The personal lives of the Founders evolve as a firm advances. And the professional lives of the Founders morph as a firm matures. How can partners stay in harmony with themselves, and with each other, along the entrepreneurial journey? This session shares how partners work well together and use a tool called The Commitment Letter.

TRANSCRIPT

Greg Alexander [00:00:10] Hi, everyone. This is Greg Alexander, the host of the Pro Serv Podcast, brought to you by Collective 54, the first community dedicated to the boutique professional services industry. And on today’s episode, we’re going to talk about how one’s personal life and professional life change as a firm goes through its natural evolution and how critical it is for partners co-founders to. Change with the times, so to speak, and how to keep those things in harmony. And if they’re not in harmony. Bad things can happen. And if they are in harmony, wonderful things can happen. And we have a couple of collective 54 members with us today, Matt Jenkins and Nick Marella, and they are someone who’s taught me quite a bit about this subject and I thought it was worth them sharing what they’ve shared with me, with all of you. So with that, guys, it’s good to see you. Welcome to the show. Why don’t I let you introduce yourselves and maybe, Nick, I’ll start with you and then Matt, we can hear from you. 

Nick Moretta [00:01:22] Hi, I’m Nick Moretta. I’m a founding partner here at Other and I oversee a couple divisions of the business and they’re my very proud  Collective 54 member and father of two. Yeah. 

Greg Alexander [00:01:33] Thanks. 

Matt Jenkins [00:01:35] And my name is Matt Jenkins, one of the other founding partners here at Other. I oversee sort of the operations, service delivery and the business oversee a little bit of client services as well. And I am a father of one right now. We’ve got three partners in the business, so two of the three of us are here today. 

Greg Alexander [00:01:53] Okay, very good. And for the benefit of the audience, tell me what other is. 

Nick Moretta [00:02:00] Yeah, sure. I’ll take that one. So we’re a 40 person performance marketing firm. We have clients in Canada and the US, and really what we do is we help our clients derive the most value from their paid media investments using our proprietary methodology and channels like paid search and paid social. That’s really what we do as an organization. 

Greg Alexander [00:02:16] Okay, very good. Perfect. All right. So let me start with the first question, which is how have your personal lives changed, you know, since the founding of the firm until now? And, you know, maybe I’ll air traffic control this. Nic, why don’t we start with you? Because you just told me. Just add your second kids. So lots of change in your life right now. So this is a timely question. 

Nick Moretta [00:02:39] Yeah, definitely. Definitely. Yeah, I think I think so. Like, you know, when we started the business, we were super young, right? We were, I think around 25 years old. And, you know, life has changed a lot. When we started the business, there were super long hours, you know, we were coming home at 11 p.m. or midnight. We were starting at 8 a.m. in the morning. You know, very exciting time in the business to sort of build and get off the ground. But we didn’t have a lot of commitments. We didn’t have mortgages at the time. We didn’t have children. And I think over the past few years we’ve really seen that shift a little bit. You know, all three of the partners at our firm have young kids. I have two kids. Matt has one, Catherine has one. So we’re just getting used to that change and making sure that we stay disciplined with creating or integrating both our personal lives that are in our professional lives. 

Greg Alexander [00:03:28] So, Matt, in terms of the professional life, we just heard from Nick how the personal life had changed over time from, you know, being young and full of energy and being willing to burn the midnight oil to a time of adulthood and having obligations which we all eventually mature to. How has the the professional life, Matt, changed since the founding of the firm? 

