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The Build a Vibrant Culture Podcast brings together amazing leaders, entrepreneurs, and experts to share the successes, challenges, and secrets to living and leading as a VIBRANT Leader.
Tune-in each week as Nicole Greer interviews a new Vibrant Leader.
Email her at nicole@vibrantculture.com
Nicole Greer:
Welcome everybody to another episode of Build a Vibrant Culture. My name is Nicole Greer and they call me the Vibrant Coach and I have another, I know, vibrant guest on the show today. His name is Marcel Petitpas Marcel is the CEO and co-founder of Parakeeto Is that the cutest name or what? a company dedicated to helping agencies measure and improve their profitability. So if you're thinking, oh my gosh, we need profitability, stay tuned. He helps them streamline their operations and the reporting systems. And today we're going to talk about one reporting system that's kind of controversial and like unbelievable. So we'll talk about that. Stay tuned. He's also the head strategic coach at SAS Academy by Dan Martell. the number one coaching program for B2B, business to business, SAS businesses in the world. In his work as a speaker, podcast host, and consultant specializing in agency profitability optimization, he's helped hundreds of agencies around the world measure the right metrics. Would you like to be able to measure the right metrics? Because you've got a dashboard needs cleaning up, I bet. And improve their operations and profitability without relying on financial data and huge CPA bills from accounting professionals and take control of their business with simple numbers. Anyone can understand and measure and when he's not helping agencies make more money. He's probably watching the office. Don't we all or parks and rec on the never ending loop and eating breakfast foods at every meal of the day. OK, well, I said I was going to ask you what's your definition of leadership first. But I must know, what is your favorite breakfast food? Let's go there first. This is important.
Marcel Petitpas:
What is my I would have to go with French toast.
Nicole Greer:
So I got to tell you, I got a big loaf of challah bread, right, challah bread. the other day and sliced it up, soaked it overnight with the eggs and the vanilla and the whole shot. I'm with you, brother.
Marcel Petitpas:
I love it because it can you can go any way with it. You can go sweet. You can go savory. You can go in between. It's the most versatile thing, but just you can't beat it.
Nicole Greer:
That's right. And I love a good Benedict. I don't care what what's on the Benedict as long as the hollandaise is on the Benedict. OK, so everybody, you can eat later. Stay with us. OK, so, Marcel, welcome to the show. I'm so glad you're here.
Marcel Petitpas:
I'm glad to be here. Thanks for having me, Nicole.
Nicole Greer:
Yeah, yeah. I really, I really love Marcel's energy. We've hung out in the past before, and I'm glad that he's on the show. It's a big privilege to have him here. He's a busy guy. So tell me, what's your definition of leadership? I know you're running two kind of, two kind of gigs in a leadership role, Parakeeto and then also working with the SAS Academy.
Marcel Petitpas:
Yeah. Um, I would say if I had to simplify my definition of leadership, it's about enabling people around you to do their absolute best work. Um, I, that's how I would boil it down.
Nicole Greer:
Yeah. Yeah. And that's the thing, you know, people, they have so much potential and, you know, the leader is the job's like, get that out of them. Right. You know, get them, get them doing stuff. They love stuff. They're good at. All right, so I kind of gave a little spoiler alert in your intro that I yesterday I was working with a manufacturing firm and the gentleman who is the plant manager. I was doing an HR audit and I was asking him, you know what's up. And so he's like, well, one of the things I'm doing is I am tracking my people's productivity. on their laptops. And he goes, I know who's overutilized and I know who's underutilized. And I was blown away. I was like, this is fantastic. So I missed the memo on the timekeeping on the laptop thing. And you actually talk about this. This is a subject that you have some expertise around.
