The 7 hardest lessons I learned in the process of starting an advertising agency
I sold my 7-figure ad agency exactly 1 year ago today and I have absolutely zero regrets about it.
I haven't talked about these topics publicly because I was extremely stressed out at the end of my agency journey and didn't want to relive some of these stressful events. Surprisingly, I’ve found writing about that period of time to be fun and therapeutic.
Here are the 7 hardest lessons I learned in the process of bootstrapping my ad agency to 7-figures in annual revenue and then selling it to a private equity firm.
Hire good employees
Everyone starting an advertising business focuses on client acquisition. You need clients to pay the bills, of course.
But after you get the hang of client acquisition, you realize that talent acquisition — hiring good employees — is 100X more difficult to nail down.
Find a niche
We basically were rowing in place, in both revenue and client growth, during the first two years for one reason.
At one point we numbered all the different services we were actively charging clients for, and it turned out to be 17 services for 21 clients!
We did everything from logo design to SEO to ad management to pitch deck creation and website design. The list goes on and on. The wider variety of services we offered made it nearly impossible to pitch ourselves to clients, and most importantly, it made it nearly impossible to hire because we didn't know what skills to hire for.
We went through the 17 services we offered one by one to answer two important questions:
- Which was our highest profit margin service?
- Which had the highest direct impact on our client's review?
Google ads were very clearly #1 on the list. Facebook ads were a close second. So, we made decided to offer only those two services – and cut everything else.
Turn away work
When we decided to only offer Facebook and Google ads services, we had more than 15 clients that still had us on retainer for the other services we offered like SEO and design.
We made three key decisions:
- Explain our pivot to them
- Refund them their last month's fees
- Introduce them to more specialized agencies to work with
We parodied Don Draper's "Why I'm quitting tobacco" letter and wrote our own " Why we are quitting full service" letter.
Most of our clients got it, and it made it easier for us to turn down non-ads work going forward.
Differentiate from competitors
Standing out in the agency business is everything. It makes both hiring employees and acquiring new clients easier.
But, most agencies try to stand out with an overwhelming volume of case studies. Most potential clients see through this.
It took me 2 years to find a way to truly differentiate ourselves from our competitors.
When we did the math, we learned that it didn't take us much more time to service a client that we managed a $100k ad budget for than it did to service a client for whom we managed a $15k ad budget. But, every ad agency charged (and still charges) a percent of ad spend.
I invented the "flat monthly fee" pricing model where every client paid the same flat monthly fee regardless of how much money we managed of their ad budget. For example, we would charge $5k/mo for the first ad platform (say Facebook ads) and $1k for every additional platform.
Very quickly, brands remembered us and even sought us out, in a sea of undifferentiated agencies.
Have realistic expectations
When I Co-Founded my agency with my best friend from college, we had dreams of turning it into a 500-person agency worth tens of millions of dollars.
The truth is we had no idea what we were doing. We didn't move fast enough to execute our vision. But, a few years in we recalibrated our goal with our new-found knowledge and perspective and were able to get to where we wanted to be.
That was until iOS14 hit and changed the advertising game altogether.
Know when to cash in
The 2 years after we niched down to just Facebook and Google ads and introduced flat fee pricing were some of the best years of my life.
We had an average of 15 clients at any given time. We were averaging a 4X Return On Ad spend. We could see the exact impact our work was making on our clients.
We saw how turning one of our client's $50k/mo budget into $200k in monthly attributable revenue helped them open up a new manufacturing plant without raising capital, hire 10 more employees, and do so much more. There was nothing more thrilling than these wins.
Our ads, our targeting, and all of our work made that happen for them and many of our other clients at various scales.
But Facebook and Google need to show Wall Street major revenue growth every 90 days.
And since they aren't going to get more users (basically everyone who has access to the internet uses Facebook or Google already), they have to just raise their ad prices every 90 days to keep investors happy.
So, as Facebook would ramp up their prices, our results got less and less stellar. That amazing feeling of seeing our work have such a massive impact on the growth of some cool companies went away in the blink of an eye.
I realized that magic feeling was never going to come back if my agency's work was so heavily dependent on Facebook and Google ads. So, I played around with the idea of tripling down on the next ad platforms like Pinterest and Tik Tok. We considered diversifying into e-mail marketing and other services too. But the truth is, I was burnt out from so many different pivots in the first 5 years that I was not ready to make the next major pivot that we needed.
And when I came to that realization, I happened to get introduced to a business broker who showed me some data pointing to the fact that that time was the best time ever to sell an agency. Exit multiples were high and even on the low side. I could get out and achieve my financial goals easily.
So I decided to cash in my chips, and sell quickly before the market changed.
Prepare for life after
I spoke to more than a dozen mentors through the sale process about how to negotiate the deal, where my blind spots are, and what I should expect life to look like after selling. I got lots of great advice, most of which became true.
But, the one thing no one warns you about is purpose. I woke up every day for 5+ years with the same two purposes:
- Get more clients
- Keep clients happy
The very first day after the sale, when I no longer was fully responsible for either of those things, I thought to myself, "what's my purpose today?"
The end of one journey and the start of another
A year later, I'm still figuring out what my purpose is. The process of starting an agency and selling it is extremely stressful, but I have no regrets and would do it all over again in a heartbeat.
If you’re thinking of starting an advertising business, remember this framework. Hiring good employees, picking a niche, turning away work, and differentiating from competitors are all key.
I can’t wait to see what you build!
This post is an adapted and expanded version of my Tweet thread.
Bootstrap a business of your own
Many entrepreneurs, like Max, are surprisingly open about how they build their businesses. Check out our build in public inspiration post for actionable lessons on how to build and sell a company directly from the pros.