[Top Agency Series] Recap Episode of Growth Through Acquisitions With Jason Swenk

Jason Swenk is the Founder of Agency Mastery 360, a company dedicated to helping digital agency owners grow and scale their businesses. With over 20 years in the agency space, he has built and sold his agency, and he now leverages his experience working with brands like AT&T, Hitachi, and Lotus Cars to mentor other agencies. 

In addition to hosting the Smart Agency Masterclass podcast, the #1 podcast for digital marketing agency owners, Jason has developed a framework for growing agencies from nothing to eight figures. His unique perspective, shaped by his extensive experience and monthly interaction with over 100 agencies, provides valuable insights into navigating market disruptions and achieving sustained growth.

Here’s a glimpse of what you’ll learn:

• [02:22] The importance of EBITDA over revenue for agency valuation
• [04:47] Jason Swenk’s Elf on the Shelf story of a missed opportunity
• [06:05] KPIs that go beyond just revenue numbers
• [08:28] Tips for assembling a winning team
• [09:54] Republix’s unique approach to acquiring and nurturing digital agencies
• [16:54] The financial strategies behind Republix’s acquisition deals
• [18:46] The key trends and challenges in the current agency acquisition landscape
• [21:38] Jason’s advice for entrepreneurs aspiring to sell their agencies
• [30:09] Negotiation tips and deal structuring advice
• [41:12] How to survive due diligence

In this episode…

In today’s rapidly evolving business landscape, agency owners face the daunting challenge of sustaining profitability and positioning their agencies as attractive candidates for acquisition. What factors set apart those agencies that thrive in the competitive market, and how can agency owners ensure they maximize their potential for growth and sale?

This recap dives deep into Jason Swenk’s strategies for growing a digital agency poised for acquisition. A seasoned expert in the agency space, Jason focuses on crucial performance indicators beyond revenue, highlighting profitability, MRR, customer loyalty, and strategic team-building as fundamental metrics. Jason emphasizes that agencies often inflate their revenue to appear more successful, but the true value lies in their profit margins and operational efficiency. Through real-world examples and a personal anecdote about missing out on the Elf on the Shelf phenomenon, he shares a unique acquisition strategy that prioritizes culture fit, autonomy, and shared success.

In this episode of the Inspired Insider Podcast, revisit Dr. Jeremy Weisz’ earlier interview with Jason Swenk, Founder of Agency Mastery 360, about mastering agency growth and acquisition. Topics include the importance of EBITDA over revenue for agency valuation, acquisition KPIs, Republix’s unique approach to acquiring and nurturing digital agencies, and the key trends and challenges in the current agency acquisition landscape.

Resources mentioned in this episode:

• Jason Swenk on LinkedIn
• Agency Mastery 360
• Republix

Related episode(s):

• “[Top Agency Series] Growth Through Acquisitions – What is Your KPI and Northstar? With Jason Swenk” on the Inspired Insider Podcast
• “Building a Great Team and More Helpful Insights with Jason Swenk Host of The Smart Agency Master Class Podcast” on the Inspired Insider Podcast

Quotable Moments:

• “Profitability, not revenue, is the hallmark of a truly successful agency.”
• “Building a strong team is about recognizing what you’re not good at and hiring people who are.”
• “Cultural fit and shared vision are just as critical as the financials in a successful acquisition.”
• “Understanding your motivation for selling is crucial to avoid feeling lost post-sale.”
• “A solid legal and financial team is like having bodyguards for your business during an acquisition.”

Action Steps:

1. Focus on building profitability over revenue: EBITDA is a key metric that showcases an agency’s financial health and potential for acquisition.
2. Measure success with performance indicators beyond revenue: By tracking key performance indicators like MRR and churn rate, agencies can build a reliable and client-centric business that’s appealing to buyers.
3. Assemble a team that complements your weaknesses: A well-rounded team allows for agency owners to focus on their strengths, ensuring the agency runs efficiently and remains attractive in the eyes of potential acquirers.
4. Align agency culture with potential acquirers: Cultural fit is crucial for a successful acquisition, as it fosters a smooth transition, employee satisfaction, and sustains the agency’s legacy post-sale.
5. Prepare for a sale with transparency and organization: Being organized and transparent during the due diligence process builds trust with potential buyers and ensures all aspects of the agency are accurately represented, leading to better acquisition terms.

