What’s the Real ROI of Picking a Payroll Niche? Matt Umholtz Breaks It Down

Welcome back to another episode of Payrollin'. On today's episode, I am joined by Matt Umholtz. Matt is the president of Alliance HCM, one of the largest independent payroll providers in America with about 150 employees. He's the original founder of Paysphere, which he grew to one of the top businesses in Houston, Texas, recognized on the Inc. 5000 multiple times, recognized as one of the best places to work before their merger with Alliance HCM, where they own their own tech stack and what they do really, really well is attack niches. And that's what we're going to discuss in this episode is how can you carve out your niche? What does that look like? What is a niche? And how can you live through that survive to thrive curve, as Matt calls it, when attacking a niche or even just starting your payroll bureau? Make sure you hang in there till the end because we give a ton of valuable tips away throughout the episode that are going to help you to grow and improve your payroll bureau Thank you so much for joining us.

Let's grow. Welcome to Payrollin', the show where you will learn how to operate and grow your payroll business from the most dynamic minds in the business. If your company offers payroll services, this is the podcast for you. And now here's your host, Matt Vady. Let's go.

So Matt, let's rewind the tape. Take us back to that G257 moment in your cubicle. What was going through your head and how did it spark the idea for what became PaySphere?

Yeah, you got it, man. So the G257 thing, everybody has heard that. That was my employee number back in the days at what I now call the Big Blue House. So there's two big payroll companies in America. One's red, one's blue. I was at the blue one. But the thing was, I was sitting in a meeting. This is like a corporate, you know, sales-wide rollout meeting. And they rolled out an initiative at the time. And it was— the initiative was to use the internal agency as a referral source. So if I had a customer that was interested in health insurance, I had to send it to the internal agency. And I was sitting there thinking my entire business for my team and myself is really built around getting referrals from the broker community. So I asked, well, like, how's that going to work? And the answer I got back was, hey, it's a corporate initiative. You just got to do it. At the time I was reading The Blue Ocean Strategy and I went home and I started thinking, you know, this isn't going to be good for me, but it could be. And the way it could be good is if I took the opposite approach and went after, you know, that channel in a different way because the company I was at at the time was going to compete directly with my referral channel. So at that moment, decided to start thinking about starting a payroll company, which is crazy, right? You're at a big publicly traded company doing extremely well. And then all of a sudden you're like, I'm going to, I'm going to leave. But the genesis of the name. PaySphere came from sphere of influence. And we launched the company probably 90 days after that moment and, you know, launched it to focus on referral channels that the large publicly traded companies are competing against and trying to steal their customers. And our first year was really strictly about building relationships and trying to get, you know, those referrals to come to us. Over time, just kind of tell you about, you know, how we got to where we're at today. Started on one software platform, built what I would what I consider kind of like a small business book of customers, uh, sold that to a publicly traded company, um, ended up really wanting to push into what I consider kind of the mid-market. So I had to license different technology for the business into really serving mid-market companies. Our average client was in the 90-ish employee range. And, um, you know, you end up when you're licensing technology, sometimes you decide, hey, I want to go bigger. And the way to go bigger is to own technology. At that time, I'm kind of thinking, you know, should we start developing, yada, yada, yada. Friend of mine calls, says, hey, we should join forces. Takes us probably 10 months of, you know, going back and forth and finally, you know, join forces with Alliance and here at Alliance HCM today.

So when you finally started Paysphere, I mean, I've been in the same boat. I was, you're at the big blue, big blue house. Is that what you called it? I was at the Big Red Machine. So, you know, and I— so we had similar sort of starting points. And I had the instinct when I first started where it was like, all right, whatever revenue we can get, bring it in the door. So to your point, if my referral channels, people I had relationships with, brought me 150-employee manufacturing company one day and a 5-person dentist the next day, I'd take it all, right? And I— oh, you need ASO? Great, I'll do ASO. You need payroll? Great, I'll do payroll. We literally didn't even offer payroll when we started. We didn't want to. And then we had to quickly, like our first like 3 customers were like, oh, well, we're not just going to do an ASO without payroll. You've got to do payroll. Or like, ah, well, geez, I remember when I was at the Big Red Machine, everybody told me they wanted it without payroll. So now I was trying to offer it without payroll. But so I know the instinct to take on all different things. Like, how did that look for you when you were trying to get started? Like, were you taking on a bunch of different industries, a bunch of different client types?

Yeah, well, you're smart to try to stay out of the payroll business because we all know it's freaking hard, right? So, but, uh, but yeah, in the early— I call it, and I've tried to coin this term a little bit, it's called the survive to thrive curve. Okay. And when you start a company, it's survival, right? And it's literally, we just need somebody to pay the bills around here. So the early days were grabbing every possible customer. I mean, I, I didn't care. It could be a, you know, a dentist with 2 employees or a manufacturer with 150. It really didn't matter to me as long as we could serve them in the right way. We were going out and trying to find them. Over time you realize And it becomes really an efficiency thing, right? So if I'm going to invest in sales, it's an investment. And if I look at it as an investment, I'm looking at what? I'm looking at the return on that investment. And the biggest ROI in growth in sales comes when you really get narrow and start to focus that investment in a different way. So over time it becomes, hey, we don't serve everybody. We need to get really tight on who we serve. And that could look in a lot of different ways. I mean, it could be we focus on companies with this size in this geographic market. It could be we focus on customers in a specific industry. And over the genesis of, um, you know, what I've been able to do, we've done different flavors of both. But it definitely is starting with everything. And I would encourage anybody starting, like you got to pay the bills, man. So once the bills are paid, then you can start making strategic decisions.

