Tag: Exit

Posted on

Episode 98 – How the Founder of an IT Services Firm Created a Legacy – Member Case with Jay Smith

How do you successfully exit your business without sacrificing your legacy? On this episode, Jay Smith, President of Security7 Networks, talks about how he built his business to be ready to sell, and the biggest lessons learned in the exit process.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community dedicated exclusively to helping you grow, scale and exit your professional services firm. My name is Greg Alexander. I’m the founder and I’ll be your host today. And today I’m going to talk about why to sell your firm. This is often neglected. When we think about exiting our firms, we often think about how much to sell it for, on what terms, when to sell it, to sell it to. But we often forget the why. And in my opinion, the why is the most important question. And what I hope to accomplish today is to give the audience members something to think about, to make sure that they can get clarity around their why. And we’re very fortunate to have a role model with us today. His name is Jay Smith, is a member of Collective 54, and he will be sharing parts of his extraordinary journey with us today. Jay, welcome to the show. Good to see you. 

Jay Smith [00:01:25] Thanks for having me, Greg. 

Greg Alexander [00:01:28] Would you mind. Given you’re given a proper introduction, please. 

Jay Smith [00:01:33] Sure. My name is Jay Smith. I’m the President of Sales or I used to be the President of Sales of Security seven networks. We recently exited maybe back two weeks ago or so. We’re in the security logical security boutique business, a MSSP managed security service provider. When I look in the years. 

Greg Alexander [00:01:54] I’m sorry. Say it again. 

Jay Smith [00:01:56] Been at it for around 20 years. 

Greg Alexander [00:01:58] Yeah, very good. All right. So let me set this up before I jump into the questions. So the reason to sell your boutique is very personal, and it should be. You know, you’ve poured your life into building the firm and leaving it and handing it to somebody else takes much thought. Someone to sell for the money. Others say they’re bored. Some are just flat out exhausted. Some say the work just became a job. It’s not funny. More Maybe you’re afraid that tomorrow might not be as profitable as today. Sometimes, unfortunately, partners start fighting and one needs to be bought out. Maybe it’s just time to retire, you know, the list goes on and on. Sometimes there’s a health scare, which I know we’ll get into that a little bit. So the wider selling firm’s a very, very particular thing. And and that’s what we hope to discuss with the audience today. So, Jay, I would like to ask and start with your origin story and the origin story. As you know, I think when you’re thinking about why to sell your firm, it’s always a good thing to remind yourself why you started the firm in the first place. So go back 20 years and tell the audience why you started your firm. Please. 

Jay Smith [00:03:08] A lot of it was opportunistic. We had worked. My primary business partner and I had worked at a reseller integrator and we thought we could do it better and we didn’t want to have a boss above us telling what he thought was going to be doing it better. And that business started to go away during the DOT bomb kind of time frame. So we saw an opportunity between a lot of accounts that we had built up in our ability and thought that we could actually do it better. 

Greg Alexander [00:03:38] Okay. And sometimes it’s a lot easier to work for somebody else than it is to work for yourself and making that leap to start your own firm, something to be taken lightly. So, Jay, maybe share with the audience where you got the courage, the conviction to start your own firm. 

Jay Smith [00:03:59] I thought it was necessary, courage or not. But, you know, we were pretty convinced that we could do it better. One of the things that I’ve equated as. As time has gone by is you end up trading one boss for about a thousand bosses. You know, you end up having something I didn’t really realize when we first started out. But every client becomes your boss. Every employee in the tough labor market, you know, in a weird way becomes your boss. You know, your insurer is the you know, the IRS. You know, you’ve got lots of different people that you end up having to answer to. And it becomes a juggling act and a balancing act. So I think we made it or we we thought it looked easier than it was. And then when we got into it, we realized, you know, the challenge of doing it. And it’s really pretty challenging, you know, particularly 20 years. 

Greg Alexander [00:04:47] So with the power of retrospection, looking back 20 years, would you do it over again? 

Jay Smith [00:04:53] I would I would I would certainly do it, but I would probably have framed it in my mind a little bit differently. You know, it’s it’s more difficult than it looks. And it’s also probably more rewarding than I realized at the time, too. 

Greg Alexander [00:05:08] Yeah. You know, there’s a distinction between a small business owner and an entrepreneur. There’s been a lot written about this. But for what it’s worth, my perspective is this. There’s a lot of people that start businesses this far fewer that actually exit them. And to me, you’re really only an entrepreneur. When you go cradle to grave, when you launch a business, you scale it and it’s an asset that somebody else would actually want to buy and you’re able to sell it and you’ve been able to do that. So you are in the rare, the rarefied air, I should say, of being an entrepreneur as opposed to a small business owner. So 20 years is a long time. I believe you’re in your fifties, so it’s not like you had to sell, you know, you’re not 75 or something along those lines. So let me ask the the multimillion dollar question in your case, why did you sell now? 

Jay Smith [00:06:01] Probably a kind of a perfect storm. So I’ve got partners. We’re starting to age. You know, I’m going to be 58 in a couple of months. We have one partner, the 61 now, the one that’s, you know, 56, 57. So we started to feel that this was a younger man’s game a little bit. There was a whole element of private equity that has entered our space. So, you know, the managed service provider space is traditionally been very fractured, many, many small organizations without dominant players with sticky revenue. So that’s attracted a private equity component to our space that they find the space very attractive. You know, and you combine that with low interest rates. So, you know, I’ve kind of equated it to, you know, from a selling standpoint, if you want to sell when your second bathroom is all fixed up, when the market condition was right. And we try to have an element of both, you know, we tried to make the second bathroom, you know, is as good as possible. But the market conditions were also really right. It also helped that we had an investment banker who really, you know, changed the level of people that we had talked to previously. We were accepting inbound calls before, and our phone was pretty active, but the investment banker had a very formalized process and we were able to pick off not only from a valuation perspective, but the other deal parameters. So, again, it was that perfect storm of of the right organization, you know, the valuations being good private equity space, you know, helping the valuations, our aging partners. And you had brought up some some medical issues that, you know, that I had had in my past that made me uninsurable. So, you know, we didn’t have an insurance and, you know, making this, you know, a seamless transition for employees, for partners, for for my beneficiaries should something bad happened, also weighed in on some of the decision making. 

Greg Alexander [00:08:01] So, Jay, if it’s okay with you, I’d like to to poke on the personal reasons a little bit more. So you mentioned some some health issues. What perspective did that give you on life and what perspective that give you on your professional life? 

Jay Smith [00:08:20] So it’s a weird one. I’ve had a pretty challenging family history medically with with heart disease. And when I suffered my first heart attack in my early to mid forties, the er doctor came to me and said Mr. Smith, you know you’ve been, you know, you’ve had your first. You’ve had your heart attack. And I’m like, okay. And it was I was very nonchalant about it. And the reason I was nonchalant is I’ve had, you know, like I said, a a of family history with heart disease and young death. So it was it kind of came as no surprise. And I was very nonchalant about it. So, you know, fast forward three years later, I have another pretty significant one in my health is really good now. I’m under the care of a cardiologist. But, you know, one of the things I, I found is, is I don’t want to leave things left undone. You know, it was real important to me to have, you know, the idea of a legacy and everybody looks at their family in such differently. But I wanted to make sure I was tidy as much as possible. Transitioning the small business while it’s still active with heirs that are not in the business I thought would have been in order. In order. In order about my partners, my employees, you know, my my children, my wife. So, you know, again, there were some some pretty personal reasons. And I don’t think that’s you know, it wasn’t a huge motivating factor, but it did go into that decision making. 

Greg Alexander [00:09:50] Yeah, well, I appreciate your willingness to share that with us. And I’ve heard this from several entrepreneurs. You know, the transitioning of a small business is hard. It’s not it’s not an easy thing to do in selling boutique professional services firms is a very tricky and nuanced thing. Which leads me to my maybe my next question and maybe my last question as I look at the clock here. So, Jay, we had spoken for quite a while, you and I, before you entered the exit process. And your level of knowledge there around what it takes to exit a business was actually pretty good. However, you recently sent me a text now that you have exited and you said, Holy cow, I really didn’t know what I now know. So this is my question. So what do you now know about exiting a boutique preserved firm now that you’ve been through it, that you didn’t understand prior? 

Jay Smith [00:10:46] There’s a lot probably probably too much to say. But you would always talk about the value of a good investment banker. And we had an excellent investment banker. One of the things that was important to us was to continue to work in the business to help transition. And we’d like to stick around for a bit. You know, we’re not old enough to quite retire and we still think we have some gas left in the tank. One of the things that the investment banker did that helped was when the negotiations started to get a little more challenging, I was told to shut up, which is a hard thing for me to do. In that was the idea to help keep me clean, right? I was going to continue to go with the deal unlike yours, right? That you didn’t want to be your investment banker, didn’t want you in for some particular reasons. My investment banker didn’t want me to get dirty, you know, and I was exposed to that, you know, we were coming along with the package that they wanted us for, for the talent. So that was something that I really didn’t understand how good the investment banker was, despite having you say it, I really, really underestimated deal fatigue. There were a couple of times when I was out of gas and what we chose to do when our exit, my two business partners remain to work in the business while I was working on the business to help the distractions keep to a minimum. And that deal fatigue stuff was real when an investment banker brought me up for sure the accountant did as well. The emotional side of the equation. I found myself getting very, very nostalgic about, you know, my partner and I first started, you know, two guys in a pickup truck. And I found myself thinking back to those days. And, you know, I’ve equated small business and entrepreneurship, like riding a car or driving a car. We’re most often looking through the to the windshield and you see all the opportunity and all the potholes and everything’s forward looking. But every now and then, you take a look in the rearview mirror, and I found myself doing that more and more. So, you know, there’s a whole emotional side of trying to sell your baby. And we wanted to make sure and we did a lot of diligence on the acquiring organization to make sure that it was the right place to to grow our baby up some more. We felt like we had a really good small thing. And, you know, having, you know, a big financial partner, the levered their balance sheet a little bit differently and and really put some gasoline on the on the whole equation was you know so I didn’t I don’t think I, I, I thought that that emotional side would be as significant in the nostalgia coming in. We had some really emotional things go through it. We end up giving bonuses to some of the staff or all of the staff and some of the reactions there were. Unexpected joy for more than I could have given credit. When some of the things that I think you can do as a small business owner is really use your platform of your business to help do good things in your community. And we’ve certainly done those things. But, you know, helping a younger person, getting into the career that’s rewarded you so much. I almost feel like it’s a baton pass and we’ve tried to be a good steward in the space to help grow up the next generation of people that are going to protect our digital assets. So there were things like that that came out of this process. Not underestimating the level of effort I should have could have been more organized. I thought we were. But the whole idea of putting a data room together, maybe before deal in the elements that go into that know we had some of those things, but it would have made less effort during crunch time. So that’s probably the best I can do off the top of my head. But there’s probably a few things in there that would help. 

Greg Alexander [00:14:49] Well, listen, you’re like they say there’s no substitute for experience. And what you just walk us through and what what you now know about exiting a boutique process from having been through it compared to what you knew going into it? Yeah. You know, it’s one thing to hear about it or read about it. It’s quite another thing to live it. And I want to I want to make sure that I thank you on behalf of our community, our mastermind group, for your willingness to give back. I’m very proud of you for being able to pull off what you pulled off, particularly how you took care of your employees on the way out. Sometimes that doesn’t always happen. You know, greed can creep into the equation. And that didn’t happen to you. It’s always great to see good things happen to good people. So proud people. 

Jay Smith [00:15:33] Thanks so much. Greg means a ton. 

