Episode 48: The Boutique: What to Do If Trapped Inside a Lifestyle Business

How you manage unsolicited interest in buying your boutique will impact your ability to exit.  On this episode, we discuss how firm owners can capitalize on inbound interest.   

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that to scale the boutique requires a strategy and that a collection of tactics is not a strategy. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer, Greg is considered by some as a master strategist and has a lot to share on this topic. Greg, great to see you. Welcome.

Greg Alexander [00:01:08] Thanks, Sean. This is very timely. I was looking at it from the other day who was trying to raise capital, and I asked them for their strategy doc. They sent me a spreadsheet populated with business plan assumptions. And as you know, that’s not a strategy. And this reminded me of how much work we must do in this area.

Sean Magennis [00:01:24] Yes. You know, for some reasons, there’s a knowledge gap in this area. Why do you think that is?

Greg Alexander [00:01:30] I think founders of boutiques know they need a strategy, and I feel as if they want one, yet when they look for help, all they run into is how to materials for product companies. And this leads them down the wrong path. Strategy for a professional services firm is very different. And unfortunately, there’s just not a lot out there on this topic.

Sean Magennis [00:01:50] Well, Greg, that’s what we are here for. And maybe this podcast will help. Heck, maybe there’s a new book in this for you.

Greg Alexander [00:01:57] I’m still recovering from the heavy lift of writing my last one, so maybe someone else can take that on.

Sean Magennis [00:02:03] Well, the boutique is fantastic, so let’s hope. OK, pick up on the thread on how strategy for product companies is different than strategies for services firms.

Greg Alexander [00:02:14] Sure. So here’s our strategy. And a product company gets built. The executive team builds a list of attributes that make a market attractive. These are items such as organic growth rates, number of companies, target trends and so on. This produces a list of vertical industries to pursue. This list of industries gets further segmented into a list of companies to pursue. And ultimately the data gets cut to names and accounts who might want to buy the products, including an estimate on spend potential. A debt gets created that says some version of the following. Our strategy is to target this list of clients in these industries. With these products, everybody nods in agreement. The Excel formulas are double checked and the and the goals get cascaded down to the department heads. This is a what exercise as in what are we going to do? This does not work for a professional services firm.

Sean Magennis [00:03:08] Why not Greg?

Greg Alexander [00:03:10] A strategy for professional services firms must be a how exercise. It starts with, how are we going to become more valuable to clients? Pro serve firms are better served with a how based strategy because of the nature of competition. Pro serve firms do not have the advantages present in product businesses which allow product businesses to get away with what based strategies. For instance, does Google have to ask how questions? No. How come? They have huge barriers to entry by controlling 60 percent of the search traffic. Pro serve firms do not have these types of advantages. For example, McKinsey is a top consulting firm in the world and they only have three percent market share. If they stop becoming more valuable to their clients, they are easily replaced. They do not have an install base locked into their firm. Does this make sense?

Greg Alexander [00:04:02] It does. Professional services firms need a different strategy development process built on how questions with the ultimate how question being how do I become more valuable to my clients? Can you give me some other How strategy questions that should be addressed in a boutique strategy?

Greg Alexander [00:04:23] So here are a few big ones that probably you could really think through and write many sophisticated answers to. So, for example, how do I raise client satisfaction? That’s a big macro question, huh? How can I elevate the skills in my team so I can raise prices? You know, oftentimes boutique owners don’t realize is a relationship between skill and price. Next, how can I redesign the work to improve utilization rates, you know, when’s the last time you broke out your work breakdown structure and reengineered the way you deliver the service?

Sean Magennis [00:04:57] Yes.

Greg Alexander [00:04:59] Or let’s say, how can I specialize in new ways of further differentiating us from the competitors? Because if you’re a boutique, you’re competing with generalist. So the more specialized you are, the more likely you’re going to win. So these are just a few. And they link back to the key macro question. How do I become more valuable to my clients?

Sean Magennis [00:05:19] Greg, is that it? Just switch from what to how?

Greg Alexander [00:05:25] I wish it were that easy. Each how question needs an answer and the answer must include another how. This is the how to part of the strategy, the action plans. This means a goal timeline, budget project team and accountability owners, deliverables and key milestones. This cuts through all the bullshit and gets to the action to be taken. And it is this style of strategy that that takes a pretty scale firm and scales them to a dominant player and their niche.

Sean Magennis [00:05:58] Greg, this is so different and and so clear. This is not a budgeting exercise. I love it. And now a word from our sponsor, Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

GQ Fu [00:06:33] Hi, my name is GQ co-founder and CEO of LTV Plus, we serve E Commerce and SAS businesses mainly based in North America and Europe, with some based in other parts of the world. When e-commerce and customer experience executives and directors have issues recruiting agents, training agents and expanding their coverage to meet the demands of their customers, they turn to LTV Plus to help them scale their customer service teams through world class customer service outsourcing. We solve this problem by providing highly trained, dedicated customer service agents that are selected based on the brands and industries they serve. We also provide recovery services to help generate more sales and full payment recovery services to recover lost revenue for subscriptions based online businesses. If you need help with scaling your customer service team to meet the demands of your customers, reach out to me at [email protected] or check out our website at ltvplus.com.

Sean Magennis [00:07:34] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit Collective54.com. OK, this takes us to the end of the episode, let’s try to help listeners apply this. We end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist and our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these questions, your strategy is working for you. If you answer no, too many times, your strategy is more than likely getting in the way of your attempts to scale. So let’s begin.

Sean Magennis [00:08:36] Number one, does your strategy outline how the firm will develop new capabilities that the competitors do not have?

Greg Alexander [00:08:45] And of course, this assumes, you know, what the competitors have.

Sean Magennis [00:08:48] Precisely. Number two, does your strategy detail why the competitors cannot match them?

Greg Alexander [00:08:55] Yeah, an often overlooked is because you develop something. If it’s easily copied, that’s a tactic. It’s not a strategy.

Sean Magennis [00:09:01] Right. Number three, does your strategy specify how these capabilities will be pushed into the market? Number four, does the strategy, explain how your resources are going to be deployed? For example, money, people and time. Number five, does the strategy specify how this resource deployment is different than your competitors? Number six is the strategy supported by enough clients sourced evidence?

Greg Alexander [00:09:36] This is a big one. So oftentimes, you know, our founders who we love envision themselves as master strategists and they say the clients don’t know what they need. Let me tell them. That’s a big mistake.

Sean Magennis [00:09:49] Number seven, does the strategy specify who oversees each program?

Greg Alexander [00:09:54] Got to have an owner for everything.

Sean Magennis [00:09:56] Number eight, has the team been properly incented to execute the plan? Number nine, does the strategy detail how the competitors plan to beat you?

Greg Alexander [00:10:07] Yeah, so a good tool there is a SWAT. Understand, where you’re weak and how you might get attacked.

Sean Magennis [00:10:15] And number 10, does the strategy specify how to respond to competitor attacks? So in summary, a collection of tactics is not a strategy, nor is a financial model or an annual budget, a strategy outlining what is not as useful as a strategy that outlines how. Scaling does require a strategy, and it should be focused on making you more valuable to your clients. If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. Thank you, Greg. I’m Sean Magennis and thank you to our audience for listening.

Episode 47: The Boutique: THE DOS AND DON’TS OF STRATEGY DEVELOPMENT FOR BOUTIQUES

Scaling a boutique professional services firm requires a strategy. Yet many owners have a collection of tactics and call it a strategy. Learn about how firms should approach creating their strategy.   

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that to scale the boutique requires a strategy and that a collection of tactics is not a strategy. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer, Greg is considered by some as a master strategist and has a lot to share on this topic. Greg, great to see you. Welcome.

Greg Alexander [00:01:08] Thanks, Sean. This is very timely. I was looking at it from the other day who was trying to raise capital, and I asked them for their strategy doc. They sent me a spreadsheet populated with business plan assumptions. And as you know, that’s not a strategy. And this reminded me of how much work we must do in this area.

Sean Magennis [00:01:24] Yes. You know, for some reasons, there’s a knowledge gap in this area. Why do you think that is?

Greg Alexander [00:01:30] I think founders of boutiques know they need a strategy, and I feel as if they want one, yet when they look for help, all they run into is how to materials for product companies. And this leads them down the wrong path. Strategy for a professional services firm is very different. And unfortunately, there’s just not a lot out there on this topic.

Sean Magennis [00:01:50] Well, Greg, that’s what we are here for. And maybe this podcast will help. Heck, maybe there’s a new book in this for you.

Greg Alexander [00:01:57] I’m still recovering from the heavy lift of writing my last one, so maybe someone else can take that on.

Sean Magennis [00:02:03] Well, the boutique is fantastic, so let’s hope. OK, pick up on the thread on how strategy for product companies is different than strategies for services firms.

Greg Alexander [00:02:14] Sure. So here’s our strategy. And a product company gets built. The executive team builds a list of attributes that make a market attractive. These are items such as organic growth rates, number of companies, target trends and so on. This produces a list of vertical industries to pursue. This list of industries gets further segmented into a list of companies to pursue. And ultimately the data gets cut to names and accounts who might want to buy the products, including an estimate on spend potential. A debt gets created that says some version of the following. Our strategy is to target this list of clients in these industries. With these products, everybody nods in agreement. The Excel formulas are double checked and the and the goals get cascaded down to the department heads. This is a what exercise as in what are we going to do? This does not work for a professional services firm.

Sean Magennis [00:03:08] Why not Greg?

Greg Alexander [00:03:10] A strategy for professional services firms must be a how exercise. It starts with, how are we going to become more valuable to clients? Pro serve firms are better served with a how based strategy because of the nature of competition. Pro serve firms do not have the advantages present in product businesses which allow product businesses to get away with what based strategies. For instance, does Google have to ask how questions? No. How come? They have huge barriers to entry by controlling 60 percent of the search traffic. Pro serve firms do not have these types of advantages. For example, McKinsey is a top consulting firm in the world and they only have three percent market share. If they stop becoming more valuable to their clients, they are easily replaced. They do not have an install base locked into their firm. Does this make sense?

Greg Alexander [00:04:02] It does. Professional services firms need a different strategy development process built on how questions with the ultimate how question being how do I become more valuable to my clients? Can you give me some other How strategy questions that should be addressed in a boutique strategy?

