Episode 71 – How a Learning and Development Firm Retains Key Employees – Member Case with Renee Safrata

There is a direct correlation between employee loyalty and the valuation of a professional services firm. On this episode, we interview Renée Safrata, CEO & Founder of Vivo Team to discuss employee loyalty and the invisible balance sheet.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54 a podcast for founders and leaders of boutique professional services firms, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. I’m Greg Alexander, founder and today I’ll be your host. And on this episode, I’m going to talk to Renee Safrata, and we’re going to talk about employee loyalty. So, Renee, it’s nice to see you today. Welcome. 

Renee Safrata [00:00:43] Thanks, Greg. Nice to see you as well. 

Greg Alexander [00:00:45] Renee, you’re one of the more interesting members that I’ve come into contact with. I understand we’re speaking to you and you’re in Barbados. Is that correct? 

Renee Safrata [00:00:53] That’s correct. I am in Barbados. I am doing a digital nomad trial and I don’t know if I’ll. I’ll go back to Canada, but I probably won’t go back home, but I will go back to Canada at some point. 

Greg Alexander [00:01:03] Wow. So are you one of the folks that when COVID hit you decided to make changes? Is that how it came about? 

Renee Safrata [00:01:11] No. You know, it’s actually a bit different. We’ve been doing digital for 10 years. Everything digital. And my husband and I were always thinking of sort of a digital nomad lifestyle. We were probably planning on doing this just before COVID hit, which, by the way, isn’t that odd. It’s almost like two years exactly this week, right when we all got thrown into lockdown. It’s crazy, but we got thrown into lockdown and so we thought, OK, let’s take that. We’re here, we’re at home. Let’s take the opportunity to clear out our home. So we cleared it out down to two two laptop bags and to carry on bags. And we left Canada and we haven’t we don’t want to go home. We’re very happy here. It’s fantastic. And you know what? I thought, Greg, I thought we’d need a lot of retired people, but we’re just meeting people doing the same thing. And so it’s really exciting. 

Greg Alexander [00:02:02] It is exciting. It’s a new world we’re living in. Good for you. Taking advantage of of this new world and doing exciting things. OK, so let’s jump into this concept of employee loyalty. And I’d like to start by maybe having you explain to the audience a little bit about your firm and what you do. 

Renee Safrata [00:02:19] Yeah, sure. So first of all, we create just winning companies and we do that by inspiring leaders. So our mission is really to help increase competence, motivation and collaboration in the pursuit of outstanding results. That’s what we do at Vivo Team. We do, we have been doing it digitally for 10 years because 12 years ago, we took two years to research the workplace of 2020, and we didn’t expect a pandemic. But we did understand that teams would be working in a digital, you know, coming in from distributed teams from all over across multiple time zones and that you would be leaders wouldn’t be necessarily in contact every day, all day with their teams. So we recognize that the learning and development space was not going to participate in that because gone would be the days of going into classroom, face to face learning and development. So what we do in vivo team is we use behavioral science to understand and diagnose how leaders are connected to their teams against the six key indicators of highly functioning teams. What’s the gap between the leaders and the teams? And as well, what we do is what we call space learning. So it’s in the flow of the day. It’s an on trend learning style one hour per week so that you learn something, you take it away and you apply it. You come back, you learn something more, you take it away and apply it. So what we’re doing is we’re actually selling learning development paths for leaders and teams. And what we’re doing is we’re providing to the C-suite a measure of evidence based performance, which is really exciting as well. 

Greg Alexander [00:03:54] Okay, fantastic. Appreciate the introduction. Okay. So when I talk about employee loyalty, I think about it through the lens of an investor, which is  my day job at Capital 54. And if I’m doing diligence on a pro serv firm, I’m always asking about employee turnover. The reason why that is is because when you buy a professional services firm, the assets are the people. And if they’re turning over, then there’s not a lot of assets. And unfortunately, at the time of this call with you today, we’re dealing with the great resignation and turnover has spiked, which is devastating when that happens. So the work that you do with clients, does any of it address this specific issue of employee turnover? 

Renee Safrata [00:04:37] Absolutely, absolutely. And I’m going to be perhaps a bit provocative and say that maybe we need to shift the world word of employee loyalty into really looking at what does the employee want? Because you’re right, the pandemic has created this paradigm shift where that invisible balance sheet, the assets of the people, they have more choice now. And just like you said in the introduction, I’m working from Barbados. I have more choice. So does employee loyalty actually exist or should we actually be focusing as investors, as you’re saying? On the intellectual capital of the knowledge workers and how tight our invisible balance sheet is, I think a lot of employers recognized that they were using only the traditional balance sheet and that their invisible balance sheet was extremely weak going into covid and it started to fragment and employees now have way more choice. So they are going to be the ones who are determining what’s going on. So unless you figure out what they want, it’s going to be tough. I’ll stop there. 

Greg Alexander [00:05:45] I love the idea of the invisible balance sheet. I’m going to blatantly steal that and I’ll give you attribution, I promise. But that’s a great way to think about it. If I think about your firm in particular and the digital nomad lifestyle that you’re living in, I’m assuming that your employees are living something similar to that. How do you retain your key staff? 

Renee Safrata [00:06:09] Yeah, it’s a great question. And you know what it is? Again, it hasn’t just happened in the last couple of years. Our employees, again, we’re Canadian, so our employees have been right from the East Coast to the West Coast in British Columbia, Ontario and Nova Scotia, Halifax for 10 years. We have attracted great employees because of our values, our vision and their desire to be better and to contribute and to bring innovation to the table so good people can work anywhere. They also want to be held to account. So if they have good leaders and managers that are connected with them tightly around their accountabilities, now we’ve started to get a great equation. And by the way, Greg, you’re not stealing anything from me because the invisible balance sheet started in 1988 in Sweden, so it’s not my thing. Well, that’s good to we just talk about it a lot. Yeah. 

Greg Alexander [00:07:07] You know, you just talked about your mission, the vision, the values. That’s something that I advocate for. And I think those three things in particular mission, vision and values, that’s what makes up the employee value proposition. My belief is that each boutique needs two value propositions, a value proposition for clients, why they should buy from you, why they should hire you and a value proposition for your employees. You know why they should work for you. Because you’re right, they can work anywhere. They’re making a choice to work for you. So let’s start with the first one mission. So what is the mission of your firm? 

Renee Safrata [00:07:45] Yeah, the mission of our firm is really to develop competence, motivation and collaboration in the pursuit of outstanding results, so I always think of mission. I want it to. You’re right before what’s external to my customers. But I also want my employees to be able to achieve that as well in their day to day and in their career achievement with us. 

Greg Alexander [00:08:07] So you were able to answer that question very succinctly and immediately, which tells me it’s real. And you’ve given some thought to this. So how did you develop that mission statement? 