Greg Alexander [00:15:35] All right. All right. For those that are in professional services, who want to belong to a community like this and learn from role models like Jay Smith, consider joining Collective 54, which you can find at Collective54.com. And if you want to read some stuff around topics like this and and learn wisdom from people like Jay can always pick up a copy of our book. It’s called The Boutique How to Start Skill and Sell a Professional Services Firm. And you can find it on our website. You can find it on Amazon. So thanks for listening and look forward to the next episode of Jay. Thanks again for being there. 

Jay Smith [00:16:11] Thanks so much, Greg. 

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community dedicated exclusively to helping you grow, scale and exit your professional services firm. My name is Greg Alexander. I’m the founder and I’ll be your host today. And today I’m going to talk about why to sell your firm. This is often neglected. When we think about exiting our firms, we often think about how much to sell it for, on what terms, when to sell it, to sell it to. But we often forget the why. And in my opinion, the why is the most important question. And what I hope to accomplish today is to give the audience members something to think about, to make sure that they can get clarity around their why. And we’re very fortunate to have a role model with us today. His name is Jay Smith, is a member of Collective 54, and he will be sharing parts of his extraordinary journey with us today. Jay, welcome to the show. Good to see you. 

Jay Smith [00:01:25] Thanks for having me, Greg. 

Greg Alexander [00:01:28] Would you mind. Given you’re given a proper introduction, please. 

Jay Smith [00:01:33] Sure. My name is Jay Smith. I’m the President of Sales or I used to be the President of Sales of Security seven networks. We recently exited maybe back two weeks ago or so. We’re in the security logical security boutique business, a MSSP managed security service provider. When I look in the years. 

Greg Alexander [00:01:54] I’m sorry. Say it again. 

Jay Smith [00:01:56] Been at it for around 20 years. 

Greg Alexander [00:01:58] Yeah, very good. All right. So let me set this up before I jump into the questions. So the reason to sell your boutique is very personal, and it should be. You know, you’ve poured your life into building the firm and leaving it and handing it to somebody else takes much thought. Someone to sell for the money. Others say they’re bored. Some are just flat out exhausted. Some say the work just became a job. It’s not funny. More Maybe you’re afraid that tomorrow might not be as profitable as today. Sometimes, unfortunately, partners start fighting and one needs to be bought out. Maybe it’s just time to retire, you know, the list goes on and on. Sometimes there’s a health scare, which I know we’ll get into that a little bit. So the wider selling firm’s a very, very particular thing. And and that’s what we hope to discuss with the audience today. So, Jay, I would like to ask and start with your origin story and the origin story. As you know, I think when you’re thinking about why to sell your firm, it’s always a good thing to remind yourself why you started the firm in the first place. So go back 20 years and tell the audience why you started your firm. Please. 

Jay Smith [00:03:08] A lot of it was opportunistic. We had worked. My primary business partner and I had worked at a reseller integrator and we thought we could do it better and we didn’t want to have a boss above us telling what he thought was going to be doing it better. And that business started to go away during the DOT bomb kind of time frame. So we saw an opportunity between a lot of accounts that we had built up in our ability and thought that we could actually do it better. 

Greg Alexander [00:03:38] Okay. And sometimes it’s a lot easier to work for somebody else than it is to work for yourself and making that leap to start your own firm, something to be taken lightly. So, Jay, maybe share with the audience where you got the courage, the conviction to start your own firm. 

Jay Smith [00:03:59] I thought it was necessary, courage or not. But, you know, we were pretty convinced that we could do it better. One of the things that I’ve equated as. As time has gone by is you end up trading one boss for about a thousand bosses. You know, you end up having something I didn’t really realize when we first started out. But every client becomes your boss. Every employee in the tough labor market, you know, in a weird way becomes your boss. You know, your insurer is the you know, the IRS. You know, you’ve got lots of different people that you end up having to answer to. And it becomes a juggling act and a balancing act. So I think we made it or we we thought it looked easier than it was. And then when we got into it, we realized, you know, the challenge of doing it. And it’s really pretty challenging, you know, particularly 20 years. 

Greg Alexander [00:04:47] So with the power of retrospection, looking back 20 years, would you do it over again? 

Jay Smith [00:04:53] I would I would I would certainly do it, but I would probably have framed it in my mind a little bit differently. You know, it’s it’s more difficult than it looks. And it’s also probably more rewarding than I realized at the time, too. 

Greg Alexander [00:05:08] Yeah. You know, there’s a distinction between a small business owner and an entrepreneur. There’s been a lot written about this. But for what it’s worth, my perspective is this. There’s a lot of people that start businesses this far fewer that actually exit them. And to me, you’re really only an entrepreneur. When you go cradle to grave, when you launch a business, you scale it and it’s an asset that somebody else would actually want to buy and you’re able to sell it and you’ve been able to do that. So you are in the rare, the rarefied air, I should say, of being an entrepreneur as opposed to a small business owner. So 20 years is a long time. I believe you’re in your fifties, so it’s not like you had to sell, you know, you’re not 75 or something along those lines. So let me ask the the multimillion dollar question in your case, why did you sell now? 

Jay Smith [00:06:01] Probably a kind of a perfect storm. So I’ve got partners. We’re starting to age. You know, I’m going to be 58 in a couple of months. We have one partner, the 61 now, the one that’s, you know, 56, 57. So we started to feel that this was a younger man’s game a little bit. There was a whole element of private equity that has entered our space. So, you know, the managed service provider space is traditionally been very fractured, many, many small organizations without dominant players with sticky revenue. So that’s attracted a private equity component to our space that they find the space very attractive. You know, and you combine that with low interest rates. So, you know, I’ve kind of equated it to, you know, from a selling standpoint, if you want to sell when your second bathroom is all fixed up, when the market condition was right. And we try to have an element of both, you know, we tried to make the second bathroom, you know, is as good as possible. But the market conditions were also really right. It also helped that we had an investment banker who really, you know, changed the level of people that we had talked to previously. We were accepting inbound calls before, and our phone was pretty active, but the investment banker had a very formalized process and we were able to pick off not only from a valuation perspective, but the other deal parameters. So, again, it was that perfect storm of of the right organization, you know, the valuations being good private equity space, you know, helping the valuations, our aging partners. And you had brought up some some medical issues that, you know, that I had had in my past that made me uninsurable. So, you know, we didn’t have an insurance and, you know, making this, you know, a seamless transition for employees, for partners, for for my beneficiaries should something bad happened, also weighed in on some of the decision making. 

Greg Alexander [00:08:01] So, Jay, if it’s okay with you, I’d like to to poke on the personal reasons a little bit more. So you mentioned some some health issues. What perspective did that give you on life and what perspective that give you on your professional life? 

Jay Smith [00:08:20] So it’s a weird one. I’ve had a pretty challenging family history medically with with heart disease. And when I suffered my first heart attack in my early to mid forties, the er doctor came to me and said Mr. Smith, you know you’ve been, you know, you’ve had your first. You’ve had your heart attack. And I’m like, okay. And it was I was very nonchalant about it. And the reason I was nonchalant is I’ve had, you know, like I said, a a of family history with heart disease and young death. So it was it kind of came as no surprise. And I was very nonchalant about it. So, you know, fast forward three years later, I have another pretty significant one in my health is really good now. I’m under the care of a cardiologist. But, you know, one of the things I, I found is, is I don’t want to leave things left undone. You know, it was real important to me to have, you know, the idea of a legacy and everybody looks at their family in such differently. But I wanted to make sure I was tidy as much as possible. Transitioning the small business while it’s still active with heirs that are not in the business I thought would have been in order. In order. In order about my partners, my employees, you know, my my children, my wife. So, you know, again, there were some some pretty personal reasons. And I don’t think that’s you know, it wasn’t a huge motivating factor, but it did go into that decision making. 

Greg Alexander [00:09:50] Yeah, well, I appreciate your willingness to share that with us. And I’ve heard this from several entrepreneurs. You know, the transitioning of a small business is hard. It’s not it’s not an easy thing to do in selling boutique professional services firms is a very tricky and nuanced thing. Which leads me to my maybe my next question and maybe my last question as I look at the clock here. So, Jay, we had spoken for quite a while, you and I, before you entered the exit process. And your level of knowledge there around what it takes to exit a business was actually pretty good. However, you recently sent me a text now that you have exited and you said, Holy cow, I really didn’t know what I now know. So this is my question. So what do you now know about exiting a boutique preserved firm now that you’ve been through it, that you didn’t understand prior? 

Jay Smith [00:10:46] There’s a lot probably probably too much to say. But you would always talk about the value of a good investment banker. And we had an excellent investment banker. One of the things that was important to us was to continue to work in the business to help transition. And we’d like to stick around for a bit. You know, we’re not old enough to quite retire and we still think we have some gas left in the tank. One of the things that the investment banker did that helped was when the negotiations started to get a little more challenging, I was told to shut up, which is a hard thing for me to do. In that was the idea to help keep me clean, right? I was going to continue to go with the deal unlike yours, right? That you didn’t want to be your investment banker, didn’t want you in for some particular reasons. My investment banker didn’t want me to get dirty, you know, and I was exposed to that, you know, we were coming along with the package that they wanted us for, for the talent. So that was something that I really didn’t understand how good the investment banker was, despite having you say it, I really, really underestimated deal fatigue. There were a couple of times when I was out of gas and what we chose to do when our exit, my two business partners remain to work in the business while I was working on the business to help the distractions keep to a minimum. And that deal fatigue stuff was real when an investment banker brought me up for sure the accountant did as well. The emotional side of the equation. I found myself getting very, very nostalgic about, you know, my partner and I first started, you know, two guys in a pickup truck. And I found myself thinking back to those days. And, you know, I’ve equated small business and entrepreneurship, like riding a car or driving a car. We’re most often looking through the to the windshield and you see all the opportunity and all the potholes and everything’s forward looking. But every now and then, you take a look in the rearview mirror, and I found myself doing that more and more. So, you know, there’s a whole emotional side of trying to sell your baby. And we wanted to make sure and we did a lot of diligence on the acquiring organization to make sure that it was the right place to to grow our baby up some more. We felt like we had a really good small thing. And, you know, having, you know, a big financial partner, the levered their balance sheet a little bit differently and and really put some gasoline on the on the whole equation was you know so I didn’t I don’t think I, I, I thought that that emotional side would be as significant in the nostalgia coming in. We had some really emotional things go through it. We end up giving bonuses to some of the staff or all of the staff and some of the reactions there were. Unexpected joy for more than I could have given credit. When some of the things that I think you can do as a small business owner is really use your platform of your business to help do good things in your community. And we’ve certainly done those things. But, you know, helping a younger person, getting into the career that’s rewarded you so much. I almost feel like it’s a baton pass and we’ve tried to be a good steward in the space to help grow up the next generation of people that are going to protect our digital assets. So there were things like that that came out of this process. Not underestimating the level of effort I should have could have been more organized. I thought we were. But the whole idea of putting a data room together, maybe before deal in the elements that go into that know we had some of those things, but it would have made less effort during crunch time. So that’s probably the best I can do off the top of my head. But there’s probably a few things in there that would help. 

Greg Alexander [00:14:49] Well, listen, you’re like they say there’s no substitute for experience. And what you just walk us through and what what you now know about exiting a boutique process from having been through it compared to what you knew going into it? Yeah. You know, it’s one thing to hear about it or read about it. It’s quite another thing to live it. And I want to I want to make sure that I thank you on behalf of our community, our mastermind group, for your willingness to give back. I’m very proud of you for being able to pull off what you pulled off, particularly how you took care of your employees on the way out. Sometimes that doesn’t always happen. You know, greed can creep into the equation. And that didn’t happen to you. It’s always great to see good things happen to good people. So proud people. 

Jay Smith [00:15:33] Thanks so much. Greg means a ton. 

