In this episode, hosts Brad and Michael are joined by Annie Hockey, Head of Consulting at Skytale Group. With over 10 years of experience, Annie shares her experience developing strategic financial plans that support successful scaling. Tune in to discover how efficient systems, the right team, and a deep understanding of internal cash flow can enhance your scaling strategy. Get practical financial tips to integrate into your business and set yourself up for success.
Listen to the full episode using the player below, or by visiting one of the links below. If you have any questions or would like to learn more, email us at info@byrdadatto.com.
Transcript
*The below transcript has been edited for readability.
Intro: [00:00:00] Welcome to Legal 123s with ByrdAdatto. Legal issues simplified through real client stories and real world experiences, creating simplicity in 3, 2, 1.
Brad: Welcome back to Legal 123s with ByrdAdatto. I’m your host Brad Adatto, with my co-host, Michael Byrd.
Michael: Thanks, Brad. As a business and health care law firm, we meet a lot of interesting people and learn their amazing stories. This season we’re talking about businesses who decide to double down. They’re going to scale their business, Brad. Our theme this season is Growing a Business.
Brad: All right. And for those who don’t know, Michael, growing a business is just one of four seasons. What are the other four?
Michael: Yes. We’ve been spending our entire calendar year going through the four seasons of a business. So the first season is starting a business, and the second season is running a business, or the operating season, as we call it. And now we’re in the scaling season – growing a business, and then we’ll be in the buying and selling season last. [00:01:00]
Brad: That’s awesome. Now Michael, we have to have our game, like our A++ game. Today we have a guest on here who’s crazy smart.
Michael: And she’s sitting right next to us, so it makes me nervous. I can try to act mature or I can try to act smart, but not both. So, where do you want me to go? Which one?
Brad: If we’re going with acting here, air quotes here, try smart, because neither one of us know how to be mature.
Michael: That would not last long. All right, so I want to bring you in on a conversation that brought out some strong opinions and some strong feelings in my family recently. We started debating the best and worst fruits.
Brad: Okay.
Michael: Are you a fruit person?
Brad: Yes. Love it. Yeah, actually Micha makes this amazing fruit salad that I eat for desserts. In fact, I had it right before I came on today.
Michael: So you wanted me to act smart today, and so I’m going to show off a [00:02:00] little bit – or at least act smart. And is this a public service announcement for our guests and for our audience – for everyone. I’m going to take our time right now to share with you the definitive list of the top five fruits.
Brad: Okay. Now, Michael, tell me you did not list ice cream as a fruit?
Michael: Well, now you’re just showing our guests that we could be both smart and creative. I love it. If I figured out a way to do that, I would’ve had ice cream on there, but I did not.
Brad: Okay. Well, going back to your public service announcements, I’m kind of afraid to ask, but please share the list of your favorite fruits.
Michael: It’s not my favorite. It’s the best fruits; it’s the definitive list. So honorable mention, oranges, apples, grapes, plums. And I’ll start with just like a, a good countdown. I’ll start with number five. This one’s controversial, I’ll admit, but I put it [00:03:00] on here because it needs to be on here – bananas.
Brad: Are you saying banana because you’re going to have it on top of ice cream?
Michael: Fair question. No. Well, we all know bananas. They have like this window of time where they’re actually perfect, and then other times they just blink and they’re rotten. But it was very controversial in my family because two of my kids can’t stand bananas, but I just feel like it’s a good go-to.
Brad: Okay.
Michael: Number four is a little underrated. Another reason I felt it deserved a place on the list – pineapple.
Brad: Yeah. It’s great. Especially if you put a pineapple in a cup and you put a whole bit of rum on it. Just lots and lots of rum with it.
Michael: So ice cream and alcohol are really what we’re trying to build this around, it seems.
Brad: Sure.
Michael: Okay. Number three. Has to be fresh. There’s not much better than fresh peach.
Brad: Yeah. I’m kind of indifferent to peach. I don’t really go after, but a peach cobbler with ice cream. Pretty good, right?
Michael: There you go. Alright. Or some [00:04:00] sort of peach drink. Okay, number two, blueberry. It’s a super food, so it had to be up there. And they also have to be ripe. If they’re not, they’re not as great.
