Why Standardization Helps Agencies Succeed
What I appreciate so much about Marcel Petitpas is his ability to know the right questions to ask at the right time. From the first time we met, I was impressed with how quickly he could drill into a problem and expose the vulnerability. But he’s a realist, not a theorist. What I mean is that his clients, marketing agencies, don’t have time for theory. They are running businesses with a lot of moving parts that move fast. So Marcel meets them where they are.
As the CEO of Parakeeto, Marcel brings tools and consulting to help agency clients optimize their efficiency, from estimation through resource manage and ultimately, customer level profitability. He knows he can’t just drop off a piece of software to agency CEO’s. Nope. Their model is a combination of software and services to help agency owners instill the kind of sustainable discipline necessary to create a machine that can withstand exogenous shocks to the system (cue the Covid background music).
Marcel is a Crossfit guy too so that might tell you something about his intensity. When he hits a problem, he goes all in. Think of Parakeeto as the ultimate WOD (Workout of the Day in Crossfit parlance). Their software helps agencies eliminate all the decentralized spreadsheets associated with resource planning and efficiency, and concentrates them in a singular instance that can set up, measured and managed efficiently.
Like a good workout, the data we’re talking about here is not that complicated. What tends to complicate things is where it is accessed and how it is embedded into the fabric of decision making. Marcel walks us through a good case study in utilization. It’s not that complicated but it can be if you don’t understand the inputs to manage the seemingly simple metric.
If you are an agency owner and you want to work “on” your business as a true owner with confidence, you need to talk to Marcel at Parakeeto.
In this Podcast episode with Marcel, you will learn:
- How to align what you estimate with how you track actuals
- The power of a transformation layer – Why you don’t need monolithic software
- How you can see into the future and have the confidence to make decisions
Thanks Marcel for joining us on another exciting episode of Stride 2 Freedom.
We are fortunate to have Bill available to spend time with us on this edition of Stride 2 Freedom. If there is a speaker you’d like us to interview, click here and let us know. Stay well. Stay safe. Stay healthy.
Show Notes and Links From Episode:
Marcel Petitpas LinkedIn
Marcel Petitpas Email
Russell Benaroya: Hey, everyone. Welcome back to another episode of the Stride 2 Freedom podcast. I am your host, Russell Benaroya. The Stride 2 Freedom podcast is all about helping business owners get and stay in their zone of genius. What is your zone of genius? It’s that thing that you do that is effortless to you where you lose track of time, where you’re massively energized, where you want to spend as much time doing that as possible.
The Stride 2 Freedom podcast is brought to you by Stride Services. We are an outsourced back office, bookkeeping, and accounting firm that has the express purpose of helping business leaders with a thirst for learning achieve their highest and best use. And how do we do that? We do that by helping support business leaders using data or information to make better business decisions.
And so there is no better guest to have on the show today to talk about using data to make better business decisions than my good friend, Marcel Petitpas. Hey, Marcel?
Marcel Petitpas: Russell, great to be here.
Russell Benaroya: So great to have you. Marcel is the co-founder and CEO of Parakeeto. They are a consulting firm and a software firm that uses data to help agency owners use information to better manage the efficiency, utilization, ultimately, growth and profitability of their agency.
And we have a little bit of a bromance going here because we just talk the same language. The minute that we met Marcel, I knew, Oh, this is a guy that I’m going to enjoy spending time with. And so it’s a gift for me to bring your voice and your story and a bit about your business to all of our listeners.
Marcel Petitpas: Well, it’s a pleasure to be here and, Russell, the sentiment is shared. Of course, you and I did an interview on my show as well, which I’m excited to air and any excuse I get to hang out and chat with you I will take.
Russell Benaroya: Awesome. Well, we’re going to have a lot of fun today. I want to dive into something really important to start, which is CrossFit. You’re a CrossFit guy. You’re a CrossFit trainer. What’s your CrossFit origin story?
Marcel Petitpas: I’m an ex-athlete. I actually had a lot of concussions. I’m 5 feet 8.5; I tell people I’m 5 foot 9. At my peak, I was 190 pounds, which got me through high school. But towards the end of high school, I was playing a lot of contact sports so rugby, football, hockey, were kind of the big three, and I got bumped in the noggin a lot. I also had high-impact positions. I played running back in football; I was inside center in rugby.
