Management vs. Leadership: The Truth About Scaling

Scaling a business from $1 million to $10 million is where most founders hit a wall that feels impossible to climb. The "missing middle" is a profit-killing gap where passion no longer substitutes for systems and middle management often becomes a liability rather than an asset. Nick Avaria joins the show to break down why most agencies struggle to scale and how to prepare a business for a high-value exit by removing the founder from the center of the equation.

We sit down to discuss the tactical shift required to move from being a hands-on founder to a strategic CEO. Nick shares his experience transitioning from industrial services to acquiring and optimizing marketing agencies by implementing strict operational feedback loops. We get into the nuances of "mothership" positioning, the difference between behavior change systems and simple SOPs, and why high-level leaders won't follow a founder who hasn't leveled up their own management game. Nick’s secret sauce lies in his ability to view a business not as a passion project but as a product designed for a buyer.

The unglamorous truth is that most entrepreneurs are "leadership incarnate" but "management avoidant," which creates a culture of energized chaos that eventually collapses under its own weight. To build a company that is actually worth buying, you have to endure the boredom of management and be willing to give up enough equity to attract real partners, not just employees. You will walk away from this episode with a clear understanding of why your current leadership style might be the very thing capping your company's growth.

Subscribe and tune in for new episodes of Big Talk About Small Business with Mark Zweig and Eric Howerton. Each week we focus on practical insights and real-world strategies to grow your business!

Stay Connected: 
Instagram: https://www.instagram.com/bigtalk.pod/ 
Facebook: https://www.facebook.com/profile.php?id=61564547079280
LinkedIn: https://www.linkedin.com/company/big-talk-about-small-business
TikTok: https://www.tiktok.com/@bigtalkpod
https://www.bigtalkaboutsmallbusiness.com/

Transcript

Welcome And Nick’s Background

SPEAKER_01 0:00

What I've basically come to understand through like my time in agency acquisitions and putting these systems together and just seeing this repeated, like basically like doing the management consulting arm of agency acquisitions, is that there's this thing called the missing middle. And to be honest, it's not unique to just marketing agencies. It's unique to all business.

SPEAKER_02 0:24

So hey everybody, um, I'm here today with Nick Avaria. Is it pronounced Avaria or very? I nailed it first try. Nick Avaria. We've already been sitting here talking, so I don't know where this thing's gonna pick up, but this is another episode of Big Talk About Small Business. And my partner Eric Howerton will hopefully join us at some point here. He's running late today, but it's fun talking with Nick already. Um Nick, tell everybody a little bit about yourself. I mean, you've got such a varied background. I mean, it's crazy all the stuff that you've done and all the stuff that you do.

SPEAKER_01 1:05

Yeah, yeah. First of all, thanks for having me on. Uh, really appreciate it. And yeah, like a bit about me. Um, man, I I think I've started like six businesses like in different areas over time. And uh, you know, I I owned like a really like nice like DJ slash um like entertainment business prior to uh 2008-9. So and that went really well. That was before you were that was before you were married and had a family, right? You know it. So basically it's I like look, it's sort of sort of like the entrepreneurship bug, if you will, where I was going to school and I was like putting myself through school, like like loan-free kind of thing by doing like DJing and things like this. So it was quite lucrative. And then I realized at one point, because I had other people working for me, and we smart branched out into doing like weddings and like all this other stuff. I was like, I'm about to graduate and make like less than a third of what I make right now. So after about like two years, I dropped out because I was like, what's the point of this? However, 2008 had different plans, and then like that industry went into like into the garbage can like real quick. People were paying like less than half than before, jobs dried up, et cetera, et cetera. Right. Especially like that, which is like really a luxury. It's not like a requirement to have you know entertainment and things like this at your wedding or like you know, venues were paying half of what they were paying, etc. So I went back to school and finished in my last two years, and then I graduated and went into an industrial services firm. And so what's industrial, what's industrial services? Just yeah, so like we we like operated like a lot of cranes, like industrial moving, like moving like really heavy objects was basically like the business, right? Whether that's like using a crane or using like other, like I mean, we were moving like things where it was like, hey, I I gotta move this, I don't even know how many ton thing from like this factory to this factory, and you're like, yep, like that'll be like $1.5 million

