Episode 524 Maximizing Agency Valuation with Ben Gaddis

Hey everybody, Drew here. You know, we are always looking for more ways to be helpful and meet you wherever you're at to help you grow your agency. It's one of the reasons why we've produced this podcast for so long. And I'm super grateful that you listen as often as you do. However... There are some topics that are better suited for quick, hyper-focused answers in under 10 minutes. That's where our YouTube channel really comes in. Again, that's YouTube.com slash.

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The Build a Better Agency podcast presented by White Label IQ is packed with insights on how small to midsize agencies are getting things done. Bringing his 25 years of experience as both an agency owner and agency consultant, please welcome your host, Drew McClellan.

Hey everybody, Drew McClellan here with another episode of Build a Better Agency, and this is going to be a good one. We are going to dig right in and we're going to talk about... what makes an agency valuable and how do potential buyers of agencies look at us and determine the worth and the value of what we offer and the likelihood that we would

be acquired someday. So we're going to get into that in a minute. I'll tell you a little bit more about our guest. But before we do that, I want to give out a huge shout out and thank you to our friends at White Label IQ. the presenting sponsor of the podcast and also the Build a Better Agency Summit every May. You know, one of the things that really impresses me about White Label IQ is that they don't just crank out code.

they can actually take your idea and turn it into something real. So a great example is a project called Collage. So this actually started as an idea. inside Huebner Marketing when White Label was still part of that agency. But the White Label team built it out into a full-blown commercial web app that ended up getting sold to a third party. And remember,

This is what they do every day for agencies here in the US, whether it's design, dev, or paid media. They know how to take the idea off the whiteboard and make it real. And I love that because at the end of the day, agencies are always brimming with ideas. And sometimes you need a partner to help you take that intellectual property and bring it to life. And White Label does that. So check them out at whitelabeliq.com slash AMI. All right.

So let me tell you a little bit about our guests. So Ben Gaddis has owned agencies, successfully sold his agency, and then interestingly decided he wanted to create a venture capital company. to invest in agencies. And so he's going to have a really great sort of 360 degree view of the agency landscape, what it takes to get sold to an outside buyer. It's very different than if you're selling to an employee.

and what we can do today to make our agencies worth more tomorrow. So without any further ado, let's meet Ben. Ben, welcome to the podcast. Thanks for joining us. Thanks for having me, Drew. Great to see you. You too. Give everybody a little sense of your background. You have a unique set of experiences, I think, that will really lend itself to the conversation. So kind of tee that up for everybody.

Yeah, so I've been an agency guy my whole life. Started at the big holding companies. I was at IPG and then went over to Omnicom and then kind of did my own thing. Had a business in Austin called T3. And we were a digital agency back in the day when making a website was a new thing. And business really took off when we started building mobile apps. And that kind of became our shtick.

um then we started building a lot more complex software and the business grew we got to about you know 50 million of revenue and um and i sold it to this thing called private equity that i had no idea was actually even a thing or you know a whole industry And we went out and we did a bunch of M&A and got the business. We grew it a lot and then sold it again. And so I learned a ton along the way. But I've always thought about myself as an operator.

And I was trying to figure out what to do next. And so I actually started a private equity firm with a colleague of mine. And now all we do is invest in agencies and tech services businesses. It's been kind of fun to take what I learned on the operator side and now just through a different lens, still get to do that and grow people-based businesses that I'm really passionate about, but do it from more of an investor side.

So I'm curious, put some dates to when you were actively running your own agency. When was that? What season was that? Yeah, I'd say it's like 2008 to 2022. Okay. Um, 2000, yeah, like 23. And so, you know, we went through a number of different shifts there, you know, social became a thing and then mobile became a thing. And, you know, for context, the business.

It went from just nothing to 300-ish people. So a pretty interesting journey. And then after we sold to private equity, I think when I left, it was about 2,000 people. So it was a hell of a run, but lots and lots of different phases of growth and lots of gray hair that came with it. So it was, yeah, it was a pretty wild ride.

So when you think back to when you started it to the point where you exited, from your perspective now as a buyer, as an investor, how has the business changed? I don't think it could be more different. Back in the day, being a digital agency was kind of a unique thing. We rode a lot of different waves of technology, but there was always this scarcity.

There were just a few people who could do that type of work and clients would come find you in some cases because of that. I think now the model has shifted so much, in my view, just over the last 12 months. And I hear on your podcast and everyone's talking about AI and all of those things. But for the first time, the ability to scale people to deliver more services.

