Starting a PEO & Growing Three Companies: Mike Kollath's Entrepreneurial Journey

Mike, how many businesses do you own anyway, man?

Well, we are at 3 right now.

3.

It was 4 for a while, but one of them did not work out, so we're down to, down to 3. Um, so I have a CPA firm that we're roughly about 30 people. Uh, we do outsourced accounting, tax, payroll, HR, um, for small to mid-sized clients. And then we have a company we call Banana VoIP, which is a voice over internet protocol company which we own 50/50 with our IT firm. And so we sell voice over internet for, uh, small to mid-sized clients again. And then our latest venture is Sustainable HR PEO, which is a professional employer organization. Uh, we started it 2 to 3 years ago. We've done a pretty slow burn on it to make sure we have processes in place and systems and all that fun stuff. So we're getting close to about 100 workforce lives in the, in the PEO at this point. So that's the 3 I got.

So, so how do you divide your time? I know this is something that I've struggled with over the years. We've had multiple ventures. We've, it's always been the challenge of, hey, how am I going to spend my time? How am I going to keep focused? How do you manage your time when running 3 different businesses?

Yep. So the primary time that I spend is on the CPA firm, of course, because it's, it's much larger. But I do spend, I guess, size-wise, an inordinate amount of time on the PEO, just because it's startup. We're getting all the processes, systems in place, trying to get the word out to our clients and potential clients. So I spend quite a bit of time on that. I would say if the CPA firm is probably 70% of my time, I'd say 30% of the time on the PEO. And then Bananavoy kind of sells itself. Our IT firm does all the backend work on the system side. And so we don't get involved in a ton there other than introducing our clients to the service that we have. But other than that, that one doesn't take a lot of time.

That's great. So having 3 different businesses, Like you said, splitting your time as equally as you can and where it makes sense, where you need it across those three. You've obviously got some great people in place, probably a lot more on the CPA firm side than the PEO and payroll side. What have been some of your best practices as it relates to acquiring talent, putting them in position to succeed, and ultimately trusting them to do their job? I think that's one of the biggest challenges all of us entrepreneurs have is once we find the right people, not just putting the right people in place, but actually trusting them to do their thing so we can focus on the vision, so we can focus on other things. Things and keep the whole engine running. How have you approached that over the years?

Sure. So I think we've taken a couple of approaches. Um, one of them is I am a big delegator, so I would, I say, maybe say to a fault that I will put trust in people until they break that trust. And so I believe in hiring someone to do the job. They're big boys and girls. They can get the job done. And until they tell me they can't, we're just going to go ahead like that. So delegation has really helped me free up my time to pursue these other ventures. On the CPA firm side, we have 3 partners total, obviously me, and I have 2 other partners. They have been instrumental, obviously, in growing the CPA firm, helping manage it so I can spend my time on helping to grow the PEO. On the PEO side, we actually just took a pretty significant change in the way we were working it. Before year-end, we had had it kind of as part of the CPA firm, even though it was a separate legal entity. As of January 1st, we segregated it off. We actually have 3 people working in the PEO right now, completely separate from the CPA firm. We hired a leader to lead the PEO in October who came on, and she has done a great job starting to get, you know, the processes, systems. On the CPA firm side, we've been around for 15 years, so we have a lot of that stuff in place. So we're trying to implement and that on the PEO side, as you know, I mean, on the payroll side, and now you're on the PEO side too, having documented processes that anyone can follow are critical. And so that's kind of been our goal with the PEOs to, you know, we want to grow, but we're still holding off on growth until we get all the processes documented properly.

What kind of systems do you guys use for process documentation? Like, is that just a bunch of Word docs stored in a shared drive, or what's your process when it comes to documentation?

SOPs. Yeah, that's exactly right. It's all Word documents or Excel documents. So we are accountants, a lot of accountants around. So we do use a lot of Excel. But yeah, we wish we had a better system, but for the size we are, it's just not worth investing in a system that's more formal.

Yeah, yeah. And we use a system called— we use Zoho for a lot of things, but Zoho has a platform called Connect inside of it that's like a— it has a manuals feature where you can create, you know, internal manuals we use them for that. And then also inside of our, our customer support system, they have a knowledge base system where we'll create some of those and make them internal facing only, not client facing. But yeah, we're trying to kind of pick one horse and run with it right now. That's a bit of an internal topic du jour at the moment is which one of these stupid things am I supposed to put the SOPs into? I got some over here in Connect, I got some over here in the knowledge base. Where am I supposed to be going? But That's a, that's a whole other story for a whole other day. So, so you talked about being good at delegation. What do you think some of your, your kind of tips and best practices are when you look at effective delegation?

So when I think about it, if it's something that I have mastered and understand, it's ready to delegate, right? And so it's a matter of documentation, sitting down with the person, spending time with them, going through the process, showing them step by step. We've actually started using Loom. I think you recommended that to, to me to do videos for training. And so that's been kind of the next iteration of sitting down with someone and trying to write stuff on a, on a piece of paper. Then we went to the Word document. Now we're starting to use Loom. But I do think that face-to-face or one-on-one time is critical when you're trying to delegate. And then after that, I try and be as hands-off as possible and people come to me with questions, but I tend not to lord over them or try and micromanage in any way. Way, shape, or form. Um, now it leads to interesting hiring things where you have to have people who are comfortable in an environment like that. And we've struggled with that over the years, gotten better at it, but it is tougher.