Matt Jenkins [00:03:53] It’s not dissimilar to the personal side. If you think about your team in the context of being like your business family. And we don’t necessarily refer to our our team as a family, there’s a very different dynamic that happens with your your team than with your family at home. But know, in the beginning I think we spent a lot of time, Kat and myself, doing the work we spent. We would go on, we would we would find a client and we would bring them on board and come on board. We were the same people sitting there that needed to do the work and actually service what what we’d sold in. And so we spent a significant amount of time doing that. In the early days, and then he sort of move on and realize the need to bring on your first team member and and bring them all in and you can offload some some work, but then you need to mentor them and you need to take care of them, need to look after them, to train them and to create exposure and upward mobility for them. And then he starts to extrapolate that among the larger group of people, and that becomes you get some time back because you’re not doing the work yourself so much anymore, but you’re managing and mentoring these people and there’s time associated with that. But it frees up some time to be able to grow the business as well and for myself to start to build some business infrastructure. And so today we’re about 40 people and we’re across two offices. We have one in downtown Toronto, we have another one in Ottawa. We work on a principally hybrid model and we have a couple of different layers of management. And so things change remarkably. We’re not really the ones doing too much of the the actual client work anymore, really spending the majority of our time growing the business, continuing to augment the the operating infrastructure and processes and spending a lot of time mentoring and helping our people to grow. So it’s a very different vibe today than it was it sort of responsibility today than it was then. Yeah. 

Greg Alexander [00:05:52] That’s a great illustrative example for sure. And sometimes people struggle when that happens because they actually enjoy doing the work. And then, you know, I once learned in my life, you know, you go into business for yourself and you think you’re working for yourself, but one day you wake up and you realize you’re not. You’re working for your clients. Then one day you wake up and you’re not just working for your clients, you’re working for your employees for the reasons that you all just mentioned. And then eventually you wake up one day after you exit and you realize you’re not working for your clients, your employees, you’re working for your investors. So it changes kind of as you go through time. But, you know, you have to go through it to learn it. There were a few things that that you all shared with me that I wanted to pick on as examples, because I think our members would be particularly interested in this. So you went from a period of time where you were focused on salaries to now where you’re focused on distributions, and that is a big mental model shift. So tell us a little bit about that. When did that happen and kind of what caused that and how are you dealing with it? 

Matt Jenkins [00:06:56] Sure. I think there’s also an important stage actually prior to that, which is the pre salary stage, which is at the early days where we didn’t make any money. So it took some time. It took some time. At the beginning we only had $150 each into this business at the beginning, which was not enough for any sort of payment. And we took some risk and we started to build it organically. And at the beginning, yes, it’s it’s salary from a taxation perspective, It’s salary, but it’s it’s significantly based on what we are bringing in on the top line and what we’re able to take home and obviously a function of our cost base. And so in some respects it’s in some respects it’s performance based. And then as we’ve grown over time, we have to keep our salary structure commensurate with the work that we might be paying somebody else to do a similar job inside of the organization. So if I’m acting as a lead of operations, how much would a lead of operations cost in the marketplace and structure the compensation around something similar? But at the same time, we’re still owning the company and our responsibility is to the overall financial performance of the company. And so there starts to become an element that is outside of that, that’s performance based distribution. And so that’s the sort of middle stage is that when there’s a balance of those two things. And now as we think more about ourselves as the founders of the organization and the owners and are less in the work, it’s it’s becoming more on the performance compensation side and less of the day to day compensation of somebody who might be, you know, might be available in the market to occupy that same kind of role. So from sort of nothing to the small salaries and the salaries and distributions. And then we’re sort of off in the future looking at probably a larger portion of distributions and less salary. There’s also the elements of taxation that’s important along the way, which is having a good partner to help you navigate that and making sure that you’re you’re earning efficiently is also really important. 

Greg Alexander [00:09:12] You know, And someday if you do exit your firm, it’s going to make it a lot easier for somebody to buy your firm because they’re going to understand what the true cost of operating the businesses, which is your salary, reflective of what the going rate would be for somebody to perform that job. And then they can separate that from the distributions of the excess profits that you’re distributing to yourself right now, which is how an owner would get paid. So you’re balancing the two hats of owner operator extremely well. So that’s a lesson for all of our members is that, you know, those those things are separate. You know how you’re compensated as an operator, what should be market based and how you compensated as an owner? What should be distribution based, based on excess profit? Okay. Let me go to the next one, which was the shift from focusing on utilization, you know, as a measurement of yourselves to focusing on profits, you know, as a measurement for yourself. It’s kind of related to what we just talked about. But the way you run your firm and like the KPIs you look at, Accenture might be slightly different. So maybe I’ll direct this one to you, but how did that evolve inside of your firm? 

Nick Moretta [00:10:23] You know what, Greg? I think actually Matt could provide a probably better, more concise answer for this one. 

