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Episode 52: Sell Your Business: The Difference Between a Happy and an Unhappy Exit – Member Case with Renzi Stone

Renzi Stone, Founder, and CEO of Saxum discusses the essential questions to consider when selling a professional services firm, including the importance of knowing your why when developing a business exit strategy..

Transcript

Sean Magennis [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. The goal of  this show is to help you grow, scale, and exit your firm bigger and faster. I’m Sean Magennis, Collective 54 Advisory Board member, and your host.

In this episode, I will make the case that step number one in developing a business exit strategy and selling a professional services firm is knowing why you were selling before you sell. I’ll try to prove this theory by interviewing my friend Renzi Stone. Renzi is the Chief Executive Officer,  and Founder of Saxum, an award-winning 50-person integrated digital marketing agency and consultancy headquartered in Oklahoma City with a distributed workforce across the United States. You can find Saxum at www.saxum.com. We’re going to learn a lot from Renzi. Renzi, great to be with you, and welcome. 

Renzi Stone [00:01:24] Sean, excited to be with Capital 54 and Collective 54. And looking forward to talking about business exit strategies. 

Developing a Business Exit Strategy: Know Your ‘Why’

Sean Magennis [00:01:32] Fantastic Renzi. So let’s start with an overview. Can you briefly share with the audience an example of why knowing the reason to sell your professional services firm is so vitally important? 

Renzi Stone [00:01:45] I think if you’re going to start off thinking about selling your firm, you really need to think first about why you’re in it, to begin with. Is there something else you have to offer your clients and your team members? And so it’s a good question. But I think the first thing that I would have to say is that every firm should make a critical decision. Am I in a lifestyle firm, or am I a scale firm? 

And so, to answer that question for me, Sean, I would say I am in a scale firm. This means that I am required, as a condition of my employment as the CEO of this company, to be thinking about what the outcome over many years looks like. And the only way to have an outcome that is achievable on a scale firm is you have to build it to sell. 

Sean Magennis [00:02:43] I love that. And that is so crystal clear the way that you distinguished that. And for the listeners’ sake, clearly articulating for yourself in a very deliberate way, whether you’re a lifestyle firm or a scale firm. Outstanding, Renzi, this is such a personal topic. I’m glad you’re here with me today because I know, you know, you’re a deep thinker. You have a strong set of core values. 

So I’d like to get your thoughts on some important, you know, considerations and questions when thinking of selling your professional services firm. It’s a long list. I’ve only selected five things, and I know that you’ve probably got several more. But I’d like to get your thoughts on each. 

So the first one is the reason to sell your boutique is very personal, and it should be. You’ve poured your life into building the firm; leaving it, handing it to somebody else takes much thought. How have you approached this? 

Renzi Stone [00:03:40] Well, I think the thing that I think about about the decision to sell my firm, and it’s really important to note, Sean, I haven’t exited my firm. 

Sean Magennis [00:03:51] Correct. 

Renzi Stone [00:03:52] I aspire to have a firm that has enough value that an exit is possible. 

Sean Magennis [00:04:00] Got it. 

Renzi Stone [00:04:01] So to answer the question, the things that I’m thinking about as it relates to a business exit strategy are systems, talent, processes, and the why for me is: Have I brought the firm as far as it can go under my leadership? And when I think about our clients. 

So one of the things I say all the time, Sean, is no clients, no Saxum – the only people that send money to Saxum. Unfortunately, our clients’ are the ones that send money to us, not vendors, not my friend, and certainly not my mom and dad. So if clients are the ones that send money to Saxum, my job as the Chief Executive Officer  is how do I create more value for those clients? And if I create value, they’ll refer me to other people. They’ll increase their scopes of work. 

And so the decision to sell for anybody is based on the idea of: Can you create more value for your clients by making that move? Any amount of money that I put in my pocket, any amount of lifestyle change that creates is only secondary to the first objective, which is how do you create more value for clients? And I think, Sean, I think if you get that backward , you are really at risk of having a failed acquisition, even if it gets closed. It may not perform. 

Selling a Business: Various Reasons Why Boutique Owners Sell

Sean Magennis [00:05:29] I so appreciate you sharing that and that perspective because I agree with it 100 percent, and you touched on the money aspect. Some owners of boutiques sell exclusively for the money. And in your view, how important is the money aspect of selling? 

Renzi Stone [00:05:49] Well, look, anybody who takes the risk, who puts capital and time at risk. And by the way, that’s in reverse order. Yes, time and capital at risk. Got it over 18 years. It’s 2021 right now. For 18 years, I have put my time and my capital at risk. Yes, I have put it at risk at the expense of doing other things with my time and my capital. 

So money is absolutely a consideration for any boutique owner who’s thinking about selling. What I would argue is if all you can think about is the money, you’ve missed the whole point of creating something of value. 

Sean Magennis [00:06:34] Well, well, well said. I’ve also heard that some owners sell because they’re bored. Some are exhausted. Some say that they that their work became a job. It’s not fun anymore. What are your thoughts on this aspect? 

Renzi Stone [00:06:50] Well, I am also a believer that yesterday is gone and tomorrow has yet to come. And so we all have to live in the present. And if in the present we are not challenged, we don’t have vision. So the job of a CEO, Sean, as you know, is to have vision. You must have vision, and the vision must be compelling. It must be. It must be something that can be translated. It must be something that can be owned by others. 

But if you fail to create a vision, you have failed to create something that is growing. And so I think to answer your question, people that leave boutiques because they’re tired or because they’re worn out, what they’re really saying is I don’t have a vision for the future. And so, the vision for the future is required. And I think anybody who continues to have a vision for the future should really ask themselves if it’s the right time to sell. 

Sean Magennis [00:07:50] Beautifully said again. And you know, that’s a lot. There’s a lot of psychology and psychological challenge behind that, and I loved you saying live in the present. It’s challenging to do so, but that’s where the reward is. And I love your comment about vision. It has to be compelling, and it has to be lived 24-7. So many boutiques are partnerships. At times, partners start fighting. One needs to be bought out. You know there are complications with that. What are your thoughts on this? 

Renzi Stone [00:08:22] Well, you’re talking to somebody who doesn’t have partners. And so…. 

Sean Magennis [00:08:25] For a reason, I presume. 

Renzi Stone [00:08:28] Well, I had a partner at the very outset of the business, and I did all the work, and the partner received all the benefit. And so I said, “Hey, partner, either you buy me, or I buy you.” And the partner said to me, “Well, I don’t want to own it because I don’t want to run it.” And I said, “Well, I don’t want to run it because I’m working for you 50 percent of the time.” And so it caused quite a conflict, as you might imagine. 

And so we resolved the situation. I bought his shares for a premium price, and then I own the rest of the business, so I own 100 percent of the business today. I would say for any professional services firm  owner who is at odds with the value creation with their partner, I would say that today is the best day to resolve it. 

And if you don’t resolve it today, then  tomorrow, and if not tomorrow, then the day after. I’ll tell you this, what most people do, Sean, is they don’t resolve it correctly. They just allow it to fester, which creates resentment which creates unequal value creation. And it’s a disaster waiting to happen. 

And we hear this in Collective 54 all the time. And it’s complicated, and it’s distracting to fight with a partner. But I would argue I addressed my problem. It was a problem. And as a result, I’ve created millions of dollars of value outside of that partnership, and it would not have been a good deal for me if I had stayed in that relationship. 

Sean Magennis [00:10:06] Wow, that is practical. It’s vulnerable, and it’s real. Thank you, Renzi. That’s outstanding. Another reason to sell is that some professional services firm owners are afraid, and you’ve touched on this a little bit, that tomorrow might not be as profitable as today. So what do you think about that? 

Renzi Stone [00:10:26] So I have a series of advice that I present to our team annually. There are 28 of them, but number one, Sean, is do not be afraid. Do not be afraid. And my counsel for anybody who thinks tomorrow might not be as good as today is, we have no idea. We just don’t know. And I’ll tell you; I have to tell myself the reasons. Number one on my list is because I have to tell it to myself regularly. 

Sean Magennis [00:11:02] Yeah, that’s that’s excellent. So, um, I’ve met owners who’ve had happy exits, and I’ve met owners who have had unhappy exits. And you know, what’s the difference? Those who had happy exits knew why they were selling. Those who had unhappy exits did not. 

10 Questions to Ask When Selling a Professional Services Firm

So, Renzi, this has been extraordinary, and we’re going to dive into our 10-question format. It brings us to the end of the episode. 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 these ten questions. If you answer yes to eight or more of these, you know why you are selling and will likely have a happy exit. 

Renzi graciously agreed to be our peer example today, and I’m going to switch it up slightly. I’m going to remove one. I’m going to add this because Renzi has really done his homework, and we’re going to go through his list of questions which are very similar but with one or two subtractions. So I’ll start out by asking the first question: Do you have a clear vision of your future? 

Renzi Stone [00:12:17] Sean, I’m a goal setter. You and I know each other a little bit. I’ve written down my goals since I was 10 years old. I have tracked my goals for most of the last 20 years. I write them down, and I work at them. I have a vision for where I’m taking my business, and I’m executing against it. 

And so the answer is today, I have a clear vision for the future, which is probably the reason I haven’t exited a couple of years ago. Sean, I would tell you that I did not have a clear vision, but then I got one. Yes, and so it’s made a huge difference. 

Sean Magennis [00:12:55] Excellent. So does selling your boutique help you get there? 

Renzi Stone [00:13:01] The option to sell my boutique helps me get there, so yes. But it’s an option. Not an imperative. 

Sean Magennis [00:13:09] Fantastic. Number three, do you know why you do what you do? 

Renzi Stone [00:13:15] Saxum, we have a mantra called obsessed for good. Obsessed for good means that you want your professional service consultant to be obsessed with your work. We want to be obsessed with the issues and the challenges facing our world. For means we’re serving others. We are serving others and good means that the expectation is excellence. And so obsessed for good is how we define our why. That’s why we do what we do. 

Sean Magennis [00:13:57] Incredible. I, you know, listeners, if you could articulate the way Renzi did those specific items, that would get you way ahead of the game. Number four, would selling the firm bring you closer to your ultimate purpose? 

