Episode 170 – Taking the Reins: A CEO’s Journey of Buying Out the Founder and Shaping the Future of a Boutique Professional Service Firm – Member Case by Jessica Knox

In this session, we delve into the ambitious journey of a CEO who took the bold step of buying out the founder of a boutique professional service firm. Through an intimate conversation, we explore the intricate negotiations, strategic planning, and the emotional rollercoaster that defined this pivotal transition. Discover how this daring move not only reshaped the firm’s future but also set a new course for its legacy, culture, and the very essence of leadership within the industry. Join us as we unveil the challenges, triumphs, and the profound lessons learned along the way in transforming vision into reality.


Greg Alexander: Okay, good. All right. Well, if you’re ready, I’m going to jump into it. Okay. Hey, everybody, this is Greg Alexander, founder of Collective 54 and welcome to the Pro Serv podcast brought to you by Collective 54. For those that aren’t familiar with us, we are the first community dedicated to the needs of the boutique professional services firms that are trying to grow scale and maybe someday exit their firms. And on today’s episode, we’re gonna talk about a familiar topic, but with a different twist, the topic is succession plan. But I guess today is the success or, and that’s the different twist. Oftentimes we talk about the need for the founder to find a high-potential employee to eventually transfer the firm to. But we don’t do enough speaking and analyzing and studying of the high potential person who eventually takes over for the founder and we’re gonna do that. Today. We’ve got a wonderful guess, a Collective 54 member, Jessica Knox.  Jessica, would you introduce yourself and the firm to the community? 

Jessica Knox: Absolutely. And thanks for having me today, Greg. So my name is Jessica Knox. I’m the CEO of Metrix and Metrix is an agency that helps life sciences companies, mostly pharmaceutical and biotech market their products to doctors, train their employees and support their patients through education. 

Greg Alexander: Okay, great. And your role there, and then I understand you have quite a journey with this firm. So I’d love to hear about that. 

Jessica Knox: Absolutely. So I started at metrics very young early in my career about 17 years ago. If you can believe, it is very rare. I say I defy most demographics trajectories for people of my generation that I, I’ve been with the company for most of that time. I did leave for a couple of years to do my own tech startup, which I think gave me the entrepreneurial bug, but I really started as an instructional designer, which is essentially designing corporate training. And I worked there, and got successive responsibility until I became coo and then CEO, and then finally CEO and owner. 

Greg Alexander: So fantastic. So tell us about the founder and how the founder transitioned the business to you first job transition, you know, CEO to CEO, and then ownership transition, owner to owner, please? 

Jessica Knox: Yeah, absolutely. So as I mentioned, I had left to do my own tech startup. I came back actually under, the agreement that I was going to help the founder sell the company essentially. So she knew that she needed a good, you know, person to operate the business as she was looking at ways, to, for selling for sale. And so I had come in really to take over a lot of the operations but she was still pretty involved in the business. She was, I would say not as active in project work, but definitely more on the strategy side. She would still from time to time even come and engage with our clients. But really I was slowly transitioning that role, but it was still under the guys. Not that I was gonna take over. It was really to get it ready for sale. 

Greg Alexander: Okay. But you knew, when you came back to take on these responsibilities that she was going to sell the firm, correct? 

 Jessica Knox: Yeah. 

 Greg Alexander:  Okay. So I’d like, to get inside your head for a moment and understand what concerns that you had given that context. And let me tell you why I’m asking that question. Most of our members are on the other side of that, they’re the founder, they do want to sell their business for whatever reason and they want and they want to leave after they sell the business. So they knew they need to develop a successor, but they’re hesitant to be that transparent and open with their successor, but your founder was open with it and you got comfortable with it. So tell me a little bit about that. 

 Jessica Knox: Yeah. I think one of the keys to that. So she was very transparent with me and, but at the same time, I mean, that I would say sometimes worked for and against us as we were on, you know, making the right arrangements because she would also maybe be transparent with what was on her mind. And maybe that would change over time. But I would say that a big reason why it was successful was just the level of trust that we had after working together for 17 years. So that was a big part I think of why we were able to do this successfully despite, you know, some bumps in the road and challenges as we tried to work through what it would look like? 

Greg Alexander:  Yeah. And what was it about the business and the opportunity that made you want to go from being, you know, a hired gun leader with no skin in a game and no risk to actually owning the place? 

 Jessica Knox: Yeah. I think that again, a deep familiarity with the company was obviously an asset for me. I had never when I was starting off my career imagined myself as a business owner ever. It was the furthest thing from my mind and it was really through doing the work. I love the work that we do. I’m passionate about what we do. And then as I spent time in the coo role, and then even stepping into the CEO role, I started to realize, wait a second. I do a, I can slowly build the skills to run a business. And so, I built confidence, in myself and I knew, you know, obviously it’s a journey. I’m still on that journey but definitely, you know, the closer you get to actually doing the job, you say, hey, wait a second. This is possible for me. 

Greg Alexander:  And I’m gonna ask you to put some words in your founder’s mouth, which is unfair, but I’m gonna do it anyway. And that is, you know, she was trying to sell the business and she could have sold it to other people, but she did, she decided to sell it to you. Why did she decide to sell it to you? 

Jessica Knox: Yeah. I don’t want to go into too much, of the details of what happened, but really I think there was a big part of her that wanted to leave a legacy that she was proud of. You know, this was her fourth child in a way this business and just seeing some of the options and seeing some of the plans that some of the potential buyers had for the business and really working that through. She said wait a second, and that we had enough trust, to structure it in a way where she could get what she wanted out of the sales financially. You know, there were a few sort of concessions of exactly how that would happen. But I think for the most part just making sure that she felt really good about, you know, where the company would go and had obviously a lot of trust because of our working relationship in that. 

Greg Alexander: It’s such a big thing, you know, I, I’m a founder myself and I do think about legacy. And to me, that means, you know, when I leave my employees who helped me build this great firm are going to stay and they’re still going to have jobs, and who are they going to be working for? And how are they going to be treated? That’s? Number one and number two. You know, most of our businesses are built on the backs of longstanding client relationships. So you also have a tremendous sense of loyalty and obligation to them. And you want to make sure that there’s no dropoff in service and that they continue to serve well. So by selling it to somebody like yourself who obviously, after 17 years is a tremendous amount of trust. It checks those boxes probably better than any other alternative. And, I just wanted to highlight that because for those founders that are listening to this don’t overlook the opportunity to, you know, sell your firm to a trusted employee that has earned the right to be considered. 

Jessica Knox:  Absolutely. I think that there’s this perception out there that there’s some kind of when to sell it to an external company. But when you think it through, I think it probably aligns better if you can find the right structure in the right mechanism to, you know, get certain needs met that you’re looking for? I think there, there can be a lot of real satisfaction, in doing that for sure. 

 Greg Alexander: Yeah. How long did you spend in the coo job? And then how long did you spend in the CEO job before you put the hat of owner on? 

 Jessica Knox:  Yeah. And I have to admit I’m not always good at saying exact chronology but CEO, I was about a year or two and then CEO… while I was CEO, we were in the process of negotiation. It did take some time. So, it was probably around the time that we started talking about what this could look like that I stepped into the CEO role in it. It really did take about two years before we figured out a way to make it work. 

 Greg Alexander:  Okay. And then once you figure out how to make it work, did the founder leave that day or is, did the founder stay on for some transitionary period? 

 Jessica Knox:  Well, the funny thing about that is we talked about a transitionary period, but as I’m sure, you know, many owners that have been so embedded in all the decision making of the business. It’s really hard to strike that balance. And because I was so embedded in the business, the operations of it, she didn’t really need to be there. And so we did form a strategic relationship but it became more of a mentor and a coach to me versus anything, in the business really. 

 Greg Alexander: Yeah. I think that’s the best way to structure it because sometimes letting go is hard for the founder. And, and even though they have sold the business either partially or in total or maybe, you know, some progression along the way, they can stick their nose where it doesn’t belong from time to time, which can create some problems for the successor. So it sounds like you all didn’t experience with that, which is great. So just two more questions, you know, speak to those that are listening that, are you meaning the successor who’s taking over? You know, now with the power of retrospection, you know, if you were to look back on it and you were just say, you know, here’s one, two, maybe three things to watch out for. What lessons can you share with us? 

 Jessica Knox: I did learn a lot through it. I think that if you are not used to it once you involve lawyers and accountants and everything, it can become a much different type of conversation. So I think you just have to be ready. Things feel really big and everything can feel big in the moment. But just taking some distance and stepping back and say, okay, what’s really important to me? You know, what am I willing to negotiate on? You know, where are my boundaries? I think that was a big learning for me for sure. I think as well. I mean, really understanding the financials of your business is really import important. And so for somebody like me who did not come from a business background but was much more of a, you know, a technical expert, I would say contributor just really getting comfortable with the financials, was important, and thinking through what’s your risk tolerance, especially if you have some sort of payout after the sale goes through. Yeah. So that’s at the top two that come to mind. And then just patience if you’re in a situation where it is a founder that’s been in the business for many years, because again, it is a, it’s a psychological letting go process as much as anything. And so recognizing that, but then also recognizing, how long you’re willing to be patient for? 

 Greg Alexander: Yeah. Exactly. All right. Then my last question is, so, so now you’re the CEO, the owner, right? So how is life change for you? 

 Jessica Knox: Well, I always laugh and when I tell this story and I think it did put a bit of a deadline on us. We transferred ownership to the day that I went to the hospital to give birth to, what of my children? And so I’m pretty sure that deadline helped. And so I told the staff on the way over to the hospital, to get induced, I said, hey, by the way this is happening, but I’m telling you it’s gonna be a change of ownership with probably the least amount of actual change for you you’ll ever see because I’ve been, you know, I know this business so well. I had an amazing leadership team then that was able to really step up which is great. And then COVID happened a few about eight months later. So that was a real leadership challenge for me and I really felt the weight. It’s really funny because even though I was acting as CEO, you always psychologically had that extra layer of the owner, right? But the cycle psychological, it’s all really on your shoulders to make it succeed or fail. Was was probably one of the biggest shifts. And really, I think finding my strangely enough again I was in the leadership roles but because we still have this extra voice, it was finding my own leadership voice really through all of that was probably the biggest challenge. And then for me we ended up adopting eos, that was hugely helpful for me in terms of just running the business and figuring out what our plans were and everything like that. So, you know, that definitely helped more from the strategy and operations side, but yeah, it was the psychological and the leadership stuff that was probably the biggest shift. 

 Greg Alexander: Let me tell you Jessica, you are one tough cookie. Only person I’ve ever spoken to that on the same day signed a deal to buy a company and had a baby. My goodness. That’s an unbelievable story. And then eight months later you get hit in the face with COVID. I mean, gosh so hats off to you for a tremendous amount of resiliency. 

 Jessica Knox: Thanks. It was a roller coaster and I always remember how long I’ve owned the company because it’s to the date of my, one of my children. So yeah, I had two babies that day. So pretty, yeah unusual, but, we pulled it off. 

 Greg Alexander: Well, that’s great. All right. Well, listen, I can talk to you forever about this particularly finding your leadership voice, but I’m gonna save that for the member Q and a session that will have an upcoming week. We try to keep these podcast short. One thing we’ve learned about podcasting is our attention span is about 15 minutes in length. So today was just sharing of the big idea for lack of a better term. You did an excellent job with that. Thanks for the contribution. And we look forward to having our member Q and a coming up in the subsequent weeks. 

 Jessica Knox: Thanks Greg, as do I. 

 Greg Alexander: All right, fantastic. So to close out for those that are listening. A couple of things. If you remember, watch for the meeting invitation that will come out where Jessica will be our weekly role model and you’ll have a chance, ask questions to her directly if you’re not a member and you want to become one, go to collect 54 com and fill out an application and we’ll get in contact with you. And if you don’t want to do either of those two things and want a more passive approach, I point you to my book. It’s called the boutique, how to start scale and sell a professional services firm, written by yours truly, and you can find it on amazon. But until then, Jessica, thanks again. And I wish you all the best of luck as you try to go scale and exit your firms. Thanks Jessica.  

Episode 169 – Maximizing Revenue Growth: Transforming Early Career Professionals Into Seasoned Revenue Generating Employees – Member Case by Phil Leary

In this session, we discuss some of the secrets of unlocking expansion revenue from within existing accounts. You’ll learn how nurturing and developing employees who begin their careers in non-revenue generating positions can lead to a surprising uptick in your bottom line as they learn how to become natural rain makers. Discover the approaches used to transform these high potential employees into powerhouse revenue generators, and how this approach not only boosts your firm’s financial health but also fosters a culture of growth and innovation.


Greg Alexander: Hey, everybody. This is Greg Alexander, founder of Collective 54 and welcome to the Pro Serv Podcast brought to you by Collective 54. And on today’s episode, we’re gonna talk about one of the five channels of expanding revenue within a boutique professional services firms. And it’s the most important channel. We call it the expansion revenue channel and it’s defined as generating additional revenue from happy and satisfied existing clients. And we prioritize it as channel number one because it tends to be the easiest to get to most profitable because we’re dealing with happy clients. It sits on top of the other four. And the other four are in order of priority is referrals, which comes second, word of mouth, which comes third, inbound lead generation driven by content, which comes fourth, and then outbound lead generation, which comes fifth, which is, you know, cold outreach to people who don’t know who you are. So, so today we’re gonna talk about expansion revenue. So we have a longstanding well respected Collective 54 member with us. His name is Phil Leary he’s worth a late. So would you please introduce yourself and your firm to the audience?

Phil Leary: Thanks, Greg. I appreciate that. So, I’m Phil Leary, I’m the chief operating officer of a late, we’re a technology consulting firm focused on digital excellence. We work with our customers on initiatives that are client facing revenue generating or in some cases drive operational excellence. We have everything from strategy delivery around data and software product management, and experience. And recently have added on longterm manage support solutions.

Greg Alexander: Okay. Sounds great. So, Phil late, it’s been quite the success story, quite a bit of growth over the last six or seven years or so. And from what I understand, a big piece of that was the expansion of revenue that you generated from existing clients. So why don’t, you tell us a little bit more about what that means to you and kind of who’s responsible for it in the system and the method that you used to make that happen?

Phil Leary: Yeah. You know that’s been a bit of an evolution over our timeline as a company. So we’re seven years old as you know. And about two years ago we sold a stake to a private equity which has kind of changed our focus a little bit to lots of inorganic acquisition revenue in addition. But one of the core features of the company has always been that it’s easier to keep our customers and expand our customers. And it is to go and acquire new ones. We absolutely love the net, new logo. We want to do outbound. We want to be finding new customers. We want to build relationships, but we want to be really quick to make new friends and slow to get rid of the old ones. And that’s kind of the watch word we follow. So one of the ways that we did that very early on was the relationships that our executive team had, our management team, and our executive team really fostered relationships over the last 20 years that led to probably our first three years of revenue as a firm. As we’ve moved into more of a commercial sales engine. We’ve had to put processes and policies and structure in place to support that. And a lot of that effort now really goes to the relationships that are very intentionally created and managed by our account managers. So as you grow up in the firm at lata, you start out as a consultant, you move up into associate, and then the manager and then into principle. And each one of those has really within our cohort structure, a definition of so span of control for responsibility and a principle starts to manage large scale programs, lots and lots of different projects, multiple clients. But is principally responsible for the client relationship. And so their focus is to build a relationship with the client with the buyer and to expand across to others that the buyer may refer us into within that particular company. And they’re held accountable to that with an account plan with a weekly call with conversations with our sales leader and with the firm around just performance from a delivery quality and from a revenue perspective for each one of their accounts, we do that in a couple of different meeting each week?

Greg Alexander: So, this principal job which is… the elevated career of somebody who’s gone through that ladder. As you just explained to it is that the first time that this person is responsible for revenue generation or does it come before that as well?

Phil Leary: The first time that they have a quota of any sort and it’s a soft right? We, we don’t beat people up if they’re not able to make their, you know, whatever we might call it two and a half 1,000,000 or to 4,000,000 in revenue on an annual basis because in many cases, we will ask them as a firm to focus on something else, an internal initiative work across multiple clients that are, you know, needing some sort of a recovery program or something like that where revenue may not be the focus but quality might be the focus. So we don’t beat them up too hard. But, as you grow in your career, we have, a dimension that we evaluate everybody on called advisor. So as a consultant, you’re straight out of college. You’re focused on a technical stack. You’re getting, really deep, on technology, which is what we do and nobody wants to think about being a sales guy. So what we ask them to do is just, hey, bree, reach out to them on Linkedin, take them out for a coffee. If you’re working remotely, hit them up on Zoom. Everyone’s wrong and just talk personal stuff as we get to associate.

