Episode 101 – Chief of Staff: A Role You Can Leverage Today To Find The Time To Work On The Firm – Member Case with Bryon Morrison

Scaling a boutique professional services firm requires effective replication of the founder and a focus on delegation. On this episode, Bryon Morrison, Co-Founder & CEO at Proxxy, talks about the power of replication to remove the founder bottleneck so they can work on this business.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Pro Serve podcast with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community dedicated entirely to helping you grow, scale and someday exit your boutique processor firm. My name’s Greg Alexander. I have the pleasure of leading this group and I will be your host today. And on this episode, I’m going to talk to you about how to scale yourself, how to replicate yourself and others, how to delegate, determine who to delegate to when to delegate, how to delegate, etc.. And what I hope to accomplish on this call with my esteemed guest, who I’ll introduce in a moment, is to first just draw awareness to this issue that when we run a professional services firm, sometimes the founder or co-founders can get in the way. They they continue to do things the same way they’ve always done them. However, their firm has progressed beyond a practice. They have a real firm, large numbers of employees, etc. And in order for them to continue to scale and maybe someday exit their firm, they have to get to the point where the firm can run without them. They’re not the firm is not entirely, completely dependent on the founder. So that’s the goal of today. We’ve got a great role model with us. He’s going to share his experiences. His name is Bryon Morris and he’s a member of Collective 54 and the founder of proxy. Brian, great to see you. Welcome to the show. Please introduce yourself. 

Byron Morrison [00:02:01] Thank you, Professor Alexander. Good to be on the podcast and I appreciate you letting me talk through the bottleneck with everybody. So, yeah, I am the co-founder and CEO of proxy and you know, it was just like you said, I spent enough time working in large Fortune 500 companies watching these executives. And what I learned was they have this support system around them that makes it impossible for them to fail. And I always looked at them and I said, why? Why isn’t that available to the entrepreneurs of the world, the small to medium sized businesses that are in high growth mode that really, really need it. And so I you know, a few years ago, I stepped back and and said, you know, I’m going to see if I can solve that problem. And so met up with a couple of other my other co-founders and we developed a proxy. And I’ll tell you, it’s been an amazing ride for we’re entering our third year and, you know, it’s just natural for us to be able to help these companies because we just have this servant leadership mindset and we believe in entrepreneurs and we believe that they’re capable. So we’re excited to be able to help anywhere we can. 

Greg Alexander [00:03:25] Okay. I was really excited to see that you were on the show today because you provide something that I think our members would benefit greatly from. And this is not just a blatant sales pitch. I really believe this and that’s something is a professionally trained, remote chief of staff. And first, I want you to explain what that is. And then I’m going to offer the audience my opinion as to why they should care. So would you explain what a professionally trained remote chief of staff is? 

Byron Morrison [00:04:00] Yeah, we’re essentially an executive multiplier. You know, there’s such an important need for an executive to be able to, as you said, replicate yourself. And so it’s what we provide is a solution to automate some of the routine tasks that you see. But the reason we do that is because it frees up the executive to listen to and work with the strategic counsel that we can provide. And so will help drive strategic initiatives, help them identify where and how to prioritize those. But the chief of staff role is something that, you know, you see it coming up more and more. And it’s often misunderstood. Some people think of it as, you know, an executive admin or a support role that is really more task oriented, but it’s a really strategic role. And the thing that’s a little bit unique about how we do it is, and I would argue it should be a third party most of the time because we trying to grow budgets, we aren’t trying to build a fiefdom and get more hires. We are only focused on helping that executive. And so that’s why we built this as a remote model, so that we could keep somewhat separated from the rest of staff and really stay focused on that executive that we’re working with. 

Greg Alexander [00:05:33] Someone to tell the audience a little story, and it’s somewhat comical and embarrassing, but those are usually the best ones. So when I had my boutique firm called SBI, my wife and I were really into a television show called The West Wing. And we would we’ve been this thing I’ve probably seen every episode, I don’t know, five times. And what I learned through that show, which is crazy, that this is how I learned this, is that the way the presidents of the United States and the White House operates is the president has a chief of staff and the chief of staff is a senior person, maybe the most senior other than, you know, the president’s direct reports. And the contribution that that chief of staff made to the president was enormous. So I said to myself, with that inspiration, maybe I need one of those people. So I had one. And what I what I started with, which is what I would recommend everybody here is I did a time on it and I said to myself, Where is all my time going? And if I hold myself to a standard and the standard that I came up with was what was called a key contribution. A key contribution was the things that I did for the firm that significantly moved the needle. And if I stripped everything else out of my life and my work life, how much more time would I have to invest in key contributions? And as a result of that, could I scale myself and then by default, my firm? And really, that’s what the chief of staff did. So I, I said and I would use that word, shed all kinds of habits and things I was doing that I thought I needed to do, but I really didn’t need to do. And I had to take a leap of faith. The chief of staff had to prove to me that she, in this case, was capable of doing it. But I got to tell you, you know, today we’re talking about how to scale yourself. And that was a major moment for me. And what I love, Brian, about what you’re doing is that a lot of our members don’t have that person internally. They might not be 100% convinced that they should do this or they could do this. And by engaging with proxy, it’s a flexible model. It’s a variable model. And it’s a way to get started and see kind of what the return is. So that personal story that I just share with you, do you see that story in your other clients and do you have a couple stories that you are examples you might want to share with the audience? 

Byron Morrison [00:08:13] Yeah, yeah. It’s everybody needs a Leo. I actually wrote an article on that because everybody needs Leo McGarry. But, you know, you’re right, Greg. I think one of the challenges that people have with this is they think of it as an all or nothing role where I’m going to make this hire and man, I’m going to invest a lot in that hire. And, you know, I feel like a better place to invest that time is in the long term hire that comes up that you’re going to invest and you’re going to grow your firm around. And so that’s that whole point of succession. But you always need somebody there who you can talk to. And, you know, we have a. Every rational promise that we make to everybody, and that is that we focus on giving back or reclaiming at least 8 hours a week. Now, if I just do the math here, your point about going through your personal efficiencies and identifying where your hours going and your key contributions, you’re probably burning some time in areas that are really helping the firm. So we recognize that. And and frankly, that’s why we don’t have long term agreements, because we really don’t. All we’re focused on is helping you succeed. And each week we come back and say, did you feel it? Did you feel the impact of what we worked on? Because if not, we should change the focus. And so sometimes that’s a collaborative process where we’re working together to identify that. Sometimes we bring that to our clients and say, you really ought to reprioritize and focus on something else. And they know that it’s coming from a good place. So the rational promise is you get some time back, you know, change what you’re doing. The emotional promise that we focus on is. Being that confidant. That you can talk to and you can say anything to because, you know, if you’re working with somebody, you say something to a staff member. There’s a ripple effect no matter what because of personal biases, concerns. So we actually, you know, one of my friends and clients told us I love what she said. She goes, you know. In business as a CEO, I have speed bumps all the time and so I’ll look at lots of different lanes I could drive down and some speed bumps are higher than others, and I don’t even want to get near it. She goes. You guys just shape the speed bumps. It’s just gone. Like we just execute. We keep moving forward. And so I thought that was a great metaphor. But yeah, we see that. We see tons of issues around succession planning. We see issues around management methodologies. You know, do we have the discipline and consistency in that, the wrong people in the wrong roles, people being mismanaged because of their site makeup or their natural strengths, just poor initiative management. And sometimes it just comes down to like that hero, the CEO. You know, we see that all the time where it’s hard for us to see that. And you know, your point about funny stories. I was that guy. Yeah. I’ve absolutely been in that role where I was like, I didn’t know I was doing it, but I would set it up so I could come in and save the day. Mm hmm. And so once you’ve done that, you’ve realized it. You go, don’t let anybody else pay that dumb tax. Yeah. Then, you know, we’re. We see it all the time. So. 

Greg Alexander [00:11:46] So part of scaling yourself to the listeners is the distinction between kind of cost of doing business items and strategic mission critical key contributions. So the hard part is once you understand what your personal key contributions are and you say to yourself, okay, I’ve got to teach somebody else how to do this as well as I do it. And I talk at length in my book, The Founder Bottleneck How to Scale Yourself and How to Do That. And that is the long term multiyear process of succession planning. And it is absolutely, positively mission critical. And you can’t go cradle to grave as a founder of a boutique process firm unless you master that. What Brian is talking about and what his firm offers is a different type of service. And I would argue equally important, because it is a multiplier to use his terminology, and that is there are cost of doing business items. There’s things that we all have to do that we do not want to do, but they have to get done. If they don’t get done, the firm doesn’t operate the way the way that it should operate. And when I suggest to founders that they need to scale themselves, they always come back to me and they say, Hey, I can’t just stop sending out invoices. I can’t just stop automating this or automating that. Like, all this stuff has to get done and I’ve got to give it to somebody in my staff. They’re early, they’re already 80, 90% utilized right now. So I can’t load this stuff on top of them. I need somebody else. And that’s where I think a chief of staff can come in. Not that they’re just relegated to mundane, boring task work. These are cost of doing business items. So they’re critical that they get done. But that’s the stuff that I think can go to a chief of staff. And this is a you know, this is a new idea for many of our founders, is the idea of having this person on staff, you know, a real right hand. The objection that comes up when I suggest this, Brian, I want to give you a chance to address it is I don’t have the money. It’s I’m not going to invest in doing this. I know what I say, but I’d love to hear what you say to that objection. 

