Episode 131 – Why a Merger of Equals Might Be Your Best Exit Strategy – Member Case by Jonathan Wilson

Some members want to exit, but they cannot. The reasons are many. For example, insufficient EBITDA, high client concentration, over-dependence on a founder, and many others. The journey to fix these issues is clear but can take many years and millions of dollars. And for some, this is unattractive. An alternative is a merger of equals. Attend this session and learn from the discussion with Collective 54 member Jonathan Wilson, President & Chief Value Creator at Dubb Value Creation, on how a merger of equals can convert an unsellable boutique into an attractive firm for many acquirers.


Greg Alexander [00:00:10] Dive all in on the next chapter of your life. Welcome to the Preserve podcast, a podcast for leaders of thriving boutique professional services firms. If you’re not familiar with us, Collective 54 is the first mastermind community dedicated on the niche that we define as boutique producer firms and founders of those firms who tend to have very unique needs. My name is Greg Alexander. I’m the founder and I’m going to be your host. And we’ve got an interesting topic today. Today, we’re going to talk about how a merger of equals is a potential path to exit. Now, let me shape this a little bit before we introduce our role model this week. So let’s suggest that maybe two firms operating independent of each other are led by founders who want to sell their firms, and they’ve tried to sell their firms and have been unable to do so. And there’s a whole variety of reasons for that. For example, maybe the EBITDA dollar amount isn’t large enough, or maybe there is a high client concentration risk or several other reasons which we’ll get into. But if you brought those two firms together, so instead of being two separate firms, they became one firm. These problems go away. For example, all of a sudden the EBIDTA number is big enough. All of a sudden client concentration issue goes away because when you bring the two firms client rosters together, now presto, you have client diversification and on and on we go. So that’s what we’re going to kick around today. It’s something that I think represents a big opportunity for our community, and it’s also something that I don’t think has been explored enough. So to help me explore it, we have the man, the myth, the legend. Jonathan Wilson, he’s the founder of Double Value Creation. Got a chance to get to know him. And let me tell you how best to think about Jonathan. He a unique combination of the CEO whisperer and someone who has great knowledge on M&A transactions because of his journey in his career. So with that, Jonathan, why don’t you please introduce yourself to the audience and maybe tell the team a little bit about your firm. 

Jonathan Wilson [00:02:42] Thank you for saying that. Thank you for the great introduction, Greg. We are focused. So just you know, this Jonathan Wilson here, CEO of Discovery Creation, also chief value creator. We are focused on two elements of our of professional services. One is mergers and acquisitions, and the other is strategy and analytics. When it comes to M&A, otherwise known as merger and all our mergers, acquisitions, sorry. When it comes to M&A, we are focused on three things one being a bull by side services so that anything from M&A strategy to M&A, target assessment to due diligence and then also to integration planning or the first 90 days of integration. We are also focused on full scale side services. So meaning that a company that wants to engage with a full whole transaction, we will engage with them. And then also we are focused on this program called Grow before you sell, and that is where we put together a strategy for you to grow your EBITDA over the course of a 2 to 3 year period. What that may look like, that could be a capital injection, be an investor, that that could be a merger of equals, as you mentioned, but also may be buying small, small acquisitions so that you can accelerate your growth. But that really we focus on from a merger and acquisition perspective. 

Greg Alexander [00:04:22] Okay, great. 

Jonathan Wilson [00:04:23] A strategy. From a strategy perspective, we focus on three things simply planning, execution and strategic governance. 

Greg Alexander [00:04:33] Okay. So maybe just briefly explain to the audience all the stops you’ve had along the way with some of the world’s top professional services firms. 

Jonathan Wilson [00:04:44] Yeah. Thank you for asking that. So background includes Accenture, Bank of America, Deloitte and Grant Thornton. Yeah, my first exposure really was with Countrywide Financial, which became America. 

Greg Alexander [00:04:59] Okay, got it. I wanted to get that out there because, I mean, your resume is unbelievable. So you’re very credible on this topic. All right. Thank you. So let’s dive into it. Right. So I’m going to tee up a few things for you. So let’s say I’m Joe Blow and I’m running X, Y, Z firm, and I’ve been doing it for 20 years and I want to sell. I’ve been trying to sell it. I can’t sell it or I’ve been getting these lowball offers with ridiculous terms. And the first thing they hit me with is you got subscale EBIDTA subscale, limited as defined as EBIDTA less than $3 million. It’s tough to sell a firm when you’re subscale ebidta because it’s just riskier for the potential acquirer. And now I find myself presented an opportunity potentially of a firm who looks just like me. But maybe is another region. Like maybe I’m in Minnesota and this firm is in Philadelphia as an example. And in theory we can slam these two firms together and next thing you know, I go from a non sellable asset because a subscale bidder to an asset that everyone’s going to want because my EBIDTA dollars are big enough. So is that real in your minds and what are some of the maybe the obstacles associated with that that are not obvious? Because on paper duh, that looks like we can go do that, but it can’t be that easy. So help us think through that. 

Jonathan Wilson [00:06:14] It’s actually not easy in a merger of equals. You know, that’s an interesting term in itself. It really does show that you’re willing to collaborate with another organization and together that you’re willing to build something that’s going to be more powerful than either one of you can achieve alone. So, you know, with that said, you want to focus on some of the benefits around doing that, and especially for a company that is in that situation currently today, founders do get tired. I respect that. And you’re ready to move on at certain points. Right. And there’s a few things you want to focus on, one being the synergies, Right. So what can you do together to increase your revenue And then what can you do together to minimize costs? So some of that might be accessing the new are accessing the new market if somebody already has a complementary, complementary service offering and they are in markets that you are not, that seems like a no brainer. Right? And in addition to that, you want to think about that might help. Also with the increased market share. It might also help out with with with kind of a risk diversification, if you will. Keep in mind that if you’re concentrated all in one part of the country, there is a little bit of a risk that to write something happens from now. We have we do have something called micro economic challenges, right? So there are challenges that North East might have at a certain point. There are challenges that the Southwest might have a certain point. So you want to make sure that you are diverse spread across the US. Yeah. The other piece also taking a look at expanded your expanded skills and knowledge base, right? So it’s a nice complementary skills and maybe some people you have to worry about acquiring but you can actually leverage from the complementary firm. Yeah. And those are some of the, those are some of the great things that you could get together. 

Greg Alexander [00:08:07] Very good. So let me I want to follow up question here, because you mentioned the word risk, and I want to talk about something that often sinks boutiques when they try to sell. And it’s the nature of the business. It’s not anyone’s fault. It’s just the way that these things evolve. We tend to have high client and revenue concentration, and that’s defined by if the top five clients are generating more than, let’s say, 30 or 40% of your revenue and profits, then the way that investor looks at that is your risk is risky because of the client and revenue concentration, meaning one or two clients goes away and the whole PNL falls apart. Now the great thing about a merger of equals here would be if you have that problem and you merge with another firm that also has that problem, but they’re not the same clients, then it goes away. But when I present that to people, Jonathan, what I hear is, well, I own 100% of my firm right now and if I merge with someone, I’m going own 50% of my firm. So I don’t want to do that. That’s dilutive. What would your response be to somebody who would share that with you? 

Jonathan Wilson [00:09:05] That’s crazy. That would be my initial response. But, you know, when you when you really think about it, everybody understands the idea of giving out some earnings and some element of control. There’s a reason why people became founders to begin with, right? However, if your ultimate goal is to be sold, you have to think about what you have to give up. Right. And yes, you’re giving out some of that share, but you’re also working together as somebody who has a shared mindset and shared goal. They probably have a background similar to yours. Any other thinking founder for the same reason. The other pieces too, is that their clients actually might be clients, but you might want to also work with. Yeah. So you guys can double down together and and really grow that client and make them happy in a larger way. And also you can actually increase not only your increase in customer satisfaction, but then that one plus one equals three is a real scenario for the company. Yeah. 

Greg Alexander [00:10:05] Yeah. I mean, the well said much better than the way I would have said it. What I say to those people tends to be a little too blunt, which is, Listen, 100% is zero zero. So right now you have a non sellable asset, so you’ve got nowhere to go. So 50% of something is much better in that scenario. So let’s consider it. Now, there’s cultural issues here. Right. You know, you’re all of a sudden you’re this fiercely independent founder. You 100% of your firm and what you say goes. And now you got partners. So in your experience, when all the years you’ve done this with big companies and now your own firm, you know, how how should two strong willed, independent founders think about working together and how might you help them consider that as an alternative? 

Jonathan Wilson [00:10:51] You know, that’s so key. And that is not outside of a merger of equals. That’s really with every single M&A transaction. When you think about culture that’s behind everything that is going to be coming out of a merger of any kind. Right. Because the people are what helps you gain your revenue. They’re also the people that can sink your ship. So those are things you think about from a cold perspective. You want to lead with having them as part of the diligence process. So you want to think about what exactly what are similarities of the cultures, how do you operate, what kind of systems you use, what kind of processes you use? Is it is it a culture of meetings, a culture, ad hoc conversations that matters? You know, there are there are there series is a credit culture that also matters to you. Is one willing to take out more loans than the other? That that also is a big that can also sink our ship senior seat or help partnerships as well. But you want to go through any. You want to go through it like any other judge over the process and think about culture as a unique workstream and combine that with your H.R. element and your communication plan, Strong communication plan. Yeah. 

Greg Alexander [00:12:11] That’s why I would suggest to members who might want to consider this idea, to pick up the phone and call Jonathan and consider having him be your facilitator here. And the reason for that is that, you know, sometimes you need a facilitator and just the presence of an independent third party who can facilitate these conversations makes it easier to do. And that’s why this unique blend of the CEO whisperer through the lens of M&A transactions would be really helpful. And Jonathan is adhering to his code of conduct. And thank you for that. It is. And why make this a sales pitch? But I want to put that out there on his behalf. That’s why somebody like him, you know, a consultant that specializes in M&A transactions, is particularly useful in the use case of a merger of equals. One more thing I want to discuss with you, and we’ll talk at much greater length on this when we have the Friday role model session and we have an hour as opposed to 15 minutes is is I have a situation with some members who want to sell. They go through diligence, which you just brought up, which made me think about this part of diligence as the management meetings and potential acquirer says, You’re a brilliant founder, but you have no depth beyond you. And it’s too risky because if I buy your firm and something happens to you, the firm goes poof overnight. So can a merger of equals solve that problem? That problem defined as founder risk? 

Jonathan Wilson [00:13:38] Well, that’s a good question because, you know, I hate to do it in the answer. 

Greg Alexander [00:13:43] But it does. 

Jonathan Wilson [00:13:45] But it really does. The idea is that sometimes things revolve around a founder, and it wasn’t in that way. Does it mean that there wasn’t open to other ways of working? It just became that that fair number two left at the wrong time or something else happened. So that doesn’t necessarily have to be a big game changer or showstopper, but you do have to make sure that founders open to other ways of thinking, because if if they’re not, then that’s going to be a hard case for managing others, in which case, you know, if you become a larger part of a larger organization, it’s going to be somebody rejecting his way of working. Right. 

Greg Alexander [00:14:26] Yeah, exactly. Exactly. And one of the items that would be discussed during the diligence phase of a merger of equals would be the chart. And you’d say, okay, here’s my org chart and here’s your org chart. We put these things on top of each other. Yes, there are redundancies and there’s also holes. So so for example, maybe, maybe I’ve got a great firm and what I’m really great at as my donor, my domain and I have outstanding client delivery, but I’m weak on sales. Well, then I would want to merge with with a firm who their strength is sales, because that’s what I’m getting in the transaction and maybe their weaknesses client delivery. So in that scenario, one plus one equals three because there’s complementary skills. So you’re looking for how you lay these two orchards together and the organization, the team gets strengthened as a result of that. Now that does two things for you. One, it makes you a lot more attractive to potential acquirer, which is what we’re talking about today. But number two, in the event that you can’t transact after the merger, things happen, economic cycles, etc., the firm’s going to be a lot better off because you’re going to have a stronger team and you might be able to scale to to new heights. So with that, we’re at our our time window here, but I want to point the audience in a couple of directions. So first, if you’re a member and you’re listening, please watch out for the invite that you’ll get from us to attend Jonathan’s role model session. That’s a private Q&A, and you’ll have an opportunity to double click on this idea. And most importantly, ask Jonathan direct questions about, you know, how you might consider this and your firm if you’re not a member and you might think you want to be to learn about things like this and others go to collective 54 Ecom can fill out a form and one of our reps will get in contact with you. And if you just want to further educate yourself on growing, scaling and exiting a firm which would include this topic, but others. I’m going to point you to two books. One’s called The Boutique How to Start Scale and Sell a Professional services Firm, and that’s for everybody, members and nonmembers. If you are a member, there’s a book that’s only available to you. It’s called The Founder Bottleneck How to Scale Yourself and a Merger of Equals is one way to do that. I would encourage you to dive back into that book and really devour its concepts and principles. But listen, the way this works is we’re a collective. The name was chosen for a reason, and that requires members like Jonathan to make deposits in the Knowledge bank, because if we all do that, we all get smarter and that is that knowledge base grows. You’re able to also make withdrawals of that knowledge. So, Jonathan, on behalf of the community, you’re a fantastic member. We’re so lucky to have you. And thanks for sharing your wisdom with us today. 

Jonathan Wilson [00:17:17] You Greg, It’s fantastic to be part of your organization, so I really appreciate you. 

Greg Alexander [00:17:22] Okay, Very good. All right. Well, with that, I wish everybody the best of luck as they try to grow, scale and exit their firms. And until next time, we’ll talk to you then and go get them. 

Jonathan Wilson [00:17:35] Thank you for having me.

Episode 97 – How a Data Analytics Firm Developed the Courage to Charge More for Their Services – Member Case with Craig Dreiling

Innovation is a new idea. A new service. A new business model. Boutiques that innovate grow and scale rapidly. Continuous innovators become the market leaders. On this episode, Craig Dreiling, CEO at Solutions-101 LLC, shares how his firm was able to innovate and create a new product that commands a higher price. 


Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community dedicated exclusively to helping you grow, scale and exit your professional services firm. My name is Greg Alexander. I’m the founder and I’ll be your host. And today we’re going to talk about a topic that’s not often discussed when we discuss process firms. And that’s the topic of innovation. And what I hope to accomplish today is to prove. That innovating a service can have just as much impact on the success of a processor firm as innovating a product can have on a product company. And we’re very fortunate today to have a role model with us. His name is Craig Dreilling, and he’s a member of Collective 54, and he’s going to be sharing part of his journey with us today. So welcome to the show, Craig. And would you mind giving a proper introduction of you and your firm? 

Craig Dreiling [00:01:25] Absolutely. Well, first of all, thanks for having me and appreciate the opportunity to work with you and Collective 54. But I started a firm back in 2014, 2015, and it was in the dental industry and we started looking at certain aspects of the business side of dentistry and kind of found out that there is a demand for something that was never being fulfilled. And when we figured that out, what happened was, is that there were pieces of it that were being talked about and examined and explored, but there was never a holistic approach to the entire process. So I went in from a different method. And, you know, you always talk about experiences and collective 54 and that’s kind of what we had to do. You know, you can go to a theme park or you can go to a theme park and you can ride rides or you can ride rides. And that’s kind of what we were looking at. There’s this this adventure, this ride going on in the industry, and no one was really kind of explaining it or going through that process. So we were able to kind of capitalize on that and look at that aspect and go from there. So what resulted from that? Long story short, is that we became a medical data analytics company out of it wasn’t what we were looking to do originally, but that’s where it really fell into place and everything started clicking. 

Greg Alexander [00:02:48] Why a medical data analytics company. One thing I love about Collective 54 is I run into all kinds of interesting businesses, and that is one that I’ve never heard of before. And the fact that it was born from the dental industry, which some might suggest is not the most exciting space in the world, is a really interesting use case. So let me set this up a little bit before I jump into the question. So what is innovation in terms of a professional services firm? What could be can be a new idea, as Craig to share with us. It could be a new service offer for the idea become the new service that generates revenue. Sometimes it’s even a new business model. Let me give you a couple of examples that have jumped out at me. So the great Bruce Henderson, who started Boston Consulting Group, which is one of the leading consulting firms in the world, I mean, way back in the day, he invented the experience curve, which we all now know that the first time you do something takes a long time and costs a lot. The hundredth time you do something, you do it a lot faster and a lot cheaper. That’s the experience curve. And he pioneered that and on the back of that Boston Consulting Group was born or let’s think about there was a time in the legal profession when the deposition wasn’t recorded. You could record the deposition that changed the law profession forever. There was a time in the accounting industry where there wasn’t a ledger. Could you imagine that? The ledger was an innovation. Or maybe today when we think about things like blockchain or the web design firm Wix, you know, web design used to be a process that was incredibly labor intensive. Therefore, it was expensive to update websites, come out with new websites, and these days it’s not through artificial intelligence. I mean, you can build a website in just a few, a few moments and it’s not very expensive. So these are all wonderful innovations that have happened in the process of space. The thing that’s often not talked about is the impact that can have on the financials of a company. So Craig, as I understand it, the team has told me that your firm is doing exceptionally well financially and we in comparison to other members through the process of benchmark data. It appears that you’re you’re doing exceptionally well in some key dimensions. For example, your sales cycle is about one third the average sales cycle of our members. Your average deal size, it looks like it’s gone up by a factor of five just in the last year. The amount of revenue generated from new clients is two X, the normal rate for most pro serve firms. So I want to make the leap that this is the result of your innovation. But before I make that leap, I want you to tell me, is that true or not? And what would you attribute all these fantastic results to? 

Craig Dreiling [00:05:36] Yeah, I can confirm that’s true. Those numbers are true and that experience is true, and you can contribute that to a lot of things. First and foremost is the education that I’ve received and starting a business. And when I say education, that’s hitting the ground running, not knowing what you’re doing and trying to figure it out along the way. And I always tell any of our employees or anyone that, you know, ask. There’s there’s two types of people that start a business. There’s that type of person who has to have their business plan completed 100% every crossed, every I dotted. And they won’t start until it’s done. And then there’s people like me who have a general skeleton or outline of that business plan. And we go. And by doing that, you know, post COVID has really changed a lot of things. And it was a good thing for my business because it gave me an opportunity to examine what we were doing. And then just by happenstance, I fell under Collective 54 and it really kind of shined a light on some things that I was doing wrong and not understanding how a person farm or a business, a service form firm really needed to be functioning. That education just came from hard work, trial and error and learning from our own mistakes. And so, yeah, with what we’ve been able to do and how we’ve changed that, you know, going from a month to month type contract into a project based firm has really been what’s expanded the company, those labor wise, employee wise, regional wise. We function in every state in the United States and income wise. 

Greg Alexander [00:07:27] So let’s discuss that a little bit. So the the switch from kind of a timing materials pay as you go month to month model. To a project based B and the impact that that’s had on the amount of revenue and margin that you make. Could you explain that a little bit more to our members that might be wondering what that means or maybe share an example or two? That would be a good illustration. 

Craig Dreiling [00:07:55] Yeah. So when you innovate something, anything, the first thing you’ve got to figure out is, you know, what’s it worth? What’s this widget worth? What’s this process worth? And I didn’t know. I didn’t know how to calculate that. I didn’t know how to even examine that number. But what I did know is our clients were making six digit, sometimes seven digit returns on the work we were doing. And I mean, when I say we were getting peanuts, we were barely getting 1% of that. And so when we finally figured that out and we looked at and we said, hang on for the amount of work that we’re doing, it’s not the same in every situation because every office, every client, every doctor is different. We need to look at this as we’re doing a project, and once that kind of came into focus, it allowed us to say, okay, the amount of effort we’re going to have in this project is X, and if the client’s making, you know, ten times, 15, 20 times what that is, should we feel guilty for charging $60,000 for a client that’s going to make $500,000 return on their investment the first year? And that was kind of what we had to really figure out was how do you calculate that? What your worth. But what’s funny is Greg, after I kind of started looking deeper into some of these concepts and some of these member cases and studies, it really was. What’s the team involvement in this? It’s not an arbitrary number. It is really based on who do you have working on these projects and where do you go from that the cheaper you charge someone. The cheaper the work becomes internally. And one of the things we did when we went from a month to month to a project based firm was we changed not only the caliber of our team, but the caliber of our clients. And that was a game changer. 

Greg Alexander [00:09:48] And you were able to change the caliber of your team and the caliber of your clients because you have an innovative products, product service being applied, medical data analytics in a very well-defined niche, and therefore the value that your client is receiving is exponential. So their willingness to pay, which is a a scientific term used in pricing, willingness to pay has gone up dramatically. So what that means for those that are listening is you switch from a pricing model that’s cost up. In other words, what is my manpower, my level of effort needed to pull off this project? What does that cost me internally? And then I throw a margin on top of that. That’s the incorrect way of pricing. The correct way is to start with what’s the value I’m generating for a client and what percentage of that value will the client share with me? And that determines the willingness to pay. And when you have. Fast revenue growth as Craig does and very profitable engagements that. You’re able to hire a different caliber of person and you’re able to go after a certain type of client because you have the funds and the capital to do so. That’s the byproduct of being innovative, and that’s what we all aspire to do. Craig Let me let me keep on this subject of innovation for a moment, because it’s one thing to innovate once and it’s another thing to have continuous innovation. Sometimes things can become commoditized over time. So how have you maintained this culture of innovation inside your firm? 

Craig Dreiling [00:11:30] So one of the things in any type of medical setting is that it’s a moving target. The companies we have to deal with. So the major insurance companies that we have to deal with in the data we’re pulling, they’re forever changing. They’re creating lease networks with Company A, they’re buying regional companies. They’re dissolving lease networks with Company B, that process never stops moving because that industry is so big. And one of the things I looked at when I started doing this was, is this viable? I literally Greg, I started this in the front seat of my car. I’m not kidding. My wife was working for Johnson and Johnson and her salary was funding this project, all of this data coming in. And so we had just had twins. Oh, my goodness. Yeah. And so I had to look her in the face and say, hey, I think I’m on to something. But in the back of my head, Greg, I had to say, is this viable long term? Well, thankfully. Not everyone, but almost everyone has teeth. It’s nothing that’s going to go away. And so in this field, there’s really not a lot of outside threats that can happen, which means in order for us to stay viable and to answer your question, yeah, we’re always innovating. And one of the things we do is that we don’t market or advertise. We’re actually completely organically grown that our our target audience, you know, we do a lot with CFP, with CPAs, with private equity firms. You know, you would be surprised how many of these national chains are owned by venture capitalists and private equity. That’s a huge sector, but they see what we do. So they utilize our services because they know there’s nothing else out there like it. So we’re always trying to innovate around what the industry is doing to change. You know, you look at, you know, apps and cell phones and those things are always changing. So that’s something that’s always going to be around. Well, medicine is always going to be around. So, yeah, we’re constantly trying to figure out new ways to record the data, to display the data, to get the data out to the clients, to use that data. And I know, Greg, you didn’t say it, but you repeated it one time and it stuck with me. In God, we trust everybody else. Bring data. And that is what we do every day. All day is we bring the data. 

Greg Alexander [00:14:00] Yeah. You know, it’s just a great example of the riches are in the niches and you know, medical data analytics in the delta industry, in the dental industry, excuse me is just, just a great example of that. I want to come back to something that you said, and maybe this is the last line of questioning. You talked about not feeling guilty about charging your clients a certain dollar amount. When I speak to members in our private one on one officer sessions, this topic of guilt comes up a lot and I explore it and it’s an emotional thing and it gets to our our perception of our own self-worth. Tell me a little bit about your own personal sense of guilt as it relates to what you charge clients and it ultimately, how did you overcome it and what advice would you give to those that are listening to this? 

Craig Dreiling [00:14:51] So one of the biggest things about our clients is that, you know, a lot of them who need us can’t afford us. They’re in a situation where they’re saying, hey, you got to call this company and you’ve got to utilize them. They’ve got to fix your books. We’ve got to figure out why your revenue stream is not happening. So that’s one thing I kind of didn’t explain when we work with these clients is because they need to increase their revenue. So the only way to do that is through this data. And knowing that, knowing that the money they’re paying us every month is almost painful for them, but they don’t have a choice. They don’t have another alternative because to my knowledge and to the industry, no one does what we do the way we do it. And so knowing that they’re in a financial hardship, but we can get them to the end of the tunnel is kind of where I had to deal with this. And I had an office and I’m not kidding. It was our first seven digit return for an office, but there is three doctors and one practice and their first year we recovered over $1.4 million for them. 

Greg Alexander [00:15:56] My gosh. 

Craig Dreiling [00:15:57] And our bill, it was when I first started, they paid us $36,000. That’s when the light went off. I was like, wait a minute, we can’t I can’t be doing those kind of relies and not having the caliber of people I need on my team to do that. And so when I struggled with that, it was because I knew they needed our help. But I also needed to be able to employ the best of the best. My Chief Data Officer is PhD. Yeah, the data that comes out of here. So I’ve never seen anything like it. And so I know that by charging our clients what we charge them, they’re getting the best out of us. By not charging that number, I’m getting them to the goal. It’s just probably a little bit more painful along the way. So that’s really where I struggled and coped and came to terms with it. 

Greg Alexander [00:16:51] Yeah. Well, what allowed you to do that and this is a topic for another day, is we have a very clear client around $1.4 million, the 36 grand. So for those that are listening to this, that’s what you’re striving for, is striving for not a squishy or soft cost justification, but a hard cost justification. And that often comes through innovation, you know, being able to do something that no one else can do and prove its worth. And if you’re able to do that, you can charge almost whatever you want. And the result of that is much faster revenue growth and much, much higher margins, which allow a lot of you to hire people like PhDs. Craig, I can talk to you about this forever, but you know, we try to keep these podcasts short to about 15 minutes. So we’re at our window here. But listen, on behalf of the membership, you know, the way that these collectives, ours and others work is, you know, we take from the knowledge bank, but we have to make deposits in the knowledge bank. You know, that’s how peers learn from peers. So you really provide a tremendous value for us today. On behalf of everybody, I want to make sure that I publicly acknowledge and thank you for your contribution to Collective 54. 

Craig Dreiling [00:18:03] Well, thank you. I appreciate your time and I appreciate the opportunity to meet with these members and ask these questions and really get that. It’s kind of like the CliffsNotes version of what to do when running a business, and it’s been instrumental in us growing. 

Greg Alexander [00:18:18] Fantastic. Okay, so for those that are in the professional services space, who want to belong to a community and learn from brilliant people like Craig, consider applying to Collective 54 and you can do that a Collective54.com. And if you would like to read more about this, in addition to listening to podcasts, you can pick up a copy of my book, The Boutique on a start scale and sell a professional services firm. You can find that on our website or you can buy it on Amazon. So thanks for listening. Thanks again, Craig, and we’ll talk to you on our next show. 

Craig Dreiling [00:18:50] Thank you Greg. I appreciate it.

Episode 96 – How to Make Your Firm Risk Free in the Eyes of a Potential Acquirer – Member Case with Harry Dugan

Investors’ default position is to find reasons not to buy your boutique. They are looking for the risks and approach due diligence as a way to de-risk their investment. On this episode, Harry Dugan, Managing Director at STS Capital Partners shares how to build your firm to minimize those risk for a potential acquirer.


Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those not familiar with us, Collective 54 is the first mastermind community dedicated exclusively to helping you grow, scale and exit your approach to the firm. My name is Greg Alexander. I’m the founder and I’ll be your host today. And today we’re going to talk about how to de-risk your firm through the eyes of a potential acquirer. And my goal today in covering this topic is to make sure that you, as the founders, last leader of your boutique that might want to sell your firm someday. You know how investors or strategic acquirers are looking at your firm? Most of them come into this process. And their default position is to find reasons not to do the deal. U.S.. Are an eternal optimist and you find reasons to do the deal. And sometimes there’s a disconnect there. So I want to make sure that we’re looking at this thing in its entirety, and we’re lucky to have a great role model and expert in this area with us. His name is Harry Dugan, and Harry is a member of Collective 54. This is what he does for a living. He’s been through dozens, if not hundreds of these deals. And he’s going to share his wisdom with us today. So, Harry, welcome to the show. 

