Rebuilding from 80% Collapse to Mid-7 Figures Revenue

Summary

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Acquiring Minds Podcast: "Rebuilding from 80% Collapse to Mid-7 Figures Revenue" Summary

Release Date: May 22, 2025

In this compelling episode of "Acquiring Minds," host Will Smith interviews Scott Alexander, the resilient entrepreneur behind Gyrus Marketing. Scott's journey from acquiring a struggling marketing agency, navigating deceit and sabotage, to transforming it into a thriving mid seven-figure business offers invaluable insights for acquisition entrepreneurs.

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1. The Decision to Buy a Business

Scott Alexander, a seasoned intrapreneur with a background in healthcare organizations like Medtronic and Mercy, shares his motivations for venturing into acquisition entrepreneurship. In his late 30s, encouraged by his supportive wife Jodi, Scott decided to buy an existing business to gain more control over his career and lifestyle.

[04:50] Scott Alexander: "I had always had this inkling of wanting to start and run my own business... it's been a roller coaster, but it's been a journey for sure."

Scott emphasizes the desire for stability and immediate revenue streams that acquisition offers compared to the uncertainties of starting from scratch.

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2. Finding the Right Acquisition Target

Utilizing an aggregator tool called X5, Scott quickly identified a suitable marketing agency in Denver specializing in lead generation for chiropractors and dentists. The business, with about 20 employees and annual revenues around $750K, appeared promising with steady growth and multiple recurring revenue streams.

[19:50] Scott Alexander: "We saw a business that met all our criteria... a marketing firm based in Denver serving the chiropractor dental space."

Scott's careful selection was based on industry specialization and recurring revenue models, which he believed would provide a solid foundation for growth.

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3. The Transaction and Initial Red Flags

During due diligence, Scott and Jodi conducted extensive evaluations, including consulting projects with the seller, interviewing employees, and analyzing client feedback. Despite positive interactions and alignment in faith and values, subtle red flags emerged.

[34:15] Scott Alexander: "We told the team the old owner was stepping back, but one of our leaders started crying, saying she was planning to leave due to the bad culture."

These insights indicated underlying cultural issues and hinted at potential operational challenges post-acquisition.

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4. Discovering Deception and Cultural Sabotage

Shortly after the acquisition, Scott uncovered troubling revelations. The original bookkeeper had been deleting invoices to obscure the true state of the business, masking a sharper decline in revenue and high client churn. Additionally, the former owner's aggressive and micromanaging style had fostered a toxic work environment.

[46:40] Scott Alexander: "We found out the bookkeeper was deleting invoices, which meant our revenue was nowhere near as healthy as it looked."

These discoveries underscored the necessity of deep due diligence and highlighted the critical role of company culture in business success.

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5. Addressing and Overhauling Company Culture

Recognizing the detrimental impact of the previous culture, Scott took decisive steps to realign the team. He implemented strict accountability measures, established clear expectations, and fostered a positive, supportive environment. Hiring a trusted COO and a dedicated recruiter further strengthened the operational framework.

[58:54] Will Smith: "Does that mean you need to start auditing the entire org chart to see who needs to find a new bus to get on?"

[59:17] Scott Alexander: "We started holding accountability, providing clarity, and ensuring that everyone was aligned with our new objectives."

These changes were pivotal in stabilizing the workforce and setting the stage for future growth.

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6. The Impact of Covid-19 and the Pivot

In March 2020, the Covid-19 pandemic struck, resulting in an unprecedented 80% drop in revenue within two weeks. This crisis forced Scott and his team to rethink their business model fundamentally. Leveraging their existing knowledge in B2B marketing within the healthcare sector, they pivoted towards building a fractional marketing department for medical technology companies.

[65:39] Scott Alexander: "We lost 80% of our revenue from March 16 to April 1, 2020. It was like, this is what we're going to do. Here's how we're going to do it."

This strategic pivot involved redefining their value proposition, focusing on B2B clients in healthcare, and developing innovative lead-generation strategies using digital platforms like Facebook and LinkedIn.

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7. Rebuilding and Growing Gyrus Marketing

Through focused effort and strategic adjustments, Scott rebuilt the agency from the ground up. By May 2020, Gyrus Marketing secured its first client, followed by subsequent wins in the ensuing months. The dedication to solving meaningful problems for healthcare providers and maintaining strong client relationships fueled their steady growth.

[82:51] Scott Alexander: "We renamed the company Jairus... started working 13-day stretches, focusing on sales and client acquisition."

By 2021, the company had scaled to 30 employees and achieved mid seven-figure revenues. Scott attributes this success to a strong team, clear processes, and unwavering commitment to their core values.

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8. Key Lessons and Advice for Acquisition Entrepreneurs

Throughout the interview, Scott shares several critical lessons for those looking to acquire and grow businesses:

• Thorough Due Diligence: Understand not just the financials but the quality of revenue and underlying client dynamics.

• Cultural Alignment: Assess and align company culture to ensure harmonious operations post-acquisition.

• Adaptability: Be prepared to pivot business models in response to unforeseen crises or changing market conditions.

• Passion for Clients: Choose clients you enjoy working with to sustain long-term engagement and avoid burnout.

[100:09] Scott Alexander: "Make sure you like your clients because you're going to spend a lot of time with them. If you get frustrated, you're going to burn out quickly."

• Defensible Sales Position: Develop a strong, specialized sales strategy that differentiates your business and attracts consistent clients.

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9. Looking Forward: The Future of Gyrus Marketing

Scott remains focused on building robust processes and a capable team to ensure continued growth. By maintaining a clear vision and adapting to the evolving needs of the healthcare marketing sector, Gyrus Marketing is poised for further success.

[100:50] Scott Alexander: "I'm focused on building the right processes and people because the scoreboard will reflect that work."

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Conclusion

Scott Alexander's story serves as a powerful testament to the challenges and triumphs of acquisition entrepreneurship. From navigating deceptive practices and toxic cultures to pivoting amidst a global pandemic, Scott's resilience and strategic acumen transformed a collapsing business into a thriving enterprise. His insights on due diligence, cultural alignment, and passion for clients offer valuable guidance for aspiring business acquirers.

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Notable Quotes with Timestamps:

• [25:25] Scott Alexander: "I do. Yeah, exactly. Yes, yes I do. It was one of those things where in reflection we missed two things."

• [46:40] Scott Alexander: "We found out the bookkeeper was deleting invoices, which meant our revenue was nowhere near as healthy as it looked."

• [58:54] Will Smith: "Does that mean you need to start auditing the entire org chart to see who needs to find a new bus to get on?"

• [59:17] Scott Alexander: "We started holding accountability, providing clarity, and ensuring that everyone was aligned with our new objectives."

• [65:39] Scott Alexander: "We lost 80% of our revenue from March 16 to April 1, 2020. It was like, this is what we're going to do. Here's how we're going to do it."

• [100:09] Will Smith: "We hear so much about kind of blue collar versus white collar, the culture of the business that you might target... but I have heard far less, if at all, the idea of liking your customers and you know, this is who you're going to be spending time with."

• [100:09] Scott Alexander: "Make sure you like your clients because you're going to spend a lot of time with them. If you get frustrated, you're going to burn out quickly."

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For further insights and detailed strategies on acquisition entrepreneurship, subscribe to the Acquiring Minds newsletter at acquiringminds.co and explore additional resources and webinar recordings available on their website.

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Transcript

[Will Smith]

Today's guest caught a falling knife. Revenue was declining at the marketing agency that Scott Alexander was negotiating to buy, but the seller explained it away, saying he had taken his foot off the gas is all, if only. When Scott got into the business, he quickly saw how dire the situation actually was. Clients were furious, fleeing and refusing to pay invoices. Unhelpfully, the seller cussed out the biggest client after Scott took ownership. So today's interview is a case study in how to recover from seller deceit and sabotage and the unhealthy culture they leave in their wake. It's also a case study in completely repurposing the business you buy. Scott spent his first year writing the ship, and just as things were looking up, Covid hit. In a span of two weeks, 80% of revenue vanished. There's a lesson there to not confuse recurring revenue with quality of revenue. This second crisis forced Scott to rethink the entire business, and he spent the next year essentially rebooting it. Flash forward five years and Gyrus Marketing serves a better market with a stronger value proposal and revenues are in the mid seven figures. A lot to learn from and admire in this conversation with Scott Alexander, owner of Gyrus Marketing, you know that the SBA loan is a powerful tool to unlock your ability to buy a business, but it can actually unlock the ability to do an entire roll up. We're going to dive into how that looks in a webinar today with SBA loan broker Heather Anderson entitled How to Use an SBA Loan to Start a Roll Up. The webinar will be co hosted by an entrepreneur actually doing it, Brian Boland of HTL Freight, A3PL and Freight Solutions company that began with an SBA financed acquisition. So come learn the theory and see the practice of of using an SBA loan to start a rollup. That is today Thursday, May 22 Noon Eastern Register at the link in today's show notes or on the Acquiring Minds homepage. Acquiring Minds co See you there. Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs and on this podcast I talk to the people who do it. You know that one of the most common levers to pull in a target acquisition is technology updating the systems of a business that may still be running off a spreadsheet or even pen and paper. But tech is complicated with tons of solutions out there. So choosing the right cloud platform, CRM, telephony, compliance and cybersecurity, not to mention implementing all that is a job in itself. Acquiring Minds Guest Nick Akers knows this firsthand. As a former searcher who now owns Inzo Technologies, Nick has seen the tech challenges searchers face when acquiring businesses. His team at Inzo regularly works with searchers and their acquisitions or offering a complimentary IT audit of the target company. Nick takes a personal interest in all their searcher clients, drawing from his own experience in the search phase. Enzo dates back to 1989. So this is a company that has managed the tech for hundreds of small businesses over decades. And one last thing, no long term contracts with Enzo. A big differentiator. Check out inzotechnologies.com I N Z O or email Nick [e-mail] and don't forget to tell them you're a searcher. Scott Alexander, welcome to Acquiring Minds.

[Scott Alexander]

Thanks Will. Good to be here.

[Will Smith]

Scott, you bought a marketing agency in 2019. When Covid hit one year later you lost 80% of revenue. You pivoted and now five years later you've transformed the business which has grown and is today healthy and profitable. Let's dive in. Scott, take us back to when you first had the notion to buy a business.

[Scott Alexander]

Yeah, sure. Thanks Will. I appreciate it and glad to be here. Yeah, I had, I was a little different than I'm a mid career guy, right. So I'm in my mid-40s right now, was late 30s back when I started thinking about it and had been doing a lot of entrepreneurship for large medical organizations, initially at Medtronic and then Covidian and then finally to Mercy, the big hospital system in the Midwest, starting up businesses, running businesses, that sort of thing. And had always had this inkling of wanting to start and run my own business. And as I was getting closer to 40, my wife Jodi, who is just an incredible cheerleader and supporter started saying hey, you know, you're not getting any younger and you can see I got a lot of gray hair. So that's pretty true. But she said, you know, you've always wanted to do this, now's the time to do it. And yeah, that's what really kind of led down this journey. Didn't think we'd end up where we are and certainly didn't think we'd go through the roller coaster that we did. But it's been, it's been a journey for sure.

