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

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

TRANSCRIPT

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

Randell Mauricio [00:01:31] Mauricio. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TRANSCRIPT

Greg Alexander [00:00:16] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that aren’t familiar with us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. My name is Greg Alexander. I’m the founder and I’ll be your host today. And on this episode, we’re going to address our members who would like to sell their firm some day. I want to talk to them about the concept of developing a deep universe of buyers, really understanding who might be interested in acquiring your firm and how to go about doing that. And we’ve got a great guest, David Jorgenson, and he is the CEO of Equitq and he’s a member of Collective 54. And for those that aren’t familiar with Equitq, as they’re really the leader in the space, they probably do more transactions for professional services firms than anybody else. And they’ve developed a way to really develop a deep and broad set of potential buyers. So with that, David, if you wouldn’t mind, please give yourself an introduction to the audience. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Episode 88 – How a Founder of a Training Firm Scaled his Firm by Scaling Himself – Member Case with Tom Abbott

Scaling a boutique takes a team but firms are often started by a single founder. On this episode, Tom Abbott, CEO and Co-Founder of SOCO Sales Training, shares how he transitioned from being involved in every aspect of the business to focusing on team development. 

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that aren’t familiar with us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. My name is Greg Alexander. I’m the founder and I’ll be your host today. And on this episode, we’re going to discuss how a founder of a boutique processor firm is able to scale the firm by replicating himself in an executive leadership team. This is a really fascinating topic because we’re combining a couple of different chapters from our book, The Boutique, and we’ve got a great role model with us today. His name is Tom Abbott, and Tom is in the throes of this as we speak. And he’s had the courage to attempt to do this. And we’d love to hear his his story. So. So, Tom, welcome to the show. And and if you wouldn’t mind, please give the audience a proper introduction. 

Tom Abbott [00:01:20] Hey, thanks for that, Greg. Yeah, a real pleasure to be here. Tom Abbott here, co-founder and CEO of So called Sales Training. We help companies to optimize their sales performance, so we do that through virtual instructor led training, through webinars and through our e-learning platform called SOCO Academy. So anything about sales, we help B2B companies particularly to optimize their performance. 

Greg Alexander [00:01:44] Okay. Very good. Okay. So let me set this up a little bit. So sometimes founders and co-founders like Tom suffer from what I call the hero syndrome. And the hero syndrome is that we as human beings, we love to feel needed. We love to feel like the hero. We have our personal identity wrapped up in the firm, and it feels good. We get validated when when clients say, Hey, you have to be in the key meeting, or when employees come to you all the time with major decisions that get made. And this insecurity can get in the way of scaling a firm. And the fix here, if your aspiration is to scale beyond a lifestyle business, is to build a firm that is not dependent on you, a firm that can run without you. And this requires, you know, being able to kind of check your ego, so to speak, and surround yourself with an executive leadership team that can do what you can do as well as you can do it. And if you’re able to do that, you’re you’re able to overcome the founder bottleneck and scale yourself by replicating yourself and others. And this is a big stumbling block for many. So so, Tom, as I understand it, this was once a stumbling block for you. And it’s either no longer or it’s in the process and partially no longer a stumbling block. So would you would you share with us kind of where you are in your journey and how you first became aware that maybe you had this problem and maybe what your first steps were, etc.? 

Tom Abbott [00:03:18] Wow. Okay, so there’s a lot to that question. The first the first part is it’s always a work in progress. I think the first key is realizing that you suffer from hero syndrome. And that’s the first part is the awareness. And then sort of realizing is this is this working for me? Right? Is this really helpful? Does this help me grow the business? Do I feel like a hero that I can swoop in and save the day, but at the expense of doing other things like actually growing the business and thinking about strategy and expanding and doing the kind of, you know, boss stuff. So, you know, typically, you know, that’s always a challenge. But I came to that realization, you know, probably about three years ago, I imagine, where it just became really apparent that this this company won’t grow beyond me if I don’t kind of get out of my own way. So the first step for me was to say, look, I’ve got to stop doing sales and I’m awesome at sales. So that was very difficult and I’ve got to stop delivering training programs and I’m a great facilitator and trainer, so that’s really hard, you know, you know, I’m still available for keynotes for companies still engaging to come in and do the big, you know, motivational rah rah as a thought leader. But when it comes to the training for a half day or one day or a two day program, we’ve done a really good job of of of getting freelance trainers certified through me and our training program, which I can talk about later to deliver that on our behalf. And that’s just been honestly a game changer because the training is happening all over the region, all over the world. Sometimes when I’m asleep, it’s just it’s just been a game changer. All right. 

Greg Alexander [00:04:56] So I want to I want to probe in a little bit because you are great at sales and you are great at facilitating. But one of the reasons why you’re great at both is because you love it. So I think founders don’t do what you did because they they love what they do and they don’t want to. Doing what they love doing. So how did you reconcile the conflict between, Hey, I can go out and sell the next client, which I love doing, that I get energy from it it feels good with. Yeah, but that’s in the way of me trying to scale my firm. Like, how did how did you how did you put those two things together? 

Tom Abbott [00:05:35] I think what I did, Greg, was I realized that there were other things that I also love to do. So I love to train. But then I could change my love for training sales teams to training my own sales team. So I can I can do that. I can change my love for, you know, sales for well, let me let me coach my sales team and then they can bring me in for some deals. On some cases, if there is, you know, three or four C-suite people on a call, they’re like, hey, Tom, if we get you on this call, you know, you sprinkle a little founder’s magic 3 minutes. That’s all I need from your time in and out. And you’re good. That’s fine, because then I can still have the team do the grunt work, the follow up to put the proposal together, to send the brochures, to answer the questions, to schedule meetings, all of that stuff that I should not be doing. Because something I realized a long time ago is I was the most expensive trainer on the planet. I was the most expensive salesperson on the planet, probably the most expensive data entry clerk on the planet, like everything we’re doing as founders. And I realized a few years ago, I always ask myself, Is this making me money? And if the answer is No, this isn’t making me money, then I’ve got to stop doing it and get someone who’s, you know, cheaper to do it for me. Yeah. 

Greg Alexander [00:06:49] One of the primary, if not the primary reason why boutiques don’t scale is they have senior people doing junior work, which is what you were just talking about, because in the most senior person in the firm is the founder who happens to be the most expensive. So if you’re doing something that a junior person can do, by definition, you’re eroding all your margin. And that’s a great realization and a great reminder. So I love your answer around how you didn’t sacrifice job satisfaction to make this happen. You just redeployed your love in other areas that lended itself to scale. For example, instead of training clients, train your own staff. That’s a great example. What would you say to founders who say this to me all the time? And it’s somewhat of a religious battle between me and them at the moment that says, Well, I’m special what I do, nobody else can do. So it’s impossible for me to replicate myself. Junior people can’t do X, Y, Z. What do you say to that? 

Tom Abbott [00:07:46] Well, the first thing I say is two things. One, I totally get that because I struggle with that. And you’ve got to get over yourself, because if no one’s going to be as great as you and I’ve realized that I feel, you know, and maybe, maybe we’re wrong, okay. Founders maybe were wrong. Okay. There’s a slight possibility that maybe we’re not as amazing as we think we are. However, we’ve all taken our businesses to a certain point, which means we’re great at a lot of things. But the point is, and I’ve said this to people, my 80% in front of a classroom in a workshop selling my 80% is probably most people’s hundred. Right? So if you can get someone who’s 80% of what you’re able to deliver, that’s pretty darn good. So do you want to have 100% of a small piece of the pie or get someone who’s 80% but you’re able to scale? So if I can get, you know, three salespeople who are 80% my level, that’s still better than me at 100%. There’s no comparison. If I can get three, four or five, six trainers around the region delivering training at 80% of what Tom Abbot would normally do, that’s fine. Now, a good way to solve that problem and we started doing this this year is we charge the same rates for our training across the board with a so-called certified sales trainer. But if they’re insistent on having me hey, Tom, you know, you worked with us last year. We’d love to have you back. I’m happy to do it. It’s at 50% more than our usual rate. 

Greg Alexander [00:09:22] Wow. 

Tom Abbott [00:09:23] Yeah. And I’ve had some people take me up on it, which is great. Okay, I’ll get out of bed for an extra 50%, like, why not? Yeah, you know, because I still love to do it. So don’t get me wrong, all the founders out there, we still love to do what we do. We’re still great at it. But we have to realize that if we want to scale, we need to get more people on the team doing what we do. And look, there’s there’s no magic. You can document this. I can talk about that, too. You can document the process. You can train people to do it. So let’s get out of our own way and leave the ego at the door. It can be done. But in the event that, you know, people are like, We really insist on having you, the answer is yes. And here is what the investment is. Take it or leave it. Yeah. 