From DJ Hustle To 2008 Reset

SPEAKER_01 3:05

to like move this thing, you know, like 20 minutes away because it's like that heavy and it takes like that much like people power to do. We also were putting up things like wind turbines and like so like wind farms and things like this. Like we helped install, I mean, lifting heavy things, right? And so um I was there for a while doing special projects, and then I kind of transitioned into like the MA side of the business where we were like acquiring different product lines and like businesses and things like this. And uh eventually the owner enacted his uh succession plan, which was basically to sell the business. And so myself and I was working, I mean, even though I was like fresh out of university, I was working with like the VP of sales and marketing, the COO uh slash president, like the the CFO, etc. Like on all these like bigger projects, right? And so I gained like a ton of experience in like in a very short amount of time. I actually transitioned out with a VP of sales and marketing. We started like a consulting firm for the industrial services like sector, which included things like um you know transportation, also um any kind of manufacturing, right? Like heavier manufacturing. And we were doing just consulting, like just general business consulting. And the funny thing was is that a lot of the challenges were operational, like, hey, we we want to grow, but we can't because we have this deficiency. And if we have this deficiency, we know that if we grow into this thing, like we're gonna like collapse ourselves, kind of thing. And so we would go in and fix these companies. Now, at the end of the engagement, because like it was like, look, the the weird part about our job was if we do a good job, uh we are basically firing ourselves, right? Because it's like we fixed your problem, it's done, like, see you later, right? And so all these businesses were like, Great, now we need to grow. Do you know of anyone that can help us get leads or whatever the function was in order to get some sort of like you know, throughput in the business from the sales and marketing side? So we can do that. That would yeah, it's like, well, it's like, how about we do this? And we have like a recurring revenue model behind after we do the front-end business consulting, which is frankly like a lot more lucrative on a per hour basis. So we decided to open up a firm inside of what we were already doing that was just marketing. So it's like we would fix your problems, and then boom, like I would help basically generate leads. And because I would like my partner was used to be a VP of sales and marketing and like a thousand-plus person firm, he knew sales training inside out and backwards, so he could like retrain the sales force, get them to close at a higher rate, figure out how to like generate deals from like nothing kind of thing, and so we that's what we did. Um, until he got you know a little bit sick, and um, he was quite a bit older than myself, and he was the rainmaker. So once that happened, we decided to sell the business, and that's how but the business consulting side didn't really have value because it was just him and I consulting at the end of the day, so we could only really sell the agency component of this, and that's how I got into agencies, and in the meantime, like between all of this, like I owned a pub. Um, it actually did really well. We were producing like you know top five percent profit uh for the industry in the like out of like a single location. Um, it still I sold it, it still stands to this day. It's actually quite profitable from what I hear. Where is that, Nick? That's actually like uh in a suburb of Vancouver, Canada. Okay. So is that where you are now? Yeah, yeah. I'm uh I'm like all that off. Like I'm in a place called like White Rock, which is like right by the beach, sort of thing. Great, love it up there, beautiful. Yeah, like I mean, it's like I've basically just had a lot of businesses, but where I really settled in was, and I think I did this, I mean, I did this with purpose, which was I I I'm very operational and I'm very good at numbers, and I'm really good at efficiency, and I'm also very good at like leadership and management. So when I started working more so in the agency world, what I noticed is that all the things that I was very good at was actually like the standard deficiency of all owners in that space, right? So like big idea people, right? Right, they're creatives, yeah. Yeah, but like very little operational, right? So like they're like they're you know, they're like, hey, I'm making no money, and I'm like, oh, you just like move these deck chairs around and like make them face northwest, and it's like bang, like here you go, 30% profit kind of thing. And like to me, it was like really easy. So I like I I eventually like restarted um uh agencies after we sold that one. Uh, and then I basically started building some for myself. I now have like we currently have three uh different agencies, and basically like I'm looking to acquire more, but what happened during this process was, and it's a funny story, I was on my honeymoon uh a number of years back, and my wife had gone to get like drinks or something, and I opened up uh like a Slack channel with a whole butt that has a whole bunch of um other agency owners in it. And one guy was like, Hey, I need help. Like my business is unprofitable. My people say it were busy, blah blah. Like, who can help? And I basically answered the guy who was like, Hey, I'm

Industrial Services And Learning M&A

SPEAKER_01 8:45

away for the next 10 days, but if we set a meeting like three weeks from now, like we should have a chat. And so this guy talked to me about his problems. I was like, Oh, like these are actually like pretty fixable, like this is what you gotta do. And I didn't mean for it to be a business, but it was. And so I worked with him, and then there was another person that reached out to me, and they're like, Hey Nick, like I I hear you're on a tight ship. Can you help me? Long story short, these both of these guys were losing money anywhere between like five and ten percent negative EBITDA, and I took them to around like 30 to 40 percent plus EBITDA in about six months.

SPEAKER_02 9:24

These are both agencies, Nick, you're talking about other agencies?

