Episode 117 – How a Staffing Firm Productized a Service and Is Changing Lives – Member Case by Nish Parikh

Productizing a service seems scary and many Founders of service firms do not know where to start. As soon as you have decided to capitalize on it, productizing your service can lead to fast growth and large scale. On this episode, Nish Parikh, CEO at Rangam Consultants, funneled cash from his staffing firm into the development of a product called Talent Arbor. As a result of this innovation, Nish is helping those on the Autism spectrum build rewarding careers. Join Nish and hear how leading with empathy drives innovation and impact.


Greg Alexander [00:00:15] Welcome to the Pro Serv Podcast with Collective 54, a podcast from leaders of thriving boutique professional services firms. For those that might not be familiar with us, Collective 54 is the first mastermind community dedicated to the specific and unique needs of leaders of boutique professional services firms. My name is Greg Alexander. I’m the founder and I’m going to be your host today. On this episode, we’re going to talk about productizing a service and how by doing so, you can accelerate your growth rate and accelerate the pace of scale. And we have a great role model with us who is someone who just did this. His name is Nish Parikh. And Nish, welcome to the show and would you please introduce yourself to everybody? 

Nish Parikh [00:01:04] Sure. Thanks, Greg! Nish Parikh, I’m co-founder and CEO of Rangam Consultants. We are a workforce solution company with the expertise in the DEI space where we are helping companies build, scale up, and manage their disability hiring programs and neurodiversity programs. 

Greg Alexander [00:01:28] Okay, very good. So today we’re going to talk about how you just productize a service and you created this thing called Talent Arbor. And let’s start with just briefly. What is it? Please. 

Nish Parikh [00:01:45] So Talent Arbor is a tech-enabled workforce solution for companies with interest in bringing in holistic talent. Talent with all abilities. And this platform is helping companies identify the jobs for this type and job in different roles to manage the complete end-to-end program when it comes to hiring people with a disability or people of neurodiversity talent. 

Greg Alexander [00:02:21] Okay, now you ran your company for many years successfully without this product or a product, I might say. So why now? Why did you decide to productize your service now? 

Nish Parikh [00:02:39] What we have experienced. There are two two components or there are two needs. We saw about two years ago. One is managing our services. When we are serving our customers with neuro-typical candidates and neuro-diverse candidate, we were managing in two different platforms, two different applications, two different processes. So I saw it first-hand and we said, How do we manage this? The back end of our services, utilizing a product, one platform. And then our customers started asking if they can do certain things, which was part of our platform. And that’s when this whole idea of productization started. And then in recent, during COVID time, we saw another opportunity where self-service model in this particular space is becoming more and more, you know, adaptable, are, you know, successful. So that’s another reason we said how do we take what we have built and build a cookie cutter kind of a model where we can replicate this and offer this services as a cost effective solution to our customers? 

Greg Alexander [00:04:04] Fantastic. So for listeners out there, this is a very typical journey towards productization. It starts with you’re performing a service for a client. You want to do it more efficiently. So you tech-automate your service delivery, deliverable delivery, excuse me, tech-automate your service delivery. And that’s a tool that you use internally to perform the work. And that alone can significantly improve scalability and, quite frankly, profitability. Then very often you then make that platform after it’s built available to clients and they start using it either in exactly the same way or slightly different ways, and then it opens up new revenue streams. In this case, the self-service revenue stream. And then that is almost another multiplier of scalability. So this is why it’s it’s such an effective way to scale a professional services firm whenever you can automate. Now, a lot of people that may be listening to this are going to say, Yeah, I get it, but I don’t know how to do this. So I’m assuming at one point in your journey you didn’t know how to do it. So how did you get started and how did you pull it off? 

Nish Parikh [00:05:12] Yeah, So we started we, we brought this whole process of cost productization into two parts. One is our team facing functionality. How do we first build that base so that we can we can serve our customers in a cost-effective way. So once we solved that problem, then the real process of productization started. So in that process, what we consider we created a one-year roadmap. And our first launching pad was something where customers were asking us for this particular type of activity every single day when they start the program. And so we identify those couple of activities and we we created the model for that. And now we have started chatting and offering these services as an add-on to existing services. So we have taken this multi-phased approach. So as we are building, we are going to go to the market and enhancing our existing services with our existing customers. But with the goal to offer these services as a brand new services to new customer. Once the complete platform is ready. 

Greg Alexander [00:06:36] Okay. Now productizing the service is expensive. And it’s risky. So therefore, especially if you haven’t done it before, it’s. It takes courage to do that. So how did you muster up the courage to go down this path? 

Nish Parikh [00:06:58] So in my. Entrepreneurial life I how I’ve been. Pretty unsuccessful. Couple of times in. So the courage was always doing that. And no matter what, because I’m going to fail, I’m going to take it. But the difference between all my earlier ventures where I have failed. I went a little bit out of the scope, out of my core business. So my first product was e-commerce product, which is completely different than staffing. Then my second product was on the education side, special education, which is kind of related to staffing and employment. But the benefit that this particular product, I see that what we are selling to our customers, our core customers, sixty customers, they are looking for this solution. So this particular fit is or this particular productization projects as compared to my previous. So that’s that’s how I see it, that there is the higher possibility of success. 

Greg Alexander [00:08:09] Just a great reminder, you know, stick to your knitting, you know, stick inside your circle of competence, you know, and if your customers are asking you for something, listen to them. Build them what they want and they’ll probably buy it. You know, it’s just just great advice. You know, I think some of our members don’t understand the term neurodiversity, which I know is how you’re building your firm and it’s your passion and your mission. Would you mind explaining what that means? 

Nish Parikh [00:08:35] You know, we all have way to do things. This is very simple. This is how I have a learning experience. Neurodiversity is when we bring in the workforce who has the building ability to think out of the box. We are all influenced by so many things, but neurodiverse is like considered individuals on the autism spectrum or ADHD. ADHD is also. And then there are a lot of other mental I would not call it disorders, but you know, we call mental conditions where these individuals, they think differently, they see the world differently. And that’s the beauty of neurodiversity. 

Greg Alexander [00:09:26] Okay. And you’re helping companies place neurodiverse people into jobs in their company said, I understand that correctly. 

Nish Parikh [00:09:37] Yeah, that’s like blitzing is only one piece because this is where a lot of people they. Because hiring people with disability or autism or neurodiverse is not new sustaining. That’s what I always say. We help companies sustain this talent and so that they are successful. That’s what we really do. 

Greg Alexander [00:09:56] Okay. And this Talent Arbor system along with your other services, is is managing the lifecycle of that employee. So it’s not just placing it, but making sure they’re successful, you know, throughout their career. 

Nish Parikh [00:10:11] That’s right. That’s right. It starts with identifying the right job. Okay. Using AI and machine learning, to setting up those trainings, capturing those checkpoints, onboarding the candidates, and then most importantly, sustaining them in one-connected as the one-connected community. 

Greg Alexander [00:10:32] Okay, very good. So that was helpful to understand the context of our story of prioritization today. Just a couple more questions for you. The other obstacle that founders run into is they say, Yes, I understand I need to do this, but I’m already too busy. And productization is a big project. I don’t have time for this. And when I look internal to my team, you know, maybe everybody else is just as busy as me. Or maybe, you know, if there is extra capacity, you know, they’re not skilled in, you know, turning a service into a product. So how did you find the time to do this? 

Nish Parikh [00:11:10] Yeah. So in our case, we were we were fortunate that one part of the team was already serving. Our internal tech team was already working on building this innovative thing, which was helping us compete with other competitors. So that was already there and that development expertise was there. So I would say we were fortunate to have that one core competency built in in the organization. 

Greg Alexander [00:11:42] Okay. 

Nish Parikh [00:11:43] And then then second is the second step is then allocate some additional resources to take that product to the next level. And one of the other very important thing, which we we did was we kind of mandated or kind of everyone contributed there 5 to 10% of their time in building this solution. So we created a dedicated innovation team and who met on a weekly basis to all the subject matter experts within the organization. They come to this call, they look at what we are building, and they provided their feedback. So it was a collaborative effort and that’s how we’re kind of building this the next towards the end of this platform. 

Greg Alexander [00:12:34] Okay. So I understand how you’re investing kind of non billable hours is 5 to 10% into the building of the product. I’m also assuming that you were probably taking profits generated from the service business and funneling that into this prioritization. Is that correct? 

Nish Parikh [00:12:51] Absolutely. So we are using our free cash flow and we are reinvesting into additional resources to take the product to. Yeah. Okay. 

Greg Alexander [00:13:01] So were you able to fund the entire the entire development effort from the free cash flow from the service business? 

Nish Parikh [00:13:08] Yes, that’s what we have done so far. But we are out in the market kind of looking for external. It’s not enough to to expedite because time is, as you know, great. And we want to go to the market as quick as possible. So. 

Greg Alexander [00:13:25] Well, good luck with that. I know it’s not a friendly funding fundraising environment at the moment, but hopefully things will get better here. So, listeners, this is an important thing. So, you know, he had a choice to make. You know, the service business was thrown off free cash flow and he could either stick in his bank account and take some trips and buy some cars and things like that, or he could reinvest it back into the business to try to, you know, accelerate scale and grow. And that’s what he did. And you’re able to do this at least a version of it, by using your existing free cash flow. And there’s lots of advantages. Topic for another day to do that. My point in saying this is that it’s not impossible. It’s very doable. It’s not like you don’t have to go raise $100 million to go do this. I mean, you’re not a software company that needs venture capital money. You’re trying to tech automate, which is a different scope altogether. So the money and the time is there. And I want you to encourage you to try to make it happen. All right. Well, listen, we’re at our time window here, but I want to. For all the members, on behalf of all the members, I want to thank you for being with us today and tell us a little bit about your story. It’s a great, tangible example of how a service company has productized and the journey that you went on, and I wish you the best of luck with Talent Arbor. 

Nish Parikh [00:14:44] Thank you so much. Thank you, Greg. 

Greg Alexander [00:14:47] Okay. A couple of call, two actions for the group. So if you’re a member and you’re listening to this, be sure to attend the Friday Q&A session that we’ll have with Nish to talk more about this. That’s an hour long session. You’ll be able to ask questions directly of him and they’ll be a wonderful learning opportunity. Also, if you’re participating in the new e-learning products that we’ve come up with that support, the two books, The Boutique in the Front, A Bottleneck within the Boutique Companion course is a couple of tools I might direct your attention to. So the first one is a vision templates. So clearly Niche had a vision for what he wanted to do. So you need a vision to figure out where you want to go with your prioritization efforts. And then you double click on that. And there’s another template called the Service Roadmap template. So those two things might help you get your thoughts organized. And I wanted to direct you to those. If you’re not a member and you’re listening to this podcast in the public domain. You want to consider joining, go to Collective54.com. That’s obvious. Fill out a contact us form and somebody will get in contact with you. However, if you’re not ready to join but you want some more contact, you can subscribe to Collective 54 Insights and you’ll get three things on Monday. You’ll get a blog, on Wednesday you’ll get a podcast, and on Friday you get a chart. And it’s a good way to educate yourself further on these topics. And maybe that’s a way to get started in the pathway towards membership. Okay, So thanks for listening. This was a great episode and until next time, I wish you the best of luck as you try to grow, scale and exit your service for.

Episode 116 – How to Increase a Founder’s Income by Increasing Yield – Member Case by Ehsan Mirdamadi

The yield of a boutique is the ultimate measure of productivity. Yield is simply the average fee per hour times the average utilization rate. For example, $400/hour x 75% utilization rate = a yield of $300/hour. Increase yield and make more money. But, how? One effective technique is to tech automate service delivery.  On this episode, Ehsan Mirdamadi, Partner & CEO at NuBinary, explains that small service firms can now afford to tech automate service delivery by leveraging a fractional CTO (Chief Technology Officer).

Listen to this episode and learn how the fractional executive model has entered the technology office. Many Collective 54 members use fractional finance, HR, IT, and Legal executives. Now, they have the opportunity to leverage fraction technology executives. And those that do will see an increase in yield.


Greg Alexander [00:00:15] Welcome to the Pro Serv podcast with Collective 54, a podcast for leaders of thriving boutique professional services firms. For those who don’t know who we are, Collective 54 is a mastermind community dedicated entirely on the needs of leaders of thriving boutique pro serv firms. My name is Greg Alexander. I’m the founder and I’ll be your host. And on this episode I’m going to talk to you about tech automating the service delivery that you offer your clients and how that could help you expand margins. And we’re going to discuss a cost effective way and a less risky way of doing that by leveraging a fractional CTO. And we’ve got a great role model with us to help me with this. His name is, and I’m going to do my best here. Ehsan Mirdamadi. Was I close? Okay. Fantastic. Yeah. And. And this is what his firm does. His firm provides many things, one of which is fractional CTO services. So, Ehsan, thank you for being here. It’s good to see you. Would you please introduce yourself?

Ehsan Mirdamadi [00:01:29] Thank you. And this is Ehsan Mirdamadi, and I am the co-founder and the CEO of fractional CTO service company called NuBinary.

Greg Alexander [00:01:42] Okay. And say a first name for me one more time.

Ehsan Mirdamadi [00:01:46] Ehsan

Greg Alexander [00:01:47] Ehsan. Okay. Got it. I was saying Ahsan, Ehsan. I will do my best here to stick with that. I tell you what, for the rest of the show, you can call me Bob. All right, So. So the big idea here today is a lot of our members understand that automating service delivery through technology as a way to accelerate, scale, and expand margins. But many of them are not technologists, and they’ve wasted a bunch of money trying to do this, and now they’re fearful of trying it again. And usually when they waste a bunch of money is they go hire an expensive chief technology officer and they miss hire that person because they don’t know what good looks like because they’ve never hired one before and now they’ve retreated. So when I met Ehsan and he told me about his fractional CTO model, I was really excited about it because our members have leveraged fractional executives in other disciplines. CFO, head of H.R., Head of sales, etc. and the huge advantage of doing that is that Ehsan knows what good looks like. So if you are hiring a fractional cto from him, there’s a good chance that that person has been through a thorough screening process, and it’s the right person for you. So we’re going to try to take this concept of a fractional CTO and apply it to this unique use case, which is to leverage that person’s expertise to help you tech automate service delivery as a way to accelerate scale. So that’s what we’re talking about today. So let’s start with the very basics. So what is a fractional CTO?

Ehsan Mirdamadi [00:03:18] So fractional CTO offering is obviously a part-time engagement that allows us to bring in a senior chief technology officer into into the into our engagement with the clients. And and these CTOs that we are hand-selecting are the type of CTOs that have gone through their own journey and process of starting with an idea and understand the business objectives and really trying to marry the business objectives with of their technology development objectives, which in a sense means this is a obviously a senior role and that that essentially allows companies to think strategically about how they want to adopt or build technologies for their practice.

Greg Alexander [00:04:12] Okay. And how did you come up with this idea? Because this is fairly unique.

Ehsan Mirdamadi [00:04:19] So myself and my co-founders, we all consider ourselves CEO entrepreneurs. We have done our own a fair bit of experimentation with other ideas and also been able to begin to to engage ourselves and really. Be out there, try to bring ideas to life in other initiatives and other endeavors that we have had in our previous businesses or as consultants helping other businesses to do so. In our first encounter. And as we started coming up with ideas on how we can position better for what we do in the market, we essentially started gathering ideas from, you know, the ecosystem that we were part of the innovation ecosystem down here in southern Ontario. And also we started going through our journeys or personal journeys as we were doing the fractional sport and the CTO offerings or helping others. And so one of the key elements, a few of the key elements that we encountered was that for the most part, companies go through a multitude of iterations in what they build. They and that’s usually on average about three times before they figure it out how to do it properly. And that good around 50% of those projects actually fail. And also that, you know, they spend a lot of their capital into really building a tech component to their businesses. And so we realized knowing all of these facts essentially is pointing out towards this this conclusion that obviously we need to do something that increases the chance of success in these type of projects and also help the founders, the owners of the companies to essentially reduce their ultimate cost doing so. So we we started just experimenting with youth with a few different types of messaging to go out there and essentially talk about our work. And we realized that the CTO word is actually a good encapsulation of what we were trying to do is to talk to to our audiences about okay.

Greg Alexander [00:06:57] And for our audience, as you know, these are non tech companies, These are small services firms. But these days, technology is touching everything. And in order for them to scale, they have to figure out a way to automate through technology, or they’re going to have ballooning labor costs and never really get to substantial profitability. The surprisingly to you, I would imagine many people don’t know what a CTO does. I think this job to the to the folks that don’t come from the tech world is a little confusing and they’re not 100% sure of what it is that they do. For example, I was on the phone with a member last week and they hired a software development firm to write some code. But the spec they gave the software development firm, you know, what they told them to build just wasn’t well thought out. So they to your point, they tried it three times. They wasted a bunch of money and they never really got anything. And what I advise them on is, is they put the cart before the horse. They really needed a CTO to tell them what they should be building in the first place based on the needs of the business. So that’s my kind of layman’s explanation as to what a CTO does. Would you provide greater clarity, you know, if you were to describe to our audience members what a CTO does, what would you say?