Yeah. Yeah. Well, Loom has been an absolute game changer for us. That's what somebody said on one of our team calls yesterday. And it was interesting because the gentleman and I were trying to meet this morning and we couldn't get on the same page. Like, I just had a meeting run long. He had one that was starting later, and I was able to create that 3-minute Loom video, send him over my thoughts, poke on the system, show him what I was trying to articulate and was gonna cover in the meeting. He sent me back a Loom, you know, and it was like, it's an easy way if you can't, if you need asynchronous communication, but also to be able to show something, great tool for those of you out there listening, Loom.com, just a screen share recorder, really, really nice for, especially for delegation of simple tasks and showing somebody something when you just can't do it in real time. But, So how'd you get your start in this industry? So, so obviously, you know, you started the CPA firm, and it brings us back to what brought you there. And then when did you start going to the payroll and HR space?

Sure. So I started the firm in 2007. I merged in another firm in 2008 that did payroll at that time. And so shortly after that, I think we had like 30-something payrolls at that point, not a ton. Um, we weren't using a real specific system. I think we were using QuickBooks at that time, actually, for all the payrolls we were doing. And then shortly after, a woman from Paychex that had been calling on me as a potential client— excuse me— she came in and I said, are you interested in becoming our salesperson? And she said, yes, I would like that. And so she's been with us for a decade now, and we've grown that to— I think we're roughly 425 payrolls at this point. And so it's been a combination of growth through combining our accounting clients with payroll, with some HR and bundling that up. But we do have a large number of just standalone payroll clients that we work with. They tend to be pretty small businesses, a lot of, you know, single owner S corps, startups. But then we— I think our largest client is well over 100 employees, restaurant. So we have a number of those, still print paper checks, of course. So we, we actually have to have someone in the office in order to have someone pick up the checks. And then, boy, it's been about 5 years ago now that we hired an HR person full-time. And like a lot of the things I tend to do is I wanted to solve my problem, which was I didn't want to deal with HR anymore. And we had grown, we were probably 15, 20 people at that point. So we ended up hiring her full-time with the idea of having her do consulting and then also servicing our internal needs. And so that went very well. We grew that book, took a little hit during COVID Then we started to bring on a second person and a third person in order to grow that into the business and to deal with the PEO. So the PEO obviously took quite a bit of time upfront, understanding the benefits, figuring out how to onboard, figuring out the system. We use My Paperless Office for our, our our HR system. And so figuring all that part of it out. Now, we still use like our standard payroll process for the PEO. So it, it falls into that routine where we really know what we're doing on the payroll side. So we don't worry about that. It's more of the HR, the benefits side that we had to spend a little time ironing everything out.

So you guys were offering some sort of HR outsourcing consulting prior to the PEO?

Correct. Correct. Yeah, we, we had 10 to 15 clients that we were doing HR consulting for, and we would write the occasional handbook and those kinds of things. Or, you know, if someone had an unemployment claim and wanted to contest it, we would help with those kinds of things.

That's cool. What prompted you to start the PEO?

So I— so when we were in, let's call it, 6, 7 people on the CPA firm side, uh, it was really tough to get benefits, right? So you'd only have 1 or 2 people internally that would actually want health insurance. Well, you can't get a group health plan with 1 person. And so I had heard of PEOs at that point. I was familiar with them but didn't pull the trigger. Fortunately, we grew to the point where we were able to offer internal benefits. But, you know, just seeing what our clients deal with and, you know, I feel like I'm fairly financially savvy, understand some of the insurance aspects of things. I was in the insurance industry for a little while. That they just don't understand these things. And we are in a perfect position as a CPA firm to offer those services to those clients and understand what their needs are. And so that was the impetus. I actually had been thinking about it for almost a decade before I actually started it. And so we, we pulled it off a couple of years ago. And, you know, I, of course, have a guinea pig, the CPA firm, to work out all the kinks. And as I said, now we're close to 100 people that are, are under, under control of the, the PEO, which is great.

That's awesome. And, and you were very influential in our getting our PEO off the ground as well. And how did we initially meet? I was trying to think about that.

So I think I was listening to Payrollin'. Okay. I think I, I think I heard the, heard it and I reached out to you, I think on LinkedIn or something, to say hi. And then you somehow contacted my salesperson, and so she hooked us up and then we started talking.

