Join us as we delve into the gripping tale of a marketing agency’s journey through the tumultuous waves of cancel culture. In the height of societal pressure, the agency’s founders, driven by fear and uncertainty, offered their employees overly generous contracts. As the dust settled, they realized the unsustainable nature of their decisions and faced the daunting task of restructuring their workforce agreements. Tune in to discover how Ryan Gill and Chris Kneeland, Partners at Cult Collective, navigated this challenging terrain, replacing idealistic contracts with market-based, realistic agreements, and emerged stronger than ever before. This episode is a testament to the power of resilience and adaptability in the face of adversity.
TRANSCRIPT
Greg Alexander: Hey, everybody, this is Greg Alexander, the host of the Pro Serve Podcast and the founder of Collective 54. Thank you for attending. On this show, we talk about how to grow, scale, and exit your professional services firm. Today, we’re going to discuss an important topic when you run a people business: employee documentation or employee contracts. We have a role model member with us this week who recently revamped this for their firm, Chris Kneeland and Ryan Gill from Cult Collective. Guys, please introduce yourselves, and then I’ll jump into some questions. So maybe Ryan, I’ll start with you.
Ryan Gill: Thanks, Greg. You can hear me okay? Are we good?
Greg Alexander: I can hear you great.
Ryan Gill: Awesome. Thanks for having us on the show. Long-time listener, first-time guest. Hopefully, this is the last time. No, I’m a 25-year agency guy, founder, a true founder, not an operator, which is what we’re going to get into a little bit today. We’ve had it going for about 12 years now and I’m looking forward to sharing some of our mistakes and maybe some stuff we learned today. Awesome. Chris?
Chris Kneeland: And I’m Ryan’s lesser half. I met Ryan 13 years ago. I had moved to Calgary, Alberta to take over a small business that was struggling to find a way to exit. The owner kind of gave up after three failed attempts at the altar and essentially gave away the business to his employees and brought me in to run it. That was a debacle, but that’s a podcast for another day. I met Ryan and I like to say that our two agencies had a love child that we now call Collective. He’s been my partner and friend for 12 years now, and we’ve had some big wins and some big failures. Today, I have a feeling you’re going to want to talk more about the failures than the wins.
Greg Alexander: Well, you know, we learn from our failures, and I’m just trying to help our members avoid some dumb taxes, as we like to call them. I appreciate you guys being comfortable enough in your own skin to share some mistakes that you made, but we’ll certainly talk about the successes as well. So, maybe as a way to kick this off, I asked you guys to be on the show because you recently went through a change as it relates to employee contracts and employee documentation, which is not uncommon. As a firm matures, things happen and these documents need to be updated from time to time. So maybe start with that, kind of give us some context of what happened, and then I can dive in and ask some questions.
Chris Kneeland: Ryan, we just lost you.
Ryan Gill: I’ll set this up and let Chris put in some commentary. Greg, when we talked about this and potentially talking to you about this, I got excited because I think the tax we paid is extremely high monetarily but also emotionally. When it comes to people, we’re in the people business, service business, you care about these people. And when you screw up, it screws up a lot of people’s lives. But with that background, we’re also not idiots. We’ve run companies before, we’ve been successful, had some exits, things like that. The backdrop for this is we came through some cancel culture. We all experienced that as business owners in 2016, 2017, 2018. I think it made a lot of business owners, especially small business owners, gun-shy to make any big decisions or to say no to things. They felt a bit hostage. I know I did, can’t speak for Chris. And again, like I said, rightly so in some areas, business needed to be cleaned up, but in most areas, we got gun-shy and I don’t think it was valid. Then we walked right into COVID, which put the whole world on its back foot, us included. It led to working from home, and again, it was an employee market. In my opinion, we had to pay to keep people, keep the lights on. I think a lot of us forget what it was like going through that. Chris was our CEO at the time and I believe managed it ethically. But you think we’re still human? So, I think a lot of times people, employees, or clients think agency or marketing consultants or business owners are superhuman. We were going through the same thing but we had to lead and give clarity and confidence to our team. But a lot of people took advantage of that, I feel. Chris and I made some mistakes in that. With the backdrop of those two things, we made some really dumb mistakes, which we’ll get into. Chris can share some of them. But we just overpaid. We felt, I know I felt distracted with everything else and we just made a bunch of dumb decisions. So those aren’t excuses, but I wanted to paint the backdrop. I think a lot of people might be listening to this. We’re coming out of the fog here in 2024 and I think the sun is clear in 2025 to take some of this advice.
Greg Alexander: You know, one of the things that I find remarkable about your story is we all made those mistakes during that historic time period that we’ll look back on at the end of our lives and say, holy cow, I can’t believe we lived through that. But you guys had the courage to fix those mistakes. I mean, you kind of tore up some legacy contracts and started over. So, Chris, why don’t you pick up the story from there? Like, what did you do?