Greg Alexander [00:04:23] So here are a few big ones that probably you could really think through and write many sophisticated answers to. So, for example, how do I raise client satisfaction? That’s a big macro question, huh? How can I elevate the skills in my team so I can raise prices? You know, oftentimes boutique owners don’t realize is a relationship between skill and price. Next, how can I redesign the work to improve utilization rates, you know, when’s the last time you broke out your work breakdown structure and reengineered the way you deliver the service?

Sean Magennis [00:04:57] Yes.

Greg Alexander [00:04:59] Or let’s say, how can I specialize in new ways of further differentiating us from the competitors? Because if you’re a boutique, you’re competing with generalist. So the more specialized you are, the more likely you’re going to win. So these are just a few. And they link back to the key macro question. How do I become more valuable to my clients?

Sean Magennis [00:05:19] Greg, is that it? Just switch from what to how?

Greg Alexander [00:05:25] I wish it were that easy. Each how question needs an answer and the answer must include another how. This is the how to part of the strategy, the action plans. This means a goal timeline, budget project team and accountability owners, deliverables and key milestones. This cuts through all the bullshit and gets to the action to be taken. And it is this style of strategy that that takes a pretty scale firm and scales them to a dominant player and their niche.

Sean Magennis [00:05:58] Greg, this is so different and and so clear. This is not a budgeting exercise. I love it. And now a word from our sponsor, Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

GQ Fu [00:06:33] Hi, my name is GQ co-founder and CEO of LTV Plus, we serve E Commerce and SAS businesses mainly based in North America and Europe, with some based in other parts of the world. When e-commerce and customer experience executives and directors have issues recruiting agents, training agents and expanding their coverage to meet the demands of their customers, they turn to LTV Plus to help them scale their customer service teams through world class customer service outsourcing. We solve this problem by providing highly trained, dedicated customer service agents that are selected based on the brands and industries they serve. We also provide recovery services to help generate more sales and full payment recovery services to recover lost revenue for subscriptions based online businesses. If you need help with scaling your customer service team to meet the demands of your customers, reach out to me at [email protected] or check out our website at ltvplus.com.

Sean Magennis [00:07:34] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit Collective54.com. OK, this takes us to the end of the episode, let’s try to help listeners apply this. We end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist and our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these questions, your strategy is working for you. If you answer no, too many times, your strategy is more than likely getting in the way of your attempts to scale. So let’s begin.

Sean Magennis [00:08:36] Number one, does your strategy outline how the firm will develop new capabilities that the competitors do not have?

Greg Alexander [00:08:45] And of course, this assumes, you know, what the competitors have.

Sean Magennis [00:08:48] Precisely. Number two, does your strategy detail why the competitors cannot match them?

Greg Alexander [00:08:55] Yeah, an often overlooked is because you develop something. If it’s easily copied, that’s a tactic. It’s not a strategy.

Sean Magennis [00:09:01] Right. Number three, does your strategy specify how these capabilities will be pushed into the market? Number four, does the strategy, explain how your resources are going to be deployed? For example, money, people and time. Number five, does the strategy specify how this resource deployment is different than your competitors? Number six is the strategy supported by enough clients sourced evidence?

Greg Alexander [00:09:36] This is a big one. So oftentimes, you know, our founders who we love envision themselves as master strategists and they say the clients don’t know what they need. Let me tell them. That’s a big mistake.

Sean Magennis [00:09:49] Number seven, does the strategy specify who oversees each program?

Greg Alexander [00:09:54] Got to have an owner for everything.

Sean Magennis [00:09:56] Number eight, has the team been properly incented to execute the plan? Number nine, does the strategy detail how the competitors plan to beat you?

Greg Alexander [00:10:07] Yeah, so a good tool there is a SWAT. Understand, where you’re weak and how you might get attacked.

Sean Magennis [00:10:15] And number 10, does the strategy specify how to respond to competitor attacks? So in summary, a collection of tactics is not a strategy, nor is a financial model or an annual budget, a strategy outlining what is not as useful as a strategy that outlines how. Scaling does require a strategy, and it should be focused on making you more valuable to your clients.

If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. Thank you, Greg.

I’m Sean Magennis and thank you to our audience for listening.

Episode 46: The Boutique: What Founders Ought to Know about Team Composition

The composition of the founding team must be carefully considered. Boutiques are often formed by a group with overlapping skills which makes it hard to scale. Learn about how the team may need to change over time if a boutique is to reach its full potential.

TRANSCRIPT

Sean Magennis [00:00:16] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that the composition of the founding team must be carefully considered. Unfortunately, many boutiques are formed by a group of friends with lots of skills overlap, which makes it very hard to scale beyond a lifestyle business. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg has a point of view on how our founding teams should be put together, and he will share it with us today. Greg, great to see you. Welcome.

Greg Alexander [00:01:16] Hey, Sean, good to be here today.

Sean Magennis [00:01:18] OK, Greg. So today we’re going to talk about the composition of the founding team and how it might need to change over time if a boutique is truly to reach its full potential. Why is this worth the listeners attention?

Greg Alexander [00:01:32] Hmm, that’s a good question. Let me see. How about I answer that with a cautionary tale?

Sean Magennis [00:01:39] Please do. I love your stories.

Greg Alexander [00:01:42] OK, so a buddy of mine a few years back was a leading provider of jury consulting services. He is a social scientist and helps clients with jury selection, a brilliant guy in a fascinating field. Anyway, he and four of his coworkers quit working for the man and opened up their own shop. They went belly up at the end of year two. He took me out for ribs to ask me for some career advice. I waited for a few beers to be in him and then asked what the heck happened? I mean, he is a bona fide expert in a well defined niche with lots of demand for services.

Sean Magennis [00:02:15] What did he tell you, Greg?

Greg Alexander [00:02:17] So it turns out he made a rookie mistake, a mistake lots and lots of founders make. He founded the company with his coworkers who were all alike. For example, these guys all love doing the work. They were geeks of a sort and kicked out about the technical aspects of the job. In this case, this meant they loved trial strategy, pretrial research and especially witness preparation. However, none of them, and I mean not even one, enjoyed selling the work. The word sales was beneath them. And for the first year or so, they did not need to sell their personal networks, generated enough referrals to make a go at it. However, this eventually dried up, a low hanging fruit had been picked and soon there was not enough work to survive

Sean Magennis [00:03:00] Geez, yikes. I’m sure that made for a bad dinner date. What advice did you give him now?

Greg Alexander [00:03:05] A night eating dry rubbed ribs at the smoke and roast is never a bad evening.

Sean Magennis [00:03:09] Love it.

Greg Alexander [00:03:11] The advice I gave him is the advice I will give our listeners. First, he had too many founding partners. Five is just too many. The perfect founding team to take you through the first ten million or so in revenue is three. Second, the three need to be very different people with very different skills. No overlap. In the early days, resources are constrained. You cannot afford to be suboptimized with redundant skills. You need a partner who is a true rainmaker, a person who can bring in clients consistently and professionally, meaning beyond harvesting a referral network. Next, you need a partner who is excellent at service delivery. This partner could not sell weed to a Jamaican on holiday, but boy, he can deliver on time, on spec and on budget every time he or she can move around a project plan like Travolta moves around a dance floor and the third partner needs to be a process engineer who can quickly turn snowflake projects into standardized offerings, which can be sold and delivered repeatedly and profitably. So in other words, one plus one plus one equals ten.

Sean Magennis [00:04:14] This is a great reminder. I think the mistake made by this jury consultant is made by a lot of funders in the opening. I told the listeners that the founding team also morphs over time. Can you elaborate on this a bit?

Greg Alexander [00:04:29] Sure. My commentary here is directed at our listeners who are between one and 10 million in revenue to break out and get beyond 10 million often requires that reassignment of the founder, reassignment of the founding partners, or in some cases the termination of a founding partner or two. So why is this? Sometimes mistakes we have discussed on this show have been made, but it is a few years into the journey and there is a reluctance to change relationships run deep. However, if this poorly constructed team is allowed to continue, it will become a true obstacle for growth. A roadmap to consider as one possible solution to this can be described as follows. Over time, the biggest department will be the delivery team. This is where the largest number of employees will set. Assign the leadership of the delivery team to the partner who is the best people manager. Even if this partner is not a master project manager, that is OK at this stage because the critical competency is people management. Assign the responsibility for creating services to the partner who is most like a lone wolf. This department will be a one man shop for some time. The partner who likes to work alone could lead this part of the business well. His or her job is that of individual contributor creating things for others to use. Assign the responsibility for marketing and sales to the partner who can manage egos the best, this department will be smaller than the delivery team in terms of number of employees. However, salespeople are your biggest pain in the butt, these guys and gals are divas and require lots of care and feeding. It is best to not be in the position of having to fit a square peg in a round hole. Prevention is preferred. However, if you’re living with a legacy structure, this is a framework to find a compromise.

Sean Magennis [00:06:22] Perfect, Greg. So my hunches, many of our listeners will find themselves in this pickle. And now a word from our sponsor, Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

Darrell McDaniel [00:06:56] Hello, my name is Darrell McDaniel and I own NStar Global Services. We serve high tech manufacturing companies in semiconductor, solar and pharmaceutical industries by providing a comprehensive asset lifecycle management and critical technical services, both domestic and globally. Our clients turned to us to assist them with equipment moves providing operation and maintenance services for their equipment facilities and their talent acquisition needs. NStar strives to deliver insightful and flexible services that efficiently solve our customer equipment service issues. So whether you need help moving equipment or operation and maintenance services or finding that right talent for your manufacturing needs, please reach out to our global services and [email protected] Thank you.

Sean Magennis [00:07:50] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit collective54.com. OK, this takes us to the end of the episode. We’re going to try and help listeners apply this. We end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist, and our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these questions, your team composition is working for you. If you want to know too many times your team composition is likely getting in the way of your attempts to scale. Let’s begin.

Sean Magennis [00:08:51] Number one, does your founding team consist of three or more partners? Number two, is there no overlap in skills among the founding partners?

Greg Alexander [00:09:04] and remember the three big skills to start as someone who sells the work, someone who delivers the work and somebody who builds a service offering.

Sean Magennis [00:09:11] Got it. Number three, is there a loss in capacity due to confusion over who is doing what?

Greg Alexander [00:09:18] Yeah, all hands on deck is actually a bad thing.

Sean Magennis [00:09:21] Yeah. Number four, do you have a partner responsible for acquiring clients? Number five, do you have a partner responsible for servicing clients? Number six, do you have a partner responsible for developing service lines?

