My co-founder Sei-Wook gave a talk this month on digital marketing trends to a private equity group and executives from their portfolio companies. The talk was very well received and may lead to some opportunities for our agencies.

Sei-Wook worked tirelessly to create a deeply-researched and engaging presentation, filled with memorable visuals, data, and examples. The presentation opportunity came about as we started representing ourselves as Barrel Holdings, not just focused on e-commerce websites, but as a collection of services businesses that offer a range of digital marketing, design, and web development services. This allowed Sei-Wook to pick and explore a topic that had broader appeal to execs across different industries serving B2C and B2B customers.

I think the presentation can be a foundation for future talks given to similar audiences. We’ll work to connect with other private equity firms or holding companies that bring together their portfolio companies and want to bring in subject matter experts to share insights. Building these types of relationships and potential lead sources is, in my view, a very high leverage activity.

About Agency Journey: This is a monthly series detailing the happenings at our Barrel Holdings agencies. You can find previous episodes here.

Highlights

BX Studio Momentum & Growing Pains

Our Webflow agency BX Studio continues to outperform. Before the end of Q3, BX was able to surpass its annual revenue bookings goal that we set at the start of the year. We still have a full quarter to exceed the number and want to keep our foot on the gas pedal.

BX Studio is one of five agencies nominated for their Agency of the Year award.

We also learned earlier in the month that we’ve been nominated for Agency of the Year at Webflow. We’ll learn in a few weeks at Webflow Conference in San Francisco whether we’ve won, but the nomination itself is great validation for our focus and the incredible job that our CEO Jacob and his team have done in winning new work and delivering for our clients.

Of course, with rapid growth come a different set of challenges. Observing BX, I couldn’t help but feel nostalgic as so many of the agency’s challenges mirrored what we experienced with Barrel 10+ years ago, both in the frenetic energy that comes from having an ever-growing volume of client work to manage and from the challenges in communication and collaboration that come from new and different people working across many projects in rapid fashion.

Talent is always the core challenge when there’s a lot of incoming work – BX has been trying to keep up with hiring, onboarding, and properly staffing projects. We’re not going to get every hire right, but the important thing is to recognize when someone is clearly not a long-term fit and take necessary steps to transition out and replace.

Jacob’s done an admirable job of assembling a talented and motivated team. As we continue to scale, Jacob will definitely need more support in recruiting, vetting, hiring, managing, and developing talent. Never easy, but great problems to have vs. the alternative, which is having too little work and no resources to hire anyone, or worse, the need to keep shrinking.

Catalog’s Churn Challenge

September got off to a rocky start as a handful of clients decided to pause their subscription with us. Catalog’s core model is a monthly design service subscription that a client can cancel at any time. This model leads to high level of uncertainty in our ability to predict future months.

There are a few clients who are on multi-month contracts. We’ve been pondering ways to increase the number of clients on multi-month contracts. One potential approach could be to offer a 1-month trial and then follow that up with multi-month packages at discounted rates. Perhaps we phase out the month-to-month cancel anytime approach or we make it much more expensive. Either way, we want to avoid situations where we only find out a day or two before the new month that the client is canceling or putting the plan on pause.

Catalog CEO Fitch Li has been meeting with current and past clients to gather more insights on where Catalog’s services have shined or fallen short. Some of the findings point to mismatched expectations – a couple of founders were under the impression that a design subscription meant on-demand, immediate turnaround work and were disappointed to have to wait 2-3 days for what they felt were fairly simple asks. There may be an opportunity to staff our team in a way that same-day or 1-day turnaround for certain tasks are doable. On the other hand, we’ll also want to explore ways to give our designers more than just 3-4 days for much more complex asks.

We’re seeing a lot of opportunities to experiment and switch things up to better serve our clients. We’ve also begun to push Catalog’s positioning to focus more on product design (UX/UI for web and mobile apps) and start to shift away from bundling it with brand and marketing services. I think the latter type of work is better suited for a team like Bolster whereas Catalog can really distinguish itself as a product design specialist.

Bolster’s Breakout Quarter

This has been by far Bolster’s best quarter ever. In addition to closing our largest deals, we’ve also had a steady flow of smaller design and Framer website build projects with both new and existing clients. Just 3 months ago, things were looking dire and it seemed as though we would fall short of the fairly modest revenue and profit goals we set for 2024.

But the team never wavered from continuing to deliver quality work for clients, generating opportunities through our free Omakase designs, and experimenting with different service offerings. A win here, a win there, and a few months later, we’re feeling optimistic about hitting our goals.

The decision to offer website build services using Framer has probably been the most impactful. We’ve gotten leads from Framer’s agency partnerships team and also from their partners directory. We’ve also been able to increase project budgets by at least 100%. Launching Framer sites for clients will also sow the seeds for future work as clients come back to expand their websites and get other forms of ongoing support.

It hasn’t been all smooth sailing, however. Building up our network of Framer developers has taken some trial and error as we experienced uneven quality and responsiveness. In these cases, we’ve had to act fast and part ways with those who couldn’t deliver as as promised and quickly engage and onboard new ones. As we launch our initial batch of Framer projects, I’m certain we’ll iron out the kinks and create repeatable processes to smooth out these builds.

Top of Mind

Cost Discipline and Cost Advantage

Here’s a scenario that I’ve observed in our own experience and with other agencies over the years:

An agency founder starts with a very lean operation, mindful of costs and counting every penny. As the agency lands more work, the founder leans on freelancers and interns to help with the work. Over time, as the agency continues to grow, the founder starts making some full-time hires, usually starting with junior or mid-level team members. As the agency keeps growing, the founder needs more support managing the team and certain functions. More senior-level people are hired, some into roles that aren’t staffed on billable projects and therefore becoming overhead costs.

