Selling to an Employee: A Unique Approach to an Agency Exit with Eric Holter | Ep #770
Could an internal succession be the right choice for your eventual agency exit? What could that sort of deal structure look like in order to ensure you’re leaving the agency in the best hands possible? As one agency owner transitioned to out of the agency day-to-day, an unexpected result was an organic exit from the business with an employee buyout.
A shining-star employee with the potential to be a great owner was the buyer in mind. Now the challenge was helping him get to a place where he could make the purchase. Listen to the inspiring story of adaptability and structuring the right deal to sell your agency to the right person.
Eric Holter is the CEO of Cuberis, a specialized web development firm focused on the museum industry. He shares his journey from studying traditional illustration to working in web development and launching his first web company, the reasons he decided to sell and follow other dreams, and how he ended up owning another agency years later.
Eric is also the author of Blazing the Freelance Trail, a roadmap for creatives just getting started that will walk them through five main principles: money, minutes, management, marketing, and motivation and explains their role in creating and running a business.
In this episode, we’ll discuss:
Client diversification for agency survival.
Building a bridge from employee to ownership.
The five roles of a CEO.
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Sponsors and Resources
E2M Solutions: Today's episode of the Smart Agency Masterclass is sponsored by E2M Solutions, a web design, and development agency that has provided white-label services for the past 10 years to agencies all over the world. Check out e2msolutions.com/smartagency and get 10% off for the first three months of service.
Going from Freelancer to Agency Owner, Twice!
Eric first entered the advertising world as an illustrator using the traditional methods. He was looking for something new after freelancing for a while and knew his skills in letterpress printing and wood engraving wouldn’t pay the bills.
However, in 1995 he was quick to adapt to the new era brought by the internet and started his first business. Back then, all his clients were just scrambling to get a website for their businesses. Finding clients was as easy as sending them an email offering his services. This agency grew quickly to 12 employees and then was hit by two major events throughout the years: the dotcom bubble burst and 9/11, prompting a dramatic downsizing.
Though the agency gradually recovered, Eric ultimately decided to sell in 2013 looking for a fresh start doing some consulting work. He wanted to help business owners learn how to run their business.
One of his clients was Cuberis, whose (then) owner needed guidance in managing the business. What began as a consulting relationship evolved into an unexpected opportunity and Eric eventually purchased the agency. With this, round two of agency ownership began.
Learning to Diversify Clients as the Key to Agency Survival
That first blow during the dotcom bubble burst helped Eric see the initial model of direct client engagement was no longer viable. Whereas before the referrals just poured in as everyone tried to beat the competition to get a brand new website, he now needs to forge strategic alliances allowing him to continue generating business.
He also needed to rethink his focus, so far marked by working primarily with small, brick-and-mortar clients. Instead, the experience gained during several difficult times and subsequent economic downturns taught him that a diverse client base can serve as a buffer against market volatility.
An Unexpected Exit: What Decisions Led to Selling the Agency?
Eric's decision to sell his agency emerged organically from a series of strategic decisions that began in 2000 when he hired an consultant to enhance his business management skills. In hindsight, investing in professional guidance was the beginning of a journey he hadn't anticipated.
Following the consultant's advice, Eric started transitioning from an active role in his agency to developing a resilient organizational structure and empowering employees to operate independently.
Initially, this move didn’t have an exit strategy in mind—just sound business practices aimed at improving the agency's efficiency. However, by 2008 he felt there wasn’t much for him to do at the agency, which made him restless.
While he contemplated changing up things in the agency to satisfy his entrepreneurial drive, he knew it would just divert from the things that were already working. Ultimately, it became clear that instead of introducing changes just to scratch his entrepreneurial itch, it would be better to sell and move on to new things.
Building a Bridge from Employee to Agency Owner
When Eric decided to sell his agency, he identified an employee with the ambition and capability to take over the business. The challenge then became structuring a deal that would make the purchase feasible for this successor.
The plan was a five-year buyout with an element of owner’s financing. Basically, Eric increased the employee’s salary so that he could take a portion of this new salary each month and buy shares according to a distribution schedule. Over a five-year period he continued to buy shares as his equity increased. Once he hit a 45% ownership, he would buy the rest all that once through a loan.
This structure not only provided the employee with a clear pathway to ownership but also allowed him to acclimate to the responsibilities of ownership without the pressure of an immediate buyout. He was able to learn about the business and develop his leadership skills under Eric’s mentorship. For him, the key to succeeding with this type of structure is to take your time with the process.
Ultimately, this was the best decision for the agency and for himself. Eric knew the business was in good hands and he also knew there were other things he wanted to do. He wanted to focus on helping other people run their businesses more efficiently.
Not Your Time to Sell? Here are the 5 Roles of a CEO
For Eric, not working in the business and feeling isolated from the work being done helped him realize he wanted to sell and move to other things. However, this doesn’t have to be the case for all agency owners. You can successfully make the transition from owner to CEO and find meaning in your new role as long as you understand what that role is. The 5 roles of a CEO are:
Grow and mentor the leadership team.
To be the face of the company.
To set vision and direction.
Manage the financials.
Be available for key relationships.
Whatever you’re doing, make sure they are part of these five roles. If it’s something outside of these, you need to assess whether or not you are the one that should be doing it.
If this is something you’re ready to do for your agency, then selling is not the right move and you can continue being part of the business growth. If not, and you already have a plan for what you’ll do after selling, then an acquisition is the best path for you.
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