Greg Alexander [00:15:35] All right. All right. For those that are in professional services, who want to belong to a community like this and learn from role models like Jay Smith, consider joining Collective 54, which you can find at Collective54.com. And if you want to read some stuff around topics like this and and learn wisdom from people like Jay can always pick up a copy of our book. It’s called The Boutique How to Start Skill and Sell a Professional Services Firm. And you can find it on our website. You can find it on Amazon. So thanks for listening and look forward to the next episode of Jay. Thanks again for being there. 

Jay Smith [00:16:11] Thanks so much, Greg. 

Posted on

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

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

TRANSCRIPT

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

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

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

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

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

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

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

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

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

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

Greg Alexander [00:15:56] My gosh. 

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

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

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

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

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

Posted on

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

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

TRANSCRIPT

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

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

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

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

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

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

Greg Alexander [00:03:04] You know. 

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

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

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

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

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

Greg Alexander [00:06:53] Yeah. 

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

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

Harry Dugan [00:08:10] Yeah, so. 

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

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

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

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

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

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

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

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

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

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

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

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

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

Posted on

Episode 92 – How a Financial Services Firm Is Scaling Beyond a Lifestyle Business by Building a Sales Engine  – Member Case with Hamid Akbari

There is an inflection point that all boutiques run into head-on. This is when sales generation happens by the employees and not by the partners. On this episode, Hamid Akbari, President & CEO at Blanc Labs, shares how the firm built its internal sales engine in 18 months and his key takeaways.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community dedicated exclusively to helping you grow, scale and exit your pro search firm. My name is Greg Alexander. I’m the founder and I’ll be your host today. Today, we’re going to talk about scaling beyond a lifestyle business by building a sales engine. What I hope to accomplish today is to give those listeners the courage to make the investments required. To go beyond a lifestyle business, particularly by investing in sales. It takes a lot of courage to do so, and it’s a big inflection point. And getting through that inflection point requires lots of courage and skill, and hopefully we’ll be able to share some of that with you today. And we’re very lucky to have a fantastic role model who is in the middle of this. His name is Hamid Akbari, and he is going to share with us a little bit about his journey. And he’s a member of Collective 54, and he’s in the middle of this right now. So welcome, Hamid, and would you please give a proper introduction to the audience? 

Hamid Akbari [00:01:30] Hi, Greg. Thank you so much for having me on this show. This is Hamid, my company, Blanc Labs is serving mid-size enterprises, typically defined around 500 and higher. Employees primarily market in the financial service industry. Typically, you know financial services company at about $10 billion assets under management and their boss and we started a few years ago at around five years ago and view their technology boutique so we’re serving our clients by helping them the technology helping them reimagine the future, transform themselves and grow from there. 

Greg Alexander [00:02:11] Okay. Very good. All right. Let me set this up a little bit before I jump into to the questions that I have. So start ups become boutiques by having the founder of the partners generate referrals and then boutiques become market leaders by building a commercial sales engine. That’s when they go beyond being a lifestyle business. And then someday when you go to sell your firm, a potential acquirer is going to want to see this in place. They want to see that the sales process has the ability to scale. And there’s an inflection point that all boutiques run that run into head on. And that’s when sales generation happens by the employees and not by the founder or founders. The old Preskill firms do not invest in building a professional sales engine because they don’t have to. The founder of the experts said, got large personal networks, and his personal networks expand as they gain more exposure to their niche. And then they can harvest these networks for business. And successful projects lead to happy clients, be clients lead to more word of mouth and word of mouth leads to more referrals. More referrals leads to more business. And this virtuous cycle, so to speak, produces enough business for quite a long time. The founder model can carry the firm through, let’s say, the first five years or so, but then sales flatlines. And this is the inflection point that we’re going to talk about today. Now, why is this? Well, there’s only so many hours in the day and the founder or co-founders are either selling or delivering work. And there’s a constraint. There’s a time constraint. And when when an A founder reaches this point, there’s really two options. So option A is that the is the founder led model. And this means really adding more partners to the equation, recruiting expensive partners who bring with them their own personal networks. And then you repeat this cycle over and over again. The problem with that is that to recruit partners, you’ve got to dilute your equity pool and profits get distributed to the owners. So there’s a price to pay for that. Option B is the opposite, and that is don’t recruit more partners, equity holders with personal networks, but rather build a professional sales model. And this has its own pros and cons. The biggest pro is you keep all the equity. And once you get through this expensive investment and you get on the other side of it, things are really good. But the process of doing it can be difficult. So we’re going to talk to Hamid today about how he’s going through this right now. And it’s a really interesting role model. So, I mean, would you maybe expand upon what I just shared and tell everybody exactly where you are in this journey and and how you got to this point? 

Hamid Akbari [00:05:09] Absolutely. Exactly. As you’ve said a few years ago when you started it primarily kind of like promoted our services to our network. So we landed on and the first client to people who knew me, know myself or know my senior member of your team, or they’re a friend of their friends or to referral line of the first few client. It was obviously very expensive to build a commercial sales and marketing team. They’d not have enough revenue and profit to invest in a commercial team. So I took it on myself as well as my senior team, to reach out to netball, to learn. And the first few clients, once we landed, the first few client really entire focus but deliver significant value to those clients because there is no point to bring your client if you cannot maintain your existing client, keep them happy. So they invest a lot of time and effort and then invest a lot of capital in, you know, like making sure they get most value from our technology services. And then from there, we start expanding our services because landing on a major client is noisy. And once we landed, not only we wanted to keep them happy, we wanted to understand what are their pain points. They have an amount of pain points for the pain point. We can serve them better than anyone else. That allowed us to expand our business. Be those client on churn, say a treatment contract where a longer term contract and you know, let’s let’s say a $200,000 contract to a million and so forth that gave us the scale and the team size and the capital to think beyond the next level. And that was about how to bring more client like this one, as you said. Each of us email kind of like out of our existing referral. Our next book is only a finite number of people. I can know personally, obviously, and my team can know personally. So that’s that about the time I started to think about and also engage my senior team, think about how we should escape, how we kind of scale beyond what we are today. And obvious that you could not only expand as expand your business with existing clients, but also acquire new clients. And I cannot operate fair to Greg on my journey they took on to be able to attract new clients. 

Greg Alexander [00:07:32] That’s a great set up and thank you for sharing that. As I understand it, you’re about 18 months into this journey of trying to bring on these these next set of anchor accounts, if you will. So what have you learned in the last 18 months? 

Hamid Akbari [00:07:48] So one of the things I’ve learned is that from process prospecting, there’s a process pressed on team perspective. From a team perspective, obviously it’s no easier team to to build a commercial team. I define commercial team by a sales team. People can be relational instead of directly a marketing team, but that also required to make sure the client see the value product clearly and in our case, our partners. My last name. Because in technology you can do it alone. You need to rely on big as well as niche size partner to offer the best value to the client. So the first thing I learned is that to build a team as a good fit for our culture and that would be like external hire is noisy team. You can’t really talk to definition of job description type full definition of KPI, but it’s about by takes what this took to be successful. Because then you hire someone you want to, you want to make sure you set that person up for success that doesn’t hit the quota take home drive contrast for for and that color experiment experimentation as well as a lot of that a lot of working after that you have to write higher. Obviously the second kind of process I learned that landing on you will measure a client is no easy thing as well. And to break down that big problem for smaller chunks, for example, one of the things we did is that you know how to focus on the first asset to find, bring in those new leads, how often those leads to the next stage of the funnel so that we have a discovery side to showcase our value to the next client. And then it’s about, you know, how to close and how to once you landed on that account at that new client, how to how to actually expand the business with that client. But other offering they can put on the table to really expand our business because the client as well and so forth. So really it’s a team on the team. Sighs. I learned a lot about how to build a team. Austin I’m learning because they’re growing our team as well in the process as well. I learned a lot by look at that complex problem of sales, which is really not an easy team to sell to many similar clients. Break it down to Chong’s. I’m kind of trying to conquer each stage of that process quarter at a time so that we nail it and we can escape iyon at least twice this time. 

Greg Alexander [00:10:04] So I want to probe on the team a little bit and also ask for further commentary regarding experimentation. The reason for my line of questioning here right now is when I speak to members of Collective 54 who are on this journey. They they have the initial courage to try to scale beyond a lifestyle business. And they know that to do so, they got to build this commercial sales and marketing engine, and they have the courage to invest the dollars and then they run into some trouble. You know, the first hire isn’t the right one or the second hire is the right one, etc., and they give up too early. And that’s a mistake because most of our members are domain experts, as you are, and maybe they didn’t grow up in sales and marketing. So it’s it’s realistic to think that you’re not going to get it right the first time. So in thinking about this as an experiment, my question for you would be what advice would you have for the members to set up the experiment correctly so that if they don’t succeed the first time, they don’t quit? 

Hamid Akbari [00:11:13] So that’s a very good question. I think it has two parts. Number one is the mindset. So I think building a commercial team for scale is not a quick thing. So we need to set our mindset that it’s going to it’s going to take like quite a bit of time. So we need to be patient around it and to trust the team, and it will give it some time for it to actually like fight on all cylinders and get to breakeven and also generate significant amount of profit. So if we’re fixing fixing our eyes on it very, very quick or quick out and be very quick sells. They may not get there if you’re building a new team, if you’re building it for the first time. That’s our own mindset, obviously. The second thing on the team size and experimentation is the first part of the challenge is that find the right people and honest is not easy to take. So if you had that role in the past that has worked, replicating that high and similar, that may not be that difficult, but building a self esteem for the first time, building marketing team for the first time require record not only being thoughtful, but some experimentation because we need to make sure these people join our boutique for the right motivation. It’s very different from joining Microsoft for a massive enterprise. So do they have the right motivation? Do they understand the KPI? Do you understand why takes to succeed kind of set them up or succeed? Or are they the right fit for the culture? And most importantly, do they have transferable skills that you know, because they have never broken a particular like this? Each of these particular kind of like my boutique, for example, to kind of like a unique. So do you have enough transferable skills and smarts to task? Forget a skill set and grow from there? So I think that’s that’s one part. And as thoughtful as the person is in trying to select the right person because you can’t afford for the first time for sales or marketing team or partnership team. That’s an experiment, right? And if it’s not working, obviously. So it’s in a ways, it’s a paradox. On the one hand, we’ve all heard it hardest, slowly, if it’s not working out to to a very, very quick in terms of the right person. The other part of this paradox is that you also need to trust trust the team, give them time to prove themselves. So. So how do you how do you manage this paradox? What are the KPI or the leading KPI? So that be not this is walking down the right track, you’re making progress and to give it more time and to keep learning versus this specific high of a never make it in this company. Obviously the decision not always is trivial and easy. 

Hamid Akbari [00:13:52] So that’s on the team side now on the process side, to build a scalable sales process, being the right tool, right process to qualify leads and so forth. That second process there, that’s quite of learning. If you haven’t done step on marketing before, like I haven’t haven’t done it before. It’s new stuff that you open to learning. Obviously you can go to college and I suspect, but there are certain best practices that you can follow so that the learning becomes organic learning and become better at kind of like building a sales funnel. And maybe it’s very different from every like from farm to farm by really the idea at least my idea is that like minute to minute to tackle it one at a time, right? You need to tackle the big problem, sell break, break it down to smaller part. And every month, every quarter is a piece of the puzzle until I find out you finally make it. And that’s how we did it. I built a sales team initially, the first hire, and I made it really neat for that salesperson. I did not give him the mountain. I give him like a piece of the offering. And I keep building and expanding on the sales team, on the marketing team, on the partnership team and learning so that they make incremental progress towards our goals. 

