Tag: Greg Alexander

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Episode 113 – How a Regional IT Services Firm is Leveraging a Client Advisory Board – Member Case by Luke Johnson

Boutique professional service firms need to listen to their clients intentionally. One effective way to do that is a client advisory board.  On this episode, Luke Johnson, CEO & Co-owner at Katalyst shares how he launched a client advisory board recently. Luke shares the early benefits, some mistakes to avoid, and how, exactly, he runs his.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Pro Serv podcast with Collective 54, a podcast for leaders of thriving boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community dedicated entirely to the needs of leaders of thriving boutique serve firms. My name’s Greg Alexander. I’m the founder and I’ll be your host today. On on this episode, we’re going to talk about the Client Advisory Board and why it’s an important tool for all of the professional services firms. And we’ve got a great role model with us today, someone who’s recently implemented this. He’s a collective 54 member. His name is Luke Johnson. Luke, great to see you. Please introduce yourself to the audience. 

Luke Johnson [00:01:00] Hey, Greg, great to see you as well. As you said, I’ve been a member for I think almost a year and a half, and we put a client advisory board in place at the beginning of 2022. It’s been great. I am the CEO and one of the owners of Catalyst out of North Carolina. 

Greg Alexander [00:01:24] And what does Catalyst do? 

Luke Johnson [00:01:27] We are a boutique services firm, Greg, focusing in the technology space and we enable our clients to go faster, further and safer. 

Greg Alexander [00:01:38] Okay. And I tell you, like a MSP, it’s outsourcer type firm. I get that. Okay. You are. 

Luke Johnson [00:01:45] Exactly correct. All right. A lot of cybersecurity work for us as well in that space. 

Greg Alexander [00:01:49] Okay, Awesome. Okay. Well, let’s start with the basics. So would you provide a definition of what a client advisory board is? 

Luke Johnson [00:01:59] Sure. To us. It is a board that we lean on. It is currently comprised of all active clients, although I don’t think it would have to be ours today. It’s someone that we lean on to get advice around what we’re doing as a business and figuring out if that’s relevant to them as well as a board that we lean on to better understand the real everyday challenges in our clients. So I think the distinction I would draw very clearly is this is a board that serves us far more than it does the clients directly. 

Greg Alexander [00:02:37] Yeah, fantastic. You know, we advise our members to stand up a client advisory board for a very basic reason, which is we want to be outward in in everything we do. We want to be listening to our clients as much as possible. And the knowledge we can gain from our clients is extensive. Affects everything from how you market and sell to the types of services that you bring out to the problems you go after is just a really great tool. Look, what I’d love to hear from you is that there was a time in your company’s history where you did not have a client advisory board and you recently installed one in 2022 at the time of this recording. It’s January of 23, so that’s a really fresh use case. So what what prompted the need? 

Luke Johnson [00:03:18] I think it was a few things, Greg. We always struggle with enough very direct feedback from our clients. A lot of times we get a lot of indirect feedback and we’re doing our best to guess what is needed and we put it in place. So we were looking for a mechanism to get more direct feedback. I think also it was a way to draw closer to a specific group of clients, and most of the clients on this board are some of our largest and most meaningful. Not all, but but good, good mix up there. So it’s a way to get really close with those folks and improve the relationships. 

Greg Alexander [00:03:58] Okay, so let’s talk about those folks. One of the challenges of standing up a client advisory board is to figure out who to invite to participate on the board. So how many clients do you have on it and what was your selection criteria? 

Luke Johnson [00:04:14] So we we have seven active members today because we started. Yeah, thank you. We started a little smaller. I think I reached out to maybe nine or ten in the beginning and we started with six. I’ve asked the board if they felt like the number was right. If we could grow it a little bit, we decided we could grow it a little bit. So we added somebody else. And I’m not sure there was a great science around the criteria, but what I did is spend some time looking at years worth of business with a variety of clients, and I tried to make sure that I picked certainly some from the Top End. So folks that have done the most business with us. But I also wanted to accurately represent our client base as a whole. So I sort of looked to that bottom side as well, and maybe not somebody who’d only transacted business with us once, but smaller clients as well. So it’s it’s a real representative group of the clients we are dealing with every day. I also did interject a little bit of personality in there in the sense of some some clients I know really well, some I don’t know really well, But I tried to pick people that I thought would be great, interact with us and share really, really candid feedback. 

Greg Alexander [00:05:31] Awesome. So obviously you had a good pitch because just about everybody you invited said yes, which is an indication you have great relationships with your clients, which is fantastic. But what was the pitch? I mean, why did they agree to be on your client advisory board? 

Luke Johnson [00:05:45] I was really candid, Greg, with them and basically said, I feel a little selfish in asking, but this is for our benefit. I believe that that indirectly benefits you because if we tune our services to be in line with what you need, it should benefit you as well. But we want to pick your brain about what we’re doing. Is it the right thing? Is it in alignment with what you need? We want you to be candid with how we’re doing. If there’s things that we’re not doing well, we want you to call it out and we want to talk about it very directly. And another piece of it is we really pick their brain about competitors as well. And we like to know what are they doing that you like? And. And that may help us as well. So we kept it. We kept it pretty simple. And and that seemed to work well with everybody. 

Greg Alexander [00:06:36] You know, it always this is a great confirmation point, because sometimes when I advise members to stand up a client advisory board, they say, well, none of my clients are going to want to be on it. And I said, You’d be surprised. People generally like to help, and it’s flattering when you get asked to be on a client advisory board. And this is a testament that people are willing to help. Obviously, you’re an important vendor for these clients and they’re probably saying to themselves, If I can help Luke’s firm improve the benefits, may I get higher quality service and new service offerings, etc.. So I would encourage all the listeners to not be bashful there. I think you’d be pleasantly surprised as to who agrees. All right. Let’s talk about the mechanics a little bit. So is it in-person, virtual? How often do you meet and what’s a typical agenda like? 

Luke Johnson [00:07:20] You know, we we’ve kept that simple as well and tried to kind of roll with the times that we’re in. At one point in time, the geography that we dealt with was tighter than it is today. It’s, you know, we have clients all over the place now, so we do it in a in a format very similar to this. Zoom or a WebEx is is how we meet. We meet once per quarter. It is a one hour long meeting and it is a fast moving session. That is probably one of the greatest challenges, is naturally some people like to talk more than others. So you want to make sure you give everybody a chance to say what they need to say. Or maybe you need to prompt a few people along a bit. But we Greg, could sit in that session for 4 hours and it would be wonderful. But we’re being really respectful of these folks time. I mean, they’re really extremely busy people and we’re just grateful to have that one hour from them. So we try and put the agenda out there in advance. We follow the magic a bit on the call, so it’s not terribly structured, but at the same time we try to make sure everybody’s got a chance to give the input that we’re looking for from them. 

Greg Alexander [00:08:33] You know, it’s an interesting tradeoff. So when I had my firm, we had a client advisory board, we did it in person, but it was only twice a year and it was an all day session. The benefit to that, obviously for us was great because we were really able to go deep. And as you mentioned, you could go on and on in these things because the insight is so fantastic. But the challenge we have with that is we add spotty attendance. Sometimes people last minute would cancel on us because it was a big ask. So the tradeoff here is if you do it like Luke is doing it, which is only an hour once a quarter, so you do it more often four times as opposed to two. But each session is shorter in length and it’s virtual instead of in person. You’re probably going to get better attendance. Do you have attendance problems? Is everybody showing up? 

Luke Johnson [00:09:16] We have an excellent attendance, I think one session and let’s see, I think we’re four sessions deep now. In one session, somebody had a last minute emergency that they had to they had to cancel on. But outside of that, now we have we have great attendance. 

Greg Alexander [00:09:32] Okay. And is there any prep work that happens beforehand or you just get on there and wait? 

Luke Johnson [00:09:38] We know we do prep prep with the leadership team. We really try and figure out what is it that we want to take away from this and we try and put an agenda together. We’ll send them generally about two weeks in advance. Here’s the three things we’d love you to answer, you know, on this call. And we’re going to kind of go around the room and ask everybody to give us the input. We may have some dialog around it, and then we’ll invite them, you know, to participate in any other agenda items. Most of the time they don’t. I think people are really respectful and saying, Hey, this is your session. You tell us what you want from us, but we always invite that as well and we give them a couple reminders along the way. So when we get to the session, we’re ready to we’re ready to roll. Right. 

Greg Alexander [00:10:24] And what do you do with the output? So you’re getting all this insight. Then you get off the call and you’re like, holy cow, you know, I just got the keys to the castle. What happens next? 

Luke Johnson [00:10:34] Well, the leadership team and I have figured out we need to clear our calendars immediately following that meeting because there’s so much dialog that happens with us when we leave that session. It’s so great. So we usually try and combine all of our notes. All of us are taking notes throughout. It’s kind of depending on who’s talking and that sort of thing. So we combine them, we put them in a directory where we have them that we can reference back. Our sales leader specifically always takes those notes and shares them with his sales organization and obviously not in an incorrect way, but just more of a guy. As we just left seven companies, good brand representation of the cattle business as a whole. Here’s what’s going on with them. Here’s some of the trends that we see. So we try and get that out within our organization as well. We’re a in a shop, so generally speaking, it seems things that happen in that session usually lead to things that we put on our issues list as well. And a lot of time, the long, long term issues list. So we’re looking to solve or create some new offering based on something that came out of there. Yeah. 

Greg Alexander [00:11:46] That’s a great follow up action. Many of our members are EOC members and sometimes they struggle with selecting the right rocks. Rocks are 90 day sprints recommended by EOC, but EOC is generic in nature, meaning it’s not focused on a single industry. So, you know, it gives you that is great tool in how to run your business, you know, and pick a rock as an example, a priority. But, you know, if you don’t know what those priorities are, can be really challenging and you can pick the wrong rocks and waste time. So something like a climate advisory board, you know, fantastic rocks, so to speak, reveal themselves. Directly from the clients. It’s a fantastic tool for that. You know, you mentioned your team. So who are you leading this or is it a group of people that are leading it from your team? 

Luke Johnson [00:12:31] Yeah, I, I generally lead it. I have two leaders that participate in it with me. So I have our services leader and our sales leader both who join. And they’re they’re a big part, heavily interactive with all these clients as well. But in the boards a lot of times some topic that’ll come up, they’ll be more suited to address or talk to you in that session. So we all participate. But generally I’m the one that sets the agenda and I run that by them and get their input and sometimes they’ll disagree with what I say. You know, maybe the gentleman that leads sales is saying, Hey, we’re really seeing a lot of this right now. I’d love to talk to them about that. And so it’s a very interactive process with the team. 

Greg Alexander [00:13:12] Okay. So it’s fairly new for you, but not so new. I think You said you ran. You’ve run four of these so far. So based on your early experiments. Any any landmines you want to tell members to avoid stepping on? 

Luke Johnson [00:13:28] I think that. There’s a few. Maybe. Be diligent if you can. And picking the right folks. And again, I’m not sure that there’s a perfect science to that. But do you think about the interactions you have with these people and you really need people who are willing to engage. And that’s probably the most important thing. And they have to be fine with candor. It’s not a great place. You don’t want somebody to feel like they need to be polite in there. Just tell you what you’re doing. Well, not doing well, what the competition’s doing well, not doing well, etc.. I think the other thing is set expectations upfront that you may be a bit of a project manager in the session in that you’ve got to give everybody a chance to speak. So you’re not trying to be rude, but if somebody talks a little too much, you may cut them off just so someone else can can talk. So set those expectations upfront so no one gets their feelings hurt by accident if you have to cut somebody off. 

Greg Alexander [00:14:30] Yeah, well, fantastic advice. Well, listen, we’re out of time, but thanks for making a contribution to the collective today. I’m really looking forward to the private member Q&A, which will happen on an upcoming Friday. But Luke, you’re a great member. You’re always contributing to the collective. So thanks for being here today. 

Luke Johnson [00:14:48] Greg. Thanks for having me. Fun, fun topic to talk about. Great day. 

Greg Alexander [00:14:52] Thank you. Very good. All right. I’m going to give audience members a couple of calls to action, if you will. So first, if you’re a member of Collective 54 and you’re inspired by Luke’s story and you want to get a client advisory board going yourself, we’ve got some tools for you. One is called the Service Offering Development Roadmap. And in that it talks about how to listen to clients. And one of the templates there is a client advisory board. And then also if you’re a member and you’re trying to find your successor, trying to replicate yourself and others and maybe remove the founder bottleneck, this is standing up. A client advisory board is a fantastic development exercise for high potential employees. So you might download a copy of the High potential Employee Development plan, which you can find on the portal as well. If you’re not a member of Collective 54, you should be if you’re listening to this. So how do you find out? Join me. So I go to collective 54 dot com and a couple of things there. You can either fill out a contact us form and talk to somebody about applying for membership or if you’re not ready to join and just want to further educate yourself. I recommend that you subscribe to collective 54 insights and you can find that it collective 54 insights dot com as well. Okay with that, thanks for listening and I look forward to our next session. Take care.

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Episode 112 – How A Consulting Firm is Scaling by Generating Revenue from Multiple Sources – Member Case by Robin Way

Generating revenue from sources other than the billable hour is a key part of scaling a consulting firm. On this episode, Robin Way, Founder & CEO at Corios, shares how he is generating revenue from training products, licensing tools, and generating reports. He will talk about how he went from a single source of revenue- the billable hour- to four sources of revenue.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Pro Serv podcast with Collective 54, a podcast for leaders of thriving boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community focused entirely on the needs of leaders of boutique processor firms. My name’s Greg Alexander. I’m the founder and I’ll be your host today. And on this episode we’re going to talk about quote unquote productize and a service. What do I mean by that? What I mean is generating revenue from things other than billable hours. And we’ve got a great role model with us today. And I’m going to walk through three examples as to how he’s done this. His name is Robin Way. He’s a collective 54 member. Robin, welcome. Please introduce yourself. 

Robin Way [00:01:01] Thanks, Greg. Yeah. Good morning. So I’m Robin. I am the CEO and founder of Curious. We’re based in Portland, Oregon, and we build data engineering and data science assets and processes for clients in the financial services, health care and energy sectors. And gosh, I’ve been in this field for over 35 coming up on 40 years now, back when we just called it math and statistics. But it’s a pretty sexy area and I’ve had the opportunity to sort of see this field create and recreate itself probably four or five times over. And hopefully I’ve learned a few things along the way. 

Greg Alexander [00:01:41] I’m sure you have. So this concept I’m going to talk about today is called prioritizing in the service. Again, the benefit of doing so is generating revenue for something, for something other than the billable hour, you know, selling access to an asset as opposed to selling your time. So my team has told me you’ve got three examples of this and I want to dedicate the show to that. The first one is I understand you’ve built a self-paced training product. So my question would be, you know, how’d you come up with the idea? Why did you do it in the first place? Tells the story of this training product. 

Robin Way [00:02:13] Sure. Well, our sweet spot is helping our clients move from a really old discipline of doing analytics and data in their organizations to a much more modern way, using open source programing and cloud computing. And the biggest change that our clients face is not a technical challenge. It’s a human challenge because people write code. Code doesn’t write itself well. As long as chatbots make our entire industry disappear, which I really don’t think it’s going to. So people struggle with learning new things and it’s scary and it’s uncertain and they feel threatened by by gosh, this is the way I’ve done stuff for 20 years. And everybody that we help looks like me. Gray hair, gray beard, you know, they’re older, they’re getting ready for retirement. How in the world do they keep their job long enough without sacrificing, you know, the end of a career? And also, how do they learn how to interact with their with the young startup kids in their twenties and thirties who speak completely different programing languages than they do? So we wrote a we built a training product. Where these students can take what they know. We built the course knowing what they know because I’m one of them. And I walked through the same journey myself five years ago so that they can understand how to write in these new environments, new languages, using what they already know and hopefully make it a little bit easier. And some of the research we’ve done suggests that’s one of the best ways to teach someone something new and scary is provide them side by side examples. Here’s what you know, here’s what it looks like in the new thing on on the other side of the page. And self-paced, because as I watch a lot of these other training platforms like Coursera and Udemy, everybody’s busy. Nobody has the time to sit down in a classroom anymore for 8 hours. Besides, they just be sitting on their phones, you know, chatting and Instagramming. Who knows what they’d be doing. So make it available to them on their pace and their cadence. I let their boss influence how much time they spend every week. But what’s I think more important from a business perspective as an entrepreneur is I also don’t have to sit in a classroom for hours a day. If I can scale the number of students we reach from, say, ten over the course of one business day to, well, gosh, hundreds in the course of a week, that’s a that’s a desired future state for this pipeline, for this new product. But that’s the point is unlike. US from the confines of what a person can do in a billable hours. And because otherwise, you know, we’ll just I’ll be doing this until I’m in my eighties and I don’t really want to do that. Yeah. 

Greg Alexander [00:05:17] So it’s a great example and highlights the benefit of doing this. You know, if you can create a a product, if you will, when I say that term, I don’t mean become a product company, but I mean productize your expertise. Then you’ve decoupled, you know, the billable hour your labor with the revenue stream. And training products are great way to do that. In fact collective averages do the same thing. We’ve built companion courses for the two books, The Boutique and the found a bottleneck and same idea. I mean, if I had to stand in a classroom and teach the concepts in that book, my God, it would take hours and hours and hours these days. You know, with the self-paced e-learning technology that’s available, everybody can kind of learn it on their own when they have the time. It’s a highly scalable activity. So that’s a great example. Let’s go to the second example, which is this, as it’s been described to me, a code translator. So what does that mean? 

