Small service firms are overly dependent on a few key employees. The departure of one can cause much pain for the Founder and impede the progress of the firm, especially if it was unexpected. Attend this session and prevent this trouble from stinging you.
Greg Alexander [00:00:10] Hi, everyone. This is Greg Alexander, the host of the Pro Serve podcast, brought to you by Collective 54, the first community dedicated to the boutique professional services industry. On today’s episode, we’re going to talk about key person risk. Key person risk is when a small firm is overdependence on a person or a small group of people. And that increases risk in our firm because if someone leaves, it tends to create a large gap inside of a small firm, and then we find ourselves in panic mode to try to improve that. And we have a member with us today. His name is Phil Acosta. And Phil recently experienced this and significant successfully navigated his way through it. So I thought he could share with you what he shared with me because as much to be learned in his story. So, Phil, it’s good to see you. Would you introduce yourself, please?
Philip Acosta [00:01:08] Hey, thanks for having me. My name is Phillip Acosta. I am the principal here at GuROO LLC. We’re an enterprise I.T. company, primarily based in the DC area, but providing support all across the lower 48. We also have a virtualization platform that’s a SAS offering called Ibos. So that’s kind of what we do. And I’ve been running this company for about a decade.
Greg Alexander [00:01:32] Got it. So Philip, why don’t we start off with telling the audience what happened?
Philip Acosta [00:01:38] Okay. So basically I have had the same structure of how we’ve been run the company corporately probably for about the last 5 to 6 years, and that is myself. And then I had a number two as an operations manager, and then we had some people beneath that, but it was mainly me to him at the top. That person told me that they were going to be retiring at the end of 2024. So I kind of had a plan for that, but they moved it up to the end of this year. So 20, 23 calendar year. And I found that out a couple of months ago, three March, April. And so from that period, I started thinking, okay, what are we going to do here? Are we going to just replace the person that’s in that spot, which I think would be impossible because of the institutional knowledge and stuff like that that’s been associated with that. So, you know, you could get pretty close, but probably not a perfect fit to replace that, or at least it would be challenging. Or I looked at it as like, okay, we are in the forties going into fifties at that point. Now we’re over 50. You know, maybe this is an opportunity to restructure the company for the next stage of what we’re going to do here, because even if that individual had stayed, we probably couldn’t around the company the same way for very much longer. I chose the latter, and now I’m in the process of implementing that change. You know, the new person as a board and the person that was here prior, they’re still here overlapping currently. But you know, like as Greg was saying, we’re we’re making that transition. And so far it’s it’s going okay.
Greg Alexander [00:03:15] So that’s it’s a great story. Thanks for sharing that with me. And I think it’s very real. I mean, I think, you know, this has happened to several of our members and, you know, what are you going to say to somebody when they want to retire? I mean, they they’ve done a great job for you. I’m sure you’ve got a great relationship and you want them to have a happy retirement. So it’s a it’s a tricky situation because on the other side, you got you got a business to run. And this creates creates a gap. Tell me short term, so you get deliver this news. You know, now you’ve been able to digest it, remove emotion, think logically, make a sound business decision, which we’ll get to in a moment. It sounds like that’s working out. But in the moment when that happened, you know, was there any fallout? Was there you know, did the business take a hit? Was there a lot of stress placed on you? Kind of bring us back to that moment.
Philip Acosta [00:04:05] Um, yeah. I don’t think the business necessarily took a hit. There was a lot of stress placed on me.
Greg Alexander [00:04:12] Yeah.
Philip Acosta [00:04:13] You know, it goes. You know, the timing is just, um, you know, not to get into my personal life, but I have a bunch of small kids that I just, you know, I just had recently disasters in our family, so you got to know the personal side of it. But, you know, I try to have some structure in how I do things. And I had a plan to start this process at the end of 2023 and basically to give myself the whole calendar year of 2024, to make this a smooth thing to, you know, you know, go out, interview, look for people, figure out the right, do the integration and it kind of crunch that entire timeline. So I was a little upset initially. And I think one of the things that I’ve tried to do is not take one moment, which I kind of looked at, is like you told me you would do one thing and now you’re kind of going back on your word. I tried to do that. Take one moment and allow it to define what is a 19 year working relationship with this person, which is mostly been really good. And so to me, I wouldn’t want to take that moment and allow that to, you know, you know, take away from all the good things that have happened over the years. So I’m not going to lie. I’m an imperfect person. It took me time to process and get to that point to be able to look at it that way. But, you know, that is the way that I’ve helped myself get through it. And then, you know, it’s like, okay, now we got to refocus and figure out how we’re going to do this. Yeah.