That's awesome. Yeah. And that's like, well, it's funny because I think I've said this on here before. I mean, the first episode we ever recorded came from a conversation that I was having with Madam Holtz, and we got off the phone and I was like, man, like so many people could have derived value from that conversation in the payroll industry. And that's kind of the heart of a lot of the relationships that I have with other guys, like guys and gals like you, where it's like people are just open. They're sharing best practices. They're sharing what, you know, how they grew their firm from here to there and what pitfalls to avoid and what systems they use. And it was like, man, that would really be helpful to record some of these and fun. And that, you know, like, it's such a better, uh, you know, like a lot of people kicked around the idea of the podcast thing for a while, but it's like, who cares? What's more noise out here? Whereas this is such a unique little industry and different things that we can share. And I've made great relationships like this one, man. I'm excited that that's how we met. I completely forgot, but Yeah. So, so yeah, we had a similar— I tell people, you know, we've been in business 7 years, and probably since year 2, every year we've kicked the tires on, do we offer a PEO? Like, oh, that's intriguing, you know, it solves this particular set of problems. But tell me, were you like me in that I've spent so much time selling why you shouldn't go on a PEO that when it came time to roll out the PEOs to a couple of— like, we had a CPA locally here who's like, yeah, I've been meaning to ask you about that because you're pretty adamant about why one of my clients shouldn't go on a PEO at one point. You know, what, what changed? So was that a similar mindset for you?

So I don't know that we were ever against PEOs. I think my beef always was that they were very— they weren't transparent, right? It was very difficult to tell what their fees were, to understand like what was actually coming through on their bills. Um, And then I think a lot of the, I guess the impression of the industry, especially in the early days, like I know Florida was a hotbed for them. There was a lot of fraud and those kinds of things. So I had a bad taste in my mouth about PEOs because of that. But once I really started looking into it, understanding the actual like function of the PEO, we joined NAPPO or the National Association of PEOs. I started to understand there are good players in the business and it does serve a good function for small businesses. It is tough to understand benefits. I mean, I spent a lot of time on it and it's still, you know, understanding the facets of health insurance and how the workers' comp market works and all those things. And again, I feel like I'm fairly financially savvy. And if I was a nonprofit owner or not nonprofit owner, the ED of a nonprofit, I would have no idea what these things meant. And so being able to help people out from that standpoint, I think, is what makes sense from a PEO standpoint to help people out.

So for anybody listening, it dawned on me as I'm saying this, you know, once you start throwing around acronyms, you assume everybody knows what it is and what it means, and, and that's not always the case, right? Even in the industry, I think some people probably don't know what a PEO is, a professional employer organization. What is a PEO, Mike? What's different about a PEO versus traditional payroll and HR outsourcing?

Sure. So it's the co-employment arrangement is, is what it's technically called. And what that means is that you as the employer retain control of your employee. You have the management responsibilities, you have the worksite safety and all that stuff. You have to be responsible for that. The PEO will actually do all the payroll administration. It will provide the benefits and it'll provide some risk management consulting, usually a handbook and some light HR. As part of the package. Um, and then all the W-2s and all the tax filings are done by the PEO. So it takes a lot of the compliance-related stuff off your plate. And so that, that the— that is the big deal. And you don't have to go out and procure benefits, you know, talk to multiple insurance brokers or whatever you have to do to find those benefits. You know, the PEO will provide a suite of life, disability, health, pet insurance, whatever, uh, you know, vision, dental, whatever benefits that, that PEO may offer.

Yeah, if you think about this, we'll touch on a few things here, but the competitive landscape— so if you're listening to this and you own a payroll bureau, there's 16,000 people or companies that process payroll in America. There are 800 PEOs. So obviously it's a smaller market, a lot more barriers to entry, as we have figured out.

We're in the thick of kind of plowing through right now.

It's definitely It's not cheap, it's not easy, and a lot of regulatory stuff, a lot more regulation than the payroll industry, which is, you know, good and bad, right? So now the other thing, to your point, for me, we finally just had so many people kind of just really pushing back about age-banded plans, their inability to recruit against top-tier organizations when they have less than 50 employees. So if you have less than 50 employees, I'm sure most people listening know you're on an age-banded plan. Than if you go to the open market, which means if I'm, you know, 42 and Mike's 25, like we're paying different rates for our plans. And, you know, that gets very hard to budget. It looks a little hokey when you go to give it to somebody who's coming away from, once again, if you're trying to poach a lead developer, a lot of our clients are software companies. If you're trying to poach a developer away from a big company and you're like, oh, how old are you? Let me look up on the grid and see what your premium portion will be. And no, we can only offer one plan. And since we only offer one plan, we can only contribute this amount. It's just hard to compete when you're a smaller business. And like you said, the educational piece, understanding all of it and putting a strategy in place that makes sense is hard. For us, there was a big tipping point. So there were two big tipping points. There was, you know, you guys use a similar component to your technology stack as us and kind of educated us on how you use that. So that was like hurdle number one. But hurdle number two for us was we had to have, if we couldn't get Blue Cross, then there was no point. In South Carolina, like many states, Blue Cross just dominates. And I remember back in my old, you know, you know, national days where we would try to convince people why Aetna and Cigna were great. And it was, you know, square peg, round hole. Be like, no, no, no, seriously, the network's amazing. Like, they're gonna be fine. And, you know, we struggled with that. But so we managed to break down that barrier. But I think it's definitely, you nailed it. And that's the competitive advantage. And the thing that I think people don't like about PEOs besides, you know, the mystery around co-employment is are these companies that charge a percentage of payroll. And so it's like, once, you know, the ADP TotalSource of the world— the, uh, who was I talking to yesterday?