Renzi Stone [00:14:13] Well, I think anybody who’s the owner and CEO of a professional service firm or any firm, the values are reflected in who they are as individuals. So being obsessed for good carries into my personal life, and I would expect it to only increase as I get older, and I move on to new challenges if I ever do. 

Sean Magennis [00:14:39] Again, well said. Number five, I know you have a set of values, so do you have a set of values that define how you want to behave? 

Renzi Stone [00:14:48] Yes, and there are four of them. They make up the acronym BOLD, which is brave, original, lively, and driven. Those are the values of the firm. Those are the values that we operate by. That’s how we create value for our clients. 

Sean Magennis [00:15:04] Outstanding. I’m going to skip now, and I’m going to ask you a question. Do you know the type of community you want to be part of? 

Renzi Stone [00:15:14] One of the things I’ve noticed about boutique owners is that a lot of them are alone, and they don’t have anybody to talk to. And so, if you are somebody who is running a firm or a Managing Director or a partner, you have to surround yourself with a community of like-minded  thinkers, like minded values, not necessarily thinkers, not necessarily people who just think like you. 

Diversity is obviously a huge benefit to people that take advantage of that. And so personally, I value authentic relationships, people that tell me the truth. Yes, and I value feedback. We should all be seeking feedback all the time. Feedback is a gift when we get it. We can take it or leave it, but it helps us. 

Sean Magennis [00:16:03] Yeah. So this is an allied question, and you answer it in the way that you want to answer. So would selling a firm allow you to spend time with these people? Or how would you respond to that? 

Renzi Stone [00:16:19] I’ve made a decision to spend time with people who are positive and life-giving, not people that suck energy and take. So I’m a giver. I believe that when you give, you get. There’s all sorts. There’s two thousand years of human truth in that. And so I spend my time with those types of people, and I try not to spend time with people that take life away. 

Sean Magennis [00:16:47] I could not agree with you more. The next question will the proceeds of the sale fund something more than material possessions? 

Renzi Stone [00:16:57] No, I think just material possessions, Sean. No, just joking.

Sean Magennis [00:17:02] I just want a boat and a few toys. No, I get that. It’s a trick question. 

Renzi Stone [00:17:07] Yeah. So, my family we have a family foundation. Isaiah Stone Foundation, which has raised almost a million dollars for research in epilepsy and helping families who have children with epilepsy. We lost a child. And so, I would definitely see spending more time on epilepsy research and supporting families who are dealing with the devastating effects of epilepsy. 

Sean Magennis [00:17:32] That’s a noble cause, and I commend you for doing it. And then the final question is are you personally prepared for the next chapter? Whatever that will be of your life. 

Renzi Stone [00:17:45] I think so. I think so. The big question is: Does anybody really enter a chapter fully prepared? I’m the guy that did not know what I wanted to do when I grew up, but I’m going to bring it back here at the very end to something you said a few minutes ago about happiness. People, are they happy when they exit? 

And I’ll just tell a quick story I had. I had dinner with my family in a restaurant last year, and we went to the restaurant. Our waiter was such a great guy, and he made us feel so special, and we just had a great time. We laughed, and we told stories, and I don’t remember what exactly it was, but it was just a great family dinner. At the end of the meal, he came up and he said, “Are you happy with how dinner went?” We all kind of looked at each other, and we said, “Yeah, we’re very happy about how dinner went.” And he said, “Of course, you walked in here happy.” 

Sean Magennis [00:18:42] Wow. I mean, I got a little cold shiver there. I mean, that’s powerful. 

Renzi Stone [00:18:47] You walked in here happy, and so I have a friend who just exited the business for nine figures. He was unhappy before he sold the company. And guess what? He’s still unhappy now. Yes, so unhappy. But if we can all, if you’re happy already, chances are you’ll be happy at the end of a business exit strategy. And chances are, you’ll be happy if you lose everything. It’s not tied together quite that tightly. Yeah. 

Sean Magennis [00:19:17] Renzi, I knew this would be a remarkable episode, and you’ve encapsulated all these thoughts so well. You know, every entrepreneur exits. We all have our final resting place, which is the great consistency in life. We all die. You cannot run your boutique from the grave, and most of us sell our firms before that event happens. 

There are good exits. Some professional service firm owners are happy after they sell, and we would wish for everybody to be happy after they sell. And there are bad exits where some owners on unhappy good exits and I would take your thoughts, Renzi. Good exits start with a heartfelt, well-thought-out reason to sell to continue living in the present. 

A huge thank you for sharing your wisdom today and for our listeners. If you enjoyed the show and want to learn more, pick up a copy of the book “The Boutique How to Start, Scale and Sell a Professional Services Firm”, written by Collector 54 founder, Greg Alexander.

For more expert support, check out Collective 54, the first mastermind community for founders and leaders of boutique professional services firms. Collective 54 will help you grow, scale, and exit your firm bigger and faster.

Go to Collective54.com to learn more.

Thank you for listening.

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Episode 51: Scale Capital: A DIY Approach to Raising Growth Capital – Member Case with Josh Miramant

Scaling a boutique professional services firm requires raising capital, and not all capital is the same. On this episode, we interview Josh Miramant, Founder and CEO at Blue Orange Digital, to learn about the three sources of scale capital. When scaling a business, these are the sources of scale capital to be mindful of:

Transcript

Sean Magennis [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. The aim of  this show is to help you grow, scale, and exit your firm bigger and faster. I’m Sean Magennis, Collective 54 Advisory Board member and your host. 

In this episode, I will make the case that to scale your professional services firm requires capital and that not all capital is the same. I’ll try to prove this theory by interviewing Josh Miramant, Founder and CEO at Blue Orange Digital. 

Blue Orange is a data science and machine learning, consulting and development firm. They build modern data warehousing to support machine learning, and A.I. Blue Orange helps companies integrate these insights to drive data driven decisions. And the decision making. You can find Josh atBlueOrange.digital. Josh, great to  be with you. Welcome.

Josh Miramant [00:01:24] Thanks Sean, it’s great to be here, thanks for having me.

Sean Magennis [00:01:26] Hopefully, I did justice to that explanation of all the great things you do.

Josh Miramant [00:01:30] Or how many buzzwords in our space. You couldn’t have nailed it better, Sure.

Member Case: How to Raise Capital When Scaling a Business

Sean Magennis [00:01:35] So, Josh, let’s start with an overview. So why do professional services firms need capital when trying to scale is the big question. Scaling a business usually means entering new markets, launching new service lines, adding more headcount and many other strategic initiatives. These things all take money. 

So can you briefly share with the audience an example of how you raise capital to scale your firm or how you think about raising capital when scaling a business ?

Josh Miramant [00:02:05] Sure. Yeah, so I’ve spent a lot of time thinking about this and just a little background. I’ve actually started to venture back companies prior, so I actually came out of SAS product and a large equity-reduced  background. And this is my first professional services firm, and it’s quite a different beast. 

And in many great ways, like high profit generating types of business initiatives that you can use things like cash flow to reinvest in growth all the way over to, you know, the challenging pieces that they’re very cash hungry business models. 

To be honest, they’re going to take a lot of efforts like investing and resourcing and staffing and having a bench and resource allocation and all these things that are very, quite expensive. And these have to be very well forecasted when you’re thinking about a financial backing. So we’ve taken a pretty holistic approach to our financial backing for this, and actually luckily enough, I sold my last company, and so I was able to, fortunately, do some self investing. 

But we quickly wanted to move to more institutional as we’ve grown along. So, I opened up and started with friends and family debt around the world who lived in debt for our organization. And in the early days, I was able to personally back just under a half million dollars of the total, personally backed notes through successive orders of friends and family. 

It’s more institutional, the different tiers of raise. And then we even looked at some other side of… We had discussions with investment banks and private equity firms about potential acquisitions or investments based on the equity side. And that starts to move seats around equity raise and even some interesting partnership model equity raises that we’re even currently talking about. So it’s a pretty interesting range of options that we’ve explored in total so far.

The Three Different Sources of DIY Capital to Consider When Scaling a Business

Sean Magennis [00:03:54] You know, I love that, and your experience is so uniquebecause you’ve come to me to share with our listeners from the perspective of having, youknow, started to venture back more tech firms. This is your first professional servicesfirm, so you bring all of the knowledge there and then you know you’re in this sort of

reinvention mode, and yet you’re still leveraging these unique sources of finance. 

So this is going to be great for our listeners to get your insights. So Josh, what I thought I’d do is, you know, at the top of the show, I suggested that not all capital is the same. And these days now, and I don’t know if you’re finding this, but certainly I am, that capital is abundant in the market, and there are very, very many different kinds. So I’d like to get your thoughts on what we call a do-it-yourself  approach. 

I’ll illustrate three types of capital. And yes, I know they are more so if you want to throw out some others that you’ve got personal experience in, that would be great too. So the first one I’d like your input on is free cash flow from operations. 

So this comes from increasing revenue, driving down costs, using the spread between those to scale a business. And scaling with free cash flow preserves the owner’s equity and does not add a debt service burden to the PNL. What are your thoughts on this, Josh?

1. Free Cash Flow From Operations

Josh Miramant [00:05:21] And this is one of the absolute magic parts about

professional services agencies that you’re able to have a lot of control and a lot. It puts youin an interesting position. I love that. That’s the name of a professional services agency. 

I mean, you summarized that I think is an absolutely beautiful part about cash flow, which is owner equity and not having to dilute too early in your growth phase. And my philosophy on when I entered into professional services, my philosophy was that our profit, our dividend would be the measure of our success, and that’s controlled. But I would show how successful we were in the market. 

And I think that was something that allowed us to think about our growth planning based on our cash flow. And that was truly as we got in and developed more client base and showed more market adoption and how to sell  better. We were able to expand our growth, and I think that was a nice guardrail-controlled mechanism. And once we got our sea legs under us and take over 10 million topline this year, we will be able to start thinking about taking on more debt burden, or now you’re in the other options at the top. 

And a bit about that growth, that controlled growth to getting that point with a lot of capital reinvestment was incredibly helpful for planning, aka not growing too quickly. Yes, having some of the scale constraints, but also being very thoughtful with where you’re making a capital investment. 

