Jason Mlicki (00:01.72)
So Jeff, I have a question for you.

Jeff McKay (00:04.302)
Mm.

Jason Mlicki (00:05.784)
Do you own a scale? Are you a guy that has a scale at your house?

Jeff McKay (00:09.462)
I do. have a digital one. It’s hooked to an app and everything.

Jason Mlicki (00:14.382)
Are you a regular user of your scale? you one those guys that checks every day?

Jeff McKay (00:20.504)
I wouldn’t check every day, but I check pretty frequently. Yeah. Am I sensing a judgment here?

Jason Mlicki (00:25.208)
Yeah. Is it like?

No, no, not at all. was actually just curious. Should I judge? I don’t know. I’m not sure. I’m not sure. It’s definitely a good thing to be mindful of. But I bring it up only because today’s episode topic is scaling. And I don’t think we’re talking about that kind of scale necessarily. But we are talking about scale in the sense of growing.

Jeff McKay (00:32.76)
Yeah

Jason Mlicki (00:57.186)
I don’t know about you, where this came up for me, by the way, was, I started to get some prospects asked this for the first time, really, where they would say to me, Jason, we want to, we’re looking to scale. Can you help us? And then we would start a conversation. That would be the initial inquiry. And they would choose the word scale, not grow, which is relatively new.

To me, I have not seen professional services firms talk about scale that much, as much as I see them talk about growth. And I think they’re nuanced and different. In fact, the most recent inquiry I had on that front, that was the first thing I asked. I was like, well, do you really mean scale? And what do you think you mean when you say scale? Because I wanted to kind of gauge what was in their head.

and go beyond just, well, we want to grow from x to y, or 0.3x, or 1.3x, or whatever. So actually, yes, their answer was, yeah, we want to scale. And they talked a lot about the things that I would think would go into scaling. anyway, that’s what I want to talk about today.

Jeff McKay (01:56.375)
And what was their answer?

Jason Mlicki (02:18.83)
Where do you want to

Jeff McKay (02:21.026)
I want to start with what advice you gave them. Did you have an instant answer for them?

Jason Mlicki (02:26.758)
I did not have an instant answer for them. you know, I,

Jeff McKay (02:28.942)
That’s why we’re going to do a podcast so that they have an answer.

Jason Mlicki (02:33.698)
Well, there you go. Exactly. It’s funny, that particular one, I ended up having to walk away because they had a lot of just sort of needs that were much broader than my mandate. Much more like they needed a management consultant, not a marketing consultant. I was like, there’s a lot of things going on culturally inside your firm that I’m just not comfortable that I can navigate. I understand them and I see them and I understand what you’re telling me, but I…

I’m not confident that my advice is going to be the right advice. So I redirected them to another place, another home.

Jeff McKay (03:08.152)
Yeah, those cultural conversations, you don’t like those.

Jason Mlicki (03:13.632)
I, you know, you know how much I love culture. So it’s like one of my most favorite topics.

Jeff McKay (03:19.054)
It’s all about culture.

Jason Mlicki (03:21.74)
Unfortunately, you’re right. I’ve had to agree with you on that one. that makes me very, anytime I have to agree with you, it pains me a little bit inside. Like part of me dies. No, I’m teasing.

OK, so growing and scaling. So let’s start there. Because I do think that growing and scaling are different things. And I think most firms grow or try to grow. And there’s not that many firms, at least in my experience, that are really tooled to scale. And what do I mean by that? What’s the difference?

Jason Mlicki (04:05.93)
So I think the first thing that to me that really is the difference, and I’ve been thinking a lot about this since I suggested this topic, is that most firms grow, and when they grow, revenue and headcount need to grow somewhat in lockstep. The two are very intrinsically connected. That revenue growth requires an escalation of people, whether it’s

literally people to go acquire the new revenue or it’s people to deliver on the new revenue. The two sort of operate in lockstep. And to back this up, actually looked up for, I looked for some data because I was just sort of curious, like, this really true? And the data I pulled was from, looked at, as you know, I work on the middle market indicator for the National Center for the Middle Market every six months, the National Center for the Middle Market.

does an indicator of growth and confidence in the US middle market. And every six months, we also slice that data by industry segments, a handful of industry segments, one of those being business services, which is essentially a proxy for professional services. And I looked back at the data we had from the last eight calls, so the last, I guess, four years?

