Hello, ladies.
Welcome to the Hourly to
Exit podcast.
I am very excited about today's guest,
Greg Alexander, who I've been a big fan
of since I first heard him on the
Vito Sell Radio with John Warlow talking
about his exit.
So welcome Greg.
I'm very thrilled to have
you here.
Well, it's a pleasure to be
here and thanks for having me.
Yeah.
Will you introduce yourself to the
audience please?
Sure.
My name is Greg Alexander.
I am the founder of Collective 54.
Collective 54 is a mastermind
community dedicated to boutique
professional services firms.
And, we got about, I think it's
300 members now.
And what we really help them with is
how to grow scale and someday exit
their services firm, which I
know, you are very passionate about.
Yes.
And completing the entrepreneurial
journey in services is a very
nuanced thing.
So that's what we're focused about
and it's, it's wonderful to speak
to y'all today.
Wonderful.
So there is a story behind the name
Collective 50.
Yeah, so the story is, so
the number five, four is the North
American industry classification code
for professional services.
Mm-hmm.
So within that, that is lawyers,
accountants, consultants,
marketing agencies, IT service
providers, pretty much anyone who is
marketing, selling, and delivering
their expertise.
And, it's the second biggest
sector in the US economy, trailing
only oil and gas.
It's about, 2 trillion per year
spent in this sector with a 5% organic
growth rate, employs 10 million people.
so we're very lucky to be in
that sector.
And that's the reason for the
name, or I should say the 54.
The reason for the collective
is because that's what we are,
we're a community or collective
of business.
That
is fantastic.
I did not realize that that sector was
so large, and maybe it explains why I
sometimes struggle, frankly, to define
who I'm talking to because it is such a
large group and very diverse group within
that expertise based business group.
So yeah, I find myself sometimes
talking to the soloists and
sometimes talking to the c e o
and, That's back and forth, but a
lot of the same issues among
them.
yeah.
it's big.
So therefore it's, hard to define,
you know, and I have that problem
sometimes as well.
I mean, I might speak to somebody
who's running a marketing agency and
they'll say, what do I have in common
with a law firm?
And I'll say A lot more than, you know.
Mm-hmm.
Like, you're in the service business,
you're in the people business.
you're marketing your expertise.
the business model is the same.
Yes.
The domain is different.
Mm-hmm.
But the business model is the same.
Yeah.
So you're collective if, a mastermind,
like how are you different from
other masterminds?
We're different really in
three ways.
So first is the obvious way.
We're only focused on a
single industry.
Mm-hmm.
most mastermind communities, and I'm
a member of some, I'm a member of Y
P O Tiger 21, and they're wonderful
organizations, but they're not focused
on one industry.
They have literally dozens of industries
and our contention is, Industry
context matters.
So that's the first thing.
The second thing is we're focused on
the segment Within that industry.
We refer to it as the boutique, and we
define that based on number of employees.
So you have to have more than 10, but
fewer than 250.
these are kind of post startup,
but pre-ex exit, the analogy
I use is that they're in their
kind of awkward teenage years.
they're not a kid anymore, but they're
not an adult.
So we're really focused on that.
And then the third thing is we're
laser focused on the founder
or co-founder.
Because a lot of what we do with
our programming is around building
wealth as opposed to generating
an income.
So I would say those are the three,
primary differences.
However, I do encourage everybody
to be in as many communities
as possible.
The limitation there, of course,
is how much time do you have to dedicate
to these things?
But I'm a big believer that
learning from.
Is the best way to learn.
Yeah.
You mentioned the difference
between earning income and building
wealth, which is sometimes hard
for people to wrap their head around.
Can you explain to the audience, like
how you like to look at the difference
between the two?
Sure.
So I mean, in the context
of a services firm, how do you
earn an income?
Well, you run a profitable business,
which means you can charge enough
for your service.
And the cost to deliver the service
can be maintained or reduced over
time and you earn that spread.
And that's the business model
of services.
However, not all revenue is the same.
So the mental model shift is to
get off the income statement and start
thinking about the balance sheet.
And that's where wealth
is determined.
You know, assets minus liabilities.
And say to yourself, if somebody was
to try to buy my firm, how would
they place a value?
For example, if you are running
your firm and you basically are the
firm as the founder, there's no wealth
to be created there because God forbid
something happened to you, the business
would go away.
However, if you built a real robust
team, so much so that you as the
founder, no longer sell work and no
longer deliver work, the team does it.
Then there's real wealth to
be created there.
In addition, you got to generate revenue
from sources other than the billable.
hour and you talk an awful lot about
this, and I'm so pleased to meet you
because we share that in common.
these are assets of various kinds.
sometimes they're protected assets
and intellectual property, and
you can generate royalties or
licensing fees off of that, and that's
a wonderful thing.