Insperity—

or trying out one of them is a percentage of payroll as well. And, you know, the guy was like, look, I can't tell you exactly what I pay, but I know it's more than what you just showed me. And so, so that's the other thing is, you know, the sales reps, the service people can't even tell you what you're actually paying. They can't break that number apart. And that, that's a bad sign. So, um, it's an interesting market for sure. But, but whatever— what else have run up against that's been good and bad when getting the PEO up and off the ground?

So I think our biggest hurdle initially was getting a national health plan. So like you with the Blues, we— so Madison, I'm in Madison, Wisconsin, and Madison is a very HMO-based market. And so the health insurance that the CPA firm had was through one of the HMOs here in town, and they just did not offer a competitive national plan. So we were unable to help our clients with people outside of really the Madison and Milwaukee area. And so when things really started going is when we switched the, the provider we were using. They had a decent national health plan, and we were able to capture a number of our clients which have people all over the country. And so that has been a big boon for us, getting the, uh, my paperless office up and running has taken time, um, and getting the kinks worked out on making sure benefits are out there, understanding like the employee review process within it, PTO type stuff within it, um, that has taken us some time. But yeah, I think the health insurance from a sales standpoint at least what has been our biggest, um, barrier to success.

Are you finding the new groups you're bringing on there are coming off of PEOs or off of different just sort of normal in-house or payrolls here, benefits are with an agent. And what's the typical customer look like?

I would say that's very true, is the last part you said there. So our most, most recent client that we put on was with a— they had their own health insurance. It was not as good as ours. And while we ended up being more expensive, like the PEO fees We charge a per full-time employee per month and then a per part-time employee per month fee. So they ended up— it cost them probably 20% more than they were already paying, but the benefits were better and it took all the other compliance issues and dealing with benefits brokers off their plate. And so that's been a pretty typical one. They were already a CPA firm client, um, although we did just today I got an email from someone else I I have networked with in the past that's looking at a PEO now too. So we'll be going up against Tandem for that one, which just acquired a big, big PEO here in town.

Well, it's interesting because people ask me this. Just somebody just asked me this question this week, like, how do you compare versus this PEO when you're going head-to-head with this one? What do you do? And it's like, look, if we're going head-to-head with another PEO, like, that's not a battle. That's not how we choose to fight. And I'm sure there's some Sun Tzu Art of thing behind this, but like if they're coming with a PEO, then we're probably gonna come with our ASO and maybe team up with an agent or a broker, or maybe look at a payroll and self-enabled technology on it only. Like we don't want to go and talk about how one bell's louder, you know, or one bell's shinier, one whistle, you know, the whistle's louder, whatever it might be. Like we're not trying to go tit for tat with another company that does the exact same thing. And that's been our sales strategy from day one is kind of the same where it's like, if they're on a PEO today, let's talk about why unbundling it and putting you on an ASO makes more sense for you. And if not, then stay where you're at and vice versa. But I, I've been interested in the fact that our earliest clients— and now, so it's, it's February 4th, 2022, we're recording this— and we literally just launched our PEO January 1st with our first client. So we are fresh out the gates. But our, our clients are almost all coming off of, hey, we were using Gusto for payroll, or we, you know, QuickBooks for payroll, and we don't even have benefits and we need to offer benefits. There have been several of those. Yeah, definitely. Like just kind of piecing it together and like, oh, you guys will do all the HR stuff too. That's great. Cause we've, you know, we've grown to 15 people and we have no HR today and we really need some help on the HR side. And so, so yeah, it's been interesting to see that's where it is and just have not got the thing that's so funny to me is this mystical concern around the co-employment arrangement that for years I've also tried to create concern around. Once again, I've gotten head to head with CEOs a lot and tried to create some mystery around that. But there's really not a lot of downside to the co-employment arrangement.

No, I mean, honestly, from a liability standpoint, it helps you, right? Right. I mean, so, yeah, a couple of things I wanted to piggyback off of. So what we have seen also is that the big national firms that start with an I maybe have terrible service. And so we can win on service. And honestly, that's the way we built our payroll practice, right? So if we're competing against a Paychex or an ADP, We have one person that you're going to talk to that's responsible for all the payrolls in our firm, and she will take care of you. And so while on the payroll side, generally we're a little lower priced, we are fairly competitive with the national providers from a price standpoint on the PEO side. And so we find that I have one person, I know who they are. That's the big thing to them. And with Insperity, they can't get a hold of a person or they'll get passed to 5 different people and they get frustrated with that, and they can't figure out what their bill is. So that has been a competitive advantage for us. I think the other issue, I think to go back to what you had asked about before, that we have had is trying to keep things in scope within what our PEO contract says. And so, you know, are we doing recruiting without charging because that's outside of scope? Scope. So we have struggled with that part of it a little bit too, just making sure we're not doing stuff that's outside scope and then not charging for it.

