Tag: Greg Alexander

Posted on

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.

Posted on

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.

Posted on

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. 

Posted on

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. 

Posted on

Episode 80 – How a Founder of an HR Consulting Firm Escaped a Lifestyle Business

Member Case with Sue-Ellen Watts

Scaling a boutique beyond a lifestyle business takes money and commitment. On this episode, Sue-Ellen Watts, Founder & Global CEO at Wattsnext Group, sheds light on how she embraced a lifestyle business to fund a new venture that she can grow and scale. 

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 are going to discuss what to do if you’re trapped inside of a lifestyle business. A lifestyle business is something that is a great business. Happy clients, happy employees, decent income. But it’s really not going to scale beyond that. And it’s certainly not going to be something that is a sellable asset in the future and not an asset that can create generational wealth.

 Nothing wrong with the lifestyle business. I mean, who doesn’t want a great lifestyle? But if your aspirations are more than that, sometimes a lifestyle business can actually be a trap because things are good and it’s tough to walk away from things that are good. You only walk away from it if you want good to become great and we have a member who’s our role model on the call. Her name is Sel Watts, and she has just about the most courageous story of anybody I’ve ever heard of someone who was trapped in a lifestyle business and was so determined to get out of a lifestyle business, she made some dramatic changes to her life, and I thought she would be a great person to have this conversation with. So, Sel, it’s good to see you. Thanks for being here. 

Sel Watts [00:01:55] Thank you Greg. 

Greg Alexander [00:01:57] And if you wouldn’t mind, maybe provide an introduction of yourself and a little bit about your story to the audience. 

Beginning in HR

Sel Watts [00:02:04] Yeah, sure. Well, I started my first services business in Australia 15 years ago. It’s an HR consulting business, people performance and engagement. Basically, we work with small to medium businesses and fast-growth start-ups in everything relating to their people. And when I started that business, I had really nothing going for me at all. I had no qualifications. I had never been in business or grown up in a family business. I was in a new, new city or new city in Australia. I didn’t have any contacts or networks. It was the start of the global global financial crisis and I had no money and I had a three month old baby.

 And so I really if I’d asked a business coach whether I should start a business, I’m pretty sure anyone would have said, “You have nothing going for you”. But I did have two things. One was I had a really clear vision of what I wanted to create. And at the time, I wrote this vision to say that I wanted to build this company to be internationally respected and and to disrupt the HR industry. Because I got into the industry because I really didn’t like it at all. And I felt that it was misunderstood and could be could be so much more beneficial to companies. 

So I had – So I had a really clear vision and I had a bucket load of naivete. I just I had no idea at the time that I had all those things going against me or that I didn’t have anything really going for me at the time. I just didn’t realize that it wasn’t actually until five years in when people started asking me to talk about the business, that I was preparing my talks and realizing that I actually didn’t have much, much going for me at the very beginning. So. So anyway, I mean, I think it’s when you have less to lose, it’s easier to be naive. I don’t really have that luxury now, but I always had big plans from day one and I had so many people knocking me all the time saying I’d never be able to do that. I ended up having three sons every time I fell pregnant, ome people would say, “Well, are you going to close that little business now?” No one ever thought that it was going to become anything. 

And anyway, for the first five years, I just put everything into it all my time. I really just spent every cent and every spare second outside of raising babies into this business. And I, you know, I really didn’t have any idea, but I’ve always invested in coaches, mentors, conferences, like really addicted to self-development. And so once I got five years in, I was sort of starting to burn out a bit. 

And I – and I had this coach said, you know what? You need to start taking something from the business. You need to get yourself a nanny. You need to buy a house that’s more suitable for, you know, a growing family. You need to just get some things around you that will make it easier. And that was – that was the best advice, because it was one of those things where I wasn’t willing I didn’t want to do that. I just wanted to keep putting into the business. But it was taking its toll. And once I did that, I was then able to take it to another level and and that was really exciting. And I was sort of thinking, well, like we’re growing fast. I had another baby and I kept it going. We just grew year on year, but it was always and so. 

So what happened then was I started to have a nice lifestyle. So for the first time in my entire life, I could afford to have some nice, nice things. I bought myself my dream car and we started to go on some family holidays and I started to shop in the expensive shops and you know, it was great. I had grown up pretty in a difficult time. I had a difficult childhood. So this was this was starting to be like, oh, this is interesting.

 And I remember – I remember a time when I was like, it’s funny because, before, every time, every month, every client, when every time I hit budget, everything was a bonus. Because when I started, I didn’t I didn’t have any idea what I was going to have to achieve anything. But once I started living, the lifestyle every month was I have to get this budget, I have to win this client because I had created this lifestyle and it was it was fine. I could afford it. 

But it did change my feeling about the business. And then I hit my ten years and I was just a bit over it, to be honest. I was very proud of what I’d done. I’d built the business from nothing, with nothing, and I’d had three children at the same time. And and as I said, I’d I’d had so many people tell me that I was everything that I was doing was wrong and that I was selfish and I was a bad mother. And like, it just went on and on and on. So I was really proud. But I was – I think now I was burnt out and I felt like I wanted to I wanted to be involved in something that was more exciting, if you like. So I sort of where I got to. 

Greg Alexander [00:07:36] Yeah. So let’s let’s jump in there because there was a lot and there was a great story. And your story is very similar to many that wind up trapped in a lifestyle business. They hit that ten year window. I don’t know what it is about ten years, but there’s something about that ten year mark that everybody says, hmm, maybe I want to do something more interesting. 

So the next part of the story, as I understand it, I’ll give you a chance to explain it, is, is that you walk away from the nice house, the nice car, the wonderful family shopping in the fancy shops, and you literally get on a plane and fly to New York and start over. So pick it up from there, please. 

A new career in a new town

Sel Watts [00:08:13] Yeah. So I didn’t come to New York till I was 35 and I kept coming -was so when I was starting to get really burnt out and sick of the business, I kept coming to New York three or four times a year and stay for three weeks. People were saying, What are you doing over there? I don’t know. I mean, I think I was really just running away from the business, to be honest. And I was here and I just felt like, oh, my gosh, this is the entrepreneurial playground of the world. I want an opportunity. This is the – this is the big pond that I need to be in. This is where I need to be. And so I spent two years commuting.

 So I lived in New York, my family was still in Australia, and I would fly back every six weeks to see the kids basically. And then I would come back and try and see if I could get my company – what’s next? Started in the US in New York, and I’d spend the days, you know, going from meeting to meeting people telling me over and over again, “You’re never going to make it here. We don’t need your services here”. And I’d get on the subway at the end of the day, and I’d cry all the way back to wherever I was staying and, you know, and then I’d get back up again and – and do it all over again. 

And I did that for two years. And  – and at one point, I said to the kids, Look, I really want to I really want to try and do this New York thing. But there’s three things that could possibly happen from this one, I could go and make it, and it’s a huge success and we make lots of money. It’s amazing. Two, I go and I can’t make it and I come home with maybe a little bit less money and amazing experience or I lose everything we have the house, the businesses, everything, and they were like, “okay, have a crack mom”. 

So I was like, okay, everyone knows what I’m doing and I walked away. Now an interesting part was putting when I stepped away from the business in Australia is everything I wanted. I wanted to go and get out of it and go and do new things. And at that point, I had invested in another company in an IoT GPS tracking company, which is I’m still in and growing. But that wasn’t that. I still it wasn’t what I wanted to spend all my time on. 

But when I left, I stepped out of the business. I was surprised by how I reacted because this was my decision. I wanted this. I was going to New York, but when I would sit in the board meetings in Australia, I was like a toddler crying because someone had stolen my toy. I found it really hard to adjust to being the founder and no longer the CEO and people coming up with ideas and implementing things that I didn’t like. And that was a real adjustment. 

And what I learned from that was, you know, people can’t do it as well as I can do it. And I think this is what traps people in businesses. And I realized that if I wanted to go and chase my dream in New York, I had to be okay with them doing 70%, maybe even 60% of what I would do. I either stay in the business and it’s 100% how I want it or I keep the business. It funds me to go and do my dream and it’s not quite as good but get used to it. And I did. And now that I think doing a better job than I was. 

And so anyway, I kept trying and I really didn’t think I was going to make it. I, I was constantly with my coach saying, I don’t know if I can do this. It’s just I can’t seem to get any, any runs on the board. And he just said to me, You just got to find another way. You got to find another way. 

And this was not just business. It was how do I relocate? How do I relocate my boys? How does the education system work? The finance system? How do I get a visa? It was just overwhelmingly massive. And at the same time, everyone was saying, What are you doing? Don’t you miss your kids? How can you be away from them? You know, just enormous criticism. Anyway, I got them here unbelievably, and they arrived six weeks before COVID hit. So they got here. I got them settled, got them into school. And I was ready to just. Hit the ground running and that weekend everything shut down and they were home-schooled for 18 months. 

How to view your business

Greg Alexander [00:12:23] My goodness. The timing of that is just unbelievable. And yet you – and yet here you are. You persevered through all of that. 

Sel Watts [00:12:33] Yeah. I mean, there were lots of people saying to me, when you’ve got to come home, it’s it’s irresponsible. And also, obviously, their dad is in Australia and he – he couldn’t fly, was going to come here every six weeks. Those ten months when he couldn’t come, couldn’t seethem. So it was a lot of pressure on the family. And here I was with suddenly three kids at home being homeschooled and-  and me trying to get a business off the ground, which had just tanked because, you know, I hadn’t had enough of a runway. And and and I’m not domestic at all. 

So I was way out of learning. I had to learn to cook and use the washing machine. And I was nearly every day I was like, oh my gosh, I’m failing. But it was because I wasn’t doing anything that I was good at. But everyone was saying, you know, this is terrible. You need to come home. And I was I commuted for two years. I’m not going home. I’ll never get back here. And I really believed in the comeback. And I have a very romantic view about New York and – and being an entrepreneur in New York. And so we just stuck it out. 

And I think our – our Aussie culture made it really easy, made it easy for us. We were sort of very relaxed about everything. And, and the Wattsnext in Australia funded – has funded me to be here. So my core company is the reason that I could do it. And I think if I’d sold that company I wouldn’t have had the funds to do what I’ve done. And you know, it’s a good company to get through any sort of economic crisis because either business is booming and they need staff and they need help with that growth or the world is falling apart and they need to work out what to do with their people. And so we we sort of can get through those rough, rough times. But the two businesses in Australia thrived during that time. 

Everything fell apart here. But I knew it was just a matter of time. I knew I just needed to ride it out, you know, deal with the fact that I felt like I was pouring all my money down the New York drain and my counter in Australia was horrified by what I was doing and -and I was like, you know what? I started this business and I, I spent ten years like working nonstop and raising my children so that I could, you know, have the freedom to live, dream – live my dream. And this is it right now. And – and I believe I’d back myself. I believe that, you know, I’ll get through it and, you know, be successful. 