It's just that model is going out the window. And so we're seeing a shift from growing headcount as a way to grow revenue to the more nimble, the leaner, and the more productized you can be. the better. And those are the firms now that I think are going to drive just completely different types of valuations. So back, I think it's episode 100, which I think you're going to be at about episode 540 or so. So that tells you how long ago I talked about sort of this variance of agencies and the...

vernacular I use, the analogy I used is, you know, some agencies are wonder bread factories, right? They, we make white bread, we make wheat bread, we do it super efficiently and you don't get to decide you want half a loaf or, you know, you want rye or whatever, like this is what it is. And then others are sort of this artisanal bakery where somebody comes in and goes,

I want a Boba Fett birthday cake. And even though you've never made a Boba Fett birthday cake before, you know you have the skills to do it. So you say yes, and then you figure out how to price it and then how to make the cake, even though you may never make the cake again, or who knows, maybe you'll make 10 of them a year, but that's it. I feel like the world is getting more bifurcated.

into our world is getting more bifurcated into you have to sort of choose one of those models right either you're the wonder bread factory kind of this productized thing that you're talking about or the sort of more bespoke traditional creative shop that frankly a lot of people listening that's why they started their agency because they love that work and they love that creativity so i'm curious from your perspective a does that align with your observation first

i'll start there absolutely that bifurcation is happening and we're seeing it i think the thing that and maybe this is where the next question goes is does that mean that productization is the opposite of creativity and big idea. And that's kind of an interesting thing that we're seeing play out where a lot of people are saying, well, I have to choose the artisanal loaf or the wonder bread.

And what some of these tools are doing is actually maybe making you have the ability to do some of both by leveraging technology and leveraging kind of a new working model. We can talk about that. You're spot on. I mean, that is, there is like, we call it a barbell. You know, there's a lot on this side, a lot on this side. And I think being in the middle is pretty dangerous. Yeah. So what would you say to the agency owner that says, I don't want?

to be a technology-driven agency. I don't want to create the same two things over and over again. I love... branding a new business and everything is bespoke from start to like that. That's, that's what makes me happy professionally. Is there a place for that kind of agency in your perspective as a buyer? Maybe that you would never buy it.

But as you look out over the landscape, is there a place for that? Or are agency owners sort of being forced down a path, which is if you want to be viable in X number of years, there are certain... choices that you're going to have to make. Yeah. So I believe that you can make the choice to focus on creativity and big ideas. You don't have to move away from that.

But to say that you're not going to be technology driven, I would definitely not bet on that agency. And I would not recommend that as the path forward. I think that you have to figure out how you can leverage technology. to be more creative to do that at scale and i just don't see how there's a role for a company like that but it hurts me a little bit to say that right because i don't think that means creative agencies

go away. There's still big ideas. I mean, there's some amazing agencies out there doing big breakthrough work. And the problem with AI is it's pretty bad at creative, honestly. It's just watered down. It's just like milquetoast. If everyone has the same tools, then everything will look the same. But if you can figure out how to use those tools to focus more time on the unique nature of your creativity, and you can figure out just a small lane that's different.

I think there's a role for that agency. And I think we'll see some of that continue for sure. So the other question I have is, so we have some agency owners who are like, you know what? I've run a bigger shop. I've run a smaller shop. I don't want a big shop. I don't want to be $50 million. I don't want to build the factory. I like knowing our clients. I like having those more intimate relationships. Is there a place you think in the world?

today and down the road for an agency that doesn't want to scale? I know for you as a buyer, you're all about, can the agency scale? But is there a place do you think in the marketplace to not scale?

There is, for sure. And some people refer to those as lifestyle businesses, and they say that in a pejorative way. That's a great business. I know lots of people who have... agencies that are three people five people 20 people and they love it and they love they know everybody they can create an amazing culture um now those companies are going to continue to have to evolve to stay relevant and to provide that lifestyle but

I think you can actually have a smaller agency today and play in a larger pond or win bigger clients because of that. And so that's a positive. If you're in that space. Now, the question I would say is, what do you want to do? And I know you help companies a lot with this. What do you want to do with that in five years or 20 years? And is there value associated with it? You could give it to your employees. You could do an ESOP. You could sell it.

But I do think that buyers, the number one correlation to value that we see is organic growth. And so if you're not growing, it's hard to command a multiple. Right. Well, and if you're not growing, not by new sales. So one of the metrics that we are always talking about is that an agency should be shooting for 60 to 70% of their net new revenue should come from existing clients, which very few agencies...

at least when they come into our world or anywhere near that. I think historically, agency owners have focused on going and finding the new client as opposed to having a system or process in place. to grow and groom the existing client. I think that's probably the biggest unlock that we see when companies start to take off. So when we look at buying a new company, we look at net revenue retention.