Byron Morrison [00:14:04] Yeah. I just it kind of comes back to the old argument of, hey, I’m the CEO, but I’m also the chief model washer. Well, when I hear that, I’m like, then you’re really doing a poor job for your stakeholders in that business because you should not be the chief bottle washer. I get the point of what you’re trying to get across, but you’re using your time ineffectively and that time is worth a lot. You know, we do an ROI calculation. When we start working with a client, we start the same thing. We look at personal efficiencies. Where can we save that individual time? A lot of those times they might be administrative functions like that. We identify how to automate those and make them go away, or we identify how to make those routine so that you can hire to it a less expensive resource. Then you move on to the next thing. And those tend to become more and more strategic as we eliminate the tactical issues that you’re dealing with. So you’re right. I mean, you know, a lot of people I came up in consulting and advertising and marketing and, you know, some people were like, oh, I don’t like doing that kind of work, you know, because it’s, you know, that’s for somebody else. We believe that those are the things that stop you from becoming great. So we eliminate those things. We work, focus first on the personal efficiencies, but then we move in to team assessment. What’s your team look like? Are they capable of taking on those roles? Are there spaces where we can improve upon the processes that you’re currently doing? Then we get them to the stage of growth. So where is that company at? Should we introduce, you know, like you do a great job in the boutique of laying out what you should be thinking about in each of the stages? We go through a similar process. We just break that down a little bit more granularly so that we can actually focus on what should be prioritized first and where do you spend your time. So I agree with you the little things that when people say I can’t afford to do that, that’s because they don’t really understand the role of the CEO yet. Yeah. And so most of the companies that are larger, they’re like, I have I want to have an Office of the Executive because they know exactly what that amplification or that multiplier effect is. 

Greg Alexander [00:16:25] What I say to people say, listen, I don’t have the money for this. I say, you’re missing out on the most important cost and that’s opportunity cost. So Bryan says it gives you back 8 hours a week. So what’s that worth? So let’s say you build a client, I don’t know, $250 an hour. Right. So, I mean, right there. What’s that? 2000 bucks per week. That’s eight grand a month right there. So I don’t when I hear that, I’m I don’t know, I just call B.S. on it because very often people think they think about the cash. They don’t think about the opportunity cost. What would you do with those extra 8 hours? You know, pull open your to do list. Stack, rank the things top to bottom based on the areas that you want to dove into that you’re not getting to because you don’t have the time. And if you had a chief of staff, you’d be able to get to those things. And if you pull them off, one of those worth. So the opportunity cost is just astounding. It’s it’s a real big issue. So. 

Byron Morrison [00:17:19] Yeah. You know what we also see, Greg, is just this. They get into it and they go, Well, I don’t have that many other things on my list. So a lot of times they aren’t just they just aren’t aware of what else could be done. Or when they implement something, they go, No, no, no, I did that well, they did it in their head or they did it half way and they haven’t made sure. Are they tracking it over time as a longitudinal value? Am I working through the communications that are necessary to get that out? Is there an ongoing effort to make sure that it sticks? So there’s this difference in entrepreneurs from people who are doing work because it matters and they know it. And then the individuals who are doing checkboxes. 

Greg Alexander [00:18:04] Yeah, for sure. 

Byron Morrison [00:18:05] And they go, Well, I finish that. I’m on to the next. Yeah. 

Greg Alexander [00:18:08] All right. Well, we’re out of time here. I’m really looking forward to the Friday Q&A session that we’ll have with members I this is a hot topic. Our members are time starved. I hear it all the time. And they’re going to really probe into this as a possible solution for that. So thanks a bunch for being on the show. I really appreciate it. 

Byron Morrison [00:18:25] It was my pleasure. Thank you. 

Greg Alexander [00:18:27] All right. So if you’re a founder of a boutique processor firm and you want to belong to a community of peers and meet great people like Bryon, consider joining Collective 54 and you can apply for membership at Collective 54 icon. And if you’re not ready to join, but you just want to educate yourself some more on topics like this and others. Subscribe to Collective 54 for insights, which you can also find on the website. This gives you benchmarking data, a weekly podcast, a leading blog. We actually have a bestselling book called The Boutique – How to Start Scaling, so a professional services firm. So that might be a place to start as well and until the next episode. Thanks for listening and I look forward to the next time we get together. Take care.

Episode 100 – How A Communications Agency Is Beating The Recession Today By Focusing On Key Clients – Member Case with Todd Rapp

Have you defined your growth strategy to build a sustainable firm? On this episode, Todd Rapp, Owner and CEO at Rapp Strategies, Inc., speaks on how the firm continues to grow and flourish by focusing on their key clients.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Pro Serve podcast with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community dedicated exclusively to helping you grow, scale and someday exit your professional services firm. My name is Greg Alexander. I’m the founder of this wonderful group and I’ll be your host today. And on this episode, I’m going to talk to you about strategy. And I’m careful with that word because it’s the most often used word in the business lexicon, I guess. But at the time of this recording, it’s early November and we’re getting ourselves ready for 2023, which by all measures looks to be like an interesting time. So it’s a good it’s a good time for us to have this conversation and we’ll define it, and we’ll discuss what to do with it, how to build it, etc.. And we’re very lucky that we have an exceptional role model with us. We have Todd Rapp with us and he’s going to share about things about his firm and and how he has built his strategy and how he uses it to achieve the success that he’s had recently. So, Todd, welcome to the show and please introduce yourself. 

Todd Rapp [00:01:33] Well, thanks, Greg, and I appreciate the kind words. I’m Todd Rapp. I own a public affairs firm, which is really a specialized public relations company in Minneapolis. We are it’s been a company that’s been in existence for 40 years. But in in my case, I’ve been an owner of this only since 2008 and the sole owner since 2017. Our focus is on helping clients basically in two different areas. The first area is that we help clients with a significant number of either public issues or maybe they’re involved in, say, public construction projects and we help them with strategic communications. And then the second type of client, or those who who also are fairly public facing and they’re really focused on reputation management and risk mitigation. And so we provide strategic counsel and communications services for them. 

Greg Alexander [00:02:27] Okay, fantastic. You know, one part of your journey that I really love and I’d like to spend a moment on, it’s slightly off topic, but we don’t get a chance to speak as often. So I want to put this out there. You know, we have members of Collective 54 that have done what you have done, meaning that there is an original founder, a group of founders, and they start the firm and that’s kind of the first generation. And then somebody takes over for them initially, partially, and then eventually in totality becomes the founder. That’s generation to to use the academic terminology, and then they carry the firm forward. I’d love to hear from you just briefly kind of how that happened with with your company. And if you have any advice for people like you maybe a few years ago that are working for a firm, want to own it someday. 

Todd Rapp [00:03:16] Well, first of all, Greg, how long do you have? Because this is I mean, you know, I think, you know, for for me, I mean, this was a firm that was really highly successful in the marketplace. But I think you could also argue that the reputation maybe exceeded the footprint, if you know what I mean. That is that it was a lifestyle firm for the two owners, and they brought me in 20 years ago to be the managing director. And one of the first things I decided was that I better learn pretty quickly about how the financials work, how we drive revenue, how we build efficiencies inside the office and and try to capitalize on those. And that may have been more of a lucky choice than it was a strategic choice, but it really helped as I got to the position where I became president. And then, you know, eventually I was in a place where I could succeed. Each of the owners at different times. Yeah. It was also really a siloed business and all that stuff. Something we talked about, Mark Collective 54, that you really have to owners who have their own business operations, but then they shared a staff, administrative services account, team, things like that. And the and it worked really well for them. But as I took over the firm and started thinking about things, I decided we needed more of an integrated strategy, that if it was okay to have people become part of the firm who have their own book of business, obviously, but we still needed the firm to be well connected in terms of the mission and in terms of everybody’s alignment on what the financial success would look like. 

Greg Alexander [00:04:56] Interesting. You know, we people ask me sometimes, what does Collective 54 do? And if I’m at a cocktail party, I give them a single sentence. And that is the business of expertize. And what I mean by that is, is that our members are all experts in their domain and they’re brilliant, but sometimes they could use help on the business side of that. You know, for example, today we’re going to talk about strategy. You mentioned understanding the financials. There was an equity event that that happened. There’s all these business components that are just as important as the expertize. So and it was maybe a topic for another day, but I just I knew that about your journey, and I just wanted to ask you about it. Okay, let me frame up our conversation regarding strategy, and I’m going to use an old kind of framework to position this. So the literature on strategy would say that a company or firm of any size has four options of a strategy. So the first is they can choose product differentiation. So in our case, that would be service differentiation. And therefore all their resources, their time, money and people are dedicated to towards being different, maybe, maybe not even bigger, but just different. So that’s one strategy. The second strategy is I’m going to win on price. So I’m able to operate my firm at a cost structure that’s lower than my competitors and therefore I can charge less to my clients. And I went on pricing. There’s lots of examples of great companies that do that. For example, Wal-Mart in the retail industry. The third one is service. So I’m going to overinvest in the client experience, and that’s how I’m going to differentiate, you know, a company that comes to mind. There would be maybe the Four Seasons hotel chain. They they sell a commodity product, a 500 square foot hotel room. But because of the the guest experience that differentiate it and in the fourth one is called the focus strategy. And this is where a firm picks a an industry and a segment within that industry. And they understand the needs of those customers better than anybody else. And they tailor their entire. Company and value chain, if you will, to meeting the unique needs of that particular customer segment. And because of that, they win. So put you on the spot here a little bit. What of those four? If I forced you to choose one, which is an unfair thing, but I’m going to do it today anyways. If I forced you to pick one, which one does your firm embrace? 

