For anybody thinking of selling their business down the road, they want to see check deposits, copies of checks, copies of invoices, and make sure that everything matches up. HR expert Lori Kleiman joins host Michael Zipursky in this episode to talk about selling your consulting business and starting over. Lori walks us through her transition from running HR in a family company to becoming an HR consultant and starting her own HR business. Sharing her valuable insights on selling a business, she also gives some tips on how you can effectively start your next entrepreneurial pursuit.
Listen to the podcast here:
Selling Your Consulting Business And Starting Over With Lori Kleiman
I’m here with Lori Kleiman. Lori, welcome.
Thank you. I’m excited to be here.
Lori, you’re an expert in HR. You provide consulting training at speaking to help companies to solve their HR headaches. How did you get into HR?
There is a funny little story of how I got into HR. It goes all the way back to my collegiate days when I thought I was going to be an accountant. I went to university and realized, that the world was too sterile for me and I wanted something that involved more people. I found a degree called Industrial Sociology. It was the forefront of HR and that was my major. I joined my family business back in 1985 when I graduated from college and started as the HR director there.
What was that family business doing?
The interesting thing about that family business is my grandfather had started it and we were a commercial photo lab which was great. We were doing well and then the smartphones came out. That was the end of the world of commercial photography.
From that experience of running HR in the family company, what happened next? If you could take us through from that point to now, Lori is the consultant, what happened in between?
I began to see the writing on the wall as did most of my family and had to figure out what I was going to do next. I decided that I was going to open a consulting company for small businesses that didn’t need their own HR person. I would be able to run that from the basement of my home while I was raising my three kids and it will be a perfect lifestyle business cottage industry. That was my goal. I set out to do that and I know a lot of your readers are thinking of that transition from a regular paycheck to entrepreneurship. What I was able to do that was great, that helped bridge the gap is, I took a high-level temp job with a bank in town. I work for them for a couple of days a week while I was getting my business off the ground. I went out and presented to small businesses that didn’t have HR people. Slowly but surely, I got one customer after another because the need was enormous and it was terrific. I love what I was doing, but it quickly became that I needed more help.
You need some HR help for your HR consulting.
I needed HR help for my HR business.
You mentioned that you start going out and giving presentations to the companies essentially having sales conversations with them about what you could offer. How did you do that? We have a spectrum of different consultants whether people were running a multimillion-dollar consulting business all the way to those who were looking at becoming consultants. Regardless of what stage people at, still the importance of getting in front of ideal clients consistently and having conversations remains the key. How did you find those people? How did you get in front of them?
This is probably my favorite take away that I share with entrepreneurs all the time. I started going to the chamber of commerce meeting and going to women’s networking groups. I didn’t feel like I was getting a ton of traction. I was meeting lovely people, but it wasn’t necessary. The turning point and what made my business what it became was identifying the vertical partners of my clients, here is the example I’m going to give you, “No matter what your industry is, you’ve got these power partners as well.”When you focus on the value that you can bring to your clients, it increases lifetime value for them and helps you close deals faster. Click To Tweet
I was going after small businesses that were frustrated by their lack of knowledge in HR. The first thing is understanding who you are going for. I ended up aligning myself with one big payroll company in the United States and insurance brokers. Those were people that were meeting the same people I wanted to meet, but did not have solutions for their HR problems. I did no referral fee and I didn’t take money from them, but they brought me into client after client, and I was able to return the favor.
What was the benefit for them? What was the reason for them to bring you in?
For instance, let’s say we’ve got a payroll company and they want a business to switch over to their service. Often the pushback was, “It’s too hard. I don’t have anyone here who can do that for me.” The salesperson would say, “Would you be willing to meet with a partner we have? She comes in on a project basis and she will get you up and going in two or three weeks.” For the insurance broker, their client was asking them to help with open enrollment and to help with COBRA. They would say, “We don’t do that, but we have somebody who can.”
How did you go about getting those meetings? There are a lot of insurance brokers or payroll companies, but not all of them are necessary. Maybe they are, but you would think that not all are open to and searching for partners like you or consultants that offer those services. Probably a natural reaction for most consultants reading to this is, “I don’t want to bother these people. How could I even get them to be interested? How could I set that meeting?” What approach did you use, and if you remember any language that you used to reach out through email, phone calls or whatever you are doing? Take us through what that looks like.
