The Perfect Exit Plan: Strategies for Maximizing Bureau Value with John Mason-Smith

So you sold your bureau. What year did you sell your bureau?

Oh man. Uh, 2020-ish, '21, 2021. Okay.

All right. So very recently. So what was your biggest surprise thing you were not expecting during that process?

Oh, uh, I did not expect everything to go upside down as quickly as it did, and I should have been preparing much sooner. That, that was the thing I was not ready for.

Well, I heard a saying a couple of weeks ago, birds fly, fish swim, and deals fall apart. So I think that you probably got the feeling of that too. So let's dive into that a little bit. Let's talk about a few of the things you learned during that process. What did it look like, you know, when you decided you were going to sell? What was the timeline? Let's talk about it. I know a lot of folks out there listening are thinking about their exit strategy. You want to know what that looks like when they, when they finally do pull the chute. And then let's continue that and talk about some of the ways that you can make it easier before that time comes so that you're more prepared.

Yeah, 100%. I think, you know, there's a couple of things that I took away from that process. One is I should have started preparing for an exit really the second it crossed our minds. I waited way too late in the process to where we didn't have the time to, to barter the way we should have. And the other side of this, to be candid, a lot of what happened with us was related to staff, right? And we probably shouldn't have waited to do hiring when we really needed hiring. We should have hired earlier. So, you know, just to kind of talk about the context for what led to our exit, you know, I had— I've been a sales rep for years with, you know, ADP and Paychex and mostly Paychex and Paylocity. I was Paylocity's first rep on the East Coast and then I sold some stock to start Astra Payroll Services with my wife, and I was doing sales, she was doing operations, and we just had a kid. And, you know, a couple years into it, things were going really well. I had another venture I was doing on the side with Signature Bank that a lot of your listeners might have heard about because I was at IPPA and all these networking events promoting that. And we were making enough money from the Signature Bank relationship to where, you know, we wanted to hire people to run more of the payroll operations for us so that I wasn't dividing my time like that. We found ourselves in a position where, you know, we were getting to the last stage of monthly minimums going up on some of the products we had enrolled in, but we hadn't been pushing them very hard because we were getting fed from other revenue streams. And so where we were is we had to hire a salesperson to push those products since I wasn't going to have time to be in the field as much as I wanted to. Um, and we wanted to hire an ops person so that we could travel for this other project. And then simultaneously, my wife was due with our second child. So I was about to be down one of my major ops people I could trust, right? Um, and we just had a handful of employees. So unfortunately, the two folks that we were bringing in, uh, did not work out. And we found ourselves in a position where, because of the impossible-to-move due date of a second child, we had to choose between shortchanging our clients who we loved and making a hasty exit. Um, you know, I, I think there's folks that I've spoken to— I've started playing in the M&A space a fair bit after the sale of my business, which we can talk about— but I've spoken to a lot of folks who have done the exit process as a result of some of the other projects I've been doing recently. And the thing that's interesting to me are the folks that are always shopping. They're always talking to the ADP and Paychex guys. They're always entertaining calls from you know, the private equity guys, they're just having that conversation continuously. And I think that's the way that I wish I had played it, where I had been blowing off those solicitations. You know, people approach me all the time, hey, what if you sold to me? And I was like, I'm not going to do that. And I think the right way to approach that would have been to continuously have that conversation and keep those relationships at play. Maybe, you know, meet once every 6 months, once a quarter at most. So that I didn't have to scramble the way I did. And then what we ended up doing was selling to Assure because it was the easy way out that we thought would most likely protect our clients who, you know, we love our clients. We didn't want to leave them out to dry just because, you know, things had been kind of pushed on us on the back end. So, yeah, is that kind of answer that thought?

Yeah. And so interesting point there when you talk about I had a— I have a client that has told me before, he's like, look, we brought in a group 5 years before we were thinking about exiting because it's like a, it's like staging a home, right? Like you need to make sure that it's looking, you know, it's looking perfect, it's looking pristine. You have all the things fixed, everything in order, all that fun stuff. But one of the things we did before we raised any outside funding was we were entertaining some of those conversations purely from a perspective of what kind of value are they going to put on this business? Are they going to value our technology? Are they not going to value our technology? Are they going to try to, you know, pull one of these moves? Had somebody recently trying to say, oh yeah, we'd really love to, you know, partner with you guys and we'll offer you a 1.5. And I was like, man, we got our own tech stack. Like, are you out of your mind? So the— whereas, you know, we actually had a PE firm value us right at where we were raising money at a 5x. And so it just kind of validated like, great, we are exactly where we need to be. And this is, this is where the market values us when they understand what we've built over here. So I think those conversations are important. I think people should have them, like you said, early on in the process just to get a feel for also what they're going to ask you for, even if I'm not saying you should, drag anyone along if you have no intent of selling. But it's important to know we're looking at an acquisition right now and we asked the gentleman for, you know, revenue by customer, their start date, their, you know, see who's churned over the last 24 months. And it's hard information to put together. And so knowing what those reps look like before you want to make an exit and starting to adjust your accounting and your reporting for those things. So when the time comes, you don't get stuck at a disadvantage when you have more data in your hands and you go to whether it's an investor potential acquirer, then you start to get the upper hand instead of vice versa. Whereas if they're asking you for information, you have no clue what they're talking about, then now you're immediately at a disadvantage in the conversation. So great point there. And I'm glad you brought up the work you've been doing in M&A after the acquisition. Talk to us a little bit about that and tell us some of the things you've learned, what you're seeing in the market right now when it comes to M&A activity in the payroll space.