Robin Way [00:06:11] Yeah. Yep. Well, this kind of goes hand in hand. It’s kind of like the peanut butter to the jelly of the training product. Okay. So when these students have been writing their data analytics workflows for years, maybe ten, 20 years, or maybe they inherited code from somebody else who was at that business has left and all they know is, oh, I press go on this piece of code every Monday and I get a PowerPoint out the back end of it. So they if they know this, the task that this piece of code is doing. And we ask them right now, take what we just taught you and now convert this this code from one language to another. It’s a lot like like that. You, the translator sitting in the UN building, York, you know, they hear they’re listening to French and they’re translating the Spanish on the fly. 

Greg Alexander [00:07:00] Interesting. 

Robin Way [00:07:00] That’s not easy to do. And it’s tedious, time consuming error. So we wrote these three code translators that basically translate English to French, to Spanish, to Mandarin, to basically the target languages that they’re going to use when they’re moving to their target state, you know, moving to Python or Spark or whatever on the cloud, because that’s the destination where all of our clients are eventually moving. And by doing so, we’re taking the tedious, low value work and automating it. It’s it’s not it’s a it’s an art and a science. It’s not completely automatable. And frankly, that’s where just like with the training product, if we teach the low value skills, that allows us as consultants to be advisors and, and, and people who empower our clients to realize, okay, now I can focus my dollars for the careers consultants on the higher value stuff, which is also a good way of not getting caught up in battling offshore consultants who could do something similar at a much lower billable rate. Yeah. 

Greg Alexander [00:08:12] Another great example, right? I mean, all of us as merchants of expertise, we have to realize that what was once a unique high value activity eventually will become a commodity. And and if you don’t automate those things through technology, the code translate is a great example of that. Eventually you can have all kinds of fee pressure and you’ll become a commodity. So by providing, you know, tech automation and prioritizing and service, you can still meet the need the client has. But but not with labor, with a product which then allows you to push up market and work on more strategic things that they’re willing to pay a high dollar per hour for the labor. Okay, that’s a great example. The third one was less intuitive to me. It was described, I think, incorrectly. So I’m going to give you a chance to describe it to me. It’s called the AWB inventory software. What is. 

Robin Way [00:09:06] That? Sure. Yeah. Let me let me set the stage for this. So this is actually the product that is at the start of the client lifecycle. So you think about classic consulting first come on in and help the client size up what the size of their problem and the nature of their problem is. Then do the work and then teach them how to do the work themselves. That was we’ve sort of tackled these products in reverse order. That doesn’t matter for the podcast. But we this third product is at the the first stage in the client lifecycle. We’re going to inventory. Just how big is your problem? Where is it worst? Okay, what should we do first, second, third. So this is an inventory product that we built know about four years ago. And what we’re doing now is we’re converting it or sort of upscaling it to put into the US marketplace. That’s basically, you know, Salesforce has one and Microsoft has one where basically you can download plugins into your software, you can download software that runs in your own computing environment. They’re up. The upshot of all this is. We want the client to do an inventory. Either way, that gets us to where we really want to be. The sweet spot of our lifecycle is creating value. The inventory itself just tells us how much value there is to create and we want to accelerate the pace of that project the way that we do it today without this this downloadable plugable piece of software that we put up on marketplaces. Instead, we come into their environment. We have to do 3 to 6 months of sale and three months of delivery. By using this upgraded version of the technology, the client can download themself and run themself. We’re basically taking months and months, maybe almost up to a year, and we’re reducing down to a couple of well, because the client can dip their toe in the water, they can try before you buy all those kinds of nice for the client who says, gosh, I don’t know if I can sustain an organization the time to do this inventory. If it’s going to take me six months, I got I got a day job. So if we can crunch that down to a couple of weeks, then they can go, Ah, you’re right. I have a huge problem and I really need you to come in and fix it. That way we get to the sweet spot, the place where it’s going to be hard to dislodge a or or to question the value. So that’s, that’s the third product. Okay. 

Greg Alexander [00:11:33] Another great example. Now, I know some of our members, they’re going to hear that example and they’re going to say, why the heck would I want to do that? I sell a consulting project. I spend three, six, nine months in quote unquote, discovery. I’m billing the client for that work. If that gets reduced to two weeks, I just cut my revenue stream dramatically. I think that’s the wrong way to look at it. But what would you say to those members? 

Robin Way [00:11:59] Yeah, well, inventory. Yeah. So in my line of work, the inventory is not the value. Anybody I mean, the classic complaint about consultants is I pay in my case, I’m paying Robin paying this guy to come in and look at my watch and tell me what time it is. Right. There’s no there’s no value in that. So. Plus the inventory. A lot of that 3 to 6 months of pre-sale is just us sitting around waiting for the client to say that they’re finally ready. So we’re not building that whole time. We might, you know, we have a flat fee for that service. It’s maybe 250 grand. If we do it the hard way, we might give it away. Mm hmm. You know, practically, we might charge a nominal fee of ten, 20, 25 grand for the trial before you buy a service, because that’s the way in the tech space. A lot of software is sold is get me hooked with the freeware, with the shareware. And then when I realize, Oh, I love this, I want more and I want to know more about careers, then they bring us in. And now we’re talking about a much more sort of a platinum level relationship where they see, Wow, you guys know a ton. I had no idea our problem was this bad. Come and help me now. We’re into the the part of the relationship I really want is is is that is implementing the value and bringing them to the promised land and not just reading their watch for, you know, for, you know, for what is. Really should be a cost of sale. Yep. 

Greg Alexander [00:13:37] Excellent example. What I would add to that is there’s probably a lot more demand out there that our members could capture if they could take something like discovery. I use that term broadly from six months to two weeks. There’s a whole bunch of customers in the market, one who will now probably hire you because they don’t have to go through that six month grueling process. You know, the value prop gets done in two weeks. So the demand will go up. And then, of course, as Robyn said to us, what you get to, what you really want to get to, which is fixing the problem, not diagnosing the problem a hell of a lot quicker. Robyn, one more question on this. So these three examples are training product. The translation product and the inventory product are all great examples of products and services do charge for them. 

Robin Way [00:14:23] Great question. Kind of. So we. So I’d say there’s two dynamics in the market for know we are a we are in the ecosystem of Amazon Web services. We are a premier solutions provider in the AWG ecosystem. And RWC is all about commitment to the clients and about delivering time to value. So what that means is the clients have come to expect. I want results fast that I can scale and I want to be able to fail fast. And if an experiment is going poorly, throw it away. Figure out what does work and go with that instead. So. The the realities of this market are you have to bring to the client what they have come to expect. And that means changing the way that you work as a consultant and finding your one niche. Because Amazon will eight of us will tell you as a as a process of company, do not present yourself as, Oh, I can do anything, I can do some data science stuff, I can do some data migration stuff, I can build you a new app, be good at one thing that’s very discretely defined that you are the best in the room app and stick with that. And that’s what we’re trying to do. 

Greg Alexander [00:15:54] So when you say you kind of charge for this, so are you. 

Robin Way [00:15:57] Oh, yeah. Let me come back to that. We call these accelerators, okay. If I tried to for example, we’re trying to take a customer from state A to state B, Once they’re at state B, they have no need for a recurring software fee because they they solve the problem. So we’re not selling it as a SOF, as a recurring software revenue. Now, some people will go, Well, what are you creating these products for their aid, their differentiators be their accelerators. Everybody wants, they want to know. I can just pay you for hours or you’re bringing hours plus something really compelling and distinctive. Yeah. And I want to know that you’re going to reduce the operational risk of the engagement, and you’re going to leave me stronger than I was before. So they’re really accelerators for value. I’m not selling them for a price because because we are trying to sell our expertise, their expertise in a bottle. 

Greg Alexander [00:16:59] And therefore, the reason we are charging or kind of is because you’re getting more deals and you wouldn’t have had these deals otherwise. 

Robin Way [00:17:05] That’s right. Yeah. Got the right to have the right. 

Greg Alexander [00:17:07] All right. Well, we’re out of time. Robin, This was an awesome example. Three examples on how to productize a service on behalf of the members in the collective. I appreciate you being here very much. 

Robin Way [00:17:17] Yeah, you too. Greg, this was great. Thanks for inviting me. 

Greg Alexander [00:17:20] Okay. All right. So as a call to action, let me speak first to the members. So first things you should attend the Friday Q&A session, which is the private session that we’ll have with Robin, and you can ask your questions directly to him. Secondly, you might check out the companion course for the boutique book. In it, one of the tools is called the Revenue Mix Tool, and it teaches you how to develop different revenue streams and therefore have a broader revenue mix, which is what Robin demoed for us today. And then also for those that are playing around with the founder Bottleneck, there’s a template in that companion course called the High Potential Employee Development Plan. And if you’re wondering, Hey Greg, I want to productize my service, but who has the time to do that? It’s a great project for a high potential employee to take on, to develop themselves and create more value for you so directly to that. And then if you’re not a member and you’re listening to this public podcast, first you should consider being a member. You’ll get access to great people like Robin and tools like the ones I just share with you. And you can do that. A collective fifa.com fill out the contact us form and some will get you get in contact with you regarding that. But if you’re not ready to join but you want some more of this outstanding content, join our newsletter which is collected for Inside.com. And if you do so, you get three things. You get a blog on Monday, a podcast on Wednesday and a chart on Friday. Okay. With that. Thanks for being here, everybody. Robin, again, Thank you. And until next time, thanks for listening.

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Episode 111 – The Beginner’s Guide to the QOE (Quality of Earnings) Report – Member Case by Elliott Holland

Someday you will sell your firm. After all, none of us can run our firms from the afterlife. When your time to exit comes, you will need to know what your firm is worth. The tool often used to calculate a purchase price is called a QOE, or the quality of earnings report. On this episode, QOE expert Elliott Holland, Founder & CEO at Guardian Due Diligence, will help founders understand what a QOE is, when it is needed, who creates one, how it gets used, and why founders need to get familiar with it.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the ProServ podcast with Collective 54, a podcast for leaders of thriving boutique professional services firms. For those who are not familiar with us, Collective 54 is the first mastermind community dedicated to the needs of boutique pro firms. My name’s Greg Alexander. I’m the founder and I’ll be your host today. On this episode, we’re going to talk about a tool that you’ll use someday when you’re trying to sell your firm. It’s called the q0e, which stands for Quality of Earnings. And we have a true expert who does this for a living. His name is Elliot Holland. He’s also a member of Collective 54. So, Elliot, it’s great to see you. Would you introduce yourself to the audience, please? 

Elliot Holland [00:01:02] Absolutely. Great to be here. I’m Elliot Cowan, Harvard Business School, former private equity professional. And now I run a business that helps entrepreneurial business buyers vet acquisition targets using an audit like service called Equality of Earnings that we’ll dive into deeper here in a second. But essentially, I try to help entrepreneurs and keep them away from losing money in very happy situations where there’s huge motivations for people to misstate the truth. 

Greg Alexander [00:01:34] Okay, sounds great. So let’s start at the very top. A lot of our members are first time founders. They’ve never been through an exit. Someday they all know that they will sell their firm someday because unfortunately, we can’t run our firms from the afterlife. And since they’ve never been through that process before, this term quote, equality of earnings, they don’t even know what it is. So can you just give us a basic definition? 

Elliot Holland [00:02:01] Sure it is an audit service. So for a public company, what they do each year is an audit which looks through extensive information and makes public stock accessible to everyone. What the quality of earnings is is a mini version of that specifically used for buyers of companies to assess the financials of private companies. Anyone on here who owns their own business knows how difficult tech firms can be and how difficult setting up your financials and keeping them straight can be. So imagine a buyer coming into that environment, and the quality of earnings is a tool that can standardize the business financials of any business owner into a package that any investor can consume and make an acquisition decision. But to sum it all up, it is very similar to an audit specifically for the you are buying a company. 

Greg Alexander [00:02:54] Okay, very good. And when as a founder, am I most likely to need to use or build a q. O. E. 

Elliot Holland [00:03:05] Sure. So the two times that you need to use it, one, if you are looking to grow by acquisition, you see a target company that’s in a market you want to get into. You see somebody you know who’s selling. When you decide to buy their business before you execute that transaction. You want to hire someone to do a quality of earnings. Why? Because there’s. Huge variability in financials relative to what’s presented often times and you don’t want to get had. So that’s one. The second time is if you are approached to sell your business or you decide to take your business to market. Greg talks about this all the time. You’re getting an investment banker or business broker. I would highly encourage you at that moment to get a quality of earnings as well. Here’s why you want to have your own point of view of your numbers before a bunch of picky buyers come in and start hiring the same providers for their benefit. And the pain for an owner who does their own quality of earnings. The pain during the selling process is drastically reduced if they have their own quality of earnings. So those are the two times people should think about quality earnings. 

Greg Alexander [00:04:20] Okay. And it sounds intimidating. How long does it take? And, you know, if I’m a first time founder who’s never done it before. Can I pull it off? 

Elliot Holland [00:04:32] So it’s easy peasy and I’m smiling only because I’m such an entrepreneurial advocate on both sides, buyers and sellers. So essentially, your bookkeeper, your CPA, and the person sitting in my seat as the equality of earnings company lead or accounting lead do 95% of the work. So to make the process super simple and easy to digest, it’s essentially three steps. As an owner who’s going through one, they send you a list of information. If they’re good at small business kilos, their list is 40 to 60 items. Of those items, two thirds will be handled by your bookkeeper or CPA, and the other third will be handled by maybe a half hour to a 45 minute conversation on the phone. So you get a list, you give it to people to fill it out. You get on a phone call for a half hour to 45 minutes to answer business, marketing certain questions about the business. And then you wait for 3 to 4 weeks for the work to be done. Now, there may be questions in between on step three. Those questions oftentimes are not all that detailed. And oftentimes your controller or your CPA can answer them. So for a owner, it may encumber. Let’s just say it takes 3 hours to sort of get your troops going on the day to another hour for a call. You invest between one and 4 hours in this process. And I’ll also say a lot of us as private business owners have done some interesting things in our financials. You should not be scared of sharing those things because the providers who do this are so used to handling it. Just just be honest. Get it all out and it’ll be done in four weeks. 

Greg Alexander [00:06:15] So let’s say I’m a founder and I have a successful firm, so I potentially have an inflated opinion of myself and I think I can do this on my own or I can pencil whip it just by, you know, exploiting my QuickBooks file. And that should be good enough. Am I nuts? 

Elliot Holland [00:06:34] Yes, I’d. I’d respectfully laugh at you. 

Greg Alexander [00:06:37] Okay. 

Elliot Holland [00:06:39] Here’s why. There’s too much money. Okay, So the people I’m speaking to are people who have businesses that are likely going to sell for 1000000 to 40 or $50 million. Right. They’re going to be sold at a lot of cash flow or EBITA. We won’t get into it, but just a multiple a profit to keep it simple. So when you say, hey, I’m going to go cheap and easy and homegrown and I’m going to export my QuickBooks and it’s accounting crap, they don’t care. My business is worth whatever. What you don’t realize is I’m going to be the one on the other side working for the buyer, picking your financials apart at in my 10th degree of detail and then telling you think about things about your financials that are accounting oriented but will affect the price that you won’t understand yet because you have not gone through the process for your own benefit. So let’s just walk you through an example. When sellers don’t do the quality of earnings before, when founders don’t do it, before you get into situations where accounting things, where something is is presented in one way is taken as a big deal, when it’s really a small deal and you’re getting a multiple of profit. So like a 10% difference. So if your profit is a million bucks, if the buyer can go through your front end and shows and show you that your true profit when all the accounting stuff is handled, is even 10% off, right on a4x deal, that $100,000 could be $400,000 worth of lost value. So by, you know, avoiding 22 for a quality of earnings, you just lost 400 K. 

Greg Alexander [00:08:15] Yep. 

Elliot Holland [00:08:17] That’s before I even talk about you have your own financials. You go through less pain through the whole process because people don’t have to ask as many questions. 

Greg Alexander [00:08:25] Yep. Now, so far we’ve been talking about if I, the founder of my firm, is planning on selling my firm, we haven’t talked about the counterparty on the other side of the desk. The firm was thinking about buying my firm and their due diligence process. So it’s likely it’s likely especially, you know, professional acquirers, they’re going to hire their own firm to do their own QE. So there’s really two of them being done. Is that correct? 

Elliot Holland [00:08:52] It depends on the size of the business and the buyer. So I would say in the deals that I’ve seen and I focus on deals sort of $2 million to 25, $35 million is where I live. If the seller does the quality of earnings typically be the buyer who comes in will either assess the quality of earnings and the quality of the firm that’s done it, and they may just get their accountants to review it. That’s most often the case because people don’t want to pay twice for the quality of earnings or if there is a second quality of earnings, it’s a sanity check, not a product, a logical exam. So if you’re going to have somebody go through your financials at that level, you want to be the one paying them. You don’t want somebody that somebody else paid doing that exam. 

Greg Alexander [00:09:38] Yeah. Okay. Now, the the person who’s buying the firm, the acquirer, they’re going to take this QC and they’re going to do what with it? 

Elliot Holland [00:09:48] So let’s just talk about $1,000,000 Eboni business, which is just cash flow, a profit and a four times deal. So you’re selling your business for $4 million. The buyer will come in and do a quality of earnings and say, I’m going to multiply whatever the evil that this found in my quality of earnings by four. So they’re going to go in and look at your income statement, your balance sheet, your working capital, your bank statements, your taxes. Running through that four week analysis. And then they’re going to come back and say, hey, based on our accounting team, your actual EBIT is $900,000. And so now they’re going to say $900,000 times four is 3.6 million, not 4 million. And so our price now just got adjusted, 400 K It also happens in the other way. So they may find that the profit is higher than what was presented, but they’re not in a position to tell you that. So what would buyers do with the quality of earnings is use it as the basis for the EBIT number that they multiply by to get to the value. 

