Ep 492 Mastering the Deal: How Greg Alexander Got $162M for a 30-Person Firm—and What He’s Learned from Watching 50 Other Exits Up Close
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Hi there, and welcome back to another edition of Built to Sell Radio, the podcast designed to help you punch above your weight in a negotiation to sell your company. I'm the executive producer, Colin Morgan, and this week we welcome back Greg Alexander, one of our most popular guests of all time. Now, Greg built SBI, a consulting firm with just 30 employees, and sold it for a staggering $162 million. SBI is a company that has been

Since then, through his peer group, Collective 54, Greg has had a front row seat to 50 other service firm exits. And in this Mastering the Deal episode, Greg breaks down what separates firms that get a premium multiple from those that never close. If you're running a service business and thinking about an exit, this one is for you. Quick note before we dive in, Greg talks about how he productize his service and

at SBI. So we linked our free ebook on productizing a service in the show notes section, which you'll be able to find over at builttosell.com. Without further ado, here is Greg Alexander. Enjoy.

Hi everyone, Colin again. Just a heads up before we dive into today's episode. John's mic wasn't properly connected during the recording, so the audio you're going to hear is from his computer. It's still totally listenable, but not quite the studio quality that you're used to. Thanks for bearing with us on this one. We promise the content is worth it. Enjoy. Greg Alexander, welcome back to Built to Sell Radio. It's good to be here, John.

You, my friend, are one of my favorite episodes of all time. It was recorded back in 2021. We'll link up to the exit that you had from SBI, the spectacular exit you had from SBI in the show notes at BuiltToSell.com. But for folks who didn't hear that episode, I want to start there.

We're going to have a wide-ranging conversation of what you've seen among your members and some of the mistakes they've made, successes they've had. But before we go there, let's tee up your own exit. So you started SBI and built it up to 30 employees. And take the story from there. Yeah, so I founded SBI in 2006.

SBI was a management consulting firm. We specialized in business to business sales effectiveness. And I sold that firm in 2017. Thanks largely due to you, truthfully. In 2011, Built to Sell was published and it was gifted to me by a friend.

And that friend said, listen, you're building an income business, but it will never be more than a lifestyle business. And you're not creating wealth for yourself. Read this book. So I started in 06. Your book came out in 2011. And I fundamentally changed literally what my strategy was going to be. And I started thinking about things that would turn my lifestyle business into a sellable asset, which happened in 2017. Okay. I want to get to that. But I want to know what you did from what you originally did.

were doing to what you did in a kind of a built-to-sell formula. So what was the change? Well, the first thing was, is we learned what EBITDA meant. And we started doing things like understanding EBITDA contribution by project, by client, by employee. And I started learning what it meant to be an owner. I think I, like many first-time founders, really don't know that.

I was an above-average salesperson, and I was out there pitching work, and I wasn't really thinking about scalability and some of those things. We introduced recurring revenue, which had a huge impact. How? Most consulting firms look at me sideways when I say recurring revenue. How did you guys do it? Well, the work that we would deliver over time would age, and it needed to be updated. So, for example, let's say we did a large market segmentation piece of work for a client.

ahead of launching a new product. Well, a year later, that new product is in the market, the segments changed, and we would have to go back and update it. So we got good at packaging things like that into recurring revenue where people could buy a subscription, as an example. We built a database of sales metrics. And instead of selling that by the billable hour buried into an SOW,

We allowed people to license it in a master services agreement. And when we got time to be in due diligence, you know, when they were looking at each dollar and trying to place an EBITDA multiple on it, you know, that licensing revenue had a higher multiple than consulting revenue did.

So those are some of the things I could go on and on for that. But just as you can see, it's just a little subtle things that just when you think like an owner, as opposed to an operator, the whole world changes.

Love it. So just to reiterate, you started to focus on profitability by project and really emphasizing and focus on profitability. Recurring revenue gave you a tail to what you were doing. And then these master services agreements, basically you had this benchmarking data, like how many times a sales rep should meet with their customer? What words they use? What were some of the types of things, the benchmarks that you offer? Well, the big ones were how long was the sales cycle? Yeah.

You know, so if I was, you know, a software company, you know, my sales cycle is nine months. Is that good or bad? You know, and this information wasn't readily available. Keep in mind, this is way back. You know, things like CRM tools and stuff were first being rolled out. Cloud computing was hitting, you know, people were running around with smartphones for the first time. So our clients were just inundated with all kinds of information, but they didn't know what to do with it.

So that's an example of that. Very often, there was a big annual planning process, and the head of sales would be in an argument with the CFO and say, hey, I need 500 salespeople. And the CFO would say, no, you don't. You need 200. Well, who was right? Well, we could do a whole data analysis to figure that out and then benchmark that against best in class, industry averages, et cetera. And that's the type of thing we did. And when we were doing that, we realized, we said to ourselves,

You know, what is the value for the client? You know, it's the output, not necessarily the input. You know, the number of hours was irrelevant. It was what is the value of answering that question? 500 salespeople, 200 salespeople. It was extraordinary. And so we were able to charge a lot. You know, when we sold, we had 30 people doing $16 million in EBITDA.

30 million in revenue. And the reason for that was because of how we could price. It was an early implementation of value-based pricing, if you know what I mean by that. I do, but I want to go further. So I'm just writing the metrics down. 30 people, 30 million in revenue, and $16 million in EBITDA. Yeah.