So, well, and it's, it's the same, you know, most software companies start as service companies, right? Where it's like, hey, we're going to build this thing. Unless you're raising a big round, which is a different story. Most, most of us out there are going to start, you know, even just a consultant. Like, I've got, interestingly enough, the gentleman I, I bought this building from owned a software development company. They were developing products for everybody, a bunch of different things all over the place. And then eventually they built their own product and got rid of the custom development, and now they've got a product, right? And so on our side, it's the same thing. You want to have a productized service, uh, but sometimes takes time to figure out who that niche and who that audience is that you're productizing it for, which, which creates that efficiency in the ROI like you're talking about. But talk about that, the sales and marketing side, uh, on the front end there. Like, what are some of the specific challenges you had before you were able to niche down? And then what do those look like after you're into a niche environment?

Yeah, I think so. There, once you have data, it's easier to look at, right? So once you have a mass of customers You can go look at, okay, what is— are there similarities, right? Are all of our customers, you know, in the manufacturing industry? Probably unlikely. Okay, well, do all of them have variable hour employees? Yes. Do they all need timekeeping, or do they have their own timekeeping system, right? So you start narrowing it as you have more data. And then from a sales viewpoint, you start looking at What is our win rate? What is our conversion rate from first-time meeting? We call it a first-time appointment, an FTA. But what is our conversion rate from first-time appointment to deeper into the other sales stages? And you'll see, I mean, maybe one salesperson has niched down on their own and the other person is talking to everybody. So what you see is a big divergence between the two data points, and you've got somebody who's converting a ton and somebody who's converting none. Right? And, and that— so looking at it from an investment standpoint, who do I want to invest in? What strategy do I want to invest in? I want to invest in the higher efficiency, right? The higher close rate, the higher conversion rate. So, you know, from the sales viewpoint, it's about sales efficiency. From the marketing viewpoint, how do you market to everybody, right? Like, the big red and blue machine are going to outspend you all day long. If you cast a massive net. So if I can narrow down the marketing of the person I'm trying to reach and I really understand them, then I can speak to them differently, right? I had the conversation yesterday about a vertical that we go after, which is the country club space. And I was talking to our team about what matters to the, to the country club space. So I'm a general manager of a private member-owned club. What is the number one thing I care about? And it's member experience. All right, so now we're selling to the HR manager. What did they care about? And the answers I got were different than member experience. I'm like, no, they care about member experience. So how does HR drive the member experience, right? They, they do it in probably 3 to 5 different ways. But if I'm talking to an HR manager about how I'm helping them drive the member experience, I'm connecting now to the end result of the business. Versus, hey, I've got this, you know, technology, it's awesome, you guys are going to love it. It's like everybody has that, right? It's a dime a dozen. But is anybody speaking to me in a way and understand my world and marketing to me and messaging to me in a way that says, hey, look, we do a lot of things, but at the end of the day, we're trying to connect with you shoulder to shoulder and drive your member experience. Like, that's different, right? I mean, that's generally how we've think about, you know, messaging, marketing, and, you know, how we sell and how we go to market.

So, well, and it's interesting because if you go to any of our big national competitors' websites, you're going to see a tab at the top of their menu that says industries, and then you're going to drop down and it's going to be a slightly different variation of each landing page where they talk it a little bit in the lingo of that industry. But it's like, you know, do you really specialize in it? And I think about, as you're saying that, I, I hate to admit this on the pod, but I'm sure somebody from this company listens. We just lost a deal recently, one of our clients that was this. Now, they were outgrowing us and they were kind of going to move on one way or the other. But we lost them to a company called GovCon Payroll because they're government contractors. And so when they see, you know, they get a phone call from a company who says, hey, we predominantly serve government contractors. Does Guru predominantly serve government contractors? No, we absolutely do not. Right. But they were a tech company, which we do predominantly serve. So there was a little bit of, you know, which niche do we follow? Again, they were starting to outgrow our target market. So it was a fine juncture to leave. But it was, you know, it was very clear that regardless of— I'm not going say there's no truth in like how much difference there was in being served as, uh, through a government contracting system versus our system. You know, a lot of the stuff they went to them to get, it was like, well, all you had to do was ask, we could have done that for you. Uh, but that company, they didn't have to ask, right? They knew ahead of time. So it's kind of like we're, we're good like that with our nonprofits where we know how they need grant allocation and labor allocation to, to make sure that they're in a position to get the next grant and to validate where the funds are coming from and all those things. When you know the industry's inside and out, it also leads to operational efficiencies. So talk to me a little bit about that. So, you know, you and I are sales and marketing guys, so we're always going to focus on the tip of the spear. But what about the efficiencies you get from niching down on the back end if your team is really focused?