Todd Rapp [00:07:32] I would say more likely the fourth. And that is that we provide a very what I think the market understands is is a pretty clear value to our clients. And we work through a lot of different industries. We’re fortunate to work for the the largest health system in the Twin Cities, the largest health insurance company in the state, several of the largest electric utilities of the upper Midwest. I mean, we we’re fortunate to be in that space with the market for that type of customer where they really value what we provide in terms of strategic advice and and communication paths. It’s interesting you talked about that. You know, starting off, I immediately thought about, well, how can we use price as a better differentiator? And what I learned was it’s about value, right? People will make an investment in a partnership with a firm if they if they know that that you’re focused on their business results, first and foremost. And we’ve been really lucky in that way. I would say that a majority of the revenue that we receive, probably a substantial majority, is from relationships that we’ve had more than ten years. And and those are those with organizations who will consistently need to be in the public space, in some cases at smaller firms, so that they were on a growth path. And they needed somebody like us to come in and just and be good counselors and advisors for them. And, you know, one of the relationships I’m proudest of, there’s a small engineering firm that grew up to be large enough that they attracted the interest of Blackstone and and ended up being acquired. Yeah, I know. We played at least a modest role in that as we helped them position themselves in the marketplace. That’s what’s kind of fun, but I think it ends up therefore being the last category that we’ve differentiated ourselves and the services we provide is different than, say, pure public relations and really focused on reputation and also our business growth in a highly public setting. 

Greg Alexander [00:09:37] So tell me about reputation, and I’m interested in that as an area of your focus, because professional services are what is what known as Credence Goods. And what I mean by that is when clients hire a professional services provider, they they have to make a leap of faith. They can’t test out the service usually before they buy it. You know, sometimes when you buy a product, maybe you can have a sample. You know, you go to a restaurant, you look at the wine list, you order a bottle of wine and the waiter pours you before you commit to the entire bottle. With services, you don’t really have an opportunity to do that. And so it’s called the credence good. So therefore it’s largely bought on reputation. And the reputation of your firm is what moves through the word of mouth channel and leads to the growth. So since you’re an expert on reputation for our listeners, your peers, founders, leaders of boutique professional services firms, what should their what should the basics of their reputation management approach be? 

Todd Rapp [00:10:45] For their own firms. Obviously, number one, I think above all, the rest is integrity towards client goals. I mean, I think that’s the if you understand the what your client needs and understands the uniqueness of them, then you can apply your experiences and your knowledge in ways that help them out. And that’s really that’s what we do. It’s value add. I think a second thing that’s that’s really important is is a level of honesty. We’ve told our clients that we are we are passionate advocates, but we’re dispassionate advisors. And by that, I mean we have to be able to tell the clients when they’re going down a path that that’s not going to be successful. And we have to have their trust that the that the advice that we’re giving is based on what their needs are and not necessarily what the financial needs are of my firm. I think the one other issue about reputation is that you have to know what it is you’re trying to do. I, I do a lot of information, interviews with students, and I tell them that we’re not here in this market because we can help target sell stocks or we can help them open stores. But we’ve been fortunate enough that at times when a company like a Target has had some significant reputation challenges, they call us and say, Let’s talk through them and let’s figure out the best path. I think if you’re going to have a solid reputation, you better know exactly what you do well and be willing to accept. There’s other things out there that you don’t do well and don’t just chase contracts because you want to you want to grow immediate revenue. That’s not going to help you, I don’t think grow long term orbit. 

Greg Alexander [00:12:31] Interesting. Okay. One more question. My team, in preparation for this interview, told me that you’ve had a banner year here in 2022 and congratulations on that. And in your already prepared for 2023, with two months left in the year to go and you’ve got your strategy laid out. So a lot of firms right now, given the uncertainty of the economic environment that we’re in, aren’t doing as well as you’re doing. And in they’re reacting to what their strategy is going to be in 2023 and making lots of changes to their original assumptions, which strategies are filled with assumptions? So what were the drivers around your success for 22? And and what is the source of optimism for 23? 

Todd Rapp [00:13:18] Well, Greg, honestly, I don’t know if I started 2022 with the right plan. I was thinking I was focused on geographic expansion and I started down that path. And after a few months and a couple of failures in doing that, I stopped for a second and I just said, you know, the market that we’re in right now still has a lot of room for growth. And coming out of COVID, there’s going to be client demand for services just because know the nature of public issues, the client demand was going to grow. And so I rethought how, both in terms of my staff and in terms of my time, how we should spend that time. And it worked out. It’s been it’s been a successful last, say, eight or nine months of the year. And I now see I’ve got a pretty clear vision as to the client work we have going into 2022 and where I think the growth is now in saying that I haven’t put away that geographic strategy in any way, that’s still going to be part of the growth in 2020 324. But I think what I concluded was that our firm was in a position where we needed to make sure the home base was as strong as possible before we started looking at either partnerships or acquisitions or that are outside of our direct market and it’s been working. 

Greg Alexander [00:14:40] It’s interesting. Congrats on being able to pivot. You know, that’s a key component of strategy formulation. You know, in Todd’s example, he went into the I think in geographic expansion, that was probably a lot of energy and effort around that and passion around that. And then, you know, the market reacted differently and there was an opportunity to stay closer to home and double down on that. And the strategy has to be flexible enough to be able to make those changes. So I could talk to you about this forever. Thank God. We’re going to have our member Q&A on Friday on an upcoming Friday. So we try to keep these short. So unfortunately, we’re out of time here and I’m going to have to bring this to a close. But on behalf of the membership, you know, the way these things work is we we make deposits in the knowledge bank. That’s why it’s called the collective. And then and then therefore, we were able to do kind of withdrawals from the knowledge bank because the knowledge bank is so robust from all the partners. And you made a huge contribution today and it was wonderful to hear your story and and congratulations on all your success. And I wish you the best in 2023. 

Todd Rapp [00:15:43] Greg thank you. Thank you. Not just for this opportunity to thank you for the support that you give entrepreneurs and professional service firms and the great work of your staff. This has been one of the better decisions I’ve made in the last few years as joining the collective. 

Greg Alexander [00:15:57] Well, thanks for saying that. I appreciate it. My staff and I love to hear those those feedback. Okay. So if you’re a founder of or a leader of a boutique professional services firm and you would like to belong to a community of peers and meet great people like Todd, consider joining Collective 54 and you can apply for membership at Collective 54. Com And if you want to educate yourself some more on topics like this and others, think about subscribing to Collective 54 Insights, which you can find at Collective 54 dot com. And this provides a chart of the week which is our expression of benchmarking data, a weekly podcast like this one, a leading blog in the industry, and lots of other things. Like I’ve got an Amazon eBook that was a bestseller on Amazon called The Boutique – How to Start Scale and Sell Professional Services Firm. So if you want to educate yourself what’s great resources out there and consider, consider subscribing to Collective 54 INSIGHT. So to the audience, thanks for listening and I look forward to the next episode.

Episode 99 – How a Software Development Firm Tripled Revenue in 18 Months by Using The $10,000/Hour Rate Rule – Member Case with Gregory Hausheer

Growing and scaling a professional services firm requires management of the firm’s lifecycle. On this episode, Gregory Hausheer, CEO at Lightmatter, shares how he is evolving the firm through 5-year phases to grow revenue, and how his firm is focused on productizing and tech enabling services.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the ProServ podcast with Collective 54, a podcast with founders and leaders of boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community dedicated exclusively to helping you grow, scale and maybe someday exit your professional services firm. My name is Greg Alexander and I’m the founder of this great group and I’ll be your host today. And on this episode, we’re going to talk about the life cycle of a firm. And what I hope to accomplish in doing so is to share some wisdom on how to compartmentalize your strategy. And what I mean by that is that our point of view is that growing scaling and selling a boutique processor firm takes approximately 15 years, and there’s usually three phases along the way. We call them Grow, Scale and Exit. And the firm moves from being what’s called an intellect firm to a wisdom firm to a method firm. Now that’s a generic framework, and it’s important to understand and have enough self-awareness to know where you are in your lifecycle. Because the way that you manage your firm and the resources that you commit will change based on where you are in the lifecycle. So we’ve got a great role model with us today. His name is Greg House Year and he runs a fantastic software development company in the health care sector. And he’s going to share his perspective with us on this. And he’s he’s got his own lifecycle, as I understand it. He’s methodically processing a few phases along the way that have some some timestamps on them. So. So, Greg, welcome to the show and please introduce yourself. 

Gregory Hausheer [00:02:07] It’s awesome and nice to see you and thanks for having me. Name’s Craig Cashier and I’m a founder at Light Matter. We’re on year nine of our business and we build digital health products. So we design and develop software applications for the world’s most promising health care companies with the ultimate goal of improving their lives for their patients. Our team is based in New York and happy to be here. Thanks for having me. 

Greg Alexander [00:02:36] Excellent. Fantastic. So I set it up. Talking about lifecycle. Now what I from my understanding, your. Deploying kind of a phased approach to the evolution of your firm. And I’d love to give you the floor and have you explain that to the audience. 

Gregory Hausheer [00:02:54] Yeah, absolutely. I think at a high level, when you look at the history of our company and the phases we’ve gone through, we have spent the majority of our time stuck, as many founders are, of boutiques and phases where they can achieve that escape velocity. And I think being very upfront, joining Collective 54 has helped us realize, hey, we can do things differently here. We have to get the right people in the right seats. We have to identify our high potentials. We have to also identify our top, top performers and get them in the right seats, too. And I think. Looking at our company, that’s something we didn’t do soon enough. We had our founders, myself and my co-founder, working within the business. Right, doing client work for too long. And I think one thing that we have been very methodical about now is removing ourselves from that and learning how do we scale, how do we delegate work appropriately, and how do we have the discipline to follow the advice that’s right in front of us. And that’s a very hard thing to do. 