I got a lot of concussions and had to stop competing in those core sports. And I needed an outlet for that. I’ve been working out since I was 14 years old. Fitness was a big part of my life, for a lot of important reasons. And yeah, somebody talked me into going to a CrossFit class once and I threw up four minutes into the workouts when I was paired with a guy that was like half my size. I thought this was going to be easy, no problem. And there I was, keeled over the toilet, four minutes into it.
And I thought, “There’s something here. I need to keep exploring this.” And almost a decade later, I’m like 1,000 years old in CrossFit years. They’re like dog years, they take a lot. It’s like a year of smoking. It’s very hard city miles on the body but I enjoy it. It keeps me healthy and fit, and I’m having a lot of fun with it.
Russell Benaroya: That’s great. And you’re still at it?
Marcel Petitpas: Still at it. Although I’ve had to change the way I approached the sport quite dramatically. I had to reel my ego in a lot and accept that I’m becoming a weathered body and I have to go and approach the sport with that mentality and focus more on warm-ups and cooldowns and not do quite as much volume. But I’m still doing it and I still love it.
Russell Benaroya: Awesome. Well, I am a CrossFit fan and did it for a number of years. I am also five-eight and three-quarters and definitely average up to five-nine although I find myself shrinking a little bit more every year. I see the kindred spirit here.
So let’s jump into talking about Parakeeto. Tell me about where this business idea originated. It was fun learning about you and your co-founder scratching a bit of your own itch and trying to solve this problem in the agency world. Give me the story.
Marcel Petitpas: I had kind of become familiar with this problem when I started my first real business, which was an agency. It was called The Realtors Media—let’s not cringe at the name. We were doing real estate virtual reality services. So we would go into a house and create the VR experience of touring that house. But this was before technology like Matterport had become mainstream. So there was still this very technical laborious process of taking a DSLR camera with a wide-angle lens, taking a billion shots, stitching those together into a 3D image.
I did that for about a year and really started rubbing up against the challenges of having poor margins and having to work hard at getting efficient enough to outsource the work. And I ultimately walked away from that business because I came to the realization that, at the time, the real estate market was very different than it is today, it was a buyer’s market, not a seller’s market. Houses were sitting for a long time. In our market, the average house price was like 150-160 grand.
So real estate agents were just not willing to make the investment that was required for me to be able to outsource the work and have enough margin to scale. I realized that early on and walked away from the business because of it. I then got into software. Through that, I met some people, including Dan Martell, who connected me to Jared, who was the original co-founder of Parakeeto. He’s still on the board, still an advisor to us.
He was running a software development agency and called me up one day and said, “Hey, I’m sick and tired of building spreadsheets to answer these questions I’m asking myself every day. There’s got to be a better way to do this, but I just can’t seem to find it. We should build something to solve this problem.” And that was the beginning of Parakeetso; this idea that we knew that this was a problem, we knew that there had to be a better way to solve it.
Our assumption at the start was that it had to be purely software. And over time, I think as we deepened our understanding of what it truly means to have great operations and great data and agency, we realized that it had to also get enhanced with the service in order to be done properly.
Russell Benaroya: What were some of the questions that Jared wanted to answer?
Marcel Petitpas: Probably a lot of the questions that our listeners are going to have every day. Things like, are we making money on our clients and projects? If so, how much? Which ones are most and least profitable? Are there any services that are more profitable than others? Are there A teams that are more profitable than others? What stuff should we be selling more or selling less of? Where exactly are our margins slipping through the cracks? Or what are the leaky buckets? Do we have the capacity to take on this work that’s in the pipeline? If not, when? Do we need to hire people? If so, when? What kind of skills do they need to have? Do we need designers? Do we need developers?
All these questions that we’re asking ourselves day to day, are we utilizing our team properly? What can we expect in the future? It’s very hard to answer those questions without having to spend a lot of time in spreadsheets, pulling data in from different places, writing scripts. It’s very laborious, and therefore, it doesn’t happen often. And we find that a lot of people, just like I was when I was running Realtors, mostly just running off of gut and making decisions based on intuition, which at some point, starts to break down, especially as we start to reach some scale in the business
Russell Benaroya: In the accounting world, accounting for the inflows and outflows in a business, I like to say that accounting could actually be quite easy. It could be very easy. A lot of the problems that business owners face in understanding their accounting is that what goes on upstream, where the information originates, is captured, classified, and organized in such a difficult manner that it makes it hard to do the accounting.