One thing I would say that we’ve learned and learned late and  became a major challenge for us in the early days because our monthly invoices were pretty modest and so we can afford to cover a lot of how we’re doing. And so you have your cash flow is usually not like a 60-day window, we do a month at work. We would bill and have a net 30 payment. And I’ve heard a lot of different firms and colleagues do it differently, but that was a 60-day  cycle. If everyone pays on time and at end of  billing.

Sean Magennis [00:07:13] Yes.

Josh Miramant [00:07:13] We have started moving heavily into reducing down that cash flow cycle, going into lower net 15 or even upfront invoicing on net 30. So you’re really reducing under 30 days and quite candidly with very little pushback. And from a cash flow perspective, we shipped about 80 percent of our current clients, which we have a pretty long client lifecycle in almost every new one onto that with very little exclusion, and that movement to that shorter revenue cycle is actually massively increased the amount of cash flow we’ve had. 

It’s amazing to even grow quicker and have to take on less your interest for equity release or dilution really steps of an option. So it’s, I think, controlling your cash, obviously just goal to get cash in and spend it, not to think about that later and then planning. But I would say even more thoughtful ways of having a discussion with our client upfront. 

We’re pretty candid. “We’re a small boutique, and we want to get to cash flow so we can invest in your team to make sure we have good management.” And they were right alongside us, supporting us on some tighter cash flow cycle. So love cash flow, and obviously like to keep and reserve  equity. So at the end of the day, that’s the cheapest money you’re going to get out there.

Sean Magennis [00:08:22] You know, I love what you’ve said and everything you’ve

said, you know, I totally agree with. One of the interesting things you said, and I don’t want

this to be lost on our listeners, is that you were surprised at the ability to get paid upfront or

get a shorter payment cycle on your AR. That is fantastic. And I think a lot of owners of

boutique firms don’t have the courage, or they fear asking for that. 

So give me a little bit more on that as to how you went about it, because I think our listeners if all they do is get from this the shortening of the AR or getting prepayments upfront that will leapfrog

their ability to use free cash flow for other things.

Josh Miramant [00:09:05] Yeah. This is easily one of  the most important thing that’s happened. We’re really still growing this year. Our  growth was big, and so every dime counts right now. For us, we’re doing multiple types of financing plus we’re hiring like crazy . 

We have larger amounts of, you know, resource allocation like unallocated resource between projects, all the things you expect from the management of our company. But the thing that’s amazing was when we tried these conversations. First off, understanding what’s right for your business, how is it logical for your clients to pay you appropriately. You want to make sure you consider, but not every conversation was about what the risk was the company taking for giving us money.

And I think that was important to have that conversation. So our business. We actually had a message that was thinking about how they would consider it. So saying, you know, “Hey, we’re going to invoice the upfront, we’re going to keep it at net 30. So we’ll be completing all of the work that we’re offering this revenue for. It’s a really it’s not payment upfront, it’s invoicing upfront and you just align the end of payment to work the most recently completed.” And everybody love that we’re asking for payment upfront. 

Accounting teams freak out. They’re like, “Oh, we don’t want to put risk of giving you our cash and not sure how the work would be done.” None of that risk was there. It’s like, “Hey, if we’re doing such a terrible job on delivery, your cash is still sitting in.” The bank knew all the leverage, and we stand by our great work. There is zero risk here, and you’re just helping us with keeping control of our cycle. 

The narrative thinking about what our clients worried about completely changed our messaging. And so the second thing that once there was any pushback, and we did have a couple of clients, you know, very friendly, say, “Oh, we don’t like it, it’s kind of like a retainer site or deposit. We never talked about that, right?” 

We can then say, “Hey, let’s get rid of this. It’s no problem. But could you help us out instead of a net 30, which is pretty industry-standard,  let’s do a net 15 or net 10. And they are like, “Oh, of course, that’s no problem.” So now we’re in  this discussion where we just decreased our AR by twenty-five  percent.

Sean Magennis [00:11:03] Twenty-five .

Josh Miramant [00:11:04] Yeah, yeah. We started that conversation, yeah, 20 percent, excuse

me, but we started the conversation instead of just being like, “Oh, it’s 60, and hopefully

they pay on time,” and now I’m scrambling cash three payroll cycles later. And so it’s just

having a conversation with them and thinking of the messaging. 

You’re bringing it out to clients the way that safely risks their position and ultimately, deliver good work and have no problem with the payments close to cycle. That’s the kind of the cardinal rule here.

Sean Magennis [00:11:30] It’s so smart and it’s so good and you’re both at the same time. What you’re doing is you’re educating your team to operate on that basis and you’re educating your client, you know, so it’s a really good and it and if it’s positioned, as you’ve said and messaged, well, it’s a win win for both. 

And I know that’s a trade statement, but thank you for sharing that because underneath your original comments were these two very specific tactics which if a boutique firm can do that, it’s going to be golden. 

2. Debt

So let’s get to number two. So the second aspect is debt. So debt typically would come from a bank. It would come from a private lender. It may not be cheap, but it is reasonable as lenders charge modest rates on loans and it’s also readily available in the two to three times EBITDA range is what we would typically see. What’s your opinion on debt?

Josh Miramant [00:12:23] Yes, I loved it. Personally, I always like to start with my best and the worst but, I would love to help you frame this. And there is this spectrum of a professional service founder. That’s the greed fear spectrum. And I love how he thinks about this. 

On the greed side, you don’t want to give up your equity. This is the thing you’re building. That’s the compounding value. And candidly, particularly with when you’re investing cash flow, investing your earnings back into the business. These are cash-hungry machines that take a lot of it, and it’s part of your investment can be tied up pretty heavily in the ownership of a firm. 

That’s always a concern of the owner of not being too tied into a single, you know, having some diversity in a portfolio, not just a company. And so I think it’s an interesting on the greed side you want to keep that compounding engine because they can take out your salary and whatever disbursements are that you choose. 

But the angle  there is just coming down to the fear side, which is not making payroll. It’s not being able to hire. It’s not being able to grow quick enough. And I think that’s always this dichotomy that exists that I always take this metric on. Debt is this wonderful piece that’s kind of, you know, stepping partially into the equity, I think will get a chance to talk about my thoughts there in a minute.

Sean Magennis [00:13:39] Yes.

Josh Miramant [00:13:40] The debt is a wonderful play.. I think there’s a couple of things to consider. What you’re spending it on is crucial. So I think it’s always focusing on, you know, it’s like, I think that debt should be considered on the opex experience. Never capex, I think that’s a little later in my rules. 

There’s other thoughts there, but like on there is that you can service and keep revenue coming when you’re looking at that. I think there’s angles of debt being made notes two to three, but I think that’s a reasonable starting point, depending on personal liquidity or other factors that you have for backup. 

But I think I also think taking on debt with consideration of a repayment calendar like based on your projections and knowing what worst case is and best case is, and keeping it modest until you have a pretty confident projection into your repayment calendar. And then surely just I think you’re right, like apples pretty cheap right now in general has been more expensive. Some pretty, really very, very favorable interest rates, but very tangibly looking how much that money’s costing you.

Sean Magennis [00:14:37] Yes.

Josh Miramant [00:14:37] And I think that’s a big piece of how much are you are losing out on future revenue and is that is it smarter to keep cash flow and grow slower or smarter to take that, capture that revenue and turn it into more accountability. And I think that at the right point that is absolutely something you should do. 

We’ve raised our friends, and family around. I took out a line of credit from the traditional bank, Chase is our banking partner in a quarter-million line of  credit, which was really friendly to, you know, have this beautiful, beautiful debt option there. Because it’s only paying and you’re using it, which is lovely. It’s right at your fingertips. 

And then we’ve gone and got another $400000 debt financing round, which is pretty good for our books right now. On a more traditional note and still pretty favorable interest rates and the interest on it is pretty modest. So it’s a very nice opportunity for us to have, you know, feel very comfortable on our AR cycle and tied with upfront billing amount in a really strong cash position, even with this large growth factor, which is so nice to see.

Sean Magennis [00:15:45] And I would assume that you’ve also got some good forward visibility on contracting that’s coming forward because that helps you manage your greed fear component that you just spoke to, right?

Josh Miramant [00:15:58] Couldn’t be more apt there, and I think honestly, the

amount I would be sensitive to take out as much debt as I have unless we had contracts in place. We have even things that I was sensitive to. I’m not taking extending my debt financing options until we had a diverse set of contracts that were pretty far. 

I don’t want just one big client, or a couple, a few small ones that are kind of tailing in cycle with low visibility. It was, you know, we could lose a good chunk of our, you know, any individual client has no impact on our financial stability. That took a while to build, for sure. Toyour point of forecasting and de-risking alone actually was less about being able to service, you know, a few thousand dollars a month of interest, which is not in…the percentages are tiny. Yeah, but it’s actually coupled with a repayment schedule and projections against that with their contracts, we can stick to that calendar. Either way, it just means other future growth constraints, but still better offer market opportunity with clients, which took off.

Sean Magennis [00:17:00] You know, brilliant, and you’ve also hit on a couple of additional key things like client quality. So the ability of the client to pay, which is critical. Diversification of your client group, so you’re not anchored. You know you don’t have all your eggs in one basket, and then you’ve got your backlog in the quality of your contracting. So fantastic. 

I mean, this is exactly what we want listeners to really get a handle on because when using a debt instrument, all those factors should be in place, and you need to be able to feel comfortable and go to sleep at night. You know that you’re not going to wake up one morning and not be able to service the debt, right?

Josh Miramant [00:17:40] Yeah. So just a note to add. I think that in the early days, and I’m getting some questions that are on, fortunate enough to have some pretty decent-sized loans, personal back loans. And I think that’s best. I think what is also very exciting when we can move beyond me not having personal back loans, that was great money. 

And that’s where certainly takes a lot more to build a business to that point. But I do think that was a healthy risk appetite that I was willing to a smaller scale to then show repeated receivables and show a consistent client base. But that transition from I would certainly say that if debt is where you’re looking to go as you’re building a company up to 100 employees, which is our top line, but the size that we’re building on. 

I certainly get meaningful amounts of money or large enough amounts of money just on the business alone until we got a little bigger. And then it became something where that was because of the combination of cash flow and this just being not as much of covering the percentage of our MR. And it’s interesting how that became a really good solution on the company’s books.