Marcel Petitpas:
Well, yeah. And to give everyone a little bit of context, what we do at Parakeeto, we really specialize in helping service-based businesses master their business model. And whether you're selling creative or digital services, like maybe you build websites or design logos, or it might be a home service like plumbing or a professional service like consulting or accounting. In any case, the game is you have skilled labor and the business model is you acquire that skilled labor at a fixed price. Call it a salary. And then you find clients that need that skilled labor and you deploy, you sell that time basically back to the client at a profit. And if you do that well, everybody in that equation wins. The employee in this case gets a stable income doing something that they love. The client gets a problem solved that they need solved and you as a business make a profit on that transaction and on coordinating all of that. But. The key idea here is that this is all about time, you're brokering time. And so time tracking is a thing that has been around in services for a really long time. It plays a vital role in creating a dataset that is really necessary for understanding any kind of level of nuance about. what's going well, what's not going well, where money is flowing in a business, because time is money in a service-based business, even if you don't sell time directly, even if you don't price based on billable hours. And especially through COVID, the rise of time tracking paired with device monitoring, it really kind of exploded. And time tracking is already pretty controversial, especially in agencies, which is where we spend a lot of time. And this has been also quite controversial, because you can imagine, For somebody who just needs this data to make decisions, they love it. The COO, the CFO, the CEO even. But for the employee that's on the ground, if it's not handled properly, it sends a message that we don't trust you. We need to know what you're doing. It's a very big brother. It's literally like big brother in real life, this whole concept. So it's been quite a controversial thing. And we do spend quite a bit of time trying to help companies get this data. But do it in a way that doesn't damage their culture or create this kind of sense of distrust and animosity among their team.
Nicole Greer:
Okay. So we want to know how to do that because the gentleman I was working with yesterday, he put it into play about seven months ago. Um, and his comment to me was, um, my folks that work hard. We're like, okay. Yeah. No big deal. I would love for you to see how many hours I'm on this laptop. And then others, you know, did have kind of that affront or that offense rise up, you know, and say, wait, I've worked here a long time. You don't trust me? You know, and to your point, he didn't want to make anybody upset about it, but he's like, I've got to know because he's actually going to take that business and he's going to add another business to it. So he needs to find out who can help me get this other business rolling. So it's, it's about. making business decisions.
Marcel Petitpas:
Yeah. Yeah. A hundred percent. Now, with that said, we have the saying at Parakeeto, which is the data can only tell them, tell us what the data is. It can't tell us why the data is. And you know, through COVID, like I follow a lot of people on social media that work at these companies. And you see all the tricks. If you put your computer mouse on like a glass, it is going to reflect the light around in such a way that it looks like you're active on your computer. And so if device tracking isn't that unsophisticated, you could set your mouse on a glass. You could go to the beach for three hours, come back. And as far as your boss is concerned, you've been hyperproductive today. So it's keep in mind that right data is a tool. that helps us prioritize where we focus as an organization and have the right conversations with the right context. And in a perfect world, that data can also help create alignment within those conversations, meaning that as a team, we can all agree this is what happened. And instead of spending any of our energy and time arguing about what we think happens, we can just get on the same side of the table and start problem solving about how we react to that and move forward as an organization. So that is the objective of data but it's not generally a good idea to try and infer reasoning. purely from data. It's a tool that should be combined with conversation and additional context. So in this particular business owner's case, maybe he's got some controls around that to make sure that the data really is like helping him get to the right insight. But it may be dangerous to infer that just because someone's putting in a lot of hours that correlates to them being capable enough or productive enough to help with that next transition of the business.
Nicole Greer:
Yeah, I think it's just one of his determinants, you know, like he's taking in other pieces of data that might not be trackable. per se, on a computer software program, but he's adding this to his data points that he uses to figure out how to move his business around.
Marcel Petitpas:
And it's incredibly important. And so with all of that, with the understanding that the data shouldn't be used to infer reasoning, and also that the data needs to be accurate and truthful in order to be truly helpful and pointing towards the right outcomes, those are two things that people tend to struggle with in the organization. And they're also the reasons that often this creates tension inside the culture. where this is imposed on the team. And I think the biggest thing that I see in organizations around, especially this concept of time tracking that erodes culture is not having a closed loop. And what I mean by that is I come to you, Nicole, and I say, Hey, it's me, Marcel, Mr. CEO, and we're going to implement time tracking. And not only that, but we're going to implement maybe device tracking. And it's mandatory now going forward that you have this turned on, that you have your timesheet submitted, and that you tell us where you're spending your time. And then I don't give you any information about what we're going to do with that information. What questions we're trying to answer with that data. We're not showing you what that process looks like. You're not involved in those conversations. You don't see the implications of it. So it's now up to you to come up with your own story in your own mind as to why these things are happening and what's being done about it. Right. And what's the likelihood that that story is flattering and that you're going to give leadership in the company, the benefit of the doubt.