And most of the time, professional services firms were growing faster than the broader middle market. And most of the time they’re growing employment faster as well. So it’s sort of like they’re growing more and to get that growth, they’re more likely to be staffing faster. And so that’s sort of, and that’s what I tend to see in firms. don’t know. Let me stop there and just see if you actually agree with what I’m saying, or if you disagree, in which case, again, a part of me is going to die.

you

Jeff McKay (06:01.384)
Well, I agree wholeheartedly and the data backs it up. I think it is the exceptional firm that does not grow that way.

Jeff McKay (06:17.315)
because everybody operates off of some kind of pyramid structure. and that pyramid structure has its limits.

Jason Mlicki (06:31.33)
guess to that point, you think about with AI, that’s been the consternation that you and I have been seeing, right? Firms are like freaking out about that the pyramid might die and they don’t really know what to do about it. Like they’re really scared or at least they were, maybe you’ve heard different conversations in the last couple of months, but I know when we got together at your AI group a year ago, that was like the most important thing everybody wanted to talk about was what’s going to happen to the…

model here. And there’s been HPR articles about this as well. So I think there’s definitely some truth and evidence to that to support that. The counter on this, when I think about scaling, you think about companies that can grow revenue, can grow value without necessarily growing headcount. We think of this a lot in the software world, certainly in the AI world as well.

pulled some data on this as well. was like, OK, let me get an example here. And so the example I researched was Salesforce. Salesforce because it’s publicly available data, right? And between 2021 and 2025, they grew revenue about 78%. So they went from $21 billion to almost $40 billion over the course of four years. And in that same period, they moved employment from $56,000 to $76,000.

now this is AI based research. So haven’t, will be fully, fully honest and say, didn’t like super tightly vet this, but the point being. They grew revenue twice as fast as employment. Right. So they’re, they’re, they’re revenue per employee is grow, is going up as their revenue is growing. Right. So it’s sort of like, and that to me is what scales about, or you think about like, what really got this topic in my head as I heard a

I heard a discussion about Anthropic, and now Anthropic had landed some gobs of billions of dollars of revenue within a month. And in a month, they had just signed on something like $4 $5 billion worth of revenue. And I just thought to myself, I can’t think of any firm that can swallow that that fast. I can’t.

Jeff McKay (08:47.854)
That’s a Fortune 500 company.

Jason Mlicki (08:54.562)
Yeah, it’s just like you can’t like even a mega firm can’t swallow that. Like, I mean, you could book it, but you can’t swallow it. And I mean, it sounds like they kind of did, you know, so they’re built for that. Like they built, architected the organization to be able to swallow a 30 % revenue leap, you know, even that, even that when they’re already a $10 billion company or whatever they are, you know, and I don’t know those numbers I’m making up. have no idea what they were, but

Anyway, so that’s kind of what I want to talk about. My contention is most firms aren’t built to scale. And yet I think some could be, and some definitely are, and some that aren’t probably could be and probably should be.

Jeff McKay (09:47.756)
And scale is a relative term. When you look at, you know,

firms, the things that they do or don’t do give them relative amounts of scale. But I’ll take, for example, a lot of my consulting clients or IT consulting firms and the value proposition of all of those firms is somewhere around scale that they come in and they help you scale. In other words,

do more with software versus manpower. And it’s the same value proposition in their quotes for most IT consulting firms. And if you go out and you start looking at IT consulting websites now, you’re gonna start to see.

Jason Mlicki (10:47.276)
Yeah, that’s all you’re going to see is scale, scale, scale.

Jeff McKay (10:48.738)
That’s all you’ll see.

Jason Mlicki (10:51.628)
And are they built to scale? guess maybe that’s where you’re headed.

Jeff McKay (10:55.33)
Yeah, and I would argue the majority of them are not.

because they don’t do the things necessary in order to achieve scale.

Jason Mlicki (11:04.107)
and why not?

Jeff McKay (11:14.242)
And we’ll talk about those in just a moment, but.

I think that is scale is where all businesses want to get to, right? They say we want to grow, but that always, I think has the connotation that we’re going to do it at scale. mean, we all, all of us that went through undergrad business degrees, one of the first terms we learned was economies of scale.

Jason Mlicki (11:48.394)
I thought it was synergies. Wasn’t it synergies?

Jeff McKay (11:50.319)
Well, you went to Ohio State, so you probably learned a word like synergies first, but…

Jason Mlicki (11:58.456)
Well, because we knew inorganic growth was bigger than organic growth. OK, we’re way off topic.

Jeff McKay (12:03.164)
Hehehehehe

Jason Mlicki (12:10.572)
So, well, it’s funny you say that too, because it’s like, think a lot of times you hear people say, well, you know, we need to scale that or we should, we should scale that. like, there’s a fuzzy idea of what it, of something that is scaled, but like what it takes to actually scale something I think is a lot. Like is not clear, right? Like, like, know, when something is scalable, but sometimes getting there is not.