Yeah, it's interesting. I had to work really, really closely with an attorney to make sure I didn't cross into becoming a broker. A business broker. I don't, I don't want to get licensed. I don't want to deal with that world. But I got really close to the edge of that world because, you know, I mentioned the Signature Bank thing. So what had happened was we had been working with Cashay. And as I imagine most people should know by now, Cashay had a big falling out, right? They ended up taking a lot of money from us and not paying our customers. And, you know, we had this big list of all the folks that were co-defendants on the bankruptcy case, essentially. When that first went down in October of 2019, I started looking for ways to de-risk our exposure because as a small payroll bureau, I don't have the budget for a $100,000 payroll to suddenly go belly up. Right. And so one of the things that we found just doing Google searches was Signature Bank had a real-time transfer system. I mean, literally, I was driving around listening to podcasts because of course I was. And somebody on Planet Money said, you know, put the word blockchain in front of anything and people will throw money at you. So I Googled blockchain based cash management system. And, and the only thing I found were a bunch of like ways to pay employees through like crypto and stuff, which, who cares in my opinion. Um, and I found two banks, Signature Bank and Chase Bank, had technology around, uh, moving money between businesses in real time, right? And I called Chase Bank first and I said, hey, what if I did this for payroll? You know, would you guys want to get involved in this? And the people that were in charge of that project was like, Great, we'll give you open APIs. You'd have to hire a team, you'd have to invest all this money, you'd have to— like, you can do it and it's going to cost you whatever it costs you to do it. I called Signature Bank and they said, we'll pay you to do it. And I said, oh great, I'm doing it with Signature Bank, right? So I ended up— I mean, it was a little bit longer than that. I ended up flying to New York and convincing their executive team that they should use this technology they developed for moving money between customers as a way to pre-fund payroll. And that became a product called Instant Payroll. And they brought me on as a consultant. To basically help them figure out how to build it and figure out the workflows and which vendors to hire. And then eventually they, they turned around and said, can you help us sell this and introduce us to folks? And the first people we reached out to were people from CashA on that lawsuit with me trying to get their money out of the bankruptcy. So we had this big list of everyone, all the contacts that were filing for some claim, and we just sorted that list by who lost the most money and started calling down it. Right? And what I found were, guess what, a lot of them said, screw this, I'm out, and we're selling. Um, and so it was interesting. So I, I talked to one gentleman who had a very small book, and I'm going to be vague here, but he had a small book of payroll, and he said, look, John, I would sell tomorrow if someone would pay me 3x. Everyone always says 3x, but no one's really giving a half-million-dollar book of business at a 3x valuation. And, you know, I said, well, what if we just took a bunch of you guys and combined you together until you were like, you know, $5 million, and then maybe someone would give you 3x? And he said, that's great. If you do that, you know, put me on the list. And so I started talking to my attorney and I ended up spinning up a little side business just as a side project called Astra Acquisitions because of Astra Payroll, right? And the idea was I didn't want to be a broker, but I wanted to find people that were thinking about exiting if they could get some magic number, and then we would just group exit at the same time. We would go to like ADP or Paychex or someone and say, "Look, we're all gonna sell or none of us are gonna sell if you give us this." So I took that idea and the first thing I did was I called all the people buying payroll companies that I could think of or get introduced to. And I asked, "Would you be into this idea?" And I learned a lot about how every one of these acquisition companies buy payroll companies based on their response to that. And then once I found a buyer that was actually willing to entertain it, I started calling friends from the cash list and folks I had met through, you know, doing Signature Bank's project and asking them, what's your magic number? Like, what's the number? Like, I think everyone has this number. And sometimes that number is really high. I need 10x. Sometimes it's reasonable. I need 2.5x and then I'd retire. Sometimes it's a dollar amount. You know, I need $4 million to guarantee that my my, you know, I can withdraw from my savings account enough to be retired or I need to, you know, so it was interesting. And this was not— these were not people actively exiting. These were people that, that I imagined were like myself, who, you know, when I had Astra Payroll Services, if someone had come up and offered me 3x, I would have probably sold because I, you know, it's a good number for where we were with our size. And so when Signature Bank very suddenly collapsed earlier this year, and that was gone, one of the things that I had heard from all these people that were looking at selling was they were selling for a similar reason to why I sold, which was they were drowning in work and they weren't sure it was worth it anymore, and they couldn't find people to distribute the work over. There was a staffing shortage. Then they were selling, and ADP and Paychex and other folks were just letting go all these employees that were really good people. They were just getting fired, or you can work with Paychex or ADP, but people that choose to work for, you know, Matt's payroll company aren't often the same people who say, man, I really want to work for a giant publicly traded payroll company. And so people were choosing to retire or choosing to leave. And the obvious question was, why don't we just give those employees to other licensees of iSolved or other UKG licensees or other Assured licensees? And so I had been kicking around the idea of what became Hirewith from that, which was, you know, can, you know, as people sell their book if we can't guarantee job placements with the new buyer. Let's, let's build a marketplace where you can come in and basically— and not the right term here, but you could sell that asset as well. You could, you could distribute those employees and get a little, you know, revenue for the investment you've made there. And so once we started Hirewith, now I've been kind of doubling down because if my referral partners who are sending us these employees are people buying payroll companies, inevitably people have come to me and said, John, now I'm looking at selling, and that's why I'm calling you about having you help me with my employees. By the way, who should I talk to? And I, of course, I know all these business brokers now, and I've spoken to all these mergers and acquisitions people. And I am not a broker, that's not what I'm doing. But, you know, the way that we give back to our referral partners is by making those introductions the other direction to them. And I've been very blessed to already have a few folks that have come to me in private and said, Hey, who should I talk to? And, and I've had the, the, the privilege of hearing the sales pitch as not a seller. Like, I'm not selling, but I've said, how do you differentiate yourself, Mr. ADP, from Mr. Paychex? Right. Right. I can pause here, but I have to.

