How to Create a Profitable Agency Machine That You Can Eventually Sell

Do you want to create a machine that ensures agency growth? David Butler was working as a special ed teacher when he decided to try his luck in the real estate business. He later created an agency looking to reinvent himself during the 2009 financial crisis. With Jason's help, he was able to grow and ultimately sell his business. David now enjoys a new lifestyle and focuses on his family. He joined Jason on the podcast to talk about how he implemented the "Netflix model" to prevent client cancellations, how he streamlined the company's hiring process to put the right people on the right roles, and how making a white label agreement with a larger company was the key to really grow his agency.

3 Golden Nuggets

1. Creating a machine. Once David started to see his agency grow organically from his first apartment management company client, he implemented the “Netflix model” where he charges a very competitive fee to make sure the agency won’t lose customers. How did he keep it profitable? “I figured property managers would be so busy they wouldn’t utilize us all the time,” he says, “But they would still need us.” Of course, he made sure to estimate how many clients they could handle.
2. Streamlining the hiring process. Being a big believer on the principle of hiring your weaknesses, David hired a local company to take care of the customer service and clients are continually amazed by how quickly they get a call back. He also believes in the importance of putting the right people on the right positions and made sure to create a hiring process that would eliminate unfit candidates. “It’s stupidly simple,” he told Jason.
3. The big change. The Netflix model failed when it came to hiring a highly paid sales team. This is when he started considering a white label agreement with a larger company. It was not easy, the entire process took about two years. However, this company had 350 sales agents and this was the key to the growth. Now, his agency was taking 100-200 new clients each month and he could continue to focus on hiring the right people.

Gusto: Today's episode is sponsored by Gusto, an all-in-one people platform for payroll, benefits, HR where you can unify your data. Gusto automatically applies your payroll taxes and directly deposits your team's paychecks, freeing you up to work on your business. Head over to gusto.com/agency to enjoy an exclusive offer for podcast listeners.

Subscribe

Apple | Spotify | iHeart Radio | Stitcher | Radio FM

White Label Your Sales Team to Create a Machine and Streamline Your Hiring Process

Jason: [00:00:00] What's up, everybody? Jason Swenk here. And I got one of my friends that ran an amazing agency for a number of different years. Now he went from being a special ed teacher to owning apartments, to owning an agency, to selling it. And now he's financially free and just travels and does what he does and has a ball doing it.

And today we're going to talk about his journey. So possibly you can learn a couple of little nuggets from him and do the same thing. So let's go ahead and get into the show.

Hey, David. Welcome to the show.

David: [00:00:38] Hey, Jason. Good to see you.

Jason: [00:00:39] Yeah, man. I'm excited to have you on and uh, and tell your story. So, you have a pretty fascinating story that always amazed me and everyone else that heard it. So, and I'm not going to give you justice on telling it. So tell us kind of who you are and tell us a little bit about that trajectory from special ed teacher, apartment, to owning an agency and then selling it.

David: [00:01:02] Gosh, I’ll try to keep it into a nutshell. I was a high school special ed teacher for about 10 years and coaching high school sports and then a good friend of mine gave me the, um, the really famous old infomercial Carleton Sheets… Uh, how to buy real estate with no money down. And, uh, I listened to it on cassette tape in my car as I drove to work and I use the basis of that to buy my first house in England of all places.

And it was a real, uh, let's just say fixer-upper. And, uh, so we fixed that up and we sold it, I was teaching special ed there. Came back to the US and bought my second house and bought another three houses with that and a fourplex. And I was still teaching high school.

Then my buddy said, hey, think you got some skills here. Let me introduce you to some people. So I got a couple of angel investors together and, uh, we start buying apartments in 2004 or five. Bought apartments for about three years, all in Arizona. Bought a few thousand apartments.

