Eps 42 How to Scale Your Business to Exit Bigger and Faster with Greg Alexander

Erin Austin: Okay, here we go. 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 

Greg Alexander: you here. Well, it's a pleasure to be here, and thanks for having me.

Erin Austin: Yeah. Will you introduce yourself to the audience, please?

Greg Alexander: Sure. My name is Greg Alexander. Um, I am the founder of Collective 54. Collective 54 is a mastermind community dedicated to boutique professional services firms. And, uh, we got about, I think it's 300 members now. Um, And what we really help them with is how to grow scale and someday exit their services firm, which I know, you know, you are very passionate about.

Greg Alexander: Yes. And uh, you know, getting, 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. 

Erin Austin: Wonderful. So there is a story behind the name Collective 50. 

Greg Alexander: Yeah, so the story is, so the number five, four is, is the North American industry classification code.

Greg Alexander: For professional services. Mm-hmm. So within that, that is lawyers, accountants, consultants, marketing agencies, IT service providers, and pretty much anyone who is marketing, selling, and delivering their expertise. And, uh, it's the second biggest sector in the US economy, trailing only oil and gas. It's about, uh, 2 trillion per year spent in this sector with a 5% organic growth rate, employs 10 million people.

Greg Alexander: Um, so we're, we're very lucky to be in that, uh, 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 

Erin Austin: 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.

Erin Austin: So yeah, I, I find myself sometimes talking to the soloists and sometimes talking to the c e o and, you know, but. That's back and forth, but I'll, I'll, uh, a lot of the same issues among 

Greg Alexander: them. Yeah, yeah. It is, it, it's big. So therefore it's, it's hard to define, but, you know, and I have that problem sometimes as well.

Greg Alexander: 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, you're in the service business, you're in the people business. You know, you're, you're marketing your expertise. You know, the business model is the same.

Greg Alexander: Yes. The domain is different. Mm-hmm. But the business model is the. 

Erin Austin: Yeah. So you're collective if, uh, a mastermind, like how are you different from other masterminds? 

Greg Alexander: We're different really in three ways. So first is the obvious way. We're only focused on a single industry. Mm-hmm. Um, 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.

Greg Alexander: They have literally dozens of industries and, 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.

Greg Alexander: These, these are kind of post startup, but pre-ex exit, you know, the analogy I use is that they're in their kind of awkward teenage years. You know, they're not a kid anymore, but they're not an adult. Right? So we're really focused on that. And then the third thing is we're laser focused on the founder or co-founder.

Greg Alexander: Because a lot of what we do with our programming is around building wealth as opposed to generating an income. Mm-hmm. So I would say those are the three, um, primary differences. However, I do encourage everybody to be in as many communi communities as possible. The limitation there, of course, is how much time do you have to dedicate to these things?

Greg Alexander: But I'm a big believer that learning from. Is the best way to learn. Yeah. 

Erin Austin: Yeah. You mentioned the difference between building 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?

Greg Alexander: Sure. So I mean, in a, in the context of a services firm, you know, 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, and you earn that spread. And you know, that's the business model of services.

Greg Alexander: 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?

Greg Alexander: For example, if you are running your firm and you basically are the firm as the founder, there's, 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.

Greg Alexander: Mm-hmm. Then there's real, real wealth to be created there. In addition, you gotta generate revenue from sources other than the billable. You know, and, and you talk an awful lot about this, and I'm so pleased to meet you because we share that in common. You know, these are assets of various kinds. You know, 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.

Greg Alexander: 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. 

Erin Austin: Yeah, I have, you know, I'd like to say that I'm my own avatar that I have been, uh, a soloist for since 2006, I believe.

Erin Austin: 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've been, I've been sell, I was selling my time for a good, uh, 10 years, um, without really thinking about, uh, building a business. So I, I like to say I've been in business for three years, although I, you know, I've been on my own since 2006 cuz I really was just selling my time and earning an income, not creating.

Erin Austin: Any assets and so to, to the point of creating assets and intellectual property. Uh, 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. Like how do they make that shift to, okay, I'm going to start, um, thinking about, you know, creating either methodologies around that or creating materials that are protected materials around that.