Sean Magennis [00:18:44] I love that, and you know, it works right in the early stages. You

take the personal guarantee in the middle. I saw you don’t need to do it. You know there’s an appropriate time to take on personal risk, and then there’s a time, as you’ve just illustrated, where the company can take on that risk on the balance sheet. 

3. Equity Partners

So let’s flip to the third aspect, which is equity partners. So this is when an investor puts cash in exchange for a piece of the business, and then the owner’s stake is diluted as a result. What do you think about equity for a boutique professional services firm?

Josh Miramant [00:19:24] Yes, I got a little more sensitive when it comes to equity with a company like a professional services firm. First off, as I mentioned in my background, I think equity raises are really important. I think it’s just when and what you’re looking to build your firm. I think those are two questions that you need to understand here. 

So let me share my thinking around that. So unlike a SaaS product, where you just think high multipliers. High multiples and valuation are the expectation. If you are successful on strategy, whatever X your thinking about right, your projection on a professional service  depends on a little variability of your space. 

And how much tech work or how much automation is inside of the way that you do what you do, when is or what the product is understood, what you’re building,you’re looking at 2.5 to 4.5 range multiplier. Those are rough numbers that are going to be different for every one of your listeners here. But that’s kind of where our sector fell, our cutting edge buzzword tech stocks, or a little bit more depending on how strong your sales team and all these factors are not getting the details.

Sean Magennis [00:20:29] Yes.

Josh Miramant [00:20:30] So it’s interesting to think about when you look at those multiples, what are you looking to build? You’re really looking to scale a business. You need a lot more money. You need to invest in bigger sales organizations, but that comes once you make it to the next stage. Like, I always look at our objective and goals as a company is to move into that 25 to 30 million top-line revenue company as we scale-out.

And I look at that is what my investment team talks about is the platform layer of a professional services agency. That’s their terms. I like it. If you’re looking to scale a business, it’s like when you become a platform that things like taking on, you know,an equity raise and acquiring other companies you can actually absorb into you. 

If there is an option, there would be not typically a lot of business selling you to other firms, which I’ve actually done some other interesting areas around equity partnership equity, which is an interesting area that we’ve been talking about with a few of our partners lately. 

Yes, it’s very compelling because it actually reduces some of the equity dilution or my owner dilution along with the and while still getting pretty good terms, some capital. But the biggest factor is you are trading control, and it’s usually in a very good way. If you’ve got a good partner and you take on a good relationship with the firm because that’s expertise and all the things that come with a high or higher opportunity in addition to cash. 

So lots of good. But that control factor is important when you start thinking about what you’re looking to execute. So I think that equity when a founder and how I feel about it, when a founder feels really confident in their business model and can sell it well and they should know how much equity they’re going to give up for capital.

Sean Magennis [00:22:09] Exactly.

Josh Miramant [00:22:09] We did a full two-term sheet equity raise and I didn’t feel comfortable of the evolution at the time. And they were generous terms, that I think, appropriately valued our company. But it just the dilution meant was more of a control consideration on one side. And candidly, if it was done now, I think it might be below a margin where my control factor would be given up. 

So it’s a little bit to the founders role, like we’re looking to scale quite large and leaving up 50 percent of our equity right now. So when we’re being raised too much dilution down the road, but it can get a little bigger, have more receivables, are valued more competition or have more staff, the value of the company starts giving you competitive options. It’s a little individual, but I love equity. I just think the time, and the goals are crucial to be considered.

Sean Magennis [00:22:52] I love that. So the time and the goals are crucial for consideration. This is excellent, Josh. Really. So I can’t think of a more important, high-stakes strategic decision for our listeners to get right. As we’ve gone through these three, there are others. So this takes us to the end of this episode. 

Scaling a Business: Questions to Ask When Raising Growth Capital

And by the way, we’re going to have plenty of opportunities to discuss this, particularly in Collective 54 going forward. So this has been extraordinarily valuable. 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. 

Our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions. So in this instance, if you answer yes to eight or more of these questions all three of these capital sources are available to you. 

If you answer no to questions one to three, don’t pursue funding to scale with free cash flow. If you answer no to four to nine, don’t rely on debt. And if you answer no to question 10, don’t take on an equity partner. Josh as graciously agreed to be our peer example today. So,Josh, I’ll just ask you these 10 questions. Give us a simple yes or no.

Sean Magennis [00:24:08] And here we go. So number one, are you generating enough

free cash flow to fund scale?

Josh Miramant [00:24:17] Yes.

Sean Magennis [00:24:19] Number two, do you know where to deploy this extra free cash

Flow?

Josh Miramant [00:24:25] Oh, yes.

Sean Magennis [00:24:26] I love it. Number three, are you willing to go without today for

scale tomorrow?

Josh Miramant [00:24:34] Yes.

Sean Magennis [00:24:36] Number four, have you been in business for at least five

years?

Josh Miramant [00:24:41] Yes, we have.

Sean Magennis [00:24:42] Number five, are you generating stable EBITDA every year?

Josh Miramant [00:24:51] Beside COVID, yes.

Sean Magennis [00:24:52] OK. Oh, that’s good, I mean that listen, that’s real, right? You’re being honest.

Josh Miramant [00:24:55] It’s exciting years.

Sean Magennis [00:24:57] Exciting years. Number six, would two to three times EBITA be enough to fund scaling your firm?

Josh Miramant [00:25:04] Yes.

Sean Magennis [00:25:05] Yeah. Number seven, can your PNL handle the debt serviceburden of a loan?

Josh Miramant [00:25:11] Yes.

Sean Magennis [00:25:12] Number eight, are you willing to personally guarantee a loan?

Josh Miramant [00:25:18] Yes.

Sean Magennis [00:25:18] Yeah. You’ve done it.

Josh Miramant [00:25:20] Done it in the trenches on that one.

Sean Magennis [00:25:21] Absolutely. Number nine, do you have enough personal assets to secure the loan if open to a guarantee?

Josh Miramant [00:25:29] Yes.

Sean Magennis [00:25:30] And number ten. Are you willing to dilute your ownership, take for

the right equity partner?

Josh Miramant [00:25:37] Yes.

Sean Magennis [00:25:38] Outstanding, so in summary, it takes money to make money, scaling a boutique takes money. There are different funding sources, each with its own pros and cons. All can work well, which is best for you is highly situational. And Josh, you’ve said that. 

So take your time, listeners, to consider this very important strategic decision. Josh, a huge thank you today for sharing all of the real-life examples. I love your enthusiasm. I love the fact that you’re in Manhattan. I could hear the traffic, which we haven’t heard a lot in the last six months. It’s brilliant and makes me feel as if we’re in the real world.

And for our listeners, if you enjoyed the show and want to learn more, pick up a copy of the book “The Boutique: How to Start, Scale and Sell a Professional Services Firm”, written by Collective 54 founder Greg Alexander

And for more expert support, check out Collective 54, the first mastermind community for founders and leaders of boutique professional services firms.Collective 54 will help you grow, scale and exit your firm bigger and faster.

Go to Collective54.com to learn more.

Thank you for listening.

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Episode 50: Are you Losing to “Do Nothing”? – Member Case with Beth Trejo

Beth Trejo, CEO, and Co-Founder of Chatterkick, discusses how to stop losing to a competitor we call “Do Nothing.” Boutique professional services firms lose more deals to “Do Nothing” than any other competitor. If you want to bring on new clients, you will need to defeat this competitor to grow your professional services firm.

Transcript

Sean Magennis [00:00:17]: Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. Our goal with this show is to help you grow, scale, and exit your firm bigger and faster. I’m Sean Magennis, Collective 54 Advisory Board Member, and your host. 

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 Beth Trejo, the CEO, and co-founder of Chatterkick. Beth educates business leaders on social media tools and gets their digital recruitment, social media, and digital customer service efforts working. You can find Beth at chatterkick.com. Beth, great to see you, and welcome. 

Beth Trejo [00:01:14]: Thank you, I’m excited to be here today. 

Sean Magennis [00:01:16]: Likewise, we’re so excited to have you. So, Beth, our description of the competitor we called “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. Has this problem occurred for you in your line of business? 

Beth Trejo [00:01:40]: Yes, and we actually see this a lot. We focus on the social media platforms, and many times these are the first things that people set aside when they’re busy, or they hand their social media keys to an intern, and then the intern goes away. And so it’s one of the most overlooked opportunities that I think a lot of businesses have in multiple categories, not just direct retail. 

Sean Magennis [00:02:03]: Yeah, you know, that’s what we find, too. And so, just following up from there, do you feel that this is a top competitor that boutiques must defeat to grow? And why do you feel that way? 

Beth Trejo [00:02:16]: Yes, I do, and I think the “Do Nothing” competitor really does demonstrate a core value that a lot of the professional services firms have, which is expertise and their advice. And let me give you an example. 

Sean Magennis [00:02:30]: Yes, please. 

Beth Trejo [00:02:31]: One time that we had a particular customer and they were looking to recruit a salesperson, and this “Do Nothing” approach actually cost them millions of dollars. So, what happened was they were in this business. They were a manufacturing company, and their lifetime customer value is really high. So, they were looking to recruit a sales individual that, you know, they were super excited about when they found a candidate. 

This candidate had expertise in the industry, and they were going to take this new product line and really get it off the ground. He’s super excited about this candidate, the business buzz. And they got to the final stage of the interview process, and they offered the candidate position, and the candidate declined. And they were just completely perplexed. They couldn’t figure out what happened. 

And they asked the candidate, and the candidate said that they had multiple offers from this business and their competitor, and they felt like their competitor, the offer they accepted, felt more “modern” than this business. And this business was innovative. It was high technology-driven. It was all of the things. 

Sean Magennis [00:03:51]: Yes. 

Beth Trejo [00:03:51]: But online, they had a website that was old school. 

Sean Magennis [00:03:56]: Yes. 

Beth Trejo [00:03:57]: They had a social media presence that was pretty much nonexistent. And maybe a couple of tweets that were left from Happy Memorial Day a few years ago. And so it really was. They didn’t have a presence, so they didn’t get to tell their story, and their story was formed for them, which was that they weren’t a modern company, and they lost the candidate. 