Renee Safrata [00:08:18] With our team? So our team has participated in all of the core values, the vision and the mission. And I, what I say to our team on a regular basis is Vivo Team. The company Vivo team is the vehicle for your career. Get on the bus. Be with us. As long as you feel like you’re contributing and you can be held to account and you can get great career achievement, but get off it and go somewhere else when you’re ready for that. So again, to the beginning of this conversation, I think that kind of disrupts employee loyalty. But if we can think about that invisible balance sheet as people bring their innovation and their contributions to work and wanting to be here, what we as leaders and companies really need to understand is the platinum rule. What do they want? Like, what are they looking for in their career? And if we can connect to that and by the way, the leaders and the managers are really the front lines for that, aren’t they? They’re the people that are connecting with their people every day, and they have to understand those nuances of what is important, the soft skills, essentially because hopefully they’ve got hard skills. What are the soft skills of how that intellectual capital is going to keep growing? 

Greg Alexander [00:09:37] So what we’re learning from Renee is that mission is real. It’s not some academic exercise that nobody pays attention to. It’s created with the employees. It’s lived every day so that employees jump out of bed every morning and they can’t wait to go to work. And when you have a mission like that, a compelling reason to work at a firm, then you’re going to have, you know, very strong employee engagement. And I would say lots of employee loyalty, although it sounds like maybe that’s a little outdated concept, but it will keep retention where it needs to be, which is obviously very important. OK, let’s move to the vision side of things, and I think your vision is, as you know, a picture of the future something inspiring that says, you know, this is the goals that we’re shooting for. You know, if we’re successful, this is what it’s going to look like for everybody. So have you codified your vision as well as you have your mission now? 

Renee Safrata [00:10:26] Very simply, we want to create winning companies and inspiring leaders. And if we can do that around the globe, we’re happy. 

Greg Alexander [00:10:33] OK? Sometimes when I hear vision statements and I love that and that is inspiring. There is numbers associated with it. You know, we want this much revenue of this many employees or this many clients, et cetera. And it sounds like you chose not to include that. Was that a deliberate choice? 

Renee Safrata [00:10:50] Yeah. I think of those sitting in our strategies and in our objectives for the years, making smart, strong strategic decisions and smart tactical decisions, smart meaning, specific, measurable, yadda yadda yadda. I think of when I think of vision and mission, I think and I try to get all of our people to think of as well. Your vision when you go to sleep at night is something you want to dream about. Yeah, your mission when you’re in the shower in the morning, that’s something that you want to think about doing every day. 

Greg Alexander [00:11:21] Yeah, that’s a good way to think about it. OK. Kind of. The third pillar here is the values. And you mentioned that earlier that you’ve you’ve thought about this and the way that I think about values for what it’s worth is, how am I going to behave? What are your firm’s values and how were they developed? 

Renee Safrata [00:11:42] Yeah. So I’ll start with how they were developed. They were developed online with all of our team together in a brainstorming session. We use storyboard. We thought about what are the behaviors that we demonstrate on a regular basis and what is of high value to us. We prioritize those. We had discussions around them, came up with a series of words that represented those core values. And then we essentially curated it down to three where creators were leaders and were champions. And again, Greg, I’m going to say that what’s important for me about that as leader of the company is I want to make sure that everybody back to employee loyalty, employee engagement and the intellectual capital of our organization. Everybody can embrace that, that I too want to be a creator. I want to be a leader. I want to be a champion. And if they can have that? Excitement again. We’ve got something to build on. The vehicle gets more exciting, 

Greg Alexander [00:12:48] you know, members at Collective 54 are boutiques that are growing and some of them have hit the scale stage and some have grown so much and scaled so much that they’re at the exit stage. And I often ask them this question, which I just asked you what you answered with the three values. What are they? And then I say, How are they used? And I hear sometimes that they’re used to make hiring decisions. They’re used in employee evaluations. They used to determine promotions when they’re available. And unfortunately, sometimes when people aren’t living the values, they’re used as a reason to separate from an employee. Do you believe in that concept of using values in that way? Or do you have a different perspective on things? 

Renee Safrata [00:13:30] Absolutely. Absolutely. And what I would say, in addition to that, is that I’m sure a lot of the companies that we’re talking to are utilizing Slack that vivo what we do weekly is we speak to what are the behaviors that I or others demonstrated in alignment with those values. So we have a slack channel that comes every week and at the end of the week, if you haven’t done it by Friday, it comes up and it says, Hey, where have you seen creators, leaders and champions this week? And so we’re activating that peer to peer feedback, which is as well important. I think you mentioned in your chapter about annual performance reviews and well, that’s too long these days. It is too long. We got to have this as a regular feedback and feed forward have to be a regular thing across our organization. 

Greg Alexander [00:14:25] So that’s a brilliant strategy. You’re reinforcing the values every week through a modern communication channel like Slack and its peer to peer, which means it’s believable. You know, it’s not artificial, it’s bottoms up. Organic, authentic. That’s a brilliant idea. I love that very much. 

Renee Safrata [00:14:42] And this behavioral based right like, how can I make sure on a regular basis we asked this all the time how can I make sure on a regular basis that I am behaving in behaviors that demonstrate what we have articulated as our values? This, by the way, Greg is really, really easy them when we give this idea to leaders and managers and they look at behaviors, they can give people feedback on the behaviors that they notice that are not in alignment with getting great project results or finishing great, you know, great tactics and great strategies in the company group. 

Greg Alexander [00:15:20] If members are listening to this, if they want some help and they want to talk to you about it, how do they find you? 

Renee Safrata [00:15:27] Easy. Renee with two E’s R-E-N-E-E at Vivo team dot com or on WhatsApp. 

Greg Alexander [00:15:36] OK, fantastic. Well, Renee, on behalf of the membership, thank you so much for being here today. It was wonderful. You really do an exceptional job in this particular area. And we’re lucky to have you in the membership. So thank you very much. 

Renee Safrata [00:15:48] Greg, can I say one thing about what I really appreciate about this whole membership? 

Greg Alexander [00:15:53] Sure. 

Renee Safrata [00:15:54] Is I appreciate from the beginning of reading your book to every day you show up online. You have a positive spin that all of us can do this. That’s exciting. Thank you. 

Greg Alexander [00:16:09] Well, thank you for saying that. That’s inspirational because I do believe we can all do this. And that’s another way to make me happier than to see our members reach their goals by, you know, employing some of these concepts. So thanks for saying that. 

Renee Safrata [00:16:21] Thanks, Greg. 
Greg Alexander [00:16:22] OK. So for those that want to learn more about this topic and others, you can find our book The Boutique How to Start, Scale and Sell a Professional Services Firm on Amazon. If you’re interested interested in joining the community, you can go to Collective54.com. And with that, we’ll wrap it up and we’ll see you on the next episode. Thanks, everybody.

Episode 69 – How a Marketing Agency Won the War on Talent-Member case with Mike Sullivan

As professional services firms scale, the culture erodes. Bureaucracy creeps in and employees shift from serving the client to serving the boss which stalls scaling. On this episode, we discuss scaling culture with Mike Sullivan, CEO of Loomis. 

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders. A boutique professional services firms for those that aren’t familiar with us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. My name is Greg Alexander. I’m the founder, and I’ll be your host today. And on this episode, we’re going to talk about culture and we’re going to do so with our friend and member, Mike Sullivan. Mike, it’s good to see you. And would you please properly introduce yourself to the audience? 

