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I ran an agency for 12 years. We started it in ‘99, grew it up to a big agency and we were lucky enough to sell it. And then I started putting out free content for my old competitors and helping them out.
I’ve been doing this for the past six and a half years. And I even own another agency right now with few other guys and we’ve been growing really fast over the past year. We’ve acquired nine agencies and we are on track to be a lot bigger than the agency in the past.
It was accidental. One of my friends look like Justin Timberlake, so I created a fake band, a fake website and it got popular. Then, a real estate agent asked me if I could design him a website, and I charged him $500. After I had another client wanting a website. Two years went by, and we started charging $5,000 or $10,000.
We started evolving by hiring more people, offering more services at the agency, and we kept growing from there. By the time we exited, we were over $13 million.
We didn’t refer to ourselves as a digital marketing agency in the very beginning. It was probably around 2004 or 2005 when we started saying we’re an interactive agency. We started designing websites and then we started building custom applications.
Later we started with a user experience like conversion, we took part in SEO, but I don’t think we were ever good at that. We were the best when it came to building applications. We were one of the first to build a CMS system, email system, e-commerce system, but we couldn’t figure out what SaaS was and turn it into a SaaS product.
When you get to a certain size, there are people knocking on your door all day long, and most of the time we’re always saying no, but this was a strategic partner that we used back and forth, and we knew what they wanted to do. We had the same type of culture and they offered the right amount.
I was completely depressed after we sold it because I didn’t have that significance anymore. I didn’t have the people coming to us, I didn’t have the clients.
It was a number of different things. It was our revenue, they wanted our clients, our people, and some of our processes as well.
When we go into buying an agency, we look at net profit or EBITDA (net income with interest, taxes, depreciation, and amortization added back), which shows how efficient and how profitable the business is. That’s one of the main KPIs that we’ll look at.
The next thing that we’ll look at is the monthly recurring revenue, average contract, average expansion revenue, churn rate. There’s a number of different factors. We’re always looking at culture because if we’re going to acquire, the culture has to match up.
It depends on your EBITDA and the range. If you’re under a million in EBITDA, usually, your multiple is going to be one to three X. So, if your agency’s $200,000 in EBITDA, you might be worth from $200,000 to $600,000 in valuation. That’s not the amount of cash that you’re going to get.
It’s always the exact deal structure. It always has to be a win for both parties, and whoever you go with, you want to have the opportunity to sell and make sure it works out for both parties.
It’s pretty overwhelming. I literally could be chatting with someone 24/7. We really start with the money criteria on EBITDA and from there we see what kind of agency it really is. We even buy SaaS companies. So there’s not really one expertise that we’re looking for because If they meet these criteria, we can build something really cool.
You have to get clarity of where you’re going, who do you want to become, and to understand your core values. That’s what you believe in and then associate. Bring people that believe in the same thing, because you don’t want to hire the same people or the identical people to you.
The second thing is about positioning. Now that we know who we’re going after and who we want to become, you have to position yourself as a trusted advisor.
If you go to my website, at jasonswenk.com/about/, you’ll notice that I don’t mention anything about me. All I say is about the clients. I start off by asking questions and I position myself as a trusted advisor and they’re the focal point.
The last part of the foundational system is figuring out what you should be charging and what’s the right order of services that you need to offer.
The biggest thing you can do is really drill down into an industry where you can actually know them better than anybody else. A great example is a client of ours, rankings.io, Cris Dreyer. His agency does SEO for personal injury attorneys and corruption. If you go to their website, rankings.io you’ll see that he stands out and he delivers amazing results to his clients. But he’s also asking questions, he is making the client the star or the focal point.
Yes. Don’t buy a course on picking a niche. I can’t tell you the niche, only you can determine that. You have to try out so many different things to figure out what is it that you hate or what is it that you like or even love doing. You have to figure out what you have the most knowledge in, and what is your passion. Things are going to be very difficult sometimes, and if you don’t love it, you’re going to stop doing it.
Just call them up. If I was starting out, I would do a podcast, invite clients on, have a conversation, or just offer services for free to see if I’m good at it. If you’re not good at it, you’re going to fail at doing an agency. You should feel that you’re one of the best at doing what you do.