Yeah, I'll address that in a couple ways. First is just around, like, circling back to messaging. So we, we use a term of speak like a native, not a tourist. And when you mention the big public guys and how the landing page is slightly, you know, it's just like variant— well, if you go to a McDonald's landing page and they say your employee, it's different than what we say, which is your crew member, right? Because McDonald's calls them a crew member. And for us, we have a ton of concentration of multi-location restaurants. Okay. We're not big on like onesies, twosies. But if you have 100 locations, we love it. We're very good at it. So I'll speak to it about just McDonald's in general. So McDonald's. Average McDonald's franchisor or franchisee, they have 4 key integrations they need, okay? And those integrations often— right now they're going through a bit of a change with their workforce management integration, but we can go and speak to them directly of like, hey, we know you have these 4 needs and we solve them. Here's marketing collateral, here's a video, here's a how-to. We have an operations team that is We have two people that are experts in McDonald's and they implement McDonald's exclusively. So they know those integrations from start to finish. You're not going to have to explain McDonald's, your integrations, what your life's like. You're not going to have to say crew member. They know it's a crew member. It just all, all of that eliminates the in-depth discovery needed that if I didn't know the industry, I have to spend a lot more time with the customer. And then the outcome is probably not as good because I miss something because they forget to tell me, right? We know the, the questions they're going to ask. We're prepared. And there's going to be a little nuance to every business, even if they're in the same vertical. But generally, we know all the pieces of the puzzle and we know what they need. So it gives us efficiency in how to implement and support them, but it also gives us the, uh, the long-term efficiency of just knowing exactly the pieces of the puzzle we need to connect. And ultimately, what does that do? Well, it drives the retention of the customer and it leads to great business outcomes for us because we retain them for a very long time, right? We don't make mistakes on the front end because we know exactly how to do it.

Well, and that's an interesting perspective for a multitude of reasons. So we think about the— I love that, speak like a native, not a tourist. I mean, that's such an interesting and simple way to frame that. And we all get it immediately when we hear it. You know, I'm sure there's this— you know, it's funny because we've given the example on here 100 times of if I go into a CPA firm and I say, hey, you know, we're obviously going in there begging for referrals, but it's like, what can we refer to you? Oh, anything and everything. I'll take, you know, we do construction, we do landscaping, we do manufacturing, we do dentists, we do— I'm like, well, you're not going to get any referrals from me because I don't know who to refer to you. And I'm not going to refer, you know, I'm not going to refer one of my key accounts to a generalist who doesn't understand the industry. Whereas if you walk in my office today right now and you say, I'm a CPA that works with 100 other payroll companies, companies and I know your ins and outs and I can help you get all your finances in order. Fantastic. I'm going to take that meeting because I want to hear which of my peers you're working with, you know, how you're serving them differently than you're serving the other people in the market. Like we all want that intel preferred providers bring to the table when they know our industry inside and out. And especially if you get even deeper where, you know, a franchise or an association inside and out, right? And these are all really good tip of the spear ways to gain access to big industries or, you know, associations or whatever by simply just niching down. And you've got a really nice framework. We've talked about it offline before. You call it the 3 C's framework. What's the 3 C's framework for, for niching down?

Yeah, let me, let me run through it. But it's, you know, the first thing is clarity and getting clarity around the individual that you, you serve, right? And, and from a marketing viewpoint, if I get really clear on the person— so we talk about McDonald's or country clubs or whatever the vertical may be But if I can get really clear, then I can also meet them where they are. So I can be then at the trade show that they're at, or I can be at the industry association. I can go to a country club manager's or general manager's meetings. And now I'm where they're at and I can hear them talk about member experience and things of that nature. The second piece is really credibility, right? So now I know who I'm going after and now I'm a specialist in it. So I, I have natural credibility. And when, when I'm talking to a multi-location restaurant and I say, look, we work with over 50% of the Domino's in the country, we work with thousands of McDonald's locations, we pay over 40% of the Buffalo Wild Wings employees in the country, what are they thinking on the other side? They're like, well, man, they, they know this, they know this business, right? And I could keep going on the other brands and drop name drop and things like that because we built concentration over time. So we'd have natural credibility. And then once you have a mass of people— so I've got— and the, the Lassi is the, the compounding effect of it. But if I have a mass of individuals, now I can just continue to compound on the engine I've already built. And you mentioned referrals. So, you know, I'm able to call and say, look, I know you guys know, you know, thousands of other restaurant owners. I'm not name that you have, but who are, you know, 5 you'd recommend I give a ring to that are like this, right? So at any rate, yeah, well, I think it's interesting too.

So early on, people have heard me tell this story on the podcast before. If you're new, this one, you know, I bought the domain dentalpayroll.com. I often say my biggest regret is not starting this business and just selling payroll to just dentists for as long as humanly possible, right? Like one product, one market, get as finely niched as you can. Guess what? You're going to understand what upsell opportunities they need, you know, what other ancillary products and services they need. Like you'll understand all that. You'll be able to land and expand. But like the more focused you stay, like you're talking about the compounding of the referral, you know, just the knowledge that you understand how to serve the account, the ability to find them. We went to, there's a really big national dental conference that was right here in Atlanta. It's about 3 hours up the road from me. So I drove out there in, you know, 2010 or whatever it was. There was just hundreds of vendors in there. That also are niched down on the dental space. So now I'm walking around the outside of the room talking to all the vendors going, hey, you know, how do you guys find prospects? What can we do to lead share? What can we do to collaborate? How can we refer you? When does it make sense? And so now you've developed a name inside of an industry. IPPA is a great example, right? Like when you go work the vendor room at the IPPA, you see a whole bunch of people catering their message and niching down to payroll providers. Do they serve other industries?

Sure.

Do you serve other businesses than Buffalo Wild Wings? Absolutely. But you've got your stake in the ground and say, hey, we specialize in this because we understand your industry and I can help your team in a way. So we're, we're a native, not a tourist. And I love that. We're going to hang on to that. So how did you find some of these niches? Because to me, you know, these niches that you're describing sound like my worst nightmare. We don't want to do anything with the restaurant industry. You know, we're a small business. You go upmarket. Like we're, we're very different business models. Talk about your process that you go through for selecting a niche and how you landed there.