So am I hearing you correctly that you go upstream to the origin point and say, “Hey, how do we make sure that we’re getting the right information at the right time in the right place?”?
Marcel Petitpas: Yeah. And I think that’s the thing that as a firm and as a technology company, we’re really taking on in a different way than a lot of the other ways in which you might currently be seeing solutions. We’re not trying to sell you an all-in-one software platform. We’re basically going in and saying, “Okay, if we want your time tracking data to help you answer these questions, let’s put some thought into how we set up your time tracking tool: what we call things, what objects get used, how we set up a new project, what the conventions are around that.”
Because to your point, for a lot of folks, it’s not that answering these questions is fundamentally difficult. It’s all fairly straightforward mathematics. But the data often is just not structured in such a way that it makes it easy. And the simplest example I’ll give is nine out of 10 people listening to this if our sample size of who we’ve worked with on an audit maps to who’s listening, if you hold up an estimate for client work, and it says, “This many development hours, this many project management hours, this many design hours,” and then you go into your time tracking tool for that project, and you can’t immediately see how many design, how many development, how many PM hours, then you have this problem.
There is this schema that you’ve decided this is how we make assumptions about client work, but the tool that is supposed to be telling you if those assumptions were accurate or not is not set up in order to easily answer that question. Therefore, there’s a lot more friction in front of answering the simple question of, “Did we make good assumptions about this project when we scoped it?” That is now hard to answer because there’s data cleanup or remapping or grouping that needs to get applied to that data before it can support the answer to that question.
And so we’re really just coming back to what are the questions that need to get answered? What is the schema that needs to be true for those questions to get answered? And are the tools that we’re using in the business actually creating data that is in that format so it’s easy instead of hard?
Russell Benaroya: What’s the software side of your business? I certainly understand the service side and how you help guide and train. What does the software do?
Marcel Petitpas: It’s about data transformation. One of the issues that we’ve seen in the industry and that we’ve experienced ourselves is that most of us believe that we have to choose between two bad options when it comes to our tooling in order to get good data that’s supporting our questions being answered. The first is, we use what we like to call a best-of-breed tool. So a time tracking tool that’s just really good at tracking time, a project management tool that’s really good at managing projects, a finance tool like QuickBooks that’s really good at finance and invoicing, and all that kind of stuff.
The issue with that, of course, is you now end up with data across all these different places and you have to get it together in a spreadsheet or some other environment to answer these questions. And we both know, there’s a lot of challenges with that. It can be manual, it can be messy, sometimes there’s cleanup that needs to be done.
The other side of that is let’s just put everything in one tool. These are the Maven links and function points, and the list goes on and on, very impressive large suites of software; incredibly taxing to change all your processes and people into that solution. And often there is a compromise in terms of functionality. Like project management, and one of those tools is probably not going to be as good as ClickUp, or Asana or monday.com, or other companies that have raised hundreds of millions of dollars just to be the best at project management.
But the theoretical upside is all your data is in one place so then these reporting problems go away. That also is almost never the case in our experience because we have worked with clients that are on those platforms. They always still end up in spreadsheets because there’s a limitation. The data schema or the way that that tool is set up is too opinionated in one direction or another because they have to keep one thing outside of the tool.
So the approach that we’ve taken is let’s build a transformation layer that sits outside of all the operations tooling. So you can use whatever you want. You want to use a spreadsheet to track time? No problem. You want to use Harvest, you want to use Toggl, you want to use one of the other 8,000 time tracking tools that are all good, no problem. Use that. But what we’re going to do is come up with what is the schema that all your data needs to end up in so that it can quickly and easily answer the most important questions that you’re asking yourself and your business.
We’ll connect those tools to this transformation layer, and then create sets of rules that can normalize all of your data, both horizontally, so that means over time. For example, if inside of your Harvest account, you’ve made some changes to the way you set up projects a couple of times over the last five or six years, we can normalize across that so a website from five years ago can be compared to a website today. And then also, we can do this normalization vertically. So your naming convention is slightly different in Harvest than it is in Asana. No problem, we can make those things match up.
And as your business changes and tools change or the way you set them up changes, we can adapt that transformation layer so that all of your historical data and all the new data is all coming back to a format that we can build reports on. And then we can look into the future and into the past, and we have a nice clean set of data that is detached from the operations tooling itself. So it’s actually much more resilient, much more flexible, much more scalable.