Nicole Greer:
Nope.
Marcel Petitpas:
Right. Not very good. And so to me, that's the most important part. And I think there's actually a way to start installing time tracking in a way that gets the team in a perfect world actually asking for it. And so tell. The way that I would approach that is, and especially if you're in a service-based business, you're probably dealt with these kinds of problems where there's a type of client or a type of worker, maybe an area in the business where people are always getting caught off guard by deadlines. They have to work evenings and weekends to get things, you know, across to the clients, or maybe they're constantly feeling like they're understaffed and overworked. They have too much work on their plate. They're coming to you about this, or maybe, you know, they're constantly. going over budget on projects and having issues with project profitability and clients being upset because they ran out of budget before the deliverables were done. So I would go to that team and I would have a conversation. Hey, what's going on here? And the reality is most of the problems that exist at that level are a function of we have a certain set of expectations. and assumptions that we make when we sell something to a client. And those are not aligned to reality and what it actually takes to get this thing done. And we just are not clear on those things. So it's like, well, what should we do about that? Do you think it might be useful for us to gather some information about, first of all, what our expectations were and then what actually happened? And maybe that would help us identify where there's an opportunity to adjust our process to estimate things better next time to set better expectations to, you know, whatever it is, the solution to the problem. But getting to that answer is first about having the information. And so propose it as like a temporary solution, like, hey, maybe let's just like do some time tracking in this area. So we can get an understanding of what's going on here and work to fix this. So you don't have to work evenings and weekends. And we can do a better job of planning these projects. So you don't end up paying the price for it.
Nicole Greer:
That's right. And we can actually build a client for the work that we're doing and everybody makes more money, right?
Marcel Petitpas:
And everybody wins, right? Because now our profitability isn't strained. We don't have to lay people off every time we lose a big RFP or our client fires us. We don't have to constantly be trying to find the lowest cost talent. We don't have to be stingy about our benefits and our bonuses and raises, right? It's not a firestorm all the time. So use a problem in the business that can be solved with time tracking, have a collaborative approach to that. Close the loop. So once the data is collected, you sit down with the team, you look at it. Hey, what can we learn from this? It looks like we thought it was going to take a hundred hours of design, but it took 200. What happened? Designers, is something getting in your way? Is there something about our process that's holding you up? Is there something we didn't know about the client that we should have known? Did we just underscope this? Like what's happening? Learn from them. And once you start to see progress there, take that case study and leverage that into the next step. What's another problem that you can now go attack now that you have buy-in from that team? Because ultimately that's what good time tracking practice looks like in an organization is we're closing the loop and the team is seeing how the impact of that data or what the impact of that data is on them and on the decisions that get made at the leadership level. And the other thing that's really interesting about that is it will naturally start to correct the truthfulness issue in the data. I can almost always pinpoint how the conversation around time tracking is happening inside the business based on their data. So I go into an organization and I'm like, Oh, that's interesting. Your utilization rate is always perfect, but you have an average billable rate problem. So clients like too much time is getting spent on clients compared to what was estimated. I bet you talk about utilization a lot in the organization. So What that means is Nicole, if you only have 25 hours worth of work assigned to you this week, but you know, at the end of the week, your manager is going to come to you and report on your utilization rate. And if it's not good, they're going to have a disciplinary conversation. Well, you're going to figure out anything that you can do, make the logo bigger and smaller again for three hours so that you can get to your 40 hours. Right.
Nicole Greer:
Oh, my gosh. I would not want to do that for three hours.