Episode Transcript

Intro 0:15 

You are listening to Inspired Insider with your host, Dr Jeremy Weisz.

Jeremy Weisz 0:22 

Dr Jeremy Weisz here, founder of inspiredinsider.com where I talk with inspirational entrepreneurs and leaders. Thanks for tuning in to this special episode where we revisit a previous conversation I had with Jason Swenk. Jason helps agency owners grow their agencies faster. He has created the resources he wished he had when he ran his agency and sold it. Visit jasonswenk.com to learn more. This episode is brought to you by Rise25. At Rise25 we help businesses give to and connect to their dream relationships and partnerships. How do we do that? We do that by helping you run your podcast. We’re an easy button for a company to launch and run a podcast. We do the accountability, the strategy and the full execution. We call ourselves the magic elves that run in the background and make it look easy for the host so they can develop amazing relationships and run their company. For me, the number one thing in my life is relationships, and I’m always looking at ways to give to my best relationships, and I found no better way, over the past decade, than to profile the people and companies I most admire and share with the world what they’re working on. So if you thought about podcasting, you should, if you have questions, go to rise25.com or email us at support at rise25.com

Speaker 1 1:39 

Hey everyone, welcome back. Today, we’re gonna be going deep, taking a deep dive into the world of digital agencies. Really deep, specifically what it takes to build one that’s so successful that people are lining up to buy it. Our guide for this journey is a fascinating interview with Jason Swenk.

Speaker 2 2:00 

Oh yeah, Jason Swenk.

Speaker 1 2:01 

An agency owner who has been there, done that, and now the guy else others do the same.

Speaker 2 2:06 

He really knows his stuff, and he doesn’t hold back. Okay, Jason’s got some pretty strong opinions, all right, about what really drives agency value, and it’s not just about hitting a certain revenue number.

Speaker 1 2:19 

Okay, so spill the tea. What’s the secret sauce?

Speaker 2 2:22 

Profitability, profitability. It’s all about profitability. Okay. Jason uses this term, EBITDA. EBITDA, which stands for earnings before interest, taxes, depreciation and amortization. Okay, think of it as the agency’s true profit muscle.

Speaker 1 2:39 

All right. I’m following so far, but give me an example. Why is EBITDA so much more important than just looking at revenue?

Speaker 2 2:45 

Okay? Picture this. You’ve got two agencies, okay, both pulling in ten million in revenue. Okay, that sounds impressive, yeah, that sounds pretty good. But agency a has an EBITDA of $3 million while agency B is only at 500,000 Oh, wow, see the difference?

Speaker 1 3:02 

Yeah, that’s huge. Agency A is way more efficient, even though they’re bringing in the same amount of top line revenue.

Speaker 2 3:09 

Exactly That’s what makes agency a much healthier business and a much more attractive target, for acquisition makes sense. It shows they’re not just burning cash to hit a revenue target, right? They’re actually running a tight ship.

Speaker 1 3:23 

So are you saying that some agencies might be inflating their revenue numbers just to look good?

Speaker 2 3:29 

It happens more often than you think.

Speaker 1 3:31 

They’re not actually.

Speaker 2 3:32 

Jason even suggests that Gary Vaynerchuk.

Speaker 1 3:35 

Wait, Gary V.

Speaker 2 3:36 

Yeah, that Gary V, oh, wow, might be running his agency at a loss.

Speaker 1 3:40 

Hold on. Are you saying Gary V might be losing money on his agency?

Speaker 2 3:44 

It’s possible.

Speaker 1 3:46 

Everywhere. What’s the strategy there?

Speaker 2 3:48 

Well, it’s all about the bigger picture. Jason’s theory is that Gary might be using the agency as a loss leader to fuel other parts of his business empire. Oh, okay, it’s a way to build his brand, attract clients, right, generate buzz, okay, even if the agency itself isn’t, yeah, a huge profit center.

Speaker 1 4:08 

Okay, that’s pretty smart, actually, it is, but it makes you wonder, how many other seemingly successful agencies, right, might be struggling with profitability behind the scenes.

Speaker 2 4:19 

It’s a good reminder that you can’t judge a book by its cover, right? Or, in this case, an agency by its revenue alone.

