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 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 some day 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 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. 

Greg Alexander [00:01:54] So, Marc, just for a 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. 

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

Greg Alexander [00:02:41] 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] One with 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 yeah. 

Greg Alexander [00:03:44] 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 one two. I want to do something else now. Great. 

Greg Alexander [00:05:03] 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 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. Right, 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. 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, covid had 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, Be the 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 my our present resources of number 5 to 54. He’s done. 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 he’s 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. So you. 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 our. Our clients have been very loyal and very I’ve told our clients that I saw when I started the business 35 years ago. We’ve gone through their own sales. 

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. As 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 2 to 4. 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 it’s it’s it’s moral, but it’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 are 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. Yeah. 

Greg Alexander [00:12:15] 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. Yeah. 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 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. 

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 I’ll write a check tomorrow for the whole business. Wow. 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. Yeah, 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 a naked 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, us 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.

How an IT Services Firm Built an Executive Leadership Team

Matt Rosen
Matt Rosen

Episode 76 – How an IT Services Firm Built an Executive Leadership Team – Member Case with Matt Rosen

The quality of the executive leadership team is paramount as professional services firms grow, scale, and exit. In this episode, we speak with Matt Rosen, founder, and CEO of Allata. He shares how he structured his executive team to replicate himself, developed a succession plan, and spent time working on the vision of the future.  


Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that don’t know us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. 

My name is Greg Alexander. I’m the founder, and I’ll be your host today. And on this episode, we have the privilege of talking to Matt Rosen and the leader of a company called Allata, which I’ll introduce in a moment. We’re going to talk about building a quality management team, and how he’s done that at his firm and hopefully learn a few things along the way. So, Matt, it’s good to see you. Would you introduce yourself to the audience, please? 

Matt Rosen [00:00:54] Yeah. Thanks for having me on the show, Greg. So my name is Matt Rosen, and I’m the founder and CEO of Allata. Allata is a tech consulting firm based in Dallas with offices in Pheonix, Boise, and Provo. And what we do is we help companies with their most complex technology initiatives from a strategy, architecture, development, and data standpoint. 

Greg Alexander [00:01:14] Okay, awesome. And Matt, when did you find the firm to grow? 

Matt Rosen [00:01:18] I founded the firm back in 2006. It was just myself and a developer. And now we’re over 220 people and growing quickly. 

Greg Alexander [00:01:25] It’s an incredible story. It really is. Congratulations on all that. So let me set up the topic because I asked you that question about when you founded it and where you are today because you’ve scaled so fast. And I think one of the reasons why you’ve done that is because you’ve been able to build a quality management team, and I’ve had the privilege of meeting a few of them. 

And it’s a big subject because sometimes, founders that are growing like that hit a bottleneck eventually. And that is, they’re kind of the hero within a group of helpers. It doesn’t work, you know. There’s just too much work for one person. And you got to hire senior people or develop senior people. You have to give them enough autonomy to make the contributions that they need to make, empower them to be successful. And I think you’ve done a really good job with that. 

So I’d like to start with an opening question, which is at a high level, explain to the audience kind of the organizational structure of your leadership team that reports to you by role. Maybe, I don’t know if you need to mention names, what by role? And tell me how you came to that conclusion and why you built it the way you built it. 

The Structure of an Executive Leadership Team Matters

Matt Rosen [00:02:35] So where we’re at today is I really have three direct reports. I have a chief strategy officer and she owns sales,marketing,go to market offerings as well as our partnerships. I have a chief technology officer and he’s really looking forward to the technology direction, what new trends d we should be jumping on. He’s also my personal helpdesk when I run into issues. And then I’ve got a chief operating officer, so the Office Leadership Report is sent to him. 

So I have leaders for four different groups in the company. There’s Dallas, Pheonix, Virtual and Boise, and then he’s got all our back office functions from recruiting, H.R to finance. And so really everything falls to the three of them. And underneath them they’ve got leadership structures and sales and marketing, especially at a delivery level. There’s four group leaders that almost all the consulting resources roll into. 

And then we’ve got practice lead. So for strategy, for architecture, for product and design, for technology solutions and for data, we’ve got vice presidents that head up each of those service lines, if you will, and people are really matrixed across the organization into their office leaders, as well as the practice leaders. 

Greg Alexander [00:03:51] What I find remarkable about your story is you’ve been around five or six years. You’ve grown like crazy, and yet you personally only have three direct reports. Now, I know underneath those three, they have their teams, but that’s pretty remarkable. 

Sometimes I see guys and gals like you with eight to ten , and they’re living almost miserable lives because there are not enough hours in the day. So how did you get it so tight to only three? 

A Professional Services Firm Needs Great Leaders

Matt Rosen [00:04:18] Well, you have to have really good leaders. I mean, that’s really what it comes down to. You’ve got to have people that you can set goals for. You know, I’m not a micromanager. I’m not even really a macro manager. I said high level goals, and I get the heck out of the way. I hire bright people, you know, I do have one-on-ones with the three of them. 

And I probably talk to the layer below them at least every other week. But, you know, we’ve got a real structured way in which we do a sales meeting every Monday. We do an operations meeting every Tuesday. I’m always in on those, or people are sending me a synopsis of them. So it gives me just enough information really to run the firm. And it took a while to really trust folks and hand things off, especially in the sales arena. 

That was based on one of the recommendations you made when I was early on in the Collective was, “You’ve got to stop being the hero sales guy.” That was really hard for me to let go of, but I finally have found a leader who came from a large firm, and she brought a lot of process with her and is now leading the sales team and is a very effective seller herself. 

A lot of it comes down to finding people that are great at doing the things that you don’t or can’t do well, empowering them to do their job, and staying out of their way unless they’re just not meeting their goals. They know that people are going to do things the way you do them. And that’s okay. 

Greg Alexander [00:05:27] Yep. Okay. So, awesome story. I’m really proud of you for what you did on the sale side, and it was hard for you to let go because you enjoyed it. I remember talking just. 

Matt Rosen [00:05:37] I still get involved. I still get pulled in from time to time, but I’m not actively leading sales cycles. I’m spinning them up from time to time but I’m handing them off. 

Greg Alexander [00:05:44] Yeah. And it’s tough to let go of the things that you really like to do. So that’s a great story to hear that you’re doing that. I know that your company is not for sale, but given your growth, I imagine the phone rings. And one of the things that potential acquirers are always looking at as part of their diligence is the quality of the management team. 

So if someone came to you with an offer you couldn’t refuse, you know, some crazy number that you’d be ridiculous if you didn’t take it. Do you know who your successor is and who you would hand the firm over to? Or would you plan on staying after the sale? And then if you were to hand it off, does everybody get pulled up the org chart, so to speak, so that the thing doesn’t fall apart post-sale? 

Matt Rosen [00:06:28] That’s a great question. You know, we’re not for sale. If some crazy offer came along, I would foresee myself sticking around for a couple of years to make sure that there was a smooth transition integration. Ultimately, I built this firm because I didn’t want to work for others, and know I wanted to build a firm that was sustainable and successful with or without me. 

So, you know, there definitely is a succession plan in place that we’re executing on. There’s definitely a couple of folks that could, with some training and tenure, probably step into my shoes. Nobody’s replaceable. It takes time for them to grow into the role. 

And what we’ve got is a really good mix of people that were career consultants and a mix of people that were in the industry. I had a lot of clients that were VPs about those that I was going to work for me. You’ve got this really nice group of leaders that have either consulted their whole careers or sat on the side of the desk of those that we’re selling to. That adds a lot of credibility when working with clients. 

How Professional Services Firm Owners Can Leverage Executive Leadership Teams to Their Advantage

Greg Alexander [00:07:25] Awesome. Glad to hear that. Sometimes when I talk to members and I suggest that they do what you’ve done, I hear particularly from maybe the younger firms, those that haven’t reached the scale that you’ve reached. They say, “Well if I have all these people that are going to do all this stuff, what am I going to do?” Which I tell them, “Hold on, you know, you’ll have plenty. If things go well, you’ll never ask that question again. There’s going to be too much to do.” 

So now that you have put this great team in place and you’ve elevated yourself, what do you personally spend your time on? 

Matt Rosen [00:08:01] You know, I spend my time thinking about where we need to head next. From a company’s perspective, what geos we might want to go into, what offerings we might want to have. I spend time visiting with a lot of our larger clients and spending time with them just understanding what’s important to them. Like a lot of them are my close personal friends. I spend time talking with leaders as they need, you know, strategic advice. 

