Episode 158 – Playing with Fire: The Perilous Truth About Client Concentration Risk in Boutique Service Firms – Member Case by Jamey Harvey

Attend this session and learn how to address one of the biggest risks for small service firms- client concentration. Items discussed will be benchmarks to measure client concentration, an early warning detection system, the impact on strategy client concentration should have on your firm, how long it takes to fix the issue, the most successful risk mitigation strategies, and how to prevent client concentration from destroying your firm.


Greg Alexander [00:00:15] Hey, everybody, this is Greg Alexander, the host of the Pro Serve podcast, brought to you by Collective 54, the first mastermind community dedicated to the unique needs of the unique founders of boutique professional services firms. Today’s episode we’re going to talk about client and revenue concentration risk associated with running a small services firm. The very real risk, I hope to raise the awareness of this. I’m going to talk about ways to possibly mitigate it. We have a long-standing, well-respected member with us today. His name is Jamie Harvey. He’s with a company called Agilian. Jamey, if you could introduce your firm and yourself to the audience, please. 

Jamey Harvey [00:01:02] Yeah. Great. Thank you. Greg. So Agilian provides I.T. and strategic advisory services to the health equity ecosystem. Recently, we’ve narrowed our focus to enterprises in the Medicaid ecosystem. So managed care organizations, community health networks, and providers that serve marginalized people. So it’s our vision to dramatically boost the efficacy of the $3.5 billion spend on health care equity through Mcos annually. So, we pivoted to this over the last few years from the government space where I had, started as the chief software architect for the city of Washington, DC. And, I got into government after starting three venture capital-funded companies in the 90s, be the B2C product companies. So, but I ended up, running all of the software and systems integration for the District of Columbia. And so, we developed a methodology there for fixing siloed, overcomplicated, ill-fitting it at, at big enterprises that had interoperate with each other. And it’s a process that we call digital liberation. And it turned out to be even more valuable in the health equity ecosystem than it was in local government. But, when I was starting the firm, most of our clients were with the D.C. government. I have a great network in the DC government. I have a reputation there. It’s a kind of a medium fish and small pond kind of situation. So most of our early customers were in the DC government or around the DC government are funded by the DC government. Which brings us to our story about client concentration risk. 

Greg Alexander [00:02:37] Okay. Very good. So let’s first let’s define client and revenue concentration risk. First I’ll ask you for your definition and then I’ll offer one up. So how would you define it. 

Jamey Harvey [00:02:48] Well, I mean, on some level, I feel like it’s the it’s the situation that the phrase too many eggs in one basket was designed and describe. Right? Like if you lose the basket, you lose all the eggs. And so, so, you know, the advice in a, in collective 54 is not to have so much of your revenue collected in, you know, a few number of clients. And, you know, I think, I think when we did our metrics last, Jillian has always been dead last in that metric for the collective 54%. I looked that you and I have joked about that before. I think I’ve always, always had the worst, compliance and revenue concentration risk of any of your of any of your, members. Yeah. 

Greg Alexander [00:03:34] You know, it’s a double-edged sword. Yeah, yeah it is. It’s a double-edged sword. And all of our members, struggling with this. So let me give you an academic rule of thumb or benchmark. Right. We define it as if it if your top five clients equate to greater than 30% of your revenue, you are by definition concentrated. And the implication of this is that a client or two goes away, which happens especially if you’re project-based. Then the whole PNL falls apart and it’s very damaging. Now. It’s also a plus because a small number of clients that you overserved well tend to grow. They tend to buy more, especially if they’re big. So the more successful you are, the more problematic this risk is. It gets bigger over time, so it’s a tricky one. And I’m certainly not here to suggest that I have all the answers. But the goal of today’s show is to elevate the awareness of it. So, Jenny, I understand in 2023, this reared its ugly head with you and something happened. So just briefly tell us what took place. And then we’re going to get into how to avoid it and fix it once it happens. 

Jamey Harvey [00:04:43] Yeah, I think, I think I when we went through Covid, the funny part was my business accelerated like a lot of people were really struggling, but, you know, we continued to grow. In 2022, we doubled in size. And we for the three years previous to that, we had greater than 70% growth every year, year over year. We were profitable every year we’ve been in business. And in, Q1 2023, last year I had the best quarter ever. And I wrote you a very nice note saying, hey, Greg, my margins are where they’re supposed to be. And, you know, like I’m hitting on every metric except for that darn client concentration thing. Thank you so much. And we did a podcast about how great that was. And, but what I, what I. Didn’t realize what’s going to happen. Was that because I wasn’t in the private sector, because I was doing all this government business? Government had a Covid hangover, basically. And so in Washington DC, the way the Covid hangover looked, well, Washington DC, I know the market pretty well. It’s got about 700,000 residents. And when I used to work there, 2.5 million people would flood into the city every day. So the population of the city during the day was 2.5 million people, and the population that night was 700,000. So people, people from the suburbs come into the city to work and then they go out. And the biggest employer here is federal government. So after Covid, the federal government did not require people to go back to work. All the buildings downtown are vacant. All the restaurants are going out of business. Nobody is spending any money. And the tax base for the city is really based on the, you know, the 1.8 million people that come into the city every day and spend money. So essentially the and takes a. 

Greg Alexander [00:06:27] Sales. 

Jamey Harvey [00:06:27] Tax for that. The sales tax. Yeah. Yeah. You know, normal economic activity. Right. So the city is really runs on that. And they missed their numbers that year, in 2022. And essentially the city went through giant rolling budget cuts everywhere all at once. Which is five out of six of our we only had six customers. So, you know, our client concentration was like 90%, five out of six of our customers, you know, lost all of their funding to do things, and big I.T. projects, even if they’re critical, they get paused, right? They get stopped. And so we went from having, six, six clients to two clients in about six months. And the revenue was about like that kind of drop. It was about, you know, went to a third. 

Greg Alexander [00:07:19] Yeah. Yeah. Well, I hate that you went through that. That part of that story that I hate the most is that there’s there’s nothing you could have done. I mean, Covid happened. The sales tax receipts for your customers went away. They had to cut. They didn’t have a choice. And guess what? Right. So it wasn’t like you screwed up. You know, you gave bad service or something like that. And this, this is the thing that makes it so hard and bites all of us is it’s to a large degree, sometimes outside of our control. So I’m going to ask you an unfair question right now. Yeah, but but I want to see if you can share some wisdom on this. So did you see it coming? Like, were there any early warning signs that with the power of retrospection now Monday morning quarterback this you could have saw coming in. You could have done something to prevent it or there was no way to see this coming. 

Jamey Harvey [00:08:04] Well, let me say this. First of all, every, every company meeting I ever had for the past four years when I would list the risks. Right. You know, I do my Swot analysis, right. The at the top of their list was Glenn concentration DC government client concentration. Too much reliance on our big integrator that we work with. You know taxpayers da da da da da da da. So it was a known risk. It was an accepted risk actually. Really. What we saw was in the fall, you know, there were articles in the paper, you read the Washington Post and you see, the people aren’t coming back. I used to work in the DC government. I I’ve been through these cycles before. I actually knew what it meant. Right. Like, so we were tightening our belt and we. Oh, let me let me say this. We were working our tails off to get away from government. I’m not like you. You heard me talk about the government. The company does. I don’t do government anymore. I’m out of government now. I joined Collective 54 to go build a scalable business. And part of that was, you know, maybe keep one foot in government. But like we were, we’re working on the health equity space, right? So, but we were funding that effort on these five year contracts that we were assuming we’re going to be around. So it was like our venture capitalists essentially like what happened was our series C went away suddenly, right? So, instead of having a, a three-year runway to do the pivot that we were doing, suddenly we had a one-way run, a one-year run rate to do the pivot. And, even though we saw it coming, it was like in slow motion, right? Like we could see it coming. You know, here it comes. But but there was, you know, nothing you could do about it, that we hadn’t already done because we knew that it was risk coming up. 

Greg Alexander [00:09:40] Yeah, yeah. So what I would what I would offer the listeners, and I agree with everything that Jamie just said, is that the only early warning sign, really, to pay attention to is the economic well-being of your end client. Jamie’s case. Right. This was the government and the associated sales tax. And, you know, they were writing about it in the newspaper. Right. But many of the other members that are outside of the government space, they’re not paying enough attention to how well their own client is doing. I’ll give you an example. We had a lot of marketing agencies and Collective 54. It’s one of the areas that we do well in, and a lot of them, during the Go-Go days of Covid, were living off the backs of early-stage VC-funded firms, and these early-stage VC-funded firms were not profitable. They just. But the market was going crazy, so they just kept raising more money. All of a sudden interest rates go up, people slam on the brakes. Fundraising is impossible. These VC little software companies don’t have any capital. What do they do? They cut the marketing budget. Bad client concentration rears its ugly head. So the early warning detection system I’m recommending on today’s podcast is to make sure that you understand the financial well-being, the financial health of your end client, not just your own little world like. And that example, what’s happening to the marketing budget that’s downstream? The bigger, the bigger question is what’s happening to my client’s business? Are they profitable? Are they generated cash flow? Are they growing? How are they doing against the competition? So that’s that’s what I would recommend by Jamey decision making. Let’s talk about that. So this happens you go from six clients. Two clients. The associated revenue hit takes place. What did you do? 

Jamey Harvey [00:11:15] Well. So when the when the first when we got the first calls like, hey, these these client, these are going away and you to get a little bit of warning. Right. We just happened to be walking into our semiannual meeting that we have at Agilian. And, the night before I reworked the, the presentation that I was going to give and basically declared, declared a new state of, all hands on deck. We call it we call it the Wobble because we were hoping it was going to be a wobble. And so we immediately we, we took everybody who was non-bailable or on the admin side of the company, and we tried to get them billable on projects because we still had projects at that point. Right. So like essentially like if we could top people up under, you know, become revenue producing. We were trying to save people. We had a big recruiting team, like, not a big recruiting, but for us, it was a it was a well-established team. It had a really good process. They were really great for creating team. And we didn’t have any more recruiting to do because now we were we were contracting. So we we gave them all job tryouts and other functions like right away. And then I took my I don’t know if you remember this, but I asked my senior team, all of which all of I was doing all the sales at this point, and I basically asked my senior team to to reach in their networks. And we kind of did an all-hands-on-deck sales effort, which we called the seller doer. So these were these were doers, and we asked them to become sellers and And that was that was our initial response was, you know, the in all honesty, none of those things actually ended up working that well, like, they made us feel better. The, the people that were non-billable, that got moved to projects, there were just mixed results. Some of them weren’t able to do it, some of them were able to do it but didn’t last very long, you know. But but like on some level it it wasn’t a panacea for sure. The job trials, really almost none of them worked out right. Like I took people that were a junior and had been trained in a really rigorous process. And I was moving to an area where they had to, like, do stuff on their own, and they weren’t getting much direction and were in a virtual company. And, and it was not a very good environment for them to succeed. And, and then the cellar door thing, you know, it was very educational. We learned a ton, which is important. Right. But, zero revenue. Right. So, what what did work that I, which, which wasn’t a, it wasn’t a austerity technique, but but but I would recommend everybody is we did keep doing the marketing we were doing. We kept on with the pivot. Right. Like so we we kept doubling down on getting away from government, getting into the the health equity ecosystem and the customers. And I, very happy we did that. 

Greg Alexander [00:14:08] Yeah. So let’s let’s kind of summarize, right. So, you know, you went through it, you experienced it. You, congratulations for having the conviction and the courage to continue with the pivot. A lot of times, people at the panic button and they just get into survival mode. And anything that’s futuristic, you know, gets cut instantly. But you didn’t do that. So, you know, peeking out into the future, maybe playing the role of advisor to our members right now, lessons learned. Like what are the 2 or 3 things that you would do going forward to try to mitigate concentration risk as much as possible? 

Jamey Harvey [00:14:41] So. So one, you know, on some level, the. We grew the company as a lifestyle company, kind of on relationships I had. Right. And so and we we had a lot of big deals that were long term. So we were running the business and then they were they were like our venture capital to do the pivot. So on some level, you know, I look at everything that we’ve done and Jillian has done a lot to, to to get to the scale stage and be, a commercially viable company. You know, that is self-generating everything in the Collective 54 program, if you’re doing it right, is going to be moving you towards having less client concentration risk. Honestly, like, the truth matters, like you kind of. But you kind of have to do the whole program, which means it’s going to take a while. Right. Yeah. 

Greg Alexander [00:15:37] Exactly. 

Jamey Harvey [00:15:38] One thing. It’s like start as soon as possible, right. And get going. And as you told me at the very beginning of this thing, started the first chapter of the book and get to work on those. Right. The, we had done a lot of work around our buyer journey model to try and be able people, people and like, if it works out to me, I’m, you know, I’m jealous of your size of deals. You got all these big deals, right? I’ve been trying to do smaller deals and then land and expand and grow them, which I feel I feel like will give me more consistent revenue and will help me with my client concentration risk. So I’ve done a lot of reworking to do that, and it seems to be working. I haven’t been through a full cycle yet to know whether it is working as well as I want it to be, but, the initial the lead indicators are great, right? We we didn’t see any way that we could keep doing the kinds of projects we did for government and not have this project continue to be a problem. So we the our market pivot wasn’t done mainly because of client concentration risk, but it also had the benefit that it was going to help us with that. Right. And You know. But the sad part is, even with like with all the mitigation I’ve done, it took me it took me six years to get from 1 to 6 clients. I was bringing in about one big client a year. Right. And now I’m down to two. So, honestly, like my client, I. I had felt like I was making steady progress towards making my client concentration better. And, you know, it’s, it’s it’s as bad as it’s been since the first year of business. Really now. Right? 

Greg Alexander [00:17:10] Well, however, I would say I think you’re on the right path. Just because your client has concentration rates was sector-based. You were completely dependent upon the government, right? So now now you’re diversified out of a single sector. Yes. You have smaller clients. So by definition you have more concentration. I understand the math, but you have improved in that area. 

Jamey Harvey [00:17:29] I it’s it’s it’s it is it’s different. I mean if, if politically, Congress decides to cancel Medicaid, I will be back to square one. Right. And it’s, you know, that’s not a that’s not an impossible thing in the next 20 years, there’s, there’s different people who are into that. 

Greg Alexander [00:17:47] Yeah. Yeah. True. Yeah. 

Jamey Harvey [00:17:48] No comment. 

Greg Alexander [00:17:53] Anything else? You know, before we wrap up here, any other, ideas that you want to share with the broader audience? Of course. We’ll go into much more of this when we have our member Q&A. But any other thoughts? 

Jamey Harvey [00:18:04] Yeah. So, one thing is, I would say like watch for multiple vectors of concentration, like, we didn’t lose one at a time. We lost to like, it was cascading. Right. So there was we had with the DC government, we had the, we had the risk of several projects in one agency, and then we had several projects under one prime, like subcontractors. And then they were all under the DC government. So when they got hit, we got hit like double sometimes. Right? And it was cascading right. So like that I kind of knew that I had a chart on my wall that was showing that at one point. But, you know, I think if you have that situation you want to be take it more seriously. The, the other thing that we really struggled with was in growing and growing and growing. If my financial projections were a little weak for, you know, the next couple of quarters, if I’m growing 70% year over year and a profitable, really, that’s not a big deal when you’re shrinking and like trying to figure out how much runway you have to keep people employed until you get the next deal. If you’re off by $100,000 a month, that can put you out of business, right? Yeah. And we were in the middle of implementing our our professional services automation system when this happened. And it was like halfway implemented. Right. Like so we we had some we had some weaknesses in our financial management that got exposed when the waterline went down. Right. So I would say if you’ve got this kind of client concentration risk, go ahead and sharpen your pencil and get in there and like make sure that that stuff is really buttoned down now, because when you don’t want to be trying to button that down when the water’s going out. And then I think the other the other thing that I really. Kind of came out of doing this process. Thinking about this conversation is, you know, we’re entrepreneurs. We’re in the business of taking risks, right? People aren’t people don’t have client concentration risk because it’s a bad risk. You know, if if I said to you, Greg, hey, collective 50 or the government is going to give you a contract that is going to give you $10 million a year for forever, but you have to roll the dice each year. And if you roll snake eyes, that’s going to go away. Yeah. You you take you take it. You would take it. Yeah. You take it. Right. 

Greg Alexander [00:20:15] Like that’s that’s the reality of it for sure. 

Jamey Harvey [00:20:18] And eventually you will roll snake eyes. Yeah. Eventually you’re going to roll Snake eyes. And you, you already took the risk. You already have the risk, right? Just know that eventually you’re going to you’re going to roll snake eyes and plan for it as best you can. So. 

Greg Alexander [00:20:33] All right, well, listen, we got to wrap it up here, but this was great, great advice. I really appreciate your maturity level and your ability to say, hey, you know, this is what happened to us. Your generosity of sharing this learning example with others. It’s not easy to come on and say, hey, you know, things didn’t go so well, so I really appreciate you doing that. On behalf of the members, thanks for being here. 

Jamey Harvey [00:20:54] Thank you Greg. 

Greg Alexander [00:20:55] Okay. Right. A couple of calls to action for those that are listening. So if you’re a member and you want to talk to Jamie about this, look for the meeting invite for the Q&A session that will be coming up. If you’re not a member and you think you might want to be, go to Collective 54.com, fill out an application. We’ll get in contact with you. If you just want some more information, I would point you towards our book. It’s called The Boutique How to start, scale and sell a Professional services. Until next time, I wish you the best of luck as you try to grow, scale and exit your trunk.

Episode 157 – Family Ties and Business Lines: The Pros and Cons of Family Members Working Together in a Boutique Professional Service Firm – Member Case by Carajane Moore and Tom Searcy

According to the US Bureau of Census, 90% of small businesses in America are family-owned and operated. Many Collective 54 members work alongside family members daily. Are you? Should you? There is a different set of management best practices used to grow, scale, and exit a service firm owned and operated by a family. Attend this session to learn how mixing family and business can be an effective way to fulfill your dreams- personal and professional.