Wow. Like McKinsey would die for those metrics. That's unbelievable. Okay. So 30 people, 30 million in revenue. So a million dollars of revenue per person. Yeah. And a consultancy. Literally, I think McKinsey might be the only company that rivals that. Like I can't think of anyone else. Back then, that was true. Today, that's not true. Things have changed dramatically. Really? Tell me more. Well, everybody's tech enabled now.

So what you used to have to pay an expensive person to do, you now send that work to the machine and the machine is dirt cheap. I mean, the most advanced model from OpenAI is 200 bucks a month. So the revenue per head, the profit per head, the profitability per

of services firms, consulting firms, just being one example that has gone through the roof. This is the reason why you see mega deals happening. I mean, you know, Grant Thornton getting bought by private equity, Baker Tilly getting bought. I mean, there's huge deals happening in service right now because of this. Interesting. And so you're seeing AI have a positive impact because my assumption is

on the margins of observing kind of the AI revolution is that it would over time really undermine the value of some of these service businesses because of all the work that can now be done effectively by the client without using the service provider. But you're seeing something different. I'm seeing it both ways. So we've seen 50 exits in the five years since we've had collective 54.

And because we have a ringside seat there, I mean, we're not the investment bank or anything like that. We're just, we're witness to all this. We've seen two things happen, all in diligence. So first off, diligence has taken way longer now. I mean, buyers are very cautious. They're still very active, but they're very cautious. And you now need an answer for AI. And that wasn't always the case. And this is fairly recent. I'd say in the last, I don't know, 18 months or so.

And you have to say, here's how it's going to help my business. And it can't be a promise. It has to be proof. You have to show the buyer exactly how you're building agents. You are using digital workers instead of human labor and pull that all the way through the P&L to show the impact on profit margins. And not a lot of firms can do that right now. So that's an opportunity.

And then you also have to answer the defensive question, which is, well, if the machine can do all this, what do we need you for? And the truth of the matter is, John, some firms are going to go out of business because the machine is going to be able to do what they're doing. But some services...

The need for their service goes up, not down as a result of AI. Let me give you an example of that. Yeah, I was going to ask. So we have a member who just transacted. His name was Satyam Kantamini. And there was a press release on this. So this is in the public domain. He owned a firm called UX Reactor, and he sold to a software engineering firm called Ascendian.

And Ascendian writes code and builds software, and they're fantastic at it. But the user experience is where they lacked. Well, now think about writing software in an AI world. I mean, the user experience is changing for everybody. So the strategic value of being a user experience designer now went up dramatically because...

you know, you've got to figure out a way if the user is now engaging through a prompt that changes everything, right? So that's an example. It was a big, big positive. And this strategic buyer in that case wanted that capability. And very often when small services firms get bought by bigger services firms, it's because of the capability, not necessarily because of the financial profile, although that tends to be a knockout factor. But once you clear some basic hurdles,

you know, the strategic buyer is saying, okay, I need this capability. I can build it myself. And here's how long that might take and how much that might cost, or I can buy it. And if I can get there quicker by buying it, then that's what they're doing. And that's why the activity has been so high. Okay. I want to go back to Collective 54 and introduce that property. Before we do though, let's just put a bow on your store. Okay. So 30 people, 30 million in revenue,

$16 million in EBITDA, which is just a head scratcher. And you sold for? 162. $162 million for a 30-employee company. Not bad, my friend. You know, to give my team a lot of credit here, after I sold, which was in 2017, three years later, they sold it again.

And that time it sold for $1.85 and it was largely the same firm. I don't have the specifics of that because I wasn't involved. And my hunch is, and now I'm an outsider now looking in, is they're probably going to sell here soon because people have certain hold periods and they'll probably sell for even more than that. Amazing. Amazing. So this is a pretty huge, I mean, it's a spectacular win on every dimension. Instead of riding off into the sunset though, you...

chose to start another business, Collective 54. Can you just describe what Collective 54 is, what you do? And I guess the question is, with $162 million in your chest, why? Yeah. And my wife asks me that question all the time. That's a good question. Yeah. So I truly thought I was going to retire. I was admittedly exhausted when I sold it.

I was 47 years old. My wife and I decided to travel around the world and we did that for a couple of years. And that's probably a walking cliche in terms of what people do after an exit. I started getting bored. And the reason why I started getting bored is that the people that I could spend my days with were 20, 30 years older than me.

You know, you join country clubs, you play golf. I mean, there's only so many rounds of golf to play. There's only so many steaks you can eat. I started to get a little bored. I didn't want to go back into being an operator again. And another impactful moment was a friend of mine by the name of Micah Villas gave me a book called Halftime.

Yeah. And the subtitle was Moving from Success to Significance. And it was about making an impact. And it really, really resonated with me. And I went through all the exercises and all this. And I started challenging myself. Okay, so if it's about impact now, what do I have to offer? And there's about a million five, 1.5 million firms in the United States like the one that I had. I mean, there's services firms galore.