Yeah, let's, let's dive into that. So the— and before we do, first of all, I want to thank you. You're always very active on the Facebook group and share a lot of knowledge and help folks out there. If you haven't joined the Facebook group yet, it's the Payroll Innovation Network Facebook group. There should be a link in the show notes. We're up to about 100 people in there already. The conversations this week really started to pick up steam and get me excited. The questions that are being asked in there are exactly what we had hoped would happen. You know, hey, who are using this for this vendor? Why do you use them? At what point do you hire them? Does this make sense with my platform? You know, we saw sales campaigns getting bounced around in there, all kinds of awesome stuff. So if you haven't joined in there, if you're listening right now, Make sure you do it. I know Facebook, collective eye roll, but whatever. There's a ton of value in there. Check in once or twice a week and you'll definitely be able to get up to speed in 20, 30 minutes and also get some questions answered for, for things that are top of mind for you. It's been awesome to see it grow. But so let's talk about the acquirers or potential acquirers you were talking to. What are you seeing in terms of valuation? What are some of those things? We go back to the staging of the house. So if I'm a payroll bureau owner right now looking at this and saying like, How do I maximize value when we get 2, 3 years down the road when I want to sell, or if I want to sell sooner than that, what are some things I could do now and who and how are people valuing payroll businesses in the market right now?

Yeah. And even before I comment on that, I have to also replug your Facebook group because I, as an Evolution reseller, was in the EvoTalk channel and when I needed resources, I was limited to folks who were licensees of Evolution, really. Going to public spaces. And the kinds of questions that are being addressed in that Facebook group are the kinds of questions that go beyond the scope of what you could get from something like a platform-specific system.

So just want to know how great that group is. Amen to that.

But in terms of the, you know, the M&A stuff, I think what I've seen is you can categorize the people buying payroll books into kind of 4 categories. The first one would be the national players. That's ADP and Paychex and folks in that space, right? The next would be private equity. These are folks who are buying maybe at a higher rate, higher, higher multiple. They're looking to make a big move very quickly, and those are often equity-based acquisitions. And if your listeners don't know, I learned the hard way that there are two different ways to buy a payroll company: equity-based and asset-based. Where, you know, an ADP and a Paychex typically are doing asset-based acquisitions, and the idea is that they're buying the right to solicit your clients. They're not buying your debt, they don't buy your computer, they're not buying your contracts. They are just buying the right to market to your clients versus a private equity group might want to absorb your entire operation, which changes the way that your valuation is perceived. It's the difference between looking at top line revenue and looking at EBITDA, right? And looking at margins and saying, well, we want to buy your whole operations.

Well, I hit pause right there because that's where the next question I'm going to ask you is like, how do we differentiate? How do we drive value up? Well, IP it doesn't matter. It's ADP and Paychex, right? You— if you are on iSolved, if you're on Kronos, if you're on whatever, even if you've established the most amazing workflows and you have people that can do the work of 10 because of all the automation and the templates and forms and everything you put in place, it's meaningless at the end of the day. They're buying your book of business and that is it.

Well, and in that respect, ADP and Paychex are godsends in a couple of scenarios. I mean, one scenario would be if you have an operation that's kind of fallen by the wayside, you've an insurance division, that's your main focus, and you do payroll as a side hustle and it's gotten sloppy and you're short-staffed and there's not, you know, it's not well run because you've had other priorities. Great. Let ADP just come clean that up and take it away. But if you've got a lean, well-oiled machine, these other buyers are more interesting and they'll pay you more. Right. And so the other, like I said, there's 4 categories: the nationals, private equity. The other 2 that are really interesting to me are the roll-up groups. I, you know, I mentioned this idea of me doing this roll-up acquisition. I thought it was innovative and new. What was innovative and new about the way I was doing it was that I wasn't actually combining companies. We were just like group negotiating. What— but there are a bunch of people doing roll-up acquisitions, and I'll name-drop— well, maybe I shouldn't name-drop. I'll just say they exist. Probably the most public one that has been name-dropped enough to where this isn't a secret would be, I think, oh no, I don't, I don't want to do this because I need to check to make sure I'm going to say the right company name. But the idea would be there are folks that are coming in and buying you at a lower multiple. They're coming in and saying, we're going to buy an asset-based acquisition. Maybe we have our own technology. We're going to acquire you at like a 2x, but you're going to get equity in our company and we're going to be a $20 million payroll company and we're going to sell again in 2 or 3 years. And we're going to sell for like a 4 or 5x and you're going to get paid again on your equity. And so the idea is that you're getting more money in the long term and less money upfront. Maybe they'll give you a job running your own sales company. Maybe you'll keep running your employees as a division of their company for a while until they get to that final exit. So it's a bit of a longer play, but it could result in a lot more money and it usually results in 100% staff retention. Because everyone is staying the same company, just has a new name, or maybe you're migrating to a different tech. And then the last one, the fourth category, are the locals. It's, it's selling to another ISoft house, it's selling to another, you know, local vendor, another insurer client. And, and that's pretty straightforward, right? That's going to be continuing that local service model if you've been doing that. It's going to be continuing really intimate relationships with, you know, this guy's also in the Chamber of Commerce with me, that kind of thing. And those deals are much more sweetheart deals, if you will, and usually a lot less money. And it's more about relationships in that scenario than anything else. Is that— is that— and I apologize, I feel like you're asking a question.