Greg Alexander [00:09:39] Bright line distinctions.

Sean Magennis [00:09:41] Number seven, can the partner who owns the service department scale to dozens of employees? Number eight, can the partner who owns the marketing and sales department handle big egos? Number nine, is the partner who owns the service development effort, comfortable being a lone wolf? And number ten, do the partners complement rather than compete with one another?

Greg Alexander [00:10:11] Now some listeners might be saying, well, I don’t want any partners, I just want to do it myself. Well, you still need to have those skills. They got to fill the void. Right. But you can’t do it all yourself. Right. Right.

Sean Magennis [00:10:23] Greg, thank you again. And in summary, it takes a team to realize the dream. The composition of the founding team must be carefully considered and it will morph over time. Pick your partners very carefully.

If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell the Professional Services Firm. I’m Sean Magennis.

Thank you for listening.

Episode 43: The Boutique: Reach- Define Your Market with One Word

Collective 54 founder Greg Alexander discusses why the size of your market is most accurately measured by your ability to reach the decision makers in your niche. Growing a boutique is hard and the size of the prize needs to be worth the level of effort.

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that the size of your market is most accurately measured by your ability to reach the decision-makers in your niche. Growing a boutique is hard, and the size of the prize needs to be worth the level of the effort. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer, Greg has an incredible war story to share with you today. You’re in for a treat, listeners. Greg, great to see you, and welcome.

Greg Alexander [00:01:15] Hey, Sean, good to be with you today.

Sean Magennis [00:01:16] So, Greg, today we’re going to discuss a really common mistake made by founders of boutique professional services firms. And this mistake is not accurately sizing their market. The consequence of this mistake are below-average growth and subpar owner income. Why does market sizing matter?

Greg Alexander [00:01:38] It matters because to grow a boutique, the founder needs to know where to play and how to win. I mean, that’s the essence of strategy and sizing. The market falls into the where to play bucket. If the founder goes after a tiny market, she will get frustrated because at maturity, the firm will not amount to anything more than really just a lifestyle business. If the founder goes after a huge market, the founder will also get frustrated because he will be a shrimp in a big ocean constantly fighting for survival. This makes market selection a mission-critical item on the founder’s strategic agenda. And step one in market selection is sizing your market.

Sean Magennis [00:02:17] So Greg, this might be new to some of our listeners when asked what market they’re in. Often small business owners do not fully understand the question and might respond with something like marketing and advertising or IT services. As you know, this is inaccurate. Can you give the audience a simple example to illustrate what we are discussing today?

Greg Alexander [00:02:41] Sure. I will share how I screwed this up in the early days of SBI. My war story will do a nice job of describing this. So my firm SBI was a sales consultancy. Back then, if someone asked me what market I was in, I would say sales consulting, which I now know is not a market, but a description of a service. This was of no strategic value because this phrase could mean many different things. Later, I learned I was in B2B sales consulting. This is still not great, but adding B2B told me I was not interested in pursuing the Miller Brewing Company, for example. With time, I got a little wiser and determined I was going to focus just on the United States, this was insufficient still. But by adding geography, I knew I was not going to spend marketing dollars in Germany. I began using market selection to make strategic decisions, B2B and geography told me where to go, where to play. With a little more time, I learned there were 12 and a half million B2B companies in the United States. Now, I was getting somewhere because I had my first number. As time passed, I realized my average engagement was about three hundred thousand dollars. I studied role models and learned that at maturity, most boutiques penetrate about one percent of the market. I figured if I could do the same, so at maturity I could get to thirty seven and a half million. Back of the envelope math was one percent to twelve and a half million companies, a 300K a piece, which equaled thirty-seven point five million. This gave me confidence because the size of the prize was worth the level of the effort. Then someone taught me that a single company had multiple buyers in it, for example, we often got hired by the head of marketing in addition to the head of sales. So this doubled the size of my market to 75 million and continuing on with my war store here. I then learned a very important piece of information. I learned how to think about market selection like an owner, not an employee. This was revealed to me when I learned about the concept of enterprise value. Enterprise value is what a firm is worth at exit. At my space, this was calculated by multiplying a firm’s EBITA by eight. So in my case, our EBITDA was 50 percent. So in 75 million we would earn thirty-seven point five million. And EBITA, when I multiply that by eight, that proved to me that I had a chance of creating 300 million dollars in wealth for myself. At that point, I committed my whole self to the business. It was crystal clear that the size of the market was worth the level of effort I had put into my firm. And as luck would have it, multiples crept up to 11 times EBITDA so my initial estimate of market size was conservative. That was a lot that I reviewed with you there. But did that make sense to you?

Sean Magennis [00:05:47] Yes. Yeah, Greg, it did. This is a great story and with great sort of intrinsic educational value. You spoke about some of the decisions this marketing, this market sizing exercise allowed you to make. Are there any others with sharing?

Greg Alexander [00:06:02] Yes, there’s one big lesson that changed everything. That lesson is the most important variable to consider when selecting a market based on its size is your ability to reach the decision-maker. I learned very quickly that my target customer was very hard to reach. I mean, their gatekeepers and gatekeepers. So a one percent penetration rate was a pipe dream. So after lots of wasted time and money trying to get these people interested in our services with very little success, we changed everything.

Sean Magennis [00:06:36] Oh, my goodness. What did you do, Greg?

Greg Alexander [00:06:39] We focused all of our attention on a subset of the market. We concentrated all of our resources on the early adopter segment. You see, we were pioneering, applying the science of benchmarking to the art of sales. The people who were interested in this crazy idea were the kind of people who loved pioneering new approaches. These people are called early adopters. We had to get our services in front of them. So our marketing money went into content marketing. This allowed the early adopters to self-identified themselves by subscribing to our content. I wrote my first book followed by a blog, a podcast, a video series and an old school print magazine. The early adopters found our content because this is what they do. They look for bleeding-edge ideas. They began subscribing to our media products. This resulted in a database of about 250000 early adopters. These 250000 were reachable. That’s the keyword. The heck, they were our fans. They came to us. So in the end, back in those early days, our market was really two hundred and fifty thousand early adopter B2B sales and marketing leaders in the United States who subscribe to our content. That, my friend, is a tight description of a market. Let me repeat that. So here was our description of the market back then, our market was 250000 early adopter B2B sales and marketing leaders in the United States who subscribe to our content. One can make a lot of strategic decisions with that type of description. And with that niche, we exploded. A close rate went above 50 percent. The sales cycle length got cut in half. And given our brand affinity with these people, we were able to charge more. This made us without this move, I wonder what we would have become. This is why selecting a market by sizing it correctly is mission-critical.

Sean Magennis [00:08:56] Greg, this is an incredible story that teaches a hugely important lesson. Reach, as in your ability to get in front of decision-makers with budget, is the number one attribute of market selection and it determines the size of the prize more than anything else. My goodness, Greg, this episode will save our listeners years of frustration. Thank you. Thank you. Thank you.

Greg Alexander [00:09:24] And this is why I’m here. I’m glad my war stories are useful.

Sean Magennis [00:09:26] Greg, they are. And now a word from our sponsor, Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

Ryan Gales [00:09:57] Hello, my name is Ryan Gales, CEO of Jenkins/Gales & Martinez, Inc, an architectural and construction management firm. We serve public and private clients specializing in education, transportation, medical and civic projects around the country. These clients turn to us for help with implementing their vision and ensuring their projects are completed on time and within budget. If you need help with envisioning and building projects for your future, come visit us at www.JGMINC.com.

Sean Magennis [00:10:28] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit Collective54.com. This takes us to the end of the episode, let’s try to help listeners apply this. We end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist and our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these questions, you have sized your market correctly. If you answer no too many times you have size your market incorrectly. Let’s begin.

Sean Magennis [00:11:25] Number one, are there thousands of targets to pursue? Number two, are they reachable? Number three, when they are reached, will they consider you?

Greg Alexander [00:11:40] You know, that’s a subtle thing. Sometimes you can get a referral and get in front of somebody, but they’re really not going to consider you.

Sean Magennis [00:11:46] It’s a key. Number four, can you win your fair share of opportunities?

Greg Alexander [00:11:52] So is your product good enough?

Sean Magennis [00:11:54] And you want to exceed 50 percent.

Greg Alexander [00:11:56] That’s right.

Sean Magennis [00:11:57] Number five, can you win your fair share consistently? Number six, when you do win, is the amount of money spent worth the pursuit?

Greg Alexander [00:12:09] So let’s pause here for a moment.

Sean Magennis [00:12:10] Sure.

Greg Alexander [00:12:11] So when I’m working with boutiques, they say they always want to give me the exception. You know, look at this one deal I did with this one big company. But they can’t do it consistently, consistently, or they win the one big logo for like six grand.

Sean Magennis [00:12:26] Yeah.

Greg Alexander [00:12:26] It’s like, who cares? It’s not worth it.

Sean Magennis [00:12:28] Right.

Greg Alexander [00:12:28] Anything worth pursuing has to be done at scale.

Sean Magennis [00:12:32] That makes a lot of sense. Number seven, is the market large enough to support your boutique, assuming modest penetration rates? And you went for one percent.

Greg Alexander [00:12:42] I know, which was a pipe dream.

Sean Magennis [00:12:44] Amazing. Number eight, are they new targets to pursue every year? That is is the market growing?

Greg Alexander [00:12:51] Very important.

Sean Magennis [00:12:52] Very important. And number nine, can you drive up the engagement size of the time? And number ten, will there be a reasonable rate of repeat purchases?

Greg Alexander [00:13:04] So that’s often overlooked, right? If you work your tail off to reach these people, once you have their attention, make sure you can continue to sell to them.

Sean Magennis [00:13:12] Yeah, I absolutely agree. So in summary, Greg, we’ve recorded 48 episodes of the show. I think this is my favorite. Listeners, please be sure that the size of the prize is worth the level of effort you put in. And for heaven’s sake, don’t forget to factor in reach. If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. I’m Sean Magennis. Thank you for listening.

Episode 41: The Boutique: Why Engagement Type is a Key to Growth

The type of client engagement you sell and deliver determines the growth strategy of a boutique. There are two types of engagements – elephants and rabbits and understanding which you are hunting is a key to growth.

