Episode 39: The Boutique: 4 Different Recruiting Needs for Professional Services Firms to Scale

As your boutique professional service firm scales, talent acquisition shows up on the list of top priorities. Collective54 founder Greg Alexander discusses why the ability to recruit at scale separates the winners from the losers.

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 as your boutique scales, recruiting shows up on the list of things to excel at. The days of recruiting from your personal network are over, and the ability to recruit at scale separates the winners from the losers. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg is considered one of the industry’s best talent pickers. In fact, Dr. Jeff Smart in his best selling book, Who the A Method for Hiring suggests Greg is one of the best he’s ever seen. Greg, great to see you and welcome.

Greg Alexander [00:01:26] Sean, it’s good to be with you. I see that you dug up Dr. Smart’s classic book and who Jeff and Randy who run smart and associates are the best in the world at hiring the right people. I encourage everyone to read that book and check them out. I was flattered to be mentioned as a success story in their work.

Sean Magennis [00:01:45] Will do. Greg, I have heard you mentor boutique funders in the area of recruiting. So during these conversations you discuss how there are four different recruiting needs when scaling. Can you walk the audience through these four?

Greg Alexander [00:02:01] I’d be happy to, but before I do, allow me to place this into the proper context. If you are a small, young firm in the startup phase, this does not apply to you. Recruiting in the startup phase is not a mission critical task. The needs are basic in most jobs can be filled from personal networks. In contrast, if you are a firm trying to scale, meaning build something more than a lifestyle business, then recruiting is a mission critical task. Not all the jobs can be filled from personal networks as there are just too many of them to fill. And also the stakes are higher. So, for example, as you leave the scale stage and start to prepare for exit, you will need to recruit a CEO so you can ride off into the sunset. If you miss higher this role, you can kiss your earnout goodbye. Recruiting goes from a passive activity to a mission critical task as you mature. Does this make sense, Sean?

Sean Magennis [00:03:00] Yes, it does. Thanks for setting the table, Greg, and for the context.

Greg Alexander [00:03:05] OK, so let’s jump into the four different types of recruiting as a firm scales. I will start with the first big change, replacing generalist with specialist. As you scale, you will attract more sophisticated clients. These clients will pay you more and therefore expect more. These clients are experienced buyers of professional services and they know what to look for. For example, they will require you to name and describe the team on the account in the proposal. This means you will need to spell out the years of experience, industry references, project case studies and many other items. The prospect is deciding on which firm to select, due in part to the bios of the account team. If you recruit generalist, you will lose too many deals and will not be able to scale sophisticated clients. The types of clients our audience wants to work for, the mad, hyper specialized talent. Does the first recruiting change makes sense?

Sean Magennis [00:04:12] Yes, it does, Greg. So switch from recruiting generalists to recruiting specialists in response to the needs to more sophisticated clients. What is the second recruiting change that happens as you scale?

Greg Alexander [00:04:26] The second recruiting change that pops up when scaling a boutique is the need to hire a manager of managers. You see, startups are filled with small teams, boutiques are filled with medium sized teams, and the market leaders are filled with large teams. Therefore, startups hire managers who manage individuals, boutiques, hire managers who manage other managers and market leaders, hire managers who lead entire departments. So during the scale stage, owners of boutiques need to recruit or develop managers of managers at about midsize. The need for this role again, manager of managers shows up. So this is the second recruiting change and does that make sense?

Sean Magennis [00:05:14] It sure does. So when small startups graduate to the scale stage in their life cycle, the need to hire managers of managers shows up for the first time. This is a big change and it makes logical sense. What is the third recruiting change on the journey?

Greg Alexander [00:05:33] So the third recruiting change that pops up when scaling and boutique is the need to hire executives, boutiques at scale require an executive leadership team. These executives have autonomy to make decisions. They’re not simply executing the founders plan. They are drafting their own plans in at times even have their own independent profit and loss statement, which means they have spending authority. Does the third recruiting change make sense to you?

Sean Magennis [00:06:00] It does Greg and I have seen many a founder stumble at this point. This requires giving up some control and that can prove to be difficult for some. What is the fourth and final recruiting change as a firm scales?

Greg Alexander [00:06:17] So the fourth change that pops up when scaling is a need to reassign the founder. So we all love our founders. They are the pioneers who created jobs and wealth. However, at a certain point, founders become a bottleneck founders. They want to launch new services into new markets and innovate. They do not want to install process and systems and scale. And yet that’s what’s needed at this stage. Therefore, founders must hire or promote a new CEO. The objective is not for the founder to stop working or to work less. Rather, it’s to make the founders contributions much more impactful. The CEO runs today’s business while the founder is developing tomorrow’s business. This one two punch accelerates the pace of scaling. Does that fourth recruiting change makes sense?

Sean Magennis [00:07:15] It absolutely does. Greg and I especially like the word reassign as opposed to replace. We are not showing the founder the door. Instead, we are creating an environment that allows his or her creativity to blossom and not be strangled.

