Episode 47:

John Warrillow is the author of books “Built to Sell” and “The Automatic Customer” and founder of The Value Builder System™ where advisors help company owners increase the value of their business. Previously, he founded Warrillow & Co., a subscription-based research business dedicated to helping Fortune 500 companies market to small business owners. A sought-after speaker and popular Inc.com columnist, John lives in Toronto.

 

 

What you’ll learn about in this episode:

  • John’s book “Built to Sell”
  • The very easy path for agencies to follow that make it extremely hard to sell
  • What services look like that make an agency sellable
  • Why you can’t confuse the doing with owning a business
  • When is it time to say no to business?
  • What to do after you sell your agency
  • Things to avoid when exiting your agency
  • Services agencies can offer on a subscription model
  • Standardizing a process and giving that process or product a specific name
  • Why you shouldn’t surround yourself with journeymen agency employees
  • How to assess how sellable your agency is and what can be done to make your agency more sellable

 

The Golden Nugget:

“Name it. Claim it. That’s when you get that point of differentiation.” – @JohnWarrillow Click To Tweet

 

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Speaker 1:

If you’re going to take the risk of running an agency, shouldn’t you get the benefits too. Welcome to Build a Better Agency, where we show you how to build an agency that can scale and grow with better clients, invested employees and best of all, more money to the bottom line. Bringing his 25 plus years of expertise as both an agency owner and agency consultant to you, please welcome your host, Drew McLellan.

Drew McLellan:

Hey, everybody Drew McLellan here with another episode of Build a Better Agency. All of you as I talk to agency owners all over the land, one of the things that we are always talking about is how to create an agency that has intrinsic value so that you have choices in terms of keeping it, passing it on to your kids, selling it to your employees, selling it to an outside buyer. But a lot of times we spend time talking about how does an agency get evaluated and what makes it a valuable proposition for someone else if they’re looking to buy. And that’s why I’m super excited. Many of you have heard me recommend the book Built to Sell by John Warrillow. And John also has a great new book out called The Automatic Customer: Creating a Subscription based Business in Any Industry. But John has lived our world. He has started and exited four companies, including a market research business. And the book, if you’ve read it is a business-parable book and the business that in John’s book that his character is building to sell is an agency.

So he certainly knows our world. So I’m excited to talk to him about how business owners think differently about their business, so that they have options down to the tail end of the business cycle for them. So John, welcome to the podcast. Thanks for joining us.

John Warrillow:

Thanks for having me Drew.

Drew McLellan:

So what prompted you to write the book Built to Sell?

John Warrillow:

So I had, as you said, exited a couple of businesses and figured I’ve made every mistake in the book. And I had some time on my hands and thought I should get some of these ideas down on paper. And so I took a few weeks, started banging out the story and you’re right, it’s a parable about an agency owner who is tired of the hamster wheel of always chasing the next client, always chasing the next project and figures there’s got to be you better way.

Drew McLellan:

One of the things I love about the book is that it talks about something that I preach to agency owners all the time, which is if you’re a generalist, you diminish the value of your company, it really is about being different and differentiating and narrowing your focus. Can you talk a little bit about that?

John Warrillow:

Yeah, it happens pretty easily. And that is because is a lot of agency owners are really personable, they’re the rainmaker for their company and they build great relationships with the other side of the table, being the client. Well, the client will hire you and say, we love the fact that you do great websites, let’s say. And then they say, you’re doing such a great job managing our website, have you ever thought about doing SEO, search engine optimization? And you scratch your head and say, well, I don’t really know much about Google, but I probably could figure it out, this client who I really love working with has asked me to do SEO, so I’ll do SEO. And then they start to work together on the SEO front. And the client says, you’re doing such a great job on SEO, have you ever done search engine marketing? Will you actually buy the Google keywords, would you ever consider doing that on our behalf? And then you go, well, I don’t know the first thing about that, but I’ll figure it out.

And sooner or later, you’ve gone from being a specialist in building websites to being a generalist marketing agency where you basically offer all services to a few customers. And that’s the definition of an unsellable business where you’ve got a general suite of services, a handful of clients that you personally take care of. It can be by the way, Drew, a very profitable agency, but no one would want to buy it.

