Corey- Jon
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[00:00:00] Today I'm joined by the founder and CEO of RISE Interactive and most recently the CEO and founder of both Engine BI and Fiscal Advocate, John Morris.
[00:00:12] Welcome, John. Thanks, Cory. Real excited to be here today. Oh, awesome. I I'm really looking forward to our conversation. You have so much, uh, background experience that, um, I'm looking forward to, uh, to diving into. I thought a good place to start would be Rise Interactive. Could you share with the [00:00:30] audience, you know, what Rise is and we'll get into sort of the, the, the origin story there?
[00:00:37] Absolutely. So I started Rise in 2004. I went to university of Chicago for business school, took second place in an annual business plan competition. Uh, won 10, 000 and that was the seed money to start RISE. Uh, and at that time, uh, I was very into marathon running, and if you think about training for a marathon, it's generally [00:01:00] 18 weeks.
[00:01:01] I kind of took the same approach to running RISE, but rather than weeks, I thought of it as years, and rather than miles, I thought of it as dollars, meaning I had a very long term view to growing RISE. Uh, over 16 years was my tenure there before I sold the company, but I originally had a 20 year time frame, uh, and the goal at the time was to be the world's largest independent digital agency.
[00:01:25] So from when I was a one person shop, I looked to grow to a large company. [00:01:30] Uh, when I left, we were about 250 employees. Today, RISE is about 500 employees. Uh, and they tend to service some of the larger enterprise companies, you know, brands that you, you'd be very familiar with. Okay. And, um, so you started this, uh, this agency on a, 000 investment.
[00:01:54] What were, what, what were some of the original services? Who did you target back in the early days? Like what did the [00:02:00] start of this look like for you? So, you know, when you start with no brand, no money, Uh, you know, it's hard to get the phone to ring and my initial strategy was more of a partnership marketing strategy.
[00:02:13] What I did is I provided search marketing services, predominantly paid search, and I would call on web development companies, and I would call on much larger digital media companies. Then myself, uh, [00:02:30] and in exchange for commission, I would try to get referrals and what I found is that when you're cold calling, when you cold call asking for money, it's really hard to get someone to pick up the phone, but when you call to discuss partnerships, you have a much easier chance of getting someone to pick up the phone.
[00:02:47] So very quickly, I would say within a year or so, I had probably 20 to 30 web development companies referring business to us. I had some of the extremely large Uh, digital media [00:03:00] shops referring their small business to me. And so I was able to get my phone to ring more at a variable cost structure as opposed to a fixed cost structure.
[00:03:08] Very cool. And so you would go to these web development companies and say, Hey, I'd love to Uh, be your outsourced search marketing partner type of thing. You know, generally I talk about more in a partnership aspect of, I don't do any web development. And from what I can tell by your website, you don't do [00:03:30] any digital media.
[00:03:31] So, if we form a partnership, I should be able to refer business to you. I'm going to be, as I grow, marketing more and more. And so I used it more of, I'll help you guys generate business as well. And so I found that that was the angle that tended to work quite a bit. That's, that's what, uh, that kind of lowered the resistance and got you, got you into these, uh, these shops, it sounds like.
[00:03:55] Um, and then those early days, what kind of, what kind of clients were you [00:04:00] serving? Like what type of businesses was the e commerce, service businesses, local, you know, enterprise? I don't know. Yeah. Well, first of all, it was very small. My very first client paid me 50 a month. I probably gave them a thousand dollars a month in time.
[00:04:16] Uh, but when you're just getting started, I cared about stories. Uh, when you think about how you win business, you oftentimes win business by being able to share. You know what? I had a client with the exact [00:04:30] same complexity as you. And you can explain how you helped them, and then you can use that to win more business.
[00:04:37] Uh, we did not verticalize, and Rise today is still more of a general, um, digital agency. And I'll explain some of the good and some of the bad with that. My original goal was to own Chicago. I wanted to make it so that if there was a brand in the Chicago led area, and they were thinking about digital marketing, [00:05:00] That we would be on the short list.
[00:05:02] I attended maybe seven to eight networking events in the Chicago end area a week. So, uh, I would oftentimes also, as we grew, uh, we would only hire in Chicago and I would make the whole company go to each one of these networking events. And so, you know, you would have 10 employees, but you have 10 people at a networking event, people start to think that you're much bigger than you are.
[00:05:28] So I use it as a way [00:05:30] to kind of have a network effect and build our brand and, you know, be everywhere. So that was a, a big part of the early journey. Uh, and I always say, you know, like I have 28, 000 connections on LinkedIn. And people ask me all the time if I make introductions to them, and I explain to them that if they are in Chicago, I have a 90 percent chance of knowing who they are, and if they are outside of Chicago, I have a 99 percent chance of having no idea who they are.