Greg Alexander [00:10:52] Okay. And do they share it with the bank if they’re going to fund it that way? 

Elliot Holland [00:10:58] Oftentimes, sometimes not. But you should assume that the quality bearings will go to all interested investors, even though sometimes it doesn’t. Depending on the buyer, if they have good relationship with their banks, depending on the size of the deal. Also, as you get out of when you get out of sort of two, three, 4 million and get above that, then the answer is absolutely yes. 

Greg Alexander [00:11:22] Correct? Yep. Okay. One last question for you on this. This is a personal pet peeve of mine. Sometimes our members get advice from their broker, the M&A adviser or the investment banker that they got to spend a fortune on acuity and hire a big name firm like a p.w see, which I think is crazy for our members, because those can be very expensive and they don’t need to spend that kind of money because our members businesses, relatively speaking, are easy in simple businesses to do this. So, Eliot, what would you say to that advice? 

Elliot Holland [00:11:58] So I don’t think the big firms like Peter them you see, do strong in meeting business quality of earnings well at all. So my point of view is not only will you overpay for it, but you will get the debt. Not that it would be the C, but the DTI, the kids coming straight out of college. The partner who doesn’t want to spend a lot of time on it. You’re not an important entity in their ecosystem of a lot of private equity firms and multiple buyers. So you’re going to get the last bit of energy they have. And when a transaction is this big for you as a founder, it matters that you get the A-Team and a quality sort of driven firm. So I would highly encourage you to look for regional firms that are more that are priced more cost reasonable or due diligence firms like mine that focus on just quality of earnings that have great reputations in the marketplace. You don’t need a quarter million dollar, $100,000 quality of earnings. You need one that solid by a reputable firm. Yep. 

Greg Alexander [00:13:00] And not to put you on the spot here, but I know you do this for a living. Give me a range. What’s a ballpark budget figure for something like this? 

Elliot Holland [00:13:08] Sure. So 20 to $60000 should cover it for companies that are selling for 1 million to. 25, $30 million. When you get above that, you may ratchet that upper end of the range up a bit, but that is a very reasonable range. You get your quality of earnings done. 

Greg Alexander [00:13:26] Okay, Fantastic. Well, listen, we’re out of time. But Elliot, you and I have recently gotten to know each other. You’re a relatively new member. I’m so glad that you’re in the community. Your energy and enthusiasm is infectious, and your area of expertise, as we just learned today, is desperately needed for our community. So on behalf of all the other members, I appreciate you being part of Collective 54 and in particular for making the deposit in the Collective Knowledge Bank today. Thanks a bunch. 

Elliot Holland [00:13:52] So excited to be here. Thank you for having me. And I’m glad to be in collective 54 as well. 

Greg Alexander [00:13:58] All right, very good. So let me give the audience members a couple of call to action. So let’s say you’re not a member, but you’re thinking about it because you want to meet really interesting people like Elliot and learn about these tools like quality of earnings. Go to collective 54 dot com, fill out the contact us form, and one of our representatives will talk to you about being a member. If you if you are not ready quite yet to be a member and you want to educate yourself further, subscribe to collective 50 for insights and you going to get three things on Monday. You’re going to get a blog, on Wednesday, you’re going to get a podcast, and on Friday are you going to get the chart of the week? And that’s a good way for you to learn more about this if you are a member listening to this, my call to action is a little bit more precise. So the first thing I want you to do in the new Boutique Companion course, there is a Kuo e template I really want to emphasize. It’s an introductory basic template that will get you familiar with kind of what something like this looks like. Of course, to execute it, you’re going to need a professional like Elliott. And then also if you’re not quite ready for a cue because you’re not ready to sell your firm, but you’re really interested in what your firm might be worth on the website. Under resources, we have a tool called the Firm Estimate here. That’s a really fun tool. Takes about 15 minutes to fill out your answer ten questions. It gives you a ballpark range as to what your firm is worth. I really want to emphasize here a ballpark range. It’s not a precise valuation, but check that out if you’re interested. Okay. So that’s the end of today’s show. Thanks for listening. Thanks for being here. We really look forward to Elliott’s private Q&A with the members on one of our upcoming Friday member sessions. But until then, we’ll talk to you on the next one.

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Episode 110 – How a Software Development Firm Structured an Equity Incentive for a Key Employee – Member Case by Michael Daoud

Hiring, or promoting, a person into an executive role often requires the Founder to offer an equity incentive to the key employee. This requirement drives a need to understand what the firm is worth today, and how much of the future value should be shared with the key employee. On this episode, Michael Daoud, CEO at Visus LLC, discusses how he valued his firm, and how he structured the equity share with the key employee. 

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Pro Serve podcast with Collective 54, a podcast for leaders of thriving boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community dedicated entirely to the needs of leaders of thriving boutique producer firms. My name’s Greg Alexander. I’m the founder and I’ll be host on. In this episode, we’re going to talk about negotiating an equity incentive for hiring an executive into your firm, something that we all run into a little bit of a tricky scenario and multiple ways to do it. And we’ve got a great role model with us today. Collective 54 member Michael Daoud. And Michael, as recently gone through this is going to share a little bit of his story with us. So with that, Michael, welcome. Good to see you. And please introduce yourself to everybody. 

Michael Daoud [00:01:09] Thank you, Greg Yes, has a great side. I’m Michael Daoud. I’m the founder and CEO of Visus LLC. We are a professional services company focused on software development and our target market is mid-level enterprise companies and we help them improve their operational efficiency and customer experience. And we do that through developing custom applications, content management systems and business intelligence solutions. 

Greg Alexander [00:01:37] So it’s Daoud. Not dowd. 

Michael Daoud [00:01:40] Correct. 

Greg Alexander [00:01:40] Okay. Sorry about that. 

Michael Daoud [00:01:43] Problem. 

Greg Alexander [00:01:44] Okay, So let’s set it up. So describe the situation. So as I understand it, you’re thinking about adding a member to your team in a pretty important role and you had a need to think about an equity incentive. So give us the backstory, please. 

Michael Daoud [00:02:00] Yeah. So I’ve got an opportunity to bring on a very well experienced person, and that can help us with our growth and scale. And part of that incentive is to provide some sort of equity and or that process been trying to determine valuations and things like that. So can probably provide the right balance of things. Always have grown the company so far over the years and it has a certain value. And so we want to figure out what that value is today. So when the equity equation is figured out with this gentleman, then we can determine, you know, targets based on today’s valuation and future valuation. 

Greg Alexander [00:02:42] Yeah. Okay. Very good. And that’s an important distinction. So for those that are struggling with the same issue, remember all the value that you created up to this point is yours because the executive coming into the company didn’t help you create that. So establishing what the firm is worth today and then what the firm might be worth in the future, and that gap between its valuation in the future and the valuation today, that’s the value that was created. And the question is how much of that value do you share with a new hire? So determining what the firm is worth today is a tricky thing. So my client is stand that you have an advisory board and they suggested to you that you get a valuation. So first, why did they think that that was worth doing? And then secondly, as you explored the possible ways of doing that, what were your options? 

Michael Daoud [00:03:31] Yeah, that’s a great question. Great. So we have a fractional CFO that works with us, and he recently had a client go through an indication of value, so rather than a full valuation. Is this person here in town can do indications of value. Just to kind of give you a rough idea of what the valuation is. The reason the board pushed me to do that, because you and I spoke and you had shared some averages for software development companies in professional services. We have some pretty strong benchmarks. We have strong gross margins, strong EBIDTA. A lot of good processes in place and they felt those all those things put together would provide a stronger valuation. And so as a result, they said, well, maybe getting a good valuation done, and this is prior for me getting the collective 54 estimate, which we can talk about. They thought that it would be a more what’s the word I’m looking for, a more accurate to the actual valuation, if you would, just because of those strong numbers that we have. You know, we posted our numbers in collective 54 and always gotten good feedback of how really strong our margins and EBITDA are. And we work very hard at that every day. Yeah. 

Greg Alexander [00:04:59] Yeah. And you’ve got your board gave me great advice because you’re right. Given your performance, your firm is probably worth a premium over similar sized firms because of your outstanding performance and therefore you don’t want to give that value away. You created it. So getting kind of an accurate value is really important. Now, there’s a lot of ways to do this. You can hire a professional appraisal firm, which if you have the money I recommend this is what they do for a living and they’re fantastic at it. That can run. Yeah, they get a really good one done. What you would want to do for a situation like this, since it’s going to dilute your own ownership percentage or potentially dilute it, it’s going to run you around 15 grand. In my experience, the ones that are cheaper than that aren’t really great. So if you’re going to spend the money, my opinion is, is do it right now. If you don’t want to spend the money and you’re looking for, you know, let’s say call it an educated guess, I guess we have a tool collective 54 does called the Firm estimate and it’s free. Now, I want to caution you, it’s not a professional appraisal. It’s an estimate. And, you know, you can use it and determine whether it’s worth anything or not. And Michael and I are going to go over some of the basics of it today, just as a way to help everybody think through this and also just use this as a outline for the broader conversation on on negotiating equity incentives with a new hire. So the inspiration for this was the Zestimate. I don’t know if any of you have used the website Zillow, but you can go to Zillow and you can plug in your home address and they give you a Zestimate, which is, you know, the word estimate with the letter Z on the front of it to represent that it came from Zillow and it’s shockingly fairly accurate. And then if you’re looking to move and you want to maybe make an offer on a home, they can do the same thing for you. So I said to my team, Well, let’s build the equivalent of that in the principles where it’s got to be super easy. So let me walk you through just real high level what it is. And then, Michael, I’d like to get your thoughts on some of this. 

Michael Daoud [00:07:05] Sure. 

Greg Alexander [00:07:06] So first off, our estimate pivots off of EBITDA. And for those that aren’t familiar with the term EBIT, it’s simply pretax profits. And we establish a range. The range starts at five times EBIDTA and taps out of 15 times EBITA and everything pivots off the EBITDA multiple. There are a series of variables that add to or subtract from the multiple multiple of EBITA and the addition and subtraction are done in one times EBITDA increments per variable. So for example, one of the questions is revenue growth. So if you are growing your top line 30% plus, then you get an extra point of EBIDTA. If you’re growing your firm less than 30%, it’s neutral. You don’t get a subtraction, but it’s neutral. Another example, profit margin. So if you a pretax profit margin is 30 plus percent, you get an extra point of view. But no, if it’s between ten and 30%, it’s neutral and it’s less than 10%. You subtract the point of EBITA and the dimensions we look at are EBITA revenue growth, profit margin. Recurring revenue as in what percentage of your revenue is recurring? Client concentration. Client tenure. Employee tenure. The dependency the firm has on the founder. In the age of the founder, there’s ten variables, that’s all. And you plug those, you answer those questions and out pops an estimate as to what your firm is worth. And then you can play around with those variables. Let’s say you plug them in and you don’t like what what the answer is. And you can say, Well, if I fix this and I fix that, what does it do to me? Or you plug it in and you say, Holy cow, my firm’s worth a ton of money. Maybe you don’t believe it. And then maybe you go back and play around with it. That’s kind of the concept. So Michael, I know, is a little short notice, and I’m not sure if you’ve had a chance to kind of use that tool yet, but did you mess around with it at all? And what did it what did it reveal? 

Michael Daoud [00:09:09] I did and it was great. I really enjoyed it because it confirms some things that were doing well. And and I highlighted some of the things that we need to do better. Right? So I know over a collective 54, I’ve heard people having valuations that are companies, as you said, anywhere between five and 15. I even heard 17 ones. But in general, somewhere in that range and five being conservative. But it was a pleasant surprise to me that when we plugged in our numbers, our multiple was seven. So, you know, I was using five and it was nice to see that. And so I think once we put it in. So on the revenue growth rate. You know, that highlighted how much more we need to spend on sales and marketing to for accelerated revenue. And that’s part of the of the offer with this executive to come on board to help with that. But with our strong gross profit margins and other numbers in here, it really helps. One thing that it did highlight for me, we’ve been getting more and more into recurring revenue. Yeah, through support contracts. But you know, having to do the calculation, put it in here. I didn’t realize how small it was compared to the overall revenue, even though it’s been kind of front of mind to work on that. So that’s an opportunity for us to do even better in our multiple by adding more and more of those support contracts. 

Greg Alexander [00:10:42] Okay, good. So I’m glad that it was, you know, a reasonable estimates and it confirms your belief that your firm is worth more than five times. The tool says seven times, maybe it’s eight, maybe it’s six. I don’t know. But, you know, it did confirm that belief for a lot of the reasons. Now, what would happen from here, whether you use a free tool and you kind of back of the envelope, it’s like what we’re talking about now. Or if you hire an appraisal firm as now you go back to the executive and say, okay, this is our jumping off point. So just to use easy math, our firm’s worth $10 million and I’m going to hire you, Mr. Executive. And over the next five years, we’re going to go on a journey together. And our hope is at the end of those five years, we double the value of the firm. So let’s say it’s worth $20 million. So therefore, $10 million of value was created. The $20 million end state minus the $10 million jumping off point is 10 million. And then the conversation with the executive coming in is what percentage of that 10 million do you think is fair to share with that executive? And this is where it gets really hard because sometimes there’s not clear attribution as to the executive’s contribution to an extra $10 Million in Value creation. And this is where it gets tricky. So Michael, do you have any thoughts on kind of what a an approach might be to figure out how much of the extra value created should be shared with the executive? 

Michael Daoud [00:12:08] Yeah. I mean, you know, in thinking about this and, you know, preparing, you know, some kind of package. You have I as a founder, reflect on say, okay, can I do this on my own without this person? Yeah, probably answer probably is yes. And I believe in myself that I can do it. So what what is the what will this person help me achieve that will get achieved a little bit faster? I think the answer to that is yes as well. So what’s the value for achieving that faster? And, you know, I’ve discussed this with him as well. And I feel that, you know, 10% of that value is fair or that acceleration. And so that’s kind of where we can come to. Yeah. 

Greg Alexander [00:12:56] Okay. So I think 10% is fair in your in your situation. And I think the insight that you just share with us is you feel that it’s worth it because this is the key component of Michael story, is that this executive can help him get there faster as he stated, he can do it on his own. He can get there. But this executive might help him get there faster. And then then it’s a judgment call for the entrepreneur or the founder. Do you want to get there faster? Well, if you’re 25 years old, you might not care. If you’re 55, you might kill a lot. So this is where the tradeoff comes in. And 10% is actually generous. You know, if if this was a corporation and somebody was issued stock options as an example, you know, the employee that’s going to get stock options might get, I don’t know, 1% to 2% of the company. And they would vest over time. So 10% is is pretty generous but fair. You know, given what Michael is trying to get done now, as you share this information with this executive, who was it well received? Was there a disagreement? Was it a point of negotiation? Like how did you approach this? 

Michael Daoud [00:14:08] Yeah, that’s a great question. So when we start our talks some time ago and it’s been some time it was proposed by him at first as to what he believes his value would be. And in exchange for that and, you know, I felt from day one when he did that, that it was fair, especially for he brings a lot of technical know how and can help us, you know, not only accelerate through the valuation but accelerating some of those some service lines that would help us attain that valuation we’re looking for. 

Greg Alexander [00:14:44] Okay. Very good. All right. Well, listen, we’re at our 15 minute mark here. We’re going to continue this conversation and go in much greater depth on our member Q&A sessions with happen on Friday. And I’m sure because I get asked this question all the time by members, I’m sure that’ll be a well attended session. Michael, you’re a great member. You’re always contributing to the collective installing knowledge into our knowledge bank. You did that again here today. So on behalf of the members, I just wanted to publicly thank you for your contributions and for being part of our community. 

Michael Daoud [00:15:17] Thank you, Greg, and thank you for starting Collective 54. It’s been an awesome journey to be together with you and the other members. 

Greg Alexander [00:15:24] Okay, Awesome. All right. Let me give you a couple of calls to action. So if you’re a member, go play around with the firm estimate at all. Attend Michael’s Q&A session on the Friday when it gets scheduled. If you’re a nonmember again, this tool is free. You can download it off of our website, collective 54 dot come under resources. And then also if that type of content is of interest to you, you can subscribe to collective 54 insights, and if you do so, you’ll get three things per week. You’ll get a blog on Monday, a podcast on Wednesday and a chart on Friday. And if you want to skip all that and just become a member and you want to apply, fill out the Contact Us form on collective 54 icon and somebody will get in contact with you. But great episode today and thanks for listening. And until next time, good luck to you and we’ll talk to you on the next show.

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Episode 109 – How To Avoid The Devastating Fall Out Of a Botched Reorganization Inside of a Professional Service Firm – Member Case by Mike Desjardins

The design of your boutique’s organization can either aid or hurt a successful exit. Any astute buyer will factor this into their decision-making. This is why simple integrations are attractive. They are cheap, quick, and have a high success rate. On this episode, Mike Desjardins, CEO at ViRTUS, shares their firm’s best practices for a successful reorganization, including the much-awaited backstory of how his team redesigned key roles to keep their top individual contributors.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Preserve podcast with Collective 54, podcasts from 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 boutique pro search firm. My name is Greg Alexander. I’m the founder and I have the privilege of being your host today. And on this episode, we’re going to talk about organizational development, but we’re going to do it with a twist. And the twist is what to do when you have a top performing individual contributor and you promote that person into a supervisory or managerial job. And for whatever reason, it doesn’t work out. And you’ve got to bring that person back into the fold. And the tricky situation to handle. It’s one that our members deal with a lot. It’s a common issue, and we hope to give you some insights as to how to handle that. And we have a wonderful role model this week who has firsthand experience with this. His name is Mike Desjardins, and that was my best French impression. And he’s a member of Collective 54, and he’s going to share his his wisdom with you. So, Mike, it’s good to see you. Welcome. 