Brad: I agree. I like blueberries. You know, put them on your fruit salad, which I had earlier, or cereal or Tito’s. He puts blueberries and he puts the Titos on top.
Michael: Bringing it home. All right, love it. Okay. And then number one. Okay, I have the mixed berry bowl commonly. And this is the king or queen of the mixed berry bowl – strawberry
Brad: I love strawberry too. Yes. Okay.
Michael: Yeah.
Brad: Oh, strawberry daiquiri. Yes, they’re great.
Michael: There it is. Strawberry ice cream.
Brad: Yeah, sure. That too. Okay, so do you have a worse fruit list? I don’t know if we have time for all that.
Michael: We don’t. Yeah, unfortunately. But I’ll give you the quick, quick ones that would be my candidates; papaya, mango. I know that’s controversial. My family loves mango, kiwi, and dragon fruit. It’s really pretty, [00:05:00] but does not taste good. How about you? Do you have a favorite fruit?
Brad: I love apples. And mostly it’s probably because every morning after I finish working out, I eat an apple. So that’s probably it. But maybe because we have this incredible guest sitting here and we can get past the fruit talk. Let’s bring on this guest before she realizes that she can make a run for it because we do not lock the door.
Michael: Oh, that was your bad. Well, joining us today is our friend Annie Hockey. Annie is president and head of consulting at Skytale Group. Annie graduated – some stats here – she graduated with an undergrad and MBA at Stanford. She built her real world business chops at Bain and Company. Annie founded and was a co-CEO of a technology focused bank called Column, and I believe still sits on the board. Then Annie also serves philanthropically on multiple other boards. Welcome .
Annie: Thank you. It’s wonderful to be here. I’m also team Apple for the record.
Brad: Ooh. Oh, [00:06:00] yeah, see! I was just about to hit you with that hard hitting question next as to where did you fall? And I’m glad you’re not on any of those other terrible fruits.
Michael: Apple was honorable mention. I’m not going to…
Brad: Number one, that’s what I heard is two out of three.
Michael: First bite or no, second bite maybe today is what we’ll talk about. Very good.
Michael: All right. Well, let’s jump into the real stuff now. I guess let’s start, I’d love to hear a little bit about your story, hear a little bit about your role with Skytale.
Annie: Yeah. Well, thank you again for having me. I’ll start with the [00:07:00] role and then I’ll backtrack a little bit and go into my story. But as you mentioned, I’m president and head of consulting at Skytale Group, which is a management consulting, investment banking, and now private capital funding firm that’s focused on health care businesses. And as president of the firm, I’m obviously responsible for the firm overall, but my day-to-day focus really is on growing and scaling our management consulting division, which is I think where we’re going to focus a little bit today. And in terms of my background, one thing I always like to mention is my background really is a hybrid of sort of entrepreneurial endeavors and management consulting. And I say that because I think there can be a misperception of consultants as folks who sort of have beautiful theoretical models and beautiful theoretical PowerPoints, and they deliver you a beautiful deck and walk away.
And I think one of the things that we really do differently is bridging that gap of okay, that’s great on paper, but the execution is where the [00:08:00] magic happens, how it actually happens on the ground and is deployed. I grew up in Silicon Valley startups and really found a niche for myself working with entrepreneurial founders and growing and scaling organizations, and that taught me to be incredibly scrappy. And again, having started a company of my own, I think I can really empathize with the blood, sweat and tears that it literally takes to run a business. That said I really believe that scrappiness and self-teaching is best paired with institutional knowledge and learning from folks who have been there and done that, so you can maybe avoid scraping your knees a little bit. And so I decided to go back to Stanford to get my MBA and then worked at Bain and Company where I could see what good looks like and sort of bridge that expertise. This is how big companies work and scale and grow and fix their problems. And then this is how you can grow, run really quickly and try new things and operate and sort of bridge those two things [00:09:00] together. And that’s what I try to bring to Skytale and of course our clients.
Michael: That’s so helpful because I know a lot of our audience is going to be like Brad and I, and we have definitely grown our business with the school of hard knocks, so scraping our knees along the way. Scrappy. Yes. Yes. Well, that’s a good term. We’re scrappy.