[00:05:57] My brand drops, you know, fairly [00:06:00] quickly once you leave the Chicagoland area. And, uh, and so you're working the, the local, um, networking events makes a lot of sense if that is truly, uh, uh, and it sounds like it was your, your outcome was to own Chicago. Um, when did that change at what point in the business was Chicago, um, not, not the only city you wanted to own, but maybe one of many.
[00:06:24] So there's a couple of things that happened. Uh, one of the challenges with partnership marketing. [00:06:30] You get a lot of referrals and you become very dependent on that referral source and all of a sudden they start referring clients to you. That you don't really want to take. And so you have to start thinking of it as a portfolio of like, I got these amazing clients that they sent my way and I want more of those amazing clients, but you end up taking a lot of clients that you don't want to take in order to help them out.
[00:06:55] And so we, we decided that we wanted to start really focusing [00:07:00] on, uh, you know, going direct to market, going to win our own business and setting up our own, uh, kind of future. And so, uh, we did not, you know, verticalize, let's just say the degree that you're recommending people to do and what I actually recommend people to do as well.
[00:07:18] Uh, but we had very specific targets that we would go after and we're generally going after large brands. And so we would look across, [00:07:30] uh, the country for companies that met within that target audience. And so we really took more of an account based approach. I would say on a national basis as opposed to a local basis as we grow.
[00:07:44] What's an example, so the, the, the, the web, web development partners, the other partners you had, you mentioned that they would send you good clients and then they would also send you bad clients, which you obviously took because you were, you were their partner. What, what did a bad client look like? You know, [00:08:00] generally as we started to scale, um, you know, you, you came from Scorpion and Scorpion, I believe has like 14, 000 clients today, correct?
[00:08:07] Yeah. Yeah. At least when I left about a year and a half ago. Yeah. Okay. When I left, we had 60 clients, so it was a very, very different strategy where we were going after, uh, 50 to 60 clients and we wanted them to be continually getting larger and larger. And so we're [00:08:30] raising our minimums on a regular basis in order to work with us.
[00:08:34] Uh, when I left, I don't think we would do a website for less than 250, 000. I think today, you know, the minimum might be 500, 000. And so we're, we're dealing with fairly large, you know, seven figure high six figure retainers. And so as our minimums are growing and they're sending us a lead where it's like 3, 000 a month, our business model wasn't set up for [00:09:00] that type of customer.
[00:09:01] And so, you know, we might look at the portfolio and say, okay, well, This referring partner in general is giving us a million dollars in revenue, but I got to take this 30, 000 in fees and I might lose money off of that because you want to keep your brand, you know, to The level of support and services that, you know, these large companies are expecting from you.
[00:09:25] It reminds me a little bit when I, uh, before Scorpion, two agencies before that was a [00:09:30] company called the search agency. And we would sell into, uh, large. E commerce brands like Lululemon and The Men's Warehouse, and it was kind of a similar thing. We didn't sell websites, but we sold sort of high end PPC and SEO, uh, those, those big deals.
[00:09:45] And so, yeah, there's no way we would have had 14, 000 clients cause it's just, you just can't, you can't run a high end sort of, uh, enterprise level agency at that level, uh, with that many clients. Yeah. Maybe you can, but, [00:10:00] um. So at what point along the way, um, as you were sort of working the local network and you were building up your, your client list through your, your referrals and, and, uh, the partnerships, at what point did you, did you hire a, your first salesperson?
[00:10:15] Like, I love asking this question because it's always interesting to talk about the first sales person hire, like when, at what point was that? And what was the experience like? Did you have any lessons learned? So, I'd have to go look at the exact [00:10:30] year. I hired several salespeople before I found the salesperson.
[00:10:34] Okay. Um, but Howard Diamond, who's still with Rise today, uh, was our first, um, first, you know, leader of our sales team. And, uh, he was a client of ours. And I kept on hiring people. And because, you know, once again, remember I'm bootstrapped. I started with 10, 000. I can't necessarily just go afford a six figure [00:11:00] person, uh, to start working for me.
[00:11:03] So I hired a lot of people on a, uh, commission only basis that didn't work out from the very beginning. You get what you pay for. And some of them were actually good, but they just weren't making enough money to support themselves and what they needed to make on a regular basis. Sure. But when I met Howard, he was a client of mine and I compared everybody to Howard.
[00:11:27] It was like, you know, I knew that he [00:11:30] was the guy that I wanted. Uh, I still consider him to be the best or one of the best in the business. And so eventually I just came with this brilliant idea. I was like, well, if everyone I'm comparing to is Howard, why don't I just see if I can hire Howard? And, uh, Howard was at a point where he was looking to move on from where he previously was.
[00:11:52] Uh, and so he joined the team and it, honestly, it's like a hockey stick. If you look at our revenue from when he came [00:12:00] on board, it has gone nothing but North. It's amazing how the right salesperson put him in the right, uh, role. It, it, uh, creates that kind of impact. Um, so based, based on your experience, I know you advise agencies today, not in this, not necessarily on sales, but like at, you know, what, what, what advice would you have for an agency?