We’re like, hey, now they’ll start to do that a little bit more intentionally. We’re going to assign you some team leads throughout the organization because that’s what you are. And we want you to reach out to your peers and have those conversations with them. So they’re in a mode even early in their career, building relationships and having those conversations as they move into the manager cohort. Now, they’re having conversations where they might have to have a hard conversation, right?

Where something’s gone wrong with a project or maybe a client person is not stepping up. And so we want them to build a political capital. So that political capital is done by celebrating mutual success. If you think about it, all of these are sales activities, right? They’re building a relation to so that we can have a conversation later about, hey, we’re doing really well or we navigated this really tough time together. How can we work together on the next project? Or is there another area of the firm that you could introduce me to? Where I could have one of our sales guys come in and talk about our capabilities that might help them out. So everybody gets this little step wise process. So by the time they get to principle there, maybe not formally have done it but they’re familiar with the concepts. So we used to hear it a lot. Hey, I don’t want to become a sales guy, right? I’m a technologist. And then we sneakily get them to do this advisor to mention until by the time their principles, they’re like, yeah, it’s not a big deal just to ask somebody for a little bit more work, but the intentionality comes in with the account planning that we do around that.

Greg Alexander: So let’s talk about the term political capital that’s an interesting term. What, what does that mean?

Phil Leary: When times get tough, you can’t just be bringing up, a tough topic with a

stranger for the very first time and accept a good reception. So if I wanted to tell you, hey, something was really going wrong with 54 or one of your people. We probably need to have some conversations ahead of time where things are going well or we have a personal relationship where we, we’ve created some respect for each other where that conversation is not gonna come out of the blue and you’re gonna be able to accept it that’s political capital. So, one of the ways we do that is that at every opportunity we try to talk about the mutual success we’re having and it’s mutual success, right? We’re not a show you out of the way consulting firm. We want to partner on hybrid teams with the client. And so every success we have every time we deliver code, every time we complete a strategy project, it’s a mutual success. So we can celebrate that. So if we celebrate that a lot and we’re thinking, hey, this isn’t just for the project. This isn’t just for the client. But this is also for Greg Alexander, my buyers career. Well, if I’m thinking about that focus throughout the entire project or engagement delivery by the time I have to have a conversation with you, that might be a hard conversation or a conversation where I’m asking you to introduce me to somewhere else in the firm, we built up positive political capital.

Greg Alexander: Yeah, I love the term. I love the concept because, you know, generating expansion and revenue from existing clients, which is the topic of today’s podcast, it very much comes down to the strength of their relationship and focusing on something like political capital in such a structured way allows for that relationship to be built. Let me pivot to the account plan. You discuss that. You do use one. We have members in collective 54 who don’t like account plans. They view it as administrative tasks. They view it as overhead, you know, non billable time. Why am I doing this? You know, pick your flavor of the week, excuse. How have you been able to get people to use account plans effectively?

Phil Leary: By acknowledging that they suck, right? And no good template is really gonna give us everything we need. And yes, it’s a hard thing to do. But we actually went through about a year long period where we put in place a weekly call where an account manager had to come to the call and we had two or three each week and present their account plan. And everybody got feedback from those account plans. And people who had never put account plan together could attend and listen and kind of understand what was really expected in the questions that they were gonna get from the executive team around those account plans that then led a lot of people to go. Well, it’s kinda not that big a deal. It’s a eight page powerpoint template. I need to do some thinking. I need to work with my team to make sure we’ve mapped out contacts and we’re thinking about introducing services across all of our service offerings? Not just the thing we’re doing for that client. But once you get over the hurdle of hey at sucks and I don’t want to do it, it’s actually pretty easy to do. And to make as long as you carve out, you know, an hour, the first time, 15 minutes every week or so, you can update that account plan. It’s also really useful. We put in place just a couple of years ago, an internal methodology that we call the laid away. What we discovered is that we would always just do things, you know, project based kind of, the method of the process was based upon whoever the account leader was or the project manager. Some of them were fun. Some of them were exciting. Some of them had no idea, nobody knew what their expectations were. So we put that laid away methodology in place to drive expectations. Well, an account plan also drives expectations. If I go into a project. And I know according to our methodology, I’m gonna be playing the role of a project manager. And here are the 1,525, you know, checklist items that I need to be thinking about to deliver a quality project. One of those is participation in the account plan. And what that means to me is working with my account leader to know who so should be reaching out to intentionally, right? Who should I be building a relationship with? And what political capital should I be doing? Am I gonna be the project manager of fun? And I’m going to celebrate everything? And I’m gonna be super excited and extra averted about it. Or am I the guy who’s focused on quality and constantly checking to make sure that our quality is good? Either one of those can help build up political capital. So that account plan is really important to us. It helps put that structure in place. It does suck the first time you do it, but then it just becomes a routine thing. Now, we’ve got it. You know, once we got past that year of making everybody go through the sucky phase, now we’re into, hey, it’s a really easy meeting. Everybody comes, you know, talks a little bit about where the project is, what the potential for revenue and pipeline is there. And if there’s any bottle in that or a hand off, the account plan, is the glue between the two people who might be doing the hand off or the thing that they go back to. If there’s any kind of interruption, in their sales focus?

Greg Alexander: Very interesting. I love the intentionality of it, in the formality of it, you know, and it, is doing what it’s supposed to do, serving as a communication vehicle for everybody in the account, making sure everybody knows the roles they need to play, and the objective which is to keep the client happy. So the client continues to invest with us on, you know, the next project and the one after that, and the one after that et cetera. So, do you think account planning and this formal process works only with large accounts that might have multiple business units to expand into? Or do you think it also works in the mid size to small account that might not have as much complexity? What, what advice would you give our listeners and our members and as to, should they have an account plan for every account? Or just a few accounts? So I.

Phil Leary: know you’ve done a few of these with matron, and Matt says, and this is another wise little phrases that we use a lot is if it’s not written down, it doesn’t happen, right? Yeah. And an account plan is a great way to write down the intentional actions that you intend to take and then hold yourself or have others hold you accountable too. So, I think an account plan is useful regardless as to the size of the client. You can also think of it as a growth mechanism, right? So, hey, I’ve got an account manager. They’ve never put an account plan together. Let me work with them on this small easy account plan. So they understand all of the concepts, they have, the intentionality, they execute against it. Then when they’re faced with a larger client, as they move up in the organization, it’s it gets easier for them. It’s robe. So, I look at the account plan as meaningful at any level, sometimes for the client, sometimes for additional, sometimes for the account manager.

Greg Alexander: Let’s talk about skills for a moment. So, when I get hired off the college campus and I enter at that point all the way up to this principal stage where a big part of my job is expansion revenue, how long does it take to go from point a to point B? And, and how do you help that person develop those skills so that when they do hit that principal job, they can do it well?

Phil Leary: So typically, it’s about 10 years. We, we have an accelerated promotion program, that works over the first five years that you’re here at in the company. So people can move up pretty quickly to the manager ranks. But manager gets to be really impactful, not just impactful to our clients because they’re managing projects and managing relationships, but they’re also managing our people. So culture idea, intentionality, feedback, all of those things are really important. We spend a lot of time on building up our managers before we allow them to become managers at the manager rank. They may spend three to five years there. And during that time, it’s all pre principal activities. So, we have three different levels, M1, M2, M3 that are the managers. And by the time you’re in M3, you’re really being a principal, we’re just not quite ready to give you that title yet. And any of the M threes that you were to talk to in our firm would tell you that you’re like I’m a principal, I’m just not getting paid for it, which is exactly what we want, right? And when they perfect, a lot of those things that’s when they get to move into the principal ranks. So I’d say somewhere around 10 years is how long it takes and, we do a number of things. One is, you know, we have that advisor dimension. We actually have a relatively large growth framework that, you know, we’ve stood on the shoulders of giants, you know, firms 2025 years back have these expectations or growth frameworks and we’ve modified it to suit what we do as a business and what we want from our folks. But part of that is rooming them to, by the time their principal, they have the soft skills, they have the boldness, and they have the ability to be able to whiteboard a solution, be able to explain a problem, really anything that is needed by the buyer to be able to navigate whatever conversations they might have.

Greg Alexander: You know, and I have had a chance to look at your growth framework, expectations framework. And I love it. And what I love about it is it’s mostly on the job training, you know, apprenticeship model type development. Is there any kind of out of the workflow training, classroom training like that? Or is it all that apprenticeship model?

Phil Leary:  So, the only job training is a big part of it, but we, you might know about four or five years ago, we decided that we’re gonna start taking kids straight out of college who might have a mathematics degree or might have a computer science degree that had never been in consulting. And it’s a little bit different, right? You know, we used to joke that back in the old days you could sit there code in the corner and reel on your cardigan and nobody cared as long as your code was good. That’s a little bit different in the consulting room, right? We might be on a Zoom call, with a client and they expect more, they expect some soft skills. They expect some attention paid. So, for us, we put together a program that we call the ascend program which was to take these kids who had technology skills, sharpen the technology skills over a three month period. But more than 60 percent of the curriculum that we spent time with them on with soft skills relationships. How do I become a really good teammate, work with somebody who might be difficult to work with… as we came out of our acquisition by the private equity firm? And we decided to pivot to things like our near shore organization, or our offshore organization, less of the demand here in the united states for a send. And so, we pivoted our training department in the united states to really focus on continuing education if you will. So for every cohort within the organization up to the vice president level, we now have specific classes that we want people to take and they may be on, you know, relationship selling. They may be just on managing an account plan. Some of those we put together probably about 25 percent. And the other ones we utilize a Udemy professional relationship that we have, and we leverage all of those through a learning management system, allows us to track, the courses that folks take.

Greg Alexander: Yeah, fantastic. You know, the reason why I’m asking that question is it’s a big piece of, you know, being able to consistently generate expansion revenue. It’s not just the account plan, it’s having the skills. So, you know, and if you take somebody who in our terminology grows up in the delivery or, you know, someone who is delivering for the client, they don’t have a revenue generation responsibility and you just throw them into revenue generation without teaching them the skills. It usually doesn’t go very well because, they lack the skill, they lack the confidence, they lack the desire, these people through an apprenticeship model like fill it in the team and let is doing by the time they get there by the time they are in M3, they’re already doing it anyways, right? So it’s kind of, you know, part of how it works well. I could talk to you about this forever. We try to keep the podcast short to 15 minutes. We’re already over that, but we will have a member Q and a session with you. We’ll get into this in more detail and we’ll let the members ask you some questions directly. But on behalf of the membership, thank you so much for coming on the podcast and sharing with us what you guys do as it relates to this critical topic of expansion revenue.

Phil Leary: Now, I appreciate that. I look forward to the Q and a because we’re not perfect of this by any stretch of the imagination, but we are intentional, and we’re well practiced.

Greg Alexander: Yeah. Well, I will tell you better than most. I mean, you know, we have a few 100 members in the collective now. And the reason why we’re profiling you on this dimension is that the definitely above average and approaching that kind of best in class status. So again, thanks thanks so much for sharing all that and, you know, a couple of calls to action for the audience. So if you’re listening to this, you’re not a member and you want to become one, go to collective 54 dot com and fill out an application, and some will get in contact with you if you’re not ready, you know, for that just yet, and you want to just consume some content. I pointed to a couple of resources, so out, how to start scale and sell a professional services firm. You can find out on amazon. If you don’t want to read a book, it’s not your thing. You can subscribe to collect the 54 insights. We publish three pieces of content a week, a blog on Monday, a podcast on Wednesday, in a youtube video on Friday. But until next time, thank you for listening. And I wish you the best of luck is you try to grow scale and exit your professional services for thanks again, Phil. Thanks. Awesome. Thanks man. I appreciate it very much for a.

Phil Leary: You bet. Happy to help.

Episode 168 – Thriving Amidst the Heat: Navigating a Sudden Surge in Industry Competition – Member Case by Brad McAllister

In this session, we delve into the challenges and opportunities presented when your industry segment suddenly becomes the hotbed of competition. With both heavyweight corporations and agile boutiques flocking to capitalize on the trend, how do you ensure your firm doesn’t just survive but thrives? We’ll explore strategic insights, share expert advice, and discuss real-world examples that have successfully navigated these waters. From differentiating your firm to innovating your offerings and optimizing operations, get ready to learn how to stand out and stay ahead in an increasingly crowded market. Join us as we uncover the keys to turning industry heat into your competitive advantage.


Greg Alexander [00:00:15] Hey, everybody. This is Greg Alexander. Welcome to the Pro Serv Podcast brought to you by Collective 54. The first community, dedicated to the needs of the boutique professional services firm. And on this episode, we’re gonna talk about what happens when your sector gets hot, and we have a fantastic guest with us. His name is Brad McAllister, and Brad works in the sustainability space, and he was in the sustainability space way before that was the thing and we want to hear his story and how his strategy has changed as the sector got hot and it attracted more and more competitors. So, Brad, would you please introduce yourself to the audience?

Brad McAllister [00:00:57] Yeah. Hey, hey, Greg. First of all, thanks for having me today. It’s honor to be here. I appreciate you seeing something in our story, work with sharing, with the members and hopefully they get to get something out of it. As you mentioned, my name is Brad McAllister. I’m one of the two co-founders of WAP Sustainability. I serve as the company’s President, COO. If, if you’re familiar with EOS, I’m the Integrator, then the, in the whole system, I know there’s a lot of EOS afficionados on the call. WAP Sustainability – we’ve  been in business for about 15 years as Greg said, you know, early in the sustainability journey. We predominantly help companies kind of navigate that confusing space, of ESG, sustainability and climate change. And we do this through analytics, reporting, and help with strategy and with, in various sectors.

Greg Alexander [00:01:54] Okay. Sounds great. So the reason why I wanted you on this show is because when we spoke last, you told me that in the early days, no one was really focused on sustainability. You know, and it was you, and some mission driven people that had a belief in this sector and you got involved and developed some expertise and had a nice business. And then all of a sudden, you know, the world got interested in what you were interested in and it got really hot and a whole bunch of people entered your space. A whole new set of competitors, everything from other niche boutiques, to mega firms. So tell everybody when that happened, what caused it? And then I want to jump in and hear a little bit about how you reacted to all of that change.

Brad McAllister [00:02:41] Yeah. And, and continuing to react to it. I mean, we’ve all heard that the only constant of life has changed. I mean, that is, you know, it is our market in a nutshell. As you mentioned, we’ve been, in the business for about 15 years. I met my co-founder, in grad school. We were part of the first sustainability cohort at a university here in Tennessee. I had studied Environmental Science. I come from an Ecology background. He too had an Environmental Science background. I was taking, some classes, MBA classes at the time. And so, we had some kind of synergies in the way that we saw, the market. We didn’t really know where it was going. I mean, you know, at that time, my parents were, you know, still clueless on how it was actually going to make money, in life, and, you know, there’s some funny stories about, you know, being in college and, you know, going out and, you know, trying to meet people and, you know, I made a switch from Pre-med to, you know, Ecology at one point and there was a clear delineation on how interested girls were to talk to me at the bar.

So, when I made that, so, you know, long story short, I mean, we really kind of on an early edge and, you know, I was inspired by by some readings and such. And I think, well. my business partner, you know, he was inspired as well. And so we got lucky with a few early clients at the early stage of it all, Walmart kind of came into the picture. We all remember that time when Walmart was, you know, kind of, the demon business, right? Putting out, you know, mom and pop shops throughout the country out of business. And, and they were looking for a way, I don’t know if they would agree with the synopsis. But this is my synopsis that, you know, sustainability was one of the ways that they could help, you know, clear their name, right? Detract from some of that bad stuff. So, what they had done in the early days of this is that… they engage their suppliers for the first time in a way that the suppliers had never been engaged before. And there was the sustainability survey that went out and ask for things like, you know, what your carbon footprint, you know, what are, your social indicator metrics? You know, a handful of other stuff, and companies didn’t know how to respond to that. But just so happened, you know, well, I had a little experience in that and, you know, we got some early clients. And while Walmart had good intentions or had intentions… they weren’t really driving the market, right, there’s a handful of suppliers, and those suppliers, you know, if you looked at the pie chart of their, you know, who they were selling to, that pie chart was, you know, 90-95 percent Walmart, you know, talk about key, you know, key customer risk there. And, and so those were the clients that we initially got. But there’s a whole host of other clients that are potential clients that weren’t really interested in going down that space because there wasn’t much pressure, right? They didn’t have that pie chart where it was 95 percent. So we stayed small servicing that market for quite a while. It’s just a business partner and I, for about six years, I think it was six or seven, seven years.