Drew McLellan:

Right. Well, and one of the things that I have conversations with agency owners all the time is you may very well choose not to sell your agency. The idea though, is to build a company of value so that that’s an option for you if you want it, right?

John Warrillow:

Yeah. And a lot of agencies will transfer from one ownership group to the next, like a law firm, the senior partner will say, hey, it’s time to retire, let’s let some of the new guys come up and buy in over time. And that’s a pretty typical way an agency owner will exit.

Drew McLellan:

Yeah, absolutely. So when you think about building a business that is ready to sell, what’s the biggest mistake business owners make around that?

John Warrillow:

Great question. Probably thinking it’s an overnight transaction is probably the biggest mistake. And it sounds like an overused trite sort of example, but a lot of agency owners think that selling a company is like a 400 meter relay, you sprint as hard as can and you just dive into the arms with the next guy who’s going to run it for you, and you hand the baton and you ride off into the sunset or more actively you collapse onto the tarmac. The reality is most agencies are not transitioned that way.

So you decide you want to sell, it takes you a couple years to get the business ready to sell, it takes you a year to negotiate the sale, and then it takes you three or five or even seven years on an earnout to capture any value out. So if you’re 40 and you’re listening to podcasters saying, yeah, yeah, I think I want to be on the beach by the time I’m 60, my advice would be to start proactively selling your agency by the time you’re 50. Because it’s going to take you 10 years to capture any value out of it. It literally takes that long.

Drew McLellan:

Well, and I think to your analogy when you’re 40, that’s when you start building the business with purpose around creating value so that it is sellable when you’re 50, and then you start the marketing and the process that you described.

John Warrillow:

Exactly, yeah.

Drew McLellan:

What are some other stumbling blocks that agency owners need to be mindful of as they, let’s assume that they are 40 years old and they’re saying, okay, yep, I think I do want to be on the beach by the time I’m 60, I’d like to have part of my exit strategy be that someone buys the agency for whatever reason they are motivated to do that besides money because I think it’s not always just about the money, so I’m 40 years old, what do I need to do? What’s the recipe for building a sellable business?

John Warrillow:

Yeah. So the first thing you identified earlier, which is to find one thing in your agency that meets the trifecta of scale. So for me, that means it’s a service typically, in an advertising context, it’s a service that is teachable to employees, valuable to customers and repeatable. So the way to remember that is TVR, teachable valuable and repeatable. And so the first step is really thinking about all the services you provide.

So let’s say you do direct mail, copywriting, graphic design, brochures, event marketing, whatever, we put all the whole suite of services you offer on a whiteboard and then score them on a scale of zero to 10, to what degree you can teach [inaudible 00:07:14] to deliver it, or on the inverse it relies on you, to what degree it’s valuable to customers or on the inverse into commodity, get it from any agency in the market. And the third is it to what degree it’s repeatable, meaning to what degree do clients have to purchase that service on a regular cadence? And then you’re really looking to start to specialize in this service and [inaudible 00:07:40] that rank the highest against the teachable valuable repeatable criteria. That’s strong cheese for a lot of people to consume.

A lot of agency owners will look at that and say, yeah, but the most profitable stuff we do or the most scalable stuff we do is the smallest portion of our revenue or only three of our customers want that, or our biggest client wants us to do 50 other things, we could never just specialize in one thing. To which unfortunately, I think the response would be well, that’s the price of building a scalable agency. In my view, you’ve really got to start eliminating the services, eliminating offering the services that you cannot teach other employees to deliver, that clients will choose you for rather than view as a commodity and are repeatable, meaning they’re not just a one-off product launch process where you never need to buy it again. So I think that’s the first step. We touched on that when we talked about generalization versus specialization.

Drew McLellan:

One of the things in that equation, I think one of the reasons why people get into the agency business and why some people rise to the ranks of the owner is because they do like serving clients and they do like being a trusted resource or a trusted counselor, and they do like being at the C-suite table and offering good marketing advice. And part of what you’re saying is you have to be able to park all that at the door and be able to, especially as the owner, not really be that guy or that woman, but that you need to teach your people how to do this repeatable sort of check, check, check, check, item list that delivers value to the client, right?

