Episode 16: The Boutique: Tomorrow is More Important than Today.
Various Speakers [00:00:01] You can avoid these landmines. It’s a buy versus build conversation. What’s the root cause of that mistake? Very moved by your story. Dive all on the next chapter of your life.
Sean Magennis [00:00:15] Welcome to the Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that the ability to sell your firm for the right price is more about your future and less about your past. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg will share his perspective on how to prove to investors that your future is very bright. Greg, today’s show will focus on helping owners paint a bright picture for their future. How should our audience begin that process?
Greg Alexander [00:01:14] The big idea for today is continuous improvement. Investors and potential acquirers do not want to buy a development project. They want to invest in a firm that is accretive immediately and whose contribution increases over time. When considering an investment, they will need to understand how a firm continuously improves.
Sean Magennis [00:01:33] Excellent. And how will they do that?
Greg Alexander [00:01:36] Well, there are many ways. Let me share a few just to get the audience thinking a bit. Investors will want to see how and how often a boutique upgrades their methodologies. They do not want to buy firms with aging methods that are no longer attractive to clients. So, for instance, years ago, if you recall, Six Sigma was all the rage. Today, not so much. It is important that boutiques stay on the leading edge. Another way, potential buyers consider firms continuous improvement ability is to plot client satisfaction scores over time. So, for example, if client sat has flatlined, this would suggest a future might not be very exciting. Boutique owners should have a keen eye on the trend line associated with client satisfaction. And here’s one more to consider, technology adoption is often viewed as a sign of a firm’s progressiveness. For example, small management consulting firms are still producing PowerPoint decks as deliverables, whereas the larger firms produce custom apps instead. Today, there seems to be an app for everything. If a firm is still producing decks, it is a sign that they might not make it through this digital transformation wave that is upon us.
Sean Magennis [00:02:58] I get that, Greg. So updating one’s methodologies consistently, improving client sat over time and technology adoption are three ways to prove to an investor that a firm can continuously improve. These are three excellent practical examples, and I’m sure there are others. Greg, are there any others?
Greg Alexander [00:03:21] Sure. There’s hundreds. So since we try to keep our shows short, let me just share a few more. So profit growth is probably the purest way to demonstrate continuous improvement. Profit growth proves to an investor that the firm has decoupled revenue growth with headcount growth. And as our listeners know at this point, that’s the silver bullet. This is how a firm scales. A firm whose revenue and headcount growth are the same does not have a bright future. Investors are unlikely to bet on that type of firm. Pricing improvement is also another excellent way to prove continuous improvement. If a boutique can raise prices with existing clients, they have a very bright future. The same client willing to pay more for the same service says the quality of the work has gone up. And lastly, let me conclude with the ultimate sign. A firm is continuously improving. The ultimate sign is the firm’s client roster. For example, if a boutique client roster goes from no names to brand name clients or from struggling clients to thriving clients, that says a lot about the firm’s future.
Greg Alexander [00:04:42] The logo sheet looks a lot better with Amazon on it than it did with Kmart.
Sean Magennis [00:04:48] Fantastic. So profit growth, price improvement and declined roster as three additional signs a firm is continuously improving, all pointing to a very bright tomorrow. I can see why this would attract potential investors and acquirers.
Sean Magennis [00:05:10] And now a word from our sponsor. Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members join to work with their industry peers to grow scale and someday sell live firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.
Jerome Redmond [00:05:36] Hello. My name is Jerome Redmond. I own American Truck Training. We serve the Oklahoma City metro, in other areas around Oklahoma and soon the entire United States. These clients turn to us for help with obtaining a commercial driver’s license and job placement. We’ve solved this problem by addressing the vast shortage of CDO drivers across the country. The country needs over 60000 CDO drivers. So we’re training individuals through private and government agency funding to obtain a commercial driver’s license and training. If you need help with training your professional drivers, reach out to me at AmericaLovesTrucking.com and Jay Redmond, that’s [email protected]
Sean Magennis [00:06:18] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit collective54.com.
Sean Magennis [00:06:35] OK. So this takes us to the end of this episode. And as is customary, we end each show with a tool. We do so because this allows the listener to apply the lessons to his or her firm. Our preferred tool is a checklist. And our style of checklist is a yes no checklist. We aim to keep it simple by asking only ten yes-no questions. In this instance, if you answer yes to eight or more of these questions, you can prove your future is really bright. If you answer no too many times, you’ve got some work to do. Let’s begin.
Sean Magennis [00:07:14] Number one, do you version control your methodologies?
Greg Alexander [00:07:18] So V1, V2, V3 thats what that means.
Sean Magennis [00:07:20] Yes. Number two, do you progressively certify your employees?
Greg Alexander [00:07:26] One oh one, two oh one, three oh one.
Sean Magennis [00:07:29] Number three, are you charging existing clients more for the same service? Number four, are your client satisfaction scores trending up over time? Number five, are your employee engagement scores trending up over time?
Greg Alexander [00:07:50] Often overlooked.
Sean Magennis [00:07:51] Yes.
Greg Alexander [00:07:51] But employees want to be intrigued by the work they’re doing and if they’re just doing the same thing over and over and over again, they’re going to get bored.
Sean Magennis [00:08:04] Yep. It kills their passion.
Sean Magennis [00:08:07] Number six, all your profit margins trending up? Number seven, have you replaced onsite delivery with virtual delivery?
Greg Alexander [00:08:17] This is a great point. Yeah. I mean, we’re right in the middle of this global pandemic and this was once once optional. Now it’s mandatory and firms that can make it from onsite to virtual are gonna make it.
Sean Magennis [00:08:32] Yes. Number eight, have you digitized your client deliverables?
Greg Alexander [00:08:37] Yeah, this is gonna wipe out, I guess, half the firms. I mean, if you don’t have the ability to write code going forward, it’s game over.
Sean Magennis [00:08:45] Yep, agreed. Number nine, have your price levels trended up over time? And number ten, and the ultimate proof point, has the quality of your client roster improved over time?
Sean Magennis [00:09:01] So in summary, buyers are interested in who you are becoming. They are less interested in who you have been. Tomorrow is much more important than yesterday. They need to be excited about your ability to continuously improve.
Sean Magennis [00:09:19] If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. I’m Sean Magennis. Thank you for listening.