Speaker 1 4:26 

Speaking of judging books by their covers, Jason shared this wild story about an opportunity he had early in his career. Oh, and you’re not gonna believe this. Okay, it involved Elf on the Shelf, Elf on the Shelf, Elf on the Shelf, the holiday toy. Yes, the holiday toy?

Speaker 2 4:44 

What does that have to do with digital agencies

Speaker 1 4:47 

Well, early on, yeah, Jason was offered the chance to be part of the Elf on the Shelf phenomenon, really, before it blew up. And guess what? He turned it down. Though the whole idea was silly and missed out on what became, wow, a massive holiday tradition.

Speaker 2 5:06 

Ouch. That’s gonna sting a little bit looking back, yeah, but I guess even seasoned entrepreneurs can miss out on Yeah. It happens those golden opportunities sometimes totally it really makes you think, right? It does. How many times have we dismissed an idea because it seemed weird, unconventional, only to see become the next big thing.

Speaker 1 5:29 

It’s a powerful reminder to stay open to possibilities, definitely, even if they come in unexpected packages, yeah, just like that mischievous Elf on the Shelf.

Speaker 2 5:38 

Like that Elf on the Shelf.

Speaker 1 5:39 

Okay, so we’ve established that profitability is king, and sometimes you got to think outside the box to spot the real winners, Yeah, but how do you actually measure an agency’s success beyond just revenue?

Speaker 2 5:52 

That’s where those all-important KPIs come in. Jason highlights, yeah, a handful that paint a much clearer picture of an agency’s health and potential.

Speaker 1 6:01 

All right, hit me with them. Okay, which KPI should I be obsessing over?

Speaker 2 6:05 

Well, we’ve already covered the big one, the EBITDA. But beyond that, yeah, there’s MRR or monthly recurring revenue, okay? It’s the lifeblood of a stable agency, because it gives you a predictable income, right? This means you can confidently invest in growth knowing you have a steady base.

Speaker 1 6:23 

Yeah, that makes a lot of sense. No more feast or famine cycles, right? So what else is on the list?

Speaker 2 6:28 

Next up is A C T, or average contract term? Okay, longer contracts are like gold, really? Why is that? Because they show client loyalty and reduce churn.

Speaker 1 6:39 

So if I’m locking in clients for a year or more, that’s a good sign.

Speaker 2 6:44 

Absolutely. It shows you’re delivering value and building strong relationships, right? And speaking of churn, okay, keeping that rate low is crucial. Okay, it basically measures how many clients are jumping ship. High churn means you’re constantly scrambling to replace lost business. Low churn means happy, loyal clients who are sticking around.

Speaker 1 7:07 

So I want to see that churn rate, as close to zero as possible.

Speaker 2 7:11 

As close to zero as possible.

Speaker 2 7:12 

What else should I be watching?

Speaker 1 7:14 

Another important one is average expansion revenue.

Speaker 2 7:17 

Average expansion revenue.

Speaker 1 7:19 

This is all about growing existing client accounts, okay? It shows you’re not just keeping clients happy, right? You’re finding ways to provide even more value and deepen those relationships.

Speaker 2 7:30 

Got it so it’s not just about getting new clients, right. It’s about maximizing the ones you already have . Okay, what’s the last KPI on our list?

Speaker 1 7:38 

Last but not least, we have NPS, or net promoter score, this measures how likely your clients are okay to recommend you to others.

Speaker 2 7:49 

Ah, the good old word of mouth factor.

Speaker 1 7:52 

Exactly a high NPS means you’ve got an army of brand ambassadors out there singing your praises.

Speaker 2 7:57 

This is starting to make a lot of sense. It’s not just about the vanity metrics, like revenue, yeah, it’s about building a business that’s profitable, stable and client centric. Yes, you got it. It’s about creating an agency that’s attractive to both clients and potential acquirers, right? But there’s one more important piece of the puzzle you need to discuss, okay? And that’s the team you build.

Speaker 1 8:21 

Okay, let’s talk team building. All right, what does Jason have to say about putting together a winning squad?

Speaker 2 8:28 

His advice is surprisingly simple hire based on your weaknesses.