SPEAKER_01 9:28

Okay, and I realized I'm like, you know what? Like, beyond owning an agency and being good at it, because what I have been able to do within my own agencies is like I don't run them day to day anymore, right? It it takes like maybe like two to four hours a week to run all of them. I've been able to automate all the systems and everything and like scale up leadership and management so that I I'm not required. Everybody else wants to do the same thing. And I realize that the reason that I have that skill is because I've sold more than one of my businesses before this point, and I know how to fully replace myself because like that is one of the major levers of getting a good exit multiple. Is is it founder dependent? Is it a business or is it a job?

SPEAKER_02 10:17

Yes, no question. I mean, single person management all going through the founder is like the death of growth and and value. You're right on with that.

SPEAKER_01 10:28

And so agency acquisitions, which is like the current business I focus the majority of my attention on, is born of this understanding that like this epiphany that I had, which was that companies are best run right before a sale point, like the best it'll ever run in the hands of like the founder is like six months to a year before they sell because out of necessity. And I was like, wait a second, how about I call this thing agency acquisitions because it's gonna have a dual purpose? Purpose one is this thesis around hey, let's get your business the best run it's ever been, whether you want to sell or not. Like pretend you're going to sell and let's run the business that way, where you can work on it rather than in it, so you don't have to put out fires so you can be strategic and do the work that you love as a founder. Number one. And number two, if you happen to want to sell it, great. Like I can help you with that transition process as well. Number one. And then number two is basically it helps me like the more people I help and the more they get acquired. I develop a personal brand about being able to help agencies run their best and be able to sell at a high multiple in order so that like I can build that brand to actually buy businesses myself, and people will have trust in me that they're in good hands when I do inevitably I basically start doing roll-ups in this space. Sure.

SPEAKER_02 12:03

Makes total sense to me. I mean, for what it's worth, my primary business that was started uh 38 years ago, we were management consultants, then we got into the MA business. And so your your story, I mean, it's so familiar to me. So many things that you were just saying. The commonality of the problems. We were very specialized in architecture and engineering companies, and they still are. I'm not with it, you know, I'm no longer an owner there, but but you know, where it's like shooting fish in a barrel, we used to say here in Arkansas, where you see those same problems over and over. And just like you say, if you fix those things, whether you want to sell internally, externally, not sell at all, you're running a better business. And and the whole MA thing is just a natural outgrowth of building value in the in the enterprise. So that all makes sense. Now, when you say agency business, are we talking marketing-related advertising? I assume.

SPEAKER_01 13:03

Yeah, marketing, advertising, digital, um, like kind of all of the above, any kind of marketing agency and any extensions therein. So, yeah, there's a lot branding, you know, ads, whatever else have you.

SPEAKER_02 13:14

Well, Eric just joined us. He comes out of that world. He had a business like that himself that he morphed into a software company. Nice dramatically uh increased the the value and growth trajectory of the business. But I'm just glad you acknowledged me today on today's show, Mark.

SPEAKER_04 13:32

I'm I'm a little late. A little late, my God. Nick, I apologize. I've been actually I was in a webinar meeting

Turning Consulting Into An Agency Engine

SPEAKER_04 13:40

about uh AI and retail, so I couldn't could not get out of it. There's questions and stuff. I mean, that's that's a good thing, but but it did postpone me. You're looking good, man. Thanks, man. I like the jacket. Yeah, thanks. Yeah, I'm dressing up to make people think I'm better than I am.

SPEAKER_02 13:55

He he looks like Colin. What is his name? Colin Quinn.

SPEAKER_04 13:59

Is that the guy? I don't know. Uh no, you uh you always say his name. I'll forget Hayden uh Aiden Quinn, isn't it? Whatever. I can't remember. Aiden Quinn. Aiden Quinn. That's Aidenas will remember. He looks like Aiden Quinn. Mark's been saying that for years, like from Legends of the Fall, the older brother.

SPEAKER_01 14:18

Yeah, there you go.

SPEAKER_04 14:21

So so Nick here, he I think he's one of our kindred spirits. Well, I'm I'm just he's I've did some research on yeah. I mean, Nick, what you're doing is is really cool, and I think it's extremely viable for audience too, because there's so many folks that are like, I mean, how do you build a company to get to an acquisitional state? And then I think that we can all agree being through acquisitions, it's not like the most glorious thing in the world. There's a lot of work after you get acquired or you're getting you're burnt you're acquiring another company or you're getting acquired. Yeah, like you're a lot of your work just begins, right?