Mike Desjardins [00:01:43] Yeah, thanks. Great. Thanks for having me on. 

Greg Alexander [00:01:45] Would you mind introducing yourself and tell us a little bit about your firm? 

Mike Desjardins [00:01:50] Yeah, sure, I’m happy to do so. So my name’s Mike and I live in Vancouver, B.C., Canada, and the firm is Vertis and we’ve been around for 22 years and our focus is 90% on leadership development for medium to large enterprise. So and I’d say medium to large enterprise for us is about 100 million in revenue. That’s usually when a client hits that number where they start to the issues around leadership development that are at the scale that that we operate at. And then 10% of our work is in strategic planning. And that is we do obviously executive team development. So we also work with those executive teams in doing their strategy work as well, which is an annual and quarterly cycle that can go on for 10 to 15 years. 

Greg Alexander [00:02:40] Okay, got it. Very good. So as I mentioned, I set up the problem with this promotion of these individual consumers, and I just had a little bit more color to that. You know, we serve entirely boutique professional services firms. And I should I should define that as you have defined your medium size companies. For us, that means more than ten, but fewer than 250 employees. And in that single industry of professional services, that’s the reason why the number 54 is in the name Collective 54. That’s the industry code for pro serve. And people join professional services firms for careers, not jobs. They they value their expertize. They’re motivated intrinsically by things like the job content, the intellectual stimulation, the variety of the problems they may get a chance to solve, the types of people they’ll meet as very, very specific type of person that joins. And it attracts folks that are driven by competence and achievement and they excel at individual achievement. And then when a firm scales, which is what you’re doing, what most of our members are trying to do. The Law of numbers says is we got to promote some people. They get promoted and sometimes it doesn’t go so well. And then we’ve got this issue where we have this almost demoralizing effect on, unfortunately, one of our stars and we get stuck and we don’t know what to do with it. So my team told me that you are the master at handling this. So I’m on I’m on the edge of my seat. 

Mike Desjardins [00:04:19] I may have misspoke. I think it would be closer to the truth is that I screwed this up and recovers. And so I have a story to share. I think that’s closer to the truth. All right. 

Greg Alexander [00:04:31] Well, let’s hear the story. 

Mike Desjardins [00:04:33] And so yeah, the story is, is that I have a team member who is an executive who I have worked with for over 20 years now. And she’s been with me from almost from the very beginning of the business. And her name is Shannon and she is her title right now is director of Learning Strategies as a business group. One of the things that I read was EOS traction. And through reading about U.S., I learned about an integrator role, which effectively is a chief operating officer role. And I started thinking about restructuring the firm in a way where there was a single person in this integrator role. And to me, that logically is Shannon. Now with Shannon, I thought, well, she did great in the integrator role. And I started thinking about the structure of the business and thinking about how well-respected she is in the business. And I thought, you know, everybody would love to report to Shannon. She’s fantastic. And so she moved from having two direct reports to having really effectively almost all the direct reports except business development and accounting, the controller. And so I figured this would be great. She’s going to love this. And as I started chatting with her about the future of her career and what she wanted, she started saying to, I think what I really want is no direct reports. And I love to really focus on being a director, but focus on the future of learning for the business. And that will take me all of my time. And right now I get I sort of get pulled into projects, and I also have. I also direct reports. And so I don’t really get a lot of time to spend on our strategy and on what the future learning is going to look like. And I think that to really achieve this ten-year strategy that we had set out, I need to be able to focus on that. And so in my infinite wisdom, she went the other direction and convinced her that no, she would be great. 

Greg Alexander [00:06:40] Of course she did. Class. I got to go out there. 

Mike Desjardins [00:06:44] And, you know, offer her the salary and all that kind of stuff to go with it. But what I said to her was, Listen, I think you’re going to be amazing. I know that everybody in the company would love for you to be in this role. And would you be willing to give the role if jobs for six months? If it doesn’t work out. We’ll go back. We will restructure the company and we’ll figure out something different for you. But it won’t. It won’t harm you. You’ll be back. You’ll be financially in the same position you’re in right now prior to being promoted. And and we’ll figure out what that structure is going to be if it doesn’t work. In my mind, I’m like, this is just she’s going to love this. It’s going to work great. I think one of those classic entrepreneurial mistakes that that can get made equally when there’s we’re thinking of profit sharing programs or equity programs. Right. As an entrepreneur, I think about it from my lens. But the reality is that isn’t empathizing with what the other person wants. And in this case, I did the same thing with this promotion. So Shannon got four months into it and we were sitting down for lunch and you know, how’s it going? You know, this is a on I’m. She’s like, I don’t like my life right now. So my grand plan wasn’t working out the way I expected. And I said, Oh, okay, like, what’s going on? And she’s like, I’m back and I love the people I work with and but I’m back doing more of the things that don’t really bring me joy. What brings me joy is working on the future of this business and the strategy, and I’m not getting time to do that. And so, you know, I’d really like to take you up on your offer. I know it’s not six months yet and it’s only four months. And I said, no, I think it’s been long enough for you to figure out whether or not this is the right fit for you. And so I said, okay, well, how do we structure this team? So she and I work together on a newer structure that had her as director of Learning Strategies and had one of our returning teammates who was coming back from maternity leave. After a year, we get a little bit longer in Canada than kid in the States. And we said, okay, well, why don’t we make that role? Director of People in Operations. And her name is Nadia. And so Nadia will roll up the content team and the project management and logistics teams will report to her, and that will free up Shannon to be able to focus on actually on our learning strategies and on this future scale mode of our business, which there is a lot of work that we still have to do on that. And so we did that effective October 15th of 2021. So it’s been a year and almost a month of that structure in place. And what I can say to you is that. What ended up happening is Shannon has dotted line responsibilities to the content team that used to report to her, but she is able to focus on building out the future of the business. And that’s what her day to day looks like. Researching what’s happening in adult learning, researching what’s happening in e-learning and blended learning, and slowly helping to convert what we’re doing into a model that we know will scale more effectively and and also fits really does fit the needs of learners today, particularly post-pandemic as a result of what’s happened and the changes in how people are wanting to learn. It’s quite different than it was prior to March 2020. And Nadia, who’s in her role, is thriving and the team that reports to her loves reporting to her. And so yeah, so it’s actually worked out really well. It’s just worked out differently than I would have expected. And we ended up promoting some people as well. As a result of this change in strategy and a change in approach to our organizational structure. So that’s why I say I would love to take credit for this being some sort of grand plan. I’m definitely not the master, but we kind of scaled our way or I failed my way through it and with Shannon empathizing with me as I had my grand plan and it didn’t work out, we were able to make that change. And then ironically, we put it in an equity based compensation strategy this past June, which level sets everyone’s compensation mark to market every June. And for Shannon, her salary went it went back down when she took the role, but then it went right back up to the level that she would have been asked as the integrator. And so it took a little bit of time for that to happen from October to June when we did that. But when we went to market to look at an individual contributor director role and her salary was actually the same salary it would have had with the direct reports as an integrator in a different capacity, more of a chief operating officer versus director of strategy and saying that’s to bring you full circle of how that worked out. It worked out great for for Shannon, it worked out great for ViRTUS and it ended up working out great for me as well. So yeah, that’s the that’s the full story. 

Greg Alexander [00:11:51] And worked out great scenario. 

Mike Desjardins [00:11:54] Yeah. Well, right. Sorry for Nadia. Which is why it worked out great for ViRTUS too. So it worked out great for Nadia. She’s just thriving in her role. And then a few other people got promoted as a result of this whole structure change. So, you know, it’s another good lesson. Great for me. I can always have these grand designs of how things are going to work out. And then I go to the team and I ask them about what that’s actually going to look like. And sometimes they just tell me like just plain no. Yeah. And when enough people say that to me, and particularly people that are senior and tenure, then it’s important for me to really like listen and try to understand why they they feel that strongly about this. 

Greg Alexander [00:12:37] You know what strikes me about that story and thank you for sharing that. It is a fantastic story and a great use case is obviously you and Shannon had a fantastic relationship built on trust because sometimes when this happens, the person who gets promoted, they don’t feel comfortable sharing with the boss, for lack of a better term, that maybe this isn’t exactly what they want to do. It comes usually with an increased responsibilities and compensation. So they get excited about that and then they take a job, right? And then it doesn’t work out and they feel like they’re failing. And instead of raising their hand and saying, Hey, I want to go back to the old job or let’s reorg around a new job. They leave the company and we’ve been dealing with now it’s changing. It’s moderating now, thank heavens. But we were dealing with this great resignation where a lot of people lost a lot of employees during this time. And sometimes, like, I would call that a an unforced error. Right. I mean, it’s like that was avoidable, I should say. And how did you develop this relationship with her and the culture of your company that we’re. It tolerated the experiment. It didn’t work out. No one’s feelings or egos get bruised and you were able to pivot to a new solution. 

Mike Desjardins [00:13:53] You know, I think it’s really taken a village to build to build this culture. And. We we really ought. Brené Brown talks a lot about vulnerability. And in that she’s really talking less about rampant self-disclosure and more about authenticity and transparency. And and we’ve had that in this business the whole time. I think, you know, when we hire, we’re really careful to hire really smart people who are emotionally intelligent and have these qualities that are they’re great to collaborate with. And we’ve run an open book company since 2008. So other than exact salaries, everybody has every other piece of information about this business. So it’s really kind of baked into our culture to have these types of open conversations. And what I’ve noticed it’s happened as a result of that is that there’s really no surprises, right? So when somebody has a review, they’re not surprised by the review because we talk about feedback pretty openly all the time. I think. Inherent in the fact that we’re a leadership development company. If we weren’t doing this and we didn’t have a great culture right. It would be ironic if we were out in the marketplace talking about how leaders should show up. And so I think it’s deliberate. It’s a choice that we’ve made, and it hasn’t hurt us. I can’t think of a scenario in the past where being this way has been to our detriment. Now it means people have their tenures here, and but a short period of time working here is five years that’s growing fast. Whereas I have there’s team members that have been here like Shannon’s 20 years, 12, 14, relatively long period of time. We’re growing now. So we have some, some new people that are joining the company. And when we hire, because we’ve been around for a while and we’ve had these longer term relationships, we take quite a bit of time to get to know people in advance because we’re thinking about this as a long term relationship. When somebody joins our team, we’re not thinking about like, let’s see how it goes over the next couple of years and we’ll see where things are at. We are really thinking long term. 

Greg Alexander [00:16:04] And the candidates that you’re interviewing, are they thinking long term as well? And how do you how do you judge that in an interview setting? 

Mike Desjardins [00:16:10] I mean, it’s hard, right? Like I. It’s hard because you could say, oh, look at somebody’s LinkedIn profile or look at their resume and have they moved around a number of times? That’s not fair because I think, you know, I look back at where like I turned 50 this year, so I look at where I am right now in my thought process and my decision matrix and and how I think about life. And I think back to when I was 25 and my priorities and my values have shifted as of aged and I’ve had experiences which have helped me to figure out what I want. Now, luckily for me and I only really had two main jobs in life so far away, like I was with a group of companies from 18 to 28, and then I did this from 28 to today. So but not everybody had that. A lot of people are people are trying to figure out what it is their career is going to look like. And they may have to go through different jobs and different companies to sort out what that’s going to be. So I think it’s less about. It’s less about trying to determine whether somebody is interested in a longer term career, and it’s more about creating a culture where that happens. And that’s the decision that we’ve made, is less about trying to figure that out on intake, but instead provide a culture in an opportunity where people actually really do want to stay and grow their careers here. When people have laughed and they’ve laughed and said, a lot of the times are really sad to be leaving, they don’t want to go. But maybe our company isn’t growing as fast as they want to grow. And so even though they’ve been here five years is an opportunity and I’m excited for them because I think that is an awesome opportunity and we don’t have that opportunity here so I’m pumped. There is something like that available and so we would kind of refer to people as alumni and we’re excited that they’re out there in the world doing great things and that we got this unique opportunity to work with them for whatever period of time. We had a chance to do so. 

Greg Alexander [00:18:09] Yeah, that’s wisdom there for sure. Let’s come back to Shannon. So the professional services space is one built on apprenticeships. So junior people learn from senior people and then they kind of move up along the way through the apprenticeship model, at least historically. That’s how it’s been done. So our members are more than likely going to fill the promotions that become. Get created because of the growth with internal promotions. It’s a grow your own model, which works really well in the context of a professional firm. So there’s those that are listening right now that are going to want to go promote somebody internally, much like you did with Shannon. And looking back on it now, a year later. You know, what would you have done differently? What lessons would you want to share with those that are getting ready to go promote their Shannon’s today? 

Mike Desjardins [00:19:09] You know, I think my mentor, Walter, actually said something to me in as we were talking about this and reflecting on this. He’s mentored me for the past six years, and we were chatting about this exact scenario and he said, you know, the learning here is when people tell you what they really want, believe them. 

Greg Alexander [00:19:27] And they’re telling the truth. 

Mike Desjardins [00:19:29] And part well and part. Yeah, well, they’re telling their truth. Right. And park what it is that I would want if I were in them because that doesn’t matter. Now there is, there is a piece of it where. So here’s the piece where I think it’s challenging. The balance of that is sometimes I will see people and I will see some that they are capable of, something they haven’t seen yet. And so they might not like. So for Nadia, Nadia was coming back to come into a program designer role. And but Shannon and I in chatting saw she could come back and the director role sounds like she’s the chief the next most senior person here. So why would we why wouldn’t we offer her this director of people in operations role? And she’d be fantastic at it and she’s ready to take that step. And so we went to her saying, Hey, we think you’d be amazing at this job. And and so sometimes it’s it’s it’s seeing the to for people and what they could grow into. And but the flipside of that, of course, is the situation I ran into with Shannon where I, I wasn’t hearing her and I was thinking too much about what I would want if I were her and and why it would be such a great role for her as opposed to really deeply empathizing with what she knew she truly wanted. I think that’s the lesson, is that there’s always going to be this balance of trying to do both, right? Like help somebody along who you might think isn’t, like, ambitious enough for what you see they’re capable of. But tempering that with really hearing them when they say what they want. 

Greg Alexander [00:21:17] Yeah, for sure. You know, when we have our Friday member Q&A with you, they’re going to ask a lot of questions about this and and the way you set up the what I would call a job trial. You know, you said let’s try it out for six months and and how you monitored that, etc.. So it’s just a it’s a great use case. It’s a very real issue for our members. So thanks for being on the call today and for sharing your story. And my pleasure. It was very informative. Thank you. 

Mike Desjardins [00:21:44] Yeah. I appreciate being on. Thanks. Great. 

Greg Alexander [00:21:46] All right. All right. So if you’re listening and you’re a founder of a or a leader of a boutique processor firm, and you’re not yet a member and you want to meet great people like Mike and learn, you know, around stories like this one. Consider joining Collective 54 and you can apply for membership on our website, which is Collective 54 dot com. If you’re not quite ready to join, but you want to educate yourself, we got lots of resources called Collective 54 Insights, so podcast benchmarking data, a blog or a book, etc. And you can also find that at Collective 54 dot.com. But thanks for listening and I’ll see you on the next episode. 

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Episode 108 – How a Brilliant Founder Expanded Margins By Repositioning His Software Development Shop Into A Strategic Consulting Firm – Member Case by Phil Alves

The quality of the fees earned by your firm is a top priority as you scale and exit. All revenue is not good revenue. Poor fee quality leads to poor margins. On this episode, Phil Alves, CEO at DevSquad, shares how he improved margins and fee quality by repositioning his firm.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Pro Serv Podcast with Collective 54, podcasts from 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 and exclusively to helping you grow, scale and someday exit your professional services firm. My name is Greg Alexander. I’m the lucky founder of this group, and I’ll be your host today. And on this episode, I’m going to talk to you about improving your margins and how the importance of that changes over time as you develop your firm. And we’re very lucky to have a great role model with us. He is a collective 54 member. His name is Phil Iles, and he’s going to share a little bit of his perspective with you. So, Phil, it’s great to see you. Thanks for being here. And please introduce yourself and your firm to the audience. 

Phil Alves [00:01:13] Yeah, it’s great to be here. Yeah. So my firm is Dev Squad. We specialize in building SaaS products, and I’m feel I’m the CEO of the firm. 

Greg Alexander [00:01:23] Okay, very good. And how long you guys been at it? 

Phil Alves [00:01:25] Eight years. 

Greg Alexander [00:01:27] Eight years. Very good. And your journey? Are you a software engineer yourself turned entrepreneur, or did you come at this from some other way? 

Phil Alves [00:01:34] No, that’s it. Yeah, I started as a soft engineer. From their eye. They love product to the product side of yeah. Like creating things and solving problems. And I moved to Utah. I am originally from Brazil. I got a lot of job offers. I decided I would start this company. Of course, having the connection to Brazil helped me have access to talent that wouldn’t be too expensive and interest to the market. And I was part of the first thing they help us have like higher margins. Yeah, but, but a lot of other things that we did after that. 

Greg Alexander [00:02:09] Yeah. So let’s jump into that. So the topic today is margins. And I would say the the space that you’re in which I’ll broadly categorize maybe incorrectly as software development tends to be in relation to other professional services, tends to be profitable but not as profitable because software engineers are scarce, they’re in great demand and the labor cost in this space tends to be high and the end client is squeezing fees a little bit. So margins in software engineering tend to be a little bit low. But in your case, that’s not true. So what are you doing to deliver exceptional margins? 