Jeff McKay (12:10.584)
So economy is a scale, right? Everybody learns that term.

Jason Mlicki (12:40.78)
I don’t know. I’m not making any sense. so why aren’t firms, you kind of said a lot of your IT consulting clients are not really well built to scale. Why? Like what do you think are some of the things in professional services that make firms not prepared to scale themselves, even if they’re scaling their clients?

Jeff McKay (13:02.126)
I think there’s several reasons. One is they don’t specialize enough in order to get the economies of scale around a given solution.

Jeff McKay (13:24.354)
They’re trying to serve too many different clients.

and as a result, everything becomes a bespoke solution. And even, even if they, if they narrow in on, you know, some kind of ideal client, the way they think about problems, they could all be bespoke, types of solutions. so I, I, I think those are a couple of reasons.

that are pretty common. I just had a thought and I just lost it.

Jason Mlicki (14:08.974)
Well, let me jump on it because I think what you said is interesting. There’s also a cultural piece of this. there’s something that just came to mind I hadn’t thought of before this is a lot of firms, particularly in the AE world, they talk about their business as a collection of projects. They’ll say, this is a business built on projects. We are a project-based business. And when you think about projects, projects by design are kind of intended to be unique and separate and…

Jeff McKay (14:10.35)
Okay.

Jason Mlicki (14:37.774)
I mean, like, that’s kind of what projects are. And I think about like, we’ve never had them on the show, but my good friend, Chris Parsons, who owns the company, Knowledge Architecture, which is a social intranet for AEC firms. And I remember he said to me once that he’s like, when he started the company 15 years ago, or whatever, his hypothesis was that an intranet should not be a project, it should be a product.

And that was the whole hypothesis of his business. And now he’s got a really thriving, successful business based on that fundamental premise of we’re to take something that people think is a project and turn it into a product, and then we’re able to scale something. So he’s an example of someone looking at this situation and saying, we can do this differently, and we can create something that can scale. So there’s that cultural piece of it. I think there’s also the Rainmaker culture that weaves into that a little bit, like the idea that

Jeff McKay (15:35.758)
Mm.

Jason Mlicki (15:36.034)
You know, revenue comes from the, I don’t know, the partner, the rainmaker, the, you know, the, we’ve all seen them, the person that, you know, there’s a joke that they can just shake their network and revenue falls out. Like there’s, there’s always that person in the firm that people talk about. What else? What else?

Jeff McKay (15:55.981)
Yeah, and those people are few and far between. So that’s not scalable by definition. Right? You can only have one or two of those per firm, generally, is what you see, particularly in the smaller and the middle market types of firms.

Jason Mlicki (16:00.098)
Yeah.

Yeah. Yeah.

Jeff McKay (16:19.254)
So that’s not scalable by definition.

Jason Mlicki (16:23.116)
Yeah. Yeah. Well, to your point, it’s like finding a unicorn. You have to find this unicorn person that’s got some rare, unique ability to build business. In fact, a lot of ways, we had Matt Dixon on the show again, and that’s kind of the whole idea of his activator advantage insights is that you can develop people’s skills to build business better.

if you understand what it takes to build business in the first place, instead of just chasing this unicorn person, which is kind of the essence of what he’s saying or what his research tells me, I guess. What else? Why else can’t firms scale? And then we’ll shift gears.

Jeff McKay (17:11.886)
I think the biggest one is the key metric is utilization.

Jason Mlicki (17:18.478)
Yeah.

Jeff McKay (17:19.85)
It’s, it’s, and that shapes everything, human beings and their hours in a day or by their very nature limited. And if there are not ways to increase that productivity, you’re, you’re going to hit a natural limit. and, and, and I think, you and it’s.

most basic sense scale is about increasing the productivity of the, an hour of utilization. I mean, that’s what it comes down to, but because firms are doing bespoke. Solutions, they don’t have a repeatable processes or they have not product ties. if you will, their solutions.

They’re solely dependent on the effort of individuals. And it’s a mindset. To your point about AEC firms thinking in terms of projects. And I understand why they do that, but there’s a limit.

Jason Mlicki (18:39.34)
Yeah, that wasn’t necessarily intended to be a criticism. It’s more just a reality. That’s what I see. It’s like, that’s how those businesses are built and that’s how they think. And then that makes it really difficult to do things. We’ve seen it even firsthand working with some firms where IP has been developed and lots of money has been invested in that IP, but that IP…

Jeff McKay (18:43.18)
Mm-hmm.