And that's where I, through the process of buying and owning and asset managing the apartments I kind of... Well, and then the 2008, uh, downfall, right? 2009. You know, we were doing amazing until then and then, uh, everything crashed. I distinctly remember 2009 with my friend who got me into everything. He was like, man, I'm really sorry I got you into all this. As we were talking about our loan workouts and stuff.

And I said, yeah, I said, I got to make some other lemonade, man, because this lemonade isn't working for me. That's when I looked around and I just really kind of discovered… Websites were kind of new for apartment buildings back then. Not everyone had them. And so I started getting into the technology world of apartments and that industry of managing and operating and operational of apartments.

And I was like, I kept on asking our, um, my own property managers and stuff to manage our social media. And, uh, they would just never do it, right? Like they couldn't do it. They’re too busy to do it. I was like, I got to hire someone to do this for me, right? And so I looked around.

I looked at other agencies and you know, they were going to charge me like a couple thousand dollars a month or something to manage the social media for my parcel. That's like nuts, right? Like I can do this for better and cheaper. So that's how I started my first marketing agency, right? Like, I didn't know anything about owning an agency or anything. I just started to do it myself.

Jason: [00:03:49] Yeah. And talk about how it progressed. And I loved what you used to charge. And I used to kind of get onto you.

But obviously, I mean, I literally would try to make an example out of you of how little you actually charged, and then you were a volumes game. So talk a little bit about that.

David: [00:04:07] Yeah. So I had one employee and we were running the social media, you know, Facebook mainly for my six apartment communities. And the property management company that had about a hundred apartment communities under their management said, hey, can you start doing this for our other clients?

And so that's how it kind of started to organically grow. Was, you know, then we went from like, you know, 10 clients to 20 to 30, 40, and I just said, you know what? I'm just going to make it so cheap that people will sign up and they'll just never cancel. That really was the play. It was just straight-up Netflix type of play, right?

It's just like, so we charge $99 a month, right? It was just classic. Under the hundred. So that anytime anyone would think about canceling they'd be like, wait, the property manager would be like, wait a minute… That means I gotta do it, then? Like for 99 bucks, they probably paid out of their own paycheck for us to do it for them, right?

Just so they wouldn't get in trouble with the owners and their bosses for not keeping it up to date, right? So that was the play. I mean, it was just a straight-up $99 play. Yeah.

Jason: [00:05:23] Yeah. And I remember just being like David, if you could just raise the prices and then obviously, you know, you're like, dude, we're a factory, we're a machine.

We just have all this. And, and now knowing you like, it would be stupid for someone to cancel, which is such the opposite. That's why I wanted to have you on like talk to you about like... What was that mentality around it? Because there's a lot of people listening that may be in the same boat of going I want it to be like, I'd never want to lose a client because it'd be stupid. But I also want it to be like, I want to create a factory like this machine.

So how did you make sure that it was profitable? And how did you create this machine? Because you had a lot of people too.

David: [00:06:06] Boy, that's a good question. I mean, again is kind of based on the Netflix kind of play, right? I knew that property managers in that were just so overwhelmed that they probably wouldn't utilize us as much as they thought they would, but they still needed us.

And so I knew some people would, it's just like Netflix. There's probably some people that binge Netflix, you know, a hundred hours a month. And there's probably people that don't watch one hour a month, right? But the people that don't watch one hour a month don't ever cancel because they just want it there. So when they do want to watch it, right?

So it was like that. I mean, I never went to business school and never got an MBA, you know, any of that stuff. So, I mean, it was really kind of back of the napkin, just like, hey, how many hours, how many clients do you think someone can manage? Like, it was really, you know, it was not fancy and the, hey, is this profitable or not?

It was just like, yeah, I think I can make it work.

Jason: [00:07:09] What were some of the things that helped you build the agency and get it to a level where… in a little bit, we'll talk about, you know, the process of selling it and what's life like now. But what were some of the things that helped you along the way? Like from the different people that you've hired on the management team that kind of stuff.

