I BOUGHT 10 Digital Agencies: Here is what I learned…
00:00:00 - Background
00:00:42 - Criteria for Agency Acquisition
00:00:53 - Clear Vision and Communication
00:01:45 - Consistent Multi-Channel Pipeline
00:02:17 - Predictable and Recurring Revenue
00:02:27 - Diverse Client Base
00:03:10 - Leadership Team and Systems
00:05:07 - Profitability and Growth
00:05:49 - Knowing Your Numbers
00:06:31 - Importance of Audited Financials
I’ve been in the agency world since 1999, building my agency for over twelve years to the point of a successful exit. For the next ten years, I focused on coaching agency owners from all over the world and not thinking about starting another agency until a couple of years ago.
Once I started this new stage of agency ownership, we’ve been expanding our services by buying agencies, for a total of $1 million in EBITDA so far. With that experience under my belt, I want to present to you some of the things I’ve learned. Here are 8 elements all sellable agencies have in common.
They have a clear and defined vision. Too many times agency owners end up in this business by accident and their lack of experience leads them to be reactive to the market. They lack a vision for the agency and, without a well-articulated vision, team members may prioritize their individual goals over the agency's collective objectives.
Consistent and multi-channel pipeline. A sellable agency doesn’t rely on referrals. Instead, it cultivates a robust pipeline through a mix of inbound and outbound channels, complemented by strategic partnerships that allow it to choose clients that align with its goals.
Predictable revenue. You should always be looking at new ways to grow your current accounts and reduce turnover. A predictable revenue stream not only stabilizes cash flow but also enhances the agency's attractiveness to potential buyers.
Diverse client base. No client should account for more than 20% of your revenue. This situation would make you especially vulnerable if said client decided to leave and would be a red flag for potential buyers. While it's acceptable to onboard a new client that may initially account for 30% of your revenue, you should immediately start looking for other big clients to level the ground.
A leadership team that is doing the day-to-day work. It’s understandable to become engrossed in daily operations as you build your agency. However, at some point, you should start to grow a team, build processes, and delegate. Otherwise, buyers won’t be much encouraged to buy an agency that can’t run without its original owner. Start to build that leadership team so you can focus on the role of CEO.
They’re profitable and growing. As a buyer, I’m not looking for a deal. I want a growing profitable agency that is well over $1 million in profit. You should be able to show a track record of increasing profitability year-over-year.
Know your numbers. Do you know the KPIs that indicate you’re doing well? Know your EBITDA, the number of leads you bring in, and your conversion rate. Anything you can measure you can improve.
Audited financials. You’d be surprised to know how many agencies discover discrepancies in their financials post-audit. If you know the real numbers you can start to make adjustments and figure out what you need to do to improve.
These are the most common elements that point to an agency that is constantly growing, where the owner is doing what they love to do, and they’re profitable and able to have a life.
Now I’d love to hear about which of these elements you’re struggling with. We’ve created a ton of resources to get your agency to a point where you have an opportunity to sell if that is your plan.