Yeah, I wish it was like really strategic and I could tell you that we were thoughtful from day one, but that's just really not the case. Our 6th customer was a McDonald's and then that turned into 2 and it turned into 10. It turned into now thousands. Along the way we had a bunch of other companies we served, right? But you, you look over time when you're going through that survive phase, you end up finding what you're good at. And, uh, you also have to kind of love it, right? So you can't— if you hate the restaurant business, I would not recommend niching down. If you hate dental, which by the way, if you'd have done that, you'd, you'd be on a yacht hosting this right now, by the way. Not to rub it in, but I know, I know.

But, um, you know, I'm not that focused, Matt. For some reason in my head, I've just decided I'd rather have a bunch of really small companies and, uh, and create chaos in my life at all times rather than just niching down and having one big company that only does one thing. But Yeah, that's, that's another conversation for my therapist. You know, I don't go to one of those either, but obviously I need to.

Hey, you know what? Most, most of the content we create is for ourselves, right?

So that's 100%, dude.

But, but at any rate, I mean, it, you know, over time it wasn't, it wasn't strategic from day one, but you build a customer base and then you look at attributes of, hey, like, what are we really good at? What do I love to do? And, you know, where that kind of passion intersects what we're really good at, then go after it. And, you know, everybody is a bit scared, like you probably were at the time, like, man, what if I go after dentistry and it doesn't work, right? So, so you naturally think, I've got to do other things and I've got to hedge, right? I mean, that's how I know I've thought that way for sure. Like, I've got to hedge and do this other thing because what if dries up. But if you look at the math— so we'll do some math, and I don't mean to rub it in, but I know there are at least 30,000 dental practices in America because I've sized that market. We do have a vertical there. So, so 30,000 dental practices, the average dental practice in America is about 15 employees. Okay, so that's, uh, a total of 450,000 employees. So If you went after just that market, what would your average PEPM be?

Our average PEPM? Well, listen, so, so here's the— let's— I'll just make it easy for the sake of argument. Let's say $15.

All right, so we'll do $15. All right, so just that, just that is $81 million. $81 million bucks. And that's way understated at $15. A dental practice, after you sell them insurance and all the other products you have, it's probably in the $30 to $60 range. So that, that TAM, uh, total addressable market, is probably $250 million. It's probably double that because I think my number is pretty low. So half a billion dollars of TAM. Okay, you only need a small percentage to, to really win big. If you did that only, it— I mean, it's pretty defensible. You could go do that and be one of the very few that would only do that, right? Anyway, sorry to rub it in, but I'm looking for that yacht.

So literally just had to pause the recording here and fix my cameras are breaking. Matt and I have been chatting about how I'm trying to put this studio in our conference room. I've commandeered a conference room. It's no longer usable so I can have this quote unquote studio, which is like a glorified working closet. But of course, one camera just shut off in the middle. So if you're watching the video, hey, it's only going to get worse from here. I'll go back to it. So this is actually— we're talking through the process of finding a niche. And it's interesting because— so why didn't we say that course would be a question, right? So like, is Matt just too flaky or like, why didn't we stay on dentists? Because we went down that path. We got this surge of like 30 dentists in a short period of time. We got into a referral whirlwind. You know, once you get one, you start scooping them up, you start scooping them up. Well, what happened was we started then hitting dead ends where, you know, one of the things about dentists is yes, referrals are awesome, but when you're not getting referrals, they are next to impossible to get in front of. One of the first dentists I ever worked with told me, hey, look, Matt, if I don't have my hands in somebody's mouth I'm not making any money. They don't take meetings. That's why they operate purely from referrals. Now, if you get a good referral, you go in there, you close that deal like that, and it's easy peasy. But the problem is how many referrals can you get and how can you keep getting in front of them consistently, consistently? And to your point, could we have stayed that path? Could we have gone down that road? Absolutely. I'm certain we, you know, maybe it could have been closer to $81 million than we are today had we stayed there. I have, I have no misconceptions about that, but we also had to say, all right, is this an ELF customer. So one of the things for us, every time we evaluate a niche, we say, is it an ELF customer? E-L-F, easy, lucrative, fun. So are they easy to serve, easy to get to, easy to market to? Are they easy to work with? All that stuff. Are they lucrative? Is there good margin there? Do they wear our team out? Right? Is it a 10-person office that asks 400 questions a day in the ASO and PEO model and therefore just kills our margins? And are they fun? Are like, are they easy? Like, are they good to work with? So like, that's one of the reasons why we don't work with restaurants because we aren't working with the corporate team. We're working with the solo owner who's a total jerk to our team every time he calls over here and we're going, yeah, you know, that's, that does not fit the ELF model, right? So we're, we're very diligent about when we're picking a niche that we're going to go after. Like, that's why we love nonprofits. That's why we love tech companies. That's why the niches that we have, we do have because they, we sniff test them against the ELF model. Before we go down that path. You know, it's, I would say our dentists for the most part, they probably don't check the two first boxes as well as you'd like, right? They tend to be super hands-off, which means in an ASOPO model that it's going to create a lot of confusion between the hygienist, the teammates, the ranking file, and the dentist. Like they're calling over here asking questions that the dentist doesn't even know the answer to. And we don't know the answer to sometimes. And so it can be muddy from a service perspective, but they're great to work with. I love all the dentists that we work with, but then there's a bunch of other headwinds in that industry in terms of DSOs and all that kind of stuff and M&A activity that make it a little, you know, it's not my favorite industry to go after, but, you know, somebody certainly, I think I talked to a listener the other day who bought dentalpayroll.com after the number of times I mentioned it on here and I let the domain expire. So hopefully somebody is capitalizing on that market better than I could and or wanted to, but.