But it’s – it’s been an incredible journey. And I think that being able to look at what’s next because there were times when I really hated the business and I was just over it. And so many things that happened in the time that I’d had it and so much in my own life had changed. And I it – it took some time for me to sort of put a different lens on and look at it in a different way and see it.

Here’s a good example. I used to call my business my baby. I’m sure you’ve had lots of people talk about, Oh, my business, my baby. And I remember one day because in 2016 I nearly lost everything. I had a really tragic year and I was sitting at home and I was looking out at my car and I was thinking, You know what? I’ve always called my business my baby. 

But babies run your life. They tell you when you can sleep, when you can go out. They are in charge. And I thought, this isn’t right. I looked at my car at the window. I thought, No, this business has to be my vehicle. This is the vehicle that’s going to take me where I want to go. And I need to make sure it’s healthy and running well. And I can bring on passengers and get rid of passengers. But it’s – it’s a vehicle for me. And when I changed, when I realized that that changed everything to me, I looked much more strategically at my lifestyle business and what was possible for me, and I think that helped a lot. 

Finding your business courage

Greg Alexander [00:16:34] It’s such a fascinating story. So to dramatically summarize, the way you got yourself out of being trapped in a lifestyle business is you got on a plane and flew to a strange place, brought your kids with you and started over that. Yeah. Fair to say. Yeah. And do advise that type of boldness to other members that might be trapped in a lifestyle business and – and what gave you the courage to do it? Because it would have been easy just to coast. 

Sel Watts [00:17:04] Yeah. I mean, it’s interesting because at tough times when I’ve been here, I’ve thought, well, I could go back to Australia and have all the money I need and not really have to work that much and go to the beach. And I’d have a pretty nice life, but. I think most business, most people that start their own business or most entrepreneurs don’t do it for the money. 

They do it for the challenge and that ability to see what’s what’s possible and what they can achieve. And I think that that’s never-ending. It doesn’t matter how successful you become or what goals you hit, you always want to see what else you can do so that the whole coasting was just – it didn’t even I didn’t even consider that it was only those few tough times when I burnt the dinner and I was really struggling. And then I was like, I should probably I could go back.

 But I think for people that are I mean, I know my story is very extreme and I think people have and also like when I started this journey, I was like 42. So I was like middle of my age. Like my age. My kids are 15, 13 and nine. You know, most days I had a lot of great reasons why not to do it. You know, the kids are in the middle of their school and, you know, I’m too old and all of those things. But I think that I’m a big believer that you should never settle in your life and that you should chase your dreams and you should not think about what society expects of you.

You shouldn’t think about the top, like what how old you are, and just go for it and back yourself. And, and as we say in Australia, have a crack and know that if it doesn’t work out you’ll be okay. If you’ve been able to be an entrepreneur in any capacity, my belief is that you’ll be okay. So when I started I had nothing and I never had anything growing up. Everything I built, I built myself on very shaky foundations. So I was like, Well, if it doesn’t work out or if I lose everything, then I just start again. 

And so there’s this just belief that I’ll work it out. But there’s the worst possible thing that could happen is if I just settled and I knew that there was I had so much more potential and I didn’t do it because I was afraid. Yeah. And when I think about, you know, my kids and I, I remember thinking to myself, if I could only teach them one thing, what would it be?

And it was to chase their dreams. It’s like just no matter how unlikely it is, no matter what someone says, just do it. Because even if you don’t make it, the journey will be well worth it. And then I thought, I can’t tell them to do something that I’m too afraid to do. I can’t say go and live my dreams because I was too gutless to do it. So I was like, I’m going to give my kids a front row seat indream chasing and and have a go and and we’ll and we’ll just go for it. And the journey’sbeen incredible. 

Conclusion

Greg Alexander [00:19:58] Yeah, well, listen, I could talk to you about this forever. It’s such a great story. And we have the member Q&A. I’m sure this will be an incredibly powerful thing, but we are out of time. But so, listen, on behalf of the members, I just I want to thank you for contributing because I think you’re an inspiration. I think sometimes people settle, and I think it’s a real tragedy not to chase your dreams and to have the courage to do it, which you clearly have so far. So thanks for inspiring all of us. 

Sel Watts [00:20:29] Thanks, Greg. I appreciate the time. Greg Alexander [00:20:32] Okay. And for those that are interested in topics like this, I encourage you to pick up a copy of our book. It’s called The Boutique: How to Start Scaling of Professional Services Firm. And for those that might be interested in joining a community and meeting extraordinary people like Sel, consider joining our mastermind community, which you can find at collective54.com. Thanks again, Sel. We’ll talk to you soon. Thank you. Bye bye.

Posted on

Episode 79 – How to Attract an Unconventional Buyer for a Tough-to-Sell Small Consulting Firm 

Member Case with Marc Weiss

A strong market position can indicate excellent competitive positioning. On this episode, Marc Weiss, CEO of Management One, shares how he positioned his small consulting firm for a successful exit with an unconventional buyer.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community 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 market position. What I mean by market position?

 Well, some boutique founders want to sell their firm someday and positioning their firm in such a way that makes it attractive to a potential acquirer requires some thought. And there’s lots of ways to do this. And some are traditional and some are unconventional. And there’s a particular set of best practices, if you will, to – to leverage when you’re a smaller firm and you have a unique set of possible acquirers. And today we’ve got a guest who – who did exactly this and successfully exited recently. And we’re very fortunate to have him with us today and hear about his story. His name is Marc Weiss. And Marc, would you – first, welcome – and would you properly introduce yourself to the audience? 

Marc Weiss [00:01:33] Hi, everyone. Greg, thanks for having me on today. Appreciate it. Marc Weiss, the CEO of Management One and founder. In the process of selling, we’re almost ready to close, so there’s no flag. So I feel pretty comfortable about it. So we’re good to go. Glad to share my experience. Thank you. 

Management One

Greg Alexander [00:01:54] So, Marc, just for  context, would you explain what Management One does? 

Marc Weiss [00:01:59] Management One provides inventory planning for independent specialty retailers. So we typically service the mom-and-pop marketplace and we forecast their sales and their inventory. And therefore, we’ve created one of the most sophisticated cash flow tools ever used in – in retail. So a retailer knows, you know, how much business they’re going to do. We do a break-even analysis to know what their financials look like and they spend more money on inventory than anything else. So we can manage the proper flow and investment in their inventory. They can have a very positive outcome on their cash flow. 

Greg Alexander [00:02:35] And Marc, you founded this firm when?

Marc Weiss [00:02:36] 35 years ago.

Greg Alexander [00:02:41] Yeah. So it’s obviously a great success story to stay in the business for 35 years. And the retail sector is is really saying something. 

Marc Weiss [00:02:50] Andwith one product!

Greg Alexander [00:02:51] Yeah, really. I mean, that’s really it’s amazing in retail, let’s just say, has gone through quite a transformation over time, probably more so than any other industry, right? 

Marc Weiss [00:03:01] Yeah. The last five years have been remarkable. COVID accelerated everything like it did many industries. But, you know, a lot of things are bouncing back to the way they were a little bit. But it’s all about adaptability. And one of the things that we really work hard to do is adapt and change. And actually we didn’t have to change for almost 30 years. Know what we did really worked – was just a matter of upgrading our technology. But fortunately, right before COVID hit, we decided to change our platform and and did, you know, created, you know, really created a lot of disruption in our own company, but put us in a position to be where we are today and actually put us in a better position. So… 

Deciding to sell 

Greg Alexander [00:03:44] Yeah. So first question for you is. You’ve been doing this for a long time. Obviously love doing it. Why did you decide to sell? 

Marc Weiss [00:03:55] A couple of reasons. One is we’d gone to Cuba right before COVID, and I got Legionnaires disease from one of the hotels. I was really sick, and I was about 12 hours away from being put on a ventilator. So I remember making a promise to myself that if I was given another chapter in my life, I wanted to do something with it. So, you know, I hit I’ll hit 70 this year. And I also felt like some of the passion was starting to go away. 

And I asked my cousin, who’s a successful doctor, I said, why are you – He retired at 65 – As to why did you retire? He said, I didn’t, you know, I stopped reading the journals and I felt like I couldn’t be the best doctor for my patients. And I knew it was time to quit. And I feel like I kind of hit the same stole things. He has to go back to business. But what we do fundamentally I’ve been doing for over 35 years and the people we’ve hired actually are doing a better job at it than I am, and I feel good about turning it over to them and I feel like I would be in their way and I’ve contributed to the level I want to. I want to do something else now. 

Individual buyers

Greg Alexander [00:05:03] Great. Okay. Next question is sometimes boutiques the typical exit path, which you didn’t take and why I find your story so interesting as either sell it to a private equity firm, they sell it to a large strategic, they sell to their employees. Those are those are the three most common ways. Right. You sold it to an individual. Which is really brilliant. So tell everybody a little bit about this individual, how you met him, how this whole thing unfolded. 

Marc Weiss [00:05:35] Yeah, it’s, you know, just the serendipitous story I, I had gotten. We get we get offers. We have three or four offers a week. We might turn them all over to our president. He looks at them, examine them. And, you know, he said, Marc, when you’re ready to sell, let me know and I’ll start pulling the trigger.

 But there was one in particular that came through for some reason. The email struck me in a way that it was written that I actually responded, which I never do. And we kind of got into a conversation. This was about 21 months ago, and we just kind of hit it off. And I said, Well, what brought you to us? Why are you – why do you want to buy my business? And he said, Well, one of my good friends was an MBA, owns a retail business in Seattle and, you know, COVIDhad hit. And we were I think it was like maybe June or July of 2020. And she said, oh, she said, “I work with a I know you want to buy. I know you’re looking to buy a business. I work with a business that maybe they’re interested in selling”. And he said, “Well, what what’s good about – why do you believe in this business?” And she said, “They’d bethe last people I’ve fired before I had to turn off the lights”, I’d be the last person. And he said, nobody ever talks about their vendor that way. So he said, “I was blown away. I respect her a lot. She’s a bright person. She uses data effectively. So I decided to reach out to you.” And so from that conversation, our relationship grew. 

I wasn’t ready to sell then it was COVID, I knew I had to lead the company out of it because we’re in retail. We were we were hit hard, you know, in the early days we were, but we had rebounded by December. We had all our business back, but we stayed in touch. 

And then an interesting thing happened. And so I we use EOS and in December of this year, my my son who runs our planning department now he’s in charge of product development. We are actually developing new products. He called me and he said, Dad, who do I report to? And I said, We report to Mike,, Who’s also a member of the 54 He’s on the the scale side. 