Greg Alexander [00:04:08] So tell me a little bit more about that, because you’re right, this is a very common thing, particularly we have quite a few software development companies in collective and right now they’re all doing very well because, as they say, software is leading the world and you’re a great example of that in your niche. Sometimes I find. Engineers, for lack of a better label. They love doing the work, so it’s hard to give that up and focus on the business side of the firm. And I think because of that. It takes too long to get to scale because as you pointed out, if you’re doing the work, you’re really not building the firm. There’s only so many hours in the day. So you and your co-founder. Are you engineers by trade and does that portrayal accurately describe you or was there something else going on there? 

Gregory Hausheer [00:05:06] We are. And as you mentioned, engineers love to build. It’s an addiction. It’s so much fun. You have the power to create something and make magic happen with software. And with that comes design, branding, product design, user experience, user interface design. So you kind of have this full conveyor belt and spectrum of tools and team members on your team to go and build. And I think what we didn’t do soon enough but have done now, and I’ll say as we specialized as an agency, we went from a generic company that’s a design firm, not focused on health, to focusing on health around 2018. Then the pandemic came and we had an increase in business in about two years. We tripled our revenue because we specialized and especially because we stopped doing client work and we had a framework for doing that. We focused on what we call $10,000 an hour type of work, where if you think of what is the highest valued task that you can do, there are one or two key contributions to the company. What is that? And it’s clearly not client work. What it is, at least for my role and responsibility, is removing myself. So from the sales process, that’s one key contribution and something that I consider a $10,000 hourly task now. Another is ensuring our expertize is translated into our brand and our people through coaching. And when you take all the leaders on your team, whether it’s your CTO, your head of marketing, your head of your creative, coaching them and getting them out of that client work is it’s invaluable. It’s something that we have, you know, what I would call forehead tattoo or where you put it up on your wall, you put it up on your mirror. You don’t let anyone deviate from that because it’s so easy. You want to make that client happy and you really want to make sure the project is correct. But you have to take a step back and say if the work is 80 to 90% good to your standards, that is more than enough to delegate. 

Greg Alexander [00:07:16] Yeah. Yeah. You know, you’re using some terminology that you and I have talked about personally. It’s some of it’s in the new book, The Founder Bottleneck How to Scale Yourself. You talked about high potential employees and identifying who they are in a hybrid. Such employee is somebody who, yes, is a top performer, but also has capacity to do even more and a top performer, someone who is excellent at what they do, but they’re probably tapped out in terms of their contribution to the firm. So when I hear things like $10,000 per hour task work and you know, what is your key contribution to the firm? It really puts a smile on my face. You know, it takes us to this this life cycle question again, which is here you are in year nine and you’re executing all these things. And I’m confident it’s going to result in an exponential increase in scale. A lot of our members haven’t gotten to where you are just yet. They’re still in those earlier days that earlier part of the lifecycle and they haven’t had the epiphany yet. You had an epiphany and said, okay, I’ve got to do this differently. Or else like what was the the aha moment that got you to realize you needed to do this? 

Gregory Hausheer [00:08:32] That is such a good question and I wish there were a thought I had on a walk or bike or just sitting at my computer that was kind of that lightning bolt. But if I had to think of maybe a period of time where we realized, hey, this is how we kind of escape this, I would say it probably came during a period in the pandemic where we’re all working from home and we kind of have that pent up frustration and not being able to get in an office with your leadership team or even with your team members, maybe you’re fatigued from typing on the keyboard. You have your kids home or your family home and you think, Is this it? Like, I’ve got a client call to do and it’s 830 at night and I’ve also got all these other chores and obligations. And I think at that moment I realized. You know what? We have some people on our team who have been so loyal and so helpful and working with us for three or four or five. We even have one employee of our our boutique who’s been with us for seven years. So. Almost the entire history of the company. And I think we realized at that moment we need to delegate even more than we already are. It wasn’t like we weren’t delegating anything, but it came at a time when we said. There are some people we promoted and we have been so pleasantly surprised by how well they’ve done. I wasn’t sure if it was a title change or just a confidence boost. What happens if we do more of that? We need to take more experiments. We have to iterate. And at that moment, I think we kind of realized how powerful delegation is as a as a framework. And it’s you don’t think of it because you’re too busy to, you know, get out of client work and look at yourself running the business. 

Greg Alexander [00:10:19] Greg, tell me a little bit about the personal benefit that you have received by having this new mental model and delegating more than you were previously. 

Gregory Hausheer [00:10:30] I think it frees up your time to focus on more important tasks for the business. That’s $10,000 an hour ones and kind of like I’ve learned with Collective 54, right? The rules can be split up, but you have to have someone creating new lines of business, new revenue. You have to have someone closing that sale or being the face of the company. And then you have to have someone executing on the work. And those can be delegated to different people. Maybe split if you’re very focused on having a clear delegation of responsibilities. But we weren’t doing the thinking of new business. That role was absent because I was the one. Finding the sales and closing our CTO is the one to selling the work with the team is empowered. And I think now it’s allowed us to go from 1550 people and just a year and a half, you know, and triple revenue to sustain that is having free time. To allow the serendipity of our network in our sales clothes and have done opportunities as they come, rather than be reactive to the emails and the slacks and all the calls that come in budgeting time to allow that proactive behavior is the single most important task we’ve done. 

Greg Alexander [00:11:43] It’s just a great a great example. And just to summarize this a little bit for the audience, you know, and I’ll use the collective 54 framework three phases grow, scale, exit. Typically 15 years start to finish five years in each phase. And the growth stage where Gregg was previously, your you’ve launch your firm, you’re in survival mode. You’re doing everything, you’re selling the work, you’re delivering the work, you’re recruiting the team, you’re training the team. And that’s appropriate in that stage for those that are listening. If you’re doing that and you find yourself in that scenario, keep doing it and don’t necessarily work about scaling just yet. Right around year five, all of that varies quite a bit. You’re going to say, okay, so survival is no longer the task. I have a real business. Happy clients have the happy employees. We’re producing a profit, I’m making a living. So now what do I want to do? Do I want to stick with the lifestyle business? Do I want to scale it? And when I scale it, you enter the second phase. And the second phase requires a different management style, as Greg just laid out for you, the new life cycle phase. And in that case it becomes, as they say, cliché, working on the business, start in the business, it becomes the business side of the expertize business. So for example, you delegate, you locate who your high potential people are, you discuss what you want to delegate. When you want to delegate it, how are you going to delegate it? And if you’re able to pull it off, you know, maybe you might go from 15 to 50 people and triple revenue in one and a half years. I mean, that’s that’s the whole essence of lifecycle management of a boutique professional services firm. Now, Greg, I’m going to ask you to project out into the future. Okay. So you’re clearly in the scale phase right now and you’re scaling very nicely. And hats off to you and all the hard working folks in your firm. When do you foresee going into the exit stage, if at all, and what do you think the management method needs to be when you do that? 

Gregory Hausheer [00:13:46] One thing that I think is going to be critical for us to get to that phase and I’m going to borrow another term from you, but it’s having our roles as executives. My co-founder and I began even thinking, we don’t even have to worry about sales right now because we have a delegated sales process that is measurable with our high potentials running it. So what do we do now? The term is talent supply chain manager. 

Greg Alexander [00:14:12] Yep. 

Gregory Hausheer [00:14:13] All our role is now is focusing on finding quality people to fill in our delegated roles on that management chart, that org chart that are key contributions. And as our company grows, we’re going to be breaking rules part because there’s more to manage for each role. So my, my founder and I were really thinking deeply about how do we find the best talent? How do we coach and train them? What’s the right amount? Is it one day a week, 8 hours, 10 hours, 15 hours? It’ll vary. But I think if we really want to get to that exit phase, our marketing and sales humming along the work getting produces better and better every year. Quality is getting higher and so now it’s a people problem. And at the top all problems I think trickle up the sales and people it doesn’t matter if you’re technical, you’re creative. Learning to manage others and be a leader is something that we’re focused on for the next 4 to 5 years as we get towards. That’s a. 

Greg Alexander [00:15:10] Great answer. The talent supply chain, it is key. You know, if you think about what a professional services business is, it’s a people business. We sell hours. You may package them up however you want to package them up, fixed bid, retainer, time of materials, performance based, whatever you want to call it. At the end of the day, your inventory are the billable hours, which means the way that you grow and you scale and you exit as you produce more billable hours. Well, how do you do that? You hire more and more people, clients hire you, and then you deploy larger and larger teams and ever increasing rates. That’s how you scale. So what that means is you need access, regular, consistent access to high quality raw material. If you think about yourself like a manufacturing company and you think and you use the the metaphor, if you will, of a supply chain, what is your raw material or your raw material is human capital. So building a repeatable, steady stream of high quality raw material that comes in that you then can train to do what you do the way you do it for your specific client base. And I’ll pop on the other side a finished product. And where we often get stuck on scale is we’re always looking for we never have enough people like we. I hear that all the time. And that’s because you haven’t built a system. You haven’t built a supply chain. I mean, imagine a goofy example. Imagine Apple Computer. You know what? The phones well, if they didn’t have agreements in place with the raw materials, the chip makers, the glass providers, etc., they wouldn’t be able to keep up with demand. It’s the same thing in a professional services business. So you need the talent supply chain. Listen, I could talk to you about this forever and I can’t wait for our member live Q&A session. It’s going to be extremely well attended. It’s going to be a ton of questions. But today we’re we’re just, you know, having a summary conversation of it. And it was it was wonderful to speak to you about this in particular. And we love having you in the group. So thanks for being here. 

