I had the honor of being a +1 with Ntegrity at the Society of Digital Agencies (SODA) Global Summit in Mexico City. I was privileged to attend the event as an outside advisor for growth through acquisition at Ntegrity with my dearest friend Richenda Vermeulen, who just happens to be the founder and CEO of one of the top digital agencies in Australia.
I came to this conference to see the challenges and opportunities facing digital agencies, especially in the US as corporate budgets have shrunk, inflation and interest rates have grown. I also wanted to get a first hand look at how digital agencies approach small and lower middle market mergers and acquisitions. But first, what is the Society of Digital Agencies (SODA)?
Soda has great origins – starting like many other brilliant visionaries with a group of business owners talking shop at a bar. Community is so important for budding entrepreneurs and new industries,, soSoDA has grown out of that bar and into a membership that reaches into the hundreds (and across the world). We don’t often interact with Exit Equity clients in their natural habitat, so nothing is more fun than meeting and learning from business owners and founders in a low-key, low stakes environment. It’s inspiring to hear how they have built their businesses, their origin stories, their differentiating competitive advantages, and what the future might hold.. So aside from simply being inspired by a roomful of agency owners, partners, and visionaries – here’s some of my learnings from this crowd:
- Building community and sharing best practices raises the bar for the whole industry
- Starting a business is not the same skill set as scaling a business
- Benchmarking guides improvement
- Growth through acquisition must consider the above three AND company culture impact
Raising the Bar Through Community
It is so important for owner’s of Business Services businesses to have a peer group of other owners and founders . You need a group where dealing with hard problems with clients and building value within your business can be a common topic of discussion. This can only happen if you find your community of people—where you can have real conversations, be vulnerable, understand your industry. It’s helpful to hold time and space for strategic planning–which at some point should include buying, selling ,exit strategies, and partnerships. Business owner’s need a nice cadence to explore the ‘what’s next’.
Starting versus Scaling a Business
Business services is a great business to start (you’re the expert! You can do the work needed for the client!) but a hard one to scale and grow in a way that the value holds as you, the owner, step out of the way. It will depend upon the management team you grow behind you and the pipeline of steady, reliable customers (hint hint recurring revenue).
Measuring and Managing Efficiency Gains – Benchmarking
Benchmarking– by working along with your peers – it can help benchmark your business both qualitatively and quantitatively. At this conference- the crew at Summit Financial, who are fractional to several digital agencies– shared benchmarks from their clients– what % of revenue should be allocated to you team doing the work, marketing, admin, etc. This knowledge, and revisiting it from time to time will help any business owner stay on track (or ahead of the curve) — helping a business’s stay profitable, and when the time comes, command a strong multiple for the business.
Another flavor of benchmarking is qualitative benchmarking. Is someone having a great year? How are they bringing in leads? Who has similar weaknesses as you (upkeeping financials, hate the top of funnel, hate writing blogs, etc)? Seeing how others approach pain you also feel can be a good way to get you to think about solutions in a different way. A great example here is Richenda Vermeulen sharing about how her team at Ntegrity has had great success with adding team members internationally –and how impactful it’s been to treat them as part of the team, not as ‘the other’ team of offshoring staff as so many companies do. So many of our digital agency and consulting clients have off-shore assistance–what an insight to see a relevant case study about bringing them into the fold can do so much to improve retention, and team morale.
Step-function Inorganic Growth – Strategic Acquisitions
Growth through acquisition is another topic that came during the conference sessions. It’s critical to get culture fit right as you think about adding other service-based teams to your mix. An insight that resonated with many is that, though exciting to find a smaller agency that seemingly is going to be a great fit to tuck-in to your existing company…keep your game face on! It’s fun to imagine the upside (or else why would you be buying another business?) but healthy skepticism is key here. Questions to ask yourself, your team, your trusted set of advisors when evaluating if you should buy a digital agency are: What are the pitfalls- what could go wrong? Is the employee culture going to match? Will people be clamoring for raises as soon as they come over to your company? Does your client base overlap –will any of our revenue be cannibalized?
At Exit Equity, we love working with digital agencies, from marketing/branding SEO specialists to ecommerce software development firms. My time at the SODA global summit was enlightening…and will surely help my team improve our engagement process, valuation methodologies, and post-transaction integration planning for our digital agency clients.