And how much of your sales next year are going to come from clients that you had this year? And a great business is doing 95% or 100%. Most of their revenue is staying there from organic account growth. And the companies who do that, and we saw this at T3. So one of the things is our accounts, our best accounts grew on accident, not on purpose.

It is because we had really great account people on them and they naturally did just the things that account people do. But I didn't know what those were. And so if that person wasn't available, I couldn't put them on the new account. And that account didn't grow. And so when we really unlocked growth was when we built what we called it the account operating system. It's just a methodology, right? And we said, each account, we're going to segment it.

Is this a growth account? Is this a net new account that could grow? Is it a core account? And then every one of those accounts had a plan. And we went through and we just said, okay, this person is an amazing account person. Everything we put them on grows. What did they do? And, you know, usually they knew their client's business. They could talk in their own terms. They tied everything we did back to value. They were proactively bringing ideas and we just turned those into a checklist.

And we made sure that every single account had that checklist. We had timing. We had an owner with it. And all of a sudden, we started seeing those accounts scale. And that gave us... the flexibility to then be more discerning with the net new business we went after, which meant we didn't take every deal, which means we didn't drag all our best resources onto a bad deal.

it became a little bit virtuous. And so I think you're absolutely right there that if you don't have 60 to 70%, it becomes a rat race and hamster wheel. Well, and I think a lot of agency leaders and owners feel this incredible pressure to go get new clients all the time. And they really undervalue and under focus on that.

Growth. So you talked about an operating system for growing your accounts. Were there some key elements that were always a part of that system that when you sort of dissected what your best account people did? you know, yes, they understand the client's business. They are able to talk business conversations with their clients, but what else was part of that? What else was a given in that operating system for you guys?

So one thing was we realized we couldn't actually, because everything was so artisanal, we couldn't actually tell you what each client was buying. It was like, oh, they're a client. They bought digital or they bought some, what did they buy? Did they buy CRM? Did they do loyalty work? Was it email? Was it mobile? What was it? So we started breaking down the services that we provide and then tagging those by client.

And all of a sudden we said, you know what? Look, every client who buys a loyalty program from us, the best ones would then buy CRM. So what if we packaged those two things together and we stopped trying to sell them separately and we sold them as a package or just... always offered that to the client. And an account person who just thought that way would naturally connect the dots there. But some people, they come in that new, they didn't even know that we offered.

you know uh amazon web hosting services or something like that they didn't know that we could do branding they didn't know and so what we did is we built kind of a service matrix and every client we would tag those services and then we'd say okay this is a new client

We think it has a lot of growth potential. Let's look at the last clients who had that growth potential that did well. And these are the services we sold them. And in the first 90 days, 180 days, we're going to make sure that we go not only tell them about those services. we're going to do some sort of presentation we're going to do a lunch and learn we're going to talk to them in an educational way about what those things could do for their business

And clients loved it. And they'd invite us to meet some other group or some other department or another brand in the portfolio. So that was a huge part of it. The other thing is we didn't have targets. And I now as a, I hate to say a PE guy, because I don't actually feel that way. It kind of sounds dirty, you know, but if I see a company not having targets for the next year and then not having targets for their clients. Right.

You're just guessing. We would just say, oh yeah, they should just grow next year. Are they going to grow 10%? Are they going to grow 20%? If you're going to grow 30%, where is that 30% going to come from? Is it going to come from the same services? a net new service and you almost have to then back into the initiatives by name by person by date of when you have to sell those things into the client and that was a that becomes a huge part of it

So how did you prevent, because I think a lot of targeting is lick the finger, put it in the air, feel the wind and go, oh, 10%, right? Yeah. So how did you actually do the math? to know what a client's potential was and therefore what you could think about trying to sell them or help them with. So when we work with a new company, I think that's one of the biggest.

things to overcome because it's either it's way too complicated and we can't do it or hey it should just be 20 percent right and there's a nuance yeah and there's something in the middle but oftentimes it's like let's take weeks and let's figure this out I believe if you get the right people in a room in an hour, you can go through on a whiteboard and get 95% of the way there. And you start to just name, okay, do I know the client's biggest challenges? Do I understand?

the politics happening inside the organization, do we understand any big initiatives that they're working on next year? And if you don't, you got to go back. You got to ask those questions. but if you do you could say okay well can we retain the existing business is there anything that would just keep on what are the big initiatives that they have

Let's put a rough dollar amount alongside that. And then what's something new that we want to go sell them? And you start to get to some sort of quantum that's... Hey, look, this looks like it's going to be about the same. It's going to be 20% or a lot of clients like we could double the size of this business just by selling them one more project. And you put that on the whiteboard. It's usually pretty close.

