Strategies for entering new industries, Acquiring distressed agencies for market entry, Challenges and pitfalls of taking equity as compensation, The use of NPS feedback to improve agency performance, and more

0:00So this next episode is covering a portion of our agency owners association 1.5 hour call that Neil and I did. So if you're an agency owner and or if you're looking to just learn more about how to scale an agency, there are a lot of questions that we get from the community members in here. This is basically a sneak preview into how the group works and one of the major benefits of the group. So if you're interested, please listen. And without further ado, here is the episode. All right, Adam, let's move over to you. Thanks, Eric. Hey, Neil, good to meet you. Quick question. Have you ever taken equity as compensation?

0:38And if you've done that, how did you do it and how did it go? Sure. Pleasure to meet you as well. I've done a lot of deals in the past where I take equity in exchange for helping them grow. I haven't had one that's worked out. And here's why. Sometimes the equity doesn't work and both people just part ways. it could be the product doesn't work as well or they didn't get as much traffic as they expected or as many conversions the ones that have worked from a monetary standpoint which funny enough in my case you know if i've done five deals at least 80 percent of them work so call it four plus where they're generating a positive roi and i'm generating a positive roi but what i found in the 80 % that works out from a financial aspect for me, because I made way more than I would have with charging fees.

1:32They eventually don't like it. And they wish they just paid me the fees. And then they eventually get upset and we end up parting ways and it just doesn't work out. Even if you have legal contracts and all this, if you're a minority owner, it's just a pain. The bigger corporations don't want to do it because they're too large and they can just afford to pay agency. I'm not saying it's not possible. I'm just saying I haven't figured out a way to do it where it continually works and someone wants to keep paying me on year two and year three. Typically when someone does that on year one, first six months, there's no issue.

2:07Once the numbers start really climbing up, within 12 months, issues arise. I've never seen it just work out well. The problem too with equity is it's kind of like a lottery ticket. Some of the deals that Neil's talking about, these are pretty significant startups, like companies that have the trajectory to become really big. That's where it becomes a pain in the butt. But yeah, any equity deals I've done have gone in that. They've more or less all been lottery tickets. So yeah. And it works out really well when they're small, but when they start getting big and they're writing you like a six figure check a month, they don't like it.

2:41Yeah, I can see that. We deal with a lot of indie brands, could be a beauty brand or some new beverage. And they're trying to figure out how to pay for services in a different way or how to get the cost down. And so I was just wondering, you know, if I should be bringing up the subject or let them bring it up. And it's like, oh, you can, you know, do it this way. We discount things by 20 % in exchange for whatever your last evaluation was. But I don't know, any insights, I'd love to hear them. You're better off just taking the money and the 20 % and not doing any equity stuff. That's just too complex.

3:17All right, Kevin, let's go to you. What is your question? Kevin McGrew. Yeah. Hey, Neil. Nice to finally talk with you. My question is about NPS kind of feedback from clients to improve, you know, agency performance and get some feedback. But yeah, how do you get and use maybe NPS or other types of feedback for clients to improve your agencies and also, you know, for employees to get feedback? Yeah, any ideas there would be great. So we use NPS in two main ways. One, of course, internally to see how happy our team is. And we try to improve upon anything we can based on the comments received. The second way is we do it with our customers as well to see if they're happier over time to see if we're really improving the service.

4:11And we look for comments on where areas we can improve. There's not much more to it. And there's something most people get wrong with NPS. They think the higher the NPS, the better your retention and churn is. Not necessarily. We have a higher NPS now than what we did when we started the company. and our churn is higher in the last 12 months and even 24 months than it historically has been due to economic conditions that we can't control. Is there a frequency, a cadence that you do that with your clients or it's just kind of one time? No, we usually do it at least twice a year. Okay, thank you.

4:55All right, cool. Elian, you had your hand raised twice so I'm not gonna let that go. So, Alain, you can read off your question. What is it?

5:04Oh, did he disappear? Oh, yeah. Yeah. Do you hear me now? Yeah. We can hear you. Yeah. Yeah. Thank you. So, it's more like a marketing question. So, the thing is that if you could only offer one marketing service to, for say, for example, e-commerce brands, that would have the greatest impact. What service would it be? I mean, if you have any... that's a loaded question because if i eat i'm pleasure to meet you by the way that's a loaded question because if the e-commerce brand has no sales they need traffic what form of traffic it could be paid ads depending on the product may work better and you can use the social networks like tiktok and instagram or it could be a product that sells better on amazon or if they have tons of traffic it may be that their site isn't optimized for conversions that the conversion optimization would have a bigger effect in driving more revenue.

6:02I don't ever think in marketing, there's one channel that is better than the other. I look at it as what does the company need? And you got to look at things kind of like a doctor in which you have to do a diagnostic or diagnosis on your patient. In this case, it would be a website and figure out what do they need to to get themselves to the next level. And it's kind of like a teeter-ta in marketing. Oh, let me drive more traffic. We're getting more traffic. Let's focus more on conversion. You focus more on conversion. Oh, the conversion rate's higher. Now let's focus on getting more traffic because now we can afford to pay more for the traffic.