Chris Kneeland: So, pragmatically, we found ourselves in a situation in the fall of 2023 with 21 employees and nine different employment contract structures, which differed in terms of pay banding. They differed in terms of performance bonus calculations. They differed in terms of equity or stock options. That was one of the first introductions to your program, Greg. We’re not the same as giant Fortune companies that can do stock options. Like, why is a 20-person firm trying to replicate what Home Depot or the Ford Motor Company does? And so, in an effort to try to equalize these things and try to figure out, maybe under the false hope that some employees would be good soldiers and take one for the team, you know, I hear about NFL players that do contract renegotiations so they can get people into the salary cap. None of that happened. No employee is ever gonna take one for the team and take less. So, we decided to hit the reset button and terminate every single employee on the same day at the end of October.
And there’s a nuance here: most of our employees are Canadian, and the Canadian labor laws have some different tricky things. But essentially, it was working notice in lieu. The way that our lawyer described it, it’d be like if I owned a factory and was telling the factory that we’re shutting it down in six months. So, you’re not fired, you don’t have to leave right now, but you know that there is an end date coming, and that there’ll be a new factory opening up six months from now, and you’re welcome to reapply for those jobs. We weren’t necessarily trying to clean house in terms of getting rid of bad people. We were trying to clean up bad paperwork, liabilities, and a misalignment of economic incentives. I’m pleasantly surprised that everybody said, okay, I’ll do it. And to Ryan’s point earlier, I don’t know if the dynamics of a buyer’s market or a seller’s market changed and some of their options had gone away. Some of our new pay banding and level setting actually resulted in more compensation for people. So, it wasn’t all bad news, but it cleaned it up until your sort of economic or I think you, I forget what you call it. You have a ladder, but the performance ladder of at least now everybody’s getting the same incentives tied to the profitability of the business in the form of a profit share. Leadership is being offered exit warrants, not equity, in regards to their incentives to help us build a sellable business. We hoped for the best, we prepared for the worst. It all kind of came to fruition at the end of March, so you’re catching us just a few weeks after everybody’s new agreements have been signed. I think there’s been a noticeable improvement to culture because there was a noticeable improvement to clarity of what’s my job, how am I gonna be rewarded, what am I expected to do? While it was a compensation exercise, it also allowed us to reevaluate and recommit to each other that we’re still adding value and we still have good things to accomplish.
Ryan Gill: One thing there, we also got 54 is great because you put us in touch, Greg, with, I think, the CEO’s right-hand company, and they brought a consultant in to help us with the pay banding. It was great; we gave them some business. They helped us out in a pinch, and that was very helpful because we were able to go with a straight face to say, hey, we paid the money and did the research. This is where you’re actually supposed to get paid. We made, and we hate humble pie, Greg. We just said we made a mistake. We were running around trying to please everyone, and then they put the firm in jeopardy. If the firm goes down, then it doesn’t matter what anyone’s getting paid.
Greg Alexander: There are so many questions I wanna ask. But the very first question is, I mean, that was risky to do what you did. Yeah, you did it anyways. So what gave you the courage and the conviction that you were doing the right thing?
Chris Kneeland: I think we both would say, I didn’t feel it was risky because we weren’t trying to preserve much of the status quo. We were kind of at our wits’ end. The notion of blowing it up and starting over was very real. It got to an untenable point. In hindsight, yeah, I wish we did it two years earlier. But at least for me, I was at a breaking point where I didn’t want to lead and manage an organization that was tethered to so much baggage and bad paperwork.
Ryan Gill: And I’ll say one other thing to that is the risky thing for Chris and I is we had basically been out of the business. So the big risk for us was we had to come back in. We had almost got to that exit velocity, Greg. Maybe you see this for some of your people in the five-year growth, scale, and exit. Chris and I basically, I don’t know if you see this in any other firms, maybe I’ll ask you. We were in the exit world. Clearly, we actually had an offer on the table, and this actually exposed a lot of it too. So we had to step back from exit back into growth. That was a bit painful and risky, but I think our multiple whenever we do sell will be better because of it.
Greg Alexander: You know, and as an education for those that are listening, the reason why employee contracts matter so much in professional services is because your assets are your people. It would be kind of like if you were a commercial real estate company; you would have contracts that governed your ownership of certain office towers or manufacturing facilities. In a service business, it’s the same thing. You have contracts that govern the relationship between you and your assets, in this case, people. So when you get to an exit stage, you’re going to have to go through due diligence. Part of that is legal due diligence, and all these things are going to be analyzed. If you’ve got nine different employees on nine different plans, the potential acquirer is going to say this is a mess. We’ve got to clean this up. Can we, or do we buy this firm, attempt to clean it up, and everybody quits? Now, all of a sudden, there are no more assets because the assets are the people, and they just quit. So what did I actually buy? This is the reason why it’s so important to do this by the book. I’m encouraged to hear that you leveraged another member, William Lieberman, and the CEO, right-hand, and you did that the right way because half the time is explaining to the employees or half the problem is explaining to employees how you reached the conclusion that you did. In your case, you went and found market data. You said this is the going rate for this job, and here’s what that job is designed to do and produce. For that, we’re willing to pay X. The use of data in that situation can be very powerful because it grounds everybody. Sometimes employees that might be on legacy contracts have a sense of entitlement. I’m not saying that was the case with you, but that can happen sometimes. All they know is what they know, what they’re being paid, and what their contract looks like. They lack the context of the broader labor market, and data can be really useful there.
