Category: Pro Serv Podcasts

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Episode 66 – The Hero Syndrome: A Dirty Little Secret About Professional Service Firms – Member Case with  Marc Beattie

The Hero Syndrome if left unchecked, will prevent you from scaling your firm. On this episode, we discuss how to overcome this problem by interviewing Marc Beattie, Founder & CEO at Wainhouse Research. 

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that don’t know us, Collective 54 is the first mastermind community to help you grow, scale and exert your firm bigger and faster. My name’s Greg Alexander. I’m the founder, and I’ll be your host today. And on this episode, we’re going to talk about how a founder slash CEO owner replicates him or herself in his team so that they can scale. And joining me is one of our members, Marc Beattie. Did I say that correctly? Marc Beattie? 

Marc Beattie [00:00:54] You did Greg. 

Greg Alexander [00:00:54] OK, very good. I second guess myself there for a moment. So, Marc, if you would mind give the audience a proper introduction. 

Marc Beattie [00:01:04] Yeah. So currently I run a market research firm. So what that means, basically, is that we focus on sizing markets, forecasting markets specifically in the enterprise communications space, all the stuff that you’re familiar with Zoom, Microsoft Teams, things like that. And my background is coming from from tech, basically. I spend a bunch of years up in the Boston 128 area in the late 1980s and 1990s out in San Jose. 

Greg Alexander [00:01:32] So this is going to sound familiar to you, park your car and Harvard Yard. I grew up in Peabody, Massachusetts, so you probably have heard a lot, lots of guys with my accent, you know? 

Marc Beattie [00:01:43] Yeah. 

Greg Alexander [00:01:44] All right. So let’s set this up a bit. So many times professional services organizations don’t scale as well as they could because there’s a bottleneck in the bottleneck sits with the leader of the organization. He or she feels as if they have to be in every meeting and do everything themselves, or it won’t get done right. There’ll be mistakes, et cetera. And at some point, scaling or scaling an organization is just too much work for one person. So this knowledge and skill that the leader has has to be replicated in other people in order for the organization to scale. And it’s not an easy thing to do. It sounds easy, but it’s not an easy thing to do. But if it’s not done, then the firm is going to scale as much as leaders going to scale. And eventually that’s that’s not going to scale at all because only 24 hours in a day and it’s one person. So that’s how we’re going to discuss today this concept of replication. So Mark, let’s start off with maybe just an explanation around this issue from your perspective. Have you run into this issue before and what are your general thoughts about it? 

Marc Beattie [00:02:56] Well, I think for many professional services firms and then specifically Sure hours, it’s an overwhelming issue. Yeah, it’s overwhelming from the standpoint that quite frequently you found the firm based on who you know, your expertize and they know you and they trust you as an example. And then when you go out to solicit business, it’s you out there, so to speak, that they’re buying at least initially and then trying to replicate that, that that reputation, trust and quality becomes a challenge when you take on people who you don’t know. And that’s that’s the from my perspective, that’s the only way you can scale. You run out of people, you know, pretty quickly. And then you have to start sourcing other people in the organization and that that process of, you know, qualifying them, training them and then subsequently trusting them just becomes a constant issue. Yeah. 

Greg Alexander [00:03:51] You know, one of the solutions to this problem is this concept of employee certification, which is a big topic. I’ll do my best to summarize it. Basically, what the goal there is to certify an employee that they have two things. They have the knowledge and skill to be successful and let me distinguish between those two. So knowledge is knowledge of my domain. So for example, if I’m in accounting, you know, I understand the the gap requirements on accounting generally accepted accounting principles. That’s knowledge. A skill is something different, which is, let’s say I’m a consultant and I need to be able to interview an executive. Well, there’s a skill in doing that. You know, how do you open the interview? You know, how do you not lead the witness? How do you summarize your interview notes? That’s a skill, and there are two different things. And breaking down the requirements of a job like in Mark’s case, market research and everything that that might mean into knowledge and skills and certifying others is one way to solve that particular problem. It can be a lot of work, and if it doesn’t go right, it can be dangerous. But if it does work, it can liberate the firm and allow them to reach new heights. Mark, have you experimented with this concept of employee certification at all? 

Marc Beattie [00:05:04] I wouldn’t say certification. You know, we have a process in which we keep on refining over time. And the concern that we have is that other firms much. Larger firms than ours will typically hire students right out of graduate school, and then they’ll train them to run them to that program that you’re referring to. And we’ve taken alternative route whereby we take product managers in the industry and we pivot their careers to become an analyst, which means that in your frame of reference, they have knowledge, but they don’t have skill and they have industry knowledge. They have product knowledge, technology, knowledge, competitive knowledge. But what they don’t have is they don’t have the skill to write and execute products associated that were remain with clients, meaning market intelligence reports and then custom research. 

Greg Alexander [00:05:50] So that’s an interesting take. I can see why you would do that, especially in the context of what your competitors do doing something different. So then it sounds like they they walk through the front door with the knowledge and then you teach them the skill. 

Marc Beattie [00:06:05] Yes, exactly. Exactly. And it’s combination. It sounds strange, but it’s a community effort as far as teaching the skill. And so what happens is when a when a new product manager comes into our firm, there’s a group of other analysts that join alongside and want that person to be successful. And you can see them on the messaging other teams application as an example, where they’re always sharing best practices as an example. And then what happens is depending on where they come for about six months or so, they’re always paired, hit up with somebody else in all of the briefings that every single piece of work that they do. And so what happens is we’ve got programs and processes and then we’ve got templates. There’s places that they can go. They don’t start from the beginning at all. But still, it’s it’s a whole new career. It’s holding skill for them. Yeah. 

Greg Alexander [00:06:49] Sometimes when I have this conversation with folks like yourself, they say they issue an objection to me and it’s some version of Greg. I can do this myself. I can do it fast. It’s free and I know I’m going to get it right the first time. So why would I pay somebody to do what I can do? It’s going to take them forever to do it, and it’s probably not going to be high quality. I’m going to have to micromanage them anyways. What do you say to that? 

Marc Beattie [00:07:18] Well, there’s been a lot of work out there, so it’s tough to say no to a job just because, you know you can’t do it as an example. And you know, it’s much more fun to work with a larger group of people. So unless you’re willing to kind of give something up, you’re going to end up working by yourself or with a limited number of people. So I actually view it in a strange angle. I enjoy the community. I don’t want to work by myself. And it’s a matter of fact. You know, if I was to work on a project for a client as an example, I almost grabbed. I must always grab somebody and bring them along. I’m not trying to do it by myself. I will tell you there is that concept of, you know, it’s got to be the standard as an example. And therefore, there’s peer review for everything that goes out of out of our organization, whether that’s somebody else or that’s me as an example. And so I mean, you know, I continue to remain in the loop from the standpoint of, you know, stepping in and monitoring the work as an example. And it’s hard. Sometimes you have to push back on somebody who wants to move forward and say you’re not quite ready or you don’t have it yet as an example, or you have to be super aggressive when you’re you’re editing it out with the day off. 

Greg Alexander [00:08:25] Yeah. So I agree. I love the community aspect. In fact, Collective 54 is a that’s what it is. It’s a community. And I think human beings are social animals and we get more fulfillment and job satisfaction when we work in teams, for sure. Plus, we can just do a lot more to your earlier point. You know, you don’t want to walk away from work because you don’t have enough capable people to do the job. I love the concept of the peer review. I want to I want to pick on that a little bit because I’ve never I’ve never heard that applied to this situation of replication. So as if I am a four year old, explain it to me very simply. 

Marc Beattie [00:09:01] Sure. So there’s there’s two primary products that we put out and what is syndicated. Market Intelligence basically reports that you build won’t sell many as an example. You put out a market sizing and forecasters state of the market report or landscape report of what’s going on in the industry as an example. And then many clients subscribe to a service that continue to receive those reports. It’s almost always each individual report is almost led by a single analyst, meaning they’ll do all the research around the report and then they’ll write that report as an example. That report can’t be published on our content publishing portal Intel. Another analyst, Sure, reviews that and says, Did you think about this or you know all the questions that you would expect, you know? Well, I didn’t see that in the report. That sounds like an assumption and not data as an example. And then there’s a grammatical structure, and a lot of times what happens is you’ll see the analyst pushing out the copyright ed because I don’t want to get beat up by a peer as an example. See that pushed out to a copyright editor for the grammar and the spelling first and the structure of the narrative. And then what happens is the peer review comes in and beats them up from the standpoint of, you know, is this clear thinking, you know, is this this narrative doesn’t seem to connect to this other piece as an example, there’s a second piece of work that we do, which is custom research. Think about things like a market entry analysis client has a hypothesis of a new product they want to put out as an example, the same thing. Usually one or two analysts will work on that, but the deliverable, which is often, you know, a presentation plus a PowerPoint presentation or, as an example, a market size and forecast opportunity analysis. None of that goes out until one of their other analysts peer reviews that and once again goes that exact same process. You know, are you thinking clearly and have you have you put forward a distinct message that that holds value as well? 

Greg Alexander [00:10:48] It’s a great, great idea. I wasn’t anticipating stumbling on this, but I’m fascinated by it. What I love about it, I’m always thinking about how our members you in this case can scale. And if you have to review every piece of work yourself before it goes out the door, that’s a limiting factor. It sounds like you’ve you’ve been able to push that down to the peers, which means you don’t have to do it all yourself. You have help. And what I love about that, it’s appears are probably I don’t want to say better than you at doing it, but it’s maybe their critique is more appropriate because it’s peer to peer. I mean, I know myself, I learned a lot more from my peers than I do from people who aren’t my peers. My tactical question to you would be, what’s in it for the peer? So if I’m the person who has to do the review, I’m busy. I got a lot of work to do. Why would I take the time to do this? 

Marc Beattie [00:11:40] I thought, You’re going to go there? So on and market intelligence. So each of the analysts has about 10 to 12 reports that have to publish each year. And so therefore, they’re looking for peer reviewers. So there’s there’s a requirement of every single analyst that they have the peer review 10 to 12 pieces from other people every single year, meaning that I won’t get my publication schedule out unless I get help from others and I won’t and others won’t get theirs unless I help them. So that’s of the incentive there. And then on the custom research, that’s a separate sort of big pay schedule versus the compensation that you make on the syndicated research and the. It might be a $500000 project as an example. And so the lead analyst is peel off money for the peer review. So you’re being paid dollars, pretty significant dollars to peer review that. 

Greg Alexander [00:12:29] That’s interesting. Well, so there’s actually monetary compensation tied to it in that particular case. That’s brilliant, that’s a that’s very, very wise way to do that. I want to go back to one thing and this will be the last thing we’ll talk about today. But the one thing you mentioned earlier as a new analyst comes in and for six months, it sounds like they’re being incubated in some capacity. When do you know? And how do you know that it’s time for that analyst to be let loose, take the training wheels off and get going? 

Marc Beattie [00:13:00] There’s a couple of leading indicators. One is one of the things that we focus on is when we’re with clients, whether it’s a briefing or it’s a client engagement as an example on the topic that we’re talking about, that we, you know, we should know about that we’ve often been hired to cover. We should be the smartest person in the room. And I can tell pretty quickly if somebody has a command of their their domain, it’s pretty easy. You know, they they either know it or they don’t know it. And a lot of it is that concept of I brief with, you know, 50 or 100 companies. And I’ve come to my own belief structure about this as an example. I’ve got enough data right now that I’m not buying the marketing angle at all. So when the product marketing manager comes on and says this, I’m not quite sure. I believe that because I’ve heard this from 20 other companies as an example. But here’s what I do believe. So it doesn’t have to be critically, you know, mean or bad, but it has to be critically reviewed as an example, as far as my knowledge base. So that’s that concept of what they know comes out pretty quickly. I just spent a week with a brand new analyst, which I normally would do in Santa Barbara at a client event, and it is becoming clear to me that they’re in their seventh, eighth month. They’re really they’ve got their own domain right now. Now the second piece of that is is, do they? That’s knowledge, you know? And then the other one is, is the skill. Can they execute that to a product that our clients want to consume as an example? And that’s just through the peer review process. I’ll I’ll get as we have a research, we have a valuation let out in Ohio as an example. And here’s my researcher will come along and say, you know, I did an evaluation with this. Other analysts and I had to raise some flags here because he’s concerned about the quality, the product that he’s putting out as an example. And so what happens is it’s not as though they’re telling one another, but they’re saying this is maybe this person needs someone to come alongside of them as an example. And I get that all the time. And I think other analysts get that as well. Can you help this person, et cetera? And I think that’s that’s that’s a very, you know, healthy organization that they’re able to come up and say that and then subsequently do that. 

Greg Alexander [00:15:01] Listen, this is fantastic. I mean, this is new knowledge for our community. The peer review idea is a brilliant scaling tactic. And I encourage everybody that’s listening to this to try to implement some version of it. Marc, if they have questions about how to do this, what’s the easiest way for them to get hold you? 

Marc Beattie [00:15:20] I just my email address Mbeattie@wainhouse through waimhouse.com

Greg Alexander [00:15:29] Okay, perfect. Then I’d ask the membership not to abuse that. Appreciate you sharing that to all of us and and hopefully the group will get in touch with you and try to implement this. OK, so for those that are listening, if you’re interested in this topic or others like it, pick up a copy of the book The Boutique How to Start, Scale and Sell a professional services firm. You can find it on Amazon. I’m happy to report that just became a bestseller and our little niche. And if you want to meet brilliant people like Marc, consider joining our community and you can reach. You can find us at Collective54.com and Marc on behalf of the members, just a big thanks for your contribution that you made today. Made a deposit in the knowledge back. I learned something and we’re lucky to have you, so thanks again. 

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Episode 65 – The Go-To-Market: How to Market and Sell Like a Pro – Member Case with Dan Bernoske

Founders of boutique professional services firms can increase their rate of growth by professionalizing their marketing and sales approach. On this episode, we will discuss how by interviewing Dan Bernoske of Cortado Group.



TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that don’t know us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. I’m Greg Alexander, the founder of the place. And today I’m going to be your host. And joining me is a long time friend and member, Dan Bernoske. And today we’re going to talk about sales and marketing and go to market for your professional services firm. So, Dan, good to see you. 

 

Dan Bernoske [00:00:49] Good to see you, too. Good morning. 

 

Greg Alexander [00:00:51] If you would not mind, could you introduce yourself and your firm to the group? 

Dan Bernoske [00:00:57] Sure. Yeah, I am. Dan Bernoske, the founder of the Cortado Group and we are a boutique consultancy serving companies that are owned by private equity firms. 

Greg Alexander [00:01:09] OK, very good. So, Dan, today we’re going to talk about sales and marketing specific to boutique professional services firms, in other words, how you take your services to market. And given that this is what you do for your clients. I would imagine you’re an expert and doing it for yourself. So I’m going to ask you a few questions, and they’re meant to just kind of stimulate thought and get the conversation going. So the first thing I want to talk to you about is that you have a close rate of 65 percent, which is incredible. And that number says and means a lot of things, and I’m not sure our membership is tracking close rate as diligently as they should and when they do track it and they have the number how to interpret the number. So first, tell the audience how you got to 65 percent and then interpret that number for us. 

 

Dan Bernoske [00:02:04] Well, I mean, the first thing is targeting the right, the right companies. It’s starting out with the ideal customer profile or client profile keeps us super super laser focused on calling on the right accounts. That’s probably the biggest contributor. And then, Greg, you know, buyer personas. OK, so there’s one thing to get into the right company, but a whole other thing to be talking the right person, the decision maker. So those two things combined contributed to that. 

Greg Alexander [00:02:37] Yup. And what I love about that is that, you know, people like yourself that are running these high growth boutique professional services firms. We’re resource constrained. There’s only so many hours and day, so only so many people on the teams, only so many, so much money in the bank account. So if we’re wasting our resources by not being as targeted as Dan is or are is, I guess is the way you would say that, then you know, you’re closer. It’s going to be 20, 30 percent. And sometimes people think that’s good. It’s not good because what that means, let’s say closer rates 30 percent. That means you’re losing seven out of 10 times. So think about all the effort associated in those pursuits and you’re losing seven out of 10 times. It’s just eliminate that and you’re going to recapture all those resources. Now, I advocate Dan, that the close rate should be 50 percent, and I would I would suggest that 65 is too high, which sounds almost counterintuitive. Like why? I mean, maybe closer. It should be 100 percent. But when I hit 65 percent, I think maybe you’re not in enough deals or, you know, charging enough for your services. So what do you think about the 65 percent number and how do you interpret that? 

 

Dan Bernoske [00:03:47] This is so glad you brought it up, and that is a huge debate for us around one of the points of pricing. So are we pricing ourselves? We’re trying to weigh the balance of not pricing ourselves out of our target market. I mean, I’m going toward the small and mid-market company. So weighing that balance, so I suspect maybe we’re price people too low and then we may be, you know, the other thing driving is maybe our ICP is a little too tight. So to your point that if we’re not getting into enough deals, are we constricting ourselves from other opportunities if we’re just not seeing. 

 

Greg Alexander [00:04:25] Yeah, and you’re right, and that’s how you interpret that number, so there is such a thing as a close rate being too good because again, that might be restricting your market opportunity. So the most important thing is what we’re learning from this is to really be super crystal clear on two things that Dan is teaching us today. Number one, who the ideal client profile is. And I know right now everybody’s rolling their eyes in the back of the head because they say, I hear this from Greg all the time. Yet many of us still don’t have that done correctly, and that’s a dynamic document, not a static document. It changes over time as your firm evolves. And then secondly, once you pick the clients who want to go after, who’s the individual or group of people in those accounts that you want to sell to? And Dan, in your case, you’re selling sales and marketing effectiveness improvement. So are you selling to the CMO or the head of sales or who are you selling to? 

 

Dan Bernoske [00:05:18] Yeah. If we were up in the enterprise, that’s exactly where we would be great. But we sell to companies. So our ICP the ideal client profile 10 to 500 million in size earned by private equity. So we’re selling to we’re selling to the private equity operating partners and the CEO level like that’s that’s really our sweet spot. 

 

Greg Alexander [00:05:40] OK, so let’s apply this concept of buyer personas to to those two particular individuals and operating partner in a shop and a CEO of a portico. So first, there might be some folks listening that don’t know what a buyer persona is. So give us a quick definition of that. 

 

Dan Bernoske [00:05:56] Well, think of it as a fictitious representation of your buyer. And what does that mean? That means I’m going to know how are they motivated to do their job right? What are the obstacles standing in their way of doing their job? How are our success measured? There’s a whole bunch of things that go into that, but you need to get this psychographic profile of your buyer. So you really understand how they think and how they act. Yeah. 

 

Greg Alexander [00:06:20] OK, perfect. All right. So let’s start with the first one. The CEO of the Port Co. So maybe give us two or three things that you know about that buyer persona as an illustration or an example of what what should be on a buyer persona? 