No, that's perfect. And I've dived into a couple of those, just a hair of like you go into— if you're going to go into the roll-up situation, you have to go in eyes wide open, get some good advisors around you. My advisors have told me that they've had several clients go into the second bite of the apple situation, which is, you know, PE will give you sort of the same thing. They'll run some roll-up scenarios where, hey, look, we're going to give you X amount of cash and, you know, you're going to, you're going to get equity in the, in the main piece. And, you know, my advisors can count on one hand how many times people have actually gotten that second bite of the apple for one reason or the other. Right. And so it's, and that number that they can count on that one hand is zero. And so the, that is something to keep in mind. And while there's a lot of big promises out there about that, it sounds very appealing. And, you know, it's something we've certainly tried to put in place of deals we've looked at before because people asked about it, you know, and we obviously we all have intention of honoring that. But somewhere along the line and I don't, you know, obviously I don't know deal by deal, those deals fall apart somewhere. Maybe it's not a good fit and you decide you want to get out and you can't retain your equity after you get out. Maybe the second bite of the apple never comes. The, you know, there's a million different ways where you just continue to get diluted to the point where, you know, that second bite isn't quite as big as you'd hoped it was. So if you're going to go into those situations, make sure you go in eyes wide open, right? If you need cash upfront, take the cash upfront. But really, if you know, that's got to be more of a strategic play of, you know, I see folks in that situation that are great where it's like, hey, I'm either a really good operator or really good salesperson or sales leader, and I just want to go into a larger organization where I have a lot of resources and I want to— and I want to get some liquid on the front side of that too. Really good play for that. Like you said, keep all my people intact, which obviously, you know, as local regional bureaus, there's two big promises we make, right? We make the promise to our people that when they come here, it's different than working for a big corporation. And we make the promise to our clients when they come here that it's different than working with a big corporation. So the last thing most of us want to do is option number one, which is sell them off to a big corporation unless it's just one of those things where it's like, yo, I got it, you know, there's bigger money here than what somebody else is offering. And, you know, yeah, and I just got to get out and it's a 90-day exit. And, you know, we had at the IPPA last year, 3 guys go through and they'd basically done those 3 primary options. One sold to a national, one sold to iSolved, one sold to a roll-up group. And, you know, they were all very happy with the outcome. They're all just very sort of different outcomes, right? So you have to know what's important to you. And again, if you're listening to this and go, I just, you know, man, why do you guys talk about exiting? This whole thing isn't about exiting. Like, I'm in this for the long haul. This is a business I want to run for the next 10, 20 years. You have to have an exit plan, even if it's 20 years from now. If you're not thinking about it today, then you're— if something happens, then you're going to be SOL, right? Like, like you just talked about at the beginning, like you need to start preparing the bed before you need it. And so it's just something to think about and definitely something that I'm often shocked at the number of bureau owners I talk to that just seem like they have no context of the situation whatsoever and it hasn't crossed their mind. And oftentimes they're those people that come over from the like I was an accountant and then we started offering payroll and I haven't really been in this industry for a long time, but I'm propping up a payroll business and it's doing quite well because we're good at what we do. And oh geez, I hadn't even thought about exit because it's just not been on my radar. And I didn't, I didn't come from this world to begin with. So I'm— you and I are a little bit jaded in that we kind of grew up in the payroll space with the nationals. So we, you know, I saw multiple acquisitions from the other side of the table as well as we rolled those groups up and up in our ends too.

But Well, and Matt, to your point, um, even if folks aren't looking to sell, they're— I would say most payroll company owners I've spoken to have said the same thing to me when they say, well, I'm not going to exit soon, but, uh, if you find anyone, I would be willing to buy, right? Like, it's either, either you're exiting or you're looking for that CPA with 100 clients who's willing to just hand you 100 clients because he can't service them or she can't service them anymore. And so, you know, having context for who is also looking for that book and why, I think is valuable. And to that point, you know, when I was a sales rep for Paylocity for so many years, I got approached by recruiters constantly. I mean, that's just the nature of being a sales rep who's crushing it, is you get approached by recruiters, right?

They see you're—

maybe— sold 200% of quota or whatever, and they're calling you. And, you know, in the same sense, I wish I had approached selling my payroll company the way I did talking to recruiters, which was I took every interview. I said, and I said the same thing, I really drank the Kool-Aid when I was a Paylocity rep. I think their technology, I still think their technology is really interesting technology. And I used to tell people, show me a demo. If I like your technology better than my technology and you're going to pay me the same or better and I think I can sell it, well then I'm going to make more money selling your technology than what I'm selling now. So I told people, show me a demo. If I like it, I'll quit and I'll come work for you. And, you know, the demos I saw, none of them were, were better enough to justify uprooting my life and switch, which is why I stayed with Paylocity for so many years. But it was really, really valuable to see— I mean, candidly, to see a demo of my competitor's software once every quarter, right? Like, hey, I'm gonna look at a demo of this one or that one. And, you know, and they changed every time. And in the same sense, the way— like, I don't know if your listeners know this, but Paychex has very recently changed their acquisition team. Dramatically. And I don't know how public this is, and I, and I can share this a little bit, which is that they have, they have reapproached the way that they're doing some acquisitions in terms of their marketing. And it's totally different than it was when I was a Paychex rep 10 years ago, when I— or 20— 15 years ago, 15 years ago when I was a Paychex sales rep, you know, many, many years ago. They used to tell us, tell everyone that we can do a 3x, right? That's what they used to tell us. And I talked to the Paychex folks maybe a year and a half ago. When I was doing the roll-up, and they said, oh, we would— you know, no, that's not going to happen. 3Xs are very rare. And then I talked to them again, you know, less than a month or two ago, and, and it sounds like in fact the messaging has changed again, once again, because the dynamics of the market have changed. Um, and the thing that, that I'm hearing is that Paychex does their multiple not based on the size, because, you know, ADP has like a literal chart where they'll say if you're this amount of revenue, here's the multiplier you're going to get. And they they can— they have a range based on your assets. If you're over, you know, $5 million in revenue, they can give you a higher multiple than if you're a $1 million revenue company. Yeah, but Paychex doesn't look at the top-line revenue anymore. At least they're not doing that right now. They're looking at the margins on your book, and they're looking at what products that they offer— that you offer— how much you're charging today. Can they— can they charge their current rates? Are they going to have to do a discount to match your current pricing, right? What are they going to make on that book of business if they've got some products that are more profitable than other products and they think they can distribute it? Like, let's say, for example, you know, you've got a bunch of workers' comp policies out there and they're going to take over that and make additional margin on it. Maybe that gets them excited and they're going to offer you a higher margin. So, you know, the acquisition folks over there were telling me they would offer a 3+X multiple on a really, really small book if it meant that they were going to get a ton of margin on it. And they would offer like a 1.5 or 2x on a really, really big book if they weren't going to make good money on it, which is kind of the inverse. So every one of these buyers— and I'm just talking about the nationals right now— but they all have their angle, like how they're going to do it. And it doesn't hurt to hear them out once a year and see kind of where their approach is, because then if you're in my position where I was with Astra and all of a sudden I got to pull the ripcord or find miracle staff, which I wasn't able to find the miracle staff, You know, I didn't have time to do that due diligence. That takes energy. And if I instead just answered the phone when they called me, I would have had that in my back pocket, you know?

