In this episode agency coach and advisor, Jason Swenk shares some of the key factors to consider when you’re looking to grow your agency through acquisition.
Jason is a pioneer in the digital marketing space. He is currently a partner at Republix, a $20,000,000+ agency that provides customers with a one-stop-shop for all their growth needs.
Joe Troyer 0:34
If somebody wanted to grow through acquisitions, like you guys have been growing through active acquisitions, you said, obviously, you're looking for million dollar EBIT businesses, right? So they're profiting at least a million dollars a year, you kind of gave a formula of kind of what you guys are offering in terms of the valuation and how you pay them what a deal would look like, what's your vetting process look like? Or maybe what what are the things that you're really concerned about getting? Right?
Jason Swenk 1:05
Well, a couple things is do they have a strong leadership team in place? Right? Do they have strong systems in place in order to like, Is this just a freak of nature, I want to see growth year over year, and also growth in an EBITDA not just top line. I want to see a predictability. You know, in monthly recurring revenue, you know, the more the better. I also want to see long term contracts, I always laugh at when agencies have short term contracts, I think that's that just alludes to they have a pretty piss poor sales system. Because they don't have a good way of or it could be even go back to another layer, piss poor positioning or marketing system, right? Because they haven't positioned in the right way as the as a leader, or they haven't positioned on the sales of like, what's the right offering at the right time in order to build trust, because, you know, it's an easy decision to say, yeah, I'll give you $10,000 a month. But I can cancel at any time, it's a harder decision to say, I'm going to give you 50,000, and you're going to at least be locked in for a year. So you have to right look at those kinds of things. So I want that predictability. Or, you know, a lot of your deal is going to be probably on an earnout. Because it's going to be Performance Base, right? And then, you know, do they fit the culture? I mean, that should be go go without saying, are they trying to sell for the right reasons, like, sometimes I find people are like, we'd love our business. And they really hate their business partner, and they don't know a way out, or they really hate their clients. And you got to really kind of investigate, like, why are they doing it? Like, if you and here's a tidbit that I've kind of recently, kind of just figured out if you if you're at a point, and I talked to a lot of agency owners now where they're like, I hate our clients, they'd like resent their clients, like, have you ever gotten to that point. And if you're at that point, the thing that you need to do, the reason why you resent them is because you lean on them too much, and you're too dependent on them. Meaning you should be really focused on kind of at the base camp, of really going back to base camp and building a lead generation system. So now you can pick and choose, right, because I see so many people that way, where they just start getting resenting on their clients, and they're like, I don't want to like and they want to sell because of that. And it's an easy fix. It's like, yep, go to the traffic store, like turn on, you know, the marketing and, and a lot of times, we agency owners struggle with their own marketing teams, though, which is a whole nother story.
Joe Troyer 3:46
I think you're exactly right. I think it's also something that something else that you pointed to is the is the is the contracts in there. A lot of times they don't have good contracts, and they become a slave, right? Because their sales and marketing isn't that good. So they're afraid they can lose one or two clients, three clients, five clients really fast. And that's going to like literally kill their business. So yeah, I completely agree there. So are you looking to bring on I guess, sponsors? Yes. You're looking to bring on the founder long term that right?
Jason Swenk 4:19
Yeah, yeah, I mean, the the cool thing that we do is, we don't even tell anybody that we bought you for like six or eight months. So they right we keep the team intact. We keep the brand intact. Everything like we don't want to mess with something that's already working. A lot of times people want to buy a struggling agency and turn it around. Like that's a lot of work. Same amount of work like it's like even more work than, you know, buying someone good.
Joe Troyer 4:47
So what do you look for and a founder obviously talked about good leadership, good systems, but what's what are you looking for in that founder role?
Jason Swenk 4:57
What's the same same thing is bringing on a team member, right? Because they're gonna be a team member, like, do they believe in what we believe in? Like, I always use analogy, like, if if, you know a lot of times agency owners struggle with this, if they don't have that clarity of where they're going, because they started by accident, kind of like, you know my story and probably a lot of other people listening. And they don't really have a direction. So then everybody comes to you to make a decision, because they don't know where the hell they're going. So, picture you're in a boat from New York Harbor to London, but you don't tell your team where you're going. But if you told your team that you're going to London, maybe half would get off. Okay, well, good, rather than getting them all there, and then they leave to come back. Or we're even looking at it this way of going. Anytime the boat changes course, you know, come wake me up. While they're gonna wake you up every minute. You just told them where the damn, am going at 180 degrees. It's going to get you to London. Okay. Like, you can do a course correction. And I can sleep.