You know, they might call me and say, “Hey, we’ve got this situation. What do you think?” And they run things by me, you know. By putting this great leadership team in place, it allows me to actually get out and, you know, play a round of golf every now and again, which I hadn’t done in about 20 years. 

So that’s kind of nice fun that, you know, folks like you or, you know, clients that like to get out there as well and enjoy a walk ruined by golf. But, you know, there’s always things you can be working on, looking for ways to make the firm better or, you know, taking leadership courses. 

Um, you know, doing interviews such as this, and really being a thought leader in your space as well as looking for how can you grow the firm maybe through M&A. So we’re actively talking to a couple of companies that might be accretive and be good partners for us as we grow. 

The Importance of Letting Go When Building a Leadership Team

Greg Alexander [00:09:10] Yeah. So listeners what we just heard there is that Matt spends his time on the business, not in the business, spends a little time in the business in the right spots, but he has a team that’s doing that for him. So he’s pursuing the vision, the future. And unless somebody is dedicated to that vision, the future, it never happens. You are just constantly in reaction mode. 

Matt is being proactive now and he’s leading. He’s not managing. There’s a difference between managing and leading. And what we’re hearing from Matt today is he’s leading, which is a great role model for all of us to follow. Got one more question regarding the management team and the structure in particular. 

I know when I went through this process that you have gone through the thing that I was less willing to give up and I clung to the most, which was a flaw, and I didn’t do it the right way. This was a mistake. It came to investment decisions when money was going to get spent. I held on to this money like it was my first communion money. I was unwilling to let anybody, you know, make those decisions other than me. How is that handled in your firm? Do you approve all expenses or do people have authority to do these types of things? 

Matt Rosen [00:10:23] So in this, I would say over the last twelve to eighteen months, we’ve moved to a budget. As long as people are spending what’s in that budget, there is not a problem with it. In fact, they put the budget in, in some respects, to control me from spending too much on different things. 

Greg Alexander [00:10:36] But the budget was for you. 

Matt Rosen [00:10:38] So that was actually from a year ago. But we’re doing a good job and you know, we’re performing ahead of plan as a result of it. So, no, you know, again, that comes back to empowering people. I mean, the only thing I’ve not given up is, you know, I’m the only one that sends wires. 

But other than that, people have corporate cards, they have budgets they can spend on what they need, we have a good controller, you know, authorizes money to go out. And so most of that I’ve given up and people make a lot of decisions where we spend that budget that’s been allocated without my involvement. 

How Does Allata Create a Budget for its Professional Services Firm?

Greg Alexander [00:11:10] Yeah. Interesting. That’s really inspiring. In the budget process,  it sounds like this is a relatively new thing, let’s say, in the last couple of years. So how do you guys create the budget? Is it done once a year? Is it done at the beginning of the year, or the end of the year? How does all that work? 

Matt Rosen [00:11:26] Yeah, it gets done, you know, as the year is wrapping up. So towards the end of 2021, we set the budget for 2022. You know, we reviewed it with the group leaders. You know, we had them put in things that they wanted. We were meeting with sales and marketing and the, you know, the practice leads and everyone kind of put in their wish list, and we kind of whittle it down to what we thought we could spend in addition to where we think we could achieve from a revenue top-line standpoint. 

And so we review it monthly, we do at the end of each month kind of a financial review, see how we’re tracking. And you know, if we’re doing ahead of plan, we might spend more on certain things or make more investments in certain areas. But the big you know, the big thing for 2022 is making sure we’re focused on EBITDA, building a sustainable organization and, you know, spending where we need to and not spending where we shouldn’t. Yeah. 

Greg Alexander [00:12:17] It’s great that you review it monthly. It’s kind of like a variance-to-plan type meeting. 

Matt Rosen [00:12:22] Absolutely. We go through line by line in the major categories, see where we are under, and see where we are over. And you know, we adjust as necessary as we go into the next month, and at least for January, we’re on track. We’ll see how we’re doing for February next week. Yeah. 

Greg Alexander [00:12:36] You know, the hardest part about budgeting for me was the forecasting part of it. You know, it’s easy to look at what’s happened and you can do the variance to plan on that. But then if someone says, “Hey, what’s going to happen in six months?” 

It’s tough because professional services can be a little lumpy. And, you know, it’s not as much forward visibility as we might like. Have you implemented any type of forecasting system that sits on top of the budget that predicts the future? And if so, how’s that going so far? 

Matt Rosen [00:13:02] You know, it’s really a combination of two tools. You know, we’ve got a CRM tool, as most organizations do, and we try and put it in as much as we know. We’ve got, you know, kind of a four-stage sales process and just waited. So, we’ve got that, kind of that weighted pipeline. And we’re always trying to have 2 to 3 X or revenue plan and we do pipeline. It never turns out to be that much because we tend to be a little bit conservative, but we have that weighted forecast of all the deals that are in the pipeline, what’s coming as well as our forecast of what we think clients are going to do between now and the end of the calendar year. 

And then we invest in a professional services automation tool that allows us to see weekly how we’re tracking a plan, making sure hours are up to date. We also have some modeling scenarios where we can figure out, you know, based on the people we have available, you know, what type of team can we put together, what’s their profitability? Because for the longest time we only understood margin at a company level. We didn’t understand it at a project or client level. 

And now we have that visibility and that visibility is allowing us to make smarter decisions. You know, I think about consulting hours. It’s like bananas. They spoil at the end of each month. So you’ve really got to manage them tightly and ensure that you’re watching them and leveraging them and try not to leave anything behind. Yeah. 

Greg Alexander [00:14:15] Question on the PSA platform, which I’m so glad to hear that you’ve installed. I’m a big advocate and I think it really helps, particularly on those two items, project and client level profitability and managing that inventory. What advice would you have for younger, smaller firms on when it’s appropriate to progress to the point where you would install a professional services automation tool? 

Matt Rosen [00:14:41] When the Excel spreadsheet starts breaking. 

Greg Alexander [00:14:44] Which happens early. Yeah. 

Matt Rosen [00:14:48] It was probably better. My team had to push me for years and I don’t mind mentioning the tool. We were able to cut a pretty good deal with them and they had professional services that helped us implement it. The challenge is you do have to take someone senior and have them help line your  implementation. 

So it is an investment, one that I had to be pushed on for a while. I should have done  that sooner. We probably would have actually been a bit more profitable. I probably waited a year or two too long. But now that we have it and we are seeing returns from it, we are capturing time that we weren’t previously. 

It’s allowing us to model up skill sets and understand where we need to be investing. You know, it probably is something we should have done two years prior and my team pushed me for it, but I held off because I wasn’t ready to make the investment. But I’m glad they finally pushed me to do that. That mix of harvest and spreadsheets was no longer getting the job done for 200 plus people. 

Greg Alexander [00:15:44] Yeah, exactly. Well, listen, man, you’re absolutely knocking it out of the park. I mean, every single thing you’re supposed to be doing to be on the business and scaling the business is working really great. And your results back it up.

And I want to, on behalf of the membership, just thank you publicly. This is a big contribution. You’re a role model for many. And hearing your story and how quickly you’ve gotten to this point is an inspiration. So thanks for being on the show. 

Matt Rosen [00:16:10] Yeah, thanks for having me on the show, Greg. Appreciate it. 

Greg Alexander [00:16:13] All right. And for those that are interested in learning more about this subject, building a quality management team, and others like it, pick up the book. It’s called The Boutique: How to Start, Scale, and Sell a Professional Services Firm. You can find it on Amazon. And for those that are listening that want to meet really bright professional services owners like Matt, consider joining our community. You can find it at collective54.com. Thanks again, Matt. Take care. Matt Rosen [00:16:36] Thanks. Take it easy.

How a Demand Generation Agency Scaled Its Culture With a Remote Workforce

Bart Bartlett
Bart Bartlett

Episode 74: How a Demand Generation Agency Scaled Its Company Culture With a Remote Workforce – Member Case with Bart Bartlett

The cultural fit of employees, clients, and potential acquirers are all critical to the success of the professional services firm. In this episode, Bart Bartlett, CEO at DemandZen, shares how he instills the core values of the firm within his remote team.


Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that don’t know us, Collective 54 is the first mastermind community to help you grow, scale, and exit your firm bigger and faster. 