Jason Mlicki (19:05.972)
operates on different economics and different systems that the firm doesn’t know how to swallow. It doesn’t know what to do with. An example I’ll give you is like, know, what, what in this particular case, we had a piece of technology and that piece of technology was essentially, could be a, it could have been a SaaS product, but the firm literally didn’t have the ability to sell anything that wasn’t priced by the hour.

because the entire accounting of the organization was built fundamentally on a time and materials basis. And so the idea that we could sell something on like a license, conceptually, yes, practically, no. And so we were blocked from doing that. Not saying that, mean, just they’re just like, well, we can’t do that. We don’t know how to do that. That we don’t have the systems in place to do that, which is pretty crazy, really.

But it’s real. So there are real functional things that could be barriers to something around building something that’s built on scale. But some firms, you know, some firms.

Wait a minute. Pause. 20 minutes in. OK, we re-tooled this. I was about to take us into what the firms at scale do differently when I shouldn’t be. I need to be taking us in when scaling makes sense or when it doesn’t, right? Because we re-oriented this.

Okay, sorry.

Jason Mlicki (20:42.742)
Okay. Have we covered enough of the why firms don’t scale? Should we move on or should we keep going?

Jeff McKay (20:49.4)
Let’s move on.

Jason Mlicki (20:57.816)
So I guess there are limitations to, or there are actually limitations. There’s reasons why it’s difficult to scale a firm. Does that mean that firms shouldn’t do it? Like they shouldn’t try? Like that shouldn’t be a goal? Or is it just that you have to think differently? Or?

Are there some firms that should try to scale and some that shouldn’t? How do we think about this? guess this is kind of where I’m asking for your wisdom.

Jeff McKay (21:32.3)
Yeah, I guess it kind of breaks down.

Jeff McKay (21:38.965)
into, is this fair to say two groups? One group that wants to create enterprise value and enterprise value is created by growth rate times margin and that’s the effect of scale. So if you want to create enterprise value

you need to achieve scale. But if that’s not your goal and your goal is more lifestyle or I just enjoy the work, which is perfectly fine for firms to do. They have their niche. have their satisfaction of doing that type of work. And there is no ambition to scale.

That’s perfectly fine too. I would say Prudent Petal is to a large degree in that second group. My goal is not to create enterprise value in scale.

Do I look for productivity gains? Yes, because that increases my lifestyle, but it’s different than creating enterprise value.

Jason Mlicki (23:08.568)
Say more about that. Cause I do think you’re talking, I also think you’re talking a little bit about, the difference between scale and leverage. Cause I think a lot of firms would say, well, well, yeah, we’re scalable because we have leverage. have a collection of junior partners or that can do the work that is brought in by the senior partner. shouldn’t say junior partners, junior people, right? And that would be, that’s leverage. That’s basically, you know, extending

the time of an individual further, farther. But that’s not really scale necessarily, am I right?

Jeff McKay (23:45.433)
Yeah, because to me, the measure of scale is you’re increasing your gross margin for each dollar that you bring in. You’re increasing your gross margin, which means you’re not asking, adding to your cost base. It’s economies of scale. Right. And if you’re doing that, that’s more bottom line profit, thereby more enterprise value.

This is not rocket science. That’s the nature of creating enterprise value and winning, one would argue, growing faster and more profitably than your competitors. Genworth Financial, GE company, that’s how we measured our success. Were we growing faster and more profitably than our competitors?

Jason Mlicki (24:43.054)
Okay. So. Good.

Jeff McKay (24:44.93)
So.

I do you think there’s other reasons to scale or not not scale beyond those two?

Jason Mlicki (24:57.742)
Repeat the two again. One is enterprise value and two is. that’s yeah. Yeah, well, I think that there’s probably like an argument to be made that there are certain firms that are really great businesses that that are kind of inherently not scalable. We come back to the discussion we had earlier about, you know, business built on projects. You know, they’re.

Jeff McKay (25:01.108)
One is in lifestyle, right?

Jason Mlicki (25:24.952)
there’s a limitation to how much you can standardize or a business that is a collection of projects because every project does have some uniqueness to it at its core. And there’s nothing wrong with that business. In fact, there’s a huge flood of private equity money rolling into the AE space and gobbling up mid-sized firms left and right.

Steve Guido, who’s been on the show, has talked about that with us. So there’s a lot of interest in those businesses, despite the fact that they don’t have a lot of the things that would make them easily, I should say easily, clearly scalable. I they’ve got a lot of what I call reoccurring revenue, not recurring revenue. Reoccurring revenue is revenue that likely will happen again because you’ve done it before, but it’s not recurring, meaning that it structurally comes back.

mean, Salesforce revenue pretty much comes back on renewal every time and there’s a predictable renewal rate. Most firms don’t have that. Most firms don’t have annuity type revenue like that. They have the power of the relationship which would drive the revenue to reoccur, but there’s no reason that it structurally recurs. And that’s not necessarily a bad thing. That’s just the thing.