Brad: Well, so you end up joining Skytale. There’s a funny story I heard about how you found them. Do you want to share?
Annie: Yes. Well, I was getting into this space and I was pounding the pavement and tapping all of my networks to see who I could talk to and sort of accidentally started doing consulting. And I was like, oh my gosh, I’m a consultant again. How did this happen? And so I decided, I might as know well know who else is doing consulting in this space. So I went to this thing, amspa.org and down went to their list of consultants, and I think I LinkedIn’d every single one of them. And Ben and I, he responded and Ben and I sort of hit it off right away.
Brad: Yeah. Love it. [00:10:00] Yeah, I love when a good story comes together like that. But now you were talking about being scrappy and trying to figure out how to grow things, and that’s awesome because this season we are focusing on growing businesses. Now let’s talk about how you help those businesses actually, or your clientele, what do you do with them to help them scale?
Annie: I love this question. I think this is probably the most common question that we receive from our clients. The way in which I think about it, there’s sort of three – if I had to pick three main things to focus on for scaling, it would be people, systems and processes and procedures. And so people being, how do you make sure that you have the right folks in the right seats to make sure that candidly the business could operate without you? Systems, how do you implement things across your company to automate which reduces room for human error, of course, but also just takes fewer people doing certain things, [00:11:00] and then processes and procedures to make sure that whether something’s happening with Nurse Becky or Nurse Sam or location one or location two. It’s always consistent. And a litmus test that I try to hold myself to candidly is, whenever I’m doing something, it’s like, how would this work if it were a hundred times more?
So the other day, I’ll give my own story. My our billing process of the management consulting team sort of was breaking down. We have new types of clients, we have new types of billing, and so we redid the process. And I was kind of thinking, okay, how, when I was building that process, I was thinking about how will this work when we have 10x, 100x, hopefully more than that customers all with different types of problems? And so just thinking for the future, things will break and you’ll fix them, and that’s a beautiful part of building a business. But the less you can do, the better.
Michael: When you talk about systems, are you talking about kind of internal [00:12:00] processes and or technology or talk a little bit about kind of where y’all help on that front.
Annie: The way I was referring to systems would be technology, and so having, for example, a CRM with automated marketing messages or having technology that helps you with callbacks, those sorts of things because I think it just empowers your team to focus on the highest of best use of their time, which is really valuable when you’re a small company.
Brad: Do you have any systems that can focus on removing Michael from this podcast? Have y’all thought of that yet?
Annie: No answer.
Brad: Fair.
Michael: Very smart. I almost intervened earlier to don’t egg him on and tell him his question’s. Great. because he’ll just be puffing up over there.
Annie: I think you need one too.
Brad: I highlighted that and said, wow. She thought it was smart.
Michael: That’s your wrap up. So what are the typical questions you get from your clients when they’re considering scaling of their practice? [00:13:00] And you can say, that was an even better question.
Annie: Really great question. My goodness. I’d say the two primary questions that we tend to get are what does good look like and what are potential buyers looking for? And when folks are asking what good looks like, it can be as simple as, what are other folks’ retention numbers or what percentage of my revenue should be retail product or very commonly marketing. What should be my customer acquisition cost? How much should I be spending on marketing? And in those cases, we essentially use benchmarks to make sure that people feel comfortable that they’re sort of within the range. And then of course, our job is to get them to the top of the range. And then in terms of what buyers are looking for, I think I’m often asked questions about, should I invest in growth now knowing that that will hurt my bottom line? So would a buyer potentially prefer to see growth? Should I buy another device? [00:14:00] Should I open a few more locations? or would they rather see me reducing cogs and reducing my spend? And typically in those cases, we suggest, and depending on the timeline, of course, that they continue to invest in growth. Because once an institutional buyer comes in there, their job is really to optimize and take a lot of those costs out.
Michael: Yeah. And you talked a little bit earlier that kind of made me think of this next question. You were talking about kind of making yourself replaceable – you were talking about the people. Do you guys spend a lot of time like looking at things like recurring subscription models and the types of revenue that are coming in when you’re looking at how to scale?