David: [00:07:28] Yeah. So I would say there's a few, really big things. One was, uh, I've been a member of Entrumpeneurs organization for since, uh, 2007 and being a part of that organization has been life changing, right? Being around the other entrepreneurs and learning from their mistakes and learning to build on my strengths versus tackling my weaknesses.

That's been like... Hire out your weaknesses, do what you're good at and hire out the weaknesses. Like if they only taught that in school, right? I think that was a key. And then also one of the foundational pieces of my company was building what we did around Wow Customer Service. So the Zappos model, also a Ruby receptionists, a local company.

We amaze people by answering the phone when it rang, like with a live person. And we responded to emails like… Our customer service, our ticketing. We would respond within 20 minutes, right? And in the apartment industry, that was just unheard of in the vendor piece. Like you would send out an email to people's customer service and not hear back for a week.

And so people would hear back from us within 10, 20, maybe five minutes, right? And they would like, when they called, like, they'd get a live person. Like they were just amazed. And we were actually hopeful. We hired people that love to help people. Like it was stupidly simple.

Jason: [00:09:10] It's kind of like, like, you know, people ask, I think like Walt Disney was like, how do you get people to smile all the time?

He's like, well, I hired people that were happy and smiled all the time. Like we didn't train them to do that. We just… we did it.

David: [00:09:25] Yeah. I became a huge believer in the Jim Collins, you know, get the right people on the bus and put the right people in the right seats. I really, really focused on streamlining our hiring process.

And my key to hiring was we hired recent college grads with degrees in journalism and communications and media, and we screen the heck out of them on writing, right? We made them write and write and write like the initial application had like 10 questions that they had to write answers to. And because the job entailed a lot of writing on the behalf of clients, I knew the clients wanted people that could write in like full sentences and spell and… again, really simple stuff.

But that screening process of screening out the people that would, you know, write like two word answers and, and their punctuation and like, and then, you know… Young college graduates that were just hungry for their first job and wanted to be involved in the field that kind of, I think they had to learn a little bit in the hard way that there's not a lot of paid jobs in journalism, and it's very hard to make it on your own as a blogger.

I mean, hard to make a living, right? I'm sure some people do but most people, uh, have a difficult time. So the hiring piece was another piece. Yeah. For sure.

Jason: [00:10:56] Taking care of your employees has never been more important than right now. And while paydays are great, running payroll is a major pain, calculating taxes, deductions compliance. None of it's easy. Unless of course you have Gusto. Gusto is a simple online payroll and benefits built for your small business.

Gusto automatically applies your payroll taxes and directly deposits your team's paychecks, freeing you up to work on your business. Plus, with Gusto’s help, you can offer benefits like 401k's health insurance, workers' comp, and a lot more. And because you're a smart agency masterclass listener, you're going to get three months free.

Once you run your first payroll, go to gusto.com/agency. That's gusto.com/agency for three free months.

Awesome. And then let's talk about the selling process. How did that come to fruition? Because you sold to one of your big clients and a lot of people don't realize that, that you could do that. And it's also kind of dangerous sometimes too.

David: [00:12:13] Right. Right, it's definitely walking the tight rope. So what was interesting was I built a company up to, I think about four or five, 600 clients.

And we built our systems and that, and what I realized was at $99, it was not, where it was not profitable was it was not profitable to hire a highly paid sales team. And I would say out of all the things that I failed at, that's what I failed miserably at was whenever I tried to hire a salesperson and get them to perform. And just make what I'm paying that, like, it was just like, it never worked, right?

So the big change there was, you know, I'm a big Costco shopper and Kirkland Signature and this and that. And then with entrepreneurs organization, I was like, hey, I think there's something to this white label thing. I think that might even been learning some from you.

And I partnered with a larger company to do a white label agreement with them, which took probably gosh, maybe two years to put together and formalize and all the, you know, it was a big company and all the legal and this and that. But that was the key to the growth was because they had 350 sales agents around the country that I didn't have to pay for.