Mike Sullivan [00:00:48] Yeah. Hey, Greg, good to see you too. So I’m Mike Sullivan, president and CEO of the Loomis Agency here in Dallas, Texas, and I’ve occupied this seat for 20 years, if you can believe it. Wow. 

Greg Alexander [00:01:01] And what is the Loomis agency do? 

Mike Sullivan [00:01:03] Well, we call ourselves a challenger brand advertising agency. And what that means specifically is that we specialize in the unique needs of challenger brands. And Challenger brands are defined as really classically any brand that isn’t number one in its market, but it goes well beyond that, too. And we can have a discussion around that if you like, but that’s that’s what we do. 

Greg Alexander [00:01:27] Great. So you’ve been around 20 years, which is fantastic, and that’s proof that whatever you’re doing is working. What role has culture played for you over the years in growing and scaling and sustaining your for your firm’s performance? 

Mike Sullivan [00:01:42] Yeah. So the firm has actually been around thirty five years. So my partner Paul Lewis, I joined him in the year 2000. I came in as president and culture was something that I think Paul, you know what he thought about culture and he thought about yogurt. You know, I mean, nobody was talking about culture. You know, nobody was talking about the the team member experience, if you will. And that’s no slight on Paul. I mean, nobody was really in the 90s. It just wasn’t the topic du jour, but it is now, obviously. And so when I came in, you know, the agency was in a very different place was much smaller. There was no intentionality behind hiring and bringing the right folks in. It was just, can you do this job? Good, go do it kind of thing with no guidance beyond that. And I began to slowly shape and shift that based on my own guiding principle for the agency, which was simple. I just wanted to create the kind of employment environment where people look forward to going to work on Monday morning, you know, Sunday night blues and so. So that’s kind of where it started, but it’s obviously become far more than that. I mean today, where I think was seven time best places to work. Morning News Dallas Business Journal. I think culture is a real differentiator for our agency, and we can talk about that. But there’s your short answer. 

Greg Alexander [00:03:11] Congratulations, you know, and the the agency world, unfortunately, I would say over the years has earned a reputation for not having great cultures. It can be a little transactional and lots of burnout. But clearly, if you’re winning these types of awards, that’s not the case with you. And maybe that’s why you guys are standing out the way that you are. When I think about culture, I think about everything you just said for sure, and it’s mission critical. But I’m always putting it in the context of how does how does it help me scale my firm? And one of the ways that it does is that when you get to a certain side size the founders, the partners can’t be everywhere at all times and there has to be this thing called this is the way we do it around here. And I know that sounds crazy, but you know, things get done a certain way without, you know, bureaucracy like procedures and policies. It just this is the way we do things. Has that happened at your firm? 

Mike Sullivan [00:04:05] It absolutely has happened. And Greg, it starts with identifying the kind of team members you want to have inside your organization, really, if you back it all the way back up to, you know, sort of vision, values, mission, that sort of thing. And then you go and you find people who fit that and you don’t get it right right off the start and you may you may get one that works well and maybe one that doesn’t, but you tune that over time. And because culture is, yeah, it’s all the things that we say in and write down and talk about. This is what we stand for, but it’s really even more than that. It’s it’s all the unwritten, unspoken unsaid things. And so that that creates that replication that I think you’re speaking it. So good things get replicated in the culture. Bad things get replicated in a culture. So the intentionality around that is really important. So when you’re applying that to the hiring environment, it’s really important to get that right. And I keep coming back to hiring because I just think it obviously it all starts with the people, you know, creating the culture and sustaining it, rebuilding it. It’s a living thing. It’s not static. 

Greg Alexander [00:05:11] Yeah, you’re right. It does come back to the people. And you do your best in the interview process to select the right people based on a set of values. But it is an imprecise science and sometimes you’re going to get those things wrong and the culture has to accept or reject people as they come into the organization. So it stays consistent. And you know, you have a strong culture when that’s happening. You know, you mentioned the word vision, which is a favorite word of mine, and that is, you know, you’re creating a vision of the future, the aspirations of the firm. Sometimes I think our members, which are partners and founders of boutique firms, you might even call them challengers Mike in your world. Sometimes they failed to connect the vision with an individual. So if I’m an employee, how do I contribute personally towards the accomplishment of the vision? And when I do so, you know what’s in it for me? Yeah, sometimes that’s missing from these vision statements. What are your thoughts on that? 

Mike Sullivan [00:06:09] No, I agree completely. You know, team members need to, and that’s why this just such a big, big part of what we do. Walking in the door, we’ve got this little actually purpose. But you know, I talk about this in terms of, oh, it’s got our vision, our values, our mission, all that stuff. You know, we like to say we are, let’s see, using creativity and service of capitalism. And so what is it that our folks are doing on a daily basis to help advance the. And help create the business impact that we’re trying to create for our clients and getting them connected to that? Talking about this, getting me excited about this, like we’ve got a series of workshops, challenger workshops that we do in the agency. We get people enrolled in it. They need to understand that, you know, our agencies positioning is connected to our vision and that is helping challengers win. You know, I don’t think the don’t outspend the competition. I’ll think, you know, kind of thing. But but yeah, people on the team need to understand it, which I think is, you know, the first objective making sure that everybody has a shared understanding of what the vision is and then understand how they can contribute to it. You know, at the end of the day, in a good high-performing culture, people feel like they belong and b, they have a purpose and they’re connected to. And sometimes I think we think in terms of purpose, like it’s a bit grandiose purpose. No, my purpose in this organization is to help do these things so that we can accomplish this on behalf of our client. Yeah. 

Greg Alexander [00:07:45] You know, utopia, which are perfection, which none of us obtain, but this is what we’re shooting for, is this concept of a self-governing culture, a self-governing team. And what that means is that the culture is reinforced through behaviors that get rewarded, behaviors that get punished. But it’s not this kind of top-down, you know, dictator driven, founder driven way. It’s almost bottoms up where people are policing themselves, so to speak, which makes the job of the founder or the partner so much easier. Has your firm reached that level or have you gotten close to that? And what are your maybe general thoughts on this concept of a self-governing culture? 

Mike Sullivan [00:08:29] OK. So, yeah, absolutely self-governing. I have a little trouble with because I think it’s a rule, because maybe it implies to me a little bit of tuning out for leadership, which can never happen. Leaderships really got to be tapped into and connected to the culture. Leaders are so important for setting the tone and the pace and culture. Again, it’s what said, what’s done? If am I being congruent with the things that I say, believe me or are watching that? But yes, definitely. Once your culture becomes, I think, good and stable and sound and consistency across time is important and you invite the right people in to help you continue to perpetuate that. Yeah, it becomes self-sustaining in that respect. Absolutely. And it’s amazing. You know, when you even the healthiest cultures, we’ve got 65 people. I think when you just get one higher rung, you know, it’s it’s amazing the disturbance that that causes, you know? And again, it becomes and I like to say, look, if it’s not a fit, you’re going to glow in the dark, you know, and you do. And so it becomes a self-selecting culture in that respect, too. 