Well, let me just, let's pause. I'll chime into dental specifically because you could productize the pain that you just mentioned. Like they want to be hands-off and things like that. You probably productize it, maybe charge more for it. You could set up a requirement like, to work with you, you have to have this type of person in your office. You're shrinking the amount you, you can sell to, but you're getting hyper-focused on who you sell to. But then there's—

and higher dollar ticket, higher ticket items, right?

Yeah, yeah. You could leverage, you know, a higher price product to compensate for the ones you don't want to serve, but that's just getting narrower and narrower. So then you run into lead low, right? Like, I don't have enough of those people to talk to. So if you go become the preferred payroll provider for the Dental Association in your state, you can do that. You can go to all the big national shows, you can go to regional shows, and then you can really at those shows start figuring out who sells to the dentist, like you mentioned, right? So who else sells to a dentist, and do they have a salesperson or a model where they could actually get me into that at dental practice. So we, we do dental as well, but we don't really love going to market dentist by dentist. Okay. So we, we went and said, who else sells to dentists? And in the dental world, there are consumable products and people that sell dental machinery and things to dental practices. There's really two big ones in the country. One of them is called Patterson. Patterson has 800 salespeople, and those 800 salespeople now have the Alliance product in their bag to sell. So that's how we got in front of more dental practices without a classic, like, feet in the street, go door-to-door model. It's how do we get into a bunch of them without investing in sales resources. And there, there are other, you know, people that sell in a dental practice you can do that with as well. But at any rate, I mean, there's the point there is you don't have to think, if you're out there listening, that I've got to go hire 10 salespeople to do this. It's how do I want to go to market, who do I want selling the product, and then how do we put resources around the sales methodology we chose, which could be a partner strategy, right? If I want to go after it full force, maybe I choose a different path.

Well, you've gotta be exercising the 1 1 11 model no matter which, which, no matter which area you're focused on, right? From a sales and biz dev perspective, especially if you're a solo founder, whether it's just the old playbook of, hey, I'm gonna go into CPAs every week and I'm gonna beat on the door and say, hey, who you got for me? Right? Like obviously we want to get a little more strategic than that, but that's step one is like, hey, I shouldn't be spending all my time trying to sell individually to accounts. I mean, there's a reason ADP and Paychex have CPA-centric reps. Reps just calling on CPAs all day, every day, working those leads. I mean, they're calling on literally nobody but CPAs. And when your CPA friends like mine do, they tell me, hey Matt, it doesn't matter that that ADP rep brought by cookies last week. We don't pay any attention to them. Well, 4 of the partners do because they're there every week, right? And like, I see them, you know, out having lunch every week and you think they don't get any leads from that? Do you think they take your partners to lunch because they're not getting any leads? Like, so that stuff matters. Staying top of mind. And it's hard as an owner to get out there and keep pounding the streets Show up at the CPA office with the tchotchkes and the stuff.

But guess what?

Our biggest competitors are doing it because it works. And same thing, whether it's a Patterson team and you want to get into that team meeting, you know, we talk to all of our referral partners. If they're, if they're people like, you know, we'll use Patterson as the example. If they're people like that, that we really want to have our product in their bag like we do with our PEO, with a lot of our partners there, we want to be on your sales team at least, or on your sales team meeting at least once a month.

Comped.

Yeah. Like if not, then it's, it's not really gonna be a partnership. It's just gonna be like a, hey, whenever we think of you, we'll throw something over the fence. And those are great. We've gotta have those too. But like partnerships are, we're in each other's team meetings. We're natives. We're not tourists, uh, on that front as well. Right. We understand how it works at Patterson or whoever the partner is and how they get comped and why this matters to them. Why, why it doesn't matter to them and who the people are there that are gonna get it and going to produce. Because if Patterson's got 200 reps or whatever you said, there's gonna be probably 10 to 20 of them that are gonna be the cats out there that really understand it, figure out how to get it in the right hands at the right time and maximize the comp associated with it. Because that's how that goes, right? All right. So I mean, let's talk about that. I mean, what were some of the surprises as you look at, you know, we can say on dentists, we can say on restaurant, whatever. And it's good to hear, you know, I'll say this is like, as a founder, if you're leading sales on your own, you've got to just pick one niche and just run after it. As you start developing reps, then you can go, hey, you're my nonprofit guy, you're my time and attendance, you know, woman, you're my, you know, whatever. If segment by product, if you want to segment by market. To your earlier point, I remember we used to have people that would just gravitate towards getting in the door with a specific talk track and product that was just a piece of it. Maybe it was time and attendance, you know, for your manufacturing clients. It's like, hey, if I know time and attendance inside and out and I'm trying to call on manufacturing, then that's probably a pretty good way to get in the door value proposition-wise, and I'm going to end up selling them the full HCM suite. So, so there's different ways to approach the niching and the targeting, but what, what were some ways that you were able to focus on lead acceleration and execution in the early days once you guys did start to identify some of these niches.