Gregory Hausheer [00:17:20] Thanks. Great. It’s been great and happy to help and appreciate the time. 

Greg Alexander [00:17:24] Okay, fantastic. So if you’re a founder, a leader of a boutique processor firm and you want to belong to a community of peers and meet great people like Greg, consider joining Collective 54 and you can apply for membership at Collective 54 dot com. And if you want to educate yourself more on topics like this one, subscribe to Collective for Insights, which you can also find at our Web site, Collective 54 dot com. There we have a chart of the week which is a visual expression of benchmarking data. We’ve got an award winning blog, we’ve got the weekly podcast, we’ve got a best selling book. So lots of good stuff there and and give that a try. And for those that are listening that that are tuned in every week, I appreciate that very much and thanks for listening and I look forward to the next episode. 

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

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

TRANSCRIPT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TRANSCRIPT

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

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

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

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

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

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

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

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

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

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

Greg Alexander [00:15:56] My gosh. 

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

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

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

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

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

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

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

TRANSCRIPT

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

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

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

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

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

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

Greg Alexander [00:03:04] You know. 

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

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

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

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

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

Greg Alexander [00:06:53] Yeah. 

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

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

Harry Dugan [00:08:10] Yeah, so. 

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

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

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

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

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

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

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

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

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

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

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

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

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

Episode 95 – How the Founder of a Customer Experience Design Firm Scaled Himself by Building a Team – Member Case with Jeff Pruitt & Ed Borromeo

Profits take a big hit as a result of under-delegation. Many leaders of boutiques would rather do something themselves than delegate it. This destroys morale and leads to high turnover. On this episode, Jeff Pruitt, CEO & Ed Borromeo, President of Tallwave share how they built a powerful leadership team by focusing on replication.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54 podcasts for founders and leaders of boutique professional services firms. For those that are familiar with us, Collective 54 is the first mastermind community dedicated exclusively to helping you grow, scale and exit your pro search firm. My name is Greg Alexander. I’m the founder and I’ll be your host. And today we’re going to talk about building an executive leadership team around a founder and a CEO and the impact that can have on the scale of a firm. And we’re really lucky today because we have two guests. We have Jeffrey Pruitt and we have Ed, and I always mispronounce your last name, but let me give it a shot. Borromeo. How’d I do? 

Ed Borromeo [00:01:02] You did great. Great. Thank you. 

Greg Alexander [00:01:04] All right. Very good. And Jeff is the CEO and founder. Ed is a high potential employee that has been grown up in the organization. He started off, as I understand, as the EVP of Ops, and he got promoted, the CEO and then the president, and he’s the president of the firm now, which he’s been doing that for the last for the last almost two years. And that’s what we advocate for. We have a case for a grow your own approach to scaling executive leadership, because in pro serve, we’re a collection of people. Culture matters and success. Probability of success goes up when you grow your own. And that’s the role model that we have today. So I can’t wait to jump into it. But before I get into my questions, which I have many, I thought, Jeffrey, I would throw it over to you and have you do a proper introduction of yourself in your firm and then added love for you to do the same. 

Jeffrey Pruitt [00:01:57] Ed, thank you. So, Jeff Pruitt, founder of of Tall Wave Customer Experience Design firm, and we’ll get into a little bit of what that company is. But background was Arthur Andersen, Big Six, accounting to CFO and then president of a pro sort of digital marketing firm that that grew into a, you know, from 15 people to about 600 people and then started tall wave. As a customer experience design firm, we’re focused on helping brands increase net retention revenue through looking at the experience that they deliver, deep journey mapping of that experience, but also looking at the people process and system to deliver that experience. We’ll go in and do deep assessments and mapping of how you can transform that experience over a period of time. And then usually we’re part of product design, product management, product strategy, potentially program management of those workstreams and driving outcomes, which also include the digital acquisition or digital marketing side as well. 

Greg Alexander [00:03:01] Okay, great. Ed, how about you want don’t you tell us a little bit about yourself. 

Ed Borromeo [00:03:06] Yeah, thanks, Greg. So I’m an engineer by training and ex-military officer doing a lot of operations while I was in the service. And then I went into the utility space where we ran operations for utilities, but then started off spun out a technology company that did both SAS work as well as managed service work and sort of my skin into my beginnings of stint into professional services. Today I’m the president of Paul, where I oversee our day to day in the business, namely the growth side of the business as well as our practice areas. 

Greg Alexander [00:03:41] Okay, very good. So Jeff has been a member for a while and I’m happy to report that he’s one of our ten featured role models in my upcoming book, The Founder Bottleneck How to Scale Yourself. And the subject of that book is it’s how somebody like Jeff understands who is high potentials, are high potential employees, how to delegate them, delegate to them, what to delegate, which allows the founder to reimagine what it is that he’s working on and amplify his contributions to the business. Jeff, let me start there. How did you identify Ed as a high potential employee? 

Jeffrey Pruitt [00:04:21] And he identified that to me personally. He would come in when we were a little bit different of an organization that we are today. At the time, we’re an innovation consulting firm that said, in a holding company that also was spinning out some of our own companies. So we’d spun out four companies, separate C Corp and and some of those companies were growing well, some has since sold. And in the meantime, he came in as a contributor as he was looking at wanting to get into the innovation technology space different from where he was a little bit prior. And so you’d come in and he was working for a direct report of mine and I noticed his potential. But he also came in and said, Hey, I recognize you’re struggling with some stuff in and around operations. I can help you. And needing the help, I said, Well, let’s sit down and talk about it. And so at the time I had flattened the organization and had everybody reporting to me as I felt I needed to get closer to what some of the issues were. When Ed came in and and took on some initiatives for me, I immediately realized that he could he could probably take on a lot of the reports and run the operations of that business. He he did come in. He did so he got us to profitability. And then we had an opportunity to merge that business innovation consulting firm with a customer experience digital marketing firm. When we combine those two, it made a ton of sense to me to move him to CEO of that merger and of us both ride together in this journey of building tall wave as a customer experience design firm. 

Greg Alexander [00:06:09] Very good. So, Jeff, let me stay with you and ask a follow up to that. And then I got a couple of questions for you with bear with me. Sometimes when I work with founders and they’re struggling with this concept of kind of delegating and replicating themselves and others, there’s a trust issue. They are self-described control freaks and maybe perfectionists. Sometimes they they they don’t think about progress. They think about perfection. And they’re reluctant to delegating and give up key strategic components of running the business. You clearly did that with Ed. So did you ever struggle with that and how did you get over it? 

Jeffrey Pruitt [00:06:51] Well, I think from large part, I have an idea of where I want the company to go, and I have an idea of how I want to enter the organization. And I always look like 12 months out, and I ask myself, how do I want to enter the organization when I walk through the doors? What are the things I’m doing? And part of that is a progression of how does the company progress beyond where it is today. So getting a little bit of that vision of understanding where the company is going and then what is my role in it? How do I show up and and progress the business more? The conclusion of that is you’ve got to give up what you’re doing and rely on individuals like Ed to be able to to manage a good portion of the organization. We’ve had iterations of that, and I think we’re stepping into our next iteration right now and it feels great. I can tell you that I’m not perfect, and I would say I don’t know if I’m a control freak from an ego perspective, but but I have an idea of what works sometimes and I feel like, Hey, I know what works and I need to inject or insert myself in that process. And I hope Ed would say in the last 18 months, I’ve gotten better at staying out of that process. And he’s doing better also commanding, controlling and reporting up to me on those things where he might need me. 

Greg Alexander [00:08:16] Okay, very good. So let me come to you and look at it from your perspective. So, you know, it sounds like you’re an execution machine as a lot of ex-military are, and you’re the perfect partner with Jeff, who is probably more visionary. And that’s me commenting on that, having had the pleasure of getting to know Jeff. So you guys are really good match and you could work anywhere. Why did you decide to partner up with Jeff and and take on this role of president? 

Ed Borromeo [00:08:47] Gosh, that’s a good question. So first of all, just a notion of this space, I was pretty intentional in getting into the innovation and experience space, having sort of gotten a taste of that my prior life. So I felt like, like Jeff, Jeff is the kind of founder that also likes to surround himself with a team and doesn’t want to go it alone. And I think that’s a big part of his persona. And that was really welcoming for a guy like me to come from the outside and to be part of that. And I think I’m super grateful for that opportunity. And so I think that sort of sets the stage in terms of just just a partner. I think you said it. You know, it’s a good it’s a good compliment, I think, to your point of how to how do we make it work? It’s not without a lot of communication, sometimes healthy tension, sometimes, you know, the how versus the what and struggling between that. But it’s about wanting to desiring to grow a business and knowing that it takes different perspectives and complements. And I think Jeff adds that. He adds that he has a clairvoyance and a vision that, you know, it’s not like I wake up with that. I think that’s innate. But, you know, getting getting stuff done and really understanding how to spread that through the organization while bringing people along is something that I bring to the table. And so us working through that in partnership has been has been really beneficial for us. And it takes it takes the good hard work of talking about it and talking about it and, and and then holding one another accountable. 

Greg Alexander [00:10:14] Something that struck me regarding the way that Jeff talked about your story and how you came to him proactively saying, hey, I see these particular challenges. I think I can help you with them. I can contribute more. It was really enlightening to hear that from you. And I think many of our members who join is a team that are power members with the founder and his or her team. Sometimes they’re they’re hoping that their right hand or left hand, so to speak, would be proactive with that type of guidance. So what would you say to members of Collective 54 that aren’t the founder but are on the executive leadership team? What advice would you give them to inspire them to raise their hand and say, Please give me some more to do? I think I can solve this problem or that problem. 