 

Dan Bernoske [00:06:37] Well, first of all, they have their piggybacks, so we know that they’re going to want to exit in three to five years. So that maximum exit valuation, huge objective. 

 

Greg Alexander [00:06:48] OK, so let’s stop there, because that’s a great one. So you know that this CEO is the CEO of a portico owned by PE, which means are selling in three to five years. So his motivation is to get to that successful exit, correct? Oh, absolutely. Okay. So then when are positioning your services just to connect the dots here for the audience? You’re connecting it to that priority, that goal. 

 

Dan Bernoske [00:07:13] Absolutely. You know, it’s going to resonate with it’s going to mean something. 

 

Greg Alexander [00:07:17] So so how do you do that? 

 

Dan Bernoske [00:07:20] Well, we do that like how we actually execute has on multiple levels, but let’s just take the the proposal. Yeah. Is that what you mean? Yes, exactly. Yes. Yeah. I mean, if you think about how we frame up our solution, it has to really satisfy that, that objective for him. So all of our solutions have to point in that direction. So for example, yeah, we’re going to help improve the revenue on your company. But what we’d like to do is show a case study that demonstrates the fact that in three to five years, the lift that we’re going to provide today is actually going to lead to a two or three x multiple on their on their exit, for example. So always, always tying everything back to that, that objective there. 

 

Greg Alexander [00:08:06] That’s a great example. I mean, that’s a that’s a built in cost justification for your project. You know, you’re putting you put a proposal on the table and then instead of just leaving it in isolation, you connected to this objective. And you say, if we’re successful with this project, here’s what it means to you in dollars and cents expressed as a multiple and even though correct? 

 

Dan Bernoske [00:08:26] Yeah, absolutely. Yeah, absolutely. You know, kind of get to go on a rabbit hole here. But it highlights the fact that when we think about go to market, I think there’s a long overlooked tool and that is the proposal is actually your most important piece of marketing and sales material. I’ve got a website, fabulous research reports, but the rubber meets the road on this proposal. So all the more reason why it has to speak to that percent of that objective? 

 

Greg Alexander [00:08:57] Yeah, yeah. And sometimes these proposals are kind of template sized or they don’t put the firm’s best foot forward at times, which I agree with you. The proposal is often overlooked, and that’s a good piece of advice for the members is to take a fresh look at their proposal and make sure it’s connecting to the motivations expressed in your buyer persona and within your ideal client profile. OK, let’s go to the next big thing as it relates to go to market strategy for a boutique professional services firm, there’s three things we talked about. One which is to close rate. We had an interesting conversation around your remarkable 65 percent. The next is average deal size. So if I’m winning five out of 10 deals and they’re worth 50 grand, that’s a lot different than winning five to 10 deals. And they’re at five and a grand. So how are you optimizing for deal size? 

 

Dan Bernoske [00:09:51] Oh, man, that that is a that’s a tough one, because what what I’m what I’m finding is, well, it boils down to willingness to pay. 

 

Greg Alexander [00:10:02] What does that mean? 

 

Dan Bernoske [00:10:04] Well, what what is the perceived value of your solution to the buyer and what are they willing to pay? Yeah. So you know what, what, how much of their money is going to come out of their pocket into mine? Yeah. So that’s I think you’ve got some great sale pricing experts in the collective that could probably speak to that one. Yeah. 

 

Greg Alexander [00:10:27] So what what Dan’s referring to, there is a way to optimize for deal sizes is that you put a proposal on the table. You’re going after mission critical, urgent problem. And if the problem is not solved, there’s a real cost. Or if the problem is solved, there’s a real reward. And quantifying those in hard dollars creates a perceived value. Let’s just say, I don’t know, it’s $5 million as an example. So then the conversation is what percentage of that gain that you deliver to the client is a client willing to share with you 10 percent, 20 percent and then you back into your price there. And that’s how you optimize for a deal size. And then you’re in the management consulting industry. That’s your sector and you specialize in sales and marketing. So I’m assuming that your model is one where you want to have, relatively speaking, a small number of clients, but you want each one of those clients to spend a lot. Is that correct? 

 

Dan Bernoske [00:11:21] Absolutely. Over them, over served clients. 

 

Greg Alexander [00:11:25] So therefore, you’re staying away from clients who. You know, might need an act of God to spend 25 grand. 

 

Dan Bernoske [00:11:35] Absolutely. Yeah. Yeah. But you know, what’s interesting, though, in terms of deal size is that we’ve also found that this size client, they do buy and bite size chunks. So there’s another lever I really pay attention to, and that is what’s the customer lifetime value that you are given the size of 500 out of the 10 to five hundred million dollars. They’re not going to buy that $1 million deal. But they will buy maybe the equivalent of that over time. Right. And that’s when you really have to think about is what how is it that they buy? It’s huge. 

 

Greg Alexander [00:12:14] So that’s interesting. So lifetime value is a great concept. I’m glad you introduced it. You can get to the same dollar amount and that example a million bucks, but instead of one deal, maybe it’s for $250000 deals. So that raises another interesting question regarding go to market. And that is expansion revenue from existing clients vs. new revenue from new logos. So do you have a a different sales approach when trying to grow an existing client than you do opening up a new one? 

 

Dan Bernoske [00:12:44] We we do the reason why is because you’re embedded with the client. So the behavior is a lot different in your interactions with them. They’re you’re kind of uncovering needs as you’re as you’re going along. And so therefore the the reception on their side is much more open minded so that that approach is very different than going in on a new logo. 

 

Greg Alexander [00:13:06] Sometimes I hear sorry, sometimes I hear from clients. However, if their consulting company is always looking for the next deal while they’re working on the current project, it can be a turnoff. How do you how do you handle that? 

 

Dan Bernoske [00:13:20] Yeah, that is a that’s a big balance. But we’re not selling. It’s always framed up around making sure that they’ve got a problem that needs to be solved. I just very, very much in problem focused, always, always not solutions focused. I can actually, Greg, you know, I come out of a product background, which I’ve applied to my approach for building our solutions. And there’s a great saying in that space that says, don’t be in love with the solution, be in love with the problem. So the more that I enforce that with my people. So seek out that problem. It actually doesn’t feel like selling. It really feels like trying to help out the buyer persona as much as possible. That that’s a really small point, but it does make a difference. 

 

Greg Alexander [00:14:07] Yeah, that does make a big difference. It’s a big point, actually, not a small point. I’m glad you mentioned it. Just one more question regarding expansion sales from existing accounts. Let’s say I’m a delivery person on your team. I’m not held accountable to growing revenue and I get deployed on a project and I going to get done in 90 days and I’m on a project plan and I get to issue X amount of deliverables. And then, are you also asking me to be a salesperson or am I just focused on that project? Like, who’s doing the expansion selling? 

 

Dan Bernoske [00:14:45] So right now, it’s the partners who are we’re small enough where each partner can have a set of of clients that they’re overseeing. So we’re really trying to push that over to them. The job of that of the consultant is to find the evidence and bring it back to us. I see. And just enlighten us because, you know, the other important is what you brought up a great point. I want them focused on delivering good work because good work actually is. The other big piece that sells you more is if you just do a good job that’s that gets you there. But also the partner will have the overall strategic viewpoint of how that that evidence actually fits into the bigger story. So that’s the approach that we always 

 

Greg Alexander [00:15:27] I think that’s a great division of labor. So the delivery team does have an eye towards growing revenue, but they’re not held accountable to the sell. They kick over the evidence to the partner and then the partners get enough skill and probably enough savvy to to re approach the client and say, Hey, my team has uncovered this additional problem. I want to talk to you about it, that type of thing. 

 

Dan Bernoske [00:15:52] Absolutely. 

 

Greg Alexander [00:15:53] Yeah. And that’s working well for you. 

 

Dan Bernoske [00:15:55] It works real well. Yeah. And also think about the delivery. They’re good at delivery. That’s going to be they’re very good at selling. Yeah. So get everybody focused on their skill set. 

 

Greg Alexander [00:16:07] Okay. So then the third kind of leg of the stool as it relates to go to market excellence in selling professional services is the length of the sales cycle and that rounds out the other two, which is the average deal size and the clothes rate. One thing that kills boutique owners is the sales cycles are just too long. Back to my earlier comments around pursuit cost, you know, and if it takes forever to sell a deal, I mean, it’s just a constant, right? Now you’ve got two markets, you’ve got a channel, the PE space, and I’m assuming that takes a little bit longer. And then you’ve got your portfolio company, the portfolio company of the firm, which I’m assuming takes a little bit longer. But is that true? Are those two different lengths of sale cycle? 

 

Dan Bernoske [00:16:51] Yeah, 100 percent. Very different. 

 

Greg Alexander [00:16:54] How long is the PE sales cycle? 

 

Dan Bernoske [00:16:58] Is nine to 12 months. 

 

Greg Alexander [00:17:00] Wow. And you’re willing to hang in there that long. How come? 

 

Dan Bernoske [00:17:04] Yeah, it is. Because once you’re in, I mean, basically, it’s a hunting license and you do a good job in the first portfolio company, earn their trust and then you become a part of their toolkit. I see. So that that Greg, I mean, saves a lot of a lot of selling time alone. So it’s worth getting in. 

 

Greg Alexander [00:17:22] So you get it. You spent a year to get into a shop, but they might own 20 companies, so that’s worth it. 

 

Dan Bernoske [00:17:28] Yeah. 

 

Greg Alexander [00:17:29] Okay. Very cool. And then the portfolio company, what’s the sale cycle there? 

 

Dan Bernoske [00:17:33] Well, quite a bit shorter, around 30 to 45 days. Got it for those. 

 

Greg Alexander [00:17:38] Yep, interesting. So listeners, what that’s known as is a sell through model as opposed to a sell to model. And you might learn from Dan and say to yourself, Do I have any partners that I can sell through that if I establish a relationship with, they could grant me access to a much broader prospect base. And it’s a very interesting approach and probably a topic for another day. All right, my man. Listen, we’re out of time here, but that was a great session. I appreciate you dropping your wisdom with us. If you don’t mind, explain to the audience how to get a hold of you if they have some follow up questions. 

 

Dan Bernoske [00:18:19] Sure, cortadogroup.com, cortadogroup.com online or yeah, just fill out a form. Reach out to me and we’ll go from there. 

 

Greg Alexander [00:18:32] All right, awesome. All right. And for those listeners that might want to learn more about this topic and others, you can check out a book. It just became an Amazon number one bestseller in our category. Yeah, I’m really happy about that. It’s called the boutique how to start, scale and sell the professional services firm, and again, you can find it on Amazon and other retailers. And if you liked this, then you want to meet other great people like Dan, consider joining our mastermind community. You can find that at Collective54.com. Dan, thanks a bunch. Take care. 

 

Dan Bernoske [00:19:04] Thank you, Greg. I appreciate it. 

Posted on

Episode 64 – The Revenue: A Practical Guide to Monetize Professional Services – Member Case with Jamie Shanks

Boutiques often think there is only one way to charge with limited revenue sources. On this episode, we interview Jamie Shanks, CEO at Sales for Life to discuss the 9 common ways to make money in the professional services industry.

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to the Boutique with Collective 54, a podcast for
founders and leaders of boutique professional services firms. Our goal with this show is to
help you grow, scale and exit your firm bigger and faster. I’m Sean Magennis Collective 54
Advisory Board member and your host. On this episode, I will make the case that
boutiques constrain their growth by thinking too narrowly about monetization. They often
think there is only one way to charge and only a couple of revenue sources available to
them, when in fact, there are nine common ways and probably more to make money in the
professional services industry. I’ll try to prove this theory by interviewing Jamie Shanks,
CEO at Sales for Life. Sales for Life enables sales organizations and teams to produce
sales generated pipeline at scale. To accomplish this, they have evolved into a tech
enabled service with a product called the Scale Pipeline System. This system helps
customers grow their sales pipeline by 25 percent within 90 days, and you can find Jamie
and his team on sales for life, all one word, dot com. Jamie, great to see you. Welcome.

Jamie Shanks [00:01:44] Sean, thanks for having me.

Sean Magennis [00:01:45] Oh, it’s such a pleasure, and I’ve been so looking forward to
chatting with you. I love your energy and I love what you’re doing. So let’s start with an
overview. Can you briefly share with the audience an example of how you’ve developed a
new revenue stream?

Jamie Shanks [00:02:00] Yeah, actually, we not only generated a new revenue stream,
but spun it out as a secondary company called pipeline signals. Essentially, we had or
have a training business for the last eight years that has various sources of revenue
streams. What was happening upon finalizing certification with our customers? We needed
a reinforcement mechanism when we created a managed service that actually mined
signal intelligence on behalf of sellers and created that revenue stream as a spin out from
sales for life.

Sean Magennis [00:02:34] I love that, you know, it sounds easy, and I’m sure you know it
wasn’t as easy as you make it sound, but having that knowledge that you needed a
reinforcement turning that into a managed service, what a great example. So, Jamie, what
I’d like to do is get your thoughts on some of the best practices that we recommend in this
area. We’ve identified nine of the most used sources of revenue in professional services.
I’ll walk you through each one and then get your brief thoughts on each as we’ve got quite
a bit to get through. So the first one is hourly. Billings charging clients an hourly rate has
the benefit of being easy to implement. However, it limits how much revenue you can
generate. There’s a fixed number of hours. There’s an upper limit of how much you can
charge for each hour. What are your thoughts on this concept?

Jamie Shanks [00:03:25] And all the context I provide, I’m going to talk from a training
perspective in a managed service. Great. I completely avoid the hourly billing because I
only have whatever is six hundred or two thousand hours in a year, and I’m trying to create
leverage per those hours and trading time and materials. My my personal opinion I
avoided at all costs.

Sean Magennis [00:03:51] That’s Jamie in your context. Excellent. Number two is a
retainer. This is when a client pays you upfront to secure your services when needed. This
has the benefit of getting paid in advance and of a predictable cash flow. However, there
are only so many retainers a boutique can handle at one time. What is your opinion about
this concept?

Jamie Shanks [00:04:14] We had that separated. We actually had a retainer program
where we have what’s called a daily coaching hotline, and it granted our customers
unlimited access to coming into think of like Professor Class Time at university. Yes. The
challenge is then what? Again, it became a utilization rate exercise of constantly trying to
figure out what is the percentage chance the people will drop into that call? Will we
spreading ourselves too thin? We then had to break out if some people get individualized
call times versus a public enrollment of allowing multiple people on the same call. So we
eventually migrated that revenue stream into more of a fixed fee bid and utilized
subscription, so we no longer touch the retainer model.

Sean Magennis [00:05:07] OK, excellent because the next question is fixed bid. So this is
using a flat amount regardless of the amount of hours worked. It is profitable work for
boutiques if they can scope projects correctly. So if a firm struggles with estimating the
level of effort, it can be a money loser. So what do you think about this? How have you
dealt with that?

Jamie Shanks [00:05:28] This is essentially our go to market. Over time, we’ve discovered
our gross margins. Our gross margins are north of 80 percent. And so by understanding
that and also developing a service that is scalable, tech enabled services you described
upfront, it allows for predictable delivery. Our delivery really doesn’t change customer the
customer outside of a few hours here, a few hours there over the course of a year. Yes. So
all of our customers for sales for life in particular are on annualized subscription contracts
that are fixed fee bid. And it is up to us to live within the means of the people and process
that we’re deploying against that.

Sean Magennis [00:06:14] Brilliant. And staying disciplined and not going out of scope,
right?

Jamie Shanks [00:06:19] Correct. Fantastic and going to school. I think the important
piece here is not customizing. I mean, this is a lesson learned. Don’t play the game of let’s
throw everything into the deliverables and outcomes section of your statement of work.
Yes, design something that is a repeatable service. The one offs, you will get clobbered
because there will be scope creep that happens every time.

Sean Magennis [00:06:47] Absolutely. So well said, the fourth one is performance based
contracts. So this is where goals are established. And if the firm is successful, they get
paid. And if they fail to deliver, they don’t. Get paid, it does allow a boutique to capture
upside as they’re usually uncapped. The risk, of course, is if you don’t produce, you lose
your shirt. So what are your thoughts on performance based contracts?

Jamie Shanks [00:07:13] This is actually something we want to experiment in the future
with a company that we have an idea of launching, but its sales for life, we have not had
the retained earnings or there the risk profile willingness to take on those type of
customers now. I’ll give some caveat the customers and sales for life are global enterprise
global mid-market. They may not be as apt to to running a model like that because for
them, they’re pulling money out of our backs. It’s predictable. It’s being sold to a director or a VP of a business unit or a line. So we haven’t done it. I have interviewed and met many
CEOs that are experimenting or are doing it successfully. And it actually has been the
growth driver for their business. I unfortunately, have not tried it out of fear.

Sean Magennis [00:08:05] No, and that’s important to recognize, and it’s important to
have the means to carry that risk from a cash flow or from a cash reserve standpoint. The
fifth one is member dues, and it’s a business we know well and it’s a business you’re
getting to know well. So this is when a client pays the boutique, if they see a value in being
in a group or community with other clients, the annual dues grant access to people of a
similar nature and similar jobs dealing with similar issues. It’s profitable for boutiques as it
scales nicely. Small amounts of staff can manage large numbers of clients. The risk,
however, is you have. If you have unhappy clients, the word is going to spread quickly. So
what are your thoughts on member dues?

Jamie Shanks [00:08:49] This is essentially a form of what sales training companies do.
Yes, they originate typically in project based one time revenue. But our business after
eight years, it is a form of a member do. Essentially, it’s an annualized subscription. It
began where there was quarterly deposits up front. Then we became comfortable and
asking for annualized membership dues. That’s essentially what it is and then now with
three and five year contracts. But essentially, what they are getting is a series of
deliverables throughout the year, and it’s this is what I like about it. It’s value based
outcomes. So all that you’re basically saying to people is over the course of X, let’s call
that one year. Yes, I’m going to move you from ground ground floor to Mars. And on that
journey, don’t come to me every month about where we are on our way to the space
shuttle and then on the way to the Moon and the way onto the Mars. Let’s focus on what
we’re trying to accomplish over a year and keep paying your bills. So we are a form of a
member service and it’s the best way, especially again if you understand your gross
margins.

Sean Magennis [00:10:03] I love that example. Well, well, well said. The six is licensing
revenue. It’s a it’s an area I know well. I was in a licensing revenue business for 14 years.
This is where a licensing fee is paid by a client to a boutique for the use of intellectual
property. Many boutiques have methodologies and tools that client want unlimited access
to. They pay a license fee or a royalty for this right. And the risk to a boutique with this is
an inability to productize their service offering. So if every project is a snowflake, it doesn’t
work. So what are your thoughts on this concept?