SPEAKER_01 14:54

I think that like, you know, when you look at the statistics of it, and it's like this is about as numbers heavy as I'm gonna get, is you know, when you look at like the old research of how many companies hit a million, how many companies go from one million to ten million, right? Like, what is the attrition rate? Big fall off. Yeah, big fall off. And so what I've basically come to understand through like my time in agency acquisitions and putting these systems together and just seeing this repeated, like basically like doing the management consulting arm of agency acquisitions, is that there's this thing called the missing middle. And to be honest, it's not unique to just marketing agencies, it's unique to all business. And the missing middle to me is you know, when it's just you, the founder, and a bunch of like frontline people, everything's fine, right? Because you're the only manager, the only leader, everything's good. You're super passionate about what you do, so people naturally follow you, but it might not be the fact that you're a good manager, you're just highly passionate and that's infectious. Well, the problem is that that doesn't scale, right? And this is why a lot of firms can hit a million, but they can't hit 10 and like they struggle, and that's why the drop-off is basically a ginormous cliff between one and 10. And so, generally because the owner is passionate about day-to-day delivery, like the thing that they're doing, day-to-day delivery is pretty solid as long as they're somewhat involved or directly overseeing the people doing it. The second that they install middle management, this is where things go poorly. And, you know, I think unsurprisingly, in small businesses, there's like a stat out there that says 65% of middle managers have negative value to a business. They suck. Yes, right? It's like, and that's that's not even to talk about the neutral one. So, like, I mean, if you're really looking for like people that have good ROI on a man middle management layer, you're you might be talking about like 20% of people. So and I don't think it's necessarily the middle manager's fault. I think that too many people are raised up, especially during the beginning of the business, where there's like a really good person that is an incredible producer of work. And they're like, You, you're the best producer of work. We need to promote you. And it's like they should be promoted to a subject matter expert role, not into a manager role. And and over time, you build up these this management layer that actually doesn't manage, and now your business is stuck, and you're like, I don't understand why I can't get throughput. I don't understand why my managers have to save the layer below them, and because they're too busy doing their subordinates' job, I'm busy as a founder doing the manager's job. And now everything's like clogged up and stuck because you can't get forward movement. So, what I basically how I actually think about this is like sort of like a pyramid where it's like at the bottom you have day-to-day delivery, you have this like missing middle. And at the top you have strategy and planning, which most founders and entrepreneurs are pretty good at. The problem is that your strategy and planning, when enacted onto the day-to-day, you're like, oh, based off of this plan and the strategy, we should be able to achieve like a hundred percent of this upside that I foresee for us. And then boom, like you deploy it and you only get like 10 to 30% of the upside that you expected. And to me, I call this the missing middle. And the missing middle is solved by two things, which to me is data feedback loops, so that like the day-to-day information actually gets to the leaders, meaning, like, to me, in any almost every any kind of business, what data shows us is people behavior. Because there's only two things that can be really broken in as far as the business goes, which is are systems good or are people's behaviors good within the systems that we've created? Right? So the data tells us whether people are behaving in the right way or not, and then the middle part between the strategy planning and the day-to-day

Building Agencies Without Founder Dependence

SPEAKER_01 18:55

delivery then becomes behavior change systems. And this is all this boring middle management operational stuff that no one does well. And this is the gap between one million dollar businesses and ten million dollar businesses.

SPEAKER_02 19:10

That I think that's profound. I mean, that's the culture, though. You've got to change the culture to create the results that you want. Everybody today, it seems like they think, oh, culture is I got freaking, you know, uh pickleball courts or whatever. That has nothing to do with culture. Right. The culture is what behaviors are rewarded and what's punished. That's what it ultimately comes down to. But I I want to come back to this for a second, um, Nick, and I take two departures, if you don't mind. One is today my brother happens to be in town, um uh, and I'm gonna have uh he's gonna visit with him here in less than two hours. He was the chairman of WPP Group. Uh he had healthcare and specialized communication companies. He had about a hundred companies reporting to him. All they did was buy marketing agencies. I mean, you know how big they were. I think they hit 17 billion at one point. Yeah. He's retired now, but they kept buying these companies and they did not make any effort really to integrate them. All they did is just buy them, put them on a common financial reporting system, and then every year go, improve your margins by 1% and grow by X percent. Yeah. That was the whole thing. And and you know, I always thought that was crazy. I I when you you know, when you think about it, I don't want to speak on his behalf. I'm sure he has some reservations about it too, but but it seems to me like it it so if you are an acquirer of these companies, in my mind, you should be trying to integrate the things that you can integrate, uh like sharing overhead platforms beyond just finance and accounting, right? Sharing clients and resources and talents. That's one thing if you're gonna buy these companies. The other thing, though, I think is is greatly uh uh taken for uh greatly uh done wrong is for whatever reason, when a company sells, the next people who take over want to vilify in many cases the founder. And they want to they want to get as far away from the founder as they can because he cray grey. They really um don't value the entrepreneur and understand what the entrepreneur has done and what the entrepreneur could continue to do if properly managed by the new ownership. Okay. I've just seen this over and over myself.