John Warrillow:

You bet. I remember I was doing a speech awhile ago for a group of graphic designers and I was blutterring on same spiel basically saying, you can’t think of yourself as the chief creative officer, you got to find things that you could replicate, you can’t be your client server. And the audience was going [inaudible 00:09:51]. They were like, this is terrible, this is like the antithesis of what I got in the business to do. And my message to them, it’s the same to you, is that, hey, if you want to be [inaudible 00:10:00] designer, be a graphic designer, don’t run an agency that does graphic design, because that’s terrible. Actually just be a freelancer because if you want to do the doing and you want to be a graphic designer, then be graphic designer.

If you want to be a marketing strategist, hold your shingle up and say, look, you can hire me for $500 an hour and I’ll build you a marketing strategy. It’s not a company, it’s a job. And that’s fine, and that’s perfectly acceptable way to have a career. Many people add tremendous value, but don’t confuse the doing with actually owning a business. Because even if you’ve got employees, if you are the person the client wants to see to build the strategy, to design the design, to write the copy, you’re not an owner of a business, you are a glorified employee. And that’s a tough, tough message to hear. But again, if you get all sorts of ego gratification from being the guy the client goes to for advice, by all means, be that guy, but don’t expect to sell your company, don’t expect your company to be worth anything.

Drew McLellan:

Yeah. It’s funny when I look across all the agency owners I work with, the ones who transition best to what you’re describing are the ones who didn’t grow up in agencies and whose identity and ego isn’t tied to the skillset they had when they were an agency employee.

John Warrillow:

Totally, totally, totally. Yeah, and I get that. It’s the same by the way, in HVAC companies, in plumbing companies. In all those companies, if the owner thinks that, hey, I’m the guy they want to go to to fix their furnace. Well, guess what? There’s nothing to sell. You can just be a furnace fixer. That’s great, and if that’s what you’re into, then be the best furnace fixer you can be, be the best copywriter you can be. What I get upset about is when entrepreneurs say, I’m a great copywriter, I’m going to start a copywriting business and I’m going to hold myself out for $500 an hour and write great copy for clients. And they invest all the proceeds of their hard work into building their agency, fancy furniture, office space, marketing, [inaudible 00:12:07]. And then at the end of the day, turn to someone and say, why isn’t my company worth anything?

Well, it’s not worth anything because you didn’t set it up to be sold. So again, if you’re going to hold yourself out and be a freelancer and charge $500 an hour to write an amazing copy, then great, do that. But by all means, do it from your basement where you don’t have any costs and you can keep all the money you bill, as opposed to pretending you’re running an agency where all the money you’re making, it’s just going to fund your overhead, which is basically workless.

Drew McLellan:

In the book, I think one of the big turning points for the character in your book, the agency owner in the book, is when he has to turn down business that is not his core competency. He’s decided that he’s going to be a logo shop and all they’re going to do are great logos. And he’s got this great logo process. And then somebody asks him, I don’t remember what it is now, but somebody asks him to do something different and it’s a big pot of money. And that’s a crossroads for him. Talk to us a little bit about that crossroad and how people can decide or figure out when is the right time to start saying no to things that are not where they’re pointing the company towards.

John Warrillow:

Yeah. You characterize [inaudible 00:13:21] crossroads and in the book, it is a crossroads. But I would argue that, especially when you are making this transition, you have to look these decisions in the eye and make the right decision again and again and again. In the book, for those who haven’t read the book, the main character goes through this process of specialization, he decides to do logos. And this one client, his dream client, he’s always wanted this client on his resume, comes to him and says, look, we want you to be our agency of record. And it’s like 750 grand worth of fees a year. And it’s like his dream in the old world. And so he’s got to decide, do I take the money and fulfill the dream I’ve always had, which is to be the agency of record of this big advertiser or do I stick to my [inaudible 00:14:09] and continue to crank out building this business to sell. And so I think that, and maybe less traumatic form happens to business owners who make this transition all the time.