Greg Alexander [00:09:39] I love that if it’s not a fad, it’s going to glow in the dark. It’s a really great way of saying that, for sure. And you’re right. I mean, one or two people out of 65 can make a difference, surprisingly, but it does, because it’s just a ripple effect. This is really something another type of gun culture I find intriguing, particularly for boutique firms firms like yours is. Sometimes it tends to be a dominant department or dominant function, like in my Old Firm, the rainmakers they they kind of ruled the place and everybody else took took the lead from them and that. It was the right thing for us, it’s not the right thing for everybody, but it was the right thing for us. Is there a function in your firm that is kind of the lead horse, so to speak, and sets the tone? Or is it more kind of, you know, democratic? 

Mike Sullivan [00:10:28] You know, that’s a great question, Greg. I believe in our firm that we’re pretty even with respect, that there’s that very often in the ad agency world, you’ll find a shop that is, it will say it’s a creative driven agency is of the creative sort of rule the roost. Exactly. Many agencies that have that kind of reputation or as an account driven, you know, and it’s just, you know, the account people are running the show sales driven organizations. That, too, is a culture that that is the culture. I don’t believe that we’re oriented in any one particular fashion, but that’s always something to check in on. And you know, you don’t want to overweight one group at the expense of another because again, that creates disharmony. You know, if you’re not optimized a lot of times and I think this is really true for founders, you know, my background, for example, is the health service and strategy. And so early in my career and early when I started doing this, I really did. You know, I was a little heavier on that side of things and maybe appreciating more what the account team was delivering and how hard their job was? Well, I had to even let that out my own approach. I had to check in and go, Wait a minute. My media group, my creative group, you know, the folks work in production. All of this thing makes the band work. It’s not, you know, any one component of it. 

Greg Alexander [00:11:52] So my own journey is something similar. You know, I was I was in the Rainmaker Group and I hired in my image and the Rainmaker Group became the dominant group. And I ran into a scalability problem because most of my team at that point didn’t truly understand what was required to scale. And what I mean by that is we would just go out and sell work, and we wouldn’t think about how we were going to deliver that work and the impact that had on profitability. And it wasn’t until those people got promoted to the partnership tier and they were equity owners, and they understood how things flowed through a piano. Did they change their opinion on things? Oh, I don’t want to sign that piece of work because that actually is going to cause us harm. But that type of client and that piece of work makes a lot more sense to us. So maybe, maybe, maybe sometimes that’s just a function of maturity and where a firm is in their developmental cycle. 

Mike Sullivan [00:12:46] I think so, Greg. And within the leadership, I was very much like that new business guy. It’s like, gosh, you know, I mean, just go up, get new business. It’ll, you know, revenue takes care of everything it sets. It can cause a lot of challenges. And and thankfully, my executive creative director Tina Tackett, who’s been with us for she started the same day I did 20 years ago. She’s has tamed me appropriately. You know, and I have a complete and I think the kind of respect for the process, as it were that younger Mike Sullivan just never would have comprehended. It took a while, but I definitely got. Yeah. 

Greg Alexander [00:13:26] So your firm is winning awards for a great place to work. You know, you have cultural artifacts like your book you just showed me, which is great. I would suggest to the audience that you have an advanced perspective on culture, which is probably the reason why you’re having so much success. How do you this would be my last question. There’s only so many hours in the day and you’re running a substantial firm. You probably have a to do list the size of Texas, and you could just only get to so many things. So so where does culture fall from a priority perspective and and how do you allocate time towards it? 

Mike Sullivan [00:14:06] You know, Greg, honestly, for me, it’s number one. I mean it all, it really is number one. In fact, here’s the other book you know Boise the underdog how challenge your brands create distinction by thinking culture first. I’m always thinking about this stuff, you know, because I believe that if you get culture right, it does allow you to scale. For instance, you know, we our average tenure among our employees is almost three times the industry average. As a result, our average client tenure is three times the industry average that creates instability, stability, it a smoothness in the organization that you don’t always find in the agency world. And I think there is just so many cascading advantages that spill from. And it’s like I said, it’s the number one thing that I think I think about. 

Greg Alexander [00:14:57] Yeah, that’s a bold statement. I know you got a lot to think about the number one thing that’s really strong. So give us the name of that book again. And if people want to read more about this, how do they find it? 

Mike Sullivan [00:15:06] Yeah, it’s the voice of the voice of the underdog. How challenger brands create distinction by thinking culture first, 

Greg Alexander [00:15:13] and they can first 

Mike Sullivan [00:15:14] box Donovan and Michael Tuggle. Yes, on Amazon, you know, like good stuff. Yeah, so awesome. Yeah, yeah, OK. 

Greg Alexander [00:15:21] And if members want to find you personally and reach out to your read about you, where can they do that? 

Mike Sullivan [00:15:28] So they can certainly shoot me an email at [email protected] That is our URL. Theloomisagency.com. And yeah, I’d love to talk to folks about this. This is one like I said, it’s my favorite topic from a business standpoint. 

Greg Alexander [00:15:45] So, all right. Well, listen, you’re a great member. We’re lucky to have you. Thank you very much for being here today. I really appreciate it. 

Mike Sullivan [00:15:51] Thanks so much for having me on. I appreciate it. Okay. 
Greg Alexander [00:15:55] And for those that want to learn more about this subject and others, you can pick up our book called The Boutique How to Start, Scale and Sell a professional services firm, which I’m proud to say, just hit bestseller status on Amazon and our little niche so you can find it there. And then if you want to meet other great people like Mike, consider joining our mastermind community, which is Collective54.com OK, thanks everybody. Thanks again, Mike. Appreciate it.

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. 

Episode 39: The Boutique: 4 Different Recruiting Needs for Professional Services Firms to Scale

As your boutique professional service firm scales, talent acquisition shows up on the list of top priorities. Collective54 founder Greg Alexander discusses why the ability to recruit at scale separates the winners from the losers.

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that as your boutique scales, recruiting shows up on the list of things to excel at. The days of recruiting from your personal network are over, and the ability to recruit at scale separates the winners from the losers. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg is considered one of the industry’s best talent pickers. In fact, Dr. Jeff Smart in his best selling book, Who the A Method for Hiring suggests Greg is one of the best he’s ever seen. Greg, great to see you and welcome.

Greg Alexander [00:01:26] Sean, it’s good to be with you. I see that you dug up Dr. Smart’s classic book and who Jeff and Randy who run smart and associates are the best in the world at hiring the right people. I encourage everyone to read that book and check them out. I was flattered to be mentioned as a success story in their work.

Sean Magennis [00:01:45] Will do. Greg, I have heard you mentor boutique funders in the area of recruiting. So during these conversations you discuss how there are four different recruiting needs when scaling. Can you walk the audience through these four?