And I found that if you go spend two weeks on it, or if you spend one purposeful hour on it, you get to about the same place. Yeah. So it's interesting. You were saying, you know, agencies can get smaller and sort of scale. And that's certainly what we're seeing, you know. We're actually seeing most agencies are headcount-wise smaller than they were a year ago or two years ago. And I do think that's a trend that...

I can remember when I got into the business and probably when you got into the business, the way an agency measured success was you had more headcount a year afterwards. It was really like... we're we're at 10 people now we want to be at 20 or we're at 150 now, we want to be at 225, whatever it was. But that was the definition of success. And so it's an interesting mental shift, I think, particularly for people who've been in the business for a while to...

recognize that bigger is not better in this current environment. It's so true. And I learned that. I remember being at a conference and people would ask you, how big is your agency? I'd say, oh, it's 150 people. And I thought that was cool, you know, and maybe we'd, you know, like we're going to hire 10 more people next year. So maybe we're 160, you know, clients, that's how we would pitch to clients.

Right. And somebody told me, I can't remember who it was one time. It's not cool to have more people. It's cool to have more revenue. And if that means more people, then that's great. And now when I think about looking at an agency or a services firm, I think about revenue. I think that's the first thing. And I honestly, we see companies who have a huge team in India. They might have 600 people.

30 million of revenue and then we might see somebody who has 30 million of revenue and they might have 50 people in the us it all comes down to your cost structure it all comes down to your delivery model and how you charge clients and really your margin profile. And so I think that's a trend you're going to see a lot more of. I also think you're going to see a lot more flexibility in staff. The world is getting a lot bigger.

And your ability to have a global team, I mean, the quality we see right now in Latin America, in India and Eastern Europe, almost every... the business that's growing really fast has some sort of global team. And so that just changes the math in terms of how many people you can have. You add on some sort of like...

systems and some AI onto that. And it's not crazy to think that you might have a 10 person agency that's doing $10 million. That's pretty cool. Yeah. Yes. It's a crazy concept. I want to take a quick break and then I want to talk about sort of how. I'm guessing that a lot of times when you invest in an agency or you buy an agency, they are bloated people wise. And I want to ask you a little bit about how you decide, not necessarily culture wise, skill wise, but.

What does a core team need to look like today and what can be easily outsourced from your perspective, from a money point of view? So let's take a quick break and then we'll jump into that when we come back. Are you tired of juggling multiple tools to manage your agency? Meet Dell Tech Workbook, the all-in-one solution for marketing and communications agencies. Streamline your projects, resources, and finances all in one place.

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If you're ready to transform your operations, visit pci.us slash podcast for a free consultation today. Hey everybody. Thanks for listening today. Before I get back to the interview, I just want to remind you that we are always offering some really amazing workshops. And you can see the whole schedule at agencymanagementinstitute.com.

on the navigation head to how we help scroll down and you'll see workshops and you can see the whole list there with descriptions of each workshop they are all in denver And we've got them throughout the year for agency owners, account execs, agency leaders, CFOs. We have a little something for everybody, no matter what it is that you're struggling with. People, new business, money, all of those things we've got covered.

So check them out and come join us. All right. Let's get back to the show. All right. We are back with Ben Gattis and we're talking about from his perspective of he was looked and sounded a lot like all of you. started an agency, grew an agency, sold the agency, and now is on the investing side of putting venture capital into agencies. And so before the break, I had said, we were talking about the fact that we scale down now and that...

agency size isn't necessarily a measure of success anymore. And in fact, we're seeing agencies do more with fewer people and it's a mix. it's full-time employees it's part-time employees it's global employees it's contractors it's contract partners it is it's an interesting blend and mix which back in the day i can remember agency owners saying it

If they're not under my roof, that are not touching my projects. And that has completely gone away, certainly over the last 20 some years. So I'm curious from your perspective, when you come in. First of all, do you find that as you're looking at agencies to invest in, are they overstaffed? And B, how do you help them evaluate? what needs to stay in-house versus some sort of contractual relationship? Well, I would say that it's not always that they're overstaffed. I think that...

what we'll often find is that they're staffed in the wrong places. So it might be the allocation of staff. And as I think about where the world is headed, what about your team is truly differentiated? and what can be augmented by systems, process, repeatability. And I hate to harp on AI, but I think if we're not talking about it, then...

