Das Schuster-Problem, das dein Agentur-Wachstum bremst

0:00Uh, we sell performance marketing, so paid search, paid social, creative. We do 4.5 million roughly a year. Um, I want to be at a million a month if we can get there. What's stopping us, I think, is cobbler's shoes. So, we can't do enough of our own ads because we're doing it for clients. How do we fix that? >> [laughter] >> How do you fix that? Well, I mean, so right now you're supply constrained. >> Yeah. >> Right, so I'll ask you.

0:27I'm a business owner. I've got all these, you know, customers. Uh, I have more demand than I can handle. Um, and I want to increase cash flow in my business so that I can both hire people and grow. What do I do? >> Well, make sure it compounds correctly and make sure you cut the overheads. Make sure you're making sure you ask me again, sorry. >> So, I was pretending to be a not you, somebody totally different. >> Okay. >> Um, and so I've got so I've got I'm fully staffed.

0:55>> Yeah. >> Everyone's at full capacity. I want to grow. I need to increase cash flow. I have more demand than I can handle. What do I do? >> Sell more. Do more. >> Raise prices. >> You see, this is the issue. This [laughter] is the issue. I promise you this is what the guys were telling us to raise prices, etc. And we are mid to high ticket already in the UK. >> Yeah. >> And for us to raise prices, got a client sat here, actually. Maybe I should tell >> Sorry, he's going to raise prices. >> Um, but for us to raise prices is really difficult because a lot of the clients are kind of we're already quite pricey in that sense. Um, so for us

1:23>> based. >> We are performance based in that sense. And 75% of it is retained as well. So, it compounds nicely over the course of the year. But, for us to raise prices, we'd then almost outprice ourselves and they'd go to somebody else potentially. I know we deliver a good, you know, >> Well, if that happened, you would free up capacity and then you could run ads. >> Absolutely, but then we've got to, you know, go back to the beginning and it's kind of what's the point in winning new clients >> saying your downside is you can you'll basically your downside is you're fine. Your upside is you make more money and you get cash flow and you get growth.

1:50>> Yeah, get that. I get that. What about just hiring more people to be able to do the >> You can do that. I don't know what are your margins? >> 20-ish, 18%. >> Yeah, um, so you got what? Seven 700-ish uh a year in cash flow. >> yeah, yeah. >> Um I mean, you could you could immediately just hire off of that cash flow. All of this is just it's really a question of risk and how much margin you want. So like if you need I guess I'll ask the simple question.

2:15Why haven't you hired somebody already? >> We have performance team that we literally started 6 months ago with this in-house. So the reason we haven't hired someone to do it for us is because it's not immediately revenue-generating. It's not a billable service to our clients. I know it is hypothetical in the future. >> Well, you doing performance for yourself is not revenue-generating. >> No, no. My point is we can't bill it out to the clients straight away. So it is revenue-generating in time, but it's that sort of front-loading the cost to be able to then generate the revenue.

2:40And because it's organically funded and such like, it's super hard to front-load it. >> We've got 700 in cash flow. You can go hire the person and have 500 or 400 left if they're a savage and still be fine. >> Yeah. Okay. And what would you say the best hooks are in terms of agency creative? >> For getting uh good you know, getting getting customers? It's still always going to be results and brands. >> We sell a lot through case studies and lead magnets, but um so things you can

3:07>> the best agencies run the best agencies grow on word of mouth. >> Yeah. Yeah. >> Because they're actually really, really good. And so like if you have you know, some portion that's word of mouth, um you just continuing to reinvest in the team. Agencies are traditionally lower uh well, both lower margin and also typically lower multiple from a valuation perspective cuz it's so people-heavy. Um and that's okay. It's just a different business model. But they're also like I mean, every business in the world wants more customers, so it's really easy to sell.

3:36>> [laughter] >> That's why so many agencies exist. So like you know, every every upside is a downside just said differently. You know what I mean? Um but the simple, simple, low risk cuz you're not going to raise prices, I can feel it. So um >> [laughter] >> So Yeah, so just just hire just hire the next person. Like this is the reinvestment part and like said differently, do you think you're going to get more than 8% more business for the year by hiring somebody who can get you more customers?

4:04>> Yeah, 100%. >> Right, so then it's an investment that you'll get a way higher return on than putting it somewhere else. So, that's a pretty good allocation of capital in my world. >> At what point do you dial cuz I do a lot of the ads myself in terms of the ad sets, the creative, the running around with the phone and all that kind of stuff just simply cuz I don't want to take up the dude's time in the business sense or in the business. So, at what point do I dial myself out of that and put another excellent member of staff on camera sort of thing. Like how does that transition work? >> I think it's whenever you want.

4:30I mean you could do that at a million dollars a year. It just The thing is is like you're going to have founder magic and it's always going to work disproportionately better for you than it does for anybody else. And so, I will I will expect a 30% decrease in performance in a function um if someone takes it over for me. >> Yeah, okay. >> And as long as it's baked into the financial model, it's fine because then I get like one of the sayings we have is scale zero. Which is like how do I get me to zero?

