Three systems every agency needs to build a better business

Three interconnected systems, growth, operations and management, determine agency value. Growth drives invitations, operations converts them into margin, and management reduces owner dependency, closing the loop back into growth.

I just spent eight years buying agencies. Actually, that’s not quite true. I spent one year planning, three years buying and four years integrating and consolidating. That’s a nice way of saying I spent four firefighting - dealing with the most volatile market I’ve ever seen. During this period, I saw how agency valuation is fundamentally tied to predictable EBITDA and thorough Due Diligence processes.

As we now help agency owners navigate these challenges, I've realised that the process is often misunderstood.

In total I bought thirteen businesses and we created another two as well. These acquisitions were driven by identifying opportunities for Multiple Expansion. To find those thirteen, I looked through a microscope at over 250 agencies in the UK, USA, Asia and Europe, investigating their output, their operations, their people and their numbers in detail.

I looked at all of them with a buyer's eye. Buyers look at agencies differently than agency owners do.

As an owner, you are steeped in the history of the business. You feel the stress, the late nights, the near misses and the sacrifices. Buyers don't see those things. Even if they could, they wouldn’t value them. When they look at an agency, they are trained to see revenue, free cash flow and the risks to both. They apply a discount to high risk and a premium to low risk (aka confidence). The gap between those two things is largely what determines what your business is worth.

In my experience, most of the risks a buyer finds in an agency trace back to the same three areas: how the agency grows, how it operates, and how it is managed. Since moving on from my last gig, I’ve had time to codify my thinking into three systems: one for each area. They work together as a loop, and the agencies that build all three tend to build something genuinely valuable.

Here is what each system involves.

Growth is a System

Agency leaders tend to treat growth as a motivation problem. They set bigger targets, push harder, automate outbound, hire someone with "business development" in their job title. Recognise the form? When results don't come, the market gets the blame, or the new hire does.

The problem with this approach is that it treats growth as an activity, something to be done. I see growth is a system, not series of jobs to do. When the system is broken, no amount of activity in isolation can compensate. The system has to be whole.

The growth system I use works from the outside in. That’s different from the traditional agency new business approach which works the other way around.

The traditional approach goes like this: first you build something, then you go looking for someone to buy it. This approach turns new business into a door-knocking exercise. Given the 95/5 rule (fewer than five percent of target clients are in market at any given time), and cold pitch success rates (without an established relationship sit below five percent) that’s not a smart way of going about growing. In-to-out growth asks good people to fight very poor odds.

My approach is different.

The outside-in system has four stages: where you get invited, what you win, what clients become, and the constraints that shape all three. These stages form a continuous loop rather than a pipeline. The invitations you attract shape the quality of what you win. What you win shapes how client relationships develop. And the constraints on growth feed directly into how the business operates.

The goal of this system is not more invitations, but better ones… from the right clients… at the right level of seniority… in situations where you can genuinely add value.

Operations is a System

Growth gets you to the table. Operations determines whether you deserve to stay there.

I have seen agencies with strong positioning and a healthy flow of new business slowly break themselves (and their people) from the inside. Work goes out late or over budget. Margins erode because nobody is tracking them at a project level. Clients leave, and then senior people leave. Leadership reports a people problem or a market problem, but in most cases it is an operations problem.

Operations is the mechanism that converts talent and client trust into repeatable, measurable value. The four stages of the operations system are revenue quality, delivery, performance and sustainability.

Revenue quality comes first because every margin problem, every difficult client conversation, and every discount a buyer applies in due diligence traces back to decisions made before the work started. Win a client who represents too large a share of your revenue and the relationship starts to distort everything around it. Build your commercial framework on time and materials and you hand efficiency gains to the client by design. These are pre-delivery problems, but delivery tends to get the blame.

The operations system ensures that what growth promises, the business can actually deliver, at a margin that holds, with revenue that is predictable, and without depending on the heroics of specific individuals.

Management is a System

Management is the third system, and the one most often misunderstood. In this context, management does not mean administration. It means the conscious design of how the organisation is structured, how decisions are made, how people are developed, and how risk is governed.

Without a management system in place, growth creates chaos and operations manages decline. The four stages are organisational design, leadership, people and governance.

The most important of these for most agency owners is leadership, specifically the question of owner dependency. A business that cannot function without its founder is a business that a buyer will discount heavily. It is also a business that cannot scale, cannot attract investment, and cannot give the owner the exit they have earned.

The management system also closes the loop back into growth. A business with a credible senior team, a clear leadership structure and demonstrable governance attracts better clients, better talent and better commercial terms. The market perceives well-managed businesses as lower risk, and lower perceived risk produces better invitations. Leadership quality is a market visibility asset, and it sits upstream of everything else.

The Loop

These three systems are not independent of each other. The growth system feeds operations the raw material it needs. Operations surfaces the management questions the business needs to answer. Management closes the loop back into growth by shaping how the market perceives the agency.

I’m often ask which one I’d start with first. Many go straight for the management system thinking that better people can solve any ill. In time, they probably can, but can you attract the right people unless you fix other things first?

The starting point is growth. It creates the platform upon which you build great operations which then attract the very best leadership in the business.

If you’d like to find out more about the systems, look me up on LinkedIn or drop me a note here.