Sometimes it's intellectual
capital that might not be protected.
However, you can monetize by charging
a premium for your service because of
some methodology or tool that comes
along with the pair of hands.
So those are the ways that wealth
is created within the professional
services segment.
Yeah, you know, I'd like to say that
I'm my own avatar that I have been,
a soloist since 2006, I believe.
And so someone asked me like, how
long you've been in business, and I have
to say, well, I've been on my own since
2006, but I've been selling my time.
I was selling my time for a good,
10 years, without really thinking
about, building a business.
So I like to say I've been in
business for three years, although
I've been on my own since 2006 cuz
I really was just selling my time and
earning an income, not creating.
Any assets and so to the point of
creating assets and intellectual
property.
so when people are.
Providing their services, they have
their expertise.
They are used to going out to
get clients and fulfilling whatever
the needs are for their clients.
how do they make that shift to, okay,
I'm going to start, thinking about,
creating either methodologies around
that or creating materials that are
protected materials around that.
cuz people get caught up with
things like software and courses and
books, you know, the big shiny.
Intellectual property pieces,
but there's so much more than that
that helps create a well-run business.
Yeah.
Well, you know, I'll share a little bit
about my story prior to Collective 54,
because it might be a good illustration
of that point that you just made.
So I started a firm, a management
consulting firm in 2006, and it
was called Sales Benchmark Index
or SBI for short.
And I sold that business in 2017,
and it was one of the larger exits.
We sold it for 162 million.
And the important thing to keep
in mind there is we only had
30 employees.
So how do you sell a consulting firm
with 30 people for 162 million?
It's because we had these assets.
Mm-hmm.
And the primary asset was what we
called the revenue growth methodology.
And it wasn't a software tool.
it wasn't a training course.
It was a consulting methodology.
And it was used by our clients,
which were largely software companies
that had very large sales.
And even a modest improvement in the
productivity or effectiveness of
10,000 salespeople could have a really
large impact on their share price
and their own profitability.
And it was the methodology that
they wanted.
Now.
Yes.
with the methodology came people and we
helped them get it implemented in their
shop, but it was a methodology and
what that allowed us to do is to do
standardized work.
So instead of going from shop
to shop and every project is a custom
project, that's a non-scalable
business.
Mm-hmm.
And when we went from shop to
shop and we were starting with
this methodology and then it was
just a question of customizing it,
maybe 20, 25% for that particular
client situation that allowed for
scalable work and how that shows up
in the financials and therefore it
creates wealth, is that when you have
standardized work, you can hire really
bright people maybe with not a ton of
experience, but a lot of potential
and teach them how to deliver
for the client.
So in that case, you're selling to
the client something that's very, very
valuable, but you can deliver that
service with maybe less experienced
people and therefore a less cost.
The best example that I've seen of
this, and maybe this could be inspiration
for your audience, is Goldman Sachs.
Everybody knows Goldman Sachs.
Mm-hmm.
They're one of the largest professional
services firms in the world.
And they have 40,000 employees, but
only 400 partners.
So there's 400 people keeping
40,000 people busy.
Now how can you do that?
And 73% of their employee base are
in their twenties.
Wow.
And people hear that and they say,
are you kidding me?
Like, Goldman Sachs is in every
boardroom, in every company
in the world.
And you would think, cuz.
So sometimes I hear from people,
well, I can't hire junior inexpensive.
Because the clients won't tolerate that.
Well, that's not true.
If you have intellectual
property or your intellectual
capital, they're not just buying
the pair of hands, they're buying all
the expertise that comes with that
pair of hands.
So it's, these models are
out there.
Goldman Sachs is one of many, and,
that's what we all the smaller
firms, all of us on this call, we
should be shooting to replicate.
Yeah.
I like to say like instead of
being an expert based business,
be an expertise based business.
Yeah, you're an extra based business
then it's just, you and another, an
expensive expert If you get more experts
or you can have that expertise that can
be, utilized and delivered by less
expensive resources.
So, yeah.
I love that.
So I love this what you have on
your website, stop running Shin first
into these, three common problems.
Earning too little, working too
much, struggling.
The exit.
I love the imagery of running
Shin first.
Cause we've all had the pain of, Running
into something with our shins.
when people come to Collective 54,
are they struggling with something
or are they just looking for
community or both?
why do they.
It's a great question, and I
would say that there's three types
of people that come to Collective
54 to answer this succinctly.
So, and I would classify these
kind of as three problems that
they're focused on.
So the first group is that group
that's not making enough money.
these tend to be smaller firms, maybe
younger firms, and.
