In this session, member Ken Yager shares how he discovered that his traditional client was not going to get his firm to reach its full potential. Ken shares how he changed his ideal client profile, and as a result, has significantly improved his margins. Attend this session and learn how to adjust your target client profile as your firm progresses along its lifecycle. 

TRANSCRIPT

Greg Alexander [00:00:15] Welcome to the Pro Serv Podcast, a podcast for leaders of thriving boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community focused entirely on the unique needs of boutique pro serv firms. My name is Greg Alexander. I’m the founder and I’ll be your host. And in this episode, we’re going to talk about changing your ideal client profile. Why to do it, when to do it, what the risks are, what might happen, the benefits, etc. And we’ve got a great role model with us today. It’s a long standing Collective 54 member, well-respected, well-liked member. His name is Ken Yeager. Ken, it’s good to see you again. Thanks for being here. And for those that don’t know you, which is in the minority these days. Explain or I should say introduce yourself to the audience.

Ken Yager [00:01:06] All right. Well, thank you, Greg. It is a pleasure to be here. I am the founder of Newpoint Advisors Corporation. We are a turnaround management firm that exclusively focuses on small companies. And that’ll be a part of our conversation today. But we try to help companies kind of in that 5 to $50 million range who otherwise couldn’t afford the services that are typically rendered in our industry, which tend to be a little more expensive. And therefore that’s our mission.

Greg Alexander [00:01:32] Right. So when we spoke several months back, you were experiencing fee pressure as many of our members were, as things changed in the economy a bit. And your approach to that was to change your ideal client profile. So I don’t want to steal too much of the thunder of the story. So tell us tell us what happened and what you did.

Ken Yager [00:01:55] Yes. All right. So ten years, almost ten years into our journey and feeling like we weren’t growing the way we should, and certainly we’re being profitable the way we should and if you will I blame part of that on you because I came to Collective 54 with an idea about what profitability meant. And then in the in my readings and in our meetings, you clearly pointed out that there was a much higher bar that one had to be focused on. Well, I got a taste for that, when to go for that, and was finding myself not being able to move away from or getting stuck with the mission and the design focus of the clients and how that was intersecting with that of you say, profitability or that profile of financial success. And so we needed to make a change. And that changed the focus of the clients I’ll start there and then we can you can lead me through the rest of this. But that we are we started the mission of focusing on just the smallest of small cut. You know, really, we would even take companies less than $1,000,000 in revenue, but we would state clearly on our website and on our emails 1 to 50 million in revenue, average client was 8 million in revenue. Medium client was 4 million in revenue. And we’re very proud of that, that, you know, that we were getting to those smaller companies, but they were too small. And even with our fee structure what we found and that’s the one before we make the modifications, we were even a little too expensive for some of the ones that the smaller into that. And so we were sort of friction on friction trying to make something work that wasn’t working, but sticking your heads in the in the lion’s teeth every day trying to figure it out. But it wasn’t.

Greg Alexander [00:03:35] Yeah. So then you made a switch to what?

Ken Yager [00:03:38] So then the most subtle of switches, but definitely was intention instead of 1 to 50 million in revenue. And we had a hard cap on that 50 million top. We said we’re going to start at 5 million in revenue. We’re going to let the cap come off the 50 advertised with 50. But if you come to us with a 60 or $70 million company, we’re going to say, yes, we can help you. And what that does is as we look at the notes or the kind of information our business, our average client was going to start shifting from that $8 million range to about a $15 million range overnight. And that’s pretty much what started to happen.

Greg Alexander [00:04:14] And a $15 million revenue client is a better client for you than the previous $8 million client. Why?

Ken Yager [00:04:23] Well, there are layers in that the let’s say, in the entrepreneurial journey. And I think some of the people in Collective 54 recognize this. What you feel like as a business when you were at 1 million revenue, 5 million, 10 million and then above and then we’ll go into the $20 million range, all change and they all deal with those things that you’re talking about, which is that, you know, the scale of the scaling group, how to get there and how to get through those those elements. It’s when you’re not talking to a $4 million company that’s trying to figure out how to put an org chart together versus trying to put talk to a a $15 million company that has actually got one but isn’t getting it right. The issues at hand. The resources at hand. And their ability to pay to have someone help them and their willingness to pay someone to help them, it changes dramatically. Mm hmm. That’s what we found.