Greg Alexander [00:02:01] I’d be happy to, but before I do, allow me to place this into the proper context. If you are a small, young firm in the startup phase, this does not apply to you. Recruiting in the startup phase is not a mission critical task. The needs are basic in most jobs can be filled from personal networks. In contrast, if you are a firm trying to scale, meaning build something more than a lifestyle business, then recruiting is a mission critical task. Not all the jobs can be filled from personal networks as there are just too many of them to fill. And also the stakes are higher. So, for example, as you leave the scale stage and start to prepare for exit, you will need to recruit a CEO so you can ride off into the sunset. If you miss higher this role, you can kiss your earnout goodbye. Recruiting goes from a passive activity to a mission critical task as you mature. Does this make sense, Sean?

Sean Magennis [00:03:00] Yes, it does. Thanks for setting the table, Greg, and for the context.

Greg Alexander [00:03:05] OK, so let’s jump into the four different types of recruiting as a firm scales. I will start with the first big change, replacing generalist with specialist. As you scale, you will attract more sophisticated clients. These clients will pay you more and therefore expect more. These clients are experienced buyers of professional services and they know what to look for. For example, they will require you to name and describe the team on the account in the proposal. This means you will need to spell out the years of experience, industry references, project case studies and many other items. The prospect is deciding on which firm to select, due in part to the bios of the account team. If you recruit generalist, you will lose too many deals and will not be able to scale sophisticated clients. The types of clients our audience wants to work for, the mad, hyper specialized talent. Does the first recruiting change makes sense?

Sean Magennis [00:04:12] Yes, it does, Greg. So switch from recruiting generalists to recruiting specialists in response to the needs to more sophisticated clients. What is the second recruiting change that happens as you scale?

Greg Alexander [00:04:26] The second recruiting change that pops up when scaling a boutique is the need to hire a manager of managers. You see, startups are filled with small teams, boutiques are filled with medium sized teams, and the market leaders are filled with large teams. Therefore, startups hire managers who manage individuals, boutiques, hire managers who manage other managers and market leaders, hire managers who lead entire departments. So during the scale stage, owners of boutiques need to recruit or develop managers of managers at about midsize. The need for this role again, manager of managers shows up. So this is the second recruiting change and does that make sense?

Sean Magennis [00:05:14] It sure does. So when small startups graduate to the scale stage in their life cycle, the need to hire managers of managers shows up for the first time. This is a big change and it makes logical sense. What is the third recruiting change on the journey?

Greg Alexander [00:05:33] So the third recruiting change that pops up when scaling and boutique is the need to hire executives, boutiques at scale require an executive leadership team. These executives have autonomy to make decisions. They’re not simply executing the founders plan. They are drafting their own plans in at times even have their own independent profit and loss statement, which means they have spending authority. Does the third recruiting change make sense to you?

Sean Magennis [00:06:00] It does Greg and I have seen many a founder stumble at this point. This requires giving up some control and that can prove to be difficult for some. What is the fourth and final recruiting change as a firm scales?

Greg Alexander [00:06:17] So the fourth change that pops up when scaling is a need to reassign the founder. So we all love our founders. They are the pioneers who created jobs and wealth. However, at a certain point, founders become a bottleneck founders. They want to launch new services into new markets and innovate. They do not want to install process and systems and scale. And yet that’s what’s needed at this stage. Therefore, founders must hire or promote a new CEO. The objective is not for the founder to stop working or to work less. Rather, it’s to make the founders contributions much more impactful. The CEO runs today’s business while the founder is developing tomorrow’s business. This one two punch accelerates the pace of scaling. Does that fourth recruiting change makes sense?

Sean Magennis [00:07:15] It absolutely does. Greg and I especially like the word reassign as opposed to replace. We are not showing the founder the door. Instead, we are creating an environment that allows his or her creativity to blossom and not be strangled.

Greg Alexander [00:07:31] Yeah, that’s correct. I mean, where would jobs have been without Cook or Zuckerberg? Without Sanders?

Sean Magennis [00:07:36] Absolutely. Excellent advice and examples as usual. Greg, thank you.

[00:07:44] And now a word from our sponsor, Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

Matt Rosen [00:08:09] Hello, my name is Matt Rosen. I’m the founder and CEO of Allata. Allata service enterprise clients in the financial services, health care, retail distribution and professional services sectors. Our clients are nationwide and we have offices in Dallas, Pheonix, Salt Lake City and Boise. Our clients, such as Freman Associates, and the Army Air Force Exchange, turn to us for help with strategic initiatives typically creating new revenue streams, creating digital customer experiences or increasing productivity. We help our clients by building digital strategies and roadmaps, designing product custom, developing software and helping them gain insights into their data. If you ever need help with a digital strategy, product development, customer development or data initiative, please reach out to me at [email protected] and the websites www.allata.com.

Sean Magennis [00:08:56] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit Collective54.com. OK, this takes us to the end of the episode, let’s try to help listeners apply this. We end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist and our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these questions, your recruiting strategy is working for you. If you want to know too many times, recruiting and the lack thereof is more than likely getting in the way of your attempts to scale. Let’s begin.

Sean Magennis [00:10:01] Number one, the individual contributors need to evolve into manages? Number two, the managers need to evolve into managers of managers? Number three, do managers of managers need to evolve into executives? Number four, do you need to shift from generalists to specialists? Number five, are you attracting sophisticated clients with higher expectations? Number six, has the founder become a bottleneck? Number seven, can the impact of the founder be amplified if partnered with the CEO? Number eight, does Decision-Making need to be pushed to those closest to the clients? Number nine, is it time to shift from experimenting with the model to scaling the model? And number ten, is it true that what got you here won’t get you there?

Greg Alexander [00:11:17] You know what I love about those 10 questions in particular in this episode is there’s a yes box in a no boxes, no maybe box.

Sean Magennis [00:11:24] That’s exactly right.

Greg Alexander [00:11:26] So you founders’ out there when you’re asking yourself these questions, make sure you’re you’re answering accurately.

Sean Magennis [00:11:32] Thank you, Greg. In summary, recruiting as a startup is not a mission critical task, yet when scaling, it is the need for specialists, managers, executives and a CEO arrive on the scene. These are new roles and usually cannot be filled correctly from the founder’s personal network. To scale, your boutique needs to become a master recruiter.

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

Episode 37: The Boutique: The One Thing No One Tells You about Scaling your Firm

Founders of boutiques often mistakenly equate the number of employees with success. However, lots of employees signal a poorly run firm. Collective 54 founder Greg Alexander makes the case for lean staffing and illustrates the impact to profitability.

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that fewer employees are better than many employees. Founders of boutiques often mistakenly equate number of employees with success when in fact lots of employees signals a poorly run firm. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg’s firm, SBI, at the time of exit averaged one million dollars in revenue per employee. This was driven by having fewer employees than most, this resulted in exceptional profitability and wealth creation for the owners. Greg, I’m looking forward to this. Good to see you and welcome.

Greg Alexander [00:01:33] It’s good to be with you. What a great topic we have today.

Sean Magennis [00:01:37] So, Greg, I often encounter boutique owners with bloated staffs and below average margins. Why is this happening?

Greg Alexander [00:01:46] Somewhere along the way, it became cool to say, quote, Hi, my name is so-and-so. The name of my company is X, Y, Z, and we are a 200 person firm in the blah blah, blah, blah space. Founders brag about lots of people to establish credibility, and maybe this works on the uneducated, but when I hear this, I think, oh no, this poor schmuck is working his tail off and not making any money.

