Why Becoming the Agency CEO is a Marathon, Not a Sprint
Are you looking to start your transition to the role of agency CEO? David Anderson started living the entrepreneurial dream more than twenty years ago when he started Off Madison Ave, a full-service marketing agency he founded with his partner after getting fired from his agency job. After two decades as a business owner, David has experienced success and failure. Having learned from many successes and the hard knocks of business and life. In his conversation with Jason, he talks about the many challenges and mistakes that helped him learn, why taking a step back from day-to-day operations is a marathon, not a sprint, the importance of building your leadership team and letting them make their own mistakes, and what he has learned after many agency acquisitions.
3 Golden Nuggets
- Taking a step back is a process. After many years in the business and finally being able to take a step back to being his agency’s CEO, David admits that he made many mistakes along the way. The first time, he recalls, he hired someone from the outside and did not have a solid onboarding process for that person. That fell apart quickly and they even ended up losing clients. Later, he had a leadership team implement EOS, which he highly recommends, but he chose not to be the innovator and integrator. It fell apart and he had to step in to fix the situation. Finally, he brought somebody up through the ranks, worked on a transition plan, clearly defined authority, and is holding that person accountable. “It’s a process,” he says, “and you will have your failures in it.”
- Allow leaders to learn from mistakes. David has figured out a leadership team system that works for his agency. There were mistakes along the way, however. One of them was tying the head of the team’s financial bonus to their financial income. He later changed that and now their bonuses are tied to the overall performance of the agency, not of an individual. Also, what business owners need to do is let go as they bring on those senior people. You don’t hire senior people and micromanage. They don’t want to be told what to do. With that, you also have to accept that there will be failures and things that don’t work. If you want to grow your team, you need to let them make mistakes.
- On mergers and acquisitions. With 24 years in the business, our guest has seen his fair share of acquisitions. So, what does he look for in a potential purchase? In their case, as a full-service agency, they look for businesses that can complement their services. So they’ve purchased agencies that allow them to gain a deeper focus on some aspect of the business. On the financial side, they are definitely looking at the EBITDA. He’s also made some mistakes on this front, and his advice is that, when it comes to people who will help you evaluate a potential acquisitions organization, they need to understand the industry. The person selling won’t mind if you’re uneducated, but you will surely overpay.
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Building Your Leadership Team & Letting Go of Day-to-Day Operations is a Marathon, Not a Sprint
Jason: [00:00:00] What’s up, agency owners? Jason Swenk here with another amazing episode and amazing guest. We’re going to talk to an eight-figure agency owner who’s going to talk about how he really kind of transitioned out of really doing everything and transitioned more to a leadership role where he doesn’t have to make all the decisions, which I think a lot of us like. We’re also going to talk about M&A, growth, getting bigger, so sit back and let’s get into the episode.
Hey, David. Welcome to the show.
David: [00:00:35] Hey, Jason. Thank you for having me. Looking forward to it.
Jason: [00:00:38] Yeah. Excited to have you on. So tell us who you are and what do you do?
David: [00:00:42] All right. So Dave Anderson, I live here in sunny Arizona, where it’s still a hundred plus degrees here, today when we’re recording this anyway. I am in Arizona. I have been an agency owner for about 23, 24 years now and worked at another agency for a good three years before that. The name of the agency is Off Madison Ave.
We are a full service, kind of going back to the old terms, full-service agency that does everything from creative media, public relations, social media, digital. All of the kind of stuff that we’ve had. We’re about 35 full-time people but our business model is really evolved to where we’re with a plethora of great talent out there now of how we’re using a real combination of full-time people and people with specific skill sets to do our diverse client work every day.
Jason: [00:01:41] And so tell me kind of how did you guys get started or why did you start?
David: [00:01:45] Ah, that’s a great question. So I have one business partner. Roger Hernie, a great friend of mine. So we were both working…
Jason: [00:01:52] Still, still business partner?
David: [00:01:53] Still business partners, 23, 24 years in October years later, still business partners. And I can, I can give some insights if you like, why I think that has worked overtime.
But we were both working at the same agency. And to be honest with you, I got fired one day. First time I’d ever been fired in my life from a job. Um, my wife and I were one month pregnant with our first child on the way. I still remember going and telling her and picking her up at work. And she said, how’d the day go? And I said, well, they got fired today.
That’ll stress out your wife in any situation.
Jason: [00:02:26] Was it Friday?