Ehsan Mirdamadi [00:08:18] Again. I wanted to put our attention back on this warning that we think makes a lot of sense and resonates with a lot of our audience and in this case as well, is that CTOs are the CTOs main job is to make sure that they marry the business objectives, what are the technical objectives? So as you pointed out, if you go to any software development company, that’s their job to essentially learn from from the owners on what they’re trying to build. And they essentially go back and come back with a scope. And they they obviously and the bigger the scope, the better for them. Whereas a CTO would love to understand first that what what is it that they’re trying to achieve as a business objective for their for the institution, for the corporation? And so the whole conversation of really trying to understand what needs to be built starts with that. Otherwise, we technologists to try to be fancy with our I guess technology builds and we try to make it as as complex as it can be and start, adding more features and bells and whistles into it. But a CTO obviously would like to know if any of those features and components that they’re anticipating and imagine imagining for the ultimate solution actually makes sense and delivers on a very specific basis. So to just drill down a little bit more on this topic, on this idea. The CTO needs to understand who the who the users are for those platforms and what are they trying to achieve. Is it on the matter of, for example, storing information or presenting the information in a certain way and how they are used to going about, you know, doing certain things like, for example? If you are dealing with a institution that deals with their health data, with the patient data. It is important to really understand that from the from the day first you want to have some level of security and compliance, consider or not initiate an event. So obviously one and you want to make sure that the data is anonymous and so on and so on. And also that over time you want to make sure that the company understands that the software is simply like a living mechanism, which requires maintenance, which requires which requires, you know, we’re going through an evolutionary process every now and then, getting the feedback from the clients and really try to make it better as time passes by. And so as a CTO, you also be you should be looking out into the future to see what kind of challenges it may pose for that institution, for that company to essentially continue adopting new business practices and processes.

Greg Alexander [00:11:33] Okay, very good. Yeah, that was a great example of, for example, security and compliance around health care data and understanding who the users are. And that’s the big point that Ehsan is trying to make right now, which is this chief technology officer is a hybrid business person slash technologist. And as a result of that, and that’s the key element here, they really can help our members and founders of boutique process firms. Why shouldn’t a small services firm? Just go out and hire a full time CTO. Why rent a fractional CTO?

Ehsan Mirdamadi [00:12:14] There are many reasons for that. One of them is that you obviously don’t know what you don’t know as as a leader of your company. You may think that certain skill sets is just simply what you need for for your type of business. And so when it comes to the CTO world, there is a vast range of different types of technologies that people are exposed to, and maybe their experience, as it may seem relevant. It may not be as you may think. The other reason that we are seeing it more and more and often these things is that technology deals are becoming more and more complex these days. So the time and the era of when you could actually build and build an app and conquer the world with that what the Uber of the world did is over. The technology has become a lot more complex and has many different components to it, and so you probably won’t be able to find the CTO that has that bad range of expertise to be able to to achieve the goals and objectives, because what they are designed for, for that individual. So when it comes to fractional CTO often because our CTOs are exposed to a whole range of different things, not only through their own direct engagement with the clients but also being part of the cloud, and other CTOs that can essentially reach out to another individual from the team and say, I think I need a security expert or cybersecurity expert to take a look at this and say we are in the right. They need to be able to reach out to another person that understands the cloud architecture, for example, to understand if they are concerned about their scalability considerations. And so the list goes on and on. But it’s actually quite a big list starts with the business continuity again, compliance and high visibility considerations and audit things that it can provide us as a few examples. Yeah.

Greg Alexander [00:14:25] You know, I’ll share a real example with our members because they know Collective 54 and this might highlighted for it. You know, there used to be a time when we had a smaller membership and a member had a problem and wanted to speak to another member and it was this manual process they would call their customer service rep and say, Hey, do you know anybody that can do this has done X, Y, Z, and then would have to manually go through all of our members and and make connection for that person. So we obviously said, well, you know, when we get to a few hundred members, which we’re at now, that doesn’t work. It doesn’t scale. So we need to create a member directory in the member directory needs to be made public to our members and they should be able to connect with one another and have a robust search feature. So we engage with a CTO and and you know, I as the owner of the firm and all these assumptions as to what it should do and all this and and he said, Greg, you’re getting ready to make a bunch of mistakes If you keep going down, the path is going on, you know, you’re going to have to rebuild this thing several times. And he caused me to pump the brakes. He spent some time with the members actually understood from the member’s perspective, you know, what the typical use cases were and what they would want in the future functionality. So when we did it, we got it right the first time, which was hugely impactful for us because it was a better experience for members, it was a way better experience for our employees. It reduced my labor component and it was just a win for everybody. So it’s just a great example of how you can use technology as a service company to deliver service for your members or in your case, your clients. That improves the client experience and improves your P&L because now the tech is doing the service instead of a person, which means, you know, the tech works 24 hours a day with no bathroom breaks. Right? It’s just less costly and it will be forever. So I want to encourage everybody that’s listening to this. Here’s your call-to-action readers and listeners, is that you need to engage tech automation. I mean, it’s no longer optional. So if you’re a services firm and you don’t have a tech component, you’re falling behind. And if you think you can’t afford it, you’re wrong. You can because there’s this new concept called the fractional CTO. And if you engage with firms like this, you, you shift some of the risk to them. I mean, it’s their job to build the right community of fractional CTOs and understand what your needs are and give you the right resource. So it’s a lot more doable now than it ever has been and it’s a big win for you. So listen, thanks for being on the show today. It was wonderful to listen to you and hear about your company. I know you’re a relatively new member, but your presence means a lot because I don’t think our members are tapping this resources resource as often as they could. And the way we all get better is, you know, every time a bright person like yourself joins the community, collective wisdom goes up for everybody. So on behalf of everyone that’s listening to this, thank you so much, Ehsan, for being on the show today and for being part of Collective 54.

Ehsan Mirdamadi [00:17:32] Thank you so much for having me. And what I wanted to leave you off with this statement that we have, this thesis that every company on this planet is now becoming a type of technology company. And the same way that they required lawyers and accountants as a baseline, we think that they also require a CTO.

Greg Alexander [00:17:52] Yeah, I agree with you. I really do. And I think we’re going to agree with you more and more as time goes on. For sure. I mean, that old phrase, I forget who said it, but software is eating. The world is accurate and we have to develop this core competency in order to do well. So. Okay. So that’s the end of this show. Thanks for listening. And a couple of things for you. So members, be sure to attend the Friday Q&A session with Ehsan. I’m sure you’ve got a lot of questions. The devil’s always in the details, like how much does this cost, etc., etc. And we’ll address all that on the Friday Q&A. And if you’re not a member, but you think you might want to be and meet really smart people like Ehsan, consider joining Collective 54 and you can do so at collective54.com. Just fill out the contact us form and somebody will get in contact with you. And then lastly, if you’re not ready to join but you want access to content like this, consider subscribing to collective 54 insights. If you do so, you get three things every week a blog, a podcast and a chart, and you can find that also a collective54.com. Okay, Thanks for listening and look forward to the next the next episode. Take care.

Episode 115 – How a Software Consulting Firm Succeeded by Planting a Flag in Middle America – Member Case by Ashok Sivanand

In a post-Covid world, does geography still matter? Should you pursue clients, and employees, based on where they reside? It used to signal to clients that you were legit when your name was on a building downtown. Is this still true?  On this episode, Ashok Sivanand, CEO at Integral, shares how he thinks geography is still a mission critical element of strategy, but not for the reasons you might think. He moved to Detroit and is building a firm based on mid-western values. And it is these values, concentrated in this geography, which is contributing to his success. Hear from Ashok his remarkable story which started with him driving a forklift in a factory during the graveyard shift. 


Greg Alexander [00:00:15] Welcome to the Pro Surf Podcast with Collective 54, a podcast for leaders of thriving boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community dedicated exclusively to the needs of leaders of thriving boutique producer firms. My name’s Greg Alexander. I’m the founder and I’ll be your host. Today on in this episode, we’re going to talk about geography. I know that’s a weird subject. Probably weren’t anticipating that. However, strategy and a boutique processor firm is where to play and how to win. And since our community is made up of boutiques, many of them choose geographies that they can dominate. And it’s a very effective strategy. And we’ve got a great example of that today. Middle America, if you will. And we’ve got a great role model to discuss with us how he is factoring geography into his strategy and how he is trying to dominate middle America, if you will. His name is and I’m going to do my best here. My man. A shook, son of honored. How do I do? 

Ashok Sivanand [00:01:28] Cos that’s probably a six out of ten. 

Greg Alexander [00:01:30] Oh, sorry about that. 

Ashok Sivanand [00:01:32] It’s a showcase debate and a shock. Savannah. 

Greg Alexander [00:01:37] Savannah. Okay. Sorry about that. I tell you what, I gave you permission to call me Joe Smith for the rest of the call. We can. We can get even that way. So please introduce yourself to the audience and tell us a little bit about your firm. 

Ashok Sivanand [00:01:51] Yeah, sure thing. So I started in a girl about five years ago, and what we do is help companies with transforming into technology companies. And we do that by building software products with them and using techniques like pair programing, where it’s very much like an apprentice style of teaching, learning almost like a pilot and copilot. Where are the companies that are looking to really transition their operations to being more tech enabled? Can do it at a very grassroots level in service of a strategy that most companies have today of wanting to become more like technology companies. The Fords of the world trying to go after the Teslas of the world, if you will. 

Greg Alexander [00:02:34] Yep. Okay, very good. So I was drawn to your story because to simplify strategy, which I’m dramatically oversimplifying where to play and how to win, where to play can be many things market segments, industry verticals, etc.. But one of the components is geography. And you have an interesting story on your take and geography and and how your focus on the automobile industry and as I understand it, middle America. And we’ll talk about what that means and in particular smaller cities. So just by way of introduction, would you mind explaining that part of your strategic approach? 

Ashok Sivanand [00:03:14] Yeah, sure thing. So we’re based out of Detroit, Michigan, and that’s where I founded the company. A little short history here. I moved to Detroit for what was meant to be a six month engagement with my last employer, and I was supposed to start their local practice here and go back to my hometown of Toronto. There was some reading between the lines about a promotion and everything that was waiting for me at a company that was going public. One thing that I did not factor into my spreadsheet was that I would really like living here. And I remember moving into this apartment in downtown Detroit, opening the windows all the way and looking out at the street and realizing this was never part of the spreadsheet. And we’re going to have to go back and address that. And this was in 2016, and Detroit is in you hear this in the news a lot about the revival story. And I think it’s true of not just Detroit and the auto industry, but can be said about a lot about middle America in many ways. It’s folks that you don’t see a lot in the news when it comes to up and coming technologies or up and coming services and a butt of jokes in some cases. And moving here, I realize that there’s a lot of myth busting for myself and a lot of invalidation of assumptions that I had coming in here and that there’s a lot of smart people here trying to do a lot of cool things with much more of a strong sense of community compared to a sense of competitiveness. But I was used to in the big cities and that’s something that stood out to me and I’ve got a little bit more of a history in the auto industry as well that made these really strong personal reasons for me to jump in and try doing this. 

Greg Alexander [00:04:56] If you wouldn’t mind, I’d love to hear of those personal reasons and your history in the automobile industry. 

Ashok Sivanand [00:05:01] Yeah, sure. I think so. One of my first real jobs was as a forklift driver in a manufacturing plant, and it was nightshift in East Hamilton in Canada. And Hamilton is a manufacturing town. Not too dissimilar from Detroit, was growing faster than Toronto was at a time when Detroit was growing faster than New York. And as manufacturing got outsourced and offshored, the city is kind of gone. The different towns that we know about now. And so the east side of the city is like many cities, the rougher part. And I was an international student. And so let’s just say I learned a lot that summer. And one of the things when it comes to that sort of my professional career was just getting to apply the systems, thinking that most electrical engineers have to do kind of watching electrons move through a circuit. I was able to see kind of how production was happening here and got to learn things like lean principles in terms of I was a forklift driver where I could really bring the most customer value by making sure that all the different parts of the lines were not blocked or starved and so forth, and then went on to work at GM at a plants in southern Ontario where they make the Chevrolet Equinox and now the GMC terrain. I believe it was actually a half Japanese half American plant. So Suzuki owned half the plant from General Motors, the other half. And we had like the movie Mr. Mom, we had like white shirts, blue pants. I had my name embroidered, and it was very different from most car factories that you’d see. And there was definitely a very strong Japanese influence to do how the production was done. I have in fact just this, but I’ve been told by a few people that it was the most efficient GM plant and a lot of folks kind of chalk that up or rationalize it to the the kind of Japanese influence. I, I shut the line down for 8 minutes one time. And at the time, gas prices are really high and these activities are selling like hotcakes. And I thought that I was going to lose my job the next day. And I called in. The general manager kind of conducted what I now know is a five rise exercise, and they made the process improvement right there. And then with all the right people in the room, understood the root cause of how this was allowed to happen. Where we’re burning turned to shut the line on for 8 minutes. And he, instead of firing me and thanked me for my transparency and I got much more confidence and got to learn a lot more about the mean. And so a couple of things that have happened since then. Number one, this was led to thousands. I was really bummed that all the software engineering talent was put on the building and manufacturing the cars more efficiently, and I couldn’t work on the vehicle itself and make it a more compelling vehicle to the consumer. And then flash forward, about ten years, I was working at a company called Pivotal Labs, and number one, they had taken a lot of these leading principles that had originated for building factories more efficiently and to running software teams with more humanity and ultimately getting more value for their customers. So a lot of it clicked for me. I didn’t understand a lot of the jargon, but the first principles were very obvious because it was all borrowed directly from from the Toyota production system and Lean. And the second thing is around 2015 was when that thing changed, where Consumer Reports said that more people were buying cars based on the technology in their compared to horsepower and torque, which were the the traditional selling factors. Right. And that was also the time that I was doing this little thing in Detroit. So the third part of the story was that I had I had I had, you know, be careful what you wish for type of thing, where I wanted to really be part of a compelling value proposition of the vehicle versus being hidden in the back room. And that was a time when when Detroit was really investing and becoming more of a technology town, companies like Ford were making big investments. And and I was at the you know, you could call it right place, right time for something that I’d hoped for ten years prior, understanding a lot of those first principles that somewhat ironically, the auto industry wanted to move their technology teams to working more like their manufacturing teams, believe it or not, in terms of getting the most efficiency and the best customer value out. But looking to Silicon Valley to teach them, even though a lot of it had originated in middle America the first place. 

Greg Alexander [00:09:23] Man, I tell you what, that is an incredible story From driving a forklift on the midnight shift to founding a software company and embracing a new small city, hats off to you mad. Respect for your courage and enjoying it journey. And thanks for sharing it. All right. Well, let’s talk about this concept of geography. So you just laid out what you’re focused on and why does the opportunity exist and how have you been able to, I guess, walk away from the temptation of being the next hot shot in Silicon Valley? 

Ashok Sivanand [00:10:00] Yeah, I think some of it is really values driven. And I know that you talk about iOS. I was lucky to have found iOS multiple years ago and we always knew we had what we had read the Netflix Culture Deck and said, Hey, we got it. We got to build one of our own decks this way. And I’d show up to the office on a Sunday and say, Okay, today we’re going to do culture and I’m going to write the culture down today. And I’d go home with an empty whiteboard. And just having ordered a lot of Uber eats iOS really helped us. Yeah, use a framework to arrive at the values and I think the values that are really important here, how we build software, our values work and melody, accountability and kindness and kindness is the one that stands out a lot to both our talent base as well as our customer base, because they both talk about, Hey, this is something that’s often forgotten. It’s something that’s often overlooked because we need to make a quarterly deadline where we need to hit a milestone, and that’s the first one to get out the door. Accountability is oftentimes kind of front and center. And I think the values that what kept me here in Detroit very much aligned with how I think software should be built. We’re building these code bases not to get one big launch out, but a long term iterative process. And we’ve got to think of the long term and we got to think of the team that we’re building it in the long term, the people that we’re building it for. And so taking the humanness out of it, taking the kindness out of it, really makes it a very short term prerogatives. And I think I haven’t fully understood the causation around it, but there’s definitely a huge correlation between finding folks who can act with those kind of values at the same time, deliver, show up, hold each other accountable. Kindness isn’t the same thing as niceness. Doesn’t mean we’re we’re not. We’re not we’re shying away from having difficult conversations. It means we’re really understanding that the other person I’m trying to problem solve with here is a human, too. And whether it’s a customer or whether it’s an end user that we’re trying to build for and have that rooted back in. And for some reason it’s been a lot easier to find. To find that kind of talent in middle America compared to the cities on the coasts or big cities like Toronto. And I think the customers also start to see that. Where when they engage with us, they see that come through in the engagement and every interaction in the meetings and the weekly cadence where as much as we want to be service oriented, that we do show up and we push back and we do point out some potential flaws in the way they’re thinking and offer them better opportunities as opposed to falling in line just because they’re the customer and the customer’s always right. And and I think that’s that’s something that, you know, exists both on the supply and demand side around here. And and interestingly, there’s folks, especially since the pandemic, is that us folks have kind of moved all over the place and we’ve become more of a hybrid company hybrid in the sense that we hire folks across the country and we come together or very specific in-person engagements or in-person workshops or conferences and folks on the coast to tend to want to come and work in this kind of Midwestern vibe, as you call it. And, you know, more objectively, the values that are that are listed on their careers page despite being based out of California or New York City, because they find that the employment opportunities that they have available to them there don’t necessarily align with who they have. And I think, as you know, I’m not the first one to say it on here. I’m sure that if you can find a value alignment with your colleagues and with your clients, a lot of the other stuff, like salaries and stuff, no longer are top of mind. You just have to pay market, make sure you’re not ripping anyone off. And folks feel like a stronger sense of purpose and community and working together and building is building these products together, solving these problems together. So I think that’s something that I haven’t fully been able to get into a spreadsheet, but it’s it’s a hypothesis that seems to keep paying off. Yeah. 