Sean Magennis [00:02:14] So, Greg, what advice would you give a listener who is making this mistake?

Greg Alexander [00:02:18] Geez, where do I begin? I think the first thing I should do is explain that labor is the biggest expense in a professional services firm, often 80 percent of the total expense line. Therefore, anything you can do to reduce labor expenses, do it because this will equate to more profits. I mean, the best boutique in the world would have no employees and lots of clients and revenue.

Sean Magennis [00:02:43] Yeah, exactly. And let’s assume this poor schmuck, as you affectionately referred to earlier, was actually willing to listen. What steps would you have him or her take?

Greg Alexander [00:02:55] I would ask Mr. Schmuck three questions. Question number one, how many people do you need and why? The question number two, what type of people do you need and why? And question number three, which organizational structure would work for you and why?

Sean Magennis [00:03:13] And Greg, how would he know the answers to these questions?

Greg Alexander [00:03:17] Well, he would know the answers to these three questions if he understood three things. First, he would understand the skill level needed to perform the work skill level could be simply junior, mid-level or senior as an example. Second, he would understand the knowledge required to perform the work knowledge level could be simply industry knowledge or knowledge of the problem or knowledge of the solution. And third, he would know how long it would take to perform the work. This is measured in hours and rolled up into a level of effort budget.

Sean Magennis [00:03:57] Got it. And when he had the answers to these questions, what would he do with them?

Greg Alexander [00:04:02] Well, this would tell him how many people he needed and what type. And this is the most important part. He would have the data he needs to engineer a profitable organizational model.

Sean Magennis [00:04:15] How so Greg?

Greg Alexander [00:04:17] So after he knows what it really takes to perform the work, I mean, down at the task level, he will notice he is destroying profits. My friend, poor Mr. Schmuck will see almost every time he can do the work with less people, with more junior people and at less cost.

Sean Magennis [00:04:36] And how does he see that ?

Greg Alexander [00:04:39] Listen, we’re living in a different time today. The service delivery has forever been altered in three very distinctive ways. First, services can be automated with technology. For example, look at what is happening with robo advisors in the wealth management space. Portfolio managers are being replaced by algorithms by the thousands. Second work can be offshored. The big market leading firms offshore approximately 40 percent of their work, yet boutiques offshore about five percent. This is a missed profit opportunity. And third, the gig economy is here in the professional services space. And for real, you can now rent a Harvard MBA X McKinsey type from the to marketplace for less than one hundred bucks an hour. You can get excellent graphic design work from one of collected fifty four members, Russ Perry at Design Pickle for as little as five hundred dollars per month flat fee. These are just a few examples. If Mr. Schmuck picked his head up, he would see there a profit improvement opportunities all around him. Adding headcount is a lazy man’s way of scaling. The days of proving your success with large staffs have been replaced by today’s standard, which is profit. Standard of proof now is profit, not number of employees. There’s nothing cooler than fat profits. I encourage all of our listeners to intelligently design the org structure. Do not just throw heads at every problem.

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

Don Goldstein [00:06:54] Hello, my name is Don Goldstein. I am president and part owner of 5Q. 5Q primarily serves commercial real estate companies across the United States. Our clients turn to us for help with maximizing technology, efficiency, security and compliance. We provide worry free I.T. with our full spectrum of technology solutions through four service lines I.T. and cyber leadership, I.T., managed services, cyber security, managed services and I.T. project management. If you need assistance in any or all of these areas, reach out to me at [email protected]

Sean Magennis [00:07:34] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit Collective54.com. OK, this takes us to the end of the episode, let us try to help listeners apply this. We end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist and our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions in this instance, if you answer yes to eight or more of these questions, your employee count is working for you. If you answer no, too many times, you are likely unsure of how many employees you need, which is getting in the way of your attempts to scale a profitable firm. Let’s begin.

Sean Magennis [00:08:41] Number one, can you decouple the rate of revenue growth from the rate of headcount growth?

Greg Alexander [00:08:47] Yeah, I mean, this is so important. You grow in revenue, 30 percent headcount of 30 percent. You’re running in place if you’re growing revenue, 30 percent in headcount growth to, let’s say, 10 percent, you’re expanding your margins.

Sean Magennis [00:08:58] Yes. Number two, are most of your problems, people related?

Greg Alexander [00:09:03] They say all your problems walking around on two feet. So fewer people, fewer problems.

Sean Magennis [00:09:08] Number three, is your payroll your biggest expense?

Greg Alexander [00:09:12] Obvious question.

Sean Magennis [00:09:13] Number four, can technology perform work that humans are doing today? Number five, are you offshoring less than 40 percent of your work?

Greg Alexander [00:09:25] Yeah, there’s still some fear there and our listeners need to get over this. I mean, this is well-worn territory at this point.

Sean Magennis [00:09:32] And the quality of offshoring is spectacular.

Greg Alexander [00:09:35] Sure.

Sean Magennis [00:09:36] Number six, can you flex up or flex down headcount to match demand in close to real time?

Greg Alexander [00:09:44] This is what’s great about these talent marketplaces like CATALIN.

Sean Magennis [00:09:49] Number seven, are you skilled at labor arbitrage? Number eight, is it clear that scale does not refer to the number of employees, but to the amount of cash flow? Number nine, is it hard to match revenue and expenses?

Greg Alexander [00:10:09] In a project based firm, it’s brutally difficult.

Sean Magennis [00:10:13] Number ten, do you have limited forward visibility in your business?

Greg Alexander [00:10:18] Yeah, and again, most of the listeners here run some version of a product project based firm. So forward visibility is a problem. That’s why these flexible labor models are so critical.

Sean Magennis [00:10:29] And really keeping all of those relationships warm.

Greg Alexander [00:10:31] Yes.

Sean Magennis [00:10:32] So, in summary, the best boutique would have no employees. Labor is your biggest cost. Organize to reduce employee related expenses. This will drive your profits up. If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell Professional Services Firm. I’m Sean Magennis. Thank you for listening.

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

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

TRANSCRIPT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Episode 10: The Boutique: Do You have a Bankable Team?

Acquirers buy teams first, and firms second. The quality of the management team is of major importance to the buyer. It can take years to develop a bankable team. Think like an investor. Would you bet the farm on your team?