David: [00:02:27] Uh, it was Monday. I started the week off the right way for her. So…
Jason: [00:02:33] I’ve always been fired on Fridays.
David: [00:02:35] Yeah, no, this was a Monday. And it’s a story that needs to be told over alcohol. The agency kind of turned into, um, the culture was bad and the CEO asked me one day why it was bad. And I told him my honest opinion and I didn’t last long after that.
So I come from the PR side of things. Background in politics, PR. My business partner worked for McCann Erickson, he is the creative guy. And we just working together, saw the value… Again, I’m an old guy way back then were PR and creative, but didn’t really work well together, they were more siloed. And we really wanted to bring that together to bring a total marketing picture.
So yeah, 23 years later, we’ve done three small acquisitions over the years to help us grow. And like every one of you, we’ve had our best of days on our absolutely worst of days. Um, I’m a lot grayer now, but you know, we’ve survived.
Jason: [00:03:32] Very cool. And, um, tell me what’s been the process…? How long did it take you? Or if you kind of remember some of the key elements or key things that happen to get to a point where you don’t have to be in the day-to-day operations anymore.
David: [00:03:50] Yeah. It’s a great question. And I’m going to be honest with you. I severely messed it up two times before I got it right.
And it’s a thing that I work with kind of both other business owners now, and agency owners. The process of working on the business every day, not in the business. And then ultimately be able to move where I am now today, where I don’t really have any day-to-day role in the company.
I’m still involved from a financial side. If we do an acquisition, like we did last November, I’m very involved. Um, but I work directly with our GM. So the first time I messed it up, I hired a person from the outside who supposedly had a lot of agency experience, bigger agency actually. And after going through the process, what I did horribly wrong was I didn’t have a solid onboarding process for the new person that was coming on.
Honestly, I kind of said, this person’s hired, he starts on Monday. And by Monday afternoon I was like, good luck! You know? And within six months, we’ve lost clients. Most hurtful was I lost, I think, three of our top-five leadership team members because of that person’s leadership style, how they were doing. Just a bad, bad time. So I had to come back in and fix that.
The second time, I had a leadership team and we implemented EOS to be honest with you, which I’m a big fan of. But I chose not to be the visionary or the integrator and I left it to our executive team and the partners that were involved in the business. And that went really bad too, because when you kind of pick the integrator to lead, the other people didn’t agree.
There was no solid decision-making. There was not clear definition on when to bring it to the owners or me as the owner of decisions. And, again, it completely fell apart and I stepped back into fix it again. Now this time, I think I have finally gotten it right where we brought somebody up through the ranks, worked on a transition plan, clearly defined authority. I am holding that person accountable. The biggest thing where I failed was lack of accountability as I kind of turned the day-to-day operations over to others. Now there’s a level of accountability. I still am very involved at times on the EOS part of it on our rocks and making sure where we are.
And we are more than a year into it now and the person who runs the bay, they, her name is Sasha has done a fantastic job. The agency is growing. Our clients are happy. Our culture has improved.
So what I would say is it’s a process. It’s a marathon, not a sprint, and you will have your failures in it.
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Now I’ve seen it all kinds of different ways where… There’s two ways I’ve seen it work out well. One is to bring in… One of the first guests actually brought in someone as a consultant to work with the team and to really kind of get to know them. And then eventually they hired that person as the CEO and it was kind of like, oh, well, you’re part of us. You’ve been working with us for six months. That kind of stuff.
I’ve seen that work. And it’s a good test. And then I’ve also seen kind of going through the ranks. But a lot of times what people struggle with is if you don’t have people through the ranks, what do you do? And that’s why I wanted to kind of give you option number one, that I’ve seen work.
I’ve also seen it not work where they brought in someone temporarily, and then it doesn’t work, but that’s fine. They’re not the CEO yet. You’re testing out the waters and then you can kind of go…
Let’s talk about a lot of times when agency owners get over the couple of million mark, right? Like you can get to the million mark by accident, I feel. And then you can kind of get to the 2 million mark by accident and a lot of luck. But then to really kind of take it up from there, you have to build out a really good leadership team. So let’s talk about how did you build out your leadership team?
Like not particular names, but what were their roles? What did you learn from that? Like, what did you… what didn’t work?
David: [00:09:05] Yeah, so great question. And again, I feel we’re in a good spot now, but lots of mistakes along the way. So how we do it, we call them group heads in our organization and we put people at the lead of like our account service team, our creative team, our PR team, and our media team and creative team.