Ed Borromeo [00:11:08] Yeah, that’s a good question. First of all, that struggle is real, right? Because as a growing business, you go through these, as I’ve mentioned, these iterations of having to evolve the version of the business, but then the version of oneself as you get to sort of the next level of leadership. And I think that if we’re all line of what we’re trying to do here, I think I think just having that sort of holding one another accountable for the next leg up to to evolve to the next stage, I think also causes that, you know, for us, we’re wanting to grow and we know we sort of innately believe and inherently believe that we have to evolve ourselves as individuals. And that means having a vision for where we want to individually go as professionals, as partners in the business, which means by definition having to let go of some things. And so you have to believe that these things can’t be roadblocks, that it’s necessary to evolve. And then, you know, talking about those things very deliberately. So I think Jeff and I always talk about a year ago, Hey, as president, this is where I want you to go. And as a result of that is what you need to let go of and where you need to be thinking. And and that is always a North Star that we revisit. When or are we at least, I mean, monthly, but certainly quarterly to every four months we sort of reset and we say, where are we on our journey of, you know, you coming to fruition as a president and coming to fruition as a CEO in this next stage of our business. So it’s a very intentional and deliberate move that keeps us accountable to to to having to reach and grab more. 

Greg Alexander [00:12:40] Now, you know, it’s just exhibit A on how to do this correctly. We’re so lucky to have top wave in our membership, but it’s not surprising that your firm has scaled the way it has and its button up on 100 people now, which is really a great success story. I could go on and on and on, but I’m going to save some of my questions for the live Q&A session we have upcoming on Friday. So let me let me conclude it there and just say, on behalf of the membership, the two of you are role models, inspirations for everybody else, and it’s represents how to do it in this particular area. So thanks for being here today and for contributing. 

Jeffrey Pruitt [00:13:15] Thank you, Greg. 

Ed Borromeo [00:13:16] Thanks, Greg. 

Jeffrey Pruitt [00:13:18] Talk to you soon.

Greg Alexander [00:13:19] Okay. So for those that are in professional services, who want to belong to a community like this and learn from really bright people like Jeff and Ed, continue to instruct. So you should consider applying to Collective 54 and being a member and you can do so at collective54.com if you want to read about this subject to replicate yourself and others, there’s a whole chapter on that in the book. The book is titled The Boutique How to Start Scaling Solo Professional Services Firm. You can see that on our website to pick it up on an m on Amazon. So listeners, thanks for listening and I look forward to our next episode. 

Episode 94 – How A 3rd Generation CEO Drives Change Inside a 40-year-Old Management Consulting Firm – Member Case with Peter Bilello

A boutique requires different things from its leaders and partners as it scales. On this episode, Peter Bilello, President & CEO at CIMdata, shares his journey as a non-founder to becoming President & CEO. He will dive into how he championed the culture shift to drive scale and put the firm in a position to be able to sell one day.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast with founders and leaders of boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community dedicated exclusively to helping you grow, scale and exit your pro server. My name is Greg Alexander. I’m the founder and I’ll be your host today. And today we’re going to talk about stakeholder alignment and how difficult that can be at times when you’re attempting to scale and maybe someday sell your firm. And what I hope with the help of our role model is discuss ways to do this from a non founders perspective. We have really two kind of broad people that are in our community. We’ve got founders of boutiques and our founders and I was one of them have a certain profile and then we have presidents slash CEOs who took over founders at some point and are growing, scaling and selling those firms. And they have a different perspective. And we’re going to hear from Peter Bilello, who is a member of Collective 54. He’s our role model tonight and is someone that is in that category as the CEO non founder, if you will. So, Peter, would you please? Well, first, welcome to the show and you introduce yourself to everybody. 

Peter Bilello [00:01:35] Thanks. Happy to do that, Greg. Peter Bilello, CIMdata President and CEO. CIMdata is a boutique firm, of course, in the area of product lifecycle management. But we told people that this is where global advantages were global because we have the travel last two years hasn’t been as much travel, but it’s definitely cranked up again. And as a company, we do management consulting work across companies that make just about anything, anywhere. And as a company, we’ve done work in about 50 countries, and I’ve been on six of the seven continents. 

Greg Alexander [00:02:07] And where are you today, Peter? It sounds like maybe you’re one of those. 

Peter Bilello [00:02:11] I’m in northern Germany today. I traveled from India yesterday, and I’ll spend a couple of days here and then go back to the States. But I was in India and a couple of weeks ago was in India and that trip ended a week or so in the Netherlands, so you never quite know. But then I’ll be home for a couple of weeks and go back to India again. 

Greg Alexander [00:02:29] Well, you’re a great member and thanks for squeezing us into that very hectic international travel schedule. Peter, I’d love to hear a little bit about your personal journey because as I mentioned in the intro, you’re the CEO of the firm but are not the founder of the firm. I’d love to hear when you took over and who you took over from and what and how all that happened. 

Peter Bilello [00:02:49] So give a little bit of background. The organization itself was founded in 1983 by three gentlemen. Two of them I never met. The third one was the chair chairman when I joined the company in the late 1990. So 97 or so when I joined the organization and I came on board as a senior consultant. I had already a number of years in industrial experience in the area of product lifecycle management, what we call today and became at some point, because my background in system integration work and large scale projects, I became our director of consulting services for industrial companies. We work with industrial companies and with software providers and service providers. And then by the present at the time was not a founder either. But we reported to the chairman, of course, the chairman passed away back about 20 years ago, and I was made vice president by the CEO at the time or president we would call him at the time. And then he passed away, unfortunately, about 12 or 15 years ago now. And I was promoted to president and then netted the title about three or four years ago of CEO, as we’ve recognized the expansion of the business and also the the way we present ourselves as an organization. So it’s been a progression, as, you know, starting as a senior consultant, moving into director position, moving into vice president and then president. I think if the previous president had not passed away, probably by this point, I would be president. He would be chairman. What we ended up doing is doing some restructuring after he passed with responsibility. Our one of the other nine can not founders because the other founder. Passed away as well. So we haven’t had a founder in the organization for about 15 or 20 years. But most of my colleagues, like the chairman, has been with the company since 1990. CFO A little bit less than I’ve been. I’ve been 25, 26 years. CFO About 24 years or so. And there’s a few others, you know, ten, 15 years with the organization. But they’ve shifted from the founder’s role. 

Greg Alexander [00:04:51] You know, you’re working too hard. The two previous leaders both passed away. I hope that doesn’t happen to you. 

Peter Bilello [00:04:56] Well, there were some of those circumstances. The first one was 96, so I’m okay with that. Second one was quite a bit younger. But, you know, significant health issues that it was he lived a lot longer than his siblings, but it still was a young life, unfortunately. 

Greg Alexander [00:05:11] Yeah. Well, all right. Well, I wanted to talk to you about culture, stakeholder alignment, particularly, as, you know, you try to get you try to drive scale of the storm. But a firm like yours has been around a long time. The leader in that space and maybe put yourself in a position to sell something the challenges associated with that. So would you mind sharing some of that with us? 

Peter Bilello [00:05:36] Yeah, one of the one of the key challenges I’ve had is with some of the ones that have been around for a long time. You know, they, you know, great, great people, great experience, great now. But they have historically seen a company as a group of individuals, even though we’re a C Corp and we manage like a C Corp for quite a long time, but it was still more of a, I want to say, club or a pyramid. I mean, as you know, a lot of founders kind of run things and they don’t look to scale. So that was probably the biggest challenge is getting people to realize that scale is important and to develop out the way we manage, the way we’re structured, not just adding cost because that was attempted in the past, it did not work well, but adding structure for repeatability and scalability. And it took some time to convince some of the ones who’ve been around for as long as I or longer than me, that we actually have to shift and change because it’s better for us, not just today, but it would be better for us if there was ever an exit. 

Greg Alexander [00:06:37] So how do you get old dogs to do new tricks? 

Peter Bilello [00:06:41] Give them some responsibility that they didn’t have before. Show them other examples. You know, it’s going to be organizational change one on one, right. Get get them to understand why they should care about it. What does it mean to them? The remember the days when it was feast or famine. You know, getting them to remember how difficult the pain is during, you know, early phases that we had for a long time. And we didn’t go the five years and try to start the company when for probably about 20 years in that feast or famine mode, because we weren’t scaling. We weren’t doing the things that were necessary to produce repeatable revenue and other streams that we really need. So again, education is probably the key to that, just like any other organizational change and then giving responsibility and some accountability as well, which was. Lacking the organization, which still, even though was formed as A and C Corp. The structure was more based on individuals selling and delivering, so it was really more of a a collaboration among individuals rather than a organizational structure that created roles and responsibilities. So. One of the things he did very early on is actually develop a role as a responsibility definition that didn’t exist. We had people that had different roles and responsibilities in theory, but nothing was defined. So that was another element that had to be done to give greater appreciation to those that have been around as long as me or longer that what we were trying to accomplish in. I was valuable to them to be on board and virtually all of them bought into it. We didn’t have to lose anyone, any of the ones that have been around as long as I have and longer Allstate and they have they’re more plugged in, they’re more focused and they have it. We all have a better understanding of what the vision is for the organization instead of just getting together and. You know, selling something, delivering something. It’s a bigger picture about building something. Not just as individuals, but as an organization. 

Greg Alexander [00:08:34] You know, a question that I’m going to ask on behalf of the members, because I know when they listen to this and when they get to the Friday Q&A, they’re going to ask this question. When you ask, you know, senior people that have been around a long time to do, quote unquote, firm building activities that don’t necessarily drive personal ability, could be perceived as taking a hit to personal compensation. Did you have to make any adjustments to the program? 