Right. We're talking about the wrong thing. So I saw something that scared the hell out of me yesterday just because I kind of thought of myself as back in my T3 days. But there was a prompt and somebody was talking about for their agency. Whenever they're doing a brief right now, they build an agent that's an agency owner. They build an agent that's a creative director. They build an agent that's a senior copywriter. And these agents are working together, handing off work.

And literally working against the brief and in a matter of minutes delivering, you know, 50% of the work in terms of quality, but getting through some of those hoops. Stuff that used to take us two, three weeks. That's pretty interesting. Now, does that replace the team? I don't think so. I think what it does is it augments, unfortunately for a lot of our junior resources, I think more senior people.

who can be in the room, who can build relationships with clients, who can guide them through the right decisions that they need to make to drive their business. And then I think it's really like, we used to call them like 10X engineers. Who are the people that are just wired to deliver bigger and better outcomes? And you're investing in those people and you're surrounding them maybe with less support staff and more support.

agents, resources, technology. And then your point is great. If you're thinking about only your W2 employees, you're missing out on all of the opportunities out there. We say, if it's a core capability... It needs to be, you need to buy it. If it's a scale thing, you can rent that. And so, you know, this pig in a Python, I've got a big project you should have.

a set of trusted partners that can come in and help you act like a $50 million agency. And then you go back to your core 10 and that can be really profitable. And today I think it can be done with a lot of quality. Yeah, we're certainly seeing a...

broadening of a acceptability, but also success with a very hybrid model for sure. So from your perspective, as you're... If you're going shopping for an agency, what's the checklist look like? What would put somebody on your consideration set of, yeah, I would invest in that business? Well, so right now, I mean, we're focused on mostly tech services firms. And I say that as a, you know, these are agency models, right? But we look for companies that are riding the tailwinds of...

typically technology platforms or multiple technology platforms inside a really fast growing segment. So a great way for us to make an investment is to say, well, what are the areas that are growing fastest? It's going to be data and AI. It's going to be... cloud engineering, it's e-commerce. There's really like five to 10 sectors automation that are growing at 20 to 30%. Almost everything else is flat. If you look at creative services,

not really growing very fast. You look at media services, it's not really growing very fast. So that makes it really challenging because I have to outpace the market. So I'm looking for a space where the market is growing.

In order to grow, what we need a firm to do is just to pace the market. If they can outpace the market and gain share, then they're growing like 30%, 40%, 50%. So we start there. And I think that's a really interesting place for agency owners to... do work today because oftentimes they're thinking about what is the core model not where is the growth going to be and a lot of that data is publicly available you can go out and you find it and you can build offerings around that

That makes it easier. I think the second thing then is we're looking for founders who have a vision. And so if you're that creative agency owner that we were just talking about, who says, I'm focused on big ideas and I don't want to change. Well, that's kind of a vision, but is that vision differentiated and can they stand out and do they really?

look different than someone else in the market. And there are, I mean, what are there, like 50,000 agencies? I don't know if that's still the case. That's what we used to say. But it's hard to differentiate. And I think the biggest challenge to differentiation is a

founders vision. And if they don't have that, then it's really not that interesting for us. So we look at that. And then from there, is there something that they're doing that is proprietary and unique? Do they have a vertical expertise? Do they have a deep technology expertise? Can they maybe connect those two things? And so that's kind of where we start. And if we can check the boxes on all of those, then we're going to go into like the actual.

metrics, you know, do they, do they have the right, you know, but like, that's like the, that's the core of what we're looking for in a business right now. When you're looking at visions. Talk a little bit more about that, that founder's vision, because I think a lot of agency owners struggle with this. Like, what is the vision?

that I have for my agency. And a lot of it's just, I want to grow. I want to double in size in three years or whatever it may be. It's often very financially driven, but I don't get a sense that that's what you're talking about. No, it's not. I'm going to focus on the parts that I think are kind of unique. I think vision has a lot to do with culture. And let's just put that one aside a little bit and assume you've got to attract the best talent to do that. That's a given.

But a lot of people can say that and it's easier to say and not, frankly, that differentiated. We have a founder that we work with who I believe has a really strong vision. He said, you know what, I've been working in the B2B e-commerce space forever. And I think it's really challenging for the leaders in this space to overcome a lot of the legacy decisions they've made in.

technology as it relates to customer acquisition, to marketing and to their software. And it is the space that needs to transform the most. And it's actually the farthest behind. And so we're going to focus on helping B2B manufacturers and distributors revolutionize their tech stack to deliver a better customer experience, to sell more products online.