Greg Alexander [00:14:08] So you answer one of my questions, which was, you know, COVID now makes everybody remote or hybrid. So is geography still as relevant as it once was? It seems like it still is being applied slightly differently. The other side of the geography question and back to strategy, where to play, how to win in geography is part of where to play is. Back in the day, not too long ago, the clients at times would prefer local providers for a whole variety of reasons. You know, and I have read about what Ford Motor Company and the other great companies in Detroit are trying to do to revitalize Detroit. And I admire them for doing that. But now it’s post-COVID, you know, is that does it do the clients still want to do business with local providers or is it now geographically agnostic? 

Ashok Sivanand [00:14:53] I think geographically you still have to be willing to show up. Okay. And we’re seeing different companies come back to the office in different ways. GM is doing it a slightly different way than maybe I would where they’re saying, hey, twice a week, three times a week, we’ve got to come into the office. And that’s one way to go about it. I’ve noticed at Ford they seem to be a little bit more specific about what type of interactions they prescribe for in-person interactions. So they’re like, Hey, we do quarterly plannings, we do workshops. I’d like for you to come in so we can do that on a whiteboard versus trying to figure out how to do it over Zoom. But once you know what the work is and when it’s due and who your stakeholders are and why we’re doing it and everything else, the strategy part is all understand we’re lying and we feel like there’s trust between the team. Then go do it wherever you need to do it. When you put your heads down and get the execution done. And so we were always huge proponents of in-person. The the fact that we were one of the catch 22 is about being in a city like Detroit, is that we there’s a lot of opportunity, but there isn’t necessarily the talent base that you move to meet the demands of that opportunity. And so going hybrid allowed us to expand to a larger power base. At the same time, we set expectations pretty early with our folks that, hey, you’re going to be commuting way less than your last job or you’re going to be traveling a little bit more. And we make sure that every time we start a new engagement that we we go out of our way and make sure that the client’s willing to come in person and do it as well. And we fly in from wherever. So I think in terms of your question, I notice that there are some other firms who are still maybe stuck in that convenient space of just after the pandemic hit where no one had to travel. Travel costs were lower. There was a lot more convenience to it. And I don’t necessarily think that convenience outweighs the community that you can build with those in-person interactions, especially when you try to build trust with a new to meet or with a new client where that trust goes a long way six weeks later, and inevitably you’re going to have some friction. Do you earn the benefit of doubt with the client where they will get into problem solving mode versus people solving mode? Those are all things that we’ve noticed. Go right away when when we spend that time to show up in person. And again, I don’t want to speak for Midwesterner as being somewhat of an impact here, but I do sense that there’s a little bit more of a midwestern value of showing up to someone’s house, breaking bread with someone and building those trusted relationships before really getting down to our own and the bottom line. And so it’s maybe a little bit more metaphorical in terms of does the geography still matter? I think the the Midwest, the Midwestern values are still very much valid, whether you’re local or not. Yeah. 

Greg Alexander [00:17:42] Well said. Well, listen, we’re at our time window here. I could talk to you about this forever. But, you know, just to put an exclamation point on that last statement, we’re in the service business, so relationships matter. And relationships happen when they get face to face. It maybe it’s happening differently now. Maybe it’s not every day, but it does matter. So I think for the folks that are listening to this boutique service rooms, you have an opportunity to differentiate there, you know, and because sometimes big companies like the big auto companies, they do business with smaller firms because of that relationship factor. I mean, who wants to be just another client of Accenture, whereas they can be, you know, your most important client kind of concept. So try to take advantage of geography when you can. Well, listen, on behalf of the membership, just wanted to thank you publicly for being here. I’m really looking forward to the Friday Q&A session with the members. I know they’re going to have a ton of questions on how you learned learned the Toyota production system and the five whys off of a forklift and how that made its way to Detroit. You often don’t hear people say, I live in Detroit and love it, and that’s contrarian by itself. But and we’d love to hear all about that. And, you know, we’re now that it’s post-COVID, we collectively are starting to do some event events. So when the weather gets warmer, I’m going to call you and say, hey, I’m going to get 1012 collective 54 is going to come see you in Detroit. Want to show us around the city. So like fun. 

Ashok Sivanand [00:19:08] Okay, that sounds great. I look forward to it. 

Greg Alexander [00:19:10] Awesome. All right. All right, listeners, let me give you a couple of calls to action. So if you’re a member, be sure to attend the Friday Q&A session regarding geography here and with The Shook. Couple of tools I want to draw your attention to. So in the Boutique companion course, that’s the e-learning modules built around the boutique framework, There’s a strategy template that you can download and it talks a little bit more about geography. We also just wrote an EO slash collective 54 integration plan, got a lot of members that run the U.S. We run our firm in the U.S. We love it. We think it does need to be customized to be relevant to professional service. So if you’re in your iOS shop and want to learn more about that, go to the resource center and download that. If you’re not a member and you want to be because you want to meet really cool people like you did today, go to collective 54 dot com, fill out the contact us form and somebody will get in contact with you. If you’re not ready to be a member but you want you want some more outstanding content like this podcast. Subscribe to collective 54 insights and you’ll get three things. Monday, a blog, Wednesday, a podcast, and Friday a chart. Okay with that. Thanks for listening. And until next time. Best of luck.

Episode 114 – How the Founder of a Marketing Agency Dealt with Key Employee Risk – Member Case by Kimberly Kraemer

Key employee risk is a very real threat to founders of boutique professional services firms. Small, people driven businesses are overly dependent on key employees. If a key employee resigns, the pain inflicted on the owner is intense, and the financial impact on the income statement is large.  On this episode, Kimberly Kraemer, CEO at Waterhouse Brands, shares how she suffered the loss of a key employee and how she survived it. In addition, hear how Kim re-engineered her firm to prevent this from ever happening again.  


Greg Alexander [00:00:15] Welcome to the Preserve podcast with Collective 54, a podcast for leaders of thriving boutique professional services firms. For those that might not be familiar with us, Collective 54 is the first mastermind community dedicated entirely to the needs of this unique group. Folks at a leading boutique processor firms. My name is Greg Alexander. I’m the founder and I will be your host today on this episode. I hope to make you aware of a really big risk. And that risk is called key employee risk. And simply stated, what that means is, as a small service firm, we only have X number of employees, so each employee’s contribution is very important. However, we also probably have the 8020 rule, which would which means 80% of the value, so to speak, is generated by 20% of the people. And sometimes one of those great people walks right out the front door. And when that happens, it can have a disproportional effect on a small firm just because the law of numbers would say so. Now, there’s lots of things we can do to mitigate key employee risk, and that’s what we to talk about today. We’ve got a fantastic role model, someone who lived through this and is thriving as a result of it, which is somewhat counterintuitive, but that’s why she was chosen for the show. Her name is Kim Cramer. Kim, it’s great to see you. Thanks for being here. And please introduce yourself. 

Kimberly Kraemer [00:01:45] Hi, Greg. Thank you. And thanks, everyone in the collective 54 community. I certainly have learned a lot from watching everyone else describe the journey they’ve been on. And fortunately for me, Collective 54 helped me navigate my key man risk journey. So a little bit about myself. I’m Kim Cramer, founder and CEO of a boutique firm called Waterhouse Brands. We were formed in 2017 and our focus is on helping life sciences companies build, define and build their corporate and their employer brands. We launched based on what I saw as a key gap in the market, which was for a brand communications firm that could really do more than just come up with a logo and an identity and a website. It was really about telling a company scientific story in a way that put their most valuable asset, which is their employees at the center. Science is complicated. We’ve spent a lot of time and helped these companies really translate that science into English that Wall Street can understand. And what we found is that so many companies just really focus on investors and they focus on partners and they focus on patients, right. All the players in the health ecosystem. But the last in the bottom on their list was employees. And so we wanted to come up with a solution based on a methodology that we had created called ALIGN, that help these companies feature their employees and build a culture that enabled them to go not just from great science and innovation and smart team, but have a culture that helped them become a successful well executing business. And so that was the genesis of Waterhouse Brands and really put my close to 30 years of experience on the corporate and agency side in communications and brand marketing in an industry that I’ve basically grown up with love, biotechnology, put it all together and put it to work. 

Greg Alexander [00:04:01] Well, very good. That was an outstanding description, I can tell you. Very good at your craft. I have a clear definition of of who you serve and what you do and how you do it and how you do it differently. So that was really, really good. All right. So I’m going to ask you to tell us a story. I understand that you suffered from key employee risk, and I’d love to hear, you know, what happened. You know, to the extent that you’re willing to share it and and how you dealt with it and the lessons learned along the way. 

Kimberly Kraemer [00:04:33] Sure. Well, like many start up boutique consulting firms are really growth strategy and build the team strategy was based on tapping our network. It was about who did we know, who had skills and experiences that could help us take our services and bring it into defined categories. In terms of employer brand, having a competency there in terms of digital brand and activation. And so we put together this team based on our network and. One of those people was more of an operations person. So we if you follow the EOS methodology like we’ve been trying to, you know, there’s a visionary and that was kind of the role I serve, you know, that there’s an integrator and my co-founder who is more of a linear thinker and kind of get stuff done. She really served that role in helping us build out our client services competencies. And we had more of an h.r. Person who was really helping to spin up employer brand. And then we had the manager of operations who was more of a jack of all trades person, but she was so competent and so efficient that I just let her do everything from financials to our h.r. operations. So onboarding off porting manuals, benefits comp, all of the different aspects of a business that in the earliest of stages you’re trying to fill those boxes. So that worked well for a while. We went from 2017 where we were consultants to 2019, making the decision to scale smart. So every year I have a theme and scale Smart was converting from independent contractors to FTE eyes, and she took care of all of that. 2020 Just as we coincided with the pandemic, we had a theme of play bigger, and that was really about owning and amplifying what made us unique in our industry and in our as a service provider. And we were fortunate that we were able to really expand our our client base. And with everyone working from home, you know, we were very well utilized. We were building we had not much else to do but work and drink in our off hours. And there weren’t many of. That’s right. So. Fast forward, we we had a banner year in 2020. We grew our revenue by something crazy like 38% top line growth. Wow. And profitability was strong, too. And then we got out a little over our skis. I would say that the the there were tensions in the system in all levels of our organization. Our ops person felt like she should be the ceo. Our h.r. Person didn’t feel like she really wanted to work on the business and in the business, but we didn’t need a full time h.r. Person. So we were starting to just kind of I think we were all going crazy from the pandemic, frankly. Yeah. But i’ll get to this key man risk and what happened in just a moment. In 2021. Our year of going from play bigger. Hey, we did it. We added all these clients to Now let’s level up, let’s go to scale. Let’s figure out how to hire some more people to help increase our capacity and service clients. Well, we made some really dumb mistakes in 2021. We hired, I’d say, four people, five people that were experienced, but they weren’t right for the role. We didn’t know what the roles should be. And as a result, as the wheels were falling off the boss at a leadership team level and we were hiring more mid-level manager people and people that do the work. It wasn’t working. There was culture. There were the wrong people for the wrong for the roles. And so we had to take a giant step back. We let go of three key people, including the head of h.r. Who was also working on the business, and that had a devastating ripple effect. And then things really came to a head with the ups person and we parted ways and we let another senior person go who just wasn’t able to hunt. They were great at doing one thing and one thing well, and that was it. But that wasn’t the role that we needed. So long story short, as this was going on at a leadership level, culturally, the the more the worker level, there was a lot of negativity, toxicity and drama. So we had to really press the reset button hard. And 2022 became all about the theme of right sizing. And so I’m happy to report that although we had common risk in these two several departures, but the h.r. And ops person departed. What happened to me was that i ended up picking up the slack, me and my co-founder, so i would have given myself a b at best on a good day of how I can do operations. It’s just wasn’t really what I was born to do. So I’d say that going through this transition, we decided we needed to diversify. We hired an outsourced finance firm which also had a bookkeeping arm. We professionalized our h.r. Capabilities by hiring a outsourced h.r. Business partner, and we got a great employment law firm to help us structure things correctly from the get go. And so now we’re in the mode of coming off of a year of we’re not going to focus on growth, although i’m happy to report that even with not focusing on growth and while bumbling along through the year doing h.r. And ops on my own with my co-founder, we had achieved 20% topline revenue growth. We were pretty good ability by 3%, an additional 3%. And we had made the decision by the end of the year to hire in-house a director of finance and operations. And lo and behold, today is his first day. And I think he is an example of the purposeful process that we put in place to make sure we knew exactly what the role would be, exactly what the qualifications and the phenotype and experience should be, and had worked with a recruiter to help us. Scour the universe of who’s good and get the right fit. Not just from a skills and capability standpoint, but from a culture standpoint. So the jury’s out. But in this key man risk, how do I mitigate this in the future? I’m going to keep our outsource resources. And so I have that strategic advisor. But he will now be the point person for H.R. operations, because he also, in addition to being a financing accounting person, has a advanced degree in organizational development, and he comes from a digital agency. So I don’t have to teach him the agency business, which is great. 

Greg Alexander [00:12:39] He’s a keeper. That’s a rare combination of skills. 

Kimberly Kraemer [00:12:43] So I don’t know. I think that may have been too long of a story. No, no. 

Greg Alexander [00:12:46] No, no. You kidding me? That was absolutely fantastic. So many things that you said in the journey. They’re going to resonate with our members. They’re going to have all kinds of questions on the Friday Q&A that they’ll be able to have with you. The main thing that I wanted to highlight and underline and Ken story is that this is what happens, right? I mean, rapid growth. And Kim, who is obviously a fantastic practitioner at her craft. And when you when it when key people leave the firm, next thing you know, you’re not practicing your craft. You’re working on all kinds of other stuff, finance, H.R. ops. And guess what? She was giving herself a B if I asked you. Kim, we having a good time while that was happening, you probably would have said, I want to jump out the window. Right. It’s just not fun. Not only is it is it painful in terms of the business and the drama and, you know, the toxicity that you talked about personally, you just not having a good time and you scratching your head saying, hey, why am I doing this? I mean, he had a 30 year career. You probably don’t need to do that. So you’re doing this for reasons beyond money, etc.. And that’s what happened. So the the solution that you talked about, which is strategic outsourcing, you know, certain functions, I think is a great solution. And there’s all kinds of high quality providers out there, many of which are in the collective that you can rent, if you will. And because you now hiring a vendor as opposed to employee, the vendor has multiple employees, so you’ve diversified your risk right there. It’s a firm, not a person. The other thing that I would I would mention and Kim, I want to talk to you about this, is that, you know, I just wrote an entire book on this very subject. It’s called The Founder Bottleneck How to Scale Yourself. And it talks about how key men risk in the role of founder. I mean, if something, God forbid, happened to Kim, what would happen in water house brands probably wouldn’t be good. And you have to build a succession plan for yourself, not only to protect the business in the event of some tragic outcome, but also eventually. There’s other things you’re going to want to do with your life. Let’s say you want to sell the firm someday. Well, if the firm is completely dependent on Kim, she can’t sell it. Let’s say she wants to become chairperson instead of CEO or managing partner and work on visionary items as opposed to growing the day to day. Then someone’s going to be able to do what she can do and what a co-founder can do as well as she can do it so she can delegate and elevate to use the U.S. terminology. So succession planning is so mission critical for the boutique service firm. And it’s one of those things, unfortunately, that you can kind of kick the can down the road because it’s you know, it’s not a 90 day rock. You know, it’s it’s actually a multi-year journey to pull off a real succession plan. So it’s easy to just say, I’ll get to it someday, and then all of a sudden one of your key employee quits and you’re like, Oh my gosh, like, I need to get to that now. Or not Only is the business going to suffer, although in Kim’s case, it actually performed quite well during that environment. But you’re going to be miserable in your job. You’re going to have to start doing things in the weeds that you don’t want to do. So, Kim, have you thought about succession planning? I know that’s a big subject and probably out of scope for today’s call and we’ll talk about it more on Friday. But has this torch anything regarding succession planning 100%? 

Kimberly Kraemer [00:16:07] I do think that. I mean, you talk a lot, Greg, about the here being the hero and the ego, right, that comes with as a founder or a leader, that nobody can do things as good as I can. So I’m just going to do that. Right. So I’m past that. I would love to have great people that can do the things that I do and do them better. Like everything you talk about on your Friday calls, Greg, and that you’ve written about in the boutique and in the Founders Bottleneck, so resonates with me. So I am in the process right now working with our HBP on succession planning and really thinking about. So this year, our whole theme is about synergy rising, synergy rising our teams capabilities. We have a diverse mix of people with marketing and communications and digital and design expertise, but it’s how can we work together smarter and better and how can we as a group look at the kind of work we’re doing, the kind of client engagements we take on and think about where the gaps in the organization are and not only how can we fill the gaps, but how can we strengthen the the areas where we as individuals all perform well so that we have some relief and some redundancy. Otherwise, we’ll never be able to scale. And we know. 

Greg Alexander [00:17:34] Yeah, exactly. Well said. Okay. We’re at our a time window here and I want to save, you know, this rich conversation for the Friday Q&A session. But, Kim, you’re a joy to talk to. I’m not surprised that your firm is doing so well. Your generous spirit. That story was absolutely fantastic. On behalf of all the members, thank you for contributing and giving back and being here today. 