I’m the founder, Greg Alexander, and I’ll be your host today. And on this episode, we’re going to talk to Bart Bartlett from DemandZen. And today, I’m going to talk about culture fit. So, Bart, welcome to the show. 

Bart Bartlett [00:00:45] Thank you, sir. 

Greg Alexander [00:00:46] Good to see you. If you wouldn’t mind, introduce yourself and your firm and tell everybody what you do. 

Bart Bartlett [00:00:55] Sure. So I’m Bart Bartlett, the CEO, and co-founder of DemandZen. We focus on the top of funnel demand generation for B2B tech companies and have done so in one form or another since about 2004. 

Why Culture Fit is Important When Scaling a Business

Greg Alexander [00:01:08] Okay, fantastic. So today we’re going to talk about culture fit. And this is a very interesting subject because as a firm grows and scales, particularly at the exit, and if they’re going to merge with somebody, culture fit, underlining the word ‘fit’ becomes a really big deal. Now, why is that? 

Well, according to a recent article in the Harvard Business Review, somewhere between 70-90% of acquisitions fail. And they cite the reason why they fail is a misalignment of cultures. And then there has been quite a bit of research from the great consulting firm McKinsey on this very subject as well. 

So we’re going to try to unpack this. And when we try to apply the word culture fit not only to an acquisition strategy, whether you’re the buyer or seller, but also on your journey up to that point through the growth and scale stage. 

And I want to start Bart, I’m going to use the ten question checklist in the book here to guide our conversation. And I want to start with question number two, which is: Does the founder’s origin story shed a light on the boutique’s culture? 

So I know a lot about your origin story, and I won’t ask you to recite it here because it’s a long and very interesting story. But let’s focus on whether or not it does shed a light on your culture. So describe DemandZen’s culture fit and tie it back to the origin story. 

Bart Bartlett [00:02:31] Sure. So our culture is really driven by core values and I’m stepping on my words cause I’m not used to having it here, so. And we basically make those a part of the interview process, a part of the onboarding process. And I would say a part of the ongoing process. Right? 

So we try and be values driven as an organization. Iin terms of how that came from our origin, DemandZen basically we merged two other companies. And it’s been almost eight years ago now. And at that point we had about seven people. And after about six months, we basically just surveyed everyone and said, “what’s important to you both personally and professionally?” 

And we synthesize that into our core values, and then we just try and run the business in line with those values, whether it be recruiting or how we interact with customers or the clients that we think we can do the best work for versus clients that we may need to let go. Right. It’s all just sort of values-led. 

Greg Alexander [00:03:36] Okay. And eight years ago, you merged two companies, still a small firm at that point, seven people. Again, what are you guys out now in terms of number of employees? 

Bart Bartlett [00:03:46] We’re at about seventy-five employees. 

Greg Alexander [00:03:48] Okay. So a ten X scale in approximately seven, eight years. And so the culture is going to get challenged when you go through that type of growth. Let’s first talk about when you brought those two companies together. 

Was there a culture fit when you merged them or did the culture need to be adapted to merge the two companies together? 

How DemandZen Built a Culture For a Remote Workforce

Bart Bartlett [00:04:09] So in this particular case, I worked with the prior company as a client across three different startups. So I was pretty familiar with the organization that I was merging into. And on my side, it was just me and an employee, right? So it wasn’t a large company per say. Yeah. And there were maybe five people in the prior company when we merged. So I would say we were reasonably familiar with each other. 

Greg Alexander [00:04:36] Okay. So it was an easy fit because you’d had a prior working relationship. Okay, great. So then everything’s values-driven, which I love. Maybe share a few examples of what your values are now. 

Bart Bartlett [00:04:49] Sure. So first and foremost, we’re results-driven just as a performance-based marketing agency, we have to be. But we also focus on solving problems. That’s essentially what we do for clients is help them solve their demand generation challenges. 

But we also just when we talk to our employees, we’ve been a remote organization for a long time. So we just explain that if you can figure something out for yourself, you know, just Google it. Spend a couple of minutes trying to understand it, and figure it out that that process is a lot more efficient for the business. 

Greg Alexander [00:05:22] Yeah. Sometimes I’m fascinated by the concept that you were remote before all of us were forced to become remote and you ten X’d your employee headcount being remote. 

I hear from members at times that cultures fall away or fall apart when trying to scale a business as much as you have remotely. And you clearly are proof that that’s not true. Did you have to do anything differently given the remote nature of your workforce? 

Bart Bartlett [00:05:47] Well, I would view it more as I’m proof that you can make every possible mistake in the book and survive it while scaling culture and  a business. So, you know, we had to learn to do a lot of this stuff via trial and error. 

There’s a lot of ways you can support disseminating culture remotely. Right. So one, you know, we get on the phone, the senior team gets on the phone with new hires as part of their onboarding process and says, these are our values. This is the story. This is where each of the values comes from and why we think it’s important to the business. You know, we effectively have  to prioritize communicating around our values. 

We also use a micro bonus platform called Bonusly so that anyone in the company can give anyone else a bonus in line with core values at any time. So if you think about it, it’s like a network effect. 

So the more employees you have, the more micro bonus thing you’re doing in line with core values. And then that all goes into a Slack channel. So yeah, so our core values are basically emphasized by our employees all day, every day. 

Greg Alexander [00:06:54] Okay. So I want to make sure I understand that because that’s an innovative way of driving values into the business constantly. So let’s say you and I are employees together at DemandZen. I notice you living the values in some way. You did something that was evidence to me you were living the values. So through Bonusly, I nominate you for a bonus. I award you a bonus. How does it work? 

Bart Bartlett [00:07:15] You award a bonus. You would say, “I’m giving Bart ten Bonusly points.” We call them Zen bucks, I think. And you know, so you get ten Zen bucks for awesome performance or, you know, essentially solving problems or being flexible. 

Greg Alexander [00:07:32] That’s really cool. 

Bart Bartlett [00:07:33] Yeah. 

Greg Alexander [00:07:35] What I like about that is its bottoms up as opposed to top-down. It’s the employees reinforcing the values themselves as opposed to being told to do so by the leadership team. Interesting. 

Bart Bartlett [00:07:44] Well, yeah, we effectively try and come from both directions. Right. Like, I realize it was really important for us to communicate the values as part of the onboarding. So I knew it was in recruiting and I knew it was in training. But essentially, as you come to the end of your first week in training, you’re talking to the three senior managers of the company about the core values and where they came from. 

Greg Alexander [00:08:04] And when you’re in a job interview and you’re assessing someone’s fit, their cultural fit. You know, they’re going to come into the company and fit in and be able to live our values. It’s a tough thing to do in a job interview, but clearly you’re doing it. So how do you incorporate your values into your screening process? 

How to Incorporate Culture Fit and Company Values into the Interview Process?

Bart Bartlett [00:08:24] Well, I would say we do it to the best of our abilities, right? So we communicate the values early and often. We talk about how they’re expressed in the business. And I would say we also try and sort of challenge people a little bit through the interview process to just see if they’re going to fit. 

Greg Alexander [00:08:45] Yeah, you know, in my old firm, we had a very, very thick culture. And at times it was a strength of the times and other times, it was a weakness. We would attempt to do what you’re doing, which is screen for values and cultural fit during the interview process. 

But sometimes we’d make a mistake and a new employee would join. And then the system just rejected the new employee. Like within the first thirty or forty-five days. It was just obvious to everybody, including the new employee, that it wasn’t a good fit. And we had a lot of infant mortality. 

And I look back on it now and I’m glad because it actually helped us. But at the time it was very painful and it caused a lot of grief because we were growing quickly and we needed capable staff to do the work. Are you experiencing something similar to that? 

Bart Bartlett [00:09:30] Oh yeah, absolutely. I wouldn’t say it happens that often, but there are definitely situations where we have employees and we’re like, you know, they’re a decent employee, they’re a good person, not a cultural fit. And sometimes it’s hard, right? 

Like you just, you know that they can’t stay with the organization. I mean, what we try and do is give them coaching and kind of show them where some of the gaps are and then, you know, see if they can make that adjustment. It’s very difficult, right? 

It’s like to some extent, a lot of these things are driven by personality and just that is their approach to communication and it’s hard for tigers to change their stripes when they don’t necessarily want to. 

Greg Alexander [00:10:13] So even if someone is productive, and a good person and all that…I mean, has no ethical challenges, but if they’re not a cultural fit, then you part ways with them anyways, even though they can do the job. 

Bart Bartlett [00:10:25] Yeah. 