Marcel Petitpas:
Right. But I got to do what I got to do. You're going to get what you need to get into the timesheet to avoid that disciplinary conversation. And so the way that you close the loop and the way that you talk about this information with your team, you got to think about what incentives does that create for them to be truthful. But if you're constantly having that conversation of, hey, it seems like we're over-servicing all of our clients, then the team might go, well, maybe that's not really the case. There might be a couple of padded hours in there. And then the following week, their utilization is low. And you're like, hey, well, it doesn't look like the team's that busy. We're going to sell some more work. And they're like, oh, well, maybe that's not true. We probably didn't put all of our time in there because we didn't want it to seem like we're over-servicing the clients. And that pendulum is going to go back and forth. But as long as that conversation is balanced long enough, eventually the team learns like, oh, okay, I just need to put the truth in here. And I'm not going to be penalized for it because it's a curiosity based conversation and always aimed at trying to make things better in the organization for everyone involved. So that's a long rant, but it's how we think about it.
Nicole Greer:
Yeah. And I love what you're saying. And many of my listeners have heard this from me before, but like the thing he's saying about expectations, I think is absolutely huge that leaders do a lot of assuming. And we all know that assume means make an ass out of you and me. But if you set the expectations at the beginning, you're in great shape. But I want to go back to what you said at the very, very beginning. You said, you know, we introduce it. We say this is what we're doing. Suck it up, buttercup. This is the new policy. And then we start telling ourselves a story about what's actually going on. I think that is not only true about this time tracking, but a lot of other things that we do inside of businesses. Right. And so I have a mentor. Her name is Ann Strutt. She says, people will come up with, you're going to love this Marcel, phantasmagoria. That's what she calls it. You come up with phantasmagoria about what's really happening. And she said, you don't want that. You know, you want to set those expectations. And another mentor I have, he said this, uncommunicated expectations are a premeditated opportunity to be disappointed. And I'm just like, dang, if that isn't good. And it's absolutely true. Everybody's disappointed. I didn't set them right. So then it doesn't work and I'm disappointed. And they're getting this directive and they're disappointed because in their mind, their phantasmagoria, it's I'm being spanked right now or I'm not trusted or whatever. So I love it. You said first, do it by a project. And then you said you need to go through the pendulum swing. Like that's part two. Right. So that we're having these honest, open conversations with a lot of curiosity.
Marcel Petitpas:
And I think that that's such an important part, because even if, let's say, you did all the change management one-on-one stuff, you had the buy-in, and you involve people in the process, and they were all like, yeah, OK, this is great. We understand the reasons why. You communicate the reasons why. This is how we're going to use the data. Then you launch it, and six months go by, and they never see that. They're just logging their time, it's going into a black hole, and they never see the reports, the conversations, the decisions that are getting made based on what they're putting into their timesheets, you're still going to end up in the wrong place, unfortunately. So having that surface area with the team where you have a dialogue and say, Like, let's look at all of our clients and how much time we thought it was going to take and how much time it actually took. And let's get curious and focus on the good stuff too, right? This client, we spent half as much time on it as we thought. They were thrilled. The website looked incredible. What can we learn from this? How do we replicate this outcome? Great job, everyone. Amazing. And then, oh, this one, it was the opposite. It took us twice as much time. It's definitely don't say you guys went over budget on this. That's not a good thing to do. The question is, what can we learn from this?
Nicole Greer:
Which sounds accusatory. Right.
Marcel Petitpas:
Yeah, correct. Right.
Nicole Greer:
And you know what it'll be? You know what it'll be, Marcel? That the client is a nudge. You know, like they told you, we want red. And then you're like, OK, red. And they're like, no, blue. And then like, no, green. And so like we had 27 conversations about font sizes and colors and oh my gosh, we need to fire the customer.
Marcel Petitpas:
Even within that, right? And that might be the insight is what are some things that we need to be filtering for in the sales process? What are some questions that we should have been asking during the onboarding process that we didn't that came back to bite us later? What is some stuff that we can do about how we sequence the review process and the things that we put in front of the client for a second and third Like, there's always going to be opportunity there. Even if the client's the problem, it's like, great, what's the solution? And I think as long as we have that dialogue with the team, that's what really makes this a sustainably accepted practice in the business. But as soon as that dialogue goes away, that's when that surface area for people starting to assign their own meaning to it starts to get created. And over a long enough time horizon, it will almost always flow to the lowest common denominator, which is a lack of trust and wanting to monitor what people are doing. And that leads to data. Right.