[Will Smith]

Well, thank you, Jody. This is, this breaks the typical pattern where searcher has to convince partner to go to that search is, is viable and is something that they should do here it was in the other direction. So that's. That's great.

[Scott Alexander]

Yeah.

[Will Smith]

Intrapreneur. Scott that sounds like a. That sounds like a buzzword from the odds. Yeah. Right. Say a little bit more.

[Scott Alexander]

So early my career was in sales, and that'll be relevant here in a little bit. But through business school, got into venture capital and then got hired into a division of Medtronic, which big medical device manufacturer. And they had a group of really, you know, smart scientists and engineers and that sort of thing that were trying to come up with answering the question of, like, what's the future of healthcare going to look like? And they needed some people to come in and be sort of the business side of that to look at, hey, let's build business cases and let's figure out what the commercial model is going to be and that sort of thing. So that was my first job out of business school, was working for Medtronic in this sort of incubator thing. And then, you know, we had a couple of really cool ideas. You know, some of them got used in clinical trials and helped to define, like, how Medtronic was going to approach the ischemic stroke space, for instance. And then got another role where I was doing downstream marketing in the med for Medtronic, and then had a kind of an interesting thing where my boss from the first job had gone to Covidian, which was a competitor of Medtronic at the time, later acquired and wanted to start up an incubator like this again. And so hired me into Covidian in Boulder, Colorado. And so my wife and I moved from California to Colorado, Colorado, And I spent seven years basically initially doing that. So the whole idea was they had a really cool product that was used in general surgery, and they were trying to figure out, how do we make sure that we don't get disrupted? And so that was the original name of the group was Disruptive Products and Technologies. And then that morphed into create new business units that are going to do interesting things. So we started doing that and then eventually ended up working on the commercial model for the division that we were in, looking at how sort of the sales for medical technologies happens and what the world's going to look like and trying to develop technology and new approaches to basically win more business. So really commercially focused. And then, yeah, got hired over to Mercy, which is a big community health system here in the Midwest, based in St. Louis. I tell people there are four reasons to live in St. Louis. You're from here, your wife's from here. You take a job or you lose a bet. And mine was no disrespect to my St. Louisians. I've been here for long enough. But yeah, we came here because of Mercy. And then my wife made friends and decided we're never going to leave here. But yeah, at Mercy, we were looking at the same thing. How do you create new business units and sort of grow these businesses that, you know, little fledgling businesses, how do you get them to be much bigger? And did that for about four years. So I felt like coming into the, the search process, I had a lot of that. Right. I'd kind of gone through a lot of repetitions and now it's just a matter of kind of doing it on my own as opposed to doing it for a big organization.

[Will Smith]

Yeah. Although it sounds like in intrapreneurship land, you were doing new product development. Zero to one stuff. Not zero to one, not zero meaning, you know, in a garage you had the backing of these big systems, but, but kind of going out into a market and introducing a product to it, which of course eta, the ETA model, we, we try to avoid that. Yeah, right.

[Scott Alexander]

A little bit of both. A little bit of both. So like, okay, zero to one, like the surgical robot that Medtronic has been working on, like that came out of my team. But then at Mercy, like we had existing business lines and the idea was, hey, we're already generating revenue. How do we, you know, 5x10x20x this revenue that we're getting specifically from non clinical services. So the idea is, hey, we're selling supply chain services to other health systems. How do we sell more supply chain services to other health systems and sort of define a commercial approach to do that. So a little bit of 01, a lot of 0 to 1. But also like 1 to 10 is a good part of what we did too. Great.

[Will Smith]

Well, interestingly, as people will hear your story, kind of, you're kind of what, 0.5 to 5 with your story because what you bought was, was pivoted. So kind of two steps back and then 10 steps forward.

[Scott Alexander]

I'd say like one to negative one to like five.

[Will Smith]

So there it is. To negative one actually. Yeah. Okay, so speaking of the, the business that you bought, how did the search to get there take shape?

[Scott Alexander]

Yeah, it happened really quickly. So I left Mercy in September of 2018 on really good terms. Again, Mercy is a great organization, had a great team, that sort of thing, but left and started doing search full time and came across it really quickly. I mentioned this in the pre call, but there was a service still out there called X5. I don't know if anybody's ever used that. But they basically aggregate. Yeah, so it's basically an aggregator of all the broker deals that are out there that are publicly available on multiple websites. And so what you do is, I think it's every Tuesday morning you sign up for it. It's not cheap, it's like $300 a month or something like that. But you basically get an email and it's got a database like an Excel spreadsheet of these are all the deals that they scraped. Locations and types and sizes and all that kind of jazz. And I thought that was a good investment. You had somebody on not too long ago and they had mentioned about the cost of delaying a search by a month. Yeah, right. So like the idea of like invest in resources and things to be able to make that search as short as possible. And so that was kind of why I did it. And within like a couple of months, maybe a month or two, I saw there was a lot of good deals that were coming through there. I liked that as a, as an asset particularly to not have to like go to all these sites, but came across a business that met all the criteria and it was like I said maybe a month, maybe two in and it would kind of met the criteria. I should probably define kind of what we were looking for.

[Will Smith]

What were those criteria?

[Scott Alexander]

Yeah, so I'm self funded and so the idea was ste between 750 and a million and a half. We had five geographies that we were willing to do. We were in St. Louis, so that was one. We, we had previously been just outside of Boulder, Colorado and my wife was born in Colorado and we love the outdoors, very outdoorsy family. So like go back to Denver basically Nashville because there's a lot of healthcare there, we have some friends there. And then the Carolinas, north or South Carolina because I'm from a small town in South Carolina and have a really good relationship with my family. So always wanted to be closer to home. So those five geographies. And then the other thing that we were looking at was industry. We basically had two tracks of industry consideration. One was what we call non physician provider services. So these are healthcare services that don't require having to employ physicians. Right. So sleep labs, ptot. Right. That kind of a thing where you're sort of ancillary services and. And then the other one would be what we would call healthcare support services. So you know it's supply chain. Cause I had run a GPO which is like an entity for negotiating for hospital systems, IT marketing, other things. But the whole idea is we're doing it in that healthcare vertical. Cause again, that's what I bring to the table. I've been in healthcare, you know, the business side of healthcare for my whole career, so. Great. So yeah, so that's what we looked at.

[Will Smith]

I hadn't heard, I haven't heard the phrase GPO since Jason Andrews, an earlier guest, bought one. You, you know Jason well?

[Scott Alexander]

Pretty well, yeah.

[Will Smith]

Oh, oh, funny. Great.

[Scott Alexander]

Yeah, he brought, he bought Group Source and when I was at Mercy, we were basically working with Group Source, so.

[Will Smith]

Oh, no way.

[Scott Alexander]

It is great.

[Will Smith]

Well, people should listen to that episode, one of my first and few, where he used a buy side advisor. And, and I, and I still remember the line from that episode that wanted somebody to go out and find him a good business at a fair price. And he got a good business at a fair price and was willing to.

[Scott Alexander]

Pay up for that.

[Will Smith]

I digress. But a great, great. And of course he exited too, so great outcome. Scott, tell us to your criteria again about having a family. How many kids did you have at the time? Being a little bit older, having those responsibilities, the mortgage, the family, and maybe if you can even share kind of what your balance sheet looked like. What were you putting at risk here?

[Scott Alexander]

Yeah, so been married, what, for about 10 years? A little longer than that, 11 years. I think I should know that off the top of my head. But three kids, my son Caleb, and then two daughters, Clara and Coco. And then alongside that, my wife decided that if I got to do something I always wanted to do, she'd get to do something she always wanted to do and we would have our fourth kid.

[Will Smith]

Oh, wait, wait, wait. So her telling you to go, to go buy a business and be an entrepreneur was really 4D chest?

[Scott Alexander]

She was, she passed me, man, she snuck it past me.

[Will Smith]

This was all about having a fourth kid. Interesting.

[Scott Alexander]

Okay, Yep, exactly. So we ended up, she wanted a fourth kid. And then alongside that, my mother in law lives with us. She's lived with us for, since we moved to St. Louis, so about 10 years. She's got like, you know, an apartment over the garage kind of a thing. But so we have her with us as well. And she moves around, has moved around the country as we've moved around the country. And yeah, balance sheet wise, I mean, I had been a VP at some large hospital or large organizations for some time, so, you know, in the low seven figures from a personal balance sheet standpoint, you think.

[Will Smith]

But so Nice balance sheet, but still lots of. Lots of mouse to feed.

[Scott Alexander]

Yeah. And they eat a lot. And as they get bigger than more, so.

[Will Smith]

Okay, well, did. How did you consider that? Is there anything more to say about that? Or was it just kind of like, you know, there you got the. The itch, and as Jody said, now or never sort of thing, that was. It kind of came down to that.

[Scott Alexander]

Yeah. You know, it's actually what pushed us more into the 1 to 10 versus the 0 to 1 was the idea of not having to go backwards. Like the idea that I'd go a year, two years without any income to start something from scratch, any salary, to start something from scratch and be investing in that, to me, felt a little risky. We'll find out that that maybe wasn't as risky as what we thought we were getting, what we were actually getting into. But I thought that was more risky than saying, hey, we've got an existing business with existing revenue where we can see the PNL and we can understand kind of what the business has been spinning off. And so, you know, look at how it can sort of manage our lifestyle. We knew we were going to step back a little bit, particularly in sort of the first year as we were kind of getting our feet under us with the business. But, yeah, I mean, the idea was you buy a business because you already have revenue that's coming in the door that can feed, you know, feed the mouths that we've got to feed.

[Will Smith]

Right, right. And just aside from how long it might take you to generate any income, when comparing to 0 to 1, did you have a number of what you needed to pay yourself out of the business that you were going to go buy? Did you need to kind of right out of the gate, match the salary that you'd been walking, that you were walking away from?

[Scott Alexander]

Yeah, no, we knew. I mean, we had a lot of savings that we could draw from. So even if we went and didn't pay ourselves for a year, you know, even two years, we would have been okay.

[Will Smith]

What do the following Acquiring minds guests all have in common? Doug Johns, Morley Desai, Tim Erickson, Chirag Shah, Shane Ursam. They all went through the Acquisition Lab, the accelerator in community for people serious about buying a business. But they represent just a sliver of the lab's success stories. The number of deals across the lab's cohorts now stands at over 120, with over $300 million in aggregate transaction value. The Acquisition Lab was founded by Walker Deibel, author of Buy Then Build, the book that introduced so many of you to the very idea of buying a business. The lab offers a month long, intensive, almost daily Q and A sessions with advisors, live deal reviews with Walker deal team introductions and an active community of serious searchers. Check out acquisitionlab.com link in the notes or email the lab's co founder, Chelsea Wood. Chelsea buy, then build.com. all right, Scott, so what of this business that X5? No, I haven't heard of X5, but I feel like since then there have been a lot of these kind of aggregator type scraping tools that deliver you, you know, that visit all the sites and deliver it to you in a, in a single feed, sort of. So what, what was this business that X5 put in your inbox?