And a lot of them were running lifestyle businesses and wanted more than that, but they didn't know how to get there. So I figured that I could help those people do what I did. But I loved the peer-to-peer community aspect because I was a longtime YPO member. And Collective 54 is just like YPO. It's just focused on a single industry and obviously much smaller. And I said, geez, I wonder if I could build a community and peers can start learning from each other, you know, as opposed to, you know,

go into an executive education course or something like that. And so I did it and I wrote a book and that did well and the community filled up pretty good. And now it's great. I mean, we're, you know, I mean, I love hanging around entrepreneurs. I'm a proud member of that club and I get to hang around with them all day and see how everybody's doing everything. And then some of the things I'm going to share with you today and that I've already shared is because I've been in a relationship with these folks that are on their own journey.

And it's like amplified everything times 100. You know, it's been amazing. And you mentioned YPO. So a lot of people are familiar with peer-to-peer organizations. EO is another famous one. And of course, Vistage and Tab and Tech. There's lots of them. Yours, though, focuses on an exclusive industry. What industry are you focused on?

Yeah. So I'm going to add to that a bit. We're focused on four things and we're hyper-niched. So the first thing is the industry, which is what you asked about, that's professional services. And the reason why the number 54 is in the name, Collective 54, is because the NAICS code for professional services is 54. And this is people that sell expertise for a living on some version of the billable hour. So think about consulting firms,

marketing agencies, coaching companies, training companies, accountants, attorneys, that business model. Because that business is so different. A lot of the advice you would get around scaling and exiting a firm just doesn't apply to them because they don't have a product. It's different scale economics, as you well know. So that's the first thing. The second thing is we're focused on a segment within that industry. We call it the boutique

And it's defined on a revenue range of between $3 and $50 million.

The reason why we chose that is that below $3 million, you're still largely a startup kind of one-man shop. And you're not even thinking about scaling or exiting. You're thinking about survival. And we're not a good fit for those folks. But after $50 million, I mean, you're a pretty big firm and you probably have a lot of people who want to buy you. So we're probably not a good fit for that group. It's that awkward middle group that we're focused on.

Next, we'll focus on the owners. And most of these firms are co-owned. They're set up as partnerships. And the reason for that is because we're trying to help them understand how to create equity value out of a lifestyle business and think like owners and shareholders as opposed to operators. And then the last one is we'll focus exclusively on geography in North America. What we have found is that across the globe,

services firms run very, very differently. There's not a lot to learn. If you're in, I don't know, Chicago, you really can't learn much from somebody who's in Malaysia.

I mean, it's just such a different labor market. So that's why we're focused on those four things. I love the focus on service firms because so many of them fail to create value because as soon as a young associate gets enough experience and expertise and frankly, relationship capital with the client,

They threaten to leave and in some cases do leave unless they're made a partner. And the existing incumbent group effectively just dilutes themselves. So they're not building wealth. They're just starting to split the pie in more and more pieces. How do you get them to overcome that challenge? We don't. We tell them to embrace it. So in services is a thing called the upper out model.

And you create the pyramid with an expectations framework. So just, I mean, to keep this simple, imagine, you know, kind of junior, mid-level senior people. So the junior people come in the organization. So rule of thumb is never make a lateral hire because it screws up the talent supply chain, the up or out model. You hire a junior person. There's a role, set of responsibilities, deliverables, accountabilities.

compensation level, and most importantly, there's an expiration date. And you're in that for a period of time. Then the best of the best, they move up to the next level. And when they do, goodness happens. They make more money, they get more responsibility, better clients, etc. Those that don't make it get pushed out by design because they can't squat on the job. If they squat on the job, they're clogging the supply chain. So then you bring in the next class underneath them.

And then the people that make it to middle, X number of those make it to the top of that pyramid. And that's when they start becoming equity holders and they get profit sharing and distributions, et cetera. And it gets very narrow as you go up. We have to think about it that way. And in a product company, you don't have to think about it that way because there's things like stock options and maybe you go public and there's all kinds of other employee retention tools that don't exist in a services firm for the reasons that you just said.

That model, that up or out model was popularized by the great David Meister, who wrote Managing the Professional Services Firm way back in the 90s. And we've all been standing on his shoulders ever since. And these founders that start these firms, if they don't have exposure to that, you know, they're looking at a corporate org chart and they're saying, I'll just do that. And everybody's called the VP. Well, it's...

It doesn't scale. You have to, it's a whole different, like you got to get good at college recruiting as an example, right? So it's a different model altogether. Interesting. And so you're a proponent of them adopting this up and up. Oh yeah. Okay. I want to turn our attention to what you've seen at Collective 54 because many of your members are

have gone through an exit, others are considering an exit and still others have had failed attempts at exit. And so walk me through some of the themes you're seeing among your members as it relates specifically to exit. Yeah. So this is hot off the press and I was excited to talk to you about this because we just celebrated the closing of our 50th exit. Wow. I know. Amazing. Over five years. So there's about 10 a year or so. There's a lot more to try to sell. Unfortunately, they don't all happen.

And I'll share mistakes as well as success stories. But, you know, as of we're recording this in April of 2025, and we did kind of a reverse analysis. And here's what we learned. So right now, buyers do not buy promises. They're buying proof. So it is all about, you know, if you're trying to sell some grand vision in the future, forget it. The level of skepticism right now is really high. The next one is.

So just before you go on, so proof not promises. So proof is here's last three years financial statements. Here's the growth rate. Here's the EBITDA. Like we're not betting on the come or tell me what happened last year. 100% and even qualitative items. Like if you say you have great clients set, give me the 10 references to call them.