SPEAKER_01 21:52

So I have the the take that agrees with you and the take that disagrees with you. So I I I would I would put it this way. I've been on both sides of the coin and like doing like and when I've sold a business I've stayed on for like transition purposes, et cetera, where like this has happened to me where they're like, oh, the old regime isn't that good. And I'm like, dude, I'm sitting right here. Um, but you know, and um I like I always think about things like in the sense of like, can I control them or not? Like, am I a victim to my circumstance, or did I create the circumstance? And like having sat in there and being like, yeah, like the old regime wasn't that good. There was doing these things wrong, and like me literally being there, I've the the self-reflection that I had was like I didn't do a good enough job in order to create enough champions of the culture and or enabled people to kind of be the hero, like I was the hero, meaning like I would put out the key fires and like I kind of made the key decisions, and that casts a really big shadow. So the acquirer has is like, how do I dispel the shadow? I think that for one, to your point, and I think you're right, it's like lack of creativity, lack of culture and management and leadership, lazy, like lazy kind of management and leadership on behalf of the acquirer, but it's also the fault of the acquired because basically they had this larger than life persona that is not actually possible to mitigate. So I think it's on both sides a little bit, but I think that this is the problem of like having a leadership that represents the values at the same stage, where it's like it's dispersed, it's not like the culture lives with this one human being, it lives within the company as a whole. And I think that if the culture wasn't, you know, I don't know how you would call it diffused into the business

The Missing Middle Between 1 And 10

SPEAKER_01 23:50

properly and like in a in a consistent way, that's almost like the fault of the previous owner that like they were seen as the champion of it. You know what I mean? You are right.

SPEAKER_04 24:01

I a lot of this I I keep is thinking like the um something I've learned the hard way, and some of it I've learned about just by fortune, you know, and we talked about a little bit last week, but if you don't have to be a founder to be an entrepreneur, and not all well, not all founders are entrepreneurs, that's right. But Nick, to your point earlier, not all entrepreneurs are CEOs. Amen to that. Most are not, in fact.

SPEAKER_01 24:26

Exactly. And I'm not sure. And I think that's like the missing middle thing that I was talking about, right? It's like, and I talk about this with you know people all the time. I'm like, there is a transition between being a founder and a CEO, and very few people make it because they don't even understand that that transition is a requirement and even exists. They just think like I am, like I think, therefore I am, and it's like that's not how this works, guys. The both of you.

SPEAKER_02 24:55

I mean, I hear you, but uh that excuse of now the founder, we need to replace him with professional management. I've seen a lot of bullshit around that too. Okay, where yeah, we get these people that came from bigger companies, they've got uh the resume, better educated, whatever, okay. And they come in and they freaking ruin the damn company. They can, yeah. They're professional managers and not leaders and non-entrepreneurs and not creative and not energizing, okay, but they're professional managers, all right? Or they're all a bunch of freaking highly educated. And again, I I you know I've got my MBA, but I've got my prejudices against MBA programs and what they do, how people think I think it's about balance though, right?

