Trust and Alignment During an Exit

[00:00:20] Hello, everyone, and welcome to another edition of the Can You Hear Me podcast. I'm Rob Johnson, President of Rob Johnson Communications. And I'm Eileen Rochford, CEO of the marketing and strategy firm The Harbinger Group. For founders of companies, getting to the finish line of a merger or acquisition is a dream of a lifetime. But how important is it to maintain trust and alignment when others are taking over? That is one of the topics we will be discussing today with James

[00:00:46] Rose. He is the CEO of Inflective Group, a Great Britain-based firm that backs independent marketing and communications firms through minority investments. James, thank you for joining us on Can You Hear Me? Welcome to the show. Thank you. Pleasure to be on. Thank you, Rob. Thank you, Eileen. It's great to have you, James. Now, before we get into our topic today, why don't you give our listeners a little bit about your background, your origin story, as it were? Sure. Yeah, quite a varied

[00:01:13] background, but I'll try and summarize it in a succinct manner. I'd say for the past 20 years, I've been scaling SMEs, either as a founder or a commercial leader. I left university and spent the first seven years building a group of companies in Eastern Europe. One was a furniture retailer, servicing expat property investors. And then we got into property development and real estate. And

[00:01:38] that was straight into the financial crisis, which was great timing for any young startup trying to make it as an entrepreneur. And so from there, I moved into the media and tech world and spent a lot of time as a commercial leader, helping to scale other people's businesses, seven years of which was a video agency where we raised private equity and grew from kind of eight people to sort of 70 plus over a

[00:02:07] seven year period. And that journey really led me to what we're doing today at Inflective in terms of building a group through minority structures, as opposed to a traditional kind of private equity model, which is very much dependent on high amounts of capital and significant resources. So quite a varied 20 year background. But, you know, they say the path kind of leads you to where you are when you look backwards in the rear view mirror, you kind of see there was lots of learnings along the way

[00:02:33] that I've taken forward. So yeah, that's been my short version of my origin story. Very interesting path. Pretty unique, I would think. Have you ever met anyone that, you know, like you who took a similar path? I'm curious. It's funny because when you mentioned the Bulgaria thing, you're like, oh my God, that is so different to what you're doing. How did that happen? And it leads on into a whole different conversation. But it was just timing, to be honest. At that time, there was significant

[00:03:00] investment in the region. I was just fascinated by how a market like that was evolving so quickly. And so, yeah, but very different than marketing agencies, for sure. Yeah, for sure. Well, okay. So here in Can You Hear Me, we talk about how to use communications effectively. It's for, you know, leaders who want to get really serious about using communications to take their organizations to the next level, I think is the best way to describe it.

[00:03:28] So with that backdrop, would you please tell us, James, a little bit more about specifically your current venture where you've landed and what you're doing with Inflective Group? And I'd really love for you to talk to our listeners about what it is that you do really, really well at Inflective Group and kind of who you do it with. A little bit about that would be interesting too.

[00:03:53] Yeah, absolutely. So the marketing landscape is changing quite rapidly. You know, there's been a lot of traditional holding companies in the public markets that have grown through acquisition, 100% share acquisitions and built real shareholder value over the past 20 years. But most recently, that model has started to change. Shareholder value has been reducing and founders that have sold to larger groups have actually found that integrating culture and operations can not necessarily be a

[00:04:20] great outcome for them. And so when I looked at that dynamic, I could see that there's probably a different way of doing things, but achieving the same level of scale. And so the way we approach that is we come in as a minority shareholder, which means that the founders of these agencies continue to be in charge of their own destiny, but they have the support of a bigger group. And what that enables us to do is actually leverage the group ecosystem for cross-sells, upsell support, centralised finance,

[00:04:48] but not impact all of the aspects that made those agencies great in the first place. Because, you know, we're specifically focused on agencies that have been trading for at least 10 years. So they don't want an investment partner coming in and trying to change the culture of the operations, but they do want to increase shareholder value, provide legacy for their teams, and ultimately exit that business on the terms that are right for them. And so we like to look