And we're going to do that by combining the back office and the front office. And here's how we're going to do it. And he can walk you through. Here's the five things that you need to go change to make that happen. It's repeatable. It's focused. There's a specific target with that. When he gets in the room, there is no one more credible than him. And it becomes a pretty, it's not an easy sell, but it's easy to communicate that vision, which means creating content, creating productized offerings.

they sort of just happen much more naturally than, you know, I just want to create an agency that grows by 20% because we know where to start. We know what to go work with.

That to me is kind of the idea of a vision. And then he says, you know, we're going to do that by attracting the best talent. Here's the culture that we're going to create. But it all sort of services that idea, if that makes sense. It does. But that doesn't sound like an agency. Right. It sounds like a consultancy. Yeah. Well, that's where the question, you know, back to you is like, what is an agency? Right. Right. And should you be, if.

Should you be an agency? If agency means completely artisanal with no vision, I don't think that's what we're advocating for. So I don't know that. I don't know that there's a difference between those. If you call it a consultancy, a tech services firm, an agency, whatever you want to.

you still have to solve the business problems. You still have to know where you are uniquely positioned to have a right to win. And if you can do that and you put all that together and you can communicate that, I think that's a vision, right? I do. But I think this is one of the biggest challenges facing our industry today is the redefinition of who and what we are. And we've been seeing this for a long time, the commoditization of making the stuff.

It's not new. It's not AI's fault. This has been, you know, ever since Fiverr came around and somebody could whip up or 99designs came along and could whip up a logo that was good enough. I mean... Do those of us in the industry find it appalling? Sure. But does it mean the business goes out of business if they use the 99 design logo? No, it doesn't. So I think the commoditization of the making of the things is a long time in coming.

And I think there's a lot of agency owners that struggle with the idea of, with all of these other places, tools, other people. How do I add value in the equation? And I think particularly with AI, what is it that we humans can do that is unique? I think the push to be more strategic and to be that business strategy partner has been bearing its weight on the agency space for a long time. And some agencies have embraced that more than others.

But your example is a great one to make people think about, okay, well, nowhere in there did you say, and then we made the things that helped them sell more stuff. Now that may be further down. the path of that relationship. But you don't even get to have the relationship if you don't have the, to your point, the mindset of, you know what? You're doing everything in a very 1975 way.

we can help you get into the 21st and 22nd century, which actually will create a better experience for your customers. It'll be more efficient, more effective. Oh, and by the way, we can also do the ads that help you with e-commerce. That's a very different conversation than the way many agencies have historically approached those initial conversations.

I could not agree more. I mean, we say control the roadmap, right? So if you're working, if you're helping clients make their hardest decisions and then building a roadmap, and that doesn't mean technology, that just means you're building a path forward and instead of... discrete initiatives to show them how they should move forward. If you do that, you're in the driver's seat. And whether you actually do the technology build or not.

We added a strategy group, and now we try to do this in every business that we have. When we added a strategy group, everyone was very worried about, is the strategist going to be busy? And what are we going to do with them? And then we're going to build a whole shadow organization of like 50 strategists to match. I think we ended up with maybe like five or six strategists in a 300 person agency, but.

Every time they walked into the room, even if they only had three or four slides, they reframed the conversation to be not about the tactic or about the ask from the client, but about their business and about where it could go. And it just positioned us in a completely different light. And when that happened, that flip happened, it just unlocked so many other things. And we made a lot of money on doing the 9,000th email.

But we didn't talk to people about that. That wasn't why they came to us. They came to us for that first moment, that fact that we guided them on it. And then the rest of it was sort of like, if you can do this hard problem, you can get all the execution work. and so i think clients right now need to be focused on how do they get into that conversation how do they get into you know sorry agencies how do they get into that right now and um and if they do they'll figure out ways to

to get the rest of the work, you know, to get the ball or not. And maybe that's okay too. Yeah. Yeah. Yeah. So in many agencies, one of the challenges is, and I'm guessing as you were scaling, this was probably a challenge for you as well.

It's almost always the agency owner that is the most strategic. It's just how they're wired. It's their entrepreneurial. They understand business because they own one. They took the risk of starting a business or buying a business. So they're just different than the average employee. But they then become the bottleneck. So when you started looking for strategists, either in your own firm or now in firms that you're investing in,

Where did you go to look for good strategists and what were some symbols or signs or signals for you that someone had the chops to do that work? Because to your point, They have to be really impactful in a very small window of time. And so they really have to be at the top of their game, which is not something you can always grow from within your agency. Yeah. Strategy was maybe one of the hardest hires we've made. It was that and BizDev because both of them have a ton of...