Sean Magennis [00:04:22]: That is such an extraordinarily good example, and it just showcases the nuances and the importance of having all of these elements defined. And then, you know, there’s this concept of mystery shopping where, you know, I think it’s so critically important for people to mystery shop themselves so they know what candidates you know, think, and feel. Is that something you guys do? 

Beth Trejo [00:04:45]: Yes, we definitely just kind of take a customer journey approach. Can people find basic information about you? Do you have a presence online that is an authentic reflection of who you are?  I don’t think that people are looking for perfection, whether it’s candidates or it is customers. But, they want to feel like they have good information and they want that authenticity. So, stock photos – throw them away. I would rather have a candid picture of your team over lunch than a stock photo of people that don’t look like those who work at the business.

Sean Magennis [00:05:18]: Yeah, that makes total sense. So, OK, defeating this “Do Nothing” competitor. It sounds like it will save founders a ton of time and boost revenue. I’d like to get your thoughts on some of the best practices that we recommend in this area. 

There are four specific things I’ll walk you through, and I’ll have you share your thoughts on each? The first is to be sure you can state the problem you solve for your clients clearly. I often ask a professional services firm  founder what problem they solve for clients. And they typically tell me about their solution. So, what are your thoughts about this? 

Beth Trejo [00:05:56]: Yeah, and I really think from our angle, the power of social media really lets you cross multiple operational areas of your business. Yes. The first is it does give you a competitive advantage because if you have a microphone, you can tell your own story. And it’s not just the story that your employees that maybe left in an unfavorable way could tell about you. It’s not the story that your history necessarily defines you. 

But, if you have these channels, they really are a communication channel. And so it can build loyalty, gain a competitive advantage, and help you build real connections. Yes, because I do think that that is the currency of our future. It’s how deep can you connect with your audience? 

Sean Magennis [00:06:41]: You’ve hit the nail on the head. The second thing to do is to determine if the problem you’re solving is pervasive. So to grow your professional services firm, we need lots of sales opportunities. What are your thoughts on this concept? 

Beth Trejo [00:06:55]: So, I think for as it relates to social media, I think and even just creating a digital presence, we really are living in a world of you need that existence online, and you need to make sure that you have proof or validation. 

It’s funny. Testimonials are not as important in terms of the word testimonials. People like the word review because review feels less forced than testimonial. And we want as consumers, again across all categories, to feel like we have control to source information about our businesses and the people that we work with, and we don’t want it dictated to us in, you know, a non-authentic way. 

Sean Magennis [00:07:39]: I like that. So the concept of reviews rather than testimonials that’s very powerful. Number three that we recommend is it’s a problem proving the problem is urgent. So when a founder pitches a prospect, a prospect of determining what he or she, you know, is hearing is worthy of making it on the priority list, what do you think of this idea? 

Beth Trejo [00:08:03]: I think, especially as it relates to the “Do Nothing” competitor, urgency is really important because what can happen is if you’re complacent and you just let your presence exist online, or you’re not actually trying to make it better, your story gets told for you. And people are really busy picking up little pieces of breadcrumbs. 

We see this all the time with reviews and again, especially in professional services industries. They don’t collect and capture reviews as much as maybe retail businesses may. But what happens then is if you get two bad ones and you had zero, now you have two two-star reviews. And you start making that times ten, and all of a sudden, you’re not ahead of that, and it’s a really difficult thing to fix.. 

So, my recommendation from an urgency perspective is you have to get ahead of it because this is our world of people leaving reviews and talking about your business. And so, if you’re not getting ahead of the curve and it is urgent, you’re going to be missing out. 

Sean Magennis [00:09:10]: And it’s a 24-7 all on environment. So having the discipline to look at those to respond, to capture them, to learn from them, I guess, is equally important. 

Beth Trejo [00:09:22]: Hundred percent. 

Sean Magennis [00:09:22]: Yeah. So the fourth recommendation to defeat “Do Nothing” is to confirm that a prospect is willing to pay for the solution. Often founders make the pitch, the prospect says yes, and then they see the price, and then that yes, becomes a no. What are your thoughts on this? 

Beth Trejo [00:09:39]: Yeah, I think there’s a little bit again, especially in the professional services category of the what is the cost of “Do Nothing” right? And this is a pure cost of losing a critical employee or losing your current employees because, you know, the grass looks greener on the other side. 

Yes, the cost of PR mitigation strategies, I can tell you that’s very expensive, very expensive. And we see this example all the time. And I mentioned this on the review side of things. But if there was something said about you, and there was a swarm of people that just really hurt your reputation, you’re going to need not only just an outside person to help navigate that, but your employees are also going to have to spend a lot of time. 

So there are definitely resources internally that you’re probably going to have to put on that. And I’m sure that those all could be calculated into a total cost analysis. 

Sean Magennis [00:10:34]: Yeah, I think that’s an excellent answer and unpacking of that. Beth, this has been fantastic. There are four ideas: state the problem clearly, pursue only pervasive problems, prove the problem is urgent and use a cost justification to increase the prospect’s willingness to pay. These will defeat “Do Nothing”, and they’ll help our audience members grow. 

OK, so this takes us to the end of the episode. Beth, let’s try to help listeners apply this. We end each show with the 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 or no questionnaire. We aim to keep it simple by only asking 10 of these. 

In this instance, if you answered yes to eight or more of these questions, your strategy to defeat “Do Nothing” is working for you. If you want to know too many times, not identifying the problem is likely getting in the way of your attempts to grow. So, Beth has graciously agreed to be our peer example today. Beth, I’ll ask you the yes, no question so we can learn from this example. 

Sean Magennis [00:11:47]: So, number one, can you explain the problem to your family? Do they understand it? 

Beth Trejo [00:11:55]: Yes, social media is relevant in multiple categories and industries. 

Sean Magennis [00:11:59]: Outstanding. Number two, when you explain the problem to your friends, do they understand it? 

Beth Trejo [00:12:06]: Same answer, I don’t think that anybody would argue that social media isn’t baked into all of our lives. 

Sean Magennis [00:12:11]: Number three, does the problem exist in more than one industry? 

Beth Trejo [00:12:17]: It’s a human-to-human  world these days, and we need to make sure that we’re not just living in a B2B or B2C space. 

Sean Magennis [00:12:23]: I love that answer. Number four, does the problem exist in companies of all sizes? 

Beth Trejo [00:12:30]: Absolutely, from a small little retailer to a large manufacturer. 

Sean Magennis [00:12:35]: Yeah, to a one-man band up to, you know, a global multinational. Does the problem exist in many geographies? 

Beth Trejo [00:12:43]: Yes, and I would argue that it connects us to more geographies than we don’t even probably realize we’re connected to. 

Sean Magennis [00:12:49]: Again, completely agree with that. Number six, are clients paying to solve the problem today? 

Beth Trejo [00:12:57]: Yes, they’re either paying with their time, or they’re hiring someone to help them. 

Sean Magennis [00:13:01]: Number seven, have clients been paying to solve the problem for years? 

Beth Trejo [00:13:07]: As long as social media has existed, they realized that it takes a lot of work, and the trickiest part about it is it doesn’t shut off. 

Sean Magennis [00:13:14]: Yep, that’s 100 percent. Number eight, if the client does not solve the problem, are the consequences severe? 

Beth Trejo [00:13:22]: Very much so, we gave that example with that PR crisis or just losing a key candidate. 

Sean Magennis [00:13:26]: Yep. Number nine, is there a trigger event that puts the client into the market for your solution? 

Beth Trejo [00:13:34]: I think if you start a business, you need to have a presence online. 

Sean Magennis [00:13:37]: Yeah, I think that’s a baseline. That’s table stakes today, right? 

Beth Trejo [00:13:41]: Exactly. 

Sean Magennis [00:13:42]: And number ten, when clients have the problem, do they work to get it solved by a certain deadline? 

Beth Trejo [00:13:49]: Yes, and I think from a deadline perspective, it really does kind of come in waves. But, the consistency is half the battle of social media, and it’s more than just posting on the holidays. 

Sean Magennis [00:13:59]: You know, I love that, and that’s such an important lesson for listeners to understand and then to model. I’m assuming that there are great examples out there that people can, you know, fast follow. What are your thoughts on that? 

Beth Trejo [00:14:12]: Oh, there are so many businesses that are doing it right, and they’re upending different categories. These smaller companies are really competing against large behemoth brands just by connection. And that’s the thing that I would encourage your listeners to do. Social media isn’t just about pushing information. It’s about really listening and building true relationships with your audiences and developing a community. 

Sean Magennis [00:14:37]: Beth, thank you. I mean, this has been extraordinary. And again, I would encourage our listeners to reach out to you if they have any needs in this particular area. So, in summary, “Do Nothing” is defeating you at least 50 percent  of the time, whether you know it or not. 

To beat this competitor, be sure to pick a problem to solve that is pervasive, it’s urgent, it’s 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. And in the context of social media, make sure that you are very prepared and that you are literally following it 24-7. Big thank you to Beth for sharing these great examples for us today. 

Sean Magennis [00:15:23]: If you enjoyed the show and want to learn more. Pick up a copy of the book “The Boutique: How to Start, Scale and Sell the Professional Services Firm”, written by Collective 54 founder Greg Alexander.

And for more expert support, check out Collective 54, the first mastermind community for founders and leaders of boutique professional services firms. Collective 54 will help you grow, scale and exit your professional services firm bigger and faster. Go to our website to learn more. Thank you for listening. 

Posted on

Episode 49: The Boutique: WHAT TO DO IF TRAPPED INSIDE A LIFESTYLE BUSINESS?

The opportunity cost of spending your prime in a lifestyle business is too large. On this episode, we discuss a 3-part framework to address this issue and demonstrate how to use it.

TRANSCRIPT

Sean Magennis [00:00:16] Welcome to The Boutique case study series 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 you do not want to be trapped inside a lifestyle business. The opportunity cost of spending your prime in a lifestyle business is too large. I’ll try to prove this theory by interviewing Greg Alexander, chief investment officer and founder of Capital 54. Greg has developed a three part framework to address this issue, and today he’ll demonstrate how to use it. Hey, Greg, welcome. 

Greg Alexander [00:01:13] Hey Sean, good to be with you, big, big topic today, let’s see if we can help some folks escape the trap of a lifestyle business. 