Greg Alexander [00:15:09] I love the emphasis on building the process and the experimentation. And you know, for those that are listening that are in the IT services space as a meet is sales and marketing is a process just like developing a piece of software is a process. And if you can break it down to the fundamental tasks and think about gating the process and leveraging the body of knowledge that’s out there right now, it can get a lot easier. It’s very well-worn territory. Building a commercial sales and marketing team inside of a process boutique that’s been done over and over again. So if you haven’t done it before yourself, you know, don’t go it alone. Tap into those that have done it before. I want to come to the next obstacle that I hear, which is let’s say that I’m a father of a boutique and I’ve got myself to some success and I’m making a lot of money. I like what I’m doing because I enjoy the, you know, the practice of my craft, if you will. Where’s the funding come from? How do I invest in this? Do I take it out of my pocket? Do I use operating profits to fund this? Do I go raise capital? How did you fund this? 

Hamid Akbari [00:16:22] That’s a good question. So it really depends on the offering. So if what you’re selling the offering is service offering, the solutions you have is not very profitable. It might be difficult to generate the fund to justify to invest in sales and marketing. In my case, we the VA, we made our offer and sold our offering at a price point and we made our offering of value to the client so attractive for the client that we could generate like a reasonable amount of profit to invest and grow it. And then we keep investing on more solution offering to existing clients. That means that the total contract value, the length of the value, the length of the length of those contract, the value of those contracts and the customer lifetime value are significant enough to justify investing, says our marketing team. It also means that those contract bought size and value on profit gave us the oxygen to be able to invest in our own growth, investment and our growth. But investing in that in IP new offering said they serve the customers better as well as the dollar value available to invest in a commercial to number one. It gives us cash to invest in our growth, including investing in a commercial team. And number two, it justify our eye on that to invest in the commercial team because we know the lifetime value of a new client is very significant. So as expensive it is to invest in a commercial team to try to justify your choice. 

Greg Alexander [00:17:56] Yep. So the lesson for those that are listening is you’re probably asking, well, when do I do this? Will you do this? After you’ve established a service offering in an ideal client profile that allows you to earn a substantial amount of profit so that you can redirect that profit, that earned profit towards an investment in building out a commercial sales engine. If you have not done that yet, if you’re still struggling with profit margins or maybe the lifetime value of a client is not where it needs to be, it’s going to be tough to do this. So tackle that first, as Amit has done, and then use those dollars to invest in the commercial sales engine. Okay. I mean, I have one more question for you, and that is this issue of temptation. I know that’s a strange term to use on a business podcast such as this, but the temptation of the founder who’s running a highly profitable lifestyle business is to pull all the money out of the business and stick it in the bank account. The temptation is to not reinvest those dollars into building a commercial team. And when that happens, when we fall victim to that temptation, we get trapped in a lifestyle business we never break through to become a boutique at scale and to build that asset that someday we might be able to sell for the real dollars. So how did you resist the temptation? Where did your courage come from to scale beyond a lifestyle business? 

Hamid Akbari [00:19:23] So it does start with a vision. All of us. Then we found a company. We have a vision. And if you don’t have one, that’s a problem. We need to go back to the whiteboard and build that vision, be there single handedly, or with the team and the vision to paint a picture of the future they want to be. What do you want to achieve? And that’s like guiding a staff for us to make the decision. That’s number one. Now, if the vision is to have a fairly small lifestyle company, well, then that’s okay to have a drive to profit. But if the vision is build something more scalable, then it’s then it’s questionable to big draw a profit potential lifestyle. Then when we have to have the vision for skinny the second the the other side of the coin with the vision is that the confidence it’s easy to have a vision but be very scared and frightened that we can’t achieve it. We also need faith and confidence in our vision, obviously, and the faith and confidence I need to be a bit more data driven, need to be with more market, do that. So if I, if I or any founder have a vision to achieve a certain outcome in a certain number of years, then the hard work of building that confidence if actually doing the hard work of seeking out how we can realize that vision, like you said a few minutes ago, like who is the ideal customer for five? Like, how do we serve them by their pain point? How do we differentiate once we have confidence that this idea of Customer five have a true pain point for which they’re keen to pay and we have a real value prop that we can serve them better than anyone else along those offering. Then we have the confidence, and then we can communicate that the team can communicate that to the client, and then we can overcome the temptation of withdrawing money because simply they’re scared that if you say or be scared that the vision didn’t deliver, realized. Because I’ve figured out it’s easy to have a vision. But you don’t have the hard work the. Build a road map toward achieving that vision. Then it’s become hard to have that confidence. Then it’s easy to get tempted by just like short term opportunities. 

Greg Alexander [00:21:31] Yeah, well, this is fantastic. I could go on and on forever. I got about ten more questions to ask you, but we’ll will save those for the live Q&A session when we get together with the other members. But I mean, I wanted to make sure that I publicly thank you for your contribution today, the way these collectives work as we make deposits into the knowledge bank so we can all benefit from that. And from time to time we’re able to make withdrawals as well. So today you made a big deposit and knowledge back on a subject that is of particular interest to most of our members. So on behalf of the members, I mean, thank you so much for being here today. 

Hamid Akbari [00:22:06] Great for having me. 

Greg Alexander [00:22:08] Okay. So for those that are in professional services and want to belong to a community and learn from great people like me, consider applying to Collective 54 you could find as a Collective54.com. And if you want to read more about this subject and others like it, pick up a copy of my book, The Boutique. How to Start Scale and Sell a Professional Services Firm. You can find out at collective54.com or on Amazon. Thanks for listening and I look forward to our next episode.

Posted on

Episode 90 – How a Marketing Agency Packaged 15 years of Knowledge into a Proprietary Methodology – Member Case with Randell Mauricio

Strategics are usually filling a gap. Either the market shifts or the market leader’s service portfolio is lacking. This gap can be filled by building a practice internally or through an acquisition. On this episode, Randell Mauricio, VP of Operations at WorkerBee.TV, discusses how they built a sustainable firm to attract market leaders.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that 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 today we’re going to talk about the buy versus build conversation and in particular, how to build a sustainable firm with the intention of attracting a potential acquirer at some point down the road. And what I hope to accomplish on this show is to reveal with the help of our role model, which I’ll introduce in a moment, that the buy versus build conversation is happening with or without you, whether you know it or not. And in the event that you do want to sell your firm someday, there’s things that you should be doing right now as you’re growing and scaling your firm to put yourself in a good position to make that happen eventually down the road. We’re very fortunate to have Randall Mauricio. Randall, did I pronounce your last name correctly? 

Randell Mauricio [00:01:31] Mauricio. 

Greg Alexander [00:01:32] Mauricio. Excuse me. My pronunciation is terrible. I’ve known you for Randall for quite a long time, and I don’t think I’ve ever, ever said your last name. So I’m problem. And he is with WorkerBTV and they are in the process of doing exactly what it is that we’re talking today. So, Randall, would you please provide a proper introduction to the audience? 

Randell Mauricio [00:01:55] Yeah, absolutely. First and foremost. Thanks for having me, Greg. And you’re right, we are in the process. In fact, the last meeting I was just on was actually just scratching at the surface of this bigger evolution of our company. But we’ve been around technically 15 years, and I’ve been with this company for, I think coming up to 12 years. I say 12 years because there was a reinvention. The 2008 crash in US significantly hard, but company’s been around for 15 years and we predominantly serve the association marketplace and we’re both a services provider of media production, videos, podcasts, that sort of thing. We aim to be a content machine for our clients and the other division of our company is is SAS and we have some platform services that help associations of that on our mission or our our core competencies and value. We help associations recruit more, retain more and drive revenue. We call those the three R’s. We’ve been doing that for 15 years. And as I mentioned, we’re looking at that next stage. 

Greg Alexander [00:03:04] Yeah. All right. Well, very good. So let me introduce some concepts to the audience. So what do I mean by buy versus build? So when a market leader, a potential strategic acquirer, thinks about buying a boutique, they ask themselves a question, Should I buy a firm? Or Can I build this practice myself? And they really analyze that across three dimensions. So the first dimension is how long is it going to take? The second dimension is how much is it going to cost? And the third dimension is what’s the probability of success? So if I was a large firm in the media production space and I wanted to build out a practice that served associations, I would say to myself, okay, well, I could build this practice myself. And that’s going to take, you know, X number of years cost me y number of dollars and I would swag a probability of success percentage at it. Maybe I’ll give myself a 5050 shot or I could pick up the phone and call the good folks at WorkerBTV and say, Hey, you’re already doing this. You’ve been doing it for 15 years. I could get there a lot faster if I bought your firm. It’s it might not be cheaper. But if I consider the time value of money and opportunity cost, maybe it is. And certainly with a 15 year track record, I got a better than 5050 shot at pulling this off. And that’s the key, right? The key is to is to build the firm that you might get one of those calls. Now, you don’t have to accept it and you might say, well, I don’t want to sell my firm, but you do want it to be your choice and not theirs. So I’d love to hear from you as to, you know, what it is that you’re doing with your company that puts you in a position to maybe someday take that call and be able to prove to a strategic acquirer that buying you is better than building the practice internally. 

Randell Mauricio [00:05:09] Absolutely. Greg, we’ve been talking a lot with the collector. Talk about, you know, what is a method firm, methodology firm? I really do think that it’s about the methodology, not just the institutional knowledge, but the way that we do things. And furthermore, for an acquirer, the partnerships that we have. And so let’s let me dig into media production for a moment. We have I think we just crossed over the 60 staff members, Mark, and predominantly most of them are here in Canada. And and I get it know, one of the things that we’re looking to do in the coming years is leverage the global workforce. There’s a lot of incentive for doing that. But or 15 years we’ve developed some some unique partnerships that allow us to do things a certain way better, faster, many times cheaper. I’ll give you a really good example right on the onset of our company, the first few years when video production was still a new concept and the association clients, we, we, we serve, they’re not local. I would dare say that 98%, 99% of them are in the US and they’re their business is international. So there’s times where we need to film in the US or in the UK. Here in Asia we’ve developed some partnerships and abilities and acquired some abilities to be able to dispatch the demographers just about anywhere in the world. But we’ve done that over the years. Harping back on two methodology that was in the first few years, in the last recent years, actually, fortunately enough for us, in late 2019, right before the pandemic, we actually acquired a technology. So going back to buy versus build, we actually invested in a technology in a company based out in New York that allows us to decentralize the process of filming. And so we can we’re able to film now using smartphones, iPhone 13, that are capable of filming in 4K. So what that does what that initiates for our clients is you can be in Singapore, your interviewer or somebody could could log in from London. We could have a recorded interview or a podcast conversation just like this that we’re having right now, record that immediately. And at the push of a button, those files are uploaded to our cloud. And later on that day we at WorkerBTV could very well be editing and producing that content. And so to wrap it up in certain partnerships have enabled us to have certain capabilities that, quite frankly, are really unique. 

Greg Alexander [00:07:57] You know, it’s a great use case that you just share with us, and I’m going to share with the audience a story. So I was last July 4th, I was in Telluride, Colorado, with my family, hiking and WorkerBTV, was producing some content and they asked if I would be willing to be on the show. And of course I said yes. And one day I came back from a hike and there was a box at my garage and I opened the box and there was this iPhone 13 and a stand in a light and all this. And in 10 minutes I had it set up. And next thing you know, I was being interviewed by a television host and it was there was a little laminated card that said, okay, when you’re done with it, hit this. And literally I hit send, I guess was the button and went on to my my day and had a cup of coffee with my wife. And we went on with the rest of our activities. And it just it struck me because I’ve been around video production companies before and the legacy providers are large firms. I mean, that process, they would have had to have either found a local crew which in a place like Telluride, then maybe there is, maybe there isn’t, but it’s a small town of 2000 people, or they would have to fly in a crew with all the equipment, etc., and it would have been really, really hard. So in this new world we’re living in right now, where everything is decentralized, where virtual everything it seems like is the way to go, virtual office space, you know, you name it. This is an example of a a methodology. And to use Randall’s terms, a capability that a large acquirer might say to themselves, hey, we need to be able to do the same thing. 