Greg Alexander [00:00:10] Hey, everybody, this is Greg Alexander, the host of the Pro Server podcast, brought to you by Collective 54, the first mastermind community dedicated to the unique needs of founders and leaders of boutique professional services firms. On today’s episode, we’re going to talk about the pros and cons, the goods, and the bads of having family members. Inside of a small services firm working in the business and working with each other. Many of our members in our community, our family-run businesses. And, if you listen to the media, you know, that there’s, kind of a generational transfer that’s upon us with the baby boomers handing down their businesses to the next generation. So it’s a topic that I really want to spend some time on. And we have, two of our members who are very well respected, long-tenured members with us, Cara Jane Moore and Tom Searcy, who are our family members. And they run a firm called Hunt Big Sales, and they’re going to come and share their experience with us. So, Carajane and Tom, would you introduce yourselves to the audience, please? 

Carajane Moore [00:01:22] Sure, absolutely. I’m Carajane Moore, I’m president of Hunt Big Sales. And, I’ve been here about almost for since inception, 17 years. So. Yeah. 

Tom Searcy [00:01:33] And I’m Tom Searcy, CMA, CEO, founder of Hunt Big Sales. And we’re from it’s almost 20 years old in the professional services world of helping companies land big sales. The name is not confusing. 

Greg Alexander [00:01:48] Okay, great. So let’s start with a little bit about, about the journey. I mean, how did the idea of working together as family members come about? 

Tom Searcy [00:01:57] It came from, desperation. I, I was I’d started this company. We were starting to work and grow and etc., and I needed somebody that there was that I absolutely knew could do what we needed to have done. Carajane called up and she said, hey, what do you think about me coming on board? And I truly didn’t say a word for about 30s. And she said, or not. And I said, I said, I said I had no way to dream that big. That would be fantastic if you came on board. Because our cultural alignment, our personal value sets the the things we thought about as far as excellence, all that stuff totally lined up and, and we really, really liked each other. Well, I liked her. So. 

Carajane Moore [00:02:47] Now we’re. 

Tom Searcy [00:02:47] In Sydney. 

Greg Alexander [00:02:49] And since you don’t have the last name just for the benefit of the audience, define the family relationship. 

Tom Searcy [00:02:54] But we’re, brother and sister. Carajane is 11 months younger than I am. And, we have, my identical twin brother, passed. So we were Irish triplets, and so now it’s brother and sister running the business. 

Greg Alexander [00:03:10] Got it. Okay. And Carajane in the beginning. Were there any reservations or concerns that you had about going to work with your brother? 

Carajane Moore [00:03:20] No, actually, not like Tom said. You know, we kind of think very similarly. We grew up because we’re so close in age, very close. And so, some of our even teenage years, we were in the same firms working together. So, no reservations. And in fact, that’s why I called. I said, hey, you know, I understand the business is growing. I’m in a position that I, can come. I actually, it’s funny because I’m like, I’m in a position, I can come on board and you don’t have to pay me anything. I’ll just make commission on what I sell and which is also part of that. That’s fantastic. 

Tom Searcy [00:03:53] Yeah. And how do you turn up what you’re thinking here? Yeah. 

Greg Alexander [00:03:58] All right. And then, you know, from your perspective, what do you think some of the key advantages are when you have family members in the firm, maybe in comparison to those who don’t have family members working in the firm? 

Carajane Moore [00:04:11] Yeah. So I’m going to tell you, I think that there’s some really key issues for having family members that shared history, and background or values or consistency of what is excellence look like. We had it that all of that was shared. He didn’t have to say much because I already knew what he was thinking because we shared how that went. I think there’s also, at least in our case, I can’t say for other people, but I would suspect there’s also a shorthand in the language, right. Which saves me an enormous amount of time. He doesn’t have to explain when we first started. Can I have to explain what you just said? Hey, I think we need to go do this. And I already knew what accent looked like. I already knew what it needed to do. And so I could go take it and run with it and bring it back to him. 

Tom Searcy [00:04:53] Right. So if you’ve got that, if you have that institutional, appreciation, I think it we work a lot with multi-generational companies. As far as families that are moving that along, and there are some families which that is baked into their DNA, they understand that this is how we do it as a company and as a family. And there’s others where, there’s a huge divergence. You know, mom and dad took it the wrong direction. I’ve got it now, and I’m going to take it a different direction. And, when you have that, then there’s going to be friction good friction or bad. 

Carajane Moore [00:05:31] Yeah. Well there’s also other some of our other clients and people we’ve seen too, where you’ve got, second generation, our next generation, some of the cousins of where there’s more than just rap in which there’s some entitlement feelings and that type of thing. So some are working really hard and others aren’t working, but have titles and want to be paid. So they’re, you know, we have don’t have those challenges inside of our business at this point. 

Tom Searcy [00:05:53] I throw in one other thing about this, and that is money. Although we can talk about money a little bit later on, sometimes people look at the money as far as I should earn, as far as my compensation, what my level of equity is or what my last name is or whatever, and getting the idea that your role or your job pays you one way, right? And then you, receive dividends or benefits or however the company pays that out separately. And those two things should not be mixed. The money, it always shows up in the conversations. Always. 

Greg Alexander [00:06:28] Yeah. You know the old saying never mix money and friends never mix money and family. You know the money. The money problem can be a real a real a real issue for sure. So so speaking of problems and challenges, you know, what are the problems and challenges both in your own experience as family members running up front and then also with the clients that you serve that are family run businesses? What what are the things that people should look out for? 

Carajane Moore [00:06:53] I. You know, Cass, jump. I was going to say one of the things that I think that Tom and I share as, family members and challenges is we do think a lot alike. And so there isn’t that buffer that says that’s not a good idea. 

Tom Searcy [00:07:06] Right? 

Carajane Moore [00:07:06] I have a great idea. I think that’s a great idea which could do that, where he has a great idea and I go, oh, I think that’s a great idea. We should go do that. And pretty soon, you know, because we are aligned, are going down rabbit holes. We shouldn’t be going because we don’t have somebody going, I’m doing. 

Tom Searcy [00:07:21] Right. Yeah, exactly. So so that’s the heart. That’s the groupthink that comes with a family is without someone to push back that doesn’t have the last name. So many companies have got employees that just complain about their inability to be heard in a constructive way. Next thing is, is, you know, whose lane is what lane? Families oftentimes think that they share lanes. And but Jane and I have very clear lanes. This is her side of the house, my side of the house. We meet regularly, and then we meet once a quarter, as owners for a full day to work through all the business issues that we’ve got right now. And to make certain that I stay in my that we stay in our lanes. Yeah. Sometimes I’ve been accused of overstepping. Yeah. So unfair. So. And when it. 

Greg Alexander [00:08:15] When it comes to decision making, are the decisions joint or is there a boss? 

Carajane Moore [00:08:22] I mean. Well, Tom says I’m the boss. Technically, I’m probably the boss, but I honestly, our culture is more so that we, I’m bigger decisions. We together come to those. But the day to day decisions I make. 

Tom Searcy [00:08:36] There is a piece about those decisions too. We talked about money. It’s important to figure out how to fight. All right. How do you disagree? How do you argue? What what what stays off the table, right. Because in family run businesses, it gets murky. Yeah. You know, so my son was in the business for a period of time. He came in and he was working for a period of time. And then we fired him. And we fired him, you know, gently, you know, at lunch, please take your things home with you. But seriously, he had to go. He wasn’t making the contribution. We laid out what he needed to do. He went into a completely different area in the in the marketplace, and he’s done great. Yeah, he wasn’t a good fit for us. But when he came on board, we had said no blood, no foul. We will fire you or separate. Or you can quit. Yeah. And it’s not going to affect. You can quit is just as easily as we can let you go. And we’re still going to be family. And you got to call it up. Call it out up front. 

Greg Alexander [00:09:42] So that’s interesting. Learn how to fight. And the example of fire in your son. That’s quite a story. I don’t know if a lot of people have the courage to fire the father son, and then the relationship stays intact. So that’s that’s great. Which takes me to my next, I guess, line of questioning, which is how do you set boundaries between the professional relationship and the personal relationship? 

Tom Searcy [00:10:03] If you asked our mom. Her answer would be, I hate having holidays with you too, because all you want to do is go talk about the business and the things that you guys got going on and what just happened. And, you know, we we would never hire her. So and so she she never knows. So it’s you you can talk about how we do that because they would say our parents would say we don’t do it very well. 

Carajane Moore [00:10:26] Yeah, I would say our parents say we don’t do it. Well, I would also say that the people that work with us would say, we don’t do it very well either, and that family issues come into the business conversation just as much as business conversations come into the family, sessions. But we try very, very hard, to regulate that and recognize that. And so when we are at family meetings, we make it a very small conversation off to the side, just the two of us. We might sneak a little bit, but that but then we try to keep. 

Tom Searcy [00:10:55] It bright little notes. I mean, here we are. We’re gonna we’re we’re like, you know, over 50 years of age and we’re still cribbing notes and handing them to each other so Mom and dad won’t be mad. But, you know, there is a piece to this as well. And that is, when it’s a family, crisis or celebration. Right? That kind of a defined set of moments. The business has to go. Second, when Tim was passing, and involved in the business, we looked at each other and said, we’re going to take and the business is going to have to be second to Tim. And Tim took a year to pass and not to bring this up in any. But, every family has moments of crisis and, it’s very hard and probably inappropriate to try and pretend like that’s not happening. 

Greg Alexander [00:11:44] Yeah, you can’t pretend when something like that’s going on. Right? So you might as well just deal with it and be upfront and honest about it. 

Tom Searcy [00:11:50] Yeah. 

Greg Alexander [00:11:51] You know, you talked about your employees. This is an interesting one. You know, in the world that we play in professional services, it’s believed that people have careers, not jobs. You know, they choose to go to work in the professions because of the content of the job. They want to be in the expertise business. And when the when the business is owned and run by family members, employees who are not family members may feel that they don’t have a career path and want to. So how do you deal with that? 

Carajane Moore [00:12:23] I spend a lot of time, because I do more of the day to day management of the business and the team, to really understand what is what is it that they want as the employees? What do they want? Where do they want to go, where their interests, so that we can make sure that we’re keeping them engaged and excited about what they’re doing and developed and growing? And then we’re appropriately saying, okay, that’s great. We’re not going to go that way this year. Are you able to stay here or not? But we do have in our business an enormous number of people who are 1099 as well. And so, it’s a smaller group that’s that we handle the, the what is the career path? And like Tom said before, we have our lanes, we make sure that everybody has their lane so that there is clarity as to where they can go, move or not move. 

Tom Searcy [00:13:17] It is, I would add a little case to any one of our clients. Dear, dear client and friend. They’ve had their company for five generations. Five generations. Wow. So they’ve worked through this generational model very consistently. They have hundreds and hundreds of employees and they work on compensation and bonuses. But there isn’t anybody who thinks at some point, right, that there’s a career inside of their business, but there isn’t a path to ownership. For instance, you know, and the fact is, is that there are family members that are outside who are not interviewed and not brought in. They may receive dividends, but you’ve got to do your job anyway regardless. And that’s, that’s kind of important on the career path side. Some of the members in that family do not have career paths. 

Greg Alexander [00:14:09] Interesting. You know, and the the learning there is, is to separate the ownership piece from the employment piece. 

Tom Searcy [00:14:16] So important. 

Greg Alexander [00:14:17] Yeah. And sometimes I don’t know if we do that as well as we should there to. There are two linked in an, a family business. That needs to be a bright line between those two things for the obvious reasons. You know, particularly when people pass away and there’s a state plans and things are assets on a balance sheet that get transferred from one generation next gen. It can get really complicated, for sure. All right. My last question is this. For those of your peers that are in the community that are thinking about hiring a family member, but they’re hesitating. Would you encourage them or discourage them from doing so and why? 

Carajane Moore [00:15:00] I personally. So I’m going to start with, if you’re hesitating. Right. I think that you need to really do a solid gut check. There there is pressures, maybe personal pressures, family pressures to hire a family member. And if there is a I had cetacean, then I would really check on that. You know, it’s just like if there’s an employee, we come into places and they’re like, well, I’m not sure I’ve got the right people in the bus. Well, if you don’t know, then I can guarantee you you don’t. Right. So my, my, if there’s a hesitation, I would really start to question, is this the right choice? 

Tom Searcy [00:15:35] But I can only echo what Carrie Jane said. You know, what we start to do is, is we know the answer. Then we just figure out ways to lie to ourselves. So, you know, so we say I shouldn’t bring them on. But, you know, I think it’s important to mentor them. And I think it’s important that they generationally learn how to do this. And I think that it and the answer is really okay. So you have their whole lives if it’s children to work with and if they’re, you know, other members of the family, you’ve watched them. Why are we pretending like we don’t know who they are? 

Greg Alexander [00:16:05] Yeah, yeah, yeah. It’s great advice. It really is. Sometimes that hesitation is caused for reasons that aren’t job related. Yeah. Like the family dynamics. And in that, I think it’s it’s a shame, you know, if you have a family member who would be a superstar, who wants to join, but you don’t provide the opportunity because of blowback elsewhere that’s doing that. Family member. Tremendous. Yeah. 

Tom Searcy [00:16:29] That’s true. 

Greg Alexander [00:16:30] Yeah. However, I agree with what you’re saying, that if you have a family member who’s not a superstar just looking for a job and you don’t think they can be successful, then trust your instincts there and run away. So your. 

Tom Searcy [00:16:40] Advice. Yeah, I mean, we get sorry, but I don’t interject. That was the Carajane moment right when she called up. Right. I was like, you know, it was a gift. I had no flippin idea that she might even be interested. So that was one of those things where I had a superstar who called. And then I had my son called, and he’s a superstar just now working for us. Yeah. 

Greg Alexander [00:17:04] Yeah, that’s really interesting, but. All right, well, we’re out of time here. But I do want to thank you all for coming on, and, you guys have been great, members of our community. This podcast is another example of you contributing. For those that are listening, I will tell you that my team is in and, enrolled in their executive language program. There’s so many ways that Carajane and Tom can benefit all those that are listening to this. So I encourage you all to attend our member Q&A with them and look them up on the member portal and reach out and learn more about their story. And especially if you’re thinking about, you know, having family members join you looking for a role model, they’re an exceptional one. So, so Carajane and Tom, thanks so much for being here today. 

Carajane Moore [00:17:40] Thanks to you. It’s great to see a great. 

Greg Alexander [00:17:43] Okay, I just a couple of quick, calls to action for the audience. If you are a member, please attend the Q&A session that will have Kara, Jane and Tom. You’ll see a meeting invite on that. If you’re not a member and you think you might want to be, go to collective 54.com and fill out an application. We’ll get in contact with you. And if you just want some more information, I point you to my book, The Boutique How to Start Scale and Sell a professional services Firm, which you can find on Amazon. But until then, I wish you the best of luck next time as you try to grow and scale and exit your front.

Episode 156 – Sealing the Deal: The Critical Role of Management Meetings in the Successful Sale of Your Firm – Member Case by Matt Rosen

Matt Rosen

In this session, we delve into the pivotal function management meetings serve during the intricate process of selling a firm. We’ll explore how these gatherings can effectively showcase the company’s strengths, address potential concerns, and foster a sense of trust and transparency with prospective buyers. Attendees will learn how to leverage management meetings to not only impress buyers but also to secure a favorable sale outcome.


Greg Alexander [00:00:15] Hey, everybody. This is Greg Alexander, the host of the Pro Serve podcast. Brought to you by Collective 54, the first community dedicated to founders of small services firms trying to grow, scale and someday sell their firms. On this episode, we’re going to talk about the mechanics of exiting your firm. In particular, this thing called the management meetings, which typically happens during due diligence. And we’ve got a well-respected, long-tenured, well-liked member of Collective 54 with us today. His name is Matt Rosen, and Matt has recently gone through his successful exit and lived through the management meetings and has a lot to share with us. So, Matt, as always, it’s great to see you. Thanks for being here. And would you introduce yourself to the audience? 

Matt Rosen [00:01:08] Yeah, too kind of an introduction, Greg. Thanks for having me on the podcast. So I’m Matt Rosen and I’m founder and CEO of A Leader. A Leader is a consultancy focused on digital excellence that helps our clients with everything from technology, strategy and user experience through custom dev integration data and then supporting the solutions that we build. And so we went through an entire process and an exit to an investor about a year ago. And it’s been a really a great experience, better than I actually thought it could be. And Collective 54 was a great help at every step along the way. 

Greg Alexander [00:01:48] Great. All right. Well, let’s jump into it. So we’re going to talk about management meeting. So let me start with the very basics, Matt. So you went through this exit. Give us a definition of the management meeting or meetings and kind of. When did that happen? And walk us through the basics of this. 

Matt Rosen [00:02:10] Yeah. So we actually started looking at options in 2021 where I’d say we had a few dates where we had an investment banker bring us both a private equity firm and a strategic. And so they came in and spent some time with us. But it was in 2022 we really went through a formal process where we built a SIM, did equality of earnings, sent it out, and then we really had two stages of meetings. We had what they termed as fireside chats. So this would be a one hour conversation with the prospective buyer. And it was only after we had an intent of interest or an IOI that we actually did management meetings which were like a four-hour onsite session. So for the fireside chats, these were more of an introduction. These were mostly held via Zoom teams, virtual meeting with other the we really looked at a couple of different classes of buyers. There were strategics, there was private equity-backed strategics, and then there was private equities that were looking for us to be the platform. We decided early on that the only way we were going to do a transaction was if we were the platform and we were the right size and had the right team to do that. And so as we were evaluating different options, it was myself, my chief operating officer, my chief strategy officer that were involved in the majority of the meetings, both at the fireside chat stage and then the management meeting. 