Greg Alexander [00:05:13] Yeah. And let’s pick on that a little bit. The the affordability factor so they can pay you. Versus the willingness factor. They will pay you. I think that’s often overlooked. And it’s so important because although not always the case. More often than not, smaller revenue firms, although they may be willing I’m sorry, they may be able to pay you. They can afford your services. They’re not willing to because whatever you may charge them as a bigger percentage of the available profit pool. I mean, let’s say a $5 million company with 20% margin has got a million bucks of discretionary income. You know, if you hit them with $100,000 gig, that’s 10% of total profitability. Yes, they can swing it. But do they want to do it or not? Whereas if you had a $15 million company, 20% is 3 million. Get them with $100,000 gig and, you know, 100 grand versus 3 million, Maybe they’re willing to pay for it at that point in time. That’s the general idea. Now, Ken, you had courage to do this because I’m often advising members in office hours to change their ideal client profile, and that usually means sell to bigger clients, but they don’t have the guts to walk away from those small guys. You know, especially with businesses type, you know, the old phrase bad breath is better than no breath.

Ken Yager [00:06:34] Right.

Greg Alexander [00:06:34] So how did you have the courage to walk away from yesterday’s business?

Ken Yager [00:06:40] You know, one of the most important things I think, for someone to do is to have a North Star, if you will. Where am I headed? Because it does feel like like you say, to walk away. Oh, my gosh, what am I doing? But when you’re walking towards something, I think it helps a lot. And for us with the conversation we had with you was it was about looking at that financial result of for our result from doing the same hour of work or if you will, the same delivering the same product at the end of the day. And that became that became a big the drumbeat got louder and louder about what are we doing here? We’re grinding ourselves to death, trying to work with these small companies, and you just can’t make the fees work. And when we have these conversations internally where we would look at the cost of doing something and I have, you know, my number two on my team, Tim Stone, he and I would go at it and he’s like, the costs have got to go up. We’ve got to raise the prices. You know, this is not delivering correctly. And so here we are recognizing that we are not being able to work with small companies and yet keep going back every day to do it. You know, it’s the definition of saving.

Greg Alexander [00:07:47] Yeah. Now, sometimes boutique founders are afraid to go up market because they don’t think they can attract bigger companies. So you took the cap off the lid. You know, you removed the $50 Million number and you said, hey, if someone calls us at 70 million we’ll serve them. Were you able to get pit larger companies to pay attention to you?

Ken Yager [00:08:08] Yes. Almost immediately. We’ve. I’ll put it to you this way, because I was thinking about, I’ll do it this way. I was. We. Immediately change. We really the pivot was rather quickly. We kind of had a sense for where the model was going. And so we made those changes rather quickly and started bidding on new projects. We are many, many months through that process. We have lost one client to pricing and we’re pretty sure that we did it because it was a sloppy estimate on the price. And that has nothing, nothing reflective of our model. So within our constraints of what we said, we should be pricing it. We were we had no issue getting people to take the price. And also and which also it’s your more to your point, nor were our credentials questioned. If anything, you know, we had you know, we were able to show that, look, we’ve been here for a minute. We know what we’re talking about and this will work for you. And that has been accepted universally.

Greg Alexander [00:09:12] Yeah, which is great. I mean, it’s just that’s inspiring because some of our members don’t believe they’re worthy of larger clients. And they are. I mean, those larger clients sometimes don’t necessarily think about your business the way you do. They might not make distinctions the way that you would. And yes, your expertise is your expertise, and it applies the same for a larger client or a different ideal client profile than it does the smaller ones. Internally sometimes that can be a struggle.

