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19 Lessons I Learned After Selling My 8-Year-Old Digital Agency

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On January 1st, 2022, my company, Céntrico Digital, was acquired by Uhuru Network. When I started my digital marketing agency in 2014, I thought it was going to be easy. I don’t know if I’ve ever been more wrong about anything. Owning and operating an agency took me to the event horizon of my physical and mental limits, teaching me resilience and self-reliance in the process. Nothing I’ve done professionally has been more rewarding, but I also know I forced myself to commit a lot of unnecessary mistakes by not seeking out enough advice from people who scaled the mountain before I did. In what follows, I’ll share what I consider to be some of the most important lessons from my journey.

 

The Work

1. First, Have a Strategy

When you initially get your agency going, it’s easy to say “Yes” to everything that comes your way because you’re desperate for clients, revenue, and validation. However, what will sustain your agency over the long-term is knowing what you do and who you do it for — and conversely, what you don’t do and who you should avoid as a client. We often say that strategy is everything you say no to. Everyone thinks they have a strategy, but if you’re not saying no to potential clients, you don’t have a strategy. 

The best way to differentiate yourself in a crowded marketplace is to do a specific thing for a specific type of client such that your offering will be clearly understood and desired by some people … and clearly avoided for others. “Do you also do […]?” is a tempting question to say “Yes” to, but until your business is stable, it’s better to double-down on one thing rather than spreading yourself too thin. When you’re stable, you can then start adding and perfecting additional services. In other words, it’s better to start by unbundling services offered by other agencies. Don’t try to be all things to all people — you’ll end up doing some things well and most things not well. 


2. Have a Project Management Methodology 

 A brand is a promise, and a great brand is a promise kept. The best way to keep your promise is to have a methodology that allows you to easily replicate the delivery of high-quality services. At our agency, we became worshipers in the Church of Agile/Scrum — though we arrived late. The agile framework applied to professional services (which is not a direct application of scrum used by developers) allows you to predictably deliver services in a profitable way. It also provides a means to ensure constant improvement and eliminate process errors. 

 A strong project management methodology allows you to scale your team faster by creating a system that reduces the margin of error. Like many agencies, in the later years of our existence, we were often supply-constrained rather than demand-constrained, and each additional new hire required time and attention from our more senior staff. Having clearly defined processes and a training methodology with a strong self-guided component allows you to quickly add new people without breaking the existing operation.

If you’re going to become a first-rate and profitable agency, you’re going to have to become process-obsessed. Investing in your internal processes is the best way to protect your competitiveness, profitability, and scalability. 

 

3. If  Your Market Doesn’t Value Your Work, Change Your Market 

 We started as an agency based in Quito, Ecuador in 2014, and at first, all our clients were Ecuadorian. After two years of perfecting our craft, we began looking for clients in the United States and Canada. The Ecuadorian market was complicated: there was a lot of downward pressure on pricing, which made it harder to retain talent at better salaries. When we switched our focus to the US, we initially met resistance — people were wary of working with a provider outside of the United States. We set up our engagements so that people could try our service before committing. Once they got a taste, they no longer cared where we were based. After the pandemic hit, the idea of globalized services made much more sense. If you’re unhappy with the conditions available in your local market, you have to change markets or modify your services to be able to find the conditions you want to work in. There’s never been a better time to do so.

 

4. Success Can Cover Up Your Weaknesses 

Many agencies will go through some sort of rapid growth followed by a correction, and the correction is painful. When we’re successful, it’s easy to ignore weaknesses, but those vulnerabilities will come back to haunt you. Maybe you’re not controlling your expenses and you’re spending too much on salaries. Maybe you don’t really need that big office, but it’s a small item compared to the overall budget. Maybe one of the services you offer is pleasing your clients but not really profitable and therefore requires a price correction. Looking for things to fix and tweak before they become disasters is a great skill and habit to ensure the up-cycles are longer and the down-cycles are shorter. 

 

The Clients

5. Pick Your Clients Carefully 

 So your friend has a brand new startup and they’d like to hire you to do some work for them — easy, right? Unless the friend’s business represents your target business, you should stay away. Over time, we learned to avoid clients who didn’t have experience with similar service providers because they often didn’t have the benchmarks to understand the value of our work. If the client doesn’t understand the type of work you do, it’ll be hard for them to understand and appreciate the value you create. Eventually, they’ll question your fees or try to find someone cheaper.