Greg Alexander [00:09:40] There’s a segment of our market that wants to buy our service in that way, and we don’t have it. So we could figure it out and hire to it or we could go make a deal with WorkerBTV and overnight I have that capability in my firm that’s it’s a great illustrative example to make the point here on developing a capability and methodology that might be attractive to somebody. Now, the challenge here, Randall, is that the large firms, which all of us, members of the boutique tribe, so to speak, compete with the large firms, have to be aware of the fact that they have a gap that needs to be filled. And then when they are aware that they have a gap, they need to know that you’re a best in breed. And whatever that niche is and partnering a buyer, you guys is the right thing. And the best way to make them aware of that gap is to compete with them head on, head in new client acquisition and actually win. And that’s that’s how they become aware of who you are. And they say, geez, how did we lose to that company? I never heard of them before. Maybe I should do some investigation. So has that happened to you? Have you competed with some of the bigger firms? And and have you beat them? And has that got you some attention or is that not happened just yet? 

Randell Mauricio [00:11:03] It’s an interesting conversation, an interesting question, Greg, because I dare say it hasn’t happened yet and I’ll give you the context. We’re a bit of an anomaly in that because of the services we provide, but also the platform services that we provide, the SAS platforms where we believe there’s no one out there quite like us. Now, we’ve been seeing in that same zone for the last ten years or so. I think in the last year we’re starting to come out of the woodwork and we’re starting they’re starting to register on our radar where, hey, this actually might be something similar to what we do. And it wasn’t it wasn’t a surprise. We we both know that media production has been around for. For years. We’ve seen over the years how that the pendulum is starting to swing more towards our tech. Right. Ten, 12 years ago when I when I started with this company, by the way, I’m not the founder of this company. But as I alluded to earlier, we’re starting to plan out that next evolution so that our our founder takes on a chairman role anyhow. Ten, 12 years ago, it was I would dare say we were 80% media production. Hmm. 

Randell Mauricio [00:12:17] We’ve swung now to about 5050, and I believe it’s it’s going to be 80/20 the other way, 80% tech. And we’ve been very conscious of that. We’ve been very strategic in our staffing and how we’ve structured our offerings and capabilities. We know that there is a certain type of genre that we can produce media for, and we and we’re very clear on that and we try to go after that business. We also know that we are in a global marketplace or workforce, and it’s really difficult to completely to compete with the agencies out there based out of New York, Dallas or wherever, shipping a bunch of work to India or to to the U.K. or to Asia or wherever that may be. So we’re trying to get ready for that. So a long way of saying we haven’t quite experienced that yet, but we’re gearing up for it in are silver bullet, if you will, is to focus more on our tech and hence why we’ve been investing largely in our SAS platforms. 

Greg Alexander [00:13:27] And the tech. Just to be clear, the tech is what enables this unique way of capturing video via the iPhone. 

Randell Mauricio [00:13:35] That’s part of it, actually. And we’re. Or we’re. Whether it’s a curse or blessing. We, too, just like you, Greg, in your in your prior business, we have a lot of offerings and service lines, but that’s just one. But our our SAS platform is actually video hosting and maybe for for a lack of better terms, I’ll say this, it allows our association clients to do what YouTube will not let you do. And I’ll explain that YouTube won’t let you serve your own banners for a click through. We can’t. YouTube will not let you gather data. We can. YouTube will not outright give you the data of whoever is subscribed to your content names, email addresses. We can do that for you. And if I were to relate this back to our live versus build conversation, we, we over the 15 years of developing this platform. And as you know, it’s it’s a body of knowledge. It’s a body of code and programing. We’ve always had to make the decision, are we going to build this internally or is there something out there that we can either buy or rent or partner with? Yeah. And one of the most one of the more interesting partnerships which we’ve secured is a data analytics firm, basically a data management technology or software. We’ve partnered with this company. If we take that capability layer on top of our existing I.T infrastructure, we’re excited about this because later on this year we’re going to have the ability to manage data preferences and become a rec and recommendations engine, just like YouTube or Facebook. And that’s going to be really powerful for our clients. 

Greg Alexander [00:15:19] Yeah, that is powerful. You know, I’m struck by you said that video production been around a long time and it certainly has. But the way that you’re doing it, it’s just a great example of a new way of doing something old. I mean, this whole distributed video capture, the way that you’re hosting some of those examples of how you’re different than of an earlier approach on YouTube. You know, these are all the things that make your methodology, your capabilities attractive and somebody that wants to be able to do that in the future. If you guys do decide that you want to sell, you know, it’ll be an easy decision for them because it’s a it to your point, it’s 15 years of accumulated knowledge and that that is what a strategic acquisition partner would think about. If I’m going to build this myself, am I willing to invest 15 years or am I willing to throw some money at it and get there tomorrow? And that’s the takeaway from from this session, from the membership is whether you plan on selling or not, you want your firm to look great to a larger firm who might approach you for an acquisition. When they think about buy versus build across the three dimensions, how much is it going to cost? How long is it going to take, which is the big one, and what’s the probability of success? And Randall, you’re your role model. Today was fantastic. We’re at our time window here, but I just wanted to thank you for coming on the show and and sharing your story. The WorkerB story. It’s quite a story. And we look forward to the member Q&A. 

Randell Mauricio [00:16:57] Thanks, Greg. Appreciate you having me on. This is a pleasure. 

Greg Alexander [00:16:59] Okay. And for those that are interested in this topic and others like it, pick up a copy of the book, The Boutique How to Start Scale and Sell a Professional Services Firm. You can find that on Amazon and our website. And if you’re not a member and you think connecting with a group of peers in a mastermind setting would make sense for you, consider joining Collective54.com. Okay. Thanks again. Take care. 

Randell Mauricio [00:17:26] Thanks Greg.

Posted on

Episode 89 – How an Investment Bank Generates a List of Potential Buyers for Your Firm  – Member Case with David Jorgenson

Supply and demand will impact your ability to sell your boutique.  On this episode, David Jorgenson, CEO at Equiteq, shares how the leading global investment bank for professional services firms has uniquely positioned themselves to understand acquisition needs, and how they are able to add value to founders who want to sell their businesses. 

TRANSCRIPT

Greg Alexander [00:00:16] 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 address our members who would like to sell their firm some day. I want to talk to them about the concept of developing a deep universe of buyers, really understanding who might be interested in acquiring your firm and how to go about doing that. And we’ve got a great guest, David Jorgenson, and he is the CEO of Equitq and he’s a member of Collective 54. And for those that aren’t familiar with Equitq, as they’re really the leader in the space, they probably do more transactions for professional services firms than anybody else. And they’ve developed a way to really develop a deep and broad set of potential buyers. So with that, David, if you wouldn’t mind, please give yourself an introduction to the audience. 

David Jorgenson [00:01:20] Great. I appreciate it, Greg, and happy to be here. And thanks for thanks for inviting me to this conversation. It’s a very interesting topic. So as far as as far as an intro to me and Equitq, I’ve been doing this for about 25 years in various and various forms. And when I say this, I mean helping founder owners and other owners of of knowledge, economy businesses understand and approach the market for their firms. And so we always do this in the context of knowledge economy firms, which are and what I mean by that is firms that are delivering expertize to the to the marketplace. Equitq is a firm that does this globally. So we we have about 70 professionals doing this work in North America, Europe and Asia. And we’ve been doing it for about 15 years now. As you said, we do we consider ourselves a leader in the space and we consider ourselves to be specialists in helping founder owners, entrepreneurs understand and address the community of potential buyers out there. 

Greg Alexander [00:02:30] Okay, fantastic. And thanks for that. So this idea of developing a universe of buyers, most of our members are first time founders and they’re so good at what they do because they’re very, very, very focused. However, when it comes to selling your firm, there’s such a thing as too much focus. You can be it can know a little tunnel vision and opening yourself up to exploring, you know, people that might be interested in you that that they didn’t normally think about. This is a foreign concept to them. It was to me when I sold my firm and I now have the power of retrospection. And thank goodness I did throw a wide net because the firm that ended up buying me was someone I never knew before. And that was because the investment banker did a fantastic job. So could you maybe start at, I don’t know, 30,000 feet and explain to our audience why this is so important and your experience 25 years doing this, what normally happens as a result of throwing a wider net, so to speak? 

David Jorgenson [00:03:30] Yeah, I think it’s a good point that you started with to talk about tunnel vision because, you know, when we say that, we don’t mean it in a negative way because there’s a lot of focus that is required for for successfully, you know, growing a business. It’s difficult to do. It’s hard to do. And it requires a lot of laser focus. And so what that means is that you typically understand, you know, a narrow slice of the market in which you compete. And so when you think when the first thought about who might be interested in my company is probably the firms that you compete with or that you know or that do what you do. And we always think about it and sort of try and think about it in exactly the opposite way, which is you can’t do it. You do want to. And so that is typically where our best deals come from. It’s it comes from a combination of of two firms that can’t do what, you know, can’t can execute the strategy separately. They need each other to do it. And the reality is that nobody knows who that is or you wouldn’t have to run the process. You wouldn’t have to go ask the market what they think, if you know who, if you know who the only buyer is and you just call them. So we always think about starting with, you know, call it whatever cliche you want to say, call it a blank sheet of paper. But you as a as a market participant, the the point is that focus helps you grow, but it doesn’t help you sell because there are the best deals are built from putting two to pieces together that may not seem like they fit right off the bat, but they make a. To make a bigger strategy possible in the future. Hmm. 

Greg Alexander [00:05:17] That’s interesting, you know. One plus one equals three. Another cliche for you. You know, one thing that I’ve learned from Equifax research in particular, which I think you guys do a great job of, is this concept of adjacencies, which is maybe an expanded explanation of what we’re just talking about. So like, in my case, SBI, my old firm, we were in the sales consulting space, but they were marketing agencies, which was an adjacency that we interested in us. There were product development firms, that was an adjacency that were interested in us and so on and so on. And sometimes these boutique providers in and of themselves want to expand their business by expanding into an adjacency, and therefore you become more attractive. And we use well, my banker use this thing called a market map as a way to identify who those adjacencies are, because you do use a tool like that or something similar to it to try to identify who these buyers are. And if so, would you would you mind explaining to our audience kind of what that tool is and how it works? 

David Jorgenson [00:06:17] Yeah, I think we do. And the way we think about it is in sort of axis of of customer relationship and then service. And so there’s, there’s two, two ways in a very, very simple framework to think about adjacencies. One is doing something different for the same customer and the other is doing the same for a different customer. Hmm. So if you can think about, you know, a two dimensional chart showing how those things interrelate. And so adjacencies can be in either one of those axes and they can be taken equally or either of them or both can drive transactional interests. But if you think about the, the, the easiest way to start a conversation with potential buyers on one of those two dimensions, which is that, which is to say we can help you do more to your current client base. Or on the other hand, we can help you access new clients. And if you dig down deep into the most, you know, sort of immediate buyer interest, when we’re selling a business, a lot of times it comes down to one of those two things, which is I want to I want to be in those logos or I want to do what you do with my clients. Yeah, because if I can do what you do, well, then I can double my revenue per client. Yeah. Just in this category. So the, I think the simplest way to think about adjacencies in mapping a market is, is, are those two dimensions do you expand my clients yet or do you expand my my product set at current clients? Is that is that kind of thing you would say? 

Greg Alexander [00:07:56] Yeah, that’s a great way to frame it. What I love about it’s easy to understand and it makes common sense. Let’s let’s stay on that for a moment. Our members are boutiques, which we define as 25 to 250 employees when they get bought by a larger firm market leader. Usually the reason the rationale for the deal anyways is I don’t own pick a company, Accenture or somebody like that. They’re their pitch to the founder. Entrepreneur is we don’t do what you do, but if we had you inside our firm, we could walk you into all our clients, which due to our size, we have a lot more reach than you do. You know, we could 2x3x, four x or business or whatever it is over a period of time. That’s usually what happens when they get approach. That way, our founders get a little intimidated by that. They they love being an entrepreneurs and founders. So the idea of working for a mega company and having a boss and things like that is, is a little unattractive. But they balance that out with, my goodness, imagine if I had access to those clients, you know, that many more people would get exposure to my brilliance, my expertize. So for the founder, that’s a little hesitant to go there. What counsel would you give him or her? 

