A professional email inbox that’s been in use for a very long time is an underrated asset. I’ve had my @barrelny.com email for 19+ years. It contains thousands of contacts with people at various points in their careers, some who’ve gone on to found companies or rise up the ranks and become executives.
Much like with the thousands of connections I have on LinkedIn, I engage with only a fraction of the people and have forgotten 99% of the people I’ve interacted with at some point.
A CRM like HubSpot can be useful in surfacing contacts we ought to reach out to, and you can put tags, filters, and automations to surface these things, but I wish there was a lighter-weight solution.
This could be a simple app that leverages AI to scan my inbox, pick out some people I haven’t emailed with in a while, did a check on LinkedIn and Google to see what they’re up to now, and emailed me a daily or weekly “suggested outreach list” with some context on what our last comms were about, what they’re doing now, and some topics I could mention in an outreach email.
This would be different than a fully automated campaign but one that allows me to curate and personalize a message to reactivate past relationships. For people with a work inbox that spans many years, this could be a nice tool.
But I need to remind myself that the tool is not really the answer. I can get quite far by looking back a year on my Google Calendar and reaching out to people I haven’t heard from in a while. This game-changing habit, even a few times a week, continues to yield incredible results. I only need to block out 15-30 minutes each week to get some results.
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
A Variety of Deal Flow
We looked at a good number of agencies this past month. In addition to our buy-side advisors at Rainier Associates who bring us a handful of agencies to look at each week, we also spun up our own outreach campaign which has yielded a couple additional responses each week. We also get 1-3 inbound inquiries through AgencyHabits or directly to our Barrel Holdings email, usually via a LinkedIn post by me about agency acquisitions.
As we’ve talked to and evaluated more and more agencies, we tend to bucket them into the following categories:
- Generalist: an agency that does a little bit of everything for everyone; could be a good business with great numbers, but we pass on these.
- Too big: an agency that could be a fit for our portfolio but purchase price likely too big ($7+ million; we’re most comfortable right now in the $1-5 million range)
- Distressed / recent financial challenges: they’re currently experiencing negative cash flow or are just coming out of a money-losing period; usually a pass for us unless there’s a clear path to profitability and we can get terms that protect for downside risk (e.g. low upfront cash and heavy on seller note / earn-out)
- Tuck-in: these have been popping up more for us recently–smaller versions of some of our specialized agencies that would slot in nicely (e.g. a smaller Webflow shop that could be absorbed into BX Studio) by adding new clients and expanding capacity; in some cases, they could bring some new capabilities to the same types of clients (e.g. web analytics or email marketing). Challenge is that they’re often too small to pay any meaningful multiple on EBITDA, and so the structures we’ve proposed are more rev-share based (e.g. 10%-15% on client revenue successfully transferred for X years) which haven’t landed well with anyone so far.
- Specialized but no deal flow / has high client concentration: This category is a cousin of the distressed but it could be an agency that’s managed to stay profitable by holding on to a couple of big whale clients. Even if the numbers look good, it’s clear they don’t have much new opportunities and are one or two clients away from becoming distressed.
- Sweet spot: this is an agency that’s experiencing growth, usually right in that $2-$4 million revenue range or rapidly approaching it, and has a capable core of team leaders beyond the founder(s); the founder is still very much involved in new business and client relationships, but the agency has built a reputation, has inbound deal flow, and would benefit from our support (outsourcing finance ops, sales coaching, supplemental talent acquisition, service design/pricing strategy, and accountability oversight). These agencies also tend to have a diverse client roster and isn’t at risk of high client concentration.
We’re likely to quickly pass on generalist, too-big, and distressed agencies. There are rare cases where if a distressed agency seems to have a clear path to recovery, we might entertain further conversations. Where we aim to spend more time is with tuck-ins and of course, the sweet spot agencies.
When it comes to specialized agencies with limited deal flow and high client concentration, we try to dig into the nature of the client concentration. An extreme case like one client making up 70% of revenue for multiple years is an immediate pass. Top 5 clients making up 60% of revenue could be okay depending on the nature of the client relationships and the trajectory of other smaller but growing accounts. We also try to figure out why deal flow is so poor: is it a matter of layering on some sales & marketing activities or is the agency playing in a space where it’s very hard to stand out? Sometimes the reality is that the agency doesn’t have a great reputation. They may have managed to hold on to a few long-term clients but they don’t enjoy strong word-of-mouth referrals and they’re also unknown in whatever space they’re in. This is a pass, even if their positioning sounds great and they might look good on paper.
Mid-Quarter Check-ins
We’re gearing up to do quarterly board meetings with each of our agencies starting in July. To prep for this, we did mid-quarter check-ins in May with a slimmed down agenda. This was what we shared with our agency leaders:
Barrel Holdings Mid-Quarter Check-In Agenda
- Quarter-to-Date Snapshot
Brief rundown of revenue, gross margin, EBIT, pipeline (leads, proposals, wins).
Note any significant client or team developments that set the context. - Define Success for the Remainder of the Quarter
Agree on the specific metrics that would signal a strong finish. Forecast of where revenue and EBIT will likely land for the quarter. Confirm the key initiatives or milestones that must land to hit those numbers (new-biz pushes, delivery deadlines, operational upgrades). - Progress Check
Where are we ahead of pace? Where are we lagging, and what’s causing it? - Stop / Start / Continue
Stop: efforts consuming time without impact.
Start: new actions or experiments worth trying.
Continue: proven tactics to double down on. - Course-Correct Commitments
If off-track, decide what will change immediately—who will do what, and by when.
Capture any resource requests or dependencies.