SPEAKER_01 25:47

Like, I think what you're talking about is these people are professional managers, but not leaders. And I do bifurcate the two functions, right? And I think that like look, I think on on your end, right, Mark, like you came from like a time, and and I a lot of my mentors came from a time where like man like leadership didn't exist. Like people don't forget, like people forget that the topic of leadership is like a fairly new thing. It might only be like 30 to 40 years old. Like we take it for granted today, but before it was like management, management, management all the time. And then when this like new idea came around, like and I don't know if it was good to great that introduced it or whoever, and they're like, sprinkle this thing called like leadership into the sauce, and it's like boom, magic happens, right? But here's the thing I think that why that occurred and why now leadership has been put on a pedestal and management is like and you even see this in like memes and like you know, like images where it's like manager bad, leader good, and it's like no no no no no no no, that's not what this is. The fact was is that in the 80s, it was all management, and we transitioned to management plus leadership, it was the secret ingredient, bam, it made like the sauce delicious, right? The problem is is that we basically took management for granted in the next coming decades, now to a point where people are like, yeah, like leadership is all that matters. It's like, no, no, no, like leadership is about energizing people, finding commonalities, culture, all these things. But I look at it like under this, like I use this metaphor or like this example. I'm like, look, you have like 30 people standing in a field, right? They're pointing every which way. So they're looking in different directions, they're not looking in a central direction. You energize them via leadership. So leadership energizes and charges people up with energy and gets them to go. But everybody's pointing in a different direction, so like it's pure chaos. It's going in like 10 different directions all at once. People are crashing into each other, all this other stuff. That's leadership on its own. Management is okay, you have 30 people in a field, you come and you organize them, they all point in the same direction, they're in a tight formation, etc. etc. That's management. Are they moving? No, they're not moving. So you first need to manage people, get them in formation, pointing in the single direction. Then you come with leadership and you energize them, and then now they move forward. That's like the like you need both. And the problem to your point is like the MBA guys that are just like they don't have that real world experience, maybe they don't have any leadership. So they are management devoid of leadership. The problem, though, and I think this is where Eric, like you're saying, like there's the difference between the founder and the CEO. Like, the problem is that founders are leadership incarnate, right? And so, like, all they do is energize their team and create more chaos. And this is why people cannot get to $10 million in revenue as a small business. Is and they so the question is, how do you create the right balance of management and leadership in order to actually get the ship to go in the right direction in a meaningful way that's consistent so that you can actually break out of the single-digit millions and go into like the double and triple?

SPEAKER_04 29:01

Yeah, 100%. I mean, I think that you know, there was an epiphany I had many years ago to where, you know, I'm not the CEO because I finally realized what the CEO title really meant. And it meant management. It did not, it did not mean leadership to me, right? And like I had the leadership, I had the the point in the right direction. But man, I mean, I tell you what, if somebody needed some time off, boy, I could not even handle it. I could not even handle, don't ask me about PTO, don't ask me about your paycheck, don't ask me about your freaking computer, don't ask me about your chair. I don't care. Just work. There is things to do. That is but that's terrible management.

SPEAKER_02 29:43

But you know what? It works. Yeah, if you're still there and you have that person who does that, 100%, then it works, okay? But the my problem is when I extract the entrepreneur and we can get into good to great and all the bullshit about level four versus level five. We should all be level five leaders. Great. We don't all have ten billion dollar

Data Loops And Behavior Change Systems

SPEAKER_02 30:05

companies, okay, where we can be level five and have no ego and nobody even knows who we are, but our job gets done beautifully and we're easily replaced, okay? It's a crock. It is all right. We still need the entrepreneur.

SPEAKER_04 30:20

We need to 100%. Like that and not because what I do in my companies is I recognize number one, I'm a not a good manager. So therefore, I either partner or I hire you are good at that to take to take the management role position so that to Nick's point, there's someone that's organizing, there's somebody that that is they're great at that. And then like on the acquisition part, let's talk about that. The problem is is that a lot of times acquirers buy companies, you know, for the product mix that they can have for their existing client base.

SPEAKER_02 31:00

Yeah, well, that's one thing. They diverse they they vertically integrate, yeah.

SPEAKER_04 31:04

Yeah, yeah, and and so that a lot of times is like they could okay, and bring it in, put it under our operation umbrella. Yeah, let's bring in our managers. There's no need the leadership days are over. We actually don't want that because it's yeah disrupting our management flow. Yeah, and and that is not like and that's a that's a too bad of a thing because it is but why though, right?

SPEAKER_01 31:28

Like, why does this happen? It's like, well, like look, I've done multiple acquisitions in the agency space, right? And in other spaces as well. Like, look, our entire strategy was to buy a like companies that were sub-10% eBid because we were doing 30. So we knew if we could grab them, tune them up to 30, plus the synergies of the back office, like the the accounting data. You can even get the acquisition if you look set looking as a separate PL, like 40%, right? But here's the problem it's like they already have the leadership, they don't have the management. That's why their profit sucks, right? 100%. So so to your point, Eric, it's like, yeah, like you the acquainters come in, they march in with management because like that's a prescription of the day. But here, like, hear me out. I just think they overdo it, like it's too heavy-handed. Like, right now they're they're leaning like leadership heavy, and they try to counterbalance with like going management heavy to try to meet in the middle, where it's like, no, like, yes, it's the most effective thing to do, but you're gonna create all kinds of uh upheaval. So instead of creating a perfect counterbalance to meet in the middle, you actually have to kind of like purposely move it to the middle where it's like you're still gonna lean too leadership heavy, but then you you're not gonna have like you know, chaos on your hands as people leave because they're like, this sucks. Like you the transition has to be slower, and the acquirer has to be a bit more patient because they're trying to fix everything in like three months or or even six months, when it's like really you need to integrate over like a much longer time period. And having done MAs where I've botched this, like personally, right? It's like every single time I botched an MA, and like there's only two times I did like botched it, and I learned my lesson after that, is the timeline that I have to get them to the optimal profit is like about twice as long as what I wanted initially. Like before I said six months at maximum to get all this upside. I'm like, look, if I can get half of the upside in six months, like I am like elated. And if and really, if I can get like a third of it, like I'm still happy, or even a quarter. But my real timeline is more like a year, year and a half to get like a hundred percent of it. And like that seems to be like the right balance as long as you strike the right chords and you get the right wins for the people in the business after you buy it.