Erin Austin: You know, 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. 

Greg Alexander: 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.

Greg Alexander: So I started a firm, a management consulting firm in 2006, and it was called Sales Benchmark Index or SBI for. And I sold that business in 2017, and it was one of the larger exits. We sold it for 162 million. Wow. 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?

Greg Alexander: 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, it wasn't a 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.

Greg Alexander: And even a, 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. You know, 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.

Greg Alexander: 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.

Greg Alexander: 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.

Greg Alexander: Everybody knows Goldman Sachs. Mm-hmm. They're one of the largest professional services firms in the. 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?

Greg Alexander: Like, I mean, 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, you know, they're not just buying the pair of hands, they're buying all the expertise that comes with that pair of hands.

Greg Alexander: So it's, these models are out there. Um, you know, Goldman Sachs is one of many, and, uh, that's what we all the smaller firms, all of us on this call, we should be shooting to replicate. Yeah. I like 

Erin Austin: 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 know, you and another, an expensive expert If you get more experts or you can have that expertise that can be, uh, utilized and delivered by less expensive resources.

Erin Austin: So, yeah. I love that. So I love this what you have on your website, you know, stop running Shin first into these, uh, 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, you know Yeah. Running into something with our shins.

Erin Austin: So are to, when people come to Collective 54, are they struggling with something or are they just looking for community or both? Or what, how, why do they. 

Greg Alexander: 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, and I would classify these kind of as, as three problems that they're focused on.

Greg Alexander: So the first group is that group that's not making enough money. Um, 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.

Greg Alexander: And then they, you know, 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, you know, how to go from just, you know, billing out their time or maybe billing out the time of a couple of other people and growing enough to, you know, have a substantial income coming in.

Greg Alexander: 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.

Greg Alexander: Mm-hmm. And their approach is largely brute force at that point. And they say, listen, you know, I've gotta, I gotta get some scalability into this business. I've gotta get some repeatability. Um, you know, 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.

Greg Alexander: And then the third group are folks that wanna sell their. 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.

Greg Alexander: 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, into the market and get a great exit. So those are the three, those are the three reasons why people come to. 

Erin Austin: Okay. Very nice. And so on the, those who are struggling to exit, do you kind of like a pre-ex exit planning type?

Erin Austin: Or how do you work with 

Greg Alexander: Yeah, yeah. So the, our, maybe I should have started with this. Our, our point of view is that the life cycle from launch to exit for a boutique pro serv firm is 15 years. Okay. 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?

Greg Alexander: Well, it doesn't, once your firm's ready to sell, that might take a year. But leading up to that, it's, it's quite a bit of work. For example, a lot of these small firms have a lot of client and revenue concentration. You know, maybe their top five clients are half their book of business, that that's an unsellable business, right?

Greg Alexander: So it's gonna take some time to diversify your revenue stream, or some of these business are founder. 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.

Greg Alexander: 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 getting 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.

Greg Alexander: And that's not our area of e. 

Erin Austin: 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 

Greg Alexander: clients? Well, it it usually, 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.

Greg Alexander: 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, their personal reach.

Greg Alexander: Mm-hmm. So this requires building a commercial sales and marketing. That can do this on a regular basis, like a real funnel. Mm-hmm. Other people in the firm, you know, can bring in work other than the founder and really expanding out. So it's, it's, I mean, it's a wonderful thing to have longstanding client relationships with, you know, high quality fees.

Greg Alexander: But you know, if, if three or four clients are the whole show, one of two bad things happens and you're in real trouble. So you gotta, you gotta develop that next set of clients. Mm-hmm. So that's how you diversify it. Gotcha. 

Erin Austin: And the other thing I think certainly that solos will, will come up against is when you're fully.

Erin Austin: Uh, 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, uh, to fill that slot again. And I think that is one of the main, uh, pain, well, a pain point for a lot of people.

Erin Austin: So that's a tough one. You 

Greg Alexander: know, something that you might enjoy and maybe your listeners, is that we have a tool on our website, which is collective 50 four.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.