Jamie Shanks [00:10:41] Yes. And so that’s what makes up our annualized subscription,
and I’ll talk about what we’d like to do in the future with a channel model. But essentially, if
you were to reverse engineer, our average sales price annualized sits between 80 and
100000 U.S. dollars per customer. If you were to break that down, a percentage of that
from an accounting perspective is counted as an annualized license that is then deployed
in one twelfth across a year when you use accrual accounting. Yeah. And then there’s a
service that’s also applied to that as well. And what we try to do is make the annualized
license worth 70 to 80 percent of the total fee. And then the services work on top of the
licenses has more enterprise value than the services themselves. The services again have
been productized. The onboarding process is the same for every customer, right? The
moment of the learning, it’s the same for every customer. The quarterly business reviews
with the customer the same. So in essence, they’re all like that from all. The customer
sees one licensing price. Some will ask for that breakdown because they need to account
for what percentage is a license. Now where we want to bring this in the future is being
able to develop a channel ecosystem in that channel ecosystem. Our customer then does

not become the end user. The customer of ours becomes the channel partner. They pay a
licensing fee and then they resell it to their cash, the end user, and it will come to one of
your other models. It’s a form of a royalty.

Sean Magennis [00:12:22] It’s right now that makes a lot of sense, and I think you’ve
keyed in on something I think our listeners need to know. That’s really important when
you’re looking at licensing revenue, the documentation, the playbooks making it very, very
standard that you can replicate is really critical for the success of this model.

Jamie Shanks [00:12:39] Yes. Yeah. And if you if you look at like a training business, we
would straddle the line between a shot. It has the it should have the margins of a software
company. Mm-Hmm. But the human element of services, I wish it had sat on for multiples.
That’s what it has. It’s very akin to it where you create the intellectual property and the IP.
One time you put it in a learning management system and you sell it a thousand times.
Yes, to a thousand companies. Yeah.

Sean Magennis [00:13:13] Oh, very nice. The seventh one is subscription, and these are
all sort of, you know, aligned in some way. So subscription is paid to boutique by a client to
gain access to an asset. For example, many boutiques have proprietary benchmark data
and clients who want access to this data pay a subscription. The risk is managing the
asset, keeping the quality of the data well. So, you know, if the data ages, it becomes
worthless. Clients, you know, disappear. What are your thoughts on the subscription
model for revenue generation?

Jamie Shanks [00:13:49] It’s basically all of our revenue, and we it took us a while to have
the strength and the tenacity to ask for the annualized subscription fee paid in advance of
the calendar year that it’s going to be deployed. Yes, and we try unless it’s the Microsofts
of the world that is always the case. Collect the money upfront. Yeah. And from from that
moment, I work within that, that gross margins itself. And we really worked hard to ensure
that DSO were based sales outstanding, if possible, under 30 days that we’re not experts
at it. But that means that you are taking a year and of revenue and deploying it in the same
month of an operating expense of one particular month. It’s an incredible way to accelerate
the growth of your business if you can sell 12 of those over the course of a year.
Absolutely.

Sean Magennis [00:14:53] Yeah, it’s brilliant. Well, well structured and a great example.
Number eight is events in this current environment. This may not be a particularly good
revenue generator, but this is where clients buy a ticket or tickets to be granted admission
to an event or a seminar or a three day that boutiques put on can be very profitable. And
typically, you can get sponsors to cover the cost of the event and the ticket sales then or
all profit. The risk, of course, is that if no one buys tickets and no one shows up, then it’s a
bust. What are your thoughts on the event concept?

Jamie Shanks [00:15:32] I have a couple examples on the event, so as part of my
business, a quarter million dollars of revenue for five years up until COVID, with speaking
engagements and workshops. So this also comes to your first question. Yes, which was
around hourly. When I began speaking on stage, I made many mistakes and that was
thinking that the hour that I was on the stage should be charged for that particular hour,
only to come to realize that when your car leaves the driveway to get to the airport, live in
Dubai for two days and then come home, you need to equate for this. And then you also
need to wait for the value creation, not the hour spent, because you also spend a lot of
time building the presentation and so forth. So my speaking fees went from five hundred to

a thousand dollars incorrect thinking of like the hour of that deployment to on average
between 20 and 40 thousand dollars really under what I was going to go. COVID changed
that when COVID happened, the world tried to revert all of US speakers to ensure that our
Zoom calls were a cost per hour and that how much the calls were cost per hour. So what
happened is those who that was 10 percent of our revenue and reduce the size of sales
for life. Right. If you look at that, those that had speaking and workshops as like 80 percent
of the revenue just crippled crush because the customer was saying, Well, I’ll pay you five
hundred dollars to do the same thing virtually, I don’t know. Again, you tried to drive it back
to the value creation piece. Now you could obviously discount saying, Well, I’m not going
to spend two days in Dubai market out of pocket. So, you know, speaking of fees on virtual
have typically landed four in my world for three to five three to five to maybe ten thousand
dollars. Mm hmm. Maybe that kind of helps answer the first part, which is how do events
change and you get away from that hourly? Yes. Also then ran our own conference. We
put together a conference six years ago. Assess a quarter million dollars to put this thing
all together, and one of the things that I’ve learned is that the gate fees or the to calling
these events ticket fees three or five hundred dollars is not the way to make money, nor is
even the sponsors the best practice from my understanding, my limited experience. My
wife’s in that industry has been that the people that you bring in the future equated
revenue of those people measured over the next one to three years should be your return
on investment thinking and the gate fee and the ticket fee and the sponsorship fee. Will
hopefully bring you to a brief break even. Yes. And your cost of customer acquisition
hopefully became zero unless you equate the time and energy it took to build the
conference itself.

Sean Magennis [00:18:49] So and thats brilliant. I love that thinking, and that means that
your strategy for events has to be extraordinarily well conceived, very well thought
through. Because if you’re reliant, then on those individuals, either as prospects or as a
land and expand if you have them as existing clients, is this an opportunity to up sell or
cross-sell? There needs to be a very specific engagement strategy from what I’m hearing
from you to unlock the value long term from the investment in events.

Jamie Shanks [00:19:20] Correct. And I think the events world is now permanently
disrupted. Yes. And if you were trying to put on a $100000 event, let’s use a round
numbers to try to recoup in $100000 in gate ticket fees and sponsors might be a tall ask.
Now you have to deploy a sales team to even get those. That level of people in the door?
Correct? Think about it. Think about it from the perspective that if we can at least break
even, what would five of those hundred people who became customers? What would that
mean to our business? Yeah. What is the lifetime value of five new accounts?

Sean Magennis [00:20:02] Absolutely.

Jamie Shanks [00:20:03] That’s probably the best way to look at it.

Sean Magennis [00:20:05] I love it. That is so clear, and thank you for being so candid in
Airplane because a lot of people are thinking, Do I go back to events? Is it going to be a
hybrid model and how can we truly extract an hour away from it? The final one is royalties,
so this is when a boutique does not monetize the client, but instead they monetize other
boutiques. It’s often used by boutiques of training products like you and your bag. They
allow other firms to use their training material. They collect a royalty every time they do.
The risk with this is that somebody steals your IP, you know, and and dresses it up and
creates their own. So a boutique who chooses this strategy really needs to understand
paywalls, royalty agreements and IP protection. What are your thoughts on this?

Jamie Shanks [00:20:52] Well, if you look at my industry, those that have scaled and I’ve
had this conversation with Greg many times, and he’s made it very clear. If you look at the
few great global sales training companies, they have one thing in common they have built
a channel ecosystem. Sandler in my industry decided to do it through a franchising model.
Most do it through a ten ninety nine contractor channel model. But it is this the singular
commonality to scale and intellectual property is that in my industry, typically the OEM, the
designer of the –

Sean Magennis [00:21:29] which is you,

Jamie Shanks [00:21:30] which is me, would take on average 30 to 40 percent of the
deal. And the boutique that actually sells, wins and then delivers the service is somewhere
in the 60 to 70 percent range, and that’s a common model. We experimented with it and I
learned the lesson of trying to become pregnant. We got halfway there, had a few hits and
misses. It will be a focus of ours over the next five to 10 years. And it is the obvious path to
scale that we will focus on.

Sean Magennis [00:22:08] Great. Thank you for that, Jamie. So there you have it. Nine
ways to monetize professional services, some amazing insights and really practical, real
time examples from Jamie. So going to market with a single revenue source, in our view,
is a mistake. The important lesson here is to have multiple revenue sources. Therefore,
the question our listeners should be asking themselves is what is the right mix for you? If
you have one, try to get two, if you have to try to get three and so on. The opportunity is
often right under the nose of an owner. You just need to know where to look. OK. This
takes us to the end of the episode. Let’s try to help listeners apply this. We end each show
with a tool. There’s going to be a simple 10 question checklist and a yes no answer to it.
We keep it very simple. So, Jamie, I’m going to ask you these questions and just simply
say yes or no, and I’ll run through them quickly.

Sean Magennis [00:23:15] The first one is, will the client pay you more than $500 an
hour?

Jamie Shanks [00:23:22] Yes.

Sean Magennis [00:23:23] Will a client pay you in advance to secure your services on
demand?
Jamie Shanks [00:23:28] Yes.

Sean Magennis [00:23:29] Number three, can you scope your projects with precision?

Jamie Shanks [00:23:34] Yes.

Sean Magennis [00:23:35] Number four, can you prove direct attribution of results in your
project?

Jamie Shanks [00:23:41] Yes, I mean, sales were quite easy, actually.

Sean Magennis [00:23:44] Number five, will your clients pay you for the privilege of
speaking to your other clients?

Jamie Shanks [00:23:50] Never tried.

Sean Magennis [00:23:52] Number six, will your clients pay you for the right to use your
intellectual property?

Jamie Shanks [00:23:58] Yes.

Sean Magennis [00:23:59] Number seven, do you have proprietary data that clients would
like to subscribe to?

Jamie Shanks [00:24:04] Yes.

Sean Magennis [00:24:05] Number eight, do you put on events and our clients willing to
buy tickets to attend?
Jamie Shanks [00:24:11] Had in the past.
Sean Magennis [00:24:13] Number nine are other boutiques willing to pay you a royalty to
distribute your intellectual property?

Jamie Shanks [00:24:19] Hopefully in my future.

Sean Magennis [00:24:21] And number ten, does your business model include at least
three sources of revenue?

Jamie Shanks [00:24:27] Yes.

Sean Magennis [00:24:28] Jamie. Fantastic. So in summary, there are many different
sources of revenue available to boutiques. Develop a clever monetization strategy. Think
about a mix of revenue, not just one source. Jamie, a huge thank you for your expertize
today, and I look forward to seeing you again. And for our listeners, if you enjoyed the
show and want to learn more. Pick up a copy of the book The Boutique How to Start,
Scale and Sell the professional services firm written by Collective 54 founder Greg
Alexander.

And for more expert support, check out Collective 54 the first mastermind
community for founders and leaders of boutique professional services firms.

Collective 54will help you grow, scale and exit your firm bigger and faster.

Go to Collective54.com to learn more.

Thank you for listening.

Posted on

Episode 63 – Pricing: The Quickest Way to Scale – Member Case with Chris Neumann

Changing your pricing strategy is the quickest way to scale. On this episode, we interview Chris Neumann, CEO at Cro Metrics to discuss how evolving his pricing strategy has allowed him to scale. 

Transcript

Sean Magennis [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. I’ll go with this show is to help you grow, scale and exit your firm bigger and faster. I’m Sean Magennis Collective 54 Advisory Board member and your host. On this episode, I will make the case a change to your pricing strategy is the quickest way to scale. I’ll try to prove this theory by interviewing Chris Neumann, CEO at CroMetrics. Crowe Metrics drives revenue growth through strategic, data driven experimentation. They optimize your website for conversion, boosting key metrics such as revenue and engagement while you learn more about your customers. You can find Chris at CRO metrics that CROmetrics.com. Chris, great to see you and welcome. 

Chris Neumann [00:01:19] Thanks for having me on the show. 

Sean Magennis [00:01:20] It’s such a pleasure. So, Chris, let’s start with an overview. Can you briefly share with the audience an example of how changing a pricing strategy can impact scale? 

Chris Neumann [00:01:32] Sure, actually, this is a core strategic advantage for us a year or two ago, I set up a biweekly meeting that anyone in the company could attend called the pricing console. Culturally, we’ve created a safe pay, safe place for people to bring up pricing issues and people from all levels do. So the issues surface of this meeting have led to some pretty big competitive advantage for us and we’re always looking to it’s coming from a place of always trying to deliver more value to the customer through pricing changes, and it’s even actually led to a wholesale change in how we price our our services. 

Sean Magennis [00:02:05] I love to hear that, and let’s go a little deeper on that because you know your concept of creating a pricing console I love because in my experience, tackling pricing is a very loaded and can be a difficult conversation. Is that what you find? Is that why you started the pricing council concept? 

Chris Neumann [00:02:26] Absolutely. I think that actually the right strategy is to always be playing with pricing. So the accountants are one group that are not so enthusiastic about that, but everyone else, including most importantly, the customers, is. So I think another part of this is, you know, we’ve you talked about in the intro, we run revenue optimization and do a bunch of experimentation and some of the most impactful experiments we’ve ever run have been pricing experiments. So why not do that for ourselves? 

Sean Magennis [00:02:56] Exactly. It makes complete sense. And so, Chris, what I’d like to do is get your thoughts and some of the best practices that we recommend in this area. You know, I understand from you what you think about them. I’ll go through five specific things. I’ll walk through each, get your thoughts and feel free, you know, to share whatever your experience is in these regards and add to them. So the first one is a pricing change does not require an investment to implement. There’s no staff to add or service offering to develop, and the benefits can be immediate. So charge more today than you did yesterday. What are your thoughts about this concept? 

Chris Neumann [00:03:37] Yeah, I mean, people’s time is always an investment, so there’s maybe a little bit of cost there, but it’s not a hard cost. And so conceptually, I totally agree. I think some of the biggest impacts have been empowering the team to contribute to pricing. Yeah. So with my pricing council bringing it just helps us understand more what the customer actually wants. And so we’re always examining this and trying to just deliver more value to those so totally agree that you can just make a whole bunch of small and incrementally changes with almost no direct cost. 

Sean Magennis [00:04:06] Excellent. The second one that we find as boutiques often do not know what their services are actually worth to their clients, and they’re often unaware of what clients are willing to pay for those services. Many firms cannot even logically explain to prospects why they charge what they charge. And worse, they cannot quantify the amount of value a prospect receives from an engagement. What are your opinions about this, Chris? 

Chris Neumann [00:04:34] Well, I guess there’s a bunch of hard won experience that I don’t ever speak to. One thing we always do is calculate the ROI in our services, and we do that in conjunction with the client. So it’s not just our calculation, it’s the one that they agree with you. Mm-Hmm. Ideally involving their CFO and those sorts of folks. Yes. And we do that and we present it to the the staff at the customer in a quarterly business reviews. So we make sure we’re all on the same page. Before we were doing that, we’re often, you know, why was I calculate it was much easier for them to and our engagements. The other thing we’ve done is we’ve looked at a number of different pricing models because of that. You know, the value thing you talked about a second ago, we ultimately landed on hourly because in our industry, performance doesn’t really work, and the unit of value is an experiment for us. And so the cost to deliver an experiment varies watch to wildly to warrant a fixed price, which is what we are doing. And that was a very painful lesson to learn since the sort of scope creep on the bigger ones just sort of ate us alive on margin. 

Sean Magennis [00:05:34] You know, that’s such an important thing, and we have had several episodes. And then in our book, we talk about that. But making sure that you clearly manage the scope that you’ve priced well and that you don’t go into the red on on a particular project and only pricing is a way that you have fun to get there. I love your point about the ROI calculation that the client agrees with and involving the CFO. Brilliant. The third recommendation that we would make is to develop a pricing strategy that matches your business strategy. What I mean by that, for example, is if a firm sells to small businesses, the high volume, low price model makes sense. If you sell complex solutions to larger companies, a higher cost, lower volume approach is best. What do you think about that, Chris? 

Chris Neumann [00:06:27] Yeah, I think it ties to your business model in general. Right, so we actually sell to a wide range of customers, but our engagement model really isn’t that different. So larger complex organizations just require more hours because there’s different departments and, you know, bigger meetings you have to have. But the core engagement model and pricing really isn’t that different. So I think there’s like a maybe a yellow flag you might see if you’re starting to like, try to go for a low volume price or start to get out of your lane. It might cause a problem, right? Like a law practice that does patent litigation will be high cost regardless of client size, whereas an IT offshoring will probably all have low cost, high volume engagements. 

Sean Magennis [00:07:08] Yeah. 

Chris Neumann [00:07:09] Is that about your experience? 

Sean Magennis [00:07:11] Absolutely. Maps to my experience and really good points. So another recommendation is to focus on price positioning as it affects perception and in this context. Perception is reality, so the price you charge sends a signal to the client. If you price too low, your work will be considered, which can be considered low quality if you price too high. You may be perceived as being difficult to engage. So if you price the same as your competitors, you may be perceived as undifferentiated to maybe unpack some of those concepts with me Chris. 

Chris Neumann [00:07:48] Sure, so we’ve definitely struggle with this as well. I think the big temptation is to try to sort of win on price, and I would recommend that you not do that unless your core you have a know you have a core cost advantage over your competition, and that’s like your main value proposition. Yep. Instead, what we do is we try to price the value. So I talked about that ROI calculation. Yeah, we do the ROI assessment in the sales process. We’re trying to I don’t want to take people’s money unless I know I’m going to give them a really good return. Yeah, I tell them that at the very beginning. And so we priced towards value because at that point, the conversation is about the parameters of value of the customer versus like how much as a unit of work cost an hour or whatever. A of value pricing is key. 

Sean Magennis [00:08:32] I love that. And then going back again and reinforcing do the ROI in the sales process, which justifies your price to value? I love that. The fifth one. So one more, you know, there may be an understanding of what the client’s value at the attribute level is. So a mistake often owners of processor firms make is they think in the aggregate. When it comes to pricing, we advocate being Sure to understand what attributes of your offering are valued most and influence the perception of your performance in the specific area. This will result in the ability to charge more because there’s more perceived value. Do you do you agree with that? What are your thoughts on that? 

Chris Neumann [00:09:17] Sure. Yeah, I totally do. And you know, as we’ve grown, we’re about 75 people now, so I find myself increasingly sort of almost in an ivory tower. And that’s where the pricing council’s incredibly valuable right. We we talk of the people doing the work and talking with the customer, and they get a real sense of what the client cares about. So like one example specific for us is we were doing this thing. We were selling at a lower rate after a number of hours, using a month to be sort of a bulk discount and, you know, procurement and maybe the people we were working with on the sales process like that. But it turned out there was no behavior change in our clients. They didn’t value it. No one there was no behavior change whatsoever. So we moved away from it because it was basically a sales gimmick. Yes, I mean, this could be fine, but I really want to drive customer value. 