You know, if you have great employee relationships, well, I'm going to go on LinkedIn. I'm going to find the last 15 people that quit on you and I'm going to call them like it's there's no place to hide now. So and I think that's great because I think it kind of gets rid of the fakers, so to speak. And and it allows the quality firms to really stand out because they're really quality. And I will tell you, that's another finding. The quality firms right now are trading at a huge premium.

We had a firm sell about seven months ago for 22 times EBITDA. What? 22 times EBITDA? And what made them get, how did they get 22 times EBITDA? They are the dominant implementation partner for Snowflake. And Snowflake is going crazy. And the need for their services is through the roof. There is a ton of private equity with access to a ton of private debt.

looking to consolidate the ecosystem and some of these big implementations of software tools, not just with

with Snowflake, but ServiceNow and others that, you know, and they were the king of the hill. And they became a platform, you know, so if you're a super high quality, you can become a platform. And then in something like that, an ecosystem is so fragmented. If you buy the best and you become the platform, the ability to go do a bunch of tuck-ins and really create something, you know, exists.

So I guess that's another finding I would tell you is that there's no middle ground anymore. There is the high quality firms that trade for crazy numbers. There's the generic firms that if they trade, it's a fire sale. There's really nothing in the middle. But firms in the middle kind of don't sell because they they what somebody might offer them. They're not interested in taking, but they're not the highest quality. So they're not going to get the huge premium. So it's kind of purgatory.

So that's another really big finding. Something I learned from you that has the benefit of standing the test of time. If your business, if you go away for a month and your business falls apart, you don't have a business, you have a job. Right. And in services firms, this is so true. There's a lot of firms out there that it's like a hero running around with a bunch of helpers. It's really not a firm.

And there's been enough deals now in the pro-serve sector that the market is smart and the buyers know what questions to ask. And they're really looking for too much dependency on the founder. What questions would they ask in order to ascertain that? They want to see how much work the founder is bringing in. So is he or she the chief rate maker? They want to see how much work the founder is delivering.

So, for example, like if the founder is billing his or her own time, it's game over. Like that's an indication that you're still mission critical to delivering projects. If there is no clear number two or even now, I would go so far to say if there's not a clear executive leadership team and you can't just say, here's my team. I mean, they're hiring like talent assessment firms.

And they're coming in like G.H. Smart is a big example of that. And they're coming in and they're putting them through like 15 hours, you know, psychographic assessment tests. And of course, he's the top. Yeah, exactly. Yeah. Yeah. And they're saying like, you know, hey, can I you know, if one of these people got the bid gets hit by a truck, like what happens to the firm? Like you have to have a rock solid team.

And then as I'm looking at some notes here, the last one I would tell you is that systems are really important. I talked about tech enablement. People are in their diligence. They're looking at the tech stack.

And they're seeing, you know, what are you using? What are you spending? What could you be using? How much of the work truly is tech enabled, you know, versus labor driven? If you do have some intellectual capital, could that be turned into a productized service and sold on a recurring revenue model? Like they're really looking through the value creation plan, the VCP, through that lens. Now, in some of those cases, I would tell you bad is good because, again,

The new owner is saying, OK, well, here's how I'm going to create value. You know, this business has been successful up to this point. If we owned it, made these investments, did these things, this is what could happen. And and that I would tell you, you know, of the exits that we've seen, that's where it's worked really well. I'll give you another example. So we had a firm called Connected.

Founder there, his name was Mike Stern. And he sold to the big consulting firm ThoughtWorks. They were a Nasdaq traded firm. And these guys were in the product development space. And ThoughtWorks wanted to expand in Canada. And Mike had built quite the operation in Toronto. And they came in and they bought them. And that's another reason why small services firms get bought for geographic expansion.

The first example I gave you was a capability expansion. The stealthy one. Yeah. And this one is a geographic expansion. So what I would share with your listeners back to the trend conversation is you got to say to yourself, hey, you know, how... So I'm a piece of a puzzle. Where does it fit? And thinking like that, you know, that's an example of thinking like an owner, not an operator. Then you can build around something like that. And that's not a...

an operator's mindset when it comes to differentiation. That's an owner's mindset when it comes to differentiation. So those are some of the big things I'm seeing out there right now. I love that notion of a piece of someone else's puzzle. It's such an interesting way to think about the strategic kind of value you bring to a potential acquirer for them to envision them putting together a puzzle and that you provide the perfect piece to...

expand into a new geography or take on a new, you know, service line, et cetera. When you, you mentioned there's this sort of polarization, right? So that the good, really high quality firms are getting very high multiples and, and the kind of,

mediocre businesses are trading at deep discounts and there's not a lot in the middle. When you say high quality, obviously 22 times is sort of an outlier, a spectacular outlier. What would you, what kind of multiple of EBITDA are you seeing for high quality firms right now among the 50 you've seen? Yeah, we just went through this exercise and I tell you the smack middle of the bell curve is 15X.