Phil Alves [00:02:49] Yeah. So I believe, like you talk about in the book, it cannot be a body shop. You have to when clients come to us, what they’re buying, they’re buying process, they’re buying our culture. So we were very specific about how we do stuff. We do stuff differently. We made it. And then as we keep doing that, we were able to prove that we can do it in a better way than they will be able to do just themselves. So when they hire us, I’m like, You’re not hiring developers, you’re right. But I’m trying to position myself not just as another software development company, but I’m trying to position myself as a consulting firm. They specialize. I have my own way of doing things, and my way is better than you could do by yourself. And you’re going to pay a premium for that. And another thing they like to say, when people are paying us their opinions to tell them what to do, not the other way around, like we are really the experts. And like I think another thing that’s very important for our margins, so we start like kind of like in a platform play, people would hire us because we’re experts in a certain programing language, but we had to move out of that to, to charge more money, you know. So now people hire us because we own a vertical. Our vertical is like we specialize in building SaaS products. We have with a lot of successful SaaS products where people went and have exits. So it’s about you can be selling just the people, just the bodies. You have to sell process and you have to be in a vertical where there’s enough margin for people where people are going to pay for the expertize. 

Greg Alexander [00:04:25] Okay. So there was a lot there. I want to unpack that a little bit and congrats to you for having clear command over this subject. I think some of our listeners might not be as advanced, so let’s go slowly here. So one thing you mentioned to me, I call it positioning and you’ve positioned yourself as a consulting firm that specializes in software development as opposed to a software development firm. And that move alone gets you into a different category and it gets the client willing to pay a different fee because they’re comparing you to other consulting firms, which tend to charge more and it gets you out of that category now. And we’re going to go through the other ones that you just rattled off. Well, let’s stay with that one for a moment. Sometimes when you try to reposition yourself in such a way, the client says, give me a break. You know, you might be trying to reposition yourself as a consulting firm, but you’re not really a software development firm. So how did you overcome that perception and how did you convince the world that you really are a consulting firm? 

Phil Alves [00:05:22] I think it’s like actually when you are coming up, you’re going to have some customers that you’ve actually got to do consulting and other companies way of actually doing development. And the more of those customers that you actually doing real consulting, it’s the more a track record that you can show. So we are to a point right now that when I meet with a customer, I explain to them, Look, when you hire us, you get a product manager, you get a UI designer, you get a playbook of how we do stuff. And that was developed over the years. So we didn’t start here. Sometimes we did to customers that were less than ideal, but as we kept growing, we just kept getting more and more picky about our customers. If the customer doesn’t believe what I’m trying to sell him, I’ll be like, You’re not a fit. Because at this point we have a funnel. And like last month alone, I had 40 people that reach out to us and then they came back. And if they don’t, if they don’t, it becomes a peaking game. And some people don’t believe or like they don’t. That’s not why they are buying. And that’s okay. We have the software people that are what we are. Sally Yeah. 

Greg Alexander [00:06:26] I mean, just a great demonstration of sticking to your ideal client profile, you choosing who you’re going to work with, people that recognize your value and are willing to pay for it. I’m sure there was a time when you were coming up in the early days that you couldn’t pick, you know, all revenue was good revenue. You had to turn the lights on and pay the employees. When did that happen? When did the when did the paradigm shift to where you you have a just a huge funnel and you get to choose who you want to work with. 

Phil Alves [00:06:57] I think like when the money was coming and I invest that money in building that funnel, in building the positioning, and it changed when I realize that we’re going to get leads no matter what it like my pay per click and my CEO are delivering what they’re supposed to deliver. And then when I could trust that this I’m going to get customers. That’s when I start to change. And then we can start to replacing. We have customers that work with us maybe for a long time, but there was no ideal customer and then we just replace those customers for your customers. But I think it’s about putting your money in, investing your money in creating the channels and creating the positioning so you can be where you want to be. 

Greg Alexander [00:07:37] Okay, so let’s talk about investment. So sometimes founders of boutique process firms, they see excess money in the bank account and the temptation is too strong. They pull it out of the bank account, buy a new car or something like that. You didn’t do that. You kept the money in the business and reinvested it in these ways, which ultimately resulted to where you are today, which is a very successful, thriving firm. So how did you how did you overcome that temptation and how did you resist the urge to build a lifestyle business and decided to really go for it? 

Phil Alves [00:08:09] Actually, I read a book called Profit First, and I had some money that I took out, and then that money I could do whatever I want. So I did buy a nice car. 

Speaker 3 [00:08:19] A Porsche. I didn’t want an airplane. I have look a lot of it, but most of the. 

Phil Alves [00:08:24] Business, the money actually stay in the business and they got to reinvest that money on the business. So it was about having processes like the same way they have a process of how we run the business like fulfillment. I had a process about what I’m going to do with this money and I was only a small portion and it gets smaller as the company get bigger, you know. But there was only a small portion of that money that would go around us play money because you still want to get the rewards of what you were doing. And it was just about sticking to that process. They allowed me to have the money to reinvest in the business. 

Greg Alexander [00:08:56] Very good. When I asked about margin improvement, the first thing you said was not being a body shop. And when somebody hires you, they’re not hiring an extra pair of hands. They’re hiring process, playbook, culture, which is a really compelling package. I’m assuming because the margins are where they are, that you’re able to charge a premium and that your target customer is paying a premium for process, playbook and culture. And that’s why that’s why I not the Body Shop. So how were those things developed? How have you protected them? How do you prevent your competitors from stealing it? 

Phil Alves [00:09:40] I think it’s very hard to steal culture. 

Greg Alexander [00:09:42] Yeah, that’s true. 

Speaker 3 [00:09:43] Yeah, good point. You know. 

Phil Alves [00:09:47] And that’s kind of like the thing that we from day one, I really emphasize the culture that we want to build and how we want to be. And they have different interactions, like we improve their culture. One thing they really help us do, we start with us. As we grew in the US does cover culture, the covers process, they have ways that you can use to implement those like. So like the same way basically I didn’t try to reinvent the wheel. I read a lot of books. I found processes that work, including your book, and I just replicate it. 

Greg Alexander [00:10:21] Yeah. Okay, very good. And tell me a little bit about your culture. And I know iOS covers culture and it suggests how to build it and track it. But each company has its own unique culture. And you’ve mentioned that word so many times here. And in the context of profit and margin expansion, I don’t often hear the word culture, so I’m intrigued by this. Tell me about your culture and how does it contribute to your success? 

Phil Alves [00:10:49] I believe that the teams that build amazing software products regardless, it’s not because of the talent, it’s because of the culture the team has. So the team, the culture that we develop is a culture that we say make it happen. Simplicity, we are about simplicity. So we want to be very simple play as a team and the value of your expectations. Those are our four values. We talk about them all the time. We have a lot of softness to the track and people can rewarded or people for keeping the values. When you’re making decisions inside the company, you make decisions based on those values. And I think the biggest one, it’s like make it happen in simplicity. We want to keep it simple and to get things to to the other side and get it done. And like, for example, we work with ADP, big Fortune 500 company. And the way the ADP, this thing you can, they overcomplicate everything. So they come to us and they’re like, wow, you got this done in six months. We had expected doing two years. It is because our culture it I could get the same people to work for ADP but inside my system, my process is if they follow how we work, they also would get the process done in in six months. So like I like to say, culture is the way that we do things around here. And that’s kind of like what we try to to pass down and to always talk about and to develop. And sometimes we have to understand we get bad things about our culture to cultures like how we do things. It’s not only the good things. So like recently we have a lot of people in Brazil or I’m originally from and people are showing up late, late to meetings because that’s part of Brazilian culture. Like you show up late and I’m like, That’s not acceptable. And then we, we correct the things inside our culture. So it became a high performing culture, you know. So yeah, yeah. 

Greg Alexander [00:12:34] Now one of the things that you talk to your leadership board about recently was. The the push pull between or the the tension between doing really good work for your current clients, which obviously is very important in taking on new clients. And at some point and this happens to all of us, you have to do more of one or the other. So how do you decide? And how do you balance those two? You know, decide when to take on new clients, when not to take on new clients, when to focus on the existing clients that you have. How do you how do you think through that? 

Phil Alves [00:13:10] Yeah. I think it has to be. Do I have the leadership inside my company ready to onboarding new customers? Do I have the customers inside the idea of customers all happy? Because there’s no point in losing the customers that I have just to onboard some new big customers. And we have been growing a lot year over year, but frequently I’m going to be like, we are not taking customers this quarter and we able to sometimes get people to put a deposit down and then start the next quarter. And I was the first time someone paid me a bunch of money not to work. I was like, What? 

Speaker 3 [00:13:48] You went out and bought a plant? No, but I played. That’s funny. 

Phil Alves [00:13:54] So. But it’s kind of like it is how we work right now. It is. Because if I’m not a body shop, I have to have the time in the consulting. You get the people from down the pyramid, move them down to management. And if I don’t have that person training it, it’s about having the actual leadership ready to onboard customers and add value to understand their culture and understand their playbook. And sometimes I cannot develop these people fast enough. If that’s the case, I have to wait. I’m taking your customers. Yeah. 

Greg Alexander [00:14:25] I tell you, that’s a that’s a great problem to have. I mean, you have so much work. The limitation isn’t finding clients. The limitation is developing the talent quick enough. Speaking of talent, you mentioned that you’re from Brazil, but you live in Utah. Is your talent spread out all over the place or is it in one location? Do you use a remote workforce? Does people come to the office? How does it work? 

Phil Alves [00:14:47] Yeah. So how about after you had a remote first culture? There’s about ten people that live in Utah. They come to the office if they want to. We do have customers fly here for us to do some workshops. We call the design sprints, so the workshop sometimes will happen in person, but most of our work is remote. And the workforce in Brazil with about 100 people now. Wow. They are they’re all remote anywhere in the country. So there’s no physical location around Brazil. There is one here in Utah, but it’s a remote first. Like you don’t have to always come to the office. You come to the office if you want to or if you have a customer flying here. Like sometimes we do have customers fly for us to do like their two days workshop before we started a project. 

Greg Alexander [00:15:29] Now, since culture is connected to the margin expansion that we’re talking about today, you have a remote workforce, remote first. Some would say you can’t build a culture in that environment. You’re clearly proving that not to be true. So is there anything about building culture in the remote workforce that’s different than building culture in an on prem situation? 

Phil Alves [00:15:52] Yeah, I think you have to be a lot more intentional when you have a remote workforce, you have to really spend the time. Culture has to be a priority. You have to talk about culture. You have to. I have this thing called the Culture Squad and this people are their own responsibilities to make sure people are understanding and getting the culture and they’re holding events and they’re doing stuff because it’s harder. Like people get to know each other, but. I think there are some of the basic human needs there for fuel and go to the office that are not automatically fulfilled when you work remotely like you want to have connection and you want to have a couple of things that’s a little bit harder. You never want environment and we have been doing that before with Cool to do it so we know how to do it. 

Greg Alexander [00:16:38] So tell me about the Culture Squad. I love that idea. So how many people are on the Culture Squad? What do they do for you? How does one earn a spot on the culture squad like that? That sounds like a fun a fun gig to have. Tell me about that. 

Phil Alves [00:16:52] So it’s a select group. There’s probably like six or seven people in that group. They get kind of like once a month and they have a budget and their goal is to put together events and things that will promote the culture. So they usually they’re doing workshops where they’re not just themselves, they’re getting someone from the overall company to do a workshop. So they’re promoting their workshop and people are coming, they’re participating. They are like deciding who is the employee of the month and they are running surveys to figure that out. They’re looking at like the reviews that employers give to each other. They are looking at problems that we might have in the culture because like I told you before, I think culture is the good and is the bad and you have to realize when the bad is happening. And so they are responsible to to point that out. So like the leak thing, I didn’t notice that they brought to me and they’re like, hey, people are getting like and their solution was for me to go into the whole company to stop doing, but that sucks. 

Speaker 3 [00:17:54] But they will. 

Phil Alves [00:17:55] Figure out those problems and they will sometimes have ideas of how to address and how to shrink the culture in different ways. Like so they say, hey, this month we’re going to talk about simplicity, what, what, what, everything that we can do to, to get people to understand what simplicity is. And they’re going to share kids studies. They’re going to do whatever to to get people to understand and put their get to this what I decide. I personally like got together with my management team and we just got people from different areas of the company that really understood the culture to represent who we are and we put those people in their squad. Yeah. 

Greg Alexander [00:18:33] You know, one thing you mentioned also was that you guys build SaaS products. That’s your core business. You know, every time you pick up the newspaper, turn on the TV, go online. These days, you know, talk about the SAS industry going through a tough time. Have what’s your take on that? Have you seen any any pull back and is that affected your business or not? 

Phil Alves [00:18:53] No, that has an effect on our business. These are mostly public companies that were overall average, in my opinion. A lot of our customers, they’re like smaller in the B2B space. They are like running profitable business and they’re doing this just fine. And we have even more people that are coming to view their SAS products because they are an expert in a niche and they’re building a product for someone just like themselves. Yeah, like we just to start a product for a guy that has I think he has close to a bunch of car washes. I won’t say the number, I’ll say wrong. Well, let’s say more than 100 car washes in the whole country. And then he knows how to run car washes and he knows all the software out there are not great. So he wants to build a software for other business just like his. And of course, he’s very profitable and he’s going to be just fine to the recession or whatever is going to happen in the coming months. 

Greg Alexander [00:19:44] And people still get to wash their cars. 

Speaker 3 [00:19:47] Yeah, exactly. So. 

Greg Alexander [00:19:50] All right. Well, that’s good to hear. I mean, I this is my second company collected 54. My first one was started during a different era back in 2006. And I can tell you, I’m rooting for the SAS industry because the ease that I can run my business now, I mean, I run my entire business off my phone and the cost to run my business has plummeted. And it’s because of all these fantastic SAS products that are available and just cloud computing, cloud computing in general. So I wish you much continued success. I love having you in the group. I love to hear that that a consulting company that specializes in software development can run healthy profits because of things like process and culture and playbooks, you know? And it’s a great counter-example to some who feel the space you operated in has been completely commoditized. So congratulations to you and all the success that you’ve had. 

Phil Alves [00:20:44] Thank you very much. It’s great to be here. 

Greg Alexander [00:20:46] Okay. All right. So for those are the listeners that are not a member. And you might think about joining because you want to meet really fun and exciting people like Phil go to Collective 54 dot com and you can fill out an application and be considered for membership. If you’re not ready to be a member, but you want to keep educating yourself and consuming content. The same website Collective 54 dot com. There’s a resources section and you can subscribe to insights. You get a weekly podcast blog. We produce a chart of the week, which is a visual representation of benchmarking data. We even have a bestselling book called The Boutique How to Start Scale and Sell a Firm. So I encourage you to to check that out as well. But that’s the end of this show. And thanks for listening. We’ll see you next time.

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Episode 107 – From Rookie to President in 7 Years: Why Digital Agencies Need To Develop The Founder’s #2 Right Now – Member Case by Amy Pyles

Acquirers buy the management teams first and the boutique firm second. The due diligence process is heavily weighted to assess the quality of the management team to make a sound investment. On this episode, Amy Pyles, President at Saxum, examines her experience as the person replicating the founder. She will share what has worked and what didn’t work and how they continued to collaborate. 

TRANSCRIPT

Greg Alexander [00:00:14] Welcome to the Pro Serve podcast with Collective 54, a podcast for founders and leaders, 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 maybe someday exit your boutique. My name is Greg Alexander. I’m the founder and I will be your host today on in this episode. I’m going to talk to you about how to build a firm that is not dependent on you for its success. But we’ve got an interesting twist. We’re going to do this from the perspective of the president, the person that you as the founder have entrusted your firm with to run the operation. And we have a fantastic role model today. Her name is Amy Pyles. Amy. It’s good to see you. Thanks for being here. 

Amy Pyles [00:01:09] Thanks so much for having me. I’m glad to be here. 

Greg Alexander [00:01:12] Would you mind introducing yourself and your firm and what it is that you guys do? 

Amy Pyles [00:01:17] Absolutely. So, like I said, I’m Amy Pyles. I am the president of SAC. We are a marketing and PR agency based out of Oklahoma City. But we work with clients all over the U.S., helping them balance purpose and profit and just communicate their story well. 

Greg Alexander [00:01:36] Okay, fantastic. For those that are regular listeners, the word sex will sound familiar. One of our members, Renzi Stone, was a featured guest, a role model for us on this show several months ago. And he shared his story of how he built a firm that isn’t dependent on him. He built the firm that has an executive leadership team where it’s about the firm, not an individual. In addition, if you’re reading my new book, The Founder Bottleneck, How to Scale Yourself, you’ll see in Section three where we provide ten role model examples. Renzi story is documented in greater depth there as well, so I would draw it to those two resources. But Amy, we’re going to talk today about, you know, from the perspective of the president, you know, the number two, for lack of a better term. And it’s an interesting perspective and it’s an interesting challenge working with an entrepreneur and I am one and I know how hard that can be. So I’d love to hear from you kind of when this happened, why it happened, and kind of like what was your first, I don’t know, 90 days. Like. 