Greg Alexander [00:10:05] Which is a great way to quantify it in the eyes of the customer. And some people will say, you know what, time, yeah, you are worth it. So here’s the premium. And some people will say, okay, you know, I’m okay with. You’re a certified person and that gets you out of it gracefully. Right. It’s a it’s a really excellent example of that. And 50% is a big number. Okay. So here so I’m going to play the role of of these. 

Tom Abbott [00:10:24] And let me tell you, I a 50% is a big number, but it has to be big because I played around with that. And if it’s too close to the regular rate, they’ll just pay that all the time. And then you will never get out of doing that delivery ever. 

Greg Alexander [00:10:37] Okay. So here’s the next objection that when you speak to our members in the future about this subject, this is what you’re going to hear. They’re going to say, okay, I get it. However, I’m time starved. So the time it takes for me to teach somebody to do what I do as well as I do, it just takes forever. I can just do it myself in half the time. So I’m going to scale that way. What do you say to that? 

Tom Abbott [00:11:02] I say that’s actually going to take a really long time. And the reality is the quickest way to scale. Get someone to follow. You want a sales call? The quickest, easiest thing to do. You’re already doing it. Get someone to shadow. You want to call, get them to follow you on a sales call. That’s number one. Number two, hit the record button on Zoom. Super easy. That doesn’t take any time. You can. Then what we’ve done is we’ve recorded all of my sales calls over the last two years. And look, we’ve been in COVID for so long. If you haven’t been recording your Zoom sales calls, you’ve missed out on a tremendous opportunity to start this learning bank. So it’s a lot easier than you think. So we’ve got literally dozens to hundreds of different sales calls that we label and tag. Oh, this was an inbound prospect. This was a discovery call. This was a follow up call. This had multiple stakeholders, you know, whatever. This was a follow up call. So you can tag those. And then when you’re onboarding your reps, you just send them the link. Hey, watch this, watch this, watch this. So it’s not as hard as we think. And then you just start documenting. So you’ll notice that with your emails that you send out, you’re probably doing your own kind of a copy paste almost every time. So it’s just a matter of, you know, you save those, you put them in a folder, you copy paste, he put those on on a note, you put it in Dropbox or put it on Google Drive before you know it. Before you know it, you’ve got the makings of a sales playbook. It’s not as easy. It’s not as hard as we think. And you could be doing it right now and you don’t even know it. 

Greg Alexander [00:12:29] A lot of our members have handled this issue in the sales function, meaning other people are now selling work on their behalf. Most of them have done that because they’re not like you. They don’t enjoy selling. You know, if I’m a management consultant that specializes in cybersecurity, I can geek out about all the possible hacks that I might deal with. But I don’t want to talk to a client and sell it. So they they delegated that just out of the fact that they didn’t enjoy doing it where they really get nervous about delivering the work. So a client hires me to go to do X, Y, Z. I’m supposed to be an expert with charging them a lot of money, and then I’m going to trust somebody else to deliver the work. It scares them. So how have you overcome that? 

Tom Abbott [00:13:12] Well, there’s a couple of ways. The first thing we do is we we certify all of our facilitator. So how do we do that? One is, you know, knowledge. So we’ve got testing. So I’ve written two books on sales, for example. So we make sure that they read the books, they watch all of our videos and so called Academy, which is our e-learning platform, and then we actually test them on content. Are you a sales expert? Are you a subject matter expert? I can’t teach you to do that. I don’t have time for that. So are you competent and confident in training sales? Do you know your stuff? That’s number one. Then number two is the the skill of actually facilitation. So that’s what we need in our business. Number one is you’ve got to have the sales acumen and knowledge. But the second is you need the delivery skills, the so-called platform skills. Can you engage an audience? Are you good, coach? Do you know how to answer tough questions? Can you put people in breakout rooms and facilitate discussion and role plays? So that’s all part of my world in the training world. So preferably we get people that have had some certification in training. They’ve gone through a training program. They understand about curriculum development or they are or were an internal trainer within a large company. So they’ve got their chops. Having done that, I don’t have to teach them how to do that. So we would test them. So test them in knowledge, which is a written test, some multiple choice, some, you know, short answer as well as delivery. So we get them to actually deliver a sample session with our team and we recorded on Zoom and then internally we look at it and give them feedback so we can see them in action if they’ve got a demo video even before they come to the interview process. Even better. So that’s how we can guarantee that, okay, we’ve got good people. Then they’ll work with me personally and I will train them. Okay, so this is how I handle this situation. This is how we do it here at SOCO. So there’s you as a sales trainer, and then there’s how do we do it here at SOCO? So then we just have to be able to guarantee to our customers that the experience will be the same. So a lot of people think that it’s about the trainer and in a sense it does have a lot to do with the trainer for sure. However, what most of our customers want is a consistent framework or a consistent methodology for all of their sales teams around the region or around the world. We’re able to do that through the certification program. So that’s that’s been really helpful for us. 

Greg Alexander [00:15:32] Okay. And then the last objection I get sometimes is, hey, if I hire these people to do what I do, I got to pay them. I’d rather just put the money in the bank account and not pay anybody to do this. So what do you say to that? 

Tom Abbott [00:15:46] I mean, you can do that. But again, it’s you know, do you want just like a mom and pop, you know, like a hobby business or what? But do you want to grow? Right. So if you actually want to grow and you want more business, you have to find a way to meet the needs of customers. And there’s just not enough hours in the day. I know that. There’s just not enough hours in the day to to service everybody. Now, maybe you’re happy just having a lifestyle business and maybe say, look, all I want to do is this many hours and and that’s fine. But if you actually have aspirations of, you know, reaching as many people as possible, like, you know, I have a goal. I don’t want anybody on the planet to lose a sale because they can’t sell. That’s that’s my mission. So I want to reach as many humans on this planet as possible. Tom Abbott can’t do it all by himself now. It took me about eight years to realize that, but I can’t do it all by myself. So I got to work with people. Yeah. So and it’s very hard when you feel like you’re really good to actually start bringing people on because there’s a danger in going, Yeah, but she’s not exactly like me or I wouldn’t have done it that way. That’s your biggest problem right there? Yeah, maybe they do it their own way, but following a framework, if that makes any sense, kind of, you know, you’ve got some things you need to do, but you do it your own way. You focus on the what and the why and let them focus on on the how in the sense. And and, you know, that’s just going to help you grow. You’ve just got to build that team and just trust, trust in your process. So what I’ve done, Greg, is I’ve been able to say, look, I’m going to take my energy away from sales. I’m going to take my energy away from training and put it towards training my team and becoming a leader and developing them. And I see my number one role as a CEO is to step up and be a CEO. Yeah. And run the company the way a CEO would. Yeah. Get out of my own way. 

Greg Alexander [00:17:36] Well, listen, you have a tremendous amount of self-awareness. You know, being an entrepreneur is a journey. Right. And you’ve been on it for eight years, and you probably didn’t know what you know now back then. And you now know. And it’s just a wonderful pleasure to have you in the membership because of your level of self-awareness, your humility, your modesty, because you’ve had a tremendous amount of success. And just on behalf of the membership, we’re up at our time window here, but I just wanted to thank you for your contribution. You know, the way the collective works is we’ve got to contribute to the collective body of knowledge, and you’ve just made a great contribution. So thanks, Tom. 

Tom Abbott [00:18:11] Hey, my pleasure. And thank you, Greg. I’ve gotten a lot from my membership in Collective 54, and I was just thrilled to be invited on the podcast to kind of give back because I’ve gained a lot already. So thanks to you. 

Greg Alexander [00:18:22] Okay, fantastic. And for those that are interested in this topic and those like it, you can pick up a copy of our book, The Boutique How to Start Scale and Sell a Professional Services Firm. And if you’re interested in joining our mastermind community and meeting great people like Tom, check us out at collective54.com. Thanks again. Take care.

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

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

TRANSCRIPT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Episode 86 – How a 43-year-old Marketing Agency Handled a Generational Transfer – Member Case with Rob Rankin

Decision making evolves as your firm scales and the founder must be replicated in the successor. On this episode, Rob Rankin, CEO at Clarity Coverdale Fury (CCF), shares his perspective on developing the next generation of the firm, with a focus on succession planning and how decisions are made. 