SPEAKER_02 33:53

My my so now you're right into one of my theses about this whole acquisition thing. I personally love distressed companies. You just said it. They're losing 10%, you're gonna take them to 30% positive. Why do I like distressed companies? A, I don't overpay for them. B, they clearly don't have grandma's recipe. Okay, so maybe they'll listen more because you take it a company that is highly successful, highly profitable, and growing, you buy that, odds are it will not perform at that level post-acquisition. You overpaid for it, you're now driving your payback period way up. They're gonna be very resistant to any change because they have grandma's recipe. Okay. So, I mean, I'm with you on that. But now, if we're out there as advisors to other people trying to sell their companies to maximize their valuation to sell them to these PE buyers, you're actually making them a less attractive buy, to be honest.

SPEAKER_01 34:56

Like I tell people that it's like, look, if we're going on this ride to like, you know, 10 million or you know, high high singles at a high profit, you need to understand that whoever's gonna acquire you understands that there's very little upside. So either you need to build a full leadership team because you are gonna be the firm that they acquired, and then they plug other firms into because you only need one, right? You need one good one, you need the mothership, right? Either you're the mothership or you're one of these other ones. Which one do you want to be?

Acquisition Reality Founder Shadow And Culture

SPEAKER_01 35:30

And everybody's like, I want to be the mothership. It's like, I hope you understand how much work we're about to embark on because right now I'm looking at your team and like maybe you and your second in command are good, but you have no other leaders, and we probably need like five or six of them by the time we're done with this like mothership play. So, like, it is what it is. So, like, either you they're like, like, look, people forget their business. Like, if you're trying to sell your business, your business is a product, right? Is your product attractive? And nobody actually asks themselves this question about their own business. Like, if I look at this from the outside in, am I attractive as a product to the buyer?

SPEAKER_04 36:08

Yeah, you know, one of the things you're talking about on the mothership, like what entrepreneurs don't recognize is how much work it is to become a great mothership. And one of the biggest thorns and painful things in my perspective, and it may not be this difficult for other folks, but in my realm, to bring on really good leaders into organization is seemingly an easy thing to do, but it's not like you bring on higher level management and leaders, that means you as an entrepreneur has to up your game. Oh, yeah.

SPEAKER_01 36:44

Yeah, they're not gonna follow you otherwise. Hell no. No, and and you and that people don't understand this, by the way. They think that they can huck money at people and be like, oh, just because I pay this person like 350, 400 base, they can make a million total, like with bonusing blah blah. I'm gonna get good people. It's like, no, no, no, no. Like the strong, the strong don't follow the weak. It's not how it works.

SPEAKER_04 37:06

They don't, man. I mean, it it's it's a uh like the the more the higher level of person, the higher level of management you have to do. So if you're not a good manager and as an entrepreneur, like in my case, you're not a good manager, then you need to be very conscious about who is your partner, who is the person with you that is gonna manage these leaders when they come in the door. Because they're gonna ask the hard questions, they're gonna dig into their compensation, they're gonna understand profit sharing programs, they're going to understand leadership roles and build and they're gonna want to build an org underneath them to execute. They don't do execution. So if you hire somebody in a leadership position, right, that or in a managed, you know, in a higher level management position, like it's gonna cost you even more than just them. They're gonna be much more expensive and they're gonna want the executors underneath them doing the work.

SPEAKER_02 37:56

This is though why I think a lot of business owners and and and you can comment on this, Nick, are too damn selfish. They need other partners who are really capable people. Okay. You're not just gonna hire those people. Some of those people need to be owners. You need to say, you know what? I'm gonna give Bob, I'm gonna make it possible for Bob to own 20% of my business or 30% of my business or whatever. Okay. And a lot of owners or founders are just so damn selfish. They'll be like, Well, I'll tell you what, Bob, I'll give you appreciation rights for 3% of the business or something. And Bob sits there and goes, This is freaking bullshit. It's not worth anything. This guy's a selfish bastard, and there's no way I'm gonna give my dedicate my soul to building this company.

