Building a successful consulting business may seem tricky for many, but that shouldn’t be the case. Most of the time, what lies behind achieving that goal can be as simple as having a good understanding of the fundamentals. With the right things in place and focusing on the right areas at the right time with the right people, success could never be far off. Sharing his wisdom and experience on business development, Jim Barnish Jr., managing partner at Morgan Hill Partners, joins Michael Zipursky in today’s show. From working with growth-stage companies to help them grow exponentially, Jim takes us back to the fundamentals that drive the development process towards creating a better business. He tells us about his approach to structuring deals with clients, from the crawl stage and walk stage to the run stage, and marketing and lead generation. Though basic in theory, it helps to remember that the actual process of building a successful business may still be difficult. That is why you also need to have that drive to continue against it all. Don’t miss out on Jim’s insights and advice in this episode.
I have Jim Barnish. Jim, welcome.
Thank you for having me, Michael. I’m excited to be here.
Jim, you have fifteen years of experience in strategic operations, management, growth hacking startup value creation and a lot more. You’ve managed workforces of over 250 people and were responsible for an annual P&L of $75 million or a bit beyond if I’m not mistaken. Is that correct?
That is correct.
You’re a managing partner at Morgan Hill Partners based out of Florida where you work with growth-stage companies to help them to grow exponentially. Tell us a little bit more about what Morgan Hill Partners does.
We build much better technology businesses with a strong focus around creating value at software and services businesses. Our founders and partners are all veteran operators and serial entrepreneurs with a history of exits and decades of experience. Luckily, what we realized along the way is that there’s a much better way to grow in scale and technology business that you can find in some accelerator or blog posts. There is a battle scar element and a level of failure that’s represented in the fact that 90% or more of technology companies fail. We started a business around taking the simple yet deterministic playbook that we’ve built around building and scaling technology businesses for about $1 million to $50 million in trailing twelve months revenue and taking the drama out of the day-to-day. We invest some of our fees back into the businesses to help them accelerate growth and to tie our success to theirs. I’ve had a great start. We’re about 30 people and it will look a lot more by year-end.
We’re going to dive a lot deeper into that. Before we do that, you were the CEO and Founder of a startup yourself that was acquired. Tell us a little bit more about that. What was the company that you were running before and then we’ll get into the acquisition?Mitigating risks drives the business value up. Click To Tweet
It was a company called StartUp Solutions that I’d founded to focus on companies prior to $1 million in revenue that were struggling to raise capital, fill some of the opportunity gaps within the business. They weren’t realizing some of the goals and objectives that they had set out to do, whether that was raising capital from a venture capital fund or that was more sales and marketing focused initiatives. The acquisition was the roll-up into Morgan Hill Partners, which is the company that I mentioned that we’re talking about. What’s interesting is that acquisition came along with a few others at Morgan Hill. In mid-2019, we were presented with an opportunity to start scaling the business by partnering with a few exclusive tech-focused family offices and private equity firms. Since then, the majority of our go-to-market efforts have focused on providing what we call Operators-as-a-Service model or an Outsourced Operating Partner Program to both better assess deals pre-investment and to truly maximize value for PE and family office investments during the hold period and maximizing pre-sale.
I want to get much more granular because some people that are reading this will think this all sounds good but it’s a high level. I don’t understand exactly what’s going on here. If someone’s not as savvy around the startup world, take us inside Morgan Hill Partners. I understand you started this company. It was acquired by Morgan Hill so you got rolled-up into that and then continue on as a partner or involved in that business. What are you guys doing? It sounds like you’re part consultant, part adviser, part investor, some other part that I haven’t yet figured out. Explain what is the actual model? Walk us through an ideal client for you and how do you engage with them and then how do you support them?
The clients that we have are the technology companies that we work with. A good example of such a company is the past exit that we had. That was a company that went out to exit and had about a $32 million enterprise value on it. We worked with them for about seven months and pulled a few levers, built a few areas of the business up, and tweaked a few potential value drivers conversion into a SaaS company, reduced revenue concentration and things like that that truly drives value up when you’re able to mitigate some of those risks. Over the course of seven months, we had four of our partners involved, and ultimately ended up exiting the business at a $36 million valuation after only seven months. A significant increase in value in only a matter of seven months by doing what we know how to do best, which is pulling value levers in the business.
Is that a formula to increase beyond where they were when they first reached out to you?
That was a $13 million increase over seven months.