Kimberly Kraemer [00:17:55] Thank you, Greg, for doing the work that you do. You have helped so many entrepreneurs and founders, and I’m really blessed to be part of this community. So thank you. 

Greg Alexander [00:18:03] Okay, great. All right. Let me give the audience members some calls to action here. Okay. So if you’re a member and you’re running on EOC, which we fully endorse, we run off collective ITV4 in the U.S. We just wrote a U.S. collective 54 integration plan that might be helpful. For example, you know, EOC advocates are running your business off a scorecard, but what should the metrics be? You know, professional services metrics are very different. What should the benchmarks be? We have the benchmarking database, etc.. So go to the resource center and download the EOC Collective 54 integration plan. That’s one thing. Secondly, if you want to, you know, start implementing some of the concepts and the final bottleneck and succession planning, there’s a companion course tied to the book that should be out by the time this recording gets released. There’s a tool in there called Roles and Responsibilities. I highly recommend you download that and get familiar with it. So those are a couple of things that you can do as a member. If you’re not a member, your calls to action are to become a member. Go to collective 54 dot com and fill out the contact us form and a representative will get in contact with you. If you’re not quite ready to join, you can subscribe to collect the 54 insights. You get three things every week on Monday, a blog on Wednesday a podcast an on Friday, a a chart that talks about some of this benchmarking data. All right. Boy, that was a lot in 20 minutes. I’m exhausted. I need a break. But for those listening, thanks for tuning in every week. And thanks for being here. Until next time, we wish you the best of luck as you try to grow, scale and sell your firm someday.

Episode 113 – How a Regional IT Services Firm is Leveraging a Client Advisory Board – Member Case by Luke Johnson

Boutique professional service firms need to listen to their clients intentionally. One effective way to do that is a client advisory board.  On this episode, Luke Johnson, CEO & Co-owner at Katalyst shares how he launched a client advisory board recently. Luke shares the early benefits, some mistakes to avoid, and how, exactly, he runs his.


Greg Alexander [00:00:15] Welcome to the Pro Serv podcast with Collective 54, a podcast for leaders of thriving boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community dedicated entirely to the needs of leaders of thriving boutique serve firms. My name’s Greg Alexander. I’m the founder and I’ll be your host today. On on this episode, we’re going to talk about the Client Advisory Board and why it’s an important tool for all of the professional services firms. And we’ve got a great role model with us today, someone who’s recently implemented this. He’s a collective 54 member. His name is Luke Johnson. Luke, great to see you. Please introduce yourself to the audience. 

Luke Johnson [00:01:00] Hey, Greg, great to see you as well. As you said, I’ve been a member for I think almost a year and a half, and we put a client advisory board in place at the beginning of 2022. It’s been great. I am the CEO and one of the owners of Catalyst out of North Carolina. 

Greg Alexander [00:01:24] And what does Catalyst do? 

Luke Johnson [00:01:27] We are a boutique services firm, Greg, focusing in the technology space and we enable our clients to go faster, further and safer. 

Greg Alexander [00:01:38] Okay. And I tell you, like a MSP, it’s outsourcer type firm. I get that. Okay. You are. 

Luke Johnson [00:01:45] Exactly correct. All right. A lot of cybersecurity work for us as well in that space. 

Greg Alexander [00:01:49] Okay, Awesome. Okay. Well, let’s start with the basics. So would you provide a definition of what a client advisory board is? 

Luke Johnson [00:01:59] Sure. To us. It is a board that we lean on. It is currently comprised of all active clients, although I don’t think it would have to be ours today. It’s someone that we lean on to get advice around what we’re doing as a business and figuring out if that’s relevant to them as well as a board that we lean on to better understand the real everyday challenges in our clients. So I think the distinction I would draw very clearly is this is a board that serves us far more than it does the clients directly. 

Greg Alexander [00:02:37] Yeah, fantastic. You know, we advise our members to stand up a client advisory board for a very basic reason, which is we want to be outward in in everything we do. We want to be listening to our clients as much as possible. And the knowledge we can gain from our clients is extensive. Affects everything from how you market and sell to the types of services that you bring out to the problems you go after is just a really great tool. Look, what I’d love to hear from you is that there was a time in your company’s history where you did not have a client advisory board and you recently installed one in 2022 at the time of this recording. It’s January of 23, so that’s a really fresh use case. So what what prompted the need? 

Luke Johnson [00:03:18] I think it was a few things, Greg. We always struggle with enough very direct feedback from our clients. A lot of times we get a lot of indirect feedback and we’re doing our best to guess what is needed and we put it in place. So we were looking for a mechanism to get more direct feedback. I think also it was a way to draw closer to a specific group of clients, and most of the clients on this board are some of our largest and most meaningful. Not all, but but good, good mix up there. So it’s a way to get really close with those folks and improve the relationships. 

Greg Alexander [00:03:58] Okay, so let’s talk about those folks. One of the challenges of standing up a client advisory board is to figure out who to invite to participate on the board. So how many clients do you have on it and what was your selection criteria? 

Luke Johnson [00:04:14] So we we have seven active members today because we started. Yeah, thank you. We started a little smaller. I think I reached out to maybe nine or ten in the beginning and we started with six. I’ve asked the board if they felt like the number was right. If we could grow it a little bit, we decided we could grow it a little bit. So we added somebody else. And I’m not sure there was a great science around the criteria, but what I did is spend some time looking at years worth of business with a variety of clients, and I tried to make sure that I picked certainly some from the Top End. So folks that have done the most business with us. But I also wanted to accurately represent our client base as a whole. So I sort of looked to that bottom side as well, and maybe not somebody who’d only transacted business with us once, but smaller clients as well. So it’s it’s a real representative group of the clients we are dealing with every day. I also did interject a little bit of personality in there in the sense of some some clients I know really well, some I don’t know really well, But I tried to pick people that I thought would be great, interact with us and share really, really candid feedback. 

Greg Alexander [00:05:31] Awesome. So obviously you had a good pitch because just about everybody you invited said yes, which is an indication you have great relationships with your clients, which is fantastic. But what was the pitch? I mean, why did they agree to be on your client advisory board? 

Luke Johnson [00:05:45] I was really candid, Greg, with them and basically said, I feel a little selfish in asking, but this is for our benefit. I believe that that indirectly benefits you because if we tune our services to be in line with what you need, it should benefit you as well. But we want to pick your brain about what we’re doing. Is it the right thing? Is it in alignment with what you need? We want you to be candid with how we’re doing. If there’s things that we’re not doing well, we want you to call it out and we want to talk about it very directly. And another piece of it is we really pick their brain about competitors as well. And we like to know what are they doing that you like? And. And that may help us as well. So we kept it. We kept it pretty simple. And and that seemed to work well with everybody. 

Greg Alexander [00:06:36] You know, it always this is a great confirmation point, because sometimes when I advise members to stand up a client advisory board, they say, well, none of my clients are going to want to be on it. And I said, You’d be surprised. People generally like to help, and it’s flattering when you get asked to be on a client advisory board. And this is a testament that people are willing to help. Obviously, you’re an important vendor for these clients and they’re probably saying to themselves, If I can help Luke’s firm improve the benefits, may I get higher quality service and new service offerings, etc.. So I would encourage all the listeners to not be bashful there. I think you’d be pleasantly surprised as to who agrees. All right. Let’s talk about the mechanics a little bit. So is it in-person, virtual? How often do you meet and what’s a typical agenda like? 

Luke Johnson [00:07:20] You know, we we’ve kept that simple as well and tried to kind of roll with the times that we’re in. At one point in time, the geography that we dealt with was tighter than it is today. It’s, you know, we have clients all over the place now, so we do it in a in a format very similar to this. Zoom or a WebEx is is how we meet. We meet once per quarter. It is a one hour long meeting and it is a fast moving session. That is probably one of the greatest challenges, is naturally some people like to talk more than others. So you want to make sure you give everybody a chance to say what they need to say. Or maybe you need to prompt a few people along a bit. But we Greg, could sit in that session for 4 hours and it would be wonderful. But we’re being really respectful of these folks time. I mean, they’re really extremely busy people and we’re just grateful to have that one hour from them. So we try and put the agenda out there in advance. We follow the magic a bit on the call, so it’s not terribly structured, but at the same time we try to make sure everybody’s got a chance to give the input that we’re looking for from them. 

Greg Alexander [00:08:33] You know, it’s an interesting tradeoff. So when I had my firm, we had a client advisory board, we did it in person, but it was only twice a year and it was an all day session. The benefit to that, obviously for us was great because we were really able to go deep. And as you mentioned, you could go on and on in these things because the insight is so fantastic. But the challenge we have with that is we add spotty attendance. Sometimes people last minute would cancel on us because it was a big ask. So the tradeoff here is if you do it like Luke is doing it, which is only an hour once a quarter, so you do it more often four times as opposed to two. But each session is shorter in length and it’s virtual instead of in person. You’re probably going to get better attendance. Do you have attendance problems? Is everybody showing up? 

Luke Johnson [00:09:16] We have an excellent attendance, I think one session and let’s see, I think we’re four sessions deep now. In one session, somebody had a last minute emergency that they had to they had to cancel on. But outside of that, now we have we have great attendance. 

Greg Alexander [00:09:32] Okay. And is there any prep work that happens beforehand or you just get on there and wait? 

Luke Johnson [00:09:38] We know we do prep prep with the leadership team. We really try and figure out what is it that we want to take away from this and we try and put an agenda together. We’ll send them generally about two weeks in advance. Here’s the three things we’d love you to answer, you know, on this call. And we’re going to kind of go around the room and ask everybody to give us the input. We may have some dialog around it, and then we’ll invite them, you know, to participate in any other agenda items. Most of the time they don’t. I think people are really respectful and saying, Hey, this is your session. You tell us what you want from us, but we always invite that as well and we give them a couple reminders along the way. So when we get to the session, we’re ready to we’re ready to roll. Right. 

Greg Alexander [00:10:24] And what do you do with the output? So you’re getting all this insight. Then you get off the call and you’re like, holy cow, you know, I just got the keys to the castle. What happens next? 

Luke Johnson [00:10:34] Well, the leadership team and I have figured out we need to clear our calendars immediately following that meeting because there’s so much dialog that happens with us when we leave that session. It’s so great. So we usually try and combine all of our notes. All of us are taking notes throughout. It’s kind of depending on who’s talking and that sort of thing. So we combine them, we put them in a directory where we have them that we can reference back. Our sales leader specifically always takes those notes and shares them with his sales organization and obviously not in an incorrect way, but just more of a guy. As we just left seven companies, good brand representation of the cattle business as a whole. Here’s what’s going on with them. Here’s some of the trends that we see. So we try and get that out within our organization as well. We’re a in a shop, so generally speaking, it seems things that happen in that session usually lead to things that we put on our issues list as well. And a lot of time, the long, long term issues list. So we’re looking to solve or create some new offering based on something that came out of there. Yeah. 

Greg Alexander [00:11:46] That’s a great follow up action. Many of our members are EOC members and sometimes they struggle with selecting the right rocks. Rocks are 90 day sprints recommended by EOC, but EOC is generic in nature, meaning it’s not focused on a single industry. So, you know, it gives you that is great tool in how to run your business, you know, and pick a rock as an example, a priority. But, you know, if you don’t know what those priorities are, can be really challenging and you can pick the wrong rocks and waste time. So something like a climate advisory board, you know, fantastic rocks, so to speak, reveal themselves. Directly from the clients. It’s a fantastic tool for that. You know, you mentioned your team. So who are you leading this or is it a group of people that are leading it from your team? 

Luke Johnson [00:12:31] Yeah, I, I generally lead it. I have two leaders that participate in it with me. So I have our services leader and our sales leader both who join. And they’re they’re a big part, heavily interactive with all these clients as well. But in the boards a lot of times some topic that’ll come up, they’ll be more suited to address or talk to you in that session. So we all participate. But generally I’m the one that sets the agenda and I run that by them and get their input and sometimes they’ll disagree with what I say. You know, maybe the gentleman that leads sales is saying, Hey, we’re really seeing a lot of this right now. I’d love to talk to them about that. And so it’s a very interactive process with the team. 

Greg Alexander [00:13:12] Okay. So it’s fairly new for you, but not so new. I think You said you ran. You’ve run four of these so far. So based on your early experiments. Any any landmines you want to tell members to avoid stepping on? 

Luke Johnson [00:13:28] I think that. There’s a few. Maybe. Be diligent if you can. And picking the right folks. And again, I’m not sure that there’s a perfect science to that. But do you think about the interactions you have with these people and you really need people who are willing to engage. And that’s probably the most important thing. And they have to be fine with candor. It’s not a great place. You don’t want somebody to feel like they need to be polite in there. Just tell you what you’re doing. Well, not doing well, what the competition’s doing well, not doing well, etc.. I think the other thing is set expectations upfront that you may be a bit of a project manager in the session in that you’ve got to give everybody a chance to speak. So you’re not trying to be rude, but if somebody talks a little too much, you may cut them off just so someone else can can talk. So set those expectations upfront so no one gets their feelings hurt by accident if you have to cut somebody off. 

Greg Alexander [00:14:30] Yeah, well, fantastic advice. Well, listen, we’re out of time, but thanks for making a contribution to the collective today. I’m really looking forward to the private member Q&A, which will happen on an upcoming Friday. But Luke, you’re a great member. You’re always contributing to the collective. So thanks for being here today. 

Luke Johnson [00:14:48] Greg. Thanks for having me. Fun, fun topic to talk about. Great day. 

Greg Alexander [00:14:52] Thank you. Very good. All right. I’m going to give audience members a couple of calls to action, if you will. So first, if you’re a member of Collective 54 and you’re inspired by Luke’s story and you want to get a client advisory board going yourself, we’ve got some tools for you. One is called the Service Offering Development Roadmap. And in that it talks about how to listen to clients. And one of the templates there is a client advisory board. And then also if you’re a member and you’re trying to find your successor, trying to replicate yourself and others and maybe remove the founder bottleneck, this is standing up. A client advisory board is a fantastic development exercise for high potential employees. So you might download a copy of the High potential Employee Development plan, which you can find on the portal as well. If you’re not a member of Collective 54, you should be if you’re listening to this. So how do you find out? Join me. So I go to collective 54 dot com and a couple of things there. You can either fill out a contact us form and talk to somebody about applying for membership or if you’re not ready to join and just want to further educate yourself. I recommend that you subscribe to collective 54 insights and you can find that it collective 54 insights dot com as well. Okay with that, thanks for listening and I look forward to our next session. Take care.

Episode 112 – How A Consulting Firm is Scaling by Generating Revenue from Multiple Sources – Member Case by Robin Way

Generating revenue from sources other than the billable hour is a key part of scaling a consulting firm. On this episode, Robin Way, Founder & CEO at Corios, shares how he is generating revenue from training products, licensing tools, and generating reports. He will talk about how he went from a single source of revenue- the billable hour- to four sources of revenue.


Greg Alexander [00:00:15] Welcome to the Pro Serv podcast with Collective 54, a podcast for leaders of thriving boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community focused entirely on the needs of leaders of boutique processor firms. My name’s Greg Alexander. I’m the founder and I’ll be your host today. And on this episode we’re going to talk about quote unquote productize and a service. What do I mean by that? What I mean is generating revenue from things other than billable hours. And we’ve got a great role model with us today. And I’m going to walk through three examples as to how he’s done this. His name is Robin Way. He’s a collective 54 member. Robin, welcome. Please introduce yourself. 

Robin Way [00:01:01] Thanks, Greg. Yeah. Good morning. So I’m Robin. I am the CEO and founder of Curious. We’re based in Portland, Oregon, and we build data engineering and data science assets and processes for clients in the financial services, health care and energy sectors. And gosh, I’ve been in this field for over 35 coming up on 40 years now, back when we just called it math and statistics. But it’s a pretty sexy area and I’ve had the opportunity to sort of see this field create and recreate itself probably four or five times over. And hopefully I’ve learned a few things along the way. 

Greg Alexander [00:01:41] I’m sure you have. So this concept I’m going to talk about today is called prioritizing in the service. Again, the benefit of doing so is generating revenue for something, for something other than the billable hour, you know, selling access to an asset as opposed to selling your time. So my team has told me you’ve got three examples of this and I want to dedicate the show to that. The first one is I understand you’ve built a self-paced training product. So my question would be, you know, how’d you come up with the idea? Why did you do it in the first place? Tells the story of this training product. 

Robin Way [00:02:13] Sure. Well, our sweet spot is helping our clients move from a really old discipline of doing analytics and data in their organizations to a much more modern way, using open source programing and cloud computing. And the biggest change that our clients face is not a technical challenge. It’s a human challenge because people write code. Code doesn’t write itself well. As long as chatbots make our entire industry disappear, which I really don’t think it’s going to. So people struggle with learning new things and it’s scary and it’s uncertain and they feel threatened by by gosh, this is the way I’ve done stuff for 20 years. And everybody that we help looks like me. Gray hair, gray beard, you know, they’re older, they’re getting ready for retirement. How in the world do they keep their job long enough without sacrificing, you know, the end of a career? And also, how do they learn how to interact with their with the young startup kids in their twenties and thirties who speak completely different programing languages than they do? So we wrote a we built a training product. Where these students can take what they know. We built the course knowing what they know because I’m one of them. And I walked through the same journey myself five years ago so that they can understand how to write in these new environments, new languages, using what they already know and hopefully make it a little bit easier. And some of the research we’ve done suggests that’s one of the best ways to teach someone something new and scary is provide them side by side examples. Here’s what you know, here’s what it looks like in the new thing on on the other side of the page. And self-paced, because as I watch a lot of these other training platforms like Coursera and Udemy, everybody’s busy. Nobody has the time to sit down in a classroom anymore for 8 hours. Besides, they just be sitting on their phones, you know, chatting and Instagramming. Who knows what they’d be doing. So make it available to them on their pace and their cadence. I let their boss influence how much time they spend every week. But what’s I think more important from a business perspective as an entrepreneur is I also don’t have to sit in a classroom for hours a day. If I can scale the number of students we reach from, say, ten over the course of one business day to, well, gosh, hundreds in the course of a week, that’s a that’s a desired future state for this pipeline, for this new product. But that’s the point is unlike. US from the confines of what a person can do in a billable hours. And because otherwise, you know, we’ll just I’ll be doing this until I’m in my eighties and I don’t really want to do that. Yeah. 

