Episode 41: The Boutique: Why Engagement Type is a Key to Growth
Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54 for 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 type of engagement you sell and deliver determines the growth strategy of a boutique. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer, Greg says there are two types of engagements elephants and rabbits, and understanding which game you’re hunting is a key to growth. Greg, I’m not a hunter, but I’m looking forward to the show. Good to see you. Welcome.
Greg Alexander [00:01:10] So let me ask you a question. What do you get when you make Jumbo the elephant with the Easter Bunny?
Sean Magennis [00:01:16] I have no idea.
Greg Alexander [00:01:18] So the answer is some kind of Frankenstein monster that is very ugly and suffers a painful early death.
Sean Magennis [00:01:25] And what what the heck does that have to do with engagement type?
Greg Alexander [00:01:30] So firms that mix incompatible engagement type, such as elephant engagements with rabbit engagements are also ugly. They live a painful existence and they die young.
Sean Magennis [00:01:43] Ha. OK, so elephant and rabbit. Now I see the connection to Jumbo, the elephant and the Easter Bunny. Listen, the two of the mating is an image I hope does not stick in my mind. OK, what the heck is an elephant engagement and what the heck is a rabbit engagement?
Greg Alexander [00:02:03] OK, so a firm that hunts elephants is a firm built around a small number of clients who are each spending a lot with the boutique. Their engagements are big. A firm that hunts rabbits is a firm built around a large number of clients who each spend a little. Their engagements are small and quick, and the type of engagements you pursue determines the type of firm you become. Firms that try to do both often do not grow, and unfortunately, most of them die young.
Sean Magennis [00:02:37] Greg, why is this?
Greg Alexander [00:02:39] Well, there are many reasons, but let me share two examples. So example number one is the sales motion is very different when hunting elephants and when hunting rabbits, for example, elephant hunting requires long sales cycles, a solution selling methodology, a high skill level in the cellar, and an ability to get to the C suite as they control the big budgets and contrast rabbit hunting have short sales cycles, a transactional selling methodology, an average skilled seller, and you can hit your goals selling to mid-level managers who have departmental budgets.
Sean Magennis [00:03:20] Aha. I can see the difference in the sales approach. So trying to do both in one boutique would be a lot to manage and too much complexity. So two of everything, for example, hiring profile, training program, compensation system, etc.. What is the second example?
Greg Alexander [00:03:39] OK, so example number two is the service delivery is very different when delivering elephant projects and rabbit projects with elephant projects an engagement could last a year plus, this means staff continuity is key. Project management is complex with milestones, deadlines and billing. It’s probably some type of a monthly fee tied to time reporting. In contrast, rabbit projects might get done in a month or two. Staff continuity is not needed as they are barely there long enough to say hello. There was no need for heavy project management, and billing is likely some percentage upfront in the balance at completion. These two engagement types are just different animals.
Sean Magennis [00:04:24] Yes, I can see the differences in the service delivery to trying to do both in one boutique would be a nightmare to manage an unnecessarily complex. Just the headache of accounts receivables, different legal paperwork with SOWs and master service agreements. Boy, tracking utilization of staff would be a maze of confusion. It’s just not worth it. What should a founder of a boutique do about this?
Greg Alexander [00:04:49] So a founder should pick a lane and stick to it. Trying to be all things to all people is just not worth it. And engagement type is where to focus more so than client type. I have seen boutiques manage large and small clients inside one firm well, however, I’ve rarely seen a boutique managed different engagement types inside one firm well, the reason is engagement type dictates almost everything, such as how you price the staffing model, the number of clients you can handle at one time. The list goes on and on. Your two choices are serving a small number of clients who spend a lot or serving lots of clients who spend a little elephant or rabbit.
Sean Magennis [00:05:28] Great practical advice, Greg and I, and I don’t think listeners will ignore the analogy. Thank you. 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.
Richard Echeandia [00:06:03] Hello, my name is Richard Encheandia. I owned Conxin, Incorporated. At Conxin, we serve large U.S. organizations as they select and implement large scale software systems like enterprise resource planning or customer relationship management systems. Because of the size, complexity and organizational impact of these systems. Many of these projects experience significant cost overruns, delays and far too frequently project cancelations. Conxin solves these problems with experienced professionals and an innovative and highly actionable framework that defines 36 different elements for large scale programs. For each of these elements, we provide the checklists, planning and execution tools you and your team need to be successful. If you need help bringing your large scale projects in on time and on budget, reach out to us at [email protected]
Sean Magennis [00:07:00] 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 the Collective54.com. OK, this takes us to the end of the episode, let’s try to help listeners apply the now. 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 as 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 engagement type is working for you. If you answer no too many times your engagement type is more than likely getting in the way of your attempts to scale. Let’s begin.
Sean Magennis [00:08:01] Number one, do you want to serve a small number of clients? Number two, do you want to live and die by the big deal? Number three, can you handle the lumpiness that comes with elephant hunting?
Greg Alexander [00:08:19] Yeah, when you have a six month sale cycle, you’re going to be holding your breath for a while.
Sean Magennis [00:08:23] Absolutely. Number four, do you want to stay engaged with clients for an extended time?
Greg Alexander [00:08:30] You know, some of our beloved founders, they love the thrill of the hunt. And after they win the deal, they don’t want to hang around. So they would be better off hunting rabbits.
Sean Magennis [00:08:37] Yeah, it’s addictive. That adrenaline deal to deal. Number five, can you get in front of big companies that can afford large projects? Number six, can you hire the expensive talent needed to deliver on those expensive projects? Number seven, can your cash flow support periods of time with low utilization rates? It’s a big challenge.
Greg Alexander [00:09:02] Sure.
Sean Magennis [00:09:03] Number eight, is the problem you solve complex enough to warrant long engagements? Number nine, is the service you offer robust enough to require expensive engagements? And number ten, are you comfortable with the risk that comes from high revenue concentration?
Greg Alexander [00:09:23] Yeah. So if you’re hunting, elephants are going to have a small number of clients, right, where we’re rabbits to spread your risk.
Sean Magennis [00:09:28] Right. Greg, thank you. So in summary, the type of engagement you sell and deliver determines a lot. The boutiques that offer both types of engagements have a high failure rate. Pick one and be the best you can be on that type of engagement. 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.