[00:05:13] at it as like a founder-friendly group where we genuinely put the founders first on all the decisions around the terms and the agreements. And so, yeah, it's an exciting time in the market. There's lots of emergence of these types of collectives. And I think that's a signal that the market is demanding a new wave of groups within this space. Yeah. So in terms of what we bring, you know, we bring minority capital, we have a centralised

[00:05:41] finance function, we have a non-exec board that supports these agencies, and we very much grow through acquisitions. So our strategy is to acquire a minority position in each agency, and then help them acquire bolt-on acquisitions as well, which is a compounding effect for everybody involved. And obviously, by being part of a group, they have the leverage to be able to do that, whereas they may not be able to if they were fully independent to begin with. Yeah, very good. Interesting. That's really fascinating.

[00:06:07] So, James, I would think that maintaining culture would be top of mind for many founders when they're close to making an exit. How do you integrate the companies without losing culture? Or is that something you even focus on? Yeah, it's a really good question. I mean, we purposely don't integrate. So all of the agencies have their own office locations, they have their own company policies, they have their own management teams. And they're all quite different, to be honest, in terms of you walked into those offices, you wouldn't necessarily say they're all part of the

[00:06:34] same group because they are run differently and they're different personalities. And so we've purposely not impacted the culture, but we've tried to instill a shared set of beliefs. You know, at the group level, we have to have certain kind of policies and ways that we work and shared ethos. But we don't want to get involved in the day-to-day decisions around these agencies. So the culture is everything, especially in the marketing world, because

[00:07:02] as you know, the agencies are built on people. You know, there's very limited IP, there's not a huge amount of assets. It's just teams of creative people that love doing their work. And so if you start to interfere with that, the result is that the output of work will drop, motivations will be reduced. And, you know, they're working for small independent agencies because they like that environment. And so we purposely don't want to bring them into a big corporate environment where

[00:07:30] that may not align with the employer's interests. So yeah, it's a really difficult one to manage, and especially at our size, because agency headcount is anywhere between kind of 15 and 50. So these are sort of small, independent, you know, they've not broken that kind of 75 people barrier where things start to change and decisions start to evolve. So they're happy to stay at that level. And that's what they enjoy. So yeah, that's how we approach it.

[00:07:56] Nice. Interesting. I mean, you're absolutely right. It's the people which make small, which they are small entities like you're talking about, you know, special and successful. So that's really important. And me walking in knowing that is fantastic. So I'm sure they're very successful when they kind of come into your fold, knowing that that's happening. So let's move into another area that we're

[00:08:19] really interested in. And that is AI. And I think we've, it's sad, but I don't know. It's interesting that nearly every episode that we have these days, we have to talk about AI in some capacity. I'm interested in your perspective on AI's impact on what are small agencies that you're backing and, you know, getting involved with. And what do you see on that front and the impact that AI is

[00:08:49] having? And what do you see in the future? Yeah, so it's a really hot topic, as you say. And we see varying levels of adoption across the group. So some entities are more advanced than others. We have a group-wide working group for AI, where we bring different initiatives to the leaders within those groups of the things that we could do. I'd say there's a lot of experimentation where

[00:09:16] I think best practices at that experiment, like teams are enabled to make that experimentation. They're empowered to go and create things. And, you know, it may not be the best tool or resource that they create, but they're starting to think about how do they become more efficient? Our ethos is that it shouldn't replace people, that it should just increase output. And we think that the judgment layer is critical, as we know, like, you know, having that layer of judgment and the

[00:09:44] creative people in agencies are naturally, you know, very independent thinkers. And I think the best way to use AI is to kind of streamline things where like maybe 70% of the work could be automated in some way. But that top layer has to remain people focused and not go completely off on a tangent. So none of our agencies have reduced headcount for AI, and they're all experimenting with it. We've