[00:12:20] Maybe who's Mostly, Ben, founder led when it comes to sales, meaning the founders work in their network and the kind of lead in the sales, how, how do you, how, what advice would you [00:12:30] have for an agency owner who wants to hire their, their version of Howard? How would you, how would they go about that? So I think the first thing you have to think about is there are multiple aspects to sales.
[00:12:41] Okay? There is your typical hunter that's opening up the doors. Uh, there is the closer who can get in front of a prospect and sell them for you. There's the person who's just really good at process and all the sales operations and making sure you're following up with all of your leads You want a regular basis?
[00:12:57] So What I tend to think [00:13:00] about is what do you want to hire for? You might disagree with me But my experience with salespeople is that they're really not very good at hunting You you keep on hiring these people for hunting and that's you know What they want to do is they want to be the ones closing the deal And so the first thing I recommend is you got to hire a closer someone who makes it so you don't have to be in the pitch and they can go close the deal and You know, you don't have to be in that meeting [00:13:30] What I oftentimes tell people is your best closer always works for you already works for you And they're on the client side.
[00:13:38] And so, if you go hire someone from your existing client service team, they know your business, they know the strategies they're recommending to their clients, and so you can find a really good salesperson that already works within your organization. Uh, and I find it is easier to turn a digital marketer into a salesperson than to turn a [00:14:00] salesperson into a digital marketer.
[00:14:03] That makes perfect sense. A lot of marketing tends to be technical in nature anyway. So bringing someone from the client side who understands the actual execution piece makes a lot of sense. What then about the sourcing the leads? Like, how do you, uh, how do you account for, you know, generating new interests?
[00:14:20] Yeah. So this is where marketing comes into play. Uh, and this is where, you know, I recommend generally some type of vertical strategy, [00:14:30] uh, which I know is a big core to what your focus on is as well is you have to first determine what your overall budget is for sales and marketing. Yeah. Sales without marketing is really difficult.
[00:14:44] There is so much noise today in terms of, um, you know, people doing exactly What you do and are sending out emails and doing marketing automation and doing all these things that you really need to [00:15:00] Have some type of approach where you are getting in front of your prospects It sounds dumb, but this goes into finance and actually what I do for a living One of the most important metrics is what percent of your revenue do you spend on sales and marketing?
[00:15:17] The average agency spends 8 percent of their revenue on sales and marketing. So if you spend less than 8%, you're at a competitive disadvantage. If you spend more than 8%, you're at a competitive advantage. [00:15:30] That one of the first things I think about is just how much are you budgeting towards this? I found that typically there's a 50 50 split between marketing and sales and when I say marketing It could be the sponsoring events.
[00:15:44] It could be throwing your own events It can be thought leadership and having content that goes out there I do outreach all day long to prospects, you know, I am, I am constantly, uh, sending out emails, but I'm generally sending [00:16:00] emails out to, here's an ebook we wrote, here's a, uh, benchmarking data that I thought you would be interesting, here's an article I wrote, you know, it's, it's very rarely, hey, come talk to me and let me get money from you.
[00:16:14] And so marketing really is your greatest sales enablement tool. So just, just for clarity, um, the 8%, um, it's of the gross, right? 8 percent of the overall revenue goes back into sales and marketing. Let me make sure I define it. [00:16:30] It is 8 percent of what I call net revenue, which means all of your pass through revenue does not count.
[00:16:35] So if you spend 30 million in media and you have 5 million in fees. It's 8 percent of the 5 million, not 8 percent of the 30 million. And, and 50 percent of that goes to sales. 50 percent goes to marketing. Obviously that can, that could vary based on the specifics of the company. But, uh, that includes, um, uh, employees.
[00:16:59] That [00:17:00] includes media spend, third party agencies, everything, right? Exactly. Okay, that's awesome. By the way, super helpful. What I find amazing is, you know, I only sell to marketing agencies. The amount of work I have to do to convince marketing agencies to spend money on marketing is unbelievable. You know, I just, uh, joke and writhe that how come I'm the only marketer that believes in marketing.
[00:17:24] It's, it's a good point. And, uh, you know, um, there's, [00:17:30] there is, uh, a good argument to be made for, um, that, that the type of marketing that an agency does for their clients isn't always the best marketing that they should be doing for themselves. Like, you know, a lot of, a lot of agencies work with clients who are B2C.
[00:17:45] I remember back when I was at. At scorpion or at the search agency. Yeah, the type of the type of marketing we would do for a local attorney which was a lot of a local based marketing like website SEO or [00:18:00] Local PPC, you know reviews and reputation all that stuff does not equally translate over what to score What's best for scorpion?
[00:18:07] And so there's there is I think To a certain extent, there is a skill gap, even within a marketing agency, knowing the right things to do to help them to grow. I couldn't agree with you more, you know, and it's like if, if you specialize in video production, that's very different than a lead gen. Absolutely.
