Why Acquisitions Aren't an Impossible Growth Strategy for Your Agency

Do you want to grow your agency through an acquisition? What it would look like to merge with an agency offering complementary services? What if you could expand your team by acquiring another agency's talent?  An acquisition might feel impossible, but done right can be an amazing growth strategy. Today’s guest never thought he would acquire not one but two agencies. He saw acquisitions as an impossible growth strategy that required enormous amounts of cash. In the end, it was just about finding the right partners. He is on the show to share his experiences buying out his partners and eventually making two acquisitions.

Todd Nienkerk is the co-founder of Four Kitchens, a digital agency that makes websites for organizations that educate, advocate, and reform. Their team builds digital content platforms, design systems, and apps for ambitious organizations. After nearly selling his agency and then growing back stronger and expanding his team and offering through acquisitions, he shares some of the changes he made to get to this point, as well as some of the unexpected challenges of the acquisition process.

In this interview, we’ll discuss:

• Taking a big risk to rebuild after a failed acquisition.
• 3 big structural changes to grow your agency.
• Why acquisitions aren't an impossible strategy.

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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.

Podcast Takeover!!

Get to know your Smart Agency Guest Host: Darby Copenhaver is the Agency Scale Specialist at the Agency Mastery 360, which provides agency owners with the coaching, community, and tools needed to scale and find their freedom. He helps agency owners scale through a proven framework for growing their agencies faster and connecting with other amazing agency owners. Today, he’s helping Jason bring something new to the Smart Agency podcast audience by interviewing a special guest and bringing a new perspective to the show.

 

Taking a Big Risk to Rebuild the Agency After a Failed Acquisition

Todd started the agency with several partners he met working for a student publication. With over 16 years in the business, they worked with large media companies and small non-profits, education reform groups, and universities. Over the years, however, his other partners wanted out of the agency.

At the start of the pandemic, he still had one partner left. They were coming out of a rough year and Covid affected the agency much earlier than other organizations in the US and Canada. The agency kicked off 2020 with a massive gap to fill with clients, with things only getting worse later that March. Luckily, they didn’t have to adjust to remote work, since they’d made that transition years before. However, they weren’t at all sure about their chances of pulling through.

They started looking for a way out and reached out to an agency that could acquire their business. The acquisition didn’t work out and with PPE loans starting to take shape, it suddenly seemed there was a way out. Todd took a risk and made his business partner the same acquisition offer in order to assume 100% ownership. It was a bold move at such an uncertain time but he is thankful he took the risk.

It took a lot of readjusting, rethinking the way they did business, and making pretty significant changes in early 2020. However, he got his investment back by the end of the year and went on to have a very successful 2021. Not only did Todd and the team manage to get the agency profitable again, but in 2022 they acquired several other agencies to expand the business. He is the sole owner of the agency which is the largest it has ever been.

3 Necessary Structural Changes to Grow the Agency

When it came to the agency’s second chance, Todd didn’t have a magic formula. In fact, much of what he did were necessary steps for growth (niching down, building a leadership team, etc). However, it took hitting bottom and almost selling the agency for him to be ready to face the hard truths.

For starters, Todd focused on the key people in leadership positions. He knew the ultimate outcome for the agency would largely depend on the mindset of the people at the top. It’s not even about what they do, but their approach and attitude can change the tide and really influence people’s commitment to the work and overall enthusiasm.

Taking the risk to assume full ownership of the agency and commit to its success reinvigorated Todd. It motivated him to put in the extra effort to make the agency as successful as it could be. With this in mind, he dared to address 3 fundamental issues he’d avoided:

1. Leadership changes. Some people in the leadership team weren’t in the right role. They had gotten the agency to where they were, but weren’t the right person for the next stage of its growth.
2. Marketing. The agency’s marketing strategies just weren’t working. Fortunately, they kicked off a marketing engagement with an outside agency in 2019. It was a big investment Todd had avoided but it started to show results in mid-2020.
3. Niching down. It was very important to be really specific about where they spent their time. This meant focusing on what they did best. In order to do this, they deprioritized leads that did not fit their expertise.