So couple of thoughts, one, you’ve got to rest assured that if your goal is building a sellable company, there will be these moments where you have to sacrifice short-term money, ego gratification for long-term value. So it should feel wrong, but hopefully in your gut, you know it’s the right call to make, to specialize. Number two, charge up front. So if you decide on your agency, you are going to become the world’s greatest designer of PowerPoint presentations. And that’s going to be your unique little corner of the universe. When someone comes to you, when Apple or [Al Gore 00:15:01] or some other company comes to you and says, look, we want you to create a PowerPoint presentation, then charge up front, charge a large [inaudible 00:15:11], if you truly are the world’s greatest, fill in the blank, you should be able to determine the pricing term.

So at least while you may not have the glory of the big client over years, you’re not worried about cash flow by turning down projects. And so again, I think if you become the world’s greatest, fill in the blank, copywriter, whatever, you can start to determine your pricing terms. When you’ve got cash in the bank and you’re not scrambling for your next project, that can give you the intestinal fortitude to say no when something looks very tempting.

Drew McLellan:

Yeah. I think when you have X number of employees and you know that all of them are counting on paying their mortgage that month, the pressure to have money coming in the door can sometimes force you into a decision or make you feel like you’re forced into a decision that is taking you off of the path. So I think you’re right. I think figuring out how to manage the cash flow is one of the ways to take that pressure off.

John Warrillow:

You bet.

Drew McLellan:

So in terms of building a business to sell, where do you, and this was not something really you dealt with in the book, but I know that you deal with it in terms of the work you do outside of the story in the book, where does the importance of an owner’s emotional state… So I’ve walked a lot of owners through the process of selling their business and yes, there’s the financial part of, it is or isn’t worth what they thought it was worth and all of that. But I also think that part of the ability to build a business to sell and then actually be able to pull the trigger and sell it, is tied to sort of where they are emotionally and what they’re going to after the sale. Do you have some thoughts about that?

John Warrillow:

Yeah. I think you want a big goal, a big box to check outside of work, to go do once you exit. Most of us as entrepreneurs who haven’t worked for a boss for years, if not decades, every day we’re waking up on the hunt, you’re waking up for the next hunting, the next client, making sure you’ve got enough money in the bank just to fund the things that you need and so forth. And so you’ve got that excitement in your life, and so the moment you exit you lose that, that purpose to use an overused expression. Great book on this, by the way, by a guy named Bo Burlingham, wrote a book called Finish Big.

If you haven’t read it, I’d strongly recommend reading it. It talks about the emotional impact of selling a company and things to think about before and after. But one of the kind of core ideas of Bo’s book is the idea that you’ve really got to think about and have a purpose. That for some people is going to be philanthropic, they want go start a foundation, they might want go start another business, they might want to travel, they might want to master some sports, get in shape. In our case, my last company, I sold back in 2008, and my wife and we had two young kids. We wanted to move to another country. And so our goal was to move to Europe. And so for us, that was very galvanizing and it gave me something to focus on, right?

So when you’re trying to learn a new language, and you’re trying to figure out like how the driving laws work in another country, you’ve got something else to think about other than, oh, I miss my company or I miss the people, or I miss that adrenaline rush. So for that, that worked for us. That’s not going to be right for everybody obviously. But having something to go to, it’s cliche and to even say it, but there’s only so much golf you can play, it will get boring very quickly. So having something that energizes you, I think is a good, best practice.

Drew McLellan:

Yeah. I think entrepreneurs by their human nature are, whether or type A’s are not, they’re driven. They like to be super busy, they like to add value. And so I’ve seen some agency owners really stumble out of their agency without something big, like you said, and they’re sort of miserable for a while as they sort of reinvent who they are.

John Warrillow:

Yeah, yeah, yeah. And many, [inaudible 00:19:27] get back into running an agency because that’s what they know and that is what gave in the ego gratification. And so a lot of them do, which is why, by the way, if you ever do sell your company, the non-compete is not an inconsequential discussion. So any buyer’s going to come in and want to buy your company, they’re going to want you to sign a non-compete. And you’re going to look at that at non-compete, and if you’re like anything like me, you’re going to look at it and go, there’s no way in the world I’m ever going to get into this business again, it could be a lifetime non-compete and all of marketing services can be covered. Because I don’t want to touch this business for the next 50 years, I’ll never in my life.