Greg Alexander [00:05:17] So it’s a great example and highlights the benefit of doing this. You know, if you can create a a product, if you will, when I say that term, I don’t mean become a product company, but I mean productize your expertise. Then you’ve decoupled, you know, the billable hour your labor with the revenue stream. And training products are great way to do that. In fact collective averages do the same thing. We’ve built companion courses for the two books, The Boutique and the found a bottleneck and same idea. I mean, if I had to stand in a classroom and teach the concepts in that book, my God, it would take hours and hours and hours these days. You know, with the self-paced e-learning technology that’s available, everybody can kind of learn it on their own when they have the time. It’s a highly scalable activity. So that’s a great example. Let’s go to the second example, which is this, as it’s been described to me, a code translator. So what does that mean? 

Robin Way [00:06:11] Yeah. Yep. Well, this kind of goes hand in hand. It’s kind of like the peanut butter to the jelly of the training product. Okay. So when these students have been writing their data analytics workflows for years, maybe ten, 20 years, or maybe they inherited code from somebody else who was at that business has left and all they know is, oh, I press go on this piece of code every Monday and I get a PowerPoint out the back end of it. So they if they know this, the task that this piece of code is doing. And we ask them right now, take what we just taught you and now convert this this code from one language to another. It’s a lot like like that. You, the translator sitting in the UN building, York, you know, they hear they’re listening to French and they’re translating the Spanish on the fly. 

Greg Alexander [00:07:00] Interesting. 

Robin Way [00:07:00] That’s not easy to do. And it’s tedious, time consuming error. So we wrote these three code translators that basically translate English to French, to Spanish, to Mandarin, to basically the target languages that they’re going to use when they’re moving to their target state, you know, moving to Python or Spark or whatever on the cloud, because that’s the destination where all of our clients are eventually moving. And by doing so, we’re taking the tedious, low value work and automating it. It’s it’s not it’s a it’s an art and a science. It’s not completely automatable. And frankly, that’s where just like with the training product, if we teach the low value skills, that allows us as consultants to be advisors and, and, and people who empower our clients to realize, okay, now I can focus my dollars for the careers consultants on the higher value stuff, which is also a good way of not getting caught up in battling offshore consultants who could do something similar at a much lower billable rate. Yeah. 

Greg Alexander [00:08:12] Another great example, right? I mean, all of us as merchants of expertise, we have to realize that what was once a unique high value activity eventually will become a commodity. And and if you don’t automate those things through technology, the code translate is a great example of that. Eventually you can have all kinds of fee pressure and you’ll become a commodity. So by providing, you know, tech automation and prioritizing and service, you can still meet the need the client has. But but not with labor, with a product which then allows you to push up market and work on more strategic things that they’re willing to pay a high dollar per hour for the labor. Okay, that’s a great example. The third one was less intuitive to me. It was described, I think, incorrectly. So I’m going to give you a chance to describe it to me. It’s called the AWB inventory software. What is. 

Robin Way [00:09:06] That? Sure. Yeah. Let me let me set the stage for this. So this is actually the product that is at the start of the client lifecycle. So you think about classic consulting first come on in and help the client size up what the size of their problem and the nature of their problem is. Then do the work and then teach them how to do the work themselves. That was we’ve sort of tackled these products in reverse order. That doesn’t matter for the podcast. But we this third product is at the the first stage in the client lifecycle. We’re going to inventory. Just how big is your problem? Where is it worst? Okay, what should we do first, second, third. So this is an inventory product that we built know about four years ago. And what we’re doing now is we’re converting it or sort of upscaling it to put into the US marketplace. That’s basically, you know, Salesforce has one and Microsoft has one where basically you can download plugins into your software, you can download software that runs in your own computing environment. They’re up. The upshot of all this is. We want the client to do an inventory. Either way, that gets us to where we really want to be. The sweet spot of our lifecycle is creating value. The inventory itself just tells us how much value there is to create and we want to accelerate the pace of that project the way that we do it today without this this downloadable plugable piece of software that we put up on marketplaces. Instead, we come into their environment. We have to do 3 to 6 months of sale and three months of delivery. By using this upgraded version of the technology, the client can download themself and run themself. We’re basically taking months and months, maybe almost up to a year, and we’re reducing down to a couple of well, because the client can dip their toe in the water, they can try before you buy all those kinds of nice for the client who says, gosh, I don’t know if I can sustain an organization the time to do this inventory. If it’s going to take me six months, I got I got a day job. So if we can crunch that down to a couple of weeks, then they can go, Ah, you’re right. I have a huge problem and I really need you to come in and fix it. That way we get to the sweet spot, the place where it’s going to be hard to dislodge a or or to question the value. So that’s, that’s the third product. Okay. 

Greg Alexander [00:11:33] Another great example. Now, I know some of our members, they’re going to hear that example and they’re going to say, why the heck would I want to do that? I sell a consulting project. I spend three, six, nine months in quote unquote, discovery. I’m billing the client for that work. If that gets reduced to two weeks, I just cut my revenue stream dramatically. I think that’s the wrong way to look at it. But what would you say to those members? 

Robin Way [00:11:59] Yeah, well, inventory. Yeah. So in my line of work, the inventory is not the value. Anybody I mean, the classic complaint about consultants is I pay in my case, I’m paying Robin paying this guy to come in and look at my watch and tell me what time it is. Right. There’s no there’s no value in that. So. Plus the inventory. A lot of that 3 to 6 months of pre-sale is just us sitting around waiting for the client to say that they’re finally ready. So we’re not building that whole time. We might, you know, we have a flat fee for that service. It’s maybe 250 grand. If we do it the hard way, we might give it away. Mm hmm. You know, practically, we might charge a nominal fee of ten, 20, 25 grand for the trial before you buy a service, because that’s the way in the tech space. A lot of software is sold is get me hooked with the freeware, with the shareware. And then when I realize, Oh, I love this, I want more and I want to know more about careers, then they bring us in. And now we’re talking about a much more sort of a platinum level relationship where they see, Wow, you guys know a ton. I had no idea our problem was this bad. Come and help me now. We’re into the the part of the relationship I really want is is is that is implementing the value and bringing them to the promised land and not just reading their watch for, you know, for, you know, for what is. Really should be a cost of sale. Yep. 

Greg Alexander [00:13:37] Excellent example. What I would add to that is there’s probably a lot more demand out there that our members could capture if they could take something like discovery. I use that term broadly from six months to two weeks. There’s a whole bunch of customers in the market, one who will now probably hire you because they don’t have to go through that six month grueling process. You know, the value prop gets done in two weeks. So the demand will go up. And then, of course, as Robyn said to us, what you get to, what you really want to get to, which is fixing the problem, not diagnosing the problem a hell of a lot quicker. Robyn, one more question on this. So these three examples are training product. The translation product and the inventory product are all great examples of products and services do charge for them. 

Robin Way [00:14:23] Great question. Kind of. So we. So I’d say there’s two dynamics in the market for know we are a we are in the ecosystem of Amazon Web services. We are a premier solutions provider in the AWG ecosystem. And RWC is all about commitment to the clients and about delivering time to value. So what that means is the clients have come to expect. I want results fast that I can scale and I want to be able to fail fast. And if an experiment is going poorly, throw it away. Figure out what does work and go with that instead. So. The the realities of this market are you have to bring to the client what they have come to expect. And that means changing the way that you work as a consultant and finding your one niche. Because Amazon will eight of us will tell you as a as a process of company, do not present yourself as, Oh, I can do anything, I can do some data science stuff, I can do some data migration stuff, I can build you a new app, be good at one thing that’s very discretely defined that you are the best in the room app and stick with that. And that’s what we’re trying to do. 

Greg Alexander [00:15:54] So when you say you kind of charge for this, so are you. 

Robin Way [00:15:57] Oh, yeah. Let me come back to that. We call these accelerators, okay. If I tried to for example, we’re trying to take a customer from state A to state B, Once they’re at state B, they have no need for a recurring software fee because they they solve the problem. So we’re not selling it as a SOF, as a recurring software revenue. Now, some people will go, Well, what are you creating these products for their aid, their differentiators be their accelerators. Everybody wants, they want to know. I can just pay you for hours or you’re bringing hours plus something really compelling and distinctive. Yeah. And I want to know that you’re going to reduce the operational risk of the engagement, and you’re going to leave me stronger than I was before. So they’re really accelerators for value. I’m not selling them for a price because because we are trying to sell our expertise, their expertise in a bottle. 

Greg Alexander [00:16:59] And therefore, the reason we are charging or kind of is because you’re getting more deals and you wouldn’t have had these deals otherwise. 

Robin Way [00:17:05] That’s right. Yeah. Got the right to have the right. 

Greg Alexander [00:17:07] All right. Well, we’re out of time. Robin, This was an awesome example. Three examples on how to productize a service on behalf of the members in the collective. I appreciate you being here very much. 

Robin Way [00:17:17] Yeah, you too. Greg, this was great. Thanks for inviting me. 

Greg Alexander [00:17:20] Okay. All right. So as a call to action, let me speak first to the members. So first things you should attend the Friday Q&A session, which is the private session that we’ll have with Robin, and you can ask your questions directly to him. Secondly, you might check out the companion course for the boutique book. In it, one of the tools is called the Revenue Mix Tool, and it teaches you how to develop different revenue streams and therefore have a broader revenue mix, which is what Robin demoed for us today. And then also for those that are playing around with the founder Bottleneck, there’s a template in that companion course called the High Potential Employee Development Plan. And if you’re wondering, Hey Greg, I want to productize my service, but who has the time to do that? It’s a great project for a high potential employee to take on, to develop themselves and create more value for you so directly to that. And then if you’re not a member and you’re listening to this public podcast, first you should consider being a member. You’ll get access to great people like Robin and tools like the ones I just share with you. And you can do that. A collective fifa.com fill out the contact us form and some will get you get in contact with you regarding that. But if you’re not ready to join but you want some more of this outstanding content, join our newsletter which is collected for Inside.com. And if you do so, you get three things. You get a blog on Monday, a podcast on Wednesday and a chart on Friday. Okay. With that. Thanks for being here, everybody. Robin, again, Thank you. And until next time, thanks for listening.

Episode 111 – The Beginner’s Guide to the QOE (Quality of Earnings) Report – Member Case by Elliott Holland

Someday you will sell your firm. After all, none of us can run our firms from the afterlife. When your time to exit comes, you will need to know what your firm is worth. The tool often used to calculate a purchase price is called a QOE, or the quality of earnings report. On this episode, QOE expert Elliott Holland, Founder & CEO at Guardian Due Diligence, will help founders understand what a QOE is, when it is needed, who creates one, how it gets used, and why founders need to get familiar with it.


Greg Alexander [00:00:15] Welcome to the ProServ podcast with Collective 54, a podcast for leaders of thriving boutique professional services firms. For those who are not familiar with us, Collective 54 is the first mastermind community dedicated to the needs of boutique pro firms. My name’s Greg Alexander. I’m the founder and I’ll be your host today. On this episode, we’re going to talk about a tool that you’ll use someday when you’re trying to sell your firm. It’s called the q0e, which stands for Quality of Earnings. And we have a true expert who does this for a living. His name is Elliot Holland. He’s also a member of Collective 54. So, Elliot, it’s great to see you. Would you introduce yourself to the audience, please? 

Elliot Holland [00:01:02] Absolutely. Great to be here. I’m Elliot Cowan, Harvard Business School, former private equity professional. And now I run a business that helps entrepreneurial business buyers vet acquisition targets using an audit like service called Equality of Earnings that we’ll dive into deeper here in a second. But essentially, I try to help entrepreneurs and keep them away from losing money in very happy situations where there’s huge motivations for people to misstate the truth. 

Greg Alexander [00:01:34] Okay, sounds great. So let’s start at the very top. A lot of our members are first time founders. They’ve never been through an exit. Someday they all know that they will sell their firm someday because unfortunately, we can’t run our firms from the afterlife. And since they’ve never been through that process before, this term quote, equality of earnings, they don’t even know what it is. So can you just give us a basic definition? 

Elliot Holland [00:02:01] Sure it is an audit service. So for a public company, what they do each year is an audit which looks through extensive information and makes public stock accessible to everyone. What the quality of earnings is is a mini version of that specifically used for buyers of companies to assess the financials of private companies. Anyone on here who owns their own business knows how difficult tech firms can be and how difficult setting up your financials and keeping them straight can be. So imagine a buyer coming into that environment, and the quality of earnings is a tool that can standardize the business financials of any business owner into a package that any investor can consume and make an acquisition decision. But to sum it all up, it is very similar to an audit specifically for the you are buying a company. 

Greg Alexander [00:02:54] Okay, very good. And when as a founder, am I most likely to need to use or build a q. O. E. 

Elliot Holland [00:03:05] Sure. So the two times that you need to use it, one, if you are looking to grow by acquisition, you see a target company that’s in a market you want to get into. You see somebody you know who’s selling. When you decide to buy their business before you execute that transaction. You want to hire someone to do a quality of earnings. Why? Because there’s. Huge variability in financials relative to what’s presented often times and you don’t want to get had. So that’s one. The second time is if you are approached to sell your business or you decide to take your business to market. Greg talks about this all the time. You’re getting an investment banker or business broker. I would highly encourage you at that moment to get a quality of earnings as well. Here’s why you want to have your own point of view of your numbers before a bunch of picky buyers come in and start hiring the same providers for their benefit. And the pain for an owner who does their own quality of earnings. The pain during the selling process is drastically reduced if they have their own quality of earnings. So those are the two times people should think about quality earnings. 

Greg Alexander [00:04:20] Okay. And it sounds intimidating. How long does it take? And, you know, if I’m a first time founder who’s never done it before. Can I pull it off? 

Elliot Holland [00:04:32] So it’s easy peasy and I’m smiling only because I’m such an entrepreneurial advocate on both sides, buyers and sellers. So essentially, your bookkeeper, your CPA, and the person sitting in my seat as the equality of earnings company lead or accounting lead do 95% of the work. So to make the process super simple and easy to digest, it’s essentially three steps. As an owner who’s going through one, they send you a list of information. If they’re good at small business kilos, their list is 40 to 60 items. Of those items, two thirds will be handled by your bookkeeper or CPA, and the other third will be handled by maybe a half hour to a 45 minute conversation on the phone. So you get a list, you give it to people to fill it out. You get on a phone call for a half hour to 45 minutes to answer business, marketing certain questions about the business. And then you wait for 3 to 4 weeks for the work to be done. Now, there may be questions in between on step three. Those questions oftentimes are not all that detailed. And oftentimes your controller or your CPA can answer them. So for a owner, it may encumber. Let’s just say it takes 3 hours to sort of get your troops going on the day to another hour for a call. You invest between one and 4 hours in this process. And I’ll also say a lot of us as private business owners have done some interesting things in our financials. You should not be scared of sharing those things because the providers who do this are so used to handling it. Just just be honest. Get it all out and it’ll be done in four weeks. 

Greg Alexander [00:06:15] So let’s say I’m a founder and I have a successful firm, so I potentially have an inflated opinion of myself and I think I can do this on my own or I can pencil whip it just by, you know, exploiting my QuickBooks file. And that should be good enough. Am I nuts? 

Elliot Holland [00:06:34] Yes, I’d. I’d respectfully laugh at you. 

Greg Alexander [00:06:37] Okay. 

Elliot Holland [00:06:39] Here’s why. There’s too much money. Okay, So the people I’m speaking to are people who have businesses that are likely going to sell for 1000000 to 40 or $50 million. Right. They’re going to be sold at a lot of cash flow or EBITA. We won’t get into it, but just a multiple a profit to keep it simple. So when you say, hey, I’m going to go cheap and easy and homegrown and I’m going to export my QuickBooks and it’s accounting crap, they don’t care. My business is worth whatever. What you don’t realize is I’m going to be the one on the other side working for the buyer, picking your financials apart at in my 10th degree of detail and then telling you think about things about your financials that are accounting oriented but will affect the price that you won’t understand yet because you have not gone through the process for your own benefit. So let’s just walk you through an example. When sellers don’t do the quality of earnings before, when founders don’t do it, before you get into situations where accounting things, where something is is presented in one way is taken as a big deal, when it’s really a small deal and you’re getting a multiple of profit. So like a 10% difference. So if your profit is a million bucks, if the buyer can go through your front end and shows and show you that your true profit when all the accounting stuff is handled, is even 10% off, right on a4x deal, that $100,000 could be $400,000 worth of lost value. So by, you know, avoiding 22 for a quality of earnings, you just lost 400 K. 

Greg Alexander [00:08:15] Yep. 