Well, and you mentioned something there that's always going to be important. And every one of them looks at it, whether it's private equity, whether it's ADP, whether it's a local, whomever is going to want to see your customer list, how long they've been with you and what they pay. And now they don't need to know the customers' names, but that spreadsheet is synonymous with every acquisition, right? It's like Are you keeping your people? How many of them are churning? Because if your customers are churning, I don't want to buy your book because they're like, if they churn for you, what's going to happen when I try to transition them to my platform? You know, this whole thing's about retention. I've got to get 90% plus of these folks to make the transition off of your software to my software. I've got to wash them red. That's what ADP calls it, right? Or they— I forget the term. I think it's wash them red. They want to completely inculcate everything from the moment they say go. They have to wash that payroll company red with ADP ADP red as quickly as possible. That means getting the new deal signed, getting them transitioned to the software, getting the team, you know, getting them migrated to the ADP team as fast as humanly possible. They got 90 days, right? And so like they're going to look at that and they're also going to say, to your point, can we price this profitably? And so if they can price it more profitably than what their current book of business is, because ADP has no problem charging more than book rate, and so they will definitely up the value on your company based on what you're charging. So The message here is stop competing with SurePayroll, stop competing with OnPay, stop competing with Gusto, because all you're doing is devaluing your business in the long run. And for Pete's sake, I mean, goodness, our base monthly fee is more than double what Gusto's is. And you know what, if you want to go with Gusto, that's one way you want to go. Like, it's a completely different model is always the talk track, right? We all have the same talk track. So why on earth are you offering dedicated local support and trying to go, you know, fistfight with the Gustos out there. It's a losing battle. Well, another quick aside going back— go ahead.

Go ahead. Well, you just touched on two things that I think are interesting. One is a lot of these valuations are looking at one specific number, which is how far off is your pricing from the standard pricing of the acquiring party? And, you know, I know I undercharged because when I first started my payroll business, I made the sales rep mistake of thinking, I should discount to be a little bit less than what they're paying today instead of charging a premium for my service, which is what we should have done because we were going above and beyond for every client and we should have charged appropriately. And that impacted my exit options in the multiples I was getting offered from, you know, ADP and such, right? And Paychex. And so to your point, you know, if you're looking to exit, if you can raise your prices, it might make more money for your exit a year later. And you can do the math on this, right? And say, okay, I'm going to lose 10% of my customers if I do a 5% raise, but we're going to get an extra, you know, 0.25 on the multiple. Guess what? It's better for you to make that price raise and be in line with market pricing. But I've also met those guys— I mean, there's a gentleman I won't name directly who was giving away payroll. I mean, just giving it away. Like, literally, they had an insurance arm and they were selling it at cost. Guy was getting sick of the payroll arm and no one would buy it. He was desperate. Well, of course no one's going to buy it. You're giving it away. There's no margins on it. Nobody wants that book. And so the other thing that you mentioned there that I thought was really interesting is the idea that retention is such a big component here. I've seen some of the private equity guys specifically are coming in and saying, we're going to give you a guaranteed multiple. It's not based on retention, but it's lower. So, you know, imagine you're comparing a 3.5x from a Paychex or an ADP that's based on retention versus a 2x from a private equity guy that's guaranteed. And then you think realistically, I stole all these clients from Paychex because of their local market or whatever, and I'm trying to sell to Paychex. Like, am I going to actually convince 50% of my customers to switch? Right. And this is a what-if scenario. Their actual numbers, it's debatable. And the one thing that I've seen that has consistently been the feedback is the thing that drives retention more than anything is the engagement of the previous owner, right? If you're not engaged during that conversion process, you're not going to have good conversion. And if you do the work of calling every client and explaining to them, hey man, this is tough for us, but we had to make this decision to sell to ADP. We had to make a decision to sell to Paychex, right? Guess what? They're all going to switch to ADP and Paychex because they like you. That's why they—

right.

That's why they signed up for your payroll company. Not that you can call all of them, but having those reps do that work work makes that more valuable. But if you're not going to do that work, then guaranteed revenue is a better way to go sometimes.

Well, and it's interesting because I remember hearing this analogy a while back where it's like often in life with our goals, we do the equivalent of putting an address into the GPS, getting all the way up to the address and turning around and going back without actually going fully to the place we're going. It's like, oh, You know, I really want to get to 183 pounds. I was at 185 and I said, cool, close enough. And then I started eating like a tank again and then went right back to 195. You know, like the number of times I'm looking at my scale, man. Yeah, right. The number of times that stuff happens in our lives is insane. But like the— that is the equivalent right there, right? Of like, I finally hit the finish line, I'm going to sell my business and I'm so disengaged because I'm over it, right? Like most of us, by the time we hit that point, we're like, done, we're fried. You've been in this industry. It's a tough industry, man. Like it's a grind to build book a payroll business, you're going to have a lot of battle scars by the time you get there. So don't like get to the destination, pull up a block short, then go, you know what, I'm just going to retreat and give up now. Like, they like push that all the way through, push it across the line. Hopefully it'll help somebody out there who's maybe in that situation right now or getting close to that situation. You know, funny thing you talked about earlier, it's just a random aside, but have you ever read the book No Rules Rules about Netflix?