And that’s really where we’ve invested a lot of time and energy on the technology side in building tooling that can transform and maintain large volumes of data coming from a lot of different places, and create a set of data that can actually be reported on very effectively.
Russell Benaroya: How do you make your service approachable to an agency owner? Let’s say I’m an agency owner and I’m doing two million in revenue and I’m crazy, I’m creative, and I don’t have a lot of time. How do you help me approach this in such a way that I can get comfortable and excited to take this next step?
Marcel Petitpas: Well, our entire strategy is around trying to take the burden of this stuff off of our clients completely if they’re willing to go down that path with us. Because I think there’s a lot of aspects of this that can be really scary and overwhelming. Of course, there’s all of what we’ve just talked about. How do we get the data clean enough to even answer these questions? That’s one simple question.
But then there are all these other questions that are complex. Well, let’s look at a “simple” metric like utilization. Everybody thinks they know what utilization is. But let’s unpack that for a second. Well, there are two things inside of utilization; there’s capacity and there’s a billable rate. There is a long debate about what capacity is. Does it include time-off, vacation time? Is it billable hours or non-billable hours? What is a person’s capacity? We need to understand that in order to model utilization for an agency, and that might change depending on how they employ people, how their employment contracts are written, how much time off they take, how they structure their roles?
And then similarly, what is the billable hour? Is it time that’s productive? Is working on the company website billable or not? Is it just time that gets billed to the client? Is it all the time that’s spent on the client project, regardless of if it’s billed or not? Again, that’s a nuanced conversation that has to happen in the context of what is that business selling? How are they selling it? How are our contracts structured? How do they pay their people?
So there’s a lot of overwhelm, I think, when people start to go down this path and say, “Okay, let’s start tracking utilization.” And then they start digging into this conversation and they go, “Whoa, this is actually really complex and I don’t know what the right answer is here.” So that’s a big part of how we help as well. We will facilitate these discussions. We’ll come up with what the correct answer is for your business based on our expertise in looking at hundreds of agencies in this way. And then we’ll also take care of all of the data problems that you’re going to run into, to get to the reports where we know how we want to measure this thing, and then we actually get the measurement of that on a regular basis without you having to worry about timesheet compliance, without you having to worry about setting up the project in Harvest the wrong way and not following the naming convention.
Our team will take care of all that stuff. You just get the reports and then we can sit down with you and look at the reports and say, “What does this mean? What do we do about this? How do we actually make a good decision based on this?” And all of the complex underlying issues, we take off the table for you. That’s how we make it approachable. We take the most unapproachable part of running an agency and we just say, “Let us do it for you so you don’t have to worry about it.”
Russell Benaroya: I’m feeling this problem very deeply because I believe all professional service firms that are dealing with utilization with their people and the projects they’re working on or engagements feel this same issue. So whether you’re an outsource bookkeeping and accounting firm or you’re an outsourced IT services firm, or you’re a consulting firm, or you’re an agency, the problem set is very similar. Do you make available your work outside of the agency space? Or do you just focus on the agency? And why have you chosen that as your primary customer segment?
Marcel Petitpas: That’s a good question. I think you’re absolutely right. This maps to fundamentally a service business model. So if you sold gutters or websites, at the end of the day, the business model is the same. You’re selling skilled labor. And all of the abstractions that we place on top of that business model, like the different pricing models we might use, whether it’s time materials, or flat rate, or value-based or productized, these are all just different ways of creating operational efficiency around what is, at the end of the day, selling skill time in exchange for money and ideally, a margin.
So a lot of what we talk about can be applied to other businesses. And we have had contractors and roofers and all kinds of different people approach us to work with us, but we tend to turn them away, or we just point them towards our free content and hope that it can be helpful because I think there’s 95% overlap, but there’s still that 5% nuance. One of the things that I strongly believe in is to be hyper-specific, hyper-focused, especially early in a business, and I would still consider us to be a small business. That’s why we’ve chosen the agency space.
We know it the best. That’s where we come from; we have a lot of empathy. We know that this space is extremely underserved, which is ironic to me because we deal with technology. We understand technology, and we tend to be tech-savvy in this industry. However, there are better technology solutions and better services often available for accountants and lawyers than there are for agencies. So we found that this niche was underserved.