Nicole Greer:
And then the lights go out on your culture. Yeah. Yeah. Well, I'm trying to think of a guy's name. Maybe you know it. OK. So trivia. Somebody put it in the comments when you listen to this. But back in the way back, early 1900s, they were doing time motion studies. Do you remember who that was?
Marcel Petitpas:
I do not. You? No, not striking a bell.
Nicole Greer:
So I mean, this kind of thing has been going on for way over 100 years. I mean, they were like, we're in the toothpaste factory. And like, how quickly can you screw the cap on the toothpaste, you know, Willy Wonka stuff, or, you know, make the Ford motor car or whatever. They've been looking at time motion studies for a very, very long time. And I think really the benefit of that is that we make things more streamlined is what I'm hearing you say. We're going to improve our systems and we're going to have quality, continuous quality improvement come out of this process. And I, I think that most employees would like things to be quality, smoother, better systems. It's easier to work inside. I have a more joyful day than a, than a, than a dark day. So I think there's a lot of benefits in the Army. Like after they go do like a thing in the army, they go move people into an area and they do it. What's that called?
Marcel Petitpas:
A deployment.
Nicole Greer:
A deployment. Thank you. All right. Then they come back after that's over and they assess it. And like, there's a whole thing in the army where you sit down and you go, how'd that go? So that we can fix it. So I love what you're saying. So there's three benefits right there. What else are you seeing or what other tips would you give to leaders, you know, in this conversation and this strategy to put, uh, the time stuff in place?
Marcel Petitpas:
So one of the things that we talked about earlier, you double clicked on it a little bit, was this idea of expectations. And one of the very common things that I see in service-based organizations is that they have a fundamental issue in the way they think about pricing and scoping that actually institutionalizes unclear expectations about client work within their organization. So I'll unpack that for a second. There are a lot of organizations that I see, the way that they arrive at a price for a client, is they figure out how much time they think it's going to take. They multiply that time by a rate, and that gets them to a dollar amount. This is going to be a $100,000 website because it's, you know, this many hours multiplied by this rate per hour. And what's interesting about this is even if they don't bill by the hour, they're going to present to the client as a flat rate. This website will cost you $100,000. Internally, if that's their mental model, is an hour multiplied by a rate gets to the budget, then they've created an intrinsic link between those things. So what happens when the client comes back and says, I don't have $100,000, I only have 80? Well, what are they often going to do in that situation? Well, they're going to go back and lower the number of hours that they think it's going to take to get the project done, often without actually changing the scope. So nothing has changed about the scope. We still know that this is, let's say, our estimate here is it's going to take 1,000 hours. Great. So it used to take 1,000 hours to do this. Now we're going to say that it's going to take 800 so that we can get the budget down to 80k. And then six months later, when the project is done, that context is lost. And so it's framed as a failure because it took 1,000 hours, but we thought it was going to take 800. But the reality is we set ourselves up for that. And what we should have done is said, we're still going to scope this as a thousand hours because the scope has not changed, but we're going to discount the project and we're going to decouple time from money. And the reason they don't do that is often they don't have actually just a framework for how to price and think about their margins and have clarity on, is this a good price or not? in the absence of that link between time and money. But it is fundamentally problematic because the way we set expectations internally as an organization about how much time we expect this to take, and who's going to be required, and what skill sets, and what our profit margins should look like are often going to be very, very different than the way we want to present that to the client. But when they're intrinsically linked, we will defer to whatever we need to do to get this in front of the client. And then our expectations internally are not clear. So that I think is a real opportunity for a lot of people that sell services is to adopt a framework for pricing and scoping that allows you to decouple those things. And I'm happy to leave some resources in the show notes or point you to some stuff on our website that explains maybe a different way of thinking about that.