Why would a company reach out to you or how did that happen? I’m asking because some people might be wondering, “Here’s a company that’s looking to exit, their value rate is $23 million. Clearly they’ve done some things right.” What would get them to say, “I want to engage and to work with a company that can help me to make more?” Where does that openness or mindset come from? How did you land that client?
A lot of it is through referral and through word of mouth. The places where we’ve seen a ton of success drive more success whether that’s through clients or partners. That’s always the best determinant and the quickest sales cycle. Outside of that, we’re filling a gap in the investor ecosystem where you’ve got investment bankers that are taking companies out for sale helping them raise capital. You’ve got financial sponsors, whether that’s private equity or otherwise, that is investing capital into the business. You’ve got a savvy team that may not have a strong history of operating, but has some experience and enough talent on the roster and opportunity in the market that they’ve been openly given the investment.
Somehow, someway, over 90% of these companies end up failing. When you take that to a more granular level there are areas around the product and there are areas around the company. What we try to do is take a very methodical look towards building both. There’s a development process that a lot of people know around building a product. It’s not all that different when you’re building a company. If you put the right things in place and you focus on the right areas at the right time with the right people, there’s art and science behind building a better business.
Let’s talk about your approach to the fees within the organization. It sounds like your company gets paid a fee to provide the services which are services to help to create greater values of pull those different value levers. In addition to that, is there some equity component? How are you typically structuring your deals with clients? There might be some interesting opportunities there for consultants to learn.
I do want to make one point very clear which is that we’re consultants but we’re also operators. Being in the business executing whether that’s executives or as operators within the model allows us to have a little bit more flexibility where we can have a few different value drivers that help to create the perfect comp structure for whatever the deal is that aligns with both the financial sponsor and the company. With the example that I gave, that case study, we had a small cash retainer but most of the value was built in the net around what value we increased in the business from the $23 million to the $36 million. We bet on ourselves because we know that this is a repeatable and deterministic model that we leverage. That’s where we try to focus whether it’s in that type of model worth a percentage of the net, the percentage of equity or percentage of sales. We try to align whatever our goal and performance outcome is with that company and financial sponsor to make sure that it’s an easy sale, but also that it’s a great exit for everybody.
In the years that you’ve been doing this, have you ever worked with a company where you’re getting that smaller retainer, the majority of the compensation is going to be on the equity or upon the exit but things drag on a lot longer or the exit doesn’t work out the way that you had hoped?
You always have those types of situations both at Morgan Hill and pre-Morgan Hill. We try to mitigate those as much as we can by leveraging focused, crawl, walk, run approach where we do some very light assessments and light engagements to make sure that it’s a fit for both parties.
These are paid assessments that are done before you formalize the retainer and equity performance type of deal.
The crawl part is an unpaid talent assessment that helps us to determine the coachability and the ultimate fit of that founder within our view of the world.Putting the right things in place and focusing on the right areas at the right time with the right people build better businesses. Click To Tweet
How do you do that? Is that an assessment tool or is it certain questions that you’ve developed yourselves?
It’s an assessment tool that’s backed by a ton of scholastic research and founded by a woman who has several PhDs in the space, and has created a five-minute assessment to build a roadmap around leadership development, employee, coaching, team building and most importantly coachability.
What was it called?
It’s called PREP profiles.
The crawl stage is you’re going in, you’re not charging anything, you’re taking through this assessment that then tells you this look like some of that we want to work with values-aligned, coachability, all that stuff. If that looks good, then what is the next stage look like?
The walk ends up looking a bit more initial get started agreement, which is typically a few months. It has some cash retainer built into it, some upside but it’s making sure that if there is upside in the deal, everyone at the table is aligned with that philosophy. All too often, we’ve been brought an engagement where we weren’t seen as somebody who was a strategic partner. The equity that we had wasn’t as meaningful to us because we didn’t have a seat at the table in the same way that we had originally planned, but also almost was a negative towards them. The idea of having different forms of compensation is to truly align with whatever the goals of the engagement are. We want to make sure that we do have one of those engagements that has some upside that we’re at the table. There is a level of coachability and a level of focus on what those goals are and what Morgan Hill Partners is there to help with.
In that walk phase, do you have a clause that stipulates if either party does not want to move forward after those few months, that you can go your own ways? How do you handle it? I’m asking a lot of these questions, Jim, because a lot of consultants shy away from the idea of percentage or equity deals because it seems too complex or too scary. The consultants that use these, and we have many clients in our coaching program as well who use elements of this, it’s very successful for them. It can create exponential gains. Having you walk us through this step-by-step thing is very helpful for people.