Greg Alexander [00:03:39] Okay, perfect. So let’s talk about the fireside chats first. So one our Zoom meetings, three people from your team with potential acquirers on the other end of the line. The objective is an introduction. So tell me a little bit about what was covered during those meetings and how you prepared for them. 

Matt Rosen [00:04:00] Yes. So everyone had our SIM and our quality of earnings, so they already had a base understanding of our business. So I think a lot of it was just trying to for them to understand us, who they were talking to and for us to understand them. And I wish I could say we did tons of prep. We really showed up and just shared who we were and what we were looking for. We had rehearsed things like, Hey, what’s the one question we don’t want to get asked? And, you know, we’re places they’re going to take us that we need to have prepared responses. And so we practiced those. But really, once the fireside chats got going, we were doing a couple of day. We probably did. I would say somewhere between 15 and 20 of them. And at this stage, I was really more evaluating the prospective buyers than they were probably evaluating me. And the ones that I really respected were the ones that asked, Why? Why are you all here? Why do you want to do a transaction? What are each one of you looking for? Professionally and personally out of this? And there was only a couple of them that really asked that question. And so it was kind of funny. We actually knew who we were going to. Our top choice was after the fireside chat. Now, obviously, we kept everybody else engaged to keep a competitive process going, but it was pretty apparent early on to who we wanted to partner with. Yeah, but the type of questions they asked was, you know, tell us about the founding of the company. Tell us about what each one of you does. Talk about, you know, top clients talk about how you retain your people. It’s all very, I would say, basic and high-level information that, you know, frankly, is in the same. I think they just want to see how you’re going to answer it. So I found the fireside chats to be, you know, light engagement. And it was interesting. There were some of the big strategics that literally just wanted to tell you their process, asked very few questions. And so we eliminated some of those very, very early on because there were those that were looking to stroke of a true partnership and those who just want to acquire a bunch of people and capabilities and push us to the side. One story I will share that one of the groups that came in to look at us as a platform had the audacity to come into the fireside chat and tell me that they went from founder-led to professionally managed. So the three of us walked out of that meeting and debriefed and were like, Well, all of us can be out of a job in about 18 months if we choose this group. So we kept them around and I won’t name them for confidentiality purposes, but you know, they were really rough to deal with throughout the process and were exactly what I didn’t want a private equity sponsor. So it was good to have that contrast when we actually were serious about, Yeah. 

Greg Alexander [00:06:33] You know, and you were very fortunate and that you’ve built a great firm and it was growing, so you had a ton of interest. So 15 to 20 fireside chats was appropriate, you know, for, for members that might not be in that similar situation, they’re not at the same scale that Matt and his team are at. You might have fewer of those, but, you know, the goal was an introduction and it sounds like, you know, it was a bi-directional introduction and it served its purpose. All right. So let’s move to, you know, the official management meeting, not the fireside chat, but the real one. So tell me a little bit about you mentioned they were 4 hours in length, so quite a bit more intensive. Walk me through that. 

Matt Rosen [00:07:11] Yeah. So we were very fortunate, as Graham mentions, you know, we probably did 15 to 20 fireside chats. We had 11. I was actually a few people tried to preempt the process with letters of intent, but we said we wanted to go through the management team meetings before we signed off on an otherwise. So we invited, I think it was five groups to Dallas. One of the groups is actually based in Dallas. We just went to their offices, but we sat down in an afternoon session in a board room and walked through our SIM in detail. Oftentimes they had prepared a pitch of what a partnership with them would look like. To help us understand how would this relationship work? What would the board look like, what would their responsibilities be? You know, would they have an operating partner not have an operating partner? Then they really asked us a series of intensive questions and they dug pretty deep. I mean, they did their analysis. We did have some concentration risk, so they dug really, really deep into those relationships and really got to know who they were with. What was the nature of the work, How were we building it, what was the structure of the teams? And so they went pretty deep during those those four hour sessions. And after that, we either did a lunch or a dinner, which was, you know, them getting to know us as people and us getting to know them. And so those management team meetings required a bit more prep. We had wanted to representatives from our banker in the room with us, you know, to help with any detailed financial questions. But at this point in time, you know, they’d been exposed. We’re a data room. They pretty much had access to everything we had to share. We had nothing to hide. You know, we were fortunate not having any lawsuits or crazy things that happened. We run a pretty clean set of books for three years since I founded it. And so a lot of the questions we got that were the most challenging were really just around customers, people retention, what were plans to grow. We also shared with them we had a list of acquisition targets that we wanted to go after, and that’s part of the reason we took on an investment is I had never done M&A. I don’t know how to go to the capital markets and get money. And so we were looking for the expertise of a private equity partner that could bring both of those and take on some of the risk and let us take some chips off the table and recapitalize the company. 

Greg Alexander [00:09:27] So who was in the room? So it was it the same three you, your CEO, your chief strategy officer, plus a couple of people from your banker? And then who was in the room from the. Party? 

Matt Rosen [00:09:40] Yes, a good question. So we had two or three strategics and then three private equity platform meetings. And so when we met with the strategics, it would be their president, their head of M&A, and maybe a key person or two that we’re going to be involved in the integration that would be there. And we kept a really tight circle at later on the entire process. Almost nobody outside of the three of us knew other than our controller and our CTO, until the very, very end. We reveal it to them literally a week before we closed. And it was a really positive thing because we I give a lot of my rolled equity to our senior leadership team. It really sent them to stay. And so it was it was a good situation that we were able to explain. So during the strategic meetings, it was three or four people from their end, it was me, my CEO, Phil Leary, my Chief strategy officer, Trish Webb, that were that were in the room. And then literally the banking team head, Greg, who was the lead banker, and he had a team of four that were part of it to the transaction. And so it would be one or two of them that would be there for the meetings. One was the platform meetings. They were bringing the 2 to 3 folks that were going to be on our board. And so we got to see who we were going to be working with day in and day out over the next 3 to 5, seven year old period as we got to know them, because obviously those are the people who are going to be working with very closely. So there’s no bait-and-switch type scenario that we were talking to the folks that were going to be our board and our team until the next transaction. Yep. 

Greg Alexander [00:11:11] You mentioned Greg. That’s Greg Fink from Equity Tech, who’s also a member of Collective 54, and he was Matt Rosen’s banker. I’ve seen Greg execute these meetings. I’m assuming that Greg and his team played the role of facilitator. Is that correct? 

Matt Rosen [00:11:26] They did. They would tee up the meetings, they would organize that, they would get the agenda out ahead of time and they would keep things untracked. They were also really helpful when there was a really deep financial question asked, they were able to jump in, but for the most part it was the my myself and my senior leaders that really led the meeting and of really tried to have them do a lot of the talking. Obviously, they know the aspects of the business at a more detailed level than I did, and I was very fortunate to have Phil interest, you know, in the trenches with me preparing all the information and being there to present it and explain it to our potential suitors. 

Greg Alexander [00:12:01] Yep. And the content of the meeting was the same, correct? 

Matt Rosen [00:12:06] I’m sorry. 

Greg Alexander [00:12:07] The content of the meeting was the same as that, correct? 

Matt Rosen [00:12:11] The content of the meeting was the same, but generally what they were, it was very similar. They wanted to understand what was the founding story. What? How did we go to market? What did our customers look like? What type of work were we doing? What did we incent our people? And we retain our people? What differentiated us? What were our service offerings? And then it turned to, Well, if we become your partner, how are you going to grow? And that was more so in the platform conversations. They really wanted to understand who are we going to acquire, what strategic directions, where are we going to go, how are we going to expand our ability to go to market? When it was the strategics, it was more a conversation of how, how and where were we going to fit into their team? 

Greg Alexander [00:12:54] Yeah. Okay. You know, a point that I would like to add for listeners is that, you know, Matt suggested that he let his executive team do a lot of the talking. And that’s really smart. And that’s something that all of us should pay attention to, because when somebody is in a management meeting, an investor or strategic thinking about making an acquisition, they want to make sure that there’s a real team. You know, there’s not an overdependence on the founder because, you know, God forbid something happens to the founder, you know, does the firm fall apart? So it’s really important to have a solid management team in the management meetings. And I think that’s why these meetings are called management meetings, in part is to assess the quality of the management team. All right, Matt, one last question before we wrap it up here is, you know, was this a high-stress moment for you? And, you know, and looking back on it now, was the stress appropriate or were they easier than you thought they were going to be? Kind of give us a retrospective? 

Matt Rosen [00:13:49] Sure. Yeah. So I’m sitting here. The transaction happened in September of 2022. So we’re know, 13 months in now. And looking back on it, you know, the process itself was not quite as grueling as I had envisioned it to be, at least not the fireside chats and the management team meetings. I mean, I had to get together with people and talk about my business, and that’s what I do all day long. I would say it was by much more stressful for my CFO and Chief strategy officer, as well as our controller, who had to put together a lot of the documents in preparation meeting. I think they had a bit more PTSD around the process than I did. You know, the meetings themselves. We were very fortunate. We didn’t have to sell the business. Not everyone’s in that position. So we went into it and I started almost every meeting saying if I can’t look my people and my clients in the eye and tell them this is good for everyone, not just me and my leaders, we’re not going to do the transaction. So we were in a position of strength from a negotiation standpoint with with all the suitors involved. And we had a lot of suitors at the table. Kotek and Greg ran a great process and had a lot of good options for us. So we were fortunate and the timing was right. And so I would say the hardest part was once we signed and although I went through due diligence, you know, where I got most heavily involved in the negotiation of legal contracts and employment agreements, the non-compete and all all the equity structure, I would say that was the most stressful part was the last couple of weeks leading up to closing. But the process itself of getting people interested in our business and talking about what we do, I actually found that kind of fun. You know, the only downside to it and anyone who goes through the process is you’ve got to have people kind of running the business as you’re selling the business because it’s easy to get distracted. And I think this happens with every firm is, you know, the whole process, you know, either ends with a sale without a sale, but with key leaders not keeping an eye on the ball, the business things do tend to slip. And so I think an important thing to think about if you’re about to go through a process, is make sure you have people that can sell the business, make sure you have people to run the business because it becomes a full-time job being part of a deal team. 

Greg Alexander [00:15:53] Yeah, that’s good advice. It is all time-consuming for sure. Okay, so let’s just put a bow on this thing. So we’re breaking down the mechanics of an exit. And today we spoke about one element of it, which was this mystical thing called the management meetings. And we learned that there’s really two types is the fireside chat. And then there’s a formal management meeting, and we learned a little bit about what their goal is, why they happen, who attends them, how you prepare, what’s covered, etc.. And and we heard from Matt Rosen who recently went through this. So so Matt, on behalf of all the membership, as always, thanks for coming and giving back to the community. Really appreciate it. 

Matt Rosen [00:16:31] But be on. Thanks for having me. 

Greg Alexander [00:16:33] All right. Well, a couple of calls to action for those that are listening. So first, if you’re a member, look for the meeting invitation formats, Q&A session, where you can ask him your questions directly of these management meetings. We’ll go into much more depth and allowed on a podcast. If you’re not a member and you think you might want to become one, go to Collective 54 dot com and fill out an application. We’ll get in contact with you. And if you’re not ready for that, you just want to kick the tires and learn a little bit more. Check out my book called The Boutique How to Start Scale and sell a professional services firm, which you can find on Amazon. Okay. With that, That’s the end of this week’s episode. I wish you all the best as you look to grow, scale and sell your firms.

Episode 155 – How a Consulting Firm Got to $5 Million in 6 Years Without Making a Single Sales Call Using Content Marketing – Member Case by Andrea Fryrear

Attend this session to learn how to make growing revenues easier by implementing content-driven inbound marketing. In this session you will learn what real content marketing is- why it works, how it is different than fake content marketing, how to engage an audience, create compelling content, use tech to scale, how content marketing scales a founder’s impact exponentially, ways to convert time wasted creating thought leadership into time well spent generating revenue, and ways to get started.


Greg Alexander [00:00:15] Hey, everybody, this is Greg Alexander, the host of the Pro Serv Podcast, brought to you by Collective 54, the first mastermind community dedicated exclusively to the needs of the boutique professional services space. On today’s episode, we’re going to talk about content-driven inbound marketing. Now, why are we going to do this? Well, many of our boutique pro serv firms are trying to increase their business development efforts. I should say increase the efficiency of those. And when you’re an expert, content marketing is an effective strategy because it allows you to demonstrate your expertise. So with us today we have a fantastic Collective 54 member. Her name is Andrea Fryrear. And, I’ve had a chance to consume some of her content. And in my humble opinion, she does this better than most. So she was kind enough to join us today and share her wisdom. So, Andrea, would you please introduce yourself and your friend to the audience?

Andra Fryrear [00:01:15] Yeah, absolutely. Hi, everyone. My name is Andrea Fryrear. I’m CEO and co-founder of Agile Sherpas. We teach enterprise marketing teams how to apply agile principles and practices so that they can become more effective and efficient and ultimately, the strategic partners that marketing should be, and not just a bunch of burned out order takers.

Greg Alexander [00:01:36] Okay. Fantastic. All right. So let’s let’s start with would you please just provide, an explanation as to what this kind of jargony, term content driven inbound marketing like, what is it and how does it differ from the traditional marketing strategies?

Andra Fryrear [00:01:52] Yeah, it’s really more much more about an audience and about solving people’s problems than it is about talking about yourself at all. So whereas typical marketing might lead with kind of features and benefits, what do you do? And all of that kind of marketing stuff, inbound and content is there to deliver value to people who might never become your customers. And then when they actually are ready to consume whatever it is that you provide, they will reach out to you. That’s the inbound piece. They’re going to raise their hand and say, love everything you do. I’ve been a fan for years now. I’m ready to buy. And so it’s really focused on them and what they need. There’s a lot of overlap, especially when you get into distribution channels and how you get your content out in front of people. That can overlap with what you might be doing with more traditional marketing activities. But really, it’s all centered on the audience, all centered on providing value and way less about what it is that you do as a firm.

Greg Alexander [00:02:56] Okay, that’s an excellent grounding definition. Why don’t you share with the audience a few examples where you’ve implemented this for your own business and what the results were.

Andra Fryrear [00:03:07] This has been our bread and butter from day one. So we have up until kind of latter half of last year, never made a sales call like never done an outbound sales call for the six years that we were in business. Our main channels have been our blog, where we publish once or twice a week and have done so for six years, and I do a lot of speaking as well. So those are our main channels we’ve gotten into, like YouTube and some of that in the last year as we’ve tried to diversify. But the blog has really been our, our core, launching pad. And we got to 5 million in revenue this way. Just deliver value, deliver value. And people fill out a contact form on our website and some of them follow us for years. And, you know, they get our weekly emails and they learn and learn and learn. And then they finally are able to build momentum internally to bring us in, or they get promoted to a place where they have budget to hire us. And and then it’s the shortest sales cycle in the world at that point. They already I already love everything we do.

Greg Alexander [00:04:14] Yeah. You just described Nirvana for our audience getting to 5 million in revenue with never making a sales call in six years. I mean, that’s an incredible statement. So congratulations on that. And and it’s really a proof point that if you give value, if you educate customers, they’re going to come to you because they’re going to say, hey, you really know what you’re talking about. And you haven’t been selling me. You’ve been we sometimes we forget we’re services firms, we’re in service of the client. And that needs to be reinforced with our marketing efforts as well. All right. Well, firms that haven’t done this yet, they’re new to this. Where do you recommend they start? What are the first steps to take?

Andra Fryrear [00:04:52] You really have to know your audience, because you’ve got to be resonant with them in the content that you create. And this isn’t just their job role or the kinds of firms they work at, or any basic demographic stuff. This is what is keeping them up at night. What hurts them enough that they will go to the internet and try to solve it right? They’re going to be hunting for a solution and you want them to find your content. So you have to know what are they looking for? And then in that same vein, you need to know where they are going to try to solve that problem. Some people, some kinds of searchers are still, you know, Google search, just general search engine stuff. Other people are really heavy into LinkedIn or YouTube or other search engines. And so you have to know where they’re at already so you can be there too, especially early on. You can’t be on every channel. It’s just too much to distribute everywhere. So you got to pick a lane and get really good at it and then diversify over time. But if you pick the wrong lane, you’re not going to see a lot of impact. So you really got to take time to understand people, and you can interview existing customers and prospects to find this out. People are usually pretty open and transparent about where they go for their information. And the other thing that I would say is don’t build on rented land. This is a kind of phrase you hear in content a lot. You don’t want to spend tons of time building up an audience somewhere that you can’t control. So, you know, Twitter, YouTube, even LinkedIn. They control those algorithms. They control how your content is showing up so you can get eyeballs there and you absolutely should. But your goal should be to convert them into an addressable audience of your own, right? Get them into your database somehow, give them a downloadable resource that they’re going to give contact information for. Get them to subscribe to a weekly, daily, whatever cadence needs to be an email, communication that you give. And so they become you control the access to those people at that point. So you can start them out on another channel, but you want to get them into your universe as quickly as you possibly can. And then also, this isn’t going to happen at court in a quarter. This is a long haul multi over the this should be a lifetime endeavor for our firms that you’re just committed to doing forever. And so you can’t think of it as something that will start and stop, in a quarter or even one single year. You should see results and, you know, a pretty reasonable amount of time, a couple quarters, but you’re not going to stop at that point.

Greg Alexander [00:07:34] You know, I would just add to that excellent answer is that for founders, this is a high leverage activity. Meaning let’s say you spend an hour writing a blog and it goes to your subscriber list, which could be a few thousand people. So one hour to a few thousand people. It’s a one to many approach. It’s a high leverage activity. You know, we’re all time starved. So this is, a really good use of the founder’s time. All right. Let’s get into kind of content creation itself. So what are the key elements of creating compelling and effective content specifically for inbound marketing?