David Jorgenson [00:09:13] Well, you know, a lot of our clients reach that stage. It’s a very common stage to get to in I call it distribution. So what you’re looking at, what you need is, is better distribution. So you hit a ceiling and the ceiling is comprised of the who you know, who your network is, you know where your offices are. You know, you need if only more like you said, if only more people could learn about what we know and what we do, you know, our opportunity is unlimited and that’s distribution. And so Accenture’s a good example. It’s a it’s a it’s an incredibly powerful distribution platform. And so I think what we counsel our clients to think through very carefully is if that’s what you need, then that’s how you get it, you know, need it. And it’s it becomes a less of an emotional conversation when it is seen, you know, in the framework of, well, it’s just a necessary step. Every company goes through it. And it’s it’s a it is an absolutely universal developmental step in professional services. There’s no people business that can’t that doesn’t have to find a way to break through that. Now, they don’t they don’t all need to be bought by Accenture. That’s not the solution to everybody’s distribution challenges. But there’s no there’s no there’s no quicker way to increase your. Your distribution network. And there’s lots of different there are lots of different scales to that. So there are lots of distribution solutions that can be a lot less intimidating than an acquisition by Accenture. Yeah, that is a that is a an easy and easy example to, to, to contemplate. But it is also quite an extreme. Malcolm, if you think about the universe of potential acquirers, there are distribution networks out there that are much less. Less intimidating. Less. Less extensive, maybe. But also maybe a better custom fit. And that gets back to the question of finding, you know, building violence. You know, you can you can build a list that has a company like Accenture on it and then a much more user friendly middle market, you know, slightly smaller firm that that can offer a choice. Mm hmm. 

Greg Alexander [00:11:40] Yeah, you’re right. There are scales to distribution, and then you correct that in the evolutionary cycle of a boutique, eventually you get to that point and you can build that yourself, which is going to cost a lot of money, take a lot of time, or you can partner by selling all or part of your company to somebody that has a distribution network already in place. You guys have done so many deals and if if the hypothesis of doing a deal is distribution and these founders and members are deciding whether to sell or not to sell based in part on what life will be like as part of a new firm, a larger firm. You know, looking back on all the deals you’ve done right now, the founders happy inside these larger distribution networks. I mean, how is it working out for them? 

David Jorgenson [00:12:30] Most of the time, if it’s set up properly, there is satisfaction. Hmm. It when we see when we see a founders owners, sellers become unhappy. It’s when they there was a misunderstanding or miscommunication about what life was like. You know, it’s that it’s that this isn’t what you said it was. And you know, that, you know, that has happened. It’s rare. It has happened. Where where a buyer will paint a picture that turns out not to be accurate. And so, you know, our job is to provide a range of options in a range of choices so that, you know, a seller or a founder knows what they’re stepping into. Mm hmm. And as long as it doesn’t have to be a, you know, a situation that they want to be in permanently. Mm hmm. But it has to match up with what they thought. Mm hmm. And really, the issues come in, and they’re quite rare, actually, but they. They happen when. When the expectations don’t meet the promise or the reality doesn’t meet the promise. And so the. The point of a process. The point of a buyer’s list is. One to provide certainty of an outcome, casting a wide net, as you say. And the other is to provide choice and to provide alternatives. And so you as a seller should be able to balance and match up multiple options that include all of the variables that drive a deal price structure. But also, what does this company like to work for? You know what? What are the do I want to work with these people for three, five, ten years into the future? Do I want my team to work here? Is is this a place where my team and I think that’s part of the part of the process. But really, it doesn’t have to be the kind of company you would build. It doesn’t have to be the kind of company you already built. But it has. But it has to be what you expect. Yeah, it has to be accurately described. 

Greg Alexander [00:14:47] Yeah, that’s good advice. You know, one of the things that you’ve helped bring, as well as your peers in your industry is a whole new universe of buyers known as the private equity buyer. For the longest time, professional services, most of the buyers in the activity was in the area of a strategic buyer, but lots of deal activity is in the private equity space now, and our members are constantly getting called by these people with, you know, big promises, etc.. And there’s confusion around one particular thing that I’d love to get your perspective on. Maybe this is the last topic we can talk about today, and that is there’s the platform. You know, a PE firm comes to you and says, I’m going to back you and want you to be the platform, and then we’re going to go do a bunch of acquisitions underneath you as a platform provider or platform, the platform, I should say. And then there’s the other scenario where there already is a platform, and that platform is now coming to you as a smaller firm. And they’re trying to use you as a as a token, so to speak, this this difference between a platform and a tuck in and getting these inbound inquiries from private equity investors. Could you help maybe bring some clarity to this confusing thing? You know, who are these private equity people? Why are they now all of a sudden interested in professional services when you might you consider being a platform when it might be okay to be a token? 

David Jorgenson [00:16:11] Yeah, it’s a it’s a great topic. It’s a big topic. So I think what’s important to recognize about private equity is that it has changed a lot in the last ten, 20, 30 years. So it isn’t at all like it was in the eighties and nineties with leveraged cap, leveraged financing, corporate raiding, kind of, you know, buying and restructuring inefficiently run companies. It just isn’t like that anymore, particularly in this market. So what private equity firms are that are interested in professional services are is they’re very experienced professional business owners. They’re not completely different from founder entrepreneurs themselves. So private equity firms care about the same things that founders care about, and they want their companies to be healthy and growing and they want their companies to be excellent places to work that attract talent. That’s the first thing to recognize is they’re not a different species. They approach the world slightly differently. They think about different things. They’re they’re they’re unique as individuals often, but they’re not a different species. 

David Jorgenson [00:17:27] Second thing to know is that they’re ten years ago. There weren’t as many private equity firms and there were a lot more companies to buy. And so they didn’t have to do anything. That was either it was seen as difficult. So ten years ago, there were, you know, professional services, people dominated business models, particularly those that didn’t have recurring revenue that sort of worked on the contract basis and had to sort of resell all their revenue every year like consults some consulting firms do. They didn’t need to worry about that part of the market because it was a lot of other markets to go, you know, build a business there. So we’ve seen in our business, we’ve seen private equities become much more interested in in professional services and knowledge economy businesses in the last five years. And I think that’s great for the market, is great for the participants and the entrepreneurs in this market. And so what that means is that private equities have started to make sense of people driven business models, and they’re not afraid of them, which is, I think, to their credit, because I don’t think there’s anything to be afraid of if you understand it. So we’ve gone from having two or three PE firms that kind of got it to, you know, a few more that get it and a whole lot more that are trying to get it. And so what that means is they’re flooding the market. They’re flooding entrepreneurs with outreach and with cold calls. And it’s very confusing as a business owner to make sense of it all. 

David Jorgenson [00:19:00] And I sympathize. And I think that’s it’s difficult to to break through that confusion. What I will say about private equity firms is the business model is to is to find companies at a reasonable price, grow them, combine them, make them bigger, and sell it as a larger entity that requires them as a core component of their business model to explore the lowest price at which you will sell your business. That’s what they’re doing. So when they’re when they’re reaching out to a business owner, they are prospecting for somebody who will be interested in the conversation and then they will be trying to explore. They’re not trying to cheat you. They’re not trying to to. They’re not trying to trick you because they want to work with you. They want to partner with you. But they are trying to understand at the lowest price at which you’ll sell their business, sell your business. And so you have to you have to just approach it in that spirit. As far as the the difference between a platform and a tuck in, it’s critical to the strategy. So when I say that they’re looking to acquire, grow and then sell a bit, you know, a business, they usually do that by buying one anchor anchor company so that what you call a platform, which is what we call it as well. So the platform company or the anchor companies, the first investment in a strategy. So if they say, for example, we want to build a company in Salesforce consulting, they will they will try and find a platform which is the first investment, which is the which is what they will then use as as the focal point for adding on to. 

David Jorgenson [00:20:41] And they will try to add on to that, to that first investment through organic growth, through, you know, business operations and strategy as as any as any owner would. And by buying other companies as tuck ins and combining it with that platform company, I tend to think that, yeah, it’s neither better to be the platform or the tuck in. Both can be very attractive and very reasonable exits for a founder entrepreneur. I think there’s a fair bit more pressure with with being the platform you’ll be asked to to work harder than you did when you were when you owned the company yourself, probably. And so you need to want to really dig in. You need to want to chase 30, 40, 80% growth per year. And so you have to be excited about. Yeah. If not, then, you know, potentially it’s better to to, you know, to if you were to sell your business, to sell it to a, to a platform business as a tuck in because you might, you know, it might allow you some more flexibility in what you do after the deal. 

Greg Alexander [00:21:49] Very educational. Thank you. Listen, we’re we’re out of time. I could go on and on with you here, but there’s a lot of confusion around this. And I think our members would benefit greatly by spending more time with Equitq. And David and his coworker, Greg, who is also a member. So if you have any interest in exiting your firm and you want to talk to them about building a universe of buyers, you can see them on the member portal and reach out to them directly. But David, on behalf of the membership, I appreciate you being here today and sharing what you’ve what you’ve learned over the years. It was very valuable and thanks for being here. 

David Jorgenson [00:22:23] Great. And thanks again. I enjoyed the conversation. 

Greg Alexander [00:22:25] Okay, great. And for those that are interested in this topic and others like it, pick up a copy of the book, The Boutique How to Start School and Sell a Professional Service. This firm. And if you are listening and you’re not a member and you want to meet exceptional people like David and learn more about these types of things, consider joining our mastermind community. You can find it at collective54.com. Thanks again. Take care. 

Posted on

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

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

TRANSCRIPT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Posted on

Episode 83 – How a Brave Founder Scaled his Software Development Firm by Confronting his Blind Spots – Member Case with Alan Haefele

Acquirers want to understand your methodologies, how often they are updated, and what changes are coming in the future. On this episode, we interview Alan Haefele, Owner & Managing Director of Haefele Software, to understand how to integrate continuous improvement as part of a company’s culture and DNA.  

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that 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 discuss continuous improvement. Now, why are we going to talk about continuous improvement? Well. Many times, clients and prospects have a mentality that says, What have you done for me lately? Buyers of boutique professional services very often are purchasing what you’re going to become, not necessarily who you are today. I wouldn’t go so far as to say that yesterday was worthless. But, you know, if your business depends on generating recurring revenue, expansion, revenue from existing clients, it’s very important that you continue to evolve. And one of the ways to do that is through continuous improvement. And it keeps you on the leading edge. It makes your services and your people interesting. It makes you attractive to prospects, talent, maybe even a potential acquirer at one point. So we have a role model for us today. His name is Alan Haefele, and Alan is, we believe, an expert on this subject. And his firm follows a continuous improvement methodology, so to speak. And I’ve asked Alan to come on the call here and talk to us about that today. But before we jump into the details, Alan, if it’s okay, would you mind giving a proper introduction? 

Alan Haefele [00:02:04] Yes. Thanks for having me, Greg. Yeah, slight pronunciation on the name, but Alan Haefele.

Greg Alexander [00:02:12] Oh, I’m sorry. I apologize. 

Alan Haefele [00:02:14] No problem. I ran a boutique, hopefully software. It’s a software consulting firm with a team in London and largely in South Africa, in Cape Town, where I am today. We are about 55 of us and we are specialists in the net. So Microsoft ecosystem and largely specialists in B-to-B, a lot of logistics, financial services and banking kind of clients. And yeah, we’re on this journey to become more and more of a wisdom firm and collective of course is helping us on that. But yeah, that’s us. 