I do think that we have the benefit of being in the middle of the financial sponsor and the tech company where there are two major stakeholders that allows for some additional risk mitigation based off of the way that the company has been funded. Some additional risk mitigation, as I mentioned, was the PREP Profiles Assessment that we do to understand the motivations, the communication styles, the coachability, and the personality of not only the founder but the executive team. That helps us to mitigate some of our risks initially. The final thing is proper scoping. It’s an important thing. As your thinking about potential upside in your engagements, there’s a famous method around taking upside as part of the engagement called slicing the pie, which takes risk into the equation and focuses on still having a bill rate and still having a multiple on whatever that cash rate is if you’re taking upside, but doing so in a way that everyone aligned in the same manner. It’s a very clear connection between what cash rate would be and what the equity upside would look like.
We’ve talked about crawl and walk. What does run look like? Take us through that.
Run with a direct tech company was very familiar to the one I mentioned where increasing the value in $23 million to $36 million by pulling a few levers. We had four different people on the team, one on the technology side, one on the revenue side, one on the strategy side and one on the investment side who was helping to bring some potential capital providers and investment banker to the table. Between those four parties, we pulled a number of the 40-plus different types of value that is consistent in through B2B value around organizations from table stakes value all the way up through aspirational value and strategic value.
Whether it was increasing revenue opportunities and shifting of go-to-market or transitioning some of the technology and products within the organization. That’s a very common theme for us. An engagement that lasts 6 to 18 months has an end date in mind of whether that’s an exit or us bringing in full-time people to replace us. We try to set an exit date at the beginning of that run phase. If it’s with a financial sponsor, quite frankly, run looks like an engagement, not only with that portfolio company but potential engagement with multiple portfolio companies given the level of success that we had demonstrated at the initial one.
You mentioned that your compensation is two parts. There’s the monthly retainer fee and then there’s the performance or the upside based on the gain if the company is acquired. There’s an exit then clearly, as your example, from $23 million up to up to $36 million. That’s a clear difference. You have a percentage of that gain, but you mentioned that there are also some situations where there is no exit nor acquisition. In those situations, you’re still getting your retainer fees but how do you capture upside? How do you get compensated for the improvements and gains that you’re making if there is no exit or acquisition?
A big driver of our walk and crawl phases is flushing some of that out around what are the true goals, not only of the team but also the sponsor behind them and making sure that whatever compensation structure we create is based on the alignment of those goals. We don’t do lifestyle businesses, we do due profitability of businesses. If the goal is profitability rather than exit or the goal is driving revenue growth, we’ll structure the upside of that engagement as such, whether it’s inequity or percentage of sales or percentage of bottom-line profit. We’re trying to focus on aligning with whatever the goals of the company are and structuring a team that’s been there, done that around those specific objectives.
You and the client get very clear about what success looks like. That might be going from $2 million to $5 million in revenue. It might be going from a profitability margin of let’s say a 15% to 35% or it might be an exit of $50 million, whatever the numbers are that you both are agreed on and aligned. You also then figure it based on whatever that metric or target is. If we achieve this, if we go from 15% to 25%, then our part of that increase would be this and you get acceptance and alignment and buy-in from all parties so that’s then what you use to move forward. Is that accurate?The drive to continue is in knowing that we're in the midst of building something great, something with a lasting impact. Click To Tweet
You mentioned that a lot of your businesses come from referrals. You do good work. People are happy to talk about it. If you get into one portfolio company, one private equity company or family office, they might have other investments so they’re going to bring you into those. Beyond that, what are you doing to generate leads and opportunities to fill your pipeline? Any advertising? What are you doing for that side of marketing and lead generation?
For the first eighteen months, it was a very heavy referral. The last six was very focused on some business development strategies and marketing plans which were very much led by events, whether those were in-person events or like this, the remote event.
Tell me a little bit about the in-person event. Give us an example of what one of those looks like.