[Scott Alexander]

So we saw a business, it was a marketing firm based in Denver and specifically in north Denver, which is near actually where we used to live, that was serving kind of the chiropractor dental space. They had some physicians as well. But the whole idea was it's lead gen, new patient acquisition for these healthcare providers. And the owner was about five years older than I am and just kind of, you know, based on his story, gotten to the end of the road of wanting to run an agency and just wanted to kind of go right off into the sunset and, you know, checked all the boxes. STE was about 750. Right. Multiple Y's looked good. They were asking for a little over 3x when they were coming. So they're asking 2.4 on like 750 in STE, which was pretty decent. Yeah, 20ish employees, all like in office in north Denver. Yeah, I've been around since what, 2008. So it was, you know, it's 11 years old at the time, so. Great.

[Will Smith]

One thing that you'll see with digital agencies, which of course come in all shapes and sizes, is that many of them are virtual. So that this had a real location with 20 real, you know, domestic employees gives it more heft than, than maybe you, you would see in a lot of other agencies for sale on the market.

[Scott Alexander]

Yep.

[Will Smith]

Now the quality of this revenue. To talk to us a little bit about quality of revenue.

[Scott Alexander]

Yeah, yeah. I mean, I think overall what we were able to see was good, stable growth from on the top line. So, you know, grown up to a little over 2 million in revenue. And you could see sort of in all the filings and everything, like, hey, they were going 20% year over year. Seemed pretty decent. One of the things that we missed or I didn't appreciate as much in the due diligence process was how they're getting, getting to revenue. And so you know, if you've got, you know, 200, $200,000 a month run rate, like we, we measure things in monthly run rate. So what's the revenue that we're expecting this month, next month, that sort of thing. Because it's a retainer based business, which is probably worth mentioning. But what we would look at is which CL, how many clients are getting you to that 200k in monthly run rate and then what's the churn in that? And what we didn't appreciate at the time was there was a lot of churn that was happening inside that 200k or inside that monthly run rate because you'd have some clients drop off and then new clients come in and then you know, a couple months later that client that left may come back. And so it just was just sort of like in and out kind of a thing. Bit of a revolving door.

[Will Smith]

But you would have these clients churn out and then come back. That's better than churning out, not coming back. It's not, it's not as good as lower churn. But still interesting that there would be so much kind of attrition and then, and then recapture.

[Scott Alexander]

Yeah, what tends to happen is like in this industry, and this is true for any sort of vertical based marketing agency, there's only a small handful of folks that really do this type of thing. Maybe there's 10 agencies. And so you'll find like, you know, for chiropractors for example, because they turn at faster rates than dent than dentists, they'll go from one agency to another to another to another. And then like two years later you'll get a phone call and be like, hey, I'm ready for you to do my marketing. In fact, I got a phone call from somebody like two months ago and we haven't done chiropractic marketing for years. And he was like, hey, I'm ready. So that's just kind of the cycle that they go through.

[Will Smith]

And is that, does that speak ill of the ability to differentiate that they're just constantly, that your customers, these chiropractors are just constant. They see you and your competition is interchangeable. So they're basically just presumably hopping from one to the other looking for cheaper prices?

[Scott Alexander]

Yeah, I think a little bit. It's less about cheaper prices and it's more about the hot hand. And so kind of what the chiropractor business model, not to go too far down this road, but like the chiropractor business model to a Great degree is you've got adjustments and that sort of thing. But that's not really where an enterprising chiropractor finds his time. Where he's going to spend it is on getting into things like decompression and in various injections and things like that where like integrated practice stuff where they've got a nurse practitioner who's doing like medical treatments and those tend to be large cash paid procedures, 5k, 10k, whatever the case might be. And so really what these folks that are churning throughout are trying to do is they're trying to figure out which marketing agency is bringing those patients into their friends practice and then they're going to jump on that train. And then it's just sort of like people bounce around as you know, hey, these guys have the idea, no wait, now these guys have figured it out. And so it's, it's just, that's what drives the churn. The more stable clients are ones that are looking for more consistent services. But you know, you get this sort of more market dynamic where people are bouncing between each other and you're just trying to differentiate like what are we doing different, better than everybody else.

[Will Smith]

And do you reflect back now on the quality of revenue as maybe not the highest quality? Leading question?

[Scott Alexander]

I do. Yeah, exactly. Yes, yes I do. It was one of those things where in reflection we missed two things. I didn't appreciate two things to the degree that I should have. One is the quality of earnings. Um, right. Like the idea that you're churning stuff and yes, the top line is good but down in there how you're getting there is, you know, troubled. That's a, that's a concerning thing. And then the especially like, cause you know, you think you've got project revenue would be the other way to generate it. As you have people that are just coming in and getting a $50,000 website and riding off into the sunset. That's a different kind of a marketing model, like agency model. So if that's what you think you're getting into, you structure your P and L differently. So I didn't appreciate the impact that that client churn would have on the overall profitability of the business and the way that we needed to structure the P and L to kind of account for that reality. So that's one thing. And then we haven't talked about sort of the team dynamic, but that's the other thing, sort of team culture. I didn't appreciate how real culture is and how it can have a major impact on your ability to Run a business.

[Will Smith]

And of course we're going to get there on the other side of your transaction. But just before we leave this quality of revenue question, it's such an, such an important point and thing that you observed and experienced. We talk ad nauseam about recurring revenue. We talk. Most regular listeners will know that that's too much of a blunt instrument. For one thing, you can have project based businesses where the quality of, where the quality of revenue I guess wouldn't be as high, but the consistency of revenue can still be very, very high. So it's not all about recurring revenue. All but double clicking on a business which ostensibly has recurring revenue, you really have to pair, just because it has a, on kind of, on paper a recurring revenue pricing model or business model, you really have to pair that with actually the, the LTV or the lifetime value of a customer. Because what you kind of experienced, if you are in say a digital marketing agency where there's a lot of churn, there also are a lot of chiropractors. So, so while you're churning out chiropractors, there's enough of them out there and maybe some ones you had three years ago coming back where you're refilling your funnel and refilling your pipeline. So the revenue that you lose can be, can, is also being made back up and maybe then some every month. But if, if, if on average, your average, you know, your average chiropractic customer, chiropractor customer is only saying three or four or five months, that is a very, that is not high quality recur. And that, that, that kind of conflicts with, with what suggesting this business is a recurring revenue business to it conflicts with the performance we would assume from a recurring revenue business. So in other words, there's, there's an enormous difference between a business that holds on to its customers for say five months versus five years. And yet both of those technically fall under the, under the umbrella of recurring revenue businesses. So lifetime value is so important for everybody listening to also check when thinking you're looking at a recurring revenue business.

[Scott Alexander]

I totally agree. And to even take that one step further, I think you have to look at lifetime value and understand that you have different customer types in that. So if we were to go back and look at the name of the company is Ivelocity Marketing. So we'd go back and look at ivelocity, what you would see is there were different strata of client types. So there were some clients that had been with the company since it started and then there were others that were very Fast churn, like you talked about turning every six months or so. And so if you just take a lifetime value, and this is again, like, this is experience, you know, speaking its words right now. But if you just take an average lifetime value, as opposed to stratifying, to say, hey, what are the different layers of customer types? And looking at that as a percentage of revenue, you're going to get really different answers. Yeah, because what happened is we had some folks that have been there forever and in fact, like, we've had them that have stayed with us ever since. They're still, you know, still clients. But, you know, the reality is those people are relatively few and far between. And it's like a Pareto chart of, you know, you'll have a lot of people that'll churn and then some people that'll be further down that'll stick with you until, you know, until you retire. So I think understanding in a little bit more depth is something I would redo and would encourage all the listeners to think about is what are the strata of your clients or your customers?

[Will Smith]

Because if you, if you take the lifetime value, the average lifetime value of all these customers, those ones that have been with you for five years and beyond, are going to really skew that average. It's, it's one, it's kind of one of those where you want to look at the median. I mean, probably the analysis that you just suggested is probably the best of all where you're stratifying it. But at the very least, look at the median, not just the mean. Same reason like when you look at a, you know, real estate market, one giant mansion selling in the neighborhood can completely throw off the average sale price of that neighborhood when it really doesn't tell an accurate story. You want to look at the median paired with the mean.

[Scott Alexander]

Exactly.

[Will Smith]

Excellent point. Okay, Scott, so you gave us the bullet points on the business. Anything to say about the transaction?

[Scott Alexander]

Yeah, one of the things that we're able to do a little bit pre transaction. So in the due diligence process, I arranged with the seller to actually do like a consulting project with them to come in. I met the team, tried to help, you know, basically interviewed all the people about what's going on in the business, that sort of thing. Talked to some clients, built up a plan, actually like spent time on site getting to know everybody, which I know was really kind of hard to do with a lot of things, but was. I feel like it's really worthwhile. If I was to buy another business, I wouldn't. I would do that again.

[Will Smith]

I mean, Scott, this sounds like the best exercise in due diligence that one could possibly do. Sounds amazing. Carry on.

[Scott Alexander]

You think so? Yeah, I mean, I think so. This is not my first rodeo. Like I've done some venture investing when I was at Mercy and working for a venture fund and. Right. Understand, like, what is it to do due diligence. So I mean, I was bringing out the playbook that I had been shown and was trying to execute that the best we can. So met with the seller, obviously went under loi in the due diligence, getting everything looked good, interviewed a bunch of people, talked to some clients, kind of all the things that you're supposed to do, all under the auspices of like I'm a consultant as opposed to Scott's potentially going to buy the business. We came to terms, so I was comfortable with the business kind of what they were asking for. So they were asking, you know, right about 2.4, which is what the original offer was at 750k SDE. So a little bit over 3 was good. So we looked at a bunch of different SBA lenders and gentleman by the name of Colin McNulty. He was at CIBC before. I don't know if you know Colin.

[Will Smith]

Good guy. Yep, I know of Colin.

[Scott Alexander]

Yeah. Okay. So he actually helped us get a fixed rate SBA loan. And at the time, you know, my advisors and friends who were all were like, dude, like rates are so much lower. Why would you, why would you get a fixed rate note? My wife, who has a background of finance was like, we're doing this, we're getting a fixed rate loan. I don't care that we're spending basically a full percentage point higher or 7 year old, 75 basis points, whatever. Like this is what we're going to do. And so Colin was able to get that for us. So We've been paying 7% on our note for, you know, the entirety as. Even as rates were going up and that sort of thing.

[Will Smith]

Amazing.

[Scott Alexander]

Yeah.

[Will Smith]

I mean that. And, and your wife, just because she was, as you said, a finance person, she could. Or, or was it just one of these that like essentially anybody who's paying attention to rates. I sound like I could have, you know, said this at the time. I couldn't have. But in retrospect, rates were never going to go lower. They were only going to go higher at that, at that point in the.

[Scott Alexander]

World, that was her mentality was like, Scott, it's not going down. And you know, what comes. What, you know, things are Going to revert to the mean. So let's just lock in now.

[Will Smith]

So how wise? How wise? And so you had to. And so to get that, you had to pay, as you said, 75 basis points higher. So what, you would have been 6.25 ish floating, and then that today would be what, 11 or 12?

[Scott Alexander]

I have no idea. Like, it'd be sky high. It'd probably be 11 or 12. Yep.

[Will Smith]

Yeah. Yeah, Jody.