So we put a person at the head of all of them, and then I made them the leadership team that they were the ones to work collectively. Um, you know, we’re not big enough to, and never have been. And I, quite frankly, I don’t think I agree with having people that are just managers and not… So they’re working directors is what we call them.
They were directors that head of their group, group heads. But they were the ones who were responsible for making sure we weren’t siloed and the workflow and functioning like that. And that has worked very well with us. But as agency owners know, actually any CEO leadership knows… The challenge there is managing the personalities, the issues, the finances.
You know, one of the biggest mistakes I made was tying my group head’s compensation to the financial bonus to their financial income. And then it was a question of how much money do I get? Because I get to put more in my pocket on that. And so what I did was their, and still is, their compensation of bonuses and stuff like that is based on the overall performance of the agency, not of an individual. Otherwise, you’ll always have people looking out for their own personal wellbeing that they go through.
So it’s really that… Now also as a business owner, agency owner, what you need to do, two things is one is you need to let go as you bring on those senior people. You don’t hire senior people and micromanage. They don’t want to come in and be told what to do, but you as an owner have to relinquish that.
And with that, you have to accept, there’s going to be failure. There’s going to be things that don’t work. These are how people learn. And we as owners, when the first time something goes wrong, we jump back in to save the day and tell everybody else what they did wrong.
And believe me, I, you know, if you can see me, I’ve lots of gray hair. This is how I got to that point. But I think, and I’ve seen, you know, in entrepreneurs, business people as general, we hate to fail we’re as competitive. But I believe if you really want to grow your team and you have to let them fail, just like our kids, you know, you have to learn lessons the hard way.
So I hope that’s helpful.
Jason: [00:11:39] Yep. What was your first leadership role that you hired and second and third?
David: [00:11:44] I still remember that when it was Roger and I. Well, the first full leadership role that I hired was in our media group because it was the area that we were most knowledgeable in. Roger being a creative guy, me being a PR person. So we brought that media expertise and was one of the very first things.
Jason: [00:12:06] Gotcha. And why the media role if you guys had expertise in it?
David: [00:12:11] Well, we really didn’t. We were faking it. We were using a lot of outsiders to do the work for us. And when we got to a certain point in billings of media, we realized that we needed that expertise of not only just for placing and all of that, but the analytics behind it.
And that’s where we really needed the expertise. That’s why we started there.
Jason: [00:12:35] Gotcha. I always like to see when, uh, when people are like, well, so many people hire based on things that they don’t know. And I’m like, I think the best thing is, is like hiring on the things, you know. Cause then you can actually, you know, are they full of shit or not, you know? Going there.
Kind of switching focus a little bit… This focuses on growth, mergers and acquisitions and buying agencies. You know, with our agency Republics, that’s how we’ve been able to grow, we’ve done 10 acquisitions so far in the past year and a half, and just had tremendous growth.
So, and you’ve said you’ve done some MNA as well. So what do you look for? What’s worked what hasn’t worked when you bought agencies?
David: [00:13:21] Yeah, that’s a great question. Our philosophy right now is to find things that complement the services. We aren’t necessarily looking for another full-service agency. That’s going to come in with creative teams, PR teams, all of that. Like the acquisition we did, um, in November of last year was a PR agency based out of San Francisco.
And we wanted to really bolster our PR capabilities. It was also a step in over 20 something years and probably something I would do different, maybe do different is… We’ve always been more of a generalist agency. We’ve had some core areas of focus and we really want to move to a much deeper focus in two areas specifically.
And this was a great way to bring in a book of clients that fit into that area where we want to be more specific. So I would say is, you know, an M&A there’s two types: financial, which you’re just adding revenue dollars, and they’re strategic. And we’re looking more strategic with the one we just did.
The one before that allowed us to get deeper into technology. How do we use technology more in our marketing? As a result of that, we’ve also started another startup, um, a SAS-based product in the marketing space that we’ve also done that. And if I go way back to the early two-thousands, we were a very traditional agency and we didn’t have the digital capabilities that the whole marketing world was going to. And we made an acquisition to get us really deep into that space also.
So they’ve almost all been very strategic for us.
Jason: [00:15:05] Awesome. And when you’re looking at buying an agency or when you bought these agencies, is it a roll up? Is it cash? How are you evaluating them?