 Before starting an engagement, we would also look at the state of the client to determine if they’re a good long-term fit; a company that’s in trouble and desperately looking for a quick win is not a good long-term fit. If the CEO on the client-side says, “I’ll be your point of contact,” you may be his priority today, but you probably won’t be tomorrow. If a company has no leadership in the function you serve, it’ll be hard for you to fill that gap as an outside provider. Better to avoid problem clients and build your long-term sustainability with clients who are a good fit. 

 

 6. Learn To Fire/Prune Clients When Needed 

 No client is worth sacrificing your free time and emotional well-being for. More so, it’s much harder to replace a great employee than it is to replace a client. I’ll never forget the day one of my most talented employees came to me with tears in their eyes. 

“Either I have to stop working with him, or I have to quit.” 

 I didn’t question the sincerity: I had seen the client humiliate his employees in front of us. We were never the target, but we still cringed at the environment he created. The contract was meaningful for us, but a few months after we gave our notice, we no longer missed the revenue. 

We never fired clients without warning: we tried to structure our engagements in such a way that expectations and deliverables were clear, and extras were priced appropriately. If something wasn’t working with a client, we’d try to talk it out and hit the reset button, even if it was uncomfortable. Then, if we had no other choice, we’d pull the plug. Because of our stance around firing clients, our employees felt empowered to solve client problems and initiate difficult conversations without fear of reprisal.

 Finally, over time, it’s normal for longer-term clients to become less profitable due to the simple fact that you should be constantly bringing new clients on board under more and more favorable conditions. When that happens, it makes sense to gently offboard clients. We call this exercise “pruning” and consider it an essential means to healthy growth. Growing your agency with a lot of unprofitable or less profitable clients will only hurt you in the long run. If salaries increase faster than retainer revenue, you’re in trouble. It’s better to be proactive rather than allow tensions to ruin what were otherwise mutually beneficial relationships.

 

7. Set Expectations Clearly 

 In the beginning, our contracts were vague and deliverables were ambiguous. By the end, our contracts included extremely detailed scopes of work, along with the number of revisions a client is able to make, the cost of making changes after a phase of the project is completed and approved, etc. Our contracts stipulate when we consider a project to be abandoned and what costs are included to then restart. We try to outline the duration of feedback windows in order to keep projects going and prevent one client from holding up other clients’ projects. We charge rush fees for unexpected requests. Some agencies might be afraid of setting such aggressive conditions, but the alternative is one or two clients breaking your agency’s processes and profitability. Clients that are promised everything tend to feel that they never get enough. Clients who understand the terms of the engagement tend to be allies rather than adversaries. 

 

Pricing

8. Measure Your Productivity

 A lot of agencies have moved away from the hourly-billing model, and that’s a good thing. Any work priced on inputs rather than outputs is inherently disadvantageous for clients. At a minimum, your team should measure inputs and costs by client and by task to understand the true cost of delivering any service. The alternative is throwing the dice and hoping you’re profitable without ever being able to optimize your operation. 

 

9. Value-Based Pricing

 A lot of agencies have moved to point systems over the past few years, which I consider to be advantageous for both parties. Points are essentially a means by which to reserve an agency’s capacity — thus providing a commitment on behalf of the client — as well as a means for the agency to undertake capacity planning and maybe even utilize demand-based pricing. For example, if 80% of your time is committed to retainers next month and you have leads for projects, you know you can charge more for any new work that comes in because you’re more or less at capacity. 

 When they’re well-designed, point systems also reduce a lot of back and forth with clients. Instead of sending scopes of work to be approved by multiple individuals and then negotiating the payment of additional invoices, points allow for agencies and clients to work together dynamically, pulling in extra services as needed. 

 Though point systems can be great, they also shouldn’t become so rigid that we lose sight of value-based pricing — the idea that something is worth more than a commodity because it’s done by me and it’s done within a certain period of time. A restaurant does not sell you wine at cost because there’s an additional cost for having it served by a waiter at their restaurant. That’s why people cringe at paying $20 for a bottle of wine but see no problem paying $10 for a glass of wine. Similarly, if you’re adding design work to other services, there is no reason why the design work pricing should be limited to the inputs. You’re providing a benefit by streamlining the work and guaranteeing the quality. Your pricing should reflect that. 