Annie: Absolutely. I think recurring revenue is huge. I think there are really two metrics that can tell you a ton about a business and all the underlying operations, and that is customer retention, and that is provider retention. If your providers are [00:15:00] happy and productive, they will stay. If your customers are receiving good services in a quality manner, they will stay. And there’s a lot of operations that go on behind those.
Michael: Yeah. Well, and we’ve just had a recent episode where we talked about probably one of the biggest problems we see from our clients is keeping their people.
Annie: Yeah.
Brad: Yeah. Well, we use the word, putting yourself in a position to fire yourself in that job. Same kind of verbiage, but I agree with you, that as someone’s scaling, if they really don’t want to do that, if they, and they can find someone who can do it for them, put themselves in a position so they can go do something else, which is you said very first question, which is highest and best use of their time and the more they can systemize it. So, that’s interesting. Again, I like your answer there. So then let’s take like the next step. So now we’re kind of walking through the journey of you’ve had these conversations with them, when they come back to you and say but this is the biggest financial struggles I have, how can you help me with that when I’m trying [00:16:00] to scale?
Annie: Money. I think it’s, how do I get it? And how do I use it? Yeah. And both are hard. In terms of how do I get it, there’s sort of two options, right? One is building off of your balance sheet, which is an accounting way of saying just using the cash flow that’s coming out of your business to continue to invest in growth. Now, that’s a beautiful option. You don’t have any debt. You maintain ownership of your company. That said, your growth will likely be slower because you’re requiring profit and profit margins to get there. So if folks are kind of hoping to accelerate and ramp, which is an exciting time for a company; taking on outside capital is, there’s debt and then there’s equity and raising from outside investors. And typically speaking, I think one of the things about this being a really early industry is, I’ve seen many credit teams from banks have a hard time getting on board. And so it can be hard to find debt or get [00:17:00] debt especially if it’s just needed for a short period of time, which pushes folks over to equity. And then there’s the question of, okay, how much do I need? And then what does that mean for ownership? And so one of the things that we work with a lot of clients are, you know, I tell my clients I treat their money like my own. I tell them I really treat their equity like my own. It’s incredible valuable piece of your business, and so making sure you’re not giving away more than you need to, I think is incredibly important.
Michael: Yeah. And I think with, I say small businesses, a lot of y’all’s clients are probably graduated or graduating from that. But there is a tendency to treat equity kind of more liberally than borrowing money.
Annie: Yeah. I mean, it’s again, okay, if your evaluation is X, now it’s that same heuristic, okay, what if it were 10 that, what if it were 20 that, and then multiply that by the amount you want to give away, the percentage you want to give away. Those dollars get really big really quickly. and my job, again, knowing how hard [00:18:00] it is to build a business, and I think you two can empathize with this, my job is to make sure that they get as much out of that as they put in.
Michael: When you are helping them kind of with the debt side of things, if that’s where they’re going to get cash, are you finding the banks not understanding kind of the compliance side? Or is it, tell me what are the kind of the challenges that they’re facing with borrowing money?
Annie: It’s a great question and it’s actually one thing that I’m spending some time doing is talking to credit teams of banks and also talking to investment committees at private equity firms, both of whom have really similar kind of question marks, problem statements. And the two that come to the top of my list tend to be regulatory. You know, what’s the regulatory state? It’s moving, it’s new, where is it going to land? And it’s complicated by the fact, and I’m preaching to the choir here that it’s different in every single state which is a hard [00:19:00] thing to deal with. And then two, I think provider concentration or what we call key man risk. And so, there’s a thought of, if you, the business owner, are responsible for 80% of the revenue, well that’s an incredible number, and it shows how valuable you are and loved by your clients.
They know that if you go away, what did they just buy or what did they just lend against? And so those tend to come up the most. And I should I say that this is actually why we launched the third arm of our business, Skytale Private Capital because our clients kept saying, I need a hundred Cambridge loan, or I need 252 to do this. And we knew their books, they’re incredible cashflow positive businesses, and yet they couldn’t come up with any funding. And so in those cases, we provide small lines of credit, or we’ll write small equity checks. And what’s really fun about the ladder is our incentives are so aligned. We want it just as much as them to be successful and it creates a really nice kind of rapport with our [00:20:00] clients.