[Scott Alexander]

I know.

[Will Smith]

Jody should be in this interview.

[Scott Alexander]

She should. I mean, she's way smarter than I am. So.

[Will Smith]

Okay, great. And so. And so doing this quote, unquote consulting gig, two questions.

[Scott Alexander]

First.

[Will Smith]

How did you deal with the fact that were you to proceed with buying this business, then everybody would know that there was a mild deception there. How are you going to deal with that? And then point number two. Did anything. Did you. Did you sniff anything out during that process that would. That would hint at what was to come?

[Scott Alexander]

So the idea would be that we would basically say, hey, we were doing this, and we really like it. And so we kind of made the decision that we did want to buy it and that sort of thing. And so I think we would have been okay with that. The only thing that we saw Will in the entire process was I was on a call with the bookkeeper at the time, and Jody happened to be listening in again. She's pregnant in her first trimester, and so she's not really involved in this process. But she happened to be sitting next to me as I'm talking to this bookkeeper. And we get off, and she looks at me, she said, something's not right here. Like, I don't trust what she just. What this woman just said, like, something is wrong. And the issue was the bookkeeper started basically badmouthing the owner. And Jody was like, hey, like, that's not really what somebody does to a consultant. Like, that's. Something's wrong with this. But it was a throwaway comment that obviously we thought about, you know, since then. But it was like, okay, that's a little bit weird. But, you know, everything else is looking green. So, you know, maybe it's just this person's having a bad day or something. But that was really.

[Will Smith]

So you kind of chalked it up to bookkeeper misbehavior as opposed to something endemic to the business.

[Scott Alexander]

Yeah, just like, okay. Like, maybe the bookkeeper and the owner got in an argument or something, or they didn't like each other from a personality standpoint or whatever. But, like, it didn't feel like, okay, hey, There's. There's a deep crack that we need to dive in on. It was more kind of a throwaway comment of like, this isn't. This isn't maybe a healthy dynamic, but not a dangerous dynamic.

[Will Smith]

You know, and that's just. I mean, you guys were. Personal opinion. You guys were right to just blow by that. That's not that big a deal. I mean, not everybody is gonna. Yeah, I would totally have let that go, and I would have had Jody's reaction, which is like, huh, not professional. Not. Not, you know, not the way these things usually go, but not. Not enough of, like, a thread to pull to undo this deal. So only in retrospect. Only in retrospect.

[Scott Alexander]

I mean, 2020, right?

[Will Smith]

Yeah. Okay.

[Scott Alexander]

We were. We were going through. We had gotten financials because I'll kind of get into where the deal goes. So essentially, we had come to terms 2.4. We were going through due diligence, working through the bank, that sort of thing. And then in. We were going to close in January of 2019, and that's when we. The government had a shutdown. And so SBA basically shut down, and we couldn't close in January.

[Will Smith]

Not to be confused with the COVID shutdown. This is one year earlier. This is the government shutdown, which, you know, was, you know, lost in the sands of time because Covid overshadowed everything that happened in 2019. But there was a government shutdown in early 19. Okay.

[Scott Alexander]

Yes, exactly. And so what happened was we had gotten all the financials up until, I guess we hadn't gotten Q4 financials for the end of 2018, and we were going to close before the books were closed. And so I was like, it's not a big deal. Well, because of the delay that, you know, SBA pushed out a month, we were able to get the Q4 financials, and they looked bad. So what we had been seeing in the business was basically, you saw this growth and then this nice, slow, steady decline of, you know, month over month. It's down a little bit, maybe, you know, a couple percentage points, that sort of thing. But then what we saw in Q4 was that decline sharpened. So whereas it may have been losing 2%. Right. It'd been growing, growing, growing. And then, you know, basically the owner was like, hey, I wanted to leave. That made the decision back in, like, I don't remember the exact date, but in, like, early 2018, he made the decision he didn't want to grow in the business anymore. And so after that, like, the point is, like, hey, I'M not just. I don't have my foot on the gas. So it's going to slowly decline. We get the Q4 numbers, and they were, like, declining at a much, much more rapid rate. Not off a cliff, but in a more rapid rate. And so I went back and talked to the owner and said, hey, man, like, the business is getting worse than we thought. I can't justify 2.4 anymore. We've got to renegotiate this based on the data that we have. And he was amenable again. His. All the interactions we had had with him was. Were very good, very, like, collegial, if not the most sort of business savvy, at least kind of, you know, friendly and easy to work with, that sort of thing. And so, you know, we had a little back and forth, but we agreed to reduce the purchase price from 2.4 to 2.1, and, you know, seemed fair based on the numbers, that sort of thing. So, yeah, so we closed.

[Will Smith]

And Scott. So seeing a precipitous decline like that causes two things. Either one, a retrade, which is the path you went, or it's a red flag. It causes you to not proceed. Did you consider not proceeding?

[Scott Alexander]

Briefly.

[Will Smith]

And. And why'd you decide against it? Just because he. He'd already preempted. He preempted things with an explanation. I just took my foot off the gas. So.

[Scott Alexander]

Yeah. And, you know, it from. You know, they always talk about, like, you need to kind of mesh with the. The owner and that sort of thing. Jody and I are both Christian. Our faith is very important to us. He also espoused to be Christian. And, you know, we talked about scripture, and he'd send me sermons from his church and that sort of thing. So it was like. Felt like we had a good bond, you know, outside of just kind of the work thing. And so, you know, I'd spend enough time with them. They're like, okay, like, this story checks out. I think maybe. Well, certainly more than maybe. Definitely. I was kind of leaning into the deal that, like, hey, like, we'd kind of gone through all this stuff. I've done the due diligence that somebody would do. Like, I believe the guy. Um, and so.

[Will Smith]

Well, and to your point, I mean, you. You had done. You had done exhaustive due diligence. You had talked to employees, talked to clients and lived in the. Not. Maybe not lived in the business, but came close to it. So. So, you know, I'm picking on you here just because I know where this story goes and how bad it gets. But really, you know, I'm not giving enough credit to, to just how comprehensive your diligence had been. I mean, you had all kinds of assurances that many people who sit across from me on this podcast didn't don't come close to having and still proceed.

[Scott Alexander]

So yeah, yeah, yeah.

[Will Smith]

But I, but I will say just to pick on you one, one or what? Pick on, give the audience one more kind of thing to think about. It can be its own flag if the, if an owner says I took my foot off the gas and things immediately start declining. Now we all understand that, that, that it's, you know, the energy of an owner and an entrepreneur really does propel things forward. And the idea that you can have a business that just completely runs itself with the, and the owners checked out is a bit of a fantasy or extremely hard to find. On the other hand, you can, you can also just interpret that like, okay, if the, if the business, if the owner is stepping off a little bit and immediately there's a decline in business, that might say something structural about sort of. That there's a structural weakness here.

[Scott Alexander]

Yeah. Yep. Especially I think that's very true. And I would say especially in a business where you're constantly adding so where you know that you have kind of built in churn because you know, you look at the P and L and it's like, hey, we have, you know, 100 clients this month and 100 clients next month, but there's three different every month. Like that kind of a business where you have to be constantly selling. If the owner takes his foot off the gas, you know, and that does that three become a two and then over time that two becomes a one and it sort of, yeah, eats itself up.

[Will Smith]

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[Scott Alexander]

We closed the end of February. First day in the office was your 40th. On my 40th birthday, March 4th of 2019. So nice little birthday present. One thing I didn't mention, we told the team. He actually paid for the entire team to go out to like a conference, like a digital marketing conference. And we told the team there. I joined them and that sort of thing at this conference. And when we told one of the two leaders, she actually started crying. And I was like, what's going on here? And she said, hey, I was going to leave after this conference, which should be a red flag in and of itself that she's gonna take a trip and then quit. But she started crying. She's like, I'm so glad. Blah, blah, blah. And like, you know, the culture is really bad and that sort of thing, which was a.

[Will Smith]

She's telling you this on the side.

[Scott Alexander]

So basically we. I had great question. So we were at this conference, I met with the owner and, like, his two operators. Like, the people that are actually, like, running the business, all the people reported to them. And so we talked about it. Then he left. And I was talking to the two of them, and one was a guy, one was a gal, and the young woman just started crying, and she's like, I'm so happy. I was going to quit when we got back on Monday. Blah, blah, blah. Like, this is such a great thing for the company. The culture's so bad. We got to do something. And I was like, at the moment, I was like, I'm a hero. This is great. And I should have been like, we got a real problem here. But yeah, that was. Yeah, so that was. That was the transaction, basically.

[Will Smith]

So literally, you started getting. You started getting signals that that something was rotten in Denmark the moment after the speech, the day one speech.

[Scott Alexander]

Yeah. And I didn't quite understand exactly, like, maybe don't sign the paperwork, but lose my copy. But it was. I took it as a positive at the time. And we'll get into the importance of culture and how, like, you have to align in the culture. But I'm very much, as you could probably tell, like a rah, rah, we can do it. Lift people up. Like, I'm not a micromanager. I don't yell at people, that sort of thing. But, like, we can do this together. And his style, the former owner style was very. Was much more like micromanaging. He would, like, yell at people in. It was like a big bullpen kind of a structure. And he would like, if something happened with A client, he would just, like, start lighting somebody up in front of all of their peers about what they had done wrong and that sort of thing. And so that's what she was reacting to. And I thought, that's great, because that's not my style. I'm much more a. Like, hey, good job. How do we build up on wins as opposed to beat up on losses? So anyway, that was. That was. That was. Should have been like, okay, when you get back in the office, something's. Be ready for something. So.

[Will Smith]

Okay, well, I really want to hear about more on the culture piece. Is there anything before we get to that?

[Scott Alexander]

No, I think that's it.

[Will Smith]

Okay, great. So. So what do you learn? That. That. That basically makes you. Makes you realize that your first interpretation of this. This bad culture, was not the right one.

[Scott Alexander]

Essentially. What. What I start to. I find a couple things. So, one, and I'm jumping around on the timeline a little bit, but. But one, the bookkeeper actually ended up giving us access. And this isn't a weird thing, but, like, we had access to the first old company's QuickBooks account, and Jody basically got in there and was looking at some things and started noticing some problems. And the problem that she started to notice that was really material was they were deleting invoices. And so as we started for clients. So again, the way that the business works, we have called 100 clients. They're paying $2,000 a month, and that's recurring revenue. But if these, you know, if a chiropractor client or dental client gets upset, they just won't pay. And so what was happening was we found this out actually much later, sort of post Covid. But what we saw was the bookkeeper was coming in and deleting all the invoices. So then essentially what was happening was that that slow, steady decline was really much more precipitous. Like, we had these clients. It wasn't that the top line was actually declining slowly. It was that she was going back and deleting revenue. So they had clients that were just then refusing to pay. And so they were just backing up the revenue to then say, hey, here's what. You know, here's when they left, or here's when we stopped charging them, because that's when they stopped paying. And so what we found was the actual revenue was nowhere near as healthy or it looked like a slower decline than it actually was because these people were still clients, we were still doing services for them, but then we just weren't getting paid. Right. And so Instead, what's happening was we had all these clients, the company had all these clients. And then it was like a much, much sharper drop of revenue where like basically customer service went into the toilet. Right. Clients were really upset and they were just deleting invoices. So that was one of the things that we saw, which had we known that at the time, would have been a very different. I, we probably would have walked. Had we understood what we would have walked. I'll say that definitively based on.