Amy Pyles [00:02:49] Yeah, good questions. So I’ve been with the firm for about seven years now, so it’s been a progression. It wasn’t an overnight discussion, it wasn’t an overnight. You were this and now you have these responsibilities. So that’d be the first thing I’d say. So the first 90 days weren’t all that different because we had been working together towards different responsibilities and giving me exposure to different elements of the business. And we do have a really great leadership team in place, so it wasn’t like the baton was only passed to me to go figure that out. It had been a journey of setting up a really great structure so that Renzi could take on different things, but also to make sure I was ready to step into this role and have the right level of just experience and mentorship over the past seven years to prepare me for this. 

Greg Alexander [00:03:45] Yeah, you know, I advocate for this approach, which I call or I don’t call. It’s known as Grow Your Own. And I want to make sure that I mention this to those that are listening. The success rate and the numbers on this are pretty clear. The success rate is much higher when you’re passing the baton internally to someone who is a great culture fit, someone who has earned it versus making it external hire. Because small boutique services firms, the very unique things, the culture is very strong. There are people, businesses, fit matters a lot. And I’ve seen several times where an external hire that was highly competent come in to a firm and it doesn’t go so well. And usually that’s because that’s external hire feels the need to come in and change things. Well, sometimes things don’t need to be changed, sometimes they just need to be tweaked or they need to be done more efficiently or what have you. But you know, the firm is successful in handing the baton over to an internal person. Is is really good. So, Emma, you talked about how you had been getting ready for this. So the first 90 days wasn’t really a major departure. I’d love to hear more about how you got ready for this. 

Amy Pyles [00:05:09] Yeah, absolutely. So when I started with the firm, this wasn’t necessarily the progression that I joined for or that we thought I would take. I joined in the delivery side, so I was leading our digital services. So I immediately got good exposure to the clients, to the work that we’re doing and understood not just a methodology but the client side and how we delivered. Now my brain is naturally wired for operations and for business, so I gradually morphed into various different hats and different roles within the agency and moved into our chief operating officer role. And so that gave me a good expansion outside of just one service line and into the business on the executive team and understanding the financial aspects of the business, getting more exposure to the sales side and the client service side. So all of that and all the different hats I got to wear over these seven years really set me up for a well-rounded view of. The business. So it wasn’t coming in, just siloed into the area that I was passionate about or that I had expertize in before that really expanded that view. So I was thinking holistically about the business, not just about how do I make digital more successful here or any other facet of it. I was really looking at it holistically and I think that was some of the best preparation I got was just that exposure and the different hats I wore. Yeah. 

Greg Alexander [00:06:36] Sometimes our members, the founders. They have a hard time letting go. This is their baby. It’s their life’s work. You know, they have almost all of their net worth tied up in the firm. You know, their family is dependent upon the income the firm generates, etc., etc.. It’s really hard to let go. And this is one of the obstacles. You know, they they have to find and trust in Amy. How did you earn the trust of Renzo? 

Amy Pyles [00:07:06] Oh, gracious. Probably a question better geared towards him, but I can say it from my perspective was lots of conversations. Also, I think entrepreneurs want to be able to pass the baton to somebody who will disagree with them, to somebody that will dove in on an idea or challenge an idea. And I think one of the things that I was able to do is push back at the right ways when it needed to be to show that we could form ideas better together rather than being an order taker or just doing exactly what he had set out. And I think we discovered that we could do things better when we collaborated. And I think that that started to instill trust that I could make decisions, that I could jump in to a big vision idea, but I could also figure out how to tactically make it happen so that we weren’t living in two different worlds all the time, where I wasn’t just doing exactly what he said, but showed that I could make those decisions and lead a project through to completion without him having to hold my hand or be right there with me. Mm hmm. 

Greg Alexander [00:08:13] Very good. Another question I want to ask you is that, I mean, the benefit to the founder of delegating strategic items to somebody like yourself is they now free up their time and they can amplify themselves and really go pursue the vision. These entrepreneurs, these visionaries, they have a vision and they want to go after it. But very often that vision never materializes because there’s just not enough hours in the day to go after it. But if they have a great partner like yourself and you can run the firm, they’re now working on tomorrow’s business. While you’re working on today’s business, then that sounds great. On paper, where it breaks down oftentimes is the founder has one foot in the old way, one foot in the new way, and he or she keeps sticking his or her nose where it doesn’t belong. And what’s required there is the partner you in this case has got to manage up. It’s got to get the founder out of the day to day because they make it up when they jump back in. So how do you manage up and what advice would you give others to do so? 

Amy Pyles [00:09:24] Yeah, absolutely. You know, I think it has been a journey. It’s not an overnight shift that takes a lot of conversation and it takes having the right places to pull the founder in so that they can have a voice where they should and where they want to. So I think that there’s some strategic managing up of this would be a good opportunity to bring Renzi in or to have him lend his expertize, but quickly know how to transition it out of lending an idea to managing that all the way through. And so I think that that’s the the art of it is knowing those right touch points for input, for collaboration and for vision, but making sure it’s clear that the team is going to take it from there and actually go execute it or let it fall to the wayside, if it should, for the client or whatever that is. So I think that there’s just those strategic elements that you need to be able to pull them in on so that you’re feeding what’s important to them. And they don’t feel completely disconnected, but you’re not letting it linger for too long. 

Greg Alexander [00:10:32] Yeah, you know, Saks.com is what we refer to internally as a power member, and that’s defined as a firm that joins as a team as opposed to an individual. And they do so for the things we’re talking about today. So I’ve had a lots of conversations with your peers, you know, the the partner to the founder. And one of the frustrations I hear from them and I want to kind of put you on the spot here is the visionary founder is an idea machine. I mean, they have ten ideas a day and they think every idea is the next great breakthrough idea. And they keep firing off these ideas, you know, to their execution partner. And the execution partner starts to say, oh, my gosh, like, first off, how do we prioritize these? Some of these are crazy. We shouldn’t be spending time on this. Oh, by the way, there’s a finite amount of money of people of hours in the day. Like, how am I going to get all this done? So how do you deal with the crazy entrepreneur who has too many ideas for his own good? 

Amy Pyles [00:11:35] We don’t always get it right. I’ll say that first and foremost, we’re not definitely the perfect model student for that. But you know. One of the things that we’ve been trying to work on is a standard language of prioritization so that we can have a matrix where we can say, we’re going to strategically invest here. We’re going to drive daily over here. And then we’re going to delay some these other things that may be great ideas, etc.. So let’s put it in a delay category. And when we’re done with something that we strategically invested in and it’s now daily operations, we can look at what comes in next, or we can stop doing something here because a better opportunity has come. So we’re working on that right now is how do we get that common language that focuses us as an executive team but also gives a place for new ideas to come in and be evaluated against this finite set of man hours and resources and things that we could do. There’s a lot of could but should is always our question. And how do we weigh that in a way that is efficient and business oriented? And we take in a little bit of emotion out of it so that we can weigh those and make better decisions. 

Greg Alexander [00:12:46] I like that. That’s a structured thinking towards prioritization, a matrix, if you will. That’s a really good idea. Okay. My last question and then we’ll wrap it up is let’s talk about money budget. So staying on this theme of this visionary founder with a ton of ideas and then he comes to you and says, go execute all these things. Or some of these things, take money. And then there’s a conflict because the founder is pulling the money out of the business and paying himself and then to go do some of these ideas he has, you know, he’s going to make less because it’s going to require investment. And usually these founders don’t want to go to a bank or don’t want to go to an investor. They’ve got a funded through operating cash flow. So how do you reconcile, you know, all the things that your founder wants to do with the hard truth of what the PNL says? 

Amy Pyles [00:13:35] Yeah. We are very aligned on what some of our core KPIs for the business are and those metrics. So that helps from the get go of what’s our profit margin, what’s our people ratio that we’re willing to have, what is investment in business development? So we have a lot of predefined and agreed upon metrics that we set that gives us a good rubric to make decisions against. And if an idea comes from anywhere, whether it’s from us up to him or him coming in with an idea, the investment conversation comes with We can’t do it within our metrics. Are we willing to sacrifice one of these? Are we willing to take less profit for a period of time in order to fund that? Or do we want to bring that in in a different way? Ours is typically been we’re willing to sacrifice profit to invest in a way, and we take those out of our kind of KPIs and metrics that we’re measuring the success of the business on. So we can we come to alignment and agreement around how much we’re willing to invest and what’s the sacrifice to profit. And if we can exceed that, then, you know, great for all of us, but we at least have some alignment right there at the metric level. 

Greg Alexander [00:14:42] Yeah, fantastic. Okay. Okay. Listen, as I’m going to pointed to a couple of resources. So first, if you’re a founder and you don’t have an army, you need to get one. And the best way to do that, in my humble opinion, is to read my new book, The Founder Bottleneck How to Scale Yourself. And it’s going to talk about how to identify a high potential employee and how to determine what to delegate, how to delegate it and when to delegate it. So that would be step one. Step two would be if you want to take it to the next level and you want to build a firm that doesn’t depend on you, you should enroll your Amy or Amy’s into collective 54 and and specifically have them master the boutique framework. And I’m proud to say that we’ve invested heavily and we now have a detailed how to online training. Chapter by chapter with new exciting tools, you can go do that. So I would point you towards that when that comes out, which should be in the first quarter of 2023. So get yourself an Amy and invest in Amy’s development so that she can help you build a firm that doesn’t depend on you. So, Amy, I could talk to you about this forever, and I’m sure we’ll have a chance to continue our dialog. I’m really looking forward to the Friday session where we’ll have the member Q&A. I’m sure you’re going to get a lot of questions there, but really appreciate you. I love having you in the group. It’s I’ve had a chance to get to know, you know, you here recently and you’re a shining star. And it’s just great to have you in the in the collective. 

Amy Pyles [00:16:15] Well, thanks so much. I enjoy it as well. 

Greg Alexander [00:16:17] Okay, fantastic. All right. So if you are a founder or a leader of a boutique processor firm and you would like to belong to a community of peers and meet great people like Amy, consider joining Collective 54 and you can apply at Collective 54 dot com if you aren’t ready just yet to join but you want to educate yourself on topics like this and others. I’m going to suggest you subscribe to Collective 54 Insights, and there you’ll find benchmarking data, you’ll find podcasts like this one, you’ll find a great blog. We even have a best selling book called How to Start Scale and Sell a professional services firm. So you can find all all of that there at Collective 54 dot com. But until then, thanks for listening and I look forward to our next episode.

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Episode 106 – How A Founder Optimized Scarce Sales Resources by Narrowing A Generic Market from 4,000 Prospects to A Focused Market of 39 – Member Case by Jay Mitchell

It is harder to sell a service than it is to sell a product. But the more you know about your client, the easier it is to market and sell your service. The better you understand them, the better you can serve them. On this episode, Jay Mitchell, President & Founder of Mereo LLC, shares how his team built their Ideal Client Profile and the results of this highly targeted approach.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Pro Serve podcast with Collective 54, podcasts 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 entirely and exclusively to the boutique pro serve segment. And for those that want to grow, scale and maybe someday sell their firms. My name is Greg Alexander and I’m the lucky guy to lead this group. I’m the founder of Collective 54 and I’ll be your host today. And on today’s episode, we’re going to talk about creating the ideal client profile. Now, before you roll your eyes in the back of the head and hit delete and say, I already got one of those, I’m going to challenge you because everybody says they have one, but the ones they have aren’t very good. They’re not kept up to date. And your ideal client profile changes all the time. So this is something that you have to keep top of mind. So it’s a good refresher. And then back to the basics fundamental episode. And we’re really lucky today. We’ve got a role model, role model, a member, Jay Mitchell. And Jay is does this better than most. And he’s going to drop his wisdom on us on how to pull this off and how to keep this thing current and use it and your pursuit of growing, scaling and selling your firm. So, Jay, it’s great to see you. Thanks for being here. And please introduce yourself to the audience. 

Jay Mitchell [00:01:34] Thanks, Greg. Good to see you as well. I appreciate the introduction. As you said, I am a member of Collective 54 and had the opportunity to do that for the last two years. It’ll be two years actually later this month. So it’s been a fun ride and I’ve learned a lot from you and some of the other members. I started my firm Mario back in 2007, having led sales and marketing teams for mostly technology, but some service companies for about 15 years prior to that and just had an opportunity to jump in here and and help a bunch of other companies through a consultative approach as opposed to doing it as an employee approach. And so then a really fun ride and and I learned a lot along the way. It’s been fun. 

Greg Alexander [00:02:16] And Jay, what’s a typical type of client that you serve and what’s the service you provide that client? 

Jay Mitchell [00:02:23] So for companies that are wrestling with different aspects or that go to market, they’re not getting the win rates they want to get. They’re not seeing the the deal velocity that they want to get. The average deal size is not large enough. We come in and provide a suite of revenue performance services and those will end up being things like ideal client profiles and who do you go after and what’s the value proposition and the value messaging that you would use that also lots of times incorporate sales methodologies and sales process. You know, the different aspects of go to market are at the heart of that. A lot of that Greg ends up being what’s a lot at the intersection of the sales product and marketing triangle there. And so you’ll see things like product marketing or sales enablement might be program leaders for our engagements. 

Greg Alexander [00:03:11] Okay, fantastic. So the ideal client profile, so our audience as you know, because, because you’re a member, they’re founders, co-founders, senior leaders of boutique crossover firms, which means they don’t sell a product, they sell a service. And it means that they really have to get tight on who their ideal client is, because as a boutique, we can fall victim to saying, Well, everybody could be a client. You know, if you think about the way that you just described your services, I mean, who doesn’t want to improve their win rates? But if you try to go after everybody, you’re not going to be very successful. And getting super tight on who you want to serve is really important. Yet for some reason, our members pencil whip this from time to time and for the life of me, I can understand. I absolutely could not. I can’t get why people would do this, so let’s start there. Why do you think the ideal client profile is not treated with the respect that it needs to be inside of a small service firm? 

Jay Mitchell [00:04:13] I think, frankly, whether it’s a large organization or a small services firm, either one, it’s not treated with the respect due. Yeah, as a part of that and I say that because a large organization needs focus too. They’ve got a lot of resources they’re deploying and you can have too many actions go on. A small firm, like most of us in the collective are. Greg If we have precious resources that we’ve got at our disposal and as the owners and operators of those firms, we’ve got to be very discreet in how we’re applying those resources. And frankly, the cornerstone of how you deploy those resources is based on the ideal client profile. With that as a services firm, it’s to me, as I mentioned, a lot of what we do is at that intersection of sales, marketing and product, it drives those three aspects of an operational business, whether that’s a product firm or a services firm for service organizations. It’s, you know, what are the. What’s the staffing that you’re going to do? What’s the what’s the territory coverage model that you’re going to have, whether that’s sales or the the services team for the product team, it’s driving the product portfolio around that. So it has a it’s an integral part is the cornerstone really of what folks should be doing. Why people don’t do that is beyond me that it’s a repeat it’s a repeat offender over and over. 

Greg Alexander [00:05:39] Yeah, it is. You know, so in some cases, people think they have it done and they what they basically have is a demographic profile. And that’s a start for sure. But it’s not that’s not in and of itself enough. The ideal client profile also includes the psychographic. So you get into things like wants, needs, desires, goals, objectives. You know, these are the things that you can’t see. You have to feel and you and you encounter them. When you begin your your your sales efforts, it’s easy to see things like in a database like industry, company size, job title, etc. and those things are important, but they, they’re only the starting point. So Jay, when you when you work with your clients to deliver this for them, what is the process that you go through and how long does it take? And is it is it difficult? Is it easy? You know, kind of share with us if somebody does want to go do this, what are they getting into? 

Jay Mitchell [00:06:37] Greg, let me let me preface answering how we do it by what is kind of the output. Because you mentioned the the demographic and the psychographic elements of that ideal client profile. And when we’re looking at that, we’re looking at both both factors. They’re right. The demographic end up being things, as you know, that you can pull from a database industry size. It can be number of locations, it could be number of employees. Things like that can be very good factors when you’re doing that. But if you look, you’re very familiar with the table of contents of this book called The Boutique. I think you’re at that table. The second chapter is ideal client profile. It’s the cornerstone, but there’s a chapter before it called The Problem and the Psychographic Pieces are about how does the problem come to life with. Right? And when you take those demographic aspects and you say, let’s apply that to the big vision, the bigger problem that we’re solving there that ultimately starts to turn into what are the use cases at an organizational level, at a persona role base level, it turns into what are the business, financial and personal pains that those particular members of the buying committee or are encountering as a part of that. That’s how you get people off status quo. When that’s the case is you got to go activate, you know, you got to turn it, like you said, from a vitamin into a painkiller. I won’t do that unless you get down to the pain associated with that and that psychographic program profile. That’s the triggers. That’s the attributes. When you look at that, to your question of how we do it, it’s a lot of interviews. It’s not just interviewing the internal team. What are they having? Wins and losses is a part of that. So you end up interviewing the existing customers or those that we wanted to be customers of the other clients. You’ll also we’ll do some of the analysis, some of the market segmentation aspects of that as well. But you combine that with the voice of the customer. One of my favorite things we do, you talk about win loss analysis. A lot will go to the voice of the customer, not just with wins and losses, but not. We have a network within Merrill of about 300 executive decision makers. So these are sea BP director level buyers. And you know, in the finance function, in the i.t function or in a manufacturing function or supply chain function or something like that, and we’ll go talk to them. And we haven’t gotten introduced to those people by our by our customer, by our client. We’ve gotten introduced to those through our network or through people we know. And you can start to really see what why would they even look at doing something? What’s the trigger point or the catalyst for why they would explore and what would they look like for their buying journey? So go turn to the voice of the customer through win loss. Go turn to a through the internal team, look at the analytics and then go look at just general good ole focus group market data. Yeah, and part of that as well. And those are the aspects that we’ll use to build that. The next step then is then go build the pain matrix associated with all those, right? And so that problem turns into the pains once you filter it through the profile. 