Sean Magennis [00:10:04] Ultimately, that’s a fantastic example. And you know, you said something, you know, it’s 75 employees. You’re feeling that you’re potentially or you you are. You feel sometimes that you’re an ivory tower and you’ve used your pricing counsel to help you stay connected to your client, I think is phenomenal to share with me why it’s important that you really have your finger on the pulse of what the client is doing, thinking, feeling. 

Chris Neumann [00:10:32] I just think that that’s the way you get value, right, understanding the customer ultimately through all of our experimentation we do for them when you get to understand those customers better. So while I might be talking to a more senior person, the engagement, the actual people doing the work or talking to my people. And often there’s a weird power dynamic where if I come to a meeting, it’s causing things to be different. So I need the folks on the ground to be talking to me. So I know what’s going on. It’s just almost impossible for me to, you know, there’s too much observation by us. If I show up to I on tactical meeting, 

Sean Magennis [00:11:06] I think that it’s well said Chris. And you know, our listeners, please take take that to mind, particularly if you’re the founder of your business and avoid that ivory tower mentality by by getting in and really listening. And also this bias that could creep in when you’re the maybe the highest paid person in the room, you’re the founder of the owner or you’ve got the lead intellect. Is give yourself an opportunity to really get to that real insight. Fantastic, Chris. Thank you. These are great Real-Life examples that you’ve shared, and this takes us to the end of this episode. And as is customary, we end each show with a tool. We do so because this allows the listener to apply the lessons to his or her firm. Our preferred tool is a checklist, and our style of checklist is a yes no questionnaire. We aim to keep it simple by asking only 10 questions in this instance. If you answer yes to eight or more of these questions, your pricing strategy is working for you. If you answer no too many times, pricing is more than likely getting in the way of your attempts to scale. Chris has graciously agreed to be our peer example today, and Chris, I’ll ask you the the yes, no question so we can all learn from your example. So let’s begin. 

Sean Magennis [00:12:27] Number one, do you know what your offering is worth to clients? 

Chris Neumann [00:12:33] Yes. 

Sean Magennis [00:12:35] Number two, can you quantify the value of your work in hard dollars? 

Chris Neumann [00:12:42] Yes, that’s the ROI calculation. Yep. 

Sean Magennis [00:12:44] Number three, do you know what clients are willing to pay for your services? 

Chris Neumann [00:12:51] Yes, we do. 

Sean Magennis [00:12:52] Number four, can you explain the logic of your pricing in a way that makes sense to your clients? 

Chris Neumann [00:13:00] We can now if we didn’t use you. But so yes, we turned that from a no to a yes. 

Sean Magennis [00:13:05] Excellent. Number five, does your price illustrate to the client the link between price and value? 

Chris Neumann [00:13:14] Absolutely. That’s the ROI. 

Sean Magennis [00:13:16] And I loved your point about involving the client in that and where possible, the CFO. So they they own it. They’re invested together with you. I love that. Number six, do you charge the most for the service features that your clients want the most? 

Chris Neumann [00:13:31] I think so. I don’t know for sure, but I’ll go with you. Go and check off to really know. Yeah, definitely. 

Sean Magennis [00:13:38] Number seven, do you charge the least for the service features that your clients don’t care about? Similar thing, right? 

Chris Neumann [00:13:45] Yeah, I think so. But it’s hard to hard to know for sure, but definitely a good thing to bring back to the pricing console. Yup. 

Sean Magennis [00:13:51] Number eight, do you allow for clients to choose their price by presenting options? 

Chris Neumann [00:13:57] Absolutely. We learned that lesson very early on. Correct. You want to choose between multiple options versus just yes, no. 

Sean Magennis [00:14:04] Like that. Number nine, is your sales team skilled at overcoming price objections? 

Chris Neumann [00:14:11] Absolutely. You have to be. 

Sean Magennis [00:14:14] And number ten, have you built into your system an annual price increase? 

Chris Neumann [00:14:20] Just yes, only recently, though, so it’s good we’ve got that coming up. 

Sean Magennis [00:14:24] And have you found it? Have you had enough time, you know, to run? 

Chris Neumann [00:14:28] So yeah, it becomes really easy, you know, a couple percent increase for some engagements and then another others we reevaluated. 

Sean Magennis [00:14:35] Yeah, outstanding. So in summary, taking what Chris has shared with us, our listeners really, please understand your worth. Don’t undervalue yourselves. What each of you do is exceptional. Price accordingly and scale quickly. Chris, a huge thank you for sharing your expertize today. If you enjoyed the show and want to learn more. Pick up a copy of the book The Boutique How to Start, Scale and Sell the professional services firm written by Collective 54 founder Greg Alexander. And for more expert support, check out Collective 54, the first expert community. For founders and leaders of boutique professional services firms, Collective 54 will help you grow, scale and exit your firm bigger and faster. Go to Collective54.com to learn more. Thank you for listening. 

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Episode 62 – Fee Quality: Transform Income into Wealth – Member Case with Tony Mirchandani

All revenue is not good revenue. Some types of revenue create more wealth for owners than others. On this episode, we interview Tony Mirchandani, CEO at RTM Engineering Consultants to discuss his approach to consultation fee quality.

Transcript

Sean Magennis [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. Our goal with this show is to help you grow, scale and exit your firm bigger and faster. I’m Sean Magennis Collective 54 Advisory Board member and your host. On this episode, I will make the case that all revenue is not good revenue. Some types of revenue create more wealth for owners than others. I’ll try to prove this theory by interviewing Tony Mirchandani, CEO at RTM Engineering Consultants. RTM serves architects, developers and owners to produce sustainability, construction quality and streamline schedules on each project. An extensive set of capabilities has allowed RTM to deliver superior work on industrial, commercial and retail builds, as well as well as other complex building types such as health care and laboratory facilities. You can find Tony rtmec.com. Tony, great to see you and welcome. 

Tony Mirchandani [00:01:34] Thank you. It’s great to be here. 

Sean Magennis [00:01:36] And it sounds like you’ve had an extraordinary busy four days with your in-person team meeting, so we’ll run through this. So Tony, let’s start with an overview. Can you briefly share with the audience an example of how all revenue is not good revenue? 

Tony Mirchandani [00:01:53] Absolutely. Earlier in my career, I would have thought a $100000 cell would be equal to another $100000 cell and think the real differentiator between the two is what’s the profit margin on that going to be? But the reality of it is being in professional services. We have to have a continuous backlog of projects and want to have the opportunity to be able to improve the actual product that we’re pushing out. Mm-Hmm. So having revenue that is driven by surfaced, in our case, sophisticated buyers, buyers that are willing to start at the $100000 mark and then continuously increase that amount as time’s going on. If we’re able to produce have the desire and the need based on the product that we’re pushing out. Actually allows them to continue to build their business if their business does not require the services we have on a multitude of years, that revenue that we’re driving really becomes it becomes a one trick pony ride and we have to go out and sell again. 

Sean Magennis [00:03:03] Right. So that becomes bad revenue. 

Tony Mirchandani [00:03:06] Exactly, exactly. And then the cost to go out and win that next hundred thousand dollar job takes away from that first one versus one, that’s going to be basically having a recurring revenue stream as best we can. 

Sean Magennis [00:03:20] That is such a great example to kick us off. And what I’d like to do is get your thoughts on some of the best practices we recommend in this area. Now there are many I’ve selected for specific things that I’ll walk you through and then get your thoughts on each. So the first one is high fee quality comes from a proper balance of fees from new and existing clients. A rough rule of thumb that we use as a 60:40 split. So 60 per cent of fees hopefully sourced from existing clients and 40 per cent fees source from new clients. What is your experience and thoughts in this area, Tony? 

Tony Mirchandani [00:03:59] I completely agree with that. I think every year we should be turning over some of our clients and being able to rank those and whatever that internal ranking is, as long as it’s tied to whatever your end game is. Yeah. So internally, we see it more around an 80 20 rule. But our clients take a six to 12 month onboarding period before we actually receive true revenue from them. And it takes about 24 months to unwind a client that we don’t want to work for anymore. So that slow cycle, we have to be very selective in who we want to have as our next client. 

Sean Magennis [00:04:33] That’s an that’s an outstanding example. And you know, again, each firm is going to have slightly differences. So your 80:20 works in your scenario and with your 24 hour, you know, move off cycle that requires that requires some careful management, I would imagine. 

Tony Mirchandani [00:04:54] Yeah, absolutely. Because we’re in the construction business, right? And anything that we design, it’s going to it’s going to take another 12 to 24 months to unwind and that can actually drag us down during that time period. But also as we’re as we’re building the internal team and we’re evolving in the marketplaces that we operate in, we’re becoming more and more sophisticated in the kind of clients that we can drive true value from. I see it is there’s there’s two kinds of real revenue out there. There’s revenue that we add value to and then there’s revenue that is just the client is required. It’s like being attacked, things permit documents. They have to hire someone to do it. Yeah, we try to avoid that type. We try to find clients that need to partner with us. 

Sean Magennis [00:05:41] And that’s the key driver is finding those partners that you can truly add value to. And it’s not commoditized stuff that anybody could do what they could do internally, right? Exactly, exactly. So the next question is potential buyers want to see long term contracts with clients. For instance, the management consulting firm that performs 30 day strategy assessments. Arguably has poor fee quality. However, the boutique that performs assessments, solution development and implementation and can do 12 24 months 36 months contracts. These firms have high fee quality. What do you what are your thoughts on that? 

Tony Mirchandani [00:06:22] I absolutely agree with that, and I just think in certain industries such as ours and a lot of our colleagues, it’s hard to get a consistent 36 month type contract. But by identifying the right client with the right revenue cycle, you’re able to get a project that might take 12 months, but the next project is going to start in six months. So suddenly you get these overlapping projects and the better job we do, the more dependent our client actually becomes on us, the more dependent we can become on our client. And one of the great things that Greg Alexander’s talked about is how do you reduce your internal cost as you become more of an expert with a particular client? We’re able to do that on the third, fourth, fifth engagement, especially if they have overlapping cycles. 

Sean Magennis [00:07:10] That that is a brilliant point. And I’m presuming that you can train lower cost experts in order to take on that work because you’ve actually you’ve gotten yourself an expertize and then have your higher order. You know, start with clients fresh that need that additional expertize. Is that the right way to look at it? 

Tony Mirchandani [00:07:29] That absolutely is the right way to look at it. And there’s another side benefit to that is we’re always looking to bring on new staff and our senior staff may get bored on the third or fourth projects. That becomes a new opportunity to train and retain new great talent, while giving the senior talent some new opportunities to pursue new challenges. 

Sean Magennis [00:07:49] Yeah. Outstanding. Again, you’ve hit the nail on the head. Number three is after analyzing new versus existing clients, as well as length of contracts. Typically, when a person values a firm, they’ll look at fee predictability and a boutique who services build on one another is very attractive. And you’ve just said that in your in your previous remarks. So these boutiques often produce high fee quality due to better predictability. Is that something you’d agree with as well? 

Tony Mirchandani [00:08:20] Yeah, I would I would definitely agree with that. And another piece of that is the predictability and the the avenues that you were able to actually receive that revenue. So it’s there’s the normal linear cycle. Yes. And as we’re adding a new services, we’re able to go downstream. So we’re getting engaged earlier, for instance, with civil engineering and then commissioning services, we’re on the job another six months. And that longevity with the client not only is tying into the same sales cycle, but it’s creating more opportunities for overlap and without needing to go out and have another cold sale. 

Sean Magennis [00:08:59] It’s brilliant. It’s almost like going back to go forward, to go long. Right? I mean, that’s the way that exactly. Yeah, it’s it’s really smart. So number four, buyers often examine fee quality based on cash collections. So boutiques that have aging accounts receivables and they’re not collecting quickly enough. Typically, you would say that that’s pure fee quality. In contrast, boutiques that are paid up front or have really good cash collection, they have high fee quality. So free cash flow is a big positive. What do you think on this subject? I know that you have an opinion here. 

Tony Mirchandani [00:09:36] Unfortunately, I do, and this is where we have really struggle and we’ve definitely not excelled as well as we have a very large collection cycle. Yeah. So as a buyer of companies also, we’ve found that anyone that we’re looking to buy that has a shorter collection cycle than us will pay a higher premium than we will if they’ve got the same or a longer cycle. And we’ve spent a lot of effort internally looking for ways to be able to shorten that collection cycle. And it’s a very hard thing to do just because of the space that we happen to be in. So I would advise anyone out there if you have the opportunity to look at revenue and pick revenue based on how long it’s going to take for the collection space or an upfront retainer, that revenue is definitely worth more. And sometimes it’s worth a slightly smaller margin. If you’re highly assured of the collection piece or you get paid part of it upfront because that’s that’s really your fuel for growth. Otherwise, you have to go out and borrow and 

Sean Magennis [00:10:35] borrow and take on equity expense of capital. 

Tony Mirchandani [00:10:38] Exactly. 

Sean Magennis [00:10:38] Yeah. So and really a brilliant point, and I hope our listeners are taking this as a fine point because Tony also buys companies. And so, you know, please listeners, cash flow and your ability to prove your cash flow. You know, when presenting yourself to a potential buyer is critical because Tony’s just said, you know, he’ll seek out shorter collection cycle businesses and pay a premium to get those business because they’ve got their cash flow acts together. So, Tony, thank you that for our listeners, is really important to hear. So we’ve done these four things one balance four years from new and existing clients to develop long term contracts. Three Build fee predictability with add on services. And I liked your point. But going back to go forward, start, you know, and then and build it through the cycle and four critically manage your air to create key free cash flow. This will increase feed quality and as a result, convert income into wealth. Anything else, Tony, that we missed out that you’d like to bring to the attention of our listeners? 

Tony Mirchandani [00:11:52] There’s one new thing that I’ve discovered lately that actually came through Collective 54, which is pricing strategy. Yes, and about 10 years ago, pricing in most industries, law, accounting, engineering, architecture was really based on your cost of goods sold and what the marketplace would bear. And that seemed like normal MBA approach to pricing. But currently we have started to see a much deeper level of sophistication and actual experts in the end in industries consulting to us on pricing strategy and different ways to approach different market verticals with the exact same service. And suddenly that that is opened up a number of new opportunities for us and a different perspective of thinking about pricing strategy. I really see that as the next true frontier for professional services. And I would say it’s it’s probably one of the most inefficient components of our business and most service businesses. 

Sean Magennis [00:12:55] You know, I couldn’t agree with you more and thank you for for saying that and for bringing that to the listener’s attention. I was on a on a podcast recently where one of our members has actually adopted a pricing console within their business that they have that an internal team that gets together on a very regular basis, and then they invite a client into the council to talk to them about, you know, the ROI that they’re receiving and and they do that on a consistent basis because every client relationship is nuanced, it’s different. And then they do the cross comparison, but because they doing it and they formalized this pricing counsel, I thought that was a genius move. And it and it and it literally aligns well to your comment about this new learning. So thank you. That’s that’s really great additional input. 

Tony Mirchandani [00:13:43] It’s great to hear about that other client, too. 

Sean Magennis [00:13:44] Isn’t it good? 

Tony Mirchandani [00:13:46] Yeah, that’s awesome. 

Sean Magennis [00:13:47] So listen and I’d be happy to put you in touch with him because he’s developed it and it sounds like it’s working really well for them. So, Tony, this takes us to the end of the episode. Let’s try to help our listeners apply this. We end each show with a tool. We do so because this allows the listener to apply the lessons to his or her firm, and our preferred tool is a checklist style of checklist is a yes, no question. We aim to keep it simple by asking only 10 questions, so listeners ask yourself these 10 questions. If you answer yes to eight or more, you have high fee quality. Tony has graciously agreed to be our peer example today. And Tony, I’ll simply ask you these questions and say yes or no. If you feel like you need to add to a question, go ahead and do it. So let’s kick it off. 

Sean Magennis [00:14:40] Number one, do you generate about 60 percent of your fees from existing clients? 

Tony Mirchandani [00:14:48] Yes. 

Sean Magennis [00:14:49] Number two, do you generate approximately 40 per cent of your fees from new clients? 

Tony Mirchandani [00:14:56] No. Slightly less. 

Sean Magennis [00:14:58] Yours is the 8-20 right now. 

Tony Mirchandani [00:15:00] Exactly, exactly. I think the important thing is you set an amount. 

Sean Magennis [00:15:04] Exactly. Number three, is the average client contract longer than 12 months? 

Tony Mirchandani [00:15:12] Yes. Absolutely. 

Sean Magennis [00:15:14] Number four, do your projects naturally build on one another? 

Tony Mirchandani [00:15:21] Yes, they do. 

Sean Magennis [00:15:23] Number five, is your service built to pull through upsell? 

Tony Mirchandani [00:15:30] It is and that I’d like to put some color around. He started as a single discipline engineering firm. And as we grew both organically and through acquisition, we found that instead of adding to that single discipline, adding other disciplines that we can pull up or we can put in after our contracts are in place have become exceptionally advantageous and increase the stickiness and the repetition of client interaction. 

Sean Magennis [00:15:58] Excellent, Tony. And this dovetails into the next question is your service designed to pull through cross-sell? 

Tony Mirchandani [00:16:06] Yes. 

Sean Magennis [00:16:08] You’ve got your upsell and you’ve got your cross-sell. Great number seven. Are your fees predictable? 

Tony Mirchandani [00:16:16] No bathroom far from. 

Sean Magennis [00:16:17] Hmm. OK. Number eight. Do you collect your fee in advance of performing the work? 

Tony Mirchandani [00:16:25] No, this is our biggest challenge. We it’s traditional and our competitors always bill after the fact. Yeah, and that’s that’s one of the biggest downsides to the business. I mean we need to break that mold. 

Sean Magennis [00:16:37] Well, we’re here to help you break that mold because that would change the game for you, right? 

Tony Mirchandani [00:16:42] Oh, 100 percent, our business would be scaling three times faster if we were paid up front instead of on the back end. 

Sean Magennis [00:16:49] Excellent. Number nine, can you fund your growth from free cash flow? 

Tony Mirchandani [00:16:57] We have historically funded our growth, so yes, we can, but we could. Our growth is limited because of cash flow nonetheless. 

Sean Magennis [00:17:05] Right. And this historical problem you have on the payment side of your business. 

Tony Mirchandani [00:17:10] Absolutely. OK. 

Sean Magennis [00:17:12] Number ten, can you pay the bills without using debt? 

Tony Mirchandani [00:17:18] Yes. Yes, we do. We have a healthy margins where we can do that. 

Sean Magennis [00:17:22] Brilliant. Tony, thank you. I mean, this is exactly it, just extraordinary. So in summary, all revenue is not good revenue. There are good fees and there are bad fees. Good fees attract buyers. When you go to sell your business, they increase the value of your firm and they improve your odds of exiting should you decide to do that. Bad fees could push buyers away. They do decrease the value of your firm, and they’ll likely prevent you from selling at a price that you would like. Tony, a huge thank you. And I know that you’ve been extraordinarily busy for sharing your wisdom and experiences today.