And we believe that this is the path to potentially serving more people. But we had to start and be specific if we wanted to build a really great service that could scale and actually serve a lot of people. That’s why we chose to focus very narrowly at first. And I would say that we would have to be at a pretty significant scale before we took our eye off that ball because I do believe that there’s a massive opportunity just serving agencies. I think I could be happy as an entrepreneur if we never exited that niche because the problem is just so rampant and almost everyone I talk to has it. So I know that there’s a ton of opportunity here to do this better than anyone else.
Russell Benaroya: I agree entirely and love the discipline of customer focus. Note to all listeners: customer focus, customer focus, customer focus. And it’s hard because you sometimes feel like, “Oh, but I’m giving up this big opportunity in this other industry and I want to hedge. What happens if this industry I’m focused on goes away?” We have all these stories that create this unnecessary fear.
Speaking of stories and fear, what is it that agency owners are feeling? Or what story are they telling themselves when they come to you and are ready to commit to working with Parakeeto? What’s going on for them at that time?
Marcel Petitpas: There are usually two distinct inflection points that we see people reaching out to us at. The first is transitioning from founder-led everything to building a substantive business, essentially. And we see that happening right around 10 employees. So this is when the founder cannot be the person that everybody directly reports to anymore. They’ve reached their capacity and the founder also can no longer subsidize poor management of the agency with their evenings and weekends. Their capacity for that is now gone.
What I mean by that is, you can’t just work a long night or work the weekends to get the thing done for the client that you didn’t scope properly and that was going to take 100 extra hours that you didn’t plan for. There’s too much going on 10 employees at that level of revenue for you to be the catch all for all of that. So they’re typically exasperated at that point, saying things like, “This doesn’t make sense. Everyone’s working like crazy, I’m working like crazy, and yet, there’s just not that much money in the bank account. Something has to be wrong here.”
And they’re coming to us, often focused on the symptoms and not realizing the problem. So I look at this kind of like the chiropractor, where I’m like, “Oh my neck is sore.” And then I find out that, well, it’s actually something that has to do with your posture or your feet even. You need orthotics and your whole body is out of line or your spine is causing that thing in your neck. Similarly, they come to us and they think, “I’m paying my bookkeeping and accounting firm too much.” And it’s like, “No, that’s not the problem. The problem is you have a 30% gross margin on your service. There’s just not enough there for you to run a business and still have a profit.”
They tend to be hyper-focused on spending at the overhead level, and not focused enough on the fundamental margin of their service offering. That’s the first inflection point. The second one that we see is right around that 25 employees mark, where the first real thorough level of management is being installed. And the founder is now having to completely be detached from client work and manage through people, which requires a level of visibility both for them as a founder, but also for that level of management. So they have some feedback on how they’re performing and they have some metrics that they can be paying attention to.
Everybody now needs some level of visibility into what’s happening. And so we also tend to get a big influx around that point, when we need to build a system here that can run the business and that everybody can look to, to get the answers that they need, without having to physically go talk to somebody or be directly involved in a project to know what’s happening
Russell Benaroya: When an agency is successful with Parakeeto, what is the outcome that they achieve? What are they now able to do that they weren’t able to do before with confidence? What does that Northstar look like for them?
Marcel Petitpas: The simple explanation is see into the future. I think that’s the objective for every agency. This is an industry that tends to be notoriously reactive. It always feels like the agency is happening to us and not for us. Our objective is to get our clients to a place where they can see into the future with data. So this conversation about hiring: who are we going to hire next quarter? Well, you can run some numbers and say, “Okay, well, if we close these three deals, we’re going to need 1.6 designers in week three of Q2. It’s right here. We close these two projects, their websites, they’re roughly this budget, we’re overcast here on designers. So we’re going to need to hire one full-time and then probably find a freelancer.”
That’s the kind of position that we want to put our clients in. ” Hey, if we close these three projects, then we should have roughly this much profit left over.” “Hey, if we give the client this price, this is how it’s going to affect our profit margin objectively. Are we comfortable with that?”
Even having these nuanced discussions. This is one of the most fascinating ones; should we discount this project or not? That’s a conversation that’s happening almost daily inside of agencies. Well, there’s some data that can help you answer that question. Well, number one, what does your utilization look like? What’s it going to look like if you don’t close this project? If it’s still going to be high, then you probably don’t need to discount that project. If your utilization is going to be low, then you probably do need to discount that project and just get the revenue in. It’s not a straightforward answer, but the data can help you make a confident decision and sleep well at night knowing that you did things objectively the right way.
