We dropped our cost per hire to just around $1,000 per hire or 1.3% of salary. 

Greg Alexander [00:06:02] Oh, my goodness. 

Don Goldstein [00:06:05] Now, included in those 40 hires were six internal referrals. Mm hmm. And how we deal with internal referrals is we give a $2,000 bonus at hire, and we give another 2000 at year one. Mm hmm. And I also want to say, in addition to those 40 new hires, the 36 we have with us and we expect to keep with us. We promoted nine people this year. 

Greg Alexander [00:06:34] Wow. 

Don Goldstein [00:06:36] So part of what we’ve had to do is exactly addressing the questions in your book. We’ve had to move from generalist to specialist because of the kind of work we do. The people that got us here couldn’t necessarily get us where we needed to go, and we also needed to make sure we had a manager of our employees. We had the ability to move people into those manager positions and doing it internally. Is just great for retention. 

Greg Alexander [00:07:10] Yeah, no doubt. Yeah. I mean, employees love to see their peers getting promoted. They know what those peers did. They earned it. You know, it gives them hope that that might happen to them because you believe in internal promotions. I’ve got to come back to these numbers for a second because they’re astounding. So 36 out of 40. I mean, what does that 90%. You have a 90% success rate, which is. Yes, which is incredible. I mean, hiring is good as we can get at. It is still a little bit art, not all science. So that’s a huge success. Right. The the drop in hiring cost of $1,000 per hire. What was it when you were using external recruiters? 

Don Goldstein [00:07:49] It was anywhere between 8 to $10000. Yeah. 

Greg Alexander [00:07:53] Okay. Per hire? Yeah. So, you know, if you say 8 to 10 grand savings per hire and you hire in dozens of people, I mean that more than pays for an internal recruiter and then some. 

Don Goldstein [00:08:04] Right. 

Greg Alexander [00:08:05] I want to ask you a little bit about how you make the internal recruiter successful inside your firm, because first off, it’s hard to find one. And I’ll come back to that in a moment. When you find one in you, you give them this type of assignment. I mean, this is a busy person. How did you make the recruiter successful? 

Don Goldstein [00:08:26] So what? Our starting point was that we have a director of h.r. Who is external. Mm hmm. We do not have a dedicated director of h.r. Interest. We have a part time person who has years and years of experience, and he could not continue to deal with the hiring piece, even using external criminals. He just couldn’t he just couldn’t keep up himself. And so working with him, we were fortunate enough that he had the ability to help us identify that person. I’m not sure we would have known enough to to realize what it took to find the right person. Mm hmm. We found someone. Who frankly, you know, we just weren’t sure if she was going to be able to pull this off for us. But what she did immediately was she leveraged external services. If you want me to name them, I can. Yeah, please. One primarily. Which was. Which is indeed. Mm hmm. Which is a great place for the kinds of I.T. and cyber people we needed to find. And she just knew how to leverage that and how to qualify people. How to position. The rules we have. Another thing that I have to point out was we have two main offices, Atlanta and Dallas. We realized during COVID, especially with people who are traveling all the time and the fact that we’re able to make remote work, work for us is that we didn’t need to worry about location anymore. As a matter of fact, having diversity of geography has helped us in many ways. So now we have employees, and I believe the last count was 17 states. And so once we took the handcuffs off of our recruiter and say, find the right people wherever they are. That just opened the doors wide for us. Mm hmm. And one of the other things. That made this successful. What? She just wasn’t looking at this from a hiring perspective. Just get a body in the door. She learned our business. She worked with our team. She understood the questions she needed to ask to qualify before she turned the candidates over to our hiring managers so she wasn’t wasting their time. Yeah, she literally was doing hundreds and hundreds. I tried to get the number. She stopped counting at some point. How many people she screened? But she was able to very successfully bring over. To our hiring managers, people that would really make the next cut. Mm hmm. So the other thing that she did was she paid very close attention to the process, very close attention to not only the hiring process, but the onboarding process. So she helped us get better in all of those areas because she really dug in and figured out what it took to be successful in not only hiring, but retaining those people and having a great experience in their first week, which just meant that that allowed us the ability to leverage our internal recruiting even more. And that referral business. The other thing I would point out. And I made this clear because it’s really part of our core values. I really wanted more diversity. On our team. Mm hmm. And I’m happy to say of those 36 hires, 50, 55% represent minorities. 

Greg Alexander [00:12:28] Wow. 

Don Goldstein [00:12:30] And in I.T.. That far exceeds the norm. Yeah, 25% women and other minorities. So this has also been a game changer for us because. It’s really added to the depth of knowledge and experience and just the culture of the company and it resonates with our clients as well in this industry. Commercial real estate, as you know, primarily has not been looked at that way. Yeah. 

