Spill The Ink Insights on scaling and selling multi-million dollar professional services firms
Some say that running a business is an art, not a science. But professional services firm owners should have a documented strategy for growing and scaling their business to one day (fingers-crossed) sell their company for millions of dollars.
In 2017, Greg Alexander sold his consulting firm for $162 million. Now he’s on a mission to help other business owners achieve similar success.
In this episode of “Spill the Ink,” Michelle invites Greg to share lessons from his multi-million-dollar success story. They discuss the three stages of a firm’s life cycle — growth, scale and exit — as well as what owners should do at each stage to have a lasting impact on their firm’s value. Greg also emphasizes the importance of expanded service offerings, succession planning and good brand reputation as part of a firm’s long-term strategy.
Here’s a glimpse of what you’ll learn-
Who is Greg Alexander and what is Collective 54
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How Greg sold his boutique professional services firm for $162 million
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Do’s and don’ts for growing, scaling and selling your business
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Why you need to start succession planning early
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What the founder bottleneck is and how to overcome it
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Signs it’s time to sell your firm
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The ideal exit strategy for professional services firms
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How brand reputation could impact your ability to sell
Greg Alexander is the founder of Collective 54, the first mastermind community dedicated exclusively to thriving professional services firms with big aspirations. Collective 54 helps members make more money, work less and get to an exit bigger and faster. Members get access to a network of peers, proprietary content and benchmarking data, coaching, events and software, all custom-built to serve the unique needs of boutique professional services firms.
After selling his own professional services firm, the consulting firm SBI, for $162 million, Greg founded Collective 54, and authored the best- selling book “The Boutique: How to Start, Scale, and Sell a Professional Services Firm.”
He is also the host of the popular podcast “The Pro Serv Podcast.” Through his expertise and guidance, Greg helps members of Collective 54 grow, scale and exit their firms.
Resources mentioned in this episode-
Check out Collective 54
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Connect with Greg Alexander on LinkedIn
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Buy Greg’s book: “The Boutique: How To Start, Scale, And Sell A Professional Services Firm”
This episode is brought to you by Reputation Ink.
Founded by Michelle Calcote King, Reputation Ink is a public relations and content marketing agency that serves professional services firms of all shapes and sizes across the United States, including corporate law firms and architecture, engineering and construction (AEC) firms.
Reputation Ink understands how sophisticated corporate buyers find and select professional services firms. For more than a decade, they have helped firms grow through thought leadership-fueled strategies, including public relations, content marketing, video marketing, social media, podcasting, marketing strategy services and more.
To learn more visit www.rep-ink.com or email them at info@rep-ink.com today.
Transcript[00:00:00] Greg Alexander: When the business is completely dependent on a founder, that's actually not a firm, that's a practice. A firm is a real asset, and the value of the firm goes way beyond the value of the founder.
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[00:00:16]: Welcome to “Spill the Ink,” a podcast by Reputation Ink, where we feature experts in growth and brand visibility for law firms and architecture, engineering and construction firms. Now let's get started with the show.
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[00:00:33] Michelle Calcote King: Hey everyone, and welcome to "Spill the Ink." I'm Michelle Calco King. I'm the podcast host and I'm also the principal and president of Reputation Ink. We're a public relations and content marketing agency for professional services firms. To learn more, go to rep-ink.com.
Today we're talking about a professional services firm's growth and scaling. A firm's path from a startup to a multi-million dollar business is rarely a straight line. There are turns, curves, peaks and dips all along the process, making a clear, long-term strategy critical to success. How can professional services firms evaluate and maximize growth, scaling and selling opportunities throughout their lifecycle?
We're gonna explore that today in this episode. The perfect person to talk to about that is our guest today. Our guest is Greg Alexander. His company Collective 54, is dedicated to helping boutique professional services firms grow, scale and exit their business. Before launching Collective 54, Greg ran his own boutique professional services firm, which he eventually sold for $162 million. Wow. He also authored the bestselling book called "The Boutique: How to Start Scale and Sell a Professional Services Firm," and he hosts the "Pro Serve Podcast." Welcome to the show.