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that aren’t familiar with us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. My name is Greg Alexander and I’m the founder and I’ll be your host today. And on this episode, we’re going to discuss power. And when I say power, basically what I am referring to is how decisions get made inside of a boutique. And how that changes over time as we move through the lifecycle of a boutique from growth to scaled exit and even beyond. When the first generation is transitioned into the second generation and the second generation is transitioning to third generation and so on and so on, the decision making power dynamic tends to morph when that happens. That’s really important because decisions in a small firm are easy. There’s not a lot of them. They’re simple. They’re not complex. The founder who’s making the decisions can play the role of dictator because he or she is still really close to the business and has great instincts. But as you get bigger in, the founder or co-founders might be two or three steps removed from the day to day or the clients, you know, they might not be the best people to make decisions anymore because their inputs have changed quite a bit. So that’s what we’re going to discuss today. And we have we have a great role model, Rob Rankin, and Rob is in the middle of this. He has a really great perspective because he has been through a generational transfer and has a viewpoint from that standpoint. So, Rob, welcome to the show. It’s great to have you. And would you mind, please, giving a proper introduction of yourself? 

Rob Rankin [00:02:06] You got it. Thanks, Greg, and thanks for having me today. My name is Rob Rankin and I’m president and CCO of CCF, we’re a marketing communications firm that was founded in 1979 based in Minneapolis. And our sole world headquarters are still in Minneapolis. 

Greg Alexander [00:02:23] And what type of clients do you serve? 

Rob Rankin [00:02:26] About 60% of our book of business is in health care and health and wellness. And what we like to call we know health care from all four angles. So public health manufacture, payer and provider. 

Greg Alexander [00:02:39] Okay. Got it. And Rob, we wanted you to speak on this subject because as you just mentioned, your firm was founded in 1979, and right now it’s 2022. So there’s been a journey. And I’m sure the decision making power has changed over time and there’s been generational transfer. So if you wouldn’t mind, maybe kind of walk me through briefly that history from then till now and how the power dynamic changed. 

Rob Rankin [00:03:06] Yeah, so I joined the firm in 1998 and it was founded in 1979 by three Gentlemen’s Clarity, Coverdale and Furey. And in 1978, I was just an account guy and then grew up into a more leadership role account supervisor and ultimately running a department. It was also at that point in time where the gentleman who founded the company were getting ready to retire. One was very ready and the other two weren’t very far away. So over probably a 3 to 5 year period of time, we started to have discussions about a transfer. A few of us, what we call Gen two, formed a team and moved into that and we bought that firm in 2014. We’ve been running it successfully ever since. I’ve since lost one of my partners to retirement and another just is trying to retire this year. And we’re we’re going to get her out of the door to her own accord shortly here. And we’re building that Gen three team that can ultimately take it over from myself and my two other partners. 

Greg Alexander [00:04:13] Yep. And this progression. Gen one, gen two, gen three. You know, this is very common in professional services because it’s a people business. And very often there’s the next generation that wants to stay and wants to continue to do what they’re doing. And there’s an opportunity, if you handle it this way and handle it correctly, you know, for each generation to benefit for not only financially but in other ways. Rob When, when Gen one was transferring to, to Gen two, you and your partners, did it go as smoothly as you had hoped or was there, were there any bumps in the road? And what type of lessons might we learned from that, from that tale? 

Rob Rankin [00:04:59] Yeah, I’m super blessed in that it did go what I would say, relatively smoothly. Perfectly. Absolutely not. And the founding partner, Tim Clarity and myself used to say, because we intended at least to keep the name the same, that if we wake up five, seven years from now and no one know you guys bought it, it worked. And it worked really, really well. And that actually happened. I will say that there were some speed bumps early on as we were forming our Team Gen two and there was a person in place who just wasn’t going to be partner material. And so there were some really, really hard discussions that had to be had to let him know that. And to say that was what was easy. It wasn’t it wasn’t easy at all, but it had to be done or we would have been setting ourselves up not for success, but for failure. And so that was probably the most difficult thing. And then the other thing, at least from Gen two, is perspective being patient because we had we had a kind of a phased approach with each of the partners where they wanted to phase out over time for different reasons. And we allowed that to happen. And from an outside looking in perspective, it still appeared like they were in charge even though they weren’t. And that was important to them and it was okay with us. You know, it wasn’t something where we needed to be seen front and center. We also didn’t want to reinvent the enterprise. We didn’t want to rename it. We didn’t want to rebrand it. We didn’t want to blow the whole thing up. They had a model that was working and had worked for a really long time. And we felt the blow up, that type of equity in the marketplace would have been a big mistake. So that required a little bit of discipline, but we were able to do that as well. 

Greg Alexander [00:06:38] You know, what jumps out at me about your story is that, you know, you joined as a young account person and grew up to where you are right now, which means that those that Gen one did an excellent job of identifying high potential employees and grooming them to take over bigger and bigger responsibilities. That that happened in the typical kind of apprenticeship model where it was just through osmosis or was there some formal system put in place? 

Rob Rankin [00:07:05] It was really more of an apprenticeship model. Tim Clarity I tend to be the type of person that if you give me a lot of room to move, I work better. If you constrain me, I’m not good being micromanaged. And so that’s kind of the philosophy in the culture here. We hire really responsible people and let them do their way, do their job, and we do our best just to get out of their way. That doesn’t mean they don’t need coaching. It doesn’t mean they don’t need training. It doesn’t mean they don’t need mentoring of sorts. But but we let them do their job. And Tim allowed me to do that and allowed our media director at the time, Danny there to do the same thing and in and of it. She and I both kind of grew up together in the business and became somewhat area parents at the end of the day. Diane was probably interested in retiring sooner while she was. She’s already retired sooner than I and and she’s since moved on. And because of that, she didn’t want as big a share when we transitioned. But we had a third person internally who also had really was a finance person and had really great, great credentials in that space. And so she worked in that and she was interested in buying in a little bit more. And between the three of us, we found we found a good balance for each of us. 

Greg Alexander [00:08:21] Now, you mentioned buying, so I’m assuming there was some type of transaction that happened from Gen one to Gen two. And was it the traditional way where the first generation kind of set up, maybe like a sellers note and they transitioned a piece at a time based on profits that were being generated by the business? Or did you guys have to go out and raise the money to pull this off? 

Rob Rankin [00:08:42] No, we were really fortunate. There was an owner financed buyout over a five year period of time with an option for a year, six and seven, if needed, at the seller’s discretion. So we didn’t control that, and then we did have to have some skin in the game. So there was a certain percentage of the overall price that we agreed upon that we had to we had to go to a bank and we had a we had to find financing for that. And based on our individual percentages, that’s what we had to put up. 

Greg Alexander [00:09:13] And they structured that way because they wanted skin in the game. Or was that the only way to close the gap in price? 

Rob Rankin [00:09:19] They wanted to know that we were serious and 100% owner financed buyout, I think and I believe that it was the right decision for us. It was the right decision for them. They wanted to know that we were serious and that, you know, being able to have needing to go to a bank and taking out some form of a loan, you know, it it ratcheted things up just a bit. 

Greg Alexander [00:09:40] Right. And during that transition, let’s call it five years. Back to the main topic here, which was how decisions are getting made or the power structure externally. It was important to them to still be perceived to be in charge. But internally, you and your partners were running the firm. Sometimes this gets messed up because the generation that’s on their way out, sometimes they don’t want to give up control and they they stick their nose where it doesn’t belong at times. How did that happen at all? 

Rob Rankin [00:10:09] And in not to a not to a degree where it was terribly difficult to the partners that simply wanted their name still on the door, it was more that they just wanted to be seen as still the important person that started the company, and rightfully so. They’re fantastic gentlemen, their friends and mentors to this day. There was one that loves to do the work and is just passionate about the work and was an in 30 until the day he walked out the door. But it wasn’t difficult and there wasn’t anything that was acrimonious or needed, lawyers or anything like that. 

Greg Alexander [00:10:46] Okay. You know, and then Gen2 takes over and some of them are retiring, as you mentioned. Is there like a mandatory retirement age or is there some some rules around when somebody can walk out the door there? 

Rob Rankin [00:11:02] There aren’t, other than once you decide to walk out the door. The firm has up to ten years to purchase your stock at the firm’s discretion. I say so we can do that over time. But you can’t hold on forever. And you also can’t be the one that drives that. You can’t walk out the door and say, I want to get paid tomorrow. 

Greg Alexander [00:11:23] Very good. I mean, that makes a lot of sense. That keeps everybody on the same page there. It sounds like to me you had some great legal counsel that held your hand here and put these things in place to make sure that, you know, there was no unnecessary tension and drama. Is that fair to say? You had great counsel. 

Rob Rankin [00:11:40] We we had fantastic counsel. And my only disappointment is that he moved on and went and worked for his dad’s company. So he’s no longer my lawyer. So. 

Greg Alexander [00:11:52] And would you advise our members that might attempt to do this, not to do it themselves and find the right attorney to help? 

Rob Rankin [00:12:01] 100%. I would say that unless you’re an attorney yourself, and even if you are, it would be a mistake to try to do this without the one. Putting the structure in place from a legal standpoint. Kept us all in line. Yeah, we all knew the rules. We agreed to the rules, and we knew we had to follow them. And we did. Yeah. 