No. Now tell me about it.

Awesome, awesome book. It's about the Netflix culture. For anybody out there not familiar with the Netflix culture, Google the Netflix culture deck. First and foremost, they used to have a— they had the most famous probably slide deck ever to come out of Silicon Valley. It was a 125-page, very basic generic slide deck. You can still find the old version on SlideShare. It's got— it had over 10 million views last time I looked at it. And this is somebody's company culture document. And basically just defines their culture. It says, hey, look, you know what, a couple of the key things are like, we are a— we are not a family. We are a team. We are, as a matter of fact, a professional sports team in that only the most elite make the cut. And you will be cut if you do not fulfill what's expected of you. And so they kind of demystify that whole thing around like, no, no, no, no, no, family is BS. Like, don't come here talking about work family. We all know the reality that like work is not family. I think that's a really important thing for those of you out there that keep telling your people that they're part of a family. Like, all you're doing is losing trust in reality because nobody believes that their employer is their family. They get it. So the more you kind of lie to them, like, we're all family here, like, I mean, you can treat each other like family, but honestly, I hope you treat them better than most of us treat some of our family members. So, um, but the thing that you reminded me of it that you were talking about is what they do is so Netflix pays top of market for every role. And what that means is they will pro— if you go out and get an interview with Facebook as a developer and Facebook says they're going to give you $325K and you're making $300K at Netflix, they're going to pay you the $325K plus to make sure that you stay. And they encourage their people to take interviews every single year to go out and recheck their market value and assess it against the data that they have internally to make sure if somebody's willing to pay you more than what we think you're like we found in our market analysis, then go ahead and find it for us so that we can pay you more. And it's just a very counterculture to what, you know, any— anybody, the rest of us would be like, oh, heck no. Like, never on earth would I want my people out there testing the market. I can't afford that, especially not in the payroll world with the friggin margins we have. But the, you know, we're not Netflix, bro. But the reality is, though, you can— you can do what you talked about. Let's go out and just start to understand and have conversations. It doesn't mean you have to give them all the spreadsheets. It doesn't mean you have to get, get really far down the path with developing those relationships with people that, you know, when the time comes, you've got multiple options because nothing is better than optionality, right? So if I've got multiple, you know, if Paychex has got a 3 and ADP is coming in at a 3.2, well, so, you know, now I've got a bidding war on my hands, right? Versus the alternative where it's like, oh, fire sale, it's time to go and I got to pull the chute and like I can barely handle retention because I've got a big life event happening and I can't be as involved as I want to be. So you know, plant the seeds before you need to sow the crop.

Yeah. And going back on the margins conversation, I will self-plug for a second, which is, you know, we send out an email basically every week or two that just says, here's the candidates that we've discovered, here's our, here's our JobCreator alerts. And we've started putting desired compensation in it for every position. So every person that comes to us, we ask, you know, what's, you know, what's the minimum you'd want to make in order to be, you know, interviewed?. And we publish that publicly. It goes in every email. We anonymize the candidates. And what we're going to start doing when we get a little bit more data is putting that in a line graph and just like pushing that out into the world of here's what's happening with CSRs, here's what's happening with implementation, here's what's happening with this. Now, obviously, you know, this has been an interesting thing to look at, which is with the rise of remote work, we're seeing folks in big, dense urban areas try to hire people from remote parts of the country because they can get a deal on them. So if you're, in New York paying $75,000 a year for a client, you know, a client service rep, and you can hire someone from Wisconsin and get them for, you know, $50,000 a year, that's a deal. But what's happening though is it's causing people that are comfortable with, you know, remote work to drive up the salary rates for those rural areas because now you're competing against some guy in New York who's willing to do remote. Not to say that it's 100% homogenous. There's definitely lots of folks out there who are not comfortable with remote work. And there's plenty of people out there who aren't having that conversation. And there's also, yeah, I don't know, it's, there's a lot happening and I want to keep track of that. So I'm hoping that we can become a source of data for that. Just, just as an aside, like a side project for me is to try to get that information into the world.

So we're going to wrap up in a second. We're going to talk about AI tools we are using right now. And that wasn't on the original agenda, but when you logged in and showed me, I think it was, I forget the name, but you're going to tell me in just a second. But before, give us a quick 30 seconds. I know you've talked a little bit about what Hirewith does. Give us the elevator pitch on Hirewith and we'll link to your newsletter in the description.

Sure. Yeah. Hirewith, our website's hirewith.us. So hire with us is the pun there. We are a marketplace for payroll and job placements for payroll people by payroll people. And the idea is really simple, which is when people exit the payroll market and they lay off staff, they're bringing them to us. And then we're trying to get them jobs before they have to go to the job market. So yeah, it's fantastic. The other thing we're doing is partnering directly with the acquisition folks so that when they do an acquisition, they're calling us and saying, John, this guy's really worried about his 3 employees that know ISolve. Can you help them find, find work? And, you know, for us, we don't charge anything to share resumes. We only charge if you hire them. So it's kind of like a recruiter, but we don't replace recruiters. We supplement them. So by any means, if you ever plan to hire payroll people or ever plan to sell, we should be in touch for that reason. And I am going to be at the upcoming ISOF conference, the upcoming ASSURE conference, the upcoming Owners Retreat for IPPA. So please, if you're there, find me, flag me down. We'll definitely have to catch up.