Drew McLellan:

Right.

John Warrillow:

But time has a funny way of healing all wounds and never is a long time. And so I would just encourage you to sign a non-compete slowly and know that, hey, five years, that’s a long time to sit on the bench, and even though you may not feel like running an agency now, you may in five years. And so I would just encourage you to think about what scope, and the scope usually is the length of the non-compete number one. And then the industry, what scope of services like, is it, I will never start another marketing services business or is it more specifically, I will never get into the business of doing search engine optimization, if that’s your specialty as an example. So just be careful what you saw and when it comes to an non-compete.

Drew McLellan:

Well, and in fact, what I’ve seen is that some agency owners cut the deal for the sale. Part of the deal is that they have to stay for a certain amount of time and then they don’t get out when they’re supposed to. And it really mucks up the deal for the new person, because it’s hard to run a company when the old guy or the old boss, male or female, is still in the shop.

John Warrillow:

And it’s one of the reasons I can’t stand earnouts is because you’re immediately in competition with the buyer. So if you don’t know what an earnout is, basically an earnout is when you sign up to a… Like the way typically the big [inaudible 00:21:34] agency holding companies, business buy agencies right now and so they’ll come to you and say, we loved your agency, we’re going to pay you 10 times earnings for your company. And you like, your eyes go wide, and you’re like 10 times earnings, that sounds great. The fine for an all takes all most of that away [inaudible 00:21:48]. And they say, look, we’re going to pay you three times earnings up front and then another seven times earnings, you have the potential to earn if you meet all these future goals five years from now or three years from now. And so you’re actually selling your agency for three times you put up, but they don’t open the conversation with that.

They give you the 10 times if it does the headline number. And so your goal over that three, five or seven year earnout is to try to hit a bunch of goals. Through that period of time, there are going to be all kinds of times where hitting your earnout is going to be competing with the overall goal of the buying company. And so you’re going to butt heads with the agency holding company, your boss, essentially, because for you to hit your earnout undermine their ability to do something they want to do in the company. So let’s say for example, at the agency holding company, they want rationalize…

Well, a good example would be, they want to give General Motors agency of record relationship. And you’ve got the Ford account, right? And they’re going to come to you and say, hey, listen, I know you got a couple 100 grand worth of revenue from Ford, but you got to get rid of it because as a parent company, we’re going take the GM account. And so you said, yeah, but that’s part of my earnout. And they say, yeah, but you’re part of the company now. And so that’s just one stupid little example, but you run into almost daily conflicts with the buyer where your goals to hit your earnout are in direct conflict with their goals to integrate you as part of their business.

Drew McLellan:

Well, and sometimes the way they want to run the business may simply be that they want to spend more money than you would’ve spent. And that in fact, AGI or other things that ultimately affect the net profit and so your payout, right?

John Warrillow:

Right. Yeah, it’s like, you use [canvas 00:23:47] 100 entrepreneurs and particular agency owners who’ve gone through an earnout, you’ll get 90, 95 of them who will kind of roll their eyes and say, God, that was the worst three years of my life, and they’ll recount stories like the one you just shared. So the trick by the way to avoiding that is to getting as much recurring revenue as you can in your agency, because when you’ve got recurring revenue and you can demonstrate to a buyer you’ve got this annuity stream of revenue coming in, and that is not personally dependent on you, that’s when you start to get away from the huge portion of the deal on the earnout and a bigger fatter payment up front. And so if you’re doing search engine optimization, as an example, you can do search engine optimization in one of two ways.

You can do a one-off search engine optimization prior to a client and to get them ranked first or second in Google in their keywords, or you can say, look over the next two, three, five years, we’re going to manage your search, your natural search listings. And we’re going to provide a service on a monthly basis that ensures that you stay ranked and your keywords [inaudible 00:25:00] a monthly basis and we’re going to just bill you once a month this service, there’s this two-year contract for us to do that. And now an acquirer looks at company and they say, it’s not just this project based one and done business, these guys have got to tail to their revenue. And that’s really what you’re looking for in building a more valuable agency is that recurring revenue.