[00:10:10] brought in external consultants to give us some advice on what we should prioritize. One of our board members is a leading figure in that space. So I'd say we're still trying to figure it out ourselves in summary. But we do recognize the opportunity and we don't want to get left behind because it is moving at an incredible rate. And then some things we're doing at the group level that we're trying to develop that will bring other value out as well, not just in terms of efficiency. So yeah, work in

[00:10:40] progress, I would say. Yeah. Would you say that the agencies you're dealing with are really eager to adopt it or are some reticent to do that? Is it a little bit of both though? What's their attitude about it? Yeah, it's quite mixed, to be honest. And I think it comes from the top down. You know, if the leaders are naturally AI native and very innovative, then that kind of, you know, is absorbed by the teams and it fosters that culture. But you know,

[00:11:06] these are established businesses. Some of the founders are later in their careers where maybe they're a little bit more stuck in their ways, whereas other agencies are, you know, slightly earlier in their careers. So that does vary. And it varies by team size, because I think with the larger teams, it feels like it's harder to roll out some kind of AI initiative because, you know, founders are worried about the implications of that if it's not properly implemented. Whereas

[00:11:34] with smaller teams, they can kind of test and learn, you know, give the give the sales team a project to work on with AI versus like, across the entire business. So definitely mixed. I would like to try and align that more closely if we could. But it's, it's a step by step, a step by step mission on our side. I'm curious in the agencies in your fold who that are embracing AI perhaps more,

[00:12:02] how have they been, what have you seen that has impacted their success aside from, you know, leader adoption? What other elements are present? Whether it be on the communication side, training side, what are you seeing that's helping them become more successful? Yeah, I think one of our agencies is a market research and insights agency, and they've had to be quite forward thinking on this because the risk in their space is that people see

[00:12:31] market research and insights as something that will be commoditized to AI. So what they've been able to do is actually bring some backend systems in place that drive some efficiency, but also make it very clear that there's a human level above that that is verifying the inputs and outputs. I'm not going into detail of what that actually looks like, but I know that like 18 months, two years ago, they made an investment in a kind of closed environment. So instead of obviously using

[00:12:56] open AI tools, they've actually got their own kind of server and set up in the office, which is a closed environment, which gives more trust to their clients that if they are experimenting with AI, it's secure. So I think they've thought about the governance, they've thought about how do we maintain our positioning in the market and get ahead of that potential risk. And so that's probably one example that comes to mind where they've really thought it through and put the right process in

[00:13:24] place rather than just running and testing something. Yeah. Great example. Love that. All of the forethought and recognizing the implications on potential commoditization and doing that with government governance in place. That's a great example. All the things that you want to see for sure. You're good. Thank you. Okay. So I've also heard that you were creating something called inflective intelligence. Rob, is that true? Did we hear about that? Is that something really exciting that James is going to tell us about?

[00:13:53] I think it is true. So that will launch this summer. Is that right? Is that the timing that you're talking about? Yeah. So tell us what is it and how does it benefit your clients and your organizations you work with and their clients? Yeah. So firstly, I can't take any credit for it, just to be clear. Okay. So I'm in no way smart enough to build this. But our CFO is and he built this through necessity.

[00:14:19] So through group level financial reporting, we recognize that traditional tools that connect into, say, Xero and Sage aren't actually delivering accurate data. And that can get quite a big problem when you're looking at consolidated accounts. And so he started to recognize the gap, despite that there's some quite advanced tools in the market. And obviously with Claude and all these

[00:14:46] other resources started to think, how could I create a version of that tool? And that just became a monster project where it now brings in all financial and non-financial data into an app, online application that gives, does two things. So for founders, it's absolute clarity on financial reporting to make decisions on the growth of the agency, which I think a lot of small agencies have never had that

[00:15:14] data. You know, they've got an accountant, they've got a bookkeeper, maybe they've had some CFO in the past, but they're not really looking forward. They're typically looking historically at like, okay, what have we done the last six months? What have we done last week? Whereas this starts to show, okay, we want to go from A to B in the next six months. These are the five things we need to do. And this is how we're going to roll that out on a week by week basis. So yeah, we feel it's been built through necessity. We feel it solves a problem, not just for us, but for a lot of independent agencies

[00:15:42] and also CFOs. So we've had a lot of interest from fractional CFOs and full-time CFOs who are working in other businesses, non-agency related, that have been reaching out saying, you know, can we take a closer look at this? Because he's been sharing his journey online throughout building this. So he's built quite a following on that. So yes, it's called Inflective Intelligence. We're going to open a waiting list 1st of August. And we're excited to get it out into the ether.

