Sei-Wook and I continued to be hands on with Matyx, our water treatment digital marketing agency, all throughout August, checking in daily with our CEO Justyn and working with him to turn around a stalled sales engine.
By the end of the month, we were able to clean up our CRM with the help of an outside consultant and closed in on the hire of a senior account executive with deep experience in full cycle selling digital marketing to small businesses. We had no closed deals in August, another unfortunate 0-fer, but we’re continuing to try different things heading into September (Matyx closed 1 deal already as I write this).
Going from a weekly check-in cadence, which had been the case across all of our agencies the past couple of years, to being in the weeds day-to-day with Matyx has been a bit of a jarring feeling. We’re exposed once again to the daily ups and downs of the operator’s existence and reminded how intense the agency business can be. We know this isn’t permanent, and so we’re embracing the season for rolling up our sleeves and doing whatever we can to support the business during this sensitive period.
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
BX Studio on Inc. 5000
It was great to see BX Studio make #680 on the Inc. 5000 fastest growing private companies list. It’s been a wonderful 4-year journey seeing this business go from startup to one of our largest agencies in the portfolio. Co-founder and CEO Jacob Sussman has done a tremendous job of building a team and culture that’s embraced moving fast, meeting the market, and delivering for clients.
We set out to build the premier Webflow agency when we first envisioned BX Studio, and from the reputation it has in the Webflow space and beyond, I’d say that we’re well on our way.
New SBA Rules & Impact on Future Deals
The SBA published a new SOP in late August that takes effect October 1. I spoke with another holdco owner who shared his thoughts on why the SBA did this: defaults on search-fund-style deals have been climbing, and banks have gotten more hesitant on the larger loans.
Four of the changes impact how we buy agencies:
- The buyer now has to put in at least 5% of total project cost as a personal equity injection, so a $2M deal means a $100k personal check.
- Outside investor money that counts toward the 10% minimum equity injection can’t take distributions, other than for taxes, until the SBA loan is repaid in full.
- Banks have to get a QoE on any deal of $3M or more.
- And any trust with an ownership interest, at any percentage, triggers personal guarantees for both the trustee and the trustor.
One other change, that actually gives us more flexibility: sellers can now stay involved for up to 24 months after close instead of 12.
The distribution rule is the one we looked at most closely, since Matyx was our first deal with outside investors and we sent those investors their first distribution in July (Matyx isn’t impacted since the new SBA rules are for future deals post Oct 1). The restriction applies to outside investor money that’s used to meet the 10% minimum injection. In Matyx’s case, we put in well over the minimum, so investor capital sitting above that line can still take distributions. And we’ll most likely continue to put in over 10% equity for our future deals, so we’ll still have the ability to bring on investors to future deals.
It remains to be seen if these new rules impact the market by dampening demand. The 5% personal equity injection might reduce certain types of buyers. If that’s the case, then sellers may need to accept terms where seller notes and earn-outs play a bigger role or accept lower valuations. We’ll see.
Overall, not too worried about these changes and its impact on us. The next few deals we do, depending on the size, we may forgo bringing in investors altogether, keep it “plain vanilla” and simpler.
AO2 One Year In
It’s been a little over a year since we acquired AO2, our Amazon agency. The business has kept up with its debt service every month and thrown off some cash on top of that.
What we’ve done in the year: installed Jess as CEO, brought on Brad as CRO, repositioned the agency toward bigger brands, rolled out a redesigned services offering (including TikTok Shop) with higher pricing, and launched a new website.
Jess and Brad have done a great job of continuing to build out partnerships and being active on the conference circuit. Pipeline was nearly nonexistent in the early days, but has steadily crept up. Q2 leads in 2026 were up more than 50% over Q1, and referral partners drove most of the new wins.
What we’d love to see is more growth. Revenue hasn’t grown the way we’d like. We had a “golden spike” through Amazon that juiced Q2 numbers, but the underlying monthly recurring revenue (MRR) hasn’t moved significantly. The rest of 2026 will be critical in proving out that we invested in the right activities and personnel.
The thing I’ve come to appreciate most about AO2 is the revenue model. It’s mostly recurring retainers, so month to month we know roughly what’s coming in. That has made cash flow management a lot easier than at our project-heavy agencies, where a signed deal and recognized revenue can be months apart. When you’re carrying acquisition debt, the predictability is definitely helpful and hence why we put such a premium on the MRR metric.
We still have grand ambitions for AO2 to break out and become a larger business. There’s still much to do in the way of brand-building and lead gen. We’ll re-assess how our investments in 2026 have gone over the next 3-4 months and go from there.
Top of Mind
Agency Portfolio Management and Parenting Analogy
On our monthly call with our coach Gerry in August, Sei-Wook and I walked through Q2 results and where each agency stands going into the second half of the year. At one point Gerry asked us what role we want to play with our portfolio CEOs, whether we see ourselves as partners or as advisors.
Sei-Wook said that for a while we’d been trying to be advisors: let the CEOs run their businesses, help set goals, be available when they need us. But with the two acquisitions where the founder has moved on, especially in the case of Matyx, we’ve been spending more time managing performance and less time sitting outside the business.