[Will Smith]

And Scott, I may. I may not. And we did this a little bit in the pre call. I may not fully understand the impact. I don't fully understand the impact of this. As I said to you in the pre call, I could imagine they send an invoice and customer comes back and says, get out of here. You know, you guys did a terrible job. And bookkeeper, bookkeeper or whomever deletes the invoice that was just sent because it was never going to get paid. So why not just take it out? Not because I'm trying to hide anything, but because the invoices is. Is doa. So. So, yeah, so. So I guess question one would be, is it necessarily deception or fraud or not frauds, maybe a little strong. Is a necessarily deception. Second question would be, help me understand what it says again about revenue direction that they're doing this.

[Scott Alexander]

Yeah. So essentially, if you have a steady line of actual revenue and then Your revenue drops 10% in a month, that sends a very different flag than it's going down 1% a month over a period of time. Right. I see 1% a month as. Okay, it's a slow. The story lined up like, oh, okay, he's taking his foot off the gas. Like everything. You know, he just doesn't want to be doing this anymore. So great. As opposed to the businesses chugging along and then all of a sudden everything goes to heck in a handbasket. And now the revenue is just taking a nosedive. That's a very different profile from a revenue standpoint.

[Will Smith]

So if they had kept the invoices in the books that were never going to get paid, what you would have seen as a clue to you doing your diligence was all of this overdue accounts, accounts receivable, a lot of overdue.

[Scott Alexander]

Accounts receivable or bad debt. And then you would have seen basically, instead of losing, you know, net one client a month, you'd see at one point in time, you lost 10 clients in a month. And so to me, like, that's a very different top line. It's like, oh, yeah, everything's good. And then all of a sudden, it's terrible versus, like. Like, it's just kind of the slow, steady decline. So to me, like, that's. The materiality that we talk about is like, if we had seen the numbers as they actually should have been, as opposed to as they were presented, you would have been able to see this rapid deterioration, which actually getting forward, like, the wheels fell off. We took over the business, and then we just started hemorrhaging clients. And so.

[Will Smith]

Get to that, Scott. But do you think that they were doing this to intentionally deceive you?

[Scott Alexander]

I don't know. I don't know. I mean, I think what. What we got into was the seller was. Was very good at telling a story. And I think, and we talked about this before, like, very good at, like, convincing himself of the story, and so very, very convincing from an actor standpoint, like, because he believed it to himself. So. And then again, these. But. But you can only put on an act for so long. And so as we got into it and we started hearing more kind of, we would do client exit interviews, and we would hear pretty nasty things about the owner. We would, you know, when we got into it, like, we'd hear more of these stories about him, like, just berating people and making them cry in front of their peers and stuff like that. And so you start to realize, like, oh, was it. Was it intentional or was it, you know, just sort of incompetence? I don't know. But you start to get a picture, you know, and so, yep, you know, and that came true sort of once we kind of took over the business.

[Will Smith]

Okay, so carry on with either what is happening with revenue or with what you're uncovering about the. The core culture of the place.

[Scott Alexander]

Yeah. So essentially what happened was we took over first day in the office, 40th birthday. Right. I'm all excited. That sort of thing. And then March 2019, we just started, like, clients started dropping like flies. And in fact, one of our. One of our biggest clients, our biggest client at the time, they're about five times bigger than our average client called in, and they were unhappy, and they wanted to do some things, and the owner starts just blessing them out. And wow. F this.

[Will Smith]

And f. In front. In front of you. In front of everybody.

[Scott Alexander]

In front of everybody. So, like, in front of everybody. And.

[Will Smith]

And he has sold the business to you.

[Scott Alexander]

He has sold the business.

[Will Smith]

You both know that this is. Is one of your biggest accounts.

[Scott Alexander]

Yep.

[Will Smith]

Or did you say your biggest Account.

[Scott Alexander]

It was our biggest account.

[Will Smith]

Yeah, I mean, I mean, what. What was he really? What was he thinking?

[Scott Alexander]

Who knows? That's just.

[Will Smith]

I mean, not only obviously is it unprofessional, and it goes to show how corrosive this culture was and all that, but just, I mean, the guy must have a brain and recognize the strategic problem to you, new owner of telling off a giant slug of revenue.

[Scott Alexander]

I don't think he cared. I don't think he cared. I think he thought, hey, I got my money, now I can do whatever I want to do. And, you know, we saw that. I mean, he. During the transition period, right? I told you. He just decided again, like, we just lost our. You know, we lost not just that client, but multiple other clients all within, like, within 30 days of taking over the business. And he decides this transition is really hard on me, so I'm going to go journal. And so he, like, just left. And he was like, I'll be back in a month. And I'm like, to go journal?

[Will Smith]

He ghosted to journal you.

[Scott Alexander]

That's right.

[Will Smith]

He ghosted you to go journal.

[Scott Alexander]

Yeah. I was like, this is. This is great. This is exactly what I saw on the first day, the first half. But.

[Will Smith]

And so, by the way, Scott, at this point, I mean, your opinion of him must have collapsed along with the revenue of the business. How are you managing your relationship with this guy that you thought was fellow believer, good rapport, all this stuff, and it just. It must just have made you give. Giving you whiplash to see his character change, you know, from one side of the other to the transaction.

[Scott Alexander]

Yeah, I mean, it's. It's stunning. Like, you don't expect to see it, and then when you're seeing it, you're like, am I the crazy one here? Like, am I Like, how. And so, yeah, like, it was. It was jarring. Like, it honestly, like, it took me from, you know, corporate. In the corporate world, I had always been really good at, you know, I'd been. Been very successful, right. VP at very young age. Right. Had all these great things, great projects. I'd been a part of that sort of thing. And then, like, just to get my legs cut out from under me. Like, you talk about the J curve and like, the drop, and I mean, it. It just. It can sideswipe you. And so I'm sitting there thinking, like, was I was all this stuff up until the first 40 years of my life, was I really just bad and just happened to be lucky? Like, what's going on? So, yeah, like, it it really causes.

[Will Smith]

You to question your own confidence.

[Scott Alexander]

Exactly.

[Will Smith]

Your own self confidence. Yeah, yeah.

[Scott Alexander]

But. Yeah, so started.

[Will Smith]

But. But on the other hand, you're hearing from throughout the organization that the guy was problematic. So that's.

[Scott Alexander]

Yes, that.

[Will Smith]

That you're. You're able to quickly recover your sense of what's going wrong here. It's not you. It's actually this guy.

[Scott Alexander]

Yeah, sort of. And then you start to get in and start to realize that birds of a feather flock together. And so one of the things that was happening that was that basically my team wasn't as bought in as I thought they were. And so, like, as an example, we had a guy that came to us, and this is probably, I don't know, three, four months in, and he was like, one of my lead account managers. And well, before this, I got a phone call from a client. And usually at this point in time when I was getting a phone call from a client, it was, hey, we're leaving. You guys are the worst ever. I will never talk to you again. Like, that's what we had been experiencing for months straight. And I got this phone call from this guy in California. He's a wonderful guy. And he was like, hey, I just want to tell you, this account manager who's working with me is just great. And I want to tell you that, because I'm sure you never get a lot of happy phone calls. I just want to say he's great. Thank you for having him on my account. Whatever, whatever. Said, okay, great. I appreciate the phone call. It was great. And so then he. This individual would come to me and was like, hey, I'd like a raise. I'm like, great. Let me think about it. We're losing money, right? It's. And, like, think I don't see the end of the tunnel, right? And I'm like, but I can't stand to lose this guy. So he wanted 10%. And I was like, I can't do 10% right now because of this. This, this. I can do 5%. And he was like, okay, great. I found. I find out January of 2020, the same doctor who called me up front called me, was like, we got to go. Basically, not too long after you and I had that conversation, um, this gentleman came to me and said that, hey, he's your number two. And, you know, he can't be there for me anymore, so he'll do his best to take care of me, but good luck. And so, like, my account manager wasn't going to actually manage the account anymore because I didn't give him a 10% raise instead of a 5% raise like that. That. Those kinds of things. Like those. I just had a team actively sort of undermining me. And so that's sort of. That's like the challenge that you run into is if you start to realize that you, like, the seller is not philosophically aligned with you, they're going to hire people that align with them, just like you would hire people that would align to you. And so, yeah, you know, that's. That, to me is the big takeaway is like, you got to watch that culture piece because it goes deep in an organization.

[Will Smith]

Yeah. And so when you have that realization, does that mean you need to start auditing the entire org chart to see who needs to find a new bus to get on?

[Scott Alexander]

Yeah. So what we started doing then was basically just looking at who do we have on the team, who's an ally and. Right. And you're either in. You're either in the camp or you're out of camp. And, you know, so started looking at how do we make sure that we're getting the right people on the bus. That actually takes a lot.

[Will Smith]

How did you do that? How do you go through an audit? Character in loyalty.

[Scott Alexander]

First of all, I don't think you necessarily always have a pipeline of folks at the ready. Right. So if you get somebody, you're really doing, like, shades of gray, like who is most toxic to who is most beneficial. And you're just kind of starting with the most toxic people and working their way off. The first way is you just start holding accountability like you do good management. And that's the thing that I think coming out of that and into 2020 and then into where we are now is like, I got my legs cut out from or knocked out from underneath me because of these things. And I stopped doing the things that I know work. The things that work are accountability, clarity, transparency, expectations. Like, give people a sense of. This is what I need from you, Will. Here's what winning looks like. Here's what losing looks like. You got to win, not lose. If you need something, I'm here to help you, but you have to deliver this for me. And people will either deliver or they won't. And then your job is in this kind of a cleanup situation, it's less about do I like Will or not, and it's more about what's the objective reality that Will is creating in my organization. And so the big turnaround for us was we hired somebody in who was kind of like a Cooish type person. And I knew that I could trust her. And then we were just doing this process, right, Objectively, are you doing the right things or the wrong things? If you're doing the wrong things and I tell you to correct you and you still do them, I don't have space for you. And it's not because I don't like you. It's because we have a goal that we have to meet. I have now seven mouths to feed at this time. And so we've got to deliver or else I don't get to feed my kids. And I don't like you as much as I like my kids. So we talk about my third daughter or my third child, my middle daughter. Her name is Coco and she is a ray of sunshine, just brightens up her room. And she loves to dance. And I said, don't ever put me between you and Coco's dance lessons because Coco's dance lessons win every time. We're gonna, I'm gonna deliver for my family and I want you to be able to help me do that. But if you're not gonna do it, then there's gonna be a better place for you to be. And that sort of, sort of hard nosed, you know, just not hard nose. Just like it's direct. You're either in or you're out. That's, that's how you get these kinds of things turned around. But you have to have allies or else you're going to get undermined. We replaced that bookkeeper. And I know I'm jumping around a bit, but like when Covid hit, if I can jump that far, so, you know, trouble, and then we kind of got the business back on good footing. And then March, everybody remembers March of 2020. There's a thing called Covid came through, you know, a bit of a problem. And we lost 80% of our revenue from March 16 to April 1 of 2020. I mean like, literally when I was saying like every phone call was going to be, you know, getting us getting fired, like they came fast and heavy. And so we went absolutely into the toilet in those last two weeks.