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54 for a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that the type of engagement you sell and deliver determines the growth strategy of a boutique. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer, Greg says there are two types of engagements elephants and rabbits, and understanding which game you’re hunting is a key to growth. Greg, I’m not a hunter, but I’m looking forward to the show. Good to see you. Welcome.

Greg Alexander [00:01:10] So let me ask you a question. What do you get when you make Jumbo the elephant with the Easter Bunny?

Sean Magennis [00:01:16] I have no idea.

Greg Alexander [00:01:18] So the answer is some kind of Frankenstein monster that is very ugly and suffers a painful early death.

Sean Magennis [00:01:25] And what what the heck does that have to do with engagement type?

Greg Alexander [00:01:30] So firms that mix incompatible engagement type, such as elephant engagements with rabbit engagements are also ugly. They live a painful existence and they die young.

Sean Magennis [00:01:43] Ha. OK, so elephant and rabbit. Now I see the connection to Jumbo, the elephant and the Easter Bunny. Listen, the two of the mating is an image I hope does not stick in my mind. OK, what the heck is an elephant engagement and what the heck is a rabbit engagement?

Greg Alexander [00:02:03] OK, so a firm that hunts elephants is a firm built around a small number of clients who are each spending a lot with the boutique. Their engagements are big. A firm that hunts rabbits is a firm built around a large number of clients who each spend a little. Their engagements are small and quick, and the type of engagements you pursue determines the type of firm you become. Firms that try to do both often do not grow, and unfortunately, most of them die young.

Sean Magennis [00:02:37] Greg, why is this?

Greg Alexander [00:02:39] Well, there are many reasons, but let me share two examples. So example number one is the sales motion is very different when hunting elephants and when hunting rabbits, for example, elephant hunting requires long sales cycles, a solution selling methodology, a high skill level in the cellar, and an ability to get to the C suite as they control the big budgets and contrast rabbit hunting have short sales cycles, a transactional selling methodology, an average skilled seller, and you can hit your goals selling to mid-level managers who have departmental budgets.

Sean Magennis [00:03:20] Aha. I can see the difference in the sales approach. So trying to do both in one boutique would be a lot to manage and too much complexity. So two of everything, for example, hiring profile, training program, compensation system, etc.. What is the second example?

Greg Alexander [00:03:39] OK, so example number two is the service delivery is very different when delivering elephant projects and rabbit projects with elephant projects an engagement could last a year plus, this means staff continuity is key. Project management is complex with milestones, deadlines and billing. It’s probably some type of a monthly fee tied to time reporting. In contrast, rabbit projects might get done in a month or two. Staff continuity is not needed as they are barely there long enough to say hello. There was no need for heavy project management, and billing is likely some percentage upfront in the balance at completion. These two engagement types are just different animals.

Sean Magennis [00:04:24] Yes, I can see the differences in the service delivery to trying to do both in one boutique would be a nightmare to manage an unnecessarily complex. Just the headache of accounts receivables, different legal paperwork with SOWs and master service agreements. Boy, tracking utilization of staff would be a maze of confusion. It’s just not worth it. What should a founder of a boutique do about this?

Greg Alexander [00:04:49] So a founder should pick a lane and stick to it. Trying to be all things to all people is just not worth it. And engagement type is where to focus more so than client type. I have seen boutiques manage large and small clients inside one firm well, however, I’ve rarely seen a boutique managed different engagement types inside one firm well, the reason is engagement type dictates almost everything, such as how you price the staffing model, the number of clients you can handle at one time. The list goes on and on. Your two choices are serving a small number of clients who spend a lot or serving lots of clients who spend a little elephant or rabbit.

Sean Magennis [00:05:28] Great practical advice, Greg and I, and I don’t think listeners will ignore the analogy. Thank you. And now a word from our sponsor, Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

Richard Echeandia [00:06:03] Hello, my name is Richard Encheandia. I owned Conxin, Incorporated. At Conxin, we serve large U.S. organizations as they select and implement large scale software systems like enterprise resource planning or customer relationship management systems. Because of the size, complexity and organizational impact of these systems. Many of these projects experience significant cost overruns, delays and far too frequently project cancelations. Conxin solves these problems with experienced professionals and an innovative and highly actionable framework that defines 36 different elements for large scale programs. For each of these elements, we provide the checklists, planning and execution tools you and your team need to be successful. If you need help bringing your large scale projects in on time and on budget, reach out to us at [email protected]

Sean Magennis [00:07:00] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit the Collective54.com. OK, this takes us to the end of the episode, let’s try to help listeners apply the now. We end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool as a checklist and our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these questions, your engagement type is working for you. If you answer no too many times your engagement type is more than likely getting in the way of your attempts to scale. Let’s begin.

Sean Magennis [00:08:01] Number one, do you want to serve a small number of clients? Number two, do you want to live and die by the big deal? Number three, can you handle the lumpiness that comes with elephant hunting?

Greg Alexander [00:08:19] Yeah, when you have a six month sale cycle, you’re going to be holding your breath for a while.

Sean Magennis [00:08:23] Absolutely. Number four, do you want to stay engaged with clients for an extended time?

Greg Alexander [00:08:30] You know, some of our beloved founders, they love the thrill of the hunt. And after they win the deal, they don’t want to hang around. So they would be better off hunting rabbits.

Sean Magennis [00:08:37] Yeah, it’s addictive. That adrenaline deal to deal. Number five, can you get in front of big companies that can afford large projects? Number six, can you hire the expensive talent needed to deliver on those expensive projects? Number seven, can your cash flow support periods of time with low utilization rates? It’s a big challenge.

Greg Alexander [00:09:02] Sure.

Sean Magennis [00:09:03] Number eight, is the problem you solve complex enough to warrant long engagements? Number nine, is the service you offer robust enough to require expensive engagements? And number ten, are you comfortable with the risk that comes from high revenue concentration?

Greg Alexander [00:09:23] Yeah. So if you’re hunting, elephants are going to have a small number of clients, right, where we’re rabbits to spread your risk.

Sean Magennis [00:09:28] Right. Greg, thank you. So in summary, the type of engagement you sell and deliver determines a lot. The boutiques that offer both types of engagements have a high failure rate. Pick one and be the best you can be on that type of engagement. If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. I’m Sean Magennis. Thank you for listening.

Episode 36: The Boutique: The 3 Commandments of Service Design

Collective 54 founder Greg Alexander discusses how to re-think service design and delivery to accelerated profits.

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case there are three commandments of service design. The service offering is to the founder of a professional services firm, what the product is to the founder of a product company. It’s how they deliver value to the client and designing it correctly is a mission critical task.

Sean Magennis [00:01:01] I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg is actually one of the pioneers in service offering design in the boutique professional services industry. His approach has helped many founders rethink how they deliver their service value, leading to accelerated profits. Greg, great to see you. Welcome.

Greg Alexander [00:01:29] Good to be here.

Sean Magennis [00:01:30] OK, Greg, let’s jump in. Explain to our listeners why they should care about this subject.

Greg Alexander [00:01:36] OK, so many founders and executives leading boutiques are not imaginative when designing their service offerings. They do not think about how to design the service in a way that increases the value it brings to clients while simultaneously decreasing the cost to deliver it. So let me share a story to make this point. Not too long ago, I met a brilliant bookkeeper. She developed a way for small business owners to outsource bookkeeping for one hundred and nineteen bucks per year. Her prospects are those who do bookkeeping in-house, paying internal staff on average 40,000 dollars per year. She is, get this, three hundred and thirty six times cheaper for the same service as you can imagine, she is shooting ducks in a barrel and growing like a weed. So how did she do it? She reimagined. Our bookkeeping should be performed by uniquely blending technology automation in offshore labor. This is an example of a boutique founder winning because of intelligence service design.

Sean Magennis [00:02:42] Geez, I would not put growth and bookkeeping in the same sentence, but it seems to me this is a commodity service with an with an attractive growth prospects.

Greg Alexander [00:02:52] When I met her, I entered the meeting with the same assumption and she corrected this false assumption by telling me that she is one of a 183,000 bookkeeping firms in the U.S. That is a lot of firms, a lot of firm owners making money in the bookkeeping space.

Sean Magennis [00:03:09] And why are you attracted to such a crowded field?

Greg Alexander [00:03:13] I am attracted to her because she’s going to take lots of share. For instance, her typical competitor charges a small business owner sixty two hundred dollars per year for the same service. The way this will play out is more and more small business owners will outsource bookkeeping because of the 40000 dollar per year internal cost mentioned earlier. When these new prospects enter the market, they will look at her service at 119 dollars a year in her competitor’s service at sixty two hundred dollars a year. She’s going to win a lot of deals and take a lot of share. She just needs to get into as many deals as possible. Her close rate will be crazy high. This is why I’m attracted to her.

Sean Magennis [00:03:55] Greg, this is a great story. What lessons should the audience take from this?

Greg Alexander [00:04:00] Gosh, there are many. Let me share a few. So the first lesson is to be imaginative with designing a service. Too many boutique founders, a conventional in this area, for example, they turn their expertize into a methodology. They hire expensive domestic labor, train them on it and take it to market. This conventional approach constrains growth. Why? To earn an acceptable margin on this, a founder must charge a certain price and sometimes his price will price them out of the market. As you can see in the bookkeeping story, a little tech automation and offshore labor can go a long way. The second lesson is commodity services are ripe for disruption prior to meeting her. I would not have believed that bookkeeping is a growth industry and in the aggregate it is not. But she is a growth company. What is different between her and her industry? Intelligent design. The third lesson takes us to the three commandments of service design. Are you ready for them?

Sean Magennis [00:05:00] Yes have at it.

Greg Alexander [00:05:01] OK, so clients are boutiques for one of three reasons. The first reason is you can do what they can do better. The second reason is you can do what they can do faster. The third reason is you can do what they can do cheaper. Ideally, the boutique combines better, faster, cheaper into a single value proposition. And when I say better, faster, cheaper, I mean in relation to the alternatives, which can be internal staff, other boutiques, the big firms, etc.. So the three commandments of service design are better, faster, cheaper.

Sean Magennis [00:05:38] Excellent. I understand the three commandments better, faster, cheaper. How should we listen to put them to work in his or her business?

Greg Alexander [00:05:47] I suggest two immediate actions. First, screen all your current service offerings against the Three Commandments. If they are not clearly better, faster or cheaper than the alternatives, redesign them or sunset them. Second, screen your service roadmap against the Three Commandments. Do not bring a new service to market until you know for sure it is better, faster and cheaper than the alternatives.