But to your point of like, you want to go into the scale category, that is a piece of it, is how much of the revenue can you turn into recurring revenue so that it’s not as hard to re-up it? Because that drives enterprise value, right?

Jeff McKay (27:04.654)
I like the way you described that. that your idea or did you steal that from somebody?

Jason Mlicki (27:10.931)
Hahaha!

Like I just assumed I stole it from somebody. What’s that recurring versus reoccurring?

Jeff McKay (27:18.326)
Yeah, I like that. Recurring versus reoccurring. Yeah.

Jason Mlicki (27:21.076)
I think I…

I think it’s mine, I think it is. But if some listener out there says, Jason, you stole that from me and they point to something, guess, okay.

Jeff McKay (27:28.012)
Yeah.

Jeff McKay (27:33.838)
You assimilate it like what is the Star Trek character, the cyborgs? You just kind of suck it in, make it part of your self. I love it. Yeah, I’m going to remember that one. That’s good. Boy, once a year I get some idea from you. That was a good one. I like the way you articulated that.

Jason Mlicki (27:41.229)
Yeah.

Jason Mlicki (27:45.866)
I’m not familiar with.

Jason Mlicki (27:52.046)
Well, know, I mean, you know, they always say, you know, a blind squirrel finds a nut every now and then, right? And the broken clock strikes twice a day. So there you go.

Jeff McKay (27:58.058)
Hehehehehe

Jason Mlicki (28:05.41)
All right, well, let’s land this thing. I think that…

Jason Mlicki (28:12.502)
I do think it’s a worthwhile discussion. think next time we get together, I want to talk about the firms that accomplish this, the firms that actually are able to really scale, what do they do differently? And what can we learn from them? And let’s try to bring forward some examples. Because I think there are definitely some examples that we can point to. So here’s an example of a firm that has done that really well. I what are the components of that? And so.

And to your point, I don’t, don’t think it makes sense for everybody. I don’t think it’s like every firm needs to be on a quest to scale itself and be able to a scalable business. you know, I also think for a lot of firms, like it, you know, just getting growth is hard. You know? So like, we don’t want to add this other layer of difficulty on top of this is what not only do we have to grow, but that growth has to enable, you know, some fuzzy sense of scalability. And I think that’s, know, what’s not.

make this even harder than it already is. But let’s be honest with ourselves and say, which of these camps we’re trying to fall into? It’s kind of like your productivity and growth school of marketing. Where are we as a firm? Are we trying to build something that can scale? And if so, what does that look like? And if we’re not, that’s OK. Let’s just be honest with ourselves. We’re trying to grow this thing. And growth looks like this. It looks like adding more headcount. It looks like.

you know, opening an office and getting a foothold in a geographic market because that’s how this particular service is sold. It’s relational and it’s sold, you know, on the street. So.

Jeff McKay (29:51.535)
Well, the bottom line, I think to this episode and set up the next one is scale doesn’t happen by accident. It’s a conscious choice and there are structural and cultural implications to it.

Jason Mlicki (30:01.059)
Yes.

Jeff McKay (30:10.944)
And if those both are not on your radar, you’re not going to have success scaling.

Jason Mlicki (30:22.606)
I like that. The other example that comes to mind for me is restaurants. You look at restaurants and you see restaurants that you can tell from the very get-go are being built by a founder with the vision of franchising.

Jeff McKay (30:35.074)
Yes.

Jason Mlicki (30:37.122)
You can tell right away or it’s built by a founder with the vision of owning a boutique restaurant. And they’re two very different things.

Jeff McKay (30:45.698)
They are. They are. That’s a great analogy. Boy, there’s two nuts in one episode.

Jason Mlicki (30:47.224)
So.

Jason Mlicki (30:53.937)
Maybe the squirrel is not blind after all. That’s true. There you go. you go. Hearing in one ear, sight in one eye. That’s all you need. All right, man. next time we get together, let’s talk about what the firms that scale do differently. If you want to really scale your firm, what do you have to do?

Jeff McKay (30:56.366)
Well, at least you have eye in one side or sight in one eye.

Jeff McKay (31:05.744)
Hehehehehe

Jeff McKay (31:23.342)
All right, sounds like a good topic. See you, buddy.

Jason Mlicki (31:24.238)
So, all right then. See ya.