Greg Alexander [00:07:31] Yeah, that’s correct. I mean, where would jobs have been without Cook or Zuckerberg? Without Sanders?

Sean Magennis [00:07:36] Absolutely. Excellent advice and examples as usual. Greg, thank you.

[00:07:44] 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.

Matt Rosen [00:08:09] Hello, my name is Matt Rosen. I’m the founder and CEO of Allata. Allata service enterprise clients in the financial services, health care, retail distribution and professional services sectors. Our clients are nationwide and we have offices in Dallas, Pheonix, Salt Lake City and Boise. Our clients, such as Freman Associates, and the Army Air Force Exchange, turn to us for help with strategic initiatives typically creating new revenue streams, creating digital customer experiences or increasing productivity. We help our clients by building digital strategies and roadmaps, designing product custom, developing software and helping them gain insights into their data. If you ever need help with a digital strategy, product development, customer development or data initiative, please reach out to me at [email protected] and the websites www.allata.com.

Sean Magennis [00:08:56] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit Collective54.com. OK, this takes us to the end of the episode, let’s try to help listeners apply this. We end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist and our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these questions, your recruiting strategy is working for you. If you want to know too many times, recruiting and the lack thereof is more than likely getting in the way of your attempts to scale. Let’s begin.

Sean Magennis [00:10:01] Number one, the individual contributors need to evolve into manages? Number two, the managers need to evolve into managers of managers? Number three, do managers of managers need to evolve into executives? Number four, do you need to shift from generalists to specialists? Number five, are you attracting sophisticated clients with higher expectations? Number six, has the founder become a bottleneck? Number seven, can the impact of the founder be amplified if partnered with the CEO? Number eight, does Decision-Making need to be pushed to those closest to the clients? Number nine, is it time to shift from experimenting with the model to scaling the model? And number ten, is it true that what got you here won’t get you there?

Greg Alexander [00:11:17] You know what I love about those 10 questions in particular in this episode is there’s a yes box in a no boxes, no maybe box.

Sean Magennis [00:11:24] That’s exactly right.

Greg Alexander [00:11:26] So you founders’ out there when you’re asking yourself these questions, make sure you’re you’re answering accurately.

Sean Magennis [00:11:32] Thank you, Greg. In summary, recruiting as a startup is not a mission critical task, yet when scaling, it is the need for specialists, managers, executives and a CEO arrive on the scene. These are new roles and usually cannot be filled correctly from the founder’s personal network. To scale, your boutique needs to become a master recruiter.

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

Episode 10: The Boutique: Do You have a Bankable Team?

Acquirers buy teams first, and firms second. The quality of the management team is of major importance to the buyer. It can take years to develop a bankable team. Think like an investor. Would you bet the farm on your team?

The Boutique with Capital 54-Episode 10.mp3

Various Speakers [00:00:01] You can avoid these landmines. It’s a buy versus build
conversation. What’s the root cause of that mistake? Very moved by your story. Dive all in
on the next chapter of your life.
Sean Magennis [00:00:16] Welcome to the Boutique with Capital 54, a podcast for owners
of professional services firms. My goal with this show is to help you grow scale and sell
your firm at the right time for the right price and on the right terms. I’m Sean Magennis,
CEO of Capital 54, and your host on this episode. I will make the case that a choir is by
bankable teams first and firms second. That the quality of your management team is of
major importance to the potential buyer of your boutique. I’ll try to prove this theory by
interviewing Greg Alexander, Capital 54’s chief investment officer. Greg, many would say
you were the nation’s leading expert in evaluating management teams in the professional
services industry. Let’s start with some basics. What are investors looking for primarily in
management teams?
Greg Alexander [00:01:20] OK. The basics are what you might expect before I invest in a
boutque, I start by looking at the biographies of the leadership team. I try to determine if
they have the proper level of experience to scale the firm. I have found that the team that
got the firm to this point is often not the team to get the firm to the next level. I also try to
locate any holes in the management team. Sometimes owners run very lean to keep
payroll low and EBITA high. This is a mistake because the true scale of firm to a few
hundred million a firm requires a fully staffed executive leadership team. So those are
some of the basics.
Greg Alexander [00:01:54] Yeah, this makes sense, Greg. So the biographies,
biographies of the team and a fully staffed team, these are the basics. But how about
beyond the basics, what else do you look for when assessing the quality of the
management team?
Greg Alexander [00:02:09] Yeah, beyond the basics I tend to gravitate to the following. So
first, is the management team staying with the business post sale? If they are not, I’m not
going to invest. Their desire to depart at closing tells me they’re not committed to the
business. I understand the wish to take some chips off the table and I’m okay with
rewarding management teams with some liquidity. But I’m buying the future. I’m not buying
the past. And I want to see them double down with me and get after it. Next, I look for an
industrial strength strategy. This means do they know where to play and how to win? Does
each employee understand how their role in the execution of the strategy impacts results?
I want to see a data supported strategy that cascades targets that align each employee
with the boutiques strategy. The existence of such a strategy would indicate a quality
management team, and one of my favorites is the growth story. I want to see from the
management team the size of the market, its rate of growth, the share of the market that
they have today, and how this share will grow over time. I want them to tell me where is
the growth going to come from? Will it be high water raising all ships? Will it come from,
let’s say, the launch of new services or entrance into new markets? Will it come from
simple price increases? The list is long of possible growth elements of the strategy, and I
want to see the operating leverage they will deliver. And this means how much of the
revenue growth is going to drop to the bottom line. So, for example, will profits increase
due to digitization, labor arbitrage or other means? So these are all examples of investible
management team or what some might call a bankable team.