And then the commercial building space got involved. You may be familiar with LEED buildings. You, you see those plaques sometimes when you walk into, you know, buildings well, LEED started to expand the criteria of their certification to go beyond just energy efficiency, to focus on the materials that we’re actually going into the building. And materials and products, that’s the stuff we were focusing on with those Walmart suppliers. And so some of the services from those Walmart suppliers could be transferred to these building products suppliers. And so that happened, you know, seven, you know, seven years into our existence or so. And, and that caused us to, you know, basically service those two markets: consumer products onto big box stores, and then commercial buildings. And at that point, you know, decided to, you know, bring on another, you know, minority partner into the organization to support the building products space. And then we service that for a while. And then, you know, I guess what is it four years ago now? Or so? You know, it was five of us, we have a little smaller office in Chattanooga and COVID happened, and we shut the doors on that office not knowing what would happen.

Well, fast forward to today, and, you know, various other drivers which we can get to in this conversation, happened and we went from five people March of 2020 to about 55 today, just four years later. And what’s happened in that span is, you know, governments got involved, you know, investment communities got involved. Other big box stores have gotten involved. So it’s just kind of this perfect storm, of interest around, you know, climate change, you know, sustainability, biodiversity. And then, you know, the social elements of sustainability.

Greg Alexander [00:07:54] That was a great thank you for sharing that. And congratulations on, you know, an incredible success story. I mean from five people to 55 people in four years is just amazing. The part of the story that I really want to spend time on, because I think it’s transferable to our other members, it might not be in the sustainability space, is that a lot of competitors rush into the market because there was all this demand. So how did you react to that?

Brad McAllister [00:08:24] Yeah, yeah, we’ve seen other, you know, boutiques come into the space. We’ve seen big engineering firms come into this space. We’ve seen some of the big four come into this space. What we found is, you know, the old adage, “Culture eats strategy for breakfast.” What we, what we’ve done is highly invest in the culture of the company. We kind of create, the foundation of why we do what we do, how we do what we do, and in doing that, we’ve you know, created, you know, a feeling of culture of, you know, being action oriented, having a growth mindset into the organization. And so what we tried to do is empower our employees, to support the development of new services, or foster the kind of the next generation of consultants within the organization. That’s been pretty powerful as we’ve had some people leave for some of those other organizations chasing, you know, bigger paychecks if you will. I mean, it’s hard to compete with a Deloitte, right? But what we found is they’ve come back due to a lot of, the cultural elements of the organization. So that’s one way that we’ve done it. It’s also, you know, because we were early adopters in this space, we’ve positioned ourselves really well in places that other, you know, other organizations, less nimble, less agile organizations, are unable to.

You know, I think one of, the, you know, early successes early learnings that, we found was it’s more important to be where your customers are, not where your competitors are talking about the work, so, you know, if you think about conferences in any industry, sustainability is just one example. You know, you can only be in one place at one time. So do you go to the conferences in which people are talking about sustainability, or do you go to the conferences in which maybe sustainability is just a small little topic that your competitors aren’t there. And so we found success going into direct industry within, you know, those events that are targeted at the industry but not targeted at sustainability.

Greg Alexander [00:10:36] Perfect. Kind of zig when…

Brad McAllister [00:10:40] The zing in on a zag, that’s right, yeah. Yeah.

Greg Alexander [00:10:43] Let me, let me double click on the employee thing for a moment. And actually before I jump into that just to share with the audience—remember when you’re in professional services, you’re in two markets. The first is the employee market. So you’re competing for people to work at your firm. And when you’re in a sector like sustainability, you have a unique skill set, you can pretty much work wherever you want. So it’s a, very competitive market for high quality employees. And they’re also competing for clients. You know, I mean with all these players in your space, clients have options and you’ve got to win the clients, with two very distinct markets. So you use culture as your differentiator in the employee market, you know, to get people to work for you versus the bad guys. So give me maybe I don’t know one or two things that you think is unique about your culture and distinctly unique as compared to maybe, you know, the big firms, the Deloitte’s of the world.

Brad McAllister [00:11:37] Yeah. I find that a hard question to answer because kind of, you live in it, right? And I’ve never been in those other places. You know, some of our kind of core values of the organization, you know, being action-oriented, having a growth mindset, being technical translators and being relationship-focused. I think is really key. I mean, those are the adages, we communicate those continuously through the organization. You know, we say we’re accelerating sustainability through relationships because, you know, we feel like that’s what’s sticky, both for employees, and clients as well.

You know, we’ve… yeah, there’s some other things we do that I think you and I could probably have a debate about it, to be honest with you. You know, tracking hours is something we don’t do within the organization. You know, we don’t ask people to do that and I’ll give a plug to you guys, you know, I’m sorry, one of, your block sessions on, you know, resource utilization. And so I’m gonna have to try to explore, you know, how to actually do that, you know, when we don’t track hours. But that’s a big part of our culture as well. You know, we’re not, you know, we don’t nickel and dime clients. You know, we don’t really use the term scope creep. You know, sales is a bad word up-sales is a really bad word within the organization. You know, we like to think about it as business development, you know, as a relationship development. You know, we don’t do much marketing either as an organization. You know, we see our marketing as setting really intelligent people out into the world, to build relationships through, you know, presentations and, you know, expo’s, and those types of things. So, I think all that stuff kind of leans into it. You know, the other thing is when we made our first HR hire, when was this? I guess three years ago, we found somebody who… you know, I didn’t you know, the HR portion of HR wasn’t her expertise, the culture portion of HR was her expertise. Yeah, diversity was her expertise. You know, we figured she could learn, you know, the red tape of HR, but not everybody can learn, the cultural elements, of what makes a company like ours.

Greg Alexander [00:14:10] You know, those examples are really good examples but maybe for a counter-intuitive way. So let me try to connect the thoughts for some of our listeners. You know, we’re talking about, you know, how to operate a firm and how to change the operations of a firm when your sector gets hot. So for example, in your space, you don’t have to do any marketing because, the word sustainability is marketing in and of itself right? There’s so much demand, right? You don’t have to track hours because you have a different problem. You, you have more demand than you know what to do with. So optimizing around the hour that’s something that people do in a very mature market when growth rates start to slow. In your space, there would be a mistake to do that. You know, all the things that you’re doing right now, are the things due: not nickel and dime clients, focus on relationship building, because there’s so much wind in your sails. Maybe at some point, and I don’t know if this will even happen in my lifetime, because I think what you do for a living is gonna be here forever. But maybe at your point, your industry like others, most in fact, does mature. Demand starts to get reduced, commodity services start to enter the equation. Consolidation starts to happen and clients start to value other things like price over value, or maybe they don’t value relationships as much as they once did. I mean industries do mature.

So the lesson for the listeners is that when you’re in the hot sector and you have the luxury of that, you’ve got to pick and choose what elements of the playbook matter to you. So in Brad case, culture matters a ton in this space right now, that’s the right strategy. When you hire an executive member of your team, in his case HR, you don’t really care about things like compliance because that’s not the big value add. The big value add is the diversity is the culture et cetera. So that’s the lesson. And maybe we can conclude on this because, we try to keep these podcasts short and we’ll save the rest of this is such a rich conversation for the member Q and A. But that’s the lesson. The lesson is, you pick and choose the plays to run from your playbook, you know, based on the context that you’re in at the moment and time. And, and Brad story is a great one. So, Brad, on behalf of the membership, we’re very lucky to have you in our group because you’re an outlier, you know, to go from 5 to 55 people, in four years, is remarkable and there’s so much to learn from the outlier. So, thanks for being there today.

Brad McAllister [00:16:44] Yeah, my, my pleasure. Greg. I’m excited, you know, I’ve been a member of with you guys for just a handful of months now and, you know, your comment there about market consolidation changing in the market. I mean, that will happen in our space. And, you know, I, I’m excited to be part of this group to learn from other members who may be in a market that’s in a different maturity state because we’re heading in that direction. So it’s a great example of the kind of, the give and take that we give each other and, you know, being members, of Collective 54.

Greg Alexander [00:17:15] Yeah, exactly. All right. So I’ll conclude with a couple of calls to action. So if you’re listening to this, you’re not a member. You want to become one, go to Collective54.com and fill it on application. We’ll get in contact with you if you are a member and you wanna double click into Brad story, look for the Outlook meeting invite that we’ll be sending you for his private Q and A session which will be one hour in length on an upcoming Friday role model session. But until then, I wish you the best of luck until the next episode as you try to grow scale and sell your firm, take care. Thank you.

Brad McAllister [00:17:47] Thanks Greg!

Episode 167 – From Timelines to Bottom Lines: How a Consulting Firm Shifted From Time and Materials to Fixed Fees After 40 Years – Member Case by Alan Wyne

In this session, we peel back the layers on how a seasoned ERP implementation consulting firm revolutionized its business model, moving from the traditional time and materials approach to a groundbreaking fixed fee structure. Discover the strategic decisions that led to this bold shift, the challenges overcome along the way, and the significant impact it had on their competitive edge and profit margins. Tune in to witness a story of adaptation, resilience, and success that could redefine the way you think about how you monetize your expertise.


Greg Alexander [00:00:00] Hey, everybody, this is Greg Alexander, the host of the Pro Serv podcast, brought to you by Collective 54, the first community for founders of boutique professional services firms. And on this episode, we’re going to talk about how a consulting firm who’s been around a long time using the traditional time materials billing method, has recently switched to a fixed bid approach. And this firm is in the middle of this transition, which is what makes this case study so unique, because there’s lots of early findings and learnings and lots of motivations. And we’re going to jump into all of that. And I hope at the end of this, you’re all inspired by this story and you consider making a similar journey. And then for the members that are listening to this, of course, you can attend the Q&A session with Alan and we’ll get into much greater detail. But with that, let me bring in our guest. Alan, it’s good to see you. Would you please introduce yourself and your firm to the audience? 

Alan Wyne [00:01:17] Sure. So, Alan Wyne, CEO of Anovia consulting. We’ve been around about 40 plus years. We do ERP implementations and a very specific part of the market from a Microsoft product standpoint. We we do business central and it’s small to medium sized business, even though we’ve scaled that quite large for some companies. You know, most of our stuff is DNA at this point in time and materials and, you know, it’s we’ve had a good journey, but it’s the market’s changing. Everything is changing around us. And we know we’ve got to get the fixed fee to really get our profits growing the way we would like them to grow. 

Greg Alexander [00:01:58] So let’s dive on to that. It’s unusual for me to talk to a firm. It’s been around for 40 years, and it’s had all the success that you’ve had. Be willing to make this change because let’s face it, what you’ve been doing before worked. So what was the motivation to go from timing materials to fixed fee? 

Alan Wyne [00:02:18] You know, it was really a couple of things. The first was we were looking for a new competitive advantage, you know, because because it is a I wouldn’t say it’s a commodity market, but it knocks on that door quite a bit when you’re doing implementations and Ram limitations. And Microsoft on this particular product move from an on prem version. So it was never in the vision and they changed the name and they went to a fully SAS version. You can still put it on prem, but but really what everybody had been software as a service up in the cloud. And that also meant that the revenue I generated about every five years for upgrades, which was significant, or the product sales I was making when we were selling it on prem, is completely going away because the upgrades now happen every six months automatically, and our service numbers while still growing. It’s just a market that’s going to go away in ten years. So how do I how do I and we sold it as time and materials. So how do I get into a market that I’ve already and ironically and become the competitive advantage. And it is most of my competition this TNM, we wanted to say look we’ll do fixed fee on. The one final point also is while there are fixed fee companies out there for our product that we sell with Microsoft, they do small fixed fees, 75 $100,000. We and we do a lot of those small companies, but we do an awful lot of large ones, meaning 250, 500, $1 million implementations of software. Nobody wants to touch that with a ten foot pole, because they don’t have the processes and the discipline to do it. We think that’s a huge competitive advantage. So hence the change to stay up with the market. 

Greg Alexander [00:04:08] Yeah okay. Fantastic. So the the on prem the SAS movement within the Microsoft ecosystem was the stimulant. You are competing with in a mature market with the fixed fee model as a way to separate because and for those that are listening that might not be familiar with this, when somebody like Alan goes to fixed fee, the client is shifting the risk from themselves to the implementer, and that’s what’s in it for the client. Now, what’s in it for Alan is if you really know what you’re doing, you can control the risk. And this could turn out to be very profitable. And maybe you win some business that you wouldn’t have won otherwise because you’re willing to do this and your competitors are not. So that’s kind of the context behind this. So, Alan, when you were thinking about it, what I loved about your story and thank you for sending me this great note, is you’ve taken a very methodical, approach to it. You didn’t just flip the switch and say, okay, everything’s going to fix me. You kind of doing it in phases. So tell us what your your migration path looks like. 

Alan Wyne [00:05:11] So it’s it’s a two year migration path for us. Prior to this year we had already had some fixed fee engagements. So we had what are called planning engagements, which we go in beforehand, look at the customer and go, okay, now we can quote this properly because we understand your business. And those were fixed fee engagements and we had a few other offerings that were fixed fee. We also though a year, two years ago we had spent ten years selling block hours. So blocks of hours. So I’m getting all this money upfront, but then I’m using it, right. We’re using it through the system. And we got away from that and we got much more to what I build. I got collected in the next week or two. And so my cash flow had already changed, and we had gotten a consistent cash flow and not these big chunks. That’s important in fixed fee because you’re going to be billing monthly or however however you’re going to do it. In our case, we’ve decided we’re going to go monthly bills and with a a calculus for it. But you know, we also said, all right, we’re going to practice with our existing, fixed fee engagements, get better at change orders, which are absolutely vital to making this successful, get better at changing the way we bonus our team, because today we bonus our team. On how many billable hours did you generate? Well, I got a fixed fee. My goal is to generate as few billable hours as I can with the same amount of ultimate money that I’m going to charge the customer, and it’s it’s contradictory. Today it it isn’t. Tomorrow it will be if I don’t change that. So so we’re changing how we bonus these existing fixed fees and they’re small. So I can’t get hurt on them right now. If I screw on up that’s okay. It’s not that big of a bite and I can handle it. I screw up $1 million. The TV is slightly different, so I want to be good before I get there. And then finally, you know, we’re spending time reevaluating our processes and procedures not only in our delivery and operations, but in our sales department. How do we go to market with this? How do we get competitive with it? How do we bonus our salespeople? Because again, it was based on what did you sell and how many hours and what was the rate. Because I to then be honest on how good my rate per hour was. And so there’s, there’s several pieces of this that we’re trying to say, look, you know, I made this statement to my team in November last year. In two years, I want to be 80% fixed fee. All across the board. I’d like it faster and more, but I figured two years was a good a good runway. 80% was an acceptable number to get us started on what effectively is a, you know, a five year journey to get completely over to it. 

Greg Alexander [00:07:58] Yeah. You know, a couple things you’ve mentioned there I want to call on because there it’s a real case study. And these two particular issues changing the measurement system from from number of billable hours and then changing the sales incentive system, you know, to incent selling fixed fees versus a traditional way culturally, especially for a 40 year old company. These are massive changes. I mean, these are not incremental moves. So how did the let’s start with the delivery staff first? You know, the folks that are doing the work for the client, how did they receive it? 

Alan Wyne [00:08:33] They’re receiving it. Okay. We’re still working through it completely. You know, same with sales. I mean, this is, you know, we’re I would say we’re in the first 20 to 25% of this journey, but, you know, it’s it’s discussion. And we’ve actually brought certain people in from each department to go look at this. This is coming that the company knows we’re going to actually across the board, I’ve announced it. We talked about it every month at our staff meeting. Certain people we’ve started bringing in and going, how do we structure this bonus program for delivery? It’s I need done faster, better, cleaner. And then I’m going to incentivize you on the profitability of the project. And so this team and we work in teams. So we’re structured okay. To be able to do this with sales. It’s the same way. How did you sell it. What price did you put on it. And then I’m going this back into what was it. How many hours do I think that’s going to take. And what was my real net realized. Right. So our internals are focused on still billable hours even though we’re not building per hour. So utilization and profitability and rate to the customer, we just look at them and go, look, it’s going to be $135,000. And when they go today, we get a little bit, well, wait a minute, what’s my rate? Why do you care. There’s no right here. This is just this is what it costs. Dude, are you happy? And we actually had a successful one with that. That wasn’t one of our pre offerings. And I actually got $15 more an hour rate and probably 100 extra hours than what it would really take, because the customer was perfectly happy with the final fixed fee number. I did. You know, that’s profitability. 