That was the biggest thing, right? And I still got to charge them what I charge my regular clients on the wholesale side. And so my profit margin was still there, but that's where the magic happened, right? I mean, we started adding a hundred, 200 clients a month and all I could do was focus on hiring great people and increasing our systems and scalability and everything.

And we got to a couple thousand clients with them. We’re about 65 employees about at that time, right? Just like you said, it was a factory. And, um, that was when they came to me and just said, hey, we're, you know, we're interested in buying your company. And I said, well, that's not really why I built it, but I said, sure, I'll listen.

And I also knew that if they didn't buy me that, you know, they were probably going to recreate it or do something else. Like you said it's a dangerous spot to be in when you're… That's the whole piece is when you, right? When your client concentration goes to 60 and 70% of your clients come from one source, you know, you live by the sword, you die by the sword, right?

Jason: [00:15:00] I've known people where they've done this, where they'll outsource to an agency. And they'll become 90% of their business and say, I want to buy you. And they'll say, if you say, no, we'll just go away. And then you're like, crap. Now that didn't happen to you. You're the lucky one. But, uh, walk us through the process of like, so they say, okay, well, here's what we're thinking. All this kind of stuff.

A lot of people are thinking, how long did it take in order to come to a deal? In the due diligence phase, maybe to, you know, the, the term sheet and all that kind of good stuff.

David: [00:15:41] Oh boy. You know, when you're dealing with a bigger, bigger company. That has a board and everything from them saying, hey, we're interested to actually getting serious.

You know, I think was probably three to five months probably? Which that gave me enough time to kind of like, kind of get my head around the process and start talking to people. And I hired an M&A consultant at that point to kind of represent me. And I think that was, looking back, that was a huge piece of it because it took me out of being the direct guy.

And so when we did get to term, he, and on into due diligence, he got to be the middleman and he got to be the, you know, he got to be the bad cop and I get to be the good cop. Because the other piece was, they were still my client, right? So if everything fell out, I still needed to have a good relationship with the company, right? And so it kind of allowed us to play that good cop, bad cop piece.

But I think it was probably, you know, 10 months or so. But the piece that made that go a lot quicker was, you know, they were a majority concentration in my company. And so they kind of knew the backend financials and due diligence kind of, because they knew all the moving pieces of that.

And so that took a lot of the uncertainty out from their side, I think, and helped move it faster than normal.

Jason: [00:17:20] Very cool. And it's always a kiss of death. I always tell everybody going until the check is deposited and the paper is signed. Sometimes people go, oh, well, my life's going to change and I can kind of kick back and, and kind of relax. Did you just go, hey, if this happens great. If not, I’m good.

David: [00:17:42] I've been through some big real estate deals before. So I think that helped. But the other piece is I knew I needed to make it to the finish line for this to happen. Because if it fell apart, like you said, they were gonna be the 1600 pound grill and take some drastic measures against me, that would not have ended up well, right?

I mean, is this classic North Korea, right? Like you don't want to be the first person to push the button and send the missile. So you're just kind of waiting and you're just your head down, making everything perform, you know, they're looking at your metrics, like crazy as you're getting ready to close, and you're just trying to. And you're trying to keep your team together, right?

I think that's the other piece in the sale piece is... So who do you tell, when do you tell them? Who knows? Right?

Jason: [00:18:38] And when did you do that? When did you start telling people.

David: [00:18:40] So when I sold real estate apart, big apartment buildings what I learned was to not tell people. When you tell people for whatever reason, I think it's just human psychology, they tend to jump ship.

I mean, they're just like, oh, this boat is sinking or not going to my direction. I'm going to go look for it or something else. And you start losing key people left and right. So I learned not to do that. I only told one person in my company, which was my CFO, because I had to, because I relied on her for all the financials and there's just no way that I could keep it from her.