Greg Alexander [00:12:18] And that’s the important thing. And everybody agrees upfront, right? So there’s, there’s no surprises. And when I’ve seen this and I’ve seen it several times now, it’s very rare. Does a dispute wind up in court because of this? I mean, it was it’s friends cell and a friends, so to speak. And it’s a very natural, organic thing to do. And this is well-worn territory. This isn’t something for those that are listening. You don’t have to go invent the wheel here. I mean, this has been going on for a long time period just because it’s the first time that you may be doing it members. It’s not the first time that it’s been done. Okay. So now let’s fast forward a little bit. So your partners are retiring. At some point you’re going to retire and you’re going to have to go to June three. Do you plan on using the same approach or are things the world is different now than it was back in 1979, 1998, even 2014 does is the process still workers? Is it changing? Does it need to be modernized? 

Rob Rankin [00:13:13] I think it can work, but we have to be sure that certain components are in place. So right now we have one gentleman who’s actually a member of Collective 54 as well, because he’s brought in and is a partner and and he’s a candidate to take that lead. Now, we have to do a few things. We have to surround him with people just like I was surrounded with great team members to be a part of that. And so if we can do that over the next 3 to 5 years, then we’ll have a gen3 and I think it can work pretty seamlessly. If not, we do need a plan B, you know, whether that’s a merger and acquisition selling, where we’re bringing on talent to help round out that individual or surround him, I should say, with others that can help him with the day to day business. And then that’s an option too. So I’ve seen several people in our space, specifically marketing communications, be left at the altar by that internal person who was supposed to buy. And so I know that we do need a plan B. 

Greg Alexander [00:14:14] Yeah, I’ve seen that happen too, you know. And then also, I mean. Can you go so far as to think about zero on Jan three? Can you peak down to Jan four? Is that too far of a stretch? Too many years will pass by by then. 

Rob Rankin [00:14:27] I think for me I don’t I think by by the time I hand off the torch it’s it’s then there’s to have and I think that’s part of what really worked with us is the guys never came back and wanted to be back in the business. They let they let Jan to run it the way they they saw fit. And there’s also just a spirit and a culture here that’s been built, starting with Jan one, carried on by Jan two. That’s really important. Yeah. And it’s why I know that while it’s likely, maybe even probable that we could get more money if we did an external sale, it’s not in the spirit of the enterprise and what the guys were gracious enough to do for me and my other partners, we want to do for those that have been working with us side by side for years as well. 

Greg Alexander [00:15:11] Yeah, well, this is a great story. You’re a fantastic role model. This topic is underrepresented in the world. It’s not talked about enough. And the way these collectives work, ours and others, is that, you know, people have to make a deposit into the collective body of knowledge, and that’s how we all get smarter. And you did that today, and I’m very grateful. So on behalf of the members, thanks for being here and sharing your story with us. 

Rob Rankin [00:15:37] You got it. Thanks so much, Greg. And I’ll see you at the boutique on Friday. 

Greg Alexander [00:15:41] Okay. Very good. And for those that are listening to this and they want to learn more about this topic and all the other ones related to growing, scaling and exiting, if you haven’t already, pick up a copy of the book The Boutique, How to Start Scale and Sell a Professional Services Firm. And if you’re not a member and you’re listening to this and you want that type of tribal knowledge, which is very tough to come by and meet, really interesting people like Rob consider becoming part of our community and you can find that at Collective54.com. Thanks again, Rob. 

Rob Rankin [00:16:15] All right. Take care.

Episode 85 – Why Waiting Too Long to Sell Your Firm Could Be Very Costly – Member Case with Craig Dickens

The ability to sell your firm will be impacted by the environment. There is a good time to sell and a not so good time to sell. On this episode, Craig Dickens, CEO at JD Merit & Co., will shed light on the financial market trends and how it influences your exit strategy. 

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that aren’t familiar with us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. My name’s Greg Alexander. I’m the founder, and I’ll be your host today. And today we’re going to have a conversation around some financial market trends. And the reason why we’re talking about this is because there’s a good time to sell your firm and there’s a bad time to sell your firm. Sometimes the sun is shining and sometimes it’s a little cloudy. It’s always good to know kind of what the trends are. And the best way to do that is to speak to people that are actively in the market managing these types of things. And we’ve got a great role model example today. His name is Craig Dickens. Craig is with JD American Company, which is a boutique investment bank. And he probably has his pulse or have the pulse of the market and his finger on the market better than most. So we’ve invited Craig to come speak to us today and share with us kind of what’s going on. So with that, Craig, if you wouldn’t mind, please introduce yourself to the group. 

Craig Dickens [00:01:35] Yeah, terrific. Craig Dickens, I’m the CEO of JD Merritt. We’re a middle market investment bank. We focus on four areas, predominantly technology, consumer products as well as infrastructure and the built environment, as we call it. And obviously, pro serve is a market that we’re involved in as well. 

Greg Alexander [00:01:57] Okay, great. So we’re talking in May of 2022 and let’s start at 30,000 feet. So it seems like if you pay attention to the public markets anyways, it’s a different world we’re in right now. So what’s your perspective on things? 

Craig Dickens [00:02:15] Yeah, I guess I got to put a little bit of a backdrop on that because we came off of a record 2021, a lot of transact transactions. M&A activity was unprecedented, capital gains taxes were looming. So I’m still reflecting back to that wonderful time. And then we have, you know, a Ukraine war situation, inflation that’s somewhat out of control and stock market getting pummeled pretty hard. So I guess the keyword here right now is uncertainty. Yeah. And, you know, markets never react favorably to uncertainty. And I think we around here called quarter one the big horns. Yeah. Everybody was waiting to see how the dust settled a little bit. So really an interesting time in the market. Yeah. 

Greg Alexander [00:03:04] You know, for whatever reason, I don’t know how this happened to me, but the times of the greatest prosperity for me were times like this. So I’m old enough to remember the meltdown of the dot com. And I was in the tech industry at the time that I started my boutique just before the financial crisis of 0809, and then I launched Collective 54 and three months later covered it. So my timing hasn’t always been great, but what I found during those time periods is it’s a great shakeout, if you will. Firms that maybe aren’t for real kind of go away. So if you can build a great firm in those conditions, supply and demand actually goes to your favor because there’s far fewer firms, quality firms anyways available for purchase and you can really stand out. And Craig, one thing that I like about you is that you advise your clients to focus on what you can control and to prepare for this. And you talk about reverse engineering your exit, which is just such a catchy way of describing this. So could you expand upon that a little bit? 

Craig Dickens [00:04:14] Yeah, I think, you know, each one of us that’s running a business in these times, right. You know, we need to focus on the things we can control because we can get overwhelmed by what’s going on around us in the process. So again, just to maybe bucket the good news, right, especially thinking about boutique owners, we’ve got rapid rise in digitization. We’ve got a distributed workforce that needs training, I.T. consulting, etc.. And then ultimately the consumer or the customer has been trained to engage our services without us necessarily being in the room. Yeah. And then you have the great resignation, right? So in many ways it’s so hard to hire talent that you have to rent it so pro serve. You know, there’s to your point among the disruption, among the uncertainty, there’s plenty of opportunities and plenty of good news, if you will. But then we’re hit with some of the bad news that we tend to. Right. Interest rates, inflation, I mentioned a few of them. And the inverse of of the great resignation is that many of us are having trouble scaling because we can’t hire the execution and delivery teams that we need to. So, you know, I can only focus on those things that that I can control. And in this case and in this environment, we really have to go back to the best offense is a good defense. We need to prepare ourselves for good times or bad times. And to your point earlier, Gregg, be that standout, right? Be that leader or not that neutral or that laggard to whatever industry or vertical we’re serving so that they see us as head and shoulders above. And again, not to overused the sports analogies, but, you know, we’ve got to be prepared. Those folks that prepare are going to win and those folks that prepare are actually going to get a deal done. Those accidental tourists that have an ally show up on their desk and say, you know, you know, fortune, whatever is going to buy me, you know, that is the rare the rare situation. It’s truly that prepared that that get to a deal. 

Greg Alexander [00:06:27] You know I’ve heard you say on our member calls this term post-transaction economics and for those that might be hearing that term for the first time to find that term force or terms, I should say yes. 

Craig Dickens [00:06:42] So most of us have spent a career operating in our giftedness, in our in our in our specialty. Then we learn as we go how to grow companies. And, you know, exiting a company is a very different exercise and requires some different skills. And we always think about us, right? The marketplace is going to want us. Microsoft is going to buy us. Right. It’s it’s very me centric. But really, I think the most effective and the highest priced deals are where the team gets together and says, okay, what is different about our company? What is the leverage of Bill about our company? And most importantly, who will buy us? And that’s a deep exercise. Right. And you almost want to really strategically analyze those people in what we call the buyer universe, because, of course, everyone wants to sell to Microsoft or Accenture or whomever is their, you know, their ideal, but reverse engineering that and really analyzing the value and showing your buyer the inherent value of when they buy you and they pour water on you, how you will grow in their ecosystem, then you become much more valuable in their eyes. And if we can do that with ten or 12 different acquirers, now we have a rodeo, and that’s where the true outlier multiples come from. 