Speaker 1 8:32 

Ooh, I like that. Yeah, yeah, that’s good.

Speaker 2 8:35 

It’s so refreshing to hear that you don’t have to be a master of everything right to build a successful agency, right, right? It’s about recognizing what you’re not good at.

Speaker 1 8:45 

And bringing in people who excel in those areas. It takes a lot of self-awareness, yeah, but it’s a sign of strong leadership.

Speaker 2 8:56 

So for example, yeah, if I’m amazing at landing new clients, but my organizational skills are a mess, I should prioritize hiring a rock star Operations Manager.

Speaker 1 9:08 

Spot on. Okay, that frees you up to focus on your strengths, right? Bringing in that new business while knowing the agency is running smoothly behind the scenes,

Speaker 2 9:17 

Makes sense. What if I’m the opposite? Okay, a total operations Wiz, but terrified of sales calls.

Speaker 1 9:22 

Then find yourself a killer salesperson. Okay? It’s all about balancing out your weaknesses right to create a well-rounded and high performing team.

Speaker 2 9:29 

And this isn’t just good for the day to day running of the agency, it also makes it way more attractive to a potential buyer.

Speaker 1 9:36 

Absolutely. Buyers want to see that an agency isn’t completely reliant on the owner. Yeah, a strong team signals that the business can thrive, right, even if the owner steps back. Okay, this is all making a lot of sense. Now, Jason’s company, Republix, is doing some pretty interesting things in the agency acquisition space.

Speaker 2 9:54 

Definitely, they’re building something they call a world leading growth search. Service platform by acquiring agencies and tech companies.

Speaker 1 10:03 

Wow, that’s quite a mouthful. It is. But what’s really cool is their approach.

Speaker 2 10:09 

Yeah, their approach is unique.

Speaker 1 10:11 

Okay, I’m all ears, all right. What makes their approach so different?

Speaker 2 10:15 

First, they’re not just looking for any agency, okay? They specifically target profitable agencies with over a million dollars in EBITDA.

Speaker 1 10:24 

So they’re going after the cream of the crop Exactly.

Speaker 2 10:27 

And instead of just swallowing up these agencies, they allow them to keep operating independently. Oh, interesting. They’re creating this collective of top performing agencies that can benefit from shared resources and expertise, right, while maintaining their own unique identities.

Speaker 1 10:44 

So they get the best of both worlds. It is independence and support, right?

Speaker 2 10:48 

It’s a win win. That’s a pretty sweet deal for the agencies being acquired.

Speaker 1 10:52 

And they’re big on making sure the culture is aligned. Culture, yeah. Jason even uses this analogy, okay, of getting on a boat, okay, you need to know where it’s going before you jump on board.

Speaker 2 11:02 

I love that analogy. Yeah, so shared vision and values are super important and when it comes to the financial side of things, Republix takes a really interesting approach to the earn out. The earn out, yes, which can be a tricky part of any acquisition. Jason shared his own negative experience with an earn out when he sold his first agency.

Speaker 1 11:25 

He learned the hard way, yeah, that those performance targets tied to the earn out can become impossible to hit right if the acquiring company makes changes that hurt the agency’s success.

Speaker 2 11:35 

So how does Republix structure earn outs differently?

Speaker 1 11:38 

They take a lot of the risk off the table for agency owners, yeah, instead of putting a time limit on the earn out, they base it on a clear milestone, doubling EBITDA, so whenever you hit that target, you get the payout.

Speaker 2 11:51 

That’s brilliant. It is a good system. It takes away the pressure of a ticking clock, right? And aligns incentives for long term growth Exactly. It’s another example of how they prioritize, yeah, partnership and shared success. Jason also emphasized the importance of understanding your own motivations, for selling in the first place, right? It’s not just about getting a big payday, right? It’s not just about the money. You need to be clear about what you want to do next. Yeah? What are you to do after he admitted that after selling his first agency, he felt lost and depressed. Oh, wow, he hadn’t really figured out what he wanted to do with his life after the agency,

Speaker 1 12:31 

it’s a big decision, you know, both financially and emotionally. You’re essentially saying goodbye to something that’s been a huge part of your life.