Sean Magennis [00:01:18] Fantastic. You know, it reminds me of Harry Houdini, right? We’ve got to give you that capability. So Greg, can you provide a brief overview of your three-part framework? 

Greg Alexander [00:01:31] Sure, let’s start by identifying the signs of this trap. Listeners are wondering if they are trapped or will they become trapped. Our listeners tend to be people who do not want a lifestyle business. They want to scale to something more substantial. Here’s some thoughts help diagnose if you are trapped. And Sean, allow me little leeway here, because… 

Sean Magennis [00:01:55] Absolutely. 

Greg Alexander [00:01:56] Sure, please. A lifestyle business is an average business. It’s not a bad business, it’s not a good business. It’s certainly not a great business. It’s OK. It provides a decent living, does not require an unreasonable level of effort. It fits nicely into one’s lifestyle with a wonderful work life balance. It’s better than working for a soulless big corporation. Owners of a lifestyle business are never going to get rich. And for some, that’s OK. Lifestyle firms are never going to quote put a dent in the universe, as the great Steve Jobs used to say. 

Sean Magennis [00:02:33] Yes. 

Greg Alexander [00:02:35] They’re not going to attract the most interesting clients with the most fascinating problems. A lifestyle business will be filled with really nice people, but maybe not top talent. Top talent avoids lifestyle businesses they want to grow, to be stretched and to really go for it. And there’s nothing wrong with the lifestyle business at all. For many, this is perfect. However, many who are operating a lifestyle business today wish they were not. They launched their firms with higher ambitions and with different intentions, but they fell into a trap unknowingly trap is if it ain’t broke, don’t fix it. When things are quote unquote fine, there was no reason to break glass rock the boat. The bills are getting paid. The grief factor is low. The founder is happy. Life is all right. The problem is complacency sets in year after year passes by, the founder has been lulled to sleep. Then one day he or she wakes up and says, I want something more from life, my life’s work should mean something. Someday I’m going to want to retire. I’m going to need to sell my firm. I do not want to keep doing this. It’s my 60s, 70s and God forbid, belong beyond that. I got to turn this into more than a lifestyle business, or I’m never going to be financially secure. This trap carries a huge cost. Cost I’m referring to is the opportunity cost. This cost can be quantified. Let me give you an example. A boutique life cycle is approximately 15 years from cradle to grave. Ask yourself at the end of the 15 years, what do you have to show for your efforts? Compare this to what you might have had if you took a different path, whatever that different path may be. And in my experience, this produces a gap and the gap is big. Let me share some data to make my point. And then we can jump into the three part framework. 

Sean Magennis [00:04:47] Excellent. 

Greg Alexander [00:04:49] A lifestyle business in pro serve has about 20 employees doing about four million in revenue, and approximately eight are in the province. An owner of this type of business will pay him herself about a half million dollars. After taxes this is about, let’s say, 250k 300000, depending on where you live and after you satisfy your living expenses, maybe you can save about $100000 per year. So over a 15 year period, that’s 1.5 million, or maybe a little more due to investment returns that’s rounded up to a goal to make. This is not enough to be financially secure, given inflation and life expectancy increases. In reality, it’s not enough for much of anything. The cost of living 15 years from now is going to be much higher, especially in key areas such as health care. Yeah, under this hypothetical approach, you’re going to work yourself right into the cemetery. If I compare this outcome to the alternatives doesn’t compare, well, heck, you might be better off with a civil service job and 40 hours a week, three weeks vacation and a pension. There are other ways to spend your prime your career that will produce a lot more, and you, the brave founder the person who creates jobs for people. You just you’re worth more than that. And I feel the saddest thing in life is a wasted prime. So I wanted to come and speak to you today and urge you not to waste your prime and avoid the trap of a lifestyle business. That makes sense Sean? 

Sean Magennis [00:06:25] Greg, it makes 100 percent sense. I mean, this is strictly I mean, this is so important, it’s a wake up call for many. I see it all the time, and I know you do. The good news is we are making our listeners aware of it, so hopefully they can avoid this trap. So, Greg, if I’m someone who is concerned with this, what would I do? 

Greg Alexander [00:06:48] OK, good question. So this is where the three part framework comes in. So a founder of a boutique has three options trapped in a lifestyle business. Option number one is to shut the business down and do something else. Option number two is the pivot, this means course correct before it’s too late. An auction number three is to persevere in this means to stay the course. 

Sean Magennis [00:07:10] OK, Greg. So three options shutdown, pivot or persevere. You provided me three checklists, one for each option to help listeners determine which option is best for them, and I’d like to have you demonstrate each checklist for the audience. I’ll take you through each option and get your recommendations on each. So option one is shut the business down and there are four questions to answer. Number one, are we out of moves? 

Greg Alexander [00:07:41] So if you’re contemplating shutting the business down, it’s a tough thing to think about. So are we out of moves? What does that mean? Well, have you tried everything you can? Have you studied all the best practices? Try to get them implemented? Have you sourced all the best advice if you’ve already done all that and you’re still a lifestyle business, shut it down. The opportunity cost is too great. If you haven’t exhausted all of the best practices and the advice it’s available to you, we keep going but make a commitment to yourself that you’re going to implement some of the things that you want. 

Sean Magennis [00:08:12] Excellent. So number two is, are we miserable? Do we hate the clients, our coworkers, et cetera? 

Greg Alexander [00:08:19] Yes. So you’re contemplating shutting the business down? That’s the section where one right now that’s option one. 

Sean Magennis [00:08:24] Yup. 

Greg Alexander [00:08:25] You know, if you’re miserable, you hate coming to work every day. If you find yourself daydreaming about something else to do and your heart’s not in it. So if that if you find yourself in that situation, then you’re better off to shut the business down if you’re not in that situation, if you still love what you’re doing. Then stick with it, because you probably can crack the code. 

Sean Magennis [00:08:45] Excellent. So again, in the context of shutting the business down, this question is do you still believe in the vision for your business? 

Greg Alexander [00:08:55] Yeah. So one thing I learned on my journey is a vision changes over time. You know, I look back at the original vision I had for myself. My ambition was modest as time went on and I had some success. My my ambition kept expanding. So periodically, it’s a wise move to take a pause and say to yourself, Hey, if I realize my current vision, am I going to fulfill my dreams? The answer to that question is yes, don’t shut the business down. Keep going for it. The answer a question is no. Then what do you do when you’re running in place? You’re pursuing a vision that, even if you’re successful, isn’t worth it? 

Sean Magennis [00:09:30] Yep. And then the fourth one and this is is the window of opportunity closing? 

Greg Alexander [00:09:36] Yeah. And this is the one that’s outside the control of the of the founder. So are you running out of time? Are your competitors beating you? Are there lots more competitors coming into the market today? So this window of opportunity, all businesses have, you got to make sure. You know, is that window open? How long is it going to be open for? And that’s a critical thing to consider if you’re contemplating shutting the business down. 

Sean Magennis [00:09:58] Yeah. Excellent. Thank you, Greg. So the next option is to pivot pivot. It’s an overused term. You feel there are seven types of pivots specifically for boutique professional services firms. Let’s see if we can get through these efficiently. So the first one is what you term a zoom in pivot where a single feature becomes the whole service offering. What are your thoughts on this? 

Greg Alexander [00:10:26] So if you’re going to pivot, you’re not going to shut the business down. You want to get out of a lifestyle business. One of the pivots to consider is to zoom into it. This means sometimes founders over engineer their service offerings. So this type of pivot would result in a much simpler service to deliver, which will mean much higher profits. And with those profits, you can fund your expansion plan. And if successful, you’ll get yourself out of a lifestyle business. So if the answer yes to this question, then execute a service offering pivot. If you answer no, then the solution to a lifestyle business trap is not associated with assuming to the excellent Greg. 

Sean Magennis [00:11:07] The next one is a zoom out pivot. The current service becomes only a feature. What are your thoughts on this? 

Greg Alexander [00:11:15] So this is the flip side of that coin. So sometimes a service line is not compelling enough. There are things that need to be added to it to compel clients to buy it. So ask yourself that question. You know the problem that my client is having, can I truly solve? If you can’t, then you’re going to have to add things to your service line, so if you find yourself in that situation, then you might want to execute the zoom out pivot. If you don’t, you probably. You probably should not. 

Sean Magennis [00:11:43] Excellent, Greg. The third is client segment pivot, a shift to a new set of target clients. Unpack that for us. 

Greg Alexander [00:11:54] Yeah, so oftentimes owners of lifestyle businesses are unclear as to who their ideal client really is. And this results in wasting resources, pursuing the wrong business and lifestyle businesses. A resource constraint is there’s only so much time going, so much money going, so many staff members. So you can’t waste these resources. So getting really tight. I knew that client is an ideal client is super important. And ask yourself the client to serve, and today they’re going to get you out of the trap of a lifestyle business. If the answer is no, then execute a client segment. Go after different client with a different set of problems. 

Sean Magennis [00:12:34] Very important. Greg Number four, a client problem pivot. So the current problem of the focus is not urgent enough. This is critical. Greg, what is your what are your thoughts on this? 

Greg Alexander [00:12:47] Yeah. So this is the kissing cousin of the client segment. Right? So sometimes lifestyle boutique partners, they’re selling vitamins, not painkillers. So this pivot would be going after only urgent problems that are clients are willing to pay to solve. I see this all the time somebody launches a firm. It’s a nice to have is a small number of clients that are willing to hire you for that nice to have. And then you stall up because the problem isn’t urgent. It’s not pervasive. So by definition, you’re trapped in a lifestyle business. 

Sean Magennis [00:13:23] Yep, makes total sense. Number five is a business architecture pivot, and there are two types of business architectures. One High margin, low volume we call elephant hunting. Number two low margin, high volume rabbit hunting. What are your thoughts on this? 

Greg Alexander [00:13:43] This is a big one. Problem is trapped in a lifestyle boutique. Try to run two business models at the same time. There’s never enough money. There’s never enough talent to pull that off. This pivot would be to focus on one business architecture and be good at it. The added commentary I’d give you here is we tend to lie to ourselves on this. We like to say we have we apply discretion to the type of business we take. It’s really not true. Sometimes in the early stages, especially if your lifestyle, business or revenue is good revenue. But that’s the trap. That’s the trap that puts you in a lifestyle trap. So avoid that pick the business architecture. You’re going to fall with elephants or rabbits and stick to it. 