Sean Magennis [00:06:13] Greg, that’s great practical advice. Thank you. Of course, this assumes our listeners have a service roadmap, but that is a topic for another day.

Greg Alexander [00:06:22] It is.

Sean Magennis [00:06:26] And now a word from our sponsor, Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

Jessica Nunez [00:06:52] Hello, my name is Jessica Nunez. I own TruePoint Communications. We serve a company’s marketing needs with B2B and consumer services. Our clients turn to us to propel their brand forward through marketing, public relations and social media. We solve this problem by providing a custom marketing and communication strategy tied to business goals and designed to meet the unique needs of their core audience. If you need help with awareness for your business that propels your brand forward, visit our website at TruePointAgency.com.

[00:07:27] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit Collective54.com. OK, this takes us to the end of the episode, let’s try to help listeners apply this. We end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist and our style of checklist is a yes-no questionnaire, we aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these questions, your service design is working for you. If you answer no too many times your service design is likely getting in the way of your attempts to scale. Let’s begin.

Sean Magennis [00:08:27] Number one, are you offering a service that clients already by? Number two, are there many legacy firms providing the service? Number three, are these legacy firms ripe for disruption?

Greg Alexander [00:08:45] Yes, I mean, one, two and three, if you answer yes to those three questions, I mean, you’re in a great space.

Sean Magennis [00:08:49] Yep.

Greg Alexander [00:08:50] Just outmaneuver everybody.

Sean Magennis [00:08:52] Number four, can you use less expensive labor to deliver it?

Greg Alexander [00:08:57] And that’s where to start, because 80 percent of the cost structure is is human capital.

Sean Magennis [00:09:01] Number five, can you use technology automation to streamline it? Number six, can you perform the service better than the alternatives?

Greg Alexander [00:09:13] And that’s in the eyes of the beholder. The client.

Sean Magennis [00:09:14] Right. Number seven, can you perform the service faster than the alternatives? And number eight, can you perform the service cheaper than the alternatives? Number nine, can you combine better, faster and cheaper into a single value proposition? And number ten, are you staying away from the latest fad that might not have staying power?

Greg Alexander [00:09:45] So number 10 may appear to be out of place when compared to one through nine, but it’s been there for a reason, and that is sometimes boutique owners think the only way to grow is to get into the new thing. And as you saw with bookkeeping, that’s not true. You know, if you’re in a large, quote, commodities market, then be the disruptor. And if you are the disruptor, meaning you do things differently, can make a lot of money in traditional marketplaces.

Sean Magennis [00:10:08] That’s what I love about this Greg, it’s introducing contrarian thoughts, very powerful. So in summary, entrepreneurs often do not put innovation and service design in the same sentence. Boutiques do not look at themselves as disruptors. The innovator label is most often only applied to leaders of product companies. Yet the facts point in another direction. 67 percent of the US economy comes from the service industry, and 49 percent of the workforce is employed by small businesses. The biggest opportunity for you is to disrupt the legacy professional services sector. If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. Thank you, Greg. I’m Sean Magennis and thank you for listening.

A Practical Guide to Monetize Professional Services

Episode 33: The Boutique: A Practical Guide To Monetize Professional Services

In this episode of The Boutique podcast, Collective 54 founder Greg Alexander explores the nine common ways to make money in the professional services industry. You will learn how to monetize your services and which monetization strategy makes the most sense for your business.

How Can a Professional Services Firm Monetize Its Services?

Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow, scale, and sell your firm at the right time for the right price and on the right terms. 

I’m Sean Magennis, CEO of Capital 54, and your host on this episode. I will make the case that boutiques constrain their growth by thinking too narrowly about monetization. They often think there is only one way to charge, and only a couple of revenue sources are available to them . When in fact, there are nine common ways to make money in the professional services industry. 

I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg is a monetization wizard of sorts. He will present a practical guide on how to monetize your services. Greg, good to see you. Welcome.

Greg Alexander [00:01:22] It’s good to be here.

Nine Common Ways to Monetize Professional Services

Sean Magennis [00:01:24] OK, let’s jump into it. Greg, tell us about the nine common ways to monetize professional services.

1. Hourly Billings

Greg Alexander [00:01:30] OK, so the nine most commonly used sources of revenue in professional services are number one hourly billings. Charging clients an hourly rate has the benefit of being easy to implement. However, it limits how much revenue you can generate. 

There is a fixed number of hours, and there is an upper limit on how much you can charge for each hour. 

2. Retainer

OK, number two, retainer. This is when a client pays you upfront to secure your services when needed. This has the benefit of getting paid in advance in a predictable cash flow. However, there are only so many retainers a boutique can handle at one time. 

3. Fixed Bid

OK, number three, fixed bid. This is using a flat amount, regardless of the hours worked. This is profitable work for boutiques if they can scope projects correctly. Clients are buying the deliverables, not the boutique’s time. If a firm struggles with estimating the level of effort for a project, this can be a money loser. These are the first three. Let me pause here and check in. Should I keep going?

Sean Magennis [00:02:36] Yes, Greg, I’m tracking right with you and hopefully the listeners as well. So taking note, hourly billings, retainer, and fixed bids. Got it. So a good refresher on the differences between the three, for example, many boutiques confused retainers and hourly rates.

4. Performance-Based Contracts

Greg Alexander [00:02:57] OK, good. So, number four, let’s move to performance-based  contracts. So goals are established. If the firm is successful, they get paid. And if they fail to deliver, they do not. This allows a boutique to capture upside as they are usually uncapped. The risk, of course, is if you do not produce, you lose your shirt. 

5. Membership Dues

Hey, let’s go to number five membership dues. This is when a client pays a professional services boutique if they see value in being in a group with other clients. The annual dues grant access to a group of people in similar jobs dealing with similar issues. This is profitable for boutiques as it scales nicely. 

Small amounts of staff can manage a large number of clients. The risk, however, is if you have unhappy clients, the word is going to spread very quickly. 

6. Licensing Revenue

OK, number six is licensing revenue. A client pays a licensing fee to a professional services boutique to use intellectual property. Many boutiques have methodologies and tools that clients want unlimited access to. They pay a license fee for this right. 

The risk to a professional services boutique with this is an inability to productize this service offering. If every project is a snowflake, this does not work. 

7. Subscription-Based Model

And number seven, a subscription-based  subscription is paid to a boutique by a client to gain access to an asset. For example, many boutiques have proprietary benchmark data. Clients who want access to this data pay subscription to a database. 

The risk with this is managing the asset. For example, in this case, if the data ages, it becomes worthless, and clients attrit. So Sean, let me check in again. Are you still tracking?

Sean Magennis [00:04:45] Yes, I’m right with you. So let me recap for five, six, and seven. We have performance-based  fee memberships, licensing, and subscriptions. Tell me about the last two, eight, and nine.

8. Events 

Greg Alexander [00:04:59] OK, so number eight is events. This is when clients buy a ticket or tickets to be granted admission to an event the professional services boutique puts on. This is very profitable as, typically, sponsors cover the cost of the event, and ticket sales are all profit. The risk is, of course, if no one buys tickets and no one shows up, that can be embarrassing. 

9. Royalties

And then lastly, number nine is royalties. This is when a boutique does not monetize the client but instead, they monetize other boutiques. This is often used by boutiques that  have training products in their bag. They allow other firms to use their training materials and collect a royalty every time they do. 

The risk with this is theft. A boutique that  chooses this monetization strategy needs to understand paywalls and royalty agreements. So, there you have it—nine ways to monetize professional services.

How Do You Pick The Right Way to Monetize a Professional Services Firm?

Sean Magennis [00:05:54] This, Greg, was an excellent overview of the practical ways to monetize. I have a nagging question in my head. So how do you pick the right one?

Greg Alexander [00:06:04] Well, you don’t. So going into the market with a single revenue source is a mistake. The important lesson here is to have multiple revenue sources. Therefore, our listeners should be asking themselves, what is the right mix for me? 

If you have one, try to get to two. If you have to try to get to three and so on. It is not uncommon for me to meet an owner, look at her business and locate two to three additional revenue sources within an hour. This opportunity is often right under an owner’s nose. They just need to know where to look.

Sean Magennis [00:06:38] Greg, again, really connecting hard and a little creativity and courage can also go a long way.

Greg Alexander [00:06:45] Yes, it can.

Sean Magennis [00:06:46] So thank you, Greg. And now a word from our sponsor, Collective 54. Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow, scale, and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

Stephanie Groschup [00:07:16] Hello, my name is Stephanie Groschup, and I’m co-founder of GM Wealth Group. We serve women entrepreneurs and other business owners, corporate executives, and high net worth individuals across the United States. 

At GM Wealth, we create strategies to address tax-efficient growth of their businesses, planning for concentrated positions of company stock and other financial issues affecting them and their families. We create solutions by understanding those challenges that they face. Each solution is customized and client-specific. 

Please reach out to me if you’re facing some of the same challenges with company stock, tax-efficient growth in your business, or if you need help with addressing specific financial needs for you personally. You can reach me at www.GMWealthLLC.com or [email protected].

Questions to Ask to Know If Your Monetization Strategy is Working or Not

Sean Magennis [00:08:12] If you are trying to grow, scale, or sell your firm and feel you would benefit from being a part of a community of peers, visit Collective54.com. OK, this takes us to the end of the episode. Let’s try to help listeners apply this. We end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. 

Our preferred tool is a checklist, and our checklist-style  is a yes-no questionnaire. We aim to keep it simple by asking only ten questions. In this instance, if you answer yes to eight or more of these questions, your monetization strategy is working for you. 

If you answer no too many times, your monetization strategy is not working, and you are more than likely getting in the way of your attempts to scale. Let’s begin.

Sean Magennis [00:09:13] Number one, will the client pay you more than five hundred dollars an hour?

Greg Alexander [00:09:19] So, this is important if you’re going to charge by the hour, and many of our listeners might say, “Boy, that’s a big number.” Well, the reason why it’s a big number is because you’re going to have wage inflation. 

So, if you hire somebody today and pay him one hundred thousand dollars next year, you will pay 110,000 the year after that and pay them 125,000. So, you better be able to charge a high hourly rate to accommodate for wage inflation.

Sean Magennis [00:09:37] Yes. Number two, will a client pay you in advance to secure your services on demand?

Greg Alexander [00:09:44] If yes, then you have a retainer.