Elliot Holland [00:08:17] That’s before I even talk about you have your own financials. You go through less pain through the whole process because people don’t have to ask as many questions. 

Greg Alexander [00:08:25] Yep. Now, so far we’ve been talking about if I, the founder of my firm, is planning on selling my firm, we haven’t talked about the counterparty on the other side of the desk. The firm was thinking about buying my firm and their due diligence process. So it’s likely it’s likely especially, you know, professional acquirers, they’re going to hire their own firm to do their own QE. So there’s really two of them being done. Is that correct? 

Elliot Holland [00:08:52] It depends on the size of the business and the buyer. So I would say in the deals that I’ve seen and I focus on deals sort of $2 million to 25, $35 million is where I live. If the seller does the quality of earnings typically be the buyer who comes in will either assess the quality of earnings and the quality of the firm that’s done it, and they may just get their accountants to review it. That’s most often the case because people don’t want to pay twice for the quality of earnings or if there is a second quality of earnings, it’s a sanity check, not a product, a logical exam. So if you’re going to have somebody go through your financials at that level, you want to be the one paying them. You don’t want somebody that somebody else paid doing that exam. 

Greg Alexander [00:09:38] Yeah. Okay. Now, the the person who’s buying the firm, the acquirer, they’re going to take this QC and they’re going to do what with it? 

Elliot Holland [00:09:48] So let’s just talk about $1,000,000 Eboni business, which is just cash flow, a profit and a four times deal. So you’re selling your business for $4 million. The buyer will come in and do a quality of earnings and say, I’m going to multiply whatever the evil that this found in my quality of earnings by four. So they’re going to go in and look at your income statement, your balance sheet, your working capital, your bank statements, your taxes. Running through that four week analysis. And then they’re going to come back and say, hey, based on our accounting team, your actual EBIT is $900,000. And so now they’re going to say $900,000 times four is 3.6 million, not 4 million. And so our price now just got adjusted, 400 K It also happens in the other way. So they may find that the profit is higher than what was presented, but they’re not in a position to tell you that. So what would buyers do with the quality of earnings is use it as the basis for the EBIT number that they multiply by to get to the value. 

Greg Alexander [00:10:52] Okay. And do they share it with the bank if they’re going to fund it that way? 

Elliot Holland [00:10:58] Oftentimes, sometimes not. But you should assume that the quality bearings will go to all interested investors, even though sometimes it doesn’t. Depending on the buyer, if they have good relationship with their banks, depending on the size of the deal. Also, as you get out of when you get out of sort of two, three, 4 million and get above that, then the answer is absolutely yes. 

Greg Alexander [00:11:22] Correct? Yep. Okay. One last question for you on this. This is a personal pet peeve of mine. Sometimes our members get advice from their broker, the M&A adviser or the investment banker that they got to spend a fortune on acuity and hire a big name firm like a p.w see, which I think is crazy for our members, because those can be very expensive and they don’t need to spend that kind of money because our members businesses, relatively speaking, are easy in simple businesses to do this. So, Eliot, what would you say to that advice? 

Elliot Holland [00:11:58] So I don’t think the big firms like Peter them you see, do strong in meeting business quality of earnings well at all. So my point of view is not only will you overpay for it, but you will get the debt. Not that it would be the C, but the DTI, the kids coming straight out of college. The partner who doesn’t want to spend a lot of time on it. You’re not an important entity in their ecosystem of a lot of private equity firms and multiple buyers. So you’re going to get the last bit of energy they have. And when a transaction is this big for you as a founder, it matters that you get the A-Team and a quality sort of driven firm. So I would highly encourage you to look for regional firms that are more that are priced more cost reasonable or due diligence firms like mine that focus on just quality of earnings that have great reputations in the marketplace. You don’t need a quarter million dollar, $100,000 quality of earnings. You need one that solid by a reputable firm. Yep. 

Greg Alexander [00:13:00] And not to put you on the spot here, but I know you do this for a living. Give me a range. What’s a ballpark budget figure for something like this? 

Elliot Holland [00:13:08] Sure. So 20 to $60000 should cover it for companies that are selling for 1 million to. 25, $30 million. When you get above that, you may ratchet that upper end of the range up a bit, but that is a very reasonable range. You get your quality of earnings done. 

Greg Alexander [00:13:26] Okay, Fantastic. Well, listen, we’re out of time. But Elliot, you and I have recently gotten to know each other. You’re a relatively new member. I’m so glad that you’re in the community. Your energy and enthusiasm is infectious, and your area of expertise, as we just learned today, is desperately needed for our community. So on behalf of all the other members, I appreciate you being part of Collective 54 and in particular for making the deposit in the Collective Knowledge Bank today. Thanks a bunch. 

Elliot Holland [00:13:52] So excited to be here. Thank you for having me. And I’m glad to be in collective 54 as well. 

Greg Alexander [00:13:58] All right, very good. So let me give the audience members a couple of call to action. So let’s say you’re not a member, but you’re thinking about it because you want to meet really interesting people like Elliot and learn about these tools like quality of earnings. Go to collective 54 dot com, fill out the contact us form, and one of our representatives will talk to you about being a member. If you if you are not ready quite yet to be a member and you want to educate yourself further, subscribe to collective 50 for insights and you going to get three things on Monday. You’re going to get a blog, on Wednesday, you’re going to get a podcast, and on Friday are you going to get the chart of the week? And that’s a good way for you to learn more about this if you are a member listening to this, my call to action is a little bit more precise. So the first thing I want you to do in the new Boutique Companion course, there is a Kuo e template I really want to emphasize. It’s an introductory basic template that will get you familiar with kind of what something like this looks like. Of course, to execute it, you’re going to need a professional like Elliott. And then also if you’re not quite ready for a cue because you’re not ready to sell your firm, but you’re really interested in what your firm might be worth on the website. Under resources, we have a tool called the Firm Estimate here. That’s a really fun tool. Takes about 15 minutes to fill out your answer ten questions. It gives you a ballpark range as to what your firm is worth. I really want to emphasize here a ballpark range. It’s not a precise valuation, but check that out if you’re interested. Okay. So that’s the end of today’s show. Thanks for listening. Thanks for being here. We really look forward to Elliott’s private Q&A with the members on one of our upcoming Friday member sessions. But until then, we’ll talk to you on the next one.

Episode 110 – How a Software Development Firm Structured an Equity Incentive for a Key Employee – Member Case by Michael Daoud

Hiring, or promoting, a person into an executive role often requires the Founder to offer an equity incentive to the key employee. This requirement drives a need to understand what the firm is worth today, and how much of the future value should be shared with the key employee. On this episode, Michael Daoud, CEO at Visus LLC, discusses how he valued his firm, and how he structured the equity share with the key employee. 


Greg Alexander [00:00:15] Welcome to the Pro Serve podcast with Collective 54, a podcast for leaders of thriving boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community dedicated entirely to the needs of leaders of thriving boutique producer firms. My name’s Greg Alexander. I’m the founder and I’ll be host on. In this episode, we’re going to talk about negotiating an equity incentive for hiring an executive into your firm, something that we all run into a little bit of a tricky scenario and multiple ways to do it. And we’ve got a great role model with us today. Collective 54 member Michael Daoud. And Michael, as recently gone through this is going to share a little bit of his story with us. So with that, Michael, welcome. Good to see you. And please introduce yourself to everybody. 

Michael Daoud [00:01:09] Thank you, Greg Yes, has a great side. I’m Michael Daoud. I’m the founder and CEO of Visus LLC. We are a professional services company focused on software development and our target market is mid-level enterprise companies and we help them improve their operational efficiency and customer experience. And we do that through developing custom applications, content management systems and business intelligence solutions. 

Greg Alexander [00:01:37] So it’s Daoud. Not dowd. 

Michael Daoud [00:01:40] Correct. 

Greg Alexander [00:01:40] Okay. Sorry about that. 

Michael Daoud [00:01:43] Problem. 

Greg Alexander [00:01:44] Okay, So let’s set it up. So describe the situation. So as I understand it, you’re thinking about adding a member to your team in a pretty important role and you had a need to think about an equity incentive. So give us the backstory, please. 

Michael Daoud [00:02:00] Yeah. So I’ve got an opportunity to bring on a very well experienced person, and that can help us with our growth and scale. And part of that incentive is to provide some sort of equity and or that process been trying to determine valuations and things like that. So can probably provide the right balance of things. Always have grown the company so far over the years and it has a certain value. And so we want to figure out what that value is today. So when the equity equation is figured out with this gentleman, then we can determine, you know, targets based on today’s valuation and future valuation. 

Greg Alexander [00:02:42] Yeah. Okay. Very good. And that’s an important distinction. So for those that are struggling with the same issue, remember all the value that you created up to this point is yours because the executive coming into the company didn’t help you create that. So establishing what the firm is worth today and then what the firm might be worth in the future, and that gap between its valuation in the future and the valuation today, that’s the value that was created. And the question is how much of that value do you share with a new hire? So determining what the firm is worth today is a tricky thing. So my client is stand that you have an advisory board and they suggested to you that you get a valuation. So first, why did they think that that was worth doing? And then secondly, as you explored the possible ways of doing that, what were your options? 

Michael Daoud [00:03:31] Yeah, that’s a great question. Great. So we have a fractional CFO that works with us, and he recently had a client go through an indication of value, so rather than a full valuation. Is this person here in town can do indications of value. Just to kind of give you a rough idea of what the valuation is. The reason the board pushed me to do that, because you and I spoke and you had shared some averages for software development companies in professional services. We have some pretty strong benchmarks. We have strong gross margins, strong EBIDTA. A lot of good processes in place and they felt those all those things put together would provide a stronger valuation. And so as a result, they said, well, maybe getting a good valuation done, and this is prior for me getting the collective 54 estimate, which we can talk about. They thought that it would be a more what’s the word I’m looking for, a more accurate to the actual valuation, if you would, just because of those strong numbers that we have. You know, we posted our numbers in collective 54 and always gotten good feedback of how really strong our margins and EBITDA are. And we work very hard at that every day. Yeah. 

Greg Alexander [00:04:59] Yeah. And you’ve got your board gave me great advice because you’re right. Given your performance, your firm is probably worth a premium over similar sized firms because of your outstanding performance and therefore you don’t want to give that value away. You created it. So getting kind of an accurate value is really important. Now, there’s a lot of ways to do this. You can hire a professional appraisal firm, which if you have the money I recommend this is what they do for a living and they’re fantastic at it. That can run. Yeah, they get a really good one done. What you would want to do for a situation like this, since it’s going to dilute your own ownership percentage or potentially dilute it, it’s going to run you around 15 grand. In my experience, the ones that are cheaper than that aren’t really great. So if you’re going to spend the money, my opinion is, is do it right now. If you don’t want to spend the money and you’re looking for, you know, let’s say call it an educated guess, I guess we have a tool collective 54 does called the Firm estimate and it’s free. Now, I want to caution you, it’s not a professional appraisal. It’s an estimate. And, you know, you can use it and determine whether it’s worth anything or not. And Michael and I are going to go over some of the basics of it today, just as a way to help everybody think through this and also just use this as a outline for the broader conversation on on negotiating equity incentives with a new hire. So the inspiration for this was the Zestimate. I don’t know if any of you have used the website Zillow, but you can go to Zillow and you can plug in your home address and they give you a Zestimate, which is, you know, the word estimate with the letter Z on the front of it to represent that it came from Zillow and it’s shockingly fairly accurate. And then if you’re looking to move and you want to maybe make an offer on a home, they can do the same thing for you. So I said to my team, Well, let’s build the equivalent of that in the principles where it’s got to be super easy. So let me walk you through just real high level what it is. And then, Michael, I’d like to get your thoughts on some of this. 

Michael Daoud [00:07:05] Sure. 

Greg Alexander [00:07:06] So first off, our estimate pivots off of EBITDA. And for those that aren’t familiar with the term EBIT, it’s simply pretax profits. And we establish a range. The range starts at five times EBIDTA and taps out of 15 times EBITA and everything pivots off the EBITDA multiple. There are a series of variables that add to or subtract from the multiple multiple of EBITA and the addition and subtraction are done in one times EBITDA increments per variable. So for example, one of the questions is revenue growth. So if you are growing your top line 30% plus, then you get an extra point of EBIDTA. If you’re growing your firm less than 30%, it’s neutral. You don’t get a subtraction, but it’s neutral. Another example, profit margin. So if you a pretax profit margin is 30 plus percent, you get an extra point of view. But no, if it’s between ten and 30%, it’s neutral and it’s less than 10%. You subtract the point of EBITA and the dimensions we look at are EBITA revenue growth, profit margin. Recurring revenue as in what percentage of your revenue is recurring? Client concentration. Client tenure. Employee tenure. The dependency the firm has on the founder. In the age of the founder, there’s ten variables, that’s all. And you plug those, you answer those questions and out pops an estimate as to what your firm is worth. And then you can play around with those variables. Let’s say you plug them in and you don’t like what what the answer is. And you can say, Well, if I fix this and I fix that, what does it do to me? Or you plug it in and you say, Holy cow, my firm’s worth a ton of money. Maybe you don’t believe it. And then maybe you go back and play around with it. That’s kind of the concept. So Michael, I know, is a little short notice, and I’m not sure if you’ve had a chance to kind of use that tool yet, but did you mess around with it at all? And what did it what did it reveal? 

Michael Daoud [00:09:09] I did and it was great. I really enjoyed it because it confirms some things that were doing well. And and I highlighted some of the things that we need to do better. Right? So I know over a collective 54, I’ve heard people having valuations that are companies, as you said, anywhere between five and 15. I even heard 17 ones. But in general, somewhere in that range and five being conservative. But it was a pleasant surprise to me that when we plugged in our numbers, our multiple was seven. So, you know, I was using five and it was nice to see that. And so I think once we put it in. So on the revenue growth rate. You know, that highlighted how much more we need to spend on sales and marketing to for accelerated revenue. And that’s part of the of the offer with this executive to come on board to help with that. But with our strong gross profit margins and other numbers in here, it really helps. One thing that it did highlight for me, we’ve been getting more and more into recurring revenue. Yeah, through support contracts. But you know, having to do the calculation, put it in here. I didn’t realize how small it was compared to the overall revenue, even though it’s been kind of front of mind to work on that. So that’s an opportunity for us to do even better in our multiple by adding more and more of those support contracts. 

Greg Alexander [00:10:42] Okay, good. So I’m glad that it was, you know, a reasonable estimates and it confirms your belief that your firm is worth more than five times. The tool says seven times, maybe it’s eight, maybe it’s six. I don’t know. But, you know, it did confirm that belief for a lot of the reasons. Now, what would happen from here, whether you use a free tool and you kind of back of the envelope, it’s like what we’re talking about now. Or if you hire an appraisal firm as now you go back to the executive and say, okay, this is our jumping off point. So just to use easy math, our firm’s worth $10 million and I’m going to hire you, Mr. Executive. And over the next five years, we’re going to go on a journey together. And our hope is at the end of those five years, we double the value of the firm. So let’s say it’s worth $20 million. So therefore, $10 million of value was created. The $20 million end state minus the $10 million jumping off point is 10 million. And then the conversation with the executive coming in is what percentage of that 10 million do you think is fair to share with that executive? And this is where it gets really hard because sometimes there’s not clear attribution as to the executive’s contribution to an extra $10 Million in Value creation. And this is where it gets tricky. So Michael, do you have any thoughts on kind of what a an approach might be to figure out how much of the extra value created should be shared with the executive? 

Michael Daoud [00:12:08] Yeah. I mean, you know, in thinking about this and, you know, preparing, you know, some kind of package. You have I as a founder, reflect on say, okay, can I do this on my own without this person? Yeah, probably answer probably is yes. And I believe in myself that I can do it. So what what is the what will this person help me achieve that will get achieved a little bit faster? I think the answer to that is yes as well. So what’s the value for achieving that faster? And, you know, I’ve discussed this with him as well. And I feel that, you know, 10% of that value is fair or that acceleration. And so that’s kind of where we can come to. Yeah. 

Greg Alexander [00:12:56] Okay. So I think 10% is fair in your in your situation. And I think the insight that you just share with us is you feel that it’s worth it because this is the key component of Michael story, is that this executive can help him get there faster as he stated, he can do it on his own. He can get there. But this executive might help him get there faster. And then then it’s a judgment call for the entrepreneur or the founder. Do you want to get there faster? Well, if you’re 25 years old, you might not care. If you’re 55, you might kill a lot. So this is where the tradeoff comes in. And 10% is actually generous. You know, if if this was a corporation and somebody was issued stock options as an example, you know, the employee that’s going to get stock options might get, I don’t know, 1% to 2% of the company. And they would vest over time. So 10% is is pretty generous but fair. You know, given what Michael is trying to get done now, as you share this information with this executive, who was it well received? Was there a disagreement? Was it a point of negotiation? Like how did you approach this? 

Michael Daoud [00:14:08] Yeah, that’s a great question. So when we start our talks some time ago and it’s been some time it was proposed by him at first as to what he believes his value would be. And in exchange for that and, you know, I felt from day one when he did that, that it was fair, especially for he brings a lot of technical know how and can help us, you know, not only accelerate through the valuation but accelerating some of those some service lines that would help us attain that valuation we’re looking for. 