BS. And you can't really figure that out until maybe sometimes it's too late. So I think with strategy, the people, it was less about a degree or where they came from. it was really around could someone do a great job of framing the problem and sometimes that would come from like we had a creative director who was the most strategic person i've ever met

But his title was creative director. We put him as the strategy lead on every project because he just quickly went there and got the rest of the team there. In other cases, it was a young person. And there was just something about the market that they knew. And they were able to take that unique knowledge and then apply almost like a common sense strategy.

And so they came at it from more ground level. But the commonality between those two is that it was actionable. The strategy that never works in my mind is the high level. I called it kind of like, you know, and no offense to our friends across the pond, but like the high level British account planner who would come in and say, you know, essence is, and then there was this one word and what do you do with that?

And we tended to lean more towards quick, insightful, and actionable in our strategists. And wherever we saw that, we would just kind of try to pluck that person and put them in that role and see what happens. Were there any commonalities as people are listening and they're saying, yep, I want more of that. Were there any commonalities in either if you did assessments or where you found them or their background?

Or was it really just a, we have to stumble upon these people and sort of kick their tires to see if they actually can do what you just described? When we were hiring, there were some schools that were doing a really good job of it. And they had some programs. I feel like VCU maybe had a program and it's been a while. And so that was helpful.

But we often looked for folks who were like, in this case, it was like three to five years out who had been in like a really complex and new space. So, you know, when social came out. A lot of these folks had to sort of figure out the space, the business opportunity, the client and the technology. And the ones who did really well and got promoted were the ones who just kind of had to pull all of that together. And that was like a nice.

shortcut for being strategic. But we would open it, we would be pretty broad. The thing that we always did, and I would advocate for this in any role that is, we do it almost everywhere. is we would give them an assignment and we would ask them to present. And they would have to be able to walk senior people, no matter what level they were, through this assignment. And even if it was wrong,

do you want this person to be up there? Do you want to hear more from them? Do you want to give them feedback on how this could be right? And if you didn't get that, it was really clear they're not strategic and they're not the person. I am a firm believer that we don't test enough in our hiring, and we certainly should have people presenting to us. You learn so much about...

the power of a person by how they can or cannot command a room. We did. There's a few things in tech services. When you're hiring a lot of engineers, there's actually great tools out there now where you can give people a coding test.

And it's sort of black or white, like you did or you didn't, it'll record their screen. There's lots of ways around it with AI, but you sort of quickly say this person can do what they want or not. In the agency business, that was a lot harder to do because it was abstract. And so projects do that. But we actually did that at Superstep. We were hiring someone on our ops team and we put out an ad and we got 700 applications. This is amazing. For one, we're like, what do we do with these people?

So we asked them, put together a two-minute video. And here's a specific thing that we want you to talk through, a case study of something that you worked on that was similar to this. And number one, the amount of people who didn't know how to do a video. The amount of people who didn't want to do a video. Yeah. And then the difference between some of those videos of who put time and effort into it. We got one person who gives a 24 minute video and the prompt was to.

That's not going to work. And so there's some simple tools that you can use to get to who are your core people and give you a much better understanding of what they're going to act like when they're actually on the job. Yeah, I think so too.

Okay, one last question, and then I will let you get back to your day. But how are you viewing the way agencies sell today? And again, as you're looking at... You know, you've talked a lot about scale and repeatability and all of that, but you've also talked about differentiation and strategy, which are not things that are just rote and off, you know, that everybody gets to see the same thing. So when you're looking at an agency...

and you're considering whether or not you want to invest in them, what are you looking for from a sales perspective? There's a few things. Is it just the founder selling everything? And that's really hard to scale. Hiring a biz dev person. I think the numbers I've seen is like it's 27% success rate, something like that. It's terrible. So have they proven that someone else can sell? A lot of times we're seeing now like portfolio leaders or...

general managers or managing directors who might have a book of business. And we like to see that because usually that means they can kind of scale that business on their own. But then we really get into the go-to-market and how are they pricing? And are they selling tactics? Are they selling something larger in value? And I got to give you a plug here, Drew. And I heard a podcast. You were talking to a guy named Blair Enns. Yeah. This is probably...

2016. I don't know. It was a long time ago. And I heard this podcast and you were talking with him and it just said, I got to talk to this guy. And we went out and we actually, I just hired him for the fifth time for my fifth agency. And what we learned in that process and what I learned from your podcast was when you start to talk about the value that you're providing to a client and you price the value, it becomes transformative and you get out of the day-to-day.

selling a person, but you get the confidence to guide a client in that manner and in what they need. The companies who have that or who have, we can see a clear path. to that are the ones that are standing out right now. And that's a huge part of what we look for in their go-to-market. Can you transform something from project-oriented because their clients love them?