[00:18:26] If you specialize in branding, that's very different than a lead gen. [00:18:30] And, you know, predominantly what you need to become expert at is lead gen marketing. Uh, and data driven marketing in order to scale and grow your business. Um, and so you ended up selling Rise. What were, I'm curious, what were the things that led up to your decision to sell?
[00:18:49] Was that something that you had always had envisioned? Or was that something that, that came later, you know, in the business? Like, what was that? So my original exit strategy was I was going to die one day. [00:19:00] And, uh, and what ends up happening as your agency continues to grow and scale and I continually put more and more money back into the agency was that all of a sudden my net worth became highly skewed towards this one asset.
[00:19:19] I got married, I started a family, and you start thinking about, you know, uh, diversification, de risking yourself. And so [00:19:30] I would say that. You know, a big part of this was, you know, focused on that. Yeah, smart. And, um, any, any lessons, uh, or experiences you care to share about the, the process of selling your agency?
[00:19:46] What does, what does an acquirer, you know, look for? What was that, what, what should, you know, agency owners who are looking to sell, what should they, they be thinking about? You know, I think there's a couple of things. The first thing is, uh, the [00:20:00] vast majority of the time when you sell, It is not like selling a car where you turn over the deed to the car and, you know, all of a sudden, uh, that car is no longer yours.
[00:20:10] You, you generally are on an earn out and so you're going to be married to the person who buys you for a period of time. Uh, the second thing is, you know, your agency is generally valued off of a multiple of profit or EBITDA. And that multiple can [00:20:30] vary based on the services you provide, based on your growth rate, based on the size of your business, based on the vertical you specialize in.
[00:20:38] And so you really want to understand how do you maximize that multiple so that you can get the exit that you desire and you're looking for. One of the things I just explained is if you just take a holding company. Holding companies, I don't know their exact revenue, but let's just say they're 20 billion in revenue.
[00:20:55] And they tend not to grow. You know, it's not like they're [00:21:00] growing at the 20 percent that they want everyone else to grow. Uh, what they're doing is they're growing through acquisition. And by growing through acquisition, uh, they need to buy something sizable that is actually going to make a dent. You know, so buying something for 500 million is worth a lot more to them than buying something for 1 million.
[00:21:23] And so as you scale, just by getting a certain revenue threshold, that multiple automatically goes up. [00:21:30] Um And biggest lesson learned from, uh, from that experience of, uh, of selling, uh, are you still involved in the company? I think you're not involved at all. I think, you know, I think the first thing is I got very lucky.
[00:21:50] The owners, which was a, it's a, uh, the largest printing company in the United States, Quad Graphics or Quad now, uh, they are phenomenal people. Uh, they're [00:22:00] trustworthy. They live up to their word. Uh, you know, I got very fortunate that, you know, I got such great buyers. Uh, what is hard is, and, and I have lots of friends who have sold to much larger companies, is, you know, you are kind of like a destroyer and now you're moving into a battleship field and battleships move a lot slower than destroyers do.
[00:22:27] Now their impact's greater. Uh, [00:22:30] but you know, it, it is a cultural difference that people have to get used to. That the decision making isn't at the same speed, uh, as you are, you know, you know, a 250 person company moves a lot faster than a 20, 000 person company. And so you just have to get used to that aspect of the business.
[00:22:52] And so now that you're out of the business, um, you've started this company, Engine BI, you also have [00:23:00] your, uh, fiscal advocate. Yep. Sorry, I had to look at my notes. So fiscal advocate. Um, so what was the impetus behind starting these two businesses? Um, and could you share a little bit about what the work you do for agencies?
[00:23:14] Yep. So I sold in April of 2020 and I'm now stepping away as a CEO for my first time in 16 years. It is the very beginning of the pandemic. I had three daughters, [00:23:30] 6, 8, and 10 at the time. Uh, at this moment in time, the airports are closed. I am wiping down my groceries because we didn't know if it was safe to eat them.
[00:23:39] And I recognize I had to do something with my time. So I started this business a lot sooner than I was planning on it. I had a business coach that I met every three months for several years. And every time I met with him, he's like, You know, the financial insights you have are just beyond anything I have seen.
[00:23:59] It's like, [00:24:00] this is a business within itself. And, you know, you hear that every three months, uh, for multiple years, and then all of a sudden you have to start thinking about what you want to do. I was like, you know what? This could be a really cool business is helping agencies with their finances. And, uh, and what I really realized is I'm not trying to help people with their finances.
[00:24:23] I'm really trying to help them with their outcomes. And so I have two different companies, but they [00:24:30] serve kind of the same purpose. Which is, I want to help agency owners grow faster, increase their profits, and grow their cash. And the way they, that I believe you do it, is all about decision making. All we have is time and money.
[00:24:48] And by the way, there's 120, 000 agencies and all they have is time and money. So each one of us is going to spend our time and money, and some of us are going to spend it more intelligently than other [00:25:00] people. I'm trying to help people make the decisions to spend their time and their money as intelligently and as effectively as possible, and it really starts with, uh, and I always explain this to people, that there are two versions to every single agency owner.