Other costs start to creep in – team-building activities, better benefits, salary raises for employees who stick around, professional development, software costs that rise with the size of the team, etc.

With a larger payroll and overhead costs, there’s greater pressure to increase revenues, which means investing in sales and marketing. More investments into these areas means lower margins for the business.

This is not uncommon for many growing agencies. More and more, I’m convinced that the difference between an agency that experiences success long-term vs. those that struggle is largely due to how they manage their cost structure through these periods and make proper investments into initiatives that’ll drive productive growth vs. overspending in areas that’ll ultimately burden the business with costs that make it hard to compete.

The agencies that figure out a way to develop a cost structure that is lower than the competition while still growing revenue will benefit from expanding margins and greater profitability. More profit means more resources to reinvest and keep on expanding.

In an agency business, the bulk of our costs are on the people we hire to do the work. An advantageous cost structure is one in which you can do more with less people or with less costly people. There are a number of ways to achieve this. Often, a combination of different approaches can be the foundation for building such a cost structure. These may include:

• Nearshore/offshore resources: hiring overseas talent at significantly less cost than hiring domestically provided there is little to no loss in quality and productivity is a common method. However, it’s not guaranteed that you can make this work right away. It’s important to find the right partners or make the right hires while also creating new processes and ways of working to get the most out of your international resources.
• Freelancers: building a network of freelancers to staff on an as-needed basis only when projects are available can help agencies avoid situations where full-time staff is underutilized and profit margins get greatly eroded. However, the challenge is in managing for freelancer availability (they may take assignments from other clients) and reliability in delivery. It’s possible to work with great freelancers on numerous projects over the course of several years, but you’ll also run into situations where some freelancers don’t have the institutional knowledge and familiarity with your firm’s processes, thereby slowing down the work or leading to uneven results.
• Streamlined processes: having really well-documented, repeatable processes for delivering certain types of work can increase productivity and lower both oversight needs and the actual inputs needed from workers. If your agency provides similar types of services and deliverables for clients, it’s a no-brainer to build robust processes. If your agency is more about offering very bespoke, large-scale, long-term type projects, then process streamlining may not make as much of a difference.
• Reusable components: similar to streamlining processes, identifying reusable components, whether it may be code, design libraries, templates, reports, strategy playbooks, etc. and then making them readily accessible and useful for the team can lead to significant time savings
• Smaller engagement teams: finding ways to avoid staffing client engagements with too many people is another way to operate in a lean manner. Every person added to the project team means more hours spent in meetings, more oversight, and more coordination required.
• Automations/AI: leveraging technology to replace certain types of human tasks and doing this across more areas than your competition can add up to meaningful cost advantages. There are countless steps in any client engagement that are currently done manually which could be replaced by AI or some kind of software-driven automation.

Beyond these approaches, there are other ways to continue building an advantageous cost structure. These may include building up a great inbound engine through content marketing that enables very low customer acquisition costs. Or it may be a very performance-driven culture where people’s base salaries and benefits are on the lower end but the top performers are rewarded with significant bonuses. Or, even more simply, it may be a culture of frugality where any and all expenses are monitored closely and no dollars are spent unless there’s a clear ROI attached.

When it comes to our Barrel Holdings agencies, I believe we really have two levers to create valuable agencies. One of them is positioning, which also includes the ability to build a brand, differentiate from the competition, attract new clients, and charge premium prices. The other is cost structure. Helping our agencies in these two areas is our focus.

Shared Quotes

“The way to defeat boutique competitors is to guarantee the work. Boutiques have limited resources, and this makes them risk averse. The idea of a guarantee frightens them, as they may not get paid. By guaranteeing your work, you separate yourself from the boutique competitors.” (Greg Alexander, The Boutique)

The prospect of forking back money that’s already been collected from a client is indeed frightening. However, I’ve come around to the idea that we should be building agencies where we have the confidence and expertise to guarantee our work. We should also have businesses robust enough to withstand a refund. Of course, there are nuances to creating a guarantee policy that can keep it reasonable and provide some downside protection, so if you really dig into it, offering a guarantee isn’t necessarily an all-or-nothing proposition. It’s more of a signal of your confidence in what you are offering.

“A fellow CEO laid this out for me graphically once when we were talking about M&A deals. “Think of M&A as having four quadrants defined by size and risk,” he said. “Big, low-risk deals are the ones everyone wants, but they don’t exist. Small, low-risk deals do exist, but you can’t make much money from them because of their size. Small, hairy deals are the worst quadrant, because the reward is limited and the odds are stacked against you, so why bother? The bingo quadrant is the big, hairy deals. If you can find a big, hairy deal with solvable problems, that’s where the real money is.”” (Brad Jacobs, How to Make a Few Billion Dollars)

This is helpful for me to keep in mind. In these early days of M&A for Barrel Holdings, we’re definitely playing in the small, low-risk and small, hairy quadrants. Over time, we’ll be making our way to bigger, hairy deals.

“There was a point where my team was playing poorly and I felt I was doing a lousy job. I called Dean to vent about all the things I was failing to teach my players to do. Dean listened quietly and finally said, “You’ll be all right.” I was looking for more than a pat on the back. “I’ll be all right?” I said. “What do you mean, I’ll be all right?” Dean said, “As long as you blame yourself and not those kids, you’ll be all right.” That was one of the most valuable things he ever told me, because when you blame the kids, you’re saying they’re the problem. When you blame yourself, you keep searching for the answer.” (John Thompson, I Came as a Shadow)

Leadership and growth is about pointing the finger inward.