These were quick 1-hour meetings that required some prep work from the agencies with our support. Each agency walked away with clear next steps. For some, it was about bridging the gap on lagging metrics, usually related to closing more deals. For others, it was about tightening operations or hiring key personnel to expand capacity or bring on new capabilities.
The quarterly meeting will likely span 1.5 to 2 hours and give us space to go deeper into a few areas. Over time, we should be able to replace our weekly meetings with monthly check-ins coupled with a quarterly board meeting.
BX Studio on a Roll, Doubling Down on Sales
Our Webflow agency BX Studio has been having a very good first half of the year. They signed a significant Webflow Enterprise client in May and are nearly 65% of the way towards their annual stretch goal for revenue booked. This is with a full month still remaining in Q2.
The deal flow is strong, but we think we can do even better. We decided to build out a more robust sales team starting with an account exec hire. We’re also working more closely with our sales coach Luke Maloney, who is effectively serving as a fractional sales leader to help BX’s CEO Jacob vet and hire sales personnel.
Ideally, Luke’s involvement will help us tighten up our sales processes including sales ops (moving from a home-baked Notion CRM to a more robust solution) and tighter follow-ups/close-outs on open opportunities.
I can see a path where BX has a fully built out sales team with multiple AEs, SDRs, and the works by 2026. Our ambition is to become the best, biggest (by revenue and profits), and most impressive Webflow agency. We think we can get there with the right investments and behind Jacob’s dynamic leadership.
Top of Mind
Portfolio Management: Thinking About Underperformance, Opportunity Cost, & Capital Allocation
The Barrel Holdings portfolio of agencies is best described as a two-tier collection. Tier 1 are the agencies that drive the bulk of our cash flow. They have the revenue and profits to support full-time staff beyond the agency leader. Right now, our Tier 1 agencies are Barrel, BX Studio, and Vaulted Oak. When these agencies do well, we really feel it.
Tier 2 agencies are sub-scale. They are all under $1 million in revenue and growing at various rates. Some, like Bolster, experienced healthy year-over-year revenue growth the past 2 years. Others, like Catalog, have struggled with up and down monthly results. These companies operate very lean, the agency leaders heavily involved in delivery along with contractor help. Prima Mode and SuperFriendly, which are both less than 1 year old, are still working up to a sustainable level of revenue. All of these agencies are very fragile, often a client or two away from being negative or positive in cash flow. They’re also more susceptible to operational growing pains if business were to pick up.
As we focus more of our efforts on the M&A model of acquiring established agencies doing $2 million+ in revenue (or tuck-ins to the Tier 1 agencies), the question we’ll continue to ask ourselves is: how should we allocate time and money to our Tier 2 agencies?
I personally enjoy collaborating with and advising all of our agency leaders. I love rooting for the underdog and I have a soft spot for our Tier 2 agencies. A strictly rational view might be that I ought to spend way more time with our Tier 1 agencies and help them get even better. But I also want to make sure our Tier 2 agencies have gotten a fair chance to grow, much like BX and Vaulted Oak did in their early years.
One way to accomplish this is to set some parameters for performance. We’ve injected cash to fund startup costs as well as any shortfalls across the Tier 2 agencies. We’ve set a limit on how much we’re willing to put into each agency and shared these with our agency leaders. Beyond this amount, if the business is unable to get to breakeven and eventually to cash flow positive, then we need to have conversations around winding down the agency.
We’re willing to tolerate a degree of underperformance as long as there are no additional cash infusion needs requested of Barrel Holdings. We will continue to provide guidance and support. Of course, if underperformance persists (e.g. the agency can’t rise above close to breakeven for 12+ months even with various interventions/experiments), then it’s fair to also discuss winding down. Because our agency leaders have a big chunk of their annual compensation tied to positive cash flow, it’s likely that their motivations will also flag if they can’t find a way to reach critical mass and produce meaningful profits.
My wish is that all of our Tier 2 agencies graduate to Tier 1, but it’s more likely that we’ll have to cull our portfolio. The opportunity cost of pumping time and resources into an underperforming agency will only get more expensive as our roster of Tier 1 agencies grows from acquisitions. We’ll want to preserve as much capital as possible for buying Tier 1 agencies that can instantly move the needle for the entire portfolio.
If I’m being as steely-eyed about this as possible, I think even seeing 1 of the 4 Tier 2 agencies jump up to Tier 1 would be a huge win. And I need to be at peace with the possibility that all 4 agencies might not make it.
Shared Quotes
“Startup CEOs are more like plow horses than racehorses. A racehorse gets pampered all week, to be taken out of the barn for a few minutes to race on Saturday afternoon; startup CEOs live 12+ hours a day behind the plow. It doesn’t feel so glamorous when you get home at 11 at night and you need to get up at 5 am to catch a flight out of town.” (Frank Slootman, Tape Sucks)
This is a great characterization of our most effective agency leaders as well. They are grinding it day-in and day-out to close deals, talk to clients, and put out fires. It’s not glamorous work and those who keep “plowing” through with consistency end up with strong results.
“There is absolutely no excuse—none—for professional firms to think of themselves as commodities. Any firm can compete on price; it is truly a fool’s game. On the other hand, competing based on Total Quality Service, positive customer experiences, and transformations requires more thought, creativity, and investment. The commodity trap is a self-fulfilling prophecy, breeding cynicism and stifling creativity, dynamism, and innovation. More sophisticated customer selection can assist you in tailoring various value propositions to different customer groups, while reserving capacity for your best customers, a topic we turn to next.” (Ronald J. Baker , Implementing Value Pricing)
The moment an agency resigns itself to being a commoditized provider is the moment it’s given up. Even for something as basic as “making websites for small businesses” there are ways to differentiate through exceptional service, creative processes, and other dimensions. Price is one lever but should not be the only one.