Greg Alexander [00:10:26] Yeah. Interesting. That’s a strong commitment to the culture fit. I applaud you for that. Okay. So as you scaled from your seven people to your seventy plus people and you scaled the culture, sometimes I see a few things at work there. 

Legends, cultural legends. So people that were on the journey and they become role models that others look to. And also artifacts, you know, things that are present, that are almost physical reminders of what the culture is. Now that might not be the case with you, given the fact that you’re remote. But let’s talk about each one of those. Do you have kind of DemandZen legends, you know, people that others look up to? 

Legends and Artifacts: Why They Are Important for Culture Fit

Bart Bartlett [00:11:08] I would say we do. But they’re more among the employee population. Right. Like we’ve got senior callers who’ve been with us for six or seven years. And so a lot of that experience comes from, I would say the senior team members. So we sort of have probably fewer founder-led legends. We probably do have more artifacts than you would otherwise expect. 

Greg Alexander [00:11:34] So tell me a little bit about that. 

Bart Bartlett [00:11:37] So we I mean, we realized that to make core values effective, they need to be sort of obvious and repetitive. So there’s DemandZen core value coffee mugs, there’s the DemandZen core value t-shirt, there’s the DemandZen core values screensaver and. 

Greg Alexander [00:11:56] And you found those things to work. 

Bart Bartlett [00:12:00] Well, you know, it’s like marketing, right? We make the impressions. I don’t know if we can truly measure their effects, but yeah, I’d say most people in the company have a pretty idea what our core values are. 

Greg Alexander [00:12:11] Yeah, for sure. And they’re proud to wear the DemandZen t-shirts and drink out of the DemandZen coffee cups and all that. And it’s in you know, it’s a great example. It’s never one thing, you know, it’s the, it’s the accumulation of many, many things that reinforce a culture. 

Okay, very cool. Let’s extend culture. I guess this would be my last line of questioning if I’m moving down the checklist here. Now, extend the culture fit to clients. Are there, is it obvious that there are certain clients that are going to be good clients because they align with your values and your culture? And is that part of how you select clients? 

Is Company Culture Important When Selecting Clients For a Professional Services Firm?

Bart Bartlett [00:12:46] Well, I would say it’s a part of how we choose which clients we want to retain and renew. 

Greg Alexander [00:12:53] Interesting. Right. 

Bart Bartlett [00:12:54] And it’s a complicated dance. So essentially, you know, we have clients who do not communicate effectively. 

Greg Alexander [00:13:03] Yeah. 

Bart Bartlett [00:13:04] And they may be super vehement about how they communicate and how they approach us. Right. But that might not be a fit for just how we do business. And so with those clients, you know, it’s challenging. 

One of our cultural values is being open and honest. So we try and ask the right questions and present alternatives in working with clients. But if they just won’t bite on any of that, they’re probably not a good fit for us. 

Greg Alexander [00:13:36] And it makes it tough to be successful in that setting. I mean, you guys do things a certain way and not that you’re not flexible, but like a basic requirement is communication. And if the client’s not going to communicate, it makes it really hard for you to do your job. Yeah, that’s interesting. Have you ever fired a client because of that? 

Bart Bartlett [00:13:59] Yes. 

Greg Alexander [00:14:00] Wow. That takes a lot of courage. 

Bart Bartlett [00:14:03] Well, we kind of just have to do it right. Like, if you don’t, if you have clients that are continuously challenging and how they interface with your team, at some point, you got to make a choice. Right. 

And we deal with a lot of early-stage startups, right? Yep. So there’s a lot of founders. There are a lot of senior team members who feel incredibly strongly and passionate about what they do. And, you know, I tell people DemandZen is my startup, right. I’m pretty familiar with that mindset. 

But you have to be able to express it in a way that’s healthy for your partners. And if it’s not, then then we just have a choice to make. Right? Do I want to keep the employees who I think are really good at what they do? Or this client who is being an ass? 

Greg Alexander [00:14:47] Yeah. Yeah. Because the employees that are on that client are having a miserable experience. And if you don’t do something about it, you’re going to lose them. Right? Yeah. 

Yeah. That’s great advice. Well, listen, I think we’re at the time window where we try to keep these things short. But today we talked about cultural fit with Bart Bartlett from the DemandZen. And Bart, you’re a great member. I love having you in the group. You shared lots of wisdom with us today. I appreciate it very much. 

Bart Bartlett [00:15:11] Thank you for having me. Greg Alexander [00:15:11] All right. Okay. For those that are listening to this, if you want to learn more about this subject, culture fit, and others, you can pick up our book, The Boutique: How to Start, Scale, and Sell A Professional Services Firm, which I’m proud to say just became an Amazon bestseller in our niche. And if you’re interested in joining our mastermind community, visit us at Collective54.com. Thanks again, Bart. Take care. Cheers.

How a Learning and Development Firm Retains Key Employees

renee safrata
renee safrata

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

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


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

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

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

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

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

Renee Safrata [00:01:11] No. You know, it’s actually a bit different. We’ve been doing digital for ten years. Everything digital. My husband and I were always thinking of a digital nomad lifestyle. We were probably planning on doing this just before COVID hit, which, by the way, isn’t it odd? It’s almost like two years exactly this week, right when we all got thrown into lockdown? 

It’s crazy, but we got thrown into lockdown, and so we thought, OK, let’s take that. We’re here; we’re at home. Let’s take the opportunity to clear out our home. So we cleared it out down to two laptop bags and two carry-on bags. And we left Canada, and we don’t want to go home. We’re very happy here. 

It’s fantastic. And you know what? I thought, Greg, I thought we’d meet a lot of retired people, but we’re just meeting people doing the same thing. And so it’s really exciting. 

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

Member Case Study: Who are the Vivo Team?

Renee Safrata [00:02:19] Yeah, sure. So first of all, we create just winning companies and we do that by inspiring leaders. So our mission is to help increase competence, motivation, and collaboration in the pursuit of outstanding results. That’s what we do at Vivo Team. 

We have been doing it digitally for ten years because twelve years ago, we took two years to research the workplace of 2020, and we didn’t expect a pandemic. But we did understand that teams would be coming in from distributed teams from all over across multiple time zones and that leaders wouldn’t be necessarily in contact every day, all day with their teams. 

So we recognized that the learning and development space was not going to participate in that because gone would be the days of going into a classroom, face to face learning, and development. So what we do in Vivo Team is we use behavioral science to understand and diagnose how leaders are connected to their teams against the six key indicators of highly functioning teams. What’s the gap between the leaders and the teams? 

And as well, what we do is what we call space learning. So it’s in the flow of the day. It’s an on trend learning style one hour per week so that you learn something, you take it away, and you apply it. You come back, you learn something more, you take it away, and apply it. 

So what we’re doing is we’re actually selling learning development paths for leaders and teams. And what we’re doing is we’re providing to the C-suite a measure of evidence-based performance, which is really exciting as well. 

Greg Alexander [00:03:54] Okay, fantastic. Appreciate the introduction. Okay. So when I talk about employee loyalty, I think about it through the lens of an investor, which is my day job at Capital 54. And if I’m doing diligence on a pro serv firm, I’m always asking about employee turnover. 

The reason why that is is because when you buy a professional services firm, the assets are the people. And if they’re turning over, then there’s not a lot of assets. And unfortunately, at the time of this call with you today, we’re dealing with the Great Resignation and turnover has spiked, which is devastating when that happens. 

So the work that you do with clients, does any of it address this specific issue of employee turnover? 

How to Address Employee Loyalty and Turnover as a Professional Services Firm?

Renee Safrata [00:04:37] Absolutely, absolutely. And I’m going to be perhaps a bit provocative and say that maybe we need to shift the word of employee loyalty into really looking at what does the employee want? Because you’re right, the pandemic has created this paradigm shift where that invisible balance sheet, the assets of the people, they have more choice now. 

And just like you said in the introduction, I’m working from Barbados. I have more choice. So does employee loyalty actually exist? Or should we actually be focusing as investors, as you’re saying, on the intellectual capital of the knowledge workers and how tight our invisible balance sheet is? 

I think a lot of employers recognized that they were using only the traditional balance sheet and that their invisible balance sheet was extremely weak going into covid and it started to fragment and employees now have way more choice. So they are going to be the ones who are determining what’s going on. So unless you figure out what they want, it’s going to be tough. I’ll stop there. 