Nicole Greer:
Yeah, I love that. I think that's a fantastic idea. So we'll definitely put that check it out down below for sure. I couldn't agree more. And I am also hearing kind of like if I'm one of the designers I might know about this, right? Like, so that's like, there's some transparency, you know, like we, we, we put it out there at a hundred thousand, we're going to take it for 80. We're decoupling the hours. We're decoupling the price. Uh, we still want you to do a thousand hours, but this is why we did it. And dah, dah, dah, dah, dah. Um, I think that that's great for designers to understand that I'm a big believer. I don't know. I'm curious what you think. Oh, Let's see Marcel for on the same page. I'm a big believer in like open book management, you know, like this is how much money we're making. This is what our expenses are. This is where the profit's at. Um, because I think that employees can better conduct themselves when they know exactly how the business is doing. And I think people are mature enough to know this is a business that's supposed to make money. I mean, what are your thoughts on open book management?
Marcel Petitpas:
Well, I would generally share the same sentiment and I tend to have the same style of leadership where I tend to give a lot of people the benefit of the doubt and I believe that, you know, most human beings are well intentioned and with the context they are able to make balance and nuance decisions. However, however, Caveat what I what I have found. I found two things to be true. I found maybe three things to be true. The first is that a lot of leaders are not confident in doing open book management because they themselves do not have a good grasp on their financial performance as a business.
Nicole Greer:
I would agree. Like what's this number?
Marcel Petitpas:
Right. They don't know. Right. And that, you know, whether they're conscious of it or not, there is a hesitance to start opening the books up to the team because they know that as soon as any pressure is applied or some, some good questions are going to come up, Hey, like how exactly do we measure our gross margins as a business? And what was the heuristic? Like, why did we use that heuristic as opposed to measuring our gross margin this way? And probably they don't have an answer to that. Maybe that's the first time they've ever thought about that thing. And I would argue that that pressure, although it may be uncomfortable, is going to be a really important forcing function. That's how you're going to develop mastery over it. The second thing that I have found is that a lot of people, especially in larger organizations, unfortunately are just not going to be able to learn how to properly interpret financial statements with an efficient enough amount of time invested in that. It's like, if you think about it, somebody that, uh, I don't know, works as a mail clerk at a big organization has no finance or accounting background. Like, what do you think the chances are that in a couple of conversations, they're going to be able to look at a PNL and really understand what's going on there. So often it. There has to be training. And often, it's just not really that feasible to do the amount of training required to have the majority of people involved in that conversation end up with a reasonable interpretation of what's going on. And often, the fear that a lot of owners have, and it ends up unfortunately being the case, is people just look straight at the profit line and say, that's a big number. They don't think about it in relative terms. They just look at it in absolute terms, and then have this misinterpretation that the company is hyper successful, and that all of that goes into the founder's pocket, and that the equity value of the company is the amount of dollars in the CEO's bank account. There's just no concept of these things, and it is quite a big learning curve. One argument is, well, perhaps we segment the open book management to a smaller subsection of the team that has enough seniority to be able to grasp those things. There is an alternative though, which is let's use a simpler framework, right, I think that we can get the same benefits that we would otherwise get from open book management, which are in theory like very very important and practical things in a way that is not nearly as complicated by just pulling a couple of simpler metrics out so for a service based business. We would look at this as one metric, which is delivery margin for the business, which you could think of as gross margin. And there's only three numbers that control that. Average cost per hour, average billable rate, and utilization rate. Those are the three levers. So that is a much smaller surface area to educate our team on. is, hey, we care about this number. Here's the target. And here's the three ways that we move that number. And now we can talk about how each individual on the team can contribute and influence those values. That's a lot easier than let me educate you on how to interpret a PNL, and then educate you on how to interpret our PNL, and then try to maintain that understanding on an ongoing basis. That's a pretty tall order. So maybe there's like a simpler way that we can try to create more transparency and accountability with the team without having to go all the way to open book management, which is a it's a lift.
