How Marcel Petitpas Turned Profitability from a Finance Problem into an Operations Solution

Marcel [00:00:00] the vast majority of the finance service providers in, especially in North America, are compliance focused.

Marcel Meaning their main focus is to follow your taxes. Keep you outta jail or adhere to some set of financial reporting standards like Gap, or something of that nature. And so their job is actually not to help you understand your business. Their job is to like reduce your taxable income.

Hector Hello and welcome to another episode of the How to Scale of Business podcast. My name is Hector Sania Esteban, and I am your host for today, our special guest is Marcel Petipa. He is the co-founder and CEO of Per Keto, and we're gonna talk today about profitability.

Hector Marcel, thanks for hanging out today,

Marcel Hector. It's pleasure to be here. Thanks for having me.

Hector We'll get into some of things. You know, you guys are doing and, and some of the ways that you guys are helping, service-based businesses, but I'm curious what's the story, behind per keto and, and how did you guys land on, you know, profitability as the thing that you guys were gonna sort of stake your claim around?

Marcel You know, it comes [00:01:00] from personal experience. My first business was a small agency. We were doing virtual real estate tours back in like 2015 before you could do it with your iPhone. So we'd go into a house with A-D-S-L-R camera and a fisheye lens and this weird gimbal and take like 15 images and one hotspot, and then do that, you know, a bunch of times around the house, and then turn each of those into a 3D image, then load them all into a 3D modeling software.

Marcel And it took like 40 hours to make a virtual tour of a house. And at the time, real estate agents were maybe willing to pay me a few hundred bucks to do that work. And so I very early in that business ran into this problem of like margins and cash flow and utilization and like, how do you scale this when there's such a tight margin on the work?

Marcel And then years later, a good friend of mine who was running a much bigger agency than I had ever run. connected with me and said, look, I, I spend two days a week in spreadsheets in my business, trying to answer these simple questions that I've gotta ask myself every day when I run my company, which is like, do we make money on our clients and projects?

Marcel Is my team busy enough? What's my [00:02:00] capacity forecast look like? What if we do or don't get this work? Are we charging enough And there's gotta be a better way to do all of this. And that was sort of the impetus for starting Parato.

Hector Yeah, it is, especially for a lot of service-based businesses, you know, they start out like the freelancer role and they're like, sure, you'll pay me money.

Hector I'll do it for you. And then like they keep going and they look up and they're, you know, maybe I'm just speaking too much from experience, but they look up and they've got this like, business that, that has sort of been built, but there was not a whole lot of, of intention around what you talked about in terms of pricing and margins and capacity and, and all that sort of stuff.

Hector what are of the. The key mistakes or sort of key pitfalls that you see a lot of businesses making that are sort of, you know, themselves in the foot. It's that proverbial like needle in the eye that if they just took it out, you know, things would be so much better.

Marcel I'm not gonna give you the same sort of tropes that you've probably heard a million times around this, like underpricing or not scoping projects properly or not having good project management.

Marcel Like those are all, to me, very tactical issues that of course are true. But I think the real [00:03:00] issues are strategic. They have to do with mindset. And so a couple of examples of that are, number one, a lot of service-based businesses look at profitability as a finance problem. Profitability is not a finance problem.

Marcel It's also not the finance department's responsibility, because if you think about it, Hector, how much bookkeeping does it take to fix your profitability? Yeah, it's a trick question. There's no amount of bookkeeping that's gonna fix it, right? So if you think about like an iceberg, finance is the tip. It's where you see the profitability problem, but operations is the part that's below the water.

Marcel That's the part that you actually need to go in and look at and address to figure out why it's happening. What to do about it and that to actually steer the business in a direction that leads to better financials, which are a lagging indicator. So that's a huge mindset shift that I think a lot of people have to go through is like they get really myopic about.

Marcel Bookkeeping and accounting, and they think that QuickBooks is the place that they're gonna get the data and the answers that they need. But it's a small part of the puzzle. And, and I would argue finance data is some of the least [00:04:00] important when it comes to improving profitability. And that's sort of a, a really big paradigm shift for a lot of people to go through.

Marcel 'cause I often find when we speak to them, they spent years bouncing from accountant to accountant and spending more and more money on. More complex, you know, accrual, accounting and service line and department level analysis, and they still don't really know what the heck is going on. They're still struggling in profitability and they've ignored the ops piece.

Marcel So that's kind of one big mindset shift. The second one that I'll say is the order of operations. So in my experience, Hector, people need to make changes to their business in order to improve their profitability and. Generally in business, my experience has been that it's not knowing what to do that's difficult.