I added that some of our leaders tell us what they’re thinking and why without being asked, and with others we have to go dig to find out what’s going on.
Our coach asked how old our kids are. My boys are seven, five, and three, and Sei-Wook’s are around the same ages.
He said that at those ages you’re still the manager, because if you aren’t, they’ll do things they shouldn’t. In a few years they’ll be teenagers who think they know what to do but don’t, and they’ll want you as an advisor while you still have to act as a part-time manager. Eventually they’re adults and you become a consultant. He said it works the same way with a portfolio of agency leaders, because everybody is at a different stage of development.
Then he described the stages. There’s the CEO who is new to the seat and doesn’t know what they don’t know. They haven’t learned that the stove is hot, or that the business can’t just turn biz dev on and off but that it takes certain investments to get going. There’s the CEO who has taken a few lumps and has decent instincts but hesitates to act on them. And there’s the CEO who has a good handle on things, can draw from a well of experience, and keeps you informed on their own.
And there’s the CEO who thinks they know everything. That’s the one who gets surprised by a margin problem that a few more questions would have caught. With that one, he said, you need to know who the kid’s friends are and what kind of trouble they might get into.
This lens is helpful to us in two ways: 1) it sets our expectations for each leader, and 2) it tells us how involved we should be with each agency.
On expectations: when a leader who is new to owning business development needs us on pipeline calls every week, that doesn’t mean the deal was a mistake or that we hired the wrong person. It’s the stage they’re in, and our job is to help them through it. When a seasoned leader doesn’t need much from us, the right thing to do is stay out of the way.
On involvement: we had assumed we should be consistent across the agencies. Our coach’s point is that we don’t have to treat every agency as the same, some will require more of us. Being an operating partner in one business and a light-touch owner in another is fine, as long as the level of involvement matches where the leader actually is.
A few other related bits of wisdom from Gerry that I thought were helpful:
- Ask about the how, not only the results. Results are the ultimate measure, but the how tells you whether they will hold up. If a forecast says things are about to improve, someone should be able to explain what changed. If it’s the same person working the same deals with the same process, there’s no reason to expect a different number.
- Leaders own their team’s results. When a CEO delegates, they still own the outcomes of the people under them, the same way we own the outcomes of our CEOs. When we let that get fuzzy this year, problems lasted longer than they should have.
- You’re not there to be their friend. Sometimes the right level of involvement means having conversations that make people uncomfortable. Our coach asked whether we had that part down. I think we do, but we can always be better
An important caveat with this analogy: our CEOs are accomplished adults running real businesses, and I don’t want this to come across as condescending. The analogy is about the CEO role at a given stage, not about the person. Sei-Wook and I went through the same stages. In Barrel’s early years, we were often the blind leading the blind, not having any idea what we were doing. It was only when we sought out mentors and brought in coaches and advisors that we started to see our gaps.
To bring it back to the analogy: the goal is the same for every agency–get the leader to the point where they can leave the house so we can go back to being advisors who, as our coach put it, mostly worry about keeping them and arguing about how much they should make. We’re not there with all of them yet, but knowing that’s the destination, and that each leader is on a different timeline, makes it easier to decide how to spend our time.
Shared Quotes
“You may have noticed that I deferred the ‘why are we doing this?’ question. The answer to that is personal to each of us who are involved in Constellation. My motivation is to help create a company where worthy people succeed. Whether they join us with an acquisition or are hired from the outside, I want to support and encourage employees who work hard, treat others well, continuously learn, and share best practices. I try to make sure that sycophants, spin-doctors, and mercenaries don’t survive in Constellation’s senior ranks. Harder, but not impossible, is helping identify and remove hidebound managers who rely upon habit and folklore to run their businesses rather than rational enquiry and experimentation. Constellation is as close to a meritocracy as I have experienced. I hope it will continue to provide an environment where entrepreneurs and corporate refugees can invest their lives and their capital and thrive.” (Mark Leonard, Constellation Software Inc. Shareholder Letters)
Mark Leonard’s stewardship of Constellation came to a close earlier this year as he stepped away from the company due to health issues. But he had an incredible run, and I really love how he articulated his “why” for building the company. Something I think we ought to think more deeply with regard to Barrel Holdings.
“Building wealth over time has less to do with your income levels or investment returns and more to do with your savings discipline. As Peter Lynch says, “In the long run, it’s not just how much money you make that will determine your future prosperity. It’s how much of that money you put to work by saving it and investing it.”2 Wealth is the accumulated savings, over time, that is left over after you are done spending from your income. Because you can build wealth without a high income but have no chance without any savings, it is pretty obvious which one deserves a higher priority.” (Gautam Baid, The Joys of Compounding)
Sei-Wook and I are building for long-term wealth with Barrel Holdings by increasing its enterprise value, but it’s also a great reminder for me to do a better job saving a portion of my annual income and putting them into instruments that grow regardless of my own performance. I put away around 20% of my post-tax income towards savings, could probably be higher.