Speaker 2 12:38 

And that’s where having mentors and advisors who’ve been through it themselves can be so valuable they can offer guidance and support during a potentially stressful time. Yeah, it’s good to have people you can talk to. It’s like having a Sherpa, a Sherpa, yeah, guiding you through the treacherous mountain passes.

Speaker 1 12:57 

Treacherous mountain passes. Of agency. Acquisition. Of agency acquisition exactly.

Speaker 2 13:02 

What else did Jason say about preparing for a sale?

Speaker 1 13:05 

He stressed the importance of having a strong legal and financial team in your corner.

Speaker 2 13:10 

Makes sense. You need experts who understand all the complexities, yeah, all the legal and financial complexities of an acquisition deal. They can help you negotiate favorable terms, protect your interests and make sure you’re getting a fair deal, a fair deal. Yeah? So it’s not just about finding the right buyer, it’s about surrounding yourself with the right team of advisors. Yeah.

Speaker 1 13:32 

What else should agency owners keep in mind?

Speaker 2 13:36 

Jason cautioned against getting caught up in the hype of a potential sale and losing sight of your goals, right? It’s easy to get swept away by the excitement.

Speaker 1 13:46 

Especially, yeah, when there’s a lot of money on the table, don’t let those dollar signs cloud your judgment. Stay grounded, right? Keep your long term vision in mind, okay? And make sure the deal aligns with your values and aspirations.

Speaker 2 13:59 

And what about the agency team, the team, yeah, they must have a lot of questions and anxieties about the whole process. Oh, absolutely. What did he say about that?

Speaker 1 14:08 

He’s a big advocate for transparency and open communication. Okay, keep your team informed about what’s happening. Right, address their concerns honestly and create a supportive environment.

Speaker 2 14:19 

So it’s about building trust and making sure everyone feels valued during a time of transition. Now let’s circle back to Republix, unique acquisition model,. One thing that really stands out is their commitment to preserving the culture and autonomy of the agencies they acquire.

Speaker 1 14:40 

They don’t try to force everyone into a cookie cutter mold, right? Yeah, they recognize that each agency brings its own unique strengths and ways of working. That makes sense. Jason used this great analogy of a fleet of ships sailing together, toward a shared destination, with each ship having its own captain. And crew.

Speaker 2 15:00 

That’s a really powerful image. It is that captures the essence of their approach.

Speaker 1 15:05 

They’re creating a collective of agencies that are stronger together, right, but retain their individual identities and freedom.

Speaker 2 15:13 

And they believe this approach fosters innovation, creativity, and a sense of ownership among the agencies they acquire. It’s a smart strategy, plus it gives them access to a wider range of expertise and resources, which benefits everybody, everyone involved. Everybody wins. Okay, so we’ve talked about their approach to profitability, culture, get outs, earn outs, and even that clever boat analogy, the boat analogy. What else makes their acquisition process unique?

Speaker 1 15:44 

They’re very selective about the agencies they bring on board. It’s not just about financials. It’s about finding the right cultural and strategic fit.

Speaker 2 15:55 

So they’re looking for agencies that align with their values and vision for the future.

Speaker 1 16:01 

It’s like finding the perfect puzzle piece that completes the picture.

Speaker 2 16:04 

And once they find the right agency, they’re very intentional about integration. Integration. Yeah, they focus on creating a better together environment, a better together environment, where everyone feels valued and supported.

Speaker 1 16:18 

It sounds like they put a lot of effort into making sure, yeah, the transition is smooth and beneficial for everyone involved.

Speaker 2 16:25 

It’s not about one agency absorbing another. It’s about creating a true partnership, a true partnership, yeah, and they recognize that integration takes time. It takes time. It’s an ongoing process that requires open communication, flexibility, and a willingness to learn from each other. Yeah, it’s a two way street. Now let’s talk about the financial nitty gritty of their acquisition process. How does their typical deal structure work?

Speaker 1 16:54 

They offer a combination of cash and equity, okay, in the new entity, so.

Speaker 2 16:57 

So agency owners get to cash out some of their hard earned equity while also participating in the potential upside of the combined company. It’s like having your cake and eating it too, right? And as we discussed before, yes, they structure those earn out to minimize risk, minimize risk for the agency owners, the agency owners, and incentivize long term growth, long term growth. It’s all about alignment and creating a win win for everyone.

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