Greg Alexander [00:08:04] Yeah, it’s a great example. It’s it’s value based selling in many ways. I mean, when you own me, Mr. Acquirer, you know, you can triple me or quadruple me, whatever. And then what’s that worth today? That’s an interesting thing to think about. 

Craig Dickens [00:08:18] What I would add to that Greg, just real quick, I would almost on that omni account based selling side of it, almost treat your acquirer as if you’re analyzing like you’re going to sell them something and then plug you in as the product. Right. And so then you’re highly focused on what you can do under their umbrella with their sales team, with their capital resources, with their technology. And even though you might be a puzzle piece, you know, I’ll give you an example. We we sold a company. It was a small $8 million company, but they had a puzzle piece to an email distribution issue that a big player needed to compete with Brand X. And that puzzle piece became so valuable that, you know, they went up into the double digit multiples to buy that company. So that’s the kind of reverse engineering, if you can get into their kitchen, so to speak, and find out their pain points or the aspirin that they need, that’s that’s huge to value. 

Greg Alexander [00:09:13] So when I speak to members during office hours, which is an opportunity for members to speak to me, those that want to anyways on a 1 to 1 basis. And we’re having the conversation regarding exit. There’s three questions that come up every time. So first is what’s my firm worth? Second is who’s going to buy it? And the third one is, when should I sell it? And I want to spend a moment on that because there’s usually some type of life event that get somebody to think about selling their firm. The most common one is age. They get up, you know, in the 50, 6070s, they want to retire. Most of their net worth is wrapped up in their firm and they need to sell that, generate the capital to retire. And unfortunately, sometimes they don’t think about it until it’s too late and they say, okay, I want to sell my firm in a year. Meanwhile, it’s a non sellable asset because there really isn’t a firm. There’s a brilliant founder with a bunch of helpers and there’s nothing there for. Somebody to buy. So you mentioned that sometimes our timing can be off. So there’s this issue about trying to time a sell around. Retirement is a is a puzzle to me. What advice would you give our listeners around retirement and exiting and and trying to thread that very difficult needle? 

Craig Dickens [00:10:38] Yeah, I think, you know, there’s some fundamental ideas and concepts that people should, should think about as they look at the age question. You know, the facts would tell you and I’ll give credit where credit is due. John Warrillow, who wrote the book Built to Sell, did a survey, and 75% of entrepreneurs equate the sale of their business with retirement. Hmm. So and then they have a number, right? 65 or whatever their retirement number. But what if the market’s not going to favor you at that point? You know, the advice we give entrepreneurs and entrepreneurs by nature, you know, we wouldn’t be doing the things we do and running process of companies and building and growing and scaling companies if we weren’t optimists. But I think many times entrepreneurs wait too long, wait too long to sell and wait too long to adjust their business in a downturn or a slowing growth environment. And that’s really while it’s it’s pretty boring, right. But, you know, 3 to 5 years out from your desired event, you should be getting some advice, some counseling to say, okay, you know, when’s the right time? And just like, you know, I’ve got some friends who bought Apple stock and sold it at at a decent number and then it went up another $100 and they were all upset. You kind of need to leave a little juice in the orange, so to speak, when you’re selling your company. So waiting too long really spells a discounted value. But selling early, as long as you know your number, for what it’s worth, and who the buyers might be. And you run a good process, you know, ultimately, I think you’ll be happy with that outcome even if you have to retire a couple of years early. 

Greg Alexander [00:12:16] Yeah. You know, I was on John Morello’s show and I’ve read his books and I think he’s great and he contributes so much to all of us. One thing that he says often is what what the business is worth to you and what the business is worth are two different things. And if you know what the business is worth to you, you have a number, as you just mentioned, and somebody comes along and they’re willing to offer you more than that. Then you sell it. If the business if you know what the business is worth to you and the offers are below that, then you don’t sell it or you adjust your expectations. So this idea of knowing what your number is, it’s a hard thing there to really calculate. And at least and I think I’m similar to many of our members and that I’m an eternal optimist and an entrepreneur in my blood as well. My number keeps moving all the time. So how do you how do you get a first time founder going through an exit for the first time to get to a number that they’d be willing to accept? 

Craig Dickens [00:13:23] Yeah, that’s the great you know, the number one deal killer is seller expectations. Right. And we see it all the time. You know, we have people put it on a piece of paper, the old envelope test write, you know, my number is 30 million. And when we’re haggling, when we’re up around 60 million, and it’s still tough to make that decision. Right? Well, wait a minute. You said 30. Yeah. You know, so it’s tough and it’s an emotional decision. And I would say that I guess if I go back to the fundamental playbook, right. You got to get a valuation. If you’re serious about knowing what you’re worth, you have to get a valuation and bake that into your budget. And really, that will also give you not only the fundamental value, but it’ll give you those market indices. And if you do it for three or four years, right, you can you can begin to see how the market is is valuing your type of company or your sector or, you know, the various anomalies in the market over time. So that’s that’s number one. Got to do it. Number two, having a conversation with your investment banker and then in particular your CPA and saying, okay, I’ve got the tax man, right. He’s always in every transaction. So knowing your net after tax proceeds is huge. Everybody says, oh, the top line number is 60 million. We’ll have half that as an earn out and all sorts of structure. Right. It’s a very different equation. And if Uncle Sam is going to take, you know, up to half of it, you need to know the net number. And then really the third piece that we have, everybody go through is you have to sit down with your wealth manager. They’re going to run something called a monte Carlo, which is going to tell you under certain conditions in the market, if we plan on taking that wealth and you plan on living to 87.3 years old. Right. Here’s what you’ll have to live on. Yeah. Those fundamental decisions and those kind of things that owners need to do. You’d be surprised how many? Don’t really do that. Yeah. They get into a transaction and then they become confused as to what to do when really these are things that you don’t even need an ally. You don’t even need to be in process. You just need to go out and know your worth, know how much you’ll need, and then how much on an after tax basis you’ll need. Then you can start to deal with the emotional issues of, you know, yeah, I might be a little married to my team, I might be doing too much. I don’t have a strong management team, right, to really start to engineer your exit and think like an investor. Yeah. Versus just a lifestyle. Yeah. 

Greg Alexander [00:15:55] Well, listen, I could talk to you about this forever, but and I look forward to our member Q&A coming up. But we’re out of time. So, listen, your commentary on market trends. You know, I think you said the key word here is uncertainty. And that’s the market that we’re in. However, you know, if you adhere to Craig’s advice and I’d advise all of you to do that, it’s a 3 to 5 year look. And in three or five years, things will be very, very different. So taking some of these best practices and implementing some of them now makes a lot of sense. So so Craig, on behalf of the membership, appreciate you contributing today. 

Craig Dickens [00:16:31] Thanks so much, Greg. Enjoyed it. 

Greg Alexander [00:16:33] Okay. All right. And for those that are interested in this topic and others like it, pick up a copy of the book, The Boutique, How to Start Scaling, sell a professional services firm and for those that might see value and meeting people like Craig and being part of a community of preserve, boutique founders and leaders consider joining our mastermind community and you can find it at collective54.com. Thanks again. Take care. 

Episode 84 – A Marketing Agency’s Approach to Sharing Equity with Key Employees – Member Case with Kelsey Raymond

There are many ways to split up a partnership. And the equity split needs to evolve over time. On this episode, Kelsey Raymond, Co-Founder & Chief Executive Officer at Influence & Co., shares how she successfully replicated herself by developing a key employee into her COO, so she can run the business on her own terms.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that aren’t familiar with us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. My name is Greg Alexander and I’m the founder and I’ll be your host today. And on this episode, we’re going to talk about ownership, structure, the right one, how to split up equity and all of the associated challenges with that. And the reason why members should care about this topic is because converting income into wealth is how boutique founders realize their dreams. Generating a high W2 or K-1 is easy. Most of our founders are exceptional people, and generating high incomes has not been a challenge for them. However, building a large balance sheet is hard. Net worth Trump’s net income and net worth is generated from ownership. We want to make sure that our scaling activities are producing lots of personal, net worth and wealth for our founders. And sometimes that requires sharing equity with others that can help grow the pie, so to speak. So therefore, the right ownership structure is so important. So we have a role model today, Kelsey Raymond. And Kelsey is an expert on this. And she’s someone who has created wealth for herself and converted income into wealth. It’s built an amazing business. And she’s going to tell us a little bit about her journey and how she pulled this off because so many of us are trying to do it. So. Kelsey, welcome to the show and please introduce yourself. 

