(Proven exit strategy from an agency that scaled and sold for 7 figures)…
Guest post, authored by Andy Cabasso of Postaga.
If you have a digital agency, no matter the size of the business, you should have an exit strategy. Now. You may not be thinking about selling your agency today. And that’s fine. But, there are still things you should be doing to better position your agency for an eventual sale.
These things can make a huge difference in the valuation of your agency and the price that you can get for it when you actually want to sell.
After starting and growing an agency for three years, using these strategies I’m about to share, we were able to sell our agency for 7 figures.
I will admit that when we sold our agency, we weren’t specifically looking to sell it. But, due to the strategies we were employing, we appealed to prospective buyers, and we were approached by several companies looking to acquire us.
Now, let’s talk about what you need to do.
Productize Your Service
First thing’s first – your business needs to be an asset that can be sold. To make the business an asset, something with value and worth to it, you have to think about how you can remove and replace yourself from the business.
How can you make the business exist as an entity without your work? The better you can do that, the more valuable you make your business.
If you “are” the business – if you take a vacation and the business stops making money, stops producing work, and grinds to a halt – then the business does not have much independent value on its own.
One part of the puzzle is building your agency into offering productized services.
A “productized service” refers to turning your service offerings into products that you can sell, each with specific deliverables.
Designing a website is a service. A complete web design package is a product. The difference being: With a productized service, you are setting a fixed-scope for the project, done with processes that you can replicate over and over again with every single new client.
So, if you do web design – every new client has a standard process with set deliverables.
This means things like:
- An initial onboarding phone call / strategy session
- Logo mock-ups
- Design mock-ups
- Webpages migrated from old site
- Plugins installed
- Review mock-up
- Fixed number of “edit rounds”
- Publishing live
This does not have to mean a one-size-fits-all offering. You can have clients with websites with few pages or many pages, translations, different plugins, etc. But, there should be a scope and processes for everything so you can execute on the project easily every time, and so nothing gets lost.
Every client’s journey should be the same process. Even if some clients have more deliverables than others, every client should be signed up and have their project go through the same process.
And, very importantly, your whole process needs to be documented and managed.
Every step of the process needs thorough documentation with SOPs (standardized operating procedures) – internal knowledge documents that lay out how employees should do specific tasks every time.
In a perfect world, you should be able to bring on new employees and they should be able to understand your entire workflow just from your documentation. And they should be able to jump in easily and start working.
And to manage everything, you should have good project management software, that your team is constantly using to stay on top of project progress. As a manager, you should be able to jump into the software and know exactly what has been done on every client, what is currently in progress, what is delayed or backlogged, and what’s next to-do.
Having this workflow ensures that you can eventually be removed from the process.
This is important because the business shouldn’t just be you managing the process informally. If there is no ability to remove yourself from the process, it’s not a well-running business.
Find a Niche
One key to building an agency that you can sell is finding the right niche / industry to serve.
Having a niche gives you a very specific target market for customers.
I know that some agencies don’t like having a niche because they believe that it means they miss out on potential customers from different industries.
And yes, that is true.
But, by serving a particular niche, you have the ability to:
- Better distinguish your service from every other broad-focused agency
- Build a relevant portfolio of work
- Market yourself to customers in the industry
- Have templates and assets that you can use repeatedly on new projects to save time and money (so you don’t have to “reinvent the wheel” on every new website)
- Partner with companies serving that industry
All of these things are big advantages that, in the aggregate, can help you better scale your business.
As an example, let’s say that you want to serve SaaS businesses. So, you build a website and a brand focusing on websites and marketing for SaaS companies.
After getting a few clients, you have a portfolio of websites to show other potential customers.
You also have relevant testimonials from satisfied customers.
And, you build a blog focusing on web design and marketing for SaaS companies.
So now, SaaS companies looking for web design find you through your SEO or from referrals, and see that you have expertise in their area.
And even though there are millions of web design agencies out there, there are fewer that really understand SaaS businesses, and fewer that have a body of work and knowledge showing their skills specifically for SaaS businesses.
This makes those customers more likely to want to hire you.
Even though you decided to forego business from non-SaaS companies, by focusing on a niche, you are able to get more business than you otherwise would as a general-focused agency.
Get Recurring Revenue
To get the best possible valuation for your business, recurring revenue is a must.
Without recurring revenue, your agency effectively is living month-to-month having to constantly make new sales or no money will be coming in.
I will admit that over the years, not every month or quarter was great in terms of new sales. But, we focused from the very beginning on having built-in recurring revenue to every client package. This meant that if we had a bad sales month, we still had the cushion on recurring revenue.
And as your sales grow and the amount of customers you serve grows, recurring revenue keeps building up. With recurring revenue, you can get to a point where you don’t need any new sales but still have enough money coming in that it pays your bills and gives you a nice profit.
For digital agencies, recurring revenue can come from add-on services like:
- Website hosting and support
- SEO and content marketing
- Link building
- Paid advertising
- Social media posting
- Email marketing
Ideally, every customer at your agency should be on a recurring plan of some sort. This gives you the ability to grow much more than just going from project to project.
SEO and paid ads management can bring in a lot more revenue on top of your more standard website hosting and support. With each of these plans, you will need to set your deliverables For SEO, examples include:
- Content creation (# of articles / month)
- Directory listings
- Google My Business management
- Link building outreach
And with each of these deliverables, you need to make it so your team can execute on them as you scale, whether you have one client or 100. So, using the right tools, like project management software, and link building outreach software, can help you ensure your clients get the attention they need and that their campaigns are successful.
For selling your business, having built-in recurring revenue shows that, if you made no more sales ever again, you will still bring in $X per month.
And that’s something that the buyer will have to keep in mind when valuing your business.
A good source of business, as well as a potential buyer for your business later – are partners.
If you are operating in a niche, you can develop partnerships with related and complementary technology companies and service providers.
There are lots of opportunities for collaboration here:
- Co-marketing – e.g. guest posts / webinars
- Sponsoring each others’ events
- Building product integrations
This can be a great source of new business opportunities for you.
But also, it could mean a buyer for whom acquiring your business makes sense.
If you are serving the same market, have some customers that overlap, and you are already working well together – then you could be a good acquisition target for them.
Regardless of whether you want to sell your business today, these tips can help you better build a scalable, successful business.
And if the day comes when you want to retire or move onto something else, having implemented these strategies will make you an attractive acquisition target, with potential buyers lining up to give you a much-better valuation than you would otherwise get.
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