Sean Magennis [00:14:27] I like that, Greg very much. Number six is value capture pivot. This is a monetization model change. For example, should you switch from hourly billings to retainers, fixed beds, performance based contracts, licensing subscriptions, events or royalties? What are your thoughts on this? 

Greg Alexander [00:14:49] Yeah. So this is where all the breakouts are happening right now. So we try to roll role model ourselves after companies that have escaped the trap of a lifestyle business. What do they share in common? Well, services firms are prioritizing their services. Which allows them to switch their pricing strategy or their monetization strategy. And because they’re able to do that, they can go from one time fees to recurring revenue. And there’s probably nothing more powerful than escaping a lifestyle business in recurring revenue. So this is what everybody should be thinking about is value capture, pivot and the ingredient to execute that is the ability to prioritize your services. 

Sean Magennis [00:15:28] Greg, I couldn’t agree with you more. And if you and I look at our members within collective 54, those that are truly scaling have recognized the value of this capture pivot. You know, they monetizing their expanding their service line and their revenue sources. It’s remarkable what some of them are doing. And for our listeners, you know, consider looking at collective 54 from that standpoint because it’ll add tremendous value to your enterprise value when you decide to sell one day. Yup. So Greg, number seven, go to market pivot the three types of go to market approaches of a boutique. One is viral. So word of mouth and referrals to what we call sticky landing and expanding in the client, and three paid outbound cold outreach and marketing support to drive inbound. What are your thoughts on this? 

Greg Alexander [00:16:24] Yeah. So historically, the most common cause of being trapped in a lifestyle business is the lack of a commercial sales engine. Founders rely solely on word of mouth referrals. Well, this eventually runs dry as a personal network is finite. So if your only source of leads is word of mouth, you are trapped and you’re going to stay trapped. So if you find yourself in a lifestyle business, are you worried that that might happen to you in the future? You’ve got to build this commercial sales engine that can allow you to scale beyond the benefits of word of mouth. 

Sean Magennis [00:16:56] Greg, that was incredibly thorough. We now know what the term pivot really means to a boutique professional services firm. And this brings us to the final option, which is to persevere. This option would be sticking with the current plan, but executing it better. Give us your thoughts on this, Greg. 

Greg Alexander [00:17:19] Sure, well, executing the current plan better as opposed to pivoting usually means three things. It can mean swapping out the team. It can mean training the team, or it can mean giving the team more time. A word of caution here. Kicking the can down the road and taking no action is not persevering. That’s procrastinating. To prevent yourself from procrastinating. Remind yourself of your opportunity cost. The cost of inaction for a founder trapped in a lifestyle business is very large, and it’s growing every day. Your prime is X number of years. If you think you have the right strategy. And the key to escaping is better execution, take a very hard look at the team. Sean, one of the things that I would like to mention here is that the material that I shared with the audience today is not original material of Greg Alexander. I’m standing on the shoulders of giants people like. Stephen Blank, Eric Rice from the lean startup, etc.. Yes. And and I just wanted to make sure that I gave them proper credit. What I’ve done is I’ve curated it and edited it to make it uniquely applicable to the boutique professional services firm. But there’s a huge body of knowledge behind this topic. Should I shut the business down? Should I pivot or should I persevere? 

Sean Magennis [00:18:48] Outstanding, Greg, and thank you for that acknowledgment because that body of knowledge is accessible to our listeners. I love the way you synthesized it. I love the way you’ve simplified it. And that’s a huge, huge benefit to our listeners. So it’s super clear that answering these three questions do we shut the business down? Should we pivot and course correct? Or do we persevere? Are the keys to getting out of the trap of a lifestyle business? This brings us to the end of this episode.

A huge thank you to you, Greg, for sharing this today.

If you enjoyed the show and want to learn more. Pick up a copy of Greg’s book, titled The Boutique How to Start, Scale and Sell a professional services firm. I’m Sean Magennis.

Thank you for listening. 

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

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

TRANSCRIPT

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

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

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

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

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

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

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

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

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

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

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

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

Sean Magennis [00:04:57] Yes.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TRANSCRIPT

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

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

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

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

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

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

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

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

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

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

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

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

Sean Magennis [00:04:57] Yes.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Posted on

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

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

TRANSCRIPT

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

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

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

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

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

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

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

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

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

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

Sean Magennis [00:03:09] Love it.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thank you for listening.

Posted on

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.

Posted on

Episode 38: The Boutique: How to Market and Sell Like a Pro

Founders of boutiques can increase their rate of growth by professionalizing their marketing and sales approach. On this episode, learn the fundamental building blocks to professionalize your firm’s sales and marketing skills.


TRANSCRIPT

Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal with the 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 founders of boutiques can increase their rate of growth by professionalizing their marketing and sales approach. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg founded Sales Benchmark Index in 2006 and went on to become one of the world’s foremost experts in the field of sales and marketing effectiveness. Today, he will offer you the fundamental building blocks to professionalize your sales and marketing efforts. Greg, good to see you. Welcome.

Greg Alexander [00:01:20] Hey, Sean. So in prep for this show, I did a little homework on myself. So the year 2020 was my twenty seventh year carrying a quota, so to speak. And I have made my number 25 out of 27 years, which is 92 percent of the time. I missed in the year 2000 while I was at EMC in the dotcom bubble burst and I missed it in 2020 while at Capital 54 because the global pandemic destroyed the economy. I mention this not to brag in any way. When I saw the title of the show, How to Market and Sell Like a Pro, I felt compelled to check myself to see if I am indeed a pro. And I’m a proud I’m very proud of that 92 percent success rate over almost three decades. But more importantly, gosh, I learned a lot and I’ll share that with you guys today.

Sean Magennis [00:02:09] And you’re still doing it, Greg, which I admire tremendously. So, yes, it’s these lessons from the battlefield that I want you to share with the audience. But first, why is it that you think so many of our listeners struggle in this area?

Greg Alexander [00:02:23] Yeah, well, most CEOs and founders of boutiques are not natural marketers or salespeople. They are experts. Many are giants in their field. In some cases, some are on TV. The best seller list, the speaking circuit. However, when I look at their panels, I’m shocked to see how little revenue they bring in. I asked myself, how can this be? Well, these brilliant experts would rather go to the dentist and make a sales call. They simply do not know how to go to market with their services. And their personal networks only generate so many referrals so they they never grow past the point of a nice little lifestyle business.

Sean Magennis [00:03:01] Greg, this is so accurate. I mean, we’re living this, you know, today with so many of our collective 54 members. I see it every day. What I find frustrating is many of these brilliant boutique CEOs, they know this. They want to fix it. They just don’t know how to. What advice do you have for these folks?

Greg Alexander [00:03:21] So these CEOs need to be great at two things. Number one, they need to attract new clients. And number two, they need to generate additional revenue from existing clients. And when I say great, I mean it. They need to develop these as fundamental core competencies on par with their domain expertize.

Sean Magennis [00:03:42] Agreed. So these are the two fundamental building blocks and the standard to deliver to is great, not good, but these are a little abstract for me. So can you unpack this a little more?

Greg Alexander [00:03:55] How much time do we have?

Sean Magennis [00:03:57] Let’s say about 10 minutes.

Greg Alexander [00:03:58] OK, here are the Cliff Notes. I will start with the seven building blocks of a great sales model. So number one prospecting process. This is a consistent way for business developers to find opportunities. Number two, buyer journey map. This is an outline of how a prospect buys your type of service. Number three, sales methodology. This is a step by step method to convert opportunities into clients. Number four, channel optimization. This is how the right services will be sold to the right clients at the right time. Number five, incentive system. This is a compensation mechanism that motivates every employee to generate revenue. Number six, training program. This is a program to increase the effectiveness of each employee when pursuing sales opportunities. And lastly, number seven, coverage model. This is a headcount allocation plan to ensure that the target market is properly covered. Well, that was quick. Listeners should ask themselves, do they have these seven building blocks in place? Are you ready for the marketing Cliff Notes?

Sean Magennis [00:05:09] Yes, go for it.

Greg Alexander [00:05:11] OK, so here are the marketing Cliff Notes. There are nine building blocks of a great marketing model, number one brand strategy. This is an inspiring story uniquely relevant to your target clients. Number two, value proposition messaging. This explains to a client how they move from the problematic status quo to an opportunity filled future by hiring your firm. Number three, positioning statements. This articulates why your firm is better than the alternatives. Number four, campaign strategy. This is hyper targeted marketing campaigns that hit the sweet spot of your market. Number five, content strategy. This allows you to earn brand preference by satisfying the information needs of your target clients. Number six is budget. This is dollars and non billable hours assigned to specific accounts to stimulate demand. Number seven is agency. This is a trusted service partner who can help you execute all of this and has two more. Number eight is lead generation. This is a method to attract the right clients to your firm and the right quantity. And lastly, number nine is clients marketing. This is a method for delivery staff to locate new opportunities inside the current client base. So listeners should gut check themselves against these nine basics. I went through that really quickly that I communicate clearly.

Sean Magennis [00:06:43] Yes. Greg, you did this worked out this worked out well. Listeners think of these as two checklists to run yourself through to see if you are marketing and selling like a pro. If you do not have these items, you are behaving like an amateur. And this may be the reason revenue growth is not where you want it.

Greg Alexander [00:07:04] You know, one last thing, Sean, I want to mention, if I may remember, that marketing and selling services is entirely different than products. So why is this? Well, products are sold and consumed and services are bought and experience, and that’s a big difference. So, for instance, I watch the halftime show on Super Bowl. It featured the artist called The Weekend. I went to Spotify, listen to his music music and I bought it. I never met the weekend. It was sold to me. I consumed it. In contrast, I recently needed to update my estate plan, I hired an attorney, we met, we worked together to produce the new estate plan. The service and the person delivering it cannot be separated. The service is experience, not consumed. The attorney did not sell it, but rather helped me buy it through a great experience. The point is to not make the rookie mistake of trying to use best practices to market and sell products in the professional services industry. They just don’t work.

Sean Magennis [00:08:06] That’s great practical advice. Greg, 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.