15X. - For high-quality firms. So let me dimensionalize what that means. These are firms that are growing north of 25% top line. They'll have a gross margin profile, say, 70% to 80%. They'll have an EBITDA profile, let's say, 40% to 50%. They have a fantastic leadership team, usually a leadership team that wants to stay on after the sale.

and go build a meaningful business with a partner. They've got at least a quarter, preferably half of their revenue from recurring revenue and trending up. The dependency on the founder has been eliminated, not just reduced, but eliminated, systematized in the organization. The brilliance of the people

has been converted to intellectual capital and turned into products, not products in the sense of like you're going to be the next Oracle, but products in the sense of things that clients are willing to pay for beyond the billable hour, either as part of the project or cross-sell, up-sell after the project. Hyper, hyper-niched. This one really, I would tell you, kind of jumped off the page.

And again, this is something that you preach all the time. I listen to your show every week and I hear this over and over and over again. And it's so true. Just when you think you're niched enough, niche it again. I mean, the more niche you can get, the better, because then you get scarcity value. You know, the people that are looking for this one thing, if they can't find it and you're the only person that does it, whatever it is, scarcity value drives up the price because all these strategics or...

PE-backed strategics, back to the puzzle analogy. They're asking themselves the question, okay, I need this thing. I can build it or I can buy it. And what's the math on it? And with so much money available, it's just easier to write the check.

But it's very counterintuitive for a lot of founders who have kind of grown up on this idea of diversification, you know, cross selling. So we're the snowflake implementer. We're going to learn to implement four or five other computing services. So,

And yet for many, it dilutes their value as opposed to increasing. It does. Right. So diversification comes in many forms. So let's just take that example. Snowflake. Obviously, there's risk associated with being married to that one platform. Now, so that means you've got to pick in that case, if you want to be an implementation shop, you've got to pick the right platform.

Now, I would argue that given Snowflake's position, et cetera, et cetera, that risk has largely been eliminated. But within that, there's multiple industries, there's multiple geographies, there's multiple segments. You can heavily diversify within that. What you don't work, and we haven't got the mistakes yet, but let me foreshadow a little bit and give the big one.

Please. The thing that kills deals, there's two things that kill deals almost instantly. Number one, super high revenue and client concentration. There's a lot of small services firms where one or two clients are like half the business. And, you know, they come up with all the stories. Oh, this has been a 10 year relationship and I got a non-cancelable contract. You used to be able to get away with that. It's over now when that happens. Like you don't even get to pass the teaser when that happens.

And then the other one is, which happens later on, is that you might be in process and maybe, I don't know, in between IOI and LOI. And because you're focused on the exit, you take your eye off the ball and business starts to hit some bumps. And that kills deals in a hurry because everybody's running their models and they're trying to project out into the future. And now all of a sudden, a key assumption like 20% revenue growth for the next three years is like 10 because you missed this month's forecast. That blows up a lot of deals.

And when you say blowing up a lot of deals, like you said, you've celebrated 50 successful exits. The Collective 54 group is probably a disproportionately successful switched on group just by virtue of the fact that they've invested in being part of a membership organization. They're almost self-selecting to be more successful. But what proportion for the 50 successful deals would you say are

they're a, you know, a failed deal? Like, how common is a failed deal? Yeah. So right now we have just about 300 members, but in the last five years, there's been over a thousand organizations that have come through because members churn for a whole variety of reasons. So I would tell you that there's, this is somewhat of a guess, but it's an educated guess. I'd tell you it's probably about five times as many people that tried to sell that didn't, that did sell.

Yeah, so I'd say 250. That's probably fairly accurate out of the out of the thousand. And here's what I would tell you about that. Back to the maybe some selection bias here in our sample size. So our membership has three types of members. We put them in three categories, grow, scale and exit. And the 50 that have made it started like late growth, early scale members.

And they wanted to sell, but they couldn't. Like maybe they had a concentration issue. Maybe there was a lot of founder dependency, whatever the reason is. And then they spend time, you know, in the community, other communities. In fact, we had a lot of members that are also in EO. You mentioned that earlier. And then they work on those issues.

And like we run mock due diligences and simulations and we say, OK, you want to sell? Let's see if you can get through diligence. And we send them an information request with like 25 things on it. And they have like three of them. And we're like, OK, so you're going to run into an issue here. You talked about young associates quitting and starting their own firm. What are your employment agreements look like?

You know, we go through these types of things to see kind of what the issues are. And a lot of these things, you know, you don't just flick a switch and fix them. You know, like if you have a client concentration issue, that's going to take a few years to fix that. So there's you know, that's what happens. But the failed ones, in many ways, you learn more from them than you do from the successes.

I want to get to some of those lessons, but I'd be remiss in not asking you as it relates to client concentration. So when you find a business owner who has a lot of client concentration, what advice do you have? Because I think a lot of business owners rightly say, well, what do you want me to fire this client? This guy or gal is spending good money with us. It's great margin. He's been with us for 26 years. What am I going to do? Fire them? It's a great question. And the answer is no, don't fire them. Right now they're paying the bills.

So this is where advanced strategy comes into play. So the most successful way that that has been solved is acquisitions. So let's say you're firm A, and even though you're a small firm, let's say you're, I don't know, $10 million shop and you got 20 people and you got one client that's a whale. And you've been beating your head against the wall for five years and your business development efforts are just unable to bring you another whale.

Go do a deal or two of smaller firms than yours, and each one of them have the same problem that you do. You know, you buy. So if you're a firm A, you buy firm B, firm C, firm D. Each one of them have the same issue. But now you're all of a sudden overnight instead of having one wheel, you have four wheels. Right. And these deals are dual. I mean, there's a lot of ways to do these. I mean, these smaller firms are willing to sell on a seller's note.