Marcel It's knowing when to do it right. If I asked you to list a hundred ways to improve the profitability of your business, you would have no problem doing that. But if I asked you what was the one that would get you the highest return on time and money invested in the shortest period of time, that would be a much more difficult question to answer.

Marcel And so to me, the insight [00:05:00] for what is the best next thing to work on. The formula for insight is expectations versus reality. And when people start struggling with profitability challenges, I notice that most of the time they go to trying to measure reality, time tracking better finance and accounting and bookkeeping data.

Marcel And unfortunately, that is both the most complicated, time consuming and expensive part of the equation. And without the other half, you get no insight. So the experience that people have is they're like, oh, my gross margin is x. Or my utilization is why. And then they kind of sit around a boardroom after six months of like working towards getting that data point.

Marcel And they're like, well, is that good or is it bad? And you can't answer the question. You can't really make a, a discernment of what that data means because you don't have the other half of the equation, which is, well, what do we expect it to be? What is the sort of max target that we could hit with our current business model?

Marcel And the thing that's kind of crazy about this, Hector, is the. [00:06:00] Expectations. Those are basically free to create. You don't need any new data. No time tracking, no finance software, nothing. You just have to take the assumptions about your business and structure them in a way where it becomes clear like, oh, we are planning to be successful or not.

Marcel Our business is capable of achieving X, Y, and Z. And a lot of the times what we find is most companies are struggling to be profitable because they're planning to fail. And there's no amount of execution that's gonna fix that because they're executing on a plan that is fundamentally leading them to being unprofitable and they're just not aware of it.

Marcel So we can fix like 80% of the profitability problems that people have without ever asking them to track time without ever asking them to do crazy analysis of historical financials. we can just find the problem by saying, what is your plan today? Tell me about your team, how much they work, how much they get paid, how many hours they're available, how you think about pricing, what your overhead structure looks like.

Marcel We put all that together in a math formula and go, oh, you're only planning to make a 10% [00:07:00] net profit, so when you come in at eight, that's actually pretty good. Relatively speaking. You just thought that you could do 30, but that's actually impossible. You're not even planning to get there. Does that make sense?

Hector Yeah. I think what's, helpful about this is that it makes it, you know, a lot of people. They go, I'm not a CFO or I'm not a finance person, or I'm not like a, you know, I don't have this money sort of mind, I'm a a web designer, or I'm a, you know, like, whatever, they're a service provider. But sort of what what you're saying is that, you know, it's actually, it's more rooted in business than in the bookkeeping.

Hector And I think that's helpful for a lot.

Marcel Totally. Um, and now you raise a good point, which is like the vast majority of agency owners that we work with, they, they got into business because they're experts at their craft. They're subject matter experts. And not only do they not know much about this side of the business, it's the last thing they wanna spend their time on actually.

Marcel And so part of the challenge too is like, I agree with you. I think a lot of people are more capable of figuring this out. And they think, and in my experience, the best management accountants, which is how I would describe what we do, we're management [00:08:00] accountants. The best management accountants I know do not have a CPA, did not go to accounting school, have no finance background.

Marcel I actually think finance can sometimes be an achilles heel when it comes to management accounting because it kind of hard codes you to compliance. Whereas the role of a management accountant is to understand how numbers affect the business or to use numbers to create a real model of how the business operates.

Marcel You can use to make decisions and understand what's happening. And so I find that entrepreneurial intuition is the more important skillset for that kind of work. And to your point, like a lot of these business owners, they have a lot of intuition about their business actually. They're just not really interested in going and looking at numbers to try and understand this.

Marcel They'd rather go build a website or, you know, strategize on a brand or, you know, do whatever it is that they're great at. And that makes sense.

Hector Yeah. 'cause I think it's like what you're saying is that you're, you're creating visibility, not for visibility's sake. It's like we don't, make a map so we can stare at the map.

Hector It's like we make a map [00:09:00] so we know where we're going or we, you know, it makes it easier for us to get where we wanna go. And that's sort of what you're saying.

Marcel and I think the, the thing that people don't realize is the vast majority of the finance service providers in, especially in North America, are compliance focused.

Marcel Meaning their main focus is to follow your taxes. Keep you outta jail or adhere to some set of financial reporting standards like Gap, or something of that nature. And so their job is actually not to help you understand your business. Their job is to like reduce your taxable income. And what's funny about that is like a lot of times, and you know this, like they're gonna do things that make it less clear how your business is performing because.

Marcel They're trying to reduce your taxable income. So it's like they're trying to make it seem like you made a lot less profit than you actually did, or like it costs you a lot more money to run your business than it actually does. Or like your revenue was actually like mostly pushed into next year as opposed to this year, because if they can accrue it that way, then you pay less in taxes this year.