And he said I dont know who to report to. And I said, well you report to Mike. He said, Well, you’re interfering too much. So that night I went to bed and recognized that I really am not the kind of CEO I hoped to be. I really can’t stay, keep my hands out of the cookie jar. And I woke up the next morning, called this individual and said are you still interested in buying the business. And he said, yes. And I said, here’s my number. And he said, I can make that work. And there we are. 

Greg Alexander [00:08:18] Wow. It’s really amazing. I mean, what I love about that story is this started by a happy customer. 

Marc Weiss [00:08:26] Yeah. Started by a happy customer. Yeah. 

Greg Alexander [00:08:28] I mean, that phrase “that they’re the last vendor I turn off before I turn off the lights.” I mean, that’s quite a phrase. So I mean, we’re talking a lot. 

Marc Weiss [00:08:36] We’re very fortunate. We have a lot of raving fans. A lot of our business comes from independent retailers who are in market or carrying our our budgets around with them. And other people ask questions and we get a lot of business just by the referral system within our clients. Our clients have been very loyal and very I’ve told our clients that I saw when I started the business 35 years ago, who’vegone through their own sales. 

Qualifying individual buyers 

Greg Alexander [00:09:01] Yeah. So also we’re talking to Marc Weiss right now about how to position your company for an exit, how to make your company attractive to a potential acquire by having a great market position. And we’re reminded of the obvious, which is build a great company first, have – have fans instead of clients. And it makes it a lot easier to sell your firm when you’re ready to sell your firm ass Marc is his healthcare and his willingness, their desire to retire. 

Okay, so let’s come back to this individual sometimes. Like, for example, if I got approached by an individual, I would be skeptical because the number I would have in my head is typically would exceed what an individual can afford. So how did you qualify the individual that they had the funding to pull the deal off? 

Marc Weiss [00:09:50] Yeah, that’s a great question. It because it’s – it’s a, I guess the word genre, but it’s a whole niche that I never knew existed. It’s called self funding. And this individual’s got a group of people who invest with him and literally pay his salary to help find a business in all his expenses for two -. they give him a two year window to do it, and he was very close to buying another business. But the seller jumped the price at the end of the deal by 30%, and he said,” No, we’re not going to do that.”

 That was after they invested a lot of money in due diligence. So there is he’s self-funded and there’s a lot of them out there. I just happened to follow in No. One. I was kind of curious about it, and I was I did some research about it and that’s it’s – t’s a more robust industry than I knew about. And I talked to one of the person buying the business. I talked to one of his key investors. And I said, because it was hard for me, Greg, even today, I mean, I’ve gotten to know this person over the last two and a half years. Well, I’ll just get his name’s Nate, so it’s called by his name. I’ve known Nate for two for over 20 months, and it has really been a great journey. 

So, you know, I felt like there’s good chemistry. He really got to understand who we are. And it wasn’t just a transaction for me. It was also needed to be a – it needed to be the culture needed to be sustained. I mean, he’s for 35 years in a company, you feel like you’ve built a great culture. We don’t have a problem attracting people. There’s a lot of good we’re a virtual company, so a lot of good things about the company that I wanted to stay in place. And I was afraid if I sold it to a private equity firm, you know, it wouldn’t be there. You know, you and I had talked about an Aesop or something like that, but I wasn’t going to get the kind of money out of it that I wanted. 

So these self-funded opportunities are there and they’re real. And when I talked to one of his investors, I found out that they’ve been in this for 20 years and they’ve done 52 of these transactions on these businesses with capital. So that was important to me, that they’ve kept all the businesses, they help them. They haven’t gone in to change them. They look for businesses that help other businesses succeed and other people succeed. And they they seem to, at least on the surface, share our core values. 

Greg Alexander [00:12:15] Yeah. And what did they find attractive about your firm? 

Marc Weiss [00:12:21] What they found attractive? It was the opportunity of what we were doing. We didn’t have a lot of you know, the competition in our space is really people who use Excel spreadsheets. And we’re much more sophisticated. We have much more sophisticated information. You know, we’ve got they call it greenfields. We’ve got 860 clients. We’ll hit 1000 this year because we’re at a growth rate of about 35%, 33% last year, 35% this year. 

So I think they saw the real opportunity and that we are in a market that’s underserved. I mean, there are literally hundreds you know, there’s I think close to 100,000 businesses that fit into our model. And we’re also in multiple verticals. So, you know, we do everything from college bookstores to a mom-and-pop dress shop or men’s store on the street. 

So we’re we’re – we’ve got – we’re in over 22 verticals. So we’re, we’re pretty diverse, which allows us to sustain ourselves in, in, in any almost any economic area. And, you know, I was reading Chapter 29 and one of our our best year retention was actually in 2008, you know, when people would, you know, when economic – when there’s economic turbulence or recessions, they’re a friend to us. So I think the other part of it is we’re pretty much a recession proof business. 

Greg Alexander [00:13:42] Interesting. And without violating any confidentiality agreements, I’m sure you’re governed by… in terms of the structure of the deal. Were you able to get enough cash at closing that made you happy? Was there an earn out? Like what were some of the terms? 

Marc Weiss [00:14:04] So yeah, it was kind of an odd thing. I have to be careful what I talk about, but I had a happy number that I had to walk away with – the net number. And so we’re, we’re, you know, so I got the net number – and I also I also got a I have also an equity, you know, business on top of it. Okay. So I own about 7% of the business after the deal’s closed. So I get another bite of the apple. 

Self-funding groups

Greg Alexander [00:14:27] So these self-funding groups, which this is a breakthrough for many of our listeners because they have firms similar size to yours and they might be, in some cases, too small to attract the right type of investor that they may want to sell to. Because for them, like you, it’s more than just a transaction. So these self-funding groups are funded well enough to get to your happy number? 

Marc Weiss [00:14:52] Yes, they’re well-funded. Nate’s going to have, I think, seven investors and he’ll be the majority shareholder. But and, you know, I been one of his key investors that I talked to said he’dwrite a check tomorrow for the whole business. But so they like the business. They like the model. 

We also have a great management team. They want to buy businesses where they don’t have to do anything except invest in the resources that’ll help the business grow. You know when you’re a small business, everybody works a lot of hours and you’re overworked. And that’s true in our business. So my team does an amazing job and we just launched a new platform which really stretched our resources. 

So I think that they’ll be able to bring resources to bear that’ll help the whole company. So I think they work for businesses where there’s an opportunity to add resources in the right place. There’ll be a board of directors. So I think that, you know, we fit that kind of – we fit that that model. Part of what they like about us is that Nate can come in and replace me as the CEO. Mm hmm. He’s already bought into our ten year plan. As a matter of fact, he came back to me and he said, you know, EOS goes out ten years, but I’m thinking about where Management One can be 15 or 20 years from now. So that was music to my heart. 

Greg Alexander [00:16:08] Yeah, for sure. 

Marc Weiss [00:16:09] And I think that I think that. So therefore I think there’s a real opportunity for these self-funded businesses. And by the way, I’m getting just in the time that we took – I signed a letter of Intent February. I’ve gotten two or three requests from different self-funded groups almost weekly since then. So they’re out there. 

Conclusion 

Greg Alexander [00:16:32] That’s interesting. Well, Marc, we’re at our time allocation here, but you’re such a great member. You have such a generous spirit and you’re always willing to contribute. So on behalf of behalf of the membership, I appreciate you coming on the show today and sharing your wisdom with us. 

Marc Weiss [00:16:49] Again, if anybody has any questions or thoughts or anything, just feel free to contact me. I’m happy to share my journey. And one thing I want to say, Greg, is I really thought hard about making sure the pipeline’s full when you sell it – our pipeline is full! So when they takes over, I’m going to feel very good because he’s got a whole rush of business that I wish I was here to participate in, so… 

Greg Alexander [00:17:11] Oh, that’s fantastic. All right. Well, listen, for those that are interested in this topic and others like it, you can pick up a copy of the book. Of course, it’s called The Boutique: How to Start Scale and Sell a Professional Services Firm. And for those that are not members yet but might want to be and meet inspirational leaders like Marc. Consider joining our mastermind community, which you can find out. Collective54.com. Thanks again, Marc. Appreciate it. Marc Weiss [00:17:36] Thank you. Have a good day. All right.

Posted on

Episode 78 – How a Consulting Firm Underwent Organizational Redesign toSuccessfully Deal with Pricing Pressure 

Member Case with Jeff Pedowitz

Labor is the biggest expense for a boutique and has the biggest impact on profitability. On this episode, we interview Jeff Pedowitz, President & CEO of The Pedowitz Group to discuss how they creatively redesigned their organization to solve increasing pricing pressures.

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those not familiar with us, Collective 54 is the first mastermind community 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. On this episode, we’re going to discuss organizational structure, and this is a very important topic for boutique pro serv firms because we are people businesses. And how you organize your labor dictates a lot of things such as your profit margin, your client satisfaction scores, your employee engagement scores, etc. 

So it’s a really big subject and we’ve got a great member to be our role model today. His name is Jeff Pedowitz and he has a company called the Pedowitz Group. And Jeff’s with us today. Jeff, how you doing? And please introduce yourself to the audience. 

Jeff Pedowitz [00:01:12] Thanks, Greg. Definitely glad to be here. Hello, everybody. So I am Jeff Pedowitz. I am president, CEO of the Pedowitz Group. We build digital revenue engines for our customers. So for all those businesses out there, we’re constantly trying to drive revenue in the digital world. That’s what we specialize in. We do strategy, technology and execution and end-to-end shop. 

Determining the right organizational structure

Greg Alexander [00:01:35] Okay, very good. So, Jeff, the reason why I asked you to be on the show today is that your firm has scaled to a very nice size. You’ve been at it for a long time. And you’re on the journey now of restructuring organizationally and leveraging different talent pools. And I would love to maybe start off at a high level and have you explain to the audience, you know, why you decided to come up with a new organizational structure. What led you to that? And then we can dive into, you know, how you went about determining what the right approach was for you. 

Jeff Pedowitz [00:02:11] Sure. Well, I wouldn’t necessarily call it new because I’ve had the relatively same hierarchy in place for a while. You know,we promoted some people and moved some things around. But one of the things I started doing a few years ago was really developing a core team around me and delegating the day to day responsibilities, including sales.

 So today I have a full executive team. I have a technology officer, I have a marketing person. I have chief strategy officer, chief financial officer, Chief Services Officer and they are all essentially running the business and providing the guidance and the leadership and the vision. But I can step away. They can run the business now and all the tools to do so.

 So that was really an important part of our scale, was really getting me out of that entrepreneur organization where everything that you run for me, we still we’re dealing with some, some legacy issues and married people and working at it for a long time. But we’ve really turned a corner on that.