Sean Magennis [00:04:11] These are outstanding examples. Greg, you often talk about a
bankable team, the term bankable. What does this mean?
Greg Alexander [00:04:21] Yeah, a bankable team. So this phrase can summarize, really
this entire episode. So in my opinion, here’s what it means. A bankable team is a team I
would bet the farm on. When an investor invests in a boutique professional services firm,
he or she is making a bet and he is betting on the team’s ability to pull off the growth story.
It’s where the rubber meets the road and where the men are separated from the boys, or in
some cases where the women are separated from the girls. So, for example, Sean, I bet
on you and your team when I backed Capital 54, I was and continue to be convicted in my
belief that you will build the most successful investment firm in the professional services
space. Did I love the idea? Yes, of course I did. But the idea without you was worthless to
me. The team matters more than the idea.
Sean Magennis [00:05:16] The bankable team. I love the idea, Greg, and so appreciate
this opportunity we are on.
Sean Magennis [00:05:25] 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 their firms at the right time
for the right price and on the right terms. Let us meet one of the collective 54 members.
Dan Stevens [00:05:51] Hello. My name is Dan Stevens. I own WorkerBee.tv. We serve
local, national and global organizations and associations by helping them leverage the
power of video and multimedia. These clients turned to us for help with content
development and distribution so that they can truly measure the impact and ROI of their
communications, marketing and education investments. We solve this problem by
providing both platform and video and multimedia services in a turnkey manner. If you
need help with video, online platforms or content strategy, please reach out to me at
[email protected]
Sean Magennis [00:06:32] 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 [00:06:49] So, OK, this takes us to the end of this episode. And as is
customary, we end with a 10 question, yes, no checklist. We do this to reward you, the
listener, with some immediate take home value. Ask yourself these 10 questions. If you
answer yes to eight or more of these questions, you have a bankable team. If you answer
no too many times, you don’t. And this will prevent you from selling your firm effectively.
Sean Magennis [00:07:18] Question number one, is the management team staying with
the business post sale? Number two, is there an industrial strength strategy developed
that an investor can bet on? Number three, does the management quality go at least one
layer deep on the [inaudible]?
Greg Alexander [00:07:43] Often overlooked.
Sean Magennis [00:07:44] Yes.
Greg Alexander [00:07:45] You know, the partners or the founders present themselves to
the investors and then the person doing diligence goes one level below that and they run
into the junior varsity.

Sean Magennis [00:07:56] Yes.
Greg Alexander [00:07:56] Right. So a bankable team means beyond just the founders
and the owners.
Sean Magennis [00:08:02] Really good point.
Sean Magennis [00:08:03] Question number four, does the management team drive the
strategy deep into the organization? Number five, are there cascading targets that reach
all the way to the frontline employees? Number six. is there a believable growth story?
Number seven, is the management team capable of getting the boutique to this future
state?
Greg Alexander [00:08:33] Let’s talk about that for a moment. Sometimes the
management team can spell out a growth story but they’re not the team to get them there.
Or maybe they’re part of the team to get them there and they need to go recruit some new
talent to get them there. And, you know, if we would have flipped this for a moment. So if I
was somebody selling a firm and I was evaluating investors, that would be one of my
questions. How are you going to help me recruit exceptional talent? It’s not just about the
money they give you. It’s about the.
Sean Magennis [00:09:04] It’s the how.
Greg Alexander [00:09:04] Exactly right.
Sean Magennis [00:09:06] Great. Question number eight, is the management team
excited and passionate about attempting to get this growth story done?
Greg Alexander [00:09:14] Another one, very often tired people try to sell their firms. I’ve
been doing this for 30 years. It’s time to leave. That’s not a very exciting story.
Sean Magennis [00:09:24] Absolutely. Question number nine, have all the holes or gaps
in the team been addressed? And question number ten, do the forward projections reflect
the true costs to operate the firm in the future?
Sean Magennis [00:09:42] In summary, remember that acquirers by teams first and firms
second. The quality of the management team is of major importance to a potential buyer. It
can take years to build a bankable team. Get started today.
Sean Magennis [00:09:59] 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.