Greg Alexander [00:13:11] The numbers are just astounding. I had one tactical question since this is a teaching call and you’ve given us such great information. I was really surprised to hear and I think it’s a great idea that the recruiter owns the onboarding process. Is that true? 

Don Goldstein [00:13:26] The recruiter is part is a major part of the onboarding process in terms of following up with the employees, making sure that their experience when they come on board is a good one, and then asking them once they’re onboarded, how was their experience and what could we improve on? Yeah, that, that was huge for us because we just didn’t have that before. 

Greg Alexander [00:13:49] Yeah. 

Don Goldstein [00:13:49] That muscle. 

Greg Alexander [00:13:50] And very often there’s a handoff there. The recruiter brings them in and then hands them off to somebody who runs the onboarding process. And at times that handoff can be a little awkward and the employee doesn’t have a good experience. And you have some infant mortality, which obviously we want to we want to avoid. 

Don Goldstein [00:14:05] And I can give an example of that. Great, a great example. So one of the things we would do because we wanted to get our engineers on board and billable as quickly as possible. Yeah. Day one, we would send them with their other engineers out to a site to learn our process of our assessments that we do at the properties. She came back to us and said, Don’t do that anymore. Give them that first week to get their feet on the ground. Don’t. Don’t have them travel the first week. Have a have a program in place to ease them into that. She also made a great suggestion for US cyber engineers because we have some really, really good top technical talent. To make it meaningful for them, give them homework. So when we bring on a cyber engineer that first week, we give them homework. So say we’re going to take them out and have them do cyber assessments in a property. One of the homework items we give them is assess your home network from a cyber perspective and tell us what the results are. I’m giving away a little bit of the secret sauce, but I don’t mind doing that because it’s something like that that has really resonated with our new people. They love it and the fact that we’re not putting them on the road. That was only because she came back to us and said, Stop doing that. That’s not a good way to bring your people on board the first week. Right. Give them a week to breathe. 

Greg Alexander [00:15:35] The numbers are astounding across any industry, but in your space IT services cybersecurity. I mean, the job market is so hot to be able to be able to do this. The way you’re doing it is is really remarkable. I guess one last follow up tactical question, Don. What are the recruiters accountabilities? How do you measure his or her performance? 

Don Goldstein [00:15:58] So she reports on a weekly basis, because we do use the EOC model and we have hiring metrics. I’ve already named a few of them. Yeah. We measure the cost of the new hire and we do that on a rolling 12 month basis and now it’s down to 1000. Once we get to December, when we have a full year, it’s going to be far less than a thousand. The other thing we measure is retention. Mm hmm. So our retention has gone from in the thirties to right at 20%. Mm hmm. Meaning attrition. 20% turnover. Yep. As opposed to in the thirties and even higher prior to that. I’m expecting to get that down to low teens. We also measure. The time to hire. One of the things that we ran into in the beginning of this year, which was unexpected because usually first quarter for us is the slowest quarter historically. This year. It was the biggest quarter we ever had. So I had more work than I had people and we were scrambling. So what we did when we brought our recruiter in was we basically said to our hiring managers. If you think this is the right person during your interview, make a verbal offer on the spot. Hmm. That’s a little risky. Mm hmm. Right. You still have to go through all of the checks. The checks after that. But what we were seeing was we do we’d have interviews. And then by the time we get to another level of interviews, that candidate was already gone. And I didn’t want that to happen. So instead of having multiple interviews, we did more team interviews so we could get it done faster. And if that team. Felt that they had the right person right then and there. They were empowered to make the offer. 

Greg Alexander [00:18:05] Yeah. Another example of iterating your process. Right. And adhering to a process to hit these numbers and you’re measuring it with metrics. I mean, I could talk to you about this for hours. And of course, we’ll have a chance to to have you with the member Q&A session. But unfortunately, Don, we’re out of time this morning or this afternoon, I should say. But it was an incredible, literally incredible role model example of how to do this. And this is a hot and hot issue for lots of our members. So on behalf of the members and the membership, thank you for contributing this morning. 

Don Goldstein [00:18:39] Thank you, Greg. My pleasure. 

Greg Alexander [00:18:41] Okay. And for those that are interested in this topic and others like it, pick up a copy of our book, The Boutique How to Start Scale and Sell a Professional Services Firm. And if you’re interested in meeting exceptional people like Don and you’re focused on professional services, consider joining our mastermind community and you can find it at collective54.com. Thanks again, Don. Take care. 

Don Goldstein [00:19:06] Thank you. 

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