Ryan Gill: Well, it’s for sure entitlement, but it was our fault. We made it happen, and we let the kids run the show, if you will. Like in a household, that doesn’t work. I use the words kids, or in my case, you’re in charge of your home. If you just let people do whatever they want, it’s your fault, not the kids’ fault. At work, they’re not kids; we call them into our team. We set this stage because, in my opinion, I think of some circumstances that are more macro. We still got to eat humble pie and fix it.
Chris Kneeland: In terms of risk, I was just kind of thinking about one of the things that Ryan taught me years ago: confidence comes from options. Sometimes as owners, we get a little too precious, thinking that somebody on our team is overly exceptional. There are certainly A players and rock star talent, but there are a lot of great players out there. Knowing that there was a risk that people may not sign up made us much more aggressive at getting back into the dating pool, if you will, and starting to see other options that were out there. It gave me a lot of confidence that there are certainly going to be hiccups and inconveniences, but it’s pretty humbling if you ever leave a company to realize how quickly they recover in your absence. You like to think everything’s going to fall apart when you leave, and rarely is that the case. I think it’s one of the responsibilities of leaders to constantly just like we’re not for sale, but we’re always for sale. I’m not hiring right now, but I’m always hiring. Never miss an opportunity to continue to build that network and surround yourself with great talent.
Greg Alexander: Everybody is replaceable, including us. Everybody is replaceable. You got to show up every day and earn the job every day.
Ryan Gill: And we proved it. Chris stepped down as CEO years ago, and I stepped down as president seven years ago, and the business grew. So now we’re going through it again.
Greg Alexander: Let me ask one more question. We try to keep these podcasts to 15 minutes or so. On the member Q&A, we’ll double-click on a lot of this because I have many more questions that I’ll ask, but we’ll reserve that for that time period. For a member who’s listening to this, who might find themselves in a similar situation, dealing with some baggage that they would like to hit the restart button on but might be hesitating, what would you say to that person?
Ryan Gill: I would say there was this really smart guy named Greg Alexander I talked to when I was going through this. He said when you make changes on people, not once in my career have, I said, “I wish I waited longer.” I always wish I did it sooner. We’ve made some changes already, as Chris said. We let them go at once, and it was a bit of a tricky way we did it, which we’ll explain more in the double-click when we get into the Q&A. But even at the, we’re talking with some bigger old people here that ran our firm, doing it sooner is better. So that’s my advice: I wish we had done it sooner.
Chris Kneeland: My advice would be I’ll elevate it a little bit because hopefully, your members aren’t as dysfunctional as we were and they’re not as broken. But just as you think about people in general and how you tether them to your business, another thought leader that Ryan introduced me to is John Maxwell. He has this idea about valuing people, praising effort, and rewarding performance. I think about that all the time. If you need to have tough conversations, it’s not about them as humans. You value them and their contribution. You can do things kindly and with compassion; it doesn’t have to be as cutthroat as it sometimes is. But you need to reward performance. If you mix those adjectives and adverbs up, or whatever they are, and you start rewarding people and valuing performance or vice versa, the contracts were out of whack because they were giving disproportionate amounts of profits to people who were underperforming. That sense of entitlement was there because they didn’t understand the clarity that you’ve now helped us create. It requires transparency on our part as well. If there’s a profit share, you’d better be talking about how we’re doing with profit. It shouldn’t be a black box at the end of the year where they’re wondering what it’s going to be. They should be able to calculate how they’re trending. There’s a lot of learning around people management. I don’t think the ad community, which is what we’re in—the marketing and ad business—is particularly good with numbers and spreadsheets, or tough conversations, radical candor. There’s a whole ecosystem that goes around this. If you’re in the mess, hitting reset and getting new paperwork isn’t just the solution. You got to look at all the symptoms that got you into that mess as well, about putting on your big boy pants, having adult conversations, and helping people appreciate that we win only if we all win as a business, not if you win as an individual.
Greg Alexander: Awesome. Great contributions today, guys. It’s really valuable. We’re so lucky that you’re in the collective. We learn so much from you. Thank you for contributing today, and we look forward to the member Q&A.
Chris Kneeland: Thank you.
Greg Alexander: All right. A couple of calls to action for listeners. If you are a member and this topic is of interest to you, watch out for the invite that you’ll be getting and attend the Q and a session with Ryan and Chris to talk about this in detail. There’s a lot more to the story and it’ll be a rather interesting conversation. You’re not a member, you want to become one, go to collective 54 dot com for an application. We’ll get in contact with you. You’re not ready for either of those two things. You just want to learn more, go to amazon and find my book. It’s called the boutique, how to start scale and sell a professional services firm. And that’ll give you a good overview. But until next time, thanks for attending. And I wish you the best of luck as you try to grow scale and exit your firm.
Note: This transcript was generated by Gong.