Greg Alexander [00:10:12] Yeah. I mean, the customers love it because what they don’t want to do is get surprised. Right? So the the comfort level of a fixed fee is they don’t have a runaway project on their hands, you know, and their budget gets blown to heck. And they, you know, sometimes they get egg in their face. God forbid they lose their job. So the customers love it. I find that the sales guys sometimes don’t like it because it creates it creates yet another thing they have to deal with with the customer, but feel like the example that you just mentioned, you know, the customer wants to get granular, particularly procurement department, and say, yeah, but what’s your rate? So how did you how did you train the sales team around this new selling motion and how to address the the new objections that certainly came up. 

Alan Wyne [00:10:56] You know, I mean, the beauty of having sold some fixed fee projects or planning engagements and other things. Having those people already sell that they’ve kind of run into those objections and they’ve learned how not. They’ve learned how to say what to say and what not to say. And so we sell based on look, the quality of our work speaks for itself. You’re going to get this, you know, here’s what you’re going to end up with. Here’s the documentation. The planning engagement is going to give you. We’re just translating that into when you you know, when it go live, you’re going to have a fully functional system. Here’s all the things it’s going to do. Here’s the statement of work and here’s the work plan, guys. Here’s all the tasks that are going to happen. And, you know, tell me that somebody else in my industry is going to walk up and say, yeah, for a half $1 million. We guarantee that they don’t exist. So they’ve, they’ve we’re we’re slowly learning and playing training on how to get that going. And then just, you know, getting our getting our nose bloodied every once in a while. But basically practice it’s practice practice practice. It’s really what it is. Okay. 

Greg Alexander [00:12:05] Well we try to keep these podcast short to 15 minutes and then we’ll, we’ll we’ll do a deep dive in this in the member course. I got one more question for you. What has surprised you? So you’re in the first 25% of rolling this out. You this is a multi-year journey. You know what happened that you didn’t anticipate. If anything. 

Alan Wyne [00:12:26] I didn’t I didn’t dissipate the acceptance of the company quite so fast where everybody was just like, yeah, okay, good. Let’s go. And I was I thought I’d have to bring some people kicking and screaming, you know, and, and in reality, from leadership down, everybody is just. And this sounds like a great idea. And I think it’s because we pitched it as look the next the market’s changing. We’ve all seen it. We change the way we modify the software. We don’t have a ten year journey here guys that protects us and grows it. And ultimately a job business. You know businesses primary focus is profitability. So I can bonus and pay you guys better. Can we all be together. And so that that’s been that’s been the real pleasant surprise. The other surprises are still coming. 

Greg Alexander [00:13:13] Well hopefully they’re not too ugly. You know it’s a really good point. I mean what you did there, which was a huge compliment to you as you showed that by making this move, the firm’s going to become more profitable. And when the firm becomes more profitable, there’s better paying jobs for everybody. So it’s we’re all aligned in doing that. All right, all right. Well, Alan, I appreciate you sharing your story of moving from time and materials to fixed fee here after a 40 year successful run. I’m really looking forward to the member Q&A session. So on behalf of the members, appreciate you being here. 

Alan Wyne [00:13:44] Okay. Thank you. 

Greg Alexander [00:13:45] All right. Couple of calls to action for those that are listening. If you’re not a member and you want to be one and learn from people like Alan, go to [email protected]. Fill out an application and some will get in contact with you. Do you want to just consume some more information? I would point you to my book. It’s called The Boutique How to start scale and sell a professional services firm. You can find that on Amazon. But until that and until next time, I wish you much success as you try to grow, scale, and maybe someday exit your firm.

Episode 166 – How to Go From Idea to Implementation Faster Than a Speeding Bullet – Member Case by Gail Doby

In this session we delve into the fast-paced world of an executive coach in the interior design industry, exploring the methods that she uses when it is time to stop studying and start doing. Our role model shares her expert insights on how to deal with a large volume of ideas, how to prioritize them, how to sequence them, and how she includes her executive team to quicken implementation.


Greg Alexander [00:00:00] Hey, everybody, this is Greg Alexander, the host of the Pro Serv Podcast, brought to you by Collective 54. Collective 54 is the first community dedicated to the unique needs of the boutique professional services firm and its founder or founders. And on today’s episode, we’re going to talk about going from idea to implementation. In a nanosecond, and doing so in a way that, you know, compresses time to result. And this is something that I talk to numbers about a lot, and I often hear them say, hey, how do I go faster? So I’m on the lookout for people that are going fast. And we have a great guest with us today, a member, Gail Doby. And Gail runs a company called Pearl Collective, and I’ve spent some time with her, and I’ve gained an appreciation for how she goes from idea to implementation super fast. In fact, I should say ideas to implementation. So with that go. Why don’t you introduce yourself to the audience, please? 

Gail Doby [00:01:24] Sure. Well, I’ve been running this company for 16 years, and I just joined, the collective November of 2023 at the beginning. So I was just in time to join your live event, and I walked up to you at the event, introduce myself, and you chatted with me for a few minutes kindly, and said at the, toward the end of that five minutes or so you said, be sure and check with one of the people on the team and get on my calendar. So I did that while I was there in the next few minutes, and Bonnie set me up for our first call. So we’ve had a few calls since then, and that’s kind of how we got connected. And, I did get connected to you through your book, through Amazon, and that’s how I reached out and became a member of the group. So I will tell you in advance. I normally don’t join groups. I’m not a group person, but I have to say your group is different. 

Greg Alexander [00:02:23] Well thank you. I appreciate you saying that. So. So you’ve only been here since November. So at the time of this recording, it’s the end of March of, 2024. So what is that? Five months, I guess. So maybe we’ll go. Maybe we can start off with some examples of this, the ideas and how you implemented them in particular. So I understand you’ve got a few to share with us. 

Gail Doby [00:02:48] I do, I do, I have so many. And I would start with probably one of the bigger ones, because I’m also the person that likes the financial aspects of the business. And I have a finance background. So what happened was I was looking for somebody that could give me benchmarks for what I’m doing. And you gave some benchmarks, fairly early on. And one of those was working toward an 80% gross margin. So immediately that started me thinking about what did I need to do to to change and to have that happen. And then you and I had a conversation and you told me one of the well, actually, you told me several things in that meeting, and, one was that I should really think about just having one product line instead of three, and that I should consider having just one live event a year. If I had a live event and I went back and I did a model for that, did a financial model for it, and immediately took it to my team, and I said, here’s what happens if we do these things. So I told you that I didn’t know how to drop the two products, but I did figure out that I could combine two. And so once I came up with the idea of combining it, I took it back to the team and I said, okay, here’s what happens if we do this. We simplify our business. We streamline things. We cut our cost of operation for that and also our coaching costs. And we can actually cut down to one big event a year, which can between doing those two things, we can cut about 200,000 out of our cost of goods sold. And guess what? That gets us to that 80% gross margin. So that was one of the very first things that I tackled. 

Greg Alexander [00:04:31] That’s the fantastic example and for so many reasons. And I just want to highlight a couple so that those that are listening to this can get the most from this session. So that’s an example of originating an idea by starting with data. And those are usually the best ideas to rush to implementation because there’s a very clear path. Meaning I should say there’s a clear finish line. And then once you see where you want to get to, the path becomes obvious. So in Gail’s case, she wanted to get to 80% gross margins, which is very doable for a services firm. And she so she reverse engineered her way into that and combined some service offerings, simplified service delivery and presto, you know, she’s on her way to hitting that gross margin target. So the big learning there is kind of starting with the end in mind, using data as a way to determine which ideas to implement and what order. So that’s a great example. So how about another one. 

Gail Doby [00:05:34] Oh gosh. Well I what I’d like to do is highlight some of the advantages of being collective. 54 for one is the people that are in the group. And although I’m not usually a group person, what has happened is I have reached out and I’ve asked a question and I’ve gotten answers immediately from people within the group, or just listening to some of your episodes in your podcasts and some of your sessions. I, have taken some of those ideas and reached out to the consultants and already have been in touch to connect and start using their services. So one of those, I was talking to Tom Schwab, and this is after hearing you talk about, recording your Amazon book and then also starting an advertising, campaign for that. So I took that back to the team and I said, gosh, we should really do the same thing. So we’ve already revised my book. We have new calls to action in it, and we will get back in touch with, the person that you had worked with. And we will get some ads started on that. And then also, I just talked to somebody that Tom Schwab mentioned to me just two days ago, and we’re already talking about recording the book, so I’ll get the recording of the book down, which will be great. So that was another one that I just took action on. And I’ve talked to, Michelle friends about writing a little mini book, and I have that plan on the calendar for the, the, for the summer time. So those are a couple of other things. So the link to that, the second connections are just amazing. I she’s like, I’m trying to think of all the things that I’ve done. You’ve of course, connected me with an acquirer, of possible acquirers, which we will chat more about. But, just really nice people and, really good fit. And I think with our company and we’re just starting the process of having a conversation. So that wouldn’t have happened without collective 54. 

Greg Alexander [00:07:31] And again, I appreciate you saying that. And I want to be careful. And Gail, you being so kind of this doesn’t come across as a collective. 54 advertisement. It really isn’t. What I want to focus on is, is going from an idea to implementation in the in the use case. I want to highlight there. And this is the power of a collective. And by the way, I should mention that Gail runs a collective herself now. It’s a collective for interior design firms. Right. And so therefore she’s skilled at making these connections and organizing group activities. And this whole concept of peer to peer learning and one to many, business models, where you go really fast when you have access to the people that you need to have access to. So often we have a business problem and we don’t know who to turn to or where to go. And in the world of boutique professional services firms, they tend to be highly nuanced problems. So, for example, you want to turn your book into an audiobook. Okay, well, there’s a lot of different ways to do that, but isn’t it nice to be able to go to somebody who’s done that before? For somebody who market, sells and delivers expertise for a living? I mean, that’s a very specific thing. You want to run advertisements on Amazon, going to a generic advertising agency that runs advertising in all of its different forms. That’s one thing going to somebody who absolutely specializes in running ads for a book on Amazon, that’s a such a nuance thing. So plugging into peer networks, whether it’s ours or others, gets you access to this network, and it just speeds up finding the people that you need to find in order to get things done. Which is, just a great example. And I really wanted to highlight that. Question for you on when you take these ideas so you get an idea, you go back to your team and you say, let’s implement sometimes. The team says, oh gosh, let me guess. He just went to another collective 54 event and here comes the IC flavor of the week idea. So how do you how do you deal with the volume of ideas, and how do you deal with the kind of change management component and getting your team behind the ideas? 

Gail Doby [00:09:49] Well, that’s so interesting that you asked me that question. I was just having a coaching call with one of my clients about that very same thing. And what I’ve learned is that you go back with the why, why are we doing this? Why is this important? What is it that we want to accomplish? What is the outcome we’re trying to reach, and what are we trying to solve? And if we can solve the problem with making a shift in what we’re doing, and it simplifies how we’re operating our business, then it’s a no brainer for the team to say yes. And by the way, if I add in another thing that I did, pretty quickly after we and I talked, like within two days, I talked to my, leadership team, and I decided to pull the executive team out of that because you said I needed to have a succession plan that was very well laid out. And I said, okay, fine. And I went to them and I said, here’s what we’re going to do. I need for you two to be on my system, my succession plan. We’ve already talked about this. Here’s how we’re going to do this, and here’s how we’re going to roll it out. So we’re going to have an executive team. And we’ll have a leadership team that’s a little bit broader. So that was another thing I did to make sure that I was positioning my company for exit, and I hadn’t formalized it, and so that it took that moment to do it. And so as soon as I did that, then I started bringing them some of these ideas, and they know I’m preparing for exit. So this is just part of me preparing them so that they can lead the company too, because they need to be able to work with me as a team to solve problems. And we’ve got to go fast. We need to get this done. Yeah. 

Greg Alexander [00:11:26] Another great example, right? I mean, you can only go so fast if you’re one person, you can go a lot faster if you’re a team because you can throw some more horsepower at it. You know, I think it was it was a two people that you included in that conversation is, if I remember correctly, right. So now we have three people working on these things instead of one person working on these things. So the takeaway learning there for all of you that are listening is, you know, if you want to speed up the time it takes to implement all these ideas, make sure that you are distributing the ideas to your team intelligently, and that you have an executive team that enthusiastically wants to implement them. So that’s a that’s another great example. You know, maybe slightly off topic, but since I have you and I know our members are listening to this as part of our weekly programing, you were you were running it firm for 16 years. And you weren’t a joiner of groups. And then after 16 years of running the firm, you decided to do something you don’t normally do and join a group, which is uncommon, I mean normally. After doing something for 16 years. I hear sometimes types people, what am I going to learn? I mean, I’ve been doing this for so long, I know my business so well. Like, why join something like this? So what was happening to you in the fall of 2023 that made you open and, you know, receptive to something like peer learning? 

Gail Doby [00:12:49] Well, a couple of things. First of all, I think if you’re going to be a coach and you’re saying that people should join a membership group, that you should consider doing that occasionally. This is not my first time, but I was looking for something very specific. So I was looking for specific answers. And I hit the jackpot when I happened to talk to you at the back of the room, because you’ve been very kind to help me with a few things along the way in the last couple of months, because I was looking for specific answers, and I knew that if I was with a smart enough later that I would get the answers I needed. That was what I was looking for. In. Your content has been really rich and good, and even today I was not expecting to be on the call and to learn anything about time management, and I thought I got a couple nuggets out of that today. So I think just be open when you are considering what it is that you need, but also be very specific about what you’re looking for it because I knew what answers I wanted, I wanted benchmarks, and I saw that that was part of what you had in your program. And I knew if I had benchmarks, I would be able to come to conclusions faster and make decisions and move on. So that was really important to me. 

Greg Alexander [00:14:01] Yeah. Great answer. And I think the reason why you go so fast and I think you have an unfair advantage here because you do this for a living. You know what it means to be a member of an organization. And you probably have your members and you know which ones, the great members that get the most out of the program. And in the end, you’re doing that yourself now, like you’re you’re modeling the positive behavior that you’ve seen over these 16 years, so that the learning to circle on this one for the listeners is, you know, if you want to go faster, maybe study what it means to be a great member in an organization like collective 54, like, like, how do you maximize, you know, all the value that’s available to you and how do you do so at a time in a cost effective way? And for many of our members, this is the first time they’ve ever been a member of a collective, been a member of a membership organization in a business context. And it’s not intuitive. I remember when I my first experience, I was a member of OEO and a member of Ypo, and I was a member of target 21, and I didn’t really know what it was. I didn’t understand the difference between like a training organization or a consulting organization or like going into like an executive education course and like a Harvard or something, you know, versus a membership organization. I really had to learn what that meant. Any advice for our listeners on, you know, how to learn how to operate within a collective? Well. 

Gail Doby [00:15:31] Well, I think first off, if you are good at identifying what your problems are in your company, then that’s number one. If you can get it written down and figure out what your priorities are, focus on your number one priority and then reach out to the leadership of this group or to the person that you’re assigned to that’s there to help you and connect you with the right people and just start asking questions. Because if you ask questions, the quality of your questions determines the quality of your results, as we all know. So if you are if you have some questions that you need to have answered. Figure out what you need help with and if you’re stuck. I’ve heard this before and I love this statement. If you’re stuck for more than three days, you need help. So figure out who you need to go to to ask the question. And then once you get the answer, then makes the right decision based on like you said, data is very important and you’ve got great resources here within the group. So whenever I’ve had a problem or a question, I’ve just reached out and asked a question of somebody and I’ve gotten an answer almost immediately. That’s all that’s been really good. And, I want to give you another, kudo for the summarization of EOS and how to make this apply to our industry. I’ve been on EOS for about six years, and I took that and I summarized it down into 14 pages, and I went back to my leadership team and I said, we need to make these changes. So we’ve already started and we’ve adapted and we have new KPIs, and we have changed our, structure of our meetings so that we’re doing one data meeting a month and we’re doing the rest of those are issues meeting. So we’ve shortened our calls in order to do that. So that’s been a time saver for our leadership team, which has been great. 