Ken Yager [00:09:44] Yes. Well, let me say this. I’ve met Collective 54 members now. You know, I’ve been at this for minute, and they do have the capabilities they do have. I suffer from the same thing, I’m like, I don’t know if our thing is really good, all that great. And then I talk to the people who have seen what we do and they go, no, this is the thing. And I think all the Collective 54 members have that where they spent a minute trying to make something out of their what they’re doing, they have the power, more pricing power than they give themselves credit for.

Greg Alexander [00:10:14] Yeah, well, that’s great to hear you say that, because I agree. But, you know, sometimes people get tired of listening to me. So hearing that reinforcement to others is a wonderful thing. So my next question would be, how big is too big? So where are you going to take this?

Ken Yager [00:10:30] At this moment in time, we would hit the goals that we needed to that financial North Star that we were talking about, just saying, and we’ll call it the 5 to $50 million range, $500 million range could be you know that coming came to me and we’re 150 million. We said look, there are a whole bunch of people out there who could do really good work for you and you can afford it. We’re designed a certain way. So this revenue thing you’ve got to be careful about, I don’t want to go up. I don’t have to chase Fortune 500 companies to go after that. I don’t know. That was a part of our conversation with you. But we can be in very lucrative, very warm waters financially without having to go much higher. The trouble was with where we were sticking ourselves at the bottom of that of that curve, you know, the bad news. So average client could get up to $25 million and we would be or will make it. We’ll make our numbers. And for us, that means something along the lines of of a $50 million 50% EBITDA. Yeah. You know, strong where we were, we were struggling to see a ten a 10% EBITDA. I mean, that was like way up there. Wow, look at that. We’re going to get there one day. You know, story that’s done. We’re already running in the direction of that 50.

Greg Alexander [00:11:45] Feels good, doesn’t it?

Ken Yager [00:11:46] It feels so much better and for such a small number, it is a monster that the people who you know who are you know, they’re working at the two small companies. Fine. Don’t hook a big fish, but stop chasing the little fish. Yeah. When something the middle work your way up, work your confidence up, I suppose. 

Greg Alexander [00:12:08] Yeah. Is it the same exact service or did you have to tweak it as you went up market.

Ken Yager [00:12:13] Not a single sell. Had to change in our DNA to this. And what I would say is again, you know mindset that we needed to grind away at those smaller companies. We turned around with bigger companies with, you know, we’d had companies like 40 and $50 million who would drift into our universe, and we said we would service them, but just not as many as we are chasing today. And then in a lot of it comes down to the price point. We were giving it away to those larger companies and that set and we raised our prices significantly. But up in it now, like to X, you have to do that. But it’s now where these projects have a super high contribution margin. Yep.

Greg Alexander [00:12:51] And as you’ve gone up marketing, you’re running into different types of competitors or is it the same competitive landscape?

Ken Yager [00:12:58] Same people. Yeah, there could be a couple of the drift down, but I really wouldn’t expect that. So for our market, it’s really the same folks that we were you know, giving it away in front of. Now we’re pricing right in front of them. Yeah.

Greg Alexander [00:13:11] Okay. So let’s summarize this. I mean, listeners, you know, we often talk about the ideal client profile and sometimes people say, Hey, I get it. You know, I’ve got my ideal client profile nailed. And if that is true, congratulations. But you’re in the minority. And the point I’m making here is it changes. The ideal client profile or profiles is not static. It’s dynamic. And sometimes it changes because the market forces it to change. So, for example, in Ken’s case, you know, he had some fee pressure, He had a low-margin business. He wasn’t happy with that. So he changed the ideal client profile because his North Star changed. So dust off that ideal client profile and make sure that you say these are my goals as an entrepreneur. This is what I hope to accomplish. You know, what type of client do I need to target and serve in order to reach those goals? If that’s off, if those two things are not in alignment, meaning what you want to do in the type of client that’s required to execute against that, that’s off. It’s just too hard. So constantly be refreshing that ideal client profile, constantly be linking it back to your North Star, to use Ken’s words, you know, and look to examples like Ken that it’s not a fairy, it’s real. I mean, we see this time and time again. It’s so important to know who that ideal client is, because if that’s not done correctly, everything else that comes after that, they could have the greatest service in the world, a fantastic marketing approach, blah, blah, blah. It doesn’t matter because you just you can’t make the money that you want to be. Ken’s on his way going from 10% margin to 50% margin, just think about that 5x if he gets there 5x margin improvement, even if he falls short a little bit, gets to 30 or 40%, 3 to 4 times improvement in margin and then Ken owns his firm. So that goes in his pocket just by changing the ICP. I mean, if that doesn’t motivate you, I don’t know what does. So Ken, we’re out of our time here, but I really wanted to thank you for coming back on the show. Ken is a wonderful contributor and it’s so great to hear you doing these things and I’m so glad it’s working out for you and I wish you much continued success.