But AI tools, you want to talk about AI tools? Let's talk about it. Let me get, let me get one more thing in there real quick.

So the—

yes, on the acquisition front. So first of all, I know the commercial is probably going to get popped in here at some point into the episode. I don't even know what commercials they're putting in here anymore, but If you're between $750,000 and $2 million in sales and you're looking to exit, why not exit to Guru? Come on, man. We can give you— keep that local feel. We can keep that, you know, that great feeling for your clients that you've accustomed over the years. And we'll make it a much more enjoyable process than working with ADP and Paychex. And on that end, though, for real. So one of the pieces of advice several of my mentors have all given me sort of shot for shot is like the And we'll look at smaller books, don't get me wrong, but they're like, look, man, that $200,000 acquisition, that $500,000 acquisition is the same amount of headache as the $5 million acquisition. If you're going to make acquisitions, go ahead and make acquisitions. So look at, you know, 1, 2, 3, 4, $5 million deals because it's going to take the same investment of time and energy to make those acquisitions of a smaller size as well. Now, some of y'all out there may have better ability to take on 5, 10 small acquisitions per year. That's not our model. But anyhow, so AI tools we're using right now. So what is the AI tool you're using? And you can even demo it here with your eyes. I have—

I'm going to list the 3 AI tools that I've used the most in the last 6 months. The first one is Google Bard. I mean, it's not any different than ChatGPT, but basically Google Bard I've used to save a lot of attorney fees because when people ask me to amend our contract, I take what they ask, I drop it into Bard, I say, Bard, please rewrite this contract to say this thing this guy's asking me for. And it spits it out. We copy and paste it and call it a day if it makes sense. The other thing is Voice.ai, which will take a recording of your voice and change it to be like a celebrity voice or an impersonation. So if you call our phone number, which is 804-500-9992, you're going to hear Billie Eilish say, "Thank you for calling Hirewith." But that's actually me. I recorded that with my wife. We went back and forth on it. And then once we had, you know, the tone we liked, we dropped it into voice.ai and it changed it into Billie Eilish reading it back, which is great. We went through a bunch of different celebrity voices and picked her. So that was all AI-driven. And then the last one, and the one that you were, you were discussing a minute ago, is if you have an NVIDIA graphics card in your computer like mine does, you can download for free NVIDIA Broadcast, which does 3 really useful things. One, it cuts out background noise on your microphone. So if, if there's any noise in the background, if you're chewing food on a phone call, if you're typing on your keyboard, it's all wiped out. It's fantastic.. It can also do the inverse and cut it out from, from other people. If you're on a call and it's really echoey and you can't, you know, you don't want to criticize your client, you can toggle it on for them. Uh, and the third thing is the webcam enhancements, which I'm using right now. If you're watching this on, uh, on Matt's YouTube channel, one is it's doing my background replacement, which if you guys want to see a peek, there's my actual terrible background, right? My dry erase board. Uh, and then the other thing is, uh, it changes where my eyes are looking. It has artificial AI eye contact. So I'm going to turn it off. I have been looking down at my notes over here, and if I turn it back on, it artificially makes me look directly into the webcam. And in fact, I can look over here to my left here, and it'll automatically make me glance back up at the webcam. I am actually not moving my eyes at all. This is all AI making me look back and forth. So, uh, it's great because if you're reading notes on a video interview with Matt you can't see my eyes darting over my notes a bunch or checking the email that popped up about something unrelated. It's great.

Well, and it's super efficient because what I'm doing right now is staring at a camera that's over my computer and it makes it super awkward when I'm not looking at you because in order to make it appear that I'm looking at you, I have to look at the camera, which is not you. And then I have to, you know, and I do need to check my notes or look at anything over here. It's kind of a bit disruptive. But if you have no reason to check out our YouTube channel other than just to see that weird thing it just did with his eyes. I mean, now is a good time. I'm going to, I'm going to plug the gentleman's agreement and the lady's understanding here real quick. So quick note, we are moving the Payroll In podcast to the primary Guru channel. So if you just search Guru on YouTube, you'll find our channel. We're going to put Payroll In in a playlist on there. We've got an awesome video series coming out with some behind the scenes stuff from Guru. Yesterday we literally had a video— our video guy was here in our quarterly Rocks meeting, our goal-setting meeting. And I mean, he was, he was taking stuff that the real behind the scenes, hey, here's where we missed the mark. Here are some goals for next quarter. Here are some revenue targets we're trying to hit here, bookings targets we're trying to hit, etc. And so we're just doing it. A, it's one part documentation. We want to look back in a couple of years and go, man, that was cool. You know where we've come from there. Something I wish I would have started earlier. And B, hopefully it's somewhat entertaining and, and/or educational to the folks watching. But So ladies, the gentlemen's agreement, ladies' understanding is that, look, we're creating this content for you for free. I don't charge anything for this. All I'm asking is that you go to the YouTube channel and follow the YouTube channel. That's it. That's how you can repay me. That's what you owe me for all the people that work in producing this. This ain't free. I pay people to produce this and distribute it. You get those emails, they say they're for me. They're not for me. I got somebody else writing those bad boys. Come on, I got to pay these people. All I'm asking in return is a little smash the follow button on the YouTube channel, like a few videos, leave a comment on one if you heard this and you agree to the gentleman's agreement, ladies understanding, and let us know that you're listening out there. We appreciate your time.

But sorry, John, you were going on. And Matt, one other challenge is I am curious to, if you would, if you're listening to this and you're watching on YouTube, comment if you could tell my eyes were AI-powered earlier than when I revealed that because I'm curious to see if anybody watched this and thought, what's up with his eyes? They're doing weird things.

