Professional Services: Fastlane Enough?

[Kalin]

Hey guys,

Did some digging on the site but couldn't find an answer to whether or not a professional services business has the exit potential to be fastlane. More specifically, can professional service companies be bought and sold for high values like any others?

For example, I'm in law. I focus on an area of law that is relatively easy to automate (still working on it though), scalable and in demand. I'm also focusing heavily on building a brand, not just a firm. But even if I continue down this road and build a very profitable business, is this the type of company that could be bought out (if all goes well - not assuming this is guaranteed)?

I know I'm thinking way ahead of myself here, but after finishing TMF , I wanted to focus all my attention on something with fastlane potential. Because of how restricted the legal profession is, there are certain requirements re who can own/operate law firms and who can or can't charge for certain legal services (may vary by country).

Would love to hear from anyone in the legal (or similar) profession or anyone with related insight.

Happy holidays!

 

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[jon2089]

is this fastlane

 

[Contrarian]

Hey guys,

Did some digging on the site but couldn't find an answer to whether or not a professional services business has the exit potential to be fastlane. More specifically, can professional service companies be bought and sold for high values like any others?

For example, I'm in law. I focus on an area of law that is relatively easy to automate (still working on it though), scalable and in demand. I'm also focusing heavily on building a brand, not just a firm. But even if I continue down this road and build a very profitable business, is this the type of company that could be bought out (if all goes well - not assuming this is guaranteed)?

I know I'm thinking way ahead of myself here, but after finishing TMF , I wanted to focus all my attention on something with fastlane potential. Because of how restricted the legal profession is, there are certain requirements re who can own/operate law firms and who can or can't charge for certain legal services (may vary by country).

Would love to hear from anyone in the legal (or similar) profession or anyone with related insight.

Happy holidays!

Professional service firms get bought and sold all the time.

My first Fastlane attempt was a professional services firm. If you like, you can read all about it here.

It was a disaster. Much of that is for reasons beyond being in professional services (specifically, recruitment). However, IMO it's one of the toughest Fastlane roads you can take. You have thousands of competitors, almost by default. Meaningful differentiation is difficult and so obtaining a Productocracy is also very difficult. Value is derived from your client base, reputation and network moreso than any tangible product that you offer.

I specifically chose a market that was underserved, and put tons of effort into branding which led to me becoming a person of influence in the industry (an industry I'd never served before) in under a year, yet we still fell flat on our faces.

Even just breaking even felt like an insurmountable challenge at times. The dreams of scale we'd envisaged seemed like an impossible mountain to climb.

That said, I shot myself in the foot in my recruiting career by switching industries every few years. No contacts, no reputation, no track record. Having to start from scratch over and over again.

If I'd worked in the same niche for the past 10 years, had a great network, reputation and trail of successes behind me - things may well have been different.

Scale requires revenue-generating employees. Those employees mandate complexity. Complexity introduces processes which can break down and switch your priorities from improvement to fighting fires.

To sell the company requires that you need not be involved in its daily operations. And yet, because the business is built on networks and relationships rather than products, you must be the face of the company. Removing yourself from the front-lines will be more difficult.

So, if you look at things in isolation, it's probably not the best route.

BUT.

Do you already have the contacts, relationships and domain knowledge?

Do you already have a reputation within the space?

Then maybe it's best to stick with what you know.

And maybe your service can be turned into a product in future, or you can add products on top of the service element.

I've since diversified away completely from professional services, but that was the right choice for me. The right choice for you might be altogether different. Only you can say.

 

[Kalin]

Professional service firms get bought and sold all the time.

My first Fastlane attempt was a professional services firm. If you like, you can read all about it here.

It was a disaster. Much of that is for reasons beyond being in professional services (specifically, recruitment). However, IMO it's one of the toughest Fastlane roads you can take. You have thousands of competitors, almost by default. Meaningful differentiation is difficult and so obtaining a Productocracy is also very difficult. Value is derived from your client base, reputation and network moreso than any tangible product that you offer.

I specifically chose a market that was underserved, and put tons of effort into branding which led to me becoming a person of influence in the industry (an industry I'd never served before) in under a year, yet we still fell flat on our faces.

Even just breaking even felt like an insurmountable challenge at times. The dreams of scale we'd envisaged seemed like an impossible mountain to climb.

That said, I shot myself in the foot in my recruiting career by switching industries every few years. No contacts, no reputation, no track record. Having to start from scratch over and over again.

If I'd worked in the same niche for the past 10 years, had a great network, reputation and trail of successes behind me - things may well have been different.

Scale requires revenue-generating employees. Those employees mandate complexity. Complexity introduces processes which can break down and switch your priorities from improvement to fighting fires.

To sell the company requires that you need not be involved in its daily operations. And yet, because the business is built on networks and relationships rather than products, you must be the face of the company. Removing yourself from the front-lines will be more difficult.

So, if you look at things in isolation, it's probably not the best route.

BUT.

Do you already have the contacts, relationships and domain knowledge?

Do you already have a reputation within the space?

Then maybe it's best to stick with what you know.

And maybe your service can be turned into a product in future, or you can add products on top of the service element.

I've since diversified away completely from professional services, but that was the right choice for me. The right choice for you might be altogether different. Only you can say.

Awesome response, some things for me to think about. Read the first few posts in your linked thread and will give it a more thorough read later on.

Based on the responses so far and my answers to your 2 questions, I do think it's worth pursuing further and as per @jon2089 's link, I just need to shut up and keep grinding.

 

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[Get Right]

Very unlikely. Architect here, tried it.

Professional services break to many of the CENTS commandments, mainly time. I chose to pivot my profession to a business model more in line with the fastlane mentality.

 

[StartToday]

I've never owned a law firm but I've worked for three.

You already know how it is... partners can't really distance themselves from the business. Most clients want their matters resolved or at least revised by the face of the firm. Yeah, you.

 

[TheOwl8]

One of the major problems with professional services is exiting. You can work really hard, build up a great firm, and then what? Cash out at a really terrible multiple.

In my industry, most firms sell at about 100% of annual revenue. There is too much risk for the buyer that once you leave, so will the clients and the business won't be worth the purchase price.

 

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[Kalin]

One of the major problems with professional services is exiting. You can work really hard, build up a great firm, and then what? Cash out at a really terrible multiple.

In my industry, most firms sell at about 100% of annual revenue. There is too much risk for the buyer that once you leave, so will the clients and the business won't be worth the purchase price.

Ya that's one of my concerns, although I'm trying to work around it. For example, the firm name not being just one or two last names, but something more generic that anyone could step into. And a lot of automating where possible so it doesn't rely on me or a certain lawyer being there/reporting to all clients.

I think most importantly is the type of work. I'm not in an area like litigation or corporate law where it's a ton of back and forth and/or face-time with the client, so I think it's doable.