Greg Alexander: Mm-hmm. 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 you as the founder, you delivering work.

Greg Alexander: The answer that question is yes, your evaluation goes down. Now why is that? Well, there, 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. Mm-hmm. You know, you've built a system underneath you that you can bring in more and more work and it can be serviced.

Greg Alexander: Mm-hmm. Because you have this proper capacity planning process, so you might play around with that tool a little bit. It's, it, it's a fun tool to use. It takes 10 minutes and it gets you thinking about those types of issues. 

Erin Austin: Yeah. I mean, I think what you've described is. Is commonly referred to as, you know, being the c e o by working on your business and what, instead of working in your business and, and getting there.

Erin Austin: That, that's great. Thank you for that. So what are you seeing in 2023 and beyond, like how as we come out of the pandemic and, you know, maybe people who were, um, just kind of making it as well as they can and now they're looking to grow, uh, what was happening out? Yeah. 

Greg Alexander: So, you know, I have this wonderful study group called Collective 54, and I can tell you our members are thriving.

Greg Alexander: They're, they're doing extremely well. Mm-hmm. You know, we, we do a, uh, quarterly benchmarking survey and we collect financial, operational and human capital metrics. And I can tell you that our members, members are growing on average, about 25%, um, year over year. And when you double click on that and you say what's driving it, Um, you know, when, when economic conditions sour, it's, it's really good for professional services firms, which is counterintuitive, but here's why.

Greg Alexander: Large corporations start laying people off. However, the work still needs to get done. Mm-hmm. Those peop, 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.

Greg Alexander: So a lot of our, our members are, 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. And, uh, the labor market's really tight right now, so, but that's a good problem to have.

Greg Alexander: I, I'd rather be supply constrained. Demand constraint. Right. 

Erin Austin: That's excellent. So unlike most of my clients, you are someone who's already been through an exit. So usually I ask you if they have a plan to exit their business someday. So, but you have a new business collective 54. What is your plan, long-term plan for Collective 

Greg Alexander: 54?

Greg Alexander: Yeah, so I'm very blessed that I sold my company and I was 47 years old. Um, and I sold it for more money than I could ever imagine. So my motive is no longer financial. Um, 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, it's, it's, I get more fulfillment out of making an impact on others than I do putting more zeros in the bank account.

Greg Alexander: 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, you know, we're only three years old. We were, we launched in January of 2020 and I, I get so. Fulfillment out of being in the community and working with entrepreneurs.

Greg Alexander: 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. Mm-hmm. But, you know, that would be a wonderful thing to accomplish because, you know, I get to meet all these fascinating, brave, courageous founders that are trying to change their lives and I, I, coaching them and helping them, even in a small way is very, 

Erin Austin: That's wonderful.

Erin Austin: I love to hear that. You know, part of the mission with Hourly to Exit is to help people, you know, 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. 

Greg Alexander: You know, 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.

Greg Alexander: Oh, that's wonderful. I know. And, uh, it wasn't intentional. Mm-hmm. It just happened. And there's certain, um, industry segments that are dominated by females. For example, marketing agencies. I mean, there's, there's some brilliant female leaders, entrepreneurs that are running these marketing agencies. I've learned a ton from them.

Greg Alexander: Um, HR consulting is also another great field where a lot of, uh, females are in. Um, I think it's great. I think, 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.

Greg Alexander: Mm-hmm. Um, and that's been great, you know, to have that level of diversity in the group. That's 

Erin Austin: wonderful. So I know people will want to keep in touch with you and follow up. So where can people find. 

Greg Alexander: You know, I would, I'd say a couple things. So first obviously is collective 50 four.com, and that's the number five four.

Greg Alexander: And, um, we offer a newsletter you might subscribe to that. It comes out once a week. It delivers, uh, three things in it. A, um, 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, I am a published author. I, um, I have a book out called The Boutique, how to Start Scale and Sell a Professional Services Firm by yours truly, Greg Alexander.

Greg Alexander: And you can find that on Amazon and that might be useful as well. 

Erin Austin: 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 Alexander: Greg. Okay, my pleasure. Thanks for having me.