Yeah, we'll talk about like lead marketing in a second. Where my head first went was, so, you know, when we really chose to double down in the multi-location restaurant space, like we, we said, hey, we're going after full force. We trained sales reps and we had them just exclusively go do that. And then, you know, a few months in, the, the close rate and the conversion rate isn't exactly where I, I thought it should be. So I'm like, hey, to some of our really top sellers, like, why would these people buy from us? Like, just walk me through the story. And why, why late stage at the end of the buying cycle are they asking for references? And what I found is that we, we really hadn't architected the sales process and enabled them in the right way. And it— what I rattled off a second ago of like over 50% of the dominoes, 40% of the Buffalo Wall, all that, like, they couldn't articulate that because we never documented and trained want it. So being able to document that, because somebody has it, often it's the founder and they've got it in their head. So then the sales rep's like, hey, can you join my meeting? I mean, I've got 40 people in our sales organization, I can't join meetings like that, right? So it's downloading that, like, why are we really good at it? Who are the key customers? What are the key customer stories? How do they speak, right? Speak like a native. How do they speak? Documenting that, training on it, and testing it. Testing meaning on Friday, I want to hear, you know, a certain segment of our sales organization give me the story, like tell me why they would buy from us. So that was, you know, probably the, the biggest surprise sales process related. And I think it just goes back to, you know, a lot of, um, a lot of individuals just don't think in the same way as a, a founder thinks, and we assume that they do. So you gotta like document minute, right? I gotta put this all on paper and, you know, map out how they do it and give them— I mean, even like a script. I don't want them regurgitating a script, but they should know the statistics, right? So that was probably one of the, the bigger surprises.

So one of the things that I always— how I approach if we're going to target a niche, and we had talked about before we jumped on, I, I was like, you know, I very rarely hold anything back from the audience on they're all in. But we've got one particular niche that I would say is sort of a sub-niche of a niche, uh, that we're targeting right now with some paid ads. We're getting a couple of campaigns ready to launch. If we weren't spending so much money on the ads, I'd gladly list the niche. We went through a handful of different niches and we said, all right, this is one we're going to target for a while because it's sort of tangential to some ones we already work with. So it's an easy step to a niche we already focus on. But for my money, I'm going to say, you know, we'll spend 3 to 6 months. Targeting this niche and we'll do our best to gain a foothold, see what's there, see what's resonating, see what's not, and then determine how deep do we want to go, right? So like from there it's like, okay, you know, some of the, because some of these niches, I mean, I talked in here before, I don't know what the website is. I think it's constructionpayroll.com. I think it's that simple. Like, I mean, to me that's like one of the greatest companies out there because it's like, dude, it's right there. It's constructionpayroll.com, man. Like, and they just crush.

I love it because I hate construction. So go that.

Exactly, exactly right. Like, yeah, picking a niche nobody wants to do. Yeah, well, that's the other thing too, is like, if you go to the elf thing, it's like, hey man, what if you're just like, you don't really care and you're, you're just like, I want a niche that other people don't want? Well, yeah, I mean, restaurants, construction, like, that's, that's not where everybody's heading. Like, that's, that's where people are trying to run from, right? So like, those are good areas. You know, here in South Carolina, we have the opposite. There's a ton of hospitality, so that means a ton of people are trying to target hospitality. So I'm like, even if I wanted to, I wouldn't, you know, I would just be white noise in the hospitality because everybody's already there. But so how do you think about that in terms of like, all right, we've pounded on the, yeah, we've pounded on the dental offices for 6 months now. Yeah, the traction slowed. Is it a matter of like, you know, one of the things that you're great at and just like a tremendous, tremendous team and you personally at, you're great at driving numbers, you're great at being consistent and review, you know, weekly, daily reviewing the numbers, you know, coaching up your team on when they're missing numbers, where the problem in the sort supply chain, it could be if they're missing a number. And so in your world, if it's, hey, if we're getting, you know, 3 months in and we're having struggling with the dental, we're gonna tweak some things. We're gonna look at the scripts. We're gonna look at what we're saying. We're gonna look at how we're approaching it. At what point do you say maybe this isn't the niche for us?

Yeah. I think most people abandon a niche too soon. So I think there's probably a lack of tracking the early numbers. So if I'm looking at, I want to look at first-time appointments. Like, are we able to actually get in front of these people? Do we have the ability to drive meetings? Then I look at, are we, are we moving those forwards? Are we converting them into an opportunity? And then from an opportunity, how quickly are we able to move them through a sales cycle? And then what's our close rate on it? And generally it's the first bucket that's the hardest. Like, I need a— I need to get in front of somebody and I need to first-time meeting. So if, if that number's not where we want to see it, then we have to go back in the funnel and think, okay, are we doing the right go-to-market motions from a marketing and awareness standpoint? Like, are we going to the right shows? Do we have the right distribution channel? Do we have the right messaging? And I generally only want to go after a vertical if I have customers that are customer success stories for us. And I want to highlight them and be able to talk about this dental practice did this and yada yada yada, the ROI was X, right? I want to document and be able to provide that. So we know we can win there, but then it's can we generate, you know, awareness and drive meetings there? And if we can drive meetings, then we can generally figure out how to change the close ratio and conversion. But if we can't drive meetings or our channels aren't working for us, you know, we're going to tweak. And then, you know, you'll have to make a choice to abandon because the— going back to the earlier comment about ROI on the actual spend, it's an investment. And are we getting a return on that investment or not? If not, then, you know, we have to kill it. But generally, people kill it too early.