[00:01:53] Greg Alexander: It's great to be here. Thanks for having me.
[00:01:55] Michelle Calcote King: Yeah. Excited to talk about this. Tell me a little bit about, Collective 54 and the clients that you work with.
[00:02:01] Greg Alexander: Collective 54 is what's known as a mastermind community. It's the first of its kind in that it's focused exclusively on the unique needs of the thriving boutique proserv firm. Members come in three kind of flavors, if you will. There's growth members, and these tend to be younger firms, maybe in the early days of their journey. They're trying to kind of figure out how to survive. How to grow to a certain level, etcetera.
The next phase is the scaling phase, and we've got a group of members there. They're no longer worrying about surviving, but they're working 70 hours a week and they kind of want to figure out how to work smarter, not harder. The third group is the exit group. They've been doing it a long time. They want to do something else with their lives and they need to figure out how to sell their firms. Selling a professional services firm is a very nuanced thing, so we help them with that.
The number 54 is in the name Collective 54, because that's the North American classification code for professional services. So what's in that is what you might think: law firms, accounting firms, consulting firms, marketing agencies, IT service providers, architects, etcetera, etcetera. Pretty much experts that sell and deliver their expertise.
[00:03:15] Michelle Calcote King: Love it. I'd love to hear a little bit about your background in, selling a firm for, such a draw dropping number. Tell me a little bit about that.
[00:03:25] Greg Alexander: The name of the firm was called SBI.. I started that firm in 2006 and it was a management consulting firm in kind of a classic sense of the word. , We were heavily niched. We focused on business-to-business sales effectiveness. Our client base was a blend between kind of the Global 2000, so people that had huge investments in large sales forces, and also private equity firms that would buy companies and their thesis around buying the companies was to grow them. Our services were in demand there. In 2017 we sold that firm to a private equity, and the price was $162 million. And I share that number not to be braggadocious — sometimes it comes across the wrong way — but I share that to inspire people and say, "A service firm can actually pull this off," because it bothers me when they say, "Services firms can't scale and services firms can't exit and they're not wealth creating." That's not true, and I'm a walking example of that.
[00:04:27] Michelle Calcote King: Yeah, absolutely. What better proof point that you know what you're talking about to help firms scale? Absolutely.
Along your path, what were some of those key things that you did right — I'm gonna also ask you what you did wrong — but that were critical to scaling and exiting the business that are now kind of foundational to your work with clients.
[00:04:50] Greg Alexander: There were several. I'll try to categorize them into the three steps of the journey. I like to say that a boutique goes on a life cycle. It's about 15 years on average. Start to finish is three stages: Grow, scale and exit. About five years in each stage. For me, in the growth stage, the critical things were to make sure that I knew the problem that I was solving for the client. In the early days a mistake I made was that I was running around with a solution looking for a problem, and that's very difficult to be successful. So we switched that, got really focused on what the problem was, and that really helped. The second thing in the growth stage, I would say is we got really tight on who our ideal client profile was because when you're a small company you have limited resources. There are only so many hours in the day, dollars in the bank and heads on the org chart. Concentrating those resources against an ideal client profile was super important for us, and that allowed us to grow a lot.
When we got to the scale stage, it was about working smarter, not harder. Specifically what that meant was generating revenue from things other than the billable hour. It was tech-enabling service delivery so we could be that much more productive on a revenue per head basis. It was leveraging global talent in different geographies around the world. And it was getting really smart on how we priced our services. Those things really kicked, the scale engine into gear.
Then when we got to the exit stage it really came down to three things. It came down to profit margin. We were very profitable. It came down to, the business not being dependent on me, the founder, because it's tough to buy a firm when it's dependent on one person. And about reducing client concentration. A lot of services companies look good on paper, but when you double-click, they got two or three clients that are 40, 50% of the revenue, and that's too risky for someone to buy.
So, those are some of the things that we did along the way that helped quite a bit. And those are the things that we teach Collective 54 members in addition to others.