 So even before the great resignation hit,because we work with technology now, our resources are in high demand. I mean, for years we recruited they command very high salaries and a premium. And up until last year, we actually had very, very low turnover. We were running about 5% per year, which in the consulting advertising industry -that’s fantastic. 

Greg Alexander [00:03:33] That’s best in class for sure. 

Jeff Pedowitz [00:03:35] But last year it caught up with us. Solast year we and our services team, we ran about 40% turnover. And most of that was just great resignation combined with some of the bigger technology vendors who are also our clients like Salesforce, Adobe, werepaying ridiculously high salaries, things that even at our size we just could not compete with. And we were already paying our people very well.

 So while we certainly have, I would say now year over year, our average salaries increased 30% from where we were a year ago. As you know, growing in professional services, you know, where you don’t just have 50% less margin – want to just want to double the salary in a low cost format- well we had a resource last year that was making 100,000 and my client was paying me 200,000 an increase into 130.

 Maybe they’ll pay to 60, but they’re not going to pay much more in that. And they’re not going to pay 300,000 for the same person that was doing the same job. Now, if we redesigned the services and added more value, of course they won’t. So it’s a matter of we’re trying to rebuild the plane while our client  -I have existing market conditions that enterprise customers for discerning and they also know they can get the labor if they need it to, by going offshore. 

So we’ve had to retool and strategically rethink how we want our labor force to be. So what we decided a year ago was for the lower end type of work, the execution work, data management, reporting, research, execution type of activities. We’re going to move those offshore. So we’ve been setting up resources in Colombia and then we want the people that are here to be the architects, the strategists, the engagement managers, the account managers, the people that are very client facing to be very versatile. And we will happily continue to pay them even more money than they’re making now because the value proposition will be there and then we’ll be able to kind of bifurcate.

 So we’ve been able to continue to be a competitive -pay the people that are really delivering value really, really well. And more than that now. And at the same time, move some of the other labor that we’re overpaying for because we’re able to turn that around and get value living out offshore.. 

So the net effect is we’re already doing pretty well with our gross margin. We’re running about 52%, but we should be able to get up over 60% by the -by the end of next year. And then we’ll be able to take some of that free flowing capital from the margin and reinvest it not only inthe employees, but into additional sales and marketing that will fuel our growth. 

Strategy versus execution 

Greg Alexander [00:06:12] Great story, great rundown and so many things to ask you about. The first question I’ll ask is when does when deciding what is kind of high end strategic work versus low end execution work, drawing that line and therefore determining what could be sent offshore? Sometimes our members struggle with that. They tend to think that everything is strategic. Even the tactical execution is super important, and oftentimes it is, but sometimes the clients aren’t willing to pay for it. So how did you draw the line between what to keep onshore and what to move offshore? 

Jeff Pedowitz [00:06:49] It’sthe very last thing that you said. It’s what are the clients willing to pay for custody? It doesn’t matter what we think t -he client is, what makes the market and the client who determines what the value is, not us. So if the client says, I’m only going to pay – I’m not going to pay more than $50 now for email execution. We can think it’s as strategic as we want to be, we can talk about deliverability but the client is still oing going to pay us $50 an hour

So we’ve been able to get pretty good information from our customers. And just seeing as the deals come in, what clients want, pay for what they’re not. Yes, because we work with a lot of technology and we now support over 600. 

For new technology. And it comes out like, let’s say some of the new ADX technology comes out for things like Snowflake or merchant platforms. Clients will pay a premium for that, for a short period of time, right. Until they get up and running. And then they view it more as a commodity. Then they will then want to drive the cost.

For ongoing OpEx to support and maintain technology in our business. Clients do not consider that to be strategic. Architecture isstrategic, Figuring out what systems to invest in, how they should fit together, how data should flow , business processes ,t he math, the technology – that is strategic. Running and supporting the technology itself is not strategic. 

Greg Alexander [00:08:11] Interesting. And sometimes clients might not know, but they think they know. So they might say to you, Hey, Jeff, I’m only willing to pay 50 when? Because it’s not strategic, but you know it is. Do you let the client stub their toe or do you -do you speak up in that scenario? 

Jeff Pedowitz [00:08:30] I think it’s it depends on the situation and what else we’re doing with the client. And it’s a bit of a give and take., But I think there’s a healthy  -we want to be respectful. We challenge our clients and let them know, know ultimately we’re trying to build a long term relationship.. 

And it’s also about the people and the personnel over doing the work. Even more important than the work itself.. You know, in consulting and such a relationship business, actually, one of the biggest challenges we have is a resource gets assigned to that project. And the client, they want that working really well, but the client doesn’t like it when that resource changes and gets to account because they become very attached and they’re convinced that nobody else in our team could possibly do that, even though that’s not true. 

But it’s just that trust and that bond gets built. So I do think that in so much it’s not just the type of service, it’s the person and the skill and the value of your trusted advisor to your customer. Then the client will tend to pay more for someone that they trust versus someone, of course, if they don’t.. 

Choosing offshore regions

Greg Alexander [00:09:32] Yeah. Now, once you decided what needed to be moved offshore, there’s a lot of choices there in lots of parts of the world. What part of the world did you choose and why did you choose it? 

Jeff Pedowitz [00:09:44] So we deferred to last year, so we started trying out different contractors in different parts of the world. So India was definitely an area that we know and we’re still using a bit more as a partner. Costs are higher, but we know what we’re getting. We work with ad some firms over in the Asian region, particularly in Cambodia, which is an emerging market, there’s a lot of strong tech talent that people are very good. But the time zone challenge was was difficult. 

We work with a lot of marketing teams in our business and it’s a little bit different than, let’s say, I.T. projects. The collaboration is more in real time. It’s not a follow some type of approach. But we can start something, we send it offshore, they work on it while we’re sleeping and come back the next day. The clients wanted me today and use time zones and collaborate, so we were having difficulties getting the resources over in Cambodia to work on our time zone – the costs were fantastic work and labor. At 15 or $20 an hour., highlyskilled, college educated, smart people, but not the time zone. We had been familiar with Colombia and the Latin America market for a while. We have a couple of our competitors that work down there. We’ve caught some good things, so we started looking into it. 

And then the more that we talked to different resources, we became more convinced that that would be a good market for us to enter into. It’sbilingual, college educated, good culture, hard working family values, which are very much in line with our approach and our value system. So, you know, this has not been without its challenges. Our original goal was to get this up and running in the first quarter of this year. We had a very good recommendation from-  from one of our investors and he was going to work full time for us.

 He had set up an 800 person shop down in Colombia over the last five years. So he was an expert down there, you know, unfortunately had a personal family situation. So he had to opt out after just a week on the job so that we were scrambling. But we were able to, through our professional networks… We reached out, people were great. We actually got eight referrals on different resources to use down in Colombia. We interviewed them all. We selected one and we’re now working with this partner account to set us up. So by the end of this week, we’ll have our first two full time people hired and our plan is to have 20 people by the end of this year. 

Deciding on direct hire

Greg Alexander [00:12:10] Wow. That’s an aggressive plan. And did you decide to hire a firm and partner with a firm? And did you decide to hire directly, you know, one at a time kind of thing? 

Jeff Pedowitz [00:12:23] We split it so that we – we are working with a firm called SolvoConsulting. So they are basically doing all the recruiting and it’s they are technically managing all the employees or their employees. We pay them and then they pay the employees. But we employees are fully white label so they are notworking for anybody else but we don’t have to deal with the benefits or paying taxes in Colombia or doing any of things we pay them. 

However, we also have the option as we start to build our practice areas to convert any of these people into actual TPG employees at any time. So we thought this gave us the best of both worlds. It gave us expertize down in there and mitigating our risk at the same time. 

That way we don’t have to set up a Latin America LLC. We don’t have to deal with paying taxes and doing all that stuff in a foreign government. But we still get the talent and the labor and the partnership and all the resources as if they were our employees. So obviously, check back in with me in 3 to 6 months as we get this up and running, because its still relatively nascent,. I certainly don’t want to tell everybody that we’ve cracked the code. We’re really just getting started on our journey. 

Learning to ask for help

Greg Alexander [00:13:31] Yeah. Yeah. Well, the reason why I wanted you on the show is sometimes many people need to be doing what you’re doing, but they’re not even getting started on the journey. I mean, most of our boutique founders are in similar situations where they have clients that are willing to pay a premium for some services, but commodity prices for other services. 

And unless you get to some version of this, then you’re going to have a tremendous margin squeeze and it could put the business at risk, especially in this high inflation, high wage inflation, great recession environment that we’re in. My last question, Jeff, regarding this particular avenue here is, you know, you said you got a bunch of people to go talk to and you interviewed them all. What did you learn during that interview process and what advice would you give to a founder who’s starting on this journey about how do you even know what good looks like? 

Jeff Pedowitz [00:14:21] Well, first of all, I was pleasantly surprised at the sheer response that we got, because at the time that the person opted out was one of these things where I at -at that moment, I certainly was not an expert in offshore labor or working with Colombia in particular. 

Whether or not whether we go there, you know, this is still really important. Where do we find resources? So yeah, I suppose it was a momentary situation, where am I? But I think like any entrepreneur, that faded pretty quickly. Right. Okay. But this is still the right decision for us. Let’s move forward. Let’s just start reaching out and asking for help. And I think one of the first things I was surprised, pleasantly surprised about was how much help there was – just by asking the question.

 And I think that’s one thing I’ve learned. I wish I would’ve learned this earlier in my career as a CEO – how and when to ask for help? You know, I was on my own a lot. I made a lot more mistakes that were made because I didn’t think that there was anybody I could turn to. 

So having networks like Collective 54 is great because I realize there’s a lot of people out there, that can help. You just have to be willing to ask the question and to listen., Sso myself and my business partner, who’s my chief service officer, we listened. We took copious notes, we interviewed and we learned that there’s… We learned a lot. We learnedthat much like the states, there are different ways to do this. You can go the route like an ADP, you can hire direct. 

We learned about different parts of the country and what each country, not just Colombia, but different countries and what they brought to the table. And I learned that there’s four different taxing authorities within Argentina and it’s incredibly complicated. I learned there certain provinces to stay away from and certain not to. And so, I mean, it was very, very educational over the course of two weeks.

 And so ultimately, you know, given everything else that we have on our plate right now, we decided going with someone that already knows how to do this and do this well, even though we’re going to be paying a little bit more – like if we were to go down and hire people directly in Colombia ourselves, we would probably pay them an average of 18 to $20000 per year for a college graduate. That person that has similar skills to what we have here in the US that’s maybe making 120,000. With the service we’re usingsing the margins areup 30 to 50%. But it’s still very, very cost effective. We’re still be able to make great margin, but may take care of all the headaches for us. 