I agree, and I'm guilty of that. I think that there's, you know, I'm curious your take on this. To me, the number one metric in sales besides close one, right? Like obviously everybody just judges you on close one, right? It's kind of at the end of the baseball season, they look at your numbers and they go, these are your numbers, right? But there's a lot more to it than that. So to me, it's first dates executed. We call them first dates in the process, first appointment for you. Like that's, that's the holy grail of like, can we get in the door and have a sales conversation? And, you know, not just set a meeting because that's a different, you know, number being played by somebody somewhere else. It's like, how many people can we get in their door every single week and have meetings with them? Because then to your point, like I can tweak every number from there. Like, all right, hey, so we're having a bunch of first dates, but nobody's moving to demo. Nobody's moving to proposal. Like, why is that? What are we saying on these meetings? Let's go back and revisit it. What are we getting? You know, are these meetings where we're bribing them? You know, I had a guy ask me for a bribe earlier this week.

This one's funny.

I'm going to tell you this quick story. So this dude, I sent him a cold DM on LinkedIn for a meeting and he says, yeah, I'll be happy to meet with you. Just buy a bottle of this bourbon. Barbecue sauce first. And I was like, okay, I'm not going to do it, but I'm going to click the link because now I'm just curious of what the heck this is about. The bottle of barbecue sauce was $49. I was like, oh, all right, man. I was like, this must be some dang good barbecue sauce. I responded to him and he said, it's not about the barbecue sauce, Matt. It's if you have something valuable to share, you should be willing to spend the $50 to get some time with me. And I said, sir, I don't bribe anybody for their time, but I appreciate it. But I thought that was interesting because there's You said something there because I think one of the things in this industry people have a tough time wrapping their head around is cost of client acquisition. Where am I comfortable? What should I be comfortable spending to acquire a customer? And I don't know what kind of metrics you guys use here, what you use for your baselines in terms of cost of customer acquisition, and do you track that? Is that something that you guys look to as a metric internally?

Yeah, we track the booking to sales and marketing expense, and we're getting more granular and looking sales expense as a standalone, then you have to look at, uh, now at this point we have sales enablement, training, marketing, SDR team, and you're, you're starting to look at metrics of booking performance across all of those. But I mean, just a simple generic number is a 1-to-1. I should be willing to spend a dollar to get a dollar year 1. Okay. After that, you know, your customer should be profitable probably at the 18-month mark after you take into account implementation, all the other stuff. But 1:1, and that would probably be a pretty minimum threshold. I would like to see it higher. I'd like to get a, you know, 1.5x, even to 2x bookings to sales and marketing expense. You know, spending a dollar to get a dollar, especially early when somebody's building from nothing, should be willing to spend that. If you don't invest, you're not gonna get return. It will be a curve, right? Like there may be a point where it's below a dollar and you just have to have confidence of like, it's going to, we're going to climb out of it and I'll get to, you know, 1.5. And that usually is, I'm adding sales expense. I have a new sales hire. It's going to take them a while to ramp. I've got a pay-per-click campaign running on this vertical. It's going to take a while for that to convert to revenue. So for 90 days, I'm running negative, right? But you should be able to climb out of it. Stabilize, you know, over the 1-to-1, you know, dollar mark.

Yeah, I agree. And it's funny, uh, Farsi Fardosi at the IPPA Summit said, you know, he was given his keynote on, uh, several of the companies he built were super impressive, but he was talking about the one he's building now, and he said point-blank, it takes $10 million to make a $10 million company. And, you know, and that was like, you know, as simply profound as I've ever heard anybody put it, of like, yeah, you want to make a $10 million company in 5 which is more, you know, like you can, you can hit $10 million over a longer threshold with, with no capital. But if you want to do it in 5 years, you're going to probably need $10 million right out of the gate, which is, you know, as far as the wind blows, we're pretty accurate statement.

Yeah.

You know, from our side, we think about it like this is again, you're, you're kind of hit it well there in terms of the maturity. And you have to think in terms of your founder time early on and what you're going to value that at, which we don't really value our time in the early going. And because we're doing all the things, but for us, we look at it, you know, we, we try to use SaaS metrics in terms of CAC and LTV. LTV. So for us, LTV, you know, lifetime customer value, we're looking at how long does the average customer stay with us now? What percentage of that are we willing to spend to acquire the customer? And through all of our numbers, it works out to be about 11% of the lifetime value we'd be willing to spend to acquire that customer, which equals out to then about a third of first year annual revenue from the customer. So an easy way to look at that, especially if you're looking to go hire salespeople, is like, are you comfortable? So if they're on a $300,000 quota, giving them $100,000, if that's your only cost of sales of marketing that's going into this, right? Of like, hey, I'm going to hire this one rep, they're going to go out and hammer the pavement. And I know I'm going to have to buy them some marketing stuff, but we're not going to run any paid ads. We're not going to do anything crazy. It's literally the old feet on the street going out there hammering on doors. Like pretty easy metric to kind of put your arms around and go, yep. All right. If they bring in $300K in net revenue, do I have $100K on hand to be able to pay them? That was the thing, right? Because you're not going to recognize that revenue. Our industry pays typically at the point of sale. I'm going to get paid a percentage of commission on first-year annualized value of that deal. And you guys, you know, everybody listening kind of knows some variation of this. And if you need comp plan examples, go to the Facebook group, the Payroll Innovation Network Facebook group, and ask for some comp plan examples. And I know 10 people in there will raise their hand and give you a comp plan example, and you'll be off and running. Because it's different. Matt's comp plan is going to be different than mine. He's selling, you know, deals in excess of $150,000 a year. I'm selling deals that typically average about $25,000 a year. It's just a different comp plan and strategy person out there selling. So that's the other thing. I know a lot of people listening are like, hey, when do I hire that first salesperson? How am I going to comp them? How am I going to make this friendly to them. And we touched on a lot of that stuff in the first episode. So worth bringing up, if you hung out with us this long, you love us. And that's cool. We love you too. But you know, Matt was the first ever episode of Payroll. And then really the driving force, you know, a conversation you and I had, we're just talking about it during COVID of like, you know, I remember just being in that South Carolina heat wandering around outside talking to you on the phone about what are y'all doing now to get in the door? What are y'all doing now? How are you running the meetings? How's the process changed? You know, what have you seen from the prospects? What are they— we just, we We just talked for probably an hour and a half and I got done and I was like, dang, like how many people would've loved to have been a part of that conversation and just hear as we've, you know, guys that have been in the industry for a long time, just kind of talk through what are some of the ways that we're adapting and adjusting during, you know, probably the biggest shakeup to our industry and our career. So thank you for being the first on and, and now apparently number 67 as I had to like try to tally it up this morning and figure out how many episodes we've done. But yeah, man, it was, it's, it's always a pleasure to get to talk to you and, and why don't you leave us with this? You know, if I'm thinking about niching down What are kind of the 3 steps I should take to look at that niching process? Let's kind of recap that for everybody as a takeaway here.