So that’s ultimately the outcome. Then from a numbers perspective, usually clients are doubling if not tripling their profit margins when they work with us. Most of them when we adjust for founder compensation are doing 10-ish percent give or take, and after working with us for a while, it’s uncommon that someone’s doing less than 25% EBITDA, unless that’s a decision. That’s a decision that they could choose to make, “We’re going to reinvest a whole ton of this extra cash and profit into growth or whatever it is. We’re going to buy a building or what have you.” But the result tends to be much higher profit margins as well.
Russell Benaroya: Do you price on a percent of profit improvement? Because that would be an amazing model.
Marcel Petitpas: Not yet but it’s a conversation that we’ve had internally.
Russell Benaroya: I learned about you originally… Well, our worlds collided in a couple of different ways. But originally, I learned about you on the web. I was doing a bit of research around agency analytics and was so pleased and appreciative to see how much you give away to allow agency owners to do some of the work on their own. Maybe talk about your Go-Giver first mentality and approach and how you help people get some initial tools before they even engage you.
Marcel Petitpas: Well, that’s always been my thesis is our marketing should serve more people than our product ever can or ever will. So we try to be an open book. We try to share everything openly. We’ve got super detailed blog posts that we write about exactly how we think about calculating things like gross margin and net margin, average billable rates, and all that stuff. And then we give away a toolkit on our website, the agency profitability toolkit, which has inside of it, templates, it has spreadsheet templates, it has checklists, it has videos, instructional videos on how to use all the tools.
And my objective with that was to give away everything that an agency needs to install the basic best practice level of measurement in their business without giving me or anybody else any money. I just fundamentally want everyone to be able to do this because I really strongly believe that if we agree that small businesses are the backbone of the economy, then small agencies are the backbone of small business. So I just want agency owners to win. It’s a really tough business, but it’s an important business. And if you get these few things right, you can have a much more sustainable business, you have a much better chance at turning that into a real thing that employs people at scale, that has a big impact at scale.
And ultimately, this stuff is still going to be hard. There’s still going to be lots of opportunities for us to help people. And if nothing else, educating people on what best practice looks like is only going to increase the value of what we do because people are going to realize that there’s a lot involved in doing this well, and it is laborious, and it is complicated. And it does require a lot of really clean data. And it is something that’s hard to maintain over time. So that’s what we have going on and how I think about it at a high level.
Russell Benaroya: Are there things that an agency owner could do? Is there advice that you would give to an agency owner that says, “Hey, listen, before you call us, here are some low-hanging fruit kind of top three things you could lean into and take a look at today.”?
Marcel Petitpas: Yeah. The first thing I would say is just to make sure that whatever your estimate looks like, standardize that so it doesn’t look different every time. And what I mean is not the formatting or the fonts. That’s fine. It’s the schema of that. I’m talking about like, do you have a contract with deliverables in it? And within each different deliverable, you might have some tasks, and within each task, you might have roles like design, development, project management, etc. Or do you have a contract that has phases, and then within each phase, you have deliverables? What is that structure?
Nail that down so it’s not a moving target because that’s the foundation of the data for your business. And then make sure that you have a way of reconciling what actually happened. And don’t go too detailed. Maybe it’s just the deliverable level or maybe it’s just at the role level, but be able to go back and say, “Did this thing that we estimated actually happen that way? And if not, what was the difference?” That’s got to be the first most basic low-level thing that if you can do that, and if you can do it easily and quickly, then you are now empowered to have a smoke signal for exactly where the profit is leaking out of your business.
And you can then go and explore that with your team, start getting curious, start asking why. And what’s most transformational about that, I think, is when you’re having a retrospective conversation with your team, you’re not spending any time arguing about what happened. You’re spending all the time discussing why we think it may have happened that way. But everyone can agree, here’s the data. That’s what happened. That’s got to be number one.
Number two is your financial statements. Just make sure that you actually know what your agency gross income is, and that you actually know what your margin on that agency gross income is. And this is one of the things I admire about you. You understand these things and you provide this to your clients. Almost none of the accountants that I talk to do, almost none of the financial statements that we audit give their clients this information but it’s critically important. Almost none of the agencies that I look at their financials actually are seeing their true revenue number, which is all the revenue that they’re responsible for earning. And almost none of them are able to see how efficiently they earn that revenue.