David: [00:15:18] Yeah. You know, we do the typical valuations stuff that we have. And I’m sure you’ve seen more than once or twice that people in their minds have a much greater valuation for their agency than what the numbers… I can tell by your face you’ve seen that a couple of times.
And I’ve had, you know, while we’ve done four acquisitions, I’ve probably had 20 where we got to a serious conversation that we do. So we really look at the numbers. I’m actually a finance major coming out of school. But then you also have to take the intangibles into it. So it’s always, usually a combination of some upfront money earn out that, you know, goes with it from there.
Jason: [00:16:01] How do you evaluate how much they’re worth? Is it on EBITDA? Is it on top line? What are some of the factors that you put in there?
David: [00:16:08] More EBITDA. More is EBITDA. And then, you know, you play the whole add back game of what to, you know, really kind of goes to… From my country club membership, to my Ferrari, to my vacation home in there to get to where, it’s a game.
I mean, you know, as well as I do, it’s a game. What I would tell… and I’m sure you’ve had similar experiences use people who can help evaluate a potential acquisitions organization who understands our industry. One of the big mistakes I made on the first acquisition that we did is I used my regular attorney who knew nothing about the marketing industry.
I overpaid without a doubt because of that, the, you know, you know what you’re doing. Because it does, it does become a game with add backs and you know… How owners are willing to structure their compensation.
Jason: [00:17:04] Well, if you’re selling you don’t mind, if the person buying you is uneducated. Make sure you tell us that lawyer so all the sellers can use that versus
David: [00:17:14] Yeah, I totally agree with you. The other thing, I had this happen once as we went through a whole valuation. We were moving forward and then it came back and I had this owner. It was a PR agency said… I think the valuation of their company came back and like 1.5 million, something like that.
You know, pretty small agency. And the agency said, well, just our contacts are worth a million dollars alone. Who we know in the media is worth just a million dollars alone. So I would never sell for less than $4 million. And I was like, well, I guess we won’t be moving forward.
Jason: [00:17:47] Yeah. I always like to tell that person I’m like, well, you can wish in one hand and crap in the other, it gets filled up first.
David: [00:17:53] I love that. I’m going to steal that if that’s okay. Cause that’s very well said.
Jason: [00:17:58] Yeah, Well, I stole that from cousin Eddie on Vegas Vacation.
David: [00:18:04] Love it. Absolutely love it.
Jason: [00:18:06] Well, this has all been great, David, is there anything I didn’t ask you that you think would benefit the audience?
David: [00:18:11] No. Well, a couple things. One is, you know, as agency owners and entrepreneurs, make sure you have a great network around you of advisers is what I would say.
Find like-minded… I’m a member of EO Entrepreneurs Organization. It’s, you know, provides the CEO forum. Vistage. I was part of Vistage. Get people around you who know more than you, have more experiences that you, that you can experience share. Because that’s how we learn and grow. And that’s what we do best.
I would also say, do whatever you have to do to work on the business every day, not in the business. And I fully understand when you’re a smaller agency crossing that first million-dollar mark, $2 million mark, and you’re finally making good money. And then the thought of hiring a six-digit leader, a six-figure income. Oh my gosh, that’s going to set me back again.
That’s how you grow, you know, and it’s just what you need to do um… If you want a growth the company. If you want a lifestyle company then, you know, that’s perfect. And neither one is right or wrong. It’s just, you have to marry it up with what you want to do. And the whole process I went through of getting out of the day-to-day, it’s absolutely a marathon. It’s not a sprint.
I would say you need at least 18 months to plan properly for that. That’s just my experience to do it in the right way.
Jason: [00:19:36] Awesome. And, uh, what’s uh, the agency website people go and check you guys out?
David: [00:19:40] Uh, Off Madison Ave. A V E, not avenue. So offmadisonave.com.
Jason: [00:19:46] Awesome. Well, thanks so much, David, for coming on the show. It was awesome.
And I totally agree with you on surrounding yourself with amazing people that are further ahead, so they can actually help you and see the things… And kind of setting me up for that, that was perfect. I want to invite all of you to go to digitalagencyelite.com. This is our exclusive mastermind just for experienced agency owners.
So I understand that there’s other groups out there that have all kinds of different industries. But if you want to be surrounded by amazing agency owners on a consistent basis, I want all of you to go to digitalagencyelite.com.
And until next time have a Swenk day.