5 Mistakes to Avoid When Buying an Ad Agency There's no better time to buy an agency. Are you ready?
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As more companies rebound from the pandemic, advertising is sure to pick up. According to Zenith, ad spend will grow by 5.2 percent in 2022 to $652 billion. So if you work at an agency you love and have thought about buying it, now might be the right time. Just avoid running into the same errors that other buyers have experienced when executing an internal business sale. Here are the five biggest mistakes you could make:
1. Expecting the current owner to take the lead
The prospect of an internal sale is often introduced by an agency owner. That person might approach an employee or group of employees that seem like they'd be interested in buying the business. If you're a prospective buyer and confirm your interest, the process of negotiating a deal will begin -- unless you leave things up to the seller.
If you go back to work as usual and wait for the owner to approach you again, nothing will happen. Why? Because no one is making a plan. According to Diomo Corp.'s industry statistics, 90 percent of buyers never complete the transaction. As the buyer, it's your job to push for action from the seller. You need to figure out the answers to important questions, such as "How are we going to evaluate the business?", "What timetable do we want to set for the sale?" and "How am I going to finance the purchase?"
The sale could take any number of years, and it will take longer if you don't make and execute a plan right away. Set target dates, and work with an expert to ensure you know what the business is worth. Then, assess your financing options. Can you get a small business administration loan? Could the owner finance part of the sale? Maybe you're part of a team purchasing it in cash. No matter your purchasing method, put together a competitive, realistic offer.
Related: 4 Things to Understand When Buying a Business
2. Overestimating the risks
If you're talking with the agency owner about buying the business, you've probably thought about owning an agency before. So don't freeze when presented with the opportunity. If you dwell solely on the risks, you might miss your chance. It's riskier to build an agency from the ground up than it is to purchase an established one with clients, processes and capable teams in place.
When you own an agency, you get to control what happens and who comes and goes. Even if you lose a major client after the sale or need to develop new capabilities, you have more resources than you would if you tried starting your own agency. The only thing you should be cautious about is changing the nature of the agency you're buying. Startups often must pivot to ensure success, but existing businesses are — in theory — already successful. Think about when Macy's acquired the Marshall Field's store in Chicago in 2005. Four years later, 81% of shoppers still called it by the Field's name.
There are plenty of risks to think about when buying a business, but you shouldn't over inflate them. Find someone who can help you objectively evaluate the real risks. If you run your agency well, you'll persevere, and the rewards will make the effort worth the risk.
Related: Before Pivoting Your Business, Make Sure Your Team Has the Same Definition of Risk
3. Assuming that one job translates to another
You're probably great at your job, but your job will change after acquiring an agency. Running a department — or even overseeing the day-to-day operations of an entire agency — is different from owning an agency. Take it from me: I've been both an agency employee and an agency owner. When you're an owner, your livelihood is tied to the business. The highs are amazing, and the lows can really get you down.
You need to be prepared for the responsibilities you're going to take on. The emotional courage, perspective, leadership skills and other attributes that are necessary to run a company take time to develop. Some people might be born with them, but most people have to learn through practice.
You're likely capable of handling the finances and managing the operational side of things, but don't assume that you've developed the instincts you need to do everything right from day one. Trust your gut, and be open to the idea that you have a lot to learn. The good news is you're not alone — there are probably plenty of people around who can teach you. Don't be afraid to lean on them when you don't have all the answers.
4. Skipping tough conversations
No matter how much you love and respect your boss, and no matter how much they love and respect you, you're still conducting a very big business transaction. These aren't always easy to execute, and they often involve some tough conversations. Make sure you don't skip them.
Some conversations will need to cover finances and the business valuation. Money can be a sticking point in many relationships, but the key to success hinges on a successful sale. You'll also need to talk about roles and personnel. Is the owner still going to be involved? If so, how? Do you need to downsize? Will you need to fill key positions? Whenever there's disagreement or apparent bottlenecks, you should address them right away.
When Eric Siu bought a company that needed to shift its business model, he realized some positions were no longer going to be relevant. His mistake was avoiding hard talks and trying to shift existing employees into roles unrelated to what they were good at.
If you want to own an agency, you'll need to have difficult conversations and make tough decisions. There will be good times ahead, but they must be earned. If you're up to the task, you won't skip the hard conversations that accompany the acquisition process.
Related: Don't Let Doubts Absorb Your Organization -- Use Them to Grow as a Leader
5. Forgetting about your support system
Soon after a deal is done and you've purchased an agency, you'll experience some pivotal firsts: your first big client contract, your first layoff, your first bad client review, your best employee suddenly starting their own agency, etc. You don't want to navigate all of these first-time experiences alone.
For the first six to 12 months after assuming ownership, surround yourself with the right people. Hire coaches, join a peer group, work with a facilitator or find other ways to tap into the experience of qualified leaders. Seek their advice regularly, and don't be afraid to ask for help. Even when things are running smoothly, it's good to have someone checking your work.
Owning an agency is pretty awesome, especially when you're surrounded by the right people. You get to delight clients, create a workplace that people love being a part of, exercise creative freedom and reach countless audiences. By avoiding the five mistakes above, you can ensure a successful future for your newly acquired agency.