Nicole Greer:
Yeah, yeah. I worked in property management for so many years, I guess 20 years, don't tell. And when I was in that 20 years in property management. And so we had this beautiful asset worth, you know, whatever, 15 million dollars apartment community. Uh, and, um, we were given the budget and everybody from the groundskeeper to me sat in a room. We put the budget together. We did the budget backup. We knew exactly what every line item was. We knew how to make those, pull those levers. And so I, maybe we had the benefit of that one apartment community, but I will tell you, um, when I went to go work for that company, which was summit properties in the way back, um, I really became a business person that day. the day they sat me in that budget room and taught me how to do that, it changed everything for me. I mean, I became more valuable because I really couldn't read a P&L. So I think that what you're saying is a great, fantastic way of doing it too, is like, what are the key things we need to look at, our key productivity indicators, and how do we move those levers and get everybody in on it? That's fantastic. Yeah, so this thing of time tracking, we've talked about that, but you're kind of a, like a financial expert, genius person. And you talk a little bit about measuring and improving profitability. And, you know, what, what, what are the things that you coach and you teach people so that they can measure and improve their profitability? He works with agencies, but I think this, this is highly applicable to anything, any business or organization.
Marcel Petitpas:
If we want to broaden this to all organizations, I think the starting point is, it's really about understanding the model that you operate in and what the levers are that make that business model work. And I think that so many entrepreneurs get into, especially if they're starting a new company, the first frontier is just like, can I sell anything to anyone and will they pay a price for it? And can I deliver it to them? And you spend, you know, in our case, the first three years of the company's existence, just blocking and tackling on that is like, can we get anyone to pay us for this? And can we do the thing that we said we were going to do repeatedly? Then, once you solve those problems, now you have to design a business that can scale and create profit. Otherwise, this isn't going to work. You're not going to make any profit from it, or you won't build equity value, in which case you won't get any liquidity. Objectively, it does not make any sense to continue to go down that path because you should go get a job. It will be much easier, and you'll make more money, and you'll probably live a lot longer. understanding the business model, right? And what options you have to accomplish that outcome of having enough margin created in the business that it can serve all the stakeholders that it needs to serve is such an important thing. And it's important because oftentimes you're going to have constraints. And so the most obvious lever, which everybody loves to talk about, which is charge more, raise your prices, that like, at some point you can't charge more. At some point you can't just easily- No, because there's this thing called the market. Right. And budgets and it's like, you know, and you might just not have the pedigree, the portfolio, the SOC 2 compliance to go up market to the person that will pay you more. And even if you get paid more, it doesn't mean you're going to make more money. In fact, I've seen lots of people land like a really huge enterprise deal and it destroyed their business because yeah, sure, this client's going to pay you 200 grand for this. But if you spend a half a million dollars to do the thing, then That doesn't benefit anybody. So understanding the business model is the first fundamental thing. And the business model that we are experts in at Parakeeto is a service-based business model. We've developed a framework around that. We understand it really well. But the thing that I know to be true, because I'm also a part owner in a product business, that's in the honey space. I'm also, of course, in the software space. The thing that I know to be true across all of these is generally speaking, businesses are suffering from indigestion, not starvation. And that indigestion is a result of not having good enough gross margins. So that would be the key focus is first, make sure that you're modeling your gross margin in a way that makes sense, and then understand the levers that you have available to you to improve that gross margin. And if you can get great gross margins in a business, everything else gets easier. Overhead is rarely the problem in a lot of these businesses, and a lot of things could get solved if they just had better gross margins.
Nicole Greer:
Okay, fantastic. Yeah. And so you also help people to build data-driven systems for project scoping and forecasting. And so this, this is going to drive profitability, which we just talked about. So if I do proper scoping and forecasting, so, so how, how do you go about doing that? Or what are some steps to get that started? So I would think a lot of people in the services business, they're just like, what can we charge for this? And they, they do PFA, pull from air. That's somebody taught me that one time. PFA, pull from air. I think we could charge this. We just pull it out of the universe. So you're saying use data, right? So talk a little bit about how you do that.