[00:25:16] There is the marketer version, where they have an expertise and a skill set. And there is a business or entrepreneurial version of you, where you gotta run a business. Now the entrepreneurial part, there are [00:25:30] only three numbers that matter. You are either growing faster on a year over year basis, increasing your profit as a percent of revenue, and increasing your cash relative to monthly overhead.
[00:25:40] Or you're not. And so the first thing I want you to do is just hone in all of your decision making to those three metrics. It's very similar, you know, you talk about the importance of focus and going after one vertical and how it improves your marketing. It improves your innovation. It improves all those [00:26:00] things.
[00:26:00] I found it's the exact same thing on the financial metrics side. You focus on those three metrics. Those that get measured get managed. And you're going to see your cash grow, your profits grow, and your revenue grow. That's, that's awesome. What, what type of agency, um, as far as size, typically are, um Is the right fit for your services?
[00:26:24] Like at what point in their life cycle are they suffering from the challenges that you can solve? [00:26:30] So I would say there's a couple of things. The first one is mindset. Okay, there are companies that simply do not want to grow. And I think that's awesome. Like having clarity of who you are and what you want to do is wonderful.
[00:26:43] Just not a good fit for me. Uh, I'm looking for companies generally between 1 million and 10 million that want to scale and take it to the next level. And so they're, they're looking for what is the path to get to 10 million. [00:27:00] If they're the 10 million marker, they're looking for the path to get to 25 million.
[00:27:04] And that they're willing to make investments to actually grow. I have a client right now that's, you know, in the 1 5 million range. Uh, they're incredibly profitable. Uh, but when you look at their infrastructure, they've invested nothing in their finances, they've invested nothing in their HR, and they're going to have a really hard time [00:27:30] scaling unless they can start getting more comfortable that you're going to have to make investments.
[00:27:35] You can't have a 35 percent profit margin, you know, and grow the business, like 20%. will allow you to make investments and scale, uh, but you got to make those investments. And so those are the kind of good criteria that I would talk about. And are there sort of some symptoms in the business, um, besides, um, well, I guess, inability to grow, but like, are other things happening in the [00:28:00] agency that, that, um, that, that causes someone to say, Hey, I need to, I need to get some outside help because what we're doing internally is just not, it's not working.
[00:28:09] You know, I have a, um, I have a speaker coming tomorrow, uh, to our engine BI, it's a software that helps you make decisions, but we have a mastermind program that goes along with it. And I have a speaker tomorrow, uh, named Dave Sheehan, who, uh, grew one of the largest independent, like, full service agencies before selling it [00:28:30] to private equity, and now only does M& A for agencies.
[00:28:35] And, you know, he had a comment to me. He's like, the companies that he sees that do well are the ones that get mentorship and, you know, really listen and find someone who's been there and done it. I had a person named Jack Kraft, who was the vice chairman and chief operating officer of Leo Burnett. Uh, the reason why I only had 60 clients is because he told me Leo Burnett only had 50 and that was their model.
[00:28:58] And so I followed a [00:29:00] model because I had a mentor who I trusted. And so, um, and so to me, you should always recognize that somebody has been there before you, has done it before you, and that you don't need to make a bunch of mistakes that other people have already figured out to solve. You know, go invest in getting a mentor that can give you guidance that's going to allow you to spend your time and money as intelligently and as effectively as possible.
[00:29:28] I love that. I think, [00:29:30] um, you know, a question that I love asking is, has someone else solved the problem that I'm trying to solve? Like, is this a solvable problem? And the evidence that it is is that someone else has already done that. And so why not just go hire that person to help you to learn how they solved it so you can shortcut your process.
[00:29:47] Yeah, absolutely. Um, what are some, so just, just to back up a little bit. So Engine BI, can you talk about a little bit about that, that service itself? Um, what, what you do and then also fiscal advocate and what the specifics are around, like [00:30:00] how you're helping agencies. Sure. So I'll start with Engine BI. I have developed a framework called the BASE framework.
[00:30:07] It stands for business planning, alignment, scorecard, and execution. And the idea is that if you follow the, that framework in terms of planning your business, making sure your businesses align, having the right scorecard and executing flawlessly, uh, you will continue to scale and grow the software. Engine BI is a software system that [00:30:30] allows you to implement that framework.
[00:30:33] Mm-Hmm. Uh, it also comes along if you buy engine bi platinum. with a mastermind group where you get access to a community that is on the same journey with you to help you scale and grow at a faster rate. And I'm familiar with your mastermind. I've actually had the opportunity to speak to that group and I could attest that the folks that are in there are fantastic.
[00:30:58] Really, really engaged [00:31:00] community. So, um, uh, I think that's, that's, uh, something pretty special that you've built there. Thank you. And I, and I really appreciate it. The one thing I'll also add, just going back to the scorecard is, I give people all the benchmark numbers of what they need to spend, where they need to spend it, how they need to spend it, so that you're spending that time and money really intelligently.