 

10. Being Supply-Constrained Is Better Than Demand-Constrained

 I’ve already mentioned saying no to potential clients as well as pruning unprofitable clients. To get to the stage where you can do both comfortably, it’s better to find yourself turning clients away because you have too much work rather than panicking when you’re not sure how you’re going to pay your bills at the end of the month. If you’re eloquent in how you say no, most clients will come back. If you offer to schedule a project a few weeks out, sometimes clients will say yes, or they’ll tell you to get in touch when you have more availability. As a bootstrapped operation, life became sweeter when we had the choice of clients to work with while also knowing there was enough money in the bank to see us through. It’s ok to leave money on the table if it ensures your long-term stability. 

 

Sales and Marketing

11. Test Everything on Yourself First 

 For so many agencies, their website, social media, and sales assets go neglected. After all, working on your own marketing takes away from doing client work. The truth is that the quality of everything you produce and share — even the formatting of dashboards and quotes and spreadsheets — reflects your overall quality. As one of my long-term employees was fond of saying, quality is a habit. 

 When launching new services, we’d first try it on our own owned and operated brands before offering the service to a client. That way, we reduced the pressure and increased our tolerance for mistakes. Not every new service we offered was fully baked, but at least it wasn’t part of the first batch we burned in the oven. This may sound like an obvious point, but it took a long time for us to put it into practice. 

 

12. Luck Is Not a Sales Strategy

 Where are your clients coming from? If it’s from your personal network, you don’t necessarily have a sales strategy. If you’re dependent on client referrals, you don’t have a sales strategy. An agency has a sales strategy when it can intensify and decrease its sales activities according to the availability of resources. Network referrals can get you so far, but it’s not necessarily a self-replenishing well. 

 Our best sales strategies came from finding something that worked and then doubling and tripling our effort to improve conversion rates at each stage of the funnel. Hiring up without a solid sales strategy is risky. Building credible outbound strategies to complement your organic and inbound leads makes your agency more resilient over time. 

 

13. Channel Partners Work for Projects, but Not Recurring Revenue 

 Throughout our existence, we worked as delivery partners for different agencies across the US and Canada. They would generate demand for our services and we would backstop their operation, often enabling them to have supply elasticity. When these relationships were based on managing monthly retainers, tensions arose. 

 Because we didn’t have control over client selection, we sometimes got stuck with clients that were not a good fit. If we became too big a part of the channel partner’s business, the channel partner might start to shop around for cheaper providers or look to poach our people. Clients, on the other hand, would start sniffing around LinkedIn to figure out why a report was prepared by someone who works at our company and not the company they hired. 

 When we worked on a project basis, however, our relationships with our channel partners were very productive. The short-term nature of the relationship seemed to please all sides, as it allowed us pricing flexibility and the ability to end relationships that weren’t working for us. 

 

Culture 

14. Talent > Knowledge 

 Most of the people we hired had never worked in digital marketing before. We identified talented people with skills that span analytical abilities as well as creative potential, and we taught them what they needed to learn to do the job well. Knowledge can be acquired; talent cannot be acquired, only realized.

 

15. Failure Is Your Friend 

Every Thursday in our weekly all-hands meeting we shared our failures from the week. We divvy failure into three categories: 

  • Negligence: Negligence happens rarely but can happen to anyone. It’s only a major problem if it’s recurring. Exposing your failure of negligence allows you to get its evil spirit off your back so you can move on. 
  • Process: My experience is that processes fail humans more than humans fail processes. When process errors occur, we don’t want to hide them; rather, we want them to come to the surface so we can fix them. Rather than asking, “Who did it?” we train ourselves to ask “What happened?” That way, we get better results over the long term.
  • Ambition: Errors of ambition happen when we’re trying something for the first time, and they’re the best errors because they are so nutrient-rich with lessons. We prepare for, talk about, and celebrate our errors of ambition. 

Mistakes are not the enemy: they’re part of the learning process. On numerous occasions, we overspent clients’ budgets, apologized immediately, covered the cost, and our relationships ended up stronger. Mistakes that cost money are easy to solve because money is replenishable. Mistakes that require time are the worst. You can’t get time back. Finally, when people feel safe, they’re more creative, and part of feeling safe is knowing that you can afford to mess up from time to time without the threat of losing your job. Normalize mistakes and you normalize learning. 

 

Acquisitions

16. If You Want To Sell, Market Your Product 

 If you have an exit strategy in mind for your agency, you need to translate that vision into work, which usually means an active process of marketing your agency. Marketing your agency requires figuring out what company would be interested in purchasing your agency, and then figuring out who the decision-makers are in that organization. Your skill as a marketer will allow you to determine how to get close to those individuals and build a rapport without seeming desperate or too eager. 