We have a blog post on this, you can go read it, or just talk to Russell because he understands this stuff. But make sure that you can see that on your financial statements because I think that’s adequate, especially if you’re small, getting a monthly read on like, “Okay, we get a 60% gross margin on our services.” That’s enough to know we’re in the ballpark. And then you can track that. Is it going up or is it going down? That’s enough.
That’s honestly, the top two. I could just stop right there. Estimates versus actuals: have a feedback loop on that. And then make sure your financials are structured properly. And of course, underlying that is this idea of time tracking. So I guess that’s number three. Have some way of tracking time. It doesn’t have to be timesheets, but have some record of how much time was invested in the client. Because without that information, it’s hard to make decisions about hiring, staffing, planning. It’s hard to get information on if you’re doing things and scoping things well or not, if you’re pricing them well or not. That’s the top three, Russell.
Russell Benaroya: We are big fans of standardization. So I appreciate you talking about that in the context of standardizing your estimation and the format that you use for estimating. From an accounting standpoint, there’s so much variability that gets created when owners are doing a bunch of different kinds of deals —they sell their service a number of different ways. And that’s not to say that experimentation and finding that product-market fit around pricing and structure doesn’t make sense.
But at some point, we’re really all driving to create this machinery so that we can de-risk the model of service and we can spend more time focusing on the excellence of how we serve the client, not how we’ve structured their engagement. Reducing that variability that is often overlooked in the frenzy of just trying to grow and I get it. And that’s the struggle for many business owners, but agencies really acutely.
Marcel Petitpas: Yeah, and I think there’s a really important thing in there that you mentioned, which is this idea that you’ve got to do some experimentation to figure out what works and there are going to be some things that change. Just understand that this is not a binary decision that we’re talking about. It’s not like overnight, you have to decide this is exactly how we do everything. There’s a 20% of structure that gets you 80% of the benefit, and still allows you to be iterative, still allows you to be adaptive within that.
So just start at the highest level, start at the first one to two levels deep in the objects. Let’s just nail those down. Let’s make sure we have a feedback loop on those and then let’s not worry about the nuance until we have more certainty about what that looks like. That’s okay. We can iterate on this, we can go deeper later. But to your point, having a little bit of structure there is what makes this stuff possible.
Russell Benaroya: I’m interested in talking about business ownership and entrepreneurship. You’re also building your own business. So for the benefit of everybody listening, I’m curious if you could share a bit about one or two of the key learnings or challenges that you face at Parakeeto that you’re trying to overcome?
Marcel Petitpas: It’s interesting because we wanted to believe that we could solve this problem exclusively with software. We had that belief for many years. For two and a half, almost three years, we were of the opinion that something this had to be a SaaS, self-serve. And there was this kind of come-to-Jesus moment for us where we stepped back and realized how insane that was, and how that was actually the problem. When we really stepped back and said, “Okay, let’s clear the slate, and let’s start over. Let’s imagine that we’re brand new. We’re starting this business today. How would we approach solving this problem?”
And it made us realize we were contributing to the problem, which is that technology is not adequate. There needs to be a strategy applied to this. There needs to be proper thinking applied to this. So that has pushed us into ironically becoming the type of business that we serve. We now sell services that just happen to be leveraged by technology. We’re rubbing up against all the same challenges that our clients are facing and it’s creating a ton of empathy.
It’s really interesting because we’re still going into it next week. We’re going to go through our own process for reevaluating our own data schema and restructuring how our profit and loss statement looks and our charts of accounts in our accounting system. All those things, we’ve got to dig through and eat our own dog food. There’s been a ton of value in that.
I think there’s one lesson which is actually putting yourself in your clients’ shoes. If you have the opportunity to either run the business in a way that’s similar to the way that your client does, or just actually getting inside of your clients business, and shadowing them or spending a day in their shoes, the amount of learning that comes out of that is really powerful because you go from understanding tactically what they’re experiencing, to also emotionally what they’re going through at those different stages. And I think that allows you to serve them in a better way because that’s half the battle.
You’re not just selling a service or an outcome. You have to bring the entrepreneur along that journey with you. And a big part of that is helping them process the change that’s happening. And it can be scary, and it can be intimidating, and it can be overwhelming at times. That’s been a huge learning for us these last few months and I’ve really enjoyed that part of the process.
