There are 5 competitors’ boutiques must defeat to grow. On this episode Collective 54 founder Greg Alexander discusses a playbook to defeat these competitors.
TRANSCRIPT
Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal for this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that there are five competitors boutiques must defeat to grow. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg has developed a playbook to defeat these competitors. I will ask him to introduce his competitive place to you today. Greg, good to see you. Welcome.
Greg Alexander [00:01:05] Hey, Sean, it’s good to be here today.
Sean Magennis [00:01:06] OK, Greg, let’s dove straight in. Tell us who these five competitors are.
Greg Alexander [00:01:11] OK, so the five competitors are in order of importance. Number one, do nothing. This is the project that went away because of a competing client priority. Number two, internal resources. This is internal client staff who think they can do what you do better than you do it and it’s quote-unquote, free. Number three boutiques. These are firms like yours in size and specialty. Number four, market leaders. These are the mega-firms that have offerings in your niche. And number five is other. This is the other ways clients can solve the problem. Often there is more than one way to skin the cat, so to speak.
Sean Magennis [00:01:53] Excellent. So there’s a do-nothing, internal resources, boutiques, market leaders, and others. What I find fascinating about this list is three out of the five are indirect competitors, do nothing, internal resources and other. These are often overlooked, but can embrace a deal from the sales pipeline in a real hurry. Greg, you mentioned these are in order of importance. How do you assign this relative importance to them?
Greg Alexander [00:02:25] I assigned relative importance based on the frequency they show up in sales campaigns. And this is determined during the win-loss review process. For example, we have learned that boutiques will compete with do nothing about 40 percent of the time. Sometimes it’s as high as 50 percent of the time. You’ll compete with internal resources about 30 percent of the time, boutiques, about 20 percent of the time, market leaders about five percent of the time and other about five percent of the time,
Sean Magennis [00:02:57] hmm, this is super interesting. My hunch is our listeners are not conducting win-loss reviews and they don’t know how they compare to these benchmarks. That should be a takeaway for all our listeners. OK, now that we know who the competitors are, how do we beat them?
Greg Alexander [00:03:18] So that is a big question requiring a long answer. Given our time constraint all I can do today is introduce the plays to run against each. Is that OK?
Sean Magennis [00:03:26] Yes, I completely understand.
Greg Alexander [00:03:27] All right. First up is do nothing, which again is 40 to 50 percent of your deals. Whether you know it or not, the way to beat do nothing is to calculate the cost of inaction for the client. This dollar figure will prove to the client that your project deserves their full attention. It is a priority and that is the goal, getting the client to prioritize your project above the other things they may be spending their time on.
Sean Magennis [00:03:51] Greg, I remember this play from another episode titled Are You Losing to Do Nothing? For those listeners interested in learning more about this, I would direct you to that show. It’s excellent. OK, Greg, what’s next?
Greg Alexander [00:04:06] Next up is beating internal resources. As a reminder, this is internal client staff. I realize it’s weird to think about the client as a competitor, but they are about 30 percent of the time. The way to defeat internal resources is to establish a deadline that the project needs to be completed by. You see, clients think they can do what you can do. However, they will never be able to do it as fast as you can. Why is this? They have a day job. This project is not the only thing on their plate. They can only dedicate a portion of their time to it. You, on the other hand, can dedicate your team to it and therefore it gets done much faster. Cell speed in this situation, deadlines are a wonderful way to defeat internal resources
Sean Magennis [00:04:54] This is a perfect example and it makes complete sense. OK, next up is the boutiques. How should our listeners compete with firms that are just like them?
Greg Alexander [00:05:05] The silver bullet in this situation is the guarantee. Simply offer your client a money-back guarantee for any reason, no questions asked. Most owners of boutiques are risk-averse. They have limited resources. They have limited amount of money, limited amount of staff. The idea of putting fees at risk makes them very uncomfortable. The threat of not getting paid scares the, you know what out of them. By guaranteeing the work, you separate yourself from the boutique competitors. They are unlikely to match this offer and it sends a powerful signal to the client. And that signal is Mr. Client. We only get paid if we make you successful.
Sean Magennis [00:05:45] Greg, so true. As president of YPO, I hired many boutiques over the years. I was always very skeptical of those who were unwilling to put their fees at risk, and I gave my business to those who were willing to do so. And truth be told, I paid them in full every time, sometimes more. I cannot think of a single instance where I called the guarantee and demanded a refund. My message to our listeners is the risk is a myth. The reality is the likelihood of clients calling the guarantee is very low. OK, I think the next up is competing with market leaders. This is only five percent of the time. So should-should we skip over this?