[Will Smith]

Oh my gosh.

[Scott Alexander]

Yeah.

[Will Smith]

And before we hear about that, Scott, just with the culture correction over 2019, had you fixed the problem? I mean, if Covid hadn't happened, would you have clawed your way back and even grown as a digital agency serving chiropractors and dentists?

[Scott Alexander]

I think so. It would have been much slower path because when, when Covid hit, we didn't have a choice. It was just like, you're done. If we had stayed, if it hadn't occurred, I think we would have built back. I don't know that we would have been as successful as, as successful as we have been, but I think we would have been able to turn around. It just was, it would have taken much, much longer to do it.

[Will Smith]

Yeah, but you, you, you, you felt like you had turned around this frankly, toxic culture.

[Scott Alexander]

You knew what we needed to do. Yeah, yeah. And so we were executing on the plan.

[Will Smith]

Okay, great. I think you were going to say something else before we get into Covid. You were, you were, you said, I'm, I'm jumping around. Maybe not. Maybe you were just going to take.

[Scott Alexander]

Us right into Covid. Well, I'll, but I'll mention this because we talk about, we've been talking about sort of having allies and that sort of thing. So a couple of things happened alongside that that were really helpful. So number one, I joined like a peer group. C12 is the group that I was in that I joined Christian Business Owners Group. There are other vistage, there's other ones that are out there too. But, and I would come in and God bless these people because I would come in like, like a wild eyed, feral human being having no idea what's going on with this business. And they would like walk me through it. But that was immensely valuable. And in fact, one of the quotes that somebody said to me is just like, your revenue is great, your cost structure sucks. Like, you got to basically take costs out of the system and you know, like just, just dumb things that you got to, you lose, you lose track of having that. My older brother is my tax accountant and so, you know, he's in the business seeing what's going on and relying on him. Jody obviously is as well. My younger brother, my parent, like, everybody's like kind of rallying around me, like trying to support me. But when you're in that sucky moment, like just having people that you can rely on to listen to. I have some buddies of mine that like, I swear they're like, Scott's an idiot. But, okay, we're going to coach you through this. But that sort of coaching piece was immensely valuable.

[Will Smith]

And, and, but Scott, you look back at some of the changes you had to make as obvious that you should have seen you, you keep kind of putting yourself down, like to everybody else these changes were, were self evident.

[Scott Alexander]

I'm a hard, I'm a hard judge.

[Will Smith]

Okay. But I thought so we, we can move on. Yeah.

[Scott Alexander]

I grew up Catholic. All right, so.

[Will Smith]

Okay, great. Uh, so peer groups. And that is, of course, that is something that, that we hear consistently can be really helpful.

[Scott Alexander]

Yep. So let's jump in.

[Will Smith]

So 80% of COVID 80% of revenue is lost with within weeks of, of COVID hitting.

[Scott Alexander]

Yep. So unbelievable. A lot happened. Yeah, it was a wild time. I don't recommend it. I think it's kind of frowned upon, but yeah, so we lost 80% of revenue. And my wife Jody came to me because Covid hit in real March 16. It was a Monday. And that was like when everybody realized things were bad. We didn't know, like, are they going to shut down state borders, all this kind of stuff. And we were renting our place in Denver and then for the previous year, we had not been able to sell our house in St. Louis. And so. And it had been a huge frustration. You know, we airbeat and beat it and all this kind of stuff. And you know, kudos again to Jody for doing that. But like, we had, we were. The mortgage situation was a bit of an issue. So she came to me Thursday morning and she said, Scott, you're thinking I'm crazy, but we got to go back to St. Louis. And so that was Thursday morning. All Thursday we can't go in the office. Right. So all Thursday I'm like trying to talk clients from out of leaving. And then we start packing and basically pack up, the seven of us, my four kids, my wife, myself and my mother in law into a U Haul and book it back to St. Louis and back to our old house that we had been cursing and so mad about, like, I can't believe we can't sell this house and that sort of thing. We'd, you know, she had turned into an Airbnb to cover the mortgage. And we rolled in. It wasn't that Saturday. Like two days later. It was like, you know, nine days later, we rolled back into our old house that my kids know as their house. And there was sheets on the bed and there were dishes in the cupboard and utensils and everything was there. And it was, it was like a light. It was like the world changed in such a positive way. So.

[Will Smith]

And was that what Jody had perceived would happen? Why, why did the move happen then? Because you were worried the state you had to get out from under your rent, I guess.

[Scott Alexander]

We were renting in Denver and we owned the house in St. Louis. Airbnbs. Obviously we're going to go to zero. And we knew that the, the rent or the lease on the house that we were in was expiring in June. And so we would have to get out anyway. And she's like, we just got to go back.

[Will Smith]

She was a.

[Scott Alexander]

It's probably worth mentioning. She was a collegiate gymnast back. You know, she was Jimmy in college. And she came to me, she's like, look, when you're messing up on the balance beam, you lower your center of gravity, right? That's how you save yourself. And she's like, scott, we got to lower our center of gravity. We need to get back to St. Louis. We just have to, like, recuperate there. Right? That's what you got to do. So.

[Will Smith]

And how long had you been in Denver at that point?

[Scott Alexander]

A year?

[Will Smith]

About a year.

[Scott Alexander]

Yep.

[Will Smith]

And the back and forth was that. How'd your kids take that? They were happy to be back. But was. Was the change disruptive?

[Scott Alexander]

No, no. I mean, it was. It was. This is what we're doing. It wasn't like, hey, guys, what do you think? It was like, this is what we're doing. We're going back to the house. You know, my mother in law was visiting my sister in law, so she was in New Jersey at the time. And like, here's what we're doing. Gigi's gonna come back to the house. We're gonna be back in our old house. And they were happy about it. Like, you know, it's their old house. But it wasn't a back and forth about, is this an option? It's just, this is what we're doing. And so, yeah, we rolled back in. And I'm sorry.

[Will Smith]

And I'm speaking to you at that house.

[Scott Alexander]

Yes, this is the house. Yeah, yeah, yeah. I've been told that we're never leaving this house.

[Will Smith]

So St. Louis wins.

[Scott Alexander]

I know. Exactly. It always does. It's that number three, take the job. But yeah. So we get back, and while everybody is locking down and getting stuck in their houses and that sort of thing, my kids get their trampoline back, which is right over here. We live on four and a half acres, and so they're playing with their own stuff. Like, they didn't realize what was going on in the rest of the world because, like, to them, they're just getting their stuff back. And it was like. It was like a. I don't know, like just the sun. The sun had come out for us. So basically Jody came to me. We had very. Almost no revenue, obviously, like I said. But yeah, Jody said, hey, look, that business is dead. And we had always planned on tough love, right? But basically that. That business is dead. And You've always wanted to do this thing around the B2B side, which again, was what I was doing at Medtronic and I've been doing at Covidian and, you know, at Mercy. And so she's like, look, just do it. And I will tell you when we get a phone call from the bank that says they're going to foreclose on the house because personal guarantee, the house is under. And she's like, just keep your head down and just do it. So. Well, I didn't see a P and L from probably mid March until like maybe August, probably more like September, October. She's like, just, you do your thing.

[Will Smith]

Meaning what? She would. She would take care of the books.

[Scott Alexander]

She was going to take care of the books and I was going to take care of basically starting this business up. And she's going to tell me if the bank is going to call the note.

[Will Smith]

Wow. And so does that to say that she had already been really involved. And to what extent was she now going to be involved? If she's really doing everything and you're selling.

[Scott Alexander]

Yeah, you're.

[Will Smith]

She's doing everything back office and you're. You're selling.

[Scott Alexander]

So when Covid hit, I don't know if you remember this, but they were giving all these, like, Covid extra benefits of like, extra unemployment and that sort of thing.

[Will Smith]

Yeah.

[Scott Alexander]

And so two of the people on my leadership team, the bookkeeper, who was the same bookkeeper from when I bought the business, and my head of sales, both came to me and said, hey, I don't want to be here. I want to just sit on the couch and basically get paid for doing nothing. And I'm not going to make somebody do work. So they both left. Jody had a background in finance. I've got a background in sales. And so she stepped in and again, this is when we started to realize about the invoices from previously was when this happened. Right. So that's kind of when the timing there happened. And then I just started selling. I had a background in sales from pre business school.

[Will Smith]

And Scott, what, what, what was this, this quote, B2B thing that you'd always wanted to do? Tell us what this was.

[Scott Alexander]

Yeah. So I had a role back at Medtronic. Convenient at the time. That was looking at how medical technology was being bought. This is 2012 to 2014. And the whole reality was the way that stuff is being purchased is different. So it used to be back in, you know, 1995, I'd go call on Dr. Smith. You're an orthopedic surgeon. I'm a rep for Stryker, and I'm going to say, hey, I got this great knee implant. I think you should use this on your patients. And you're going to say, great. And you turn to supply chain and say, scott brought this in. I want this. Let's buy some. We're going to get this for whatever cases tomorrow. And it was the rep and the doctor that had the relationships that were driving all the purchases in sort of this medical technology field. And then around 2012, we started seeing changes, so GPOs started becoming a bigger thing. Physician employment by health systems. Right. Multiple people involved in the buying process, value analysis committees. All these things were happening. And we at Covidian were a little. Were a lot concerned about what's this going to do to our ability to drive revenue. And so they took my incubator entrepreneurship incubator group that was literally working on the surgical robot and said, figure this commercial model thing out. And so that's what I did for three years. Flew around one of my team or I were in one out of every five health systems in the country. Interviewed everybody from CEOs of health systems down to, like, guys kicking boxes in the basement to figure out, what is this thing? Where's it going to go? Where's the world going to end up? And so we started building a playbook around this software to help sales reps, all these different things to win in this new environment that we saw coming. And so that was something that understanding is what got me hired into Mercy. And I just kind of had it in my back pocket that, like, people need this. I was getting. I didn't mention this, but I was getting meetings because I'm, you know, vice president of innovation for a big hospital system. I meet all these founders and CEOs of really cool technology companies, and they all come to me and they're like, hey, Scott, like, look at this wonderful widget that we have. It does X, Y or z meaningful thing, improvement in healthcare. Can you get me an audience with the head of cardiology, the head of quality, the head of fill in the blank. And, you know, I can do that once or twice, but I start doing that, like on the regular to the head of cardiology, and he's gonna be like, hey, like, I don't have time to do this. You know, like, they're pro. They're figure out a way. They need to figure out a way to get in front of me other than just getting Scott to make an introduction. So that's something That I knew, having run Innovation and talked to all these companies, that there's a burning need for this. And that's the B2B idea is this idea of like a fractional marketing department that you've got a widget of variety X and you say, I have to figure out how to get my medical device to be adopted by cardiologists. Well, I don't have access like through a bunch of reps anymore. Doctors aren't coming to conferences like they used to. They don't have the decision making process like they used to. I don't have an answer. And so our, the answer that I would argue now is Chirus Marketing, which is the marketing agency that we started up out of COVID is we can come alongside and basically like you know, at the Acme box that Wiley Coyote gets and he pulls a string and out pops a cannon with cannonballs and a lit fuse. Like that's what we do for medical technology companies understanding this arc of the buying process for things from million dollar MRIs all the way down to ballpoint tens. So that's, that's the thing.