Conclusion

Greg Alexander [00:16:59] Yeah. Yeah. Very good. Awesome. Well, listen, we’re out of time, but on behalf of the membership, I just wanted to thank you for your contribution today. You know, the way ollective works, as you got to contribute to the collective body of knowledge. And you have, you’re always doing that. Today is another example of that. So thanks for being a great member and being here today. 

Jeff Pedowitz [00:17:17] Thank you. I appreciate it. Greg Alexander [00:17:18] Okay. And for those that are interested in this topic and those like it, who can pick up a copy of the book, The Boutique, How to start scale and Sell the Professional Services Firm. And for those that are interested in meeting great people like Jeff, founders of scaling professional services firms, consider joining our mastermind community, which you can find at Collective54.com. Thanks.

Posted on

Episode 77 – How a Founder is Scaling Her Marketing Agency by Getting Prospects to Come to Her

Ali Schwanke

Invest in your marketing and let your customers come to you. In this podcast episode, we interviewed Ali Schwanke, CEO & Founder of Simple Strat, to share how this professional services firm elevated its inbound marketing strategy and improved win rates.

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, and I’m the founder of Collective 54, and I’ll be your host today. Today we’re going to talk about defining a market. And let me set this up by suggesting why this is important. You know, many like to say, and I agree with this phrase, the riches are in the niches. And as founders of boutiques, our members have to pick the right market. It’s got to thread the needle a little bit. 

It’s got to be big enough to matter but small enough where you can dominate. So we’ve got a great role model with us today, someone who’s got some experience with this, and she’s willing to share her learnings with us. Her name is Ali Schwanke. And Ali, I would love it if you would give a proper introduction to the audience. 

Member Case Study: Ali Schwanke, Simple Strat

Ali Schwanke [00:01:19] Absolutely. Well, thanks, Greg, for being here. Yeah, as Greg said, I am Ali Schwanke, and I’m the founder of a business called Simple Strat. And we are a HubSpot consulting agency that started about six years ago. And we have worked with folks all over the nation in helping them get more out of their HubSpot instance, which is a marketing technology and software platform.

 And also increasing the effectiveness of their content on that platform once they get their bearings under them. So we’ve been doing that for the last six years, but myself, I’ve been in marketing for almost two decades now. 

Greg Alexander [00:01:51] Okay. And Ali, what’s a typical client look like for you? 

Ali Schwanke [00:01:56] Sure. So our clients that have the most success with us are between about five and 200 employees. And they have a strong propensity to grow efficiencies with their business. And they are primarily B2B because they have the need to track information inside of a technology platform and then eventually get the most out of the reporting and analytics that come with that function. 

Greg Alexander [00:02:18] Okay. Very good. So the reason why I wanted to speak to you this morning is I understand that you and your team have been redefining your target market a bit and yet that answer you just gave me was very crisp. You should be proud of that answer. That tells me that you really have given this some thought. 

You mentioned an employee count range, etc. So why don’t we start with what first made you think about maybe redefining your target client and redefining the market that you’re going to compete in? 

Scaling a Business: You Need to Define Your Target Client and Market

Ali Schwanke [00:02:48] Sure. Well, a lot of professional services firms and agencies are not excluded from this. They’re kind of like that  story of the E-Myth, where they have someone who’s really good at a craft, and they just start an agency or start a company. And you go from being able to do the work to thinking about building a company around the work. And once you do that as an agency, you realize that you are competing with everybody and their mother and their son who went to college for social media. 

And the word marketing is so vague, and I think it is for a lot of folks. So when we started saying initially, when Simple Strat started, we were going to focus primarily on helping folks with marketing strategy because there weren’t as many strategy firms out there. What I failed to realize at the time was that strategy is something that is not defined just by marketing. You’re now competing with firms that do business strategy and all these other things. 

So as the firm developed, we found a specific line of success in helping folks navigate HubSpot. And what we realized is, if we can get really, really good at that platform and know it better than any of our competitors and focus only on that platform, we have a competitive advantage of simply focus. And that focus allowed us to then narrow that target market to teams that really appreciate our expertise and have the value and a budget defined for engaging someone like us. 

Greg Alexander [00:04:11] Okay. So the path to getting to it towards this new focus of HubSpot, it sounds like, but I don’t want to put words in your mouth that you were looking at where you were having success and then said to yourself, maybe that’s where we should focus. Is that how it happened? 

Ali Schwanke [00:04:28] It did. I’ll say it happened in a little bit of a backward way. We said initially we became a HubSpot partner. There are lots and lots and lots of those out there. We did that about five years ago, and at the time, I think me and my inexperienced mind was thinking we become a partner. That’s our niche. And we go. 

Well, what happened is we did a lot of things to try and promote that partnership. And I’ll tell you, Greg, nobody cared. Nobody cared. So very similar to the story that you published in Chapter eight of the market when we started publishing content around our competitive advantage and demonstrating that expertise online, that’s when things changed for us and the focus became real. So it’s very interesting. I would do it all over again the same way. 

Greg Alexander [00:05:14] Yeah. So let’s talk about that a little bit, because it’s easy to fire up a spreadsheet and say, “Okay, so there’s 5000 companies to go after. And these are the vertical industries and the geographies and the job titles and the sizes that we want to focus on.” But sometimes, we often forget we have to figure out how we’re going to reach them. 

You know, there’s the TAM (total addressable market), and then there’s the percentage of that TAM that you can reach in boutiques like yours, like the one that I had, like our members. It’s not as if we have a 10,000-person salesforce that can go out and reach all these folks. 

So you started producing content and that content started getting out there. That was your reach. Instead of salespeople, you were using content as to extend your reach. And then that content was attracting people to you. That’s how it was working. Okay. Right. And that must be some great content because there’s a lot of content out there about inbound marketing in HubSpot, etc.. So how did you develop content that kind of penetrated the noise? 

How Simple Strat Brought Prospects to Their Firm Through Great Content

Ali Schwanke [00:06:26] Yeah, I think what we found is there was a lot of companies that are writing similar things. And to be frank, when you become a partner with HubSpot, they do their due diligence in helping you sort of build your business plan and your approach. But I’ll say that I’ve been in this long enough to see that at first they were encouraging you to be called an inbound agency, and then they were encouraging you to position yourself as a growth agency and now position yourself as a robot. 

Well, if you think about this, they’re telling all of their partners similar advice. And so great, we’re now in this sea of competing with each other in these same terms. And we did a little bit of analysis of the market of looking at this sort of unserved population. And that was there are a lot of things you can do in HubSpot, but the number of instances that I have seen where the first thing I say when I open up the portal is what’s going on in here. They don’t want to admit to their agency that they don’t know what they’re doing. 

And so we found if they can find content that’s very basic things like, here’s how to set up your lifecycle stages or, here’s how to have here’s how to do a portal audit. There was no content online for that because that is content you have to see. And we already had an advantage of being able to produce video tutorials. So we just leaned into that and that lesson was people, if they see your expertize online first, they trust you before you even make a sale. 

Greg Alexander [00:07:56] It’s so true. I mean, you just referenced one of the chapters in my book, and a book is a version of content marketing, and people read it. And if it resonates with them, they reach out to us and hopefully become a member. I mean, that’s how it works now. 

You mentioned video. I want to go there just a little bit because a lot of our members, I think, aren’t using video as well as they could. And these days, you know, people are consuming content on their phone. Video tends to lend itself really well to that, particularly short clips. So tell me a little bit about what you’re doing in the video bucket. 

Ali Schwanke [00:08:30] Yeah. So I’ll tell you what we did wrong first. I was a firm believer of video back when I started in 2016. I said, we need video. I hired a videographer. I had planned on selling video services to folks as well. And I’ll tell you, Greg, I think I made a whole $5,000 off of this video person. 

Mostly what they did is produce video for us. And in doing that, what I learned was two things. One, there’s two types of video. One is video that is thought out on how to do something. And then there’s video that’s entertaining and kind of what I would call rabbit hole video. You find yourself watching clips after clips, after clips. 

And so for us to go lean into that video piece was we learned that the video content that was out there, people were talking about themself a lot. They weren’t actually thinking about the viewer first. And so we said if we just create short to the point videos that were well-produced and highly searchable, I think we can win. 

So we put a small bet out. We put a certain amount of very, very low production value videos first and saw those succeed. And then we invested in a full channel and it was about six months until we saw that really kind of transact for us. But once we started getting traffic, then we started talking about how to convert the traffic.

 We didn’t  have this like grandiose thing all at once. We grew as we learned. And I think that’s one piece that makes a lot of folks nervous about video is they want to see results after two videos or three videos. And it’s a cumulative effect that we now dominate the YouTube channel for the search of HubSpot. 

Greg Alexander [00:10:00] Interesting. So a boutique like yours is the dominant player on YouTube. 

Ali Schwanke [00:10:06] If you type HubSpot into YouTube, my face will be on at least four or five of the ten results. 

Greg Alexander [00:10:12] No kidding. Wow. That’s quite an accomplishment. 

Ali Schwanke [00:10:15] At the moment. Like, let’s hope that that continues, right? 

Greg Alexander [00:10:18] Yeah. That’s a little bit of an arms race for sure. Yes. Okay. So you mentioned the next stage was learning how to convert once you started getting the traffic. And that’s a big component about defining your target market, which is what our subject is today. 

You know, sometimes we realize that we have to reach this large market and we’re going to do it through content marketing in all of its forms. And you throw the content out there and all of a sudden you start getting lots of inbound interest. But you’re catching the wrong fish. You can’t win. So how did you learn more about your target market based on what was coming to you in response to this content that you were creating? 

Scaling a Consulting Business: How Simple Strat Learned More About Its Target Market

Ali Schwanke [00:11:01] Yeah, I’m a big believer in constantly observing your audience in the way that they talk. So what a lot of teams I would  think miss when they’re looking at their total addressable market. So for instance, if I said I believe my total addressable market needs rev ops because that’s the buzzword right now. I will tell you in having conversations with sales and marketing leaders, rarely do I ever hear the word rev ops. 

And even right now, if I run a keyword search report on that, the volume is low. And that’s because it’s a word we use to describe it in the marketing industry. But the actual thing folks are looking for is, can I have a function that’s accountable for sales and marketing in my organization? So when we’re looking at the way that your total addressable market talks about their products and their needs and their pains, that’s the content to create. And then you have to sort through and say which one of those is closest to a sale? 

So in our case, if they’re having issues with their sales reporting, that’s a problem they’re looking at solving immediately. If they just want to figure out how to optimize their blogs better, that’s longer to revenue for them. And so they might not be willing to pay as much. So we focused on the content that you see immediate gain and then we’re continue like we have a next thing that we’re rolling out that helps address some of that stuff higher on the. 