Drew McLellan:

So that sort of leads me to the segue between the first book you wrote and the second book. So the second book is about, is called The Automatic Customer: Creating a Subscription Business in Any Industry, do you believe that agencies are a business that can create that… Because that’s, in essence, what you’re saying is we wouldn’t call it a subscription, perhaps, but you’re saying follow that kind of methodology. What kinds of products or services could you imagine that an agency could build a subscription model around?

John Warrillow:

There are nine different models in the book. The most obvious one is the simplifier model. So the simplifier model states that for a lot of customers, it would be a lot easier and it would simplify their lives to a high degree, if they could just buy from you on a regular basis. And you automated that for them. So that there wasn’t the need to pick up the phone, call you and say, yes, we’d like you to do that service for us again, that there was that ongoing sort of tail, if you will. And so I think you want to think about, are there services where customers buy those things from you again and again? I’ll give you a stupid example. If you do business cards for your clients and corporate identity, you could offer a service that says, look, we understand employees come and go.

It’s kind of a hustle to always get them business cards. So we’re just going to offer you a service. It’s 100 bucks a month, and it’s basically unlimited business cards for your team. We’ll just offer that to you, and as you have employees come and go, no problem. So there’s an example of this service. Now you might be saying, why on earth would I care about 100 bucks a month? The reason I think you care about a small amount of subscription revenue in your business is the Trojan horse effect. And the Trojan horse effect states that subscription revenue, when you have that locked in recurring revenue, it makes the buyer more likely to buy additional services from you.

So because you have the $100 a month business card offering, you are much more likely to get their project when they’ve got an event to run, because they know who you are, you’ve got their credit card on file, you’ve got an ongoing relationship, you’ve got their brand standards, you know what color the logo is, and there’s just this ongoing relationship. Whereas if you’re just building yourself as a project based agency, then clearly you’ve got to teach a new agency all those things. So again, I would be looking for services customers buy on a regular cadence. In the area of search engine marketing, most advertisers these days have a keyword, a bunch of keywords that they want to buy and bid on.

So that is a good example of a service that should be automated, right? It should be on an automatic monthly basis. We bill on a regular cadence, we’ve got a budget everybody agrees to up front looking for those types of services. And sometimes you’ve got to be creative, but I think that’s really where you want to get to. Benchmarking also is a biggie. So for example, if you offer market resource services or if you offer employee satisfaction services or any of those services, benchmarking over time the brand equity that your client has in the marketplace, hey, once a quarter, we’re going to do a brand study for you, we’re going to do a piece of market research that assesses your client’s expectations or impressions of your brand, and we’ll do a little brand audit of your competitors, we’re going to do that quarterly. And that’s part of our service, we charge 10 grand a quarter for. Those sorts of things where they need to have regular feedback, regular benchmarking, regular information is what you’re looking for.

Drew McLellan:

And for some agency owners, again, that feels like they own a factory rather than agency. How does an entrepreneur, and again, maybe it’s simply that they have to make that choice, but how does an entrepreneur wrap their head around in essence creating that sort of repeat revenue, but it doesn’t feel like they’re customizing everything for everybody? So I think that many times in the entrepreneur, the agency owner’s mind that diminishes the value of what they sell.

John Warrillow:

I think you can have, in the book, it talks about a process, which is always replicatable. So while the outcome in the case of Built to Sell, the protagonists is creating logos, it doesn’t mean that every logo looks identical, uses the same color palette, uses the same font. It means they have a standard way of creating a logo. So in your case, maybe it’s a standard, like if you are creating brochures as a silly example, a very trivial example, but let’s say your agency is specialized in creating the world’s greatest point of purchase brochures, well, that’s great. So asking yourself, what is your process for creating the world’s greatest point of sale brochures? Does it start with the brainstorming with all the key stakeholders in the room? Does it then go to a competitive landscape audit where you look at the point of purchase materials for the five biggest competitors?

So what is the process you go through? And then standardizing the process, naming the process. One of the keys to making this transition from a service based business to a sellable company is productizing your service. So making it look like a thing, people buy things, agencies transition on an earnout, but companies that sell things have a better chance of getting bigger chunk of their money up front. So naming your process, trademarking it, always talking at it in the same way, using the same font and the color of the name and all that kind of stuff, making it look like a thing.