Well, it's funny because there's this, you know, can I use better customer support as my USP, my unique selling proposition? And, you know, any consultant would tell you no, that's not enough, you need to layer in this, that, or the other thing. But there's— that is most everybody listening to this episode right now, like, that is going to be your superpower, is the fact that, you know, they can talk to Susie every time call your office and Susie's gonna get to know them and they're gonna get to know her. Now, of course, you have to have some contingency and some talk track and some, some actual plan around what happens when Susie leaves.

Yeah.

And when all your eggs are in Susie's basket, because, you know, let's face it, employees do not stay for 30 years. That's not the way things work anymore.

And so exactly.

We've gotta have good plans for that. You've, you, you know, I think one of the things we've really been fortunate enough to do is this balance of me coming from that Fortune 500 world. Like I've seen what the expectations are from, hey, people want immediate response. They don't want to sit on hold, but they need to know, they need to have comfort that you've got systems and processes in place. And I feel like that's the place I see a lot of smaller bureaus struggle is that they're just going, oh, just email Susie, like just email susie@gpayroll.com and you'll be fine. And like, that's great, but that's not sustainable long-term. You've got to have some support mechanisms and infrastructure in place to be able to support more than one client and more than 100 clients and more than 1,000 clients eventually. So how has your support model evolved over time? How do you guys, you know, continue to improve that?

Yep. So it has not, unfortunately, a ton, but I think the next level we're going to go to, and we're at that point, especially on the payroll side right now, we just— 400 is a lot. 400+ is a lot. So we've started to spread it throughout the firm with the main person starting to do more review rather than doing the actual processing. And then I think I'd like to go to a ticketing system in the not too distant future of some sort. We haven't started researching that, but I think across the companies that we have, it would make a lot of sense for us to have some sort of customer service component because we've never really had that within the CPA firm, within payroll, or within the HR component of what we have, so that it is a little less dependent on one person. And if a client has a particular request, then someone else could possibly answer that.

Yeah, I think that's a great idea. And that's, that's how our process has been for quite a while, just because, I mean, honestly, with self-preservation initially, it was like, how do I get everybody to stop emailing me with every question? Because I was doing all the selling in the early days. And so no matter, once we started adding employees, it's like they weren't emailing Stacy, they were emailing me, you know? It's like, all right, no, like, we can't have that. So started out with support@ergpayroll.com, you know, and first it was just a shared inbox, and then it moved into you know, one customer support ticketing system, then another. But yeah, now we're in this place where you've got somebody who's basically an expediter who says every ticket that comes in, I either, you know, close it out because it's junk, or I assign it to the tax person, or I assign it to the right payroll person, or I assign it to the HR person. And then they kind of act like, you know, if you've ever worked in the restaurant industry, there's that person who stands in the back that matches the tickets to the plates and gets them to the right server. Like, that's, that's effectively what this person does. And, and it's really efficient for our team But it's also, you know, it's hard, man, because this past week it was funny, we started with a new service and their first email that came to me was from their support email address and it came with this Zendesk template and I was like, oh, you know, like, I was like, golly, do my clients feel like this when they get that first email from support, the welcome email? But, you know, we try to personalize it a little bit more. We try not to have this kind of, you know, theirs had kind of some weird framing on the email that made it feel like it was coming out of a machine and not— it was canned. Yeah. And it was a So there's a delicate balance there, but it's easily explainable too, right? Because you want your clients to know, like, we track first response times. Like, we know every single day, every single week what our average first response time is, how long it takes to close a ticket on average, if it's a first time, if it's a first call resolution. Like, once again, our smaller competitors are never going to be able to make those types of commitments when we go in. And it's not that we're going head-to-head with a lot of the local guys typically, but still, they— if somebody's going to leave an ADP, a QuickBooks, a Gusto, whoever, like, they have to have confidence that you and I are going to be be able to serve them. And so those are just other little feathers in our cap to be able to point to actual data. And, you know, we track how many tickets have we closed, how many things have we answered. Yeah, we've answered 69,000 HR questions. Oh, great. That's a, you know, once again, a nice little selling point and kind of validation. But yeah, so the PEO, that's been an interesting learning curve for me. How do you guys see that continue to evolve as you go forward?

Yep. So we're definitely— now that we have a leader in place, um, it's going to be easier for us to get out and sell the product. So again, as I told you before, we've been really slow growing this. We've been trying to get everything worked out so that when we do have a significant number of employees that we're dealing with, that we're able to deal with it effectively. And so we're about at that point now that we have a leader on board. We're going to fill out 1 or 2 more positions on the HR side. And once we have that, we are going to open the floodgates and actually try and push the PEO much harder than we have. We, we basically have been, if we talk to a client about it and they happen to think it's interesting, we go for it. Otherwise we don't. And then engaging our salesperson that we have in actively selling it, because we haven't really pushed her to do because again, on the service side, we want to be ready for it.