Sean Magennis [00:09:46] Number three, can you scope your projects with precision?

Greg Alexander [00:09:51] If yes, that’s a fixed bid.

Sean Magennis [00:09:54] Number four, can you prove direct attribution of results in your project?

Greg Alexander [00:09:59] This goes to performance-based .

Sean Magennis [00:10:01] Number five, will your clients pay you for the privilege of speaking to your other clients?

Greg Alexander [00:10:06] If yes, that’s a membership.

Sean Magennis [00:10:09] Number six, will your clients pay you for the right to use your intellectual property?

Greg Alexander [00:10:15] If yes, that’s a licensing fee.

Sean Magennis [00:10:18] Number seven, do you have proprietary data that clients would like to subscribe to?

Greg Alexander [00:10:23] If, yes, you have a subscription business.

Sean Magennis [00:10:26] Number eight, do you put on events that are clients willing to buy tickets to attend?

Greg Alexander [00:10:32] Obvious.

Sean Magennis [00:10:32] Yep. And number nine, are other boutiques willing to pay you royalty to distribute your intellectual property?

Greg Alexander [00:10:40] Do you know who are  the most profitable rock and roll band of all time?

Sean Magennis [00:10:44] It’s got to be the Rolling Stones.

Greg Alexander [00:10:47] Kiss.

Sean Magennis [00:10:48] Kiss, great band.

Greg Alexander [00:10:49] Because of their royalties and their licensing.

Sean Magennis [00:10:51] Wow.

Greg Alexander [00:10:51] They figured out how to make money without touring.

Sean Magennis [00:10:54] That makes total sense now that I think about it. And then finally, number ten, does your business model include at least three sources of revenue?

Greg Alexander [00:11:02] And that’s the most important one.

Sean Magennis [00:11:04] Yep. Greg, thank you again. This is brilliant stuff. So, in summary, there are many different sources of revenue available to boutiques. Develop a clever monetization strategy. Think about a mix of revenue, not just one source. 

If you enjoyed the show and want to learn more, please pick up a copy of Greg Alexander’s book titled “The Boutique How to Start Scale and Sell a Professional Services Firm.” I’m Sean Magennis. Thank you for listening.

Episode 29: The Boutique: The 5 Competitors Boutiques Must Defeat to Grow.

There are 5 competitors’ boutiques must defeat to grow. On this episode Collective 54 founder Greg Alexander discusses a playbook to defeat these competitors.

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal for this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that there are five competitors boutiques must defeat to grow. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg has developed a playbook to defeat these competitors. I will ask him to introduce his competitive place to you today. Greg, good to see you. Welcome.

Greg Alexander [00:01:05] Hey, Sean, it’s good to be here today.

Sean Magennis [00:01:06] OK, Greg, let’s dove straight in. Tell us who these five competitors are.

Greg Alexander [00:01:11] OK, so the five competitors are in order of importance. Number one, do nothing. This is the project that went away because of a competing client priority. Number two, internal resources. This is internal client staff who think they can do what you do better than you do it and it’s quote-unquote, free. Number three boutiques. These are firms like yours in size and specialty. Number four, market leaders. These are the mega-firms that have offerings in your niche. And number five is other. This is the other ways clients can solve the problem. Often there is more than one way to skin the cat, so to speak.

Sean Magennis [00:01:53] Excellent. So there’s a do-nothing, internal resources, boutiques, market leaders, and others. What I find fascinating about this list is three out of the five are indirect competitors, do nothing, internal resources and other. These are often overlooked, but can embrace a deal from the sales pipeline in a real hurry. Greg, you mentioned these are in order of importance. How do you assign this relative importance to them?

Greg Alexander [00:02:25] I assigned relative importance based on the frequency they show up in sales campaigns. And this is determined during the win-loss review process. For example, we have learned that boutiques will compete with do nothing about 40 percent of the time. Sometimes it’s as high as 50 percent of the time. You’ll compete with internal resources about 30 percent of the time, boutiques, about 20 percent of the time, market leaders about five percent of the time and other about five percent of the time,

Sean Magennis [00:02:57] hmm, this is super interesting. My hunch is our listeners are not conducting win-loss reviews and they don’t know how they compare to these benchmarks. That should be a takeaway for all our listeners. OK, now that we know who the competitors are, how do we beat them?

Greg Alexander [00:03:18] So that is a big question requiring a long answer. Given our time constraint all I can do today is introduce the plays to run against each. Is that OK?

Sean Magennis [00:03:26] Yes, I completely understand.

Greg Alexander [00:03:27] All right. First up is do nothing, which again is 40 to 50 percent of your deals. Whether you know it or not, the way to beat do nothing is to calculate the cost of inaction for the client. This dollar figure will prove to the client that your project deserves their full attention. It is a priority and that is the goal, getting the client to prioritize your project above the other things they may be spending their time on.

Sean Magennis [00:03:51] Greg, I remember this play from another episode titled Are You Losing to Do Nothing? For those listeners interested in learning more about this, I would direct you to that show. It’s excellent. OK, Greg, what’s next?

Greg Alexander [00:04:06] Next up is beating internal resources. As a reminder, this is internal client staff. I realize it’s weird to think about the client as a competitor, but they are about 30 percent of the time. The way to defeat internal resources is to establish a deadline that the project needs to be completed by. You see, clients think they can do what you can do. However, they will never be able to do it as fast as you can. Why is this? They have a day job. This project is not the only thing on their plate. They can only dedicate a portion of their time to it. You, on the other hand, can dedicate your team to it and therefore it gets done much faster. Cell speed in this situation, deadlines are a wonderful way to defeat internal resources

Sean Magennis [00:04:54]  This is a perfect example and it makes complete sense. OK, next up is the boutiques. How should our listeners compete with firms that are just like them?

Greg Alexander [00:05:05] The silver bullet in this situation is the guarantee. Simply offer your client a money-back guarantee for any reason, no questions asked. Most owners of boutiques are risk-averse. They have limited resources. They have limited amount of money, limited amount of staff. The idea of putting fees at risk makes them very uncomfortable. The threat of not getting paid scares the, you know what out of them. By guaranteeing the work, you separate yourself from the boutique competitors. They are unlikely to match this offer and it sends a powerful signal to the client. And that signal is Mr. Client. We only get paid if we make you successful.

Sean Magennis [00:05:45] Greg, so true. As president of YPO, I hired many boutiques over the years. I was always very skeptical of those who were unwilling to put their fees at risk, and I gave my business to those who were willing to do so. And truth be told, I paid them in full every time, sometimes more. I cannot think of a single instance where I called the guarantee and demanded a refund. My message to our listeners is the risk is a myth. The reality is the likelihood of clients calling the guarantee is very low. OK, I think the next up is competing with market leaders. This is only five percent of the time. So should-should we skip over this?

Greg Alexander [00:06:32] No, no, no. Yes, it is true. You will run into the mega firms only about five percent of the time. However, these few deals can make or break a year. These are the big deals in the forecast. Just one or two wins a year in this category can turn a good year into a great year. The way to beat the market leaders involves a five-step play. It’s a little tricky, but here are the five steps. Number one, you must establish credibility. The mega-firms will try to discredit you. Number two, deliver a top-quality proposal. This will prove to the client you are credible. It’s a signal to the client that your work will be top quality. Number three, demonstrate to the client that you can complete the work much faster than the mega firms. Big firms are very slow, beat them on speed. Number four, price to work about 25 percent less than the mega firm’s. Market lead are very expensive. The fact that you are in the deal suggests a client is budget-conscious. Big firms are vulnerable because their prices are so high due to the massive overhead they carry. And number five, offer an enjoyable experience. Mega firms are like a tornado when entering the client and are very disruptive. For example, we hear all the time Bain is our pain about how difficult it is to work with Bain Consulting, one of these mega-firms. The advantage of working with a boutique over mega-firm is that it’s just simply easier.

Sean Magennis [00:08:08] While Greg, this is exceptional, five straightforward ways to win those few launch deals every year when competing with these market leading firms. Boy, OK, we’ve got one more. What play do I run when competing with other?

Greg Alexander [00:08:26] OK, so as a reminder, other means, other ways to solve the problem. For example, clients often think they can solve a problem by firing someone and recruiting new talent, or they think they can solve their problem by licensing a new software tool. These other ways to skin the cat show up about five percent of the time. The way to beat other is to do a post mortem highlight to the client. The last time they took this approach, it did not work. For instance, hiring success rates of 50 percent at best. This means solving a problem with new talent has a 50/50 chance of working. And the adoption rate of software tools is a problem that has plagued corporations for decades. It is estimated that most users use about 10 percent of the features and most software tools. That’s 90 percent waste. The odds of success working with you, the specialized boutique is clearly better than a 50/50 proposition, isn’t it?

Greg Alexander [00:09:24] This is a superb way of framing this in the minds of a client relative odds of success. It’s just fantastic. Today we learned who the real competitors are for boutiques, how often they show up, and how to defeat them. That is a ton of value in fifteen minutes. Thank you, Greg.

Greg Alexander [00:09:45] And now a word from our sponsor, Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

Jude Ramayya [00:10:11] Hello, my name is Jude Ramayya. I service here offering biotechnologies. We serve small and midsize businesses looking for a true partner to unlimited potential with digital technologies. These clients turn to us when they want to digitize and automate their business processes so they can scale their business and make it available 24 by 7. We solved this problem by starting with digital strategy consolidation customized for the businesses and implementation of digital solutions with mobile, cloud, web, RPA, and artificial intelligence technologies. If you are looking for a Digital Solutions partner, please reach out to us at www.IMPIGERTECH.com, I-M-P-I-G-E-R-T-E-C-H.com.Thank you.

Sean Magennis [00:11:00] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit Collective54.com. OK, this takes us to the end of the episode, let us try to help listeners apply this. We end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist and our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these questions, you are positioned very well versus your competitors. If you answer no too many times, then you are not positioned well versus your competitors and you are likely getting in the way of your attempts to scale. Let’s begin.

Sean Magennis [00:12:02] Number one, can you calculate a client’s cost of inaction? Number two, can you find a compelling event that puts a deadline on the client’s project? Number three, are you confident enough to guarantee your work?

Greg Alexander [00:12:21] Boy, if you answer no to that when you’ve got a real problem.

Sean Magennis [00:12:23] Yep. Number four, can you establish credibility in the eyes of the client? Number five, can you signal quality to the client by delivering a best in-class proposal?