If you enjoyed the show and want to learn more, pick up a copy of the book The Boutique How to Start, Scale and Sell the professional services firm written by Collective 54 founder Greg Alexander.

And for more expert support, check out Collective 54 the first mastermind community for founders and leaders of boutique professional services firms. Collective 54 will help you grow, scale and exit your firm bigger and faster.

Go to Collective54.com to learn more.

Thank you for listening. 

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Episode 61 – Yield: The Ultimate Measure of Productivity – Member Case with Aaron Levenstadt

Yield is the ultimate measure of productivity for professional services firms. On this episode, we interview Aaron Levenstadt, Founder and CEO of Pedestal Search and discuss how he uses yield to manage his firm.

Transcript

Sean Magennis [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. Our goal with this show is to help you grow, scale and exit your firm bigger and faster. I’m Sean Magennis Collective 54 Advisory Board member and your host. On this episode, I will make the case that yield is the ultimate measure of productivity. I’ll try to prove this theory by interviewing Aaron Levenstadt, founder and CEO of Pedestal Search Pedestal, is a marketing technology company and data driven search engine marketing platform founded by former Google employees. Pedestal create systems and processes to help businesses better leverage internet search engines as a growth channel. You can find Aaron and his business on pedestalsearch.com. Aaron, great to see you and welcome. 

Aaron Levenstadt [00:01:17] Thanks, Sean, it’s good to be sharing this conversation with you. 

Sean Magennis [00:01:21] Likewise, it’s great to have you. So today we’re going to discuss one of the most often looked at metrics in all of professional services, yield. A reminder to our audiences that the definition of yield is simply the average fee per hour, times the average utilization rate of the team. For instance, if a boutiques average fee per hour is $400 and the average utilization rate is 75 percent, then the yield is $300 per hour. Aaron, let’s start with an overview. Can you briefly share with the audience an example of how you think about and manage yield? 

Aaron Levenstadt [00:02:02] Yes, certainly. So we keep track of yield, but we don’t obsess over it. And by keep track, I mean, we look at utilization for our team members individually as a collective, as a company. Yes. And also on a per account basis, we think of yield attributed to an account. And although we know that it actually should be the most looked at metric, I want to start off on this piece, we don’t obsess over it. Rather, we focus on and we think a lot about how to source technology and actions from our team members that are value drivers for our clients. So that yield becomes less of a focal point. And we’ve found that over time, focusing too much on yield can lead to some inherent scalability gaps. On the other hand, If we can shift our focus to where we can open up value, that can allow us to create a significant gap between each counts of utilization. Yes, and value created. 

Sean Magennis [00:03:08] Outstanding, I mean, that makes a lot of sense to me. So what I’d like to do is get your thoughts on some of the best practices that we recommend in this area. So there, four specific things, I’ll walk you through and then have you share your thoughts on each. So the first one is the typical boutique runs of an assumption of a 40 hour workweek, a 48 week year that equates to nineteen hundred and seventy two hours per employee, and using our early example at $300 per hour. The boutique will do five hundred seventy six thousand in revenue per employee, a 100 person firm. Let’s say with this yield, we’ll do fifty seven point six million in annual revenue. So understanding yield means you understand how much you can scale to. It establishes a ceiling. What are your thoughts on this concept Aaron? 

Aaron Levenstadt [00:04:00] Yeah, so that exactly where we last left off on the ceiling, so the way that we think about it is instead of sort of focusing on the ceiling, which is defined exactly by the yield equation, if you think about it from that perspective, yes, we think instead of us deploying program stocks as opposed to hours or manpower that generate value, tech driven by great people. And in that way, yield becomes less of a focus and we shift the focus to how to drive value throughout our engagements. 

Sean Magennis [00:04:39] I like that. So deploy program stack and shift to the value rather than exclusively focus on yield. Have I got that right? 

Aaron Levenstadt [00:04:49] That’s exactly right Sean. 

Sean Magennis [00:04:50] Excellent. So the second one is we contend that most firms, when they try to scale, they’ve reached a point of sort of diminishing returns on utilization rates. And we feel this way because there’s only so much juice to squeeze out of the 40 hour workweek and the 48 week year. What’s your opinion on this? 

Aaron Levenstadt [00:05:12] So I think I think, you know, you’re exactly right in how how we’re thinking about this, because the economics and the way that we think about it is the economics around what we do in the way we’re working with a client. They have to work for the client. Most importantly, they also have to work within our our rubric, and we think about it that way. They can allow for scalability. Yes. In a different way than thinking about yield on the, you know, hours and then and then person in the equation. So there’s that, you know, there’s that parable of the chemist that gets called into the factory, right? The factories sprung a leak. Yeah. And the chemist walks in and looks around. He’s taken a look at the machines and he scratches his chin and he thinks, you know, he sees where the leak is coming from. He sees it. He identifies the problem. He quickly creates a chemical compound, using his knowledge to patch the leak in the factories, able to resume production. And then the factory owner calls the chemist, you know, some time later, and he says, Hey, I got your invoice here. It’s for thirty thousand dollars, but you were only here for ten minutes. And the chemist replies, Yeah, that’s right. That’s $10 for my time. And 29 990 for knowing how to fix your problem in 10 minutes. Beautiful. We try to apply that same philosophy. 

Sean Magennis [00:06:34] I mean, that really hits the nail on the head. I mean, and you know, how have you learned that lesson? I mean, you know, that’s a great parable. You know, give me give me a practical example of how you’ve done it. 

Aaron Levenstadt [00:06:47] Yeah, we’ve learned this lesson the hard way. So like, you know, I think like how a lot of us, maybe all of us learn through experiencing pain and a lot of it. And early on in the life of our business, we accepted some engagements where our clients asked bill by the hour and we we took those on those early stages of our company. You know, from a financial perspective, they weren’t. They were great. They were not great. But they also, more importantly, they were not great from an internal morale perspective because the conversations with our clients shifted to, you know, our teams were talking to our team members or talking to clients about why sixteen point three minutes was spent on that and an hour and 12 minutes was spent on this. And they just they weren’t productive, fulfilling conversations. So endured some pain learned the hard way, and we don’t do that anymore. 

Sean Magennis [00:07:46] And to your point, earlier, when you focus on value, you know, when you’ve created this, you know and deployed this program stack, you don’t have to get into that nickel and diming conversation, which is soul sucking. I agree with you, it’s it’s just not productive. So let’s turn to fees. The key to scaling in this context is to figure out how to become more valuable, which is what you’ve said. And remember, this is an equation with only two variables. Utilization rate dollars per hour. So owners of boutiques have a lot more juice to squeeze out of the dollar per hour. And in your case, maybe the value of the dollar value per stack and then impacting the dollar per hour variable. It’s just not as easy as raising prices. Clients will pay more for boutiques that bring more value to them, and this is because they turn to boutiques for specialization. What do you think about this? 

Aaron Levenstadt [00:08:45] I think it resonates very well with our experience in the sense that it resonates so much that today what we do when we’re first meeting with the client, when workers starting that conversation before we’re engaged and working with them, we try to have this conversation openly and candidly at the outset. So very early on and speaking to a potential client, we will communicate and that we’re we’re a specialist, we’re not a generalist and we are going to do the way that we think about our engagements is really by how much value we can drive. 

Sean Magennis [00:09:19] Yes. Yes. Excellent, and then, you know, I guess there’s a lot of things that come into that in terms of variability. You know, and it’s really working to change sometimes the client perspective, right? 

Aaron Levenstadt [00:09:35] Yeah, you want to. You want to change the client perspective, and I want to do it early on in this conversation, so it will we’ll see things in these conversations. You know, like what we do is we help you generate more productive traffic from search. Yes. As importantly, will also say what we don’t like and we’ll say things like, We don’t make pizza, we don’t shoot.  

Sean Magennis [00:10:02] Right? Yeah. Your expertize are search and by the way, with the resume of of you and your team. I mean, that would appear to be, you know, a no brainer. But reminding them of that specialty is key to creating the kind of value that will drive the fees and drive the recognition and obviously get you more business. I get that. That’s really great. So the fourth aspect in our experience, we see five forms of specialization that translate to higher fees, and they are industry specialization, function, segment problem and geography. And in our view, if you’ve got at least three of those, you truly are a specialized firm. So in your case, where are your areas of specialty? 

Aaron Levenstadt [00:10:54] Yeah. So this is an area that we give a lot of thought to. I it’s an area that we’re continuing to refine as our business evolves and grows. And there’s the three that I think that stand out at sort of top of mind would be the function of the problem and the segment go function. Having worked at Google and worked on the search engine algorithm itself, we really understand that world and that’s the functionality that we want to be operating on and what we specialize in. Yes. The problem in a kind of stemming from that. So the second prong problem is really about how to unlock search discoverability, and we’ll see if things are going our conversational, the clients we don’t we’re not here to help you solve 50 different kinds of problems. We we are going to help you solve the problem that we specialize in. We know how to do how to solve for. Yes. And then the third one on our world is is segment. And the way that we think about this segment is really in terms of a profile, psychological to a certain degree, in the sense that our potential client, our partner who needs to know what they’re looking for and know that they have had some success with search and they really want to invest in building and bringing systems and processes to drive that search engine optimization motion more. 

Sean Magennis [00:12:16] Outstanding and that’s again for our listeners. You know, take this from from Aaron. When building your your firm and thinking about your specialization, be really clear, like Aaron is in terms of what what your service can offer the specific problem and don’t try and be all things to all people, I think is the ultimate lesson. Would you agree, Aaron? 

Aaron Levenstadt [00:12:38] Yeah, 100 100 percent. Even on going back to a little bit about what we were talking on earlier is will remind the client when we’re talking to them both before we work with them and while we’re working. Yes, there are lots of things that we are not good at. And if you ask us to do those things, we’re going to say, no. We will fuel you with those things. I think by reminding the client of that, it reaffirms the fact that we’re not a generalist. We’re not just going to do anything that the client’s willing to pay us for. Yes, we’re nationalist and that’s what we’re here to help them with. 

Sean Magennis [00:13:18] That’s such a key point. And I’m I’m assuming that during the course of your journey, you found that at some point it was difficult to say no to client coming you for two for business, right? So scoping is important and really having the professional integrity to say no is key. What do you think about that? 

Aaron Levenstadt [00:13:36] I cannot agree more. Also learned through enduring pain and pain. 

Sean Magennis [00:13:45] Exactly, you learn. That’s how we learn. 

Aaron Levenstadt [00:13:48] Yeah. So yeah, we’ve taken on some work that you know early on that we should not have diverged from our land of expertize from, you know, the thing that we’ve done hundreds of times in doing successfully. And now we’re more careful about that. 

Sean Magennis [00:14:03] Outstanding. And this is so helpful. Thank you so much for spending time with us today. I’ve learned several additional aspects to the importance of managing yield. I like the way you presented your business in terms of the technology and the value aspect. So this takes us to the end of this episode. And as is customary, we end each show with a tool. We do so because this allows the listener to apply the lessons to his or her firm. Our preferred tool is a checklist, and our style of checklist is a yes or no questionnaire. We aim to keep it simple by asking only 10 questions. And in this instance, if you answer yes to eight or more of these questions, you’re running a tight ship with excellent yield. If you said no too many times you have a yield problem and this will be an impediment to scaling. Given the proprietary nature of Aaron’s business, I’m not going to put Aaron on the spot with these, but I am going to read off the questions for the benefit of our listeners. 

Sean Magennis [00:15:09] So the first one is are your average utilization rates above 85 percent? Number two, senior staff above 70 percent? Number three, mid-level staff above 80 percent? Number four, junior staff above 90 percent? Number five, are your average fees above $400 per hour? Number six, are your senior staff above $750 per hour? Number seven, mid-level staff above 500? Number eight junior staff above 250? Number nine are you assuming a 48 week year and 40 hours per week? And number ten, are you distinguished from the generalist with three to five forms of specialization? 

Sean Magennis [00:16:04] So in summary, yield is the ultimate measure of productivity for professional services firms. Watch out for the trap of over rotating to utilization rates and under indexing the second variable in the equation, which is dollars per hour. Drive up your fees like Aaron, by becoming more valuable to your clients by becoming hyper specialized. If you do so, the sky is the limit on your scale potential. Aaron, a huge thank you for sharing your wisdom with us today. It’s a pleasure having you. If you enjoyed the show and want to learn more, pick up a copy of the book The Boutique How to Start, Scale and Sell a Professional Services Firm. Written by Collective 54 founder Greg Alexander.

And for more expert support, check out Collective 54, the first mastermind community for founders and leaders of boutique professional services firms. Collective 54 will help you grow, scale and exit your firm bigger and faster.

Go to Collective54.com to learn more.

Thank you for listening. 

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Episode 60– Create Wealth by Converting Client Relationships into Balance Sheet Assets – Member Case with Mike Stern

C54 member Mike Stern, CEO of Connected, shares insights on how to convert client relationships into appreciating assets to attract buyers for your firm.

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. Our goal with this show is to help you grow, scale and exit your firm bigger and faster. I’m Sean Magennis Collective 54 Advisory Board member and your host. On this episode, I will make the case that a key to attracting a buyer to purchase your firm is your ability to prove you have healthy client relationships. I’ll try to prove this theory by interviewing Mike Stern, CEO at Connected. Connected is a software product development firm founded in 2014 and headquartered in one of the most beautiful cities in the world. Downtown Toronto Connected was born out of the belief that a new category of firm was needed to help ambitious companies leverage the power of product, not a dev shop or a design agency or a strategic consultancy, but a uniquely integrated product development firm built for the long term and driven by a singular focus on realizing business impact through software powered products. You can find Mike at www.Connected.Io. Mike, great to see you and welcome. 

Mike Stern [00:01:41] Likewise, Sean. Thanks for having me here. 

Sean Magennis [00:01:43] It’s such a pleasure. So let’s start by getting you to give us an overview. Can you briefly share with the audience an example of how you have built a really healthy client relationship? 

Mike Stern [00:01:57] I think my favorite example is a client that we’ve been working with for six years now, so we’re a seven year old firm. And that means that they’ve been with us for the lion’s share and they’ve grown with us. They’ve seen us from our infant stage all the way to, you know, whatever we’re at today. Yes. And that’s that’s one of the reasons that that I like them. But let me just tell you a little bit about them. They are a consumer electronics company. We don’t share the names of our clients. Absolutely. I can assure you that the vast majority of your listeners own at least one of their products, and they have a long, long history of excellence in hardware engineering. But as software showed up and the internet showed up and connectivity and IoT showed up, they started to look around for some help to accelerate their learnings and help them compete in this kind of new software powered product world. And we were, I think, lucky to be at the right place, at the right time to start partnering with them early in their journey. And again early in our journey. And I think this particular client relationship is so special to us because they pushed us to get better and better and better, just as we pushed them to get better and better and better. And I think that is kind of quintessential about what great professional services client relationships are all about. Sometimes both clients and agencies think that it’s just a one way street. Yes, but really we’ve we built something symbiotic with them and and that’s been very fulfilling and it’s been, you know, profitable and helped us grow as a business as well. 

Sean Magennis [00:04:16] It’s outstanding, and I can only imagine that the reference ability of that client because you’ve developed so much and I would, I would probably say a very authentic because if they’re pushing you and you’re pushing them, that relationship that you’ve developed is is really a co-creation relationship in a way. Does that does that resonate? 

Mike Stern [00:04:37] Yes, it does. Yes it does. Some of our service offerings that we now go to market with today are the result of this client and and our team looking at new problems and coming up with creative solutions. Yes. And then, you know, allowing us to take those new service offerings to market and as we make those service offerings in the market even better than we can bring it back to this client and help them even more than than we did before. So it’s a great virtuous cycle 

Sean Magennis [00:05:12] Brilliant and congratulations. That is a perfect example to kick us off. So what I’d like to do is get your thoughts on some of the best practices that we recommend in this area. I’ll walk you through them one by one. Get your thoughts on each. And if you want to expand on them, just feel free to do so, Mike. So the first one is we contend that when getting ready to sell a boutique professional services firm, a buyer is purchasing your assets. One of your assets is your client relationships, and like all assets, they should be proactively managed and cared for so that they appreciate in value. What are your thoughts on this concept of the client as an asset of the business? 

Mike Stern [00:05:56] Well, first of all, I think it’s important for me to say just in case my team or my clients are listening. 

Sean Magennis [00:06:05] Absolutely. 

Mike Stern [00:06:06] I want to be clear that connected’s goal is not to sell. Yes, we have a uniquely long term vision with no plan of selling. But for all the other listeners, if you’re considering joining the collective, you know, I want you to know that I get so much value from this group, just simply helping me build a better firm. Yes. And and so I’d really recommend it. Thank you. Now, you know, of course, I can’t rule out that being part of another firm in the future won’t help us achieve our vision even more or help us achieve an even bigger or more exciting vision. But that’s not the plan. Yes. And so I think that’s important to. To state up front, but onto the question, so when I first heard this advice, I was actually really intrigued. You know, I think it makes sense conceptually, but like from an accounting and reporting perspective, like I was wondering, like, do firms that take this advice actually translate that into their balance sheet in terms of how they report? Like, of course, our clients are an important asset, just like our people or our IP. But I was intrigued and then I went to my CFO and I asked her about this and she hadn’t heard about it before. Yes. And so, yeah, frankly, you know, we we have not done this, but I’m curious to learn more about it, and I’m looking forward to conversations in the collective about it. 

Sean Magennis [00:07:50] Yeah. You know, and you bring up a really interesting point. You know, it’s not so much from a it’s not so much a financial putting it on the balance sheet as a financial category because that that’s not commonplace. It’s a it’s a mindset shift so that when you are creating the kind of value that one day whether you decide to sell your firm or not, but to create enterprise value, if you’re a partner model, you decide to bring in other members of your management team into it. It’s clearly being able to articulate an inventory. What are the value props behind your? Your business could be your service line, your product, your uniqueness, your specialty, the way that you go to market, the example that you just gave of the six year relationship. So you’ve articulated that really well, and I want to challenge our listeners. It’s not so much to put this in your in the financial context on your balance sheet, but truly think of your clients from an industry inventory perspective as assets and not just as you know, numbers on a balance sheet because there’s far more to it than that. There’s relationships, nuances, the push on both sides that you’ve articulated so well, Mike. So that’s great. I mean, you’ve expressed that really well. The second area that I’d like you to give your thoughts on is many boutiques have really good looking financial statements. However, when you peel the covers off, some generate most of their revenue and profits from a very small number of clients. So if one of those clients were to leave the, you know, the firm or the boutiques, financials would not look great. In fact, some of them would fall apart. So we recommend being sure not to have any single client concentration equal to more than 10 percent of the billings of a firm. What do you think of this idea? 