Joe Troyer 6:01
Yeah. So yeah, you want to keep them as the founders still long term, right is the answer. And they need to be. Exactly. So this question is the opposite kind of what of what I just asked. So I want to be careful how we answer it. But what's not the obvious thing, but what's killing most of the deals that you're looking at?
Jason Swenk 6:27
The owners think they're more worth more than they really are. It's their baby, which I totally get it, I understand it. And at the end of the day, you're in total control. But your agency is only worth what you're willing to sell it for and what someone's willing to buy it for. And then a lot of times people too, they go, they set a time limit, which is stupid. They go in seven year, I just chatted with an agency owner, I was interviewing them for the mastermind. And they're like, well, in seven years, I want to sell my why seven? Like, is that your lucky number? Like, what if the markets really bad? I don't know. Like, why not just sell it when you get to a certain point, which like, if we could speed you up and get you there in two years, would you sell them? Or would you wait for the market to crash and then sell it at your seven? They're like, Oh, I never thought about that way. And so there's a lot of people that think about it that way. And you need to change the thinking.
Joe Troyer 7:27
That's really interesting. When earlier you talked about how a lot of times you turn people away from selling, right? You almost are the deal killer.
Jason Swenk 7:41
So don't tell, don't tell the partners
Joe Troyer 7:44
expecting you to say that. I'm curious what, what does that mean? Can you extrapolate on that a little bit? Like how does your conversation go from Jason, I want to sell to Jason actually want to keep it? I appreciate the conversation we had, but I want to I'm good?
Jason Swenk 8:00
Yeah. Yeah, I mean, that happens all the time. I don't know, it just, I guess stems from my personality, where I've always had the mentality of going, I'm going to sell someone something that they need, rather than what I want them to write. And I think that's a problem with a lot of agencies where they constantly try to sell what they want to sell, rather than what the customer needs. So, you know, the same thing and all the other, like when I'm interviewing someone for a mastermind, or whatever it is, right? Like, if I don't think they're gonna be right fit. I'm like, you're not the right fit right now. But yeah, it just, you're just not or, like, I'll go to the donor and be like, you have something pretty amazing here. That's why we we want to buy and so there's other people. So why do you want to sell it? Like if and then sometimes they're like, what would you do? I'm like, I'd probably hold on to it. And they're like, why I was like, well, well, you take off the summers, you work four days a week, you get a million dollars a year. And you know, I'm offering you $5 million, which will pay you two and a half upfront. Two and a half isn't anything after that is not guaranteed, even though no matter. You know, some people say it is but it's not. Like why? They're like, Oh, I never thought about that way. So I just it has to be a win win for both parties. It's that's how I've always looked at it. Well, as I haven't always looked at that way honestly. But as I get older and older, I look at it more and more that way.
Joe Troyer 9:36
That's really good. That's really deep and insightful. I'm curious, what are the valid reasons that you find people are selling their agencies, like not the surface level stuff that you see in the marketplace, right? When you look at a business that's for sale, there's always like the surface level. I'm selling it because and it's just it's not the real reason. Right. It's just they think that they can get away with saying that, or that's what's acceptable. What? Yeah. When you're acquiring companies successfully, what is the real reason that the founders have wanted to work with you, Jason and be a part of this roll up and in bigger vision and why why did they say yes? What what appealed to them?
Jason Swenk 10:21
I think some people think they've gotten there by accident. And they have that imposter syndrome is one. Another one, they feel that they've maxed out. And they think that they need to sell, or they really want to be around other people. That mean, that's, that's to why they bring on partners, they want to be around other people. So they're not the only soul. And I actually discourage people around bringing on partners, especially as they're underway, in starting, because you're starting from nothing, it's worth nothing. It's easy to get out and make sure you have a good operating agreement. But But let's say you're a million dollar business, and you're thinking about bringing on a partner. I'm like, dude, find a group of other agency owners to be your advisors or a mastermind for that. It's so much cheaper than buying a partner out later on. For sure. Because I always look at it like, you either know, the bad partner, or you're the bad partner.
Joe Troyer 11:20
That's a really good advice. I see it all too often. Right? I talked to one partner. I'm like, you got an amazing business, man. This is fantastic. And then I meet the partner and I'm like, oh, wow, this is interesting. Yeah, I'd like to be this guy in the in the arrangement.
Unknown Speaker 11:34
Joe Troyer 11:35
No, I like the advisory board idea as well. You know, having that feedback loop as any entrepreneurs is really important. And I think an advisory board is a better way to get it and a much cheaper way to get it than a full blown partner.
Jason Swenk 11:52
Oh, yeah, most definitely. That's awesome, brother.