Greg Alexander [00:12:37] Remember that the first thing, the first deliverable a client sees is your proposal.

Sean Magennis [00:12:42] It’s got to stack up against the big guys, in fact, look better.

Greg Alexander [00:12:44] Yes.

Sean Magennis [00:12:45] And number six, can you deliver much faster than the market leaders in your niche? Number seven, if you earn healthy margins and still be 25 percent less than the market leaders? And I would say every day.

Greg Alexander [00:13:03] Way more.

Sean Magennis [00:13:03] Yeah. Number eight, are you more enjoyable to work with than the market leaders? Number nine, do you understand the alternative solutions to the problem you address?

Greg Alexander [00:13:15] You know, I hear this one all the time. Hey, I lost this deal because they hired a new executive, you know, and then they say, well, I really didn’t lose a deal. Yes, you did. You know, they decided to solve the problem in an alternative way. By the way, hiring a new executive is expensive.

Sean Magennis [00:13:27] Right.

Greg Alexander [00:13:28] Yeah.

Sean Magennis [00:13:28] Yep. That’s a great one. And number ten, will a postmortem revealed to the client that these alternatives have a poor track record? So, Greg, in summary, a boutique must win a high-percent of the time, they are not in enough deals to allow for many, many deals to be lost. No one wins every deal, but that should be the goal. By establishing a competitive playbook, you can make sure that you beat the bad guys. If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. Thanks again, Greg. I’m Sean Magennis and thank you for listening.

Episode 26: The Boutique: 2 SALES TOOLS TO WIN BIGGER, FASTER, AND MORE OFTEN

There are two sales tools that allow boutique founders to win bigger, faster, and more often. On this episode we discuss how to increase sales effectiveness of professional services.

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that there are two sales tools that allow boutique founders to win bigger, faster and more often. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer, Greg is arguably the world’s leading expert in sales effectiveness in the professional services industry. Today, he will share some of this magic with you. Greg, this is your baby. Good to see you.

Greg Alexander [00:01:14] Hey, Sean, I’m excited about this episode. These two simple tools are powerful, yet for some reason they are not used with as much discipline as they should be. So hopefully this show will help with this.

Sean Magennis [00:01:26] OK, Greg, let’s jump straight in. What are the two tools?

Greg Alexander [00:01:29] OK, so the two tools are the demographic profile and the psychographic profile.

Sean Magennis [00:01:35] And give me a simple working definition of each.

Greg Alexander [00:01:38] OK, a demographic profile is a description of a particular type of client based on unique identifier such as gender, age, industry, job title, geography, etc. It focuses on quantifiable attributes and is objective. The psychographic profile is a description of a type of client based on unique identifiers as well. But in this case, it’s things such as wants, needs, goals, challenges, priorities. It focuses on qualitative attributes and is subjective.

Sean Magennis [00:02:13] And why should leaders of boutique professional services firms care about these two tools?

Greg Alexander [00:02:19] These tools help leaders of boutiques win bigger deals win these deals faster and win them more often.

Sean Magennis [00:02:27] Greg, how do they do that?

[00:02:29] Selling services is much harder than selling a product. When a prospect buys a product, they put their trust in the product itself. When a prospect buys a service, they put their trust in the people delivering the service. Therefore, establishing trust is essential to win bigger, faster and more often. The best way to establish trust is to know the client better than they know themselves and without question know the client better than the competitors. There is an old saying he who knows the client best wins, and I believe that

Sean Magennis [00:03:05] Some of the old sayings are the best. I think this one was tested recently during the pandemic and it held up. When you must limit human contact, guess who you let in the bubble? The people you trust. Greg, demographic profiles and psychographic profiles are not new tools. Did you know the Englishman John Gaunt invented demography back in 1662?

Greg Alexander [00:03:31] I did not, but nice pull.

Sean Magennis [00:03:35] Did you know that the use of psychographics in the marketing of services began at Stanford University in December of 1917?

Greg Alexander [00:03:42] I did not know that. But I see you are a power user of Wikipedia.

Sean Magennis [00:03:45] Thank god for Wikipedia. I bring up these stats to prove my point. These tools have been around forever. If they truly can help win bigger deals faster and more often, you would think they’d be used more often. However, when I look at firms, they are either not present or if they are present, they are used incorrectly. Why is this?

Greg Alexander [00:04:09] In my opinion, the main reason is founders, especially are domain experts. They are not business experts. Let me explain myself, so, for example, if I asked an owner of a cyber security firm about the technicalities of network security. They could talk to me for weeks, however, if I asked the same owner to describe their client profile, it would be a 10 minute conversation. Because they are not business experts, they do not understand that knowing the client deeply is the key to growing revenues with new and existing clients. Most of them are technicians of a sort, domain experts, but they are not business people, so to speak, meaning worldclass a generating revenue and profits. To grow a firm, a founder must be great at both he or she must be skilled at working on the business in addition to working in the business.

Sean Magennis [00:05:04] OK, Greg, I think we’ve established what the tools are and why they’re important and why they are underutilized. A percentage of our audience are overachievers. They will get off this podcast and immediately go to work on creating these tools. How can they get started?

Greg Alexander [00:05:22] Geez, I would need a day long workshop to do this justice, but let me give the overachievers a cheat sheet. So let’s start with a demographic profile. So make a list of all your clients, current and past. Identify the decision maker, the person who bought your service for each one document the following race, age, gender, ethnicity, industry, title, education, geography and income level. Use the 80 20 rule. What is common among each of your clients? This will get you to a V1 of a demographic profile. You should have. You should have all this data inside of your internal systems. If you do not, these days there is no privacy and you can find it in all the social media platforms. Let’s switch gears to the psychographic profile, which is much harder. Take a statistical sample from the above, say maybe 30 clients or so, and interview them. Ask them about, what are their wants or their needs or their desires? What are their goals, maybe immediate, intermediate and long term, what are their challenges standing in the way of accomplishing these goals? What are their priorities? And how do they set priorities? What interests them inside and outside of work? What is their attitude? Are they optimist or a pessimist? Are they activists or passivist? Use the 80-20 rule here as well, what is common among each of your clients, this will get you to a V1 of a psychographic profile.

Sean Magennis [00:07:04] That’s very helpful I got that, very practical, and once they have the two tools built, what do they do with them?

Greg Alexander [00:07:11] Everything. I mean, there is no part of a boutique. This information will not change. I mean, every sale script changes, every process to deliver a service gets rewritten to reflect this enhanced understanding of the client. The firm should change its marketing messages, its price positioning, their hiring profiles of staff. I mean, the list goes on and on. To win bigger, to win faster and more often, requires a boutique to obsess over the client every little detail. Without this information dynamically updated regularly, you are not client focused. You are throwing darts against the wall, hoping something sticks. Here’s little fun thing to do at the next staff meeting when sitting around the table, be sure to have one seat at the table empty. Put a sign in the seat that says client when the team is trying to make a decision turned to the client who now has a seat at the table and ask what would the client say if he or she was in the room? This signals to everyone that the client is at the center of everything you do.

Sean Magennis [00:08:16] This is just fantastic. It’s brilliant and a good reminder of two tools that have been best practices for decades. Thank you, Greg. And now a word from our sponsor, Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

Josh Mastel [00:08:54] I’m Josh Mastel, the CEO of UpRoar Partners, which is an outsourced sales solution for leaders of B2B organizations across the U.S.. At the end of the day, there’s only one reason why companies and teams missed their revenue targets, and that’s because of a lack of quality opportunities inside their sales pipeline. We fix this exact problem for our clients by deploying our sales methodology that’s been proven and executed by our team of salespeople. And the whole goal is to remove all of the hassle of generating sales opportunities completely off of your plate.. So if you have a dry pipeline and you’re not confident that you have enough, that that’s enough opportunities to get you to your revenue number by the end of this year, get in touch with us at www.uproarpartners.com or my email at [email protected]

[00:09:37] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit the Collective54.com. OK, this takes us to the end of the episode, let us try to help listeners apply this. We end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist and a style of checklist is a yes no questionnaire. We aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these questions, then your ideal client profile is working for you. If you answer no too many times, then your ideal client profile is not working for you and you are likely getting in the way of your attempts to scale. Let’s begin the questions.

Sean Magennis [00:10:44] Number one, you have a demographic profile of your target client?

Greg Alexander [00:10:50] And it’s important to mention this is the client you want. Not maybe that’s different than the client you currently have.

Sean Magennis [00:10:57] Number two, do you have a psychographic profile of your target client? The same thing.

Greg Alexander [00:11:03] Correct.

Sean Magennis [00:11:03] Number three, do you have an elevator pitch that speaks directly to the target client?

Greg Alexander [00:11:09] That’s oftentimes a humbling experience.

Sean Magennis [00:11:11] Yep.

Greg Alexander [00:11:12] Record yourself as to what your elevator pitch is and pull out your demographic and psychographic profile and say, how would this sit with them? Oftentimes it’s off.

Sean Magennis [00:11:20] Number four, do you understand the personal goals of the client?

Greg Alexander [00:11:25] People of people, people buy from people, so personal goals are just as important as professional goals.

Sean Magennis [00:11:31] That’s right, great point. Number five, do you understand the professional goals of the client? Number six, do you understand the obstacles preventing the client from accomplishing their personal goals? And number seven, do you understand the obstacles preventing the client from accomplishing their professional goals? Number eight, do you understand the likely objections that your client is going to submit to you?

Greg Alexander [00:11:57] Right, so if you understand their obstacles professionally, personally and make your pitch, you should you should be able to anticipate what are they…

Greg Alexander [00:12:05] Exactly.

Sean Magennis [00:12:06] Good point. Number nine, do you understand the client’s top priorities? And number 10, do you understand the emotional makeup of the client?

Greg Alexander [00:12:17] Goes to client experience, right.

Sean Magennis [00:12:18] This is fantastic. Greg, thank you. In summary, know thy client. Get inside their hearts, their souls and their minds. Try to know them better than they know themselves. Take this knowledge and drive it into everything you do. When a prospect bumps into you, they should say to themselves, these people, get me. If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. Thanks again, Greg. I’m Sean Magennis and thank you for listening.

Episode 24: The Boutique: Are you Losing to “Do Nothing”?

Boutiques lose more deals to a competitor we call “Do Nothing” than any other competitor. On this episode, we discuss how boutique owners can improve sales results by defeating this pesky competitor. 