Marcel So. Those jobs are actually not only [00:10:00] different, but a lot of times they're intention with one another. But I don't think a lot of people realize that. They just think, oh, I have an accountant. I have a CPA. Why doesn't this data make any sense to me? It's like, well, because like the data is doing a different job for them than you're expecting it to do for you.

Marcel And I think that simple understanding might help a lot of people realize, like maybe why they felt so frustrated or so confused by the financial data and why it sometimes feels so disconnected from the day-to-day that they're experiencing in their business.

Hector Yeah, when we get back from break. So I'm curious about sort of what you've seen businesses do with this, you know, sort of newfound insight or with this, I might call it power, right?

Hector The, the visibility that they now have from, going in there and sort of the decisions that they're able to make with their business. Because I think. that's really what, what people are after is it's not like no one just wants to have, you know, good books or, or have, you know, clear insight through financials Again, just for that, you know, sake, there's something bigger and, and greater for their business because of it.

Hector So, I wanna get on, get into that and hear a couple stories, right after this. Quickly. Hey, uh, today's episode is brought to you by Amplify Media, and we are an AI and content production company. [00:11:00] Well, we'd like to think of ourselves as like the fractional media part of your company. Chances are, if you're listening this, you probably have a product, a passion, a mission, a message, some sort of service you're trying to get out to the world, but you might not have the time, the team or the tech skills be able to do it.

Hector If that's a case we can help. Go to amplify media do com, that's A-N-P-L-A-F-Y media.com, all the details. You also took show notes. And with that, let's go back to Marcel. So you can sort of take this anywhere you want, Marcel, but I'm curious for you, when you think about like, whether it's the coolest thing or the wildest thing, or like the most awesome thing that someone's been able to do, you know, after utilizing and implementing some of the things that you're talking about, what comes to mind for you?

Marcel there's a couple of really great stories. the two that come to mind for me are one, we know we work with a firm that, they had been sort of stuck around the million, million and a half dollars a year mark. And one of the things that was really kind of tough about their business was the nature of their work.

Marcel It was very project based and they had these like. These wild swings in utilization. And so there would be weeks where their teams like [00:12:00] just absolutely slammed, working a hundred hours a week for a couple weeks on end, and then they would have like no work to do and everybody would go back to being like not that busy for several weeks.

Marcel And, and, but then of course they would find all kinds of internal projects to work on and all kinds of busy work. And then they would get a bunch of projects and they would be slammed again. And it was interesting 'cause they really weren't that profitable. 'cause those peaks and valleys right by the end of the year, it sort of averaged out at sort of a very mediocre utilization rate, meaning that they were paying salaries for people, but a very small percentage, or not a high enough percentage, I should say, of their time was being used for client work.

Marcel But the team still felt like super burnt out because the peaks were so extreme and the valleys were sort of undoing all of that hard work that they were doing. We were able to come in work with this firm. We started by building a model, which really helped them understand like what their targets actually looked like, what their capacity actually looked like.

Marcel We then built out a forecast for them so they could get much more deliberate about the timing of when projects started and ended. And it, I think really helped them develop a lot more discipline too around business development. So [00:13:00] they were selling more consistently and they were really focused on like keeping the right amount of work coming in at the right time for their team.

Marcel And that business was able to grow. We, over three years, we worked with them 45. 60 and then 90% year over year, and their profitability tripled in the process and their team worked significantly less over time in the process. And so it's like these two things that people think are in conflict with one another, which is like high growth, high profitability, and a service-based business.

Marcel And the team was actually like less burnt out and less overworked because we're able to create a more consistent work life for them all because they just had better visibility. Into what they were doing, into what projects we're working into, what to sell and when. so that was a really cool story and that was a great team and we, we had a lot of fun working with them.

Hector I'm reminded of this often, but it's, I think, don't think you can be reminded of it enough is it's like. I think early on in my business, I was taking a road trip and not knowing how fast I was going, how much gas was in the car, like how much left did I, it was just like, it was just flying blind, [00:14:00] just like riding on hope and, and prayers and, it was like we made it somehow we got here.

Hector But what you're talking about is really like having some, you, you said visibility. I think it's a great word, but it's just, just understanding some, Knowledge of what is actually happening in the business as opposed to this, these assumptions or hopes or, you know, some people, I know I, I've been at times where you just sort of outta sight outta mind or you, you turn your, head away from it hoping that it, you know, doesn't blow up on you.

Hector But these things sort of force you to see what's real and then you can make some, some actual decisions on it.