Andra Fryrear [00:08:08] Well, building a little bit off of what you just said, that idea of build something one time, and then you can also reuse and atomized the content. Right? So you and I are having a great conversation here. I know that you’ll you’ll cut it up and reuse it in a lot of different ways. And so like we do interviews with coaches, we cut those up and put them on YouTube. You transcribe it, it becomes a blog. And so thinking about all of the different ways to use and reuse what you do. I’m also a big fan of thinking about your own buyers journey and mapping content to where it falls there, so you want to be across the whole journey. Like we talk about our content as someone who is aware of their problem, but they don’t know what the solution might be, or they’re someone who is aware of the solution and is seeking for, guidance on applying it. And so we want to give value no matter where people are. And so, you know, thinking through what are the steps that someone might go on during their whole buyer’s journey to get to you at the end, and then make sure you’ve got content that’s going to guide them across all of that. I’m a big fan of also finding one pillar piece of content. Right. What’s and it’s it’s big. You put a lot of emphasis on it. And that’s where you drive a lot of your traffic and your, content too. And it proves that you know what you’re doing. It adds a lot of value. And then it can be the thing that converts them to a subscriber of your own. And so it’s pretty close to the end of that buyer’s journey. So those are, yeah, places that you can get get started.

Greg Alexander [00:09:53] Yeah. You know, to add to that, the pillar piece of content that, that we use at collective 54 is my book, The Boutique How to start scale and sell a professional services firm. And everything kind of pivots off of that. So we’ll have, a strategy around top of the funnel, which is to make people aware of their problems and, and make them aware of needs and needs that they have that maybe they’re not aware of. Then you go to the middle of the funnel. So I’m thinking about buyer’s journey here. That’s more solutions based. So they’re now aware that they have a problem. What are the possible ways to solve that solution. Now when you get to the bottom of the funnel, it’s more things like case studies and testimonials and references and things because they’re looking for, you know, how do I know this is going to work? Like what are the proof statements? So for those that are listening to this, particularly members, maybe an easy way to get started is think of top of funnel, middle funnel, bottom of the funnel. That’s kind of a simple buyer’s journey. And then map your pillar piece of content and all of its derivatives along the way. All right. My next question is around metrics and measurement. You know, our audience are founders, and if they don’t get an ROI on their time investment, they bolt. So how do you measure this?

Andra Fryrear [00:10:58] It can be difficult, honestly, to get sort of end to end attribution and understand where your content is showing up. We hear from our prospects all the time. We love your content. We’ve read and we’ve seen. Right. And that’s anecdotal. It’s nice validation. But it doesn’t prove that all of the time. And sweat. But you put in is actually doing it. But I think again, mapping it to that sort of funnel view. Right. So what’s a top of funnel metric that you can get hold of that shows you your content is working there. And that can be really basic like kind of reach sorts of, of numbers. So that’s, you know, social following across your, your channels that you’ve chosen your search engine presence. Right. How many terms are you ranking for and how much is your organic traffic growing month over month. But then you need to track conversion rate there, too. So how many of those people become part of your addressable audience? And that’s easy to keep track of because you should have an email management tool of some kind, and you can see the growth of that month over month. And if it’s not growing, then you’re not converting, you know, people from the top to the to the middle. And then that last one, the sort of bottom of the funnel you should be able to understand when you’ve got content influenced leads, right? If they downloaded your pillar piece of content and you know, they did that before they were a lead of some kind, you can tell that it’s influencing their decision to come to you as a prospect. So it doesn’t have to be this massive, you know, multi attribution model. But you do need to be able to tell if it’s working, especially if you’re asking people on your services team to contribute. They need to know that the time they’re devoting, the time you’re devoting is turning into prospects and eventually money.

Greg Alexander [00:12:55] Yeah. You know, you talked about, the email list. Let’s talk about technology for a moment. An email management system is one tool. I would I would imagine amongst many. I know some of our listeners right now probably saying this sounds great, common sense. I should be doing this. Oh my gosh, that sounds like a lot of work. What type of tech tools can help, you know, make this easier?

Andra Fryrear [00:13:18] Yeah, I will say there is a lot of craft involved here, like the creation of really top notch content is hard. And so things like ChatGPT, for instance, I think we have to talk about AI here who can help you, right? It can help give you ideas. It can help you brainstorm titles, subject lines, keywords, things like that can give you an outline. Please do not make ChatGPT your content team like you will. You will not break through, right? It’s it’s going to be generic kind of icky noise content that will not it’s not going to get you what you want. Use it to make you more efficient. But it’s not your content team. So I will say that. But then also there are lots of ways that you can get this stuff out of your head. You know, talk to just a recording device of some kind and then get it transcribed. If you’re not a writer, it’s not everybody’s core skill set or just, you know, turn on your camera and and talk to your audience, right. Be authentic. Talk about a problem. People love that. It doesn’t have to be high production. But then there’s other kind of foundational tools. You do need some kind of email or CRM. Going there. I’m a huge fan of a tool called Spark Toro, which helps with audience research. So like people who Google this term, what podcasts do they listen to and what YouTube channels do they subscribe to? What other websites do they tend to visit that I might want to have a guest post on? It’s a great way to get really granular information so that you’re where your audience is and you’re answering the questions, that they want.

Greg Alexander [00:15:03] Let’s talk about challenges. You know, you mentioned some of them just in the course of our conversation, but, are there any obstacles that, you know, you want to put emphasis on and make people aware of? I think it’s talked about.

Andra Fryrear [00:15:20] Yeah. It’s very tempting to talk about yourself. Right. To always lead and land on your solution. And certainly that should come, right? The point of this all is to get you customers, but you also have to present alternatives, right? Which could include just not doing anything right. Keep consuming our content. Do it yourself. Always a valid choice, or give them other ways to solve their problems. You’re earning trust then. And so when you do say, hey, we’re the best people to solve this problem for you, they’re more likely to trust what you say. I would also say consistency, like a lack of consistency, can be a challenge. It’s better to commit to a lower cadence of publication and stick to it, than to be like, we’re going to publish every day for a whole month, right? And you’re going to burn out and you’re not going to stick with it. So twice a month consistently for a year is better than it’s like a New Year’s resolution, right? If I work out every day for a month and I don’t do it for the rest of the year, I didn’t probably help myself. But if I did it twice a month for the whole year, that consistency is better for me, over the long term. And then you also have to think about your distribution, creating great content. It’s not a they build it and they you build that they will come kind of situation. People are busy. They have a lot of demands on their attention. So you need to think about how you’re going to get your great content out in front of them. Don’t try to be everywhere. Pick a couple of key channels and get really good at those before you diversify. But you you gotta get your content out in front of people. Or it’s just kind of alone and sad on your blog.

Greg Alexander [00:17:00] All right. And my last question is, does this cost a lot of money or is this something a bootstrapped founder can can do in a bootstrapped way?

Andra Fryrear [00:17:09] Absolutely can be bootstrapped. Very, very cost effective. For instance, we don’t have any other full time content people on my team. I do a lot, but we have a part time person over in Bulgaria. He’s been with us for years. He’s super fast and efficient. He’s gotten to know our business and our audience. So he’s really great and and an effective part time resource for us. And so whether it’s like leveraging a VA to transcribe your like brain dump on to, you know, a recording device or just somebody to copy edit you right to if you’re not a great writer, just go brain dump right and get somebody who that is their craft to to nuance it for you. But it can be done with just a little bit of investment. There’s not a lot of tools, right? Like you said before, a lot of this is common sense, especially for those of us that talk about this all the time. We’re in sales calls all the time. That’s another great thing. Every question you get in a sales call, if you answer it more than once, it should be a piece of content somewhere. Your service delivery people, if they’re getting that question while they’re talking to clients, that should be a piece of content. And it’s an easy then they know how to answer it, right. That’s their job is to answer that question so you can get them to create content really, really easily and cost effectively. It just has to be a priority. You have to set aside time. That’s the big resource. Here is just the time, to get it done.

Greg Alexander [00:18:44] You know, maybe a little advanced tip for those, overachievers out there listening. You know, everything we do now is is recorded, whether it’s through zoom or Gong or what have you, because we’re living in a digital world and these recording tools have AI, capability. And you can set up settings that says, in Andrew’s case, you know, highlight for me the questions that the prospects ask. And then at the end of every single call, the literally send them to you. So now you’re just having a conversation with the prospect. You don’t have to worry about jotting down notes, and that builds an archive over time. And then maybe you look at it once a week, once a month, once a quarter, whatever it is. And you can clearly see what the information needs are of your target audience based on the questions they’re asking you during sales calls. So just an advanced tip. All right, Andrew, we’re out of time. But, I want to on behalf of the members and even those that are members that are listening to this, I really wanted to to thank you for coming on to your story of leveraging this technique of getting to 5 million with never making a sales call in six years is incredible. I mean, it really is. So thanks for coming on the call, and we really look forward to your, upcoming Q&A session that we’ll have with the members.

Andra Fryrear [00:19:54] Me too. Thanks for having me.

Greg Alexander [00:19:55] Okay. All right. A couple calls to action for those that, that are listening. So if you’re a member, please attend Andrea’s, Q&A session where you’ll get a meeting invite for that. If you’re not a member, you might want to be go to collective 54.com and apply, and we’ll have somebody follow up with you. And ironically, if you just want to learn more and consume some information, consider my book. It’s called The Boutique How to Start, scale and sell a professional services firm. And you can find that on Amazon. But until then, I wish you the best of luck as you try to grow, scale, and exert your firm.

Episode 154 – How Boutique Firms Can Partner with Large Government Contractors to Win Large Lucrative Contracts – Member Case by Paul Karch

In this session, discover the inside track on how small service firms can punch above their weight and land lucrative government contracts. This session guides you through strategic partnerships with large contractors, providing the roadmap to navigate the complexities of government procurement processes. Learn the secrets to leveraging these alliances for growth, stability, and success in the public sector marketplace.


Greg Alexander [00:00:10] Hi, everyone. This is Greg Alexander, the host of the Pro Serv Podcast. brought to you by Collective 54, the first community dedicated to founders of small service firms that are trying to grow, scale and maybe someday sell their firms. On this episode, we’re going to talk about how small service firms can win government contracts by partnering with larger firms. And we have a fantastic Collective 54 member with us. His name is Paul Karch, and Paul is an expert in all things government contracting and was gracious enough to come on today’s podcast with us and share what he knows. So, Paul, with that, it’s good to see you. Would you please introduce yourself to the audience? 

Paul Karch [00:01:04] Absolutely. My name is Paul Karch. I’m founder and CEO of an organization called Gardant Global Garden Global is a 17 year old organization that has been focused on government contracting for 17 years. And our claim to fame is we’ve won about $300 billion worth of business for our clients over those years. Well. 

Greg Alexander [00:01:22] You know, on one hand, I’m super happy that you delivered so great for your clients. On the other hand, it makes me somewhat uneasy that the government spent $300 billion because I wasn’t spending more. I know. I mean, so hopefully they’re spending it wisely. But anyways. All right. So first, I want to I’m going to ask some basic questions. And I should say, Paul, as a maybe jumping off point as a general comment, our members are mostly focused on the private sector and it’s a growth opportunity for many of them to expand their business into government business. Right? And yet they don’t know how to do it. So today is going to be very basic for you after doing this for 17 plus years. But for our members, it’s going to be, you know, somewhat eye opening. So with that as a backdrop, I’m going to start with my very first question, which is can you define for me what a quote unquote large government contractor is and maybe name a few to give us some context? 

Paul Karch [00:02:21] Certainly. Well, the term large business, large government contractor is determined by the next, quote, North the North American industry classification system. Okay. So it’s a given. So to give you an example, Greg, a large for example, the NASA’s contract, which is up will be the RFP will be released in February. The small business size standard is $34 million. So any company below 34 million is classified as a small. Any company above 34 million is classified as a large. So the differentiation can be it could be looking at that as the next code is the large business. It could be looking at the organization as large business. So, for example, Lockheed Martin is the single largest government contractor that exists today. Okay, we’re talking billions of dollars. But Lockheed Martin, again, is in space. They’re in technology, they’re in homeland security. They’re across the board. And they would be classified as a they’re like the mega large contractors. But even a $35 million company on this, NASA’s contract would be classified as a large. 

Greg Alexander [00:03:21] Interesting. And this $34 million line of demarcation is that. An annual revenue generated from government contracting? Or is that just an annual revenue of a firm in general? 

Paul Karch [00:03:33] It’s running through your average of the firm in general. But remember, it’s based on the tax code. So there are next year’s like three, three, 4111, which is the hardware menu, tech technology, hardware, manufacturing tax code. And that tax code is defined by number of personnel. Any organization, it’s 1250 people or larger In population, an employee population is classified as large. 

Greg Alexander [00:03:55] Okay. 

Paul Karch [00:03:56] And small. So there’s differentiations here. But yeah, I mean, it’s you in that case, it’s a running through your average as far as are people concerned. 

Greg Alexander [00:04:03] All right. Perfect. Now, you know, in previous sessions with members, we had some some of your peers that are in this space suggest to our audience, which are small service firms, that a good entry point into the government contracting world would be as a subcontractor to a large contractor. So that’s the reason why I started with. The first question is, you know, what is what is a large contractor? So why would somebody like a Lockheed Martin or another, you know, very large firm, why would they want to subcontract to anybody? 

Paul Karch [00:04:36] Well, I think I think you’ve got you’ve got a lot of external you’ve got government pressures and external pressures, specifically for this from the Small Business Administration. So, for example, a Lockheed Martin is probably under under obligation to bring about 15 to 20% of all of their revenue through small businesses. That’s that’s a mandate and that’s a commitment they give. So under the large contracts that they’re awarded, every one of those organizations has to complete, which is something that’s known as a small business subcontracting plan. And when they do that small business subcontracting plan, they submit it with their bid. When they win the bid, they typically will be audited every year on their small business utilization. So that’s why they would have to continue to add to their small business portfolio, because if they are successful in bringing small businesses on by by default, the small businesses will outgrow their small business size standard in two or three years working with Lockheed Martin. 

Greg Alexander [00:05:30] Yeah, but I didn’t know about that. Say that again. It’s a it’s a what was it? Terminology is their. 

Paul Karch [00:05:35] Small business subcontracting plan. 

Greg Alexander [00:05:37] Small business subcontracting plan in there it’s mandated have a. 

Paul Karch [00:05:41] Mandatory it’s a mandatory piece for all government contracts that large businesses participate in. 

Greg Alexander [00:05:46] Geez. They learn something new every day. That’s fantastic. So obviously, this idea lines up very well for our community because most of them would be in that definition of a small business. 

Paul Karch [00:05:56] So clearly. 

Greg Alexander [00:05:57] So if I am a founder of one of these small businesses and I want to go approach, you know, a large government contractor and position myself to participate in this, how do I how would I do that? 

Paul Karch [00:06:08] Well, first and foremost, it’s not for the faint of heart. So you have to be committed to doing it. This is not something that will happen overnight. It’s something that takes time and patience to do. I was a senior vice president of a very large defense contractor before I started guarding Global. I set aside Thursday morning from 9 to 11 to interview small businesses, and I would do 15 minute interviews every Thursday. I would pick the small business that was the most prepared, that was able to provide me a single page capability statement. I don’t want a long presentation. I didn’t want a book. I wanted a single presentation. But I also wanted to know that they understood the government contracting market. So what I wanted them to know, I wanted them to be registered in SAM, which is a systems for word award management, which they must be registered to do government contracting. I wanted to make certain that they understood the agencies that I supported and that they were coming to me to support. So for example, if ah, if one of the members wants to support Lockheed Martin, it would behoove them or they the, the way they would get in there is if they had a clearance, if they don’t have clearances, there’s no point in talking to Lockheed Martin because Lockheed Martin contracts require security clearances. So it’s really knowing your audience, knowing the agencies that you want to target with those large businesses, registering yourself as the organization and then moving forward, if that’s the route you want to take as a partner to a small business or to a large business. 

Greg Alexander [00:07:28] Okay. And and I appreciate that it’s not for the faint of heart. And you got to hang in there. You know, I would suggest and encourage everybody to take a step in this direction only because the size of the prize is so big. And, you know, if you hang in there, I mean, it can really transform the business. Plus, it’s a diversification strategy, you know, as maybe the private sector goes through recession, you know, the government remains to be a very large purchaser of services. So it’s a good strategy from that standpoint. Okay. So I’m putting myself in the shoes of our members and I’m listening to your expert counsel here, Paul, and I’m overwhelmed and intimidated. For example, I don’t have security clearance. How would I get that? I don’t know. The SVP of a large defense contractor, if I get on the phone with him and he interviews me for 15 minutes, I’m going to lay an egg and ruin my opportunity. Like, So how do I guess how do I get myself prepared? Like, how do we even get started? 

Paul Karch [00:08:27] Sure. Well, a couple of things. One, one, you could contract with a company, you know, similar to ours, but but more importantly, I think it’s so bringing someone or actually bringing individuals as consultants or as employees that have an an expertise in government contracting, not an expertise in DOD or and again, you don’t have to be you don’t have to be familiar with all the agencies. You just need to be familiar with the processes that are required because they’re exactly the same for all the agencies. I don’t recommend the members initially going for contracts that do require a security clearance because right now in the industry as it is today, a security clearance will take at least 24 to 36 months to get through for a single individual, and the company has to be cleared before they can actually hire cleared people. So you have to look at that. So my suggestion is pick agencies that are receptive to something called speedy trial, which is a Homeland Security protective Homeland security personnel directive, and that deals with just standard background checks for your individuals. Okay. That point, then you can start to look at agencies like Department of Health and Human Services, Department of Homeland. Department of Department of Commerce, Department of Education, Housing and Urban Development. But then it’s a question of do you own as an organization, are you in any way in a socioeconomically disadvantaged class? Because if you’re in a socioeconomically disadvantaged class women and minority hub zone, which is in a highly underutilized business zone, which is where you’re often where your facilities would be in, 35% of your employees have to be part of that. If you’re one of those types of and have the ability to do that, your first port of call should be with Small Business Administration to get sanctioned, to get certified with the various small business socioeconomic designations. So at that point, when you go to talk with any of these companies, you have that designation and that amount immediately moves you to the top of the pile. 