Russell Benaroya: We find in the accounting world that when we sit down, ready to talk about the details, ready to talk about the numbers, that in fact, the less we do that. Or let me put it a different way. When we don’t start there, but we start at a higher level where we talk about how they’re feeling, or we talk about some of their current challenges or obstacles like, “Hey, what are you scared of right now?” Like start at the top human level, and then yes, we have the information, we have the tools. Let’s dig in to help you solve the problem.
But I often find when you go right to the guts immediately and lose the context of why, where does this come from for you, you lose an opportunity to really guide the business owner. And it sounds like guiding the business owner is core to what Parakeeto does.
Marcel Petitpas: It has to be. Yeah, absolutely.
Russell Benaroya: I know you do a number of these, you have your own podcast so you ask people a lot of questions. Is there any question that you wish people asked you that they don’t but you’d love it if they did?
Marcel Petitpas: Yeah, it’s so interesting. I think part of this is informed by our history as a software company and now transitioning services. But sometimes we get on calls with clients and they just have this laundry list of, I’m going to call them features that they want, “I want to be able to see this, and I want to be able to see it this way. And then I want to be able to see this and I want to be able to see this.” And there’s no conversation about why and there’s no thought of how much complexity that’s adding to things, and a lot of times, no value at all.
For example, “I want to be able to see the net profit on my projects.” Well, what does that actually mean? Let’s unpack that for a second. Can we just pause and think about, fundamentally, that idea is just flawed. There is no such thing as net profit on a project. Your overhead isn’t static. What insight? What question are you answering with that? That’s one simple example that, of course, I’m getting triggered by this. You can see that this is a thing.
Russell Benaroya: I can see. I’m about to hop on this bandwagon.
Marcel Petitpas: It’s a thing for me, but it’s this laundry list of questions or features or things that they’d like to be able to see as opposed to starting the conversation with like, “What is the simplest way that we can understand these three concepts about our business? What is the simplest way that we can support these three conversations that we have often?”
So this is how, through our process, we have to come back to that starting point. And we always start with a strategic business model review. We go to the very highest level of, is your business model actually sound? Are we clear on what problem you solve for your clients and why the services that you offer and the way that you service them is actually supporting solving that problem for them? And the way that you price things is actually appropriate for the level of risk that you take on when you get into that engagement with the clients?
We have to bring the conversation back to that point. Well, now that we understand those things, what are the questions and conversations that the data needs to support? And then we take them through it. But the conversation seldom starts there. It starts with like, “Here’s a bunch of little things that we can’t see,” and it takes a little bit of stress testing, “Okay, well, what question does net profit on a project help you answer?” for it to all start crumbling and then we have to start rebuilding the conversation from a more holistic viewpoint.
Russell Benaroya: For those that aren’t watching this on video and just listening over Marcel’s shoulder, start with why. Is that the book?
Marcel Petitpas: It is.
Russell Benaroya: It’s so apropos. Marcel, thank you so much. This was terrific. I have wanted to have you on for a while. This is a topic for all professional service owners, very specific to agency owners to give them tools, capabilities, insights, and opportunities to take this thing that they created out of a passion pursuit to make an impact and make a difference and actually build something that is going to be sustainable through the cycles, sustainable in a way to maybe transcend them as the owner. You’re helping transition them from running a business by gut instinct, to running a business by metrics and facts.
And there’s the zone where that instinct becomes a liability, and Parakeeto has built a really great bridge to help business owners get to that next level. So thank you so much for sharing.
Marcel Petitpas: Thank you, Russell. The endorsement means a lot coming from another person that I respect tremendously in this space and that’s also working very hard to solve this problem from the finance side. So this has been fun, and I’m really glad you had me on.
Russell Benaroya: If people want to get a hold of you and learn about you, where do you want to direct them?
Marcel Petitpas: Definitely check us out at parakeeto.com and you can listen to the podcast, The Agency Profit podcast anywhere that podcasts are available. If you want to check out that free toolkit that I mentioned earlier, just go to parakeeto.com/toolkit. And finally, if you want to just nerd out with me, I’m on LinkedIn wearing a shirt with birds on it. I’m not hard to find, so make sure you connect with me there. I’d love to chat with you.
Russell Benaroya: Oh, you totally stay on brand with that shirt every time. I love it. Marcel Petitpas from Parakeeto, thank you so much for joining us today on the Stride 2 Freedom podcast. Thank you, listeners. Have a great week. We will see you on the next episode. Talk soon. Bye.