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January 8, 2017

Building My Next

Now How?

Once I figured out my ‘why’, I needed to figure out how.

I decided to bank on the fact that of the 8 businesses I’ve started, 7 have been professional services. I was willing to bet that there was something I figured out around sales and marketing that frustrated other business owners.

So I went right back to work and came up with a new list of ideas. The one that had broad coverage was a sales and marketing agency. And true to form, I developed yet another 1 page business canvas on a sales & marketing agency to see if it had legs.

The next step was to validate the assumptions, so I interviewed 25 CEO’s and CMO’s of $10 to $100 million dollar businesses to get the real scoop on their sales and marketing processes. The meetings were easy to get as I reassured friends I wasn’t pitching anything and that I was simply looking to learn and validate assumptions.

After the interviews, I aggregated their answers to develop workflows around all their processes and created a heat map based on the areas that gave them the most frustration.

The end was result was identifying three problems I could uniquely solve:

  1. Sales coaching
  2. Inbound marketing
  3. Online conversions

Here’s what happened that I’ve never done: I eliminated ideas #1 and #2 because they couldn’t be done with apprentices. They could make me a lot of money, but they didn’t fit my ‘why’. So I ditched them. I was happy to do it, and was pleasantly surprised at how important it was to have figured out my ‘why’.

That left me with a singular problem to solve: increase online conversions.

Microsoft Messenger

Not a lot of readers will know this, but before I built a wealth management firm, I built global buying centers for Microsoft. That sounds fancy, but its origins were anything but. Microsoft hired us to strategically source their IT hardware spend worldwide. Being the largest buyer of IT hardware in the world at the time (larger than even the US Government), we’re talking in the hundreds of millions. And to complicate matters, we were negotiating with suppliers who were also their customers (Dell, HP, Lenovo).

Well any partner in a consulting firm will relate to this – the gig nature of consulting is a tough game. The holy grail is to find a recurring revenue model and so, we proposed a pilot program to Microsoft to aggregate their IT hardware purchases across departments so we could order in bulk off the contracts we negotiated. Basically, take advantage of volume discounts.

Microsoft agreed to the pilot and we began with a half of a headcount and told us, they didn’t mandate any services and everyone had autonomy over their budgets. So if we wanted to grow, we had to do so organically. Well it wasn’t like they were going to let us run ads internally or walk around their secured buildings to pitch people. So we took to using an internal communication tool: Messenger.

By arming our tech savvy consultants with Messenger, we were able to reach out to folks who ran Microsoft research labs. We’d introduce ourselves, ask what they were working on, gather some specs, let them know of someone else we’re talking to who was also working on something similar, ask if we could come up with a common configuration that worked for both their needs, and in turn ran reverse auctions on their aggregated orders to lower the price as long as they could wait a couple weeks. We processed millions in IT spend via a recurring revenue model, and sent in our consultants to assist with more complex projects.

It worked and soon enough, we spread throughout Microsoft North America and Asia Pac until we were global. In fact, I met my wife Natasha, who was my recruiter when building the Microsoft Buying Center in India.

And while my lens on this had always been a procurement function, one of the front end tools was Messenger. We had leveraged a simple technology and became experts at getting people to talk with us while being helpful in the process. That help ultimately converted to orders and the savings generated on those orders funded the whole process.

We essentially ran a live chat agency for procurement.

Baking-In Apprenticeships

My friends at the Unreasonable Institute, a social enterprise accelerator, like to use the term “baking-in the good.” It’s a useful phrase because it easily explains what we’re doing at Flow with our apprentices. By hiring apprentices, educating, and training them, we are baking their success into our business model and providing them with a direct pathway to become full-fledged Flow agents.

And while we hope to keep as many of them as we can, we are in the business of building their skills such that the job market would value them at $45,000+ to start. This isn’t an arbitrary number, it’s a figure that provides them with basic comforts and a career path.

Our apprentices receive three pieces of training which distinguish them from other forms of entry-level hires such as interns and part-timers.

  1. Earn-While-You-Learn: Flow’s apprentices earn money while learning and along the way, they’re expected to contribute to the firm by handling things like CRM cleaning, data entry, transcript to AI transposing, and other basic duties. This provides Flow with some productivity, though not enough to cover the apprentice’s costs until around the first year.
  2. Skills-Based Education: Outside of the workplace, Flow’s apprentices are taking classes that develop valuable skills as opposed to earning a degree and still having no skills. When these skills are learned and put into practice for a period of time, Flow will reward apprentices with an increase in pay. We can do this because that skill is now adding value to our business and moves them up the chain of productivity towards break even.
  3. 2 Years Work Experience: Hiring managers often use this bullet point in job descriptions as a shortcut. When they say they want 2 years of work experience, what they really mean is a laundry list of things like: be professional, know how to work in an office environment, have foundational computer skills, be a team contributor, and quite simply, be able to hit the ground running with minimal training. Flow’s apprentices will gain that 2 years of experience through the apprenticeship, preparing them to be valuable on day 1 for future employers.

Finding the Right Legal Structure

When it came time to set up Flow’s legal entity, how we did it mattered more than what we did. Establishing a legal entity is simple and straightforward. Determining what type of legal entity is also straightforward. Establishing a legal entity that does not exist yet… well that’s a bit more challenging.

Flow is a social enterprise and while I’m 100% owner, I can run it however I want. What that means for Flow is that we’ll be using the agency’s cash flow to fund our first apprentice. As that apprentice gets up to speed and becomes profitable, we’ll reinvest that cash flow to hire more apprentices. We’ll then use that cash flow to fund additional apprentices and we’ll charge a placement fee to small businesses that hire them away. This is a deliberate diversion of cash flow into apprentices which doesn’t carry a large return on investment of capital, but it does carry a large return on investment for impact.

In the event that I extend equity to investors, employees, or advisors, I would have a fiduciary responsibility to maximize profit so diverting cash flow to the apprentice program could be viewed as a breach of fiduciary. I didn’t want anyone changing the mission of this business, whether while alive or in the case of death, so I needed a legal way to allow me to use cash for a social good, even if that meant less profit to shareholders in the short run.

Here’s where it got interesting. I couldn’t legally do this in Colorado. Let me clarify, I couldn’t legally do this as an LLC in Colorado, but I could as an S-Corp. Legislation had passed in Colorado to allow what’s known as “benefit corporations”. Benefit corps write clauses about social good into the articles of incorporation, but this only applies to S and C-Corps. If you’re an LLC, you’re assed-out. By the way, don’t let the term “B Corp” confuse you – that’s simply a certification that a company can earn by going through a process, regardless if they are a “benefit corporation” or not.

Turns out, legislation for the “benefit corp” of an LLC had only passed in 12 states. One of which is Vermont where my cousin lives. So guess what, Vermont earned my business and I registered an “L3C” in Vermont and subsequently, filed a foreign-entity in Colorado since I would be paying taxes here. A lot of legal and accountant fees later, and we had it all figured out. Confusing, right?

The bottom line is that Flow is, and must forever remain, a for-profit social enterprise that legally and philosophically does well while doing good.

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