Greg Alexander [00:10:29] Yep. So. So, Paul, I’m going to ask you, which is unconventional for me. And then you’re not offering it because you’re adhering to our code of conduct, which I appreciate, but I’m going to ask you to describe your services, because what I’m feeling right now is and I’m putting my shoes in the members, the easiest thing for me to do is just to hire somebody like yourself and have them hold my hand and walk me through the process. Tell me a little bit about how you start with a client and kind of what you help them do. 

Paul Karch [00:10:58] Sure. We actually we begin with obviously, we we look for a corporate overview. I’ll give you an example. We’re kicking off with a number of clients right now, been asked to contract with a number of companies that are very, very limited in their government contracting, but it’s a $100,000,000,000.10 year technology contract that will be awarded to about 150 companies. Wow. It’s for technology, hardware, software and hardware services, both enterprise and in individual services. The very first thing we do is we like a corporate overview in a corporate presentation of what that company does so that we can feel what you do. Well, then we’ll validate. I have a compliance group that will validate if you’re registered in the SAM systems to award management or not. If you’re not, we’ll take care of registering you so that then you are now sanctioned to do government business. And from that point forward, we will develop the capability statement for you. We’ll look at all of the different aspects and the mandatory as they’re required for this contract itself. So I’ll give you an example. The NASA’s super quiet contract requires ISO 9001 2015 certification. If you’re selling into the hardware space, ISO 9001 2015 is an interest or international standard for quality. Some of our clients that have come forward for this contract don’t have it, so we’re helping them achieve that certification. Now we then walk them through the audit while we’re bringing them to the altar of bidding. The proposal itself, if they’re looking at the services side, the services side actually require ISO 9001 2050 and see MMI Cinemas driven from the Carnegie Mellon Institute and that’s Am I in services or CRM? Am I in development will also help them with that and get that certification. Once they have that certification, we bring them together. We work on the proposal and remember, we’re starting a proposal. We started with some clients in August. The RFP will not be released till February or March. The due date won’t be until next June. So we’ve started six months, eight months, ten months in advance of a specific opportunity that we want to go after. That is what a small business and the members need to be able to do in order to position themselves to win that first contract. Second contract, third contract, like I mentioned. It’s not for the faint of heart. It really is not. But we helped and or I’ll give you an example. We up an organization when the predecessor contracted this eight years ago, they won the con where they won the contract. They hadn’t done any government business before, won the contract and then worked the contract for about six months and then sold the contract on to another company, you know, for for, you know, 10 million plus. 

Greg Alexander [00:13:27] Wow. I didn’t realize you could do that. That’s interesting. 

Paul Karch [00:13:29] As long as they can. No baited across. As long as you have the same certifications, the person buying it as the people that had it. 

Greg Alexander [00:13:35] Yeah. 

Paul Karch [00:13:36] Okay. And they have sanctioned. But you know, again, you can do that. So there’s value and there’s value. There’s gold and then their health, so to speak. Yeah. 

Greg Alexander [00:13:43] And is the process the same or different when you consider, you know, federal, state, local, etc.? 

Paul Karch [00:13:50] It’s very it’s it’s very it’s the same. It’s a great question. It’s the same but different. And I’ll tell you, the registrations, the certifications in many cases are the same. I ran state and local for a large technology company a number of years ago. And the difference with the state and local market is it is state and local. So you must need you need a local presence to win business in a specific state that you’re in. So if, for example, I’m you know, I’m based in South Florida, I would probably if I wanted to do direct Florida business, I would actually put an office in Tallahassee. Okay. And I would have people in Tallahassee calling on the state capital, because that’s that’s how you that’s how you win the state business, because it’s always somebody’s brother, somebody’s cousin, somebody’s friend, somebody’s college roommate, somebody, you know, in Tallahassee, it’s all Florida State. Yeah. So if you are a state grad you’re in if you’re from University of Florida, you might not be in. Yeah. 

Greg Alexander [00:14:40] Or Miami Hurricane. Exactly. 

Paul Karch [00:14:43] My wife is Miami Hurricanes. So that’s that’s her thing. 

Greg Alexander [00:14:46] Yeah. Okay. And your firm helps at all tiers of government? 

Paul Karch [00:14:51] Absolutely. We help at all tiers. Again, the state and local markets a little bit more. It’s a lot more fragmented. So it’s a it requires a different a different focus. Yeah, but but again, the idea is if you’re if you’re in a jurisdiction and state, local markets are great, but the federal the federal market I always classify as Fortune one. 

Greg Alexander [00:15:07] Yeah. 

Paul Karch [00:15:08] Because they spend more money than anybody else. 

Greg Alexander [00:15:09] Yeah. Yeah, for sure. You know, I’ll, I’ll maybe conclude with this little brief success story. So I was working with a member during office hours, and he’s thinking through his ideal client profile, and we’re discussing this concept of a look alike analysis. And I won’t bore you with the details of that, but what it basically means is, who am I best clients? What do they look like, and are there other people that that are similar? And he stumbled on the fact that he was he had 30 MSP clients. These are recurring revenue clients he’s in the world and ten of them ten of them were local municipalities. And he didn’t realize it. And he said, Geez, I wonder what’s going on here. Like, why did these little ten municipalities see such value in our services? And he determined that that was going to be one of his ideal client profiles. And he’s pursuing that. And they’re they’re sizable contracts. They’re profitable. You know, they got healthy client relationships. The employees that work on these contracts are happy. So it’s just an example of what the opportunity is. So. All right. Well, listen, you know, Paul, on behalf of the membership, I wanted to thank you for certainly offering your overview here on this podcast. And I’m really looking forward to the follow up that will have which will be the one hour private exclusive Q&A with members. They’re going to have a ton of questions. Excellent. So I look forward to that. So thanks on behalf of all the members who are coming on. 

Paul Karch [00:16:28] All right, Greg, thank you very much. Anytime. 

Greg Alexander [00:16:30] Okay. All right. And for those that that are listening, just three quick calls actions. As I mentioned, members attend Paul’s session. We’ll get that invite out to you shortly. If you’re not a member and you want to become one, go to collective 54 dot com and fill out an application. We’ll get in contact with you. And if you’re just someone who wants to learn more, check out my book, The Boutique How to Start Scale and Sell a professional services firm. You can find that on Amazon. But with that, until next time, I wish you good luck as you try to grow a scale and sell your firm.

Episode 153 – Small Giant Merges with Industry Titan: How a 10-Person Firm Successfully Sold Itself to a 300-Person Professional Service Behemoth – Expert Case by Bart Mroz

In this insightful case study, we delve into the remarkable journey of a nimble 10-person professional service firm as they navigate the complexities of selling their business to a 300-strong industry leader. From leveraging their specialized expertise to fostering a culture that resonated with their larger counterpart, this session discusses the key steps taken by the smaller firm to position themselves as an indispensable asset, paving the way for a merger that promises to be a win-win for all parties.


Greg Alexander [00:00:10] Hi, everyone. This is Greg Alexander, the host of the Pro Serv Podcast, brought to you by Collective 54, the first community dedicated to founders of small services firms that are trying to grow, scale, and someday sell their firms. On today’s episode, we’re going to talk about exiting a small service firm. It’s a very precise thing to do. It doesn’t happen a lot. So when it does happen, we want to shine a light on it and learn as much as we can. And we have an alumni of Collective 54 with us, Bart Mroz. Bart was on an episode of our show before way back in the day Episode 72. I think we’re like in the one seventies now, so it’s good to see you again. Bart. Would you please reacquaint yourself with our audience and provide us an introduction? 

Bart Mroz [00:01:05] Absolutely. It’s great to see you, Greg. Yeah, so I am for the last 13 and a half years, ran company called Sumo Heavy. We were an eCommerce consulting firm and button shop, working closely with enterprise level clients. We, I think, talk we’re talking about Discovery’s if on the rack. 

Greg Alexander [00:01:29] Yeah, you walked us through that and how that led to kind of long standing client relationships, which was an awesome episode. 

Bart Mroz [00:01:36] Yeah, it was fantastic. So funny enough, I am an alumni of of the group. Part of it is because I was going through this all through the year. So. 

Greg Alexander [00:01:49] So yeah, so let’s talk about this. So I read the press release and thank thank you for sending that. I was so happy for you in your team. It’s the conclusion of an entrepreneurial journey. I know you’re still there and you’re still building, but it is a chapter in the story of an entrepreneur when this happens. So I just I want to start at a high level and just, you know, have you tell everybody what happened? And then I’ll have some questions for you. 

Bart Mroz [00:02:16] Sure. Where do I start? About a year ago. A little bit over a year now. I was needing to get out of the house and randomly went to. I was living in Princeton, New Jersey, randomly went to a place and bumped into now our VP of Innovation at the at ATX, which is my new company and just had a good chat with it and just randomly ran into somebody. And it it kind of took that took it to a conversation with them and then they came to Val was like, If you are ever willing to sell your company, let me know. And about six months later, I had a conversation. My business partner were kind of looking at what the market looks like. What are we doing after 13 and a half years is like, are we going to grow this or is there other avenues that we can have? And I gave him a call and then work through the summer and and we got to this point and then on September 1st we are fully acquired, which is always a challenging find. But as a smaller firm, it was it was interesting to go there. 

Greg Alexander [00:03:29] You know, the fact that this was a random encounter, you know, it makes you wonder if if the cosmos was lined up for you here and you were doing the right thing, that that’s a very hard luck. 

Bart Mroz [00:03:41] But also part taken that luck. Right? It’s the serendipity of it. Yes. It’s probably partially putting out there that there’s some need. But also, you know, people say is like always in luck. I think it was a luck thing because, you know, 30 minutes before or third means after walking, you know, until place, it could have changed it. Right. But then taking that opportunity that’s in front of you and have conversation with somebody random kind of get you to that point. 

Greg Alexander [00:04:09] Yeah. I mean, we’ve got to make the most of our lucky breaks and and not waste them. I get it totally. So what I was particularly interested to talk to you about today, because it’s so relevant to our community, is that you had a ten person firm and a lot of people feel that a ten person firm is a non sellable firm, yet you proved all those people wrong and you were able to sell your firm. So how did you overcome that and how did why was is it it is that right? Why was this why was it interested in you all? 

Bart Mroz [00:04:42] So at our height, so we’re 13 years, 13 and a half years, almost 14 at our height, we’re actually 30 and meaning 30 with our contractors, and we’re about 12. 13 at the most here in the States. But because we had this efficient, nimble kind of company, we got to work with larger clients, got to work with them long term. Have some way of a different way of working. As with our last podcast, it was about doing discoveries and discoveries. Because of that, it’s all our being the process and how we work and how we work with our clients. And the fact that we had long term clients was attractive to a bigger company, but also for us from our perspective. Once we started talking to them. It became very clear that there just a very large version of us. We’re like a micro version, meaning our culture is the same. We kind of think the same way. We want to go after the same things. It kind of became clear this is making more and more sense. Now, this was, you know, we got acquired in this one, but this was not our first go at trying to get acquired. We’ve done it two years beforehand and it just didn’t fit what we wanted. And we said no, 80% because of culture. And 20% of because money just made it financially didn’t make sense. Like it just it wasn’t working. The numbers didn’t make sense and all that. So a lot of it was culture or a lot of was that the other side of it for us was having access to a bigger. Of services. You know, we’re very structured on e-commerce, but we’ve never had UX or design or marketing or other things we were trying to pursue. Now we do, you know, it takes us 300 people. So it’s a bigger company. We have a lot more services. On the other side of that, I it had a little bit of econ going on with them. With us, they have the knowledge base now of bigger econ that they can kind of pursue. 

Greg Alexander [00:07:06] Yeah. You know, the lesson here for those that are listening is that when a large firm is thinking about buying a small firm, they often go through a framework called Build, buy or partner. 

Bart Mroz [00:07:19] Mm hmm. 

Greg Alexander [00:07:19] And what I mean by that is they’ll have a gap in their service offering. So in Bard’s case, that was AECOM. And they say to themselves, okay, if we want to fill this gap ourselves, we’re going to build it. Here’s how long it’s going to take his on which money it’s going to cost. And here’s the probability of success. If we were to go partner with somebody. You know, who are those partnerships and same conversation. How long, how much in probability success. And if we buy someone, same thing. So if I compare those items, you know, as a larger firm, what’s better for me, it’s it’s a a way to think through the options. So obviously, in Bart’s case, it just made a lot more sense for them because they could go faster, they had a greater probability of success and, you know, the cost was comparable. So why not go ahead and and buy a firm like Bartz and bring them in? Yeah. 

Bart Mroz [00:08:06] I mean, you’re, you’re looking at you know, do you bring like this is this was our problem too. Like we at least twice a year we would think about do we build design and use sort of practice internally every year, twice a year without fail? And we just never did it. Right. But also, you know, when you’re doing this, you’re acquiring not only the the staff, the team members who are knowledgeable, especially in small firms, they probably have a lot of senior people because they’re willing to do that work, especially if they’re working with bigger clients. There’s growing client. So you have both. Right. You have not only the knowledge base, but also clients, and then you can bring all that knowledge base. You know, it’s a nice circular thing. It just beneficial to every single step. 

Greg Alexander [00:08:49] Yeah, for sure. And it’s beneficial to everybody, including the client, because now you have more things to offer the client, and that’s normally how the justification gets made. The business justification is. So Bart had a great client roster and I t-x, you know, wanted access to that roster and vice versa. I text probably had a great client roster and you guys want access to it. So then the question is, okay, so if we join forces is one plus one equals three here. And obviously it did. So that’s part of the equation. So if you’re if you’re a smaller firm and you’re thinking about selling, you got to ask yourself that question, like, what is the synergy? I don’t mean the cost synergy, I mean the revenue synergy. If we shared clients and we had brought a service set, you know, how much more revenue could we drive by? My next question was I was I was reading in prep for this interview some of the local press that that covered you, by the way. I had no idea you were such a towering figure in the local tech community. Congrats. 

Bart Mroz [00:09:41] Not but thank you. 

Greg Alexander [00:09:43] A lot of the articles were people worried about, you know, you leaving and not participating in all that. One of them classified your acquisition as an acqui hire, which is the merging of two words, an acquisition and a hiring of a team called an acqui hire. Very common in the tech world, not as common in the service world. So that intrigued me. Is that a fair description as to what happened in or not? And what do you think about this idea? 

Bart Mroz [00:10:12] It’s a very it’s actually, Greg, I’m going to correct you, but it’s actually very common right now. Is it really. 

Greg Alexander [00:10:17] Interesting? 

Bart Mroz [00:10:18] Oh, yeah. The same day that we got acquired, one of my friends companies that I acquired Acquired like that. Yeah. So basically the idea is they’re they’re hiring you and they’re acquiring you, basically acquiring, you know, your clients or your things, but also hiring rest of your team. Yeah. So for me, it’s not like the whole team went. So we are now owned by biotechs, Right. But it’s still within those. Rob’s right, my friends. Like, I think the same they I would say four different companies, one within. Between and every single company was between ten and 20 people. Wow. Yeah. From from different. You know, they got fired by other places, obviously, but literally same day and all friends. But yeah, we we all knew this was all happening at the same time, which was really funny. So it’s it’s in service business right now is is that is going to happen and I think that’s it’s a correct statement. I don’t you know some people think it a bit as a as a bad thing. I think it’s fine. I think it’s it’s I feel like it’s worse when it’s a startup, you know, it gets acquired and then it’s like, oh, it’s purchase and stuff like that. When it comes to services, I mean, there’s, you know, we’re not billing it or not. We don’t have technology to sell. We just have humans and humans making things for other clients, right? So it’s it is what it is. Yeah. And I think that’s a good thing. It’s, it’s not it’s, I think it’s a better thing when it comes to service companies because they’re, they’re actually acquiring the whole thing with the team members and the team players don’t get fired, you know, then they lose their jobs. They’re still they’re still there. You know, I. 

Greg Alexander [00:11:57] Mean, I agree. I agree. I think it’s a it’s a much better thing. And I personally don’t view the term as a negative term. I view it as a positive term, although I have read the things that you’ve read where sometimes people talk negatively about it, particularly in the startup context, as a way to kind of firesale a failed startup. But in services it says it’s a people business. It makes a lot of sense and it’s just it’s a mechanism to get a deal done. And I think for the smaller firms, let’s say sub 50 people, it’s an avenue worth pursuing if if that’s something that you want to do. So. So what’s life like for you now that you’re part of a bigger firm? 

Bart Mroz [00:12:37] It’s been it’s been two months, literally, actually two day. So eight weeks. Stressful, crazy, fun all at the same time. You know, as you can imagine, I’m coming from doing a lot of the admin stuff and a lot of sales and that things that that, you know, that requires company to do My business partner was the production side of it and delivery. So he’s stepping into having a delivery team that’s his that’s still our you know, our people. I’m step by step into the sort of the sales operation or what we call engagement leads the management and sales that’s side. And I’m actually really happy to have four or five coworkers in that space now because I was doing this by myself. Yeah, so that’s kind of fun. Um, it’s still, it’s a little bit stressful just because moving, you know, moving your clients over, getting all of those, all those things wrapped up and moving stuff around. Like that’s a lot of stuff while trying to get through, you know, learning all the processes internally for the new company. Also at the same time, having my own sort of business that’s going on at the same time for the company. Um, but that’s going to settle down. It’s slowly settling down of story, you know, starting to get the hang of it and but it’s exciting. I think it’s exciting. A new chapter, you know, you are so used to doing your thing for I mean I did on my own for besides, you know, I’ve been on my own for 20 years on which is kind of fun Now, I haven’t worked for somebody for 20 years. And so that’s kind of a change of pace. 

Greg Alexander [00:14:13] What’s it like having a boss? 