6:36So this will help us scale more. Oh, we got more traffic. What else can we do in conversion optimization? Well, we already did a lot of this stuff. There's not much, that much leverage. Oh, but let's add an upsells and downsells. Although that's not conversion optimization, you're creating a funnel. So you're increasing your average revenue per user. Oh, that's now getting people to spend more per purchase. Let's drive more traffic now. All right. You know, what else can we do to maximize? Well, let's increase our LTV by focusing on our email campaigns to get people to keep coming back and buying more and more and adding subscription options.

7:07Right. So it's kind of a balance and you have to adjust your approach to marketing based on where someone is within their business. Right. Yeah. Thank you. Does that help? Yeah. The reason I asked that was because we have to focus on one niche because I ran a full stack marketing agency for a year and that dragged me quite crazy and because a lot of work with a very small budget. And so that's why. Wait, wait, wait. Sorry to cut you off. I get what you're saying. You're looking for the best service. Let me actually rephrase your question and ask you a question. you've been doing full stack marketing what's the number one service that people have been really happy with you with that they love more than any of the other services you offer

8:01and frankly for me there was nothing very special that we that they really loved they I love the fact that they started to see results by working with us. So what I'm saying here is that the companies that I was working with is Japanese brands. They want to go global. They don't know anything about marketing, or they don't know anything about global markets. Where am I selling it or not? They just need revenue from these international markets. And I'm doing that for them using different platforms, as you said, depending on the product. And usually it's very diverse and I don't have any one specific service that I really like and I really excel at.

8:56And I haven't got any feedback from them. I got to take a minute to tell you about the Agency Owners Association. This is a peer group for agency owners, think YPO or EO, but for agency owners. and I just wanted to read you a couple of testimonials. So this first one comes from Carrie and we asked her, what do you like most about the group? She said, having a group of people to discuss and bounce ideas. The leads are great too. Yes, we share leads in this group as well. This one from Alian, he says, the ability to really post whatever I want and need and the group responds. Great experienced members, getting a lot of insights from conversations with other members, getting a lot of value from sessions from Eric, getting advice from others as well.

9:32And so if you wanna grow your agency faster and you wanna peer group to do so, just go to marketing school.io slash agency. This is a group that both Neil and I created. And our hope here is to create a vibrant community of agency owners and do a lot more with it in the future. So again, marketing school.io slash agency, and we'll see you inside. So why do you want to focus on one service? It sounds like what you're doing for these companies. And I remember you talking about this last time we did a call together, because I remember very specifically, you focus on bringing Japanese companies to the rest of the world.

10:05And you're doing different services. It's working. Why do you want to focus just on one service? Your model's working. What's wrong? I need to hire a lot of people and that needs a lot of profit. That's the really big thing. I'll teach you how to solve this. I get your problem. Your real problem is is you're doing paid Facebook, Amazon marketing, SEO, email marketing, CRO, et cetera, and it varies per client. So if you had to hire 10 people to help you out to take off the workload, there goes all your profit. Well, what you want to end up doing is, A, make sure you're charging proportionally so you can actually build a team and produce better results so you can have people who specialize.

10:52No offense to you, no matter how good of a marketer you are, no one's the best at everything. That's extremely rare. so that'll provide your customers better results so you need to make sure you're charging them enough the second thing is is you don't necessarily need full-time people for all those roles so what you want to find is contractors and consultants who can help you out and scale as you go and these are individuals like freelancers not other corporations that you're outsourcing to that way you know your profit margins are still healthy so that way you're only paying people for the work that is needed for the clients that they're actually working on versus having them all full time.

11:30And if you still can't make the economics work that way, that means you're not charging clients the appropriate amount. And you should try to eventually optimize for 20 % margins. If you're at 40, 50 % profitability margins, that's not realistic as an agency. You need to actually take them down and make your profit by scaling up and generating more revenue. Yeah. As a side note, by the way, a lot of agencies that are smaller, they like to brag about their 50, 60 % profit margins. That's not real to Neil's point. Right. Because at a certain point, as you continue to get bigger, you know, it'll balance out where you should probably be around 20, maybe if you're lucky, 25, 30 % or so, but that's also rare.

12:12All right. What's your margins? For me, it's 60, sometimes 80%. Yeah. So, so the problem is that how much clients are paying, The problem is, is your margins and you just have to live with it because your margins are extremely high, but you're probably doing all the work yourself and no team. And that's unrealistic to scale the revenue. It only makes sense hiring and doing this. If you know you can close three, four or five times the amount of clients because then your revenue is higher and then it makes up for the profit loss.