Yeah, I totally get that. And you're much more pragmatic than I am. I'm very ready, fire, aim. Let's, you know, we've been pretty candid with our first batch of clients. We knock $10 per employee per month off the bill. And we're like, look, this is, you know, 1/1 is when it started and 1/1 is when you started. So there's no mysteries here. Like it's not gonna be perfection out of the box and you've gotta be willing to be candid. And you know, it's not a fake it till you make it kind of proposition. Right? Like, you need to let people know, hey, here are all the reasons why this is going to work, and here are the things that we're just still not even sure about what they look like over the next coming months. I mean, we're in a similar position. So, I mean, we've started with ASO from the start. I mean, ASO has kind of been our lead product, administrative services offering or outsourcing, depending on the acronym and how it's interpreted. But, you know, for those of you listening that aren't as familiar with the ASO— oh, this was an FAQ a while back. I'll address that right now. I promised I was going to do an FAQ episode and I never we did. Uh, so somebody asked, how do I define an ASO? And I think I won't get into splitting hairs between an ASO and an HRO— HR outsourcing versus administrative services outsourcing. But in my mind, this is not an industry standard definition, but an ASO, like, we're doing the work in a lot of respects. And so what that means is that HR side, you know, not only are we going to write the handbook, we're going to answer the, uh, the employer's questions, we're going to answer the employees' questions too. Like, that's a big variable for me and how we deliver it was we say, hey, look, your employees, if they have a question about how to clock in, clock out, how to find their password, where to find their pay stub, you know, they just want to talk to somebody in HR, they can reach out to us. So that's different than, you know, if somebody comes to us for payroll and HR technology, we're not talking to their employees, we're talking to the admin level folks only. And, you know, our—

so more of you're the HR department.

That's right.

With the ASO aspect of it.

That's exactly how we pitch it, is, hey, look, we're an extension of your team, we're the HR team. And the big difference for So I've been elusive in this episode, but it's not going to be any secret to anybody who's listened to enough to know that I used to work at ADP for a period of time and they had a product called ADP Resource. And they also had, um, it's called the BPO services, comprehensive services. Once you go up over 50, you know, the biggest complaint I always got, everybody wanted it, but when they actually bought it, they were like, look, my HR business partner is just a glorified tech service person because you guys forced me to do everything in the, in the technology myself. Themselves. And so, you know, they spent all their time kind of browbeating them like, oh no, you got to do this in here, and oh, you got to do this this way. Whereas our team will just pick it up and run with it, right? Like, they're not going to force them to become subject matter experts in the software. If they send us an attachment, we're going to attach it to the employee's file. We're not going to turn around and go, oh no, here's how you upload it, and kind of force them to get inside the systems. And so a little bit more hand-holding, a little bit more of that, that kind of hands-on approach. But sorry, a bit of a diatribe there. Somebody came That— I think that was Matt. I think that was Matthew Patrick. If that was you, brother, there you go. Hopefully I'll see you next month at IPPA. Um, the, uh, all right, so, so you guys have also done— you've scraped several of the, the topics that we talk frequently about here just because they're interesting to a lot of people. One of those is mergers and acquisitions. So how many acquisitions have you guys performed over the years?

So we've acquired 5 CPA firms over time. Time, or accounting firms, let's call it. One of them was not truly a CPA firm. I can go on as long as you want me to with stories about it. The first one was probably our most successful one, and I made probably the worst mistake you could. So we paid cash up front for it, and the owner passed away within less than a month of us purchasing the firm. And so that's an oh bleep moment. What are we going to do? Are we going to keep these clients? And yes, I did pay it all up front. We got lucky that there was another person involved in the firm, happened to be the gentleman's son, and we were able to retain those clients and actually grow some of those clients over time. So that was my first foray into it. I learned never pay all up front and never pay more than 20% up front. Um, then we did another one about 3 years later, uh, which added to— we have 3 offices— one of our other offices that's not in Madison, um, that one we did a little more than 20% up front, probably overpaid for it in retrospect. Has worked out fairly well. Um, it was a more individual tax return type practice, so there's a lot culture and typically in those. And then we have merged and demerged two of them since then. So they came in, thought it was a good fit, and in the business-wise it was a good fit, but both of them, the culture was nowhere near. We have a unique culture, I think, pretty laid back, pretty, you know, everybody pitches in to do what you're gonna do. And for some reason, those other ones just did not fit in with us. And so one of One of them, we had a gentleman's agreement, paid us back for what we paid them and went away. The second one, we had to sue to get our money back because when you leave and take the book of business, that's kind of what I paid you for. So those have made us a little bit more gun-shy on doing acquisitions. And a lot of it's the culture thing. I did not realize how big of a deal it was until those, those two that we had done. And so we've looked at a few since then, looked at actually pretty good-sized one, it would have been a probably a 20-25% increase in business. But when we looked at their technology and their people, it just didn't make much sense for us to do. So I've learned a lot of lessons along the way. And that kind of growth, um, luckily we've been able to achieve it without doing acquisitions. Um, but, you know, not that we wouldn't do one, but it'd have to be very strategic and the culture, uh, would have to be right. And I guess the other big tidbit I would give is don't let the person stay more than— whoever the owner is, or the, the one who's pretty much in charge of it— stay more than probably a year, because it's just not going to turn out well.