[00:06:45] Michelle Calcote King: That's great. What are some of the things along your journey that you wish you'd done differently that you help clients see and avoid?
[00:06:54] Greg Alexander: I would say that we took too long. We should have made it through the growth stage — instead of five years — probably could have got there in two or three years, but I was the first-time founder figuring this stuff out on my own. I just didn't know any better so I made a lot of mistakes.
The advice I'd give your audience is to tap into mastermind communities, whether it's mine or somebody else's. Being around peers can really help 'cause you can avoid paying some dumb taxes. I would say in the scale stage, I probably didn't get serious enough about succession planning. When I got to the exit stage everybody wanted to know could the business run without me.We were able to prove that that was true, and the firm has done very well since I've left, but there was a lot of convincing there. If I'd gotten engaged in succession planning much earlier, it would've made my life a lot easier.
Third I would probably say investing in new service delivery. We didn't do that fast enough. When things are going well, you think they're gonna go well forever. Then one day we woke up and we had this gold-plated client roster. In the early days we were a one-trick pony selling one thing. Eventually we migrated not only from sales effectiveness, but to marketing, to product, to general management, and I would've done that faster. So, the advice to audience members is to expand the service offerings as quickly as possible.
[00:08:13] Michelle Calcote King: Interesting. How does that compare to the prevailing wisdom around being very niche-focused? You mentioned being very kind of niche early on. So, expanding service offerings, are you still doing that within a niche? How do you balance that?
[00:08:29] Greg Alexander: Everything comes back to the fundamental problem we were solving, and that problem was we helped our clients grow their revenue stream faster than their competitors. That was the niche, and that was a really tight niche, but within our client base, there were a lot of people working on that problem. There was a sales leader, of course, and that was our first type of client, but marketing is heavily involved. The product leader is spending a lot of money bringing out new products. This is a top of mind issue for the CEO, etcetera. So it was still the same very tight niche, but we were expanding from function to function within that niche that allowed us to really grow.
[00:09:07] Michelle Calcote King: Nice. Okay. I'm curious — just because we work with professional services firms, we work with, law firms, architecture firms, engineering firms, that kind of thing. Do you find any differences between the types of professional services firms that you work with and the types of, problems that they tend to encounter or ways that they're scaling?
[00:09:25] Greg Alexander: This is a great question and it's somewhat of a religious battle, so I'm glad that you asked it. Point of view. They're much less different than they think they are because they operate off the same business model. And that business model is they're marketing, selling and delivering expertise. Now where they differ is the expertise that they sell.
Law firms and marketing agencies on paper don't look like they have a lot in common because their domain expertise is so different. However, their business model is identical. They still have to win clients; they still have to hire people; they still have to scope work correctly; they still have to manage their certain margin profile, you know, etcetera, etcetera. The business model is identical, but the domain is different.
[00:10:09] Michelle Calcote King: Interesting. I'm a member of a mastermind. Tell me a little bit about how it works for folks who maybe aren't familiar with what masterminds are.
[00:10:19] Greg Alexander: The principle of a mastermind community is peer-to-peer learning. All, uh, wonderful mastermind groups have six components to them. And we're standing on the shoulders of giants, of people that came before us, and these are the six that have been around for, I don't know, a hundred years.
So number one is you gotta build the network of peers, and they have to be real peers. What frustrates some is they join a community and they realize that this isn't their peeps. This isn't their tribe, and they're like, "These really aren't my peers." So it has to be a high quality network. That's number one.
Number two, they gotta produce interesting and insightful content. That content is usually user-generated content. It bubbles up from that network. I think that's gonna be particularly important going forward because we're living in the age of AI where content's gonna become a commodity. But when the content is coming from your peers, it's not a commodity. So it's very unique.
The third thing is data. All mastermind communities provide benchmarking data. So for example, are you charging enough of your services? Are you earning enough from a margin perspective? Being able to see the data of other members is really important.
