How to Grow and Exit a Digital Agency

My guest today is Karim Marucchi, the CEO, and owner of Crowd Favorite. Today we discuss the misconceptions people have about web-based businesses, in particular, digital service businesses. Many people assume that because a digital business has no inventory there isn’t a way to sell it. Karim debunks that type of thinking. He explains how a service company, especially a digital company, can find the right buyer if they put the work in and build the best brand and service possible.

We explore what makes a service business valuable and how to scale it effectively. Karim offers some great insight on how to build the best team for your niche. He also emphasizes the role of partnerships in digital business and how to make a business connection your ace in the back pocket.

What you will learn about:

• Karim’s background in business.
• What are professional services?
• How digital services are similar to the restaurant industry.
• The 2 types of sales that digital founders do most often.
• The real value of a business.
• How to build a profitable reputation.
• How to overcome the hurdles in the digital business model.
• What successful business owners do in their business.
• Finding your strengths and building your digital business with them.
• How to build an effective communication system within the company.
• The way business culture evolves organically.
• How to find the right business partner.
• How to avoid burn-out.
• How to identify your musts in a sale process.
• The reasons owners sell their companies.
• The right reasons to sell a business.
• How to negotiate a smart earn-out agreement.

Digital services is a tricky market. Since there’s very little that’s tangible about these businesses, valuing them can be difficult… but, as today’s guest notes, goodwill can be measured. Karim Marucchi talks about the similarities between digital services and restaurants in terms of goodwill, brand and staff and how to capitalize on those key elements.

Would You Like Fries With That?

Service, service, service. Restaurants might be a cheesy example to use (pardon the pun), but it’s a very visceral one which can provide concrete and familiar examples for us to better digest the intangible world of digital services. However, both require a high level of service where the customer is very rarely wrong. Why is that?

Digital services are just that: digital. You can’t touch them, but they add value to every business and most individuals around the globe. Knowing this, there is an industry for each service created and if you’re in this type of business, you need to be able to cater your company to meet those needs. We’ve discussed adding recurring revenue to your business before, so imagine what’s possible if you begin employing digital services?

If you know your niche, you can usually add a plus or upgrade (think: fries) to that client’s portfolio.

What’s for Dinner?

As Karim notes, no restaurant specializes in all kinds of foods. The same applies to digital services. While you may be able to do everything under the sun, your business should focus on the three or so things your business does the best. You go to Pierre’s for fine French cuisine, not Thai, though you could still get your fill here—even if that food doesn’t match your current need.

Sometimes you have to say no, even though you’re hungry, to matching up with a business. Bringing in digital services you don’t need will not add to your company’s value but in fact cause more strife and issues. One-stop shopping doesn’t work in the business world! You need to branch out and find the best fit for your company, whether that’s operating or accounting software.

With a digital environment, do the people you partner with truly matter? Yes. More than you might think, actually.

Your Server Will Be Right With You

So let’s take this back to the restaurant concept. We’ve all eaten out and had varied level of servers. The ones that sparkle tend to be the ones that draw us in and can encourage us to get extras for our meals—you want these guys to be your sellers or customer relations. You want engaging people on the front line to really pierce into your market.

You wouldn’t want them to be your cooks, though, likely. So those who are generating the services you provide might not be the best people to sell them, but they are unparalleled when it comes to ingenuity and innovation. Find your strategic and creative thinkers and get them in the right spots.

Each and every cog has a place in the mechanism. Work with your strengths and partner for your weaknesses. You don’t want to put people in a position to fail because they don’t have the right tools for the job. That’s frustrating on both parts and kills corporate culture. You can hire the right people, stick to your principles and grow your brand if you spend the time required to ensure you’re picking the right people.

Dessert?

You want people to want to stay with your business—staff and clients alike. This means hiring the right people for the right roles so that the company is solvent and growing, but isn’t sacrificing its engaging culture and high levels of retention. How do you do that in a digital environment?

Fit, fit, fit. As much as service is what you do, fit is what you are. Your clients will stay if you’re providing services they need and the support for those services. Your staff will stay if they feel engaged and fulfilled in their roles and if they feel appreciated.

You can’t exactly hang out at the water cooler in a digital services business to gauge culture and satisfaction. However, with the increasing number of digital or distributed companies, you can’t force the culture to grow in a certain direction. You can’t control it. You can provide the tools necessary to grow this culture (how many peer-to-peer share and messaging programs exist, after all?) and encourage positive interactions, but ultimately you need to be choosing the right people to filter down what the mission and goals are. From the top down, the message needs to be consistent and get to know each your staff.

Karim talks about how he encourages 15 minute video calls for new staff with a random group of employees to get to know each other. This creates a sense of community without the water cooler. If done right, you can get the same dynamic of loyalty you get by being in the trenches together.

So if you are a digital services company, take a look at your culture and the services you’re providing. Are you trying to be a one-stop shop (and therefore potentially missing on greater profits by focusing on one market niche)? Do you have engaged staff who are focused on growing the business and are loyal to it? When was the last time you checked these variables to see how much of an impact they have on your value? When you start to prepare to sell your business, you’ll see a stronger portfolio for having done that.

Takeaways:

1. Digital service businesses are very much like the restaurant business. Building a great reputation is what draws a buyer to your business. Make your business the best customer experience you can.
2. A creative partnership is a strategic way to add value to your business and your brand.
3. Plan for every possible whatever “what-if” you could have during an earn-out period. Write a contract that will benefit both parties.

Links and Resources

Karim Marucchi’s website
Crowd Favorite

About Karim

Karim Marucchi is the Founder and Chairman of the VeloMedia Group, the parent company of boutique professional service organizations with offices in Los Angeles, Denver, Bucharest, Las Vegas, New York and Rome. Over the last twenty years he’s run startups, taken companies public, managed mergers and acquisitions, and led professional service organizations across the globe.

Today he’s the CEO of Crowd Favorite, the first premiere WordPress agency for the Fortune 500, where clients such as Microsoft, National Geographic, DirectTV, Lexus, Facebook and major entertainment studios count among the company’s client roster