[00:16:12] And yeah, we think it's a real value add because in this market right now, I think a lot of businesses are struggling, you know, it's not an easy market. And so if you can get a bit more clarity and certainty through how you're going to run your business, then that can only be a net positive. So that's how we see it. What do you think that's going to do to enhance your business to be able to offer this whole new thing? And this is this I mean, yeah, that's really it seems really groundbreaking.

[00:16:38] Yeah, I mean, it's a recurring revenue product, which is naturally beneficial to us, because right now we're focused on a much bigger strategic play. And so having an actual operating entity, which not just combines the app, but centralized finance, we've got my partner and other individuals that work with our agencies in other areas that becomes our kind of operating entity

[00:17:04] for this group of future groups. So yeah, it's impactful for us in terms of, yeah, an evolution of what we set out to do, I suppose, and different ways that we can support founder-led businesses. So yeah, it's an exciting period. And we see a huge addressable market for that product. But the thing with AI, as you've seen, is people can, there's so many new things

[00:17:31] coming to market right now. I think there's a short window of time where we probably need to go quite big with driving adoption before there's other tools that come out into the market. Right. And then of course, advancements that you're going to have to make to keep up with other competing tools. Well, that's a whole other thing I'm really curious about. So give us some more detail when it comes to, because you said this isn't looking back historical data, it's projecting how to

[00:17:59] go from A to B. I don't think a lot of people listening right now will understand how financial data can help you see that. Can you explain that further, please? Yeah. So say the business is doing a million in EBITDA and next year they want to do two million. It's going to pull in and look at what metrics got them to a million and what the variables were to achieve that. So there'll be pipeline, there'll be sales, there'll be head count, there'll be costs.

[00:18:26] You know, all of the metrics that are behind that business in terms of revenue and profit. And it'll start to look at different scenarios and say, okay, well, we could either double sales, but if we doubled sales, we're going to need five more people. We're going to have these additional costs. So you start to build this scenario of like, we can have organic growth, we can grow through acquisition, we can grow through cross sales, we can grow through upsells, we can grow through account expansion. And I think agencies probably have a similar approach,

[00:18:51] like on a top line basis of how they're going to get to their goals, but they don't have the real accuracy behind the data to follow through on that plan. And I think the most important thing is to, especially because we're looking to grow through acquisition as well, what we clearly see through the data is that the organic growth path is often the longest and hardest, whereas the acquisition path is the quickest and least risky. So it actually becomes quite black and white for us that yes, we want to grow through organically. But if we can help those agencies acquire additional revenue

[00:19:22] along the way, then doubling profit in a year becomes much easier that way. So it's almost a bit of a validation of what's possible. And you can put different variances in there and different assumptions. And because it's all so intuitive, it just makes it a lot easier than trying to build some huge spreadsheet and try to manipulate data in that manner. Totally. Yeah, that makes all the sense in the world. So, and the inflective intelligence is,

[00:19:49] you said that's kind of a, it's a standalone, if you will, is that how you describe it? Yeah. And the product. So therefore you don't have to be in inflective group. You just have to get on your waiting list to be able to take advantage of what inflective intelligence could do for you. Are you comfortable talking about how you'll be pricing that and how you'll be in the timeline of the rollout? Yeah. So I don't want to share pricing just now, because that may change before we go live. We've