Number four is software. Most mastermind communities have wonderful, member directories so you're only a click away from getting access to help. These days it's much like a social media feed. They have that so you can get instantaneous help. One of our members calls it "The Human Google." That's one.
The next is events. Thankfully the pandemic is behind us. We want to get together and go to events that are not just sitting in a Las Vegas conference room with 5,000 of your friends. Rather, going to an intimate event with maybe a hundred of your peers as an example.
The last one is coaching. Coaching comes in many forms. I can get coached by a mentor and I can be a mentee. Or I can get coached by, like, we have an advisory board that's handpicked individuals that happen to be experts. It's something that's relevant to our members, etcetera. So, those are the six items that are present in the best mastermind communities, and they're certainly the six things that we've built in Collective 54. Those are the six things that our members get value from.
[00:12:27] Michelle Calcote King: When you say content, what do you mean by that? We're a thought leadership content firm. Are you talking about content that you're sharing amongst members or these are firms that are generating great thought leadership content on a regular basis and sharing it with each other? Explain that a little bit more.
[00:12:43] Greg Alexander: It's not thought leadership content. I'm glad you asked that clarifying question. It's kind of like in-the-guts content. What I mean by that is like, I just got off of a member call and one member was sharing his template for a forecast because a lot of our members are really struggling with matching revenue and expenses because there's some volatility in the economy. Everybody knows that they have to create a forecast, but that's a big word. That word forecast is at 30,000 feet. How do I get a running start by stealing somebody else's templates? I'm 80% of the way there when I get started. It's that kind of content. Very practical. How to, best practice style content.
[00:13:24] Michelle Calcote King: Got it. Okay. One of the things that I often see with firms, especially professional services firms and especially law firms, is sort of that founder bottleneck.
Can you talk a little bit about that and how, you help firms overcome that? Because I assume that's probably the number one critical thing that most firms face when trying to scale to the next level.
[00:13:48] Greg Alexander: Yeah, it is. Someone once told me along the way is that you start your firm to go into business for yourself. Then you wake up one day and you realize you're not in business for yourself, you're working for your clients. Then as your journey continues, you wake up one day and you're not working for yourself or your clients, you're working for your employees. At the end of that journey, you wake up one day and added to yourself, clients and employees, end up working for the investors or the bank. And that's very, very true. When the business is completely dependent on a founder, that's actually not a firm, that's a practice. A firm is a real asset, and the value of the firm goes way beyond the value of the founder. Sometimes, like in our community, most of our members, in fact, about 90% of them, this is the first firm they've ever started. So they don't necessarily know this yet, and the separation between firm and founder hasn't happened yet, but it's mission critical for it to happen because in the end, scaling a firm is just too much work for one person. As you get bigger, you can't get to what it is you're trying to get to if you're one person. Building a bankable executive management team is mission critical. And being an effective delegator to that management team is a critical element in scale. I will tell you it's something that most first time founders get wrong because, let's face it, the profile of a founder is they're fiercely independent, somewhat stubborn people, and they can suffer from micromanagement. Delegating is a tough thing for them, and trusting other people is a tough thing for them. So, they gotta get over that if they truly wanna scale their firm.
[00:15:37] Michelle Calcote King: Yeah. I noticed in your blog that you talk a little bit about growth by acquisition versus organic growth. How do you help firms determine what strategy is best for them and help them find their way with that?
[00:15:51] Greg Alexander: The way that we discuss growth is the first thing to do is to grow your current clients. Expand revenue from your current clients. Having an effective account management team in place that can spot new opportunity in the current client base is the first strategy.
When you get out of the growth stage and you get to the scale stage, the revenue growth switches from acquiring new clients to expanding existing clients. New clients are always important, don't get me wrong, but the majority of the growth is gonna come from expanding your current clients because in the scale stage, that's what you have now. You have a client roster. In the early days, you don't really have a client roster, so all your revenue's coming from new clients. That's the first thing. Now, what do you have to do to expand revenue with your existing clients? Well, you have to come out with new services. And that is the lowest risk, highest probability way to grow your firm.