[Will Smith]

Wow. And. And so of course you had a lot of relationships to help you bootstrap this.

[Scott Alexander]

Yeah, I mean I had, I had a bunch of, bunch of relationships. I, you know, I personally have been in the industry for a long time and so just like being able to talk the talk, even if I didn't know somebody, just being able to say like, hey, I know what it's like to launch a medical device and that sort of thing. So that was a piece of it. But this was, and it still is to a great degree, fairly revolutionary. This idea of we're going to talk to doctors through social media and we're going to get, you know, doctors to demo remote EKGs, which is a heart monitor that you can remote, you know, watch from a distance via Facebook. Like that was, I would tell people that and they're like, you're out of your mind. There's no way this is going to work. But it does. And it did. But we started.

[Will Smith]

Sorry, what, what's the user flow there, Scott? I'm a doctor. I happen to be browsing Facebook. I see an ad.

[Scott Alexander]

Yeah. I register for a demo of product.

[Will Smith]

A demo.

[Scott Alexander]

Yeah. And the thing about, about Facebook is it's actually, it's an ad platform. Right. 97% of the revenue comes from advertising. And they own Facebook and Instagram, but they also, you know, ad space on tens of thousands of websites. And so what we do is we've Got a database of 4 million records, something like that. 4 or 5 million records of, you know, doctors identifiable information to say, we want to talk to cardiologists, we have a list of cardiologists and we can train Facebook to go find those individuals as they walk around the world digitally. So it's not like, hey, we're just putting on Facebook. It's more like we've got this custom targeting capability that we're able to do.

[Will Smith]

And a doctor would click an ad and register for a remote demo maybe.

[Scott Alexander]

Or a sales rep in the area or whatever. I mean it's really whatever you would want to do face to face. You're just doing it digitally now versus, you know, face to face.

[Will Smith]

And is your business model, what is the performance metric you're measured against? Is it leads, you know, leads delivered per month or, or just flat fee or what?

[Scott Alexander]

In our, in our ideal world, we're doing it off of return on investment. So we're in the client CRM. We're watching the deals from, hey, Dr. Smith is interested in something to. He got a demo to. Now his hospital is buying X. What's the revenue from X? What was the cost to get there? And then here's the ROI of the entire marketing department. So.

[Will Smith]

Wow.

[Scott Alexander]

Yeah. I mean it's.

[Will Smith]

You're, you're, you're, you're watching the entire funnel. And are you able to optimize the funnel? Do you have your hands on the funnel all the way down?

[Scott Alexander]

Yeah. I mean this is, I mean we're, we're making recommendations. We're driving this, like. Cause again, like I tell my team this, like the stuff that we do matters. Right. We're not selling socks here. We've got like dialysis machines that are like saving people's lives. We've got, we have a client of ours that helps to prevent bankruptcy associated with medical debt. Like these, what they do matters. So yeah, like, we go hard to make sure that we're driving value for them because like, again, at the end of the day, it's you or me or it's our mom at the end of the transaction. So.

[Will Smith]

Yeah. Yeah. How did you. Did you re. Educate all of your employees on this new. So, yeah. So how did you. Other than just figuring out where revenue was going to come from and coming up with this new value proposition and this entire entirely new business model?

[Scott Alexander]

Yeah.

[Will Smith]

How did you reorient the existing ship and the people on that ship in this direction? Or did you.

[Scott Alexander]

I showed up one day and again, we're all Virtual at this point. And I said, guys, this is what we're doing.

[Will Smith]

It's not the first time you've said that, Scott. I like that phrase.

[Scott Alexander]

That's, you know, you know, it's what you get direct sometimes. Well, I forget who it is, but somebody was Talking about wartime CEOs versus peacetime CEOs, right. A wartime CEO is, this is what we're going to do. A peacetime CEO is, hey, let's think about like, let's consensus drive and that sort of thing.

[Will Smith]

I love it.

[Scott Alexander]

Blank on its name. It's one of the VCs that's out there. Ben something or other. But anyway, yeah, like we lost $80,000 in May of 2020, bottom line. I didn't know that at the time. But like we're hemorrhaging and it's only, you know, because of some capital that we had saved up that we're able to like make this thing work. And so there's no room for, hey, what should we do? And that sort of thing. It's like, this is what we're going to do. Here's how we're going to do it. And if you don't like it, Godspeed. But again, Covid is raging. Nobody has any idea what's going on. We never missed a paycheck for anything. Right. We paid all of our bills on time. We did exactly what we had signed up to do as an employer. And I think by that time, again, we had been turning over people. So we weren't where we are now in terms of sort of the buy in of the culture. But we had a lot of people that were buying in to say, okay, like this makes sense. The alternative being I am unemployed at a time when I don't know when you know what's going to happen.

[Will Smith]

Yep. No, in some sense, not to take away from your, your big pivot here, but Covid gave you cover to do that.

[Scott Alexander]

Oh, totally did. Yep.

[Will Smith]

Fascinating. And so, and so we're going to start wrapping up here, Scott. But how did you're. And you're going to take us to the end of the story or wherever the story is today and how things look today. But that first call it six to 18 months of this essentially new company. You know, it's got, it's got the, it's got the scaffolding of the old company. Some of the same people and you. But it's, for all intents and purposes, it's a, it's really a new company.

[Scott Alexander]

Yeah.

[Will Smith]

How does it, how does the first 18 months of its life. Look.

[Scott Alexander]

Yeah, well, so we, we. I, I say we as a royal. We. I made the decision, we're renaming the company. So we had Ivelocity. It was around, so. And I mentioned our faith earlier. Jodi and I are Christian. Our number one core value for the company is Christ driven. Like, it's really important to us. And so we really wanted to kind of plant a flag on this and have this be kind of a testament of what God could do if we kind of let him. So we renamed this B2B side Gyrus Marketing. So for those of y' all who quick Bible story. So Jairus was a Pharisee. Pharisees, the people that hated and ultimately killed Jesus. Jairus had a daughter who was dying or dead, depending upon which book of the gospel you read. And he breaks rank and basically goes to Jesus is like, hey, my daughter's dead or dying. Can you please save her? I had three daughters at the time. And I'm like, this is my fourth daughter. This company that I have. This is how I feed my kids, that sort of thing. And I'm like, God, if you can do it, all glory to you. And so we renamed the company Jairus with. We had.

[Will Smith]

That's great, Scott. Great. Love that. Go ahead.

[Scott Alexander]

And it's, I mean, again, all. He gets all the glory. We just happen to be sort of the stewards of it. But over the weekend after we made that decision, we built a website, had somebody on the team. We built a website, built a logo, did everything. I started working 13 days, 13 day stretches. And so I would work 13 days and then take a day off. And all I was doing was selling, just doing anything I could to get in front of somebody because again, it was a very receptive market because all these med device companies have no idea how they're going to be able to commercialize. And so our story lined up really well. Our delivery value prop lined up well with their need. And so I'm doing everything I can to get customers and have sales conversations. We started at May 1st. First client kicked off May. April 1st was our. When we started this May 1st, we had our first client. We had another one in June and another one in August and then September, October. And actually our longest standing client is the gentle or the team that came on in August of a 2020. And then it just started snowballing. So the idea is we're talking to people about this transformation. I have this personal background. We start hiring some really good folks. I am really fortunate, blessed to have a COO who came on board in March of 2021 who had extensive experience in running an agency. And so basically when she came on, we kind of divided duties. So I do everything. I, you know, I'm trying to do all the sales stuff and I get to be, I like sales, so I get to be the sales guy. And then she's running the shop. And that sort of division of labor has allowed us to be much more efficient in, in terms of being able to bring on new clients and manage the clients that we have today. And then we have a third person who's. We have like basically a full time recruiter who her job is to just to go find the best people because at the end of the day on a service business, like it's about driving, about getting the right people on the bus. And then once you have that, you can teach them most anything. But if they don't have the capabilities, you're not going to get it. So we have a full time recruiter, 30 employees now mid seven figures in revenue.

[Will Smith]

Mid seven figures in revenue from essentially zero. Because you had started this in a completely new market. I mean you had zero revenue in your now market. You had said, didn't you say that you have a couple of people from the olden days, a couple of clients from the olden days.

[Scott Alexander]

Still just a couple. Yep.

[Will Smith]

Okay. But not a material amount of that money. Essentially this mid seven figures of revenue is essentially all 99.

[Scott Alexander]

Call it 100. Yeah.

[Will Smith]

Gyrus call it 100%.

[Scott Alexander]

Yep.

[Will Smith]

And just how did you. The problem that you were solving is clear to me. But that you had a solution that would work is not had you actually done delivered a campaign according to this kind of this, this, this new funnel that you dreamed up? No. So you, you were betting on yourself to figure out, to basically deliver on this promise.

[Scott Alexander]

Yeah, I mean we understood how the technology worked. Like if you, if you look at our first, our first client on the gyro side was a, an Israeli company where the guy, the head of sales was a former medtronic guy and he's one of. Wonderful, wonderful guy. Still a buddy of mine now like, but we, it looked just like our direct consumer marketing stuff that we were doing to, for a dentist. We just were doing it for this medical device company and we knew about the capabilities that like Facebook and Meta had, LinkedIn had that sort of thing where you can take these custom lists and train the algorithm to go find these people. So we knew that it would work. We just hadn't done it ourselves.

[Will Smith]

And what about the point that marketing is always changing frustratingly so, you know, some marketer figures out some new hack, if you will, or some new optimization, some new way to get new business for cheaper than it was gotten before. But eventually competitive marketers also figure it out and all edge in marketing is competed away quickly. So while you were building an agency around this kind of, this, this concept, did you foresee that eventually you were just going to have to evolve with the times how you delivered these leads and but I guess at that point you will have, you would have already built a book of business and then you would just retain those customers and adjust your, the marketing strategies accordingly sort of thing.

[Scott Alexander]

Sort of. So it's different, right? I would divide up direct to consumer and then like what we do is different in that there's 30,000 cardiologists in the United States, like that's it. And so if you have a device that's a cardiology related product, you can't sell it to plumbers, you can't sell it to neurologists, it's only cardiologists. And so it's different than what you may think about like, hey, I've got an E commerce play and like, how do I break above the noise? No, it's really about like you got 30,000 people that you have to influence. And so yeah, the media may change, you know what you're going to use that sort of thing. But the core underlying goal never changes. It's I've got to get those 30,000 cardiologists to say yes, I will try that product, have a conversation with the sales rep, whatever the case might be. And then, and this is kind of, you know, next level down is like, okay, now I need to make sure that I'm helping to shepherd that opportunity through that health system or through that practice. So that's the fundamental of what it is and we can't deviate from that. So anything that helps that great, anything that pushes away from that, that's a problem. And we're trading on our ability to think about this problem in a better way. We've got some really unique frameworks that like when I lay it out to people, they're like, oh, that makes a ton of sense. We've never done it that way. And so that's the secret sauce that we have. But okay, it just doesn't change.