We do a lot of events around the financial sponsor marketplace, specifically lower mid-market, private equity, and family offices. We work with association for corporate growth, ACG, and AMA, which is focused on mergers and acquisitions to identify the right financial sponsors for us to partner with. That’s our focus around events within the financial sponsor market. Within the technology world, we still do take on direct deals. Oftentimes, those are the deals that we also provide as a deal float to the financial sponsors that we’re working with so that they get great deals from us as well. Those deals are largely driven through some of the content marketing that we do and drip campaigns that connect to that but also through some more SaaS software as service-focused technology events, whether that’s South by Southwest or others that are largely focused on technology companies and specific to the range of $1 million to $50 million in revenue where we see ourselves create the most value.
I want to dig a little bit deeper into two of those. You mentioned working backwards here with the technology companies. You might go to a software as a service type of event or where those types of companies are likely to be. Are you hosting an event within those events, a dinner or are you walking the halls and meeting people?
Oftentimes, where we began was in attending then connecting to sponsoring and exhibiting. Where we’re headed is mini events within those larger events, in many cases, and also hosting our own events where we showcase the deals that we’re working that we can provide as great deals to financial sponsors. Also, the deals that we’re working with financial sponsors that they can then present to later stage financial sponsors and potential exit opportunities. It’s this virtual loop almost whether the financial sponsor or us is providing the deal flow, we’re passing it back the other way from Grade B deals that Morgan Hill is working with to Grade A-plus deals when they’re ready for the financial sponsor. That allowed us to have this mutual deal flow sharing with the financial sponsors that we’ve chosen to work with.
The other one that you mentioned in terms of events is you said you are working with some of these associations for corporate growth or so forth and they help you to identify clients for you. What does that look like? Are you buying a list? Are you sponsoring some content or some event with the association?
They’re not helping us find the individuals, they do provide lists as part of the membership and they do focus on a data-driven approach towards making sure that you’re able to meet the right people if you put the work in on the front end of the event but it’s all on us at that point. We’ve got a list to work from. We’ve got to do our own research around who’s the perfect fit for Morgan Hill from a financial sponsor perspective. We need to make sure that we’re reaching out to let them know we’re here and there are a few exclusive financial sponsors that we’re trying to partner up with and they are one of them.
Are you then hosting an event for those people or you’re doing business development outreach to have conversations on a one-to-one basis?
It’ll start with a discussion at the event which might turn into a private invite to one of our smaller events. It’s a typical sales process with a financial sponsor where they see the value on their side and they see the value on ours. We start by sharing deal flow that then evolves into doing some assessments, very similar to what we do with the technology companies. The engagements that we work with, whether it’s a portfolio company or a deal that we are driving towards them that is ready for financial sponsor investment.
Jim, just to break us down. What I’m hearing is you become part of an association that gives you access to the events that are happening at that association and a membership list. You’re then able to use that list to connect with, analyze, and then reach out to the people that you want to have a conversation with. When they come to the event or even after the event, you’re connecting with them, having a conversation and you might invite them to a smaller event that you would host. From there, it’s the sales cycle of a follow-up, more conversations, and working down that pipeline. Is that correct?
You mentioned content marketing that people are also finding you through content marketing. What does that mean to you? What are you guys doing right now from a content perspective?It's incredible to see the progress when you look back at where you are from where you were months ago. Click To Tweet
We are in the midst of revamping our newsletter that’s focused on providing the right content to the right people at the right time. That starts with the right deal flow to the right financial sponsors but it ends up in a very focused drip campaign with both the financial sponsor and some of the soft handoffs that we have our operating partners in each individual market that they’re working hand-in-hand with them. All of that ties back to some very focused content around three main story arcs. The first is the most important being the founder’s story or the executive story around making sure that founders or executives that we’re working with know that we’ve been there done that, that we’re not consultants, we’re true operators and serial entrepreneurs.
We not only know what we’re talking about but we have the battle scars to prove it. That then connects to them telling that story for us from the success that we’re having with them. That’s the boundary story arc. The second would be the financial sponsor story arc which is focused on that passive the value that I mentioned around creating value within technology companies and what they coined as operational engineering which is the growth-focused mindset that connected to what they’ve traditionally done in the PE world, which is financial engineering. Taking a very top-line approach and value-driven approach towards increasing enterprise valuation within the business is what that story connects back to. The landscape is changing, whether it’s within the PE market or family offices. Our third story arc is targeting the younger group of investors that are either taking over the family office, an associate or a vice president at a private equity fund.
When you’re talking with these story arcs, how can someone use that? Explain what is a story arc? How are you strategically thinking about using these story arcs? Why not have a newsletter that goes out to a bunch of people that are your ideal clients and leave it at that? It sounds like you’ve thought this out more than doing a blast.
