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.