Harry Dugan [00:01:41] Hi, Greg. Thank you very much for having me. It’s a pleasure to join you today. 

Greg Alexander [00:01:46] Would you provide a proper introduction of yourself and what your firm does? 

Harry Dugan [00:01:50] Sure. So I’m a managing director with STS Capital Partners. STS is a boutique I bank. We operate around the world. We are exclusively a sell side advisory firm. So we have been working for over 20 years in helping founders and family owned businesses maximize their exits and and achieve success to significance. 

Greg Alexander [00:02:18] Okay. Very good. So let’s talk about the topic today, which is de-risking your deal. So maybe maybe I’ll start with a softball question, which is through the eyes of a potential acquirer. What are maybe the top 3 to 5 things that cause a deal not to happen? 

Harry Dugan [00:02:38] Well, it’s great that you talk about risk and you make some really great points in the book and. And just to start there for a second, you know, buyers, financial buyers and strategic buyers, they’re investors and they don’t want to lose money. You know, they these are folks who, you know, if they’re investing, Warren Buffett famously said the number one and number two rules are, you know, number one is don’t lose money. And number two is never forget. Number one. 

Greg Alexander [00:03:04] You know. 

Harry Dugan [00:03:05] So they you know, they come at this with a very skeptical perspective, you know, especially if they’re very acquisitive, if they’re a financial investor or their private equity firm, you know, their job is to make investments in place money. And they want to make sure that they’re going to get a return and that they know what they’re buying. So they’re going to be very thorough and scrutinize, you know, you as a company through their due diligence process. You know, the I think the biggest thing that kills deals in this case is surprises you. You want to avoid surprises at all costs. And, you know, there’s some ways that you can do that. You know, you need to be honest with yourself. You need to be honest with your banker and your advisors, and you need to choose your moments. But be honest with the buyers as well, because if you have the right advisors, there’s a lot you can do to strategize and put yourself in the best light and avoid those surprises that kill deals through the process. 

Greg Alexander [00:04:11] So, Harry, give me an example of a surprise that would that would cause a problem or maybe something that you see more often than you would like. 

Harry Dugan [00:04:21] Yeah. A lot of times it’s, you know, issues with the history, with the finances of the company, the accounting issues. A lot of points you raise in the book, you know, about the quality of your contracts, the quality of your receivables, the customer concentration. I think that, you know, you need to be be honest and position your business in the best light possible, which is going to make it the most attractive to the buyers. But at the same time, you can’t sweep things under the rug or hide things, whether they’re accounting issues or their lawsuits or their prior employment issues, you know, things like that that come out. If a buyer feels like they’ve gotten to a certain point of their diligence and they feel like they were misled, that that will easily kill a deal. Whereas if you acknowledge these things and you put them out at the right time early in the process, and you give the buyer a reason to say yes and how these aren’t a challenge or they aren’t an issue, or how you either learned from them or dealt with them, then they’re a lot easier to work through. 

Greg Alexander [00:05:28] You know, I’ll give you an example of something that just happened here recently from a member. He is in the middle of building. Someone’s trying to buy his firm and he goes, Hey, Greg, I need your opinion on something. So what’s that? So seven years ago, I got a DUI. Yeah. Should I disclose that? And I said, yes, you should. It goes, well, you know, I don’t want this to derail a deal. I’m like, listen, if this company does your homework, they’re going to find it anyways. And why do you want to lie to me? It was seven years ago. I mean, you’re not an alcoholic. You’re not you’re not in recovery. It was a non-issue. I mean, there’s a lot of people look at you as if I was thinking about buy and you told me that I would not want to buy you even more because I know I’m dealing with somebody who’s who’s honest and is not trying to hide anything. But, you know, sometimes founders, they’re they’re so, I don’t know, private or scared. I know what the word is like. Like, for example, why would somebody working with you as their advisor misrepresent their financials? I don’t I don’t get that. 

Harry Dugan [00:06:27] Yeah, I that’s a great example and it’s spot on. I live through a deal in a very similar circumstance where a seller had a, you know, felony conviction for something stupid he did when he was in his early twenties. And it was 20 years later, but because it was never disclosed and the buyer discovered it on their own, it felt like a betrayal of trust. 

Greg Alexander [00:06:53] Yeah. 

Harry Dugan [00:06:55] Whereas if it would have just been put out there upfront and dealt with, you know, the buyer could have gotten over it, got through it. I think, you know, being honest with with your advisor, you know, not misrepresenting your financials, you know, the sooner you lay all your cards on the table, the more your advisor, your banker, your your team that’s working on the deal can strategize and, you know, work through that stuff. You know, we don’t want to hide anything. We don’t want to mislead anyone. We don’t want to feel like they were misled, you know, even through admitting something, because this is a thorough process. If somebody is going to write you a check for 30 or 50 or $200 million, they are gonna do their homework. And if there’s any skeletons in the closet, they’re going to find them. So you’re better off to just get them together yourself. Be honest with yourself, be honest with your advisors, and then strategize how you’re going to tackle it. 

Greg Alexander [00:07:48] Yeah. You know, another story just to bring this topic to life. Another one of our members was who had a successful exit about a year ago, was bragging to the potential acquirer, which in this case was a strategic about how great their culture was. And the strategic started calling former employees and some of the former employees did not have positive things to say. 

Harry Dugan [00:08:10] Yeah, so. 

Greg Alexander [00:08:11] The culture got exposed. I mean, that’s the kind of diligence that people are going to do. They’re going to call your former employees are going to call your ex clients and just try to sweep those things under the rug. It’s just not a good idea. 

Harry Dugan [00:08:23] But there’s really, really easy stuff. I mean, they teach kids today who are applying for their first job to clean up their social media profiles. They don’t have weird things that you posted late at night after a night out with some friends, you know, come back to bite you and make you be perceived as something you’re not. You know, a lot of times, even when I’m speaking with a new client and I want to make I just want to do some homework on my end to see if there’s somebody, because I’m going to make a big investment in this process, in this relationship. And Greg, as you pointed out several times, you know, bankers get paid when the seller gets paid. Yeah. So I, you know, want to be careful about who I’m partnering with for for this process. And, you know, I’ll just do a Google search on their name, on their company’s name or, you know, look up the company name in lawsuits, see what pops up in the public record, you know, things like that. And when you get into a process, you get into the to the ninth inning with a buyer, you know, they’re going to run a background check on you. I see it all the time. They’re going to ask you to sign a release and they’re gonna run a credit check and a background check. And if you are planning to exit the company and the value is in your leadership team there, they might do background checks on your senior leaders. So if that’s not part of your hiring process, you might want to proactively do that in advance. So you know what you’re getting into. 

Greg Alexander [00:09:48] Yeah, exactly. Let me ask you some tactical questions. So, remember, 85% of our membership are people who have never been through an exit before. They’re the original wealth creators, the founders. They haven’t been through an exit, and they’re doing this for the first time. Is it worth it to get audited? Financials? Is it worth the expense of the effort? 

Harry Dugan [00:10:12] There’s not always audited financials depending on the size of the company and what their financing situation is. I mean, processor companies tend not to have as much working capital requirements as somebody in manufacturing or distribution. So, you know, they might not have a really complicated line of credit that they need for their financials, for their bank. And what’s more important than that is an engagement that you’d hire an accounting firm for, call it quality of earnings. And most buyers will do a quality of earnings engagement, which is not an audit, you know, an audit. I started my career in accounting. So an audit is a technical analysis of is the balance sheet correct? Do the financial statements fairly reflect the position of the company? Equality of earnings is a more thorough analysis where they’re looking at your sales history and trends, your margin trends, your customer concentration, you know, all these things, your cost positions are your are your payroll costs exploding so that a an investor can predict it with the best information they have as to what their return on investment is going to be. And I highly, highly encourage closely held, founder led or family owned businesses, especially if you don’t have audited financial statements to hire a firm to do a sell side. Quality of earnings engagement. And just like with any other skeletons. So that way you are going to know exactly what they’re going to discover in due diligence. You can choose to share that with them in advance, and it can oftentimes speed up the diligence process because everybody has confidence in the numbers. And and, you know, you’ve taken them halfway through the diligence process. 

Greg Alexander [00:11:59] You know, regarding quality of earnings acuity, as it’s referred to, oftentimes, you know, you can hire a brand name accounting firm and spend a lot of money on it, or you can hire a small accounting firm and do it on the cheap. The brand name accounting firm will tell you that if their name is next to it, it’s going to increase the firm’s valuation because it’s more credible. The small accounting firm will say, that’s B.S.. Q Is Acuity the brand name of the accounting firm that does it doesn’t mean anything in terms of its impact on valuation. What say you on that? 

Harry Dugan [00:12:36] I think the firm that you engage for that should be appropriate for the size of your business. You know, if you’re if you’re $20 million pro serve company, you don’t need to hire, you know, KPMG to do your Cuvee. But a, you know, you definitely you don’t want to have a Joe Bob CPA who’s a single operator with a shingle outside of his garage. Do it either. You know, you want to get a reputable regional firm that has a good reputation, that has a practice, that has an M&A practice, that does these a lot. And they’ll know exactly what a buyer is going to be looking for. And they can help take you through it before you feel like there’s somebody, you know, crawling around in your closet. 

Greg Alexander [00:13:24] You know. Now, regarding this, you know, so let’s say I’m the owner of a $20 million processor firm. I hire a reputable accounting firm to do a quote. And I get to the point where I sign an ally and I’m in actual diligence, the acquiring firm, the person I’m selling myself to, are they going to do another query and somebody they hire? 

Harry Dugan [00:13:44] Sometimes it depends on their their risk appetite. Right. You know, you’ve you’ve hired a good firm. You’ve got it. They’ll probably get an their own independent firm to review the query that you did. But it will not be nearly as thorough or exhaustive of a process. 

Greg Alexander [00:14:03] Yeah. Okay. Got it. All right, Harry, my last question regarding, you know, derisking, which is the topic today. Sometimes founders get crazy with add backs and they try to goose their EBIDTA by adding back everything in the kitchen sink. Any rules of thumb here you can share with us? 

Harry Dugan [00:14:23] A. Know, my my personal philosophy is to put everything on the table and the buyer will decide, you know, what’s a what’s valid or not. I think going through a Q of process with with a firm that that has experience with this that that does them for buyers and sellers, they’re going to help with that. And that brings up another great point, Greg, which I forgot to mention is that, you know, the cubes aren’t cheap. You know, depending on the size and complexity your firm, it could be, you know, $50,000. It could be $150,000. But if if the firm that’s doing it finds an ad back, a legitimate add back that you forgot about and you’re selling your company for, you know, call it ten times EBITDA. You know, all they need to find is, is $20,000 and that’s easily paid for themselves. 

Greg Alexander [00:15:12] Yeah, at my experience. 20 K Yeah, yeah. Yeah. So it’s worth it. All right, I will. Listen, we try to keep these episodes short, so we’re at a time window. But on behalf of the members, it’s great to have somebody like yourself in the membership who knows how to get deals done, who’s on the sell side, who deals exclusively with founders and family businesses. So thanks for being on the show today. I really appreciate it. 

Harry Dugan [00:15:36] Thanks for having me, Greg. 

Greg Alexander [00:15:38] Okay. So for those that are in pro serve who want to belong to a community and learn from people like Harry, consider applying to Collective 54 and you can do so at Collective54.com. If you want to read about this subject and others like it, consider picking up a copy of my book which is titled The Boutique On a Start Scale and sell a professional services firm. Thanks for listening and I look forward to talking to you again in our next episode.

Episode 87 – Why Hiring an Investment Banker is the Right Move for First-time Founders Trying to Exit – Member Case with Frank Williamson

The value of your firm is influenced by the comparables for recently sold firms like yours. On this episode, we invited Frank Williamson, Founder & CEO at Oaklyn Consulting, to share details about comps, valuation, and the benefits of an investment banker. 


Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that are not familiar with Collective 54, we’re the first mastermind community to help you grow, scale and exit your firm bigger and faster. Specifically for pro serve firms. My name is Greg Alexander and I’m the founder and I’ll be your host. And our topic today is comparables. Otherwise known as comps. And this is for firms that would like to sell themselves at some point. And it discusses how being in the right category or being compared correctly to others like you can have a big impact on the purchase price and the terms of the deal. And to help me with this conversation, we’ve got an exceptional role model this morning. His name is Frank Williamson, and Frank runs Oakland Consulting, which is somebody who helps clients with this particular item. Their services include acquisitions, transaction management, private equity, capital service and so on. And and he and his firm probably know more about this than any any of us ever will. So we’re really lucky to have him with us. So. So, Frank, it’s good to see you. And would you please properly introduce yourself to the audience? 

Frank Williamson [00:01:37] Oh, Greg, it’s great to be here, and I really appreciate what you’re doing for the audience and for the founders of professional services firms. So, yes, we do just what you described, which was well done. We are we’re an investment banking boutique. We work with small and mid-sized companies, nonprofits, professional services firms and others. When there’s a major transaction to navigate, maybe it’s an incoming offer or maybe it’s a very planful strategic sale. You know, maybe it’s the need to raise capital to grow. But we try to be good guides to people through that process. 

Greg Alexander [00:02:17] Okay, fantastic. So, Frank, many of our members are first time founders and entrepreneurs. They haven’t been through an exit before. They probably have listened to guys and gals like me and read all the books and tried to educate themselves. But when I have this conversation regarding comparables and positioning yourself in the proper category, sometimes it’s deer in the headlights. It’s for some reason it’s an abstract idea that’s tough to understand. So I’m wondering if you might offer the audience your perspective on this topic. Maybe share an example or two just to bring some greater clarity to it. 

Frank Williamson [00:02:55] Well, the chapter of your book on comps does the really nice analogy of a real estate broker, and I think a lot of us have more opportunities in life to think about, well, how do I cut the cost per square foot of something? Then how do I comp the whole business? And and we might even wonder why that comping things idea make sense since businesses are so different from one another. But you know, you brought up the in the chapter, I thought, you know, some really good ways to look at it. One of them amounts to saying, well, who are you relative to other similar firms that someone you’re talking to might seem. And and I think importantly. Who are you relative to the kind of firm that in the bigger acquisitive. Company might buy you. Are you like them or unlike them? And I think that having a beat on that really gives people a chance to start talking with their exit. Or it’s a succession partner about how do we fit and what could we do together. And it you know, it’s easy for all of us to go into those kinds of conversations with some kind of analogy. Yeah. And that’s what I think comps are most useful, as is the analogy that gets the conversation going. 