Greg Alexander [00:05:42] Well, it’s very mature of you, and I appreciate you being honest and vulnerable. I mean, I’ve had this happen to me before in the past, and I reacted very emotionally initially. And then, you know, once I said, okay, it is what it is, I got to deal with it. You know, I brought some clarity to the situation. And listen, we got to acknowledge that we are people and, you know, emotions are going to be part of it because the implications of this, as you just mentioned, not just professionally but personally, you know, can be traumatic. You know, you’ve got a plan and all of a sudden the plan goes up in smoke and that can be very, very disturbing. So you talked about your two options and the criteria upon which you made the choice, which, if I repeat back, was you didn’t think that you could replace this person as is because of all the institutional knowledge. And that would be really tough to replicate. And then you were peeking into the future and you’re saying we’re a 50 people now in a few years will be at 500 people, like what do I need going forward? Which is a very good set of decision criteria. Sometimes there’s a third choice that people consider. And I want to ask you if you did consider this and why you ruled it out, and that is you could promote somebody from within. And that sometimes works because that tribal knowledge issue, that institutional knowledge is less felt if it’s an internal promotion. So did you consider that and why did you decide against it?
Philip Acosta [00:07:01] Yeah, I did consider it. I think the problem is that and it’s a it’s a fault of something we’ve done here. We didn’t build anybody to take that role and we should have done that. And I won’t make that mistake again because like you said, it makes it easier to have an internal hire. But when I look at the things that I needed, there was nobody that had been dealt to take over in that capacity. Yeah. Without creating a hole in some other area and then basically just playing, you know, whack a mole of replacing people. So to me, that’s the reason that we didn’t go that route. Yeah.
Greg Alexander [00:07:39] So, so the lesson for members is the talent supply chain concept, right. Which says you should be developing, you know, everybody along the chain, if you will. So if one person leads, another person steps in. But that Whac-A-Mole concept we are creating holes throughout the org chart isn’t an issue because, you know, everybody gets pulled up accordingly. Now, listen, I understand how hard that is. I know we’re all super busy and it sounds great in theory and it makes a ton of sense. Meanwhile, you’re working 50 hours a week, running around trying to serve clients like it’s hard to compartmentalize these things. But if you’re learning anything from Phillips story is it’s really important to have that talent supply chain in place so that if something like this was to happen again or happened to you for the first time, it’s not that big of a deal. It doesn’t mean that you’re going to promote from within, but it means you have the option, it’s a viable option. And then you can compare the internal promotion to the external recruit and make a good choice. So I just wanted to point that out. So let’s move to the the external recruitment. So this is a big job that you’re you’re filling. This person is going to play a huge role in your success going forward. So how did you find this person and how did you decide on who to hire?
Philip Acosta [00:08:50] So I really turned to people that I knew in the industry that were either mentors or, you know, I know had had this experience in prior, you know, interactions because honestly, it was brand new territory for me. You know, I’ve made a bazillion hires in this company, but I’ve never hired someone to kind of run the company. And so trying to figure out the right choice for that was challenging. So I reached out to people that, like I said, that I trusted. I asked them if they knew people in the market. That’s another thing is it’s kind of a word of mouth thing, not saying you can’t go higher. A CEO often bandied, but it’s certainly not as common as like going and hiring a network engineer. So, you know, you kind of want to ask what they’ve done in the industry and be able to vet some of that stuff. So, you know, with the person that I ultimately landed on, you know, it came from a source that I trusted that I felt like it just didn’t work out. I could hold accountable. And it also, you know, I vetted a lot of their there are folks that they gave me and asked them about background, you know, not really to ask them, was this person good for the job? Because anybody you put down for a reference, I got selected for the job or probably shouldn’t put them down for reference, but I just tried to pull out of them, you know, what they had done and line it up against what I thought we needed and wanted it to be clear on a theme. One of the big things I wanted to hear is what their growth story where had taken a division and grown it and how they scaled that, what they did and what they left in place and how they got there.