Ken Yager [00:15:23] Thank you so much. I’m glad I can help you spread the word.

Greg Alexander [00:15:26] Okay, great. Okay. So a few calls to action. So first, if you’re a member, be sure to attend the private Q&A session. You’ll get with Ken and dive into the details on how to do this. If you’re not a member, you should consider joining. Go to Collective 54.com and fill out a contact us for us form and a rep will get in contact with you. And if you want to subscribe to our content, the podcast, the video, the blog, the charts, etc. consider subscribing to Collective 54 Insights. It’s a weekly newsletter. You get those four things and you can find that at the website. And then lastly, if you want to really dive into this material, check out our book, The Boutique: How to Start, Scale, and Sell A Pro Serv Firm. Thanks for listening today and until next time, I wish you great success as you try to grow, scale, and exit your boutique pro serv firm.

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.

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.

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.

As a firm scales, it must make a significant change to its sales strategy. On this episode we discuss how the sales strategy changes at different stages of a firm’s lifecycle.

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 am Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that as a firm scales, it must make a significant change to its sales strategy. The sales approach in a small young firm becomes obsolete when scale becomes the focus. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg built the legendary sales team at SBI, which led to record setting scale, you’re in for a treat today. Greg, good to see you and welcome.

Greg Alexander [00:01:15] Sean, my boy, it’s good to be with you. Today’s topic is my favorite thing to talk about. There simply is nothing more important to a professional services firm than the sales strategy.

Sean Magennis [00:01:29] Greg, amen. This topic is the most requested topic from our listeners. I’m thrilled to have you share your knowledge in this area today. Let’s get straight into it. I opened by stating that the sales strategy needs to change when scaling a firm becomes the focus. Can you explain why this is?

Greg Alexander [00:01:50] Sure. So let me frame this up for the audience. So boutiques have a lifecycle. I like to say they grow scale and exit over the course of time. At each lifecycle stage, the sales strategy goes through a dramatic change. For example, during the growth phase, virtually all the selling is done by the founders. In the goal is opening new accounts. During in the scale stage, the selling effort is split between the founders and the employees. In the objective is expansion revenue from existing clients. And during the exit stage, all the selling effort is done by the employees with zero involvement from the founders. The goal in this stage is to prove to a buyer that the firm is not dependent on the founders to grow revenue. So given these dramatic changes in who does the selling in the goal of the selling effort, you can see how the sale strategy must change.

Sean Magennis [00:02:46] OK, I get the framing of the idea sales strategy changes at different stages of a firm’s life cycle. However, I’m not sure I understand why it needs to. Why can’t a founder who is successfully growing his firm just keep doing what he is doing?

Greg Alexander [00:03:06] Because he cannot outhustle the law of big numbers. It is easy to go from one million to three million in revenue. Just close a few big deals and you are there. But it’s very hard to grow from 10 million to 30 million. The amount of deal volume this requires outstrips the capacity of the founder or the founders.

Sean Magennis [00:03:26] Greg, tell me why that is.