Those were the other people showing up at the chamber of commerce meetings and all other places. I would say to them, “Do you go in and try to present your product? Here, we don’t have HR so I have no way to implement this. Let’s talk together.” You have to tell them why your solution will sell their product.
How long did it take for you from starting to have those initial conversations to the point where you’re getting business through those referrals and introductions? How much time is in between?
It was different with different partners, but it’s just a couple of months. Either they understood the benefit or I move down to someone else. I didn’t spend a lot of time with that insurance broker who said to me, “We’ve got it,” I already moved on.
That is such an important lesson because a lot of people in terms of their marketing, nurture and follow-up, they try and keep pounding over to people who aren’t buyers. That doesn’t necessarily mean that you should neglect them completely. Certain people are ready to engage a lot sooner so you want to shift your focus to those that are already the buyer and are ready to have that conversation. That is a good insight that you are sharing there. Once you start to see that it’s working for you, did you continue to go to the same chamber of commerce meetings? Did you go down to other ones? What happened? How did you scale or grow that opportunity?
What I started doing a little bit further down the business path was I set my younger people as a development opportunity. This allowed me to build the business to the point I ended up with seven people working in the basement of my home because it grew.
I’m hoping it’s a good size basement.
It wasn’t big enough and I can tell you about the great way I ended that business. What I started doing, for instance, in the payroll company, was we would network within that company so that I needed to get to know all of their different salespeople. With the insurance brokers, I picked two or three that I partnered with a lot. They’ve got a lot of clients. You don’t need zillions and you don’t need everyone. You want to offer it as a bit of a special service they can bring in that every other insurance broker in town didn’t have. They didn’t want me working with, but I worked with four insurance brokers, but only one payroll company.
From those four insurance brokers and one payroll company, how many different clients would you say that you landed or engage with?
Hundreds. That was our marketing strategy. We were out in the community doing some things. We didn’t do any direct marketing to end-users. We worked through these people.Never ever sign anything no matter how excited you are. Click To Tweet
I want this to be tangible and actionable for people. Once you start to build that relationship with one salesperson or one broker in the insurance company, what did you say or do to get deeper into that organization and have them introduce you to their colleagues?
A lot of times what I would say is, “Can I come to a sales meeting and talk about the work we’re doing together?” I would recommend to readers to think about getting in with the sales manager, the VP of sales and I would go in and do presentations about what we do and why it could help them close their deals if they brought us in.
You’re focusing on the value that it can bring to them. It’s not about you, your business, and how many clients you could get through this collaboration. It’s all about what value you could add to their business and how it increases lifetime value for them or close the deal faster or whatever it might be. They’re more willing to engage further in a conversation to look at opportunities to work together. Let’s go back to the story that you we’re telling. You were building a business in the basement, things are rolling, you’re getting clients all through attending these events that lead to introductions and projects. That way, you get up to seven people. Talk us through what happened between the time it was just you and your basement, to you and seven people.
It may be interesting for some of your readers that my business model was that if we came in and did on-site human resources, we charge about 50% of our typical consulting rate. That was all floppy business and my thought behind that model was that it was going to pay my fixed expenses, but it took about fifteen hours a week of an employee. Every time I got one of those clients, I had to hire a new person. The pricing with the client was such that it covered a new person’s full-time salary and then all the consulting work we could add on, was the profit. That was the business model. We basically added a new full-time person every time I got two on-site accounts. You need a good metric of when you’re going to start hiring. That’s how we got to seven. We ended up with seven over an eight-year period.
Typically, how many clients were you working with at the peak within that twelve-month period?
When we had seven, we would have two or three on-site accounts and they would do probably eight to ten projects a year. We had 100 clients a year going through our business.
Can you give us a sense of what revenue is that when you had those seven people?
We were up to about $1 million in sales and I talk about that publicly all the time.
You went to this with the idea of raising three kids, lifestyle, cottage business, and you’re talking about having seven team members that obviously you’re managing and that meetings work with. What happened? What caused you to say, “The cottage is for sale. I’m back in the city and I’m making things happened.” What was the shift? What were the decision and the turning point for you to make that switch?
