Navigating the Unexpected Sale of Your Agency by Thoughtful Negotiating with Kelsey Dixon | Ep #756

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Would your agency be ready for an unexpected acquisition opportunity? Could you make it work if the time and offer were right? One boutique agency owner faced this question when an unexpected offer transformed her lifestyle business into an acquisition prospect. Though she and her partner had no immediate plans to sell, they recognized the potential and methodically prepared for a successful transition. Learn about their experiences finding their niche in the industry, preparing for acquisition, their 'no regrets' attitude regarding the sale, and the reason why they approached negotiations with a thoughtful mindset that would benefit everyone involved.

Kelsey Dixon is the co-founder of Davies and Dixon, an organic social media agency based in Seattle. She shares her journey into entrepreneurship, highlighting the transition from the events and hospitality industry to digital marketing, the way her agency's niche organically changed as she and her partner found the right audience, and more recently, her agency's acquisition process, including why she chose to lead negotiations with kindness and their successful earn-out story.

In this episode, we'll discuss:

• Going from full service to finding focus.

• An unexpected opportunity to sell.

• Negotiating with kindness and thoughtfulness to ensure future success.

• How to negotiate an earn-out.

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Sponsors and Resources

E2M Solutions: Today's episode of the Smart Agency Masterclass is sponsored by E2M Solutions, a web design, and development agency that has provided white-label services for the past 10 years to agencies all over the world. Check out e2msolutions.com/smartagency and get 10% off for the first three months of service.

Accidental Agency: When Adaptability Meets Opportunity

Kelsey never saw herself as an entrepreneur and had no plans of starting her own business. a chance meeting during an internship in New York would change her career trajectory. There, she met Mackenzie, a fellow intern who years later, would convince her to move to Seattle and start a business with her.

As an agency owner, Kelsey found there were new surprises around the corner every quarter and every year. At age 24, she started out with no idea what she was doing; everything seemed new and unexpected. However, she believes this worked to her benefit since she approached the experience with naiveté and willingness to learn.

With Kelsey's background in hospitality and travel, and Mackenzie's expertise in digital marketing, the two women initially planned to build an agency serving the hospitality sector. However, upon arriving in Seattle, they faced the significant challenge without a network in their new city. Their proactive networking efforts unexpectedly led them deeper into the local tech industry, naturally evolving their agency's focus and creating a new niche that differed from their original vision.

Finding Focus: From Doing It All to Intentional Hiring

In their early days, Kelsey and Mackenzie approached client acquisition with an eager, full-service mindset, taking on everything from PR to organic social media and branding. While they managed these diverse projects through talented contractors, Kelsey now realizes their determination to win clients' trust sometimes led them into areas beyond their expertise.

As their agency evolved, they naturally discovered their true strengths through client feedback and successful outcomes. The organic process of finding their niche allowed them to recognize and pursue opportunities where their work could truly stand out. For eight years, both partners remained deeply involved in every aspect of the business, from client work to day-to-day operations.

The preparation for acquisition marked a significant turning point, prompting them to narrow their roles as founders and delegate responsibilities. Though both partners initially struggled with the emotional challenge of stepping back from daily operations, their strategic approach to hiring made the transition successful. They built a team of talented individuals who often exceeded their own expertise in specific areas. This decision proved transformative – by placing trust in their capable team and focusing on their own areas of expertise, they not only improved the quality of work but also created a more efficient organization.

Embracing the Opportunity to Sell Their Agency

Selling the agency was not initially part of Kelsey's overall vision, at least not at the eight-year mark. However, a buyer agency reached out with an interest in acquiring Davies and Dixon, which prompted a thorough evaluation of their current circumstances and future aspirations.

With two co-founders, Kelsey admits it's difficult to get on the same page in any decision. They were at a crossroads, having invested nearly eight years into building their agency so they laid out the pathways and concluded that, although they were looking for an exit along the ten-year mark, they could push to be ready before that. It was 2021, they were coming out of a tumultuous year with the pandemic and had lost key team members to offers they couldn't match as a small boutique business.

Faced with burnout and the strain of navigating an unpredictable economy, they weighed the potential benefits of pursuing the acquisition against the option of pushing through to a planned exit around the ten-year mark.

As they explored the acquisition, they concluded the move would align with their overarching goal of supporting their lifestyle while also presenting solutions to the challenges they faced. The integration promised enhanced opportunities for their team, addressed immediate concerns, and positioned the agency for long-term success within a larger framework. So they decided to embrace the opportunity.

Maintaining a "No Regrets" Mindset About an Agency Sale

The decision to sell their agency came at a pivotal moment. Unlike many agency owners who accept acquisition offers out of exhaustion or overwhelming pressure, Kelsey and her partner approached the opportunity strategically. While the loss of key team members influenced their timing, the decision wasn't made in haste. It was grounded in careful data analysis and thoughtful consideration of future opportunities.

Looking back, Kelsey believes there wasn't truly a wrong choice to make, as both paths – selling or continuing independently – offered potential for success. She maintains a strong belief in trusting her gut, embracing a no-regrets mindset that has consistently served her well throughout her career. The acquisition proved to validate their decision-making process: the integration proceeded smoothly, their team found new growth opportunities, and their clients received enhanced services.

Lead Negotiations with Kindness to Create the Foundation for Success

Kelsey's acquisition deal had an 'acqui-hire' portion, which means Kelsey and her partner would continue to serve in leadership for two years following the purchase to be a key element in the integration process and in helping scale the agency.

According to Kelsey, this changed the negotiation process a bit since she had to consider that she'd be working with the acquirer for some time once a deal was reached. For her, this unique scenario required a thoughtful approach to negotiation where she led with kindness and thoughtfulness, keeping in mind the future success of the agency—and the well-being of its employees—depended on the relationship established during the negotiation process.

However, this doesn't mean she said yes to the first offer, they just negotiated with the greater good in mind. They negotiated not only for their own interests but also for the cultural values and benefits that defined their agency. By advocating for policies that prioritized employee welfare—such as PTO policies, work-from-anywhere options, and signing bonuses—they ensured that their team members would continue to thrive in the new environment.

By treating the negotiation process with respect and integrity, recognizing that their legacy would be tied to the success of the agency they were joining, Kelsey and her partner were able to create a foundation for success that would extend far beyond the immediate financial implications of the deal.

Walking a Fine Line to Negotiate Earn-Out Terms Carefully

Kelsey's acquisition deal did include an earn-out, which thankfully they were able to meet after a successful first-year integration. In their case, they decided to maintain open communication with both their team and clients during the earn-out process, which contributed to an impressive retention rate post-acquisition. By fostering trust and transparency, they were able to ease the transition and ensure that clients felt secure in their ongoing relationships with the agency.

However, while earn-outs can provide a financial incentive for sellers to ensure the success of the acquired business post-sale, poorly structured earn-out terms can lead to frustration, financial loss, and strained relationships between the parties involved.

To avoid this scenario, secure control over client relationships and business operations until the earn-out conditions are met. This involves negotiating terms that keep the acquisition confidential until the seller has fully transitioned and received the agreed-upon compensation. By maintaining control, sellers can ensure that their clients remain engaged and satisfied, which is crucial for achieving the performance metrics tied to the earn-out.

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