What happens to them is they get to
the point when they launch their firms.
What they say to themselves is, my
ambition is this.
I want to be able to make a living
and work for myself and not have to work
for a corporation.
And then they have the courage and they
start their firms.
They have a lot of respect for
'em, and they get to that point.
But then maybe two or three, four years
into the journey, they say, okay,
well my ambition has expanded.
That's no longer enough and I want to
earn an exceptional.
And then they struggle with, how
to go from just, billing out their
time or maybe billing out the
time of a couple of other people and
growing enough to, have a substantial
income coming in.
So that's one group that comes
in and we have a whole programming
set associated with that, cuz
our membership is tiered across
these three tiers.
The second use case, Somebody
enters collective and they're
past that point.
They're making a great living, but
they're working 70 hours a week and
they're killing themselves.
And their approach is largely brute
force at that point.
And they say, listen, I gotta get
some scalability into this business.
I've gotta get some repeatability.
how do I do this?
So we call that the working less group
or the scale group to be funny with it.
And we got a whole set of
programming on that.
And And then the third group are
folks that wanna sell their business.
And usually they've tried to sell
it and they were unable to because
maybe they have an unsellable business
or they were able to sell it, but the
purchase price of the terms weren't
attractive to them.
And they know what their issues
are and they have to fix them.
And they come to us and we try to help
them kind of knock those warts off, so
to speak, so they can go back out
into the market and get a great exit.
those are the three reasons why
people come to.
Okay.
Very nice.
And so those who are struggling to
exit, do you kind of like a pre-ex
exit planning type?
Or how do you work with
Yeah, yeah.
So maybe I should have started
with this.
our point of view is that the life
cycle from launch to exit for a
boutique pro serv firm is 15 years.
This three stages grow, scale,
exit, and there's about five years
in each stage.
So why does it take five years
to exit your firm?
Well, it doesn't, once your firm's
ready to sell, that might take a year.
But leading up to that, it's quite
a bit of work.
For example, a lot of these small
firms have a lot of client and revenue
concentration.
maybe their top five clients are
half their book of business, that's
an unsellable business, right?
So it's gonna take some time
to diversify your revenue stream,
or some of these business are
founder-dependent.
And yes, they can sell their firm, but
the person that's buying 'em says, you
gotta stick around after the sale.
Well then what's the point?
So then we help them develop a
succession plan and replace themselves
over time.
Well, you don't just flick the
switch on that.
Right.
Replacing a founder is a really hard
thing to do because these founders are
brilliant people.
So ready for the exit is a big piece
of what we focus on.
The actual exit itself, there's
investment bankers and m and
a advisors, and they're really
good at that.
And that's not our area of e.
Got it.
All right, so going back to the
diversifying their revenue stream by
that, if they have too much client
concentration, by that, do you
mean getting more clients with the
same business model or diversifying the
way that they serve
clients?
Well, the inflection point is usually
this, you get to a point where word of
mouth and referrals is no longer
sufficient, and you have to get good.
Selling to people who don't know you.
Mm-hmm.
Which usually means expanding outside
of your own little circle of influence.
And because up to this point
the founder hasn't done that.
There's a lot of concentration
because it's concentrated in
that founder's kind of personal
network or their, personal reach.
So this requires building a
commercial sales and marketing engine.
That can do this on a regular basis,
like a real funnel.
Mm-hmm.
Other people in the firm, can bring in
work other than the founder and really
expanding out.
So it's a wonderful thing to have
longstanding client relationships with,
high quality fees.
But if three or four clients are
the whole show, one of two bad things
happens and you're in real trouble.
So you gotta, develop that next
set of clients.
Mm-hmm.
So that's how you diversify it.
Gotcha.
And the other thing I think certainly
that solos will come up against is
when you're fully.
occupy, like you can't do another
hour of work.
Like why would you do any business
development?
Like how do you even do that?
And then you lose that client, then
you're starting from scratch, to fill
that slot again.
And I think that is one of the main,
pain point for a lot of people.
So that's a tough one.
something that you might enjoy
and maybe your listeners, is that
we have a tool on our website, which
is collective54.com, and it's called
the Firm Estimator.
And it's a 10 question estimator
and you can ask the questions
and it tells you an estimate of
what your firm might be worth.
What made me think about that tool is
something that you just brought up
because two of the 10 questions have to
do with that issue.
One question is, do you as the
founder of sell work, To answer that
question is yes.
Then your evaluation goes down.
The second question is you as the
founder, you delivering work.
The answer that question is yes,
your evaluation goes down.
Now why is that?
Well, you should have grown your firm
to the point where you personally are
not constrained.
By what you just mentioned, I
just literally can't take on any
more capacity.