Marcel A hundred percent. And that's really like. At the end of the day, that's what we're selling. it's not data, it's not reports, it's not consulting, it's not, you know, financial coaching. What we're selling is clarity and ultimately it's confidence.

Marcel And, you know, when I think about like our mission as a company, it's to have like you, the founder of your business, to be fearless and to be confident and to be operating from a place of like, not having financial scarcity, but feeling like you have financial abundance. And what we've seen. Is that [00:15:00] when we put founders in that position, they do amazing things for their team.

Marcel They do their best work for their clients, they do their best work for their community, like they do good in the world because they're coming from a place of fearlessness. And like that is ultimately what it's about for us. And you know, I think that's important because agencies ultimately, like if we agree that the backbone of America is small business.

Marcel Agencies are the backbone of small business. So like who better to serve than the people that are serving like all of these small businesses that make our communities like really, really cool to live in. So to get a little bit ephemeral, like that's, I think what really lights me up about this and the real impact that matters more than the money, I think, for everyone involved.

Hector Yeah. What do you think is, or how are you. Either coaching your clients or helping your clients to realize some of the opportunities that's coming with all of this change, whether it's technological change, economic change, geopolitical, I mean like the weather. There's so much going [00:16:00] on that's just evolving.

Hector Yeah. you know, I'm of the mind that that creates a lot of opportunities, but also requires change. It requires, it does reflect that evolution is a process. are there opportunities or are there things like a, a signal in the noise that you think is worth paying attention to?

Marcel this is a great question.

Marcel I wanna try to keep my answer concise 'cause I could talk about this for like an hour. so I think it creates challenges. But the first thing I'll say is that my philosophy on business is that all business is, is solving a problem and creating a mechanism, which is the business, which is, basically a tool for repeatably solving that problem.

Marcel And what happens when you solve a problem is you, you create value. And so the idea is, okay, we create a business that's basically a machine that goes and solves a problem. There's value that is extracted from that, and we want to capture some percentage of that value and make a profit out of it.

Marcel And generally we think of that ratio as like if we can capture [00:17:00] 10% of the value that we create in the marketplace and make a profit off that, that's a great business. Right? So there are gonna be a ton of new problems that are created by this emergence of AI problems that we don't even know are going to exist in the same way that like.

Marcel We didn't know that running Facebook ads was gonna be such a pain in the ass in 2006, but it was, and it has been, and it continues to be. And therefore there's an entire multi-billion dollar industry of just people whose job is to like run Facebook ad campaigns for people because it's such an atrocious user experience and it requires a lot of expertise.

Marcel Right. so like what is that thing gonna be for AI or for all the different things that AI disrupts inside of the marketplace and the thing that I know to be true. Is it services are the oldest business model in human history services has been around since before humans were even humans, since we were still kind of like primates.

Marcel And interestingly, you might wanna look this up, if you introduce currency into like a chimpanzee community, the first business they start as services. I

Hector [00:18:00] dunno, I'm

Marcel not gonna get

Hector into what services they begin with.

Marcel You're absolutely right. I think you're, I think, I think your logic, you know, you know where we go with this, but like this, it is literally human nature to start a services business.

Marcel It's part of the reason that about 70% of the economy is made up of service businesses. So it's the oldest standing business model in human history. I believe that it will never go away because it is the most efficient medium for adapting to change in the marketplace and change creates new problems.

Marcel And so like. By definition, if you think about, you know, all businesses are made up of different mediums. You have services, you have software, you have products, but software and products, like they're all slow to create and iterate. Even with cloud code and all this stuff that's coming out, it's like nothing is faster than me showing up and just like adapting in real time to your problem.

Marcel So services are here to stay. Expertise is here to say. And what's interesting is I spent a lot of time in the SaaS world. I spent a decade coaching in SaaS Academy, which is the largest B2B software coaching program in the world. And what I can tell you is [00:19:00] that SaaS is moving to outcome-based pricing.

Marcel And there's actually a lot of venture capital that's pouring into service as a software where they're actually going and buying physical service businesses, like logistics companies, moving companies, and then building AI to leverage the crap out of them, and then acquiring a whole bunch of those other businesses to tuck them into this platform as a PE rollup play.

Marcel And so you, you have like SaaS moving towards results based and like, what's the thing we've been talking about in services for a decade? Value-based, outcome-based pricing. So everyone is converging, basically on the point of business, which is deliver an outcome, capture a portion of the value that that outcome creates.