Greg Alexander [00:04:24] Yeah. So for, for listeners that haven’t had a chance to read the book, let’s just stay on the real estate example because it’s easy. You know, let’s say you want to list your house and you hire real estate agents to represent you and you say, well, what’s the house worth? Well, they consider your neighborhood, your street homes that like yours, that have sold. And they boil it down to a metric sometimes, like in Texas where I live, it’s it’s cost per square foot. Then there’s other metrics that we use. Well, in the business world is very similar. If you have a firm that you want to sell, you would hire somebody like Frank’s company to help you do that, and you’d say, What’s it worth? And they would go out and and do some homework and come back with some comps and say, you know, this is this is a range of what your firm might be worth. And here’s what it will trade on. Sometimes it’s a multiple of revenue, sometimes it’s a multiple of immediate. There’s a bunch of different ways that you can value a firm, and getting that incorrect can cost you a lot of money. And I share my story in the book where at one point when I sold my firm, people thought we were a sales training firm and that carried a much lower comp. And we weren’t. We were a management consulting firm which carried a higher comp. And just moving into that category and being able to prove that that’s a category we belonged in, you know, got me a higher price in better terms. And that’s what’s so important. Now, Frank, it’s hard for founders to identify who their comps are, and that’s probably why they hire your firm and partners to figure that out. So how do you how do you find this difficult to locate information? Because these transactions are private companies. The data is not readily available. How do you learn what the going rate is, so to speak? 

Frank Williamson [00:05:56] Yeah, well, there are two parts that good question. One is who to be comped against. Yeah. And then the second one is we’ll get given that I did that, then what’s the going rate. If you don’t mind I’ll just do the, the first 1/1 because I think it’s a little bit easier. Bite of the apple, too, you know, to get in your mouth and you go in and we see many people who haven’t just figured out who are who is comparable to me, who are other people like me. And that I think people can do often on their own by just sort of scanning the business landscape. Who do I compete with? Who else is sold? Who I compete for staff with? You know who who is like me? And who do I want to be like? Like in the case of your story, do I want to be like a management consulting firm? I want to be like a sales training firm. And how will I prove that? Then comes the hard part, which is how do I get to a real number that makes any sense. And and as many people know, you know, price is. At least half the equation. Terms of the rest. You know, if I went out and heard a friend of mine. Tell me he sold his business for 20 times last year’s epitaph. But upon further. Probing with him or with the buyer. You know, I realized that it was eight times at closing and a big profit share that came along. And it was equally 12 times after that. And in any event, the buyer thought they were going to make twice as much off the business as the seller did. And so really the prior year’s earnings weren’t the right number two for the multiple against anyway. It wasn’t how the deal came together, but it makes a great headline. I sold my business for 20 times while going and using that 20 as the basis for account isn’t really going to. Help anyone beyond a great story over dinner about what a great negotiator you are. So it really is hard to get an honest bead on. What are firms like mine selling for in reality? And, you know, our experience is there are few good sources of data around the marketplace, number one. Number two, people who are active in the market have an anecdotal sense that add something important to the data. And number three. Even with that, there’s a big element of small operating companies trading in a market that just, you know, is a you don’t know until you ask kind of market. And finding the way to ask the right questions. It is a lot is a lot of what we do on behalf of clients is a lot of what people get out of investment bankers is can you find a way to ask what the terms really were such that you feel like you’ve got an honest answer? Yeah. 

Greg Alexander [00:09:22] You know, a little bit more about my story and how I stumbled into this because I was a first time father myself and this was a foreign world to me. So as we were gaining some some traction, one of the big consulting firms approached us and said, Hey, we would like to buy you or consider by you. Your firm is worth 1.25 trailing 12 month revenue. I didn’t know any better and I said, okay, well, that’s really not that interesting because we’re growing at 30% a year. So I just hold on to it and then we bid on a company. So we were on the other side of the desk and we participate in an auction run by an investment banker. And we lost. And I was surprised we lost. And when the banker called me and told me we lost and he said we were one third the price we offered, like I think it was like $20 million. And he sold for like 60 and I couldn’t believe the number. And I said to the banker, I said, My goodness, if you could get that for that business, what could you get for mine? And the banker did a great job and they said, Well, they’re adjacent to you. Not exactly like you, but you know, if you probably can get a little bit more because you’re bigger than them, but the only way to really find out is give it a try. So we hired them because they were the experts and they went out. And as luck would have it, thank goodness they got a number that I never thought possible. But what I learned from that experience is. Your business is worth what someone’s willing to pay for it. Right. 

Frank Williamson [00:10:47] And I think that’s such an important lesson and one that one that is hard to have come across when any business owner does probably their first encounter with getting their business valued, which is for some wealth planning purpose or tax planning purpose. They don’t get a valuation report and that uses a wide or very broad set of comps and describes a theoretical transaction to the satisfaction of the paperwork that the IRS needs. That’s you know, that’s a whole different way of thinking about it than what’s the actual transaction, the actual buyer, and what does that actual person need. What really jumped out to me about your story was that you went to develop a bid as a buyer. I assume you did it at what you thought would be a fair price. It would make sense after the deal and you came back with feedback that when you weren’t off by 20%, but it was X to three X. Yeah. In that range. And I think that so perfectly illustrates the question of, well, there was somebody in the market who really wanted that company that you were looking at to the tune of three times more than you wanted it. Yeah. And getting in the zone of what do people really want? What would they pay for is such an important part of really having good dialog. 

Greg Alexander [00:12:18] Yeah. You know, you talked earlier about terms and this is something also I think is underappreciated by our membership. You know, when they think about selling the firm, obviously the first question is, what’s it worth? Excuse me. But they they they don’t put enough emphasis on terms, in my opinion. The example that you gave earlier, you know, when you peel the when someone said, I sold over 20 times last year’s profit, but then you peel the onion back and not really. And I think comps also inform what the terms are. And there was an old phrase, I forget who said it, but you name the price, I’ll name the terms, something along those lines. Great. 

Frank Williamson [00:12:54] Great, great, great. 

Greg Alexander [00:12:55] Yeah. What what does comps and running a process with someone like yourself reveal about terms that typically surprise first time founders? 

Frank Williamson [00:13:09] I would say. I would say that people get surprised by two things. One is because we all talk about multiples and comps as if it were a clean price. Yeah, that’s one. One surprising thing is that buyers and for that matter, sellers don’t make the decision about the price on the basis of last year’s earnings. People are getting together to make a decision based on what’s going to happen after the deal. And it’s a convenient way to express it to say, well, it was some multiple of last year’s earnings that wasn’t really anybody’s decision. So that, I think comes as a surprise to people is, oh, the multiple. Wasn’t the reason that the multiple appear. The other related part that I think is surprising to people is, is for all you know, all of us do sales in the normal part of building our firms. Selling your business. In the end, it’s sales, you know, and it’s it’s it’s best done in my experience as a consultative selling process. When you’re sitting down with someone else, the topic is, What can I do that’s going to impact your business? And then how can we share the results of that? Yeah, and that conversation, in my experience, does as much influence terms as it does to influence price. Interesting cause that’s the point at which you accommodate. Well, was the day after the sale all about the buying company taking over operations and letting the founder leave? Or was it all about providing a new platform for the selling company’s founder so that. She could go run three times as fast as she was able to do alone. Hmm. It’s that kind of business plan that really drives terms and and it may also drive price but a little bit jokingly it can those things can get conflated right in my mind story which by the way, is a true one about the you know, about a client who sold for a price that he they in this case could honestly go say to their friends was 20 times and the buyer could honestly go say to their board, it was seven times because their respective views of what was going to happen afterwards were just different. Hmm. 

Greg Alexander [00:15:49] That is a great story. Well, listen, we’re at our time window here, but Frank, on behalf of the membership, this is an area that our members lack. Experience with so happy because their first time fathers, they haven’t been through a transaction before for the most part. So having an expert like yourself in the community is really helpful in the way the collective works is we all make deposits to the collective body of knowledge and we all learn from it. So on behalf of the members, thank you for doing that today. 

Frank Williamson [00:16:18] Well, thank you so much for having me. I’ve really valued being part of collective group. 

Greg Alexander [00:16:23] And if anybody is thinking about selling their business, I tell you, I say it in the book, I say it on the podcast, don’t go it alone. Hire somebody like Frank to represent you. It’s a mistake when you’re doing this to try to do it on your on your own. And usually a representation like Frank will make your life a lot easier and make you some more money, get you better terms, and just hold your hand through the process. So if you want to get a hold him, do so through the member portal. Okay. So for those that are interested in this topic and others like it, if you haven’t read the book yet, the boutique artist art scale and seller professional services firm, I’ll direct you to that. And then for those that are listening that are not members but would enjoy being part of a community of peers and meet exceptional people like Frank, consider joining our mastermind community. You can find it at collective54.com. Thanks again, Frank. Have a good rest of your day. 

Frank Williamson [00:17:19] Thank you, Greg. Goodbye.

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Episode 79 – How to Attract an Unconventional Buyer for a Tough-to-Sell Small Consulting Firm 

Member Case with Marc Weiss

A strong market position can indicate excellent competitive positioning. On this episode, Marc Weiss, CEO of Management One, shares how he positioned his small consulting firm for a successful exit with an unconventional buyer.


Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. My name is Greg Alexander and I’m the founder and I’ll be your host today. And on this episode, we’re going to discuss market position. What I mean by market position?

 Well, some boutique founders want to sell their firm someday and positioning their firm in such a way that makes it attractive to a potential acquirer requires some thought. And there’s lots of ways to do this. And some are traditional and some are unconventional. And there’s a particular set of best practices, if you will, to – to leverage when you’re a smaller firm and you have a unique set of possible acquirers. And today we’ve got a guest who – who did exactly this and successfully exited recently. And we’re very fortunate to have him with us today and hear about his story. His name is Marc Weiss. And Marc, would you – first, welcome – and would you properly introduce yourself to the audience? 

Marc Weiss [00:01:33] Hi, everyone. Greg, thanks for having me on today. Appreciate it. Marc Weiss, the CEO of Management One and founder. In the process of selling, we’re almost ready to close, so there’s no flag. So I feel pretty comfortable about it. So we’re good to go. Glad to share my experience. Thank you. 

Management One

Greg Alexander [00:01:54] So, Marc, just for  context, would you explain what Management One does? 

Marc Weiss [00:01:59] Management One provides inventory planning for independent specialty retailers. So we typically service the mom-and-pop marketplace and we forecast their sales and their inventory. And therefore, we’ve created one of the most sophisticated cash flow tools ever used in – in retail. So a retailer knows, you know, how much business they’re going to do. We do a break-even analysis to know what their financials look like and they spend more money on inventory than anything else. So we can manage the proper flow and investment in their inventory. They can have a very positive outcome on their cash flow. 

Greg Alexander [00:02:35] And Marc, you founded this firm when?

Marc Weiss [00:02:36] 35 years ago.

Greg Alexander [00:02:41] Yeah. So it’s obviously a great success story to stay in the business for 35 years. And the retail sector is is really saying something. 

Marc Weiss [00:02:50] Andwith one product!

Greg Alexander [00:02:51] Yeah, really. I mean, that’s really it’s amazing in retail, let’s just say, has gone through quite a transformation over time, probably more so than any other industry, right? 

Marc Weiss [00:03:01] Yeah. The last five years have been remarkable. COVID accelerated everything like it did many industries. But, you know, a lot of things are bouncing back to the way they were a little bit. But it’s all about adaptability. And one of the things that we really work hard to do is adapt and change. And actually we didn’t have to change for almost 30 years. Know what we did really worked – was just a matter of upgrading our technology. But fortunately, right before COVID hit, we decided to change our platform and and did, you know, created, you know, really created a lot of disruption in our own company, but put us in a position to be where we are today and actually put us in a better position. So… 

Deciding to sell 

Greg Alexander [00:03:44] Yeah. So first question for you is. You’ve been doing this for a long time. Obviously love doing it. Why did you decide to sell? 

Marc Weiss [00:03:55] A couple of reasons. One is we’d gone to Cuba right before COVID, and I got Legionnaires disease from one of the hotels. I was really sick, and I was about 12 hours away from being put on a ventilator. So I remember making a promise to myself that if I was given another chapter in my life, I wanted to do something with it. So, you know, I hit I’ll hit 70 this year. And I also felt like some of the passion was starting to go away. 

And I asked my cousin, who’s a successful doctor, I said, why are you – He retired at 65 – As to why did you retire? He said, I didn’t, you know, I stopped reading the journals and I felt like I couldn’t be the best doctor for my patients. And I knew it was time to quit. And I feel like I kind of hit the same stole things. He has to go back to business. But what we do fundamentally I’ve been doing for over 35 years and the people we’ve hired actually are doing a better job at it than I am, and I feel good about turning it over to them and I feel like I would be in their way and I’ve contributed to the level I want to. I want to do something else now. 

Individual buyers

Greg Alexander [00:05:03] Great. Okay. Next question is sometimes boutiques the typical exit path, which you didn’t take and why I find your story so interesting as either sell it to a private equity firm, they sell it to a large strategic, they sell to their employees. Those are those are the three most common ways. Right. You sold it to an individual. Which is really brilliant. So tell everybody a little bit about this individual, how you met him, how this whole thing unfolded. 

Marc Weiss [00:05:35] Yeah, it’s, you know, just the serendipitous story I, I had gotten. We get we get offers. We have three or four offers a week. We might turn them all over to our president. He looks at them, examine them. And, you know, he said, Marc, when you’re ready to sell, let me know and I’ll start pulling the trigger.