Right. And they probably, if they want to, that's an interesting signal in and of itself. Exactly. Because most of us as entrepreneurs, if you're listening to this, your dream is to just sell and walk away when the time comes. It's not to sell and hang out and have an influence over the future direction of the company. I mean, most of us, and usually you have the opposite problem where it's like, we put in a 2-year earnout and they're trying to scram after 3 days. Keep as much of the pie as they possibly can, which is almost never how it works. But yeah, how did you find those deals?

So there's a pretty active broker community, uh, for accounting firms, and so we get solicited by them regularly saying, hey, we got this firm for sale. Um, I think one of them was referred by another person that we know, an attorney that we know know. And another one, actually, our salesperson for payroll called on them because we do a little bit of white labeling for CPA firms on the payroll side. And so she referred him in. So it's been a variety, but the broker market is pretty active. But after a while, I mean, if you know, like a particular firm in town, like with LinkedIn and all those things, it's pretty easy to reach someone. So I would I would definitely be much more targeted in who I look at and who I talk to. And I would try and avoid the broker, of course, because that's like 10% out of the box that the seller is losing.

So yeah, it seems like it's a lot easier to make acquisi— not easier, but at least there's a lot more deal flow on the accounting firm and CPA firm side of the house. As you're talking through that, I'm thinking about there's a company here locally that's got, you know, always emailing me the latest deals. And I'm like, man, if they would do this for payroll businesses, it'd be amazing, right? Like, it'd be nice to know what was— and if you're listening, this isn't a business idea podcast, but it certainly could be.

And it's like, man, this is number 4.

Yeah, well, I mean, Nash— like, you probably couldn't do that. There's probably not enough deal flow in any particular region, but nationally, that certainly would be a valuable service and one that, you know, you'd probably have trouble keeping inventory on the shelves if you did a good job fleshing out people that wanted to to make an exit. I know we're all sharks out here when it comes to like the, anytime I mentioned, I've had multiple folks on who are like pitching, selling, or buying payroll bureaus. And we obviously are interested in it as well. I think there's a commercial in here about it. But so if you're listening right now and you just hate being in the payroll space, no. That's right. Well, interesting piece of advice I got recently, I'd like your perspective on because obviously that is something we are actively pursuing, our acquisitions. But one of my friends told me, he's like, look, man, you know, I was telling him the deal size we were looking at. I was like, I want to get some smaller ones under our belt, you know, quarter million, half a million, like just get a few of those kind of singles, doubles under our belt, grow the book, and then we can upsell them on PEO, ASO, all that stuff. We want some just pure payroll books, maybe to strip them off of accounting firms, etc. And he was like, look, Matt, like A $250,000 deal is going to take just as much time and energy as a $2.5 million deal. So you might as well do the $2.5 million deal right out of the gate. What's your experience been with that type of statement?

That's a good question. So our acquisitions have ranged from 3-person firm to the largest was, I think, 10 people when we acquired it. I will say that if you have turnover in the larger acquisitions, it is a big stress on the system. So, you know, you, if you have one person leave from there, now you have to learn a whole new client, the, their other people are too busy because they're trying to get used to your processes. And so then it puts pressure on your internal people. So if I were to do a bigger acquisition, I would probably hire a full-time person to just manage that. Because I think that it's going to be very difficult internally to handle something like that. And even if you're getting 10 people with it, those 10 people were already busy with what they were doing. Right. And so they're not going to have extra time to manage a migration of systems or moving an office or whatever it might be. And so I would say that I wouldn't be scared of bigger ones now. Had I not done one before, I probably would be. That first one kind of got our feet under us to understand what are the specific things that have to happen, like just simple things like how do you migrate from one tax— tax system to another or payroll system to another? It creates more problems than you think, and it takes a little more time than you think. And so that's why I think if you're doing a bigger one, I would— no, no question in my mind, I would have a point person that at least half their time is dedicated to the transition.

Yeah, it sounds like you guys— I mean, you said this, and maybe you just need to clarify it from my end— is like the integration of the new people into your team is as big of a challenge as any other component of it. And just out of curiosity, how many of those people that have come to you guys via acquisition over the year are still there?

Are you talking clients or employees?

Employees.

None, actually, now that you mentioned that, because the two, the two bigger ones we did were the demergers. And so they, they basically came with all their employees back. Yeah. Yep. And the two first ones were smaller ones. One of the persons retired, actually two of them retired. Out of that one, and it was only 3 people. And then the other one, um, was just a 3-person shop— mom, dad, and kid. And, uh, the kid left us probably 3, 4 years ago. So yeah, none.

Well, I'm always curious about that piece because it is, to your point, like, meshing cultures is always hard. And people are, you know, most people struggle with change, except for Lori Brown, who I interviewed yesterday, which episode you'll probably— if you're listening to this episode, you probably just listened to episode. But she loves change, which I love because me too, like, I can't sit still for any extended period of time.

I'm with you, man.

Like, oh, we, you know, everything's just now up and humming and running really well. We're up 40% versus last year. Let's start a PEO.

See, we're dealing with accountants and payroll people. They are detailed people. They don't like things changing.