Michael: Yeah. Talk about Brad just real fast because you just had this a couple of weeks ago…
Brad: And it was funny you were saying that because one of the things I love about this merchant banking is we recently ran to an issue where a bank who does a tremendous amount of SBA loans was uncomfortable lending in a corporate practice of medicine state because the MSO had all the assets, the MSO was helping drive it, which as our audience members know, we spend a lot of time speaking about MSOs, but the bank regulating attorneys, including the ones in inside/outside, they were very nervous that that was of a problem with the SBA because the management company was not the one performing the in-services, the medical entity was. So, I mean, we could probably spend an entire podcast on that, but that’s what I love about your answer. I’ve been waiting to get that in there about that whole issue. Yeah.
Annie: Yeah. I’ve actually, I’ve heard that from clients as well. And it’s really interesting. I think this is, anytime you’re in [00:21:00] a novel interest industry. I came from the world of financial technology, and there’s actually a corollary here with when you’re innovating faster than regulation could keep up, folks get really scared and nervous. And regulation will follow, and I think in this case, I think the MSO I’ve heard a lot, and there’s sort of these interesting nuances. The other day I was chatting with someone and they told me that the bank wanted to make sure that 90% of their revenue or 80% of their revenue was from injectables, because that’s recurring revenue, where that’s actually not diversified revenue stream. It’s actually objectively riskier in many ways for a business. So it’s just really interesting to see where people are thinking that they can get comfort and again, education’s just the key here.
Michael: Yeah. I kind of want to flip that too because when you’re helping them scale, they’re trying to go somewhere and one of the two questions you mentioned is selling or exiting later. Are y’all trying to solve for, oh, you’re [00:22:00] responsible for 80% of the revenue, let’s come up with a plan to diversify the people that’s the cause of it or the types of revenue streams?
Annie: Oh yes. We are in the game of risk mitigation. And so, I think what we always like to say in terms of providers is, the more providers you have performing services and the more equally that revenue is spread out across those providers, the more comfortable a potential buyer or investor is going to be. And similarly, there’s always nuances. I’ve seen successful businesses that have a hundred percent injectables and successful ones that do ton of laser, but typically speaking, having a really nice collection of services, not too many because that’s confusing. It can be expensive, but a nice collection of services is really helpful. And I actually really like to think of a service mix as, if injectables get folks in the door, that’s customer acquisition, guess where you get your margin is lasers and sort of converting those customers over. And so, all of these should talk to each [00:23:00] other and allow for where the real money is, which is cross-selling.
Michael: Do you see – I’m watching her time, but I’m curious, do you see when businesses are looking to scale them going more for that, we’re going to have multiple locations kind of in a dense, small geographic area or trying to spread themselves out, cover the US or a certain part of the US.
Annie: I mean, we see both as goals. And so the question is what is your strategy for the goal? And I think increasingly we will see the launch of a business in an MSA or in a market, and then a clustering of de novo locations around that. And then even better, for a potential buyer if you’re able to prove out and do that exact same thing in a different market, especially a different type of market. What they’re trying to know is, if we gave you a lot of money, could you do this over and over and over again? And so that’s really [00:24:00] the exercise here is showing in advance that yes, we actually could be a responsible stewards of that capital.
Brad: Love it. I think that leads us to our last question, which perfectly aligns with a lot of things you were saying earlier, which is really what is your view about private equity coming into the aesthetic space and the impact it may be having on your clientele?
Annie: Yeah. I mean, I’d say ultimately we see it as a really positive trend. It’s a sign of the growth and the size and just excitement around the space to see institutional capital that’s quite sophisticated coming into the space, and hopefully the result of that is kind of a professionalization of the space that at the end of the day, we think will benefit the patient. Whether that is safety, efficacy, reliability, I think we can all agree that that’s name of the game here. And in terms of my clients, not all of them want to sell of course, but for those that do, what’s nice is that we tend to think about driving value in a way [00:25:00] that private equity does too. And so again, this motto of how do you start with the end in sight and know what to focus on and what to toggle is something that we love to bring to our clients so that they have options down the line.