Mike Stern [00:09:43] 100 percent agree. And I think it’s very related to the earlier point you made around clients as an asset in your mindset. Yes. Maybe not on your reporting. Like I said, we’re a seven year old firm. And I’ll share that at one point. Not too long ago, we had 85 percent concentration in just two clients. Wow. The one I spoke about before was one of them. Yes. And. In those early years, building up to where we are today, which is about one hundred and sixty five people, we were kind of fooled into thinking that we had grown up as a firm because even back then we were already, you know, over 100 people. And so we had reached that scale quickly. And a lot of folks on the outside, friends, family, they would be so impressed. But I knew that we still had so many eggs, so to speak, in just so few baskets, right? And again, this was only three years ago. So we we grew up through, you know, four years. But with that much concentration and of course, like I said, even though we looked kind of bulletproof from the outside, I hardly slept at night, you know, thinking, Oh, I know that feeling. What if? What if one or or God forbid, both clients went away? Yes. Now what’s interesting is that as an owner, I think it’s actually pretty easy to understand and feel this risk, whereas for an employee, it’s not always that obvious. Yes. And in our case, not only did we. Not only did we need to figure out how to diversify and build a scalable growth engine and build a scalable service model. We actually had to fight kind of an internal cultural inertia. Yes, as we look to diversify it, we had we had some even senior leaders who liked just having a couple of clients. Right. And that was as hard to overcome as as everything else. So, you know, on balance, we also had a lot of practitioners who wanted more from connected than just to clients to get exposure to actually. And like I said, also before we had, you know, those two clients wanted us to be more scalable to to be more sustainable and so that we could be able to bring more of that knowledge back to them, too. So working with multiple clients across multiple markets and across multiple technology platforms, I think is a big reason employees want to work at connected versus, you know, one of our our client organizations, and it’s a big reason we get hired in the first place. So long story short, I 100 percent agree that creating diversification discipline is essential yes, to creating a sustainable firm. Yes. And I think it’s also about realizing a lot of other benefits for our people and our clients. And so for me, at least right now and in my stage of business, I think it’s the most important organizational capability that matters. And the trick is to, you know, make sure you’re treating your existing clients like assets, not just always looking at the new client because diversification doesn’t mean getting good at landing new logos. It means getting good at doing both, keeping existing clients happy and helping them and getting better and better with them and landing new clients. And so that’s what we’re really focused on right now. Connected. 

Sean Magennis [00:13:37] You know, that’s brilliant, and you’ve touched on a couple of things that we’re going to get to in some of these other questions that I’m going to pose you and you know, you’ve articulated so well some of the, you know, the luxuries of only having two or three as you get really used to working with those clients, they become familiar. The risk is, is that, you know, you have relationships, maybe not at the institutional level and all of the things that you’ve just driven. So the third example and you led with this is tenure of relationships. So boutiques that generate billings from clients for years are very attractive. So this suggests that the client relationships are strong. If the boutique did not deliver value, clients would churn. They’d go elsewhere. And so a rule of thumb that we recommend is that the average client tenure should be three years or more. What is your opinion on that? 

Mike Stern [00:14:30] Yeah, another hundred percent agree. You know, and and I think it’s a it’s it’s a good principle. Yes. And of course, you want long term partnerships, not just financially, because it’s a better way to build a long term business and it’s more fulfilling. Like I said earlier, I mean, if you look at your life and you take stock of the relationships that have been most meaningful, they’re usually those that have lasted and the benefits have compounded in mutually beneficial ways. And so I think it’s the same in in professional services. There’s a little bit of nuance, of course, in that are firms. You know, I remember when I heard this, I was thinking she would like some of some of the current clients that I, you know, I think, are really the future of our firm. We’ve only been with them for one year or two years. And so I think younger firms need to figure out who they are and they need time to figure out who they are and who their ideal customers are. Yes. One of the patterns of great professional services firms that I’ve looked at is that they’ve they’ve, you know, they’ve they’ve had some stumbles figuring out who not to work with. Precisely. Yeah. Trial and error. And so, you know, I think it’s a great principle. But the exceptions are, you know what, what maybe proves the rule and you know, you shouldn’t you shouldn’t try to make every client a three year plus relationship. You should try to make the right clients three year plus relationships. And yeah, and that’s that’s something that you know again, you know, it’s very much part of what we’re what we’re working through right now, connected because we want to we want to keep our current clients for the very long term. Yes. And I think we finally found out who they they ought to be. 

Sean Magennis [00:16:39] And, you know, helping them, like you’ve said with identifying their ideal customers, helping them go through that, maybe giving them some benefit of your experience with the pain of other clients when they had similar challenges? That’s what I know you were getting at as part of your, you know, co-creation symbiotic relationship. Because you know what we have found at Collective 54. You know, we can help owners of boutique professional services firms not pay what we call the dumb tax. You know, share with you through a peer based, you know, methodology. I’ve been through this. I’ve been through at this particular pain. You don’t have to go through it quite the way I did to still get the learning and the and the benefit of the wisdom from it. So yes, thank you. That was great. The fourth one and this is also in the context of creating enterprise value for a boutique professional services firm that may one day consider selling is another meant measure of client relationship is what we call client quality. So, for instance, if your boutique generates its billings from start ups or new companies that haven’t quite figured it out, it may discourage a potential buyer from, you know, making an offer on your business. Start ups typically have a higher failure rate. Revenue from that segment may be unreliable as they figuring things out. In contrast, if you’re boutique generates its billings from the Fortune 500 or from larger enterprise players, it would encourage buyers and large enterprises are unlikely to disappear overnight. Revenues from that segment can be and are typically more reliable. What are your thoughts about this? And I know it’s a nuanced question. 

Mike Stern [00:18:26] I agree. You know, rapid growth start ups can look great from the outside or even not rapidly growing startups try to make themselves look great from the outside. Yes, but they’re usually, you know, really chaotic and less reliable than not. Mm-Hmm. And I say usually because statistically, they usually are more chaotic and less reliable. But of course, a few of them, you know, a few percentage points of all start ups, you know, of course, become, you know, the biggest companies in the marketplace over time. And so I think firms get getting a lot of trouble here if they try to work with too many startups or if they try to get too fancy on choosing the right startup or even taking equity, getting into, you know, our accounts receivable troubles. Yes. And so I’m not totally against it. Connected work with some startups usually past Series A Yes, but I’m I do want to express caution to other boutique owners are probably running startup boutiques themselves that you should tread carefully and read and make sure you’re not concentrating too much of your your your energy in that segment. And that personally, I found it. It is a segment where it can be a great place to learn, a great place to try out new offerings and to work at a clip like at a speed that is maybe faster than what larger clients might be used to. And so there’s those benefits in a number of other ones that I found from working with really, really early stage companies. But unless unless you really figured out how to, you know, pick the right ones and address a lot of the inherent issues with with that segment of customer, I think it’s important that you tread carefully and you don’t put all your eggs in one basket. 

Sean Magennis [00:20:58] Yeah, I completely agree. And then finally, a risk that, you know, again, in the context of somebody looking at the value of a firm, a key driver is employee turnover. Sometimes a key client relationship sits with a key employee. And so even from managing a firm, you know, I would want to know that these relationships are with the company, not necessarily with the employee. What do you think about this concept? 

Mike Stern [00:21:29] Yeah, I think I think it’s a really important point, and especially right now, we’re in this moment that people are describing as the great resignation. 

Sean Magennis [00:21:39] Yes, I’ve heard the term a lot. 

Mike Stern [00:21:41] Yeah. So every leader I speak with is experience experiencing more turnover than ever and up and down the organization and a lot of places where they didn’t expect. And I think it’s exposing a lot of cracks and a lot of fragility. Yes, in a lot of places, but one of them is certainly in client relationships. And so, you know, I think I think it’s really, really important that boutique owners and operators are thinking very hard about this. This advice. Yes. Sure. When I when I heard this advice, I was torn, you know, I kind of, on one hand, felt that, yes, you know, institutionalizing client relationships and diversifying the key contacts across different places in the organization is important and creating systems and CRMs and all of that great stuff to to to, you know, to to to de-risk, you know, this aspect is important. But on the other hand, you know, I think it’s really important, especially in technology services. Yeah, that you remember that you know, you’re in client service and and it is about relationships and you want, I think, as an owner and operator to advocate for deeper personal connections with clients and that that’s really, really important. And great relationships drive firm value to exactly and create more meaningful work for practitioners and more meaningful long term career relationships for practitioners. And so I think it’s another place where there’s nuance and balance and, you know, it’s a bit of art and science. It is to encourage and empower. This is closeness while doing it in a way that doesn’t lead to single points of failure. 

Sean Magennis [00:23:32] Yeah. And it’s a great risk mitigation strategy. And, you know, things like culture and, you know, the kind of environment that you set up and all of those things play in. Mike, this has been phenomenal. Your insights have really added to, you know, what we have found to be recommended practices. So this brings us to the end of the episode. Let’s try to help listeners apply this. I’ve prepared a 10 question yes, no checklist. And I ask our listeners, ask yourself these 10 questions. If you answer yes to eight or more of these questions, you can prove you have healthy client relationships. Mike’s graciously agreed to be our peer example today. So, Mike, just simply answer yes or no to each of these questions as I take you through them. 

Sean Magennis [00:24:18] So, number one, are your client relationships. This is nuanced, an asset on your balance sheet, or I’ll add in your mindset? 

Mike Stern [00:24:28] Not on our balance sheet, but yes, in our mind set fantastic. 

Sean Magennis [00:24:32] Number two, is this asset appreciating in value? 

Mike Stern [00:24:38] Yes. 

Sean Magennis [00:24:40] Do you have a diversified client base with no one client worth more than 10 percent of revenue? 

Mike Stern [00:24:47] We are on our way, but we’re not quite at 10 percent yet. 

Sean Magennis [00:24:52] But that’s I mean, I heard everything you said, that’s a goal and I commend you for it. That’s really key. Number four. Does the tenure of your client relationships exceed three years? 

Mike Stern [00:25:05] Yes, some of our best clients. Absolutely, and we hope that our current ones as well. 

Sean Magennis [00:25:13] Are your clients business stable? 

Mike Stern [00:25:18] Yes. 

Sean Magennis [00:25:19] Number six, are your clients end relationships stable, so are their clients stable? 

Mike Stern [00:25:25] Yes. 

Sean Magennis [00:25:26] Number seven, do you have account plans? 

Mike Stern [00:25:30] Yes. 

Sean Magennis [00:25:31] Number eight, have you institutionalized your client relationships into a customer relationship management system? 

Mike Stern [00:25:39] Yes. 

Sean Magennis [00:25:40] Number nine, the client relationships with the firm and not with the key employee? 

Mike Stern [00:25:48] They are with the firm and with the employees. 

Sean Magennis [00:25:52] Excellent answer. Number ten, will the billings from your client relationships stay when the key employee quits? 

Mike Stern [00:26:01] We would hope so. 

Sean Magennis [00:26:03] We would all hope so. So thank you. If you answered yes to eight or more of these questions, you’ve got an excellent client relationship. This will make you extremely attractive not only to hire employees to a potential buyer as well as to your clients. So client relationships are an asset. Like other assets, some relationships appreciate in value and others depreciate. Appreciating client relationships will increase the value of your firm. Depreciating client relationships will decrease the value of your firm. So when trying to build value and or exit for a great price, please bullet proof your client relationships. I cannot emphasize that enough. Mike, thank you for sharing your wisdom. It’s always great to be with you.

Thank you for being part of Collective 54 and for our listeners, if you enjoyed the show and want to learn more. Pick up a copy of the book The Boutique How to Start, Scale and Sell the professional services firm written by Collective 54 founder Greg Alexander.

And for more expert support, check out Collective 54, the first mastermind community for founders and leaders of boutique professional services firms. Collective 54 will help you grow, scale and exit your firm bigger and faster.

Go to Collective54.com to learn more.

Thank you for listening. 

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Episode 59 – Competitors: The 5 Competitors Boutiques Must Defeat to Grow – Member Case with Mark Riggs

There are 5 competitors’ boutique professional services firms must defeat to grow.  
Mark Riggs, CEO & Lead Strategist for Pemberton shares insights to win.

TRANSCRIPT

Sean Magennis [00:00:16] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. Our goal with this show is to help you grow, scale and exit your firm bigger and faster. I’m Sean Magennis, Collective 54 Advisory Board Member, and your host. On this episode, I will make the case that there are five competitors boutiques must defeat to grow. I’ll try to prove this theory by interviewing Mark Riggs, CEO and lead strategist for Pemberton. Pemberton helps liberate marketing, PR and communications agencies, as well as consultants across a variety of industries from the dreaded RFP. Turning over clients and chasing RFP doesn’t have to be that way. There is a better, smarter, more sustainable and satisfying way Mike counsels clients and growing their business by focusing on the clients they already have, rather than continually wooing new ones. Check out his podcast Agency Insurgents. Mark, great to see you. Welcome. 

Mark Riggs [00:01:29] Thank you, Sean. Thanks for having me. 

Sean Magennis [00:01:31] It’s a real pleasure. Mark, let’s start with an overview. Can you briefly share with the audience an example of how you’ve experienced and overcome competition? 

Mark Riggs [00:01:43] Yeah, I mean, you know, it’s so funny when I read the Chapter Chapter three in the book, you know, we talk about the cost of inaction. You know, for us, when we first started this company, that was a real challenge and that we, you know, it was it was a nice to have, you know, but we had to we had to find that pain pill, right? So for us, we came up with the cost of inaction calculator. Very good with now with agencies and say, Hey, listen, this is the actual amount of money that you’re either leaving on the table, especially the small and mid-sized agency Sean, that we work with. Yes, you know, those agency owners have a horizon in their mind, right, that they have a time horizon and they have a number in mind so we can ask just a few questions. And we’ve developed this calculator and say, Hey, listen, this is how many, you know, new clients over the course of your five year horizon, you would have to win per per year per month. And it just becomes an overwhelming number. And once you’ve illustrated form that way, their eyes really bulge. You’re like, you know, I didn’t realize, you know, we can’t get there along with new business, and we say, Well, hey, how? How do we get there? And it’s in as revenue expansion. 

Sean Magennis [00:02:56] Fantastic. 

Mark Riggs [00:02:57] So that’s the way we wrote it out. 

Sean Magennis [00:02:59] That’s obviously become a major competitive differentiator for you, Mark. 

Mark Riggs [00:03:04] Yeah, it has I mean, we’d like to think we’re a category one child, but, you know, I’m sure that we haven’t been able to pinpoint just yet. Yes. Other companies who do what we do, I don’t think they do it the way we do it. But you know, whether it’s the number of new clients, you would have to win about a thousand. All right. You’d have to win every opportunity that you find. You’d have to find the opportunities have no attrition. Yes. Over the course of time. But then when you calculate attrition, they really they realize like, you know, gosh, I’m not going to get better with net new business alone. And it has become an advantage for us. And since we’ve been able to develop this calculator, I can ask a potential client for questions and illustrate to them, you know, we can come up with what we call the prime number here based on the percentage. This is how much faster we can get you to your horizon goal with revenue expansion and taking that approach and really making it a priority as opposed to happenstance. And when we do that, it’s it’s definitely increased our win rate for sure. 

Sean Magennis [00:04:10] Outstanding. That’s a brilliant example, mark. Thank you. So I’d like to get your thoughts and some of the best practices we recommend in this area. We’ve identified five competitors in order of importance based on the frequency they show up in sales campaigns that we’re aware of. The first is do nothing. So this is a project that went away because of a competing client priority. The second is internal resources. So this is an internal client staff who think they can do what you do better than you do it and for free in inverted commas. The third is boutiques. So these are firms like yours in size and specialty, the fourth are market leaders. So these are the mega firms that have the offerings in your niche. And then there’s other. So this is the other ways clients can solve the problem. Often there’s more than one way to skin the cat, obviously. So I’ll walk you through them one by one and get your thoughts on each. So the first one do nothing. So this is, you know, 40 per cent of deals, whether you know it or not. And the way to beat do nothing is to calculate the cost of inaction. And you said this earlier, this dollar figure will prove to the client that your project deserves their full attention. It’s a priority. So what do you think of this concept? 

Mark Riggs [00:05:33] Its spot on in the especially in our industry when it comes to public relations advertising agencies, right? We’re all busy all the time. There’s never a good time to start any sort of focused initiative. And so early on, what we found is, you know, this sounds great, guys, and this would be awesome to have. But you know, right, right now is not the time where we’re really busy with new business. We’re really busy with onboarding clients, et cetera. So we had to find, you know, that pain pill and the pain pills pointing out to them, I know you have business goals. You know, we’re in business too, especially in the agency business. We typically have this subservient attitude towards our clients, right, that we work for them when we’re in business too. We’re here to make money. And so we try to point that out to them. And that cost of inaction calculator allows us to do that. But we had to come up with that because it really poured people’s attention. And yeah, so. So doing nothing will get you nothing right? And so we try to point that out. 

Sean Magennis [00:06:36] Thank you. So the next one is internal resources. So as a reminder, it’s internal client staff, and I realize it’s weird to think about the client as a competitor, but they are about 30 per cent of the time. And the way to defeat them is to establish a deadline that the project needs to be completed by. So what’s your opinion of this? 

Mark Riggs [00:07:00] Well, you are giving them that, you know, defining the horizon, right? You know, when do you want to walk out of here? When do you want to sell? When do you want to pass this on to your children, whatever that may be? That’s one way. Yes. The other way is, you know, every agency we speak to, Sean says, Oh, we already do that. You know, we grow our business, right? But when you take a hard look at it, a lot of that happens through happenstance. You know, in our joke is that we’re a society of liberal arts vendors. You know, unless you’re the CFO or the CEO, you really don’t know how to rub two numbers together. And because you’re really good at churning butter, they eventually plate. you’re in charge of all the butter turners, so you get the VP level in the agency world. And all of a sudden you’ve got all these business you are responsible for. No one’s taught us that. Mm hmm. So our whole concept is let’s teach people the business of the agency before they’re in a position of responsibility. Right? And so if we can take that action, it becomes a very purposeful thing. And then, you know, most agencies have those handful of what we would call hunters. You know, typically we have hunters and farmers in our business. Yes. And you know, I encourage CEOs and COOs or get their senior staff as an investment portfolio. You know, you have assets and you have liabilities. Yup. The assets are the ones who are generating revenue. Hmm. The liabilities are those SDP EVPs, who have gotten to a position because they were really good at something. But are they generating revenue for your business? And we all know when you look at your investment portfolio, if there is a liability, those are things that are easy to cut. So as opposed to having five assets in the portfolio, let’s create a portfolio of 10 15 assets, right? Let’s teach people to grow business. And so we like to think we bridge the gap between hunters and farmers. 