Peter Bilello [00:09:03] But actually, it’s funny you ask that. We dismantled. What’s what? What happened is we had, like, three phases. We had one that was, you know, eat what you kill. And everyone was basically commissioned based. So you were selling and you were delivering. There was no business development. So we took that away basically, and created a business development group as one of the first business practices that we created. So that changed the way people were getting paid, but it was also getting people more focused on what they did, and that helped actually. So people have a more consistent pay actually than before. But then so that’s one change we did. But there was an interim period where previous management team thought we had to put in a pay structure, which on one hand you do in order to gain access to other people that wouldn’t come if it was all pay for what you do. And but unfortunately that was done without actually understanding where the money was going to come from. And it, quite frankly, put a big dent in the ability to go invest in anything in the organization and create a lot of debt, which, you know, we’re all totally paid off and actually have quite a bit of money in the bank now. But that took quite a number of years. It was almost it was about a ten year period of just dealing with debt, which we were able to out come out of last three or four years now. So we first thing it did is I killed that structure, totally went back to partially to the pay for what you do, but restructured it because I added a business development team in so that people weren’t so keen on just selling and delivering their own stuff. But you know, we had a group just selling and then groups just delivering. So while we did minimize any kind of base salaries for senior level people, we didn’t. So we all create the debt by having it and having people do anything. But we removed their responsibility for selling so they can actually do what they really enjoy, which is delivery. So the number of changes we made. 

Greg Alexander [00:11:01] That’s a great story. Of course, it sounds like it was painful for you to go through that ten years of dealing with debt. That’s a big burden. Unfortunately, I hear this all the time. So I’m glad that you’re sharing that with us because, you know, part of the reason to learn from peers is to not repeat mistakes others have made. You know, when you peak ahead to possibly exiting the firm someday in any form, that that may happen. How do you get all these people on the same page? 

Peter Bilello [00:11:27] Well, we have had discussions in recent years about what does it mean, what what’s the criteria? Let’s say we’ve gone through some analysis as well. We have a reasonable understanding of what we’re probably worth. There was a look through the acquisition a couple of times in the past one well around the time I joined or a year or so out there, and I know what figures they were looking for and the figures were ridiculously high. So it never went through. After the president, the last president passed away, people approached us, but they didn’t understand what we did. And we never got to the point where there was an offer. But in recent years, you know, there has been some inquiries. So we did some decided to do some due. Allegiance. But three years ago, to understand tangible value, not tangible assets, tangible assets, all those types of things to understand what could possibly worth. And we probably have a better understanding of what value is and how we would position ourselves. But then there’s other things that people think are really important to that still kind of working through. For example, some may say, well, the only way will sell is that the name stays. Well, I, I could care less if the payments. Right. I don’t care what they call the company. It’s kind of irrelevant to me. So again, we’re site we’ve done some prioritization there. But again, there are some people that are more attached to certain things than I probably should be. And I like your story about, hey, you don’t even you stepped aside and let people go figure out what things are worth and everything. And not because we get so emotionally tied to things. And there are some. Some of my colleagues are still emotionally tied. I hope I’m not I hope any of the factors are right. Then we would go do it because it’s the right thing for us to do. 

Greg Alexander [00:13:10] Yeah. Alright Peter, my last question is for the group of members and at Non-Filers, maybe they’re working with the founder, they’re handling that founder transition, having been somebody who’s come up through the ranks, so to speak, and has had several promotions and ultimately landed in the top spot. Any any words of wisdom to that group? Anything that if you were to do it over again, you would do differently? 

Peter Bilello [00:13:38] Do differently? Probably not, because as I’ve gone along, I’ve besides getting more responsibility, I’ve got more ownership, which I wouldn’t have done if it wasn’t for the ability to go get something at the end. Now, quite frankly, I don’t really care if if I exit. I mean, I’m happy with what I’ve been doing. I have the flexibility. I want to have a lot of other benefits. Being in a boutique that we all know about and getting paid, paid as I want and so on to get the cash out at the end. Yeah, I wouldn’t mind doing that if it’s the right situation for the organization. It’s not about me, it’s about the organization. And we did our acquisition a few years ago and the founder of that company came to me and said, I want to find a place for my people. And I thought that was a nice, a nice thing to do and it was a great opportunity. Didn’t cost as much, but we got a number of really good resources, which we still have to to this day, that type of thing. And it was a fire sale because he was he was dying, unfortunately, and he wanted to fight. It was nice that he found it to find a nice place for his people. We’re not in that situation. I hope we’re not never in that situation. So if we were going to be acquired, then it has to be the right fit and the right pay out all the wonderful things that could go along with that great kind of connection. But, you know, I would I would do the same thing I did before, as you know. Get the right type of ownership, the right type of control and the right type of people around you. When the previous president passed away, we decided what as a group of a few of us that were already owners, how would we split that up? Because it would start coming back into the company. How would we divide that up? And I got quite a bit of increase, so I have a reasonable share of the company. We have a stock plan, though, that no one can have more than 50% of the company, actually, no, 49 and a half or whatever it is. But I have my fair share, my other two other colleagues that have their fair share, and then there’s two others that have a small share. So that to me, that’s important. I was always simple and it still is important in order that one have control and the other one has to have not just control, like from a role of responsibility perspective, but also from an ownership perspective. I really honestly can’t think of what I wouldn’t do. Maybe, you know, the ten years were painful and they had very little ownership at the time and very little responsibility. But I think in the end I still had the flexibility that I wanted to have. So it was okay. I could look for other job and probably gotten paid more at the time, but I still wouldn’t know how to. Much fun and hard to control that I have to this day. 

Greg Alexander [00:16:10] Yeah. Alright well listen, I thought you would try to keep these shows short, so we’re at our time here, and I know that it’s probably late in the evening where you are. So on behalf of the members, this is a really interesting subject to hear from somebody like yourself who did not found the firm but is running the firm and that generational story that you share with us, getting stakeholder alignment was really important. So thanks a bunch, Peter. I appreciate it. 

Peter Bilello [00:16:33] Alright, you’re welcome. 

Greg Alexander [00:16:36] Okay. So for those that are in professional services that are listening to this, I want to belong to a community and meet really interesting people like Peter. Consider applying to Collective 54 and you can a Collective54.com. And if you want to read about this subject and others, you can pick up a copy of my book, The Boutique How to Start Scale and Self, a professional services firm. You can find that on our website Collective54.com or you can buy it on Amazon. Thanks for listening and I look forward to our next episode. 

Episode 93 – How the Founder of an Accounting Firm Has Grown by Acquiring Multiple Firms  – Member Case with Matthew Lescault

Scaling a boutique requires scale capital. Adding more headcount, entering new markets, launching new service lines, and other initiatives require capital. On this episode, Matthew Lescault, President & CEO at Lescault & Walderman, shares how he has financed his new acquisitions and how he has been able to successfully integrate the acquired firms into his processes and culture.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that aren’t familiar with us, Collective 54 is the first mastermind community dedicated exclusively to helping you grow, scale and exit your pro search firm. My name is Greg Alexander. I’m the founder and I’ll be your host for this episode. And today we’re going to talk about growing through acquisition. Very often we talk about selling your firm, but there’s another side of that equation, which is buying other firms as part of your growth strategy. What I hope to accomplish today is to put this on your radar as a possible growth avenue to discuss maybe how to finance it. The strategy behind acquisitions and how to integrate it successfully after you’ve bought the firm or firms. And we’re very fortunate to have a role model. Role model with us today. His name is Matt Lescault, is a member of Collective 54, is going to be sharing parts of his journey with us. So, Matt, welcome to the show. 

Matthew Lescault [00:01:17] Thank you, Greg. Great to be here. 

Greg Alexander [00:01:20] Would you provide a intro to the audience? Tell us a little bit about your firm and yourself. 

Matthew Lescault [00:01:26] Yeah. So my company, Lescault & Walderman, the outsource accounting firm, providing bookkeeping controller, CFO services as well as system implementation of ERP level accounting software and third party products. We’ve been around since 2006 of formula services, but I would say that really the iteration of the company as it is today, the model that we have as that is today, really started in 2017 and was with a big change in how we’ve done things in the past. Just as a quick sidebar, you know, we went from really a siloed model to a firm model and that really changed the game for us from a scalability component. 

Greg Alexander [00:02:09] Tell me about that. What do you mean by siloed model to a scale model or firm model? 

Matthew Lescault [00:02:15] So, you know, in professional services, you know, there’s two, two kind of models that can be that. You see that in a lot of ways. So silo model is each partner kind of has their book of business, operates their book of business in a way that they see fit. They might have different processes, might have different billing rates, might have different focuses. And it’s really, you know, and a lot of times that you put your kill mentality for a model really takes the idea of one collective vision, one collective strategy and deploying that firm wide across all partners and all staff. 

Greg Alexander [00:02:54] Okay, got it. And what caused you to make that rather substantial change? 

Matthew Lescault [00:03:00] I call them glass ceilings. I’ve hit a number of glass ceilings over my career. What I mean by glass ceiling is sort of a barrier that you kind of put put in your own way, a barrier that that can be broken through. But you have to be able to self-reflect and understand where your where your strengths are and where your real weaknesses are. So what we noticed is that, you know, when we were in that kind of siloed mentality, we didn’t have processes that allowed for the real growth to bring in middle management, to bring in the ability to take on more work and take it off of the owners to be the main points of contact. And so when we were able to take it away from us and create this process, that strategy that’s firmwide, we were able to empower our staff to be the points of contact and not fall directly on the ownership group. 