One funny story in the shift is that my son, at that point, was a freshman in college came home. He was sitting on a couch in his boxers watching the news and one of my employees went upstairs for a cup of coffee and I said, “We got to do something.” I knew that either we had to go get a proper office somewhere which was going to mean a lot more fixed expense for me. I got a call from one of my employees, this is how serendipitous the world can be, was at a seminar with someone from Arthur J. Gallagher, which is a huge insurance company. The woman she was by coincidence sitting next to turned to her and said, she knew she was in the HR space, “We need to find an HR consulting company to acquire.” She brought me back the business card and said, “I don’t know if you want to talk to this lady.” Within a few months, I had a deal with Arthur J. Gallagher. They bought my consulting company and agreed and that was part of the deal. They kept all my employees on, the same salary, great deal, better benefits, all that stuff and me, too. We all moved to a proper office with Arthur J. Gallagher.
You started this off as an intentional lifestyle business cottage in that industry. What happened between that and the decision to bring on seven people or start to add employees? What made you make that switch before the acquisition?
It was that the word was getting out that we were doing this and people weren’t doing this. There was more business and I knew what to do with. I didn’t know how to say no to people. I brought in the right employees that I loved working with slowly, one after another. It just happened. The money was good. I was continuing to enjoy it and do it the way I wanted to do on my terms. That’s why I allowed it to grow.No matter what your industry is, you’ve got these power partners you can align yourself with. Click To Tweet
To this point, everything sounds good. The business is growing and you have a lot of introduction to coming in. Looking back, what was one of the greatest challenges that you faced? What was a tough situation or a big learning experience for you?
Back then, in 2004, we knew we needed technology that could drive systems. We knew that we needed a place and a way to maintain replicable work so that when clients signed on with us, they knew they were going to get a project done the way I committed as the salesperson. Back then, there were no apps, programs and systems that you could just buy. I created, I hired, and I spent $35,000 in creating a system that never worked right. It was good in concept. Nowadays, you would just use Asana, Trello or one of those. You would be on their free system and it would do everything I was trying to do. Back then, I would say, it was the technology. We didn’t even have wireless networks. Our computers were all hooked together by cords all over my basement.
Let’s talk about the acquisition. It sounds you got a smooth process. Was there a lot of due diligence back and forth? Talk us through how that all works. What were you able to share?
I can share most of it. The due diligence was beyond easy because Gallagher is a Fortune 500, publicly traded corporation. They were used to doing acquisitions of $20 million, $50 million, or $70 million regular businesses. They came for their due diligence visit. I still know about it and I laugh about it. Four men came and they brought the accountant, the head of IT, and somebody from marketing. They came down to my basement. I said, “Really?” They had scheduled two days to be on site. I told them, “You don’t need to be on-site for two days.” They said, “This is it?” I said, “Yeah. I tried to tell you people that,” and they said, “Good.” Our due diligence is everything has to go.
The only thing they did in due diligence was verifying invoices and checks for my clients that my sales were truly what they represented to be. As it came to the technology, they’re like, “All this is going.” Those guys sat around and visited. They will come in. For anybody thinking of selling their business down the road, they want to see check deposits, copies of checks, copies of invoices, and making sure that everything matched up. At that point, my sister was the bookkeeper. We did everything on QuickBooks ourselves and they had a lot of questions about transactions that they said, “Whatever.”
How did that work out for you? How did they work out financially? Were you excited? Did it work out well?
Yeah, it worked out well. I called the guy who was head of the division I was going into the night before we were supposed to meet. I said, “Scott, I’m not going to do this for a couple of $100,000.” The more I’ve been thinking about it to your point earlier Michael. “I love my business, I love what I do, and I love my people. We shouldn’t even bother meeting,” and he said, “We’re not talking a couple of $100,000. We need to meet.” The biggest mistake I made was I went to the meeting and he slid a letter of intent across the desk. I was excited with the number that I signed it because I thought a letter of intent just meant the intention for us to continue this conversation. They did not negotiate with me off that price.
Were you satisfied with that price though?