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that boutiques lose more deals to a competitor we call do nothing than any other competitor. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg has helped many boutique owners improve sales results by defeating this pesky competitor. Greg, good to see you and welcome.

Greg Alexander [00:01:06] My man Sean, good morning. Good to be here.

Sean Magennis [00:01:08] OK, Greg, let’s jump in. Can we start off with a description of the competitor we are calling, “do nothing”?

Greg Alexander [00:01:16] Sure. So do nothing refers to the project that went away. The prospect did not hire a firm any firm. They just decided not to move forward with the project. In other words, they decided to do nothing.

Sean Magennis [00:01:28] Got it. The quirky name makes perfect sense. And Greg, you feel this competitor is the top competitor boutiques must defeat to grow. Why do you feel that way?

Greg Alexander [00:01:39] So founders of boutiques are time starved. They have too many things to do and not enough time in the day to get them all done. When they pursue new business, the pursue takes up a lot of time. If this time spent does not produce revenue, it can be devastating. Fifty percent of all lost deals are lost to do nothing in the professional services game. This stat was true in my firm and it is proving to be true in the firms led by collective 54 members. Defeating this sneaky competitor will save Founders’ a ton of time and boost revenue.

Sean Magennis [00:02:11] Wow, 50 percent is a big number. This just became a priority for many of our listeners. Before we get into the recommended solution, can you share with the audience the root cause of this issue?

Greg Alexander [00:02:24] Sure. So the root cause of the problem is founders of boutiques are peddling solutions, looking for problems. They are selling vitamins when they should be selling painkillers. Let me explain my analogy. People buy painkillers when they are in pain. When someone is in pain, they do not decide to do nothing. They buy immediately. In contrast, people buy vitamins occasionally. It is an optional activity, maybe tied to a New Year’s resolution or some new health kick. However, many people, when faced with the decision to buy vitamins, just decide to do nothing. It’s not urgent. Boutique Founders’ can get enamored with their solution. They think every prospect needs it, and they are surprised when many prospects decide not to buy it. They have a solution looking for a problem to solve. This is the root cause of this issue. Vitamin instead of painkillers.

Sean Magennis [00:03:16] Yes, Greg, I can see this. So founders can fall in love with their solution. And at times this can blind them to the commercial realities of the marketplace. They get caught up in the technical sophistication of their solution and they do not think about how it will be bought and sold. Greg, I imagine you have some practical advice to avoid this mistake. Please share it.

Greg Alexander [00:03:40] I do. And I’m excited to share it because it’s based on common sense and it is easy to implement. There are four things to do. First, be sure you can state the problem you saw for clients, clearly. This seems like a duh comment, but surprisingly it is not. For example, when I ask a boutique founder what problem they solve for clients, they tell me about their solution. They do not tell me about the client problem. I recently asked an IT consulting firm what problem they solve with clients, and he said we provide cloud migration services. This is not a problem statement. This is a solution description. In this instance, a better answer might have been our clients are trying to migrate legacy apps to the cloud. This is taking too long, costing too much and causing too much downtime. Now, that’s a problem statement and positioning a solution against this has a much better chance of resulting in a win.

Sean Magennis [00:04:33] This is a great before and after illustrative example. The difference between a solution description and a problem statement is subtle, but it’s so important. Greg, you mentioned four things to do. We covered the first. Let’s hear about number two.

Greg Alexander [00:04:49] OK, so the second thing to do is determine if the problem you are solving is pervasive. To grow your firm, you need lots of sales opportunity. If you are solving a problem only a few clients are experiencing, you are limiting your growth. This is a big reason why “Do Nothing” is the number one competitor. A founder gets in front of a prospect, makes the pitch and the prospect says something like, I can see why your solution is very valuable. And if I had the need for it, I would consider hiring your firm. But it does not apply to me right now. Check back with me in six months. You just lost to do nothing. You just wasted your time and a prospect which is never going to buy. If you have to kiss a lot of frogs who never turn into a prince, you will be celebrating your one hundredth birthday before you scale focus only on pervasive problems.

Sean Magennis [00:05:37] Greg, I must admit, I’ve heard many prospects say that to me over the years, almost verbatim. If I think about how many hours I wasted in pitch meetings with prospects like this, I cringed. Anyway, okay I’m hooked on the subject. Tell me about the third idea on defeating do nothing.

Greg Alexander [00:05:56] OK, so number three is proving that the problem is urgent. When a founder pitches a prospect, the prospect is determining if what he is hearing is worthy of making it on his priority list. Prospects just like founders of boutiques are time time starved. If they are going to take on another project, it better be worth it. Prospects prioritize their projects based on urgency. The most urgent go first and get the most budget, the least urgent go last and get the smallest budgets.

Greg Alexander [00:06:29] The action for the founder is to prove that your solution solves an urgent problem and therefore it should be prioritized. Our listeners are wondering right about now how they do this. We don’t have enough time to go into this on this episode. So let me just hit the tips of the wave. To prove you a solution solves an urgent problem, do two things. Number one, calculate the cost of inaction. Make sure the prospects know exactly how much it’s going to cost them if he does not act right now. Number two, show that the pain is getting worse over time. Make sure the prospect knows that if he does not act now, it may be too late down the road. A small problem today will be life threatening six months from now. So let’s giddy up.

Sean Magennis [00:07:19] I had heard the urgency suggestion before, but I had never heard it from a thought leader on how to create the urgency. Calculating the cost of inaction and showing the client the problem is escalating are brilliant ways to get a prospect to move from buy to buy now. Let’s hit the fourth idea.

Greg Alexander [00:07:40] OK. The fourth recommendation to defeat do nothing is to confirm the prospect is willing to pay for the solution. Often founders make the pitch. The prospect says yes, and he sees the price and he changes the yes to a no. When asked what happened, the prospect says we just don’t have the budget for that right now. And guess what? He just lost the do nothing. The fix to this is to confirm that prospect is willing to pay for the solution to the problem. So how does one do this?

Greg Alexander [00:08:10] Every proposal must come with a cost justification and the cost justification must be believable, populated with the prospects own figures. For example, in my time in SBI, we would sell prospect’s projects around sales effectiveness. Each proposal came with the cost justification based on two things. Number one, decreasing the prospects cost to acquire customers and number two, increase in the lifetime value of each customer acquired. These two items were expressed in hard dollars, and the math was based on the client’s current baseline.

Greg Alexander [00:08:47] In each, our fee was placed in this context, the client could clearly compare the benefit in the cost of the project. As a result, we defeated do nothing regularly. I am not sure what metrics our listeners would use in their cost justifications, but I do know they need to figure that out if they are going to defeat do nothing regularly, it is the only way to get the prospect to having high willingness to pay.

Sean Magennis [00:09:13] This is fantastic. So overcome the prospect price objection with a cost justification in the proposal and make it easy for the prospect to have a high willingness to pay. These four ideas state the problem clearly to pursue only pervasive problems, prove the problem is urgent, and use a cost justification to increase the prospects willingness to pay. This will defeat, do nothing and help our audience members grow.

Sean Magennis [00:09:46] And now a word from our sponsor, Collective 54. Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

John Ferguson [00:10:12] Hi, my name is John Ferguson. I’m the CEO TBM Consulting Group. We’re a global operations and supply chain consultancy, serving manufacturers, distributors and field service organizations in North America, Latin America, Europe and Asia. Our primary clients, our C Suite operations executives and operationally focused private equity firms. TBM helps to reduce costs, improve cash flow and to leverage those gains for sustainable, profitable growth. We provide diagnostics, go forward plans and hands on implementation support to create speed, flexibility and responsiveness throughout our client’s manufacturing and supply chain operations. If you need help leveraging operational excellence to accelerate value creation, contact us at TBMCG.COM. My direct email is [email protected] Or you can reach us via 1-800-438-5535.

Sean Magennis [00:11:13] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit Collective54.com.

Sean Magennis [00:11:29] OK, this takes us to the end of the episode, let us try to help listeners apply this. We end each show with a tool. We do so because this allows the listener to apply the lessons to his or her firm. Our preferred tool is a checklist and our style of checklist is a yes no questionnaire, we aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these questions, you are not losing to the competitor called Do Nothing. If you answer no, too many times, you are losing to the competitor called Do Nothing. Let’s begin with the questions.

Sean Magennis [00:12:17] Number one. When you explain the problem to your family, do they understand it? Number two, when you explain the problem to your friends, do they understand it?

Greg Alexander [00:12:29] So the reason why family and friends is here is because they’re not in the weeds, right? So if they can’t understand it or if they do understand it, then, you know, you’re communicating clearly. You know, I will add one little funny story. Yeah. So I used to bring my dog Rocco to work. And if I was in these early days of SBI and if I was pitching on the telephone, if he got up and left, I knew I was in trouble.

Sean Magennis [00:12:52] Rocco was a smart dog.

Greg Alexander [00:12:52] He was.

Sean Magennis [00:12:52] Number three, does the problem exist in more than one industry?

Greg Alexander [00:12:59] This goes to pervasiveness.

Sean Magennis [00:13:01] Number four, does the problem exist in companies of all sizes? Number five, does the problem exist in many geographies? Number six, are clients paying to solve the problem today?

Greg Alexander [00:13:17] Right, which is a great way to judge whether the problem is urgent, if they’re already spending money to solve it, then they’re voting with their wallet.

Sean Magennis [00:13:23] Right. Number seven, have clients been paying to solve the problem for years?

Greg Alexander [00:13:29] Yep another important thing, right?

Sean Magennis [00:13:32] Number eight, if the client does not solve the problem, are the consequences severe? Number nine, is there a trigger event that puts the client into the market for your solution?

Greg Alexander [00:13:44] Right. So a trigger event is is something that happens to the client that causes them to act.

Sean Magennis [00:13:50] And number 10, when clients have the problem, do they work to get it solved by a certain deadline?

Greg Alexander [00:13:56] From from buy to buy now.

Sean Magennis [00:13:58] It’s great, Greg. So in summary, do nothing is defeating you 50 percent of the time, whether you know it or you don’t know it. So to beat this competitor. Be sure to pick a problem to solve that is pervasive, urgent, one that prospects are willing to pay to solve. And be sure you can explain it simply. In other words, start with the problem, not the solution. If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm.

Sean Magennis [00:14:38] Greg, thank you again. I’m Sean Magennis and thank you to our audience for listening.