Brad: Absolutely. I think that’s a good point is that when you’re scaling it doesn’t mean you have to sell private equity. And I think the difference that I think, Michael, I’ll put words in your mouth here, but 10 years ago, especially in the aesthetic world, that really wasn’t an option. It was either sell to your other doctor or merge with a hospital or merge with a bigger group. But that was it. So it’s been fascinating, at least in the aesthetic world, seeing what’s happened over the last decade in this space.
Annie: Yeah. Very excited.
Michael: Well, believe it or not, our time has passed already. I know. It just flew by like it does. Annie, thank you so much for joining us today. What we’ll do next is go into a commercial and on the other side we’ll unpack how my questions were better than Brad’s. Thank you.
Annie: Thank you for having me.
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Brad: Welcome back to Legal 123 ByrdAdatto. I’m your host, Brad Adatto, with my co-host, Michael Byrd. Now Michael, this season our theme is Growing your Business. And we have this great scaling season and we had an incredible guest, super smart, super creative, much better looking than you and I combined even we could – I don’t even know if we would look better combined, actually.
Michael: I could be worse.
Brad: Yeah. Annie brought some great amazing points about how they work with people in the scaling side. And one of her points was, is as you’re growing, there [00:27:00] are certain things that you have to be able to demonstrate that you can do over and over again. I thought that was interesting. What are some legal observations you had from that?
Michael: Yeah, so kind of rewinding to the conversation, and she was talking about how for example, some businesses might try to do the cluster strategy of, they open an office and then they’d build a bunch of them around and then even better, she said, if you could then do that again somewhere else, right? Well, let’s just talk about the first cluster and what you face legally and from a compliance perspective. So when you open that second and third location and you’re a scaling business and you’re managing cash, you are also managing people, and so oftentimes kind of scraping your knee part of it that you referenced at the beginning is you might be having a nurse practitioner cover two locations or three locations. Or you might have one person that’s doing the good faith exams across multiple [00:28:00] locations. And so you start to have to solve, okay, well are we in an MSO and if we’re in an MSO, do we employ everyone at the MSO level so that they can, through the management agreement, go to each of these locations? Or you know, if you have one at location number one, how do we allow that person to be at location two and still be in line from a compliance and from an employment perspective?
And so there are a lot of kind of practical things that happen when you have multiple locations in a small proximity that have big answers that are going to matter when someone’s looking at putting a bunch of money in. And so the other side of it is, you want to have one in this state and one in that state, and you want to show that you’ve got an entire region that’s covered. And we’ve talked about this [00:29:00] in other episodes that, you know, now when you cross state lines, you have different laws in place, and so will your corporate model be set up for success? And how do you adapt to whatever the laws are in that next state?
Brad: Yeah. And something else you said I thought was interesting. You had asked that question about, do their counsel their clients to stay within the same geographic area or can they spread out? And to your point is it doesn’t matter if it’s one block away, 10 blocks away, two states away, those same parameters that you’re just describing have to be in place. Because if the management team is all located, it’s the central location and you’re not making sure everyone else is following your same processes and policies and the contracts are all the same, you start getting this – we start drifting out of compliances is a word we use often, but that as you scale, that’s an easy way to fall there. But [00:30:00] Michael, final thoughts?
Michael: Well, I’m really craving some ice cream and I do think that it will be fruit flavored in the spirit of celebrating my definitive list today.
Brad: Well, I love that you’re ending on ice cream because next Wednesday we have big daddio, Johnny Franco come that had come and talk to us about scaling with weight loss practice.
Michael: I need to listen hard.
Brad: Yes, we need to listen to that one. Thanks again for joining us today. And remember, if you like this episode, please subscribe, make sure to give us a five star rating and share with your friends.
Michael: You can also sign up for the ByrdAdatto newsletter by going to our website at byrdadatto.com.
Outro: ByrdAdatto is providing this podcast as a public service. This podcast is for educational purposes only. This podcast does not constitute legal advice, nor does it establish an attorney-client relationship. Reference to any specific product or entity does not constitute an endorsement or recommendation by ByrdAdatto. The views expressed by guests are their own, and their appearance on the program does [00:31:00] not imply an endorsement of them or any entity they represent. Please consult with an attorney on your legal issues.