Kelsey Raymond [00:01:58] Thank you. Thank you for having me here. As you said, my name is Kelsey Raymond. I’m the CEO and founder of Influence and CO, which is a content marketing agency. And yeah, I have been doing it for about ten years and have learned a lot and made a lot of mistakes along the way. So hopefully others can learn from some of those. 

Various Speakers [00:02:21] Okay, great. And I wanted to talk a little bit about equity and equity splits. And as I understand it, but I’m sure there’s more to the story that you have a CEO, I believe her name is Alyssa, and she’s been pretty important to you. And and you have shared some wealth with her. As I understand it, she’s an equity owner in your firm. Tell us a little bit about how that evolved over time and and why you decided to go that route. 

Kelsey Raymond [00:02:53] Absolutely. So the first iteration of this, from the beginning of the company, since we started turning a profit, my former co-founder and I decided that it was important to align incentives with the whole team. So we from the day that we started turning a profit, we allocated 10% of the company’s profit for a profit sharing pool to pay back to the rest of the team. This was always, you know, communicated as this is at our discretion. If we have a really bad quarter, it’s not going to happen. You know, don’t count on it. Don’t go plan to, you know, put a pool in the ground or anything like that. But but so from there, that was a way that, you know, even as a small team of 12 people, we had this profit sharing pool and everyone got different amounts determined by their role, their seniority, their performance. And it was paid out on a quarterly basis. Mm hmm. Alyssa was our first ever full time employee. So she’s been here since day one. I very much consider her, you know, an unofficial co-founder from the beginning. So as that her profit sharing amount was always the highest or on the higher end of everyone else on the team. And over time, we saw that one way to really show her how much we valued her was to give her a guaranteed amount for that. So it changed from, hey, you’re going to get some percentage to, you know, we’re allocating 10% for the whole team. 2% is just for you. So, you know, every quarter you’re going to be getting 2% of the profits. But at that time, it wasn’t equity. It was really I think most people would call it phantom stock. So if she chose to leave the company, that was going to go away. So I share this is kind of a an evolution over time of both Alice’s role changing in the organization and really, you know, her stepping up more and more. I wanted to tie her in more and more as her role changed. So once she became the CEO, I really, you know, and my co-founder left. So that’s a whole other story there. But I really, really saw that it would make sense for her to have some true equity. And one of the reasons for that is that we were having conversations that we were open to the idea of selling the business at some point. And based on her, the profit sharing structure that she had, she wouldn’t have been included in any exit, any sale. And so went to her and said, you know, I really would like for you to come in as an equity partner. You know, up until this point, we’ve just we’ve given you this 2%. If you want to buy in at, you know, up to 5%. I’d like to welcome you to do that. And the way that we structured it is that we only asked her to pay 20% of that purchase price for the equity that she was buying upfront. And then the rest was paid out of the proceeds of her distributions. So that really allowed for. Her to have true equity in the company without having to come up with a bunch of money upfront, but still having some skin in the game since, you know, I had brought a lot to the table when we had got the loan and everything like that. So that’s kind of the evolution over time. And then we actually did end up selling February 4th. Melissa and I are still running the company, so it’s an interesting structure. But with that, you know, her her return on what she invested to become a true equity partner, she said, is, you know, the best investment she’s ever made. Times 1000. So it all it’s all worked out really well. And it made me really happy that, you know, that opportunity that made me more wealth worth selling that business, that she was really included in that because she’s been so key and so integral to the organization. Yeah. 

Greg Alexander [00:07:04] Well, so first off, congratulations on your sale. We’re very proud of you. And I hope it was everything you dreamed it to be. But I will say I’m glad you’re still running the shop. And and it sounds like you’re going to go on a journey. Did you sell to a private equity firm? 

Kelsey Raymond [00:07:18] We did. We did. It’s an interesting, interesting structure, which I think is probably pretty standard. But, you know, part of the value was in cash up front, but then part of it’s in over an hour now and part of it is enrolled equity. And so that’s where, you know, Alicia is still included in that as well. So that’s, you know, rolling that into hopefully something a bigger pie in the future. 

Greg Alexander [00:07:39] Yeah. So your incentives remain to be aligned and hopefully the second bite of the apple is even bigger than the first bite of the apple, as they like to say. Okay, so I loved the story on how it evolved over time and the vision that you had from the get go of aligning incentives and setting aside this profit sharing pool. And then when you decided that this one individual was worth buying in and having real equity coming up with a creative, creative financial structure to make that happen, because sometimes when when members try to do that, they go to people and they make the offer, but the people don’t have the money. And it. Exactly. It’s prohibitive. Right. So and I did that with my firm and it worked out really well. There are some challenges with that. I’m sure you uncovered, for example, you probably had to have a partnership agreement at that point that that, you know, governed what you can and cannot do because you now have a fiduciary responsibility to it, to another party. So you had to weigh all the headache of doing this with the benefit. So what was kind of your pros and cons analysis there? 

Kelsey Raymond [00:08:43] Yeah, that’s a great question. I think the the biggest pros and cons analysis was. Replacing a. Like. I know. I think that she is absolutely capable to go out and start something of her own. Not even if it would just be a competitor. She could start any company. Yeah, she’s incredible. And so knowing that she’s going, she. She knows her value enough that even if she loves working with me and we love, you know, everything that we’re doing together, she knows that she could do something on her own. And so that was, you know, the biggest thing in the pro column is what can I do to make sure that she knows she’s valued and that, you know, she’s going to stick around for the long term. So that was the biggest thing I will share, that I had an instance with an employee that was leaving who also had a guaranteed portion of profit. This was our former CMO and she had asked when she was leaving, Hey, can I can I buy that portion like I’m leaving? And I know that that goes away, but I think the company is going to continue to do really well. So can I buy in and get that percentage? And the answer to that was no, because there wasn’t value there to me, because she wasn’t remaining on. Right. And so with Alissa, I really was looking at is this going to keep this person motivated and incentivized to stay with the company? And looking at, you know, if I knew that if we were going to sell someday, I needed her in my court on that. I needed it to be something that she was excited about as well. And so having those incentives aligned for her on a potential sale was really, really important to that as well. Yeah. 

Greg Alexander [00:10:29] What’s so great about the story is that her investment and the equity she got as a result of that materialized. Exactly. Yeah. Sometimes I hear, unfortunately with other members when investments made and you’re making an investment in illiquid private company. So everything has to go right in order for that to get liquidated and in it turn into real money, which it did in this case, which is such a great example of that. Sometimes when private equity makes an investment in a firm like yours, they want meaning the new investors want a broader set of owners. They sometimes they set aside, for example, I don’t know, maybe 10 to 20% of the equity in stock options. And they want to spread ownership across instead of just you and Alissa, maybe you, Alissa, and three or four others that that happened in this case. 

Kelsey Raymond [00:11:21] It didn’t. The conversation that we did have is that they are creating a liquidity pool, liquidity bonus pool for when the that second bite of the apple when it the entity as a whole because we’re rolled up with a few other agencies now sells again they’ve asked me to identify a few other people in the organization that I think are other other people that we really want to make sure are incentivized to stay, that they see that same vision and that they would be included in that liquidity bonus pool. That, though, is different than equity because they would have to be remaining at the organization during that time frame for that to materialize for them. 

Greg Alexander [00:12:07] Okay, I see. So they are aligning incentives and doing it with a liquidity bonus pool as opposed to the stock option, which sometimes happens. But I’m glad to hear that they did that. You know, you mentioned something about your CMO and her wanting to buy her phantom stock, but then leave and you had the wisdom not to do that. When I see people doing that, they create this thing called debt equity. And debt equity is when somebody owns a piece of your firm, but they don’t work there. So they’re really not creating an equity. And when you go to sell the firm down the road, it becomes a real problem because somebody says, okay, I’m paying this amount of money for this piece of equity, but there’s not there’s no one behind it. Yep. Did you get lucky there? Did somebody give you that advice? Have you you know, how did you know enough not to do that? 

Kelsey Raymond [00:12:55] Yeah. I’m trying to think. I think the biggest thing for me because this I respect the heck out of this for this woman that asked. The biggest thing for me, though, was also kind of creating a precedent for if I said yes to that, we had other people that were involved in profit sharing that may also want to buy in. I’d have to have a really good reason to tell them no if they were still with the company. And I let someone buy in who’s not with the company. So I think that was a big case of it is thinking through, you know, doing this for one person on our leadership team, anything that has anything to do around compensation, equity ownership, I assume that everyone else knows everyone else’s business. Yeah, because I think that’s the only way you can make smart decisions is if I assume that if I tell her yes, she’s going. You go tell every single other person on the team, which she wouldn’t have. But if I make that assumption, then I can make the decision through that framework of what I be willing to do this for every person that asks. And if the answer is no, then I need to be really careful about setting that precedent. Where was Alyssa? She was the first employee on the team. I think many people probably assumed she was an owner even when she wasn’t. And so telling the team the why behind Alyssa is the only one that was given that opportunity was a very easy explanation and something that I knew I could stand behind. 