Greg Alexander [00:14:44] Okay. Very good. All right. Well, listen, we’re at our 15 minute mark here. We’re going to continue this conversation and go in much greater depth on our member Q&A sessions with happen on Friday. And I’m sure because I get asked this question all the time by members, I’m sure that’ll be a well attended session. Michael, you’re a great member. You’re always contributing to the collective installing knowledge into our knowledge bank. You did that again here today. So on behalf of the members, I just wanted to publicly thank you for your contributions and for being part of our community. 

Michael Daoud [00:15:17] Thank you, Greg, and thank you for starting Collective 54. It’s been an awesome journey to be together with you and the other members. 

Greg Alexander [00:15:24] Okay, Awesome. All right. Let me give you a couple of calls to action. So if you’re a member, go play around with the firm estimate at all. Attend Michael’s Q&A session on the Friday when it gets scheduled. If you’re a nonmember again, this tool is free. You can download it off of our website, collective 54 dot come under resources. And then also if that type of content is of interest to you, you can subscribe to collective 54 insights, and if you do so, you’ll get three things per week. You’ll get a blog on Monday, a podcast on Wednesday and a chart on Friday. And if you want to skip all that and just become a member and you want to apply, fill out the Contact Us form on collective 54 icon and somebody will get in contact with you. But great episode today and thanks for listening. And until next time, good luck to you and we’ll talk to you on the next show.

Episode 109 – How To Avoid The Devastating Fall Out Of a Botched Reorganization Inside of a Professional Service Firm – Member Case by Mike Desjardins

The design of your boutique’s organization can either aid or hurt a successful exit. Any astute buyer will factor this into their decision-making. This is why simple integrations are attractive. They are cheap, quick, and have a high success rate. On this episode, Mike Desjardins, CEO at ViRTUS, shares their firm’s best practices for a successful reorganization, including the much-awaited backstory of how his team redesigned key roles to keep their top individual contributors.


Greg Alexander [00:00:15] Welcome to the Preserve podcast with Collective 54, podcasts from founders and leaders of boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community dedicated exclusively to helping you grow, scale and maybe someday exit your boutique pro search firm. My name is Greg Alexander. I’m the founder and I have the privilege of being your host today. And on this episode, we’re going to talk about organizational development, but we’re going to do it with a twist. And the twist is what to do when you have a top performing individual contributor and you promote that person into a supervisory or managerial job. And for whatever reason, it doesn’t work out. And you’ve got to bring that person back into the fold. And the tricky situation to handle. It’s one that our members deal with a lot. It’s a common issue, and we hope to give you some insights as to how to handle that. And we have a wonderful role model this week who has firsthand experience with this. His name is Mike Desjardins, and that was my best French impression. And he’s a member of Collective 54, and he’s going to share his his wisdom with you. So, Mike, it’s good to see you. Welcome. 

Mike Desjardins [00:01:43] Yeah, thanks. Great. Thanks for having me on. 

Greg Alexander [00:01:45] Would you mind introducing yourself and tell us a little bit about your firm? 

Mike Desjardins [00:01:50] Yeah, sure, I’m happy to do so. So my name’s Mike and I live in Vancouver, B.C., Canada, and the firm is Vertis and we’ve been around for 22 years and our focus is 90% on leadership development for medium to large enterprise. So and I’d say medium to large enterprise for us is about 100 million in revenue. That’s usually when a client hits that number where they start to the issues around leadership development that are at the scale that that we operate at. And then 10% of our work is in strategic planning. And that is we do obviously executive team development. So we also work with those executive teams in doing their strategy work as well, which is an annual and quarterly cycle that can go on for 10 to 15 years. 

Greg Alexander [00:02:40] Okay, got it. Very good. So as I mentioned, I set up the problem with this promotion of these individual consumers, and I just had a little bit more color to that. You know, we serve entirely boutique professional services firms. And I should I should define that as you have defined your medium size companies. For us, that means more than ten, but fewer than 250 employees. And in that single industry of professional services, that’s the reason why the number 54 is in the name Collective 54. That’s the industry code for pro serve. And people join professional services firms for careers, not jobs. They they value their expertize. They’re motivated intrinsically by things like the job content, the intellectual stimulation, the variety of the problems they may get a chance to solve, the types of people they’ll meet as very, very specific type of person that joins. And it attracts folks that are driven by competence and achievement and they excel at individual achievement. And then when a firm scales, which is what you’re doing, what most of our members are trying to do. The Law of numbers says is we got to promote some people. They get promoted and sometimes it doesn’t go so well. And then we’ve got this issue where we have this almost demoralizing effect on, unfortunately, one of our stars and we get stuck and we don’t know what to do with it. So my team told me that you are the master at handling this. So I’m on I’m on the edge of my seat. 

Mike Desjardins [00:04:19] I may have misspoke. I think it would be closer to the truth is that I screwed this up and recovers. And so I have a story to share. I think that’s closer to the truth. All right. 

Greg Alexander [00:04:31] Well, let’s hear the story. 

Mike Desjardins [00:04:33] And so yeah, the story is, is that I have a team member who is an executive who I have worked with for over 20 years now. And she’s been with me from almost from the very beginning of the business. And her name is Shannon and she is her title right now is director of Learning Strategies as a business group. One of the things that I read was EOS traction. And through reading about U.S., I learned about an integrator role, which effectively is a chief operating officer role. And I started thinking about restructuring the firm in a way where there was a single person in this integrator role. And to me, that logically is Shannon. Now with Shannon, I thought, well, she did great in the integrator role. And I started thinking about the structure of the business and thinking about how well-respected she is in the business. And I thought, you know, everybody would love to report to Shannon. She’s fantastic. And so she moved from having two direct reports to having really effectively almost all the direct reports except business development and accounting, the controller. And so I figured this would be great. She’s going to love this. And as I started chatting with her about the future of her career and what she wanted, she started saying to, I think what I really want is no direct reports. And I love to really focus on being a director, but focus on the future of learning for the business. And that will take me all of my time. And right now I get I sort of get pulled into projects, and I also have. I also direct reports. And so I don’t really get a lot of time to spend on our strategy and on what the future learning is going to look like. And I think that to really achieve this ten-year strategy that we had set out, I need to be able to focus on that. And so in my infinite wisdom, she went the other direction and convinced her that no, she would be great. 

Greg Alexander [00:06:40] Of course she did. Class. I got to go out there. 

Mike Desjardins [00:06:44] And, you know, offer her the salary and all that kind of stuff to go with it. But what I said to her was, Listen, I think you’re going to be amazing. I know that everybody in the company would love for you to be in this role. And would you be willing to give the role if jobs for six months? If it doesn’t work out. We’ll go back. We will restructure the company and we’ll figure out something different for you. But it won’t. It won’t harm you. You’ll be back. You’ll be financially in the same position you’re in right now prior to being promoted. And and we’ll figure out what that structure is going to be if it doesn’t work. In my mind, I’m like, this is just she’s going to love this. It’s going to work great. I think one of those classic entrepreneurial mistakes that that can get made equally when there’s we’re thinking of profit sharing programs or equity programs. Right. As an entrepreneur, I think about it from my lens. But the reality is that isn’t empathizing with what the other person wants. And in this case, I did the same thing with this promotion. So Shannon got four months into it and we were sitting down for lunch and you know, how’s it going? You know, this is a on I’m. She’s like, I don’t like my life right now. So my grand plan wasn’t working out the way I expected. And I said, Oh, okay, like, what’s going on? And she’s like, I’m back and I love the people I work with and but I’m back doing more of the things that don’t really bring me joy. What brings me joy is working on the future of this business and the strategy, and I’m not getting time to do that. And so, you know, I’d really like to take you up on your offer. I know it’s not six months yet and it’s only four months. And I said, no, I think it’s been long enough for you to figure out whether or not this is the right fit for you. And so I said, okay, well, how do we structure this team? So she and I work together on a newer structure that had her as director of Learning Strategies and had one of our returning teammates who was coming back from maternity leave. After a year, we get a little bit longer in Canada than kid in the States. And we said, okay, well, why don’t we make that role? Director of People in Operations. And her name is Nadia. And so Nadia will roll up the content team and the project management and logistics teams will report to her, and that will free up Shannon to be able to focus on actually on our learning strategies and on this future scale mode of our business, which there is a lot of work that we still have to do on that. And so we did that effective October 15th of 2021. So it’s been a year and almost a month of that structure in place. And what I can say to you is that. What ended up happening is Shannon has dotted line responsibilities to the content team that used to report to her, but she is able to focus on building out the future of the business. And that’s what her day to day looks like. Researching what’s happening in adult learning, researching what’s happening in e-learning and blended learning, and slowly helping to convert what we’re doing into a model that we know will scale more effectively and and also fits really does fit the needs of learners today, particularly post-pandemic as a result of what’s happened and the changes in how people are wanting to learn. It’s quite different than it was prior to March 2020. And Nadia, who’s in her role, is thriving and the team that reports to her loves reporting to her. And so yeah, so it’s actually worked out really well. It’s just worked out differently than I would have expected. And we ended up promoting some people as well. As a result of this change in strategy and a change in approach to our organizational structure. So that’s why I say I would love to take credit for this being some sort of grand plan. I’m definitely not the master, but we kind of scaled our way or I failed my way through it and with Shannon empathizing with me as I had my grand plan and it didn’t work out, we were able to make that change. And then ironically, we put it in an equity based compensation strategy this past June, which level sets everyone’s compensation mark to market every June. And for Shannon, her salary went it went back down when she took the role, but then it went right back up to the level that she would have been asked as the integrator. And so it took a little bit of time for that to happen from October to June when we did that. But when we went to market to look at an individual contributor director role and her salary was actually the same salary it would have had with the direct reports as an integrator in a different capacity, more of a chief operating officer versus director of strategy and saying that’s to bring you full circle of how that worked out. It worked out great for for Shannon, it worked out great for ViRTUS and it ended up working out great for me as well. So yeah, that’s the that’s the full story. 

Greg Alexander [00:11:51] And worked out great scenario. 

Mike Desjardins [00:11:54] Yeah. Well, right. Sorry for Nadia. Which is why it worked out great for ViRTUS too. So it worked out great for Nadia. She’s just thriving in her role. And then a few other people got promoted as a result of this whole structure change. So, you know, it’s another good lesson. Great for me. I can always have these grand designs of how things are going to work out. And then I go to the team and I ask them about what that’s actually going to look like. And sometimes they just tell me like just plain no. Yeah. And when enough people say that to me, and particularly people that are senior and tenure, then it’s important for me to really like listen and try to understand why they they feel that strongly about this. 

Greg Alexander [00:12:37] You know what strikes me about that story and thank you for sharing that. It is a fantastic story and a great use case is obviously you and Shannon had a fantastic relationship built on trust because sometimes when this happens, the person who gets promoted, they don’t feel comfortable sharing with the boss, for lack of a better term, that maybe this isn’t exactly what they want to do. It comes usually with an increased responsibilities and compensation. So they get excited about that and then they take a job, right? And then it doesn’t work out and they feel like they’re failing. And instead of raising their hand and saying, Hey, I want to go back to the old job or let’s reorg around a new job. They leave the company and we’ve been dealing with now it’s changing. It’s moderating now, thank heavens. But we were dealing with this great resignation where a lot of people lost a lot of employees during this time. And sometimes, like, I would call that a an unforced error. Right. I mean, it’s like that was avoidable, I should say. And how did you develop this relationship with her and the culture of your company that we’re. It tolerated the experiment. It didn’t work out. No one’s feelings or egos get bruised and you were able to pivot to a new solution. 

Mike Desjardins [00:13:53] You know, I think it’s really taken a village to build to build this culture. And. We we really ought. Brené Brown talks a lot about vulnerability. And in that she’s really talking less about rampant self-disclosure and more about authenticity and transparency. And and we’ve had that in this business the whole time. I think, you know, when we hire, we’re really careful to hire really smart people who are emotionally intelligent and have these qualities that are they’re great to collaborate with. And we’ve run an open book company since 2008. So other than exact salaries, everybody has every other piece of information about this business. So it’s really kind of baked into our culture to have these types of open conversations. And what I’ve noticed it’s happened as a result of that is that there’s really no surprises, right? So when somebody has a review, they’re not surprised by the review because we talk about feedback pretty openly all the time. I think. Inherent in the fact that we’re a leadership development company. If we weren’t doing this and we didn’t have a great culture right. It would be ironic if we were out in the marketplace talking about how leaders should show up. And so I think it’s deliberate. It’s a choice that we’ve made, and it hasn’t hurt us. I can’t think of a scenario in the past where being this way has been to our detriment. Now it means people have their tenures here, and but a short period of time working here is five years that’s growing fast. Whereas I have there’s team members that have been here like Shannon’s 20 years, 12, 14, relatively long period of time. We’re growing now. So we have some, some new people that are joining the company. And when we hire, because we’ve been around for a while and we’ve had these longer term relationships, we take quite a bit of time to get to know people in advance because we’re thinking about this as a long term relationship. When somebody joins our team, we’re not thinking about like, let’s see how it goes over the next couple of years and we’ll see where things are at. We are really thinking long term. 

Greg Alexander [00:16:04] And the candidates that you’re interviewing, are they thinking long term as well? And how do you how do you judge that in an interview setting? 

Mike Desjardins [00:16:10] I mean, it’s hard, right? Like I. It’s hard because you could say, oh, look at somebody’s LinkedIn profile or look at their resume and have they moved around a number of times? That’s not fair because I think, you know, I look back at where like I turned 50 this year, so I look at where I am right now in my thought process and my decision matrix and and how I think about life. And I think back to when I was 25 and my priorities and my values have shifted as of aged and I’ve had experiences which have helped me to figure out what I want. Now, luckily for me and I only really had two main jobs in life so far away, like I was with a group of companies from 18 to 28, and then I did this from 28 to today. So but not everybody had that. A lot of people are people are trying to figure out what it is their career is going to look like. And they may have to go through different jobs and different companies to sort out what that’s going to be. So I think it’s less about. It’s less about trying to determine whether somebody is interested in a longer term career, and it’s more about creating a culture where that happens. And that’s the decision that we’ve made, is less about trying to figure that out on intake, but instead provide a culture in an opportunity where people actually really do want to stay and grow their careers here. When people have laughed and they’ve laughed and said, a lot of the times are really sad to be leaving, they don’t want to go. But maybe our company isn’t growing as fast as they want to grow. And so even though they’ve been here five years is an opportunity and I’m excited for them because I think that is an awesome opportunity and we don’t have that opportunity here so I’m pumped. There is something like that available and so we would kind of refer to people as alumni and we’re excited that they’re out there in the world doing great things and that we got this unique opportunity to work with them for whatever period of time. We had a chance to do so. 

Greg Alexander [00:18:09] Yeah, that’s wisdom there for sure. Let’s come back to Shannon. So the professional services space is one built on apprenticeships. So junior people learn from senior people and then they kind of move up along the way through the apprenticeship model, at least historically. That’s how it’s been done. So our members are more than likely going to fill the promotions that become. Get created because of the growth with internal promotions. It’s a grow your own model, which works really well in the context of a professional firm. So there’s those that are listening right now that are going to want to go promote somebody internally, much like you did with Shannon. And looking back on it now, a year later. You know, what would you have done differently? What lessons would you want to share with those that are getting ready to go promote their Shannon’s today? 

Mike Desjardins [00:19:09] You know, I think my mentor, Walter, actually said something to me in as we were talking about this and reflecting on this. He’s mentored me for the past six years, and we were chatting about this exact scenario and he said, you know, the learning here is when people tell you what they really want, believe them. 

Greg Alexander [00:19:27] And they’re telling the truth. 

Mike Desjardins [00:19:29] And part well and part. Yeah, well, they’re telling their truth. Right. And park what it is that I would want if I were in them because that doesn’t matter. Now there is, there is a piece of it where. So here’s the piece where I think it’s challenging. The balance of that is sometimes I will see people and I will see some that they are capable of, something they haven’t seen yet. And so they might not like. So for Nadia, Nadia was coming back to come into a program designer role. And but Shannon and I in chatting saw she could come back and the director role sounds like she’s the chief the next most senior person here. So why would we why wouldn’t we offer her this director of people in operations role? And she’d be fantastic at it and she’s ready to take that step. And so we went to her saying, Hey, we think you’d be amazing at this job. And and so sometimes it’s it’s it’s seeing the to for people and what they could grow into. And but the flipside of that, of course, is the situation I ran into with Shannon where I, I wasn’t hearing her and I was thinking too much about what I would want if I were her and and why it would be such a great role for her as opposed to really deeply empathizing with what she knew she truly wanted. I think that’s the lesson, is that there’s always going to be this balance of trying to do both, right? Like help somebody along who you might think isn’t, like, ambitious enough for what you see they’re capable of. But tempering that with really hearing them when they say what they want. 

Greg Alexander [00:21:17] Yeah, for sure. You know, when we have our Friday member Q&A with you, they’re going to ask a lot of questions about this and and the way you set up the what I would call a job trial. You know, you said let’s try it out for six months and and how you monitored that, etc.. So it’s just a it’s a great use case. It’s a very real issue for our members. So thanks for being on the call today and for sharing your story. And my pleasure. It was very informative. Thank you. 

Mike Desjardins [00:21:44] Yeah. I appreciate being on. Thanks. Great. 

Greg Alexander [00:21:46] All right. All right. So if you’re listening and you’re a founder of a or a leader of a boutique processor firm, and you’re not yet a member and you want to meet great people like Mike and learn, you know, around stories like this one. Consider joining Collective 54 and you can apply for membership on our website, which is Collective 54 dot com. If you’re not quite ready to join, but you want to educate yourself, we got lots of resources called Collective 54 Insights, so podcast benchmarking data, a blog or a book, etc. And you can also find that at Collective 54 dot.com. But thanks for listening and I’ll see you on the next episode. 

