This year, I’m grateful for the opportunity to evolve my role in a significant way and take on new and interesting challenges. It’s been about six months since Sei-Wook and I made the shift from agency operators to holding company partners. I’ve enjoyed learning new things, meeting new people, and exploring new ways to create value for the holdco and our agencies.
I’m grateful for Sei-Wook–we’ve worked closely together for over twenty years, dating back to our time at Columbia, and entering this new phase of our career together has been such a blast. Having been through all kinds of ups and downs together over the years, we feel more than ready to take on the work of scaling up our group.
I’m also grateful for our agency leaders who are all so tremendously dedicated in building great businesses. Their commitment to their team members and clients is inspiring. And so is their ability to continue learning, growing, and improving the way we work.
Beyond business, I’m thankful for my family who’ve been my greatest source of strength, comfort, and joy. And also grateful to all my friends old and new for their wisdom, support, and many moments of good cheer.
About Agency Journey: This is a monthly series detailing the happenings at Barrel Holdings, a portfolio of agency businesses. You can find previous episodes here.
Highlights
Recruiting a PM Lead for BX Studio
I’ve been helping our BX Studio CEO Jacob recruit for a Project Management Lead role. Jacob had been overseeing BX’s project managers largely by himself. However, with his sales and marketing responsibilities continuing to grow, he’s had less and less time to devote to the project management function at BX. His involvement has mainly been to help put out any fires or to provide any redundancies when a PM becomes unexpectedly unavailable on a project.
We agreed that investing in a PM Lead role would help to not only free up Jacob’s time but instill greater rigor to project management practices at BX Studio.
Instead of going straight to paying for a job posting, I decided to create a post on LinkedIn that was short and to the point.
My post on LinkedIn describing the PM Lead role.
Within hours, I was flooded with DMs and recommendations from people. I was surprised to find so many high quality candidates looking for work or interested in switching to a new company.
We’re close to making an offer to a candidate, and this experience showed me that there’s a great deal of value in tapping our LinkedIn networks for certain types of roles. I used to just default to paying for a job post on LinkedIn, but I forgot that warm recommendations can lead to some excellent talent. The best candidates we got for this particular role were all referrals from people I know. Some were not great fits for the PM Lead role, but I was able to refer them over to our other agencies, a nice bonus outcome.
In the future, I can see the CEOs of our agencies investing more time and effort into creating social media posts that are geared at recruiting for key roles. This could be a simple post like the one I shared above or a video recording of the CEO talking about why we’re hiring for the role, what kind of person we’re looking for, and what it’s like to work with their team.
A home run hire can truly transform and level up an organization, so it’s worth putting in the effort to broaden our reach and get really great talent through the door.
Net Revenue Retention and Agency Growth
We analyzed Barrel and BX Studio’s year-over-year revenue retention numbers and got some helpful insights.
Net revenue retention (NRR) is calculated by taking all the clients that generated revenue in year 1 and seeing how much they generated in year 2. For example, if all the clients in year 1 generated $1 million in year 1 and then in year 2, those same clients generated $800,000, then the NRR is 80%.
If you have a really solid recurring revenue model, you might be able to get NRR of over 100%, which means you are retaining and growing clients year-to-year. This provides an amazing base to then add additional clients and further grow revenue.
Barrel, as I’ve mentioned in previous episodes, struggled with churn and reduced budgets from existing clients early in the year. This put us in quite a hole for 2024 and our NRR will most likely end up under 50%. However, things are looking up for 2025 and we project that NRR should surpass 60%. Looking at past Barrel data, when NRR is above 70%, it usually means there’s revenue growth that year.
With BX, our biggest concern was that on any given year, we were likely to start at close to $0 committed since most clients work with us on a project-by-project basis. However, calculating NRR, we realized that there’s definitely some reoccurring revenue happening – several clients come back to us for additional projects, especially the design agencies that leverage us as Webflow dev partners or clients who hit us up for ongoing landing pages for their marketing campaigns.
The NRR numbers for BX came in at 60% and 54% in 2023 and 2024, respectively. We’re going to continue our push to establish relationships with design agencies as well as with clients who are likely to use us across multiple sites vs. just a one-off project. And in the long-term, layering on recurring revenue services like SEO and paid marketing will further boost our NRR potential.
Exploring Marketing Investments for Next Year
I’ve been meeting with our agency leaders to zero in on different marketing investments we’ll make in Q1 2025.
As I mentioned in last month’s episode, we’ve underinvested in marketing in the past. But simply spending more isn’t going to guarantee results, we have to be measured and disciplined in how we approach our marketing investments.