Greg Alexander [00:17:24] Is that’s a fantastic example. I mean, for those that aren’t familiar, EOS is the entrepreneur’s operating system, and it’s kind of a management methodology that a lot of our members use. I use myself and I have for a long time, and I love it. The way to make it most effective is to customize it to your own individual situation, which, is what Gail is talking about. We attempted to give you a running start by customizing EOS to our application, which is for the Boutique Pro search firm. And our little firms are very nuanced things. Right. So a generic methodology applies to all types of businesses of all sizes and shapes and, you know, lifecycle stages. It’s a little too high level. So if you can customize it to your situation it can be that much more impactful. Which is which is what you’ve done. Well, listen, I could I could talk to you about this forever. You know, this podcast is meant to be 15 minutes, and it’s a summary of what we’re going to discuss in the one hour member Q&A session. And I know that our members are going to attend with a lot of questions, because this is an area of struggle. Too many ideas. Not having enough time to get them all in, implemented, figuring out which ones to prioritize, how to measure them after they’ve been been implemented, how to take them from kind of a framework state to make them tangible, you know, to your business, you know, next Tuesday, these are all things that you’ve done very well. So on behalf of the members, Gail, thanks for being here and sharing your story with us. 

Gail Doby [00:18:48] My pleasure. Thanks for having me. 

Greg Alexander [00:18:51] All right. Great. All right. A couple calls to action. So if you’re a member and you’re listening to this and you want to learn more from Gail, look out for the meeting invitation that we’ll be sending you for her, Q&A session on the Friday role model, episode. If you’re not a member and you want to become one, go to collective 54.com and fill out an application that will get in contact with you. And if you just want to learn more, I point you to our 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 maybe someday exit your boutique. Take care everybody.

Episode 165 – Time Management: Strategies for Maximizing Employee Productivity in Boutique Professional Service Firms – Member Case by Benjamin Edwards

In this session, we delve into the science of time management and the art maximizing employee productivity within boutique professional service firms. From strategic time management techniques to fostering a culture of efficiency, we explore actionable strategies to ensure every hour counts. Discover how to optimize resources, streamline processes, and empower employees to thrive, ultimately driving success for both individuals and the organization as a whole.


Greg Alexander [00:00:15] Hey, everybody, this is Greg Alexander. Welcome to the Pro Search podcast, brought to you by collective 54. On this episode, we’re going to talk about time management and time management in the context of employee productivity inside of a boutique professional services firm. And I got a special guest with us today is a member of collective 54. His name is Ben Edwards, and Ben is with a software company called Cmap that specializes in this very thing. So Ben, welcome to the show. Please introduce yourself to the audience. 

Benjamin Edwards [00:00:48] Hey, thank you very much for having me, Greg. And hello everybody. At C 54. It’s Greg said I’m Ben Edwards, I’m the VP of partnerships here at C Matt and I’ve got a dual role. I get to lead our go to market efforts with boutique consulting in North America and also run all of our partnership opportunities, including being in C 54. 

Greg Alexander [00:01:10] That. But. We hear from members all the time. Is their time starved?  I don’t have enough time to do this? I don’t have enough time to do that. And yet, on the same token, you know, when we look at the benchmarking data, the margins are sometimes where we would want them to be. And then the services business, our inventory is the hour, the billable hour, if you will. So from your perspective, what do you think kind of the basics of time management are in this in the context of what we’re talking about today? 

Benjamin Edwards [00:01:42] Well, you’re absolutely right to address that. But professional services firms people are both the biggest cost and source of revenue. Yet we still find a surprising number of businesses not tracking time. Maybe part of that is down to the fact they use a time tracking point solution, and adoption from the top down and to employee level isn’t particularly strong because there’s a perception that it’s a little bit big Brother Ray. Maybe it’s being used by the execs in the firm to sort of monitor. Performance where it isn’t necessarily the case actually like you address. There’s some benchmarking data in North America and didn’t hear me. I’d suggest those firms that keep a tight hold on time management are more likely to have stronger gross margin, better utilization rates, and be in the growth cohort. 

Greg Alexander [00:02:38] Yeah. So when you’re working with clients of yours to implement time tracking, first off, what is the kind of trigger event that gets them to finally do it. And then when they go to implement it, what are the 2 or 3 things, the obstacles that are standing in the way? What you know, what can we learn from the previous implementations to help our members avoid some common mistakes? 

Benjamin Edwards [00:03:07] Yeah, I think typically they would start to look at time tracking actually, after they’ve used a time tracking point solution on its own and not seeing a huge amount of value from it, unless obviously they do purely chain and work, in which case it directly links to billing. But within C 54 you talk a lot about growth and scale and product ization and being able to repeat business. And presumably that’s fixed fee type engagements. So they come to us because they want to join the time keeping data point alongside financial information, project management information, combinations of pipeline and live engagements. So they feel they’ve realized that actually from a maturity perspective and a sort of growth scale and exit perspective, it’s imperative to connect all of those dots together in terms of some of the challenges that we see with it. The first thing to sort of point out is probably adoption. And actually, this is probably where the most interesting element is quasi 54 members, because you’re a consultancy and part of your skill set is. Delivering value to your clients and how you propose things to people is really important. It’s the same with your employees. How you position it inside your organization is going to be absolutely imperative to the adoption. If I may, I’ll give you a couple of examples. So I guess the starting point is firms who can tie in with KPIs. And that then might lead to a stronger margin, which you can then suggest your employees means that they can have greater growth opportunities inside that firm. They’re going to be part of an organization that’s growing and scaling. And if you want to take that even further, you can even incentivize it to a certain degree, i.e. profit sharing. The other angle from a selling it in perspective to employees that can overcome that adoption hurdle is making it about them. So utilization is a really key metric for any professional services firm. But often employees look at that and think that’s something not going to be judged by, you know, which can be true to a certain extent. But actually if you’re implementing time management, it can be really beneficial to the employee because you can track non billable time, which is how much time have they invested in learning and development. How much time are they doing spending on IP creation or progressing their own career. And you can track that. You can also make sure that people don’t get double booked. People don’t experience, so over being being over resourced onto engagements and then at risk of burnout. So it’s a lot of value that you can give to your employees when you’re actually implementing a solution like this. It really is about how you sell it. The second most important thing to making sure that actually it’s a successful initiative is connecting and with all the other key components of running your operation. So. Analyzing the information to make sure that it’s aligned with your product ization strategy. Tying it into the project financials so that you can make sure there’s no scope creep or delivery and it stays on time, stays on budget. And then you can reinvest that. Hopefully that’s useful. 

Greg Alexander [00:06:31] Yeah. Those are a couple of good, gotchas to watch out for. I particularly like how you sell it, and I think that makes a lot of sense. And showing how it’s to the benefit of the employee to do this. You know, for our listeners, you know, if you think about the challenge, especially with project based consulting firms, the challenge when you have limited forward visibility is matching revenue and expenses. You know, they’re constantly in the situation where they were. They fill the lake, drain the lake, fill the lake, drain the lake, you know, and they’re in there at times. They’ve got, you know, too many people sitting on the beach, so to speak. And then other times you’re running hot at 120% utilization, and they can’t figure out which way is up. And time tracking is a solution to that because you can see where the inventory is going, where all the time is going. And this better allows you to match revenue and expenses and get away from the boom bust cycle associated with project based consulting firms. Now, at what point been in your opinion? Is it appropriate for a firm to kind of move off of a unsophisticated, manual, spreadsheet driven approach to, you know, using a software tool to make this happen? 

Benjamin Edwards [00:07:44] Oh, really? We can split that down into two cohorts. There’s the first time founder an organization which typically adopts it later in the cycle, i.e. somewhere between 20 and 50 employees, depending on usually how much work they’ve got on and whether they can free up a resource to lead that type of project internally. And then there’s the second time founder, who knows absolutely that the operational guardrails that will lead to efficiencies right from the off. And they can embed practices from day one and they will adopt it sooner. 

Greg Alexander [00:08:20] So the person that’s been there and done that tends to adopt it sooner because they’ve seen the error in their ways and they and they know the value of it. Absolutely. You know, you talked about these time tracking systems, connecting with the other systems inside of a firm. So let’s let’s have a conversation around that. So first how does a time tracking tool connect to a CRM. 

Benjamin Edwards [00:08:42] Well, if it’s in a city like ours, an operations platform is part of the tech. So actually, it’s part of the solution that you’re you’re purchasing from a business like Sema. However, quite a few businesses, particularly in the North American market, have already got a CRM, namely Salesforce and HubSpot being the two. And in which case you just have an API based connection between your CRM and your PSC. It’s a two way connection, and that enables you to also do a number of things, so you can actually start resourcing and soft booking people onto pipeline opportunities. But. Okay. And that will help you avoid that boom bust scenario you talked about earlier because you got that forward looking visibility. Let’s talk about the banking finance system. 

Greg Alexander [00:09:33] So how does a time tracking system like yours connect into the financial system? 

Benjamin Edwards [00:09:38] For pure TNM based work, it’s imperative because what people record from a time sheet perspective goes on to the bill and sent to the client, and therefore that connects with your finance system. But I know in C 54 and we wholeheartedly agree moving away from that towards more fixed fee, including performance based, remuneration is still imperative to have that financial connectivity because you want to make sure that as the project is ongoing, you’ve got visibility on where that time that’s been spent by your team tracks against that initial budget, so that actually you’re not going to experience the scope creep that is so common in professional services firms. And often it’s really well-meaning, over delivery. But actually, as an owner founder, if you can instill that sort of clarity and confidence from PMS to address those challenges head on, either with the client or delivery team. That’s that’s margin that you can reinvest in the business for whatever you need. Yeah. 

Greg Alexander [00:10:45] The thing that I always got the most value out of was looking at. The financial information, which time is a component of at the individual product project level. Before the project was over. So a hypothetical example to illustrate my point. You know, let’s say that I’m in a six month project and it’s a fixed fee and the client is agreed to milestone based payments. So maybe they pay a third of the project at project kickoff, a third at the halfway point and the third at the end. It’s very common that we see this in the North American market. Well, in between those milestones, I’m trying to figure out, you know, am I going to turn a profit on this project or not? And that largely comes down to, you know, how accurate was my scoping when I submitted a proposal, and am I tracking to that original scope, or am I off scope quite a bit? And back when I had my boutique, it was very simple. We did a green, yellow, red, green was, you know, we’re on track. Yellow was, you know, we’re starting to see some problems, but it’s not a disaster. And red was, you know, what the heck happened? You know, we have massive scope creep. And if we don’t course correct, you know, early in the project we’re likely to lose money, which would then trigger us to go have a conversation with the client and point out point out the fact that, you know, they’re asking us to do things that weren’t originally scoped. You know, is that was that unique to my situation or it was is that a common use case and a common benefit that you see others realize? 

Benjamin Edwards [00:12:16] Yeah, really come in. And the other one to add to that is having a view in your progress page website, connecting time at a project level against your invoicing so that you know, you can make sure that you’re not. Spending a huge amount of time on a client work that maybe hasn’t been fully invoiced yet, and you need to catch that up. Or the reverse is true where you’ve invoiced a hell of a lot upfront, but actually you haven’t spent a huge amount of delivery time on it, and therefore it’s going to catch you up at some point. So that’s another keenly viewed report in our system, I would say. 

Greg Alexander [00:12:52] Yeah. And for those that aren’t familiar with that, whip is work in progress. So Project Whip is work in progress. That’s some, some industry slang there. I just wanted to clear up, you know, we we then collected $0.54. It’s professional services. Of course, you have the consulting shops and they get the term whip, but others like maybe, marketing agencies and architectural firms and things of that nature may not, may not understand that terminology, but we all should understand that terminology because it’s, it’s relevant across the segments. 

Benjamin Edwards [00:13:21] Yeah, absolutely. So we service businesses across professional services. And what’s always interesting just to know is the differences in the overall strategy, but also the KPIs and the margins and the growth of boutique consultancies versus agencies versus AEC versus life sciences. And there are little intricacies and sort of common stumbling blocks that are pertinent to each of those different industries. 

Greg Alexander [00:13:48] Yeah. We try to keep these podcast short to about 15 minutes, and we’re at the window right here. But then on behalf of the membership, we certainly appreciate you coming on and sharing your wisdom with us. We, we’re looking forward to the associated role model session, which, for those that are not members that are listening to this every week at inside of collective 54, we’ll have a Friday role model session, and Ben will be the featured role model. And one week. And that’s a private one hour Q&A session where members will be given an opportunity to ask their questions to Ben directly as it relates to and improving employee productivity through time tracking. So a couple of calls to action to the audience. So if you remember it, look for the meeting invitation for Ben’s upcoming weekly role model session and attend that so you can ask your questions directly. If you’re not a member and you think you might want to become one to learn from people like Ben, go to collective 54.com and fill out an application and we’ll get in contact with you. And if you’re not ready for either of those two things and just want to learn more, I point you to 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 Ben, it was good to see you. Look forward to your session on Friday. And thanks for being here. 

Benjamin Edwards [00:14:57] Thanks, Greg. Look forward to it. And to bring you questions, bring you scenarios. We’ll try and. 

Greg Alexander [00:15:03] All right. Sounds great okay. Thanks again everybody. Until next time I wish you the best of luck as you try to grow, scale and exit your firm.

Episode 164 – From Client to Founder: The Journey of Building a Boutique Professional Service Firm – Member Case by Dave Makerewich

In this episode, we delve into the remarkable journey of a founder who transitioned from being a client to establishing a thriving boutique professional service firm. Discover how his firsthand experience as a client shaped his understanding of the industry’s needs and fueled his entrepreneurial spirit. Through insightful anecdotes and lessons learned, uncover the unique challenges and triumphs of building a business from a client’s perspective.


Greg Alexander [00:00:15] Hey, everybody, this is Greg Alexander, the host of the Pro Serv podcast, brought to you by collective 54. If you’re not familiar, collective 54 is the first. And to my knowledge, the only mastermind community dedicated exclusively to the unique needs of a unique audience and that unique audience are founders and leaders of boutique professional services firms. In fact, the number 54 is the industry code for professional services. So if you’re somebody in consulting or a marketing agency, a law firm, accounting firm, architect, you know, you name it, some of that market sells and delivers expertise for a living and you’re a boutique, which is kind of post startup but pre scale. Then this is the place for you. On today’s episode we’re going to talk about how one leaves industry. And starts a boutique professional services firm by taking advantage of. The previous experience in the industry, and how that can lead to correctly selecting a niche to operate in, and how that can lead to accelerated success in the early days of being a boutique browser firm. And with that, I have a member of collective 54. I’m going to give him a chance to introduce himself. So, Dave, it’s good to see you. Would you please introduce yourself to the audience? 

Dave Makerwich [00:01:41] Yeah, my name’s, Dave Makerwich. I started, Maven about eight years ago, and as Greg mentioned, I’m coming from a different industry. I used to work in a big corporate, sort of setting at, a large pharmaceutical company and worked with a lot of professional service firms in the marketing and advertising space, and kind of just saw a unique opportunity and, decided to jump in. 

Greg Alexander [00:02:10] So, Dave, when you were in industry, you were in a pharmaceutical company. Is that correct? 

Dave Makerwich [00:02:16] Yeah, I was working as a brand manager in the marketing department. 

Greg Alexander [00:02:20] Okay. And then you would hire. Marketing agencies as the client, as I understand it. Is that accurate? 

Dave Makerwich [00:02:28] That is accurate. Usually, you know, the job of a marketer in that is many fold, and one of them is managing all of your advertising materials for your Salesforce, for customers, for, you know, patient materials and all of that. All of that work is generally, you know, given out to a third party agency to help assist with all of that. 

Greg Alexander [00:02:52] So you had a very unique perspective, having been the client. And then you went ahead and decided to start a firm that would serve you or others like you. Do I understand that correctly? 

Dave Makerwich [00:03:05] That’s correct. 