Matt Jenkins [00:10:29] Sure. Yeah. To be completely transparent in looking at utilization in the organization is not something that we’ve always done. It’s not something we were taught to do in previous lives. We haven’t run professional services business before and so we were coming into this and we were really focusing our our time and effort in the earlier stages of the business around some of our traditional business metrics. What does top line look like? What is profitability look like, and are those things growing? And we didn’t look a whole lot at the science behind what makes the inside of the engine actually work. And in the last several years, we’ve spent a lot more time on that. I think there’s also a lot more time on that, and we’ve re-engineered the organizational KPIs around that. They’re certainly still top line and profitability at a board level. But when we look inside and think about how to manage resources, it’s much more focused on target billable gaps and utilization rate and and things like that. But I think there’s also a mental shift, which is at the beginning, kind of like Nick was saying, we’re spending until midnight. We’re not going and tracking that time and time tracking system and making sure that the profitability get there. It’s a it’s a do whatever you need to do, whatever cost to make this client happy so that you can continue to build and grow that relationship. And that worked really well for us in the beginning. It’s obviously not sustainable strategy over a long period of time. But I just want to speak to there’s there’s kind of the size part of it, but then there’s also the mental shift that we’ve had to go through to say, okay, how can you manage this really effectively? And I think one of the things that we actually look at that’s a big topic in our category is that traditionally in advertising and marketing agencies, the notion is that people are overworked, that they come in very early and they stay until very late and they work too much. And I look at that as if there’s something broken in your business model, if people are doing that. And so if we see somebody in the office at 630, 7:00, I look at that as actually poor management and not somebody who is going above and beyond because our economic model should work and our operating model should work such that people can be in the office for the hours that we’ve allotted to that. So, yes, it’s shifted in a couple of different places. That’s a. 

Greg Alexander [00:12:51] Great synopsis. All right. So we’ve talked a lot about how the business has changed and the professional lives have changed. Let’s come back to the personal for a moment. You all have this wonderful tool that you called the commitment letter. And I thought it was it literally blew me away. I’ve never seen anything like it before. I love the symbolism of it, the wet signature. And it’s so relevant to our community because like you, that’s there’s three partners. Most processor firms are partnerships. Partnerships need to work. They’re kind of like marriages. There’s got to be compromises. People need to understand where everyone’s coming from. So why don’t you tell me about the commitment letter, how it originated, how you’re using it today, and maybe at the end of that explanation, give some advice to our listeners as to how they might copycat you on this. 

Nick Moretta [00:13:43] Sure. Yeah, I can definitely elaborate on that. So, you know, earlier I would say earlier this year, late last year, you know, we were approaching, I guess, you know, we’re approaching nine years now. We’re at eight and a half years old, our firm. And, you know, we’re feeling tired. You know, we had all young kids. We’re feeling a little bit beat up. And we know that in order to preserve your, we have to stay resilient. And part of the idea behind it was how can we have a commitment letter where we make commitments to each other? Because I think a lot of us and a lot of the members here, maybe they make commitments to themselves, maybe they’re around physical health or mental health, and maybe they’re commitments around business or family. And sometimes it’s difficult to live up to the commitments that you make to yourself. But when you make a commitment to your business partner, you make a commitment to a family member. I always find that, you know, brings a little bit more skin in the game and you want to make sure you live up to your commitments. So the idea was, we’re in a sit down. We’re going to make, you know, a series of commitments around different areas of life. So how do we we want to commit to becoming better executives? Part of that was actually setting up for collective 54 so that we could learn we can educate ourselves on how to become executives. We want to be more accountable to each other. We want to make sure we show up prepared to meetings. We want to make sure we, you know, allude a certain preparation to the rest of the organization. Personal and mental health, you know, physical health and mental health. These are important things. Commitments to exercise, commitments to seeing coaches. So we wanted to make sure that we just had a shared set of principles and commitments that we put down on paper. And then symbolic, like you mentioned, you know, how can we sign this document off? It’s not like a legally binding document. You have your shareholder’s agreement, but it’s more around saying this. And we sat down and we committed to these things. So we’re going to make sure we remain a. And, you know, if I needed to to give any advice on how someone could get started, you know, perhaps we could share the template with you, Greg, and you could put it into the portal. But I really think you have to sit down with your business partners and find out what are the things that are, you know, you’re struggling with both personally and professionally and how can you how can you commit to resolving some of those things? So are we operating at peak performance as a partnership group? If we’re not. Why not? Is a personal is a professional. List those things down and then put those series of commitments together and just put a signature against it and say, we’re going to commit to this for a year, which is what we did. 