Marcel Petitpas:
Yeah. So we think about this as a three-step progression. The first is we have to understand the model of the business so that we know what needs to be true about anything that we sell in order for us to make this work. So for example, I might have a business that requires me to have a 70% gross margin in order to achieve my objectives. So I need to understand that first so that when I go to sell something, I can then do the math on, am I giving myself an opportunity to hit a 70% gross margin when I sell this thing or not? And one out of 10 agencies that I talk to have any idea what their gross margin that they're planning for is when they sell something. Almost none of them have that, and it's because they're pricing in the way I talked about earlier. So then when we get to the pricing conversation, there's two things that we need to understand. First, what is the price? And the second is, what is the scope? And the scope is a function of how much time it's going to be required to get this thing done in the context of a service-based business. Those two things are important, of course, because the price helps us understand if there's a margin here and the scope now helps us understand our supply versus demand because we're in the business of brokering time. It's like, okay, we've just sold a project that needs a thousand hours. Do we have a thousand hours available in this timeframe to get this thing done? Who's going to do it? And so much of the friction that exists in that process is first, just not having a process where every time you sell something, those two sets of data get created. Here's what we're going to charge, and we have a clear understanding of our margins, and here's how much time it's going to take. And that's broken down into segments that are meaningful to us. And for most organizations, that's roles. How much design time do we need? How much account management time do we need? How much development time do we need? Right? These kind of high level roles, keep that to five or six buckets. Just define a framework for that and make it the same across every single project that like these are the buckets that we log our time against so that you can then go to your team and put them in the same buckets. Who's a designer? Let's put them in this bucket. How many hours does that represent per week or per month? Who's an engineer? Put them in that bucket and get those two data sets aligned. The thing I see most often is those expectations are not clear coming out of the scoping process, or even if they are, now the way we think about our capacity is a completely different language. So there's just all kinds of unnecessary friction that needs to happen when we have a bunch of projects and we're trying to figure out, do we have the available capacity to get these things done? Or conversely, do we have a bunch of excess capacity that's not going to get utilized because we don't have enough work to do? In which case, we need to address that problem as well because that payroll is not going anywhere. That's going to affect our profitability as well. So the TLDR here is it's all about data structure and making those things look the same from a structural perspective. That gets rid of 80% of the friction that I see people have when they're trying to forecast is they're tasks are structured one way, their estimates are structured another way, the way they think about capacity on their people is structured another way. And so it's just really hard for no reason at all to put those things together and look into the future.
Nicole Greer:
Yeah. So it's kind of the old sales team's doing one thing and the operations team is doing another and we need to get them on the same page. Yeah. So that one's been around a long time, but you know who can help you? Marcel. Marcel can help you. OK, so you have just downloaded so many great nuggets today. And so I just want to ask, you know, how could people get up with you if they want to work with you? They've got a service based company and they want to get their ducks in a row. How do they do that?
Marcel Petitpas:
Well, the first thing they should do is go get all of our free stuff. So we have a podcast called the agency profit podcast that you can subscribe to. If you're a podcast person, which maybe you are, if you're listening to this, we have a free toolkit, which you can grab at parakeeto.com forward slash toolkit, which has a bunch of training videos and tools to help you start implementing some of the basics and learning about the framework that we've developed for this. And then if you want more help. Then you can find me on LinkedIn or go to parakeeto.com and speak to us there. And we've also just released actually at the time of this recording, it just released yesterday. Of course, that teaches you everything that you need to know to start measuring these things on your own. And so, uh, be sure to go check that out as kind of a really easy starting point to adopting, uh, one consistent framework for measuring a service-based business that you can rely on going forward.
Nicole Greer:
Yeah. And if you're part of an organization or an association, that would love to bring Marcel in to drop a bunch of genius live and in person. You're also available to come out and give a keynote and speak at a conference or something. Is that right?
Marcel Petitpas:
That is the thing that I do from time to time for the right people. Yeah, I'm open to that. So definitely reach out. I do love to hear myself talk.
Nicole Greer:
OK, well, don't we all. OK, very good. So it has been so good to have you, Marcel, on the Build a Vibrant Culture podcast. Check him out on LinkedIn. We'll have everything in the show notes. Hopefully you've got a page full of notes. Maybe you're even doing the thing where you're like, wait, stop, let me get a legal pad. If you filled out your legal pad, leave a comment down below. And of course, hit the like button, because we want to know that you appreciated the time and energy that we are pouring into you all so that you can build a vibrant culture. Thanks so much, Marcel.
Marcel Petitpas:
Thank you, Nicole.