Greg Alexander [00:03:28] All right. Let us think about the amount of effort it takes founders to generate enough new business to scale the law of big numbers says the owner needs to get in front of a lot of prospects. This requires a marketing push in time for word of mouth to spread articles get written and published, speeches at conferences get made, podcasts, get produced and books get written, social media accounts get filled with posts. This wider net catches a lot more fish. Yet these fish now need to be qualified. Our peace require well written responses. Competitive bake offs required decks to be created. Sales opportunities must be managed with care. Relationships need to be nurtured. Lots of miles get logged and many Hotelbeds get filled, references need to be contacted, etc.. I’m exhausted just talking about it. Opening new accounts is a lot of effort and is very expensive. If the sales strategy, when trying to scale means doing more of this, it just won’t work. Yet many boutique founders approach to scaling is working harder, not smarter. So they just keep doing this kind of activity and eventually they burn out. This is when revenue growth flatlines.

Sean Magennis [00:04:59] Yep. My my goodness, Greg, now that you lay it out like this, it is obvious that when trying to scale boutiques need to redesign the sales strategy. Greg, what should they do?

Greg Alexander [00:05:12] So let me flip the table and ask you a question, Sean. What is the primary difference between a growth stage firm and a scale a stage firm?

Sean Magennis [00:05:23] Let me think on this. Well, at the risk of stating the obvious, I would say the primary difference is the number of clients and the number of employees,

Greg Alexander [00:05:33] Atta boy. You’re correct. The scale stage firm has more employees and more clients. This means that the sales strategy during scale switches from hunting to farming. The driver behind scaling revenue growth is generating lots and lots of revenue from existing clients. Gone are the days of depending 100 percent on the partners to bring in new clients during the scale stage, boutiques should generate approximately 80 percent of their revenue from existing clients and 20 percent from new clients. This is the complete opposite from the growth stage, whereby it was 80 percent of the revenue from new business and 20 percent from existing clients. And guess who sells to existing clients, it’s the engagement team, not the founders of the boutique. The engagement team is working day to day with the client, building the relationship and uncovering new projects in the process. And the best part is this kind of selling farming is much, much easier. In fact, Salesforce.com recently looked at their customer data and suggested it’s about seven times easier to win a deal from an existing customer than it is from a prospect.

Sean Magennis [00:06:54] Greg, you’re so right. I can speak from experience that this is true. In fact, it might be conservative. Selling to existing happy clients almost is not selling. It just happens so naturally

Greg Alexander [00:07:08] It does.

Sean Magennis [00:07:11] 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.

Jay Smith [00:07:37] Hello, my name is Jay Smith. I’m the co founder and president of Sales at Security Seven Networks. Security Seven Networks is a managed cyber security service provider. We help our clients protect their businesses and prevent cyber attacks. Our clients rely upon us to protect them from the constantly shifting digital threat landscape. We’re able to do this by providing security thought leadership around compliance and security operations. If you need help protecting your business from cyber security threats, reach out to me at [email protected]

Sean Magennis [00:08:11] 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. You know, and unfortunately, we are running out of time and this takes us to the end of this episode, we could discuss the how to portion of this for hours. We will do so on a future episode. Let’s bring this home, Greg. As is customary, 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 question, your sales strategy is scaling. If you answer no too many times your sales strategy is more than likely getting in the way of your attempts to scale. Let’s begin.

Sean Magennis [00:09:23] Number one, are you generating a lot of business from existing clients? Number two, have you reduced your need for new clients substantially? Number three, do you understand your share of wallet for your current clients?

Greg Alexander [00:09:44] Just a quick explanation there, share of wallet says client X, Y, Z spends X amount of money on this particular area. What percentage of that spend are you capturing? That’s what share of wallet means.

Sean Magennis [00:09:58] Great point. Great number four are your current clients up to date on your full capabilities?

Greg Alexander [00:10:05] Yeah, this plagued a lot of boutiques.

Sean Magennis [00:10:07] Yep.

Greg Alexander [00:10:07] They bring it out new services and their, quote, legacy clients are unaware of them.

Sean Magennis [00:10:12] Number five, are you investing non billable hours directly into your existing clients?

