Scaling an Agency to $500M, with Dimi Albers | Ep# 674

Do you dream of running a big agency? What’s your target number and how do you think you’d handle the added stress of an increasingly larger team? Today’s guest is the leader of an agency colossus: an over half-billion-dollar behemoth with around 4,000 employees spanning the globe, a scale very few founders could even imagine. He’ll share invaluable insights into engineering colossal expansion, the leadership mindset needed to wrangle this growth, and how his team handles agency valuations in their search to continue the agency’s growth. Tune in to this must-listen episode if you're looking for inspiration and practical advice on taking your agency to the next level.

Dimi Albers is the global CEO of DEPT, an agency that has seen phenomenal growth over the past eight years. He shares the pivotal moment back in 2014 when the partners at Dept decided to shift their focus from being a Netherlands-centric design and tech agency to becoming a global player that covers the full digital customer journey and the strategy behind acquiring 33 agencies.

In this episode, we’ll discuss:

• The road to scaling to $500M.

• Lessons from a cultural mismatch.

• Inspiring your leadership team.

• Elements to consider for an agency valuation.

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Taking a $500M Agency to Global Markets

Back in 2014, Dimi’s agency made the pivotal decision to expand its services and target international clients. They wanted to transform from a design and tech-focused agency into a company that covers the customer’s full digital journey. This strategy was considered relatively unique and presented an opportunity for growth. At the time, the agency had a very good reputation in The Netherlands and was valued at 15 million USD.

To support their ambitious plans, the agency partnered with a Dutch private equity firm. This partnership provided the necessary resources and expertise to accelerate their growth, despite initial reservations about working with a private equity firm.

Even with capital backing, they remained relatively conservative in investments. Dimi focused on establishing profitability for core revenue drivers within a tight 12-18 month timeframe. The agency pursued a two-pronged growth strategy - mergers and acquisitions supplemented by nurturing intrapreneurial talent to drive organic business wins. Organic expansion from existing client relationships delivered a steady 25% annual growth rate, which compounded as M&A activity layered in.

For Dimi, scaling an agency is fundamentally a people business and requires making sound decisions consistently rather than betting on a few big moves. It may sound boring, but he cautions against the idea of explosive growth and highlights the unglamorous but crucial factors like hard work and incremental smart choices.

His agency methodically built its value proposition in the Dutch market first. From this solid foundation, they gradually expanded into Europe, the US, and ultimately APAC - advancing to new geographies only after careful evaluation of their capability strengths and each market's receptiveness. This thoughtful, capability-driven approach to global scaling enabled successful service expansions into new territories.

Trusting Your Gut: Lessons from a Cultural Mismatch

Quite early in their journey, when they were far less experienced, DEPT partnered with an agency that ended up being a cultural mismatch. This was the sole instance Dimi can recall facing such an issue. Being a first for him at that stage, Dimi admits to underestimating how long it would take to recognize and address the disconnect.

Ultimately, even though the merger was a sound financial decision, the misaligned team needed to be merged with a more culturally compatible group to rectify matters. Looking back, he thinks he could have made faster decisions by just trusting his gut. It’s possible to determine with a high level of certainty whether a partnership or hiring decision will work out after speaking with someone for a certain amount of time. In this sense, he’s learned to trust his intuition and instincts in business.

How To Deal With “Difficult” Clients at Your Agency

Dimi's agency evolved from being generalist to niche-focused through strategic mergers and acquisitions. As specialized firms joined, it opened up new service offerings and vertical markets like Amazon advertising expansion across Europe.

Their vision for growth centered on meeting client needs first. Starting with establishing a strong portfolio in the Dutch market, they then expanded across Europe as demand grew. For Dimi, prioritizing client satisfaction and value delivery guides their expansion more than conquering specific regions.

Within the agency, discussions revolve around ensuring both client and employee happiness take center stage before finances. Dimi meets daily with clients for meaningful dialogue on how his team generates value. He also connects with internal teams to gauge engagement, workload balance, and overall well-being.