[00:20:17] got, I think there's over 50 kind of test people that are using the app right now to kind of feedback any bugs and things before we actually go live. And we want to stage the rollout so that like, we can properly service that demand, assuming we get it. Because I think, having been in SaaS businesses myself, like it's not just the product, it's how much support you're going to get if you need the adoption implementation. So that's why we're doing a bit of a stage rollout. I would say it's going to

[00:20:44] be very affordable. Like this isn't going to be an enterprise level pricing. It's going to be something that any small business can afford. And it will probably be a displacement cost. Like they may already have some tool that they're using, then it will be a displacement onto our product, hopefully. So very affordable. But I can't confirm the exact prices of matches because I might change when we go live. But that's a good description, I think, that can help people say, well,

[00:21:11] should I bother looking into this or not? So good enough. And the 50 that you mentioned who are testing right now, where are those organizations located? Do they concentrate anywhere? Are they all over the world? So most are in the UK, I believe. But I'm not in the detail enough to confirm. But I think most are in the UK. But it's not going to be just a UK product. Obviously, we definitely want

[00:21:36] to be global with our intent. Yeah. Yeah. I'm a member of an organization in Chicago that is all small, small agency owners. And there's probably about 45, 50 members of this group that meets pretty regularly, at least monthly and in person. And then there's other kind of opportunities when we get together. And the issue that you're describing in the last two years has been on the

[00:22:06] agenda four times. Oh, wow. Yeah. So with different speakers, just kind of coming in. So you can manage that. Or we share, here's how I do it. Here's how our company does it, or their company does it, etc. So it is very much a hot topic. And so you're striking a nerve for sure. That's really interesting. Yeah. I'll be interested to dig into this some more and maybe take it to one of our group meetings. Yeah. We'll give you a demo. Yeah. And then you can have a look and we can get your feedback.

[00:22:35] It'd be great to get your input on it before we go live as well. Yeah. Yeah. That would be interesting because, you know, it's obviously all US-based in Chicago and almost all of them are looking to grow and certainly exit in the next 10 years. So yeah, it's a very active, very robust group of successful agency owners. So yeah, I'm happy to happy to assist and make the intro. So we're going to come on that. Yeah. Okay. So now we're at the

[00:23:04] part where we get to ask you, what else would you like to tell our listeners, particularly what wisdom, from your very successful career, this is a time where I say, hey, tell our listeners good stuff that they can act on and learn from your experience. Yeah. I mean, I think if I was talking to your founder audience and also just the leaders within those businesses, I would say the market right now

[00:23:30] is prime for acquisitive growth. I think, you know, it doesn't really matter what industry you're in. I think there's a level of fatigue within founders where if you've got a synergistic business and you can engage with those founders authentically and have an open conversation, I think they'd be surprised how many M&A opportunities there are out there. And it can be a much quicker path for growth than

[00:23:57] just grinding the organic route. And that's what I did for a lot of, you know, a lot of my career. And that's really what led me to this path was that it's just hard, right? It's just hard to continue to grow year on year. But it all starts having those conversations. If you're not intentionally looking for it, like if you're a founder or leader in the business, you're not putting out there that you are looking to acquire or bolt on another business into yours, you're not going to get the inquiries, you're not going to have the conversations. So even though founders may have

[00:24:26] thought about it, I'd say be a bit more vocal with your intent and you'd be surprised what may come from that. And don't get bogged down in the detail. You know, a lot of founders may think, well, we've not got the capital or we've not got the experience, but you can bring in the right advisors, you can put the team around you to get that done. But it all starts with finding the opportunity. That's probably what I would say on that front, which would hopefully be helpful for some of your audience to think about differently. Yeah, that's it's excellent. And again, from that group

[00:24:55] that I mentioned, this topic of I'm tired. It's hard. Yeah, it's why is it so much harder now? We thought it would be easier in some ways, you know, and many of us have run our firms for 25 years, you know, and it's and it's just feeling like, wow, why is this still so hard? And so I'll ask you the question. So that's great advice. And thank you. But I'll ask you the question. It's not just founder fatigue, like because we've been doing it a long time or we're older. What do you think is