Greg Alexander [00:12:23] So some of our listeners right now members are going to say, this is fascinating. I’ve never met anybody who can dominate the YouTube channel like Ali has. And it’s hard to do. And what I’m taking from our conversation is how incredibly focused you are on the client and how you’re outward in and everything you think about. 

That example of rev ops is a great one. I mean, that’s industry lingo, but the clients don’t use it. So it’s not valuable. It’s valuable to the other HubSpot partners, but it’s not valuable to the client. I have some members who say, “I don’t have time for this. You know, I’m super busy. I’m a young growing firm. And who’s got time to do this?” I’m sure your to do list is just as long as theirs. So why do you make time for it? 

Ali Schwanke [00:13:11] So I didn’t have a business that existed when we all saw each other a lot in person. Like, I definitely have been to conferences and I’ve networked and I’ve had a lot of success in that early in my career. But we now live in an environment where you don’t go to one master trade show a year and build all of your leads. We now live in a world where that’s happening every single day, and to say you don’t have time for that is like saying 25 years ago that I don’t have time to go to the largest trade show in my industry. 

And if you don’t have a mindset of value, you will not make time for it. But I will say if you do not create content based on what your audience finds valuable, and you talk a lot about this in the book and we talk about a lot about it in the Collective. If you do not create content based on what your audience is interested in and just what you want to say, it will not convert for you and you will have a failed experiment. 

Greg Alexander [00:14:04] And for those that say I don’t see a client spending thousands and thousands of dollars with me, that came through a social media channel like YouTube. What would your response be to that? 

Ali Schwanke [00:14:19] Sure. Some of this comes down to education of marketing and what it is and how it’s defined. I will say the majority of founders that I have worked with in the professional services industry, their initial perspective of marketing and marketing spend is what I would call direct response. Yeah, I have a coupon. I turn in coupon. I see that coupon led to sale B2B sales. And especially when you’re involving a human in their expertize, there is a high degree of trust. There is a lot. 

It’s actually not marketing at all. What you’re doing is psychologically driven and we are complex beings and we make decisions with our level of logic, which sometimes is zero and it’s all feeling. So if you make them feel that they’re learning things from you and trusting you, you can sell them sometimes whatever you want. That’s not a good practice, but once you gain that trust, then you are simply depositing additional coins in that bank that keeps that trust for a long time. 

Yeah, and that’s again, it’s a mindset. I will say conversion wise though, you do have to have a content offer that brings them value and actually shows a small piece of what you can actually do. It has to be tied to the overall value. And if it’s not, then it’s just a fancy download. 

Bringing Clients To Your Door When Scaling a Business: Knowing Them is Key

Greg Alexander [00:15:34] This has been a great conversation. And just to summarize, you know, Ali started and she had a really large definition of a market strategy which can mean a lot of things to a lot of people. And it was outside of her niche and then she narrowed that down by becoming a HubSpot partner. And then even within the HubSpot ecosystem, if you will, she got even tighter by focusing on a specific type of company to go after. 

And then really what I learned today, which was really fascinating, is the code that she’s cracked, if you will. She’s figured out how to reach this tightly defined market in a cost-effective way with a high conversion rate. And she’s doing that through content marketing, in particular on YouTube. And if you type in HubSpot into YouTube, I mean, she’s going to be the dominant provider there, which is quite a thing for sure. 

So, Ali, we’re at our time commitment here, but the way the Collective works is that we all contribute to the collective body of knowledge. You know, every time a member contributes, the other members benefit. And that’s the give and take nature of this. So on behalf of the membership, I want to thank you, because that was a big contribution. I learned a lot today. 

Ali Schwanke [00:16:42] Yeah, thank you. I have learned a lot from the Collective and I know other members have as well. So thank you for what you’re doing. 

Greg Alexander [00:16:48] And members I’m sure many of you are anxious to speak to Ali because if she’s doing this for her firm, she can probably do it for your firm. So feel free to reach out to her via the member portal and have a follow-up conversation with her. 

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, Scale, and Sell Professional Services Firm. And for those that are listening to this and are not members and are interested in meeting fascinating people like Ali consider joining our mastermind community which you can find at Collective54.com. Thanks again, Ali. Take care. Ali Schwanke [00:17:24] Thank you.

Posted on

Episode 76 – How an IT Services Firm Built an Executive Leadership Team – Member Case with Matt Rosen

Matt Rosen

The quality of the executive leadership team is paramount as professional services firms grow, scale, and exit. In this episode, we speak with Matt Rosen, founder, and CEO of Allata. He shares how he structured his executive team to replicate himself, developed a succession plan, and spent time working on the vision of the future.  

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 don’t know 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 have the privilege of talking to Matt Rosen and the leader of a company called Allata, which I’ll introduce in a moment. We’re going to talk about building a quality management team, and how he’s done that at his firm and hopefully learn a few things along the way. So, Matt, it’s good to see you. Would you introduce yourself to the audience, please? 

Matt Rosen [00:00:54] Yeah. Thanks for having me on the show, Greg. So my name is Matt Rosen, and I’m the founder and CEO of Allata. Allata is a tech consulting firm based in Dallas with offices in Pheonix, Boise, and Provo. And what we do is we help companies with their most complex technology initiatives from a strategy, architecture, development, and data standpoint. 

Greg Alexander [00:01:14] Okay, awesome. And Matt, when did you find the firm to grow? 

Matt Rosen [00:01:18] I founded the firm back in 2006. It was just myself and a developer. And now we’re over 220 people and growing quickly. 

Greg Alexander [00:01:25] It’s an incredible story. It really is. Congratulations on all that. So let me set up the topic because I asked you that question about when you founded it and where you are today because you’ve scaled so fast. And I think one of the reasons why you’ve done that is because you’ve been able to build a quality management team, and I’ve had the privilege of meeting a few of them. 

And it’s a big subject because sometimes, founders that are growing like that hit a bottleneck eventually. And that is, they’re kind of the hero within a group of helpers. It doesn’t work, you know. There’s just too much work for one person. And you got to hire senior people or develop senior people. You have to give them enough autonomy to make the contributions that they need to make, empower them to be successful. And I think you’ve done a really good job with that. 

So I’d like to start with an opening question, which is at a high level, explain to the audience kind of the organizational structure of your leadership team that reports to you by role. Maybe, I don’t know if you need to mention names, what by role? And tell me how you came to that conclusion and why you built it the way you built it. 

The Structure of an Executive Leadership Team Matters

Matt Rosen [00:02:35] So where we’re at today is I really have three direct reports. I have a chief strategy officer and she owns sales,marketing,go to market offerings as well as our partnerships. I have a chief technology officer and he’s really looking forward to the technology direction, what new trends d we should be jumping on. He’s also my personal helpdesk when I run into issues. And then I’ve got a chief operating officer, so the Office Leadership Report is sent to him. 

So I have leaders for four different groups in the company. There’s Dallas, Pheonix, Virtual and Boise, and then he’s got all our back office functions from recruiting, H.R to finance. And so really everything falls to the three of them. And underneath them they’ve got leadership structures and sales and marketing, especially at a delivery level. There’s four group leaders that almost all the consulting resources roll into. 

And then we’ve got practice lead. So for strategy, for architecture, for product and design, for technology solutions and for data, we’ve got vice presidents that head up each of those service lines, if you will, and people are really matrixed across the organization into their office leaders, as well as the practice leaders. 

Greg Alexander [00:03:51] What I find remarkable about your story is you’ve been around five or six years. You’ve grown like crazy, and yet you personally only have three direct reports. Now, I know underneath those three, they have their teams, but that’s pretty remarkable. 

Sometimes I see guys and gals like you with eight to ten , and they’re living almost miserable lives because there are not enough hours in the day. So how did you get it so tight to only three? 

A Professional Services Firm Needs Great Leaders

Matt Rosen [00:04:18] Well, you have to have really good leaders. I mean, that’s really what it comes down to. You’ve got to have people that you can set goals for. You know, I’m not a micromanager. I’m not even really a macro manager. I said high level goals, and I get the heck out of the way. I hire bright people, you know, I do have one-on-ones with the three of them. 

And I probably talk to the layer below them at least every other week. But, you know, we’ve got a real structured way in which we do a sales meeting every Monday. We do an operations meeting every Tuesday. I’m always in on those, or people are sending me a synopsis of them. So it gives me just enough information really to run the firm. And it took a while to really trust folks and hand things off, especially in the sales arena. 

That was based on one of the recommendations you made when I was early on in the Collective was, “You’ve got to stop being the hero sales guy.” That was really hard for me to let go of, but I finally have found a leader who came from a large firm, and she brought a lot of process with her and is now leading the sales team and is a very effective seller herself. 

A lot of it comes down to finding people that are great at doing the things that you don’t or can’t do well, empowering them to do their job, and staying out of their way unless they’re just not meeting their goals. They know that people are going to do things the way you do them. And that’s okay. 

Greg Alexander [00:05:27] Yep. Okay. So, awesome story. I’m really proud of you for what you did on the sale side, and it was hard for you to let go because you enjoyed it. I remember talking just. 

Matt Rosen [00:05:37] I still get involved. I still get pulled in from time to time, but I’m not actively leading sales cycles. I’m spinning them up from time to time but I’m handing them off. 

Greg Alexander [00:05:44] Yeah. And it’s tough to let go of the things that you really like to do. So that’s a great story to hear that you’re doing that. I know that your company is not for sale, but given your growth, I imagine the phone rings. And one of the things that potential acquirers are always looking at as part of their diligence is the quality of the management team. 

So if someone came to you with an offer you couldn’t refuse, you know, some crazy number that you’d be ridiculous if you didn’t take it. Do you know who your successor is and who you would hand the firm over to? Or would you plan on staying after the sale? And then if you were to hand it off, does everybody get pulled up the org chart, so to speak, so that the thing doesn’t fall apart post-sale? 

Matt Rosen [00:06:28] That’s a great question. You know, we’re not for sale. If some crazy offer came along, I would foresee myself sticking around for a couple of years to make sure that there was a smooth transition integration. Ultimately, I built this firm because I didn’t want to work for others, and know I wanted to build a firm that was sustainable and successful with or without me. 

So, you know, there definitely is a succession plan in place that we’re executing on. There’s definitely a couple of folks that could, with some training and tenure, probably step into my shoes. Nobody’s replaceable. It takes time for them to grow into the role. 

And what we’ve got is a really good mix of people that were career consultants and a mix of people that were in the industry. I had a lot of clients that were VPs about those that I was going to work for me. You’ve got this really nice group of leaders that have either consulted their whole careers or sat on the side of the desk of those that we’re selling to. That adds a lot of credibility when working with clients. 