Greg Alexander [00:09:47] You know, you mentioned getting people off the status quo and this is such an important point to bring up, and it’s a good way to illustrate how somebody would use an ideal client profile. By my estimate, that’s just Greg’s opinion. About 50% of the times when a services firm loses a deal, they’re not losing to another service provider. They’re losing to do nothing. Meaning the project, in a way. Yeah, because status quo one. And to get somebody off a status quo, you have to convince them to change. And humans don’t like to change is just it’s perceived to be too much work and a pain in the butt and blah blah blah. So if you don’t really understand the status quo and how the status quo is unsatisfactory and you can’t get to a pain matrix that you talked about, then you’re really not going to grow. Scale and exert you for some days is not going to be enough work and the ideal client profile is what gets you to that understanding so that when you’re having a conversation with a prospect which it’s hard to get meetings with prospects of when you have one, it better be a good meeting. And the way you make it a good meeting is you prepare properly. And one of the ways you prepare properly is a review of an accurate, current, ideal client profile so that what comes out of your mouth makes sense to them. So it takes me to a question, Jane, which is how often do you recommend people update this? 

Jay Mitchell [00:11:11] But. Once a quarter to twice a year. 

Greg Alexander [00:11:15] Yep. 

Jay Mitchell [00:11:16] And that’s it. I use that as a variable there because there’s a rhythm, there’s a cadence that you’ve got to get into, and once a quarter, you’re fine tuning it. You know, once a year you’re doing a macro level on that. But if you can’t do it in between that half a year, somewhere in that range, that once a quarter to one, once every two quarters is minimal as a part of that. 

Greg Alexander [00:11:38] Yeah, I think that I think that’s good for us. And I think maybe, maybe the younger companies that are in the growth stage, they’re still trying to figure it out. Maybe they do it more frequently because they haven’t really figured out yet who they’re serving in the scale stage. Maybe you do it less frequently and maybe it’s based on a certain thing. Like maybe maybe you’re going into a new market or maybe you’re launching a new service and therefore you drive the need for that. I can tell you that when you get to the exit stage, intelligence, people can ask you for it. And they’re going to they’re going to say, how big is your market? 

Jay Mitchell [00:12:10] Exactly. And they’re going to you’re going to have to not just give the attributes of it, but you’re going to have to give the sizing around that of the part of that and the sizing. Lots of times go back goes back to the demographics, the demographic aspect of it. The thing that that doesn’t change as often, right? That that that’s why I say you may do the, the hard coding, the hard work on the demographic aspect of the profile, maybe once a year on that, maybe every half year. But I guarantee you the attributes of the psychographic are changing a lot more frequently than that. I mean, we’re still in 2023. I mean, the market none of us saw COVID well, but psychographic changed in a moment there with that. Right. And we had our best six month period we ever had. And even since then, the second half of 2020, just because people had extra money to spend with that. Right. They didn’t have travel sales, travel budgets to use. And they and those sales leaders were saying, I’m not letting this go to waste. Let’s put it to use through consulting services. So there was unmet there was pent up demand there that we were able to tap into. That’s a that’s a one time event. Hopefully it’s a one off event. Yeah, that’s right. But that’s a psychographic piece you’re tapping into for a period of time there. Yeah. 

Greg Alexander [00:13:25] I’ll share store a story with the audience to kind of bring this to life a little bit. So the reason why the number 54 is in the name collected 54 is that’s the industry code for professional services. And an industry code is one of the elements of the demographic profile, but there’s approximately 1.5 million firms in that code. There’s no way that we could go after 1.5 million. And even within each firm, these firms are often partnerships with his co-founders. So maybe there’s two or three people that would be interested in our services. So let’s say that the addressable market is 4 to 5 million people. I mean, it’s impossible to go after that. So we just went through because here it is at the time of this recording, it’s November of 2022 and we’re planning for 2023 and we’re trying to figure out where are we going to deploy our limited resources as a small firm, a small boutique ourselves. And we went we’ve had 17 exits in Collective 54 in about three years. When I say that, when I say we, I mean 17 members have exited and we’ve had a ringside seat. Of those 17, nine of them, nine are in customers custom software development. And until we went to refresh our ideal client profile, we didn’t know that like it was right under our nose. But we did know that. And we said, What’s going on here? Why? Why is the customer software development segment within the 54 segment doing so well? Well, as they say, software is leading the world and it’s huge demand for it. So these people are scaling and they’re running into scale problems. So they’re they’re a natural fit for what it is that we do. So guess what? We’re now being much more deliberate and intentional and having conversations with software development shops because of that knowledge. That’s an example for the audience members of how powerful this tool would be. And Joe, you went through this one time event with COVID, and COVID changed the sales strategy for pretty much every company in the world. I mean, we used to drive around in our cars and go meet people face to face. Now we sell over Zoom. 

Jay Mitchell [00:15:30] So, yeah, you don’t get sales guys don’t need a gas card anymore. 

Greg Alexander [00:15:33] Exactly. I’d hate to be the guy selling the gas card. So how how did your client profile change as a result of COVID? And was it a one time thing or are there some things are going to persist? 

Jay Mitchell [00:15:48] The demographic aspects didn’t change that much as a result of COVID. It was the psychographic and it was just looking at some different trigger points related to that. If you break down Greg, our our primary ideal client profile, it looks a little something like this. We will we will focus on large enterprise companies, primarily technology oriented companies. So enterprise software, SAS related, those are going to be most of the time north of $1,000,000,000 because there’s not that many enterprise software. There’s not that many companies between 100, 100 million and a billion, anyway, kind of thing. And so the large enterprise companies where we’re going in solving a divisional problem, then you’ve got those under 100 and then you have those under 25 million. So we break that technology, only band down into those three buckets of 25 and below million, below 25 to 100, and then basically over a billion because the 100 million to 1000000000, there’s just not that many in there. Then you take those and we’ll apply private equity, particularly to take that 25, 200 million. And we’re looking for private equity backed portfolio companies is another key trigger point. Again, psychographic trigger that we’ve seen is a recent funding round by private equity. We were actually doing some 2023 planning and I’ll give you the numbers because I don’t know that don’t have a memorize yet. We were literally just looking to crunching this little bit this week. So in that 25 to 100 million revenue band for technology enterprise software type companies, there’s 3923 total companies in Zoom info that fit the bill on that. That’s not a massive number, right? But that’s plenty big. 

Greg Alexander [00:17:28] I was going to say, yeah. 

Jay Mitchell [00:17:29] Go after it. Right. Okay. You take the private equity that have done a funding round and there’s 399 of those who have done a funding round on that. Okay. So now we’re getting to like where we can go focus as a part of that. You take the that the text, the US of the US piece of that. Let me actually go back. There’s 39 and 23. There’s 720. I’m sorry that they’ve done private equity. Okay. I’ve done that. Okay. Within Texas, you and I live in Texas, there’s 38 that have done a recent funding round. They just do it. So that’s 1% of that. Now, do we want to capture more than 1%? Yeah, but you take that. My point is you take the universe and you start to segment that down and then it starts to direct your marketing campaigns. 

Greg Alexander [00:18:17] And the priority. 

Jay Mitchell [00:18:19] Yeah, account based marketing is a is a huge focus now. Right. A B2B. How are we going to apply all these marketing automation systems? It’s not that doing broadcast marketing, it’s very account based, targeted marketing. Like you got to get down to the 38 in Texas to do account is marketing right not even the 3923 it’s who are the 38 in Texas because I got one rep in Texas calling on those 39 accounts. Yeah. Part of that. 

Greg Alexander [00:18:44] Right. And the tools can target like that now. Right. So again, it makes the I took my profile that much easier. You know, if you’re going to if you’re going to do some marketing automation systems, you can target by those 38, which is really good. Well, listen, we could talk about this forever. We try to keep these podcast episodes short. The extended conversation is the Friday Q&A with the members. And I’m really looking forward to to you hosting that for us in the upcoming weeks. I know it’s going to be well-attended. A lot of members going to have a lot of questions. So thanks for being on the show today and sharing what you know about this, using your own firm as an example. Plus, your clients clearly have some domain expertize here, so thanks for sharing with the group. 

Jay Mitchell [00:19:26] Yeah, glad to be part of it. Thanks for the invitation, Greg. 

Greg Alexander [00:19:29] Thank you. Great. All right. So if you’re not a member and you think you might want to be want to be in a community, meet great people like Jay, go to Collective 54 dot com and you can apply for membership. And if you’re not ready to be a member yet and you want to educate yourself and listen to more content like this, you can subscribe to Collective 54 Insights and you’ll get a weekly podcast and blog. You’ll get access to some charts that are based on our benchmarking data that are really interesting. And you can get a copy of our book, The Boutique How to Start Scale and Sell a Professional Services Firm. So check that out. And that’s the end of the show. And I thank you for listening and I look forward to the next episode.

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Episode 105 – How a Do-It-For-You Marketing Agency Evolved Into A Consulting Firm Getting Paid More For Advice – Member Case with Kyle Romaniuk

When starting a boutique, it is best to begin with the problem you will solve for clients. Why? There are lots of boutiques with solutions that no one is going to buy. On this episode, Kyle Romaniuk, CEO & ECD at Vantage Studios, sheds light on the process of truly understanding the problem he’s solving for clients.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Pro Serve podcast with Collective 54, a podcast of 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 boutique pro serve firms who want to grow, scale and maybe someday exit their firms. My name’s Greg Alexander. I’m lucky guy gets to lead this group. I’m the founder of this company, and I’ll be your host today. And on this episode, we’re going to talk about identifying a problem worthy of solving, which is a precursor to developing in launching a new service. And it’s often overlooked and done incorrectly, and it causes great harm. So we’re going to try to share some wisdom on avoiding some kind of dumb taxes, if you will. And we’ve got a role model this week, Kyle Romanek, and he is a collective 54 member. He’s been one for a while and he’s always got lots to share. And he’s going to share part of his journey with us today. So, Kyle, it’s great to see you. Welcome to the show and please introduce yourself. 

Kyle Romaniuk [00:01:27] Thanks for having me. So great to be here. So I’m kind of outgoing. The president of Vantage Studios here with Air Canada. We’ve been doing a lot of agency marketing work for over 25 years, and I’ve had the privilege and honor to use the boutique as kind of a guide or role model myself to help us look at defining a problem that we want to solve, that we’re excited about and will motivate us for the next few years. 

Greg Alexander [00:01:57] Okay, fantastic. So I’m going to set this up a little bit. And then, Kyle, I’m going to ask you to talk to the audience about this new service you’re you’re launching and how you thought through the problem. So in our perspective, we think a problem that is worthy of solving has four characteristics. So first, you can state the problem clearly. For example, I like to state it to my wife, my parents, even my dog to see what their reaction is. And if they get it, then I know I’m not talking in industry jargon and it’s something I can state clearly. Second, I need to prove to myself before I invest any time or money in pursuing it that the problem is pervasive. And what I mean by that is that it’s not just a small number of people that have it. There’s a large number of prospects that are dealing with this problem. Third, I need to confirm that clients are willing to pay to solve it. There’s a lot of problems in the world that could be characterizes, nuisances or inconveniences, and that’s not a problem to go after if they fall into that category. But if the problem is big enough and clients are willing to pay to solve it, then maybe you got something. And then lastly, lastly, you want the problem to be urgent. You want it to be something that you never hear a prospect say, Yeah, I’m interested, but call me back in six months. You want them to say, Where have you been all my life? If you can solve this problem, let’s go. So those are kind of the four screens. So call my team and prep for this interview. Told me that you’re planning on or have launched brand new service and you’ve given a lot of thought to the problem. So could you share with us what you’re up to? 

Kyle Romaniuk [00:03:39] Yes. So over the many years, we’ve done a lot of things for different clients and there’s certain areas of that that we definitely love doing and other areas that don’t really get us anymore. So what we did is as a group, we started going through the boutique chapter by chapter, starting off with chapter one, looking at what is the problems. So we’ve been able to define that for ourselves and then go and ask friends and family and other people to see if this seems like something that they totally understand or if it’s really complex. So I’ll start off by sharing with you what we’ve defined as a problem. 

Greg Alexander [00:04:17] Great. 

Kyle Romaniuk [00:04:18] So we help organizations with a focus on community based not for profits and government. When they feel meeting a deadline or expectations are at risk because they’re in their in-house team, isn’t sure where to start or how to take things to that level. And they don’t have anyone to guide them or give them direction of how they’re going to make that possible. Often when we talk to a client, they have a very specific item or priority or project or initiative, this specific to marketing. And we see that all of the services that we were offering our clients before, we can package that into like a fractional CMO offer so we can work with their to help them understand the opportunity or the challenge and build a plan together with them, execute that plan with them, reach their goals and set new goals. 

Greg Alexander [00:05:15] Okay. So let me ask a question on that. So I heard the problem statement and then the assumption that we made is that the reason why they’re going to miss the deadline is because they don’t have a leader, the CMO. And so and so that’s the root cause. So you’re going to solve that problem by providing a fractional CMO. So the word fractional makes me think not only do they not have a CMO, but they probably can afford to have a CMO. So renting a fractional CMO makes a lot of sense. And my understanding this correctly. 

Kyle Romaniuk [00:05:47] That’s right. And we’d be targeting any organizations that are large enough that they have at least one full time marketing coordinator or a small marketing team. 

Greg Alexander [00:05:55] Okay, got it. So that’s a very clearly stated problem statement. So I like that. So that clears the first hurdle. Let’s go to determining if the problem is pervasive. So these community based organizations, governments, nonprofits, I have no idea how many there are and how many fall into this category of needing a fractional CMO. So how have you thought through that? 

Kyle Romaniuk [00:06:27] I guess going through the question by question, we started off with this is probably similar to one industry. 

Greg Alexander [00:06:32] Okay. 

Kyle Romaniuk [00:06:34] We felt. Yes, it does. Any business that implements marketing or hires an individual marketing coordinator or builds that small in-house team, they have a finite amount of experience about what they’ve done for marketing in the past. We find that there’s there’s usually a talent pool to go from to hire those people in-house. And usually the strongest talent from that pool is usually attracted to go work for an agency because of the diversity of the work that you can get there and the quality and caliber of the clients, the esteem related to that work. So it’s harder for them to pull in the talent experience that they want, especially if they can’t afford to hire the top ten, which a large organization like Procter and Gamble or someone that has a full suite of brands. For them, marketing is an engine to really scale that business, and you can see how it works. But for most smaller to medium sized organizations, they’re dealing with a really strong, passionate team and have a mandate or purpose business worth doing. But their experience will find a moment in time when they’re limited. And it’s in that specific trigger point where they’ve got something that feels a lot bigger than it did before. Or it might have a deadline that see that. How can we achieve this deadline? That’s when they feel like they need to reach out to someone or somehow. 

Greg Alexander [00:08:04] Okay. Very good. So that that I would agree with you. I think it is a pervasive problem. So let’s move to number three, which is usually where the rubber meets the road, as they like to say. Is the prospect willing to pay to solve this problem? So what have you learned there? 

Kyle Romaniuk [00:08:25] So we’re thinking about the problem that’s being solved. There’s a chance that it’s pretty simple and it’s on the surface and they’re aware of what the problem is. So when it is an issue where someone that had the knowledge before leaves their organization, so if they had a marketing person that was taking care of this before, but now there’s a void that has to be filled. It’s very easy to see what the problem is. Sometimes it’s very below the surface and it’s hard to see. And if you let it go too long, the chance is that you’re going to end up with a lot of very severe problems doing that. Really harder to unravel and resolve. We get a lot of thought to what those types of issues could be from the surface level and as it goes deeper. So I believe it’s sort of like a snowball rolling down the very beginning. The problems and the pains are very small and minor and you can live with them and it doesn’t really bother anyone. But if it goes unresolved and you don’t identify what’s going on early enough, the problems can become more complex and more devastating to disappear. 

Greg Alexander [00:09:32] Okay, so then the assumption there, using the snowball analogy, the bigger the snowball, the more willing to pay they’re going to be. 

Kyle Romaniuk [00:09:39] Yeah. The longer you let it go, the bigger the problems that are going to start to snowball together and small problems become bigger problems and eventually they’ll smash into something. Right now, our hope is that we can actually work for that. That happens. But often people don’t see the problem until it’s smashed into something. So, again, if it’s as simple as someone’s left, there’s a knowledge gap. We can step in and fill that gap very quickly, a lot faster than maybe hiring someone and a lot more cost efficient than hiring CMO or CGI for itself. 

Greg Alexander [00:10:16] Okay. Got it. 

Kyle Romaniuk [00:10:17] In addition, we are also looking at helping that internal team actually increase their capabilities, increasing knowledge, their skills, so that our clients are actually investing in their own internal team when we work with them, as opposed to hiring an agency or consultant to do it for them. They’re hiring us to do that with them. So we’re actually pulling their team up with us. And eventually we might actually they might outgrow us where they have the capabilities in-house to see things going forward or they’re able to say, you know what? Now that we’ve got this thing under control, what’s next? How can we help you escalate what you’re doing now and do more? When we’ve talked to a lot of our clients that we’ve presented this new service opportunity right now talking to past and existing clients, some of them have said, Wow, this is exactly what we need. And they could be already down the path of implementing a plan that they’ve realized doesn’t really have a plan, that they’ve got their team feeling lost, overwhelmed, not sure what to do. Doing a production on elements that they don’t really have a marketing plan of where they can use it. And they’re now down the path. And the boss in that organization is saying, My team doesn’t really know what to do. They’re kind of lost. They could use some guidance. Kyle, I know that you could come and help us. Please give me a proposal to get going on this right away. 