Drew McLellan:

Well, and I think what that does too, is it creates a buyer who is less likely to tinker. So when you say, hey, we create logos and you are generic about it, then the buyer tries to influence the way you do that. But when you have standardized process, or as you say, you’ve productized it, they think they’re buying something that is already tested and true, so they don’t mess around with it as much.

John Warrillow:

Such a great point. We’ve got the nine-step process for optimizing your website, we’ve done it from everyone, from Wells Fargo to Xerox to IBM, and we’d like to sell you that service. Well, if you’re the car dealership down the road and you’re like, okay, well, if Wells Fargo’s using the nine-step website optimization process, it must be pretty good, so they’re much less likely to tinker it when you own the name of the process. You’re absolutely right. And what’s the worst, the worst in any service based business that I hate to say is probably the same in a marketing agency is when the client thinks they know your business better than you do.

They’re like, yeah, yeah, I know you usually do it this way, but we’d like you to do it that way. Well, no, there’s a reason we do it this way, we’ve been doing it this way for 20 years. So if you’ve been doing it that way for 20 years, then codify that, name it, claim it, own it, because that’s when you get that point of differentiation. And to your point, it’s such a good point, they don’t tinker as much.

Drew McLellan:

So one thing I want to circle back around in terms of building a business to sell, it seems to me that especially in an agency business where, A, the biggest investment an owner makes is their staff, but B, that’s the factory that produces whatever it is you do, those are your people. So as you’re thinking about building an agency that someday you want to sell, so again, you’re that 40-year old, and you’re marching towards 50 when you’re going to put the for sale sign out, what do you need to think about in terms of staff and staff development, knowing that they’re going to be part of the sale?

John Warrillow:

Don’t hire agency people basically, is long and the short of it. Because a lot of agency people are wrapped up in their status in the industry and have a greater degree of loyalty to the industry than they do to your company. So there are art director. They happen to be working for your company right now, and as long as your company, your agency is winning awards, getting great clients, getting great projects, your account directors are pushing back when the client wants to take her, et cetera, as long as all those things are in line, the art director will condescend to work for your company. But the moment you stop winning awards, or you start specialize aiding or specializing, or you fall out of favor in the local media, the art director’s got one foot out the door looking for the next client, next agency to go work for.

They have zero loyalty to your company, their loyalty is to the industry, marketing industry. And so I would try to avoid those journeymen who are going to really basically push back at any attempts you make to make your agency more sellable. I would argue that if you’ve been doing business for 20 years in the old model, and you start to implement some of the changes I suggested on this call, you’re going to get a lot of pushback from those people who consider themselves agency employees and creative directors and copywriters, and I’m darn proud of it. And I love watching mad men because that’s how it used to be, those are the kinds of people you want to avoid [inaudible 00:34:56] to play. I think what you want to do is find people who want to follow a system scale of business that happens to be in the marketing communication space, not people who define themselves by being a copywriter.

Drew McLellan:

Yeah, that’s interesting. You just made a whole bunch of agency owners clutch at their chest, I suspect.

John Warrillow:

Why?

Drew McLellan:

Because I think they love to surround themselves with those kind of creative entrepreneurial, I love the business kind of people. And if they at their agency today, that’s who’s in their business. And so-

John Warrillow:

Right. So anybody who sends you a reel, just dismiss immediately. You know what I mean? Anybody who sends you a creative reel and says, hey, look at all the stuff I worked at McDonald’s, I worked on Nike, I’ve worked, yeah, and you’re going to go, prostitute yourself out to the next agency the moment my agency goes through three weeks of hard time, right? So don’t-

Drew McLellan:

Or I tell you that you have to do the same thing day in and day out, because that’s what we do.

John Warrillow:

Right. They’re going to be like, pardon? I’m a creative. Right, so go be a creative somewhere else.