[00:25:22] contributing to that feeling that just it really it does seem like something that emerged in the last, you know, five years? Yeah. So I think I think I mean, the AI revolution is the fastest adoption technology we've ever seen. There's unarguably that is causing disruption. I think in the UK, especially we've got some macro headwinds around political policy taxes, like business has never been

[00:25:47] taxed any more than we have right now in the UK. It's just, you know, really difficult for businesses to make money. And even in the US, you know, there's this, you know, political kind of divide, maybe in terms of I don't understand deeply the structures over there. But an inflation, right? You know, inflation has been rampant for the past five years. You know, employees are demanding more salary, but margins haven't increased. And you've got you've got but you've got customers saying,

[00:26:15] well, we can't swallow those additional costs. You know, they're asking for savings. They're saying, well, give us a saving, you can use AI, can't you? And the founders are saying, well, we're able to pay people more now, actually, and we can't, you know, so you're kind of stuck in the middle where actually like value based selling and training people on how to overcome objections, I think is critical, because it's, it's a positioning thing. And it's a sale. It's a sales problem, ultimately. And if you've got people that aren't trained to overcome objections, you're just going to get run over by customers. Quite frankly, they're just going to put so much

[00:26:42] pressure on you. And I guess feeds back to the founder of like, it's really tough to do business out there. And you know, but it's, it's, it is, but you can overcome it with with the right approach. So yes, it's a perfect storm. And I speak to founders all the time who, you know, maybe nearly sold the business a year ago, and then they've had like five massive, horrendous things happen to the business. And now they're like, on the verge of, you know, going out of business and things can

[00:27:06] change so quickly. It's, it's quite frightening. But yeah, I'm positive. I think I think it's there for the taking is if fans have the right resilience and attitude. Yeah, that's great. Very encouraging. I like your attitude. And honestly, what you just described is the use case for what you know, why you exist inflective group, and no partially inflective intelligence. So there's a crucial need for what you're doing for, you know, certain types of companies

[00:27:35] in the marketing professional services arena. And you're, yeah, you're, you're here at the right time. So that's fantastic. How can people kind of learn more from you? What's the best way? Is it to follow you on LinkedIn? Is there a newsletter? What would you say is the best resource? Yeah, probably LinkedIn. I'm starting to try to be more active on LinkedIn. If anybody wants to reach out with some specific request or that's relevant to us, I'm always happy to, to take, to take an email

[00:28:05] and see if I can help. And we are, we don't have a newsletter yet, but my partner's going to bring one out quite soon. So following our company page, Inflective Group or Inflective Intelligence, we're going to start pushing out some more, more, more data there for people to follow. So that's probably the best channels. And yeah, email is just jamesinflectivegroup.com. Fantastic. Okay, we will include all of that in our show notes. And I hope everybody will, in the, in the target

[00:28:34] audience, we'll take some action and, and learn more from you. You have a lot of great insights. So thank you, James Rose, CEO of Inflective Group. We're very grateful for you joining us today as our guest on Can You Hear Me? Absolutely. Thank you, James. You had wonderful wisdom and that's going to do it for another edition of Can You Hear Me? I'm Rob Johnson. If you'd like to comment on the podcast or suggested topic, please look for the Can You Hear Me podcast or check out our newsletter. Both are on

[00:28:57] the LinkedIn page. And please take a look at our website, canyouhearmepod.beam.ly. We will leave that address and all relevant information in our show notes as well. Thank you, Rob. And I'm Eileen Rochford. If you liked what you heard today on Can You Hear Me? Please consider giving our show a positive review wherever you get your podcasts, like Apple or Spotify or wherever you happen to grab them from. Please leave us a positive review because your reviews help future listeners find us.

[00:29:25] And then we can all learn together. So thanks for being here today. We appreciate your listenership and we appreciate you, James, being our guest. Until next time, thanks very much. Thank you.