Episode 108 – How a Brilliant Founder Expanded Margins By Repositioning His Software Development Shop Into A Strategic Consulting Firm – Member Case by Phil Alves

The quality of the fees earned by your firm is a top priority as you scale and exit. All revenue is not good revenue. Poor fee quality leads to poor margins. On this episode, Phil Alves, CEO at DevSquad, shares how he improved margins and fee quality by repositioning his firm.


Greg Alexander [00:00:15] Welcome to the Pro Serv Podcast with Collective 54, podcasts from founders and leaders of boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community dedicated entirely and exclusively to helping you grow, scale and someday exit your professional services firm. My name is Greg Alexander. I’m the lucky founder of this group, and I’ll be your host today. And on this episode, I’m going to talk to you about improving your margins and how the importance of that changes over time as you develop your firm. And we’re very lucky to have a great role model with us. He is a collective 54 member. His name is Phil Iles, and he’s going to share a little bit of his perspective with you. So, Phil, it’s great to see you. Thanks for being here. And please introduce yourself and your firm to the audience. 

Phil Alves [00:01:13] Yeah, it’s great to be here. Yeah. So my firm is Dev Squad. We specialize in building SaaS products, and I’m feel I’m the CEO of the firm. 

Greg Alexander [00:01:23] Okay, very good. And how long you guys been at it? 

Phil Alves [00:01:25] Eight years. 

Greg Alexander [00:01:27] Eight years. Very good. And your journey? Are you a software engineer yourself turned entrepreneur, or did you come at this from some other way? 

Phil Alves [00:01:34] No, that’s it. Yeah, I started as a soft engineer. From their eye. They love product to the product side of yeah. Like creating things and solving problems. And I moved to Utah. I am originally from Brazil. I got a lot of job offers. I decided I would start this company. Of course, having the connection to Brazil helped me have access to talent that wouldn’t be too expensive and interest to the market. And I was part of the first thing they help us have like higher margins. Yeah, but, but a lot of other things that we did after that. 

Greg Alexander [00:02:09] Yeah. So let’s jump into that. So the topic today is margins. And I would say the the space that you’re in which I’ll broadly categorize maybe incorrectly as software development tends to be in relation to other professional services, tends to be profitable but not as profitable because software engineers are scarce, they’re in great demand and the labor cost in this space tends to be high and the end client is squeezing fees a little bit. So margins in software engineering tend to be a little bit low. But in your case, that’s not true. So what are you doing to deliver exceptional margins? 

Phil Alves [00:02:49] Yeah. So I believe, like you talk about in the book, it cannot be a body shop. You have to when clients come to us, what they’re buying, they’re buying process, they’re buying our culture. So we were very specific about how we do stuff. We do stuff differently. We made it. And then as we keep doing that, we were able to prove that we can do it in a better way than they will be able to do just themselves. So when they hire us, I’m like, You’re not hiring developers, you’re right. But I’m trying to position myself not just as another software development company, but I’m trying to position myself as a consulting firm. They specialize. I have my own way of doing things, and my way is better than you could do by yourself. And you’re going to pay a premium for that. And another thing they like to say, when people are paying us their opinions to tell them what to do, not the other way around, like we are really the experts. And like I think another thing that’s very important for our margins, so we start like kind of like in a platform play, people would hire us because we’re experts in a certain programing language, but we had to move out of that to, to charge more money, you know. So now people hire us because we own a vertical. Our vertical is like we specialize in building SaaS products. We have with a lot of successful SaaS products where people went and have exits. So it’s about you can be selling just the people, just the bodies. You have to sell process and you have to be in a vertical where there’s enough margin for people where people are going to pay for the expertize. 

Greg Alexander [00:04:25] Okay. So there was a lot there. I want to unpack that a little bit and congrats to you for having clear command over this subject. I think some of our listeners might not be as advanced, so let’s go slowly here. So one thing you mentioned to me, I call it positioning and you’ve positioned yourself as a consulting firm that specializes in software development as opposed to a software development firm. And that move alone gets you into a different category and it gets the client willing to pay a different fee because they’re comparing you to other consulting firms, which tend to charge more and it gets you out of that category now. And we’re going to go through the other ones that you just rattled off. Well, let’s stay with that one for a moment. Sometimes when you try to reposition yourself in such a way, the client says, give me a break. You know, you might be trying to reposition yourself as a consulting firm, but you’re not really a software development firm. So how did you overcome that perception and how did you convince the world that you really are a consulting firm? 

Phil Alves [00:05:22] I think it’s like actually when you are coming up, you’re going to have some customers that you’ve actually got to do consulting and other companies way of actually doing development. And the more of those customers that you actually doing real consulting, it’s the more a track record that you can show. So we are to a point right now that when I meet with a customer, I explain to them, Look, when you hire us, you get a product manager, you get a UI designer, you get a playbook of how we do stuff. And that was developed over the years. So we didn’t start here. Sometimes we did to customers that were less than ideal, but as we kept growing, we just kept getting more and more picky about our customers. If the customer doesn’t believe what I’m trying to sell him, I’ll be like, You’re not a fit. Because at this point we have a funnel. And like last month alone, I had 40 people that reach out to us and then they came back. And if they don’t, if they don’t, it becomes a peaking game. And some people don’t believe or like they don’t. That’s not why they are buying. And that’s okay. We have the software people that are what we are. Sally Yeah. 

Greg Alexander [00:06:26] I mean, just a great demonstration of sticking to your ideal client profile, you choosing who you’re going to work with, people that recognize your value and are willing to pay for it. I’m sure there was a time when you were coming up in the early days that you couldn’t pick, you know, all revenue was good revenue. You had to turn the lights on and pay the employees. When did that happen? When did the when did the paradigm shift to where you you have a just a huge funnel and you get to choose who you want to work with. 

Phil Alves [00:06:57] I think like when the money was coming and I invest that money in building that funnel, in building the positioning, and it changed when I realize that we’re going to get leads no matter what it like my pay per click and my CEO are delivering what they’re supposed to deliver. And then when I could trust that this I’m going to get customers. That’s when I start to change. And then we can start to replacing. We have customers that work with us maybe for a long time, but there was no ideal customer and then we just replace those customers for your customers. But I think it’s about putting your money in, investing your money in creating the channels and creating the positioning so you can be where you want to be. 

Greg Alexander [00:07:37] Okay, so let’s talk about investment. So sometimes founders of boutique process firms, they see excess money in the bank account and the temptation is too strong. They pull it out of the bank account, buy a new car or something like that. You didn’t do that. You kept the money in the business and reinvested it in these ways, which ultimately resulted to where you are today, which is a very successful, thriving firm. So how did you how did you overcome that temptation and how did you resist the urge to build a lifestyle business and decided to really go for it? 

Phil Alves [00:08:09] Actually, I read a book called Profit First, and I had some money that I took out, and then that money I could do whatever I want. So I did buy a nice car. 

Speaker 3 [00:08:19] A Porsche. I didn’t want an airplane. I have look a lot of it, but most of the. 

Phil Alves [00:08:24] Business, the money actually stay in the business and they got to reinvest that money on the business. So it was about having processes like the same way they have a process of how we run the business like fulfillment. I had a process about what I’m going to do with this money and I was only a small portion and it gets smaller as the company get bigger, you know. But there was only a small portion of that money that would go around us play money because you still want to get the rewards of what you were doing. And it was just about sticking to that process. They allowed me to have the money to reinvest in the business. 

Greg Alexander [00:08:56] Very good. When I asked about margin improvement, the first thing you said was not being a body shop. And when somebody hires you, they’re not hiring an extra pair of hands. They’re hiring process, playbook, culture, which is a really compelling package. I’m assuming because the margins are where they are, that you’re able to charge a premium and that your target customer is paying a premium for process, playbook and culture. And that’s why that’s why I not the Body Shop. So how were those things developed? How have you protected them? How do you prevent your competitors from stealing it? 

Phil Alves [00:09:40] I think it’s very hard to steal culture. 

Greg Alexander [00:09:42] Yeah, that’s true. 

Speaker 3 [00:09:43] Yeah, good point. You know. 

Phil Alves [00:09:47] And that’s kind of like the thing that we from day one, I really emphasize the culture that we want to build and how we want to be. And they have different interactions, like we improve their culture. One thing they really help us do, we start with us. As we grew in the US does cover culture, the covers process, they have ways that you can use to implement those like. So like the same way basically I didn’t try to reinvent the wheel. I read a lot of books. I found processes that work, including your book, and I just replicate it. 

Greg Alexander [00:10:21] Yeah. Okay, very good. And tell me a little bit about your culture. And I know iOS covers culture and it suggests how to build it and track it. But each company has its own unique culture. And you’ve mentioned that word so many times here. And in the context of profit and margin expansion, I don’t often hear the word culture, so I’m intrigued by this. Tell me about your culture and how does it contribute to your success? 

Phil Alves [00:10:49] I believe that the teams that build amazing software products regardless, it’s not because of the talent, it’s because of the culture the team has. So the team, the culture that we develop is a culture that we say make it happen. Simplicity, we are about simplicity. So we want to be very simple play as a team and the value of your expectations. Those are our four values. We talk about them all the time. We have a lot of softness to the track and people can rewarded or people for keeping the values. When you’re making decisions inside the company, you make decisions based on those values. And I think the biggest one, it’s like make it happen in simplicity. We want to keep it simple and to get things to to the other side and get it done. And like, for example, we work with ADP, big Fortune 500 company. And the way the ADP, this thing you can, they overcomplicate everything. So they come to us and they’re like, wow, you got this done in six months. We had expected doing two years. It is because our culture it I could get the same people to work for ADP but inside my system, my process is if they follow how we work, they also would get the process done in in six months. So like I like to say, culture is the way that we do things around here. And that’s kind of like what we try to to pass down and to always talk about and to develop. And sometimes we have to understand we get bad things about our culture to cultures like how we do things. It’s not only the good things. So like recently we have a lot of people in Brazil or I’m originally from and people are showing up late, late to meetings because that’s part of Brazilian culture. Like you show up late and I’m like, That’s not acceptable. And then we, we correct the things inside our culture. So it became a high performing culture, you know. So yeah, yeah. 

Greg Alexander [00:12:34] Now one of the things that you talk to your leadership board about recently was. The the push pull between or the the tension between doing really good work for your current clients, which obviously is very important in taking on new clients. And at some point and this happens to all of us, you have to do more of one or the other. So how do you decide? And how do you balance those two? You know, decide when to take on new clients, when not to take on new clients, when to focus on the existing clients that you have. How do you how do you think through that? 

Phil Alves [00:13:10] Yeah. I think it has to be. Do I have the leadership inside my company ready to onboarding new customers? Do I have the customers inside the idea of customers all happy? Because there’s no point in losing the customers that I have just to onboard some new big customers. And we have been growing a lot year over year, but frequently I’m going to be like, we are not taking customers this quarter and we able to sometimes get people to put a deposit down and then start the next quarter. And I was the first time someone paid me a bunch of money not to work. I was like, What? 

Speaker 3 [00:13:48] You went out and bought a plant? No, but I played. That’s funny. 

Phil Alves [00:13:54] So. But it’s kind of like it is how we work right now. It is. Because if I’m not a body shop, I have to have the time in the consulting. You get the people from down the pyramid, move them down to management. And if I don’t have that person training it, it’s about having the actual leadership ready to onboard customers and add value to understand their culture and understand their playbook. And sometimes I cannot develop these people fast enough. If that’s the case, I have to wait. I’m taking your customers. Yeah. 

Greg Alexander [00:14:25] I tell you, that’s a that’s a great problem to have. I mean, you have so much work. The limitation isn’t finding clients. The limitation is developing the talent quick enough. Speaking of talent, you mentioned that you’re from Brazil, but you live in Utah. Is your talent spread out all over the place or is it in one location? Do you use a remote workforce? Does people come to the office? How does it work? 

Phil Alves [00:14:47] Yeah. So how about after you had a remote first culture? There’s about ten people that live in Utah. They come to the office if they want to. We do have customers fly here for us to do some workshops. We call the design sprints, so the workshop sometimes will happen in person, but most of our work is remote. And the workforce in Brazil with about 100 people now. Wow. They are they’re all remote anywhere in the country. So there’s no physical location around Brazil. There is one here in Utah, but it’s a remote first. Like you don’t have to always come to the office. You come to the office if you want to or if you have a customer flying here. Like sometimes we do have customers fly for us to do like their two days workshop before we started a project. 

Greg Alexander [00:15:29] Now, since culture is connected to the margin expansion that we’re talking about today, you have a remote workforce, remote first. Some would say you can’t build a culture in that environment. You’re clearly proving that not to be true. So is there anything about building culture in the remote workforce that’s different than building culture in an on prem situation? 

Phil Alves [00:15:52] Yeah, I think you have to be a lot more intentional when you have a remote workforce, you have to really spend the time. Culture has to be a priority. You have to talk about culture. You have to. I have this thing called the Culture Squad and this people are their own responsibilities to make sure people are understanding and getting the culture and they’re holding events and they’re doing stuff because it’s harder. Like people get to know each other, but. I think there are some of the basic human needs there for fuel and go to the office that are not automatically fulfilled when you work remotely like you want to have connection and you want to have a couple of things that’s a little bit harder. You never want environment and we have been doing that before with Cool to do it so we know how to do it. 

Greg Alexander [00:16:38] So tell me about the Culture Squad. I love that idea. So how many people are on the Culture Squad? What do they do for you? How does one earn a spot on the culture squad like that? That sounds like a fun a fun gig to have. Tell me about that. 

Phil Alves [00:16:52] So it’s a select group. There’s probably like six or seven people in that group. They get kind of like once a month and they have a budget and their goal is to put together events and things that will promote the culture. So they usually they’re doing workshops where they’re not just themselves, they’re getting someone from the overall company to do a workshop. So they’re promoting their workshop and people are coming, they’re participating. They are like deciding who is the employee of the month and they are running surveys to figure that out. They’re looking at like the reviews that employers give to each other. They are looking at problems that we might have in the culture because like I told you before, I think culture is the good and is the bad and you have to realize when the bad is happening. And so they are responsible to to point that out. So like the leak thing, I didn’t notice that they brought to me and they’re like, hey, people are getting like and their solution was for me to go into the whole company to stop doing, but that sucks. 

Speaker 3 [00:17:54] But they will. 

Phil Alves [00:17:55] Figure out those problems and they will sometimes have ideas of how to address and how to shrink the culture in different ways. Like so they say, hey, this month we’re going to talk about simplicity, what, what, what, everything that we can do to, to get people to understand what simplicity is. And they’re going to share kids studies. They’re going to do whatever to to get people to understand and put their get to this what I decide. I personally like got together with my management team and we just got people from different areas of the company that really understood the culture to represent who we are and we put those people in their squad. Yeah. 

Greg Alexander [00:18:33] You know, one thing you mentioned also was that you guys build SaaS products. That’s your core business. You know, every time you pick up the newspaper, turn on the TV, go online. These days, you know, talk about the SAS industry going through a tough time. Have what’s your take on that? Have you seen any any pull back and is that affected your business or not? 

Phil Alves [00:18:53] No, that has an effect on our business. These are mostly public companies that were overall average, in my opinion. A lot of our customers, they’re like smaller in the B2B space. They are like running profitable business and they’re doing this just fine. And we have even more people that are coming to view their SAS products because they are an expert in a niche and they’re building a product for someone just like themselves. Yeah, like we just to start a product for a guy that has I think he has close to a bunch of car washes. I won’t say the number, I’ll say wrong. Well, let’s say more than 100 car washes in the whole country. And then he knows how to run car washes and he knows all the software out there are not great. So he wants to build a software for other business just like his. And of course, he’s very profitable and he’s going to be just fine to the recession or whatever is going to happen in the coming months. 

Greg Alexander [00:19:44] And people still get to wash their cars. 

Speaker 3 [00:19:47] Yeah, exactly. So. 

Greg Alexander [00:19:50] All right. Well, that’s good to hear. I mean, I this is my second company collected 54. My first one was started during a different era back in 2006. And I can tell you, I’m rooting for the SAS industry because the ease that I can run my business now, I mean, I run my entire business off my phone and the cost to run my business has plummeted. And it’s because of all these fantastic SAS products that are available and just cloud computing, cloud computing in general. So I wish you much continued success. I love having you in the group. I love to hear that that a consulting company that specializes in software development can run healthy profits because of things like process and culture and playbooks, you know? And it’s a great counter-example to some who feel the space you operated in has been completely commoditized. So congratulations to you and all the success that you’ve had. 

Phil Alves [00:20:44] Thank you very much. It’s great to be here. 

Greg Alexander [00:20:46] Okay. All right. So for those are the listeners that are not a member. And you might think about joining because you want to meet really fun and exciting people like Phil go to Collective 54 dot com and you can fill out an application and be considered for membership. If you’re not ready to be a member, but you want to keep educating yourself and consuming content. The same website Collective 54 dot com. There’s a resources section and you can subscribe to insights. You get a weekly podcast blog. We produce a chart of the week, which is a visual representation of benchmarking data. We even have a bestselling book called The Boutique How to Start Scale and Sell a Firm. So I encourage you to to check that out as well. But that’s the end of this show. And thanks for listening. We’ll see you next time.