[00:31:19] Could you talk a little bit more about what those benchmarks, like what are some key benchmarks for an agency? Sure. So the most important benchmark, and I found that the vast majority of agencies do not [00:31:30] know this number, is your gross margin. So I'm just going to give a few definitions real quickly. The first one is your net revenue.
[00:31:38] So, you need to know, after you remove all pass through, so all media, all things that you don't get to keep, what is your revenue? Then, you want to subtract what I call cost of service, which is, All of the expenses that relate to doing client work, so your payroll, your freelancers, your technology, your travel and [00:32:00] entertainment, client gifts, anything that relates to doing client work is your cost of service.
[00:32:04] So your revenue minus your cost of service equals your gross margin. If your gross margin is 50 percent of your revenue or greater, you will most likely be profitable and be able to invest in your business. If your gross margin is between 40 and 50 percent, you will most likely either be profitable [00:32:30] or be investing in your business, but you'll have a hard time doing both.
[00:32:33] And if your gross margin is less than 40 percent, you will be losing money. And so, that's the starting point. Where do you, where do you find what, sorry? Nothing. Uh, where do you, where, where, yeah, where, where do you find that agencies are overspending? Where they don't need to? So typically what happens is they have one line of business that they just don't realize is not [00:33:00] profitable.
[00:33:00] Uh, or they'll just have too many more, too many senior people, not enough junior people. Or they just don't have enough direct reports per manager. Those are the common things that I see. Um, what I also find, and this is actually really important, is, uh, a lot of agency owners lack courage to make the tough decisions to get their gross margin to where it needs to be.
[00:33:27] Uh, we all hire people that [00:33:30] we know and love and care about and wanna do well by them. And the challenge is that when the doers are not there and you don't have the courage, you end up having a gross margin problem. Yeah. And so, uh, really understanding. You know, do you have a problem? Then where do you have the problem?
[00:33:54] Then do you have a solution to solve it? And then lastly, do you have the courage to solve it? [00:34:00] Are kind of the factors that go into that. And I imagine those are some of the things you guys talk about in the Mastermind is how Absolutely. How to navigate that. Yeah. Yeah. Yeah. That makes sense. The, the next group of benchmark, do you want me to keep going on the benchmark numbers?
[00:34:13] Yeah, please. I, I love, I, I love benchmarks. Let's go. Yeah. So gross margin's, the first one. Yep. What's the next one? So the next one is what is called your SG& A, which stands for Selling General and Administrative Expenses. These are all your expenses that do not relate to client work. [00:34:30] And I want you to bucket those into three specific areas.
[00:34:33] The first one is sales and marketing. The next one is operations and finance, which is, uh, HR, legal, corporate IT, general administrative and finance expenses. And then the last one is your executive team. Those three should equal 30%. You get 8 percent for sales and marketing, 15 percent for operations and finance, and 7 percent for your executive [00:35:00] team.
[00:35:01] And by understanding how much you spend in each one of those buckets, you can make decisions very quickly on how am I doing or how am I not doing and make the adjustments so that you're, you know, doing effectively in terms of running your business.
[00:35:18] Um, that makes me think I'm, I'm, I'm assuming that most agencies who are not part of your program probably are not looking at their books in this way. What do you recommend that they do? Is [00:35:30] this something they could do in QuickBooks or how do they, how do they get started to figure out like where are they at today?
[00:35:35] So first thing it comes to change management and a mindset. So this is a, you have to have budgeting and forecasting as a major component to how you spend your time and money. And, uh, you asked about Fiscal Advocate. Fiscal Advocate is a fractional CFO company that helps you manage all that if you don't have the resources to do it internally.
[00:35:58] But it's kind [00:36:00] of like, you know, everyone says that their agency is data driven and they provide weekly reports to their clients. Uh, this is taking a data driven approach to your business where you have to really understand these numbers and invest in what I call scorecard operations. And, you know, so if you're not closing the books every month, if you're not, uh, categorizing your expenses in these specific buckets.
[00:36:27] You're not going to know the answer [00:36:30] when you use QuickBooks, they default to your payroll just being in one line. So it's just one bucket that just says payroll. And so you don't get any insights unless you unbundle your payroll and move all your sales and marketing people to sales and marketing and all your client service people to cost of service and your executive team to executive.
[00:36:49] And so, uh, you have to put the work in to structure your data to come up with the right insights.
[00:36:59] Makes [00:37:00] sense. Okay. So we got gross margin. We got SG& A. Is there any other benchmarks that you'd like to talk about? A few more. So the next one, which is my own, this is, uh, this is actually a recommendation as opposed to a benchmark is 5 percent of your revenue should go to R& D. Now, when I say R& D, I do not mean that you're going to build like the first flying car.