Kris Sugatan [00:08:38] Hello, my name is Kris Sugatan. I own Sugatan.IO. We are founders of E Commerce Brands all over the world. These clients turn to us for help with scaling their brands by acquiring new customers profitably. We solve this problem by creating video and graphic ads that convince the viewer to buy your product. If you need help with acquiring a new customer profitably, reach out to me at [email protected] That’s [email protected].

[00:09:15] 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, there was a lot to absorb, this takes us to the end of the episode, let’s try to help you, the listener, 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 marketing and selling strategy is working for you. If you answer no too many times your marketing and selling strategy is more than likely getting in the way of your attempts to scale. Let’s begin.

Sean Magennis [00:10:21] Number one, is it obvious to prospects who you serve and how you serve them? Number two, is it obvious to prospects why you are the best at what you do?

Greg Alexander [00:10:36] So this goes to both value proposition and positioning statements.

Sean Magennis [00:10:40] Number three, are you in front of enough prospects to hit your revenue targets?

Greg Alexander [00:10:45] Lead generation.

Sean Magennis [00:10:47] Number four, do you understand how clients decide to hire someone like you?

Greg Alexander [00:10:53] How they buy versus how you sell.

Sean Magennis [00:10:56] Number five, can you consistently win more than 50 percent of the time?

Greg Alexander [00:11:01] Now, some listen again and say that’s too high of a bar to clear. And I would call B.S. on that. If you close rates beyond 50 percent, you’re pitching the wrong clients.

Sean Magennis [00:11:09] Right. So if you’re targeting is right, if it’s working properly, generation, psychographic, demographic, you’re going to exceed that 50. Number six, are you extending your reach through multiple marketing channels?

Greg Alexander [00:11:22] And here’s what’s unique about a boutique. You don’t have brand recognition. Nobody knows who you are. So you got to get the word out.

Greg Alexander [00:11:28] Right.

Sean Magennis [00:11:28] Yep. Bingo. Number seven, but you and your team motivated to bring in more revenue?

Greg Alexander [00:11:35] Put your money where your mouth is.

Sean Magennis [00:11:36] Incentivize. Number eight, are you and your team highly trained to win new business? Sharpening that saw. Number nine, are you covering your market sufficiently?

Greg Alexander [00:11:49] Often overlooked, but coverage is a big issue.

Sean Magennis [00:11:52] And number 10, do you have an agency capable of multiplying your efforts?

Greg Alexander [00:11:58] Don’t go it alone here? Listen, you don’t clean your own teeth, go to a dentist. So when it comes to marketing, in particular, find an agency and hire them.

Sean Magennis [00:12:05] I love that, Greg. And we have many great agencies in Collective 54. So in summary, I bet you the listener is an expert in your field, a true giant who knows more about your domain than just about anybody. I’m here to tell you that is not enough. If no one knows about your brilliance, what good is it? The world is filled with bankrupt ideas. Master your go to market, elevate your marketing and sales capability to professional grade. Earn what you were worth. 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. Greg, thank you. And thank you, our audience, for listening.

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Episode 12: The Boutique: Designing Your Organization to Enable Your Exit

The perceived difficulty, or ease, of integrating your boutique will affect your sale. Understand the org model of the type of firms who might buy you. Redesign your model to be seamlessly integrated if bought. This will increase the chances of exiting.

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The Boutique with Capital 54-Episode 12.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 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’ll make the case that your ability to exit is impacted by your org chart. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg will share his experience helping owners design their organization with an exit in mind. Greg, let’s begin by establishing a working definition of organizational design for the purposes of this episode. How should we think about this for the duration of our call? 

Greg Alexander [00:01:12] Traditionally, org design is simply what type of people do I need? How many of them do I need? And how should I deploy them? I would tweak this a bit for our listeners who are owners of boutique preserve firms. I would add leverage ratio in cost to the org design leverage ratio simply means how many employees for each owner. So for example, if my firm has three owners and 30 employees, I have a leverage ratio of ten to one. This is relevant because it impacts wealth creation greatly. More owners means less wealth for each owner due to the equity dilution that happens when adding owners slash partners. Costs, the second tweak is simply what do I pay for each role? This is a required tweak for our listeners because labor costs is the single biggest expense. Designing an org chart without considering costs could destroy a PNL if not done carefully. 

Sean Magennis [00:02:08] Excellent. Greg, I’ve been taking notes, so let me read this back to you to make sure I got it. Org design means five things. Number one, the type of people I need. Two, the number of people I need, three, the way I should deploy them, for instance, by geography or industry, vertical, et cetera. Number four, the leverage ratio. And number five, the labor cost of the of the org model that I get this correct? 

Greg Alexander [00:02:38] You did, those five things, if you keep them top of mind and you will design an excellent organizational model. 

Sean Magennis [00:02:44] Outstanding. So with this understanding, help me and the audience understand how this impacts an exit. 

Greg Alexander [00:02:52] Sure the connection is not obvious, but let’s be sure it’s there and it’s very strong. So the entity that buys you a firm must figure out how to integrate it into their firm. Org design is front and center during this integration thought process. Potential buyers will not buy your firm if they feel the integration will be difficult. Difficult integrations are costly. They took a long time and they result in bad deals. In contrast, simple integrations are very attractive to buyers. They’re cheap, quick, and they lead to excellent returns. This means the design of your organization can aid or hurt your ability to sell your firm. Your org model will be heavily scrutinized during diligence. 

Sean Magennis [00:03:43] Yes, I can see the connection. And to summarize, the easier an organizational model is to digest, the more likely it is your firm will be bought. This begs the question, Greg, how can our listeners design their organizations now to enable them to get purchased? 

Greg Alexander [00:04:01] OK, so let’s start with some things to avoid. So here are three things to consider. First, eliminate all complexity. The design principle should be simplicity. Unfortunately, in my work advising boutiques, I often see overly complex org models tried to avoid making this mistake. Second, stay away from the Matrix. At times, owners of process firms struggle to make the hard decision of who reports to who. So to please everybody they let some report to more than one person. This is called the Matrix. Integrating a matrix is very hard. Stay away from it. I see deals fall apart during the diligence stage simply because the matrix exists. And then third, organize around either geography, industry or function. Organizational models built around one of these dimensions are clean and they’re very easy to understand and very easy to absorb. 

Sean Magennis [00:05:06] This is so right on. This is excellent. Keep it simple. Avoid the matrix. And I’m going to just say that fifteen times with a huge number of exclamation marks because I lived there for seven years. Running a global… 

Greg Alexander [00:05:19] It sounds great, but it’s a nightmare. 

Sean Magennis [00:05:20] The complexity is so difficult for people to understand and grasp internally. And you can imagine what it’s like externally. If you’re trying to sell. So stick with the geography industry, vertical or job function. That makes total sense. Any other org model design ideas? 

Greg Alexander [00:05:37] Yeah. Let me share one more and it’s a little counterintuitive. So that would be stay small enough to be bought. Which I know right now, our listeners are probably cringing because their growth businesses. So what do I mean by this? Acquirers tend to shy away from buying boutiques with hundreds of employees. They are too difficult to integrate. The more people, the greater level of integration difficulty, some owners are insecure. And to establish credibility, they like to talk about how many employees I have. They believe the more employees they have, the more legit they are in the eyes of clients or investors. This is a flawed thinking. Investors are going to calculate your revenue per employee. They use this metric to determine the quality of your firm. The higher revenue per employee, the more desirable you are as an acquisition candidate. The formula for revenue per employee is very simple. Revenue is the numerator and employee count is the denominator. If you have a large number of employees, your revenue per employee is going to be small. So this last piece of counter-intuitive advice is stay small enough to be bought. 

Sean Magennis [00:06:53] Greg, I love this. I think you’re absolutely correct. It is counter-intuitive. Fewer employees are a good thing. It’s really interesting. 

Sean Magennis [00:07:05] 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. 

Jamie Shanks [00:07:31] Hello, my name is Jamie Shanks. I’m the CEO of Sales for Life. And we focus on increasing self-generated sales pipeline at scale, focusing on helping mid-market and enterprise sales organizations meet and exceed their quota. Our pervasive challenge that we’re solving is that companies continue to hire sellers rather than focusing on increasing the yield per seller. On average, we help these organizations increase their yield per seller by 20 percent more pipeline coverage within six to twelve months. If you need to reach us, you can reach us at salesforlife.com, which is www.salesforlife.com. You can reach me on LinkedIn. Jamie Shank’s or my email is [email protected].

Sean Magennis [00:08:25] 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. 

Sean Magennis [00:08:41] OK, so this takes us to the end of this episode. And as is customary, we’ll end with a 10 question yes-no checklist. We conclude each episode in this fashion to help you, our listeners apply the learnings directly to your business. This creates your take-home value. Let’s jump into the checklist. Ask yourself these 10 questions. If you answer yes to eight or more of these questions, you’re likely to get all of your earn-out. If you answer no too many times, you’re likely to leave a lot of money on the table. 

Sean Magennis [00:09:17] Question number one, will your organizational model be easy to absorb? Number two, are you organized around either geography, industry or function? Question number three, you stayed away from The Matrix? Question number four, are you large enough to be interesting, but small enough to integrate easily? Number five, does your org model reflect the niche you serve? Number six, does your org model reflect your business model? 

Greg Alexander [00:10:00] So a little something on that. Generally speaking, two types of business models. The first is high margin, low volume. The second is low margin. High volume. And your org model needs to reflect that. Right. So in the high margin, low volume business, you probably have few employees. A lot more senior and a lot more expensive. On the flip side, if you have a low margin, high volume business, you probably have lots and lots of juniors right around. 

Sean Magennis [00:10:36] Excellent, Greg. So number seven, is the organizational model a good starting point for an easy integration? Number eight, is your organizational model flexible enough to morph into somebody else’s? 

Greg Alexander [00:10:49] For example, stay away from labor unions. 

Sean Magennis [00:10:51] …and Matrix organizations. Number nine, does the organizational model reflect the true cost to operate your boutique? And number 10, will it be obvious to a potential acquirer where the synergies will come from? In summary, the perceived difficulty or ease of integrating your boutique will affect your ability to exit. Your org model directly impacts your ability to exit. 

Sean Magennis [00:11:25] 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. 

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