 Once you do get close, it’s best to be open about your intentions, as no one wants to enter a negotiation with someone who is reluctant to sell. In your research, you’ll want to ask: do the identified agencies have a history of acquisitions? Have those acquisitions gone well, or poorly? Acquisitions rarely just happen — if you want to be acquired, you have to set out to make it happen, especially if you want to attract multiple suitors in order to fetch the highest price possible. 

 

17. Understand Your Agency’s Real Value

 Agencies are not unlike sports or acting. A lot of people will run them for little money because they either love the work or because they believe that, against the odds, they will one day get rich … despite all the evidence to the contrary. 

 I’ve met agency owners who believe their company will be purchased for a multiplier of their revenue, and it’s disheartening to bring them back to earth. Agency valuations are fairly standard and well-documented. Unless your agency has an active buyer, your agency is probably worth nothing or has a negative value depending on how many debts and liabilities you have, including mandatory severance if you’re operating outside the US.

 If someone is interested in buying your agency, they’re usually looking for a.) your client list, assuming you’ve managed to build recurring revenue with profitable and attractive clients, b.) your brand, which usually goes hand in hand with the client list, and c.) your talent. 

 If you have A and B, you’re probably closer to the higher ranges of EBITDA or SDE multipliers. If you only have C, you’re probably closer to the lower-end. The value of a deal, however, isn’t only in the sale price. Are your employees able to earn more in the buyer’s organization? Are you able to increase your earning potential with the new owner? Are you missing job opportunities elsewhere because you’re tied to your agency? All of these factors need to be taken into account when calculating the real value of an acquisition. 

 

18. Understand How Acquisitions Work in the Agency Space 

 If you have friends or lawyers from the SaaS world, they will likely mislead you when it comes to advice on acquisitions. Acquisitions in the agency world are often seller-financed and include clauses like earn-outs. People who live in the SaaS bubble will look at these conditions and assume you’re crazy to agree with them. Aside from their much longer history than SaaS acquisitions, agency acquisitions are fundamentally different because there is rarely an exchange of tangible assets or meaningful intellectual property. Often, what is purchased is the right to a series of contracts with employees and with clients — neither of which are guaranteed to hold value over time. 

 I recommend books like Buy Then Build and Build to Sell as great on-ramps to the world of agency acquisitions. If you’re really committed to learning, you can check out Uhuru’s own Digital Agency Business Course. Lastly, understand the tax implications of your sale as early as possible to avoid any surprises. 

 

Conclusions

19. Accept No Trade-Offs 

 People in the agency world have an exceptional tolerance for abusive working conditions, maybe because they’ve worked in multiple agencies and come to believe that there is only one way for the world to work. After applying the lessons learned here, we became a four-day-workweek company, with Fridays dedicated to learning. We continually developed new services and retained a highly entrepreneurial culture. We created an employee shareholder scheme and when we sold, 17% of the agency was owned by the employees. We never worked evenings or weekends.

 To get there, we needed to be more profitable, and to be more profitable, we had to raise our prices. If people said no to our new prices, we simply needed to speak to more potential clients until we started finding those that would say yes. If we couldn’t fetch higher prices with our existing services, we needed to switch services. Agencies are often considered lifestyle businesses, and with careful planning, the lifestyle you desire is within reach.

 Accepting no-trade-offs when it comes to acquisitions means finding the right buyer for you. The price might be right, and the timing might be right, but if you see yourself having to make major changes to your and your employees’ expectations upon entering the new organization, you might have the wrong buyer. You can negotiate anything and everything except your integrity and your values. Accept no trade-offs.

 

Final Thoughts

 All of the lessons contained here came from painful experiences, including almost going bankrupt twice. When I left Google, I was afraid I didn’t have enough real business experience, since so much of the nuts and bolts of the businesses I managed were taken care of by others. Creating, running, and selling an agency were three marvelous experiences that completed my business education. 

 Someone said to me that if you’re in the agency business it’s because you enjoy people more than profits, and I’ve found that to be more or less true: the agency space is competitive and fast-changing since the barriers to entry are low. Nonetheless, creative work is fulfilling, and the trend toward globalized professional services means we can create multi-national teams with little effort or infrastructure. 

 By the time I sold, I hadn’t figured out all of the lessons: in fact, part of my motivation to sell was to learn more from people who were operating at a larger scale. Nonetheless, these lessons served us well to get to our endpoint. My only regret is not seeking more advice more frequently.

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