[00:37:22] Uh, what I mean is that if you specialize in a vertical. I want you to be able to pass the two question test. [00:37:30] First question is What makes you unique? And let's just say, you know, I specialize in helping, um, you know, architects with their marketing. I was like, okay, awesome. I just met 49 other agencies that specialize in helping architects with their marketing.
[00:37:50] How are you different and better than those 49? And my experience is people generally pause and they have three answers. We are either data [00:38:00] driven, You got to talk to more senior people or you have better customer service. And my answer is that whatever your answer is, your R& D budget has to be invested to make it real.
[00:38:14] And so you have to spend money so that a year from now, your differentiator is stronger than it is today. 77 percent of the companies I benchmark spend zero. I think, uh, [00:38:30] I'll underline that by saying, you know, with innovation rapidly changing and accelerating, you're getting things like, you know, uh, generative AI and all these other, uh, technologies that are directly or indirectly impacting the agency's, um, you know, uh, world.
[00:38:49] And, uh, if you don't. Proactively figure out how to make those platforms, uh, create a better product or, you know, streamline your operations or whatever that is. [00:39:00] Uh, you can bet that their competition will be. And so it's, it's just today, it's a man, it's in my mind, it has to be mandatory to, to invest in this R& D.
[00:39:09] Um, other ones is 20 percent growth rate is on a year over year basis. What the typical benchmark is 20 percent EBITDA in terms of profit. is another target that people are going after. Um, and I could probably pause it at those. Actually, the last one is, one of the most neglected metrics is cash. [00:39:30] And once again, this is a recommendation as opposed to a benchmark number, is I want whatever your monthly overhead is for you to have a minimum of two times cash for that monthly overhead.
[00:39:42] So if you spend 100, 000 a month to run your business, I want you to have 200, 000 in the bank.
[00:39:51] I love that. Um, so now if, if an agency owner's listening to this and they're saying to themselves, well, you know, gosh, I, [00:40:00] I don't have two months worth of cash. I have no idea what my gross margin is SG& A, you know, there's no way I've broken it out like this. Um, what, what are some, what's, you know, what should they be thinking or what are some good next steps for them?
[00:40:14] A couple of things. Uh, I have an ebook that provides a lot of the guidance on this. The ebook is free, uh, and so that would be one recommendation. I post every single day, uh, on LinkedIn with some [00:40:30] advice. I have two newsletters, one on Monday, which is about agency decision making and one on Thursday, which is about agency finance.
[00:40:37] Uh, so that would be another good source for you to go to, uh, and you know, what I would also just say is, you know, the first thing is, uh, you really just have to determine this is going to be core to who your business is, and it's going to be really important to you. That to me would be the starting point.
[00:40:56] Hmm. That's awesome. Uh, we'll make sure to link to those [00:41:00] resources in the show notes so that, uh, the listeners can find those there. Um, I really just have. You know, like let's say two more questions, kind of as we wrap up here. Um, first one is, uh, what advice would you have, um, to an agency owner? Maybe it's a younger version of John who, uh, you know, was, was, was thinking about taking a vertical market approach.
[00:41:24] And they're, they're interested in that, that, uh, that, that model, but they've not, they really, um, [00:41:30] Pursued it what advice would you have for them as they're thinking through so a couple of things at rise. We chose not to have a vertical approach and engine behind fiscal advocate. I do have a vertical approach.
[00:41:44] So I actually have, I think, a really unique perspective of. Uh, the advantages and disadvantages. Uh, the number one reason I think people do not take a vertical approach is simply fear. And it's [00:42:00] like, I go do this, and is my phone going to ring? That was my personal fear of, you know, all these people I'm saying no to by saying only yes to one group.
[00:42:12] Uh, what I can tell you is, I believe your phone will ring more. Uh, because you become so laser like focused on who you call, the meetings you go to, where you spend your time networking, uh, that I, I see huge advantages just on [00:42:30] the marketing and sales perspective. Uh, but the other one that I think is really crucial is I talked about R& D and innovation.
[00:42:38] Uh, it becomes really hard to innovate. When the target audience you go after becomes wider and wider. And I just want to give you a really good example. This is a real life example at Rise. Uh, Rise today has about 55 people on its product development team. So, if you ask me the two [00:43:00] question test. I would say that our vision is to be the leaders in helping brands make better marketing decisions, which is a fancy way of saying we're data driven.
[00:43:09] And then you would ask me, that's awesome. I had 50 other companies that said they were data driven. How are you more data driven than them? And my answer would be that there's different types of data. Media data, consumer data, customer data, pricing data, inventory data. We chose to be the best at media data and identifying waste and redeploying it to scalable areas.
[00:43:28] And there are 55 [00:43:30] people who have built a product that can automate the identification of waste and redeploy areas. So that's kind of the differentiator. However, in order to be the best at media data, you have to connect to all these media data sources. Uh, it took six months to connect to all the marketplace, uh, data sources.