So she was my inside person up until we needed to negotiate key employee contracts for the upper management team. Because that's… in a acquisition, they want to secure all your top-level management to make sure they come over on the transition. And so that was a big piece was…

I mean, part of that sale processes is that you have to tell people, tell the executive management team at the last minute what's going on and get them to sign employment agreements with the new company, to make sure that there's going to be a smooth transition there. And a lot of times that's a key piece to closing the deal, right? Because at the very end, if all your top-level management walks off the job and the company…

I mean, if you're selling a service company, right? I mean, that's what you're selling is the people and the processes. You lose a lot of that, and you could be subject to a whole renegotiation at that point. So that's a really stressful time. And then also you got to make sure that those people don't recognize the leverage they have in that situation and over leverage their position and to extracting what they would like to extract from you during it, right? So that's really stressful point.

Jason: [00:20:44] Yeah. I remember going through that as well, and that is not fun. And am in the same vote of going only tell when you need to. Uh, because yeah, when, when we made the announcement, some people don't like change and they just, for whatever reason, they don't like change, even if it's going to be better for them. Because that's how I judge, when we sold it, I was like, look, same type of culture. Not much is going to change. They're going to have a little bit more resources. I think it actually is better for everyone.

And a lot of people advanced, but there were some people that were like, nope, I like the mom and pop mentality, even though we were kind of the middle, you know, we were not small. But, um, they still like, you know, kind of the, they can come to me for anything and they knew everyone, so… It makes some things.

So what's life like now for you after selling? Because I see your Facebook, you’re just traveling around the world.

David: [00:21:45] Yeah, it's been kind of interesting. Uh, I volunteer, I'm the president of the PTO at my kid's high school now. Really involved with my kids' lives. You know, I got a freshman, a university and a sophomore in high school and a seventh grader. And so a lot of focus has turned to them. I try to really provide a lot of really unique, fun travel experiences for them.

That's my go-to thing is I just love travel and stuff. I mean, with the pandemic, it's been kind of a bummer. But at the same time, I've kind of rediscovered, you know, traveling in the United States to national parks and hiking and river rafting. We rafted the grand canyon this last year. Due to the pandemic, they had openings, right? When's that ever happened?

So taking advantage of that lemonade piece, right? Taking advantage of what life gives you when it does and figuring out what that is and going with it.

Jason: [00:22:42] That's awesome. So, well, I'm so happy for you to see, where, where you started and where you ended up. It's very well-deserved with, with all the hard work. So congratulations for that.

David: [00:22:53] Thanks. Thanks. And I got to put a plug in here too, with you, Jason. Because gosh, we met at, uh… What was a social media…?

Jason: [00:23:02] On the aircraft carrier.

David: [00:23:04] On the aircraft carrier. And we were in line for the virtual ride and we just started a conversation, right. So I was like, who are you? Who are you? And what do you do?

And we started the conversation and I hired you as a consultant, uh, over the last couple of years of the company, you know, it was just really, really helpful to have you and your experience in selling your agency in the background to be able to bounce things off of and ideas and like, hey, this is happening now.

Like kind of, you know, or things with employees or just that. Your experience with the agency, uh, selling your agency and being able to, um, have your guidance in that was a big key, I think those last couple of years. So, uh, I don't think I've ever really gotten a chance to thank you formally for that. So thank you for that. I appreciate it.

Jason: [00:24:01] Well, it was my pleasure, you know, I just wanted to be the resource I wish I had, right? So, that's all we can do is keep paying it forward and that kind of stuff. So well, thanks so much for coming on the show. It was, it was awesome having you. Can't wait to have you come out to Durango and be ski bums together and go explore because I love the experiences too.

So awesome. Well, if you guys enjoyed this episode, what I want you to guys do is share it out with your fellow agency owners. I would help them out and help us out. And if you want to be surrounded by amazing agency owners and you want our help to really kind of see the things you might not be able to see, so you can navigate and get to the places where, you know, uh, have the opportunities to do what David has had, I want to invite all of you to go digitalagencyelite.com.

This is our exclusive community and mastermind, and it's just amazing people. So go to digitalagencyelite.com and until next time have a Swenk day.