I was satisfied, but my lawyer thinks that we could have gotten a little bit more out of them. Never ever sign anything no matter how excited you are. It was a good price and I don’t think I’m allowed to disclose what it was. It’s always a multiplier of sales. It’s how most deals for consulting companies come down. I got about 80% of that number upfront when the deal closed and I had to earn.
How long was earn-out for?
For everyone who is reading, wondering what exactly an earn-out is. You said you got 80% in cash and the remaining 20% of the payout right out of the acquisition to sale. You would earn that over the three years. You had to maintain or reach certain targets in order for you to receive the full 20%. If you didn’t hit those targets and you left early, then you would forfeit whatever you have not received on that 20%.
Exactly. The nice thing with Gallagher was while I was getting my earn-out, I was also getting a generous salary. That was part of the best of both.You need a good metric first before you start hiring people. Click To Tweet
At what point did you decide to leave Gallagher and then start your next thing which is HR Topics?
That’s what I do now. I was with Gallagher for a few years. It was great, I loved it, and I learned a ton, but I am not a corporate person. In my last several months with Gallagher, they started having me go to offices all around the country doing marketing meetings. Giving valuable ways to their clients about human resources to try to get them to become an insurance client. I was doing marketing events essentially. I loved it so much that I said, “I’m going to try to do this on my own.” In 2013, I left Gallagher that summer. I was fortunate enough that the first year, I spoke at the National HR Conference and that catapulted what I’m doing now. I do public speaking at conferences and conventions. I do a lot of online training to HR people, primarily, and I do a little bit of consulting.
The training work that you do, where do you get most of those clients from now? Does it come from your speaking then turned into clients? Does it come through some other direct marketing? What’s the source of those leads and clients?
They are coming from the list that I’m building. I have become a big name in a small market. That is what I speak to the HR Departments of One. I am still in that model of little HR departments. It all comes through list building and I do a lot of free webinars. I do a lot of speaking for free, but it gets my name out there. It’s all list buildings, but now I do a lot of social media. I do Facebook and LinkedIn ads.
Is there one thing within all that you feel is working best for you?
It’s the webinars for other vendors that I do for free.
That’s a big opportunity for a lot of people. You are going up to people who already have the audience that you want to reach. Are these ex-corporate partners or ex-companies?
It the exact the same ideas I did years ago. It’s payroll companies that I do it a lot for. Thinking about, “What vendors do my clients use?” The number of free webinars these vendors are producing and then they want consultants to speak. It’s a win for everybody. I was at an HR conference and I will go around the exhibit hall. I’ll give my card out to booths and say, “Do you ever do webinars for your clients?” Almost all of them say, “Yes,” and then I say, “I’d love to talk to your people about that.” It’s terrific.
When you give someone your card and say, “I love to talk to your people about that.” How often do they reach out to you? How often do you need to follow-up and reach back out to them?
Usually, the right person won’t be at the booth. What I tried to do is I say, “Who in your company arranges the webinars?” I try to reach out to them. Maybe half the time is effective enough. I was talking to a payroll company at this conference and I said, “I do it for all the other payroll companies. You probably would want to get me on yours?” I’m doing one and there are 18,000 people signed up.
That’s a great strategy. It’s all about leverage. A lot of people spend a great deal of time trying to get in front of people, but if you can identify some of them who already has the relationship or has access to who want to reach, then leveraging that is a much faster way to get in front of those people. That’s a great illustration and opportunity for everyone reading to look at how to get their message and get more visibility in front of the people that you want to serve. This has been beneficial. Lori, I want to thank you again for coming on here. Where should people go? What’s the best place for them to learn more about you and the work that you were doing?
People want even to look at the website and see how they can build their own programs. It’s HRTopics.com and I’m on LinkedIn. I loved to link in with any of you, but I’m happy to let people peek behind the curtains and tell them how I create the programs I have available.
Lori, thank you again. Go to ConsultingSuccess.com, you can type in Lori Kleiman in the search box. If you do reach out to Lori which I highly recommend that you do, please let her know what you enjoyed most about the conversation and what you found most beneficial. We always like knowing that and all the guests. Lori, thank you. I appreciated it.
Thanks, Michael. It has been great.