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

Employee Loyalty: How Does the Vivo Team Retain Key Employees?

Renee Safrata [00:06:09] Yeah, it’s a great question. And you know what, again, it hasn’t just happened in the last couple of years. Again, we’re Canadian, so our employees have been right from the East Coast to the West Coast in British Columbia, Ontario, and Nova Scotia, Halifax for ten years. 

We have attracted great employees because of our values, our vision, and their desire to be better,to contribute, and to bring innovation to the table. So good people can work anywhere. They also want to be held to account. So if they have good leaders and managers that are connected with them tightly around their accountabilities, now we’ve started to get a great equation. 

And by the way, Greg, you’re not stealing anything from me because the invisible balance sheet started in 1988 in Sweden, so it’s not my thing. We just talk about it a lot. Yeah. 

Greg Alexander [00:07:07] You know, you just talked about your mission, the vision, the values. That’s something that I advocate for. And I think those three things in particular: mission, vision, and values — that’s what makes up the employee value proposition. 

My belief is that each boutique needs two value propositions: a value proposition for clients (why they should buy from you, and why they should hire you), and a value proposition for your employees. You know why they should work for you. Because you’re right, they can work anywhere. They’re making a choice to work for you. 

So let’s start with the first one mission. So what is the mission of your firm? 

What is Vivo Team’s Mission?

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

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

What is Vivo Team’s Mission Statement?

Renee Safrata [00:08:18] With our team. So our team has participated in all of the core values, the vision, and the mission. And what I say to our team on a regular basis is the Vivo team is the vehicle for your career. Get on the bus. Be with us as long as you feel like you’re contributing, and you can be held to account, and you can get great career achievement. But get off it and go somewhere else when you’re ready for that. 

So again, to the beginning of this conversation, I think that kind of disrupts employee loyalty. But if we can think about that invisible balance sheet as people bring their innovation and their contributions to work and wanting to be here, what we as leaders and companies really need to understand is the platinum rule. 

What do they want? Like, what are they looking for in their career? And if we can connect to that and by the way, the leaders and the managers are really the front lines for that, aren’t they? They’re the people that are connecting with their people every day, and they have to understand those nuances of what is important. The soft skills, essentially, because hopefully they’ve got hard skills. What are the soft skills of how that intellectual capital is going to keep growing? 

Greg Alexander [00:09:37] So what we’re learning from Renee is that the mission is real. It’s not some academic exercise that nobody pays attention to. It’s created with the employees. It’s lived every day so that employees jump out of bed every morning and they can’t wait to go to work. 

And when you have a mission like that, a compelling reason to work at a firm, then you’re going to have, you know, very strong employee engagement. And I would say lots of employee loyalty, although it sounds like maybe that’s a little outdated concept, but it will keep retention where it needs to be, which is obviously very important. 

OK, let’s move to the vision side of things, and I think your vision is a picture of the future, something inspiring that says, you know, this is the goal that we’re shooting for. You know, if we’re successful, this is what it’s going to look like for everybody. So have you codified your vision as well as you have your mission now? 

What is Vivo Team’s Vision For the Future?

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

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

Renee Safrata [00:10:50] Yeah. I think of those sitting in our strategies and in our objectives for the years. Making smart, strong strategic decisions and smart tactical decisions. Smart meaning, Specific, Measurable, yadda yadda yadda. 

When I think of vision and mission, I think and I try to get all of our people to think of it like this as well. Your vision when you go to sleep at night is something you want to dream about. Your mission when you’re in the shower in the morning, that’s something that you want to think about doing every day. 

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

What Are Vivo Team’s Company Values?

Renee Safrata [00:11:42] Yeah. So I’ll start with how they were developed. They were developed online with all of our team together in a brainstorming session. We use storyboard. We thought about what are the behaviors that we demonstrate on a regular basis and what is of high value to us. 

We prioritize those. We had discussions around them, came up with a series of words that represented those core values. And then we essentially curated it down to three: we’re creators, we’re leaders, and we’re champions. 

And again, Greg, I’m going to say that what’s important for me about that as leader of the company is I want to make sure that everybody — going back to employee loyalty, employee engagement, and the intellectual capital of our organization — everybody can embrace that, that I too want to be a creator. I want to be a leader. I want to be a champion. And if they can have that excitment. Again, we’ve got something to build on. The vehicle gets more exciting. 

Greg Alexander [00:12:48] You know, members at Collective 54 are professional services firms and boutiques that are growing. Some of them have hit the scale stage and some have grown so much and scaled so much that they’re at the exit stage. And I often ask them this question, which I just asked you which you answered with the three values. “What are they?” And then I say, “how are they used?” 

And I hear sometimes that they’re used to make hiring decisions. They’re used in employee evaluations. They’re used to determine promotions when they’re available. And unfortunately, sometimes when people aren’t living the values, they’re used as a reason to separate from an employee. 

Do you believe in that concept of using values in that way? Or do you have a different perspective on things? 

Renee Safrata [00:13:30] Absolutely. Absolutely. And what I would say, in addition to that, is that I’m sure a lot of the companies that we’re talking to are utilizing Slack. That Vivo, what we do weekly is we speak to what are the behaviors that I or others demonstrated in alignment with those values. 

So we have a Slack channel that comes every week and at the end of the week, if you haven’t done it by Friday, it comes up and it says, “Hey, where have you seen creators, leaders and champions this week?” 

And so we’re activating that peer-to-peer feedback, which is as well important. I think you mentioned in your chapter about annual performance reviews. Well, that’s too long these days. It is too long. We got to have this as a regular feedback and feed forward have to be a regular thing across our organization. 

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

Renee Safrata [00:14:42] And it’s behavioral-based, right? We ask this question all the time, “how can I make sure on a regular basis that I am behaving in behaviors that demonstrate what we have articulated as our values?” 

This, by the way, Greg is really, really easy then when we give this idea to leaders and managers and they look at behaviors, they can give people feedback on the behaviors that they notice that are not in alignment with getting great project results or finishing great, you know, great tactics and great strategies in the company. 

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

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

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

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

Greg Alexander [00:15:53] Sure. 

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

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

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

Episode 67 – How a Consulting Firm Began to Productize It’s Offering– Member Case with  Adriaan Bouten

Professional services firms have more intellectual property than they may think. On this episode, we discuss how to monetize and productize your intellectual property by speaking with Adriaan Bouten, Founder of dPrism. 


Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54 a podcast for founders and leaders of boutique professional services firms. For those that aren’t familiar with us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. My name is Greg Alexander. I’m the founder, and I’ll be your host today. And on this episode, we’re going to talk to Adrian Bouten. And today’s topic is going to be about intellectual property. So, Adrian, it’s good to see you. Would you please provide a proper introduction to the audience? 

Adrian Bouten [00:00:49] Thanks, Greg. My name is Adrian Bouten. I’m the CEO and founder of Digital Prism Advisors. We help our clients with digital growth and digital transformation. 

Greg Alexander [00:01:00] OK, very good. How are things in beautiful Charleston, South Carolina right now? 

Adrian Bouten [00:01:05] Nice and sunny just came back from a morning walk and go, it’s 75 and sunny and in March. I’ll take that any day. 

Greg Alexander [00:01:13] Yeah, no question. You can hear it in my voice. I’m from Boston and March in Boston is not pretty. So I’m looking forward. I’m going to be there for Easter weekend, so I’m looking forward to it. OK, let’s jump into it. There’s a lot of confusion around this concept of intellectual property and comparing it to intellectual capital. And sometimes boutique owners either don’t think they have any or they think they have some, and it’s really not. So I want to just maybe start with an overview of what it is. So boutique owners are in the knowledge space, so they’re generating knowledge that has some value. Some of it is protected through intellectual property such as patents, copyrights and trademarks, and some of it is not protected but still valuable. That’s intellectual capital. So for example, if you’re able to charge more for your services and somebody down the street, the person’s paying you because of that additional intellectual capital that you have. And the reason why it’s important is someday when you go to sell your firm, part of your valuation is going to be tied to whether or not you have a little or a lot of this. You will literally be a number will get assigned to it as you go through the valuation. So Adrian, I wanted to just get your your thoughts on this to start out with maybe a little bit about your firm. Do you have do you do you find yourself in the category of IP or IC? 

Adrian Bouten [00:02:37] I find those to be in both. There is a lot of intellectual capital in methodologies and artifacts, but those are not protected. But we also have digital maturity assessment that is trademarked. We have been running for the last six years. 