Sean Magennis [00:08:51] I love that, Mike. I love that concept. You know, we have a concept, you know, where every member of your team should be an asset on your balance sheet, particularly when you’re thinking of selling your business one day. So what I took away from that is defining the horizon and look at every member of your staff as an important portfolio asset. I love that. So the third one is boutiques. So these are firms like yours in size and specialty. And our recommendation is offering your client a money back guarantee for any reason. No questions asked. Have you seen that? What do you think of that? 

Mark Riggs [00:09:28] We don’t do that. It’s a tough one right there. Yeah, we like to. We haven’t gotten there yet, but we are confident guaranteeing results. You know, when we first started this business, the tip of the spear was organic growth. Let’s grow the revenue. Yes, right? And as a byproduct of that, what we saw was personnel growth, human growth, executive growth rate. So as we’ve grown, we’ve kind of twisted that approach a little bit to let’s focus on the growth of the person in the in the team. And if we can focus on their growth as an executive, as a hunter, right, the new business will come. Now there are opportunities to come along and say, Hey, did you hear something? This is the this is an opportunity. Yes. But you know, we we feel like if we can do that right, what helps us differentiate ourselves from different boutiques that might do something similar to us is we don’t do train the trainer we don’t do. And after a full day training, as you and I probably both step in those trainings and you learn something great. Yeah. And then 48 hours later that it hits the fan and muscle memory takes over. Mm hmm. So our differentiator is we will only work with agencies who are willing to invest three to six months, at least in working with these executive, these teams, to change the muscle memory that makes them. Yeah, because we’ve been taught and account management to bend over backwards. Right? You know, do whatever it takes to keep them happy. So we got to change some of that muscle memory. 

Sean Magennis [00:11:04] That makes total sense. The fourth one is market leaders. So these are the mega firms. They have offerings in your niche. You’ll run into mega firms only we we see about five per cent of the time. However, these are sizable deals and they can make or break a year. So what do you think of this? 

Mark Riggs [00:11:25] Honestly Sean, in terms of what we do, we haven’t run into that a lot. I think where we run into that is the mega holding companies, right? The IPG is the the omni columns. They have some of these resources built in. Yes. And so it’s it’s the idea of convincing them that we can help mitigate attrition because to them, their businesses are going to grow. They’re moving so fast from a new business perspective. But if they’re having to replace 30 or 40 percent of their business every year, you know, I can help get you. Pemberton can help get you to a spot of, you know what? Maybe it’s going to be five percent attrition because we’ve grown the existing accounts. So you’re not starting out so far back every year, year over year. So there are agencies or companies out there who who touch organic growth, that type of thing. Mm-Hmm. But we really haven’t run into that Bain or McKinsey, and I’m sure they may do some of this right. Their focus is on the marketing communications industry. And so it’s kind of wide open for us. It’s just a matter of getting in front of the right people and pointing out their pain and saying We’ve got a pain pill. 

Sean Magennis [00:12:35] And knowing distinctly your market, which I’m hearing clearly from you. So the final one is other. So this is the other ways clients can solve the problem. So clients often think they can solve a problem by firing somebody recruiting new talent, and we recommend beating other by doing a postmortem. So highlighting to the client and you’ve shared some of this the last time they took this approach, it didn’t work. So what else in this area can you share with the audience? 

Mark Riggs [00:13:06] Well, it’s very easy to look year over year, quarter over quarter of the impact of a client, especially if you’ve had a client for more than 24 months, right? I’ve had a client for more than 24 months, and I can I can identify the trends, the ebbs and flows. And were we able to fill in some of those gaps? Some level it out, right? Yes. Well, the other thing we were able to do from a postmortem standpoint is in the very beginning of our engagements, we do a senior leader. Scorecard. Mm-Hmm. So we have five criteria that these senior leaders have scored on, and we also do a proactive mis appraisal. Well, like that. So in our in our business, oftentimes we’re very reactive to the to the client. We have up the order taker type role and really that’s our fault and we let that happen. So for us from a postmortem, it’s either I can look distinctly at the revenue it has. The revenue changed as a number of opportunities with that client changed. Mm-Hmm. And I can score your people based on the senior leadership scorecard and the prior fitness appraisal and say, you know, here’s where they were deficient or we’re not confident, right? And we can go back and look, say after working with them for six months. Has that changed? And so it’s revenue, but it’s also the human growth because for us, it’s about sustained growth. Mm-Hmm. When they start working with Pemberton, we walk away from them. We want to be able to Sure progress and leave them in a good place. But what we have found is right. So when we started this, we said, Hey, three to six months of wear out, right? You know, but as I’m growing a company that I would like to sell next Sunday, yes, you know, how do I get recurring business? And so someone pointed out to me that, you know, hey, listen, after six months, an agency’s problems are not completely solved. They constantly have problems and challenges. So what we have done is we have morphed into other avenues that really the organic growth, the human growth is our Trojan horse. Yes, we can get in there. We can make an impact. We’re pleasant to work with. We develop deep relationships over the course of working with somebody, you know. Yes, we try to show them exactly what we’re preaching, which is deepening relationship with clients. And what that allows us to do is get into other challenges. 

Sean Magennis [00:15:22] Outstanding, Mark. Really, that’s you know, these additional insights to what we’re seeing is as recommendations are exceptional. So, Mark, thank you. This takes us to the end of the episode. Let’s let’s try to help listeners apply this. So we end each show with a tool. We do so because this allows the listener to apply the lessons to his or her firm. And our preferred tool is a checklist, a style of checklist as a yes, no questionnaire. We aim to keep it simple by asking only 10 questions in this instance. If you answered yes to eight or more of these questions, you’re on your way to defeating your competitors. If you answered no too many times, lack of a strategy to defeat your competitors is likely getting in the way of closing more business. So Mark has graciously agreed to be our peer example today, and I’ll ask Mark the yes no question so we can learn from his example. Let’s begin. 

Sean Magennis [00:16:23] Number one. Can you calculate a client’s cost of inaction? 

Mark Riggs [00:16:29] Yes. 

Sean Magennis [00:16:30] Number two, can you find a compelling event that puts a deadline or horizon on the client’s project? 

Mark Riggs [00:16:39] Yes. 

Sean Magennis [00:16:40] Number three. Are you confident enough to guarantee your work? 

Mark Riggs [00:16:46] Yes. 

Sean Magennis [00:16:47] Number four, can you establish credibility in the eyes of the client? 

Mark Riggs [00:16:54] Yes, and I will expound on that one just Sean. You know, it’s we don’t hire any consultant who hasn’t been the agency business for more than 20 years. It’s hard to walk into any agency without some sort of gravitas, yes. And say, Let me show you how I’ve done it in the past, I’ve taken accounts and grow them into multimillion dollar accounts. So the answer is yes. But there’s there’s some specifics there. 

Sean Magennis [00:17:19] Excellent. Excellent. Number five, can you signal quality to the client by delivering a best in class proposal? 

Mark Riggs [00:17:29] Yes. 

Sean Magennis [00:17:30] Number six, can you deliver much faster than the market leaders in your niche? 

Mark Riggs [00:17:36] No. But let me expand there again. You know, like I pointed out, this is about sustained growth. Yes. This is about changing muscle memory. So while someone else may come in and immediately point out an opportunity and they’re upselling, our approach is solved dont sell. On solving problems, should take care of itself. So for us, it’s not about speed. It’s about sustainability. 

Sean Magennis [00:17:59] Excellent. And every situation is different. Every client engagement is nuanced. The services are different. So thank you. I get that. Number seven, can you earn healthy margins and still be 25 percent less than the market leaders? 

Mark Riggs [00:18:16] We believe so, yes. 

Sean Magennis [00:18:19] Are you more enjoyable to work with than the market leaders? 

Mark Riggs [00:18:24] Yes, we are in fact pointing that out every time we start working with a new client, the we’re going to have a lot of fun. We’re going to do a lot of laughing. We get to know them very well. And again, we like it. You know, you have to have empathy for your client. They have lives, they have things going on, too, so but but but yes, we have a lot of fun. 

Sean Magennis [00:18:43] Fantastic. Number nine, do you understand the alternative solutions to the problem you’re addressing? 

Mark Riggs [00:18:51] Yes, assets versus liabilities, happenstance. Attrition. Absolutely. 

Sean Magennis [00:18:58] And number 10, will a postmortem revealed to the client that these alternatives have a poor track record? 

Mark Riggs [00:19:05] Yes. 

Sean Magennis [00:19:07] Mark, fantastic. In summary, a boutique must win a high percentage of the time they are not in enough deals to allow for many deals to be lost. No one wins every deal, but that should be the goal by establishing a competitive playbook. You can make sure you can beat the competition. Huge thanks again, Mark, for sharing your expertize today. If you enjoyed the show and want to learn more, pick up a copy of the book The Boutique How to Start, Scale and Sell the Professional Services Firm. Written by Collective 54 founder Greg Alexander.

And for more expert support. Check out Collective 54, the first mastermind community for founders and leaders of boutique professional services firms. Collective 54 will help you grow, scale and exit your firm bigger and faster.

Go to Collective54.com to learn more.

Thank you for listening.

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Episode 58 – Growth Rate: The Ultimate BS Detector – Member Case with Darren Isaacs and Paul Emery

Your growth rate is important than the size of your firm. It is more important than your client roster, and it is more important than your service offerings. On this episode, we interview Darren Isaacs, Co-Founder and CEO, and Paul Emery, Co-Founder at Makosi.  

Transcript

Sean Magennis [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. Our goal with this show is to help you grow, scale and exit your firm bigger and faster. I’m Sean Magennis Collective 54 Advisory Board member and your host. On this episode, I will make the case that your rate of growth is your most important number. It’s more important than the size of your firm. It is more important than your client roster, and it’s more important than your service offerings. Potential acquirers want to see strong growth in both top line revenue and bottom line profits. I’ll try to prove this theory by interviewing Darren Isaacs, co-founder and CEO, and Paul Emery, co-founder at Makosi. Makosi helps audit firms drive growth, improve profitability and pursue important strategic goals by delivering an on demand audit workforce backed by their technology and their proven process. You can find them at Makosi M-A-K-O-S-I dot com. So Darren and Paul, great to see you both and welcome. 

Darren Isaacs [00:01:33] Sean, appreciate it. 

Paul Emery [00:01:35] Thank you. 

Sean Magennis [00:01:36] So let’s start with an overview, Darren, I’m going to call on you. So can you briefly share with the audience an example of why the rate of growth is such an important number? 

Darren Isaacs [00:01:47] Sure, I think you know, the saying used to be that if you’re not growing you, you’re dying? And so it’s really important to understand what market dynamics might actually be driving growth and also to ensure that your growth exceeds that of your competitors because of a long enough period of time. If you’re growing slower than your competitors. You are really slowly having your  lunch eaten, so you know they pay attention to how your competitors are faring in that equivalent market. Yup. And it’s also important to consider not only your rates of growth against your competitors, but also what that growth means for cash flow, infrastructure compliance and other things that go along with that growth. 

Sean Magennis [00:02:30] Fantastic. And we’re going to dove into those questions, but that’s a really good distinction. So making sure that your growth exceeds the growth of your competitors. So I’d like to get your both of your thoughts on some of the best ways to demonstrate growth in the context of a potential investor. The five specific things I’ll walk you through and get your thoughts on each. I’ll ask one of you to tackle an item and then I’ll rotate to the other. So the first one is the first thing to understand is what does good growth look like from the perspective of the investor? Darren, what are your thoughts on this concept? 

Darren Isaacs [00:03:09] I think an investor really wants to see a long track record of consistent and sustainable growth of revenue, but they’ll also pay very careful attention to how gross margins have fared over those years as well. There are also various inflection points along that path of growth that come into play again, particularly with respect to two to non-revenue generating infrastructure and people, so revenues and net margins should be growing together. Yes, and they should also be clear, defined as of the scalable expenses you know, as as as growth is, is ensuing. 

Sean Magennis [00:03:50] Excellent. Thank you. So the second one is we advocate a five to 10 year track record of consistent revenue and profit growth. And you’ve alluded to some of that. Paul, what’s your opinion on this concept of sustainability? 

Paul Emery [00:04:05] Yeah, I think from the perspective of Makosi, we’ve gone through like hyper growth over the last three years and and it’s something that we’re like very, very conscious about in terms of because we’ve gone through four digit growth numbers over the last 12 months, which is a lovely tagline. I think when you speak to investors, and it gets a lot of grins, a lot of big eyes, kind of rubbing of the hands into it. That’s great. But you know, from when you get to the stage of due diligence and you’re looking back, you’re like, all hang on a minute. Is this sustainable? Yes. So I think for us, we understand that, and I think that that’s kind of like our transition or an inflection point where we remain right now is that we’ve been focused on grabbing as much market share as possible over the last three years. And now we need to kind of transition from revenue growth to just really focusing on that profitability piece. So we have a consistent record over time. Yes. And especially for firms that are in hyper growth, I think you need to be hyper vigilant around that service offering. And at what point is it going to start slowing down? And do you have other strategies in play in order to kind of continue growth into the future over a five, 10, 15 or 20 year period? So you know what? That’s exactly where we’re at right now. It’s like, Okay, it’s great. We’ve had an awesome ride over the next three years, but is this just transition now to really say, OK, this part of the business is growing really fast, but how are we setting up three or four others under that umbrella to continue that growth into the future and make it sustainable? And I think for the founders, you like that rocket ship, you like that uncertainty. You like that chaos that comes along with all of it. But to transition the company from the grow to scale stage, yes, it needs that next level of professionalization. And that’s something that we’ve been working very, very hard on. And so transitioning from five to a track record of consistent revenue growth, I think it’s something that we’re looking at is like, OK, maybe we don’t have the skills internally to have that set building up management team really kind of doing some self-reflection on things of that. So it’s. It seems very simple, right, to say, OK, we need to get five to 10 years worth of consistent growth, but it always comes a little bit trippy because you are having to do a lot of internal reflection to speak. Speaking of profound is what our unique ability to do that sort of stuff. 

Sean Magennis [00:06:43] Fine tuning, building your team, you know, tweaking all the elements that an investor is going to look at. Yeah, you’ve hit the nail on the head there. So when our firm Capital 54, is considering making an investment or we’re doing advisory, we look at the following and I acknowledge these are incredibly high bars. And you know, not all. It’s not an apples to apples, but we look at a 20 to 30 percent top line growth, a 70-80 percent gross margin and a 30 to 40 percent net margin. Darren, what are your thoughts on these benchmarks and be open, you know, I mean, this is real talk that we’re having now. 

Darren Isaacs [00:07:23] So, I mean, pretty, pretty extreme numbers there, and I guess I agree with your thesis on top line growth and in fact, that that might even be a bit conservative in this COVID world. Yes. You know, I also agree on the net margin front, but maybe where I differ is on the gross margin front. So the first and I really generalize, I think that margins at those levels are potentially unsustainable in this new gig world. Mm-Hmm. You know, with access to global to, you know, to skills on a global scale. And then secondly, I’d be more interested in firms who are strategically positioned to grow those, those gross margins. So over time, this. Yeah, exactly. And know, unfortunately, I have this curse of being an accountant. So, you know,  those opportunities aren’t always, you know, visible in the actual numbers. Right. It’s really important to kind of dig into the strategy of that business and understand what the opportunities of the growing gross margins think. Things like automation to tech enable your service delivery. And so, you know, how are investors looking at strategy and seeing how this firm is going to grow out, you know? Rev Yes, grow gross margins even  faster. And it’s really a kind of a multiple from a strategy point of view. 

Sean Magennis [00:08:50] I like that and you know, my view is these are targets. You know, these are nice to have. It may not be real. And your example of the impact of the new gig economy businesses is very accurate. I think the important thing and Paul said it earlier, is to have some comparisons. Look at what your competitors are doing because that will give you a leading indicator, at least a benchmark. So thank you. That’s really great. The fourth one we recommend, including profit growth in our list of due diligence requirements. Many young firms don’t focus on profit growth. They spend their time focusing on and obsessing over top line revenue, and they haven’t decoupled their revenue growth from their headcount headcount growth. Paul, any thoughts or opinions on that? 

Paul Emery [00:09:43] Yeah, I mean, this question strikes very close to home. 

Sean Magennis [00:09:47] It’s your business. 

Paul Emery [00:09:48] In that gross stage where we were very, just focused on revenue. And so we built on what we call our advisory board, but it’s essentially we monetize a kind of ex-partners Rolodexes. And it was and it was great to kind of grab market share in a very rapid way. But as we kind of transition from revenue focused to profit focus with our growth, it’s that transition and making sure you have having those kind of big conversations and your kind of bolstering the organization to kind of address those issues because if you cut it, don’t get ahead of that and you kind of keep operating in that grow operation, that kind of growth mindset. It can kind of really, really hurt you because we’ve been going through such a rate of growth that, like a lot of our support functions, like our finance functions, operations functions have really struggled to keep up with the sales in the business development of the business. And so we’ve lacked a lot of transparency into those numbers to be able to say actually what we’re looking at and then, you know, you do catch your breath for five minutes and you look at those numbers not, oh, well, we should probably adjust this. And so I would very much advocate that you, you know, be proactive on that, making sure that you do have a solid finance function set up. So you’ve got visibility into the numbers, especially if you’re kind of an operator in the business now and you’re transitioning to the true owner. Yes, you need that top down view. It’s really, really important that you’re able to kind of dig into those numbers and have that clarity to make sure that the business is going to be profitable in the long term. 

Sean Magennis [00:11:37] Fantastic well-said. And then the fifth one, and we’ve touched on this a little bit of best practices to actively go out into the market. Seek accurate apples to apples comparatives. How do you do this, Darren? What’s your opinion on this? 

Darren Isaacs [00:11:52] I think it’s yeah, I mean,  it’s a good practice. You know, I think it’s mostly practical if you’re in a fairly vanilla category, you know those metrics might be quite easily attainable. Mm hmm. I think it’s been harder for us because we’ve created an entirely new category. COVID has also blown the doors off in so many ways. So to you looking in the COVID world, this is so fresh, which is really, really challenging. And so, you know, things, things just move so much quicker now. Mm hmm. So our view at the moment is quite simple. You know, just keep our eyes on the road and keep our competitors in our peripheral vision, you know? Yes. You know, and so just to kind of be aware of them, but don’t don’t be too focused on them. I think what’s more interesting for us is actually how our  clients are benchmarked against their peers. Mm hmm. And so if we’re able to benchmark how our clients are doing against each other, then it just enables us to add so much more, more value to them. So, you know, really enabling us to drive much more meaningful outcomes for them and thereby commanding higher margins and an overall satisfaction from their client. 