Greg Alexander [00:02:47] Okay. Well, very good. So the team tells me that this concept of continuous improvement is literally part of the DNA of your firm, and it’s very methodical and very structured and disciplined. So maybe as a way to kick this off, if we could maybe start at 30,000 feet and give the audience a feel by providing an outline as to what it is that you do in this area. 

Alan Haefele [00:03:11] Sure. I think by definition in this, it’s hard to be an expert in it because you kind of are always continuously improving. So it’s always hard to say that you’ve done it. But I think, yeah, the the what stood out for me on this topic was actually how we started. It became a value almost. This people over process was almost one of our first kind of catch phrases when we were four or five, six people. And to be honest, I think it was born out of a vulnerability on my side. I actually have no idea what I’m doing. So let me not put let me put draft at the end of everything and let me put version of version number at the end of everything, whether it was our hiring process or our interview process or our initial sales messaging, everything became a version 1.1 or a version 1.6. And out of that, the people of the process became our kind of mantra, and that any process was completely up for grabs to be torn up and redone almost at any time. And that, I think, infused a lot into our culture today, where people are the process is still a very big part of what we do. It obviously manifests differently now 50 to 60 people, but there is this inherent understanding that every process you see is one phone call away. One team’s message to me from being overhauled into version 2.1 or fully overhauled from a version two to a version three. So we’ve got a couple bigger ones. So like our, our career progression is currently on a version four and our sales team is currently on a version three and we kind of each understand what that means. And if you’ve been around long enough, you will know what version two was and you would know what version one was, and we’ll sort of what the features of it that made that version fail or why it became a version two. And yeah, it kind of started with the adage of every feature on an airplane is the result of some tragedy. Right? And it’s almost always having a spirit of, well, the reason airplanes have a fuselage in that position is because some plane caught on flames and killed a whole lot of people. And that’s now why the fuselage is in a different place. So, yeah, we kind of have that mantra kind of baked into a lot of what we do. 

Greg Alexander [00:05:33] Yeah, that’s a great overview and that’s a horrifying example of the fuselage catching, catching fire. But it is a great way to think about it for sure. And sometimes these things are born out of necessity. You know, you talked about version three and version four and version one and how different functions within the company in different people are on different versions, which I find very interesting because, you know, our membership is, is made up of boutiques, which means they’re on their journey. They’re not well-established, mature organizations. They’re rapidly iterating as they move through their lifecycle, grow, scale and exit. And you’re clearly doing that for sure. Sometimes the rate of change can be unsettling for folks and they say, hey, you know, we we just got the new process. Let us run that for a while before we update it. Update it yet again. Have you run into that? And if so, how have you dealt with it? 

Alan Haefele [00:06:34] Yeah, we have run into it. I think doing the iterative approach is more freeing than binding because almost everything is just an iteration, so it doesn’t really matter if you get something wrong in this iteration. So the art is more around, Well, are we changing enough in this iteration that’s worth doing? Okay, cool. Now we’re going to call it version three, and then we normally allocate some kind of a time limit on it. We’ve gotten better at this more recently because sometimes we would let an iteration run for too long because you now move on to another part of the business, and then you don’t look at how that iteration has gone, but we’ve sold it by just being more conscious per area as to how long in iteration is. We’ve kind of learned this a bit from the software industry itself, which is obviously our game in understanding the Agile principles and understanding Scrum and how you build software for a client. And then just retrofitting that mindset onto the other parts of the business, whether it be delivery, technical, finance, marketing and a key part of that Scrum Agile methodology is this concept of a sprint. So how long is the iteration in a software setting? The shorter, the better. It might be a fortnight, but in other parts of the business, a sprint might be more like six months. We might be more like six months. So we’ll, we’ll just get a little bit clearer that, okay, this iteration of this experiment or this initiative that we’re going to do, we’re going to put a time limit on it of about six months. I think that’s fair. Or another one, you might go, look, we’re going to know whether this is going to work within a month. So let’s make this sprint for that classification a month. Whereas in marketing you might go, look, marketing is a bit, you know, if you’re trying something new there, it’s not going to change overnight. You better give it 6 to 9 months. Okay, let’s make that a nine month sprint before we decide if this is a baby in this bathwater, that we need to throw it all out or reassess where we’re at. Hmm. 

Greg Alexander [00:08:29] That’s an interesting answer. I love the fact that you’re having the conversation about, you know, is this really large enough to be an iteration or a version, I should say, and then your time stamping it, you know, I think that’s a great way to to think about this in kind of version control, if you will. What advice would you give members who are wondering how to measure this? So, for example, oftentimes I’m on the phone with members and their profit margins are not expanding. They’re flat, and they think that their profit margins are acceptable because that’s the data that they have and that’s the way it’s always been. But I’m in a luxurious position and that I talk to lots of members and I see profit margins across lots of firms. And sometimes I can see just on this example that there there’s an opportunity for them to expand their margins. But they they’re not doing it because they’re not aware of that. Which begs the question in the context of today’s call regarding continuous improvement, is, is how do you know it’s working, you know, across all the things, everything from how it’s impacting the clients to our impact in the employees to how it’s impacting the firm in the aggregate. How do you measure? You know, after the fact, I guess, the effect of whatever improvement that was made. 

Alan Haefele [00:09:53] You know, it is a lot harder our current iteration and on this I don’t think it is complete. We have it as as part of our sort of okay rhythm that we are assessing which initiatives were previously in play. And we do that as a leadership team or extended leadership team so that you are getting the full spectrum from each angle so that our lead and delivery and head of operations and head of finance and head of marketing and sales are all collectively around the table once a month, sort of assessing the experiments that are at play. So I suppose you could make that into a regular cadence would be monthly with the leadership team or as part of the okay hours. I’ve baked some of this into the okay hours because you make a good point around. A large part of continuous improvement is complacency because you think it’s good enough, it’s fine. And you don’t realize actually no, there is improvement there. And so part of that of baked into the okay where I sort of like a two parter every quarter for every lead, they need to find something on the outside world and internalize it. So in other words, have to try something from the outside, which means they have to go and find that book, read that, listen to that podcast, connect with some kind of external medium in their field and internalize one thing and to try one thing. And then the second is to actually improve something. So that might be something that’s already in the company, but that’s annoying them. So it makes them stop and think about what’s annoying them and then isolate it. And then the next quarter they need to try something and improve something and that improving something is not something that already exists and trying something, they have to go out and find it. So interestingly, collective 54 was my okay, ask me to find something and bring it in because everybody can kind of find this thing. But what is the what is the found to do in this area? And so my one thing for my quarter a couple of quarters ago was, okay, I’m going to sign up for a for another group, see if I can learn something. Yeah. 

Greg Alexander [00:12:01] Well, we’re glad you’re here for sure. And for those that aren’t familiar with OK Arc could you tell everybody what that is? 

Alan Haefele [00:12:09] Yeah. Objective key results. So it’s a sort of a framework of goal setting in a way which helps you outline a set of objectives that you want to achieve. And then as minimalist as you can identify the key results that would indicate that you’re on track for that objective. So it takes some takes some rigor. I would say we’re on across version four at the moment in how it’s defined and how it was used. Our first iteration was far too verbose and far too admin heavy. Now we’ve started right back to a simpler piece instead of objectives for the next quarter per region. And these are the things that these are the key results that would stack up to that objective. 

Greg Alexander [00:12:53] Okay, very good. And Alan, one of the things that drew me to you for this subject was I understand that you do a companywide kind of retrospective every three months. I’d love to hear more about that. 

Alan Haefele [00:13:07] Yeah, a retrospective is a something that we’ve retrofitted from Scrum and Agile, which is at the end of every sprint of built software, a healthy team will have a healthy retro. And a healthy retro is where you are expecting the team to reflect on the last sprint on the last week or two weeks. And you’re mean to get brutal and you mean to say what worked and what didn’t worked and how you can find improvement in the next sprint. So it kind of like bakes in a bit of. Poking and criticism and then finding actions and identifying something that you’re going to change in the next spring. So we’re going to borrowed that and put it to a number of places in the company. So we’ve actually got a a team retro. So how the team as a whole is working for a particular client. So that isn’t necessarily how the client’s output has gone because that’s what way the client is involved. And they’re listening to the to how the sprint is gone. We’ll do a team retro just to understand how the team is feeling generally about that client and the value that we’re adding. And if we are still a match for that client and trying to improve areas of our delivery for a particular client, we will occasion do a client retro, which is probably every six months where we look at all the clients on the roster and we classify them by a bunch of attributes in trying to work out if they are still the right fit for us. In all we are, we performing a wisdom role or we performing a method role just to determine if this client is on the path to being fired or is this the client that’s on the right path? We occasionally do more of like a resignation retro, although I do those more myself, which is sort of like an upgrade from a from an exit interview because I kind of view most resignations as those plane crashes. Right. There’s a resignation that is that is of consequence. That’s not just somebody you know, it’s not it’s a resignation that was avoidable. Then that to me normally highlights a broken process or a broken client selection or a broken something. And then there’s normally some kind of iteration that needs to come out of that. But then you and your point of a company retro are either every 3 to 6 months, depending on how active we are. On the other retros, we have a sort of a company wide survey which just touches on ten sort of high level questions. And then we have the entire company breaks for half a day to a day into groups of ten and we basically run almost a software retro without the leadership team. So it’s very much for the team by the team facilitated by our business analysts as if they were doing analysis with the client, but just on ourselves. And they facilitate a retrospective, which is basically to tease out all kinds of positive feedback, negative feedback, no holds barred, say what you like, criticize what you like. It’s done in a way with sort of sticky notes or digital sticky notes in mirror. We used to do it obviously face to face, which is a lot more fun. And out of the sticky notes you accumulate the sticky notes into themes. So the facilitator will then see there’s a lot of themes around, you know, the staff being unhappy about, you know, meeting more benefits or missing these kind of benefits or pay bans or not thinking our client mixes. Right. Or and you can start to see the outliers like one or two individuals complaining about something that’s new or yeah. So you sort of identify these themes and then the facilitator breaks something to positive and negative. So there’s also a time for positive reflection. So what parts company have you really enjoyed in the last three months or six months? And out of that, loads of feedback. It’s sometimes daunting because sometimes you get feedback you don’t want to hear, I guess. And but in a way it’s about the blind spot. I guess they’re highlighting the blind spot from the team’s perspective or from the lead’s perspective. And we have a. Our latest iteration for the last couple of years, we ask a key question, which is the same question that it’s almost been in since our inception as part of that DNA is. If you had Alans job. In other words, if you ran this company, what would you fix first? So it’s like if paraphrasing other ways along the way, as if Allen gave you the keys to the kingdom for six months. What would you fix first? And it’s a way to get everybody to. Not just criticize because it’s very easy to criticize how the company could be run better or if there’s an issue in some part of the company is too great, like, okay, well, if you if if you have a better idea, it’s not just tell me what your latest gripe is. It’s more if you had my job, what would you fix first? And that’s that’s been really interesting. A lot of times then nobody knows what to say, but occasionally you get a lot of cool blind spot feedback. 

Greg Alexander [00:18:06] Yeah, for sure. Well, listen, you’re clearly an expert in this area and we’re button up on our time window here. But I look forward to the member session where the members can ask you questions. But on behalf of the membership, I just wanted to thank you for your time today. I learned a lot, you know, courageous and asking that type of feedback and being that open to discovering blind spots, including your own up and down the organization. So really inspirational. Thanks for being here now. 

Alan Haefele [00:18:36] Thank you. Yeah, thanks for the time. 

Greg Alexander [00:18:38] Okay. And for those that are interested in this topic and others like it, you can pick up a copy of our book, The Boutique How to Start School and Sell a Professional Services Firm. And for those that are interested in meaning, leaders of professional services firms like Alan, consider joining our mastermind community and you can find it at collective54.com. Thanks again. Take care.