Think of it almost like a TV show or a series that you would see on Netflix where the story unfolds over a number of episodes, then connect that back towards what you would do with a blog or a marketing campaign. It’s a series of content, whether that’s audio, video or written that connects back to a common theme and is keeping people both wanting more as the next turn of that content comes out and also wanting to read backwards towards where that content came from in episode 2 versus 3.
You’re talking about your content and your plan that send out is almost a narrative, a story rather than information?
That’s exactly right.
It’s very interesting because we went through this process at Consulting Success where our previous newsletters, if you look back years ago, were very informational. It was like here’s information, here are some strategies and ideas but what we found is that we weren’t doing a very good job of telling our story for people to feel like they understand you better. At the end of the day, it’s people doing business together. Through working with some mentors and coaches of our own, we realize that we were not doing a very good job of telling our story and communicating through narrative. We went through this whole thing. Now when people sign up for our Consulting Blueprint which they can do from the site in many different places, we take them through a series of narratives and stories where we still give and offer strategies, ideas, principles, and best practices that we hope will add value for people. Beyond that, we’ve gotten the feedback. That’s a lot more interesting than people are looking for. They read one email and then they’re looking forward to the next one. That’s what I’m hearing that you’re talking about.
For everyone, in terms of validating what Jim is talking about, we’ve seen that firsthand and we had to get some help with it because it wasn’t our natural way of doing things. I’m very much to the point and not always telling stories or telling stories in the most effective way. We got some help with that but we’ve gotten very good feedback as a result of it. I have another question here for you, Jim. You’ve now been Morgan Hill Partners, years of slow in, you build up to 30 people, clearly having some success from exits and other things going on. What’s one of the challenges that you and your team have faced as you’ve been building this business? What stands out as either it’s even a challenge that you’re having or a challenge that in the first two years was a tough one that held you guys back in some way and now you’ve overcome it?
I’ll go ahead and connect that into a couple of things. From a hard times perspective, the pictures they paint of a day in the life of a StartUp founder are often much more glamorous than they are. As the TV shows about entrepreneurs don’t glamorize the 4:00 AM nights of the struggles between cofounders or the stress it takes from a financial and personal perspective. I thought of giving up. We all have at times, but fundamentally when people decide to start their own company, they do it because they believe that sacrifice is going to be worth it in the end, whether it’s a consulting company or a tech company or otherwise. There are some long days and nights but the drive to continue is knowing that we’re in the midst of building something great or with a lasting impact. One more thing is the mindset that gets you through those days because those efforts add up over time. It’s incredible to see the progress when you look back at where you are from where you were months ago.
I had a conversation with one of our coaching clients who was saying, “I’m having some trouble with prospecting and doing my outreach consistently. I need to be doing it but I’m not getting it done the way that I should.” On that call, we were with a few coaching clients and hit on, “Get clear on why you’re doing this.” Not everyone’s going to enjoy doing prospecting or follow-up. Oftentimes, that stuff’s uncomfortable. It’s unknown. You’re venturing into new territory, but ask yourself like, “Why are you doing it?” You left the corporate world for a reason. You want to likely create more freedom, income, and impact but there’s a real reason. It’s maybe not just you, it’s for your family, your kids, your spouse or for the community. Get clear on why you’re doing what you’re doing. What’s the real driver behind that? That will help you to the next time you face that feeling of like, “I don’t want to do this,” Think why you wanted the outcome that end and goal, and that’ll often help to motivate you and encourage you to take that step. Once you take the step, it becomes a lot easier.
It’s a great feeling when you look back compared to where you are now and see the success. It’s also a hard thing to do. With us, the incredible talent that we’ve brought on board is what’s propelling us forward. It’s truly a pleasure to be a part of such an incredible team but when you look back prior to some of those hiring decisions and tenants that you set in place, you have to think about the collective culture and elements of the team that you’re building from. For us, each hire should raise the collective IQ and EQ of the room. That’s a big tenant of ours. Others have other things that are equally as important for them. That’s an important thing to think about as you’re building a team.
Jim, I want to thank you for coming on sharing some of your journey and experience with us. I want to also make sure that people can learn more about you and your work and see what you all have going on. Where’s the best place for them to go?
Jim, thanks so much for coming on.
Thank you, Michael.
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- Informational YouTube video: https://youtu.be/vqFw-2l7_2M
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