[Will Smith]

Scott, before I let you go, you know, I always like to use this as an opportunity, these interviews as an opportunity to educate the audience a little bit on, on the category or type of business that they acquired. Can you give us the one on one on marketing agencies for any searcher who might be considering buying one?

[Scott Alexander]

Yeah, I mean, I think it's a huge market and I don't see anybody really talking about it. And despite my, my personal experience that we kind of spent a lot of time on, I think, I think it actually is an interesting space to play in. In that there, there's just a lot of things that look good. There's a lot of recurring revenue, there's a lot of sort of fungibility of the capabilities. Right. A lot of times these businesses can be built around an individual, but you know, that's, that's, you can swap those individuals out as we saw. Um, and it may actually be a net positive. Um, I would say there's kind of three or four different types of marketing agencies and I would, you know, divide these up. So we're seeing more specialization and you're kind of picking your specialization. So what we've talked about all day today is like industry specialization. Hey, we're in healthcare. Hey, we do X4 dentists. Hey, we do X for med device companies. To me, those are, those are good kinds of businesses in that once you start to get one case study, it begets another one and another one and another one. So you can get some nice momentum behind it, particularly if you're dealing with lower sophistication clients. Not that they're not as smart, but like a dental practice is not too different from another dental practice down the road, or an H Vac company is not that different from another H Vac company. And so once you kind of prove that model out for an H Vac company, it really is become, it really does become to a great degree of rinse and repeat sort of a thing. And so for folks that are looking for like rapid growth, those are the kind of places where you might, where you should look is like X4, you know, H Vac companies. The other kind of delineation you may have would be like platform. So like we only do Google Ads, right? So we're really good at Google Ads and we're going to take all comers to that. You see that you tend to see that more like geographically bound. And then you see more and more folks that are like, we do lead gen. Like, because lead gen is really what people want when they want marketing. So it may even be like we do a platform for these types of people. We do Google Ads for H Vac and the more specific you get in general, the better off you're going to be. And then the other thing that I would look at is kind of the nature of the revenue. So you've got a couple different types of marketing agencies. We've been talking all about lead gen, we do a ton of other stuff and we're like the full marketing department for many of our clients. So we're doing creative and we're building websites and that sort of thing. But that tends to be more project based revenue. So market research, websites, branding, whatever the case might be. And then the other one is more like performance. Right. So lead gen, that sort of thing is where we tend to play more in. That tends to be a lot of mrr. They have monthly run rate recurring revenue. Projects tend to be up and down. You'll see the structures are very different between them. And so one of the things that's unique about us is we've got 30 W2s and that's because of the level of sophistication we have to have. But if you're talking about H Vac companies or you know, things like that, where it's fairly similar, your P and L can be very flexible, which allows you to grow pretty quickly. So you can bring on folks from, you know, you name it, like freelancers, things like that, that's what you're looking at on the performance side. On the, on the project side, it tends to be way more to that extent. So you literally may have a marketing agency that's got like three or four people, they're building all these big projects, websites and that sort of thing, and they're doing almost exclusively freelancers. And so the reason why I bring that up is as you're looking at the due diligence for a marketing agency, what's the kind of revenue that you're getting in? What's the consistency of it? And then what's the P and L? And how's that aligned to the revenue reality that you've got? And you can have very successful businesses that look very, very different in the different spaces.

[Will Smith]

So anyway, did I understand that last piece where the project based revenue kind of design, creative project based, you know, building of a website, building of landing pages, that is your W2 we do anything in house. So you do everything. W2, we do everything.

[Scott Alexander]

Yeah. I guess what I was trying to say is if you have a project based business, we like to see recurring revenue in businesses that we're buying. But the truth of the matter is you can have a very healthy company that is project based. If the cost structure of the employees because that's going to be 50 to 60% of your P and L is people. And so if that is aligned to the reality of your revenue, you can actually have really profitable project based companies. It just has to be structured correctly. Correctly.

[Will Smith]

And what you're saying there is if you have project based revenue and it's cyclical and projects revenue collapses by 25% you basically want to have 1099, not W2 so you can flex the flex with that decline.

[Scott Alexander]

Exactly.

[Will Smith]

And just going back to kind, kind of how you divided up the. The agency world, which was very helpful. Any preference or any suggestion in terms of go industry specific versus platform specific versus full service? I'm not sure you said that. You've said of yourselves that you're full service. Any. Are any of these kind of like objectively better than the others?

[Scott Alexander]

I think what we're doing is the best. But no, I think walk right into that one. I know exactly. I just couldn't let it go. What I would look for Will is I would want to find something where I had a defensible sales position. So one of the biggest challenges that I tend to see with other agencies is they don't have a good new business pipeline. And I can get into why. But like this is an area that they generally aren't as strong. And so what I would be looking for is do we have a position from which we can put a flag in the ground and say we are the best for flower shops or whatever. Like because having multiple clients in that space, having sort of case studies and that sort of thing makes your sales process much better. And for the most part again I'm thinking more on the rev on the recurring revenue side. Cause that's what people tend to look at. You have a big fixed expense with your people. And so the P and L of a marketing agency is not very good until you get above a certain threshold. Right. And then once you get above a certain threshold they become very profitable. Right. Your marginal cost for adding another client when you're already fully staffed is negligible. And so that revenue flows to the bottom line at a very high percentage. And so what you want to think about is how do you have a. You know, I'd be looking for a business that had a defensible position from a revenue standpoint and was break evening, you know, give or take where I felt like I could add a substantial amount of revenue to the top line because that's going to flow down to the bottom line and be Very profitable. But, you know, and, and would give you sort of an outsized benefit relative to what you're gonna have to pay for that business.

[Will Smith]

But Scott, this dynamic of, of kind of the, the sunk cost of, you know, building out your team and generating enough client work and then, you know, above to a certain point, and then everything above that is highly profitable work. But that, that's gotta be kind of only work in cycles because eventually you bring in so many new clients that you need to build out the team and then you build capacity up to where you are and you're back to break even. So, so there must be kind of step changes where for a while you've built out the team, anticipating growth, and you're at break even. And then for another couple of years you're using up all that capacity in a very profitable way and then you got to build the team again, you know. So is that, is that so much, is that so much more different than other service businesses? I wonder?

[Scott Alexander]

I don't know. But what I would say is that the step function change is not that you basically have to eat up all of your profit to get to that next level. Right? So, you know, for us, we have to hire, if we have to hire another account manager, it's, you know, it's not, you know, it's 10k a month, it's less than 10k a month, but it's 10k a month. And then that 10k can handle far more than 10k in revenue or like 80k in revenue. And so that's, that's the number, that's kind of how it works. So that once you get above kind of the, the major, the major sort of expense load that you have. Yeah, there's a step function change, but it is, you know, it's not the same. So again, probably very similar to an accounting practice or something else. But you know, it's, it's really like for us, we have to have a full time web developer, we have to have a full time, you know, ads, a couple ads people. You have to have an SEO person. So like those are salaries that are essentially sunk. And so then filling them up by adding clients is really profitable right on the margin. And then you don't necessarily have to add a whole new group of that to bring on another client. It kind of comes in drips and drabs of what it looks like. So yeah, you have a step function change. I don't know if I'm explaining it well, but like you have a step function change, but it's not as substantial as I think you may, may initially seem.

[Will Smith]

Okay. Scott, anything we didn't get to. Anything we didn't mention that you wanted to.

[Scott Alexander]

No, I think we covered everything. I mean, I think just kind of the summary, like, I think it's a worthwhile place to go. You know, as a, as a mid career guy, I wanted to have a little more control. I certainly feel like I do now, you know, and, and the other thing is like, just remember that there are other people out there that are there to help you and you know, just, it's worth it. Make sure you're doing something that you enjoy doing because. Oh, I didn't mention this. One of the things that I would really recommend is make sure you like your clients or your customers because you're going to be spending a lot of time with them. And if you get in and you start getting frustrated with, you know, the fact that like chiropractors don't know how to run a business or, you know, whatever the case might be, you're going to burn out really quickly far more than like the stress of the job and that sort of thing. So I think you need to understand, like, do I like the people that I'm working with? Because I, I love them, I love my clients. I love sitting there and talking about how we're, you know, impacting, you know, the ability for a woman to be able to conceive. Like we've got a practice that they do stuff like that, like that's super cool. So I would just encourage people to find something that you're really passionate about because then the hours kind of go by and quickly.

[Will Smith]

So wonderful advice. We, we hear so much about kind of blue collar versus white collar, the culture of the business that you might target and how you need to make sure that you're prepared for that culture. Generally talking about somebody going from white collar to buying a tradesy business and the culture gap there that needs to be overcome. But I have heard far less, if at all, the idea of liking your customers and you know, this is who you're going to be spending time with. Great, great insight and advice.

[Scott Alexander]

Yeah.

[Will Smith]

And by the way, how big do you think gyrus can get? You said mid seven figures today. How, how, what's the trajectory here?

[Scott Alexander]

It's, it's good. You know, I, I'm less focused on a number and more focused on the process. So I, I'm a big, I like sports. I went to Georgia for undergrad. I love college football. Nick Saban, who coached for Alabama is one of the best, probably the best college football coach ever. And for him, his point was never look at the scoreboard, look at the job to be done, like, do your job and everything will kind of work out. And so for me, it's more about we're going to grow to as big as a market will hold. It's a big market, and so there's a lot of headroom, but it's really more about I'm just focused in on building the right processes and people to be able to do the things that are material. And the scoreboard will be what the scoreboard will be.

[Will Smith]

More sage advice. And I'm going to tee up one more, Scott, because I heard you say it and I just, I'm curious. You said you like sales. Why do you like sales?

[Scott Alexander]

How much time do you have? No, I, I, I think at the end of the day, will, it just comes down to we're solving problems, right? So people come to us and they say, hey, I have Instrument X. It's got a, we've got a new client. I mentioned to them on the pre call, big, big company. They have a device that helps people with emphysema and it's a terrible disease. And I love the fact that we're like, I can talk to them about how can we help you help more people get this treatment that's going to basically give them quality of life again. And so to me, sales is not about, like, how do I trick somebody into something or how do I, like, force somebody to do something. It's really more about how do we solve a problem together that's going to be mutually beneficial. And so it's really more sort of a partnership thing than the consultative sales approach. Yeah, very much so, yeah. And again, it matters. What we're talking about is your mom, my mom, like our friends, whatever the case might be. And so if you believe in what you're doing, it doesn't and you believe you're doing it for the right reasons, it should be a blessing.

[Will Smith]

Scott Alexander, if people want to reach out, is LinkedIn the best way? We'll put that link there.

[Scott Alexander]

Yep, LinkedIn. They can shoot me an email. Scottirusmarketing. So J A I R U S marketing.com but yeah, I mean, it's been a pleasure. And will, I got to say thank you for everything you're doing. I mean, I think community is a big thing and you've certainly gone a long way to help this ETA world kind of become the shape that it is. So thank you for that.

[Will Smith]

Appreciate, appreciate you saying that, Scott. Yeah, Scott Alexander, Wonderful interview. Thank you very much sir, for doing it.

[Scott Alexander]

My pleasure. Thanks Will.

[Will Smith]

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