Sean Magennis [00:13:13] I really like that. That’s nuanced and it’s smart. Thank you. That’s great. So, you know, there’s so many variables on making sure you put your best foot forward in terms of, you know, the value of affirm, the value of the work that you’re doing. And I loved your comment. Darren, you’re an accountant, probably a recovering accountant, right? And facts always win out. So this takes us to the end of this episode, and as is customary, we end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist, and our style of checklist is a yes no questionnaire. Our listeners ask yourself these 10 questions, and if you answer yes to eight or more of these, you have an excellent growth story that will attract investors. Darren and Paul have graciously agreed to be our peer examples today. I’ll ask Darren five of the Yes No Questions and Paul five, so we can learn from this example. So Darren, you’re first up. 

Sean Magennis [00:14:19] Question number one, are you growing revenue faster than your boutique competitors? 

Darren Isaacs [00:14:25] Yes. 

Sean Magennis [00:14:27] Number two, have you been doing so for a few years? 

Darren Isaacs [00:14:31] Yes. 

Sean Magennis [00:14:32] Number three, are you growing your profits faster than your boutique competitors? 

Darren Isaacs [00:14:38] Oh, yes. 

Sean Magennis [00:14:40] Number four, have you been doing so for a few years?

Darren Isaacs [00:14:44] Yes. 

Sean Magennis [00:14:45] And number five, are you growing your revenue faster than the practice inside the large market leaders if you have a comparative practice? 

Darren Isaacs [00:14:54] So this is a tricky question. We are the market leaders. So yes. 

Sean Magennis [00:14:58] Fantastic. Paul, I’m going to switch to you. Number six, have you been doing so for a few years? In the context, well, you’re a first mover, so that’s a trick question, will give you a pass on that one. 

Sean Magennis [00:15:10] Number seven, while you’re growing your profits faster than the practice inside the lodge market leaders or do you think, given that you’re a market leader, that you’re growing your profits faster? 

Paul Emery [00:15:23] Yes. 

Sean Magennis [00:15:24] And you’ve been doing so for a few years. 

Paul Emery [00:15:26] Yes, we’ve been doing so for a few years. 

Sean Magennis [00:15:27] Yeah. And then number nine. Are you growing your cash balance to cover payroll for 12 months? 

Paul Emery [00:15:35] Hopefully. 

Sean Magennis [00:15:37] This is why we’re working on the business is key, right? But to me, you’re smiling. 

Paul Emery [00:15:44] I think so. 

Sean Magennis [00:15:45] It’s good. And then finally, number ten, do you have at least 12 months of forward visibility? 

Paul Emery [00:15:52] I would say somewhat. 

Sean Magennis [00:15:53] Okay. 

Sean Magennis [00:15:55] That’s that’s great. Listen, these are important things for you and our listeners to to think through and then to go back and answer for yourselves. Do you have them? And if you don’t have them or if you think you have them to double check. So growth matters a lot and relative growth matters even more. So a year or two of great results doesn’t mean that you’ve got a sellable boutique. A decade of market beating growth will command an outstanding price and excellent terms, and profit growth is as important as revenue growth. This indicates that you’ve cracked the code. You are one of the few who broke the link between revenue and headcount growth. Be sure to run a tight ship. And we’ve heard that from Darren and Paul. Be prepared to demonstrate reliable forward visibility and plenty of working capital. So Darren and Paul, a huge thank you to both of you today. I’m so excited for you and your business. It’s got to be thrilling to be a first mover, market leader.

And if our listeners have enjoyed the show and want to learn more, pick up a copy of the book The Boutique How to Start, Scale and Sell the Professional Services Firm. Written by Collective 54 founder Greg Alexander. 

And for more expert support, check out Collective 54, the first mastermind community for founders and leaders of boutique professional services firms. Collective 54 will help you grow, scale and exit your firm bigger and faster.

Go to Collective54.com to learn more. 

Thank you for listening. 

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Episode 57 – Life Cycle: A Smart Strategy to Make Scaling Easier – Member Case with Chris Rozum

Boutiques often suffer from an identity crisis. This makes scaling harder than it needs to be. On this episode, we discuss business life cycle strategy with Chris Rozum, Founder & CEO, of Insite Managed Solutions, LLC.  

Transcript

Sean Magennis [00:00:17] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. Our goal with this show is to help you grow, scale and exit your firm bigger and faster. I’m Sean Magennis, Collective 54 Advisory Board Member and your host. On this episode, I will make the case, boutiques often suffer from an identity crisis, and this makes scaling harder than it needs to be. I’ll try to prove this theory by interviewing Chris Rozum, founder and CEO of Insight Managed Solutions. Insight was founded in 2007, and it was established to provide a truly unique experience that marries together deep contact center expertise, enthusiasm for achieving unprecedented results and a culture of transferring knowledge. Insight then incorporates these characteristics into their suite of professional services, which are a site benchmarking, training, implementation workshops, process building, transfer staff, augmentation transformations and consulting. And you can find Chris at getinsight.io. Chris, great to see you and welcome. 

Chris Rozum [00:01:40] Welcome. Pleasure to be here, Sean. 

Sean Magennis [00:01:42] Thank you. Let’s start with an overview, Chris, can you briefly share with the audience an example of why it is critical to truly know what your firm is uniquely qualified to deliver in order to scale? 

Chris Rozum [00:01:57] Yeah, if I had to just put it into one specific example for us, it’s really about the human capital. Once we really know and are starting to lock in a bit of what our firm does, it really helps us zero in on the  hiring profile. What is the recruiting and testing approach we do to vet the people as they come in? How do we onboard and train them, which we’re not fantastic at today and we’re getting better at who gets into what is the organization Sure even kind of look like a little bit to include even roles and responsibilities on an engagement of who actually does what. And all these things are kind of different depending on what a firm is trying to do. But we found that we’re putting a lot of time and effort around those things. 

Sean Magennis [00:02:38] Fantastic. And you know, that human capital focus is, I think, vital not only in the context of the professional services firm, but your clients. Human capital, you know, is vital as well. So, Chris, they have five specific things that I’ll walk you through that we have found make it easier for a firm to scale. So the first one is sometimes a boutique suffers from an identity crisis. They’re unsure of the type of firm they are and the types of clients and projects they should pursue. This makes the challenge of scaling a boutique harder than it needs to be. What are your thoughts on this concept? 

Chris Rozum [00:03:21] You know, it was interesting when I first heard of the concept, I actually thought in my earlier days that I disagreed with it, and what I found was that I had not only myself, but I had two team members. Yes, that had the unique skill set and capability that they could basically take on any project they could because they were quick studies could could help solve problems that hadn’t been solved before, or they could provide industry expertise because we will learn really, really fast. And as you started to grow the business, though, I found it near impossible to be able to at the pace we wanted to grow to be able to find individuals that have that issue. It’s not smarts or talent, right? But that question to be able to announce any intensity. And there’s also a work ethic that is OK, working extreme hours to be able to run at that pace and love that energy around it. And so I’ve actually found as we’ve grown, I’ve not been able to replicate it. It held us back, created some less than desirable client experiences along the way because we signed up for some stuff that we didn’t want to do or couldn’t do. And we’re finding now that we’re having a lot more success in focusing on specific industries and getting deeper there, as well as focusing on services, even making hard choices around which ones we maybe don’t want to market and sell anymore. 

Sean Magennis [00:04:42] You know, and that’s probably, you know, half the battle is deciding, you know, when to say, no, you know, and we talk about that a lot. So we’ve also categorized three types of firms. First, we have what’s called an intellect firm and an intellect firm is typically hired by clients to solve difficult never before seen one of a kind problems. Second, we have a firm that we call a wisdom firm and a wisdom firm in our definition is hired by clients because they have been there and done that. The client problems new to that client, but it’s not a new problem. And third, we have what we call a method firm and a method firm is hired by clients because of their unique methodologies. The problem is well understood by the client, but by hiring a method firm, it can be sold faster and likely a lot cheaper. So, Chris, why, in your opinion, is it key to differentiate that time or what type of firm you are? 

Chris Rozum [00:05:45] Yeah. You know, it goes a little bit back to the human capital piece a bit and that there’s really kind of two things and I think you hit on it is if you go more using every candidate intellect. Yes, I have found that requires a talent that has had certain background, timeline, experiences, exposures, reference points, kind of. All these things kind of come together across somebody’s journey that allows them to take intellect and and be able to solve problems that have never been solved before, which are kind of exciting to go do. But that comes, those individuals come at a certain compensation level. Yes, then also drive a certain rate level. Yes. And if you go to the other end of the spectrum, methods are where on that you can get consistent. You can put tools, templates, processes in place, look to have different type of talent. Tell them again, you can bring people and I’ll use my personal example. We hire folks into our firm that are not traditionally part of professional services consulting firm, and they are operators that have been working in contact centers, in operations, and then we bring them into this environment. And then what I attempted to do was put them on intellect, type work, and they may have not had enough reference points or experiences to have been effective there. Yes, we’re finding, though, by taking hands on operators and bringing them in in the methods world, we’re having a lot more success. So some of that is getting the right people in the right slots and all of that. But there’s someone helps figure out what your pricing is, what you’re looking at. And then from the sales perspective, how do you go sell to a message and set expectations with your clients that align with kind of these three different types of firms. 

Sean Magennis [00:07:28] That’s really good insight and great examples. I can see in your context how, you know, the nuances are very clear and then the difficulties of trying to teach somebody, you know, who’s not being an intellect, you know, that has its challenges. Some could rise to the occasion, but you make an excellent point. Number three, we recommend that owners and many of them or our listeners connect the type of client and project to the type of firm they are. You know, we recommend they only go off to work that the firm is staffed to handle based on skill level. What are your thoughts on this and you have touched on it? 

Chris Rozum [00:08:08] Yeah. You know, I think. It might depend on where somebody is at in their their life cycle. I know even our early stage it was. It was kind of exciting to go try some different things and see where we are good and capable, what actually resonated with our clients and and also what were some of the activities that we also enjoy. So there’s a little bit of that in the early stage. I think I know where my firm is is right now as we are in the scale high growth phase. Yes. Yeah. The it the governor for me to go do that now is if I’m having too many bumpiness with our clients and not the experiences that I’m wanting or my staff, attrition is too high because we’re over stressing and we’re pushing them beyond their skill sets, too fast. When we’re hitting those moments, it really causes me to govern back and say, No, we’re just going to focus. Yes, and those are kind of the two metrics that I’m looking at. And then as I find those get to kind of stable points, I will then look to venture on things that I think are close enough tangents that do push us a little outside, and it does allow us to be a little innovative. But I find myself, I have to balance this dance and assess and retract back a little bit. So it’s it’s maybe not so hard, fast in any given moment in time, but I tend to use those indicators to drive me towards when I want to be a little exploratory versus when when I really should be more disciplined. 

Sean Magennis [00:09:38] That’s really well put, and that dovetails nicely into our next question. You know, we see owners lacking discipline and thinking that all revenue is good revenue and they take any deal that comes their way. So can you unpack that for us? 

Chris Rozum [00:09:54] Yeah, I am totally guilty of that. I even still today will get into these moments. And it’s being opportunistic. We want to keep growing at the pace we’ve been growing. And and what I have realized, though, is is early on when we were smaller, I could look at something and say, You know what, I can do that I can figure it out. It’s a little outside the lane, but I can see a path on how we can get there to be successful. Yes, and timing as we grow. That’s not always the case. And so we are getting, if you will, kind of more governance around how to do that and how some of those names, some of those negative impacts that can hit in that type of situation. 

Sean Magennis [00:10:37] That’s well articulated. And I think clearly understanding the risk reward of taking on projects that may not be be good in in the face of your scaling opportunity. And it also brings up the reality of sustainability and making sure that you can replicate what you indicated, you know, you alluded to earlier. So the final yeah, sure jump in. 

Chris Rozum [00:10:58] I think your viewers listeners would also appreciate this. So I have done this for a long enough period of time. Now that I’m getting more disciplined this year, it is much harder to unwind now that I am of this size and scale to to be more disciplined. And it’s a couple of one of the biggest things is how do you now unwind trying to take on every single project that’s out there? Yes, but not have a gap in revenue. So and slow down. And that’s what I’m dealing with right now is I’m trying to be more disciplined. How do I not just flip the light switch and now I lose 20 percent revenue and I got to then climb my way back up? So a bit of my learning along the way is how you make that shift early enough. Yes. You at least get to the size we are today. 

Sean Magennis [00:11:44] And then also, you know which which we see a lot of our members in collective 54 and I’m sure in a lot of our listeners is looking at the profitability of every client project because some projects, even though you may have this culture of taking them on, maybe at break breakeven or you may actually if you really do the math, you may be losing money on them. So that discipline, even though it’s tough to do if you’re looking at your numbers, you can prove out with facts that there’s maybe a good reason to do it right. 

Chris Rozum [00:12:15] Yeah, yeah, you’re exactly right. I actually had a conversation with the client next week where it’s it’s a loss to break even and we’re we either got to fix it or we’ll have to step away from it. 

Sean Magennis [00:12:26] Yeah, well, that’s exactly right. And then the final one is, you know, the firm’s just like us, as human beings are different based on where on the on the lifecycle curve they are. So, for example, it’s very common for boutique professional services firms when they first start to be an intellect. But the partners have some secret sauce, you know, they have a solution to a brand new problem. Then as time passes, that IP gets out. Others have it, and eventually it becomes a commodity and owner manages a firm very differently. When it’s an intellect firm than a wisdom or a method for everything is different. So, for example, pricing, staffing, utilization, salaries. So lifecycle management to us refers to the active management by the owner of the boutique as it scales through these lifestyle stages. What’s your opinion on adopting this life cycle management philosophy? 

Chris Rozum [00:13:26] Yeah, it’s I wish I knew about it years ago when I started through the firm, right? I think I think too. Yeah. You know, it’s as I look back, and for me, there were actually very clear markers. And whether you tie it to revenue or you tied to headcount in our my firm, they all correlate together. Yes, by the way, and even what my job was from from one to 15 folks, right at 15 was this really clear marker that I had to do some things different and where I even spent my time and where you were. Now I have a manager, Reverse admits, managing some of the work engagements and how do I sell and do some of these things that you talked about? And and how do you do that in a profitable way that you don’t make over invest in the organization? So I found that one to 15 was kind of a band for me. Yes, that 15 to 50 was the next band that I could do it away. Yeah. And and and when we crossed the 50, I spent a whole bunch of time to say now, how do I go from 50 to five hundred? Yes. Put that structure and roles and responsibilities and who does what. And even my job and where I’m spending my time and what I’m doing in a different way. And and those are kind of the markers for me that happen to be there. I think some other firms might have some different markers based on bill rates and stuff like that, but it was they were really like… 

Sean Magennis [00:14:44] Crisp, really clear. No, that’s really well said. So in your case, one to 15 was a band 15 to 50 and then 50 plus as you’re getting to five hundred. I mean, that is exactly the way we want our listeners to think and to really be highly present in in acknowledging and looking for those signals because it does it, to your point, require a very different set of skills, a different orientation to your time. I’m sure you’re working much more on your business now than you’ve ever done before. 

Chris Rozum [00:15:15] And as of today, yes, we’re working to change that a little bit. Yeah. And, you know, in their spots throughout the journey where I have drifted around a little bit and you know, I go back to some of the indicators that I gave before, which were also really got sensitive around these markers. Where where did I have some client experiences and we have high expectations? There’s a lot of times our clients don’t feel it, but were they not what we wanted to deliver? Got it. And what’s going on with our employee culture stress? Is it turning into attrition? Those are the two things that I saw at 15 started to really break. A 50 really started to break. So we’ll continue to monitor those. 

Sean Magennis [00:15:53] Outstanding Chris, this has been this has been great. Getting your perspective on this is fantastic. So, you know, again, it’s this is an illustration as to why there are only about 4000 firms of about the 1.5 million that truly reach scale. You’ve done that. It’s hard to do and you’re still scaling. It takes an exceptionally skilled owner like yourself to pull it off. So this takes us to the end of this episode, and as is customary, we end each show with a tool. We do so because this allows you are listening to the app to apply these lessons to your firm. Our preferred tool is a checklist, and our style of checklist is a yes no questionnaire. We aim to keep it simple by asking only 10 questions. So in this instance, if you answer yes to questions one through three, you’re an intellect firm. If you answer questions, if you answered yes to questions four to six, you’re a wisdom firm. And if you answer yes to seven to nine, you are a method firm. And lastly, if you answer yes to question 10, lifecycle management should be a top priority. So, Chris, thank you for graciously agreeing to be our peer example today. I’ll ask you the yes, no question so we can all learn from this example. So let’s begin. 

Sean Magennis [00:17:14] Number one, do your clients hire you for never before seen problems? 

Chris Rozum [00:17:20] Not so much today. 

Sean Magennis [00:17:23] Number two, do you employ leading experts in the field? 

Chris Rozum [00:17:29] Yes, we do. 

Sean Magennis [00:17:30] Three. Do you have legally protected intellectual property? 

Chris Rozum [00:17:36] We do, we have a pattern as well as a bunch of copyrights. 

Sean Magennis [00:17:39] Number four, do your clients hire you because you have solved their problems before? 

Chris Rozum [00:17:46] Yes. 

Sean Magennis [00:17:47] Number five, do your clients hire you because you have direct relevant case studies? 

Chris Rozum [00:17:54] Yes, they do. 

Sean Magennis [00:17:56] Do your clients hire you because you help them avoid common mistakes? 

Chris Rozum [00:18:03] Yes, but less today. 

Sean Magennis [00:18:06] OK, got it. Do your clients hire you because they’re busy and need an extra pair of hands? 

Chris Rozum [00:18:12] Yeah, absolutely. That’s much more dominant today. 

Sean Magennis [00:18:15] Yes. Number eight, do your clients hire you because you can get the work done quickly? 

Chris Rozum [00:18:21] Yep, more of that today than before. 

Sean Magennis [00:18:23] Number nine. Do your clients hire you because you have an army of trained people to deploy immediately? 

Chris Rozum [00:18:30] Yes, they do. 

Sean Magennis [00:18:31] Yup, that’s your that’s your bread and butter. And number ten, does your service offerings start out as leading edge and over time become commoditized? 

Chris Rozum [00:18:43] Not so much as of yet. It’s interesting, we’re somewhat we’re solving some same problems we were solving 14 years ago. See, things have maybe matured, but so this one surprised me when I said no. 

Sean Magennis [00:18:55] Great. Great. That’s what it’s designed to do. So in summary, a lack of a life cycle awareness can make scaling more difficult than it needs to be. It can lead to poor cash flow. Unhappy clients and employees Chris, a huge thank you to you for sharing your expertize today if you enjoyed the show and want to learn more. Pick up a copy of the book The Boutique How to Start, Scale and Sell the professional services firm written by Collective 54 founder Greg Alexander.

And for more expert support. Check out Collective 54 the first mastermind community for founders and leaders of boutique professional services firms. Collective 54 will help you grow, scale and exit your firm bigger and faster.

Go to Collective54.com to learn more.

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