Greg Alexander [00:03:06] Yeah. And this is the thing that I really want to circle and highlight, because I don’t know if you know this day, but you and I share that in common. When I started, my boutique was called SBI, which stood for Sales Benchmark Index. I was you. I was, well, I should say I was similar to you in that I was the client. I was a sales executive in a big tech company, and I hired business to business sales effectiveness consulting companies. And because I was the client, I really understood the client. So when I mustered up the courage to become an entrepreneur, I started a consulting company that would serve people like me. And that gave me an unfair advantage, because all the work that somebody has to do to kind of understand the ideal client profile was really easy because I was the client. So I had to understand myself, which I guess in some cases isn’t easy. But in this case was. So, and I want to highlight that as a great opportunity for, for many, if you were once the client and you now serve the client, you have a huge advantage today. Why don’t you share with me your perspective on what that advantage is and how you leverage it here in the early days of Maven, and how that has led to what’s now an eight year success. 

Dave Makerwich [00:04:31] Yeah. Great question. I mean. I think when I first started working in the area and working with these third parties. It didn’t take long to realize that the con. There was a few things missing. Like, I feel like, you know, pharmaceutical advertising was such a specific thing with with such a detailed regulatory environment, a lot of rules around what you can and cannot do. And at the end of the day, I just I kind of felt as the, the person hiring these agencies, I was never really happy with the level of service or the quality like, I, I felt like for the the amount of money being spent on things and the amount of time it was taking to happen, there was just something I was like, this is something’s got to be wrong here. Like, why? Why is this so inefficient? Or why am I so frustrated all of the time? And so, you know, so yeah. Is that was that just me or was that kind of, you know, was there actually an opportunity? And I think I think when I started to ask around my peers and talk to others, it was just like a similar feeling, like a lot of other, you know, marketers were saying the same thing, like it was just this kind of accepted reality that that this is the way it is and this is how much it costs and this is how long it takes. And yeah, it’s frustrating. You got to kind of do the work yourself. And I think, I don’t know, it just it just led to this idea that I didn’t know anything about how to do the other side of the business, but I knew absolutely, as the client what I wanted and what I needed. And I think that’s all that I really needed to kind of drive me to take that next step and just jump in and try to figure it out. 

Greg Alexander [00:06:16] You know, so you you backed into the right way to do it. And I want to highlight this, which is very often people think about the service first and the problem second. So therefore they run around with a service or a product looking for a problem to solve, and they never really get off the ground. In your case, you had great clarity as to what the problem was, the frustrations that the clients had, which was a huge advantage. And then you could kind of back into, okay, so if if this is what I was looking for and the current providers didn’t offer it, you know, I can engineer that, I can figure out what the service needs to be to make the clients happy. And that is the basis upon which I’ll differentiate myself and I’ll win business. And it’s, it’s a nuance thing, you know, it’s not it’s not so obvious, but it is a huge advantage. And I think that’s why you’ve had the success that you’ve had. Which speaking of which, just for context, for listeners, what types of services do you provide clients? 

Dave Makerwich [00:07:21] Well, again, our clients are very niche and very specific. And so, you know, generally, if they’re marketing managers of pharmaceutical brands and those brand managers are looking for assistance on the entire portfolio of, of marketing and advertising tools that they need to to drive growth of their own brands and their own business. So it’s, you know, it’s kind of like, the services, there’s a series of services that are kind of typical and, you know, bread and butter and there’s sort of an extension of can you be innovative on top of all of that, and can you be a strategic partner with them and make them feel like, you know, you’re a part of their brand team? So it’s both, I guess. I don’t know, it can be very diversified yet. Also sometimes simplistic in in what you’re providing. 

Greg Alexander [00:08:18] Okay. So again, just for context, maybe like one example of a bread and butter service that everybody that might not know pharmaceutics could at least conceptually understand. 

Dave Makerwich [00:08:27] Sure, sure. So. So you’ve got a sales team there going out there speaking to physicians. They need materials when they’re speaking to physicians okay. You’ve got to give them a like a detail that has here’s the information doctor. You need to know about my product. 

Greg Alexander [00:08:41] Okay. Perfect. Yeah. That’s very helpful. So so when you were the brand manager on the other side of the desk, and you were hiring somebody to produce that for you, you were frustrated with how long it took, how much it cost, etc.. And then recapping the words. Tell us a little bit about that frustration. 

Dave Makerwich [00:08:59] Well, I think one of the pieces, you know, my I have, my my educational background, I. My, my, I have, my mother and father were both in healthcare. My father as a physician, I thought for the longest time I wanted to be a physician. I have a strong science background, didn’t go to school for business, didn’t go to school for marketing. Got into, sort of pharmaceuticals. I realized, you know, going down the physician route wasn’t for me. Got exposed to marketing that way. But, you know, you’re became the brand manager for, a very large product in Canada. It’s a very complicated monarch, you know, monoclonal antibody. And you’re in this market where you’re competing against other monoclonal antibodies. It’s very, very nuanced. There’s a lot of specifics of it. And you kind of need to have people on your, I guess, your account team that you’re able to have conversations with that even understand what it is that you’re trying to do. And so one level of that frustration is just, I feel like I’m talking to people that aren’t really getting it. Like, I feel like I’m talking to people that are simply taking what I’m saying and relaying it back to some other group of people. And and at the end of the day, the materials that are coming back to me are not what I asked for. There’s a lot of broken telephone, there’s a lot of rework and fixing and trying to get people back on track. So I think that’s one element. 

Greg Alexander [00:10:31] Yeah, that’s very helpful. What ends up happening in that case is you, the client, you hired somebody to do the job, and you end up doing the job yourself anyways because you’re redoing the provider’s work over and over again. And that could be a very frustrating pain point. And it’s a great example just to highlight what we’re talking about today. And that is, you know, when you were once the client and you are now the service provider, you have a unique advantage over the competition who were not once the client in Dave’s case, you know, he is the son of a physician. He understood that, you know, he thought about being a physician himself, so he wasn’t, you know, this, I guess generic horizontal marketer. You know, he was this highly niched specialist, and it was through that specialization that allowed him to launch his firm and differentiate himself versus the competition. So speaking of the firm, so you’re eight years in. You know, I know that, you have read my book, The Boutique. Thank you for that, by the way. And I know that one of the things that you mentioned to the team was just the appreciation for having vocabulary around these things. So using our vocabulary, you know, you would technically now at eight years, you would be in the scale stage. You had graduated from the growth stage, which is the first stage, those first five years. Now you’re in the scale stage, which is the next five years at least on average anyways. And then at some point, you know, you’ll graduate towards the final five year period, which is the exit period. So you know your experience. Do you do you feel like you’re in that kind of middle scale stage? Do you feel like you’re still in the growth stages, or is it a little bit of both? How far away from the exit stage are you? You know, kind of what are your thoughts? 

Dave Makerwich [00:12:18] Yeah, it’s a great question. And I think I may have even asked, you know, your team, like where am I? Is I definitely, you know, when I started Maven, there was definitely some solopreneurs ship. It was there’s definitely some time of me figuring it out on my own. I think my ambitions, at the beginning, were different than what my ambitions are now. Like. I was just trying to do something different. I was enjoying the work, and the most important thing to me at the time was just figure this problem out and see if I can get a few other people on board and to try to figure out the problem and just try to change the game a little bit. But then, you know, at some point something changed, like we started to get some really great people, some extremely talented employees. We started to build a really great culture. And now, you know, I know that you talk about this, in your books, and I’ve actually read both the boutique and the founder. They’re both great. And you talk about this, that we’re in the business of both, you know, not only serving our clients, but also our people. And at some point, the the internal people piece became. And I wouldn’t say more important, but just as important, making sure I’m retaining the right people, making sure I’m keeping them happy and just their well-being became just as important to me. So. I don’t know. Getting back to your original question, like I think there’s. I think your books have provided a lot of clarity on, you know, what? I think we’ve done well up until now and but but also more clarity on what are the next kind of hurdles that we need to do to get us to the next step. I’m definitely not in my mind thinking about the exit stage like that’s I still think there’s so much opportunity in terms of what we can do and in terms of how we can grow the company and and give our people the opportunities that they deserve. And it’s a big market. So I’m still very much excited about that part and sort of finishing figuring it out. And and I guess opening the doors a little bit because I think we’re, we’re definitely in the stage where we just, we don’t do a lot of business development. We still get a lot of referral work. And it hasn’t been something that we’ve had to do. But again, I know there’s going to be a point where we need to change that and do that. So so I don’t know. I think it’s fair, you know, where we are. 

Greg Alexander [00:14:44] But so in listening to you, I would suggest that you are in the scale stage. And I’ll tell you the reason why I believe that, it’s the expanded ambition. So when I, when I talk to founders and I experienced this myself when I went through it, you know, when you launch your firm as the solopreneur, you know, you’re really just trying to prove to yourself that you can replace the income that you walked away from when you left corporate America. And it’s very much a lifestyle business. And then all of a sudden you have some success and you start hiring some people. You start caring about those people. You start thinking about creating, you know, high paying careers for people. That expanded ambition is the sign that you’ve moved into the scale stage because it’s it’s more than just you, you know, it’s it’s a firm it’s not a practice. There’s a big difference there between those two. I would also suggest, however, that, you know. I like to bring clarity to these situations by suggesting it’s very linear, but it’s not. It’s messier than that. So there’s elements of your business like yourself as a founder, I think you’ve matured to the point you’re in the skill stage. However, if you’re still only generating business from referrals, which is great because that means you’re doing great work and you’re getting referrals. But that would suggest that on the sales and marketing side of things, you’re a little less mature in that part of your business, that function, it might still be in the growth stage. And that’s what happens is parts of your business are in scale, parts of your business are in growth. You know, you might launch a new service and that might even be in the startup stage, parts of your business, for some of our members that are that organization is owned by partners, co-founders. You might have one co-founder who’s in the mid-sixties, and they’re in the exit stage because they want to retire. And you have another co-founder who’s still in their early 40s with kids getting ready to go to college, and they don’t even want to think about retiring. Right? So it’s it’s you always have one foot in one stage and one foot in the other stage. And Dave, I think you’re a great example of that. And I appreciate you coming on the call today. Share a little bit about your story. We’re going to double click on a lot of these things when we have the member Q&A session. I particularly want to talk in greater depth about what it means to start as the client and then become the service provider. That was the reason why I really wanted to speak to you. But I’m also going to talk about, you know, your own expanded ambition and your own journey on the lifecycle. So on behalf of the members, I appreciate you coming on today and sharing sharing part of the story with us. 

Dave Makerwich [00:17:09] Yeah, thanks for having me on board. It’s great. 

Greg Alexander [00:17:12] Okay. All right. A couple calls to action. So, if you’re listening to this and you’re not a member and you think you might want to be because you want to hang around with people like Dave, go to collect a 54.com and fill out an application, and we’ll get in contact with you. If you are a member, and you want to learn more about Dave story because you can probably see yourself in him quite a bit. Look for the meeting invite that will come out, and we’ll have a private one hour Q&A session with him on an upcoming Friday session. And if you’re not ready for either of those two things, you just want to learn more. I would point you towards my book. It’s called The Boutique How to Start Scale and Sell a Professional services Firm, written by yours truly, Greg Alexander. And you can find that on Amazon. But until next time, I wish you the best of luck as you attempt to grow, scale, and exit your firm.

Episode 163 – The Art of Valuation: Unveiling the Secrets Behind Firm Attractiveness and Price Determination – Member Case by Tom Zucker

In this session, we review recent research from over 200 acquirers that suggests the 5 attributes that make a firm an attractive acquisition target, and the 4 attributes that scare acquirers away. The research quantifies how “attractiveness” drives up valuations and how you can increase the worth of your firm.


Greg Alexander [00:00:10] 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 a unique group of people. The leaders of boutique professional services firms. And today, we’re continuing on our exit series and we have a wonderful guest with us. He is a member. His name is Tom Zucker, and he is in the investment banking business. And his firm put out a piece of research called The Seller Experience Why Owners Get Premium Values. We’re going to talk about the principles in that. And the origination of this came from we had a member session. Titled how a ten person firm successfully sold itself to a 300 person firm. One of our members bought Mirage was the featured role model. He had an exit recently. This is episode 153 for those that are interested, and Tom attended that session and chimed in and offered some value. And since that time we had a lot of members saying, hey, who was that guy? And can we hear more from him? So we reached out and and Tom was gracious enough to join us today. So, Tom, if you wouldn’t mind, please give us a brief introduction of yourself in the firm. 

Tom Zucker [00:01:33] Right. Thanks for having me. Tom Zucker, president of Hedge Point. We help private owners sell their business for maximum value. With certainty. We’ve been doing this for 25 years, and we’re very fortunate to be part of collective 54. 

Greg Alexander [00:01:49] Excellent. So I read the white paper, The Seller Experience Why Owners Get premium values. And it was compelling. And I found it compelling because you heard directly from buyers. What makes a firm attractive. And it’s that word that really caught me, this word of attractiveness. And in your white paper you quantify, for example, what a some firms get eight times, EBITDA and another firm might get ten times EBITDA. And you summarized five key points that made a firm attractive. I thought maybe we could take them one at a time. And I’d ask you to define what that term is. And then, when we have our private member Q&A session, which is a longer format, we’ll have a full hour. Then we’ll dive into examples for each five and let members ask questions. So if you’re okay with that, why don’t we start with the first one, which, I’ve got the paper pulled up here in front of me, and it looks like the very first attribute that makes a firm get a premium value makes it more attractive as a strong management team. So why does that increase the multiple? 

Tom Zucker [00:02:58] The ability to produce revenues is directly proportional to the talent that sits behind it. So here we are as professional service firms, we are as good as the people that leave the office every single day. Right? And so our goal on a daily basis is to make sure when the buyer takes over the business, they can not only repeat the success that you have, but can grow from that. If you have aged professionals or you have people that are less engaged or just, quite frankly, have reached the top of their peak, there is no more growth that the company can experience. 

Greg Alexander [00:03:30] Very good point. You know, sometimes I see, you know, the founder is brilliant and the buyer meets the founder and says, oh my gosh, I want that person in my firm. They make a they offer a lie, they get into diligence, and they meet the management team. And there’s a major drop from the founder to everybody else. And it kind of spooks them. And they retread the other side. Either don’t do the deal or they trade it down so that I’m not surprised to see that as number one. So let’s go to number two, which is a differentiated service. So why does that increase the multiple. 

Tom Zucker [00:04:07] There’s if you think about a buyer’s perspective, you’re looking at your company. There’s a lot of people that are nice to have, a nice to have trade at reasonable multiples must have, oh my gosh, I need that capability. I need that person that’s differentiated. And so, you know, many of the sessions you’ve been having is on the topic of AI. AI is a unique skill set that many people possess. And as you start having those conversations and show that you’ve developed something that will take years or many, many hours to develop, I got to have that. And when I get I gotta have that, I get a turn to three, five times, expansion of multiples. 

Greg Alexander [00:04:46] Yeah. We got a member right now. Just turned down an offer at 17 times. He’s in the sustainability space, and it’s just hard as heck it’s a must have for a lot of cases. So, I’m not surprised that that was number two. All right. Let’s go to number three. So resilience in recessions or resilience in kind of new tech threats. So tell us what that is and why that leads to an expanded multiple. 

Tom Zucker [00:05:13] Yeah. And remember keep in context these these are things that were generated. We did a 200 person survey private equity family office strategic buyers. Why do they pay premiums. So they came up with the idea is that they’re fearful that something doesn’t continue or go forward. And the indicators they use is let’s take me back to what happened in, you know, the last recession or what happened during Covid. And they’re constantly asking that question. And so if you’re defensive, the answer is we have we continued right through there. No problem. My recurring revenue was there and all of my clients needed me. I was an essential service that was not cut back or passed back during downtimes. Yeah, and that’s when you get a premium, when you when you have that recurring revenue. Banks love it. And switch is a big part of how multiples get made. Right. 

Greg Alexander [00:05:57] Yeah. You know 2023 wasn’t a good year for a lot of people. If you actually had a decent year in 23, you proved to be resilient, resilient when everybody else wasn’t. You know, someday when you go to sell your firm, that’s going to be a wonderful proof, proof point. The next one I want to talk about, which I skipped over by mistake. But let’s come back to it. Strong market position. So what does that mean exactly? And how does that translate to a higher multiple? 