[00:43:54] So like Amazon and Walmart and all those different places. But I have a bunch of B2B lead gen clients [00:44:00] that could care less about that innovation. And very similarly, I had to connect to LinkedIn for my B2B clients, and my e commerce clients could care less about that innovation. And so, when you Next thing you know, you have a 55 person product development team.
[00:44:18] Exactly. And, you know, just imagine if you had a 55 person product development team, and they were just focused on law firm marketing. The edge [00:44:30] that you could have. So the idea is that, you know, I actually have about a, a 10 to 15 person product development team for engine BI. Um, and every single innovation that comes out helps all agencies.
[00:44:43] And so I get a hundred percent impact to my innovation, to my entire client base. And so that to me is the big advantage is, is my products now better, which then gives me more content for my sales and marketing. [00:45:00] Which allows me to win more business, which allows me to improve the customer. And so it creates a big flywheel that really helps itself.
[00:45:07] When they, I'll add to that, I think, um, using the example of Engine BI, now you have Fiscal Advocate. I'm not sure if you launched those concurrently, but, but effectively what I see you doing, what I've seen other agencies do who are focused in on a vertical is they'll sort, they'll solve this sort of the core problem that they, that they focus on, but then they're in a position to go and sell, um, [00:45:30] adjacent services.
[00:45:30] So there's an example of a, of an agency called SMB team. They started by serving attorneys with marketing. Now they do, uh, virtual assistants for, uh, for attorneys. They do CFO, like virtual CFO work for attorneys. They do In lead intake for attorneys, they now do business coaching for attorneys and they've all of a sudden have this like, you know, all these different business lines that are all doing eight figures and they're extremely successful because they've narrowed in on this vertical market and [00:46:00] they're able to provide all of these really, um, high quality services that their clients came to them with a problem and they were able to solve it because of that focus.
[00:46:10] And it's very similar in our scenario. So, uh, you know, to take a data driven approach requires an investment in what I call scorecard operations. And you have to do your budgeting, which means you have to close your books on a monthly basis. And so Fiscal Advocate will handle all of your financial aspects, [00:46:30] including the management of getting the data into Engine BI.
[00:46:32] So they're very complementary to each other in terms of how they work. Exactly. Exactly. And you're solving a problem, um, that, I anticipate that agencies don't have the internal resources to be able to do that, the experience, so you're able to provide that for them and in effect solve a greater problem for them.
[00:46:49] So, that's awesome. My last question for you is, what's your motivation? You know, I have a few different motivations. So, I will talk altruistically [00:47:00] first of all. I get tremendous, uh, feeling of reward and purpose by seeing the impact I have for, uh, my clients. And, you know, I'm just going to give one story of a client at Rise.
[00:47:17] I had a client that was, uh, I think Fortune 13 at the time. And every single thing about that client was amazing. The fees they gave us were amazing. The [00:47:30] people we were working with were amazing. The services that we were doing, I thought the work was great. Like there's zero things that I could say bad about this account.
[00:47:40] However, if a new CEO came in and not only fired us but decided to shut down all of the work that we were doing in its entirety, I think they'd still be Fortune 13. So the impact was, you know, fairly insignificant when you think about the microcosm [00:48:00] of work we are doing. Where, when I look at the agencies I'm helping, uh, I've had companies in complete distress.
[00:48:09] where they were going to be running out of cash. They filed the playbook and now they're growing at 20%. They have over 20 percent EBITDA. They're halfway done with their debt. I had someone tell me that it was the most important decision they made for 2023. Uh, you know, that I, I can really feel the impact and [00:48:30] so, uh, that is, you know, probably the driving purpose behind this.
[00:48:36] On the more selfish side, uh, I personally love complexity and, you know, this is a very different business than the business I ran at Rise. You know, I'm not dealing with seven, you know, figure contracts, I'm dealing with three figure monthly contracts. Uh, I'm building technology where not being tech [00:49:00] enabled, but actually a SaaS product.
[00:49:02] Uh, I'm going out to the, you know, venture world and raising money, you know, like it's just a, it's a expanding my knowledge as a CEO and I think making me a better, more well rounded CEO by taking this venture. That is awesome. If I've, if I've learned anything, just being in the agency space for as long as I have, I know that, um, many, many of the founders are, um, not only just ambitious [00:49:30] entrepreneurs, but just really good people who are trying to make a positive impact in the world.
[00:49:33] So, um, I can align with you on that, on that vision, just helping these, these great people out. So that's really cool. Um, thanks for sharing that. Absolutely. So, where is a good place for people to follow up with you if they have questions about their own situation or they want to, uh, just get in touch with you?
[00:49:53] What's, what's a good place for them to do that? So they can always email me at Jon at Nginbi. net. [00:50:00] They can follow me or connect with me on LinkedIn. I am there every single day. Uh, and you can go to Nginbi. net or fiscaladvocate. com. Uh, and learn more about those resources as well. Awesome. Thank you so much, John, for coming on and sharing all your wisdom.
[00:50:18] Thank you so much for having me, Corey. It's great to be here.