Greg Alexander [00:10:24] What was the pitch to the candidate? Because it sounds like these are big shoes to fill and how did you convince them to take the job?
Philip Acosta [00:10:34] Oh, well, I mean, he actually really liked the company, so, I mean, it was helpful that, you know, when I presented what the company did, he thought it was attractive. He thought it was ripe to go for. But, you know, I did One of the big things that I told them is that, you know, you know, I’ve ran this company even though I had a number opportunity before. It’s kind of been like my way on everything for a very, very long time. I’ve kind of been the driving force for this company. I said, But I’m not looking for someone to come in and report to me. I said, I’m looking for someone to be a partner and grow with me. And I am willing to step back and embrace your ideas and not be saying, Well, that’s not how we do this here. So I think part of what made the job attractive was how open I was to new things. And, you know, that’s I mean, I’ve talked with Greg about it and that’s proving hard so far and practice to do. But but I mean, I’m working at it. I’m trying not to, you know, get in the way too much.
Greg Alexander [00:11:32] Well, good for you for being aware of that. That’s an issue. You know, entrepreneurs and I’m one of them. We all struggle with that, right? It’s the control issues. And in order to get a company to a certain level, you have to have talented people and empower them to be successful. And it’s really hard to let go. So and it’s not like you flick a switch and it happens overnight. Just it’ll happen over time. And then once this new person and underline the word new, that’s the issue. Once they demonstrate their ability, your your trust in them will go up and up and up, not the you don’t trust them now. I’m sure you do, but it’ll be an earned trust and you’ll sleep better at night knowing about your delegation decisions. All right. My last question would be, so you have somebody leaving in the next six months and you have somebody who just started within the last two. How have you structured their relationships so that the transition goes as smooth as possible?
Philip Acosta [00:12:24] And so one of the things I did immediately is I wanted them to marry up and spend a lot of time together. In fact, as we’re doing this podcast, they’re in the conference room right now. We’re working on some stuff together. So I told them basically in week one, I said I just kind of wanted them to spend time together because I had talked a lot with the candidate before he ever came here. So he kind of knew what I wanted. And I also had the benefit of I’m probably going to be here for quite a long time and I want to make sure that we get as much done in figuring out a transition prior to them. You know, with us having our person that’s in place moving on. So they’ve you know, I’ve encouraged them to go out, have lunches together. They seem to genuinely be getting along and doing well. I think another bonding point is talking about me, not necessarily in a bad way, but, you know, things like, hey, does this, you know, kind of the challenges of working with me or the good things and, you know, different stylistic things that I like to see. I think they’ve kind of bonded over that. But I’ve tried to make sure that they spend a lot of time together. And I said, I had this person that’s taking the job now that’s been in place. I had these two talking throughout the interview process, so they already knew a bunch about each other before the job, so were accepted.
Greg Alexander [00:13:44] You know, and it’s fortunate that it was a retirement situation which gave you some runway. It gave you an opportunity to have the retiring person participate in the interview process. But imagine a scenario, listeners, where that’s not the case. You show up for work one day and your key person walks in and gives you two weeks notice now. So it’s a it’s a very different situation in that. And that that just puts you puts an emphasis on bond. This key person risk issue and making sure that you’re building that talent supply chain. So, Phillip, we’re out of time here, but I appreciate you sharing your story with us. It’s incredibly relevant and I appreciate you being in the community. Every time I speak to you, I learn something. So. So thanks for being here today.
Philip Acosta [00:14:29] Oh, thank you so much for having me. She has. Have a good day.
Greg Alexander [00:14:33] All right. Couple of calls to action for listeners. If you’re a member and you’re listening, look out for the meeting invite. So Phil will do his Q&A session with us. If you’re want to be a member and you’re not yet, go to collective 54 dot com and fill out an application or get in contact with you. And then if you’re not ready for either of those two things, you just want to learn more. Go to Amazon. You can find my book. It’s called The Boutique How to Start School and Sell the Professional Services Firm. Okay. Thanks, everybody. Take care.