When challenging client relationships surface, Dimi emphasizes communication to understand root issues, turn situations around through solutions, and either improve dynamics or mutually part ways if necessary.

Balancing Innovation and Strategy in Agency Growth

Scaling an agency requires clarity about some key questions. First of all, WHO; Who do you want to go after? Who do you need to hire to achieve this? Who do you need to become? Additionally, Dimi has also learned to think about the WHAT and HOW, because he’s found there’s a big difference between people who are good at defining the “what we’re going to do”, and the ones who are good at the “how we’re going to do it”. Instead, of looking for the unicorn who is good at both, he recommends looking for the brilliant WHAT people and the brilliant WHO people. Working and collaborating with individuals who complement each other's strengths requires self-awareness and the ability to recognize one's own limitations.

As a visionary who is mostly concerned with the ideas or the WHAT Dimi has run into some challenges when it comes to the structure systems an agency needs once it starts experiencing growth. In the past, he’s been slow to listen to the "how" people, who have a more cautious and strategic approach, which is something he continues to work on.

How to Inspire Your Team to Dream Beyond What is Logical

Although he admits to not being the best manager, Dimi knows his strength lies in inspiring people to think beyond what is logical. And he does it by setting the example. When he and his partner created the plan to expand and scale globally, everyone thought they were crazy. However, once they reached their goals in record time, they proved the sky was the limit.

Their vision not only challenged the team to think bigger but also provided a clear direction for the organization to strive towards.

Inspiring your team is about achieving something unique. It’s not necessarily about numbers and growth, it can also be about craft. Show them the impact they’re having. For instance, if you work with non-profits, show them how their work is helping change the world for the better. Reach beyond their perceived limitations and you’ll be motivating them to keep going.

Additionally, he also highlights the importance of vulnerability and personal connection. As a leader, Dimi openly talks about his mistakes. This vulnerability creates a sense of authenticity and trust within the team. It allows team members to feel comfortable sharing their struggles and mistakes, fostering a culture of learning and growth.

Key Considerations for Successful Acquisitions

Dimi’s agency has been acquiring agencies for some time as part of its expansion plans. For him, there are two main elements for a successful merger: capabilities and geography. Beyond that, they’ll consider:

• Culture: It is the first and most important aspect they’ll consider. Can they see themselves working and growing with their team?

• Quality of their work.

• Quality of their second and third generations: Basically, they look beyond the founders. Do they have a good team around them who are ambitious enough to keep growing and running the business once the founders decide to scale back?

• Numbers: His agency has excellent growth and margins, so any agency that joins them must be at that level so it doesn’t devalue the whole when they join.

8 Elements to Consider When Doing an Agency Valuation

While a general rule of thumb is that an agency making a million in EBITDA could be valued at four times that amount, there several factors that contribute to much higher multiples paid for agencies with exceptional qualities, such as:

1. Growth rate: The faster an agency grows, the more valuable it becomes.

2. Market: The markets that the agency is addressing also play a role in its valuation. Agencies that are targeting larger and more lucrative markets will generally be valued higher than those targeting smaller markets.

3. Team: It’s important to have a talented and capable team. A strong team can contribute to the agency's growth and success, which in turn increases its value.

4. Profitability: The margin percentage, or profitability, influences an agency’s valuation. Higher margins indicate a healthier financial performance and can lead to a higher valuation.

5. Addressable market: Agencies operating in markets with more potential for growth and expansion will generally be valued higher than those in smaller markets.

6. Popular and sought-after capability: Agencies that specialize in a highly in-demand area, such as AI technology consultancy, will be valued higher due to the premium placed on their expertise.

7. Recurring revenue: Agencies that have a significant portion of their revenue coming from retainer contracts are considered more valuable than those relying solely on project-based revenue.

8. Revenue concentration: Diversification of clients and revenue sources is preferred and can contribute to a higher valuation.

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