Greg Alexander [00:16:12] It’s a fantastic story. I’m so glad that you guys have brought this to us. I would very much appreciate the template, if you wouldn’t mind. Couple of quick follow up questions on it. Are the three founders all approximately at the same stage in life in terms of age and things like that? 

Nick Moretta [00:16:30] Yes. Yes. We’re all three of us are at very similar stages. 

Greg Alexander [00:16:33] You know, that’s often overlooked. But it’s it’s mission critical because imagine a commitment letter, you know, if you have one partner in their sixties, one in their forties and one in their twenties, I mean, you just you just life is different. So it’s hard to make, you know, mutually reinforced commitments to each other. So something to think about there for the members. As you were going through the commitment letter, was there a negotiation? You know, were you horse trading in any way or was it not Was that not the spirit of the document? 

Nick Moretta [00:17:03] I think, you know, negotiation is more of a hostile word, right? I think it was more around making sure that they were realistic commitments for everybody. So, hey, listen, we’re going to commit to these things if we do. You realistically think you’re going to be able to live up to this commitment. So one of them is we need to exercise at a minimum 1 to 2 times per week. Do we think that this is realistic? You know, yes, this is realistic. If we came over at four or five times per week, maybe not. So it was really around are these realistic commitments that we can make to each other less around negotiating over the specific thing? 

Matt Jenkins [00:17:40] And I will add there that one thing that did have some meaningful discussion around it was actually making it time bound because when we originally put it together, it was put together with no end date on it. It was just, here’s the commitment from now until forever. And I think in some ways that when we were trying, it took time. It seemed a little bit daunting. It’s like we’re going to commit to this now and then. And then what? And so what we decided we were going to do is we’re going to put a time frame of a year on it. And it also helped us to narrow in and say, okay, what is truly important if we want to get where we want to be in one year, what is truly important between the three of us and let’s narrow in some of the language around that. And then we signed it off for one year. And so when we get back to the end of this year, we’ll revisit it and say, you know what was helpful? What wasn’t helpful? What do we think is a priority for next year? And we’ll we’ll do a fresh one or well, at least do a version of this year in a modified way. So the time bound piece I think has been helpful for us, and that was probably the thing that we discussed the most throughout the process. Yeah. 

Greg Alexander [00:18:46] The thing that I love about it the most is that to Nick’s earlier comment, you know, I mean, I am a habitual offender of commitments to myself. I oftentimes blow them off and because, you know, I’m not letting anybody else down other than myself. So therefore I tolerate it when I make commitments to my team. I mean, I have a tremendous sense of obligation and I don’t want to be that guy, you know, that guy that let down everybody else. There’s just something about our human psychology that that that’s part of who we are. And if you’re structured in a partnership and you really have partners, then it’s intensified because, I mean, the last thing you want to do is let your partners down. So I think it’s such an effective tool. Well, listen, we’re at our time window here. We try to keep the podcast short. We’re going to go into this much greater depth when we have our private member Q&A session with you all. But on behalf of the membership, it’s just wonderful having you guys in the community. This contribution to the body of knowledge is particularly fantastic amongst many others that you’ve made over time. So thank you for being here. 

Nick Moretta [00:19:47] Thank you. Thank you very much. Appreciate you having us on. 

Greg Alexander [00:19:50] All right. I’m going to give the audience just three quick calls to action. So members look for the invitation to attend the Q&A session with Matt and Nick. If you’re not a member, you want to become one. Go to Collective 54 dot com and fill out an application. We’ll get in contact with you. And if you’re someone who just wants to learn a little bit more directly to our book, you can find it on Amazon. It’s called The Boutique How to Start Scale and sell your professional services firm. Okay, guys, we’ll talk to you soon. Take care.