3% recurring revenue. But their clients, they had 100% referenceable clients. They had 100% success rate on projects. And every client I talked to said, I absolutely love them and I would do anything with them.

They just weren't asking for the second order and they made it kind of hard. And so now we said, well, what if you just sold three-year deals? Would clients buy that? No, they would never buy that. We started selling three-year deals and 50% of the bookings in Q1 were recurring because they just offered that.

as an offering so i think about things like that and if you can sort of shift to value that's probably you know one of the quickest paths to go to market success it's interesting i think so often agencies talk themselves out of doing the smart things because they think the employee will say no, the client will say no, the market will say no, but they decide all of that in their head.

before they even try it. And it prevents them. So I looked back after that podcast, I went back and we started doing some investigation. And I wonder why haven't we sold, we've never sold a $5 million deal. why have we not sold a $5 million deal? And I looked through all our services and I think number one reason we hadn't sold a $5 million deal is we'd never proposed a $5 million deal. It's very hard to sell a deal that you've never proposed.

So we just started making sure that in every proposal, we gave clients options and we put a lot of $5 million deals out there. And guess what? We sold one. And then we had never sold a $10 million deal. So we started putting $10 million deals out there. and maybe one out of every 10 or 15 clients because it was well thought through it wasn't just a flyer it was really documented well and and delivered a lot of value they buy it and so now we start to track things like that

How many proposals have you put out there that are over 500,000 or a million or a million and a half? And when you do that with confidence and you don't sell yourself out of the deal in your own head.

It's pretty awesome to see what can happen. Yeah, that's fascinating. The psychology of all of it is fascinating. And the business is changing so rapidly. I'm sure a lot of people are listening to this and going to want to make sure that they continue to stay in touch. They follow what you're putting out, the information you're putting out. So how do people track you down, Ben?

So we post a lot of content on our Superstep Capital page, my LinkedIn, Ben Gattis, G-A-D-D-I-S on LinkedIn. And then I have bengattis.com where we have all of our thinking. some stuff that we're updating almost every week. So contact info is there. And I'm always too much of a nerd about this. I always love talking to any and all agency founders. It's a unique group and I'm proud to have played a small part in growing an agency. And whenever we can help people do that, it's a lot of fun.

Yeah, this has been a great conversation. Thanks for coming on the show. Thanks for sharing sort of the journey that you've been on from owner to investor. It's been fascinating. And I think your perspective is super valuable in this time of... continual and constant change. So I'm grateful that you took the time to be on the show. Thank you. Well, thank you, Drew. I really appreciate it. It's great to be here. You bet.

All right, guys. So some really interesting things to think about. And here's my recommendation. You know, I always like to give homework. I would pick one concept that Ben and I talked about. It could be staffing. It could be pricing. It could be new business. It could be how you lead, how your strategy forward versus tactic forwards, whatever it is, but make it a conversation.

for your next planning session with your leadership team. Start thinking about how do we start moving in directions that maybe we've dismissed as not for us or we're not ready for or whatever. To Ben's point. Sometimes the reason that you haven't gotten there yet is because you haven't made the effort to get there yet. So take the risk, have the conversations.

put a plan in place and start to think about what evolution looks like for you. And just a reminder, it's your business. So if you want it to be a lifestyle business and you don't ever want it to be more than 10 people and you are happy yet. 15%, 20% profit year over year and a little bit of growth, nothing wrong with that. I just want you to be intentional about it and make conscious decisions and then build the business that

those decisions tend to lead you into making. So do that homework for me. And I would love to hear more about what you're thinking and how you're approaching that. So before I let you go, of course, I want to say thanks to our friends at White Label IQ. As you know, they are the presenting sponsor of the podcast. So born from an agency just like you, they had to solve a big thorny problem, couldn't find a solution. And so they built a solution, which turned out to be a whole.

Separate sister business. So check them out. They do white label design, dev, and PPC for agencies just like yours. So head over to whitelabeliq.com slash AMI. to learn a little bit more about how they can help you and your agency scale. Okay. All right. I'll be back next week. I hope you will too. Talk to you then. That's a wrap for this week's episode of Build a Better Agency.

Visit agencymanagementinstitute.com to check out our workshops, coaching and consulting packages, and all the other ways we serve agencies just like yours. Thanks for listening.