Greg Alexander [00:14:22] Yeah. And they were probably happy for. 

Kelsey Raymond [00:14:25] Absolutely. They were excited because I think, you know, they also saw that as great a loss is not going anywhere. We don’t want her to. 

Greg Alexander [00:14:31] Yeah, exactly. When you weren’t selling the equity to Alyssa, how did you put a price on it? 

Kelsey Raymond [00:14:38] Yeah. So this is going to be I’m going to try to sell the short version, but interest. What made this even more interesting is that I started the company with two founders back in 2011. Two other co-founders. One of the co-founders owned a. Basically what turned into a private equity firm. It wasn’t a private equity firm at the time. It was kind of like an incubator. It was very unique model. And so he brought all of the money to the table. And myself and the other cofounder were the ones executing. That was in 2011. I had a very, very small percentage of the company over time, seeing that this other co-founder brought the money to the table, wasn’t involved in operations at all. My other co-founder wanted to do something different. It seemed like the timing was right for me to buy both of them out. So I bought both of them out in 2018. Alissa bought in in 2020. So what we were able to do is I said, you know, I would feel comfortable giving you the same deal that I got. So let’s look at the multiple that I bought it on of EBITA and apply that to our last trailing 12 months EBITA and use that same multiple. So we both agreed that was a fair way to do it because it was basically the same that I bought in at as far as the multiple. And she thought it was a really fair deal as well. 

Greg Alexander [00:16:02] Yeah, very good. So you had the good fortune there of having precedent, you know, and you were generous enough to give her the deal that you got instead of trying to mark up her deal. Yeah. Which is fantastic. And the proper way to handle that. So. Well, listen, I could talk to you about this forever, but we’re. We’re at our time limit here. I do look forward to the member Q&A, which we’ll do here in a few weeks. But, you know, the way that these collectives work is people like you deposit knowledge into the collective body of wisdom, and we all benefit from that. And every time a smart person does that, the whole membership benefits. So. So Kelsey, I literally on behalf of the membership, your story is fantastic. It’s inspirational, it’s educational. And I just wanted to thank you for contributing today. 

Kelsey Raymond [00:16:44] Absolutely. It’s fun to get to talk about these things. And like I said, I’ve learned a lot. So anytime other people can learn from the things I’ve learned along the way, I appreciate it. 


Greg Alexander [00:16:52] Okay. Fair. Fantastic. Okay. And for those that are listening, if you want to know more about this subject and others like it, pick up a copy of the book, The Boutique How to Start Scale and Sell a Pro Serv Firm. And if you’re not a member and you’re listening to this and you want to meet brilliant people like Kelsey and hear these types of stories, consider joining our mastermind community as you can find out, collective54.com. Thanks again. Have a good rest of your day.

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

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

TRANSCRIPT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that aren’t familiar with us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. My name is Greg Alexander and I’m the founder and I’ll be your host today. On this episode, we’re going to discuss a sales and marketing process. The reason why we’re going to talk about this is because on the path of a boutique, from the growth stage to the scale stage to the exit stage, it’s important that a firm moves away from a partner led sales model or a CEO led sales model, and they build a repeatable sales engine of some kind. And that typically involves development of talent, process design metrics, tracking things of that nature. And it can be a stumbling block for some because our founders and CEOs are naturally gifted in this area usually, and they tend to be the chief rainmaker for a period of time, or in some cases, founders and CEOs are more operationally focused, and sales and marketing is a new skill for them, and they have to learn how to do this. And it’s a real challenge, you know, to develop this capability. And it’s essential to scale. It’s particularly essential to exit. And the reason for that is because anybody who might want to buy a firm wants to know that there’s some system in place that is going to be able to predictably and on a regular basis, bring in new clients and expand existing clients. So that’s what I’m going to talk to talk about today. And we have a role model who’s going to be our expert, if you will, and her name is Lenka Lechmanova, that I pronounce that last name correctly. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Don Goldstein [00:19:06] Thank you. 

Episode 81 – Why, and When, a Professional Services Firm Should bring Recruiting In-House – Member Case with Don Goldstein

Your ability to recruit talent is critical to scaling a market-leading boutique. On this episode, we interview Don Goldstein, CEO of 5Q Partners and he shares how he decided to invest in an internal recruiter and its overall impact on the organization.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that are familiar with us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. My name is Greg Alexander and I’m the founder and I’ll be your host today. And on this episode we’re going to discuss recruiting and in particular how recruiting changes as you move through the three stages of a boutique process, firm grow, scale and exit in the early days. Recruiting is typically done by the founder. There’s a small number of jobs that need to be filled, and he or she can shake the tree, so to speak, and fill the spots. Then you get a little bigger, maybe into the early stages of scaling and the number of jobs to fill and the types of roles multiply. And you start using, using external recruiters. And it’s expensive, but it’s still manageable because you’re not hiring, you know, dozens or hundreds of people. Then, of course, you have a lot of success and now recruiting becomes really difficult. You’ve got to hire dozens, hundreds. In some cases, believe it or not, thousands. And using external recruiters can get very expensive. And sometimes those firms themselves aren’t built for scale. So you bring recruiting in-house and you start making it a core competency of your firm. And given that we’re in professional services where people drive in business, having a talent supply chain is mission critical. So that’s what I’m going to talk about today. And we’re very lucky. We have a great guest who’s in the middle of all this. His name is Don Goldstein, and he runs a cybersecurity firm called 5Q. Hey, Don, it’s good to see you. 

Don Goldstein [00:02:11] Great to see you. Great. Thanks for having me on. Sure. 

Greg Alexander [00:02:14] Would you please provide a proper introduction to the audience? 

Don Goldstein [00:02:18] Sure. So I’m Don Goldstein with five Q. We are a managed security and I.T. services firm nationwide actually now. And we serve primarily the commercial and corporate real estate industry, which is vast and broad. 

Greg Alexander [00:02:38] Right now, Don, we wanted you to come on today because you recently brought recruiting in-house, as I understand it. And I would love for you to explain to our members and those that are listening to this kind of how you used to do it before, how you do it now, and what what caused you to make the recent change. 

Don Goldstein [00:03:01] Sure, Greg. So. When you talk about in your book. That. Personal networks are not scalable for your clients and for your new hires. That is exactly the kind of thing we ran into. So as soon as we hit a certain point there, there really wasn’t anyone else we could turn to within our network. To go find the right people we needed that had experience in the industry and so we had to look at other means to do that. Using outside recruiters can be effective, but when you’re in scale mode and hiring literally dozens of people, that becomes extremely expensive. And it also bottlenecks your people because they’re having to do a lot of the screening and interviewing. So we felt when we hit a certain point, which was right at the end of 2021, we had to make a change in the way we recruited. We were fortunate enough to find a tremendous internal recruiter. Who became available to us and started right at the beginning of December, which was exactly at the time that we were poised to scale in early 2022. So it couldn’t have come at a better time for us. And it’s been game changing, literally. 

Greg Alexander [00:04:35] Okay. So this is a great use case for us. So at the risk of asking a question that might reveal sensitive information and if it does, feel free to decline. Give me an idea of the magnitude, like how many people are you hiring and what do you anticipate the hiring need to be? 

Don Goldstein [00:04:56] I can give you some exact numbers. 

Greg Alexander [00:04:58] Okay. Thank you. 

Don Goldstein [00:04:59] So since the beginning of December 2021, so it is now been. 

Greg Alexander [00:05:05] Five months. 

Don Goldstein [00:05:06] Almost 45 and a half months, close to six months. We have hired 40 people. Wow. With our internal recruiter. 36 are still with us. In other words, I would say of the 40 we had four miss hires. 

Greg Alexander [00:05:22] Wow. 

Don Goldstein [00:05:23] Which we identified quickly and took care of quickly as soon as we identified that we had done a mishire. And that’s going to happen. Sure. In a company like ours, especially where a lot of our people are expected to travel 80 to 90% of the time. And you don’t really know until they come on board how they deal with the travel part of that. Mm hmm. So we hired 40. We dropped our cost per hire to just around $1,000 per hire or 1.3% of salary. 

Greg Alexander [00:06:02] Oh, my goodness. 

Don Goldstein [00:06:05] Now, included in those 40 hires were six internal referrals. Mm hmm. And how we deal with internal referrals is we give a $2,000 bonus at hire, and we give another 2000 at year one. Mm hmm. And I also want to say, in addition to those 40 new hires, the 36 we have with us and we expect to keep with us. We promoted nine people this year. 

