Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that as your boutique scales, recruiting shows up on the list of things to excel at. The days of recruiting from your personal network are over, and the ability to recruit at scale separates the winners from the losers. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg is considered one of the industry’s best talent pickers. In fact, Dr. Jeff Smart in his best selling book, Who the A Method for Hiring suggests Greg is one of the best he’s ever seen. Greg, great to see you and welcome.
Greg Alexander [00:01:26] Sean, it’s good to be with you. I see that you dug up Dr. Smart’s classic book and who Jeff and Randy who run smart and associates are the best in the world at hiring the right people. I encourage everyone to read that book and check them out. I was flattered to be mentioned as a success story in their work.
Sean Magennis [00:01:45] Will do. Greg, I have heard you mentor boutique funders in the area of recruiting. So during these conversations you discuss how there are four different recruiting needs when scaling. Can you walk the audience through these four?
Greg Alexander [00:02:01] I’d be happy to, but before I do, allow me to place this into the proper context. If you are a small, young firm in the startup phase, this does not apply to you. Recruiting in the startup phase is not a mission critical task. The needs are basic in most jobs can be filled from personal networks. In contrast, if you are a firm trying to scale, meaning build something more than a lifestyle business, then recruiting is a mission critical task. Not all the jobs can be filled from personal networks as there are just too many of them to fill. And also the stakes are higher. So, for example, as you leave the scale stage and start to prepare for exit, you will need to recruit a CEO so you can ride off into the sunset. If you miss higher this role, you can kiss your earnout goodbye. Recruiting goes from a passive activity to a mission critical task as you mature. Does this make sense, Sean?
Sean Magennis [00:03:00] Yes, it does. Thanks for setting the table, Greg, and for the context.
Greg Alexander [00:03:05] OK, so let’s jump into the four different types of recruiting as a firm scales. I will start with the first big change, replacing generalist with specialist. As you scale, you will attract more sophisticated clients. These clients will pay you more and therefore expect more. These clients are experienced buyers of professional services and they know what to look for. For example, they will require you to name and describe the team on the account in the proposal. This means you will need to spell out the years of experience, industry references, project case studies and many other items. The prospect is deciding on which firm to select, due in part to the bios of the account team. If you recruit generalist, you will lose too many deals and will not be able to scale sophisticated clients. The types of clients our audience wants to work for, the mad, hyper specialized talent. Does the first recruiting change makes sense?
Sean Magennis [00:04:12] Yes, it does, Greg. So switch from recruiting generalists to recruiting specialists in response to the needs to more sophisticated clients. What is the second recruiting change that happens as you scale?
Greg Alexander [00:04:26] The second recruiting change that pops up when scaling a boutique is the need to hire a manager of managers. You see, startups are filled with small teams, boutiques are filled with medium sized teams, and the market leaders are filled with large teams. Therefore, startups hire managers who manage individuals, boutiques, hire managers who manage other managers and market leaders, hire managers who lead entire departments. So during the scale stage, owners of boutiques need to recruit or develop managers of managers at about midsize. The need for this role again, manager of managers shows up. So this is the second recruiting change and does that make sense?
Sean Magennis [00:05:14] It sure does. So when small startups graduate to the scale stage in their life cycle, the need to hire managers of managers shows up for the first time. This is a big change and it makes logical sense. What is the third recruiting change on the journey?
Greg Alexander [00:05:33] So the third recruiting change that pops up when scaling and boutique is the need to hire executives, boutiques at scale require an executive leadership team. These executives have autonomy to make decisions. They’re not simply executing the founders plan. They are drafting their own plans in at times even have their own independent profit and loss statement, which means they have spending authority. Does the third recruiting change make sense to you?
Sean Magennis [00:06:00] It does Greg and I have seen many a founder stumble at this point. This requires giving up some control and that can prove to be difficult for some. What is the fourth and final recruiting change as a firm scales?
Greg Alexander [00:06:17] So the fourth change that pops up when scaling is a need to reassign the founder. So we all love our founders. They are the pioneers who created jobs and wealth. However, at a certain point, founders become a bottleneck founders. They want to launch new services into new markets and innovate. They do not want to install process and systems and scale. And yet that’s what’s needed at this stage. Therefore, founders must hire or promote a new CEO. The objective is not for the founder to stop working or to work less. Rather, it’s to make the founders contributions much more impactful. The CEO runs today’s business while the founder is developing tomorrow’s business. This one two punch accelerates the pace of scaling. Does that fourth recruiting change makes sense?
Sean Magennis [00:07:15] It absolutely does. Greg and I especially like the word reassign as opposed to replace. We are not showing the founder the door. Instead, we are creating an environment that allows his or her creativity to blossom and not be strangled.
Greg Alexander [00:07:31] Yeah, that’s correct. I mean, where would jobs have been without Cook or Zuckerberg? Without Sanders?
Sean Magennis [00:07:36] Absolutely. Excellent advice and examples as usual. Greg, thank you.
[00:07:44] And now a word from our sponsor, Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.
Matt Rosen [00:08:09] Hello, my name is Matt Rosen. I’m the founder and CEO of Allata. Allata service enterprise clients in the financial services, health care, retail distribution and professional services sectors. Our clients are nationwide and we have offices in Dallas, Pheonix, Salt Lake City and Boise. Our clients, such as Freman Associates, and the Army Air Force Exchange, turn to us for help with strategic initiatives typically creating new revenue streams, creating digital customer experiences or increasing productivity. We help our clients by building digital strategies and roadmaps, designing product custom, developing software and helping them gain insights into their data. If you ever need help with a digital strategy, product development, customer development or data initiative, please reach out to me at [email protected] and the websites www.allata.com.
Sean Magennis [00:08:56] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit Collective54.com. OK, this takes us to the end of the episode, let’s try to help listeners apply this. We end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist and our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these questions, your recruiting strategy is working for you. If you want to know too many times, recruiting and the lack thereof is more than likely getting in the way of your attempts to scale. Let’s begin.
Sean Magennis [00:10:01] Number one, the individual contributors need to evolve into manages? Number two, the managers need to evolve into managers of managers? Number three, do managers of managers need to evolve into executives? Number four, do you need to shift from generalists to specialists? Number five, are you attracting sophisticated clients with higher expectations? Number six, has the founder become a bottleneck? Number seven, can the impact of the founder be amplified if partnered with the CEO? Number eight, does Decision-Making need to be pushed to those closest to the clients? Number nine, is it time to shift from experimenting with the model to scaling the model? And number ten, is it true that what got you here won’t get you there?
Greg Alexander [00:11:17] You know what I love about those 10 questions in particular in this episode is there’s a yes box in a no boxes, no maybe box.
Sean Magennis [00:11:24] That’s exactly right.
Greg Alexander [00:11:26] So you founders’ out there when you’re asking yourself these questions, make sure you’re you’re answering accurately.
Sean Magennis [00:11:32] Thank you, Greg. In summary, recruiting as a startup is not a mission critical task, yet when scaling, it is the need for specialists, managers, executives and a CEO arrive on the scene. These are new roles and usually cannot be filled correctly from the founder’s personal network. To scale, your boutique needs to become a master recruiter. If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. Thank you, Greg. I’m Sean Magennis and thank you, our audience, for listening.