Greg Alexander [00:04:00] Yeah. That is a really big change that graduations are making that change. You know, that’s that’s a pretty common path, the approach that firms go through and sometimes they get stuck and they never make that change. So congrats on that. The team wanted you to come on the call today for a particular reason, and that is you’re one of the few firms inside of our membership that has made some acquisitions, and that’s part of your growth plan. And that’s where really my line of questioning is. And I guess my first question would be maybe a 30,000 fee, kind of what’s the strategy around growing through acquisition? 

Matthew Lescault [00:04:35] So our strategy is twofold. I know we’re here to talk about acquisition and I won’t spend much time on this, but I truly believe in organic growth coupled with acquisition growth. You can say the other way around, you know, acquiring growth and or acquisitions as a growth strategy and having an organic component. What we looked at as we saw in our industry, in the accounting industry, a lot of role grow ups happening in a lot of books of business out on the street and some general industrywide issues around hiring and what everybody’s talking about. So from from our perspective, when we understood how the financing worked, we thought that the way that we could solve kind of two components, one, or gaps within our own capability structure and two, and in creating deeper trenches within our industry focuses in our what we what we consider our niches. Acquisition was a it was a way to pump a big chunk of clients in at one time. 

Greg Alexander [00:05:41] Yeah. So I love the fact that your strategy is, is to protect, you know, you have your organic growth, which for obvious reasons is very important, but you’ve augmented it with inorganic growth, meaning grow through acquisition. And this is a real area that you can contribute because a lot of our members are boutique pro firms and they haven’t gotten to that second leg of the stool yet. They’re relying almost exclusively on organic growth. And I do believe that in some niches yours is an obvious one, that there is an opportunity to augment that growth and plug some gaps and deepen some niches, etc., through acquisitions. But the challenge is some of them have, practically speaking, especially those that haven’t done it before, is a how do you find the deals and B, how do you pay for them? So what advice would you give our listeners on those two dimensions? 

Matthew Lescault [00:06:37] I hate to do this, but I want to take one step back because I think that there’s a real key component to being able to successfully go go into an acquisition strategy. And doing one acquisition is not what I would call strategy, and I don’t think that you have to have the infrastructure. But if you want to go into a into a the acquisition strategy, do multiple ones, which is what we’re doing. I actually started this path back in 2019 and which I identify a lot of shortcomings within our company that would stall the ability to scale. And so we spent from around November late 2019 to mid 2021, building our infrastructure up in preparation for the acquisition. Now part of that goes into some of these you’re talking about right now is understanding the overall playing field that you’re dealing with. For me, a lot of a lot of firms are represented by business brokers that are akin to investment bankers, and they didn’t really understand the understood the industry, the accounting industry and how that worked and didn’t understand what a good book look like. And so what I started doing through through my research is really trying to align myself with people that understood and work specifically within the accounting and accounting consulting industry. And really started to pick those people’s brains of what successful what other firms had done and create a strategy around that. What’s going to be the most successful for us? So it really started well in advance and saying, okay, we need to have really good H.R. processes for onboarding multiple staff at one time. We need to have great client onboarding experience because we’re going to be switching all of these new clients over our engagement letters in our process, and we need to have the appropriate level of staff from a again, middle management, upper management, so that it didn’t fall completely on the owner. And so we spent we spent a good year and a half just creating that infrastructure to get into the acquisition mode. The next thing was really understanding the financing component. You brought this up. I went and found a bank that all they did was finance for accounting firms and actually our firms. But I don’t know a lot on that side of it, but they really they they’re a bank that understands the accounting world, understands what makes the value of the firm, how cashflow works from a seasonality. And I go one about the process in a very unique way. So I didn’t go through SBA. This wasn’t SBA lending. This was underwriting through the understanding of our entity. So they came in, look at our profits, they looked at the way that we structured our client relationships, and they underrated us for a certain amount. And basically they understand how how we fund and finance through the acquisition process. 

Greg Alexander [00:09:51] Okay. Very good. You know, that’s interesting. A couple of things that you mentioned there. I want to just double click on. It’s really fascinating to me that your strategy from the get go was to do multiple acquisitions as opposed to a single acquisition and the prep work that’s needed to be put in place to make that happen. That’s a real lesson to be called out. And I want to underline and circle that for our members that are considering growth through acquisition. And then the second thing regarding the financing, so if I’m from to understand you correctly, given the fact that you went to a bank, it sounds like these deals were done through debt. Is that correct? 

Matthew Lescault [00:10:25] Yes. 

Greg Alexander [00:10:26] Okay. So regarding the debt, maybe just broadly speaking, what are the structures? What’s the structure of a loan or a set of loans used to execute this strategy? 

Matthew Lescault [00:10:40] So the way that the way we’ve structured this from the actual banks perspective was we took the valuation that we agreed to with the seller and we split into two, two buckets, basically your asset purchase and then your consulting for retention. So there’s always earn outs and that’s a big, big component, especially in accounting. But I think professional services in general is that you really need to make sure that you have a strong earn out clause within your agreement. And so from the banks perspective, we got the 50% from them financed that over a ten year period and then it will pay out from consulting for a three year period after that. That’s tied to the retention of the client base. 

Greg Alexander [00:11:27] Okay, very good. So half the deal. So if I’m selling my firm to you, I’m going to get half the deal, a cash at closing, then I’m going to be in a three or and I’ll turn largely to client retention. And then you as the buyer just a. Everyone listening. You’re funding that really with 100% of other people’s money, the bank is providing the cash at closing and then the business, based on their performance, is funding the rest of it through the three arena. That’s really a brilliant strategy regarding the debt itself. Do you have to personally guarantee it? 

Matthew Lescault [00:11:59] I did. 

Greg Alexander [00:12:00] Yeah, I thought so. And that makes me admire you greatly. Obviously, you’re convicted. You really have a lot of conviction on this strategy. So some of our members are reluctant to extend themselves in that way with personal guarantees. So how did you get there emotionally, psychologically? How did you accept that risk? 

Matthew Lescault [00:12:23] And that’s an interesting question. I guess I just I just kind of realized that if I wanted to get my goals, there wasn’t going to be a bank or a no or to get debt that wasn’t going to ask for a personal guarantee. I didn’t want to give a personal guarantee. I had to get a private equity. And my goal is to not sell out private equity, at least this early on. And if I ever do, it’s going to be I want to be on my terms. And also with sort of planning out the strategy of the debt financing, I really understand the cash flow of what I’m doing. And again, when I haven’t when I have an earnout, you know, and I know what the profit margins are, I know what they’re going to be consistently. You know, we can we typically are purchasing books of business that we believe we can get 20 or 30% gains out of out of the out of the gate. You know, every every time that we’re financing these, we’re actually picking up additional gross profit that is allowing us to go back in and get more lending. And so at the end of the day, I feel very confident in our ability to do this. I’m not too concerned about my personal guarantee because, you know, that’s the best way to put it. I got the funding based on my current EBIDTA. And so every time I purchase a new book of business, an increase in my EBIDTA from a dollar amount, making me more or less risk because I have more cash. 

Greg Alexander [00:13:52] Yeah. And making you more bankable. Right. 

Matthew Lescault [00:13:56] Well, my joke my joke to the bank was, you know, was lets make me too big to fail. 

Greg Alexander [00:14:02] Yeah, exactly. I tell you, it’s a really innovative strategy. I have to tip my hat to you. I’m not seeing a lot of this. I don’t know if it’s sector specific or not. Is there is there a general kind of sector roll up happening in the accounting space right now? 

Matthew Lescault [00:14:18] Big guys are are buying up firms left and right. It’s. I’m going to say this, so I’m going to start with I believe that you have to have a Y for growth. Everybody wants to grow. Everybody talks about growing. But what’s your why? And so I think this is really started for me as I saw what was happening in the industry. And I saw that really you as an organization or us as an organization would need to have investment into technology, technology development, not just buying technology, but innovating new technology, integrating new technology. We would also need to invest in professional development paths for learning paths to for staff retention. And we need to be able to compete. We don’t to be the size of of the Baker Tilly’s of this world or the RSM or the clay is. We don’t need to be that big, but we need a capability perspective. We have to be able to be competitive. So with that being said, the Y is what really drove the reason for the growth and why we wanted to go down that path. I did not want to be forced at any time. Again, the other side my way is I want to make the decision. I want to be able to say I want to sell because I want to sell. I feel like I have to sell or I don’t want to sell, period. And I’m never going to sell. I want I want at the end of the day to have the choice. And I really believe that if we didn’t invest in being at a certain level, at a certain size, that my hand was me force at some point. 

Greg Alexander [00:15:58] Yeah, well, that it’s such a great story. And we’re at a time when to where we try to keep these episodes short. But this is a real contribution. It’s something that I don’t think a lot of members are thinking about. Those that are thinking about it might be thinking too small, maybe one deal, as opposed to doing several deals. They probably aren’t ready infrastructure wise to do a lot of deals, and maybe they’re not confident enough to go on the line with a personal guarantee. So all those things, you provided a great role model this week and hopefully it’s inspirational for the other members. So you have on the membership, really appreciate you sharing part of your journey with us today. 

Matthew Lescault [00:16:37] Thank you very much. It’s great to be here. 

Greg Alexander [00:16:39] All right. Okay. So for those that are in pro share and want to belong to a community and learn from great people like Matt considered applying to Collective 54, you can find us at Collective54.com and if you want to read more on this subject and lots of others, pick up a copy of our book, The Boutique How to Start Scale and Sell a Professional Services Store. Thanks for listening and I look forward to our next episode.

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

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

TRANSCRIPT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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