 But there was one in particular that came through for some reason. The email struck me in a way that it was written that I actually responded, which I never do. And we kind of got into a conversation. This was about 21 months ago, and we just kind of hit it off. And I said, Well, what brought you to us? Why are you – why do you want to buy my business? And he said, Well, one of my good friends was an MBA, owns a retail business in Seattle and, you know, COVIDhad hit. And we were I think it was like maybe June or July of 2020. And she said, oh, she said, “I work with a I know you want to buy. I know you’re looking to buy a business. I work with a business that maybe they’re interested in selling”. And he said, “Well, what what’s good about – why do you believe in this business?” And she said, “They’d bethe last people I’ve fired before I had to turn off the lights”, I’d be the last person. And he said, nobody ever talks about their vendor that way. So he said, “I was blown away. I respect her a lot. She’s a bright person. She uses data effectively. So I decided to reach out to you.” And so from that conversation, our relationship grew. 

I wasn’t ready to sell then it was COVID, I knew I had to lead the company out of it because we’re in retail. We were we were hit hard, you know, in the early days we were, but we had rebounded by December. We had all our business back, but we stayed in touch. 

And then an interesting thing happened. And so I we use EOS and in December of this year, my my son who runs our planning department now he’s in charge of product development. We are actually developing new products. He called me and he said, Dad, who do I report to? And I said, We report to Mike,, Who’s also a member of the 54 He’s on the the scale side. 

And he said I dont know who to report to. And I said, well you report to Mike. He said, Well, you’re interfering too much. So that night I went to bed and recognized that I really am not the kind of CEO I hoped to be. I really can’t stay, keep my hands out of the cookie jar. And I woke up the next morning, called this individual and said are you still interested in buying the business. And he said, yes. And I said, here’s my number. And he said, I can make that work. And there we are. 

Greg Alexander [00:08:18] Wow. It’s really amazing. I mean, what I love about that story is this started by a happy customer. 

Marc Weiss [00:08:26] Yeah. Started by a happy customer. Yeah. 

Greg Alexander [00:08:28] I mean, that phrase “that they’re the last vendor I turn off before I turn off the lights.” I mean, that’s quite a phrase. So I mean, we’re talking a lot. 

Marc Weiss [00:08:36] We’re very fortunate. We have a lot of raving fans. A lot of our business comes from independent retailers who are in market or carrying our our budgets around with them. And other people ask questions and we get a lot of business just by the referral system within our clients. Our clients have been very loyal and very I’ve told our clients that I saw when I started the business 35 years ago, who’vegone through their own sales. 

Qualifying individual buyers 

Greg Alexander [00:09:01] Yeah. So also we’re talking to Marc Weiss right now about how to position your company for an exit, how to make your company attractive to a potential acquire by having a great market position. And we’re reminded of the obvious, which is build a great company first, have – have fans instead of clients. And it makes it a lot easier to sell your firm when you’re ready to sell your firm ass Marc is his healthcare and his willingness, their desire to retire. 

Okay, so let’s come back to this individual sometimes. Like, for example, if I got approached by an individual, I would be skeptical because the number I would have in my head is typically would exceed what an individual can afford. So how did you qualify the individual that they had the funding to pull the deal off? 

Marc Weiss [00:09:50] Yeah, that’s a great question. It because it’s – it’s a, I guess the word genre, but it’s a whole niche that I never knew existed. It’s called self funding. And this individual’s got a group of people who invest with him and literally pay his salary to help find a business in all his expenses for two -. they give him a two year window to do it, and he was very close to buying another business. But the seller jumped the price at the end of the deal by 30%, and he said,” No, we’re not going to do that.”

 That was after they invested a lot of money in due diligence. So there is he’s self-funded and there’s a lot of them out there. I just happened to follow in No. One. I was kind of curious about it, and I was I did some research about it and that’s it’s – t’s a more robust industry than I knew about. And I talked to one of the person buying the business. I talked to one of his key investors. And I said, because it was hard for me, Greg, even today, I mean, I’ve gotten to know this person over the last two and a half years. Well, I’ll just get his name’s Nate, so it’s called by his name. I’ve known Nate for two for over 20 months, and it has really been a great journey. 

So, you know, I felt like there’s good chemistry. He really got to understand who we are. And it wasn’t just a transaction for me. It was also needed to be a – it needed to be the culture needed to be sustained. I mean, he’s for 35 years in a company, you feel like you’ve built a great culture. We don’t have a problem attracting people. There’s a lot of good we’re a virtual company, so a lot of good things about the company that I wanted to stay in place. And I was afraid if I sold it to a private equity firm, you know, it wouldn’t be there. You know, you and I had talked about an Aesop or something like that, but I wasn’t going to get the kind of money out of it that I wanted. 

So these self-funded opportunities are there and they’re real. And when I talked to one of his investors, I found out that they’ve been in this for 20 years and they’ve done 52 of these transactions on these businesses with capital. So that was important to me, that they’ve kept all the businesses, they help them. They haven’t gone in to change them. They look for businesses that help other businesses succeed and other people succeed. And they they seem to, at least on the surface, share our core values. 

Greg Alexander [00:12:15] Yeah. And what did they find attractive about your firm? 

Marc Weiss [00:12:21] What they found attractive? It was the opportunity of what we were doing. We didn’t have a lot of you know, the competition in our space is really people who use Excel spreadsheets. And we’re much more sophisticated. We have much more sophisticated information. You know, we’ve got they call it greenfields. We’ve got 860 clients. We’ll hit 1000 this year because we’re at a growth rate of about 35%, 33% last year, 35% this year. 

So I think they saw the real opportunity and that we are in a market that’s underserved. I mean, there are literally hundreds you know, there’s I think close to 100,000 businesses that fit into our model. And we’re also in multiple verticals. So, you know, we do everything from college bookstores to a mom-and-pop dress shop or men’s store on the street. 

So we’re we’re – we’ve got – we’re in over 22 verticals. So we’re, we’re pretty diverse, which allows us to sustain ourselves in, in, in any almost any economic area. And, you know, I was reading Chapter 29 and one of our our best year retention was actually in 2008, you know, when people would, you know, when economic – when there’s economic turbulence or recessions, they’re a friend to us. So I think the other part of it is we’re pretty much a recession proof business. 

Greg Alexander [00:13:42] Interesting. And without violating any confidentiality agreements, I’m sure you’re governed by… in terms of the structure of the deal. Were you able to get enough cash at closing that made you happy? Was there an earn out? Like what were some of the terms? 

Marc Weiss [00:14:04] So yeah, it was kind of an odd thing. I have to be careful what I talk about, but I had a happy number that I had to walk away with – the net number. And so we’re, we’re, you know, so I got the net number – and I also I also got a I have also an equity, you know, business on top of it. Okay. So I own about 7% of the business after the deal’s closed. So I get another bite of the apple. 

Self-funding groups

Greg Alexander [00:14:27] So these self-funding groups, which this is a breakthrough for many of our listeners because they have firms similar size to yours and they might be, in some cases, too small to attract the right type of investor that they may want to sell to. Because for them, like you, it’s more than just a transaction. So these self-funding groups are funded well enough to get to your happy number? 

Marc Weiss [00:14:52] Yes, they’re well-funded. Nate’s going to have, I think, seven investors and he’ll be the majority shareholder. But and, you know, I been one of his key investors that I talked to said he’dwrite a check tomorrow for the whole business. But so they like the business. They like the model. 

We also have a great management team. They want to buy businesses where they don’t have to do anything except invest in the resources that’ll help the business grow. You know when you’re a small business, everybody works a lot of hours and you’re overworked. And that’s true in our business. So my team does an amazing job and we just launched a new platform which really stretched our resources. 

So I think that they’ll be able to bring resources to bear that’ll help the whole company. So I think they work for businesses where there’s an opportunity to add resources in the right place. There’ll be a board of directors. So I think that, you know, we fit that kind of – we fit that that model. Part of what they like about us is that Nate can come in and replace me as the CEO. Mm hmm. He’s already bought into our ten year plan. As a matter of fact, he came back to me and he said, you know, EOS goes out ten years, but I’m thinking about where Management One can be 15 or 20 years from now. So that was music to my heart. 

Greg Alexander [00:16:08] Yeah, for sure. 

Marc Weiss [00:16:09] And I think that I think that. So therefore I think there’s a real opportunity for these self-funded businesses. And by the way, I’m getting just in the time that we took – I signed a letter of Intent February. I’ve gotten two or three requests from different self-funded groups almost weekly since then. So they’re out there. 


Greg Alexander [00:16:32] That’s interesting. Well, Marc, we’re at our time allocation here, but you’re such a great member. You have such a generous spirit and you’re always willing to contribute. So on behalf of behalf of the membership, I appreciate you coming on the show today and sharing your wisdom with us. 

Marc Weiss [00:16:49] Again, if anybody has any questions or thoughts or anything, just feel free to contact me. I’m happy to share my journey. And one thing I want to say, Greg, is I really thought hard about making sure the pipeline’s full when you sell it – our pipeline is full! So when they takes over, I’m going to feel very good because he’s got a whole rush of business that I wish I was here to participate in, so… 

Greg Alexander [00:17:11] Oh, that’s fantastic. All right. Well, listen, for those that are interested in this topic and others like it, you can pick up a copy of the book. Of course, it’s called The Boutique: How to Start Scale and Sell a Professional Services Firm. And for those that are not members yet but might want to be and meet inspirational leaders like Marc. Consider joining our mastermind community, which you can find out. Collective54.com. Thanks again, Marc. Appreciate it. Marc Weiss [00:17:36] Thank you. Have a good day. All right.

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tony Mirchandani [00:10:38] Exactly. 

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

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

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

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

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

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

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

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

Tony Mirchandani [00:14:48] Yes. 

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

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

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

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

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

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

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

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

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

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

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

Tony Mirchandani [00:16:06] Yes. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Go to Collective54.com to learn more.

Thank you for listening. 

Episode 55: Mistakes: 7 Mistakes to Avoid When Selling Your Business – Member Case with TK Herman

There are 7 common mistakes made when trying to sell a professional services firm. On this episode, we interview TK Herman, President and Co-Founder of Aptera, a focused IT consultancy and managed services provider.


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 there are seven common mistakes made when trying to sell a professional services firm. I’ll try to prove this theory by interviewing T.K. Herrman, president and co-founder of Aptera.  Aptera is a focused IT consultancy and managed service provider.  Aptera transforms your ability to deliver custom software with high performing development teams, coaches and consultants. They are a trusted partner of Fortune 500 companies with a track record of tackling complex global development projects. TK, great to be with you and welcome. 

TK Herman [00:01:21] Yeah, thanks so much for having me, Sean, I really appreciate the invite onto the show. 

Sean Magennis [00:01:25] It’s such a pleasure. Let’s start with an overview. Can you briefly share with the audience an example of a mistake to avoid when selling your firm? 

TK Herman [00:01:35] Yeah, I think, you know. So we recently went through an acquisition, so I’ve got experience in this realm and you know, one of the things that I would say that there are three areas of knowledge in the world. There’s the what you know, there’s the what you don’t know. And then there’s the what you don’t know that you don’t know.  And and through the whole process, there were a lot of things in the realm of what you don’t know. You don’t know that I came across. And so I’m I’m a much smarter person today than I was, you know, four or five months ago. And one of those things would just be, you know, kind of asking the question and really trying to spend more time aligning some of the changes that are going to be happening with the integration of the two companies. Because, you know, I think that everyone is focused on getting to the same endpoint, but how to get there in the timeframe and in how to go about that, I’d be a slight difference. That’s just one example of of something that you might consider thinking about. 

Sean Magennis [00:02:35] That, you know, that’s a wonderful example. And I share that with you because in a in an example that we’ve helped with recently. Soon, as the acquirer was identified, they advocated for starting integration conversations early on because it is often left to the end. And it really does make a difference when the rubber hits the road that you’ve thought through all the nuances so. So thank you for that example. It’s a critical one. And you know, if I think about selling a boutique, we know it’s a high risk, high reward initiative. We also know that every situation is different. So I’d like to spend some time getting your thoughts on the common mistakes made when selling. I’ve selected seven to walk you through, and I’ll ask to get your thoughts on each and feel free to share whatever comes up for you as we go through these. So the first mistake is that boutique owners are unclear as to what they want from a sale. So if you’re unsure of who you are, you’ll be unhappy with the sale. If you don’t know where you’re headed, you’ll be unhappy with the sale. What are your thoughts on this concept? 

TK Herman [00:03:47] I would completely agree with that, I think that before you. The more time that you can spend sort of self reflecting and look in the mirror to really understand what is the goal and why you’re heading down this path, the more likely likely you’ll be to be happy on the other end of the transaction. You know, and again, I think you hit on those points, whether it’s, you know, what am I looking for for my company? Because, you know, more often than not, acquisitions are done to move the company forward. Right? And then also, from a personal perspective, you know, what is life look like after that? And what does that mean to you? And and if you’ve had the business for quite some time and you have somebody else coming in and kind of running the business, you know, is that going to affect you emotionally? Some people will say yes, some people will say no, but I think, I think really sitting down and reflecting on those points and having a very clear understanding of where things sit for you personally on the side. And I think to the last thing I’d say is is the more conversations that you can have with people that have gone through this process to just try to learn from them along the way, I think that that that would be extremely helpful. 

Sean Magennis [00:04:55] Those are those are great points of advice. And that brings up mistake number two, which is sometimes boutique owners try to sell an unsellable business. And so your boutique needs to be attractive to a buyer. It almost requires you to look at your business through the lens of an investor. What do you think of that TK? 

TK Herman [00:05:17] I would 100 percent agree with that. You know, when when you’re selling a professional services company, there’s no, you know, machines to buy or inventory to buy. The person that’s acquiring your business is really acquiring the team that you’ve built and the client relationships that you’ve cultivated over the years. And so you need to be really need to become really clear on that. And then also look at and say, how reliant is this business upon you or you and a few people? Because the the the more you can get the business to the point where it’s not really reliant upon you to drive the day to day pieces forward, the more value there is in the business. 

Sean Magennis [00:05:58] You know, again, I can’t agree with you more because that’s what we see so often. Getting in the way of a successful sale is that the owner founder hasn’t thought of it in the way that you’ve just expressed.  You know, mistake number three. It can take years to sell a boutique. Yet some owners try to sell a boutique in a matter of months, and a good exit is an exit on your terms. It does take time to stack the deck in your favor. What are your opinions on this? 