Bart Mroz [00:14:15] I have to. It’s great. Oh, well, believe it or not, I am. I am a happy camper. I have good people above me, good people working with me. And this is kind of funny, but I have no on working for me. Weirdly, I’m okay with that for the moment and not that like our team members were not. They’re great. They’re great people. It’s awesome. Just a just a breath. Taking a breath, I guess, is a good thing. 

Greg Alexander [00:14:42] Yeah. Awesome. All right, listen, we’re at our window here, but congrats to you and your team. I’m really happy for you. I can tell by listening to you and looking at you how happy you are. So that makes me feel great. So congratulations, man. 

Bart Mroz [00:14:57] Thank you so much, Greg. 

Greg Alexander [00:14:58] All right. All right. A few calls. Action for those that are listening. So if you’re a member and look for the meeting, invite for a board session with us, or you could be able to ask some questions to him directly. If you’re not a member, you want to become a member, go to the website and collected 54 and hit apply and we’ll get in touch with you. If you just want to learn more, check out the book The Boutique How to Start Scaling Sell a professional services firm on Amazon. Okay, Thanks, everybody. We’ll talk to you next time.

Episode 152 – A Model for Design Sales Incentive Compensation Plans for Boutique Professional Service Firms – Member Case by John Kearney

In this session, we will discuss how to build compensation plans for the sales function inside a boutique pro serv firm. We will share how the comp plans need to change as a firm migrates from founder-led sales to a part-time sales force to a mature fully function commercial sales team. Learn how to figure out how much to pay, the proper split between salary and commission, the measures to pay commission on, and the costly mistakes to avoid.


Greg Alexander [00:00:10] Hi, everyone. This is Greg Alexander, the host of the Pro Serve podcast, brought to you by Collective 54. The first community dedicated to founders of small service firms that are trying to grow scale and someday sell their boutiques. On this episode, we’re going to talk about designing a sales compensation plans inside of the boutique professional services firm, which is quite an interesting challenge. And we have a member with us today who’s an expert in this very area. His name is John Carney. John. Please introduce yourself and your firm to the community. 

John Kearney [00:00:54] Great. Thanks for having me, Greg. Again, my name is John Kearney. Happy to be a member of Collective 54 and I am the founder and CEO of a company called The Buyers Way, or a go to market advisory focused on helping CEOs and growth leaders consistently grow revenue. So the buyers way is a methodology. It’s a book that is out and it can be found on Amazon. And it’s a methodology for ensuring go to market Teams are aligned to how buyers think, act and feel. It does this by aligning a story, the story of our buyer as a hero with a revenue plan. So it’s got both of the emotional ties to it as well as the hard numbers driven approach to it. So that’s a that’s a little bit about the firm. 

Greg Alexander [00:01:42] All right. So let me set this up for John and for the audience. So we’re talking about designing sales plans and for the boutique purchaser firm owner, what ends up happening is you’re the three lifecycle stages of a firm growth scale. And exit is what we talk about in our framework. And in the growth stage, there usually isn’t an independent commercial sales organization. Selling is done by the founders, and it’s very much a collective activity of many people. Then you graduate out of the growth stage, you go into the scale stage, you’re probably in year six through six through ten, and the firms of significant size at this point. And you want other people other than the founders and the partners to be selling and bringing in work. And that can be either through expansion revenue of current clients as well as bringing in new clients. So now all of a sudden you have these people who are full time employees doing something else and you’re adding the task of selling to them. So how do you pay these people? As you can see, it gets really complicated. Then as you move into the exit stage beginning in year 10 or 11 or so here, you want, you know, a fully developed sales organization. These are non billable resources who wake up every day thinking about doing one thing, and that’s generating revenue. And in that instance, designing sales comp plans is pretty straightforward because the role is pretty straightforward and you know what type of behavior that you want to incent. But, you know, that’s well down the road, you know, two thirds of the way through the entrepreneurial journey. So it becomes much more difficult to do this in the growth and scale stage. So it’s that as a context that I want to have this conversation with. John. So, John, let’s dive into that first step of the lifecycle stage of a boutique, the growth stage. So maybe start with the fundamentals of of sales comp. Like is there a set of best practices or an easy to understand framework or methodology that one can follow? 

John Kearney [00:03:42] Sure. Yeah. I mean, especially in that in that first phase, you know, there’s a few things that, you know, those, those founders and founders to be our partners, to be rather really care most about, and that is equity. And can they sell enough to the point where you feel comfortable as a founder to share your equity with those that are contributing, you know, from a sales and growth standpoint? And that should take some time. A lot of times, you know, you’re bringing in, you know, potential partners that you can help you in that area. And they’re what they care most about is, you know, the long term future. So so of course, there’s always the equity side of things from a compensation standpoint. I think a few things to keep in mind are, you know, to incent upon profit margin to keep it simple, to have no cap. You know, I think it’s the revenue side is obviously critical to growth, but we want to make sure we’re selling profitable opportunities, especially in professional services where, you know, the people side of things is such a big component of of the cost here. So we want to make sure that we’re not just selling any deal, but that we’re selling the right deals in a profitable way. So I think when it comes to those two founders, to potential partners, as you’re trying to get through those first few years, those are a few of the standard things to think through. 

Greg Alexander [00:05:13] So let’s talk about incenting on margin, because not a lot of our members are doing this. They’re paying incentive comp to people performing the sales function on revenue. And the reason for that is most of them are first time founders and more often than not they came to us from a product company and product companies pay on revenue. They don’t pay on margin. So their that’s their frame of reference and they think that’s the way to do it. But in services, to John’s point, you know, especially for you, the founder, you know, as they say, you can’t eat revenue, you can eat profits. Profits is what puts steaks in the refrigerator and pays the bills. So therefore, aligning the compensation plan to. Profit versus revenue is really hard. So, John, this concept of on target earnings, the split between salary and variable and then tying the variable to a small number of measures, one of which we just talked about regarding profit is is essential. So how does a founder determine Otti or on target earnings what somebody should make in a given year? 

John Kearney [00:06:21] Yeah. So now I think a few of the key things are what what’s market based pay you know what what can they get elsewhere and what is the entire OTB include like again there could be some equity involved in that calculation. But I think, you know, obviously we need to know what we’re competing against in the market and what the long term equity options are. You know, some folks are going to be willing to, you know, take substantially less and potentially work on 100% commission if that is their intention is is to enter a partnership track, you know, coming in, eating what they call bringing in clients from day one in order to hit that. So I think that’s you know, that’s a big a part of that is, you know, a majority of that the compensation being tied to to the variable side of things, as you know, especially as cashiers is coming in the door and we can compensate a little more on the on the salary side. I think getting to a 5050 split where, you know, we’re always going to be incenting that performance and setting that equity based on that variable. But again, without a cap. So if we if you continue to perform and hit those profit goals, then, you know, there’s there’s endless potential there. So I think, you know, especially getting in early, you know, finding the right people that are going to hustle for you, that are going to help you grow this and are willing, you know, in showing that they’re willing to invest early in order to be a part of that reward at the end. You know, I think that’s what, you know, one of the big important things to be focused on with those that are in those early days. 

Greg Alexander [00:08:00] Yeah. All right. So let’s progress into the scale stage, you know, so now, you know, I’m a I don’t want to say a mature firm, but I’m certainly not worried about going out of business. I’ve got enough working capital in the business to start, you know, investing in sales and marketing. But my approach here is going to be to, you know, get my, quote, delivery people to do some selling on the side and incenting that. It can be really challenging because you’re asking people to divide their time, divide their labor. So what type of items as it relates to sales should have found to be thinking about in that context? 

John Kearney [00:08:40] You know, so I mean, again, it’s going to here is going to depend on the role and how you set up. Will Well, first call a sales team and then a wider revenue generating team. And then if we’ve got a new logo sales team, we’ll all they’re out there doing is pounding the pavement and bringing in those new logos. And then typically we’re going to see that account management team, which is where we get that blend of delivery and sales. And so, you know, we have to consider those separately in terms of, you know, how to compensate them. On the new logo side, it’s pretty straightforward. It’s a commission based role and we want them going out and finding those new customers. They are salespeople. They’re ready to be compensated in that way and that’s what they’re here to do. But that sales team is not the only part of your revenue generating engine, especially we’re not to your point, they’re not going to we’re not at risk of going out of business. But we still need to grow and we still, especially if we want, you know, our team to stay intact as it is, we need that team to, you know, everybody on the team to be thinking about how they can put on the revenue generating hat. And so delivery resources who depending on the type of professional services firm we’re talking about, may be used to having variable pay and having some sort of revenue gathering component to their compensation. There’s plenty that don’t. However, what we what we try to to train on and to make sure that everyone that touches the buyer has an impact on the revenue. So everyone that goes out and delivers is a part of this revenue generating engine in some ways. And so, you know, the metrics that we that we hold them to and the measures that we hold them to are again going to vary by role. But of course, you know, there’s there’s retention, there’s can we keep these clients coming back? Can we sell them more and increase the book of business that we’re doing with them? But even short of that, if you just think about delivery resources, can they generate referrals within the account? Can they go out and find more people within the account that we don’t know today, potentially new buying centers potentially within this buying center? Can we find can we send referrals back to the sales team? Even if these delivery resources don’t like to close, can they find people and they find evidence that a problem, a pain point that needs a painkiller exists? Delivery people are really, really good at finding problems that exist within a. Client. So can we train them to find that evidence? Can the account management team, the sellers? Can they say, Here’s five hypotheses I have for growth within this account? Please go find me that evidence And if you can find me that evidence, you know I will compensate you on that and bring you into that. And then, of course, you know, any delivery resource making, you know, putting them in a position and this is, you know, I’ve been in sales. I’ve been in delivery. And so my favorite experiences are when, you know, I’ve been, you know, on the delivery side and have, you know, grown those accounts and been compensated for those. You know, even as a delivery free resource, you know, we all have to if we want job security, you know, showing that we are on the revenue side of the equation and not simply a cost is imperative to our future growth. So it’s it is about finding those things, referrals, finding evidence, you know, growing your network. That is something where we think about social reach. We think about in various ways that any resource can get the message of the firm out more. You know, can we can we compensate or put specs or put targets around things like how many subscribers do we are we generating into the newsletter? How many connections do I have on LinkedIn? So when I share the firm’s message, I’m getting out there to the widest possible audience. So those are little things that anyone in the delivery side and even within, you know, customer success, that things of that nature where we can, you know, be looking for anything that drives value for the client, any touchpoint and finding what that is and compensating for it. 

Greg Alexander [00:13:04] So earlier we were talking about new logo acquisition salespeople. You suggested paying them commissions. This aspect of it, which is on the account management side. Do you also suggest commissions or is it more of a bonus structure? 

John Kearney [00:13:21] I think for the account managers there can be a commission component of that. I think there I don’t like more than two measures, but I think having one based on commission for those account managers is important, you know? And then, of course, you know, the bonus and especially on the account management side and knowing what your book of business is and when renewals are falling off, you know, bonuses can help simplify things at certain points. But I do think having a commission for that account management side as one of their measures is, is a good practice. 

Greg Alexander [00:13:57] But if they’re not closers, how do you pay commission? 

John Kearney [00:14:02] Well, in this case, what I’m referring to, these account managers do end up closing. Okay. 

Greg Alexander [00:14:07] Got it. Yeah. Yeah, I was The upsell. 

John Kearney [00:14:09] The renewal. Yeah. Yeah. 

Greg Alexander [00:14:11] Okay. Got it. All right. And then you suggested on the new logo side, roughly a 5050 split between salary and commission. You know, when the firm gets to a certain level of maturity on the account management side, is it the same split or is it different? 

John Kearney [00:14:26] No, I’d say it’s more 8020 depending on how risk averse you are. But I would I with these types of roles, I wouldn’t go I wouldn’t reduce the variable and any further than that because we do want, you know, all of these folks to realize that they are revenue sharing resources. But I’ve also seen and understand a lot of organizations want to over and some even still and so it could be 7030 but I think 8020 on those types of roles is standard. 

Greg Alexander [00:14:53] Yeah. And you mentioned market based pay. So if I’m a member listening to this and I agree with that principle and I need to find out what the going rate is for a new logo repping my geography or account manager, my geography. Any resources that you would point a founder to? 

John Kearney [00:15:11] I mean, I think Glassdoor comes out with some information, LinkedIn comes out with some information. Sometimes you have to pay a little bit for for that information. But I think there’s enough out there in any given territory, in any given location where you can get to a sense of what that is. I think asking other members of a collective like this is one of the main benefits of a collective like this and saying, what are we you know, what is what are we what is everyone else in this market seeing or in this industry? So I think, you know, going out to your peers and maybe not your competitors necessarily, but others within the professional services firm and find out what they’re paying. But I think there is enough data out there to at least get a range. Yeah. Attract the candidates and then, you know, negotiate with those individuals and find out if if they’re worth, you know, the side of the range they think they’re on. 

Greg Alexander [00:16:04] All right. Well, very good. Well, we’re out of our time. I mean, we try to keep these podcast about 15 minutes and then John will be on the one hour role model Q&A with the with the members and members can ask more detailed questions directly of him. But so this is the first time that you’ve been on our podcast. So welcome to the collective. Thanks for making a contribution back to the collective knowledge and we look forward to your upcoming session. 

John Kearney [00:16:26] Great. Thanks for having me and looking forward to that session and meeting with more folks. 

Greg Alexander [00:16:29] All right. All right. So three calls to action for those that are listening. You know, if you’re a member, attend John session. Keep your eyes open for the meeting. Invites coming shortly. If you’re not a member, you want to become one go to collective 54.com and fill out an application. We’ll reach out to you and if you’re not quite ready for that be You just want to learn more about the types of things we discuss. Check out my book, The Boutique How to Start Scale and Sell a professional services firm, which you can find on Amazon. But that’s the end of the show. Until next time, I wish you the best of luck as you try to grow scale and sell your firm.

Episode 151 – Mastering the Exit: A Guide to Demystifying Due Diligence When Selling Your Business – Member Case by Jay Smith

Embarking on the journey of selling your firm can be as complex as it is exciting. In this session, we demystify the due diligence process, ensuring you navigate these critical waters with confidence. From legal audits to financial analysis to customer references and employee satisfaction reviews, we delve into the essential steps every seller should undertake to secure a transparent and advantageous deal.


Greg Alexander [00:00:10] Hi, everyone. This is Greg Alexander, the host of the Pro Serve podcast, brought to you by Collective 54, the first community dedicated to founders of small service firms who are trying to grow scale and maybe someday sell their firms. On today’s episode, we are continuing in a series and the series is around the mechanics of selling your firm. And we’ve been breaking down each of the individual items. And today we’re going to take a big bite into a juicy topic called due Diligence. And if you haven’t been through an exit before, you might think you know what due diligence is. But trust me, having been there and done that, you don’t it’s there’s a lot to it. And we have a fantastic member with us today. A collective 54 members name is Jay Smith. Jay’s wildlife, Well-liked, well respected. He’s been with us for a long time. He successfully exit his firm Security seven and went through due diligence and he’s lived to tell about it. So he’s going to share some of his wisdom with us today. So, Jase, good to see you. Thanks for being here. 

Jay Smith [00:01:21] Great, Great being here. Greg, Thanks again for allowing me to pontificate here about something that we were so passionate about maybe just 14 months ago. Yeah. 

Greg Alexander [00:01:30] So why don’t we start with the very basic first question, which is, you know, what is due diligence and when does it start and when does it end? 

Jay Smith [00:01:40] So I probably have two answers to the due diligence. Start and stop. I think technically most people would consider due diligence to start right after a signed letter of intent between the buyer and the seller. It probably is for most people’s timeline. At the conclusion of the the deal when you sign your security purchase agreement. From my perspective, though, we hired an investment banker and there was a due diligence prep which felt like due diligence at the time, going through it for the first time where we were, you know, pretty much interrogated by our investment banker on what our financials had in it in some of the stories behind it. And then, you know, from the from the end of that time period, I really felt like due diligence still still on, you know, continued to go after the security purchase agreement into the time when networking capitals were kind of all taken care of as well as escrow amounts were all taken care of. Right? So there was another period of diligence that happened after the after the close. So, you know, my my experience was I looked at it from an elongated standpoint because I was still being tested by a third party. But I think most people would consider it, you know, just after allowing just its signing of a security purchase agreement. 

Greg Alexander [00:02:54] I love your definition. So before the banker gets hired, the banker scrubbing you that as a form of due diligence and there’s a traditional sense, you know, between lie and close and then you know if there are some contingencies on the deal, you know, escrow it, whatever it is, it continues after the transaction. So that’s that’s a really good way of framing that up. So, Jay, in your case, you know, if you were to think back on it, how many months the you know, from start to finish, did that last. 

Jay Smith [00:03:22] We heard our investment banker till end of December of 21 and we finished up our agreement, you know, the signed security purchase agreement on 831. So probably probably a good strong eight months. And then after that, you know, escrow lasted, you know, two chunks, 12 months afterwards. Yeah. So you’re probably looking at maybe 24 ish or so months. Kind of tip the tail. 

Greg Alexander [00:03:52] Yeah, it can be a beast. So what are, you know, and maybe keep in mind that our audience of people that haven’t been through an exit before, so maybe a one on one answer here is suffice. What are the basic components of due diligence? 

Jay Smith [00:04:09] There were it was probably the the finance side was first. And I think from what I’ve learned is finance was first because it’s the least costly. And if the finance mechanics don’t make sense, then they’ll never get to the more costly phase, which is the legal side of it. So there was a financial side for sure. There was the legal side, and then there was, you know, customer satisfaction and employee satisfaction was something that was big with the the buying firm for us. So those were probably the major buckets. Each one of those buckets had various team members and there was cross-pollination of teams. So the legal folks had 14 members. Our legal team had four. You know, our investment banker had three. Our finance team had two. So, you know, and then there was cross-pollination of teams. Our CPA was talking to the tax lawyer. You. Yeah. You know. 

Greg Alexander [00:05:05] Let’s let’s break down each of these components for finance, legal customer set, employee set. So what what was in the finance bucket. 