Marcel And so I think the exciting opportunity is that services have been so poo-pooed on by the venture capital community for the last 10 years. And I think it's so asinine because if you look under the hood of every B2B SaaS company on the planet. You have a massive professional services organization, [00:20:00] right?

Marcel They've just been calling it onboarding and customer success and customization and doing it for free and letting SoftBank cover the bill because they raised a hundred million dollars in venture capital money. But like that's human capital. And today, what are they doing? They're monetizing it. Even Clickup is selling professional services for God's sakes.

Marcel I, Salesforce created a multi-billion dollar industry around professional services. So like it's always been there. Venture capitalists just kind of wanted to pretend that it wasn't there and do some financial engineering to pretend that they had 95% margins, but it was never true. And now all of that is sort of coming to a head.

Marcel All the valuations are getting adjusted and everybody's realizing, Hey, you know what, like the margins on service businesses that are well run in technology leverage are actually pretty good. Right, and that that is the opportunity, right, is like everyone is basically converging on the thing that we've been circling for millennia as a human race, which is like the point of commerce is to solve problems, deliver an outcome, and capture a [00:21:00] percentage of the value.

Marcel The mediums are somewhat irrelevant, and therefore, as a service business, I think your ability to innovate, to raise money, to take on a ton of market share, and I think used m and a to grow insanely fast. All of these things are coming together at the same moment. This massive technical, logical innovation with a huge turnover in ownership and a whole bunch of, of existing businesses that could be incredibly leveraged with this technology.

Marcel And so I think, you know, there's gonna be a lot of people that are terribly afraid of this. It's too much change for them. They want to get, they're gonna want to get outta the game, but for somebody that's hungry. And can understand how to put these pieces together. I don't think there has ever been a wealth creation opportunity as significant as this one.

Marcel And I'm very grateful to be in the prime of my career as this is all happening.

Hector Well, you took the bleakness out of my perspective, for sure. 'cause I'm like, yeah, the robots, I saw an ad for today about, you know, the first, robot, laundry folder. It's like, it's out for eight grand.[00:22:00]

Hector It's like, I'm like, oh, well, you know, here it's happening. But I'm, encouraged by your perspective. And, and I do believe that that services will find a way to, persist. I think products and, and events will do well in their own way too.

Marcel this is the thing about being a narcissist Hector, is that, conveniently, I believe that while, like, while I believe that a lot of value is gonna accrue to a very small number of people, there's a part of me that's just convinced I'm gonna be one of those people.

Hector So Fair enough.

Marcel Yeah. I, I might be wrong, but, anyway, that's, that's, that's

Hector a better outcome. That's the benefit

Marcel of my brain

Hector works than the alternative, so For sure. two questions to get before we get you outta here, Marc, myself. The first is if people want to, Find out more about per keto yourself, some of the tools and resources that you guys have.

Hector I know you guys put out a lot. where's the best place for you to go?

Marcel Yeah, I would point everyone to per keto.com/toolkit or you can just look up the agency profitability toolkit on Google. We should come up. One of the first results. It's basically a free course that I put together with videos, cheat sheets, tools, and even a free, piece of software that you can use to model and [00:23:00] measure all the essential metrics in your company without paying us a dime.

Marcel It's absolutely free. I highly recommend you go check it out. and if you like podcasts, we have a podcast called The Agency Profit Podcast. You'll never guess what we talk about. On that show. so you're welcome to check that out. and then of course connect with me on LinkedIn. if you wanna stay in touch and send me a DM and talk about any of this stuff, I'm always happy to hear from you

Hector and we'll link that up for your listeners in the show notes as always.

Hector last question for you, Marcel, is, in your opinion, what is the secret to scale business?

Marcel I believe the secret to scaling a business is understanding your unit economics and. I say this because I've seen it now, I have owned businesses in four different industries now, in professional services, in software, in consumer packaged goods, and in manufacturing and in all of those industries, the most common reason that businesses fail is usually not because they have a bad product or because they don't have demand or there isn't a market or you know, their co-founders disagree.

Marcel It's usually because they [00:24:00] don't understand their uni economics. So that would be the biggest thing. I think it's super slept on, but just like knowing what are your margins? What can you afford to spend a customer, how quickly do you get that customer acquisition cost back? You know, and like, do you have a sound business model?

Marcel Is your business designed to create a profit? And profit is not a bad thing. It's actually a moral imperative. If we agree that like businesses make money by creating value in the world. The only way for them to sustain themselves is to be profitable. And so like the only moral thing to do is to build a profitable business that can continue to scale and deliver more of that value to more people on the planet.

Marcel And so like I think if we make that mindset shift and then we make sure that our businesses architected to do that, I believe the world will ultimately become a better place.