With Barrel, our primary focuses will be participating in CPG-focused events (e.g. Expo West) and in leveraging our various partnerships through the lens of CPG. We’ll most likely invest in bringing on a partnerships resource to support Barrel CEO Lucas and to more thoroughly manage some of these relationships.
With the other agencies, we’re exploring a mix of content marketing, outbound email campaigns, SEO, LinkedIn ads, and different types of partnerships. BX and Vaulted Oak continue to generate deal flow from their expanding network of design/creative/branding agency partners. Bolster is getting more leads from Framer as we get more website launches under our belts. With Prima Mode and Catalog, we’re experimenting with LinkedIn convo ads with free audit offers to drive interest.
At the holding company level, we’re continuing to increase our investment in marketing directly to private equity firms. Our goal there is to build relationships and to introduce all the firms in our portfolio so that PE firms can pick and match our agencies with their portcos. Our campaigns have generated a few conversations thus far, but we plan to bring on some help to build up our partnership strategy and go harder on the outreach.
Top of Mind
Evolving Thoughts on Acquisition Targets
Every week brings new learnings that prompt Sei-Wook and me to revisit our acquisition target criteria.
Part of it has been our realization that we’d rather own a well-run, functional, and growing business versus one that’s in a precarious position both structurally and financially.
As we’ve gotten more and more familiar with our financing options – SBA 7(a) loans, conventional bank loans, seller notes, convertible preferred, earn-outs, etc. – and the creative possibilities of deal structures, we’ve also been open to going after businesses larger than in our initial criteria (sub-$3 million revenue, 10% EBITDA or less).
We’ve also become more sensitive to the org structure and existing infrastructure of an agency. We’re less likely to go for an agency that’s too founder-dependent, especially when it comes to managing clients and delivering work. We understand that most small agencies will have a degree of dependency on founder-led sales, but we like seeing agencies where they’ve at least invested in some resources to support sales and marketing efforts.
I heard this on a podcast about acquiring businesses – it goes something like: “Not all $1 million SDE (seller’s discretionary earnings) businesses are the same. You could have one where an owner is running it incredibly lean with limited resources and wearing many hats. You could have another one where you have a built-out team with a layer of management and an owner who doesn’t need to be that involved in the day-to-day. On paper, they’re making the same amount of profit, but they are two very different businesses.”
As we look at more and more agency businesses every week, we’ll get a better feel for our sweet spot of built-out infrastructure vs. lean scrappiness. There’s also the risk that a company that’s too built-out and rigid in its ways may be poorly suited to adapt to changing trends. We might be better off buying a scrappier business with a high potential founder who can greatly benefit from Barrel Holdings resources and support, eventually building out additional infrastructure and growing faster.
I’m eager to see how the criteria evolves 3, 6, and 12 months from now. Getting some deals done will definitely provide us more insights as will our continued search process.
Shared Quotes
“Oh, but being alone isn’t what makes you feel lonely. Loneliness is having other people and society and community around you, and having a deep sense of being excluded from them.” (Ichiro Kishimi, Fumitake Koga, The Courage to Be Disliked)
Over the past year, I’ve made more of an effort to hang out with people I’ve met up here in the Hudson Valley. Taking the extra step to show up for community events, kids’ birthday parties, drinks at the local bar, meetups at breweries, etc. have helped me build new friendships. It’s a good feeling, and I do feel like I belong.
“Everyone leaves. But while you have them you have a highly motivated, highly trained, constantly improving team, attracting other A-players, reducing delivery problems, reducing customer churn, and enhancing your reputation in the market. This, for me, is the single most important change you can make in your business.” (Felix Velarde, Scale at Speed)
One of the Barrel Holdings Fundamentals is “build a great team” and a big part of this is hiring reliable, hard-working people while also being ruthless about weeding out underperformers.
“Being able to articulate and express your goals is one of the most important and fundamental skills necessary for success. Only when your goal is clearly defined and persuasively expressed can you start getting the support you need to achieve your goals.” (Dan Sullivan and Benjamin Hardy, Who Not How)
I’ve come to see so much value in continually refining and strengthening one’s vision. I recently watched a video I made for the Barrel partners back in 2021 talking about a 14-year vision for the company. Many things have changed since then, but by attempting to create a compelling story about the future, it set me on the path to continually refining the vision, helping me eventually develop the concept of Barrel Holdings. I’m sure the vision will continue to shift and evolve, but many pieces will also stay constant, and the act of taking the time to think carefully about the future and to articulate what that future state looks like will never lose its importance.