Now, if you have a services roadmap that says, "Hey, I need to develop these services over the next 2, 3, 4, 5 years," it may make sense to buy a company, buy a firm that already has that service and bring them in. Where that works is when you have demand in your client roster for that service. So just by that firm, being part of your firm, you're gonna exponentially grow their revenue because you're gonna take that new service to your client base. Where it doesn't work is when you buy a competitor, one plus one, oftentimes equals 0.5 there because there's too much client overlap, and it's just not expanding the pie. It's just a defensive move to get rid of a pesky competitor.
[00:17:34] Michelle Calcote King: Got it. Interesting.
What do you see are those typical signs that it's time for a founder to exit? What are founders normally experiencing when they get to that third stage and they're looking to sell?
[00:17:51] Greg Alexander: Well, there's a few things. First, the job satisfaction of the founder plummets because they're a long way away from the early days. Founders are pioneers. They like to be on the razor's edge and be out there trying new things. Scaling is in contrast to that. Scaling is doing more of what you've already done, just doing it better, faster, cheaper. Sometimes founders don't like that. So, that's the first thing I would say.
[00:18:16] Michelle Calcote King: Meaning founders are just sort of like shiny object syndrome? Is that kind of what you're saying? Yeah? Okay. And it's hard to kind of stick and just optimize. Okay. Yeah, I get that.
[00:18:27] Greg Alexander: Yeah. So that would be one. The second one would be is that the market responsiveness, is the way I would say it, of the firm is degrading because the people in the firm have not been empowered to make decisions. You know, kind of all roads run through the founder, and when a firm gets busy, the decision-making cycle can get long. The remedy to that is to push decision-making power to those closest to the client so they can be super responsive in the marketplace. So, that's one.
Another one would be lack of growth, top line revenue growth. Because again, it's too much work for one person, so you might have a business that was growing 30% a year for 10 years, and then all of a sudden it's growing at 20%, 10%, 5% because the founder is in the way strangling the growth.
And then the last one, which is an easy one, is age. Founders they start their firms — the average age, and this was reported by Harvard Business Review, I believe, of a founder of a professional services firm is 44.
[00:19:25] Michelle Calcote King: Really? Oh, wow, okay.
[00:19:27] Greg Alexander: Isn't that surprising? Yeah. So our belief is it takes 15 years approximately on average to go from cradle to grave. So if you push 15 years on top of 44, now all of a sudden you're in the retirement age. It's time to move on at that point, and can you? Do you have the next generation that can take the baton from you at that point in time? And that doesn't happen overnight. It can take 3, 4, 5 years to get the next generation ready to take over.
[00:19:53] Michelle Calcote King: Yeah, absolutely. I would've thought it would've taken longer.
What does an ideal exit strategy look like? Give me a few of those ideal things that you've gotta have. Asking for a friend.
[00:20:07] Greg Alexander: I'll give you the qualitative and quantitative. So qualitative is that you as the founder are at peace with it. You've decided that you've been validated and it's time for you to move on, and you're not gonna have any kind of seller's regret after the fact. So, that's number one. Number two is along the way, you probably have some very loyal employees that are approaching family member status. You want to make sure that when you leave that those employees are very well taken care of. That's the second requirement. And the third requirement is similar in that it's clients. You probably have some longstanding clients that you care about and you have some relationships with, and you probably wanna make sure that they continue to be well served after your departure.
On the quantitative side, it really comes down to two things. That is what's the purchase price that you sell your firm for? Do you feel good? That you're being fairly compensated for the asset that you created? The second thing is what are the terms of the deal? Depending on who you sell to, like, if you sell the private equity, there could be an equity role. If you sell to a strategic, there could be an earnout. If you sell to your employees, it could be a seller's note. The terms of the deal matter just as much as the purchase price.
[00:21:18] Michelle Calcote King: As part of your mastermind, it sounds like if you're in that third stage, you have access to all of those sorts of experts to help guide you. That's fantastic.