TK Herman [00:06:29] You know, it’s so interesting because we did not anticipate going through the acquisition even at the beginning of this year. And so this is we obviously knew an acquisition would happen at some point in time. That was always the end game. But did not expect that this year, even really in the next couple of years. And and the right opportunity came along and we decided to move forward with it now. We were fortunate that we had sort of positioned the company and set things up in a way that it made that process easier. But I’ve spoken with a handful of people since the acquisition that just reached out for some advice. And you know, I can’t stress enough the importance of again, making sure you have the right leadership team in place, making sure you have, you know, processes and procedures and those kind of things that are easy for an acquire to come in and kind of take charge of and move forward. But then also there is just a tremendous amount of back back office work that needs to be done. So making sure that you’re accounting, you know, is all in order making sure our files are all in order. Because the more that know, the more time you spend there, the the easier it’s going to be through the diligence process. You know, that’s one of the things that that, you know, our comptroller had mentioned to me during the process. Gosh, if I had known we were going to do this, I could have spent the last year actually even preparing that much better. And I couldn’t argue with that. That’s a very valid 

Sean Magennis [00:07:52] No, it’s a very valid point. No. And but that’s a great point for our listeners, too, is that, you know, you’re a practical example of somebody that was fortunate because you were prepared and you had a lot of things in place. But if you had had to do it over again, potentially, you know, in the example of the accountant having that time to prepare is so much better and could potentially impact, you know what you get out at the end of the day from the from the sales price. So let’s talk about you. You alluded to this several times. Let’s talk about succession planning and often owners under invest in succession planning. And after you sell, you’ll want to see that your boutique does well without you. So what are your thoughts on the importance of succession planning? 

TK Herman [00:08:42] I think it’s I think it’s highly important again, even if a sale is is. You know, a decade down the road. Yes, I think from day one, when you start a business, you should start setting the business up for it to run without being there day in and day out. And it’s the old adage, you know, you have a choice. You can either work in the business or you can work on the business side. And it’s it’s very difficult. You know, I’ve certainly empathize with companies that are small that have, you know, just five or 10 people because the owner has a really difficult time sort of balancing those two things. But if you can, if you can from the beginning focus and say, I’m going to spend, you know, even if it’s 51 percent of my time on the on the business things. And over the course of time, you’ll get to the point where where that becomes kind of your main role in the business. And I think there’s there’s to me, there’s three key ingredients to setting up a leadership team or setting up a team to be able to carry the business forward. And they’re very simple. The first one is just hire outstanding human beings. Yes, just just great people. Obviously, they need the skill set that they they you just want great human beings to represent you to to work with you every single day and to help deliver that great experience to your clients. And then the second piece is is point them in the direction that you want them to go. And the more narrow that direction can be, the better, obviously. So yes, we we were for a long time kind of a shotgun approach, and we started trying to narrow that down to more of a rifle, but point them in the direction you want to go. And then the third piece is, in my opinion, it’s the hardest piece and that is get out of their way. So in other words, you know, you’ve hired great people, you’ve pointed them in the right direction and then now it’s your job to get out of their way and let them move forward and let them make mistakes, you know, and let them learn from those mistakes. A phrase that I always use is Don’t let perfect ruin good. If there’s one thing that I can say that my business partner and I have did a good job of over the years was creating an environment where we let people try things and make those mistakes. And there were times where I, I would look at something that somebody wanted to do, and I would think in my head, that’s never going to work. But I also looked at and said, OK, if it doesn’t work, is this going to be a detrimental thing to our business? Is it going to hurt the client hurt and hurt an employee? And if the answer was no and there really wasn’t a significant risk and let them go down that road because A, I could be wrong, I’m not. I don’t have all the answers, right? But B also, if if it if it didn’t work, there’s a whole lot of lessons to be learned there. And the more that you empower people like that, the more you’ll find yourself having time to work on the business as opposed to in 

Sean Magennis [00:11:25] Outstanding and I loved you three key ingredients, and I’ll refer back to them at the end of the of the podcast because I think they they certainly resonated for me. So let’s talk about mistake number five. This mistake is where entrepreneurs think that they can sell their business on their own. It can result in tactical execution errors that can cost millions of dollars, and our recommendation is to hire the best advisors that money can buy. What is your opinion on this best practice? 

TK Herman [00:11:55] So actually, it is actually kind of a funny story that reflects back to Greg Alexander, who obviously has been on your podcast numerous times. Yeah. And so we were fairly deep into diligence and deep into the process, and I was having a conversation with Greg and and he said, Hey, do you have counsel? And I’m like, You know, of course we have a lawyer, and he goes, No, but do you have somebody with experience in this? And I’m like, Oh, I think they are. And and he goes, OK, hang on. Let’s pause a second. And he said, You have to you’ve got to go out and find somebody that really not only not only in an attorney, but also your accountant, and make sure that they’re experienced in this. And so I did that. I took that advice and and asked around, found somebody and holy mackerel. My eyes were open because we again we were we were fairly deep into diligence. I was very fortunate that that that this law firm was able to to take us on. But there were so many things, so many things that I had. I would have had no idea of the level of questions that needed to be asked. And so I can’t stress that point enough. That’s 100 percent true. 

Sean Magennis [00:13:01] Absolutely fantastic. And then mistake number six is boutique owners often get attacked after the sale. This is more personal. You know, they can take it personally, and this causes seller’s regret. So our recommendation there is give yourself the permission to not take it seriously and really guide yourself. What are your thoughts about this? 

TK Herman [00:13:24] Yeah, I would agree with that. I think that you have, you know, a wide variety of reaction, you know, everything from from people that are very upset that you sold the business to people that are excited about the opportunity and it’s easy to find yourself like anything else. For example, if I was a new YouTuber and I started a new YouTube. You know, I’m going to get some heat and some shade thrown at me on on the comments and I have a choice to make. Do I focus on those? Yes, or do I focus on the positive things that are coming out of it? And so like anything else in life, whether it’s whether it’s selling your business or anything you do. You know, the more that you can like align your your, your mindset and and your heart under the positive things, the better off you’ll be, for sure. 

Sean Magennis [00:14:10] Yeah, wonderfully answered. And then finally, mistake number seven is to be sure to understand who the business is being sold to and what their motives are. It’s particularly important if you’re on an Earnhardt or rolling in some equity. This prevents unwanted surprises from cropping up. The buyers ultimately own the asset once you’ve sold it. What are your thoughts about this? And I know it’s early in for you, but what are your thoughts? 

TK Herman [00:14:36] Yeah, I would totally agree with that. And even if there’s not an earnout or there’s not equity, I’m very much I’m very much invested in the people. You know, we had our business for 18 years and I care deeply. I care to actually care more about the people that work for us than I care about the work product that they delivered. And I always believed that if we if we operated that way as a company that will come back and give us good karma sort of in return. And so, yeah, I would totally agree with that. The more that you can align yourself and ensure that the things are aligned, the better the whole process will be. And you know, some of those things, that’s where it goes to, I think, going out and asking a lot of questions of people who have been through the process before because you as somebody new coming into this won’t have any idea of what questions to ask. And and that’s that’s certainly an area where there are things that that could probably be easily missed 

Sean Magennis [00:15:33] A great point. And again, thank you. I mean, these are all very vital mistakes to avoid, and there are many others, too. To your point, I mean, going through and having great advisors, having them give you the benefit of the wisdom of what they recommend asking is also very key and every situation is different. However, we’ve given you seven of the most common mistakes for you to avoid as a boutique owner of a professional services firm. TK thank you. This brings us to the end of this episode. I prepared a 10 question Yes/No checklist, listeners. Please ask yourself these 10 questions. If you answered yes to eight or more of these, you will avoid making these mistakes when selling your firm. T.K. has graciously agreed to be our pure example today. Thank you, TK. So I’ll ask you the essential question so we can all learn from this example. So question number one, do you know what you want from the sale? 

TK Herman [00:16:38] I would say yes, when we went into this, I would say yes. 

Sean Magennis [00:16:41] Excellent question number two. Do you know what you were going to do after the sale? 

TK Herman [00:16:48] Yes, that was a yes for for me personally as well.

Sean Magennis [00:16:52] Great. Number three, is your business attractive to a buyer? 

TK Herman [00:16:57] Yes, it was. You know, and again, we we worked hard over the years to to to be very deliberate about creating an attractive company. 

Sean Magennis [00:17:07] Great. Number five, do you have a handpicked successor? 

TK Herman [00:17:12] We did have a leadership team that was able to basically roll the business forward, even if we hadn’t sold the business they were, they were making the majority of the decisions along the way. So we we were in a good spot for sure. 

Sean Magennis [00:17:24] And I did skip number four because you had a sellable boutique and you’d kind of illustrated that before. Number six is the successor ready to take over? 

TK Herman [00:17:36] Yeah, I would say yes. But again, we we were purchased by a large company, so that’s a little more complex. But but as far as that, the people we had, yes, I would say without a doubt, they’re just top notch people. 

Sean Magennis [00:17:49] Excellent. Number seven, have you lined up an all star team of advisers to help you? 

TK Herman [00:17:56] I didn’t, but I have them now. So if I was ever going to do this again now, I would know who to call. Excellent. 

Sean Magennis [00:18:05] Eight. Are you prepared for the post-sale criticism headed your way? 

TK Herman [00:18:10] You know, I don’t think that I was I know that there would be a lot of emotion around it, but some of that I did not expect. But I understand it for sure. And so that’s probably one area that I didn’t prepare mentally for, like I like, I probably should have. 

Sean Magennis [00:18:25] Yes. And then number nine, do you understand who you were selling your boutique to? 

TK Herman [00:18:30] Yes. Yes.

Sean Magennis [00:18:32] And No. 10. Do you understand their motives for buying? 

TK Herman [00:18:37] Yes, we’ve we’ve we felt pretty confident in in their motives and why they wanted to acquire us. We actually had the good fortune of having a very, another company that was acquired by them that we were very friendly with their owner. And so we were able to get some behind the scenes look into things prior to the acquisition. 

Sean Magennis [00:18:57] T.K. Fantastic. I’m just going to remind the audience again about the three key ingredients that you alluded to during the course of our time together. The first was hire outstanding human beings. I thought that was profound. And then point them in the direction that you want them to go and keep it narrow. And then the third, which I think is a vital lesson. Certainly, it has been for me and I think it will be for our listeners. In fact, I know it will be for our listeners is get out of their way, which is the hardest thing to do. So again, thank you all of our listeners. You’re building a business that you could likely run forever. You’re also building a business you could sell tomorrow if you do decide to sell. You want to do so on your terms. Give yourself plenty of time to avoid the mistakes that T.K. and I have shared with you today.

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

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

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

Go to Collective 54.com to learn more.

Thank you for listening. 

Episode 52: Sell Your Business: The Difference Between a Happy and an Unhappy Exit – Member Case with Renzi Stone

Renzi Stone, Founder, and CEO of Saxum discusses the essential questions to consider when selling a professional services firm, including the importance of knowing your why when developing a business exit strategy..


Sean Magennis [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. The goal of  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.

In this episode, I will make the case that step number one in developing a business exit strategy and selling a professional services firm is knowing why you were selling before you sell. I’ll try to prove this theory by interviewing my friend Renzi Stone. Renzi is the Chief Executive Officer,  and Founder of Saxum, an award-winning 50-person integrated digital marketing agency and consultancy headquartered in Oklahoma City with a distributed workforce across the United States. You can find Saxum at www.saxum.com. We’re going to learn a lot from Renzi. Renzi, great to be with you, and welcome. 

Renzi Stone [00:01:24] Sean, excited to be with Capital 54 and Collective 54. And looking forward to talking about business exit strategies. 

Developing a Business Exit Strategy: Know Your ‘Why’

Sean Magennis [00:01:32] Fantastic Renzi. So let’s start with an overview. Can you briefly share with the audience an example of why knowing the reason to sell your professional services firm is so vitally important? 

Renzi Stone [00:01:45] I think if you’re going to start off thinking about selling your firm, you really need to think first about why you’re in it, to begin with. Is there something else you have to offer your clients and your team members? And so it’s a good question. But I think the first thing that I would have to say is that every firm should make a critical decision. Am I in a lifestyle firm, or am I a scale firm? 

And so, to answer that question for me, Sean, I would say I am in a scale firm. This means that I am required, as a condition of my employment as the CEO of this company, to be thinking about what the outcome over many years looks like. And the only way to have an outcome that is achievable on a scale firm is you have to build it to sell. 

Sean Magennis [00:02:43] I love that. And that is so crystal clear the way that you distinguished that. And for the listeners’ sake, clearly articulating for yourself in a very deliberate way, whether you’re a lifestyle firm or a scale firm. Outstanding, Renzi, this is such a personal topic. I’m glad you’re here with me today because I know, you know, you’re a deep thinker. You have a strong set of core values. 

So I’d like to get your thoughts on some important, you know, considerations and questions when thinking of selling your professional services firm. It’s a long list. I’ve only selected five things, and I know that you’ve probably got several more. But I’d like to get your thoughts on each. 

So the first one is the reason to sell your boutique is very personal, and it should be. You’ve poured your life into building the firm; leaving it, handing it to somebody else takes much thought. How have you approached this? 

Renzi Stone [00:03:40] Well, I think the thing that I think about about the decision to sell my firm, and it’s really important to note, Sean, I haven’t exited my firm. 

Sean Magennis [00:03:51] Correct. 

Renzi Stone [00:03:52] I aspire to have a firm that has enough value that an exit is possible. 

Sean Magennis [00:04:00] Got it. 

Renzi Stone [00:04:01] So to answer the question, the things that I’m thinking about as it relates to a business exit strategy are systems, talent, processes, and the why for me is: Have I brought the firm as far as it can go under my leadership? And when I think about our clients. 

So one of the things I say all the time, Sean, is no clients, no Saxum – the only people that send money to Saxum. Unfortunately, our clients’ are the ones that send money to us, not vendors, not my friend, and certainly not my mom and dad. So if clients are the ones that send money to Saxum, my job as the Chief Executive Officer  is how do I create more value for those clients? And if I create value, they’ll refer me to other people. They’ll increase their scopes of work. 