Greg Alexander [00:10:18] So notice the word investing there.

Sean Magennis [00:10:20] Yes.

Greg Alexander [00:10:21] Many times boutique owners look at their utilization report and they say, hey, we’re 80 percent utilized. We have 20 percent waste. I don’t look at it that way. If the 20 percent of non billable hours is an investment into existing accounts to gen up new business, that’s not a negative. That’s a positive.

Sean Magennis [00:10:35] Yeah, I think that’s golden. Number six, have you redesigned your business development process to prioritize existing clients? Number seven, have you trained your employees on the new business development process? Number eight, are your delivery teams gold and measured on finding new opportunities?

Greg Alexander [00:11:01] Now, this will be controversial. The people that are in the, quote, delivery side, those that are tasked with being on time, on spec, on budget, they’ll say we shouldn’t be gold on finding new sales opportunities. And I disagree. During the scaling stage, their contribution to sales should be recognizing new client opportunities. And they don’t have to close them. You know, they can kick them up to the partner or they can kick them up to the BD person. But it’s their job to have the ears open where when they’re on the client site.

Sean Magennis [00:11:29] Absolutely. And I love your comment that you always make to me. Everybody should carry quota.

Greg Alexander [00:11:33] Yep.

Sean Magennis [00:11:34] Number nine, are the employees who are best at business development, your cultural heroes?

Greg Alexander [00:11:40] So important. So it sends the message, right?

Sean Magennis [00:11:42] Absolutely. And number ten, do you make sure that your current clients know how important they are to you?

Greg Alexander [00:11:50] Never take a client for granted.

Sean Magennis [00:11:52] Absolutely. So in summary, as you scale, life gets easier. You have happy clients, they buy more from you. They refer their friends to you. You win more business as word of mouth spreads the brand, your win rate goes up and your cost to acquire clients goes down. Make sure this is happening at your firm during the scale stage switch from hunting to farming. 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 Professional Services Firm. I’m Sean Magennis. Thank you for listening.

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.

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.

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.

A change to your pricing strategy is perhaps the quickest way to scale. It does not require an investment to implement and the benefits are immediate.

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 a change to your pricing strategy is the quickest way to scale. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s founder and chief investment officer. Greg is truly an expert in the pricing of professional services. Greg, great to see you and welcome.

Greg Alexander [00:01:03] Sean, it’s good to be with you. I look forward to helping our listeners pick some low hanging fruit today.

Sean Magennis [00:01:08] Excellent. And in this instance, I would say the fruit is not low hanging. It’s on the ground. So our listeners just need to bend over and pick it up. Greg, why is a change in pricing strategy the quickest way to scale?

Greg Alexander [00:01:24] Because it does not require an investment to implement. There is not staff to add or service offering to develop, and the benefits are immediate. Charge more today than you did yesterday.

Sean Magennis [00:01:34] And you feel most owners of boutiques mess up their pricing strategy and get this wrong. Why do you feel this way?

Greg Alexander [00:01:41] So there are several reasons. So boutiques often do not know what their services are worth to their clients, and they are often unaware of what clients are willing to pay for the services. Many firms cannot even logically explain to prospects why they charge what they charge. And worse, they cannot quantify the amount of value the prospect receives from an engagement. Too often, the pricing strategy is in without it’s based on intent, internal costs, worse boutiques rely too heavily on what their competitors charge for similar services. And lastly, the BD team are often awful at overcoming sales objections, and they come up in the sales campaigns.

Sean Magennis [00:02:25] You know, wow Greg, I counted seven mistakes firms are making in your response. It appears pricing strategy is a real obstacle, preventing boutiques from scaling. Is there a solution to this problem?

Greg Alexander [00:02:38] Yes. The good news is, is that this problem is simply salt. It takes some sound judgment, but the pricing best practices are readily available.

Sean Magennis [00:02:48] Can you give our listeners a few to get them going?

