What does Warren Buffet have to do with my post about the digital marketing agency business?
You’ll find out in just one minute…but let’s just say he’s a smart guy!
If you are in currently the agency business, or are providing any sort of marketing services to smaller businesses in particular, this is going to be a very valuable post and opportunity for you to make your business more profitable while making your life much easier and more enjoyable.
Specifically, I’m going to share one of the most important lessons that I’ve learned about business in general (thank you, Warren!), and more specifically, a critical lesson about designing your digital marketing agency to offer services that are:
[+] Much more scalable
[+] Much more repeatable
[+] Much higher margin
[+] Can be offered at lower prices (speeding up the sales cycle)
[+] Build a business that is ultimately much more valuable and can be sold
The crazy thing is that not only will you end up with a much more profitable business…but it will be a much easier business to manage, grow, and eventually exit too!
How I Know This
I’ve founded seven-figure businesses in technology services, agency services, publishing, and ecommerce (and flopped on a variety of attempts as well…keepin’ it real!).
My businesses have been named to the INC Magazine List of Fastest Growing Companies three years in a row, and were also nominated as a Best Place to Work in their respective cities.
In both the IT services industry and the Agency industry, I had a reputation for completely changing the way services were sold and delivered so that they were much simpler and more scalable.
That’s why I was also able to successfully sell one of my businesses for multiple seven-figures.
I share that with you just to give you a little context so you’ll listen when I tell you that what I’m about to share with you is the most important lesson I’ve learned about building a successful, profitable Agency business.
Then let’s get started…
“Who’s built a successful, big service business selling to small businesses?”
That’s a question that drove me as I was finishing my MBA at Babson College.
I believed that I wanted to start a business selling IT management to small businesses – the market was massive and growing quickly.
But I was concerned – why couldn’t I find any professional service businesses that were selling to the small business community that had grown fast, grown large, and were profitable?
Where was a role model I could study?
The answer was depressing…
Go ahead…tell me the name of a business selling professional service to small businesses in America that is big and profitable?
Trust me, you won’t come up with one. I’ve studied the market so extensively, that I now know in my gut that this the Warren Buffet quote below speaks the truth about trying to sell services to small businesses:
Warren Buffet was right!
Warren Buffett has this to say on the topic:
When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
The reason there aren’t any professional service businesses that have done really well in the small business market is because the economics suck – pure and simple.
The only businesses that have been able to scale selling to small businesses are really ‘product’ businesses with some sort of ‘service’ wrapped around them.
Which is why…
The ‘Agency’ model doesn’t work!
Not when selling to small businesses, it doesn’t!
Sure, you can sell agency services to large businesses and kill it – that’s how Gary V has been able to grow such a large agency so quickly – because large businesses will cut massive checks. That’s why Madison Avenue has existed for so long.
But take a look at the small business marketplace – and at any agencies serving them – and you’ll find a 20 person agency or a 30 person agency or something like that. There isn’t much more.
And there’s nothing wrong with that per se, but I’ve been the owner of that size of business and I know that the owner of that business does not really have the life that you may think that they have.
You may see their employees and revenue as a sign of success, but in my experience, that owner is scraping and clawing to make payroll every month.
They are stressed out and fighting every day to figure out when they’ll finally really ‘get ahead’. And they are most likely already thinking about how they can eventually get out.
And unfortunately – what most of them won’t figure out until late in their career – is that all of their hard work didn’t build an asset that is valuable enough for them to sell and retire.
The Stressed-out 90%
90% agencies are just ‘getting by’.
They are caught in a trap of doing custom work for clients that isn’t scalable and doesn’t produce enough revenue or margin to really get ahead.
They are making enough money to survive and perhaps even pay themselves, but probably not as much as if they’d just go to work at a really successful business and do their best work there.
They are caught in what I call the ‘Cycle of Doom’.
The ‘Cycle of Doom’
The ‘Cycle of Doom’ is the trap that every business selling any sort of professional services to small businesses gets caught in:
Where you put in all of this effort to sell to them and provide great service to them…but then they just can’t afford to pay you enough money so that you and your business can really get ahead.
They simply can’t. The economics are not there.
They’re small businesses, but they are still very demanding, they still want lots of attention, they still want you to hold their hand, and if you let them, they will bleed you dry.
They demand your attention – without being able to pay you adequately for it – and it will absolutely break your business.
You don’t get any extra credit working in a hard business!
One of the reasons that Warren Buffet is so brilliant is that he very thoughtfully makes decisions about the types of business that he puts his money into.
He only puts his money into businesses where there’s some sort of structural economic advantage that makes his money safe and likely to grow, even if he doesn’t have the best talent in the world running the company.