They can get funding from the government. The banks these days will lend two to three times EBITDA. Sometimes you can finance through the clients themselves, you know, based on backlog and receivables. Like there's all kinds of ways to solve that. So my recommendation to people that are suffering from concentration is still try to solve it through organic growth and keep chipping away at that and bringing in new logos. But if you're planning on selling in the next two to three years,

It's unlikely that you're going to fix the problem there. So I would suggest that you become the acquirer in that scenario and buy some smaller firms to solve that problem. And what multiple of EBITDA, assuming it's a small owner-dependent business with a lot of client concentration, what would you expect that business to trade at? So in that scenario, it's usually not a multiple of EBITDA. It's a multiple of revenue. And the reason for that is that these smaller firms don't tend to be very profitable because

So you evaluate it maybe one and one and a half times revenue. But what you're selling that person is, listen, if you continue on your current path, you're either never going to exit or you're only going to exit at one times revenue. If you join me, you and five of your friends, and we come together as a group, we then go to market collectively later. That's when you're at 10, 12, 15 X revenue.

Because there are some breakpoints, as you know, John, like the sub $3 million in EBITDA, small multiples and lots of terms. North of $5 million in EBITDA, things get much better. Greater than $10 million in EBITDA, things get really good. And there's a way by combination, you can cross over some of those milestones and

And just by having access to a broader buyer pool that might be more comfortable then, you can drive better terms. What else is on the diligence checklist that you take a mock approach with some of your members? I'd be curious, you know, for a lot of our listeners, they've never gone through a diligence exercise. So it's all a bit of a black hole. So what's

Just give me an example of a couple of other questions in the mock diligence exercise. So there's a lot of legal stuff. So looking at SOWs, master service agreements, restricted covenant agreements is a lot of that. Obviously, and you've covered this ad nauseum, there's all the financial stuff. For example, if you're still doing cash accounting, you got to get to accrual accounting as an example. There's a lot of compensation benchmarking that gets done.

You know, buyers are looking for opportunities to create value. And sometimes these small boutiques have legacy employees

And the legacy employees keep getting 5%, 10% raises every year. So you wake up 10 years later and you're paying somebody three times what the going rate is. So there's a lot of that that happens. And the buyer who doesn't have an emotional connection to that person will say, well, I can swap out Bob for Joe and then put $300,000 and he would have the bottom line right away. So there's a lot of salary benchmarking that happens. There's a ton of client reference checking. Current clients, past clients.

And they're really trying to assess two things. Number one, what is the call point? So if you're selling to like a manager of a department, not good. If you're selling to a member of the C-suite, very good. If you're single threaded in an account with one budget holder,

Not good. If you got through the door with one member of the C-suite and now you're serving three members of the C-suite or three business units, very good. Because they're also assessing risk. And in their opinion, that's kind of a diversification strategy. So that's another one that happens quite a bit. They're looking for the second part of the client reference check is they're looking at for proof that there was a real ROI in the project. So, for example, training companies are very hard.

Because, you know, how do you prove, you know, you spent $100,000 training your employees in XYZ, like, did you generate a return? Attribution there is so hard. And that makes things positive. Whereas, I don't know, let's say you're a BPO provider, business process outsourcer. You go into a business and you say, hey, you're performing that function that costs you a million dollars. Outsource it to me and I can do it for 200 grand. That's very, very clear ROI. Right.

These are the types of things that happen in diligence. And that diligence these days has been exhausted. We had one about a month ago. They hired an investigation firm and they did this whole workup on the personal life. What were they investigating? They wanted to see if there was any fraud. There was a gap on the resume and they were trying to figure out what happened. Resume of the family. Yeah. Yeah.

And the founder explained it away. I took a sabbatical year and they didn't believe me. And they hired an investigator to- Like Magnum PI? Like a PI? Like a private investigator? I learned this the other day. So there are shops, firms. I didn't know this. I thought Magnum PI myself. In fact, I had the red Ferrari in my head. Yeah.

They hired, there's a firm that does investigations and they hired this firm and they went. And these days, I mean, with all these tech tools and they tracked down the fact that this guy backpacked through Europe one summer.

And hung around on the Mediterranean and his story lined up. He wasn't lying. They had no problem with the fact that he took a year off. They were trying to assess whether he was honest. I mean, the level of diligence. Now, that was a larger deal. And there was some risk associated with I don't know if everybody goes through that with, you know, the smaller deals. But diligence is a you know what these days.

Yeah, well, you've made that very clear for sure. Clients reference checking is an interesting one because I think from a seller's perspective, they say, well, hold on a second. I'm not introducing you to my clients. A, I don't want you to steal them. B, I still don't want to tell them I'm thinking of selling. How do you get acquirers comfortable without effectively giving the keys to the henhouse or whatever the expression is to the buyer? How does that work?