And so the decision to sell for anybody is based on the idea of: Can you create more value for your clients by making that move? Any amount of money that I put in my pocket, any amount of lifestyle change that creates is only secondary to the first objective, which is how do you create more value for clients? And I think, Sean, I think if you get that backward , you are really at risk of having a failed acquisition, even if it gets closed. It may not perform. 

Selling a Business: Various Reasons Why Boutique Owners Sell

Sean Magennis [00:05:29] I so appreciate you sharing that and that perspective because I agree with it 100 percent, and you touched on the money aspect. Some owners of boutiques sell exclusively for the money. And in your view, how important is the money aspect of selling? 

Renzi Stone [00:05:49] Well, look, anybody who takes the risk, who puts capital and time at risk. And by the way, that’s in reverse order. Yes, time and capital at risk. Got it over 18 years. It’s 2021 right now. For 18 years, I have put my time and my capital at risk. Yes, I have put it at risk at the expense of doing other things with my time and my capital. 

So money is absolutely a consideration for any boutique owner who’s thinking about selling. What I would argue is if all you can think about is the money, you’ve missed the whole point of creating something of value. 

Sean Magennis [00:06:34] Well, well, well said. I’ve also heard that some owners sell because they’re bored. Some are exhausted. Some say that they that their work became a job. It’s not fun anymore. What are your thoughts on this aspect? 

Renzi Stone [00:06:50] Well, I am also a believer that yesterday is gone and tomorrow has yet to come. And so we all have to live in the present. And if in the present we are not challenged, we don’t have vision. So the job of a CEO, Sean, as you know, is to have vision. You must have vision, and the vision must be compelling. It must be. It must be something that can be translated. It must be something that can be owned by others. 

But if you fail to create a vision, you have failed to create something that is growing. And so I think to answer your question, people that leave boutiques because they’re tired or because they’re worn out, what they’re really saying is I don’t have a vision for the future. And so, the vision for the future is required. And I think anybody who continues to have a vision for the future should really ask themselves if it’s the right time to sell. 

Sean Magennis [00:07:50] Beautifully said again. And you know, that’s a lot. There’s a lot of psychology and psychological challenge behind that, and I loved you saying live in the present. It’s challenging to do so, but that’s where the reward is. And I love your comment about vision. It has to be compelling, and it has to be lived 24-7. So many boutiques are partnerships. At times, partners start fighting. One needs to be bought out. You know there are complications with that. What are your thoughts on this? 

Renzi Stone [00:08:22] Well, you’re talking to somebody who doesn’t have partners. And so…. 

Sean Magennis [00:08:25] For a reason, I presume. 

Renzi Stone [00:08:28] Well, I had a partner at the very outset of the business, and I did all the work, and the partner received all the benefit. And so I said, “Hey, partner, either you buy me, or I buy you.” And the partner said to me, “Well, I don’t want to own it because I don’t want to run it.” And I said, “Well, I don’t want to run it because I’m working for you 50 percent of the time.” And so it caused quite a conflict, as you might imagine. 

And so we resolved the situation. I bought his shares for a premium price, and then I own the rest of the business, so I own 100 percent of the business today. I would say for any professional services firm  owner who is at odds with the value creation with their partner, I would say that today is the best day to resolve it. 

And if you don’t resolve it today, then  tomorrow, and if not tomorrow, then the day after. I’ll tell you this, what most people do, Sean, is they don’t resolve it correctly. They just allow it to fester, which creates resentment which creates unequal value creation. And it’s a disaster waiting to happen. 

And we hear this in Collective 54 all the time. And it’s complicated, and it’s distracting to fight with a partner. But I would argue I addressed my problem. It was a problem. And as a result, I’ve created millions of dollars of value outside of that partnership, and it would not have been a good deal for me if I had stayed in that relationship. 

Sean Magennis [00:10:06] Wow, that is practical. It’s vulnerable, and it’s real. Thank you, Renzi. That’s outstanding. Another reason to sell is that some professional services firm owners are afraid, and you’ve touched on this a little bit, that tomorrow might not be as profitable as today. So what do you think about that? 

Renzi Stone [00:10:26] So I have a series of advice that I present to our team annually. There are 28 of them, but number one, Sean, is do not be afraid. Do not be afraid. And my counsel for anybody who thinks tomorrow might not be as good as today is, we have no idea. We just don’t know. And I’ll tell you; I have to tell myself the reasons. Number one on my list is because I have to tell it to myself regularly. 

Sean Magennis [00:11:02] Yeah, that’s that’s excellent. So, um, I’ve met owners who’ve had happy exits, and I’ve met owners who have had unhappy exits. And you know, what’s the difference? Those who had happy exits knew why they were selling. Those who had unhappy exits did not. 

10 Questions to Ask When Selling a Professional Services Firm

So, Renzi, this has been extraordinary, and we’re going to dive into our 10-question format. It brings us to the end of the episode. 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 these ten questions. If you answer yes to eight or more of these, you know why you are selling and will likely have a happy exit. 

Renzi graciously agreed to be our peer example today, and I’m going to switch it up slightly. I’m going to remove one. I’m going to add this because Renzi has really done his homework, and we’re going to go through his list of questions which are very similar but with one or two subtractions. So I’ll start out by asking the first question: Do you have a clear vision of your future? 

Renzi Stone [00:12:17] Sean, I’m a goal setter. You and I know each other a little bit. I’ve written down my goals since I was 10 years old. I have tracked my goals for most of the last 20 years. I write them down, and I work at them. I have a vision for where I’m taking my business, and I’m executing against it. 

And so the answer is today, I have a clear vision for the future, which is probably the reason I haven’t exited a couple of years ago. Sean, I would tell you that I did not have a clear vision, but then I got one. Yes, and so it’s made a huge difference. 

Sean Magennis [00:12:55] Excellent. So does selling your boutique help you get there? 

Renzi Stone [00:13:01] The option to sell my boutique helps me get there, so yes. But it’s an option. Not an imperative. 

Sean Magennis [00:13:09] Fantastic. Number three, do you know why you do what you do? 

Renzi Stone [00:13:15] Saxum, we have a mantra called obsessed for good. Obsessed for good means that you want your professional service consultant to be obsessed with your work. We want to be obsessed with the issues and the challenges facing our world. For means we’re serving others. We are serving others and good means that the expectation is excellence. And so obsessed for good is how we define our why. That’s why we do what we do. 

Sean Magennis [00:13:57] Incredible. I, you know, listeners, if you could articulate the way Renzi did those specific items, that would get you way ahead of the game. Number four, would selling the firm bring you closer to your ultimate purpose? 

Renzi Stone [00:14:13] Well, I think anybody who’s the owner and CEO of a professional service firm or any firm, the values are reflected in who they are as individuals. So being obsessed for good carries into my personal life, and I would expect it to only increase as I get older, and I move on to new challenges if I ever do. 

Sean Magennis [00:14:39] Again, well said. Number five, I know you have a set of values, so do you have a set of values that define how you want to behave? 

Renzi Stone [00:14:48] Yes, and there are four of them. They make up the acronym BOLD, which is brave, original, lively, and driven. Those are the values of the firm. Those are the values that we operate by. That’s how we create value for our clients. 

Sean Magennis [00:15:04] Outstanding. I’m going to skip now, and I’m going to ask you a question. Do you know the type of community you want to be part of? 

Renzi Stone [00:15:14] One of the things I’ve noticed about boutique owners is that a lot of them are alone, and they don’t have anybody to talk to. And so, if you are somebody who is running a firm or a Managing Director or a partner, you have to surround yourself with a community of like-minded  thinkers, like minded values, not necessarily thinkers, not necessarily people who just think like you. 

Diversity is obviously a huge benefit to people that take advantage of that. And so personally, I value authentic relationships, people that tell me the truth. Yes, and I value feedback. We should all be seeking feedback all the time. Feedback is a gift when we get it. We can take it or leave it, but it helps us. 

Sean Magennis [00:16:03] Yeah. So this is an allied question, and you answer it in the way that you want to answer. So would selling a firm allow you to spend time with these people? Or how would you respond to that? 

Renzi Stone [00:16:19] I’ve made a decision to spend time with people who are positive and life-giving, not people that suck energy and take. So I’m a giver. I believe that when you give, you get. There’s all sorts. There’s two thousand years of human truth in that. And so I spend my time with those types of people, and I try not to spend time with people that take life away. 

Sean Magennis [00:16:47] I could not agree with you more. The next question will the proceeds of the sale fund something more than material possessions? 

Renzi Stone [00:16:57] No, I think just material possessions, Sean. No, just joking.

Sean Magennis [00:17:02] I just want a boat and a few toys. No, I get that. It’s a trick question. 

Renzi Stone [00:17:07] Yeah. So, my family we have a family foundation. Isaiah Stone Foundation, which has raised almost a million dollars for research in epilepsy and helping families who have children with epilepsy. We lost a child. And so, I would definitely see spending more time on epilepsy research and supporting families who are dealing with the devastating effects of epilepsy. 

Sean Magennis [00:17:32] That’s a noble cause, and I commend you for doing it. And then the final question is are you personally prepared for the next chapter? Whatever that will be of your life. 

Renzi Stone [00:17:45] I think so. I think so. The big question is: Does anybody really enter a chapter fully prepared? I’m the guy that did not know what I wanted to do when I grew up, but I’m going to bring it back here at the very end to something you said a few minutes ago about happiness. People, are they happy when they exit? 

And I’ll just tell a quick story I had. I had dinner with my family in a restaurant last year, and we went to the restaurant. Our waiter was such a great guy, and he made us feel so special, and we just had a great time. We laughed, and we told stories, and I don’t remember what exactly it was, but it was just a great family dinner. At the end of the meal, he came up and he said, “Are you happy with how dinner went?” We all kind of looked at each other, and we said, “Yeah, we’re very happy about how dinner went.” And he said, “Of course, you walked in here happy.” 

Sean Magennis [00:18:42] Wow. I mean, I got a little cold shiver there. I mean, that’s powerful. 

Renzi Stone [00:18:47] You walked in here happy, and so I have a friend who just exited the business for nine figures. He was unhappy before he sold the company. And guess what? He’s still unhappy now. Yes, so unhappy. But if we can all, if you’re happy already, chances are you’ll be happy at the end of a business exit strategy. And chances are, you’ll be happy if you lose everything. It’s not tied together quite that tightly. Yeah. 

Sean Magennis [00:19:17] Renzi, I knew this would be a remarkable episode, and you’ve encapsulated all these thoughts so well. You know, every entrepreneur exits. We all have our final resting place, which is the great consistency in life. We all die. You cannot run your boutique from the grave, and most of us sell our firms before that event happens. 

There are good exits. Some professional service firm owners are happy after they sell, and we would wish for everybody to be happy after they sell. And there are bad exits where some owners on unhappy good exits and I would take your thoughts, Renzi. Good exits start with a heartfelt, well-thought-out reason to sell to continue living in the present. 

A huge thank you for sharing your wisdom today and for our listeners. If you enjoyed the show and want to learn more, pick up a copy of the book “The Boutique How to Start, Scale and Sell a Professional Services Firm”, written by Collector 54 founder, Greg Alexander.

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 1: The Difference Between a Happy and an Unhappy Exit

Step 1 in selling a professional services firm is knowing why you are selling, before you sell. Learn from an owner who figured this out and executed a massively successful exit.

In the breakout episode of The Boutique Sean and Greg talk step 1 in selling a professional services firm: knowing why you are selling, before you sell. Learn from an owner who figured this out and executed a massively successful exit.



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, life.

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 step number one in selling a professional services firm is knowing why you are selling before you sell. I’ll try to prove this by interviewing Greg Alexander, Capital 54’s chief investment officer. We can learn a lot from why Greg sold his firm. The reason to sell your boutique is very personal, and it should be. You poured your life into building the firm. Leaving it, handing it to someone else takes much thought. Some owners sell for the money. Others say they are bored. Some are exhausted and some say that the work became a job. It was not fun anymore. Some are afraid that tomorrow might not be as profitable as today. At times, partners start fighting and one needs to be bought out. Maybe it’s time to retire. Or maybe you’re getting divorced and your assets are being divided. A health scare causes some to consider selling. The list is long. I’ve met owners who have had happy exits and I’ve met owners who have had unhappy exits. What’s the difference? Those who had happy exits knew why they were selling and those who had unhappy exits did not. Greg, over to you, did you have a happy exit? 

Greg Alexander [00:02:08] I did. I’m very fortunate to be one of those who did have a happy exit. You know, I’ve got wisdom to share with the audience now, because it’s been a few years since I sold my firm. 

Sean Magennis [00:02:22] Yes. 

Greg Alexander [00:02:22] And I can look back on that and give some advice. And I agree with what you said, that key to a happy as it is, knowing why you’re selling. So I knew exactly why I was selling. So let me let me share my story with you, as I think it might be a good example. 

Greg Alexander [00:02:39] So I first became financially independent in my 20s. I got lucky and went to work for a hot tech firm before it took off. I performed well and therefore was rewarded with stock options. And then the stock shot up and so did my personal net worth. However, what I learned from that experience was is that, that success was not fulfilling to me, and fulfillment will be a key theme that will come out in my story and will directly tie back to why you’re selling being a key to a happy exit. So the success I have with the high tech firm in my 20s wasn’t fulfilling and the reason why that was, is that, although I was financially independent as a young man, I was very unsure if my success was due to luck or if it was due to my ability. 

Sean Magennis [00:03:33] Yes. 

Greg Alexander [00:03:34] And that that drove me crazy. That was the proverbial… What keeps you up at night? So I started my firm to answer a question, which was, how good am I? And it’s very important. I understand, when you’re selling your firm to think back to why you started in the first place. It gives you great context to make the decision to sell and not to sell and really when to sell. So my thinking back then when I was trying to answer the question, how good am I? Was that starting a firm from scratch was the purest way to find out. I started with no customers, no product, no employees. I put all my money into the firm and rolled the dice. If I blew it all, I was prepared to start over. I was young. I had a lot of years in front of me. If I was successful, I could look in the mirror and know what I was made of. And to me very personally, you know, living a life with not knowing when I was made of was just not worth living. And then time went on, as it does. And as I moved into my thirties and early for 40s, I matured. I developed a personal mission statement. So I had a purpose. I outlined a vision of my future that I wanted to pursue that got me to jump out of bed every day. I determined how I wanted to behave and this was done by developing the set of eight core values that I challenged myself to live by every day. Although not deeply religious, I became more spiritually aware. My political leanings and philosophical beliefs revealed themselves, and I became a skilled decision-maker and the result of that was that I made good decisions, which created new opportunities. And these new opportunities allowed me to think through what I was doing with my life, with my firm, in contrast to the new opportunities. In addition, I met many different types of people through my work at my boutique and this taught me which tribe I wanted to belong to. 