Greg Alexander [00:11:46] So that’s positive feedback for sure. 

Kyle Romaniuk [00:11:50] Yes. You’ve also heard of that. We’ve seen this in our own company as well, where there is a lack of motivation or engagement from the team. There’s a high attrition rate where you’re losing staff and you’re not sure why. What we found is we’ve almost developed a system that goes deeper for those clients that have something that is below the surface where the lack of consistency of their brand through multiple departments because they don’t have a brand guide, that’s a pretty simple thing to fix. But if it goes on down for five or ten years, the problem can go beyond that. You might not have a purpose driven brand or organization. You just kind of have the job day to day and the staff starts to kind of drift away where they’re not as motivated and engaged as they once were. So for some companies, again, it could be really simple on the surface that some knowledge has been taken away, or they can see the structure or splintered brand identity because it’s multiple departments or partners implementing something that consistently. Again, this problem surfaced easy to fix. But when someone feels like, you know what, we’re losing a lot of people. We’ve got lack of engagement. Performance isn’t there, and we’re not sure how to fix it. It might be more of a cultural thing, but we can go through our system of looking at understanding what’s the final process of that. So we can start with understanding what’s the purpose of the brand? How do we get everyone motivated? How do I get everyone on board and a part of this plan? How do we build out the goals? What are the key areas to focus on? What are the key activities that maybe need to be done in each of those areas? And how do we achieve all that out of the whole team and get them onboarded and engaged and motivated and choosing the things that they want to do and be a part of implementing to get that motivation back and get it participating in all the synergies of their team and the external partners that maybe they don’t know how to give really good direction to to get the most of those external partners like other agencies or consultants, where we could kind of coordinate the whole system together. Okay. 

Greg Alexander [00:13:59] So when you went out and shared this idea with your current and former clients, how did you assess their urgency? 

Kyle Romaniuk [00:14:09] Well, in in one instance, I was just reaching out as a friend. It’s like I’d like to bounce off of in your past client of ours. And for over a decade, we’re looking at shifting our business and moving away from the execution offering into the consulting side and fully doing the workshops and the plans and working with the existing teams to help them implement it and not be the do it for you agency that we once were. And the response from that was, Wow, my team right now is lost. COVID put us down a different kind of set of tracks and now things are kind of merging back to the norm for them that their team doesn’t know how to go back to their normal. How do we stop doing what we’ve been doing for the past few years and now go into something new? In that instance, they actually lost someone that went to a different career path that used to do a bunch of stuff that was never documented, never cross-trained. And now we’re going to go back to doing those things that nobody in the organizations that we’re part of do. So they need someone with some more experience to come and help guide. And even that might just be help build confidence in the internal team to make them feel like they do have good instincts. They do know what to do. They’ve just never done it before. And we might just need to work alongside them to enable them to do that. Other clients that we’ve spoken to about this day, we’ve produced, for example, campaigns for them and we’ve talked to them about what’s going on. We started working with different departments and we’ve had one of them say, We’d like you to look at our entire brand. How is it organized, where the assets that are maybe used across the whole organization and how do we create consistency across all of our departments? And we talked about like your brand guide and this is something that they’ve never really been exposed to a lot of benchmarks of how brand guides can be produced and how they can be used and go beyond just the basics of Here’s our full color logo, or Here’s our one color, and it can really look at even getting everyone on the same page. If you start talking about it as type in including brand stories or scenarios that are a little bit softer but get more depth into the understanding of their brand, more so than only some general rules of how to use it. And then now is suddenly getting inspired and excited about, well, this could actually improve our organization in a way even more so than what we knew about. So if we can find opportunities to understand and listen to what people are going through, listen for them to tell us what their pain points are, and then find ways of weaving it into Here’s how we can help or Here’s how someone I know can help, even if it’s not us. But it really starts to just listening. And I think something else that I’ve learned recently was sharing with others when we’re going through change, if I have a challenge and when I share those things with other people, suddenly there are some connections to start getting made and solutions on to present themselves. Yeah. 

Greg Alexander [00:17:26] It happens all the time. I mean, it’s fantastic that you went out to the market before launching, got all that real positive feedback and that’s how you save time, energy, money, effort, etc. So what’s going to happen? Are you going to launch this fractional CMO thing or are you guys still thinking about it? 

Kyle Romaniuk [00:17:42] We’re launching for sure. We actually, out of all the clients that I’ve been talking to, one of them we were actually building a plan for during this whole transition strategy thinking. And they pose to me, would I be their fractional CMO before they knew that we were planning to do this? Because in building the plan, they’re like, we don’t have anywhere to implement this plan, but we don’t have anywhere to do this. Could you implement it for us? 

Greg Alexander [00:18:11] Awesome. So you got a client, it sounds like, before you even launched? 

Kyle Romaniuk [00:18:16] Yes. And I actually had a follow up client today, which I have a weekly call with him. And I have mentioned to him about what we’re doing here. I have told him that we’re basically modeling what we do after what I’ve been doing with him for the past three years. I have a one hour call with him every Monday. Once in a while we’ll skip a week. But for the most part, we’re meeting every single money for an hour, talking about what’s happening, where things are going so that we have things to design. Some things we just talk about what’s on Netflix. Yeah. But for the most part, he’s. We’re just keeping everything moving. And we’re his marketing team. And I’m, they’re. They’re fulcrum on everything that’s getting done. 

Greg Alexander [00:18:58] Yeah, that’s awesome. I will. Listen, we’re running out of time here, but this was a great story. It really was. This the chapter one? The problem is something that often gets overlooked. The way that you went through that was textbook up to the point where you’ve got a client before you’ve even launched, which is just a fantastic thing. And I wish you the best of luck with this new offering, and congratulations on doing it the way he’s supposed to do it. 

Kyle Romaniuk [00:19:20] Thank you so much. 

Greg Alexander [00:19:21] All right. Okay. So for those of you listening that are not members and you might want to be a member and meet great people like Kyle and become part of a community of peers, check out Collective 54 dot com. You can see a form to fill out there and apply for membership. And we’ll get back to you.  If you’re not quite ready to become a member but you enjoyed this episode and want to consume additional content. Again, at Collective 54 dot com, you can subscribe to C54 insights that give you some some benchmarking data. Weekly Podcast The Blog Access to our bestselling book, How to Start Scale and Sell a Professional Services Firms to check that out. Okay, so great episode today. Thanks for listening and we’ll talk to you next time. 

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Episode104 – How a Mid-Western Social Media Agency Reached Scale Quickly By Launching New Services In A Crowded Market – Member Case with Beth Trejo

Generating new revenue from existing clients is critical to scaling a boutique professional services firm. This requires developing new services based on the needs of your clients. On this episode, Beth Trejo, CEO and Founder of Chatterkick, takes us on a journey of launching a new service line. Beth shares how she identified the client need, validated the opportunity and launched the new service model.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Pro Serv Podcast with Collected 54 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 maybe someday exit your professional services firm. My name is Greg Alexander. I’m the founder and I’ll be your host today. And on this episode, we’re going to talk about the need to launch additional services when you’re trying to scale your firm. And we’ll discuss why that’s important. And what I hope to accomplish today is to share some things at work, share some things that don’t work, and maybe help you avoid some mistakes when you are brave enough to launch new services. We’ve got a fantastic role model with us, Beth Trejo. She’s a member of Collective 54, has been for a long time, has been on this show before. And it’s great to have her back. And Beth, if you wouldn’t mind, please introduce yourself and your firm to the audience. 

Beth Trejo [00:01:19] Yeah, well, thank you for having me. I always enjoy this conversation. My name is Beth Trejo. I am the CEO and founder of Chatter Kik. We are a social first digital agency. And yeah, we’ve been in business for about ten years and our goal is really to help brands leverage that human connection behind their logos to drive growth and relevancy. 

Greg Alexander [00:01:44] Okay. And what’s a kind of an ideal client for you? Someone that is right in your sweet spot? 

Beth Trejo [00:01:50] Yeah. So the brands that we’re working with now are typically those that are either in B2B professional services or have multiple business units and complexities. Social media isn’t just one thing. It’s so many things these days. And so when brands need a higher level of sophistication or strategy in terms of what they’re doing on social, that’s when chatter comes in. 

Greg Alexander [00:02:13] Okay, fantastic. So the reason why we wanted to have you on this show on this topic is because from what I understand, you recently launched a new service offering, and you learned a lot in that process. And I thought maybe I could maybe facilitate a conversation and and pull your wisdom out of you. So my first question would be regarding this new service is how did you first identify the opportunity for it? 

Beth Trejo [00:02:43] Yeah. So we’ve launched a couple of new service lines this year, and one of them that we can chat about today is really our employer branding, executive social. And so this is something, you know, we’ve been running social media for businesses and even individuals for the last ten years. But what has happened in the space is that it’s become a lot more complicated to run social media. You need someone who can do analytics. You need someone who can do visual creative elements, video editing, engagement writing. It just doesn’t live with one individual anymore. So as we grew, we’ve added more people to surround our clients. And therefore the value that we’re providing our clients have gotten larger. But also, from a business perspective, our costs have gotten a lot larger because now we have to put four people around each account. And so if I was running, let’s say your LinkedIn account, Greg, it would be pretty expensive to have us do that because we have all the people involved. And so one of the big needs that we’ve noticed and we’ve done this a lot in the health care or professional services space where relationships really do drive so much of the business is we saw these individuals, especially executives, are, again, those people that are very like thought of as a leader in real life and an influencer in real life. And they needed somebody to help them keep the consistency and the presence out there on, let’s say, LinkedIn. But they just didn’t really have a lot of places to turn. Their marketing team didn’t want to run it, they didn’t really feel comfortable. And other agencies don’t usually do a lot of the personal brand management that isn’t just a whole bunch of bots on LinkedIn. And so we found kind of that opportunity zone to say not being done currently and we already have the skill sets. Now we just have to reengineer how we do it on our end. So it doesn’t the price doesn’t become a barrier to success. 

Greg Alexander [00:04:46] Okay. And did you spot this because you’re working with your current clients and you recognize this need? Or did you see this opportunity outside of your current clients and kind of the broader marketplace? 

Beth Trejo [00:05:00] You know, we saw it with some of our current clients, specifically the physician group, because, you know, people want to connect with their doctors and their providers. And it was so evident. And even though the price. The point was when we would be like, you know, that doesn’t fit with chatter cake anymore. Like, this doesn’t work. But we still saw those accounts being successful. Both the employees like to work on them as well as the physicians were like, This is all I need. I don’t need to get it overcomplicated. I don’t don’t care about the reports at this point. And so we saw like indications of that. But then from a market perspective, we saw a lot of just people turning to like people are just sick of dealing with logos. They want real people and they’re craving this at the B2C level, which isn’t always the norm. Right? Like you didn’t always need to know who the president of your toothpaste company was, but people are really craving that connection and purpose and vision and values on across the board. So that’s really where we saw, okay, opportunity, we’ve done this before. We knew that it worked, it was profitable, but we just really didn’t define it and put it together into a service line until this year. 

Greg Alexander [00:06:07] Very good. You know, the product world, let’s say a software company, there’s a very well thought out way to experiment with a new product. For example, the minimum viable product, agile, rapid iteration, lean, you know, it’s very well won territory, but it’s not as well-worn in the service space. And sometimes I see members making make a mistake and that is they go and they overengineered this massive solution before they even have a single client for it. And then they take it out to market and all their assumptions get blown up in the first 30 days. And then they’ve got to go through another engineering process. And and I really want to help members that are brave enough to launch new services as part of their scale strategy. Avoid that mistake. So when you were thinking about this particular opportunity, because it’s a wonderful use case, how did you make sure you didn’t over engineer it to start? 

Beth Trejo [00:07:04] Yeah, well, first I made those mistakes so many times in the past how I used to do new service like was I pitch it, I’d make something up that I thought would be a valuable and that we could do. But I wouldn’t do a lot of testing. I would just pitch it, we’d sell it, and then I’d figure it out in the background. Okay, well, that was fine for a while, but that’s exhausting to your team. It can be completely chaotic at times, and it really wasn’t. It didn’t define it in the way that we needed to, to scale it. And so how we did this differently and really the thing that I think I’m the most proud of is that we kind of isolated it. We took it away from our normal work space. We didn’t have it live with our other teams that have done it. And some of us, we kind of let it live in this little incubator with a specific type of team member that could kind of handle a high level strategy as well as like a tactical deployment. So it was just a really good fit of that individual. And then we tested it. We figured out what’s working, what’s not working, what’s costing us, where are we saving money? Where is this going? And we’ve been able to move faster because it were just a handful of us working on that, as opposed to when I used to do it, when I did it wrong, I kind of involved too many people, too many things at once. All knew no definition, no operations. And it just it didn’t feel good, especially in the back end. So that was something that has really been helpful how we did it this time. And we’ve done this for several other new service line deployments this year. 

Greg Alexander [00:08:33] That is really interesting, is having a separate group, the world that I came from in my early career was a technology world product company, and we literally had a launch group and it was a set of product marketing and sales and service people. That’s all they did, was launched, had come out with a new offering and they owned it for like a year or two. And then and then once they got the reference ability and they worked out all the kinks, then it went over to the main group and then they took it over. And then the product roadmap dropped and none. Another new thing, I was in this group, into the launch group, and so it went and it worked extremely well. And it’s really interesting to apply that to a service firm, as you have done. That’s fascinating. Sometimes members are afraid to launch new services because they don’t know how to scope it. And they they pitch it, they get a gig, and they’re all excited because it’s a new revenue source and they end up losing money on it because they underestimated, sometimes dramatically, what it actually takes to deliver the service. So. So how did you did you run a pilot? Did you like how did you figure all that out? 

Beth Trejo [00:09:37] Yeah. I mean, I think those are the type of conversations that you’re that if you give yourself a little more time, which is what again, I would try to go so fast, didn’t want to a missed opportunity. But if you give yourself a little bit more time, you can reiterate on that, you know, and you know, probably took us a year or so to kind of get, okay, this is where we think it’s at least the baseline price, right? Like in the beginning, you’re I’m not trying to like get too big and crazy, but like you don’t want to lose money on something, right? Right. So like, what are the baseline resources that I need to use to do a good job and you know, and then what are the. No one’s that I’m going to have to figure out. Can I re-engineer the process? Can I use new software and tools? Can I put different levels of team members involved in this? Is this an executive role or is this something that I could train and teach someone at an entry level? And so those were kind of the bigger items that we figured it out and it really did about. I thought it was gonna take about six months and it really did take about 8 to 9 months to kind of get some of the kinks worked out from an operations perspective. 

Greg Alexander [00:10:42] And then how did you take it to market? I mean, did you go to a happy client and say, I got this new thing? Will you be my guinea pig? Or did you take it out to the broad market? Like, what was the launch plan? 

Beth Trejo [00:10:52] Yeah, so it really relied on strategic partnerships. I think that those in the professional service world, those are so key and to diversify your strategic partnerships in some regards, but that allows you to kind of build this stuff with trusted partners and not do it all alone. And that’s really been really helpful for us. We’re lucky because we kind of have a marketing background, so we have, you know, some of that talent on our team. But regardless, the more you start spending, even if it’s a new service line, the lower that you you have from a profit perspective. So it’s kind of one of those things that we’re we’re going a little bit slower on that. On the other side, we’ve done we launched a new service line this year, which is tic tac scaling. Tic TAC has been really challenging for agencies because it’s so much video content. And so one of the things that I’ve really learned on doing some of this is only sell what you can do. Well, yeah, because if I’m selling, you know, 250 videos a month, like that’s just unreasonable for even clients to approve all that content. So how can we still be successful for them but not maybe overdo it, right? Or like or or not make it so completely out of reach that it’s not a good customer experience. So there’s definitely been a lot of learnings all around this year for chatting. 

Greg Alexander [00:12:14] So you mentioned strategic partnerships. Most of our members are underweighted as it relates to strategic partnerships and it’s a big miss in the context of what we’re talking about today launching this new product. Give me an example of two of a strategic partner. 

Beth Trejo [00:12:32] Well, I mean, I think Collective 54 is a perfect example. But the other thing that I think is so valuable is how can you track the differences of your strategic partners? So is there a software company that every client that you want to have pairs with that software company, is there a, you know, another service provider like in that in the health care space, when we were working with providers, it was like the reimbursement companies, right? Because they needed high reviews across the board for customer satisfaction. And so is there an alignment that you can have with some of those engagement companies from a health care standpoint? So it’s just trying to get creative and not just thinking like, who’s going to get me leads, but whose audiences are already built that I can just add value to. And all of a sudden now I have access to hundreds of opportunities instead of one, two, three, four. That’s a lot more work. 

Greg Alexander [00:13:33] Yeah, a really interesting well thought out approach. You have certainly mastered this and it was a big contribution made today. I’m really looking forward to the Friday Q&A member session. When that comes up. Our members are going to have a lot of questions about this, but we’re running out of time. I appreciate you being here and thanks for contributing. 

Beth Trejo [00:13:52] Yes, thank you so much. I really appreciate it. 

Greg Alexander [00:13:55] All right. So if you’re a founder and leader of a boutique professional services firm and you want to meet great people like Beth, consider joining Collective 54, apply for membership at collective 54 dot.com, but not quite ready to join yet. You just want to educate yourself on this topic and others. Check out Collective 54 Insights. You can find that on the website. You got a podcast, a blog, a book, some benchmarking data, etc. All kinds of interesting things to keep yourself educated. So thanks for listening and I look forward to our next episode.

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