Greg Alexander [00:06:34] Wow. 

Don Goldstein [00:06:36] So part of what we’ve had to do is exactly addressing the questions in your book. We’ve had to move from generalist to specialist because of the kind of work we do. The people that got us here couldn’t necessarily get us where we needed to go, and we also needed to make sure we had a manager of our employees. We had the ability to move people into those manager positions and doing it internally. Is just great for retention. 

Greg Alexander [00:07:10] Yeah, no doubt. Yeah. I mean, employees love to see their peers getting promoted. They know what those peers did. They earned it. You know, it gives them hope that that might happen to them because you believe in internal promotions. I’ve got to come back to these numbers for a second because they’re astounding. So 36 out of 40. I mean, what does that 90%. You have a 90% success rate, which is. Yes, which is incredible. I mean, hiring is good as we can get at. It is still a little bit art, not all science. So that’s a huge success. Right. The the drop in hiring cost of $1,000 per hire. What was it when you were using external recruiters? 

Don Goldstein [00:07:49] It was anywhere between 8 to $10000. Yeah. 

Greg Alexander [00:07:53] Okay. Per hire? Yeah. So, you know, if you say 8 to 10 grand savings per hire and you hire in dozens of people, I mean that more than pays for an internal recruiter and then some. 

Don Goldstein [00:08:04] Right. 

Greg Alexander [00:08:05] I want to ask you a little bit about how you make the internal recruiter successful inside your firm, because first off, it’s hard to find one. And I’ll come back to that in a moment. When you find one in you, you give them this type of assignment. I mean, this is a busy person. How did you make the recruiter successful? 

Don Goldstein [00:08:26] So what? Our starting point was that we have a director of h.r. Who is external. Mm hmm. We do not have a dedicated director of h.r. Interest. We have a part time person who has years and years of experience, and he could not continue to deal with the hiring piece, even using external criminals. He just couldn’t he just couldn’t keep up himself. And so working with him, we were fortunate enough that he had the ability to help us identify that person. I’m not sure we would have known enough to to realize what it took to find the right person. Mm hmm. We found someone. Who frankly, you know, we just weren’t sure if she was going to be able to pull this off for us. But what she did immediately was she leveraged external services. If you want me to name them, I can. Yeah, please. One primarily. Which was. Which is indeed. Mm hmm. Which is a great place for the kinds of I.T. and cyber people we needed to find. And she just knew how to leverage that and how to qualify people. How to position. The rules we have. Another thing that I have to point out was we have two main offices, Atlanta and Dallas. We realized during COVID, especially with people who are traveling all the time and the fact that we’re able to make remote work, work for us is that we didn’t need to worry about location anymore. As a matter of fact, having diversity of geography has helped us in many ways. So now we have employees, and I believe the last count was 17 states. And so once we took the handcuffs off of our recruiter and say, find the right people wherever they are. That just opened the doors wide for us. Mm hmm. And one of the other things. That made this successful. What? She just wasn’t looking at this from a hiring perspective. Just get a body in the door. She learned our business. She worked with our team. She understood the questions she needed to ask to qualify before she turned the candidates over to our hiring managers so she wasn’t wasting their time. Yeah, she literally was doing hundreds and hundreds. I tried to get the number. She stopped counting at some point. How many people she screened? But she was able to very successfully bring over. To our hiring managers, people that would really make the next cut. Mm hmm. So the other thing that she did was she paid very close attention to the process, very close attention to not only the hiring process, but the onboarding process. So she helped us get better in all of those areas because she really dug in and figured out what it took to be successful in not only hiring, but retaining those people and having a great experience in their first week, which just meant that that allowed us the ability to leverage our internal recruiting even more. And that referral business. The other thing I would point out. And I made this clear because it’s really part of our core values. I really wanted more diversity. On our team. Mm hmm. And I’m happy to say of those 36 hires, 50, 55% represent minorities. 

Greg Alexander [00:12:28] Wow. 

Don Goldstein [00:12:30] And in I.T.. That far exceeds the norm. Yeah, 25% women and other minorities. So this has also been a game changer for us because. It’s really added to the depth of knowledge and experience and just the culture of the company and it resonates with our clients as well in this industry. Commercial real estate, as you know, primarily has not been looked at that way. Yeah. 

Greg Alexander [00:13:11] The numbers are just astounding. I had one tactical question since this is a teaching call and you’ve given us such great information. I was really surprised to hear and I think it’s a great idea that the recruiter owns the onboarding process. Is that true? 

Don Goldstein [00:13:26] The recruiter is part is a major part of the onboarding process in terms of following up with the employees, making sure that their experience when they come on board is a good one, and then asking them once they’re onboarded, how was their experience and what could we improve on? Yeah, that, that was huge for us because we just didn’t have that before. 

Greg Alexander [00:13:49] Yeah. 

Don Goldstein [00:13:49] That muscle. 

Greg Alexander [00:13:50] And very often there’s a handoff there. The recruiter brings them in and then hands them off to somebody who runs the onboarding process. And at times that handoff can be a little awkward and the employee doesn’t have a good experience. And you have some infant mortality, which obviously we want to we want to avoid. 

Don Goldstein [00:14:05] And I can give an example of that. Great, a great example. So one of the things we would do because we wanted to get our engineers on board and billable as quickly as possible. Yeah. Day one, we would send them with their other engineers out to a site to learn our process of our assessments that we do at the properties. She came back to us and said, Don’t do that anymore. Give them that first week to get their feet on the ground. Don’t. Don’t have them travel the first week. Have a have a program in place to ease them into that. She also made a great suggestion for US cyber engineers because we have some really, really good top technical talent. To make it meaningful for them, give them homework. So when we bring on a cyber engineer that first week, we give them homework. So say we’re going to take them out and have them do cyber assessments in a property. One of the homework items we give them is assess your home network from a cyber perspective and tell us what the results are. I’m giving away a little bit of the secret sauce, but I don’t mind doing that because it’s something like that that has really resonated with our new people. They love it and the fact that we’re not putting them on the road. That was only because she came back to us and said, Stop doing that. That’s not a good way to bring your people on board the first week. Right. Give them a week to breathe. 

Greg Alexander [00:15:35] The numbers are astounding across any industry, but in your space IT services cybersecurity. I mean, the job market is so hot to be able to be able to do this. The way you’re doing it is is really remarkable. I guess one last follow up tactical question, Don. What are the recruiters accountabilities? How do you measure his or her performance? 

Don Goldstein [00:15:58] So she reports on a weekly basis, because we do use the EOC model and we have hiring metrics. I’ve already named a few of them. Yeah. We measure the cost of the new hire and we do that on a rolling 12 month basis and now it’s down to 1000. Once we get to December, when we have a full year, it’s going to be far less than a thousand. The other thing we measure is retention. Mm hmm. So our retention has gone from in the thirties to right at 20%. Mm hmm. Meaning attrition. 20% turnover. Yep. As opposed to in the thirties and even higher prior to that. I’m expecting to get that down to low teens. We also measure. The time to hire. One of the things that we ran into in the beginning of this year, which was unexpected because usually first quarter for us is the slowest quarter historically. This year. It was the biggest quarter we ever had. So I had more work than I had people and we were scrambling. So what we did when we brought our recruiter in was we basically said to our hiring managers. If you think this is the right person during your interview, make a verbal offer on the spot. Hmm. That’s a little risky. Mm hmm. Right. You still have to go through all of the checks. The checks after that. But what we were seeing was we do we’d have interviews. And then by the time we get to another level of interviews, that candidate was already gone. And I didn’t want that to happen. So instead of having multiple interviews, we did more team interviews so we could get it done faster. And if that team. Felt that they had the right person right then and there. They were empowered to make the offer. 

Greg Alexander [00:18:05] Yeah. Another example of iterating your process. Right. And adhering to a process to hit these numbers and you’re measuring it with metrics. I mean, I could talk to you about this for hours. And of course, we’ll have a chance to to have you with the member Q&A session. But unfortunately, Don, we’re out of time this morning or this afternoon, I should say. But it was an incredible, literally incredible role model example of how to do this. And this is a hot and hot issue for lots of our members. So on behalf of the members and the membership, thank you for contributing this morning. 

Don Goldstein [00:18:39] Thank you, Greg. My pleasure. 

Greg Alexander [00:18:41] Okay. And for those that are interested in this topic and others like it, pick up a copy of our book, The Boutique How to Start Scale and Sell a Professional Services Firm. And if you’re interested in meeting exceptional people like Don and you’re focused on professional services, consider joining our mastermind community and you can find it at collective54.com. Thanks again, Don. Take care. 

Don Goldstein [00:19:06] Thank you.