The Boutique with Capital 54-Episode 10.mp3

Various Speakers [00:00:01] You can avoid these landmines. It’s a buy versus build
conversation. What’s the root cause of that mistake? Very moved by your story. Dive all in
on the next chapter of your life.
Sean Magennis [00:00:16] Welcome to the Boutique with Capital 54, a podcast for owners
of professional services firms. My goal with this show is to help you grow scale and sell
your firm at the right time for the right price and on the right terms. I’m Sean Magennis,
CEO of Capital 54, and your host on this episode. I will make the case that a choir is by
bankable teams first and firms second. That the quality of your management team is of
major importance to the potential buyer of your boutique. I’ll try to prove this theory by
interviewing Greg Alexander, Capital 54’s chief investment officer. Greg, many would say
you were the nation’s leading expert in evaluating management teams in the professional
services industry. Let’s start with some basics. What are investors looking for primarily in
management teams?
Greg Alexander [00:01:20] OK. The basics are what you might expect before I invest in a
boutque, I start by looking at the biographies of the leadership team. I try to determine if
they have the proper level of experience to scale the firm. I have found that the team that
got the firm to this point is often not the team to get the firm to the next level. I also try to
locate any holes in the management team. Sometimes owners run very lean to keep
payroll low and EBITA high. This is a mistake because the true scale of firm to a few
hundred million a firm requires a fully staffed executive leadership team. So those are
some of the basics.
Greg Alexander [00:01:54] Yeah, this makes sense, Greg. So the biographies,
biographies of the team and a fully staffed team, these are the basics. But how about
beyond the basics, what else do you look for when assessing the quality of the
management team?
Greg Alexander [00:02:09] Yeah, beyond the basics I tend to gravitate to the following. So
first, is the management team staying with the business post sale? If they are not, I’m not
going to invest. Their desire to depart at closing tells me they’re not committed to the
business. I understand the wish to take some chips off the table and I’m okay with
rewarding management teams with some liquidity. But I’m buying the future. I’m not buying
the past. And I want to see them double down with me and get after it. Next, I look for an
industrial strength strategy. This means do they know where to play and how to win? Does
each employee understand how their role in the execution of the strategy impacts results?
I want to see a data supported strategy that cascades targets that align each employee
with the boutiques strategy. The existence of such a strategy would indicate a quality
management team, and one of my favorites is the growth story. I want to see from the
management team the size of the market, its rate of growth, the share of the market that
they have today, and how this share will grow over time. I want them to tell me where is
the growth going to come from? Will it be high water raising all ships? Will it come from,
let’s say, the launch of new services or entrance into new markets? Will it come from
simple price increases? The list is long of possible growth elements of the strategy, and I
want to see the operating leverage they will deliver. And this means how much of the
revenue growth is going to drop to the bottom line. So, for example, will profits increase
due to digitization, labor arbitrage or other means? So these are all examples of investible
management team or what some might call a bankable team.

Sean Magennis [00:04:11] These are outstanding examples. Greg, you often talk about a
bankable team, the term bankable. What does this mean?
Greg Alexander [00:04:21] Yeah, a bankable team. So this phrase can summarize, really
this entire episode. So in my opinion, here’s what it means. A bankable team is a team I
would bet the farm on. When an investor invests in a boutique professional services firm,
he or she is making a bet and he is betting on the team’s ability to pull off the growth story.
It’s where the rubber meets the road and where the men are separated from the boys, or in
some cases where the women are separated from the girls. So, for example, Sean, I bet
on you and your team when I backed Capital 54, I was and continue to be convicted in my
belief that you will build the most successful investment firm in the professional services
space. Did I love the idea? Yes, of course I did. But the idea without you was worthless to
me. The team matters more than the idea.
Sean Magennis [00:05:16] The bankable team. I love the idea, Greg, and so appreciate
this opportunity we are on.
Sean Magennis [00:05:25] And now a word from our sponsor. Collective 54, Collective 54
is a membership organization for owners of professional services firms. Members join to
work with their industry peers to grow scale and someday sell their firms at the right time
for the right price and on the right terms. Let us meet one of the collective 54 members.
Dan Stevens [00:05:51] Hello. My name is Dan Stevens. I own WorkerBee.tv. We serve
local, national and global organizations and associations by helping them leverage the
power of video and multimedia. These clients turned to us for help with content
development and distribution so that they can truly measure the impact and ROI of their
communications, marketing and education investments. We solve this problem by
providing both platform and video and multimedia services in a turnkey manner. If you
need help with video, online platforms or content strategy, please reach out to me at
[email protected]
Sean Magennis [00:06:32] If you are trying to grow scale or sell your firm and feel you
would benefit from being a part of a community of peers, visit Collective54.com.
Sean Magennis [00:06:49] So, OK, this takes us to the end of this episode. And as is
customary, we end with a 10 question, yes, no checklist. We do this to reward you, the
listener, with some immediate take home value. Ask yourself these 10 questions. If you
answer yes to eight or more of these questions, you have a bankable team. If you answer
no too many times, you don’t. And this will prevent you from selling your firm effectively.
Sean Magennis [00:07:18] Question number one, is the management team staying with
the business post sale? Number two, is there an industrial strength strategy developed
that an investor can bet on? Number three, does the management quality go at least one
layer deep on the [inaudible]?
Greg Alexander [00:07:43] Often overlooked.
Sean Magennis [00:07:44] Yes.
Greg Alexander [00:07:45] You know, the partners or the founders present themselves to
the investors and then the person doing diligence goes one level below that and they run
into the junior varsity.

Sean Magennis [00:07:56] Yes.
Greg Alexander [00:07:56] Right. So a bankable team means beyond just the founders
and the owners.
Sean Magennis [00:08:02] Really good point.
Sean Magennis [00:08:03] Question number four, does the management team drive the
strategy deep into the organization? Number five, are there cascading targets that reach
all the way to the frontline employees? Number six. is there a believable growth story?
Number seven, is the management team capable of getting the boutique to this future
state?
Greg Alexander [00:08:33] Let’s talk about that for a moment. Sometimes the
management team can spell out a growth story but they’re not the team to get them there.
Or maybe they’re part of the team to get them there and they need to go recruit some new
talent to get them there. And, you know, if we would have flipped this for a moment. So if I
was somebody selling a firm and I was evaluating investors, that would be one of my
questions. How are you going to help me recruit exceptional talent? It’s not just about the
money they give you. It’s about the.
Sean Magennis [00:09:04] It’s the how.
Greg Alexander [00:09:04] Exactly right.
Sean Magennis [00:09:06] Great. Question number eight, is the management team
excited and passionate about attempting to get this growth story done?
Greg Alexander [00:09:14] Another one, very often tired people try to sell their firms. I’ve
been doing this for 30 years. It’s time to leave. That’s not a very exciting story.
Sean Magennis [00:09:24] Absolutely. Question number nine, have all the holes or gaps
in the team been addressed? And question number ten, do the forward projections reflect
the true costs to operate the firm in the future?
Sean Magennis [00:09:42] In summary, remember that acquirers by teams first and firms
second. The quality of the management team is of major importance to a potential buyer. It
can take years to build a bankable team. Get started today.
Sean Magennis [00:09:59] If you enjoyed the show and want to learn more, pick up a
copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a
Professional Services Firm. I’m Sean Magennis. Thank you for listening.

Episode 9: The Boutique: A Little Known Secret: How Employee Loyalty Drives Up Valuation

You compete in two markets. The market for clients. And the market for employees. As much effort needs to be put into employees as into clients. Owners of boutiques work for the employees, not the other way around. Would you want to work for you?