He refers to it as ‘building a moat around your business’, which makes it hard to destroy.
It makes it very likely that even if the management team doesn’t execute perfectly, his money is still going to get more valuable.
As entrepreneurs, that’s what we should all be looking for.
We don’t get any extra credit for working hard or taking extra risks.
Selling agency services to small businesses is ‘high work, low reward’ business…it’s inarguable.
That’s why you don’t see any of them getting ahead.
That’s why the ones that do have some success end up leveraging that success to create information products or software – businesses with dramatically better economics and operating models.
Who could blame them?
So…what to do about it?
“So is it all gloom and doom, Mike? Is that what you’re saying?”
Not, that’s not what I’m saying.
10% of agencies I know are killing it.
The Successful 10%
The 10% fall into one of two categories:
1. They are selling to very large businesses with massive budgets that will pay the appropriate prices for custom work (this is how Gary V’s agency has grown so quickly)
2. They are taking an ‘Assets Over Agency’ approach that allows them to sell to smaller businesses in a more scalable and profitable way.
What is ‘Assets Over Agency’?
What I mean by that phrase ‘Assets Over Agency’ is to focus on developing scalable assets at you business that can be ‘re-sold’ and ‘re-delivered’ many times instead of providing custom services to each client.
There are seven ‘assets’ that I’ve found are the best for agencies to develop at their business that will:
- Increase scalability
- Increase profitability
- Speed up their sales cycle
- Make their business easier to run
- Make their business more valuable and easier to sell
That’s a pretty powerful list of benefits, which is why it’s so critical that you develop these assets and escape the typical clients services model that lands you in the Cycle of Doom.
The Seven Best ‘Assets’ to Develop
I’m sure you’d love to learn more about these ‘assets’ and see examples of them.
Here are the seven best ones I’ve identified over the last 7+ years working with thousands of agencies:
- Productized services
- Media (blogs, Instagram accounts, newsletters, etc)
- Lead Generation sites
- Direct Mail campaigns
- Industry-specific sales funnels
- Software-based services
- Your business itself (franchise, license, information products, etc)
Each of these are ‘assets’ that can be scaled and offered as ‘marketing services’ (or ‘Agency’ services if using that word is important), but done in a way that strictly minimizes custom work and creates assets that deliver high value to each new client with minimal variable cost and effort.
By creating an ‘asset’ that can be packaged and sold much more easily and at lower cost, these models have proven to create an economic model that allows their owner to escape the ‘Cycle of Doom’.
And perhaps most importantly, all of these models can be easily sold to a new owner, creating the opportunity for a very lucrative exit after all of your hard work.
Let’s take an example that almost everyone will know of and understand:
Valpak has been delivering coupons to homes all around America and Canada since 1968.
It’s a very simple model with no custom work required, it’s very easy to scale, it delivers an important marketing service to local businesses. It’s a combination of models #3, #4, and #7 listed above.
And it was sold to a private equity firm for a lot of money – perfect!
I’ll use my most recent business as another example: ThereSanDiego.com
This is an example of #2, the media model. Media is nothing new – we all understand its value and how the business model has traditionally worked.
But the delivery and consumption of media is going through drastic changes, which creates opportunity.
But ‘advertising’ isn’t going anywhere, so as long as I can attract eyeballs I have a very attractive ‘asset’ that I can monetize in a variety of ways.
It’s not just a website. It’s also a newsletter, social accounts, and a recognizable brand.
Is this business an ‘Agency’?
Yes and no.
No, because the foundation of it is media.
But yes because I am still in a position to sell a variety of non-advertising marketing services to local businesses that need help getting visibility.
Social media management? Sure.
Facebook ad management? Yes.
But the BIG difference is that I’ve built an asset in the San Diego market.
ThereSanDiego is a THING that people can see and touch and share, you know? There is PROOF naturally built into it because my content is out in the market every day, getting attention and promoting local businesses in a very visible way.
So I can sell ads on my site, native content, ads in my newsletter, event promotion, social promotion, etc. – the list goes on.
It’s also given me a very minor celebrity-like status in certain circles in the city that has a ton of benefits. I eat for free at the best restaurants, get invited to the best events, and meet many of the most interesting people in the city…I’m having the time of my life building it.
And there is virtually no custom work or client management involved.
Because it’s an asset.
I hope that by sharing my experience and my perspective, you are able to use this ‘Assets over Agency’ concept to build yourself a more profitable and enjoyable business – nothing would make me happier.
If you’d like to learn more about this concept, I recorded a video where I walk through all seven of the best ‘Assets’ in more detail.
Nothing to buy…just a ‘deeper dive’ into what this concept is all about and how to capitalize on it.
All the best,