I love the fact that you break it up into those three different stages. Even my mastermind that I'm a member of, you've got a lot of people at different stages of theirjourney. And it's all marketing agencies, but that does make a difference. Absolutely.
[00:21:44] Greg Alexander: It does. And that's why we did it. And that comes back to the fundamental principle of a mastermind that it's gotta be real peers. You might be a marketing agency, but you could be at drastically different points on the journey and dealing with different issues, right?
[00:21:58] Michelle Calcote King: Yeah, and just different desires and wants, which goes along with that stage of growth. I've got two more questions. For my own benefit, how much does reputation and brand play a role in, a professional services, sale?
[00:22:14] Greg Alexander: Oh, it's essential. I mean, professional services is an intangible. It's not like you go to buy a car, you can take a test drive. With professional services, you really can't do that. So what stands in substitute for being able to demo the product, if you will, is the reputation. If you're an expert, that's what you're trading on. People are looking to you to be an expert and it's so mission critical. That's why when I got to know you a little bit, you know, I know that you focus on that a lot and you know, how does a professional services founder establish a reputation? Well, there's the traditional way. It's like, for example, you mentioned my book, "The Boutique: How to Start, Scale, and Sell a Professional Services Firm." A book is a great way to do that, but I also have a blog, I've got a podcast, I've got a YouTube channel, you know, etcetera, etcetera. You have to establish your reputation. The best way, of course, is to do great work because word of mouth is mission critical, right?
[00:23:11] Michelle Calcote King: Yeah. That's the price of entry. Yeah, 100 percent.
Tell me what is the most important lesson, if you had to sum it all up, that you hope our listeners take away from this conversation?
[00:23:23] Greg Alexander: Don't go it alone. Being a founder of a proserv firm is hard. I have this thing, I talk about, "The founder's trail." When you step on the founder's trail — think of that as like a trail towards climbing up a mountain, if you will. You step on a founder's trail, you're leaving, God forbid, all the cowards behind because it takes a lot of courage just to step on the trail. And then as you go along the trail, kind of the weak die off because not everybody can go through the three phases. There's a ton of small business owners, but there's very few entrepreneurs. A small business owner is someone who's running a nice little practice paying the bills. An entrepreneur is someone who's building a firm that's someday gonna be worth a lot of money. So as the weak kind of die off along the way, you reach that top, that pinnacle, if you will. And along the way it's such a bumpy ride that a lot of self-doubt will creep in and you might give up too early if you don't surround yourself with a peer group. But being around a peer group, they'll be that support system that you need to keep pushing when the times it looks like, "Geez, this might be too hard." Just hang in there. So don't go at it alone would be my advice.
[00:24:32] Michelle Calcote King: I love it. It's so true. I've heard often people talk, and I experience this a lot, it's a very lonely experience, too, to found a company. You have no cohorts in the early days. And then those colleagues that you used to have, there's suddenly that gap. So that's what masterminds are great for. You suddenly have someone to at least ask questions to, but also just complain when you need it or have that group to talk to who are going through the same thing as you. It is invaluable.
Well, thank you so much.
We have been talking to Greg Alexander of Collective 54. Where is the best place for people to learn about you, and especially to buy your book?
[00:25:10] Greg Alexander: The book is on Amazon. Again, it's, "The Boutique How to Start, Scale, and Sell a Professional Services Firm" by Greg Alexander. The website is collective54.com, and on the website, I would encourage all of you to subscribe to our newsletter, which is called Collective 54 Insights. There you'll get a blog, a podcast, a video, a bunch of content beyond the book. And if you're interested in meeting peers and being in a mastermind community consider applying. You can fill out a Contact Us form on the website, and one of our representatives will be in contact with you.
[00:25:46] Michelle Calcote King: Thank you so much.
[00:25:47] Greg Alexander: It was my pleasure. Thanks for having me.
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[00:25:50] Thanks for listening to “Spill the Ink,” a podcast by Reputation Ink. We'll see you again next time, and be sure to click subscribe to get future episodes.