Mastering Professional Services Exits: Insights from Collective 54's Greg Alexander

The Journey from SBI to Collective 54

Greg Alexander, founder of Sales Benchmark Index (SBI), sold his management consulting firm in 2017 for an impressive $162 million. This exit came after fundamentally changing his business strategy in 2011, inspired by John Warrillow's book "Built to Sell." Alexander shifted from running a lifestyle business to creating a sellable asset by focusing on key areas:

• Understanding and improving EBITDA contribution by project, client, and employee
• Introducing recurring revenue streams
• Developing intellectual property and productized services
• Reducing founder dependency

These changes led to remarkable metrics at the time of sale:

• 30 employees
• $30 million in revenue
• $16 million in EBITDA

After the sale, Alexander initially planned to retire but found himself seeking a new purpose. This led him to create Collective 54, a peer-to-peer community for professional services firm owners.

Collective 54: A Focused Community for Professional Services

Collective 54 is a highly targeted community that focuses on:

1. Industry: Professional services (NAICS code 54)
2. Segment: Boutique firms with $3-50 million in revenue
3. Participants: Firm owners
4. Geography: North America

The organization helps members transform their lifestyle businesses into valuable, sellable assets. Since its inception, Collective 54 has witnessed and supported 50 successful exits among its members.

Key Insights from 50 Successful Exits

Alexander shared several valuable lessons learned from observing these exits:

1. Proof, Not Promises

Buyers are increasingly skeptical and demand concrete evidence of a firm's value. This includes:

• Solid financial statements
• Verifiable growth rates
• Client references
• Employee retention data

2. Quality Commands Premium Multiples

High-quality firms are trading at significant premiums, with some achieving multiples as high as 22x EBITDA. Characteristics of these premium firms include:

• 25%+ top-line growth
• 70-80% gross margins
• 40-50% EBITDA margins
• Strong leadership team willing to stay post-acquisition
• 25-50% recurring revenue, with an upward trend
• Minimal founder dependency
• Intellectual property converted into products
• Hyper-niche focus

3. The Importance of Recurring Revenue

Even in consulting firms, introducing recurring revenue streams can significantly impact valuation. Examples include:

• Packaging ongoing updates to previous work
• Licensing proprietary databases or tools

4. Technology Enablement

Buyers are closely examining firms' tech stacks and assessing opportunities for further automation and efficiency gains.

5. Strategic Value in Acquisitions

Many successful exits were driven by strategic value, such as:

• Capability expansion (e.g., adding user experience design to a software engineering firm)
• Geographic expansion

Common Mistakes and How to Avoid Them

Alexander also highlighted several pitfalls that can derail potential exits:

1. Client Concentration

Having one or two clients represent a large portion of revenue is a major red flag for buyers. To address this:

• Continue organic growth efforts to diversify the client base
• Consider acquiring smaller firms with complementary client rosters

2. Founder Dependency

Buyers are wary of businesses that rely too heavily on the founder. To mitigate this:

• Implement a clear leadership structure and succession plan
• Ensure the founder is not the primary rainmaker or project delivery resource

3. Emotional Unpreparedness

Many founders struggle with the emotional aspects of due diligence and negotiations. To prepare:

• Understand the buyer's perspective and motivations
• Seek support from advisors or peer groups to manage emotions

4. Unrealistic Valuation Expectations

Anchoring to an unrealistic number can derail negotiations. To avoid this:

• Obtain a realistic market-based valuation
• Determine the business's worth to you personally
• Be prepared to sell when offered more than your personal valuation

5. Waiting Too Long

Many owners wait until they're ready to retire, which can be too late. Instead:

• Start planning for exit 5-10 years before you intend to sell
• Groom successors and build a strong leadership team

Navigating the Post-Exit Transition

Alexander shared his personal experience with the challenges of life after a successful exit:

• Loss of identity and purpose
• Difficulty forming new friendships and social connections
• Adjusting to a new lifestyle

He found success in:

• Developing new passions and hobbies
• Joining communities like YPO and creating Collective 54
• Staying connected to the entrepreneurial world

Conclusion

The professional services industry is evolving rapidly, with technology and changing buyer expectations reshaping the landscape. Firm owners looking to exit must focus on building high-quality, scalable businesses with strong recurring revenue, reduced founder dependency, and clear strategic value. By avoiding common pitfalls and preparing emotionally for the exit process, owners can maximize their chances of a successful and rewarding transaction.

For those considering an exit or looking to improve their firm's value, joining peer communities like Collective 54 can provide valuable insights, support, and connections to help navigate the complex journey from lifestyle business to valuable asset.

Article created from: https://www.youtube.com/watch?v=2Np6hYeIvno