You know, you've built a system
underneath you that you can
bring in more and more work and it
can be serviced.
Mm-hmm.
Because you have this proper capacity
planning process, so you might play
around with that tool a little bit.
it's a fun tool to use.
It takes 10 minutes and gets you
thinking about those types of issues.
Yeah.
I think what you've described is.
Is commonly referred to as, being the c e
o by working on your business and what,
instead of working in your business
and getting there.
that's great.
Thank you for that.
So what are you seeing in 2023
and beyond, like as we come out of
the pandemic and, maybe people who
were, just kind of making it as well
as they can and now they're looking
to grow, what was happening out?
Yeah.
So, I have this wonderful study
group called Collective 54,
and I can tell you our members
are thriving.
they're doing extremely well.
we do a, quarterly benchmarking
survey and we collect financial,
operational and human
capital metrics.
And I can tell you that our members
are growing on average, about 25%,
year over year.
And when you double click on
that and you say what's driving
it, when economic conditions sour,
it's really good for professional
services firms, which is
counterintuitive, but here's why.
Large corporations start laying
people off.
However, the work still needs
to get done.
10,000 people leave a company, all
that work's gotta land somewhere.
So what they say to themselves is, okay,
I'm gonna rent it instead of owning
it, and they turn to professional
services.
To kind of have that variable
workforce, and we're seeing that happen
a lot right now.
So a lot of our members are catching
that work and they're thriving.
They do have a different problem.
The problem is finding enough
talented employees to be able to
do the work on a consistent basis.
Unemployment's still in the threes.
Mm-hmm.
the labor market's really tight
right now, but that's a good
problem to have.
I'd rather be supply constrained.
Demand constraint.
Right.
That's excellent.
So unlike most of my clients,
you are someone who's already been
through an exit.
So usually I ask if they have a
plan to exit their business someday.
but you have a new business
collective 54.
What is your long-term plan
for Collective 54?
Yeah, so I'm very blessed that I sold
my company and I was 47 years old.
and I sold it for more money than I
could ever imagine.
So my motive is no longer financial.
I read a very impactful book that
was given to me by a mentor called
Halftime, how to Move From Success
to Significance.
And what I learned by reading that book
is that the second half of my life,
I'm now 52 years old, I get more
fulfillment out of making an impact
on others than I do putting more zeros
in the bank account.
So I don't plan on selling
collective 54.
Mm-hmm.
Now, I may live to regret that
statement down the road cuz some
of my employees might want to sell
down the road.
But right now, we're only
three years old.
we launched in January of 2020
I, I get so.
Fulfillment out of being in the
community and working with
entrepreneurs.
So my plan is we, we want to try to
get to 5,000 members and we're at 300
right now, so we got a long way to go.
But, that would be a wonderful
thing to accomplish because, I get
to meet all these fascinating, brave,
courageous founders that are trying to
change their lives and I, coaching
them and helping them, even in a
small way is very,
That's wonderful.
I love to hear that.
part of the mission with Hourly to Exit
is to help people, create that wealth
so that they have a legacy so that
they can do have another half another
chapter that is more impactful and
more meaningful.
one thing I would say to you, Aaron,
is I know you're passionate about
helping women and something
that happened by accident, but
I'm very proud of is that 41%
of our membership is female.
Oh, that's wonderful.
I know.
And, it wasn't intentional.
Mm-hmm.
It just happened.
And there's certain, industry segments
that are dominated by females.
For example, marketing agencies.
there's some brilliant
female leaders, entrepreneurs that
are running these marketing agencies.
I've learned a ton from them.
HR consulting is also another great
field where a lot of, females are in.
I think it's great.
I think, this field of professional
services might not have some of
the barriers that other fields do it.
It still has some for sure, and I'm
aware of that, but it's a little
bit less of an old boys network.
Mm-hmm.
and that's been great, to have that
level of diversity in the group.
That's wonderful.
So I know people will want to keep
in touch with you and follow up.
So where can people find.
I'd say a couple things.
So first obviously is collective
50 four.com, and that's the
number five four.
And, we offer a newsletter you might
subscribe to that.
It comes out once a week.
It delivers, three things in it.
a blog on Mondays, a video on Wednesdays,
and a chart of the week, which
is benchmarking data on Friday.
So you might check that.
And then I am a published author.
I, I have a book out called The
Boutique, how to Start Scale and
Sell a Professional Services Firm
by yours truly, Greg Alexander.
And you can find that on Amazon
and that might be useful as well.
Fantastic.
Thank you so much for joining
us today.
And all that information will
be in the show notes so everyone
can find you.
Thank you so much,
Greg.
Okay, my pleasure.
Thanks for having me.