Yeah, I mean, the, the first thing is look inside the customer base and try to find some similarities, right? So if I am really good at this and I'm passionate about it, going back to, you know, where the passion and what we're good at matches, that's a great way to start. So now I have an ICP or my customer profile, and I know who I'm going after. So after I've got that, then And then I think the biggest thing, Matt, is just committing to it. I know I'm not following the 3 steps you asked me to, but the biggest thing I see is, is, uh, and I had a LinkedIn post about this recently, you cannot commit to something if you have a plan B. So you have to commit, right? So if I find a customer profile I love, I'm good at it, now it's time to commit. As humans, this is human nature. We overestimate risk and underestimate opportunity. So, I think in my head like, "Man, if I do that, it's too risky." So, I have to have a plan B hedge, which is I'm going to take the rest of this other business, right? And we don't truly commit. And it's realizing that we have to realize we overestimate risk. There is not as much risk as you think there is. Of doing it. So find the niche and commit. And of course, 6 months from now, you got to evaluate, is it working? That's not having a Plan B, that's being freaking smart, okay? And if it's not working, then we commit to the next thing. But we, we can't hedge and like dabble. If we dabble, we lose. Somebody out there will get nichey and they will beat you. They will have better messaging. So, you know, we've got to choose, commit, commit and go execute.

Yeah, there's nothing wrong with being the next constructionpayroll.com, right? And the, uh, and, and I just mentioned it, I just recorded, I don't know if it's out yet, but we did an episode, a solo episode recently. I was talking about a couple books I'm reading and we just reread Built to Sell as a leadership team. Matt knows we're kind of splitting into really 4 companies we'll have when all the dust settles over here in the, uh, portfolio, if you will, for lack of a better term. But so we've got a team of leaders now, right? And so we've got everybody trying to figure out, some of them them have, you know, first-time CEO, you know, others first time being into leading an entire organization. And so it's like, all right, hey, what's the philosophy on niching down? Where does a lot of this come from? Built to Sell to me is one of the best books on this. And if you haven't read it, John Morello, it's a really easy parable-style book. If you're not, not a big reader, don't worry, it'll keep you engaged. It's a parable, it's fun, and it's simple, and it drives the points home. A lot of what we talked about here of like, you know, the guy goes from being a full-service ad agency to only selling logos. And so that's his version of niching down, is, hey, I'm niching down on the product I offer, which by proxy is going to niche down on your audience. But like, you know, read it, find other resources. You got any resources you'd share you think are good for niching down?

I don't know, nothing jumps to mind, man. No, really, um, I don't think I've read anything about niching down. I mean, I really haven't. I mean, it's really about go-to-market and you, there's a ton of resources on go-to-market and choosing a niche is kind of the first step of building a go-to-market. I will say that we get private equity calls from PE and VC guys daily. And one of the most recent calls was from one of the largest tier 1 private equity firms in the world. And they said, we are not interested. Investing in general payroll companies. We will only invest in a verticalized payroll company. And why? You got to think, why would they say that? Well, a general payroll business is way too hard to compete. There's too much competition out there. But verticalized, you can slaughter everybody. Okay, so, and that's from, again, the really, really smart money out on Sand Hill Road.

So I love it. I love it. And I would say, you know, one, one final story on this before we hang up here is You know, the, the example that always comes to mind for me is TSheets. So TSheets is a prime example of like, what were they? Just another timekeeping software. It's a million timekeeping softwares. Feature functionality. It's actually a pretty clunky system, pretty hard to use. Like we used to use it for some of our customers when we first started and we didn't have a timekeeping system. And I was like, man, this is not really that great of a time system, but it did one thing. We talk about the GTM, the go-to-market strategy. It did one thing that everybody else didn't do. It integrated very eloquently with QuickBooks and did job costing in that integration., and that made it where it was the preeminent solution, 9-figure exit, you know, to your point, attracted a lot of capital for just that reason. And all they did was they found the right place to distribute their product, which is also part of niching down, right? You talked about it earlier of, hey, how do we get in front of more people in a unique way? There's a bunch of different ways to find your angle, y'all, but you can't just be everything to everybody.

Yep.

Right. Appreciate you, brother. A pleasure as always.

Great seeing you, man.

Talk to you soon. Bap ba!