Greg Alexander [00:02:51] Sure. So the first recommendation is to develop a pricing strategy that matches your business strategy. So, for example, if a firm sells to small businesses, the high volume, low price model makes sense. If you sell complex solutions to large companies, a high cost, low volume approach is best. Another recommendation is to focus on price positioning as it affects perception. And in this context, perception is reality. The price you charge sends a signal to the client. If you price too low, your work will be considered low quality. If you price too high, you will be perceived as being difficult to engage. If you price the same as your competitors, you’ll be perceived as undifferentiated. And one more might be to understand what clients value at the attribute level. A mistake owners of pro serve firms make is they think in the aggregate. When it comes to pricing, be sure to understand what attributes of your offering are valued most in influence to perception of your performance in this specific area. This will result in the ability to charge more. There is more perceived value here.

Sean Magennis [00:04:12] Greg, that’s really fantastic advice. So three specific takeaways that I’m seeing is match the pricing strategy to the business strategy, your price positioning and price at the attribute level, not in the aggregate. Greg, you have an incredible track record and the story of SBI’s  pricing strategy has become legendary in some circles. Can you briefly share it with the audience as a way to bring these ideas to life?

Greg Alexander [00:04:43] Yeah, I think calling it legendary is a bit much, but I can say it was a key to our scaling quickly. So my firm was a management consulting firm and the management consulting industry is structured into three tiers. Tier one of the mega firms think McKinsey and Bain, etc. Tier two are the midsized boutiques and tier three other small startups. So my firm, SBI, was a Tier two management consulting firm, a mid-sized boutique highly specialized in the niche of B2B sales effectiveness.

Greg Alexander [00:05:22] My price positioning approach was to price below tier one, but above tier two. And what signal does this send? It sent the signal that we were the best of the tier two boutiques and this had the good fortune of being true. Thank goodness. The practical impact this had on us was a top one percent profitability. Our prices were compared to the mega firms. They were not compared to the Tier two firms.

Greg Alexander [00:05:54] In essence, we created a new tier like a Tier 1A and the scale benefits of this were huge. We threw off loads of free cash flow, which we plowed right back into the business. And this resulted in scaling much faster than otherwise would have been accomplished.

Sean Magennis [00:06:14] Greg, that’s a great real life example. Thank you.

Sean Magennis [00:06:20] And now a word from our sponsor. Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members join to work with their industry peers to grow scale and someday sell live firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

Lauren Davenport [00:06:46] Hi, my name is Lauren Davenport and I own the Symphony Agency, a health care communications firm. We serve U.S. based health care provider organizations with multiple doctors and multiple locations. Our clients turn to us for help when they hit a stage of stagnant growth and need more patients or more staff to reach their projected goals. We solve this problem by developing messaging strategies that connect with their audience and implement outreach programs that extend past their current network to attain the resources needed to reinvigorate their growth. If you’re struggling with stagnant growth and need more patients or staff to reach your 2021 goals, connect with me online at SymphonyAgency.com or by email at [email protected].

Sean Magennis [00:07:39] 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 [00:07:56] This takes us to the end of this episode. And as is customary, we end each show with a tool. We do so because this allows a listener to apply the lessons to his or her for our preferred tools, 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 pricing strategy is working for you. If you answer no too many times, pricing is more than likely getting in the way of your attempts to scale. So let’s begin.

Sean Magennis [00:08:36] Question number one, do you know what your offering is worth to clients? Number two, can you quantify the value of your work in hard dollars? Number three, do you know what clients are willing to pay for your services? Number four, can you explain the logic of your pricing in a way that makes sense to clients? Number five, does your price illustrate to the client the link between price and value? Number six, do you charge the most for the service features that your clients want the most? Number seven, do you charge the least for the service features that your clients do not care much about? Number eight, do you allow for clients to choose their price by presenting options? Number nine, is your sales team skilled at overcoming price objections? And number ten, have you built into your system an annual price increase?

Sean Magennis [00:10:03] In summary, know your worth. Do not undervalue yourself. What you do is exceptional. Price accordingly and scale quickly.

Sean Magennis [00:10:15] 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.