How Professional Services Firm Owners Can Leverage Executive Leadership Teams to Their Advantage

Greg Alexander [00:07:25] Awesome. Glad to hear that. Sometimes when I talk to members and I suggest that they do what you’ve done, I hear particularly from maybe the younger firms, those that haven’t reached the scale that you’ve reached. They say, “Well if I have all these people that are going to do all this stuff, what am I going to do?” Which I tell them, “Hold on, you know, you’ll have plenty. If things go well, you’ll never ask that question again. There’s going to be too much to do.” 

So now that you have put this great team in place and you’ve elevated yourself, what do you personally spend your time on? 

Matt Rosen [00:08:01] You know, I spend my time thinking about where we need to head next. From a company’s perspective, what geos we might want to go into, what offerings we might want to have. I spend time visiting with a lot of our larger clients and spending time with them just understanding what’s important to them. Like a lot of them are my close personal friends. I spend time talking with leaders as they need, you know, strategic advice. 

You know, they might call me and say, “Hey, we’ve got this situation. What do you think?” And they run things by me, you know. By putting this great leadership team in place, it allows me to actually get out and, you know, play a round of golf every now and again, which I hadn’t done in about 20 years. 

So that’s kind of nice fun that, you know, folks like you or, you know, clients that like to get out there as well and enjoy a walk ruined by golf. But, you know, there’s always things you can be working on, looking for ways to make the firm better or, you know, taking leadership courses. 

Um, you know, doing interviews such as this, and really being a thought leader in your space as well as looking for how can you grow the firm maybe through M&A. So we’re actively talking to a couple of companies that might be accretive and be good partners for us as we grow. 

The Importance of Letting Go When Building a Leadership Team

Greg Alexander [00:09:10] Yeah. So listeners what we just heard there is that Matt spends his time on the business, not in the business, spends a little time in the business in the right spots, but he has a team that’s doing that for him. So he’s pursuing the vision, the future. And unless somebody is dedicated to that vision, the future, it never happens. You are just constantly in reaction mode. 

Matt is being proactive now and he’s leading. He’s not managing. There’s a difference between managing and leading. And what we’re hearing from Matt today is he’s leading, which is a great role model for all of us to follow. Got one more question regarding the management team and the structure in particular. 

I know when I went through this process that you have gone through the thing that I was less willing to give up and I clung to the most, which was a flaw, and I didn’t do it the right way. This was a mistake. It came to investment decisions when money was going to get spent. I held on to this money like it was my first communion money. I was unwilling to let anybody, you know, make those decisions other than me. How is that handled in your firm? Do you approve all expenses or do people have authority to do these types of things? 

Matt Rosen [00:10:23] So in this, I would say over the last twelve to eighteen months, we’ve moved to a budget. As long as people are spending what’s in that budget, there is not a problem with it. In fact, they put the budget in, in some respects, to control me from spending too much on different things. 

Greg Alexander [00:10:36] But the budget was for you. 

Matt Rosen [00:10:38] So that was actually from a year ago. But we’re doing a good job and you know, we’re performing ahead of plan as a result of it. So, no, you know, again, that comes back to empowering people. I mean, the only thing I’ve not given up is, you know, I’m the only one that sends wires. 

But other than that, people have corporate cards, they have budgets they can spend on what they need, we have a good controller, you know, authorizes money to go out. And so most of that I’ve given up and people make a lot of decisions where we spend that budget that’s been allocated without my involvement. 

How Does Allata Create a Budget for its Professional Services Firm?

Greg Alexander [00:11:10] Yeah. Interesting. That’s really inspiring. In the budget process,  it sounds like this is a relatively new thing, let’s say, in the last couple of years. So how do you guys create the budget? Is it done once a year? Is it done at the beginning of the year, or the end of the year? How does all that work? 

Matt Rosen [00:11:26] Yeah, it gets done, you know, as the year is wrapping up. So towards the end of 2021, we set the budget for 2022. You know, we reviewed it with the group leaders. You know, we had them put in things that they wanted. We were meeting with sales and marketing and the, you know, the practice leads and everyone kind of put in their wish list, and we kind of whittle it down to what we thought we could spend in addition to where we think we could achieve from a revenue top-line standpoint. 

And so we review it monthly, we do at the end of each month kind of a financial review, see how we’re tracking. And you know, if we’re doing ahead of plan, we might spend more on certain things or make more investments in certain areas. But the big you know, the big thing for 2022 is making sure we’re focused on EBITDA, building a sustainable organization and, you know, spending where we need to and not spending where we shouldn’t. Yeah. 

Greg Alexander [00:12:17] It’s great that you review it monthly. It’s kind of like a variance-to-plan type meeting. 

Matt Rosen [00:12:22] Absolutely. We go through line by line in the major categories, see where we are under, and see where we are over. And you know, we adjust as necessary as we go into the next month, and at least for January, we’re on track. We’ll see how we’re doing for February next week. Yeah. 

Greg Alexander [00:12:36] You know, the hardest part about budgeting for me was the forecasting part of it. You know, it’s easy to look at what’s happened and you can do the variance to plan on that. But then if someone says, “Hey, what’s going to happen in six months?” 

It’s tough because professional services can be a little lumpy. And, you know, it’s not as much forward visibility as we might like. Have you implemented any type of forecasting system that sits on top of the budget that predicts the future? And if so, how’s that going so far? 

Matt Rosen [00:13:02] You know, it’s really a combination of two tools. You know, we’ve got a CRM tool, as most organizations do, and we try and put it in as much as we know. We’ve got, you know, kind of a four-stage sales process and just waited. So, we’ve got that, kind of that weighted pipeline. And we’re always trying to have 2 to 3 X or revenue plan and we do pipeline. It never turns out to be that much because we tend to be a little bit conservative, but we have that weighted forecast of all the deals that are in the pipeline, what’s coming as well as our forecast of what we think clients are going to do between now and the end of the calendar year. 

And then we invest in a professional services automation tool that allows us to see weekly how we’re tracking a plan, making sure hours are up to date. We also have some modeling scenarios where we can figure out, you know, based on the people we have available, you know, what type of team can we put together, what’s their profitability? Because for the longest time we only understood margin at a company level. We didn’t understand it at a project or client level. 

And now we have that visibility and that visibility is allowing us to make smarter decisions. You know, I think about consulting hours. It’s like bananas. They spoil at the end of each month. So you’ve really got to manage them tightly and ensure that you’re watching them and leveraging them and try not to leave anything behind. Yeah. 

Greg Alexander [00:14:15] Question on the PSA platform, which I’m so glad to hear that you’ve installed. I’m a big advocate and I think it really helps, particularly on those two items, project and client level profitability and managing that inventory. What advice would you have for younger, smaller firms on when it’s appropriate to progress to the point where you would install a professional services automation tool? 

Matt Rosen [00:14:41] When the Excel spreadsheet starts breaking. 

Greg Alexander [00:14:44] Which happens early. Yeah. 

Matt Rosen [00:14:48] It was probably better. My team had to push me for years and I don’t mind mentioning the tool. We were able to cut a pretty good deal with them and they had professional services that helped us implement it. The challenge is you do have to take someone senior and have them help line your  implementation. 

So it is an investment, one that I had to be pushed on for a while. I should have done  that sooner. We probably would have actually been a bit more profitable. I probably waited a year or two too long. But now that we have it and we are seeing returns from it, we are capturing time that we weren’t previously. 

It’s allowing us to model up skill sets and understand where we need to be investing. You know, it probably is something we should have done two years prior and my team pushed me for it, but I held off because I wasn’t ready to make the investment. But I’m glad they finally pushed me to do that. That mix of harvest and spreadsheets was no longer getting the job done for 200 plus people. 

Greg Alexander [00:15:44] Yeah, exactly. Well, listen, man, you’re absolutely knocking it out of the park. I mean, every single thing you’re supposed to be doing to be on the business and scaling the business is working really great. And your results back it up.

And I want to, on behalf of the membership, just thank you publicly. This is a big contribution. You’re a role model for many. And hearing your story and how quickly you’ve gotten to this point is an inspiration. So thanks for being on the show. 

Matt Rosen [00:16:10] Yeah, thanks for having me on the show, Greg. Appreciate it. 

Greg Alexander [00:16:13] All right. And for those that are interested in learning more about this subject, building a quality management team, and others like it, pick up the book. It’s called The Boutique: How to Start, Scale, and Sell a Professional Services Firm. You can find it on Amazon. And for those that are listening that want to meet really bright professional services owners like Matt, consider joining our community. You can find it at collective54.com. Thanks again, Matt. Take care. Matt Rosen [00:16:36] Thanks. Take it easy.

Posted on

Episode 75 – How a Consulting Firm Leverages Specialists to Increase Scale – Member Case with Cynthia Klint

Cynthia Klint

The engagements you sell determine your market position and the team needed to deliver your service. In this episode, Cynthia Klint, CEO at BRC, shares how she leverages specialists to deliver client engagements and increase sales. 

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 engagement type and how that drives the type of firm you become. And we have a member with us today. Her name is Cynthia Klint. Cynthia and I are going to have a discussion regarding this subject. Cynthia, it’s good to see you. Thanks for being here. 

Cynthia Klint [00:00:52] Sure. Happy to be here. Thanks for inviting me. 

Greg Alexander [00:00:54] And would you provide a proper introduction of yourself and your firm to the audience, please? 

Scaling a Business: Member Case with Biodynamic Research

Cynthia Klint [00:01:00] Sure. As you said, my name is Cynthia Klint. The company that I work for goes by BRC, but the long name is Biodynamic Research. We’ve been in business for about 36 years. I’ve been with the company for 23 of those years. And what we do is we help people understand how injuries happen. And we do that by answering two questions, primarily in a litigation setting. The first question is, did an injury occur, and if so, how? 

Greg Alexander [00:01:29] Wow. That’s a fascinating field. I can imagine the litigation services around that for sure. I hope no one’s ever asking me that question. I hope I never say yes that an injury occurred. 

Cynthia Klint [00:01:41] When people say they haven’t heard of us, I always tell them that they should be glad. It means they’ve probably never been in an accident that required litigation. 

Greg Alexander [00:01:50] Alright. So for context, who is the typical client? 

Cynthia Klint [00:01:57] Primarily, our clients are attorneys. Okay. Although we do work directly from time to time for individuals or insurance companies. 

What Are the Types of Engagements When Scaling a Consulting Firm?

Greg Alexander [00:02:05] Okay. Got it. Okay. So let me set up today’s conversation. Generally speaking, and I admit I am oversimplifying here, but in the time that we have, that’ll work. There’s kind of two types of engagement. 