Yeah, I drive a lot of people crazy.

And that's, that's Me too.

That's fun for me. All right. So you've had some good acquisitions, some bad ones. I like that demerger. That's an interesting one.

I think I made that word up.

Hey, listen, I mean, that's what we're here for. Nobody's going to question that. So what's next for you guys overall, the future of the business? I mean, where do you see these 3 companies going?

Time. Yep. So our goal is to get the PEO to be as big as the CPA firm. Um, we think we can have some pretty significant growth. As I said before, the largest competitor— there's only 3 in Madison, 3 PEOs in Madison that aren't national players or outside of the Madison area. Um, so we think we can pick up some pretty good growth once we really hit the, hit the pavement and start selling. Um, and so we think we can do, do 20, 30, 40, 50% a year if we can get our processes and systems and people in place. Um, on the CPA firm side, it's crazy. I mean, there's people retiring every other day. All you hear about is firms not taking on new clients. Um, so there's a lot of growth to be had there too. So we're hoping to be 10 to 15% a year. We found that going much over 15 is tough on the system, tough getting enough people in place. And then you're starting to deal with, do you need middle managers and those kinds of things, that next level that you need to hire. And then on the VoIP system, that one just kind of chugs along. So I don't see huge growth for that. But we put on 10, 15 clients a year. That's great.

We've got a lot of listeners, just knowing a lot of them personally, where they— I mean, they kind of followed the blueprint, right? I got a CPA, bookkeeping, accounting firm. I eventually noticed that, you know, all my clients are using 50 different payroll systems. I finally decided I'm gonna go get a white label payroll system. I'm gonna start offering payroll. I'm gonna, you know, next thing you know, Organic Payroll's there. And next thing you know, you know, we got 25, 30, 50, 100 payroll clients. Like what advice would you give to those folks that are maybe at the front end of that journey of they've got the accounting firm, they're adding the payroll side of the house. What are some lessons that you've learned along the years that you think would be valuable to share?

Sure. So the system, I think, is critical. You and I both use Payroll Relief. We find that from a pricing standpoint, while quite frankly, the service is not great, the pricing is advantageous.

So that's— my camera went off when you mentioned Payroll Relief.

I thought it was weird. Who is this? So I think the system is a big deal because from a profitability standpoint, it is really helpful. I think another critical piece was hiring that salesperson early in the process. That was one where I guess I'm not as much of an accountant as most, where I was willing to take the leap. I had no idea if she was going to be able to sell or not. I know she had worked at Paychex, but bringing her on when we did, when we had almost no payroll business, was amazing. I would also say if you get someone who is trained in payroll sales. We've had a difficult time getting the cross-selling of accounting and tax services. It just, for whatever reason, hasn't worked well for us. I don't know if it's the way we do things or whatever it may be. Um, and then I think you need that one stalwart payroll processor slash customer service person, and you can have other people involved in the process, but having that one kind of critical person has been a huge help for us. It's helped us to grow to this 400 and not really put on another full-time sale or a full-time payroll person.

Is she able to get referrals from other CPA and accounting firms for the payroll side, even though you guys are salesperson?

Yep. Yeah. Yeah. So as I said, we white label at least 2 or 3 other CPA firms and we get referrals all the time and we just have either a general person's agreement that we're not going to poach or some of them where it's a larger book, we will sign a contract with them that says we will not poach their clients or actively solicit their clients.

Yeah, it's so much easier than people, and it's hard though because everybody's had that relationship with an ADP where all of a sudden, you know, the benefits brokers are the ones where it's like, you know, they got a gentleman's agreement with their ADP rep, sells a bunch of accounts together, and then that rep leaves and somebody backdoors all their accounts from telesales and starts trying to sell them benefits. And so those horror stories are out there, which actually play into all of our favor as regional providers and that we can— Yeah, exactly. Look, man, like, We don't have 50 people beating the streets. We're not gonna backdoor your people. We have something in our CRM that literally says, don't call them about benefits if they're working with these people. It's that simple. Yeah. No, that's awesome, Mike. Any parting shots you wanna leave the good folks with today?

Ah, that's a good question. I guess entrepreneurship is fun, man. Payroll is a great business. We love it. I think it's one of the more profitable parts of what we do. And the PEO is gonna be a journey.

Exciting. Yeah, that's awesome. Yeah, it's a journey. Enjoy the ride. And I appreciate it, brother. And I'll kind of bolt onto that and make sure you connect with other people. Like, if you're listening to this right now and we've never chatted, reach out. If you've never chatted with Mike, reach out. Like, it's so nice and refreshing to talk shop with people that empathize, that understand your struggles, that are, you know, Mike's a little ways out in front of us in a lot of ways, and we're out in front of them in a couple of ways. And it's so, it's nice to just be able to bounce things off of each other and be able to learn and and really just, uh, you know, sometimes commiserate over the struggles that are very real in these industries. But, uh, I appreciate your time, man. It's a pleasure as always.

And well, thanks for having me on. It was fun.

Yeah, brother, I'll talk to you soon. Thank you.