Jay Smith [00:05:15] From a from a finance bucket. Obviously all your stuff, you know probably 3 or 5 years I think they were looking back forecast was was a pretty strong component of it. They are looking at any tax returns that you’ve got, both federal and state, various state levels. From our perspective, we’re a managed security service provider. We had a rental practice and a resale practice, maybe not like some of the other members, but there was tax and nexus considerations is part of ours. In the legal bucket. They were looking at anything that we’ve ever signed, any vendor contracts or any client contracts. They’re looking for a sign ability, which we made sure that we had in our contracts, that there was a majority share of our company that was sold that we could assign without written permission from our client. So that was something big, you know, is very transferable. Is it? Is it? Let’s see. The deal structure was something that was in the legal bucket for sure. There was various ways that we could have transacted the business, but it was a share purchase or an asset purchase. It was kind of a combination of both. So there was a share purchase, but we end up making a holding company which made the transaction legally a little bit more complicated, but it kind of took the best of each one of those. You know, buyer didn’t have significant backward looking ramifications and there was some tax breaks for doing it as well. 

Greg Alexander [00:06:52] And what was in the customer bucket? In the education? In the employee bucket? Excuse me. 

Jay Smith [00:06:56] Yeah, sorry, I forgot those two, But from a customer perspective, they started sending surveys out to our clients that were just a customer satisfaction or rating service from the employee side, probably pretty similarly. And the employee side also had some interviews of some key employees towards the tail end of the transaction, right? So we were hesitant to to show our employees, you know, that we were going to be transacting until we were reasonably convinced that this was going to happen. We segmented out some employees from others. You know, some of the some of the I would call the top performers, but some of the ones that were going to be more coveted, possibly in the new organization are going to be interviewed, you know, very old status, you know, kind of an above. But there were you know, it was it was a fair amount of diligence. And it’s, you know, as an owner, it’s very, very uncomfortable the whole day. Right now, you’re you know, you’re showing your cards. Yeah. And there’s a there were questions, you know, from you know, I have to partners and there were question marks about the timing of when you show which cards you know buyers encouraging all accounts to be showed or I’m sorry the seller I’m sorry the virus encouraging all cards to be shown and we didn’t want to show them all. I particularly didn’t want to show them all in due time. So there was some at wrestling matches, but there was some postponement of certain interviews in certain times. 

Greg Alexander [00:08:28] Okay. And let’s talk about the players involved and we can stay with this kind of for budget structure. So on the finance side, who was involved from your end and then who was involved from the buyers and. 

Jay Smith [00:08:42] From our end, we outsourced finance. We’re a 40 person firm. So, you know, we didn’t have as much in-house as we did, you know, outside. So our CPA was involved who was, you know, kind of in a controller role. Controller role. We had outsourced finance that worked for him. Unfortunately, they gave notice right during the transaction in July of the transaction. So that, you know, had a level of additional. You know, it complicated things. Additionally, I was involved in the finance element of it. You know, my the my partners and I agree that I was going to take prime on the transaction. They were going to continue to work in the business. I was going to work on the business. So that, you know, you still want the business to be going in moving forward as you’re trying to transact. So that put a lot of pressure on, you know, what tasks do you want to be doing from the from the acquiring organization? They had all of their know, their accounting firm completely engaged. And then they had some people on inside their firm. So it was outside the and inside doing diligence on, you know, our financials. Those firms were much larger than our firms were in their firm was much larger than ours was. So it’s almost sometimes like you’re getting hit a little bit by a mack truck. You know, the requests coming in are significant. And we didn’t know how, you know, we didn’t have institutionally all the KPI data that they were looking for. So we’re trying to scurry to, you know, create it, you know, best we could. Yeah. And they realized it, but they still, you know, you want what you want. You know, you got a checklist item that you need to check. Yeah. 

Greg Alexander [00:10:20] And how about on the legal side? Who was involved from your perspective and from their perspective? 

Jay Smith [00:10:24] Yeah. So they had they had a deal lead on their side. They were pretty significantly involved. And then we had three lawyers, actually four lawyers involved, get a tax lawyer that did a cameo. And then we had, you know, the the prime lawyer, you know, his second chair, and then a pretty distant third chair. So, you know, costs that were involved were significant. And, you know, the the pricing took only the most, you know, most challenging parts. But spots where we had the most visibility, most liability to it. And then, you know, more of the grunt work was done by the third chair and kind of everything in between. From their side, they had you know, they had their legal firm much larger than ours as well. So, you know, there were some you know, there was some requests made. The deal size or ideal team was only so large they could handle so much at once that we did have a pretty good benefit from, you know, from the acquirer in that this was we’re part of a roll up and part of a platform play. So we were bolt on and they had gone through these contracts previously with a number of different organizations. So a lot of the wrinkles that we might have seen have already got ironed out because other owners, you know, former owners had sold their organization. So they you know, what we got was a pretty good base to start with. So it wasn’t, you know, wrestling over every single legal sentence. 

Greg Alexander [00:11:49] Got it. And then regarding the customer diligence and the employee diligence, who was involved there? 

Jay Smith [00:11:57] That was mostly the acquiring firm. They reached out. They got a list of some of our top, you know, accounts, top 20 accounts. They put a survey together. They reached out directly. And then they followed up with some conversation to have some interviews. None of this was in the guise that the firm was being acquired. This was all when, you know, we hired our customer satisfaction team in what we were doing. 

Greg Alexander [00:12:25] Yep. And did all this take place virtually, or were these people camped out at your offices? 

Jay Smith [00:12:33] Most of it was done virtually. So this was all like, you know, during Covid time, you know, Covid was probably winding down, but it was still all done virtually. There was a concept of a virtual data room where there were there was the front lobby maybe of the data room, and then there’s the back office part of the data room. So we were uploading everything into the back office first. Our investment banker would scrub it and then they would put it into the into the front lobby for, you know, the acquiring organization to see, you know, scrubbed, you know, scrubbed information, make sure that we didn’t say or do something that was incorrect. Yeah. Really important to understand that the investment banker was part of every single conversation, that they were really up to their eyeballs in it. Not to say that the other two organizations weren’t. But the investment banker was was absolutely critical in this. Can’t can’t recognize you know, can’t recognize them highly enough. Yeah. 

Greg Alexander [00:13:32] Especially, you know, as a small firm like yours, it’s going to be a bolt on. And you’ve never been through an exit before. I mean, if you just think about the way you described this, you know, if I was use a sports analogy, you know, here you are high school football team playing against University of Alabama. Right? I mean, it was like like it could be overwhelming. I could see very, very, very quickly. And that’s why having somebody an M&A advisor, investment banker to marshal you through the process is so incredibly important. 

Jay Smith [00:14:00] All right. Know, Greg, another important point. The investment banker there, a part time psychotherapist as well. You know, deal fatigue for me. You know, I actually broke down a couple of times with just flat out exhaustion and I just couldn’t handle putting together one more redo of a spreadsheet. So, you know, these people go through this every single day. So having somebody in your corner that’s going to get you a $10 co-pay, actually, the co-pay was far more expensive, but $10 worth of it. Yeah. 

Greg Alexander [00:14:33] Jamie, last question for you on this. And this has been very helpful to kind of mechanically break down this concept, do due diligence, and of course we’ll dive into much greater detail when we have the member session. But any any mistakes that you advise people to avoid? 

Jay Smith [00:14:50] I think we were fortunate that we were able to mistakenly avoid it. But, you know, you really have to understand that this is a team selling concept. And I think as professional services organization, we probably understand that, that there’s maybe a creative person and maybe there’s a salesperson outside salesperson inside Salesforce. But you’ve got a team in place, a project coordinator. But this is this is team solving on steroids. You know, at least from my perspective, you’ve got your internal team, you know, your partners, your employees that are helping. You’ve got these investment bankers, you’ve got the lawyers, you’ve got the. 

Greg Alexander [00:15:26] CPA. 

Jay Smith [00:15:27] People, CPA. This is well coordinated. And, you know, and then the team expands into the acquiring organization and then they’re sort of professionals. So, you know, it gets it gets pretty splattered where the lawyers are working with the lawyers in the accountants are working with the accountants, but then the accountants are working with you and they’re working with the lawyers and they’re working with their lawyers. Yeah. So trying to manage a team. We were fortunate that the investment banker was new to us, but the other two people had been with us and had the chance to be able to handle the deal. So, you know, we were fortunate that we trusted two of the three arms and that everybody worked really, really well together. Yeah. 

Greg Alexander [00:16:09] All right. What I would add here is that sometimes first time founders and I was one and had made this mistake myself, we think the deal is done and you get an alloy. That’s the starting line, not the face, the finish line. And you’ve got to be able to make it through diligence and a lot of deals, 50% of them is the estimate fall apart post alloy because the firm that’s being bought can’t make it through diligence and it’s hard and there’s a lot to it. And you know, the good news is, is that if you put together the right team, as Jay did, you can make it through it and the effort is worth it because it’s life transforming, you know, when the deal actually happens. But just, you know, go into this members with your eyes wide open. It’s hard to sell a firm and it’s especially hard to get through diligence. So, Jay, on behalf of the members here, really appreciate you walking us through this in the way that we did. This will open lots of people’s eyes and sometimes peeling the onion a few layers. This is important to understand what these concepts are, though. So thanks a bunch. 

Jay Smith [00:17:17] Thanks, Greg. Thanks for having me. 

Greg Alexander [00:17:18] Okay. All right. Just a couple of things here before we leave. So first, if you’re a member and you want to ask questions directly, look for the meeting. Invite for a private one hour Q&A with him. That’s coming shortly. If you’re not a member, but you think you might want to be, go to collective 54.com and fill out an application will get in contact with you. And if you just want to learn more about topics like this, check out my book, The Boutique How to Start Scale and Sell a professional services firm, which you can find on Amazon. But until next time, I wish you the best of luck as you try to grow scale and exit your firm.

Episode 150 – Mastering the Pivot: Reframing Your Small Service Firm’s Value Proposition to Meet Your Clients’ Real Needs and Desires – Member Case by Tony Amador

This session outlines the crucial steps for a small service firm to reposition its value proposition based on actual client needs and desires. It discusses the importance of listening to client feedback, extracting actionable insights, and then applying them to refine the firm’s strengths and offerings.


Greg Alexander [00:00:10]  Hi, everyone. This is Greg Alexander, the host of the Pro Serve podcast, brought to you by Collective 54, the first mastermind community dedicated to founders of small service firms trying to grow scale and someday sell their firms. On this episode, we’re going to talk about pivoting your value proposition. This is something we often have to do as young emerging firms, and we’ve got a collective 54 member with us today. His name is Tony Amador. And Tony, it’s good to see you. I understand you got quite an experience with this particularly recent experience. And thanks for being here. And please properly introduce yourself to the audience. 

Tony Amador [00:00:55] Sounds great. Thanks, Greg. Yeah, great to be here. I’m Tony Amador and I am the co-founder and chief client officer of Proxy. And Proxy is an executive multiplier that helps small and medium sized business executives, gives them a strategic advisor with a breadth of business knowledge and repeatable processes to help them complete their goals, set initiatives and complete their goals to grow their business. 

Greg Alexander [00:01:24] Okay. Executive multipliers. So tell me what that means. 

Tony Amador [00:01:29] Yeah, it really is that we’re going to make that executive the best they can be. So we’re going to multiply them in terms of how many places they can be in one time and how much they can get completed, what they can get done. And so we’re multiplying the executive. We’re also multiplying the business. So we’re making the business better. So we’re process is better, growing the revenues, just making a better business. 

Greg Alexander [00:01:54] Okay. Got it. Makes sense. All right. So we’re going to talk today about pivoting the value proposition. So my team tells me that you recently did this and you’ve got quite a story to tell us. So why don’t I just have you fill the audience? And so what happened? 

Tony Amador [00:02:10] Yeah. So we started our business. We we tested it in 2019. As with the idea of being a chief of staff, that that that a client again could could hire to help them just be better, right? Grow their business, be better and give them another set of hands, if you will. And really, the value proposition that we had at the beginning was about a lack of time. We thought the problem we were solving was lack of time. And so we were going to give clients time back. So that was our value proposition is we know you’re busy, we know you can’t get everything accomplished that you want to get accomplished, and we’re going to help give you time back. And we’re going to do that with the chief of staff. And that chief of staff will do everything really from virtual assistant through, in some cases, all the way almost to a CEO. Right. Like really help find the right solutions for things, but everything in between. And so that’s where we got started. 

Greg Alexander [00:03:09] Okay. 

Tony Amador [00:03:10] Okay. And you both you. 

Greg Alexander [00:03:11] Pivoted away from that. 

Tony Amador [00:03:13] We have. And so, you know, in about two years in what we we realized a few things. And one that the problem we were solving, it wasn’t really lack of time. Right. That was a that’s an out shoot of hey, I don’t know which initiative to do. I need some help with the initiatives. I’m not sure where to start. I’m not sure what priority. And so what our chief of staff’s chiefs of staff were doing were those things all much more strategic and getting things done. And at the same time, we were being their virtual assistant or their executive assistant and but that the real value we were bringing was on that other side. So they really didn’t care as much about that time back Once you really got in there and we put someone with them that had a breadth of business knowledge and could really help assess what was going on, assess the people, assess the processes and and put improvements in place, better initiatives in place. So then it was really about that person and that and again, the client always only knew one person, but we used the team and so at the same time we’re in their email or we’re in their calendar. But some clients didn’t need that or some that, or we found that the client. And so then it’s like, Well, what about that? Or then there were clients where they really just need an executive assistant. So they hired us because they need an executive assistant and they went with, You’re going to solve my problem of lack of time. But they weren’t really in the place of Let me jump in with you and let’s work on initiatives. They just wanted that other piece, which was not that that’s not where our real value was from. And so what we realized was, one, we had super successful clients that didn’t even use that part of the service and two, the ones that did use it in a lot of cases were too focused on that. And so then again, as a team, while they didn’t know that person, one little thing that would happen in a calendar or an email would suddenly be a road bump that while we’re doing amazing things and strategy and initiatives and moving the business. And so then there’s they’re upset about something that wasn’t even really what we really wanted to do for them. Right. And make them better, make their business better. And so we started selling without the virtual assistant piece. And had no problems. And so then all of a sudden you realized, wait a minute, what we really are is an executive multiplier. We’re making them better. We’re giving them more chances. Again, we’re in meetings in their place. We’re in meetings with them. And so we’re very quickly able to go from that meeting to figure out where to go next. And we’re making and we’re growing businesses. And so we started selling without it started talking about an executive multiplier. And when we did that, we also created the chief of staff roundtable. And so we spun that off as a separate business because that’s not really what we are. And so then we landed where where we work today, and then we have a pivot from there that will that we can talk about if you want to. But that’s where we went. 

Greg Alexander [00:06:11] So before we move on to the second pivot, let’s stay on this first one for a moment. So that’s a big pivot. I mean, the the premise of the business when you launched was one thing and you learned it wasn’t that. It was it was something else. So so how did you execute this and get everybody on board and have the courage to make the change? 

Tony Amador [00:06:34] Yeah. I think, you know from the beginning what our real vision was, is that from, you know, two of our founders were sitting on advisory boards and where they would talk about ideas for founders and the founder would love it, and then they’d come back a month later, two months later, and they hadn’t done it yet. And so, again, the problem, they would say it was lack of time, but what they really needed was someone to help them with that initiative. Help. Here’s what it looks like. Here’s how it should happen. This one should go before that one. And so that’s what we were already doing. And so because we were already doing that and we have we’re we’re documenting all of our process. So you pull them off the shelf and you’re ready for the next client to do that same thing. The pivot from that perspective wasn’t terribly difficult for us internally because it’s what my team was already doing right? And then the people I had hired to do that role, that whether internally we call that and they implemented the. That’s funny. Yeah. So we might tell the client that this is your proxy or this is your integrator. Okay. Right. So internally we call it the integrator, but ultimately that’s what we were doing. The strategic advisor, this listener, a trusted advisor, a confidant, you know, all these things that a founder really needs and doesn’t necessarily have someone to talk to and that it’s not safe to talk to some people about things. But you could always talk to this person again, similar to a chief of staff, but but not connected to the administrative duties. And so where we were really successful was in that place. And so that part was an easy pivot. The harder part was, okay, are we going to really stop saying we’re a chief of staff or are we going to change our website or are we going to change the language we use? It was pretty easy, Greg, because, you know, we we’d early on decided it was small and medium business. We had all worked with big businesses and we were ready to work with founders that we could help them make a difference. Well, they don’t know what a chief of staff was, so we spent a lot of time explaining what a chief of staff was. And then some people really warmed on to it’s an executive assistant. It’s a high powered executive assistant, which, again, not what we wanted to be or what we were ever trying to be. And so that part was a little it was actually a little easier than we thought it might be. Yeah. And we went from there. 

Greg Alexander [00:08:55] So with this new understanding and congratulations to you guys for listening, you know, and not being married to the old idea and pivoting based on real, you know, receptivity in the marketplace. You made another pivot. So tell me about that. 