The Boutique with Capital 54-Episode 9.mp3
Various Speakers [00:00:01] You can avoid these landmines. It’s a buy versus build
conversation. What’s the root cause of that mistake? Very moved by your story. Dive all in
on the next chapter of your life.
Sean Magennis [00:00:16] Welcome to the Boutique with Capital 54, a podcast for owners
of professional services firms. My goal with this show is to help you grow scale and sell
your firm at the right time for the right price and on the right terms. I’m Sean Magennis,
CEO of Capital 54 and your host. On this episode, I will make the case there is a direct
correlation between your employee loyalty and your firm’s valuation. I’ll try to prove this
theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg has
developed a proprietary approach to measure the employee loyalty of a professional
services firm. Greg, to begin, can you help the audience connect employee loyalty to firm
valuation?
Greg Alexander [00:01:12] Sure. So traditionally, investors have shied away from
investing in pro serve firms. When asked why, they are fond of saying, quote, all the
assets of a pro serve firm walk out the door each night, end quote. And this is meant to
illustrate that assets of a firm are its employees. And if the employees or assets can walk
out the door, the business has no value. Therefore, if you can demonstrate that the assets
your employees stick around, the business does have real value in the best way to prove
the assets do stick around, it’s demonstrating outstanding employee loyalty. High loyalty
equates to high valuation.
Sean Magennis [00:01:52] I see. Excellent employee loyalty can then de-risk an
acquisition for an investor. So how can an owner of a firm prove excellent employee
loyalty?
Greg Alexander [00:02:04] There are several ways. Let me share just a few that the
listeners can try immediately.
Greg Alexander [00:02:11] So the obvious one is employee turnover rate and that’s an
excellent metric to prove employee loyalty. The average turnover rate across all pro serve
firms is approximately 30 percent. Best in class is about 15 percent. If an owner has a low
turnover rate and he can prove high employee loyalty. So that’s a easy one to go after.
The next one would be tenure. And employee tenure is another excellent proof point. The
listeners should challenge themselves to have average employee tenure of, let’s say,
greater than five years. This would prove to investor that the employees do indeed stick
around. And one of my favorite ways to de-risk an investment, and prove employee loyalty
is to show how many positions get filled internally. You see, boutiques are growth
businesses and growth creates lots of promotion opportunities for employees. If these
promotions are filled internally, this suggests outstanding employee loyalty. In fact, a well-
run firm should fill all of its promotions with homegrown talent.
Sean Magennis [00:03:16] So 15 percent employee turnover, five years or more of
employee tenure and to the extent possible, 100 percent of promotions filled internally.
These are three excellent goals to shoot for. Are there any other ways a listener could
prove to an investor that his or her firm is worth more due to his outstanding employee
loyalty?

Greg Alexander [00:03:41] There are a few more. Here are a few others to think about.
One of my favorites is Discretionary Effort. So what is discretionary effort? Discretionary
effort are the hours an employee puts in above and beyond the job requirements. So, for
example, let’s say the job calls for 40 hours per week on the submitted time sheet and
most employees log 44 hours not because they are asked to, but because they want to.
This is a 10 percent discretionary effort. Some like to say, quote, My people give it 100,
110 percent effort, end quote. And this is what they mean when they say this. An investor
who sees this when reviewing the timesheets during diligence will determine you have
high employee loyalty and will likely pay more for your firm. And here’s one more to just
get the juices flowing. What are former employee is going to say about your firm when they
are contacted? If they say they loved working at the firm and for the owner, investors will
be very pleased. If, however, former employees say they hated working for the firm and
even worse, hated working for you, the owner, the investor will run away. That’s a major
red flag. You know, it cracks me up. But boutique owners think that they can hide their
skeletons when you try to sell your firm. Investors are going to find all the skeletons. That’s
their job. If the former employees do not have nice things to say, the valuation of your firm
is going down.
Sean Magennis [00:05:06] So discretionary effort and the former employee reference
checks are key. This makes sense, Greg. And when added to employee turnover, tenure
and promotion fill rate. This makes for an excellent list for our readers.
Sean Magennis [00:05:23] And now a word from our sponsor. Collective 54, Collective 54
is a membership organization for owners of professional services firms. Members join to
work with their industry peers to grow scale and someday sell their firms at the right time
for the right price and on the right terms. Let us meet one of the collective 54 members.
Irit Elzips [00:05:50] Hello, my name is Irit Elzips I own CSM Practice, a customer
success strategy consulting firm. We serve technology and services organizations from
around the world. These clients turn to us to accelerate their profitable growth rate by
improving their customer retention, increasing their up sell and cross-sell revenues, and
creating a strong differentiation in their market through a better customer experience and
maximizing values for their clients. We achieve these kind of results by designing an
optimal customer success strategy. We then develop processes, protocols and policies to
ensure that our strategy recommendations are adopted and we implement those in a
scalable manner using both training and technologies. If you need help with accelerating
your profitable growth and increasing revenues from your existing customer, install base or
reach out to me at csmpractice.com.
Sean Magennis [00:07:00] If you are trying to grow scale or sell your firm and feel you
would benefit from being a part of a community of peers, visit Collective54.com.
Sean Magennis [00:07:16] So this takes us to the end of this episode and as is
customary, we end with a ten question, yes, no checklist. We do this to reward you, our
listeners with some immediate take home value. Ask yourself these 10 questions. If you
answer yes to eight or more of these questions, you can prove you have loyal employees.
If you answer no too many times, you have an employee loyalty problem and this is going
to hurt you when you try to sell your firm.
Sean Magennis [00:07:45] Question number one. Is your turnover rate fifteen percent or
lower? Number two, is the average tenure of your employees greater than five years?
Number three, do most of your promotions get filled internally? Number four, do you get

rewarded by your employees with lots of discretionary effort? Number five, will your former
employees sing your praises when contacted? Number six, does your firm have a purpose
that the employees believe in? Number seven, does your boutique have a vision of the
future that employees want to be a part of? Number eight, does your firm have a set of
values and are they actually lived by? Number nine, are you paying your employees what
they are worth? And number 10, do you have an in-house recruiting engine that provides
you with a stream of quality people?
Greg Alexander [00:09:04] Just one quick thing on number nine, are you paying your
employees what they’re worth? You know, sometimes small business owners, owners of
boutique professional services firms, because labor is their biggest expense, they try to
underpay because they’re trying to contain costs. That’s an example of being, as they say,
penny wise and pound foolish, because if you’re underpaying and as a result of that, your
turnover is, let’s say, 30 percent instead of 50 percent, you’re actually hurting yourself
there. Just pay a little bit more. Keep the turnover rate down and you’ll benefit not only in
the short term, but someday when you go to sell your firm, it’ll be easier to do so.
Sean Magennis [00:09:39] It’s a great example, Greg. So in summary, remember, you
compete in two markets, the market for clients and the market for employees. As much
effort needs to be put into employees as into clients. Owners of boutiques work for their
employees, not the other way round. Consider this question. Would you want to work for
you?
Greg Alexander [00:10:04] That’s a tough one to answer.
Sean Magennis [00:10:07] If you enjoyed the show and want to learn more, pick up a
copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a
Professional Services Firm. I’m Sean Magennis. Thank you for listening.