Tom Zucker [00:06:23] Everyone is trying to define what market they’re in. So you mentioned that one of your members getting a 17 times offer for the word sustainability. Right. And every couple of years there’s a new word that hops out that somebody’s got to have. And when you got gotta have that. That tends to make it very attractive building market position, you know. So for example, we’re in the middle market space for investment bankers. Many of my competitors have sold their business. We’re now sitting in a place where we have a very attractive platform that we’re able to. We just brought on a new managing director, that market position as being a platform for capability of providing, you know, independent M&A advisory service that allows us to be differentiated from others. Not. Not that it’s unique or can’t be duplicated, but at a point in time there’s a market position and all of our services fall into that category. And I’m surprised when we begin doing our work. How many people really don’t know the market, that they participate in the adjacent markets, and they certainly don’t know what makes them different from their competition. And that’s an exercise that a good investment banking firm does. They really pull out. Why are you special? Why are unique, why you’re different, and most importantly, not just from your own perspective, but the perspective of your buyers? How will they look at you? 

Greg Alexander [00:07:38] Yeah. You know, and this is why it’s so important to pick the right investment banker. And for our members and listeners, you know, you want somebody that’s in that middle market to lower middle market space because they know that you might not have your market position clearly defined. So therefore they’re skilled at doing that for you. It’s kind of like you go to sell your house and you hire a fantastic real estate agent who’s been selling homes in your neighborhood for 20 years. So when a buyer comes in, you know, they can explain why this is a desirable neighborhood, why it’s in the right school district, why the comps are what they are, etc., etc., etc.. Last thing you want to do is go higher up Goldman Sachs or JP Morgan. You know, you just they expect you to come to the table with a different, set of deliverables. I mean, they expect you to know what your category is, what your market position is. So it’s really important that if you’re thinking about exiting, you pick the right investment banker and you can hear from Tom, you know, somebody like him, knows how to do this and has the patience, you know, to help a first time founder don’t through an exit for the first time, do this. All right. Let’s come back to the white paper. So the last one, number five is scalability of business. I think I know what that is, but why don’t you explain that to the audience and why that translates to a higher multiple. 

Tom Zucker [00:08:55] This is a great book called The Boutique that my friend Greg has written, and it talks about this whole scaling phase, right? And as you talk about scaling, you get a commercial business development engine. You’ve got the ability to take it beyond the founders capabilities. And it is tantamount to much of what you preach and disciple to. But I want to know that I can take, you know, this business for two times revenue, and I want to know the profitability grows incrementally as I scale. Yeah. And I always refer to it no man’s land. That’s between X dollars a revenue and Y that it’s really, really hard to run a scale professional service firm. And once you get past why, likes a whole lot better. And so we all have our own X’s and y’s and whatever that number might be or whatever the scale might be. That’s the part that we always are looking for. And so I want to know that I can do that as a buyer of a business. 

Greg Alexander [00:09:46] Yeah. You know, when I, when I was reading the paper, I really liked it because to me it’s not a puff piece. It’s not just talking about the five things that make your firm attractive. The second half of the document is dedicated to the value detractors. In other words, what makes your baby ugly? So why don’t we? Why don’t we touch on some of those value detractors? So share some of those with the audience and and why they actually reduce the multiple. 

Tom Zucker [00:10:17] Yeah. I mean, so it’s kind of the inverse of attractiveness, right. And so if I’ve got a concentrated position where I have a customer that represents, let’s say it’s north of 40% of revenue, I get a little bit concerned that that particular customer goes away or loses interest in it or changes pricing. That’s a very big detractor. The other part of that is if if it’s dependent on you, the owner of the phone, right to your point, you get really excited. Very attractive owner founder. He’s excited, but unfortunately he’s of an age where he’s not doesn’t want to work for another 5 or 10 years. Yeah. And so I make my investment. What’s private equity is make it for, you know, a 5 to 10 year window. If you’re not going to be the guy that I look to not only run during that time period and more importantly, when I sell it, you’re not standing there. I’ve got a big lift. I’ve got to find somebody to replace the magic that you do as a founder and owner. That’s a really hard thing to do. And so you have to solve that problem for the buyers. The buyers won’t solve it for you. Yeah. 

Greg Alexander [00:11:13] You know, one that jumps out of me that I want to translate for the audience in the value detractor category in the report is this thing called an at risk supplier. And for those that are going to go to Tom’s website and download this report and we’ll show you where to get it in a second, you might say, well, that doesn’t really, apply to me. I don’t have suppliers. I’m not a manufacturer. Well, that’s not true. You do. Your suppliers are your talent. And if somebody is thinking about buying you as a service firm and you were using 1099 contractors, you have at risk suppliers, particularly if you’re using 1099 firms and only one of them. You know, these these firms, especially offshore ones, can run into trouble. They go out of business. And all of a sudden your raw ingredient, you know, your raw material that you use to produce your end product goes away. You’re not going to be able to sell, you know, in the pro serve space. They call that empty calories. In other words, when I buy you one of the assets of buying is your team. And if you have more than, let’s say, 20% of your labor force in 1090 nines. Then you really you don’t have a great team to acquire. So you. I’m either not going to acquire you or I’m going to acquire you at a discount. So, Tom, that was a great walk through of the report. So for those that are listening to want to get a copy of it, where do they find it? 

Tom Zucker [00:12:45] It’s point.com and we have an insight section where you can download this white paper plus others. 

Greg Alexander [00:12:51] Okay. And if somebody reads it and they want to double click and have a conversation with you or someone on your team, how do they get Ahold of you? 

Tom Zucker [00:13:00] (216) 342-5858. Zucker at any point that. Com. 

Greg Alexander [00:13:06] Boy. That’s a salesman at heart right there, who was willing to give his telephone number into the wild, wild world of the internet. God bless you. All right, well, listen, we’re so lucky to have you because our members are your target customers. Your skill set lines up perfectly. You know how to sell businesses like the ones that are in collective 54. You’re always very generous with your time and your knowledge here. Today was a great example of that. So on behalf of the members, thank you for being here. 

Tom Zucker [00:13:32] Thank you Greg. 

Greg Alexander [00:13:35] Okay. And, a couple calls to action for everybody. So if you’re a member, be sure to attend the private Q&A session with Tom and look for the outlook meeting invite to tell you exactly when that is. I hope you get a chance to read that paper beforehand, and you’ll get a chance to ask questions directly to Tom.  You’re not a member. I don’t know what’s wrong with you. You should become one. Go to Collective 54.com. Fill out an application. Some will get in contact with you. If you’re not quite ready for that, you just want to consume some more content. Check out our newsletter. It’s called Collective 54 insights. Again, that’s at the website. Or if you want to read the book, it’s called The Boutique How to Start, Scale and Sell a professional services firm. You can find that on Amazon. But until next time, I wish you the best of luck as we try to grow, scale, and exit your friendship.

Episode 162 – The Task Force: How a Consulting Firm, After 20 Years, Committed to Scaling by Investing in a Dedicated Task Force – Member Case by Andy Thompson

Attend this session to learn how it is never too late to get serious about converting a lifestyle firm into a scalable boutique. This session will discuss the use of a dedicated task force to make up for lost time and how it can restart the boutique lifecycle clock. You will learn the who, what, when, where, why, and how to invest in a dedicated task force inside a small service firm to get back on track.


Greg Alexander [00:00:10] Hello, everybody. This is Greg Alexander, the host of the ProServ podcast, brought to you by Collective 54, the first mastermind community dedicated to the unique needs of leaders of boutique professional services firms. Today on today’s episode, we’re going to discuss scaling a boutique processor firm. We’re going to talk with a member about a new initiative they’ve launched called the Scaling Task Force, which I can’t wait to hear. We’re going to kick around a few tools that they’re using and discuss how it’s going so far. And the purpose in doing so is to maybe give everybody that’s listening to an idea that, maybe a scaling task force might work for them, or at least pieces of it. And maybe that might help you accelerate the rate of scale and improve the probability of success. So we have two collective 54 people here with us, Andy Thompson and Jeff Weathers. They’re with a company called Notch Partners. And, why don’t I start with you, Andy, and if you wouldn’t mind introducing yourself and the firm, and then Jeff, I’ll ask you to do the same. 

Andrew Thompson [00:01:20] Sure. Greg. Thanks for having us. I co-founded Notch Partners in O2. We work for private equity funds. Our role is to help create transformative relationships between senior executives and our private equity clients. Our mission is to improve their financial returns through better access to deal flow, better analysis of investment opportunities, better value creation planning, and better corporate governance. So you can think of us as a high-end headhunter with a very strong deal focus and private equity focus. 

Greg Alexander [00:01:55] Okay. Sounds great. Jeff, how about you? 

Jeff Weathers [00:01:58] Yeah. So I’ve been with Notch, almost eight years now and have a background in investment banking. I lead our business in financial services team, which is one of the five industry verticals at notch. And I also lead our newly formed skill-building task force. 

Greg Alexander [00:02:16] Okay. Fantastic. All right. I’ll ask a question, and I’d love to get both of your answers on it, but and I’m going to start at, kind of 30,000ft, but maybe to give us some context. So so in Andy, I’ll start with you. So what prompted you to focus on scaling your firm at this stage? You mentioned you founded it in 2002. It’s 2024. Yeah. You’ve put a you put a lot of emphasis around scale right now. How come? 

Andrew Thompson [00:02:41] That’s right. I bought out my co-founder a year ago. It was a long time coming, and it freed me up to do a number of things with the business that I’d been hoping to do. For example, adding equity partners, Jeff being one of them. But I realized as soon as I had the freedom to do what I wanted to do, I realized that the old adage is true. It’s lonely at the top. If I were going to be able to transform the business, I needed some guidance. And I wasn’t ready to constitute a board of directors yet. I started to look into CEO peer groups when I, which I had never invested in. I looked at several of them, collected 54 was recommended. I was the only one that was, entirely focused on professional services companies. So I read your book boutique, and I immediately recognized that we had a host of scaling opportunities to pursue. I bought five more copies of the book. I gave them all to my senior team. I told them we were in the scaling phase. They probably looked at me like, what are you talking about? They didn’t know. Growth scale. Exit. Yeah. They said, you know, they were drinking from a fire hose. I said, we’re in a scaling phase. I want you to read that whole section of this book. And then and then I signed myself up for Collective 54 and got to work for the team. I defined scalability as creating processes that enable and facilitate profitable growth. For a more tangible illustration, I say it this way at the company level. I say if the world were suddenly to hand us a doubling of our business, meaning a doubling of our client base and a doubling of our staff, which of our processes would break and which would hold steady? The ones that would hold are scalable. The rest need work. 

Greg Alexander [00:04:33] I love that definition. That’s a great way to look at it. And and, Jeff, I’ll come to you with the next question, which is since you’ve been there for eight years, I’m sure you’ve been attempting to scale at least, maybe even without knowing that’s what you were doing or calling it that, I should say. What are the biggest challenges, Jeff, and from your perspective in scaling a small services firm? 

Jeff Weathers [00:04:56] Yeah. So one of the, the big ones I think that we need to think about or starting to think about is getting our colleagues really excited about change. Because when you’re scaling a business, you need everybody on board, and there’s a lot of apprehension when you say, hey, we’re going to make some changes to the company. So. What does that mean to for us? What did we need to do? So the first thing was communicate. So we we decided we need to explain what scalability was. To explain what the benefits would be to the firm, and even how it would improve our colleagues day to day work, how their lives are going to change as we put these processes in place. 

Greg Alexander [00:05:38] Yeah, it always does come back down to the individuals and them asking themselves the question like, what does this mean to me? Literally day to day? Like, how is my life going to change? That’s a great way to say it. So I’m pleased that the book is playing a role. And thank you for the kind words and that I put a lot of work into it. It’s rewarding to hear that you got something out of it. And I know that you’ve you’ve recently launched a scaling task force. So I’d love and Jeff, I understand that you’re the leader of that. So I’m going to direct this to you. I’d love for you to kind of tell us what the scaling task force is. Who’s a member of it? You know how it operates. Just kind of riff on this, a forming. 

Jeff Weathers [00:06:15] Sure. So the skill of the task force, simply stated, was designed to look inside the firm, look at all of the ways that we do business with our clients, look at internal processes, anything really, and say, how are we doing this, doing this? And is this scalable to big as the business grows? The skill-building task force, to start with, we’ve really been focused on the service delivery part. And that’s where we felt like we would have the most benefit at the beginning. So what we did is we actually took an employee who had been with us for for several years now, who’s who’s an outstanding worker. And we said, we want you to, to be a part of this and be full time. So I’m spending a lot of my time on the task force. She’s full-time on the task force. And then we took a representative number of employees from across the firm to act as as members, we meet on a weekly basis and evaluate, different processes where we’re trying to change and update and improve. And then we also actually, every week at the at the beginning of the week, talk to the firm about what are we doing, what should you all expect this week? Here are some changes that we, we think are going to come this month or two months from now. Again, trying to make sure that we’re indicating to the firm, so folks are comfortable with what’s happening. 

Greg Alexander [00:07:45] So, Andy, taking a high potential employee and dedicating that person full time, non-bailable, I’m assuming, to leading the task force. Boy, that’s quite a commitment. How did you get there? 

Andrew Thompson [00:08:01] So, Jeff, Jeff is absolutely one of our top and most experienced, players. And he’s about half-time on it. And then we have a very we have a high potential mid-level person full-time. In total we probably have over two FTE is a little over two FTEs out of 30. Look, I wish we had started this stuff years ago. I wish we were not playing doing some cleanup, but I. But it’s time we have some inefficiencies and missed opportunities that could have been capitalized on much sooner in our evolution. There’s no time like the present. We put ourselves, clearly on, in the scaling phase, but we feel like we’re late-stage scaling. There are a lot of things that, unbeknownst to us, it was, you know, covered in your book that we were doing. But when we started doing the math on what the yield impact could be of creating more scalable processes, it’s clear to me that this more than pays for itself in a in a pretty short order. So for me, it was it was not a hard decision. To me. 

Greg Alexander [00:09:14] Interesting. You know, when you express it like that, you know, two FTEs out of 30, it seems like a reasonable investment. But I was on your website and I was looking at some of the bios. I mean, you employ highly skilled people, even at the mid-level. And I’m, I’m guessing in my mind what you’re paying them. So from a dollars perspective, it’s a significant investment. So I just wanted to acknowledge and compliment you for, you know, being willing to make that kind of investment. 

Andrew Thompson [00:09:40] I’ll tell you this. We’re going to be watching closely, and tracking our results as closely as we can. We don’t have all of the gauges and dials that we need to know exactly the impact day to day. If we had all the time in the world, we would have built more dashboards and more insight before we even started. But we’re sort of we’re getting going, and we’re going to do our best to track the results because we’ve got to justify this expense for ourselves. Yeah. 

Greg Alexander [00:10:07] Now, Jeff, you mentioned that you started with service delivery. That’s interesting. You know, when I’ve talked to members attempting to scale and maybe less formally, I don’t know if they’re calling it a scalable task force. They usually start with sales. And the reason for that is because they want to be able to measure it. They want to see revenue coming in. And also the founder is usually trying to replace him or herself as the firm’s primary rainmaker. But you chose to start with service delivery instead of sales. Can you tell us a little bit about what went into that decision? 

Jeff Weathers [00:10:38] So we actually look through all 17 topics in section two of critique. And what we did is we said, okay, what’s the level of impact of each one? And what’s the time frame to achieve? Not surprising business development and pricing. We’re at the top of the list. We actually have been spending a lot of time on business development and pricing over well over a year now. Okay. So to answer your questions, they’re already they were already underway. Makes it makes sense. 

Greg Alexander [00:11:10] Makes a lot of sense. 

Jeff Weathers [00:11:10] Yep. So the next two that we looked at on that list are client experience and yield. And of course client experiences. You know, in looking how you support the individual client. Goal and yield is within the efficiency of how our teams can deliver high-impact service to to their clients. Those two, we decided were, all the other areas we had identified and we knew there were opportunities. We decided, look, these are by far the next two highest priority, probably behind business development and pricing. Got very. 

Andrew Thompson [00:11:43] Well. The reality there, Greg, is that the our our cost structure is built of service delivery. And we are we are the premium provider with premium pricing. With increasing competition, we need to be really conscious of our pricing to manage our gross margin. 

Greg Alexander [00:12:00] Yeah. Yeah. Well, I’m glad that you’re doing that. It’s sometimes people don’t focus on pricing enough, and it’s it’s a lever that we all have to pull, especially if you’re a premium provider. I mean, being intelligent about pricing is so important. So I love the fact and for those that are listening to this that might not have read the book yet. What they’re referring to is section two of the book is called the scale section. And there’s chapters in there. And they they use it as a menu, if you will, to choose the things and to come up with the priority list. And there’s a checklist at the end of every chapter that can help kind of eyeball whether or not this topic is of interest to you. So that’s a really good teaching for all of us, and maybe a way for those that want to start a similar task for us to get started. Jeff, any any, early results so far, is it or is it is it too early? Any even anecdotal stories that would suggest that you guys are off to a good start? 