Tony Amador [00:09:12] Yeah. So what we realized probably about three years in was that, again, the work that we’re doing and what we believe in is have the best business you can have. And it will it will grow and it will be more valuable. And so then we started getting clients talking about exiting and what what does it look like when I exit and where am I there? And when we so we started doing a little bit of research around that and what was out there. And we found the Exit Planning Institute and their accreditation for a CPA, you know, certified exit planning advisor. And in doing some research, we realized that, again, what they talk about is have the best business you can have run everything the right way. Don’t have a founder bottleneck, right. Don’t use your words. But that’s the idea, right? Get the founder not to be the bottleneck. Get your process down, have the right people. Again, all the things we do already and they had a metric for that, a survey you could go through and get a score that they’ve connected to a multiple. And so we felt like and believe that if we so we a couple of us went got certified, learned all that and felt like if we took that survey and connected it to our strategic offerings and our standard operating procedures, that we could identify where the weaknesses were that were driving their multiple and we could start in a place and say, here’s your multiple today based on going through the survey. Again, similar to collect the 54 survey, Right. Go through that. Here’s your multiple today. Here’s the things we need to work on when we go do these things, the multiples going to go up, your score is going to go up, the multiples are going to go up. And now we’re a value multiplier, right? And so we’re using that really, again, as a very parallel to what we do. But talking instead of driving initiatives necessarily and growing your business, it’s about multiplying, you know, your value. And so as a value multiplier, that’s what we’ll launch. We’re working through that now and things are coming together very nicely and will launch that in 24. And the thought is that some clients will hire us as an executive multiplier. And in that case, you know, while we help determine what the right order is for the strategy and the initiatives that ultimately a client comes to us saying, I need to get these three things done and then I’ll work on number four. Number five, Yep. It come to us and you need a value multiplier. You’re three years out, two years out, five years out, whatever. We’re going to do the survey and then we’re going to direct. Here’s what needs to be worked on in this order to drive value. And so you might come to us an executive multiplier. You might come to us and need a value multiplier. You might have both at the same time. And we have clients like that that we can we can already see they have an executive multiplier. They think they’re three years out and they’re planning on next year saying, and let me add the value multiplier. So again, one person’s working on what the CEO thinks is important and another one’s working on what the market is going to see is important and will drive that business forward from there. 

Greg Alexander [00:12:04] Interesting question on the terminology. So when we kicked off, I had to have you explain to me what an executive multiplier is. And this is the problem with coming out with new language. And, you know, this is something I’ve lived myself quite a bit. Everybody understands chief of staff, everybody understands an executive assistant, but no one gets an exact multiplier. And now now you’re adding to that by saying. The value multiplier. So there’s two schools of thought here. One school of thought is, you know, use the current vocabulary and fall into an existing category and dominated. The other school of thought is to invent your own vocabulary, create a new category, and therefore, you know, be in a market of one. 

Tony Amador [00:12:49] Right. 

Greg Alexander [00:12:50] Obviously, you guys decided to invent your own vocabulary and try to create a category. Tell me about that decision. 

Tony Amador [00:12:57] Yeah, I think because what we found with small and medium business, that chief of staff wasn’t as easy as we thought it was, that everybody didn’t know what that was. So we came from working at agencies with, you know, Fortune 200 companies. And so our AT&T client had several chiefs of staff in our Frito-Lay. And, you know, all these clients we worked with had chiefs of staff. Everybody knew what that was. We got the small business and somebody with 40 employees, they didn’t know what that was. We spent a whole bunch of time explaining what a chief of staff was, and then they’d go, Yeah, I think I need that. But it might be that they needed the virtual assistant piece. They just really did need time back. And so they really just needed that if they needed the other piece. Well, great. We do that when we say executive multiplier and that we are going to be right there with you helping being with you to run your business. Again, we’re in the leadership meetings, executive team meetings, the whole staff meeting at different times. And we’re working with their staff to run initiatives. When we tell them we’re going to give you someone that knows what to do in what order and and has a way to do it, They get that. And so that part hasn’t been as difficult. And I think on value multiplier, I think since we got through that, we feel like if I tell you we’re going to help multiply the value of your business, I think that one will come maybe even easier than executive multiplied it. 

Greg Alexander [00:14:21] Yup. All right. Well, listen, this is a great little use case here. We try to keep these podcasts short. We were talking about pivoting value propositions. And Tony, just share with us how, you know, there young firm has gone through this now twice. And I think it’s a good learning for us. The big headline here to take away from it is make sure you’re listening to the customer, the client, and be willing to pivot and kind of throw away old work and start new work when when that is required, which is what Proxy has done so. Tony, thanks for being on the show. I look forward to our member Q&A and appreciate you being here today. 

Tony Amador [00:14:59] Thanks, Greg. Really appreciate it. 

Greg Alexander [00:15:01] All right. So a couple of calls to action for listeners. So if you’re a member, attend Tony’s Q&A session. Look for the invite on that. If you’re not a member, you want to be one, go to collective 54.com and fill out an application will appear. Or if you just want to learn more about the types of things that we talk about beyond today’s topic, check out my book, The Boutique How to Start Scale and Sell a professional services firm, which you can find on Amazon. But until next time, we wish you the best of luck as you try to grow a scale and exit your firm.

Episode 149 – Why Professional Service Firms Should Never Become SaaS Companies – Member Case by Nathan Kievman

Many professional service firms foolishly think the path to scalability is to become a software company. However, founders of service firms make more money than founders of software firms, generate more wealth for themselves at exit, and succeed much more often. In this session, we will help you avoid making the devastating mistake of trying to become a software company.


Greg Alexander [00:00:10] Hi, everyone. This is Greg Alexander, the host of the Pro Serve podcast. Brought to you by collective 54, the first community dedicated to the unique needs of thriving boutique professional services firms. On this episode, we have a very interesting topic. Today we’re going to talk about the problem of having too much cash. Most of us have the other problem, which is not having enough cash. But today we’ve got an interesting story to tell you. And I’m joined by a very well-liked, long tenured, well-respected member, Nate Caveman. Nate, it’s good to see you. Please introduce yourself to the audience. 

Nathan Kievman [00:00:58] Thanks, Greg. Great to be here, guys. My name is Nathan Kievman. Nate Kievman is what my friends call me. So please call me Nate. I’m the CEO of a company called the Link Strategies Group, and we are a 12 year firm that has been in the marketing and consulting space and helping organizations grow. Helping them schedule meetings and connect with their executives. They’re at their most ideal market. And in doing so, we’ve been obviously able to grow our own company and it’s been a fun journey over the past 12 years, sending over 86 million emails, setting up 100 over 100,000 meetings for our executives over the years, working with big firms like BlackRock and Nasdaq for the world that a single person browser company. So we’re great. We’re grateful to be here and thanks for inviting me. Okay. All right. 

Greg Alexander [00:01:48] Fantastic. So, Nate, I asked you to come on the show after you and I had a very interesting conversation and I would like you to tell the story of the problem that you had by having too much cash. 

Nathan Kievman [00:02:03] For sure. So I never expected this whole story and experience to happen in my whole life. But after the fact, Greg and I had some fun, fun, fun, fun conversations and some lessons to learn from it. But now you all get a benefit from my band. So basically towards the end of 2022, our firm was looking for ways to raise capital because, you know, in short, we had gone down a path as a as a services firm to build a technology and to do the technology piece require more capital. We had quite a few developers and so forth, and I’ll walk through with the learnings from that as well as part of this journey. But we had effectively between two sources with the SBA and a private lender, were able to finance $1.8 million that into our $3.4 million business. Right? And so the prior year we had 3.4 million in revenue as an organization and we raised those 1.8. And the purpose of the raise was to stand up the technology and to stand up a sales organization within our firm and really get that functioning and going. And so I moved over to the sales side of the house, focused mostly on that. Our CEO had handed the reins over to do a lot on the allocation of resources and so forth side of the House and working with our CFO to manage that. And I really, you know, quite honestly thought much of it, and I didn’t pay a whole lot of attention to the distribution of cash and the changes and team members and the increase in team and the increase in salaries and pay and so forth. And all of a sudden six months into it, the money was gone and we really didn’t have a whole lot to show for it. And I was like, Whoa, what just happened? And that’s like the start of the story. Greg, do you want to jump in here, too? I’m going to continue through on with what that what what happened from there? Well. 

Greg Alexander [00:04:01] So the spend 1.8 million bucks in six months is I mean, that’s crazy. So where did the money where did it go? 

Nathan Kievman [00:04:11] Well, yeah. You know, so. Where. When the big money came in, all of a sudden we went from two executives to five. That’s a big part of it. Our executive payroll became the next year. It was equal to the next year’s total revenue. The IPO taken off the ball of serving our clients. Our client retention went down by almost 50%. Our cost went up by 100%. And my next year was a total reverse of the year prior. Right. And it went in executive salaries. We went from a team of 30 to 50 now, and we were outsourced. So it wasn’t super expensive. Like you might think that’s a lot, but we were able to leverage that. But if the people that manage half that number of clients were so firm, right? Imagine 25 or 35 at any given time. I think we were up to 40 at that point, but still we didn’t need 50 people to manage that. Right. And so those are where most of the extra developers, couple extra executives, all of a sudden that money is flying out the door. Yep. 

Greg Alexander [00:05:18] Okay. So that that helps explain it. So tell me kind of what was the short term implications and then what did you do to course. Correct. 

Nathan Kievman [00:05:32] So as the CFO came over and had a private conversation with me, this was all that money was spent between about March and September. So in September, I had a conversation, a really very candid you’re going to the doors are going to shut here, buddy. Let’s make some changes. And and because he didn’t he wasn’t a CFO at the time. He’s now my CFO, but he was like a director of finance. And he was kind of being directed by the single point of direction of all the capital. Right. So we what the biggest mistake I made is I didn’t have. Two roles vetting out the decisions for where money. What? I had one person that was able to do it who was maybe not experienced enough to do so. I wasn’t paying attention close enough. I was focused on selling deals and trying to get new things in the door. I’d sell new deals and they’d be leaving shortly thereafter. And so we had this like week happening in the business and I was like, Wait, what? So so we had a retention that we had to fix, and that was really a culture issue. That’s a different story. We can talk about another time, but you know, there is one singular, very toxic person in my company that I had to get rid of. So the learning that we had to go through, Greg, was that we didn’t have good a good process for managing the money. We didn’t put good controls in place, although we did build a budget for it and we did have that plan. It was it was undercut from the sales side because everybody’s focus needed to move over to retention. So then sales were down, then retention was down to the double. It was like a double whammy. It’s just like, this is like a yeah, what do you call that? One of the drain holes in the large sorority was getting sucked down into the vortex. Yeah. So, yeah, it was, it was a vortex. Exactly. And so we had a big team made up, our team made up in, in October and said, All right, we need to, we need to cut the fat. Everything’s got to change. So that forward six months, we cut $2 million of cost out of the business. We eliminated most executive roles, move most roles into functional delivery roles with a couple management roles of oversaw, but not senior executives. We had two senior executives, I’m sorry, one myself as a primary senior executive. And then and we kept two as part time fractional and the rest were non managers and doers. And so we cut to $1,000,000 between that. We also canned the technology build. It was just a drain on profits. We focused back on our core services model, which saved us about 1.1 million a year between the developer cost and then all the technology that we were spending money on with NWC and other other, you know, non people costs. And then we got really lean. So we went from the here’s the math, we went from a $3.4 million profit and $1.7 million cost in 2122 we flipped it 3.4 million in cost and 1.8 million in profit and revenue. And then this. And then in 23 we’re going to end up and around. Right now, we’ll do about 3.2 to 3.4 million and 1.4 million across some of you. Yeah. So he just totally flipped it around. So but it was hard and it was a lot a lot of people transitioning. Yeah. So. 

Greg Alexander [00:09:09] Well, listen, I appreciate you being vulnerable enough to share the story because, you know, there’s people going to be listening to this and they’re going to avoid this painful mistake because of your willingness to share. I want to highlight two things. First, if I had a nickel for every time I’ve heard the story of a service company trying to become a tech company and screwing themselves up in the process, I’d be a multi-billionaire. So I want to be very clear to members that are listening to this. If you’re a services firm, do not try to become a technology firm. Everything is going to cost twice as much as you think, and it’s going to take twice as long as you think. And it’s not who you are. Your services firm. So don’t do it. And there’s a lot of misconceptions out there. You know, people say, well, if I become a SAS company, you know, the valuation of my firm is going to go through the roof and I’m going to make a ton of money. That’s actually not true. If you look at exits of founders of services firms, they end up making more wealth than founders of technology companies. And why is that? It’s because of capital intensive intensity. Services firms don’t really require any capital, so you don’t have to take on debt as a needs case. You don’t have to dilute yourself by selling equity to people. You can bootstrap and fund the firm yourself. So upon exit, you own 100% of the firm. If you’re trying to become a tech company upon exit, you’ve got to pay the back. You got to pay the equity person and therefore your net proceeds from the sale is much less. In fact, I wrote a blog article on this. You might take a look at that. I think it’s titled Why Services Firms Should Not Try to Become SaaS Companies. But that’s a huge mistake that I want everyone to avoid. The second thing is, is that, you know, high powered senior executives that cost a lot of money and services is also not a good idea. I mean, you want everybody to be billable, either in total or partially. So their expense and running the firm, the on the business stuff is covered by revenue that’s coming in from clients. So two huge lessons there, you know, from Nate. So, Nate, let me ask you a little bit about the debt. So you raised it from the SBA and you raised it from private lenders. It’s all gone. I’m assuming you haven’t paid off the debt yet. You’re still on the hook for it. Is that true? 

Nathan Kievman [00:11:16] Yeah. Yeah. So now. But now I have to go pay that off. You know, that’s the airline’s super, super generous of the 30 year term on 3% and not paying it back yet. But that’s awesome. 24 right around the corner. So I want to add to my path of of in the business, like my my bachelor path and and and it’s just that particular. That’s just I mean, like, I’m really if something happens, I’m going to have to take care of it. So now I remember the text message and cost me $2 million at a minimum, probably like about 2.5 over a three year period of my profit. That’s out of my profit. Yeah, it would have otherwise been profit. And now the debt that I used to pay for those people, I’ve got to pay back on top of that. So I mean, that’s a really heavy cost. And Greg, stay with me. Like, this is the direction we went this way because Greg and I had a very candid conversation. He just wrote the article that week when we had this conversation on the tech. But at the end, and it was a hard decision because it’s like you’ve grown a baby for three years, you kind of want to see it through. But the end of that path was death. So I said, okay, let’s stop this now. And, you know, lesson learned. Hopefully you all can hear this because I really resonated with Greg’s story. And now we’re a super profitable company if we’re a very healthy company. But I decided to be stupid and follow these these shiny objects which, you know, can be part of our founders problem occasionally. So, you know, lesson learned. And yeah, I’ll be paying off, you know, $1.8 million of debt over the next while that’s a little less now but over the next many years. Yeah. 

Greg Alexander [00:12:56] So you know, the one good thing about your story, Nate, the mistake that you did make is you didn’t sell any equity. That would have been a real kick in the teeth because equity you can’t get rid of. I mean, you can pay off the debt. You know, it sucks that you have to do that, but you can pay it off and get back to zero and then grow again from there. If you had take on an equity partner, now you got somebody owns 20, 30, 40, God forbid, 50% of your firm and you can’t get rid of them. So thank goodness that that you didn’t do that. And that’s another lesson. So, Nate, lastly, you know, if you were to kind of summarize, maybe, you know, for those listening, any other words of wisdom or advice that you would share with people that we haven’t discussed today regarding this issue? 

Nathan Kievman [00:13:39] Read the boutique and follow the instructions. I mean, if if I had read it and had some of the insights prior, that would have saved me millions of dollars. Yeah, right. And and and it did it still, even though I only did it halfway through, it still did save me. Possibly my company, actually. Yeah. You know, I would say definitely take the word of wisdom. Greg’s been a great resource for me and an advisor and from an experiential level, but also the community. I mean, I’m very involved in the community. I talk with members, I learn from members all the time, the the board board program we have. We have great value contribution to each other and insight. Um, but I would actually say my biggest takeaway of all of this is. Before you start giving away executive seats or partner seats in your firm. And then there’s the equity part of that, because I did have Greg, I did give and I brought it all back. I was able to retrieve all my equity back, but I almost lost 34% of my company while in the process of all of that. And and I would say that to. To have controls in place. So for me, the biggest thing was if I had a proper reporting mechanism that I could see weekly of what the money was going towards. I could have stopped it, but I didn’t. And I trusted really poor people more than I should have trusted them. And they abused money that they had never seen before. Right. So it wasn’t their money. It was easy to go increase everybody’s pay by five or ten grand. And then, I mean, we had a board session with with the CFO for board. And in that session, but the context of executive pay norms came up and I was like, what is what is normal for everybody? Well, I got quoted from two different people in my company that I trusted that this was normal pay for people. And when we heard the numbers on the board were like, no way down here. They’re quoting me like billion dollar corporate normal pay structures and our normal pay structure as a start up boutique. I’m like, I’m like, Oh my God, I’m paying way too much for all these different roles. And when it just it just didn’t the math didn’t work, right? So I would just say, make sure your controls are in place. Trust, but verify, especially with executive teams, have double points of control that check against each other, especially when it comes down to the money part of things. And those are my big takeaways. And don’t do that. Like you’re going to detect them on a separate entity. Go raise money for that person. Just leave your services business as its own cash cow. Awesome. I hope that’s helpful, Greg. 

Greg Alexander [00:16:25] Yeah, Super helpful, man. All right. I got three calls. Action. One for members, one for candidates for membership, and one for tire kickers. So, members, look for the meeting invite. We’re going to have a private one hour Q&A session with Nate. I’m sure all of you got a thousand questions because you either have made this mistake, which I have myself in the past. That’s why I can speak so authoritatively on this. Or you might be getting ready to do some of these things and speaking and it will be really important. So eyes open for that. Candidates for membership. If you want to become a member, go to Collective 54 Adcom Fill out an application. The membership review committee will look at it and get back to you. And if you’re not ready for either one of those two things and just want to learn more. Go to Amazon, buy the book called The Boutique How to Start Scale and sell a professional services firm written by yours Truly. But Nate, on behalf of the community, every time you make a deposit into the collective body of knowledge, it’s dead on. So thanks a bunch, man. I really appreciate it. 

Nathan Kievman [00:17:24] For sure, Greg. Appreciate you. Community is great. And for anybody considering joining Giant, it’s worth its weight in gold. 

Greg Alexander [00:17:31] Thanks for saying that. 

Nathan Kievman [00:17:31] That’s all I can say. 

Greg Alexander [00:17:32] Okay. Take care, buddy.