Posted on

Episode 82 – How a Technology Service Provider Transitioned from a Founder Driven Sales Model to a Sales Team – Member Case with Lenka Lechmanova

Boutiques become market leaders by building a commercial sales engine that is capable of scaling. On this episode, we invited Lenka Lechmanova, CEO at V2 Strategic Advisors. She shares how her firm has cultivated a homegrown talent strategy, established sales processes and metrics to benchmark performance, and moved away from partner selling. 

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that 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 and I’m the founder and I’ll be your host today. On this episode, we’re going to discuss a sales and marketing process. The reason why we’re going to talk about this is because on the path of a boutique, from the growth stage to the scale stage to the exit stage, it’s important that a firm moves away from a partner led sales model or a CEO led sales model, and they build a repeatable sales engine of some kind. And that typically involves development of talent, process design metrics, tracking things of that nature. And it can be a stumbling block for some because our founders and CEOs are naturally gifted in this area usually, and they tend to be the chief rainmaker for a period of time, or in some cases, founders and CEOs are more operationally focused, and sales and marketing is a new skill for them, and they have to learn how to do this. And it’s a real challenge, you know, to develop this capability. And it’s essential to scale. It’s particularly essential to exit. And the reason for that is because anybody who might want to buy a firm wants to know that there’s some system in place that is going to be able to predictably and on a regular basis, bring in new clients and expand existing clients. So that’s what I’m going to talk to talk about today. And we have a role model who’s going to be our expert, if you will, and her name is Lenka Lechmanova, that I pronounce that last name correctly. 

Lenka Lechmanova [00:02:15] Yes, you did. 

Greg Alexander [00:02:16] Okay. Very good. And she’s in the middle of this. I’ve spoken to her about this before, and I’m pleased that she’s here and willing to share her experiences so far on this topic. So. So, Lenka, thanks for being here. And would you introduce yourself to the audience, please? 

Lenka Lechmanova [00:02:33] Sure. I’m Greg. Thank you for having me. My name is, as you said, Lenka Lechmanova. I’m the CEO of V2 strategic advisors. We are a technology and management consulting firm focused on Salesforce.com digital transformation projects. And our business was originally founded by by a founder that specifically focused on sales and marketing processes versus AI and operationally founded and oriented CEO that has is not selling or delivering services. Yeah. 

Greg Alexander [00:03:14] So Exhibit A to what I was talking about at the at the beginning and we have many, many members in the collective in a similar situation. So your your topic in your talk today is going to resonate. So I guess let me start there. So for somebody who is a CEO and doesn’t come from the sales and marketing background, but knows that this is a critical thing for your firm, what’s the first thing you did to get familiar with it, to get started on this journey? 

Lenka Lechmanova [00:03:43] You know, truly, it is not what I did, but what the founders did to transfer that knowledge into the organization. And really how it started is they’re recognizing that this is a journey that he needs to take and transition from him running sales and marketing completely to growing the team. I will say in our organization we have tested various models and the one that has proven to be the most effective is really transferring that knowledge to someone within the organization that may not necessarily have the traditional sales background, but really understands what we do and how to sell the value of the organization. 

Greg Alexander [00:04:38] So that’s interesting and that’s encouraging because some would say that somebody who doesn’t come from a sales background is never going to be able to sell. I disagree with that. I think it’s a learned skill and it sounds like you’ve had some success with this in teaching those that don’t come from a sales background but really understand who you are, what you do, your clients, your solutions. They’re having success. 

Lenka Lechmanova [00:05:02] Yeah. I think, you know, it’s recognizing what your business sells. I think you as a business, you have to understand what is unique about what you’re selling in professional services, especially in the niche market. Like we are, we although there’s many Salesforce services providers, we have focused on specific niche market and becomes a lot of enabling a lot of education for our clients. So really that consultative approach, it was key to our sales model there and therefore that transition from founder led sales organization was critical that we bring someone who understands we’ve been there delivering the services to our clients and understands the journey so that value based selling can be created. 

Greg Alexander [00:06:00] You know, in the niche that you’re in, an understanding that niche. So for the audience, maybe, maybe go one level deeper there. What is your specific niche? 

Lenka Lechmanova [00:06:09] Our niche is we focus on a lot on media and entertainment clients or clients in this particular industry. We focus on other we expanded our repertoire, but particularly at the time and were transitioning from our founders based model. We predominantly serviced media and entertainment organization and helping that they are middle office management, standing up and creating digital transformation. And in that particular industry, understanding how ad sales management and digital sales management works is critical. It is not something that you can just you know, it is not just enough to understand the technology background and the sales force. You have to have a specific industry knowledge and understand how those type of clients operate. 

Greg Alexander [00:07:04] Okay. Well, that would explain it. It sounds like that vertical industry, knowledge, media and entertainment and how this advertisement is sold was the mission critical skill that your prospects and customers were looking for. So therefore, it makes a lot of sense for somebody who really understand your solutions in great depth to be in the sales capacity, because that’s what the prospects are looking for. Just for context, did you attempt to hire or develop traditional salespeople who didn’t have that industry experience? And it was through that experiment that you learned that that’s what’s required or that it happened more organically, that you promoted some people from the delivery team into sales and they just thrived. 

Lenka Lechmanova [00:07:52] Yes. And I will continue to expand actually on your question, because I think it’s a combination. I think the the yes, we promoted within the organization someone who worked very closely with the founder. And there are actually two aspects to it. One was sales engineering and one was actually that consultative selling. So really understanding the technical nuances and then understanding the value base. But then we also hire from outside for traditional account executive into traditional account executive roles because it was really important that we create a wealth of relationships. Our selling model is also not just purely account based outreach, but it’s also channel. So we do a lot of combination of account based sale as well as channel based sales channel for those who don’t have that model. So we have to collaborate very heavily with the account executives that sell actual sales for software and for in order to be effective, you really need to do both. You need to do prospecting activities as well as growing your relationship in a channel. And therefore, we our approach was to do a combination of few different things. So really having technical experts who can support sales cycles and those were grown within the organization as well as thought leadership. And then we hired traditional sellers from professional services, but none of them were Salesforce experts. We have tried to hire from software companies in the different stages, but those skillsets didn’t necessarily translate well. And. 

Greg Alexander [00:09:52] You know, and a lot of members have that same experience, right? So the lesson for all of us to take care is really understanding the job, the account executive. Job, the sales engineering job, in Lincoln’s case, at the detail level to know what the skills are required. Just because somebody was a successful account executive with X, Y, Z software company doesn’t mean they’re going to be successful with you. I mean, you’re using value based selling consultant to be selling. There’s a channel involved. You know, that’s a very specific job description. And I’m not surprised that the kind of nontraditional person that went into this role is having success. A delivery person in particular, what I would call a delivery person, a technical expert in your language. The question on that, sometimes when you go to technical experts and you ask them to get involved in business development, sales and marketing, they don’t want to. So how did you present the opportunity and encouraged them to to move in that direction? 

Lenka Lechmanova [00:10:58] Well, I think it was kind of a natural transition. You know, we had a couple of team members that been with the organization for a while. And, you know, as every organization, you want to grow your talent and provide opportunities. And some of these opportunities were created by inviting them to sales cycles, helping them scoping, figuring out how we deliver, you know, what are the nuances, what questions do we need to ask in order to successfully deploy our our services? And the final aspect is also that understanding really what makes us unique in a marketplace and documenting it. I think our founder had a specific methodology that he used, and before we transitioned to the sales team to try to sales team, he worked with them for about 6 to 9 months side by side and documenting some of the processes or methodologies, creating a sales structure, taking, downloading what’s in his head that he didn’t necessarily have to put down because it was a little bit more smaller team that was selling or through principal consultants or subject matter experts that were involved. But taking that knowledge and translating into a system, into operating procedures and into best practices. 

Greg Alexander [00:12:34] You know, it’s such a great point, and I’m really glad to hear that you finally took the time to do that. 6 to 9 months of documenting, you know, what was in what was in his head so other people could understand it and do what what he did. For those listening that are in the found role, that want to move to this sales model where other people in the firm can sell as well as you can sell, that’s a that’s a critical best practice to pay attention to. Like if I come to you for a moment so you are a self-described operationally focused CEO. I’m not putting words in your mouth. And we’ve talked about that. And one thing that I’ve always gained from you is that you believe in metrics. And I’m assuming that you have a set of metrics that you’re paying attention to that helps you, you know, learn what’s going on in the sales department. Would you mind sharing some of those metrics with us? 

Lenka Lechmanova [00:13:27] Sure. Absolutely. So even before I transitioned to my current role, I worked very closely with the sales organization on driving behaviors of account executives and the activities that we want to foster. So, you know, for the founders that are looking to establish metrics or stand up to a traditional commercial team, sales team is identifying what activities they would need to what activities they struggle with at a top of the funnel or the middle of the funnel as at the bottom of the funnel. And, you know, drive the metrics around around those weak points in our particular and things, it was a little bit more top of the funnel with we had once we engaged in a client we tend to build trust in relationship of a prospect and we had quite a strong closing closing rate, especially, you know, the founder. But our challenge has always been a little bit more top of the funnel. So the lead generation and therefore when we stood up commercial team, our focus was, you know, it was how do we generate those, those leads? So we focused on measuring prospecting activities, what artists, individual sellers doing in terms of the outreach. To on in terms of their account as well as in their channel relationship. And our big goal was to grow those channel relationships. So we were measuring the expansion, how many new relationships they were forming and how many meetings or calls they were. They were managing over a period of one week, 30 days, and in some instances, what has been happening over the last 90 days. Right. Because certain activities, especially when you have a territory, you have to look at the size of the territory and define what’s realistic, that there is a touch point. So, you know, looking at your territory and saying this is, you know, you have to reach out to all your 50 or 100 accounts every week. That’s probably not realistic. But what are you doing over a period of 90 days? So dissecting that then from prospecting activities, from phone calls or emails, marketing materials, you know, we are trying to generate meetings. Meetings are what form forms that trust provides opportunity. So the second layer was, you know, you do those prospecting activities so you can get meetings. Once you have those meetings, you know, what are their target move channel direct. Either way, they got a result into opportunities and those opportunities ultimately result into converted sales. So it’s a little bit of funnel building through those prospecting. 

Greg Alexander [00:16:30] And four stages activities, meetings, opportunities and then closed transactions. So that’s excellent. I appreciate you. Walk me through that. Well, listen, I could talk to you about this forever, but we’re at our our time window here. But on behalf of the members, I mean, your your story you use case is very interesting. You know, an organization that is transitioned from founder led sales to a commercial sales engine and you gave a lots, lots of stuff to think about. So I appreciate you being on the show today. 

Lenka Lechmanova [00:16:59] Thank you for having me. 

Greg Alexander [00:17:00] Okay, great. And for those that want to learn more about this topic and others like it, I suggest you pick up a copy of our book. It’s called The Boutique How to Start Skill and Sell a Professional Services Firm. And if you’re interested in meeting leaders of other process firms like Lanco, consider joining our mastermind community. And you can find it at collective54.com. Thanks again. Take care. 
Lenka Lechmanova [00:17:25] Thank you.

Don Goldstein [00:19:06] Thank you. 

Posted on

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

Member Case with Marc Weiss

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

TRANSCRIPT

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

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

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

Management One

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

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

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

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

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

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

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

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

Deciding to sell 

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

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

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

Individual buyers

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

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

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

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

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

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

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

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

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

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

Qualifying individual buyers 

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

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

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

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

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

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

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

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

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

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

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

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

Self-funding groups

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

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

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

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

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

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

Conclusion 

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.

The first mastermind community for

boutique professional services firms.

Linkedin Youtube Facebook Twitter

© 2024 – Collective 54 LLC   All Rights Reserved.