There’s what I call elephant hunting, and that is a really big engagement. And, you know, they could they could last months, if not years, and cost hundreds of thousands, if not millions of dollars. And firms that have those types of engagements tend to have, relatively speaking, a smaller number of clients. But each client spends a lot of money, and that’s one style of firm. 

In contrast, theother type of firm, which I call rabbit hunters, are firms that do small, quick, inexpensive engagements. But, they do them in volume. And they tend to have lots and lots and lots of clients, but each client only spends a little. 

And the important thing here is to understand what type of engagements you’re selling and, therefore, what type of company you’re becoming. Because in the end, we become who we serve. And I would suggest that scaling a business is easier when you pick one or the other, and it becomes more difficult when you try to do both. 

I’m not saying one is better than the other. I’m just advocating for picking one over the other. So, Cynthia, given my oversimplification, if I was to force you to put yourself in one of those two categories, which category you in? 

Cynthia Klint [00:03:41] It’s a really tough question to answer. And like several members has said that the yes/no is a tough question. I’m you know, I thought about this a lot. I went back and reread the chapter. And if I had to be forced to pick, I would say we’re more like the rabbit. Okay. The both of our cases tend to be quicker turn, lower revenue. But quite frankly, we’re a combination of the two. 

Greg Alexander [00:04:12] You are. Okay. And and that’s okay. I mean, you’ve been in business for 36 years. Obviously, it’s working. Right. So if you have both styles in the firm. Is it true or false that it is  difficult to manage and difficult to scale? 

Cynthia Klint [00:04:35] It is true. I think it certainly complicates the way that you manage the different clients and the way that you manage the logistics in supporting those different clients. 

Greg Alexander [00:04:49] Yeah, and that’s the real challenge, right, because… 

Cynthia Klint [00:04:51] Absolutely. 

Greg Alexander [00:04:52] You have to staff these projects, right? And and it’s a different staffing model, usually in the rabbit space, if you will. A single person might have many, many, many clients. So therefore, he or she is only spending so much time with each client. It’s just mathematics. 

On the other side of it, you know, if you’re in the elephant business, you might have one or two clients and you’re spending a ton of time with those one or two clients. So when you say logistically, it’s difficult to manage, is that what you’re referring to? Are there other logistical items? 

What Difficulties Can You Face With These Engagement Types?

Cynthia Klint [00:05:27] So in litigation, you’re probably familiar that, you know, litigation can drag out for a really long time. And most cases, I would say the desire is to move toward some sort of settlement. And that’s why I say that the bulk of what we do is is really the smaller cases or the quick return cases. 

Logistically, what’s difficult is really maintaining the ability to manage the longer term cases because like you said, we have some cases that literally have been our books on our books for 20 years. But most of them are shorter. 

And one of the things that’s happened in litigation is there’s a push toward a quicker turnaround. And that’s something that we’re really working toward being able to manage because you have to staff or have processes that support. The same client can bring you a rabbit case and an elephant case. 

Greg Alexander [00:06:30] Oh, really? 

Cynthia Klint [00:06:31] And so the thing is, you want to be able to say yes, regardless of the turnaround time. When they come to us, it’s because they need our help. They need us to help clarify what’s happening. Yeah. And so we want to be able to do that objectively, accurately, but we sometimes need to be able to do that quickly. 

So, from a logistics standpoint, it’s about the processes, the staffing, and calendar management. We’re driven by court deadlines. So our deadlines are very much on the outside. And so we have to be in lockstep with our client to make sure that we can meet the deadlines that they’re really subject to. Does that answer your question?

Greg Alexander [00:07:17] In fact, I have several follow up questions, if I may. So now I know why you have both because you have one client that can bring you two scenarios. And I mean, what are you going to do? Tell that client no. Of course not. Right. 

So you have to be responsive to that client’s individual needs. So my follow-up question would be: Does the client understand that what he or she is asking for is two different things? And is he accommodating, or do you have to educate? 

Cynthia Klint [00:07:47] So again, I hate to sound like a lawyer, but yes and no, because they do understand. But oftentimes our clients are under the gun as well. And so they may understand, but it doesn’t change the fact that they need us to help them in that situation. 

And so they often are very accommodating. They work with us. They do their best to create timelines that make it possible for us to do a thorough job, which is something we always want to do and always strive to do. So, they do understand. They do work with us, but sometimes they have no control over that deadline. 

And so, you know, we are here to provide the best answers that we can, not necessarily the answers that they want, but the best answers that we can with the time and the information that we’re provided. Right. 

Greg Alexander [00:08:41] You know, for the listeners, this is a very unusual case. And I’m so glad that we’re on the call today because it’s a rich learning experience. Normally, in normal situations, it’s much easier because there’s a certain type of client, maybe a Fortune 500 company, and they’re only going to do the big projects. And then there’s another type of client, the small business, and they can do small projects. 

And in Cynthia’s case, it’s one client with two different needs. And what makes it even more complicated is that the timeline is dictated by the court’s deadline. It’s not dictated by the project team, and it’s not dictated by the client. It’s dictated by an independent third party. 

And boy, I would imagine that makes it rather stressful. Like, does the working backward from that timeline and that deadline being outside of your control, how do you scope work? 

Scaling a Consulting Firm: How Does Biodyancmic Research Scope Work?

Cynthia Klint [00:09:31] Well, being in business this long, we’ve gotten pretty good at it. So, you know, there’s several components that go into our work product. So ultimately, the work product is the objective opinion of the expert. You know, we employ physicians with engineering degrees as well as accident reconstructionists who are engineers. And so, again, their goal is to understand what happened not only in the accident or in the incident, but what happened to the person. 

And so we’re getting different kinds of materials, legal documents, medical documents. You know, sometimes if there’s a product involved, we may be getting product information. And so what we’ve done is, is really the model that Collective 54 promotes, which is leveraging. 

We have specialists in each of those areas, and so we have nurses who will go through and organize the medical records to make it more efficient for the experts. We have paralegals, so that do the same thing with legal documents and so forth. So scoping, it really is about understanding the volume of the materials and then being able to apply our experience, knowledge, and determine for the client what our timeline looks like. 

And it can be variable because if you have something that, for example, if you have a case with a long medical history, you can have thousands and thousands of pages of medical records that have to be dealt with. And so, our goal is to take our experience and really apply it to that and give the client an understanding of what the timeline can be and what the cost may be as it relates to that. 

How This Consulting Firm Matches Revenue with Expenses

Greg Alexander [00:11:09] Now, with this group of specialists; paralegals, the nurses, the engineers, it’s a fascinating story. I had no idea this existed. It’s really intriguing. Well, maybe I have another question. I was going to ask, How do you match revenue with expenses? 

Because the way it normally works in pro serve is you get a project and it’s worth X amount of dollars. You staff it and that’s your cost and the deltas, your profit. Do you know what the revenue is or are you waiting for the settlement? How does it work? 

Cynthia Klint [00:11:44] So that’s a great question, Greg. We are not on a contingency basis because we are objective. So we’re hired to look at something very objectively. And it is irrespective of the outcome. So we don’t really have a dog in the fight, so to speak. 

Our job is to come in and really give insight and clarity and educate the client as to what happened so that they can make a decision on how to proceed with their case. And sometimes the answer is not what a client may want to hear. And it’s still our job to share that information because that’s helpful information as they make decisions. 

Greg Alexander [00:12:19] Right. 

Cynthia Klint [00:12:20] So the way that the revenue is, we build time and materials  and so we will bill on a monthly basis. 

Greg Alexander [00:12:29] And with these specialists  I mentioned, the nurses and engineers. What was the third one I mentioned?. Paralegals. Excuse me. Are they, you know, I think in senior, mid-level and junior staff and I think about associated cost and rates for that, is it that simple or is it more complicated in your scenario? 

Cynthia Klint [00:12:50] So it actually has several more layers than what you’ve described. So we have our physicians with engineering degrees and that’s really \the most client facing role. So that is the expert that the client is hiring. And so they are the person who is providing consultation and giving an opinion and that kind of thing. 

In that role, they’re acting as what we call biomechanics. So what happened to the person? We also have the engineers and those we have various levels of. Let me back up. The physicians, we have various levels based on experience. One of the big components in an expert’s career is obtaining experience in a testifying situation. 

So giving an opinion is one component, but testifying is another component. And the more senior you become, the more testifying history you build, the more in demand you are. Because you’ve proven that not only can you come up with an objective opinion, but you can communicate that to a jury, a judge or a client. And so the more senior you are, you have a higher billing rate. 

And then we have that same model in our engineering group. Same thing. So the engineers are looking at the vehicle dynamics. So not so much the application of the forces to the body, but more how does the vehicle move? How do the forces apply to the body? And so we have different levels there. 

The staff, the support staff, the paralegals, the nurses, other groups that we have that support. We have a technical librarian and we have a test facility. We have a group that we call the Technical Resource Group. So all of these work in support of these two groups, the physician, and the engineer. And they’re all at a fixed rate by department. 

Greg Alexander [00:14:42] Okay. And that’s how you drive your leverage model. Is through those tiers? 

Cynthia Klint [00:14:49] Yes, absolutely. And the goal is always to get the client the opinion in a way that is least costly to them. Yeah. Because you have a physician at their billing, right. Organizing all the materials. But that doesn’t seem like a very good use of their time or cost. 

Scaling a Business: Engagement Type Determines the Type of Firm You Are

Greg Alexander [00:15:07] Right. Very good. Yeah. Okay. Well, very good. Well, let’s conclude here. So today we were talking about how the type of engagement you market and deliver determines the type of firm you are. And we had a very real case here because it’s not as black and white as we would want it to be. And Cynthia’s thought about this a lot. 

And what I find fascinating about her case as even though it’s a blend, they have figured out a leverage model and they’ve done it through two things: specializing their labor force and working backwards from the client’s need so that they get the client what they need with the right level of investment and money and time. 

This is a really interesting case and I’m not surprised your firm has been around as long as you have. That’s a really specialized service. So, Cynthia, thank you for being on the show. It was, it was wonderful to have you here. 

Cynthia Klint [00:16:01] Thanks. Thanks for having me. 

Greg Alexander [00:16:03] Okay. And for those that are interested in this topic, the engagement type and those like it can pick up a copy of the book, The Boutique: How to Start Scale and Sell A Professional Services Firm. You can also find it on Amazon. I’m proud to say we just hit number one in our little niche category. 

And then for those that are interested in meeting leaders of professional services firms like Cynthia, consider joining our mastermind community, it’s collective54.com. Thank you. And Cynthia, have a good rest of your day. Okay. 

Cynthia Klint [00:16:33] Thanks so much. Greg Alexander [00:16:34] All right. Bye bye.

The first mastermind community for

boutique professional services firms.

Linkedin Youtube Facebook Twitter

© 2024 – Collective 54 LLC   All Rights Reserved.