Well, there's two things I'd say there. First is the timing of it, right? So you don't do this with everybody. You're probably doing this post-LOI with somebody you're in a period of exclusivity with. And then the way that you position it is you go to your top clients and you say, I'm thinking about taking on a strategic partner. The strategic partner is going to provide me the following things. And those following things benefit you, Mr. Client, in these ways.

but this is a big decision for them and they would like to speak to you to understand our relationship and the type of work I do for you. Would you be so kind? So you position it as a strategic partnership, which in most cases is true. You know, I mean, it's not like the firm is shutting its doors the day after it is sold, but that's how they do it. Now, if you say to somebody, I'm not willing to do this,

They walk because they think they maybe incorrectly, but they leap to the conclusion that you've got something to hide. Interesting. Interesting. What are some of the unforced errors that you see? When I think about unforced errors, I obviously think about tennis guys and gals hitting it out unnecessarily. What do you see among your members that are just negotiation mistakes? I would tell you that the biggest one which shows up

by saying the wrong thing at the wrong time, which is a negotiation mistake. But the root cause of that is they are emotionally unprepared. Tell me more. Yeah. So people are scrubbing your business. Your business is your baby. And they're looking for reasons why not to do the deal because they're investing either their own money, their company's money and investors' money.

And they're nervous, you know, that they're going to make a mistake and look stupid. So they're dissecting your business. And the way the founder takes that is they're under attack. And they're like, you know, how dare you say that about my business? And you don't know what you're talking about. And they just, they're emotionally unprepared. So they get heated and they get defensive and they negotiate incorrectly. Like they'll, they make statements sometimes as far as, hey, take it or leave it.

You know, my way of the highway or, you know, I've answered this question 25 times. Don't ask me number 26. And these are these are very, very bad things to say.

And the reason why they do that is they've never been through it before. And I get it and I sympathize with them. In fact, sometimes I play the role of therapist. They call me and they say, hey, the buyer just asked me this. I want to rip his head off. No, don't do that. Right. You know, just understand why he's asking the question and think logically through what a good answer would be. So that would be the first one. The second one is, is that they really don't have a true market based worth of their firm.

They think their firm is worth a lot more than it really is in some cases. And they get anchored to that number. And when the number doesn't come in that way, you know, they say, well, if you're not going to pay $100 million for my firm, I'm not going to sell it. Meanwhile, they offered you $60 million, which would change your life forever. Like, are you sure you don't want to do this? So that happens a lot. So, you know, understanding that.

You know what, what the firm is worth. In fact, John, at the risk of sounding like we have a bromance here, I'm going to give you another compliment. I'll never forget one time you said along the way when someone says, well, when do I know to sell the business? And you said you have to know what the business is worth to you and then what the business is worth. And then when someone offers you more than what the business is worth, you sell it.

And that's how you make a decision. And I repeat that all the time to our members. And I say, hey, do you know what the business is worth to you? Literally, like an in totality, like emotional fulfillment, impact, relationships with employees and clients financially, like the whole thing. What is it worth to you? And what are you willing to take to walk away and know that number before you go in? And if the market says the business isn't worth that, then keep going. If the market says,

It's worth 50% more than that. And you're comfortable with that and convicted in your answer, then pull the trigger and sell it.

So I do love this idea. Thank you for the credit. I'm not sure I deserve credit for it, but I'll take it. It's a very powerful idea because in different stages of your life, your business can be worth more or less to you. If you're young and you feel like there's a lot of room left and you know, you could have a huge number and never get that. It's never, the market value is a fraction of that. Likewise, you know, I,

People in their 60s and 70s, the business may be worth many, many more times what they'd be happy to take for it because they've got other things they want to give you or whatever. It's a really interesting thought exercise. This is the second big mistake. So you're asking about mistakes. The first one I said was being emotionally unprepared. The second one is waiting too long. So people have a mental model in their head as to when they want to retire.

And maybe that mental model is a legacy from years gone past and things that have been ingrained in us during our upbringing. And they wait and they're 62 and they say, okay, I'm ready to sell. Well, who's going to take over for you? Well, whoever buys me, you're dead at this point. Like,

You should have been thinking about this when you were 52 instead of 62. And you should have been grooming your success and building a team so that when you were ready to retire, the issue of your age is now a non-factor like it's been addressed. People wait too long and they think they can just flip a switch and there'll be 10 people ready to buy them. And it just doesn't work that way. So that's the second big problem is waiting too long.

Interesting. Yeah. And you didn't do that with SBI. You sold at 47, which is obviously very, very young to be walking away with such an amazing exit. I'd be curious, Greg, and you've been very generous with your time and also your wisdom from Collective 54, which is obviously...

a really nice sample size to look from. I'd love to turn the tables back to you for a second, because I'd be remiss not to ask, we spoke in 2021, I think you mentioned. Correct. So four years ago, and that was really early days, Collective 54. You've now built it up to being a successful company. I guess I'm curious to know, for you personally,

How that trough was before, you know, between getting the last check from SBI and getting Collective 54 to the point where it is now another successful company where you can point to and it fulfills your sense of purpose and all the things we all want as entrepreneurs.

I've heard that that's a pretty significant trough for a lot of entrepreneurs, an emotional trough that is a tough one, right? Because to your point, you've got all the money in the world, but you don't necessarily have purpose. Maybe if you don't mind sharing what that was like for you, how did you kind of get through the trough and maybe any exercises, tools? You mentioned Halftime already was a good resource. Any other thoughts that you sort of reflect on?