Drew McLellan:

So for the agency owners that are listening that are saying I’m 40, or I’m 40 plus, oh, shoot, I haven’t done any of this yet, I need to start thinking about this because I am within a decade of wanting to put the for sale sign out or shoot, I was going to do it next week and now I got to rethink that, what are two or three things that they should do right now to sort of, A, understand where they’re at with the playing field of where they’re at, how do they assess how sellable they are? And B, what are the first couple steps they should take to making themselves more sellable?

John Warrillow:

Such a good question. I think you really want to think hard about what it is you want out of life, why you go to work in the morning, what you find most fulfilling. And I think that those answers to those questions are important. If you love the business and you love being creative and you love the way it’s structured, then I would disabuse you of the idea of selling your agency, ever, the likelihood that you will ever sell your agency for any significant amount of money is very low. That the likely way you will transition out of your agency is to sell your shares to the next generation of buyers, it will be a low multiple. If you do sell it externally, it is going to be for a very small cash payment up front and at risk payment in the future.

So the idea, I think if, if you like that, then that’s fine, and then if you need to pull more money out of the company along the way, over the next 10 years and make sure you’re dividending out your retirement fund, if you will, that’s completely fine. And a great legitimate response to that. And you should just forget about everything I’ve said on this call, because I think that’s fine. It’s a way to run a company.

So that’s, I think the first decision you need to make. And then I think if you come at it and say, no, actually I’m not happy with selling their business for nothing or a small upfront payment, I actually want to build some value over the next few years, and I want to be able to sell the thing and get out without some huge proportion of my proceeds at risk, then I think the biggest decision you need to make is this one about what are we going to specialize in, how do we winnow down this like huge list of “marketing services” to the one, two or three things that are, again, that we can differentiate on [inaudible 00:38:35] teachable valuable repeatable. And then once you’ve figured out that it’s search engine optimization or it’s event marketing or it’s graphic design for whatever, once you’ve figured that out, I think then the hard job or the next big task is to figure out how do you do that on some sort of recurring basis.

Use one of the nine subscription models to create a transaction model with your customer that doesn’t rely on them picking up the phone to call you every time they need your service, that there is an inherent or implicit implied relationship that continues. And again, I think those are the two biggest steps that I would take if the goal is to sell at a decent multiple.

Drew McLellan:

Yeah, great advice. I knew this was going to be a conversation that was packed with thought provoking ideas and you have not disappointed, John. I can’t tell you how grateful I am for you to take the time to do this today. And like I said to you, before we hit the record button, I recommend your books like crazy and will continue to do that, because I just think they’re so smart and so practical. So thank you so much for being with us today.

John Warrillow:

Thanks for having Drew.

Drew McLellan:

You bet. Hey, if folks want to track you down, if they want to learn more about your work, if they want to learn about your company, the Value Builder System, how do they do that?

John Warrillow:

Valuebuilder.com.

Drew McLellan:

Okay. And as I recall, when I was poking around there, that all of your links to Twitter and Facebook and all those other things are there as well, correct?

John Warrillow:

Yeah, that’s right. If you want to dig deeper on the book, it’s builttosell.com or automaticcustomer.com. If you want to know what the nine subscription models are, again, that’s automaticcustomer.com. You can opt in and you’ll get a one pager, it’s actually more like a 10 page PDF of the nine subscription models. But that all kind of coalesces centers around this one website called valuebuilder.com, where we work with entrepreneurs and help them improve the value of their company over time.

Drew McLellan:

That is awesome. Thank you so much. I appreciate it.

John Warrillow:

Hey, thank you Drew.

Drew McLellan:

You bet. Hey everybody. This was another episode of Build a Better Agency, where every week I try to bring you a guest who will spark new thinking, give you some great ideas and help you create an agency that serves you and your family, your employees and your clients. So I’ll be back next week, I hope you will too. If you have [inaudible 00:40:54], please make sure you swing by iTunes and give us a review and subscribe so you do not miss an episode. I will see you next week.

Speaker 1:

That’s all for this episode of Build a Better Agency. Be sure to visit agencymanagementinstitute.com to learn more about our workshops and other ways we serve small to midsize agencies. While you’re there, sign up for our e-newsletter, grab our free ebook and check out the blog, Growing a bigger, better agency that makes more money, attracts bigger clients and doesn’t consume your life as possible, here on Build a Better Agency.