Greg Alexander [00:02:57] OK, great. And this let’s start there because for those that haven’t been through this process before, tell me why you decided to get that trademarked and what was the process? 

Adrian Bouten [00:03:13] So the process was lengthy, but let me first hand why we trademarked it. The digital maturity assessment that we have prospects and clients complete is a methodology that helps us quickly understand where they were. That company currently is on a scale of one to five and digital maturity in different aspects. And it quickly helps us understand what they should be thinking about doing. How do they get to the next level of maturity? And it’s a whole methodology that way, and that’s more of an intellectual capital until we trademarked it and said, this is unique to us. We want to make sure that nobody can copy us on what we do here. And that’s how why we made that made it IP. 

Greg Alexander [00:04:01] Yeah, which is a great story and a great example, because that it solidifies the fact that you are different and somebody was willing to trademark what it is you’re doing, which is a validation point. So the process of getting a trademark, was it long? Was it expensive? Was it easy? Tell us a little bit about that. 

Adrian Bouten [00:04:21] It was longer than it should have been because we did it wrong as far we went through our general law firm and asked them to handle it, and they weren’t paying it because it’s not a. Not a good billing scenario for lawyers. So we ended up finding a stand alone trademark attorney that does nothing but and that about various mostly and it was inexpensive, took only a few months. 

Greg Alexander [00:04:52] OK, so that’s the advice then, is to hire an attorney that this is what they do. 

Adrian Bouten [00:04:58] This is what they do. And that’s probably true for most attorney type specialty things that you need. But it went very smoothly once we had that individual doing it. 

Greg Alexander [00:05:09] OK. And this digital maturity offering, do you charge clients for it or is it a giveaway? 

Adrian Bouten [00:05:18] It’s a giveaway because it’s a initial assessment. And then we go in business, a specialty consulting engagement. After that, we are talking about following it up with a more in-depth assessment that doesn’t involve consulting. That would be a charge for assessment of a few thousand dollars. So we don’t have anything in between to give away. And the Ford specialty consulting engagement.

Greg Alexander [00:05:47] OK, got it. And the and the reason why it’s it’s worth it to you to give it away is because if the client takes the time to go through it, it’s revealed some gaps and that would lead to consulting projects, right? That’s correct. Yeah, OK. And has it been kind of quote unquote productized or does it still require labor on your behalf to perform it? 

Adrian Bouten [00:06:09] We just finished product touting it. It is now we’re in testing trial testing. They’re going to release it this month, where it can be taken by somebody to automatically get the results. We get notification that somebody is taking it so we can follow up to its proper sales perspective. 

Greg Alexander [00:06:26] Fantastic. So audience, this is a great example, right? So you have this consulting company. They had this ability to assess an organization which most consulting companies have some form of assessment in their domain. It got turned into a maturity model, which then got trademarked and was monetized because it led to consulting work after the assessment was taking. Because it’s trademarked now, it’s protected, meaning people can’t can’t steal it from the prism and it’s not created value. And someday down the road, if this firm decides to sell itself, they’ll sit across the table from a potential acquirer and be able to point to, you know, this client originated from that assessment. This client originated from that assessment and so on, and you’ll be able to tie dollar dollar values of those client engagements back to this individual tool. And that’s a demonstration and proof in the eyes of a potential acquirer that this isn’t a body shop. There’s real intellectual capital into intellectual property that people are willing to pay for. And that’s really the big distinction here is that if you’re a body shop and you and you don’t have any of these methodologies, tools, systems and they’re not monetized, then it’s tough to sell that firm. If you can sell it, you going to sell it at a discount, which is what we don’t want to do. OK, the next question I have for you, Adrian, is because you have this intellectual property and plenty of intellectual capital behind that that you use for consulting engagements. Is that reflected in your rates and would would clients specifically attribute what they’re paying you to the methodologies or tools your eyes see? 

Adrian Bouten [00:08:14] So yes, it is reflected in the rates, but the client never sees our rates. We do everything. Fixed price, OK? So it’s more of a qualification that we know what we’re talking about. Once we do the assessment and have the conversation around it, that is in the client visible rates. 

Greg Alexander [00:08:34] Yeah, OK. So I’m going to leap to a conclusion there, but can correct me if I’m wrong. So you’re selling on fixed bed, which is great so you can get away from the hourly rate card thing, which is not where we want to be. And you put a proposal on the table that’s fixed bed and said, Mr. Client, you pay me, you’re going to get x y z. The client’s going to say, Well, how are you going to deliver x y z? And then you walk them through your your methodology that’s going to deliver. And therefore they have confidence that you can actually execute the project and you win versus the guy down the street. Is that correct? 

Adrian Bouten [00:09:03] That’s correct. Right. We actually quite often go down to the level of, let’s say we are talking about a 12 week engagement. We laid out week by week, what are we going to do? What are they going to see and what’s the value? 

Greg Alexander [00:09:16] Yeah. Another great example of how intellectual capital is used and monetized. In this case, it’s not. It’s monetized, but you’ve got to you have to really know what you’re doing in the monetization. Meaning because he has it, he’s able to charge fixed bed and fixed bids are a lot more profitable than hourly work. And that’s a subtle thing, but it’s a very important thing to distinguish. And if he didn’t have the methodology, the clients would ask questions like, What are you going to be doing? Why does it take 12 weeks? Who’s going to be on the team? You know, they’re going to try to negotiate down on an on an hourly rate basis, which is not where anybody wants to be. And because of the IC, Adrian’s able to avoid that. OK, let’s go to the next level of this. Some firms are quote unquote tech enabling themselves, and they’re taking these methods that you have, which you are deploying through consulting engagements. And you probably have now for many, many times over and over. And they’re turning him into software tools of some kind and they’re lacing licensing them to the client, either as part of the engagement or as kind of a leave behind. It’s a lot of work to pull that off. If done correctly, it can be very lucrative. But if done incorrectly, can be very costly. Have you considered that? 

Adrian Bouten [00:10:33] I have. I don’t feel I’m at the scale yet. To be able to do that because that takes an investment, but you’re talking about here, Greg. Yeah. And but I definitely am planning to do that. 

Greg Alexander [00:10:47] You are. And what is it about that that you find attractive? 

Adrian Bouten [00:10:54] Number one, profitability because it makes it more efficient and more profitable to do the engagement for our clients? Yeah. Right. And scalability. Yeah. 

Greg Alexander [00:11:06] You make it once and then you sell it delivered a thousand times without any labor. Right? 

Adrian Bouten [00:11:10] That’s right. 

Adrian Bouten [00:11:11] Yeah. 

Adrian Bouten [00:11:11] Totally. 

Greg Alexander [00:11:12] Yeah. Which is the big, big benefit. OK. Another area of intellectual capital and intellectual property I want to talk to you about today is this concept of certification. So you you go and you do a project for a client. Part of that project is you’re transferring knowledge and skills to that client so that when you do eventually leave, they can run or implement and whatever it is that you developed. Sometimes that requires some type of training or skills transfer, and a way to systematize that is to certify the client. Have you begun to experiment with that at all? 

Adrian Bouten [00:11:48] I have not. That is not something I’ve gotten into, which again, it’s something we’ve talked about as an option. But no, I have not. 

Greg Alexander [00:11:58] Yeah, that’s an interesting one. Sometimes clients ask for it, sometimes they don’t. What I find in my old business is. We would leave the engagement in like a year later, they would call us up. Something didn’t go right and then say, Hey, can you come back and train my team? And then we would position certification to them as part of the training initiative to say, OK, so let’s make sure this doesn’t happen again. We’re going to train your team there and have to prove to us that they can do X Y Z and they’ll do that through their certification. So audience members, this is an interesting thing to consider. Take some investment for sure, but it can generate a recurring revenue stream for you because most times certifications, people need to be recertified on some frequency. Like, for example, imagine if you’re an attorney, you know you’ve got to maintain continuing to maintain your license, same thing with accounting, etc. So that’s another idea. 

Adrian Bouten [00:12:47] And go ahead along the same lines. What we are planning on doing, probably in 2023, is to give the client a portal. To do self-assessment on a continuous basis, so that takes the last two things together a little bit. It does. It takes both technology enablement and the certification education training. Was that portal a client of us could choose to do a quarterly cycle? A daily cycle doesn’t make any sense, but they can. Due to self assessment around the organization themselves, and that will be an annual subscription fee. 