4:56And once I'm at zero, we can just scale all the way to the moon. As if there's any percentage that requires me then it doesn't scale. >> Yeah, and that's what I'm trying to do. Okay. So, how do I get someone to do more? Try and dial myself out if I can. Yeah. Thanks, Alex. >> No, you bet. And as a side note for everybody, the when you're in a low cap ex business, which is kind of like the the the performance marketing agency, if you have a consulting firm, if you're an accounting firm, if you're a legal, if you're you know what you are if you're if you're low cap ex. Any kind of services for the most part tend to be low cap ex.

5:26When you have the profit at the end of the year, the benefit of those businesses is that generally spit off more cash flow than other businesses. So, like a physical products business, you have to buy more inventory. If you're a brick and mortar, you have to buy more locations. If you're you know, manufacturing, you got to buy another machine for more widgets or construction, you got to buy equipment. Whatever it is, right? Some businesses require more capital to grow. Service businesses do too, but just not the way you think. And so there's two primary investments that will get through the disproportionately higher returns for service-based businesses, which is now 80% of the room. So, number one is talent. And so when you see your your profit at the end of the year, the thing that you take is you look at that profit, let's say it's a million bucks in profit, and you're like, "Okay. Well, for me to keep going, I can try to keep squeezing my team more, but at certain point there's just not more they can do." And so I have to unlock more operational capacity by bringing more A-players on. And so I have to look at that and say, "Well, what percentage am I going to reinvest in the business?" To me, reinvesting in the business from a service perspective is again one of two things. One is that you bring talent in, and the other is that you do brand plays, which is like, "What are the big aspirational associations that I can go for that will permanently cement me in a different tier than my competition?"

6:32Like, why does Red Bull waste the money to do a parachute jump from space? Because it's a brand play, and because people talk about it, like me right now, right? And you're probably haven't thought about Red Bull, but now you're more likely to drink one for the rest of the right? And so, the the like, "Why am I doing a book launch? None of you even found me off my damn book, right?" >> [laughter] >> Like, "Why am I doing this?" Because I think that if we do an enormous launch that gives a tremendous amount of value to entrepreneurs, it'll introduce a lot of people who are kind of like much much more on the top of my world who are just barely at the edges, they'll take them one long step in, they'll get three or four hours of tremendous value from me, hopefully they'll buy a book and then I get another six, seven, eight, 10, 20 hours of value from that, and then over the next few years, they'll work their way into my ecosystem. It's a multi-year play, and I'm putting, I don't know, six, seven million dollars into this launch. So, I'm putting a, you know, a decent amount of capital into this with basically no real return that I'm aware of, right? And so like those are the bets that we have to make on brand that will get you out of the direct response doom loop that you may feel like you're in, which is hitting the national companies disproportionately to the local businesses. So, like if you're local, you have a little bit longer that you can get away with basically just running Google Ads or Meta Ads and just generating leads and selling [ __ ] which is fine.

7:48Uh but everybody who's national or sells international, brand it like you can't just like 5 years ago, 8 years ago, you could just run a cold ad to a video sales letter, get on the phone, and sell something for 10 grand. You could do it with basically no reputation. Those days are more or less gone. And so, now it's like you have to make these big brand investments. Now, part of that might be content that you can reinvest. So, per- you're like thinking cuz you're a performance marketer, you probably think more in ads. But, the biggest brands that really make money with performance, performance is only 30% of their budget. 70% goes to uh associations, narrative, um founder story, all of the things that they want everyone to talk about and associate them with, which then long-term creates higher ROAS than direct response does.

8:33Direct response creates higher ROAS in 30 days. Branding creates 5, 10, 20 times more ROAS over 12 months. And that's the part that everyone [ __ ] up. Me too. I stayed stuck at between 30 and 40 million for 3 years till I figured that out. If you're a business owner and you are not growing as fast as you'd like, I'd like to give you a free gift. So, my team and I put together the $100 million scaling roadmap, which is basically 200 hours of us looking over all the portfolio companies we've had and what stages of growth they went through and more importantly, where they got stuck and how they got past it. And so, we broke it in these 10 stages and we made this little kind of quiz thing where if you put in your business information, it'll tell you where you're at and the most important part for you, what to do for each of functions of the business across product, marketing, sales, customer success, recruiting, IT, human resources, and finance. And so, no matter what you're struggling with, someone else has already struggled with it and solved it. And so, I'd like to give you this thing absolutely free. You can go to acquisition.com/roadmap, plug in your business information, and if you want us to actually help you decon- train the business and you're trying to scale, we'd love to help you out. On the thank you page, you can book a call with my team and we will look at your business, see if we can help, and if we can we'll invite you out to Vegas and we'll do this in person live.