12:53yeah gotta do a lot of acquisition yeah all right cool um so before we go to you david um i'm gonna go to mario mario what do you got hey thanks harry um so here's a question we've been doing business for about 14 15 years and our two main industries have been well industries is a loaded word but we've been working with publishers and b2b sas quite a lot so the question is both of have been hit hard either by helpful content update or the pandemic, major layoffs and stuff. And we have opportunities to jump into different industries now, let's say sustainability or construction or the military space.

13:33So we have some form of contracts or referrals or so, but proof of work is not there, right? We may have like one client we've done some stuff for, but not enough credibility. So in cases like that, kind of what's the workaround for it? Is it discounted work for some clients in order to start? Is it small acquisitions of related players? Is it hire a couple of people from a space that have the background credibility, have done something, strategic collaborations and profit share? What are the ways to penetrate a new space quickly and show proof of where you can deliver, but you just don't have the case of this yet?

14:10You actually named all the solutions yourself. The quickest one would be acquisition. and acquisition doesn't have to be expensive you can use their own capital um to do seller-based financing and and pay them or you can get a government loan a lot of them in different countries have like sba and stuff like that uh or what's funny is you can look for competitors or they're kind of competitors because they offer the same services but they do it in a different vertical but they don't run a financially sound business like someone could have two million in revenue and little to no profit, like 50 grand or a hundred grand, because they don't know how to run the business side.

14:49And you can buy one of those and you can fix a business side. And then you're off into the races. And that would be the cheapest way to go into a new market. That's what I would actually recommend. If you can run the business side and you already know operations, how to do it profitably, go find someone who has the clients, the case studies, but they're not really making much money on the revenue side or profitability side, and then expand from there. The number one challenge for businesses is hiring. And more specifically, the number one thing I get asked for all the time is, Eric, where can I go find an amazing marketer?

15:19And the reality is right now, when you think about the world, we have inflation that also means wage inflation right now. And it means that when it comes to hiring talent, you can't spend as much as you would have in the last couple of years because it's just become too cost prohibitive. And so we've partnered with one of the best offshore recruiting firms. When it comes to marketing, they've been a great asset for us. and I believe that they will be a great asset for you. All you have to do is go to marketingschool.io slash hire. Again, it's marketingschool.io slash hire to learn more. You can fill out the form there and we're gonna place you with the best marketing hires that we can help you find.

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16:33This Black Friday, join the thousands of new entrepreneurs hearing. for the first time with Shopify. Sign up for your free trial today at shopify.com slash marketing school. That's shopify.com slash marketing school. Go to shopify.com slash marketing school and make this Black Friday one to remember. And just a final one, what would you say is a normal multiple right now, like in 2024? Because in my experience, like three years ago, it was, let's say, 2x revenue. And right now it's like 4x EBDOS. But it's like for cases like this, when they're like what size mario like what what what even well i would say a smaller one just for you know agencies that are distressed just so that you can take a portfolio for like a five person agency or so so you know it could be anywhere from like 500 000 to a million i would say like in revenue or profit in revenue oh in revenue if that's a revenue agencies have never really traded on a multiple of revenue if anyone ever pitched you that they're just trying to get you to pay a multiple of revenue.

17:37They've always traded on a multiple of profit for the longest time since I can remember more than 10, 15 years. That's never really changed. If someone's that small, you're not paying more than two, three times profit if that. That's cool. What is the profit on the 500, Mario? Well, we're just exporting two of these and they're more or less break-even and they're unable to keep the team. So I would say they're break-even if not even losing money. Oh yeah. So they're breaking even losing money. You should discount it even more. No, you don't have to pay any money. You just go to the family and be like, look, times are tough.

18:13What I'm going to do is what's your salary? Oh, I'm going to actually give you a good salary to work on this business. And I'm going to end up taking it over and acquiring it. And at least you have a really good job. And if they don't want to stay there, then you can just give them like 50 grand and tell them to move along. They're not making any money anyways. Neil, what was the broker called? Madison Alley? Is that it? yeah but they don't deal with agencies this size no no that's not what i'm talking about so madison alley uh mario so he's actually i listened to i actually so neil i don't i don't know if i told you this but i listened to a podcast with him um a couple weeks ago and um he was just i think it was like a 2023 podcast but he was kind of naming the multiples right so you know if you're doing like 500 or whatever you're lucky if you get two three x 500k in profit you're lucky if you get two three x and then it starts to scale up as you get bigger you know obviously it's you're not getting the 15 to 20 x's that we saw like in 2022 but you you have to have like a much higher ebitda we're talking you start to go above 5 million 10 million whatever um but in this case neil's solution is the best one it's like hey i'm just gonna take this thing off your plate i'll give you a a stable living and uh that seems like a good deal to me so pretty cool thanks guys appreciate cool well look i think that's it for today um ezra's gonna send you guys a survey just to see what we can do better here.

19:29Please be brutally honest with us. And we look forward to doing the next one. Thank you. Have a great weekend. Bye. Thanks, guys. We very much appreciate it. Thanks, guys. Thank you. Bye-bye.