Greg Alexander [00:13:28] That’s a great idea. That’s tech enabling the certification. That’s the one punch right there. Yeah, that’s a great idea. Have you started exploring the cost in the effort associated with pulling that off? Is that is that easy? Is that difficult? 

Adrian Bouten [00:13:45] We ended up with a few hundred thousand dollars of investment needed for that. It’s more it’s six figures, yeah, but doesn’t have to be seven figures. 

Greg Alexander [00:13:54] Yeah, OK. That’s that’s good to know. So it might be approachable, you know, at a certain point in scale, sometimes tech enabling services outside of this idea can run into the many millions, and it’s outside of the the capability of a boutique to do it. OK. What are the types of intellectual capital do you have like, for example, sometimes people are collecting data and they ask a consulting firm, You know, how am I benchmarking against XYZ? Have you guys just as a natural course of doing your work? Do you collect data? 

Adrian Bouten [00:14:28] We do. And one of the most common things we do with our clients is doing what we call a market assessment and a market map. We collect data. What we do is we go to our clients customer and find out. Not just what they buy from our clients. But from who else do they buy, what adjacent products and services? And that whole methodology helps look from the end customer’s perspective back into our clients and that we then turn into an innovation cycle. 

Greg Alexander [00:15:09] Tell me about the innovation cycle 

Adrian Bouten [00:15:12] That innovation cycle is we look for whitespace in that market map that is adjacent to our client’s current product or service so that that have the brand right to step in to their. And then we do typically sometimes just because executive teams and sometimes with executive teams plus other select people from around our client, we do workshops as to where we apply successful innovation tools like examples of successful innovations in other industries, etc. and go straight up as our clients. From that, we usually end up with a couple of dozen opportunities, we now or we prioritize it. And then we start working with our client on one or two of those, maybe three. 

Greg Alexander [00:16:02] Interesting. So the market map, that’s another great example of intellectual capital and the ability to look into adjacent markets and bring back whitespace whitespace opportunities for clients. That’s a great example of IC. You know, body shops can’t do that kind of thing. They don’t have the method. Their talent is not capable of doing it. That’s a that’s a high skill service, and that’s why Adrian’s company is able to do what they’re able to do. So that’s really the lesson team today is intellectual property. Legally protected property is where we all want to get to. But there’s interim steps along the way which is commercializing monetizing your intellectual capital, and we saw several examples from you today and how to make that happen. And as he continues on his maturity, models, et cetera, et cetera, you know, those will lead to more highly scalable revenue streams. So, Adrian, it was a great episode today. Your examples were outstanding. What I loved about him was is that is that you’re in flight with this, you know, you’re clearly no longer a body shop and you’re on your path to building this highly scalable professional services organization by by, you know, monetizing and protecting all this knowledge that you’ve gained. So I appreciate you very much for being on the show. 

Adrian Bouten [00:17:23] Thank you Greg. 

Greg Alexander [00:17:24] All right. 

Adrian Bouten [00:17:24] Appreciate the opportunity. 

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

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


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

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

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

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

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

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

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

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

Sean Magennis [00:06:05] Absolutely. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mike Stern [00:24:38] Yes. 

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

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

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

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

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

Mike Stern [00:25:18] Yes. 

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

Mike Stern [00:25:25] Yes. 

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

Mike Stern [00:25:30] Yes. 

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

Mike Stern [00:25:39] Yes. 

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

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

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

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

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

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

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

Go to Collective54.com to learn more.

Thank you for listening. 

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 40: The Boutique: What No One Tells You About Failed Attempts to Exit

A top reason owners fail to exit is a decline in performance during the process of selling the firm. On this episode, we discuss how to avoid making this mistake.


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 a top reason that owners failed to exit is a decline in performance during the process of selling their firm. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s founder and chief investment officer. Greg has helped many owners avoid this mistake and has some practical advice on the subject. Greg, good to see you. Welcome.

Greg Alexander [00:01:09] Thanks, pal. Good to be here. It looks like today we’re going to take one of the WTF moments on this space. Should be a lot of fun.

Sean Magennis [00:01:18] Yes. This is a WTF moment for sure. Greg, for the benefits of our new listeners and for our regulars. Can you explain the issue we are discussing today in more precise terms?

Greg Alexander [00:01:29] Sure. So after selecting an investment banker, the official process to sell a firm kicks off. The workload placed on the management team to successfully exit is large. For instance, there is a never ending stream of information request. This creates a huge distraction and the net result of this distraction is a decline in revenue and profit performance during the nine or so months it takes to exit. This decline causes the potential buyers to doubt the dependability of the projections. And unfortunately, with their confidence shaken, investors pull out of the deal. This happens far too often. The good news is, is this is avoidable.

Sean Magennis [00:02:16] So let’s explore this good news. How can one avoid this mistake, Greg?

Greg Alexander [00:02:20] So there are some best practices to follow. Let me share a few of them here. First time the process to sell the firm when there is a robust backlog, backlog is defined as work that is signed and under contract. It has not been delivered yet. The future revenue is highly dependable. It reduces the risk of a decline in performance during the process. A good rule of thumb is to have nine to 12 months of backlog heading into the process. So, for example, let us say a firm communicates to a buyer a 12 month revenue projection of 50 million dollars. An owner should have at least thirty seven and a half million or the equivalent of nine months under contract. In backlog before kicking off the process to sell. This will keep the cash flow flowing at a crucial time.

Sean Magennis [00:03:12] That is an excellent example. It’s extraordinarily practical. So what are some other ways to avoid failing to exit due to a decline of performance during the process to sell?

Greg Alexander [00:03:25] Next after backlog, I recommend turning your attention to the sales pipeline. I suggest a sales pipeline of five to one. For instance, let us say that you’re a 12 month projections for new businesses, 10 million. This suggests having visibility on 50 million in new work before the process to sell your firm begins. A five to one project pipeline provides enough coverage to hit the target.

Sean Magennis [00:03:54] Boy, that’s a good one. And it seems reasonable as a five to one pipeline ratio suggests a 20 percent close rate, which is conservative. How about some other advice for our listeners, Greg, on this issue?

Greg Alexander [00:04:07] Here’s an idea I have seen work brilliantly, but for some reason it is not often implemented. The idea is to split the business development team in two. Team one is committed to bringing in new business. Team two is committed to selling the firm. This addresses a common, overlooked mistake, which is underestimating the work required to sell the firm. For instance, owners of a firm are typically rainmaker’s. They bring in a lot of new business when their time is consumed with selling the firm. They’re not bringing in new clients. The revenue takes a hit and the exit falls apart by dividing up the workload. This can be prevented. And before I get off my soapbox, let me share a few other tactical ideas. Bullet proof the forecast. Investors are buying the firm based on the future growth it will generate. They are very skeptical. And we’ll put your forecast under the bright lights. Lastly, it’s a good idea. Think about transaction preparedness. Firm leaders will be asked to perform work. They have never done before. For example, you’ll be asked to prepare materials such as an information memorandum and many others. Get your hands on a few examples. Well, ahead of trying to exit and give yourself enough time to practice before trying to exit. This will shorten the time it takes to go to market and will result in a shorter sales process.

Sean Magennis [00:05:42] Fantastic, Greg. So split the BD team in two, bullet proof the forecast, and practice transaction preparedness. These are items our listeners can get to work on immediately. Thank you, Greg.

Sean Magennis [00:06:01] And now a word from our sponsor. Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members join to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

Frank Digioia [00:06:26] My name is Frank Digioia and I am the CEO and owner of the Fort Group. At the Fort Group, we offer a wide range of marketing services and solutions across many industries to help solve marketing challenges for clients navigating a marketplace that’s in transition. By that, I mean marketing in the middle of a monumental digital transformation. These clients look to us for various marketing services, including strategy, channel and sales, promotion, digital, as well as the creative needs. We solve these challenges by partnering with our clients and working hard to find the right solutions with the right resources. If you need help with these marketing services, feel free to reach out to me at [email protected]

Sean Magennis [00:07:05] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit the Collective54.com.

Sean Magennis [00:07:23] Okay, this takes us to the end of this episode. And as is customary, we end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm, our preferred tool as a checklist. And our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions in this instance, if you answer yes to eight or more of these questions, you can sustain performance during the process to sell your firm. If you answer no too many times, you’re likely to blow your opportunity to exit. Let’s begin.