This guy's got crazy eyes.

He's got the crazy eyes. Yeah, because they're not really my eyes. So I can, I can tell when it's on that my eyes look slightly different than they do in real life.

So that's crazy. All right, I'm gonna get my AI stuff real quick, uh, because I know we got a couple of, uh, Zoho users out there, and we, we just, we just launched a really amazing feature in Zoho Desk powered by ChatGPT. And for the love of Pete, y'all, if you're not using ChatGPT Good grief. Like, I mean, if nothing else, like John just said, you're saving some search time, you're saving some efficiency. You like answers that are on the first page of Google are companies that are just really good at SEO. They're not good answers always, right? So like, you're going to get better answers to basic questions here. So if nothing else, use it as your little assistant to ask questions from, replace Google with it. But now they launched Code Interpreter this last week. If you have not played with Code Interpreter yet, Oh my goodness. So I'll give you one example of the features that this has available so you can import any file type. And this is only on the paid version and you've got to go into your settings and turn the beta feature on for Code Interpreter. But I uploaded our last 36 months of P&L by month in a spreadsheet, pretty raw looking spreadsheet, just came out of our accounting system and said, hey, analyze these last 36 months worth of data and project our next 12 months. Forward line item by line item and watching it work and go through that. And it, you know, it worked for a little while to say, well, I need to remove these headers because they're actually just titles and they don't have anything to do with the rows that we're going to be calculating. It'd do something else. It'd say, oh, well, we're missing this and we want to forecast based on discounted cash flow, so we're going to do this. And then it would just— it kept working and working and working until it finally— it was solving its own problems right in front of me. Until it finally came up with an output which gave me the next 12 months forecasted by line item. But then it was like, oh, okay, now it's got actually the rows should be the columns, columns should be the rows. So I said, all right, create that file again, switch it up. Columns should be rows, rows should be columns. I really want to see my expenses and income down the left side and my months over that, over the columns. And oh, okay, no problem. Switched it up and it was a wild thing to watch, y'all. It was really just watching the machine solve problems, fix its own problems, recognize problems, and just based on one simple query that I put in, man, if you're not playing around with this, pretty soon you're going to be left behind. So a lot of different things, plus just simple reformatting of Excel files. That would be one of the easy use cases for that.

I mean, I have to ask, hearing this and not, not having played with that tool, do you think ChatGPT and similar technology is going to replace the custom report writing function in most of these payroll systems.

Yeah, I feel like the smart people are gonna— so you think about the way I'm, I'm kind of explaining it to people, and this is, this is how far behind that— I don't— in my bubble, my world, my tech world, like in my community and friends, my universe, everybody I know is like, you know, using it at least at a novice level every almost daily, if not multiple times a day. I gave two presentations— I gave two presentations this week to one group of finance executives and a CPA lunch and learn, collectively about 25, 30 people between the two. Of those 25, 30 people, how many do you think had even used ChatGPT yet?

No idea. No idea.

One. One person. They were like— most of them had no idea what I was even talking about. These are people— these were CFOs, these were CPAs, these were staff accountants, these were people that were— yeah, I, I was stunned. And so I was like, all right, well, I, I thought all the content that could be produced around ChatGPT had already produced, right? But apparently there's that whole big component of mainstream America that's just as clueless to this. But now, so let me go to the last use case, because I know we're coming up on time. But so we use— so, uh, Fireflies.ai is one tool I'm using that I love, and, um, I've got to get better at being more diligent with it. But it goes into every one of my meetings. At some point, if you're paying attention, you've probably been on a meeting with somebody that's used Fireflies. It takes notes whether you're on Zoom, Teams, or Meet. It takes notes from the meeting Now it's got all my notes from the meeting. It's basically creating the meeting minutes for you. And it also does a lot of crazy things like it can, it can summarize every question asked in the meeting and put all the questions into one area. It can tell you what the responses were, whether they were, you know, green, yellow, red, whether or not they were, you know, the person, what their tone was, was angry, were they happy, were they indifferent? It's a pretty, pretty badass tool. But the thing that's really got us most jazzed here right now is Again, I think ChatGPT is going to end up like Watson in the short term in the respect IBM's Watson of like it's going to be the underlying technology in a whole bunch of AI things. And we're already seeing in a lot of places. But Zoho Desk has recently added, if you put your API, your secret API keys from ChatGPT into Zoho Desk, it will show you a much better sentiment analysis than what they have in there. So again, telling me what is the sentiment of this person who reached out to us in this ticket? Are they curious? Are they angry? Are they happy? Are they sad? And then it will also format a response, which is something we've hoped Zia was going to do for years inside of Zoho Desk. And it will formulate, formulate a response that is pulling from your knowledge base articles. So that's the part that really like— it'd be one thing if it's just pulling these sort of nebulous responses, but I mean, we've just got reams and reams of knowledge base articles we've created for our clients. And so now it's actually pulling from our answers and saving our support team a ton of time already, and we're barely even adopted yet. So Definitely, if you're on Zoho, check that out. I'm sure every CRM has some variation, or every support ticketing system has some variation on that at this point. But all right, final thoughts.

Ooh, I am— oh man, I don't know. I think the final thoughts is that things are changing quickly in the world, right? ChatGPT and AI, of course, that everyone's buzzing about, and we've spent a lot of time at the end here on And to that point, I think the dynamics of people buying and selling payroll companies are only— you're going to see people that don't want to adapt to the new world and then you're going to see new entrants coming in that want to embrace it. And that's only going to lead to more change. And if you can stay on top of that change and pay attention to it, that's how we win, right? That's my takeaway.

I think a lot of it. Well, appreciate you joining us, John, and we'll link to all those things we referenced in the show notes and have an awesome day, man. Great to see you as always.

You too, Matt. Thank you.