Building a Culture of Trust with Over Communication and Transparency 

The start of the pandemic was not an ideal time to make serious changes in any business. However, for Four Kitchens, it was necessary. The team needed reassurance Todd would empower the right people and make necessary changes.  Most importantly they needed to understand the vision of what success looks like.

Of course, at this point, everyone was paying close attention to these changes. To address the team’s concerns, he committed to communicating next steps, pipeline, and what else is on the table at least once a week. Ultimately he gives his team credit for rallying around the agency and showing enthusiasm about the new things they were trying. Not everything worked; some of the people they hired for leadership positions weren't the right fit, for instance. In one case, they had 100% turnover in one team and had to rebuild. However, the commitment to over-communicate with the team established a culture of trust.

The degree of transparency they had at the time about the agency’s finances is not necessary now. They have scaled back on these open-book meetings. If they get to a similar situation in the future, the team knows Todd will be forthcoming with information.

Why Mergers and Acquisitions Are Not Impossible with the Right Partner

Todd used to look at acquisitions as an impossible strategy for his agency. He had always assumed it required an enormous amount of cash on hand to even consider an acquisition. From a business standpoint, it is a great growth strategy. However, it seems overwhelmingly complex, and expensive.

This changed in early 2021, when a friend and fellow agency owner decided to retire, and reached out to let him know she was looking for the right partner to take over. Fortunately, they structured a deal that worked financially for both parties. The two agencies complemented each other as partners should, so they ended up forming a true merger.

This success gave Todd the courage to approach an agency in Costa Rica less than a year later in order to acquire their team.

A merger that helped reduce turnover. The Costa Rica team was part of his vision for international expansion but it also ended up being a good investment to reduce employee turnover.

Like many agency owners, Todd had regularly lost developers to tech companies offering up to 50% salary increases. How to fight this? A friend recommended hiring developer teams overseas and really investing in their compensation. Most people who hire international teams are just hiring cheap labor to feed bottom-line growth. However, if you really invest in those employees, you’ll end up with the same level of talent while also creating loyalty with a competitive salary.

How Different Acquisitions Present Different and Unique Challenges

After going through two acquisitions, one of the things that surprised him the most was how they differed from each other. With the first acquisition, it was a very small but very efficient and integrated team. The merger's influence on his agency’s structure was unexpected.

Todd's existing agency had much better ways to do things like technical strategy. In this sense, it was truly two equal organizations coming together to form a much better agency. The challenge was making sure they didn’t change anything the smaller agency was doing really well. Their processes were so efficient they heavily influenced how his agency would work from then on.

On the other hand, the second acquisition posed different challenges, mainly because it was an international organization. They had to create a separate entity to acquire that agency. Todd found doing business abroad is very different. Even simple things like opening a bank account proved to be very difficult and the process took several months. Thankfully, they had proper guidance and everything worked out.

Don’t Let an Acquisition Deal Take a Life of its Own

For those considering an acquisition as a means to grow, Todd advises not letting the deal take on a life of its own. Don’t lose sight of the fact that you’re not just trying to make the deal work. Ultimately, you’re trying to improve your existing agency. It’s very easy to slip into a mindset where you just think about the transaction as the thing you’re chasing. It should never be like this. The main focus should always be the outcome of the transaction.

That outcome won’t be immediate, it may take a year or two and you should prepare for this. An acquisition will fundamentally change your organization and you have to be prepared for this. Work with both your existing team and your incoming team because they will be the key pieces of that transition.

Do You Want to Transform Your Agency from a Liability to an Asset?

If you want to be around amazing agency owners that can see what you may not be able to see and help you grow your agency, go to Agency Mastery 360.  Our agency growth program helps you take a 360-degree view of your agency and gain mastery of the 3 pillar systems (attract, convert, scale) so you can create predictability, wealth, and freedom.