Sean Magennis [00:05:54] Yes. 

Greg Alexander [00:05:55] And I discovered how best to spend my time. I knew what made me special and probably more importantly, I knew what my limitations were. 

Sean Magennis [00:06:06] So profound personal insights here, Greg. 

Greg Alexander [00:06:09] Yeah, it was. And I think all of us go through that as we mature. 

Sean Magennis [00:06:15] Yes, indeed. 

Greg Alexander [00:06:17] And while this was happening to me, I was deliberate in doing it, but not so much in pursuit of selling my firm. I was just doing it as I was growing up. But it became incredibly valuable to me as I was faced with a decision. 

Sean Magennis [00:06:31] Yes. 

Greg Alexander [00:06:32] So this personal journey journey led me to goal setting ultimately and I settled on a single goal, which was self-actualization and many of the readers have probably heard that term, it’s part of Maslow’s hierarchy of needs and it can be most simply understood by saying it’s the highest level of psychological development where the actualization of one’s full personal potential is achieved and this occurs only after all the other needs have been fulfilled. And you can see why this concept of full personal potential was meaningful to me, because I started with my my firm, with the burning question, how good am I? And the firm was like an experiment or an explanation or exploration, I should say, to try to answer that. So this full, personable, tangible goal was really important to me. So with this goal kind of crystallize in my head and I should point out, this took many years. It didn’t happen. 

Sean Magennis [00:07:31] Didn’t happen overnight. 

Greg Alexander [00:07:34] Yeah. But with this goal, I kind of firmly planted in my head a bit. I began to evaluate my boutique against the goal. So, for example, was being the owner and CEO of this firm helping me self actualize. Ultimately, I reached the conclusion that the answer was no and that was really hard to come to grips with. 

Sean Magennis [00:07:54] I can see that. 

Greg Alexander [00:07:55] But it was true. The firm was providing things to me that were no longer important or were much less important than they once were. So, for example, all of my basic needs, you know, a house to live in, clothes to wear, food to eat, etc., you know, all those things were secured for a lifetime. You know, my family and I, we’re we’re stable for a lifetime. I had also done something that I think many professional service owners don’t do, and that is I had established an identity outside of work. Many firm owners, their personal identity is completely wrapped up in their firm. So the idea of selling their firm really means selling themselves or losing their identity, which can be very frightening for many but I had I had a very clear identity outside of work and my need to belong to belong to a community, to belong to, you know, something bigger than myself was being fulfilled elsewhere that wasn’t wrapped up in my firm. 

Sean Magennis [00:09:01] Got it. 

Greg Alexander [00:09:02] So, you know, I had I had answered the question at this point, you know, I started the firm to answer the question, how good am I? Because I was unfulfilled with my previous life and I had been tested. I was certain of what I was made made of. You know, the firm was very successful, more successful than I had ever dreamed. I had become very wealthy. I had received plenty of recognition. I was validated internally first and then externally. So if you think about it, I had reached the point of diminishing returns. There was really nothing left for me inside of the boutique. So right at that time, I got another injection of luck. I had a very good friend of mine, quasi mentor, who knew that I loved to read a kind of sense that I was at, you know, maybe a transition point in my life and handed me a book that had a big impact on me and that book was titled Halftime: Moving from Success to Significance and its author was Bob Buford and I highly recommend it to the readers listeners. The big idea of this book is how to live the second half of your life. Repeating the first half of your life was discouraged. First half success. According to the author, is no longer enough things like homes, cars, vacations, private schools, and so on eventually lose their appeal. You know I mean, how many steaks can eat? 

Sean Magennis [00:10:37] Absolutely right, Greg. This is hard-hitting. These are the things to dive into. 

Greg Alexander [00:10:43] So the second half is about significance, not about success. So making an impact on others, mentoring the next generation, contributing to society becomes the second half scorecard and this intrigued me because I had just turned forty-seven years old. My own mortality came into my purview. And what made this book really useful is that in the appendix there were all kinds of exercises and being the the diligent student than I am, I put myself through them and I drove my wife crazy because I forced her to do it as well. And then, you know. 

Sean Magennis [00:11:28] Smart man alignment Greg. 

Greg Alexander [00:11:31] And over many bottles of wine, we kind of compared our answers and these exercises were designed to serve as a personal definition of second half significance. So what came out of this was a new plan and it was very clear to me how I wanted to live my 50s in my 60s and 70s and then throughout the rest of my life and that path that I wanted to live was not the path that I was on and it became obvious to me that this second half plan was bold. I had been accused of dreaming big and it needed to be funded and the only way I could generate the funding, to fund the plan was to sell the boutique, to sell my firm. 

Sean Magennis [00:12:26] Just incredible sharing and I’m very moved by, by your story and also the concept that Bob Buford has in his book Moving from Success to Significance, which is what you’ve done. That’s been my experience of you and thank you for sharing that, Greg, you know, as president of YPO for seven years and as a very long term board member of EO for over 16 years, I’ve seen this journey play out many times, not quite like yours. You know, some sometimes it doesn’t go as well as your exit, and sometimes it does, obviously. 

Sean Magennis [00:13:04] We will be right back after a word from our sponsor. Now let’s turn the spotlight on collective 54 members who are making an impact in the professional services field. Collective 54 is the only national peer advisory network for owners of professional services firms who are focused exclusively on growing, scaling and maximizing business valuation. Today, we have the pleasure of introducing you to Sam Bretzfield, who’s founder and chief executive officer of bGlobal, one of Bangladesh’s leading outsourcing companies providing cost-effective programming and interactive production services. 

Sam Bretzfield [00:13:48] My name is Sam Bretzfield and I’m a technology-driven entrepreneur, investor, and advocate helping to build great companies such as EarthLink, Big Global, Direct Fresh, Six Beyond, and several others. I bring over twenty-five years of leadership experience working with global Fortune 500 enterprises as well as early-stage startups and have extensive international experience building high performing companies and project teams in emerging markets from concept to customer delivery. As the founder and CEO of bGlobal, we are passionate about offering exceptional and tailored fit programming and development services that are cost-effective and offset your operating costs using the latest technologies. These services form the backbone of the company and satisfied clients come back month after month to bGlobal, to benefit from our extensive experience, creativity, and innovation. bGlobal has operations in the United States, the Middle East, Europe, and South Asia. Please visit www.bglobal.com to learn more. 

Sean Magennis [00:14:54] Please get to know Sam and other business owners who are leading innovation in the professional services industry by visiting Collective54.com. Learn more about how Collective 54 can help you accelerate your success. 

Sean Magennis [00:15:16] In these podcasts, we’re going to go through the value contribution to our audience and so in an effort to provide immediate take home value, I prepared 10 questions on a yes no checklist and I’m going to ask each of our listeners to really answer these questions for yourself. So if you answer yes to eight or more of these, you know why you are selling your business and why you’ll have a happy exit. 

Sean Magennis [00:15:47] Number one, do you have a clear vision of your future?

Greg Alexander [00:15:52] So let me put a little color on that. The word vision is often thrown around. In the context of this show and thinking about why you might want to sell your firm. What the vision means is what is your aspiration? You know, what do you want to be doing five, 10, 15 years from now? And your vision may be continuing to work in the firm, and if that’s the case, don’t sell. 

Sean Magennis [00:16:17] Exactly. 

Greg Alexander [00:16:18] But your vision may be, I don’t know, travel around on my yacht in the Mediterranean from June through September. Well, if that’s the case, you’ve got to sell your firm. So that’s what the vision means is what’s your aspiration? 

Sean Magennis [00:16:29] Good distinction, Greg. Number two, does selling your boutique help get you to the vision that you’ve just created? Number three. Do you know why you do what you do? Greg, unpack this one. 

Greg Alexander [00:16:46] Yeah, so I can tell you what a bad answer is. Right. Do you know why you do what you do if you say, cause I need to make money. That’s a bad answer. There’s a lot of ways to make money and I would imagine anybody who owns a professional services firm is a highly skilled person. They can make money a million different ways. Right. So the why you do what you do is your purpose, right? It’s why do you exist? You know, what do you do? What drives you? What gets you out of bed? And when determining whether or not to sell your firm, which is what the show is about. If why you do what you do, is consistent with the reason for the firm’s existence, then you shouldn’t sell. If why you do what you do is inconsistent with the firm… In other words, you’ve grown or outgrown your firm, then maybe you should consider so. Yeah. 

Sean Magennis [00:17:37] Excellent. Number four, would selling the firm bring you closer to that purpose? 

Greg Alexander [00:17:44] Right. Which says you’ve got to define the purpose in the first place. 

Sean Magennis [00:17:48] Question number five. Do you have a set of values that define how you want to behave? 

Greg Alexander [00:17:54] Yes. I’ll tell you a story there. So as firms mature, their culture morphs. So when I started my firm, we were a sales consultancy and as the founder of that firm, co-founder of that firm, the culture of the firm was very representative of a sales culture. You know, we were aggressive, we competed hard, etc. with very high expectations. Bringing in new business was highly rewarded. Well, you wake up 10 years later and here’s what you realize. You started firm to go to work for yourself, then you wake up one day and you realize you’re working for your employees. It changes. Mm-hmm. So, your values either have to change to reflect the new reality or your values remain the same and you realize that you’re out of place that that you no longer fit with the firm, and when that happens, it’s very important to hand the firm over to somebody who’s appropriate for its next wave. It doesn’t mean that that person’s better or worse than you. 

Sean Magennis [00:19:08] Got it. 

Greg Alexander [00:19:08] It just means that they’re the right person for that time, and you’re no longer the right person for that time so it’s time to move on and that happened to me. When I was the perfect person for the first 10 years of that firm, but for that firm to become who it needed to become and I’m glad to say it has it required a new style of leader. So that’s what that question is meant to surface. 

Sean Magennis [00:19:29] And and it required your self-introspection and loved the setup to this odd guest because, you know, in terms of the hierarchy of needs and your authentic focus on your purpose and vision allowed you to get to that point. 

Greg Alexander [00:19:45] For sure, it wasn’t easy. You know, there was a lot of pride swallowing, ego-bruising… 

Sean Magennis [00:19:50] I’m sure. 

Greg Alexander [00:19:51] That happened there. But, you know, I can say, looking back on it now, that it was definitely the right move. 

Sean Magennis [00:19:56] Outstanding, question number six. Would the sale of your boutique, allow you to behave the way you want. 

Greg Alexander [00:20:04] Yes. So for me, that was a case. I mean, what I’ve realized is I’m a habitual entrepreneur. 

Sean Magennis [00:20:08] Yep. 

Greg Alexander [00:20:09] So, you know, the founding of Capital 54 allows me to be around other entrepreneurs and be part of their journey and so it’s allowing me to behave the way that I want to behave. Whereas being in a larger firm that’s no longer a start up, we know [inaudidble].

Sean Magennis [00:20:26] Yeah, it restricted you.

Greg Alexander [00:20:30] Yep. 

Sean Magennis [00:20:30] Number seven, do you know the type of community you want to be a part of? That’s an entrepreneur. 

Greg Alexander [00:20:33] Exactly. 

Sean Magennis [00:20:35]  Number eight. Would selling your firm allow you to spend time with these people? 

Greg Alexander [00:20:40] Yeah, that’s the other thing. You know, in order to have a successful firm, you can mail it in. 

Sean Magennis [00:20:46] No question about that. 

Greg Alexander [00:20:47] It’s all-consuming. All right. So sometimes owners think they they can do both. You know, they can maybe pull back the reins and what they’re doing today and start the new journey. The minute they do that, they’re shooting themselves in the foot because the firm itself starts to deteriorate. 

Sean Magennis [00:21:07] Yes. Good point number nine, will the proceeds of the sale fund something more than your material possessions? So what you’re doing. 

Greg Alexander [00:21:18] Yeah, for sure. And, you know, again, I learned that the highway, you know. You sell your firm, you get a pile of money and you start buying things, and then you realize that the wow factor wears off in about three hours. 

Sean Magennis [00:21:32] I love that Greg. And then finally, number 10. Are you personally prepared for the next chapter of your life? 

Greg Alexander [00:21:40] Yeah. You know, this actually should be number one, and the reason why that is, is that I would recommend those that are listening that when you do this, close the chapter and move on. Keeping one foot in the first half and one foot in the second half is not good. Just make the break. Reinvent yourself. Start over. Dive all in on the next chapter of your life, so you got to know what that next chapter is and you got to spend the time to think about what that next chapter is before you go after it. 

Sean Magennis [00:22:16] Outstanding. Greg, thank you for sharing, sir. 

Greg Alexander [00:22:19] My pleasure. 

Sean Magennis [00:22:19] Honestly with us. As we all know, every entrepreneur exits. We all die. 

Greg Alexander [00:22:26] I love it. 

Sean Magennis [00:22:26] I don’t want to be depressing but we do. 

Greg Alexander [00:22:28] I love this. Sometimes I speak to entreprenuers and I say, where would you like to exit? And they say, well, I’m not going to exit. I’m like, Oh, yeah. 

Sean Magennis [00:22:35] Oh, yeah. 

Greg Alexander [00:22:35] Show me how you’re going to run your business from the grave. 

Sean Magennis [00:22:38] And that’s it. You cannot run your boutique from the grave. Most of us sell our firms before we die. There are good exits. Some owners are happy after they sell. And then there are bad exits. Some owners are unhappy after they sell. Good exits start with a heartfelt, well thought out reason to sell. 

Sean Magennis [00:22:59] 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 Dare I say, successfully sell a professional services firm. I’m Sean Magennis. Thank you, Greg, and thank you to our listeners for being with us.