Greg Alexander [00:06:32] No, no, no. Yes, it is true. You will run into the mega firms only about five percent of the time. However, these few deals can make or break a year. These are the big deals in the forecast. Just one or two wins a year in this category can turn a good year into a great year. The way to beat the market leaders involves a five-step play. It’s a little tricky, but here are the five steps. Number one, you must establish credibility. The mega-firms will try to discredit you. Number two, deliver a top-quality proposal. This will prove to the client you are credible. It’s a signal to the client that your work will be top quality. Number three, demonstrate to the client that you can complete the work much faster than the mega firms. Big firms are very slow, beat them on speed. Number four, price to work about 25 percent less than the mega firm’s. Market lead are very expensive. The fact that you are in the deal suggests a client is budget-conscious. Big firms are vulnerable because their prices are so high due to the massive overhead they carry. And number five, offer an enjoyable experience. Mega firms are like a tornado when entering the client and are very disruptive. For example, we hear all the time Bain is our pain about how difficult it is to work with Bain Consulting, one of these mega-firms. The advantage of working with a boutique over mega-firm is that it’s just simply easier.
Sean Magennis [00:08:08] While Greg, this is exceptional, five straightforward ways to win those few launch deals every year when competing with these market leading firms. Boy, OK, we’ve got one more. What play do I run when competing with other?
Greg Alexander [00:08:26] OK, so as a reminder, other means, other ways to solve the problem. For example, clients often think they can solve a problem by firing someone and recruiting new talent, or they think they can solve their problem by licensing a new software tool. These other ways to skin the cat show up about five percent of the time. The way to beat other is to do a post mortem highlight to the client. The last time they took this approach, it did not work. For instance, hiring success rates of 50 percent at best. This means solving a problem with new talent has a 50/50 chance of working. And the adoption rate of software tools is a problem that has plagued corporations for decades. It is estimated that most users use about 10 percent of the features and most software tools. That’s 90 percent waste. The odds of success working with you, the specialized boutique is clearly better than a 50/50 proposition, isn’t it?
Greg Alexander [00:09:24] This is a superb way of framing this in the minds of a client relative odds of success. It’s just fantastic. Today we learned who the real competitors are for boutiques, how often they show up, and how to defeat them. That is a ton of value in fifteen minutes. Thank you, Greg.
Greg Alexander [00:09:45] And now a word from our sponsor, Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.
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Sean Magennis [00:11:00] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit Collective54.com. OK, this takes us to the end of the episode, let us try to help listeners apply this. We end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist and our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these questions, you are positioned very well versus your competitors. If you answer no too many times, then you are not positioned well versus your competitors and you are likely getting in the way of your attempts to scale. Let’s begin.
Sean Magennis [00:12:02] Number one, can you calculate a client’s cost of inaction? Number two, can you find a compelling event that puts a deadline on the client’s project? Number three, are you confident enough to guarantee your work?
Greg Alexander [00:12:21] Boy, if you answer no to that when you’ve got a real problem.
Sean Magennis [00:12:23] Yep. Number four, can you establish credibility in the eyes of the client? Number five, can you signal quality to the client by delivering a best in-class proposal?
Greg Alexander [00:12:37] Remember that the first thing, the first deliverable a client sees is your proposal.
Sean Magennis [00:12:42] It’s got to stack up against the big guys, in fact, look better.
Greg Alexander [00:12:44] Yes.
Sean Magennis [00:12:45] And number six, can you deliver much faster than the market leaders in your niche? Number seven, if you earn healthy margins and still be 25 percent less than the market leaders? And I would say every day.
Greg Alexander [00:13:03] Way more.
Sean Magennis [00:13:03] Yeah. Number eight, are you more enjoyable to work with than the market leaders? Number nine, do you understand the alternative solutions to the problem you address?
Greg Alexander [00:13:15] You know, I hear this one all the time. Hey, I lost this deal because they hired a new executive, you know, and then they say, well, I really didn’t lose a deal. Yes, you did. You know, they decided to solve the problem in an alternative way. By the way, hiring a new executive is expensive.
Sean Magennis [00:13:27] Right.
Greg Alexander [00:13:28] Yeah.
Sean Magennis [00:13:28] Yep. That’s a great one. And number ten, will a postmortem revealed to the client that these alternatives have a poor track record? So, Greg, in summary, a boutique must win a high-percent of the time, they are not in enough deals to allow for many, many deals to be lost. No one wins every deal, but that should be the goal. By establishing a competitive playbook, you can make sure that you beat the bad guys. If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. Thanks again, Greg. I’m Sean Magennis and thank you for listening.