Jeff Weathers [00:12:50] Yeah, it’s it’s definitely early in the process. So, you know, we’re hoping to see more results to come, but I think one of the first things that I noticed, is actually an openness from our employees, an openness for them to go out and find scalable opportunities because the task force we can identify, we can try to put processes in place, but we’re really going to rely on our employees to look at what they do on a daily basis and say, what can I do to scale the business? So there’s an openness and we’re excited about that. Second, we’re already even within a couple of months. There were some really. Easier. Easy target soon than I thought. They’re already putting processes in place. That are going to help us engage with our clients at a much higher value of service. Yet to be seen how much impact it has that we’re excited to to see those through. And then I would say, lastly, we came up with a whole list of efficiency of efficiencies. And what we have to do is rank that list and say, okay, where do we start and how do we attack it? And so we’re doing that and we’re ticking down and, and I think there’s plenty of opportunities there as well. So I’m excited about that. 

Greg Alexander [00:14:06] Yeah, I’m pleased to hear the employees are open to it. You know, that’s half the battle. Sometimes with any change, initiative is just getting people on board. So congrats on that. I guess guys, my last question is for both of you. And that is, you know, for those that are listening to this, members that are saying, Jesus, maybe it’s something that I should do. What, what words of encouragement would you give them or what would you tell them to stay away from? Like, were there any things that, surprised you, you know, as you designed and launched this new initiative? 

Andrew Thompson [00:14:37] You won’t be surprised. At one of the answers. The communication is so important. Just the word scaling that’s new to most people. Yield is new. We were approaching it with a level of transparency that was new. And so we’ve gone through yield analysis. What does scalability mean? At least two times both of those for the whole company. Pretty slowly and carefully. And it came from the top. So I was I was walking folks through that. We also, I would say while a task force can be incredibly effective and we’re already seeing some early returns, we look forward to keeping you abreast over the next couple of months. As I said to the team, in our in our annual state of the company, the task force is not going to hand you scalability. They may and you tools and and processes to help you scale, but the scalability happens with you. And so the message for the team and this is you’ll love this Greg. The theme for the year is practice scalability every day in every way. And so it is not something that can be isolated with two and a half FTEs and turned into a little project with announcements every week. It’s got to be something that’s a way of life across the company. 

Greg Alexander [00:16:00] Interesting. Jeff, anything that. 

Jeff Weathers [00:16:02] No, I’m just very excited about, you know, you you look at it and you say, look at all the opportunities we have. Look at how much growth we can find. So really excited to see what the results will be, right. 

Greg Alexander [00:16:15] You know, I would like to add something to this comment, and maybe this is a give back to Andy and Jeff for their generous, time today, when I had my firm and I was focused on scaling it, the two measures that we tracked more than any other. Or the cost to acquire a client. Was it going down and going up? And if we were scaling our business development efforts correctly, then we were. We are more efficient in how we acquired clients. That was no one. And then the second was the cost to serve a client. Was that? Was that staying at a minimum flat while revenue was increasing. So therefore we saw margin expansion or was it declining? The cost to serve a client was going down and price was staying the same. So also a margin expansion opportunity because we were more efficient in how we delivered the service. So I don’t know if those are on your scorecards, but I would encourage you both the kind of macro numbers, if you will, and there’s many sub metrics that lead into both of those numbers. But if you think about scalability, what really is it scalability in a services firm is this revenue is growing at a clip faster than headcount. In the end, that’s the essence of it. And if you can get revenue growing at a fast clip, maybe it’s growing at 25%, but head counsel and growing at 5%, then you’re scaling. If you if revenue is growing at 25% and headcount is growing at 25%, you’re really kind of running in place. I mean, you’re you’re not that’s you’re you have higher revenues, but you’re not necessarily earning more, creating more enterprise value for yourself. So just thought I would share that with you guys as a give back. And hopefully that’s helpful. 

Andrew Thompson [00:17:55] All right. Thank you. 

Greg Alexander [00:17:57] All right. Well Andy and Jeff it was great to have you both. We look forward to being a weekly role model with the member Q&A session. So thank you for that. And congratulations on your new initiative for having the courage to launch it. And I wish you the best of luck with it. 

Andrew Thompson [00:18:11] Thanks, Greg. 

Jeff Weathers [00:18:13] I. 

Greg Alexander [00:18:14] All right, everybody, that’s the end of, today’s episode. If you want to learn more, go to Collective54.com. If you want to read about this book that we just discussed, you can find it on Amazon. Again, it’s called The Boutique How to start scale and sell a professional services firm. But until next time, I wish you the best of luck as you try to grow, scale, and exit your firm.

Episode 161 – Behind the Numbers: Decoding the Finances of a Boutique Service Firm – Member Case by William Lieberman

In this session, we simplify the financial jargon surrounding a boutique professional service firm’s Profit and Loss (P&L) statement. Join us as we decode revenue, expenses, EBITDA, and net income, offering insights applicable to any member, regardless of their financial expertise. Whether you’re a consulting firm, marketing agency, systems integrator, or another type of small service firm curious about financial matters, this exploration into the world of P&L statements provides valuable insights into understanding and interpreting financial health.


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 to serving the unique needs of a unique set of people. Founders and leaders of boutique professional services firms. On today’s episode, we’re going to walk down memory lane and get into some finance one on one. Many of our members are not finance experts, and a reminder of the fundamentals is warranted. And we’re going to talk about how to deconstruct a PNL or profit and loss statement. And we have a long standing, well-liked, well respected member. His name is William Lieberman. This is what he does for a living, and he’s going to help us, guide us through this conversation today. So, William, it’s good to see you. Please introduce yourself. 

William Lieberman [00:01:06] Thanks, Greg. William Lieberman Company is the CEO’s right hand, and we provide outsourced finance and HR services to small and medium businesses throughout the US. 

Greg Alexander [00:01:18] Okay, so let’s talk about the profit and loss statement. So first, what is it? 

William Lieberman [00:01:25] So the PNL profit and loss Damien or income statement represents how your company makes money, spends money and generates profit. So it shows you all the money that’s coming in and the money that’s going out and at the bottom, how much profit you are making at the end of the day over a period of time could be a day, a week, a month, a year. Typically it’s a month or a quarter or a year. 

Greg Alexander [00:01:48] Okay, perfect. And for what it’s worth, listeners, to me, it’s the most important of all the financial documents. It’s the thing that you should be reviewing regularly. It, it is the health checker of the business. Okay. So I’m going to ask you some directed questions. These questions come from members who I’ve talked to that have struggling with this. So the top line of a panel is revenue of course. And I think that’s self-explanatory. However, people are running into an issue of revenue recognition. So for somebody who might not be familiar with that term, what is revenue recognition and how is it relevant to the founder of a services firm? 

William Lieberman [00:02:25] When you earn money. When you generate business, you need to recognize that revenue over the period that that money is earned. So if you deliver a service over a period of three months and you charge a flat rate for that service. One way to recognize is divided equally over that three month period. So that that revenue matches over the time period when you’re delivering that service. 

Greg Alexander [00:02:53] Right. I had a member who sells an annual subscription. For $50,000 and collects all the money at the beginning, and then spends it all and thinks that, you know, everything looks great. And I had to remind him, I’m like, you realize you have a liability here, right? Like that really wasn’t your money that was paid in advance, but you’re on the hook to provide the service for the next 12 months. So that’s an example of where revenue recognition can get, get out of whack. All right. So the next one, which is probably the biggest issue and this is what’s most often called Cogs cost of goods sold. We refer to it as cost to serve, and we define it as the direct labor expense associated with delivering the service. And the way you calculate a gross margin number is revenue minus cost to serve equals gross margin. And I raise this issue, William, because so many people struggle with what goes into cost to serve a Cogs like the contractors go in yes or no, do IT services go into it, yes or no. So help the audience think through what you believe should be in that Cogs number. 

William Lieberman [00:04:02] Sure. So let’s start with some obvious ones. So if you have a consultant who’s providing a service to a client and you’re billing out for that consultants work, that would be in cost of revenue. If that consultant is an FTE full time employee or a contractor, that person stays in that cost of revenue bucket. It gets a little trickier when you have other types of expenses that may or may not be directly attributable to generating revenue, and it gets a little gray. So for example, customer service, customer success. There are a variety of ways that people think about customer success in a professional services business. So for example, there are customer success folks that focus in on upselling, right? They’re account management and they’re trying to generate more revenues through your client base. Well, that’s really sales and marketing. So that’s not cost of revenue. But there are other companies where customer success is more about, doing maybe technical work or delivering subtype of service that is, being billed to the client. And, but they call it customer success because they’re not necessarily hourly billable people, but they’re still responsible for delivering some body of work. And in those cases, those customer success folks belong in Cogs or cost of revenue. 

Greg Alexander [00:05:27] Yeah. Okay. Very good. How about allocating, overhead. So let’s go there so that we’re now we just walk through revenue. Revenue recognition cost of revenue. In Williams terms we call that cost to serve in a product company that because a good sold that gives you a gross margin line. Then what gets subtracted from the gross margin line is a series of things that gets you to an even a number. One of those is overhead, and there’s an awful lot of confusion as to what is considered overhead and how overhead gets allocated, etc. so help the audience think through that. 

William Lieberman [00:06:03] Well, you have a variety of buckets of what’s called operating expenses or, you know, let’s say overhead things like general and administrative expenses. That could be your insurance or bank fees or internet fees and things like that. There’s selling expenses, sales and marketing. So the cost to actually pay a sales person a commission would be, a sales expense. There could be marketing materials or flying to a conference, things like that, all in the sales and marketing bucket. And you could have customer success. Like we mentioned before, customer success is another big bucket that’s under operating expenses. And in some cases, you might even have product development like or service developing. If you’re creating a new service, you need to generate work and spend money to develop that service that would be under operating expenses. So those are the four main ones that you typically see in a professional services business. 

Greg Alexander [00:07:02] And the slang here is that what you would call opex. 

William Lieberman [00:07:06] Opex operating expenses? 

Greg Alexander [00:07:08] Yep. Yes. And opex is different from CapEx. Oh. 

William Lieberman [00:07:12] Yes. So CapEx and capital expenditures are when you’re buying typically a piece of equipment or you’re spending money on a large purchase that’s amortized over years. Maybe you’re buying a company and you’re going to capitalize that company. There’s goodwill and there’s other types of things there. But CapEx typically is referred to in, equipment, hard things that you can kick and touch in, in feel, like a manufacturing business has a big piece of machinery and that’s capital expenditures. In professional services, you don’t really see it too often. Sometimes you have a lot of computer equipment and you might, put that under CapEx, but not often. 

Greg Alexander [00:07:52] Right. And in terms of the owner’s expenses, maybe things that the owner is running through the business like, automobile lease or Plane tickets or what have you. Where would they sit and what advice do you have? People around add backs. 

William Lieberman [00:08:12] So, I’ll tell you how I do it. Okay. So what I do is I have all the owner’s expenses, what I call below the line. So under other expenses. So you have all your operating expenses. And so you have, backing up revenue minus cost of goods sold gives you gross margin. Gross margin minus operating expenses gives you operating income. And then below that, you can have other expenses in there. You’ll have things like interest expense if you borrow money. You’ll have interest expense to the bank or a lender. I also the way I do it is I put any owner’s expenses under there so that I can easily separate out. How much am my is it truly take to operate the business, versus how much am I running through the business for tax benefit only? And that way I can easily say, okay, month by month, here’s how much I’m spending on my plane tickets or, you know, dinner for my wife. 

Greg Alexander [00:09:11] Yep. Very practical way to handle that. I like the other category. I hope all of our members that are listening to us embrace that. So someday when you’re presenting your financials in a potential exit, it’s pretty easy to calculate the add backs. It’s pretty easy to do a Q of equality of earnings. And you know, you have good records. Okay. One thing that I see over and over again. 

William Lieberman [00:09:35] I think I want to I want to just clarify one thing or add one thing on the owner’s expenses. Owner’s compensation is a really important number, and it can be very large and can be very significant piece to what goes under, your PNL. So you want to have in your, income statement, you want to show owner’s compensation, how much it really, you know, you would need to get paid, or you would have to pay somebody to do your job for you. That would be an operating expense under op X. Any additional compensation that you pay yourself would be under other expenses. As you say, Greg, it would be an add back. So it’s really that’s a really important thing because when you get to adjusted EBITDA or EBITDA as a and you’re trying to figure out how much your company’s worth or can sell, that’s the sum number you’re really gonna want to hone in. 

Greg Alexander [00:10:27] Yeah, that’s a good call out because the buyer of your firm is saying, what is the cost to operate this business going forward? So if you’re leaving after the sale, they’re going to have to replace you. And there’s going to be real costs associated with that. So distinguishing between those is really good. All right. So just we try to keep these podcasts short I have one more question for you. And then we’ll save all the rest of this good stuff for the member Q&A. 

William Lieberman [00:10:47] Yep. 

Greg Alexander [00:10:48] The difference between accrual and cash accounting. And when does somebody need to make the switch? 

William Lieberman [00:10:56] So my opinion is that you should always be unapproachable. You should never be on cash base unless you’re operating a small bricks and mortar business. You know, you’re dry cleaner, where you’re paying. Your customers are paying you cash for business, and it’s just widgets that are going in and out the door. Everybody else really should be on accrual basis. And the reason being accrual basis accurately matches the revenues with the expenses on a monthly basis, so that you can easily measure the health of your business if you do it on a cash basis. You’re just measuring when does cash come in. Versus when does it go out? And to your point, earlier when somebody gets a $50,000 check at the beginning of the year for a year subscription, that’s not all recognizable revenue, when you get the money, it’s recognizable over that 12 month period. So if you do it on a cash basis, you would say, oh, I made $50,000 this month, but that’s not true. 

Greg Alexander [00:11:50] So I hear you, but the reality is, is most people start off not knowing that. And they they know cash is king and they’re worried about paying the bills. So they run their books on cash and then something happens. Like, for example, they hire you and you say, hey, you need to switch to accrual. And here’s why. And they have an oh shit moment. Right. So how painful is the conversion from cash to accrual? 

William Lieberman [00:12:14] Well, we’re doing this for a few different clients currently and it can be very painful depending upon how far back you go. And in some cases you have to go back several years. If you receive cash and you still haven’t delivered the service and you’re still, you know, keeping it on the books or it’s still a liability because you owe somebody that service. It can be very painful to switch that over. And so you want to do it as soon as possible because, you know, as you say, when somebody something comes along, you have that oh shit moment like a lender. Let’s say you want to go get funding from a bank. They’re not going to look at you if you have cash based books. 

Greg Alexander [00:12:47] Right. And when you have cash based books and you present them to a lender or a potential acquirer, what you’re saying to them is you’re not very sophisticated. You don’t know what you’re doing. So it’s got to be really careful there. So if you’re not on accrual basis right now, get there. If you need help to go from cash to accrual, call William who can help you do that. And, you know, you probably need to pull it off. All right. So on the private member Q&A, which will be an hour long Q&A session with members, we can talk about a lot of other things. Let me let me tease the audience with a bit of though. So for example, there’s this whole debate between what’s recurring, what’s reoccurring, what’s repeat in terms of revenue. We’re going to have a whole debate around that. We’re going to talk about the balance sheet and how you can calculate what the real worth of your firm is when you talk about the mental model shift, to go from thinking in income terms to thinking about enterprise value, we can talk about the cash flow statement and how that’s different than the PNL, etc.. So lots of things we’re going to talk about. So if you’re interested in that, please, tune in. But William, it’s always wonderful to see you. I know this stuff for you is, you know, very, very fundamental. But for entrepreneurs who are really domain experts in other areas, this is, very valuable. So thanks for being here. 

William Lieberman [00:14:01] Absolutely. Thanks, Greg. 

Greg Alexander [00:14:04] Okay, so with that, that’s the end of the show. If you want to learn more, go to Collective 54.com. If you want to read about this kind of stuff, check out my book, The Boutique How to Start Scale and Sell a Professional Services Firm. You can find that on Amazon. But until next time, I wish you the best of luck as you try to grow, scale, and exit your firm.