Sean Magennis [00:08:02] Number one, do you have enough backlog prior to launching the process to exit? Number two, do you have enough pipeline prior to launching the process to exit? Number three, can the new business team stay focused on bringing in clients during the exit process? Number four, can the owners work be delegated to others during the exit process? Number five, is the forecast reliable? Number six, will the forecasts remain reliable during a time of great distraction? Number seven, have you provided enough deal support to the finance team? Number eight, can the finance team handle the constant requests for reports and information? Number nine, have you reviewed examples of the common documents used during transaction preparedness? And number ten, have you attempted a practice run in putting together these documents?

Sean Magennis [00:09:22] In summary, many exit attempts fail because the distraction of trying to exit causes a dip in revenue and profit performance. This should and must not happen to you, selling your firm is a big project lasting almost a full year. Get yourself ready ahead of time and be sure to time your attempt to exit correctly.

Sean Magennis [00:09:48] If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. I’m Sean Magennis. Thank you for listening.

Episode 35: The Boutique: How to Prevent Greed from Stopping Your Exit

Greed, if left unchecked, can get in the way of a successful exit. On this episode, Collective 54 founder Greg Alexander shares a shareholder alignment framework to help you keep greed from stopping your successful exit


Sean Magennis [00:00:16] Welcome to the Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host on this episode. I will make the case that greed, if left unchecked, can get in the way of a successful exit. I’ll try to prove this theory by interviewing Greg Alexander. Capital 54’s founder and chief investment officer. Greg has developed a framework to help you keep greed from sinking your deal. Greg, as always, good to see you. And welcome.

Greg Alexander [00:01:06] Thanks, pal. Nice to be here. I see we are tackling one of the seven deadly sins today. Maybe we should start by saying 10 Hail Mary’s.

Sean Magennis [00:01:16] I use that frequently, but I think we’re okay as I actually took… My mother would be proud. Greg, in all seriousness, what does greed have to do with exiting a boutique professional services firm?

Greg Alexander [00:01:32] Unfortunately, a lot. A common reason that attempts to exit fail is a lack of shareholder alignment. A good deal for some is not a good deal for others. Disagreements over who gets what and when they get it have sunk. Many deals. Greed is a very powerful force.

Sean Magennis [00:01:52] It is indeed. And I can see this being a real issue as many professional services firms are organized as partnerships with each partner being a shareholder. They all have rights and getting everyone on the same page can be tricky. Greg, I. I often hear you speak about shareholder and stakeholder alignment. Can you define these terms for our audience?

Greg Alexander [00:02:16] Sure, a shareholder, is anyone who owns a share in the boutique. A stakeholder is a person or group who has a stake in the business. For instance, in boutiques, clients, they’re a stakeholder. They rely on the firm. So they have a stake in the firm’s business. Or your bank is a stakeholder. They depend on you to pay back the line of credit, for instance.

Sean Magennis [00:02:45] And why do shareholders and stakeholders play an important role when an owner is trying to exit?

Greg Alexander [00:02:52] They can prevent a deal from happening. So let’s start with the shareholders. For instance, they will vote on the exit, either approving it or not. If enough shares vote against the deal, it does not happen. And at times, it can be nuanced and more nuanced than this. For example, let’s say one of our listeners is the majority shareholder and he has enough power to approve the exit. However, his junior partner, who owns 10 percent of the shares, does not want the deal to happen. The junior partner can cause real problems as he is a key employee. And if he threatens to quit, the acquirer might get cold feet and not do the deal. The investor is buying a people driven business. And if key employees do not want to stay, they’re not going to go through with the sale. Majority and minority control are an important element, but in practical terms, not as much as you think. The same can be said about stakeholders. Stakeholders have rights and can prevent deals from closing as well. For example, the landlord is protected by the lease agreement. The bank is protected by the loan agreement. In some cases, stakeholders are not protected by legal agreements, but they might as well be. For example, a key client legally cannot prevent a deal from happening, but they can stop it in other ways. The key client can tell an investor during diligence that if this deal goes through, he will take his business to a competitor that can stop a deal dead in its tracks.

Sean Magennis [00:04:36] I can clearly see how getting both the shareholders and the stakeholders on the same page is absolutely mission critical. This is a tough question. How is this accomplished?

Greg Alexander [00:04:51] Well, as they say, half of a solution to a problem is recognizing that you have one. So if you’ve listened to this show, you’re halfway there. The remaining 50 percent can broking- can be broken down into two actions. So, number one, have the difficult alignment conversations before you attempt an exit, negotiate who gets what and when they get it way before a deal is on the table. And number two is to remind everyone about the alignment frequently during the process. It’s important to keep everyone in the boat focused on the predetermined definition of success. When offers start coming in, you cannot let anyone conveniently change their mind.

Sean Magennis [00:05:41] This is excellent advice, Greg. Negotiate internally first and get everyone to agree on an acceptable price and deal terms prior to attempting an exit. And now a word from our sponsor. Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members join to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

Scott Conard [00:06:22] Hello, my name is Dr. Scott Conard and I own Converging Health Consulting. Warren Buffett talks about health care being a tapeworm on the economy. Well, it’s a vampire on young companies who need their capital for growth. We serve companies that want to decrease the cost while improving their health benefit offering. They turn to us for help with the number two cost in most service companies health benefits. We initially work with them to flatten and then lower their costs while building a stronger culture, loyalty and engagement. We do this by having a 20 minute call with a CEO or president and their H.R. staff, where we explain a 30 day free evaluation of their current situation from a contractual and clinical viewpoint. If you need help with reducing health benefit costs while building and improving a stronger culture, reach out to me at [email protected] or 817-691-4970.

Sean Magennis [00:07:15] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit Collective54.com.

Sean Magennis [00:07:31] Okay, so this takes us to the end of this episode. And as is customary, we end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist. And our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions in this instance, if you answer yes to eight or more of these questions, you have greed in check. If you answer no, too many times, shareholders and stakeholders will put your deal at risk by bickering over who gets what and when they get it. Let’s begin.

Sean Magennis [00:08:14] Number one, do you have more than one shareholder?

Greg Alexander [00:08:18] You know, obviously, if you’re the sole proprietor.

Sean Magennis [00:08:21] It is a lot easier.

Greg Alexander [00:08:22] It is a lot easier. Yeah.

Sean Magennis [00:08:24] Number two, do they agree on an acceptable price?

Greg Alexander [00:08:28] You know, I would tell you this is a difficult conversation and the reason for that is, is that when you get all the shareholders together in a room and you asked a question, you know, what would you accept for the firm? They throw out these numbers and they have no basis, in fact. So handling this with care and making sure that everybody understands the common way upon which to value a firm like yours and bring some type of method to the conversation helps a lot.

Sean Magennis [00:08:52] And you always said preparation is key and planning and taking the time to do it properly.

Greg Alexander [00:08:57] Sure.

Sean Magennis [00:08:58] So number three, do they agree on the terms of the deal?

Greg Alexander [00:09:01] Another issue. You know, sometimes people are doing this for the first time, so they don’t understand things like rolling your equity or an earn out, how much cash is paid at closing, etc..

Sean Magennis [00:09:12] Number four, are everyone’s expectations, which is what we discussing, are everyone’s expectations realistic?

Greg Alexander [00:09:19] Yeah.

Sean Magennis [00:09:20] Number five, do you have multiple stakeholder groups?

Greg Alexander [00:09:24] Yep. So don’t just pay attention to shareholders. Make sure you’re thinking about your stakeholders as well.

Sean Magennis [00:09:29] And number six, do you know what each stakeholder group wants? Number seven, are their expectations realistic? Number eight, do you know which stakeholder groups could get in the way? Number nine, do you know what the acquirer will require from each of them? And number ten, can you find a compromise between the acquirer and the stakeholder group?

Greg Alexander [00:09:57] Yeah, there’s always a compromise. OK. So the solution to preventing greed from stopping your exit is just find- just find common ground and, you know, at the risk of being crude. Don’t be a pig, yourself. You know, if you want to keep greed in check. Don’t be greedy.

Sean Magennis [00:10:14] Yes. Well said, Greg. So in summary, remember that shareholders own part of your firm. They have rights and will need to agree with you and your deal. And keep in mind, you have stakeholders as well. They also need to agree for you to close. It is best to get alignment prior to attempting to exit. There is usually a compromise that makes everyone happy. However, this compromise is very hard to identify under the hot lights of a deal.

Sean Magennis [00:10:49] If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. I’m Sean Magennis. Thank you for listening.