It was very difficult. So I'm confirming your belief. My identity was wrapped up in my old firm, for sure. Many of my closest friendships were at the old firm. And then, you know, not through anybody's fault, but proximity, frequency of contact, time and distance, you know, relationships kind of fade. And you miss them. So then you say to yourself, okay, well,

OK, I've got to go build a new set of friendships. Like, how do you do that? You know, how do you make friends at 50? You know, it's it's a very interesting challenge because when you're a kid, you know, you run into your classmates or guys you play sports with and go to college. Same thing. And you start your career. It just happens. But all of a sudden now you're this retired guy.

And people wonder, like, why do you want to be my friend? Especially for people like you who have a public persona. Obviously, people can Google you. And then, like, I think for a lot of entrepreneurs, we're skeptical, right? Well, do you really want to be my friend or do you want to sell me financial services or insurance or whatever? It is so true. So then what I did was I developed a passion. I love to play golf.

So I like being outdoors and I find that guys in particular build friendships around shared activities. And I figured that, well, that would be a sport. The demographic profile is probably similar to me. So maybe I'll meet some people that have similar interests. So I joined these clubs and I'm in two clubs and I love them both. Problem is that people that are in country clubs are 68 to 80 years old. I mean...

And, you know, with grandkids and stuff. And that was a miss. And I'm like, wow. So he's, you know, now what I like to. And I will say that. And this wasn't intentional. So don't let this come across that. I got this master plan. But Collective 54 really helped with that. These these mastermind communities and pick your flavor. If the community knows what they're doing and I like to think that we do, they're curating the network.

And they're saying, you know, this is who we are and what we stand for. So our membership application looks like this. And people that come through the door look like this. And my tribe is entrepreneurs. I love being around entrepreneurs.

And because of the team at Collective 54, and by the way, I don't run it. I work a day a week. I got a whole team that runs it. They do a really good job there of bringing the right people in. And then I get access to those people and I've made a lot of friendships that way. Now, sometimes I wonder, you know, are those authentic relationships or, you know, do those people wonder about me because they're paying dues to the organization? Like, do they think like I'm a vendor selling them something? And, you know, and you really can't say to them,

You know, I don't care about your dues. That's an insult. But honestly, it doesn't, I mean, not to be arrogant, but financially, it doesn't move the needle for me at all. That's to pay the salaries of the team, so to speak. But I have made some wonderful friendships, you know, through that. I've made a lot of friends through YPO and other community.

And now I'm older now. I'm 54. So I'm in what's called YPO Gold. I think the cutoff is 45 or something like that. I love how they put the gold on the back end of that. You're so freaking old. I know. In order to make you gold. That's basically what they're saying. Yeah, yeah, exactly. You know, I had a new experience with that. Maybe this is a good story. So we relocated to Jackson Hole, Wyoming.

So I had to transfer my YPO membership to Jackson Hole. And I showed up and there's, you know, 80 really cool people. And groups like that have these, you know, non-solicitation rules and stuff. So the people are in there. It's like for real and genuine. And nobody ever tries to sell me anything and no one's asking these weird questions. So that helps. So for those that are maybe in this situation, I recommend joining groups.

All kinds of groups. You can join your church. You know, all kinds of stuff that you can do to get involved. Absolutely. And a huge sense of community that you miss when you sell a company can be supplemented when you join some of these groups. Could be a church, could be a sports team, could be a collective 54. I mean, it could be all these types of places. But as opposed to sequestering yourself in your basement, counting your shekels is not the right approach to do.

to happiness. I think we can both say that with some degree of confidence. Correct. Greg, I'm so thrilled that you've taken the time. This was a great second edition of The Greg Alexander Show, which is a real pleasure for me. Tell people where they can learn more about you, LinkedIn, Collective 54. Just give us folks some follow-up actions. So if you are somebody who is in the professional services sector,

And you might think it would be helpful to learn from your peers that might be a couple of clicks ahead of you. I would direct you to collective54.com. You can fill out an application there and my team will get in contact with you. But, John, I do want to say in this public format, you've had a huge impact on me. I mean, that book you wrote in 2011, I mean, I took 180 degree turn in my strategy after reading that book.

And it resulted in this, you know, life changing exit. And it was it was remarkable. And then what you've done with your podcast and I've remained a fan all these years listening to the podcast is it's really impactful. And, you know, I wanted to come back on the show the first time to tell my story and to be an endorsement of you, not because you asked me to. You never did hand on the Bible, but I thought I owed that to you.

And now, you know, some of the things I've learned from you, we have distributed through the Collective 54 community and all these other people are benefiting from that. So big thanks. I don't know how I could ever repay you, but I owe you about a million. And, you know, I appreciate our relationship very much. You're very kind. It's very generous thing to say. And I appreciate you saying that. It's mutual. And let's do it again sometime. So thanks for doing this, Greg. Okay. Take care.

And there you have it for today's episode between John and Greg. For show notes, including links to everything referenced in today's podcast, including the free ebook on how to productize your service, visit his episode page, which you're going to be able to find over at builttosell.com. If you enjoyed this episode, be sure you hit that subscribe button. And if you want to help support this podcast, I'd encourage you to leave a rating and review. Quick reminder to watch this full video interview with Greg, you can visit our YouTube channel at Built to Sell.

Special thanks to Dennis Labataglia for handling today's audio engineering. And thank you to our community of certified value builders who help us bring our message to you. Our advisors are experts in helping you build the value of your company. To get in touch with an advisor or learn how to become one yourself, head over to valuebuilder.com. I'm Colin Morgan, and I look forward to talking again next week.