SPEAKER_01 38:46

I mean, don't you think that's true? Uh, I think that owners, like, look, there's there's two mentalities, right? There's like rich mentality and king mentality, right? It's like if you want to be king, keep all your equity. You're gonna gross so and you're not gonna attract the top people. If you want to be rich, it's like you're gonna attract good leaders because you're you know that if you give away a piece of your pie, but then makes the pie bigger, you're better off. There you go, right?

SPEAKER_02 39:13

Yeah, that that that element I think is missing for so many entrepreneurs, and it's one of the reasons they can't grow to this 10 million, and it's one of the reasons they also don't build value in the enterprise. Because if I've got some of those people who will stick around maybe post-sale, then they provide that glue, as you say, to kind of get it from here over to here. That the resources and expertise and client relationships of the buyer, uh, you know, and finance and money combined with some people over here that get the culture that have been making it happen. Beautiful marriage.

SPEAKER_01 39:53

And I've seen, like, like to your point, I've also seen people make the mistake, even if they do follow through on the like, hey, let's give this person equity. To your point, it's like five percent. It's like, okay, so if you do a sale, like what anchors this person to this job? Like, nothing. It's like it's like you're not giving away enough to make it attractive for them to actually want to see. It's like, oh, but I gave them five percent. They didn't earn it, they didn't pay for it. It's like they're running your entire business for you. What do you mean? Like, it's crazy.

SPEAKER_02 40:23

I I have a friend, it's a such a great example. He's here in in northwest Arkansas, and he ran a group of prosthetic clinics, and it got up to like 13 million or so in revenue. He was the guy, the guy who started it, he didn't even show up for six months at a time. I'm telling you, it was so and then when they sold the company, I don't even think he got let's just say the amount of money that the boss gave him was so inconsequential, it was beyond insulting. So the guy quit to the

Leadership Versus Management The Right Mix

SPEAKER_02 40:55

now he's the president of the company after it got sold to this German company. Okay, he's running it and he's got no ownership in it. There's nothing tying him there. He quits, waits out his non-compete, starts a new business, and is killing them. They're almost out of business now, and he's back to where he's got probably 60% of the revenue that he had when he got out of it already. And I'm talking like within two years.

SPEAKER_01 41:26

But this is a typical story, isn't it? Like, I mean, like, is is this really like rare? I mean, I and I think it's to your point, right? Around, well, how are we building these things right? And I I like look, like maybe it's simple to us, maybe it's simple to me. I don't know, but I just think I've just seen too many things at this point to like understand. Like, look, the the majority of the deficiency of most businesses is the balance of leadership and management, number one, right? And like I I group culture under leadership, by the way. Um, and then and then it's like, okay, who is your second in command and or the person that's gonna run this thing day to day? Like, and and can you balance them out? And like what I've seen, the best way to do about go about this is get grab somebody that's really good at the management elements and inject into them leadership rather than the other way around. I don't know why, but in my opinion, I could be wrong about this. Maybe it's just the personality types that I look for. I prefer taking somebody that understands like management inside out and backwards, and then like, okay, I'm gonna fight to like make you a leader on top of your skills. I've tried to do it the other way around, and it like seems much harder. And I don't know why.

SPEAKER_02 42:35

It seems counterintuitive, but you may be right. I mean, it seems like you could learn management, right? Yeah, but I don't have the freaking, I don't have the goddamn patience.

SPEAKER_01 42:43

No, yeah. Here's the here's the reason that I want the manager and then teach them leadership, okay? Yeah. The ultimate motivation is to be able to endure boredom. And very few people are motivated enough to endure boredom. So you grab somebody that's a leader and you try to teach them management, Eric. Like, what what do I gotta pay you to learn management? How motivated do you gotta be to endure boredom? It's yeah, you're gonna, I mean, you're shit time profound that way.

SPEAKER_03 43:14

It is profound, right?

SPEAKER_01 43:15

Yeah, like like leadership is exciting, right? Like you can you can spin it to be exciting.

SPEAKER_04 43:20

Uh that's why we're unemployable. We can't you can't put us in a corporation because we'll be miserable. You're right. Uh I mean, this is not only can I not manage, not only can I not manage, I cannot be managed. This is profound.

SPEAKER_02 43:34

It's a terrible thing. No, but you know, but it but again, to me, it really points out uh a fund of all this talk is I I think it's really profound and and beneficial to our audience. But I think at least in my case and Eric's case, um both um it you know, we were fortunate that we got good business partners who were completely different from us. Great managers. We didn't try to go uh with our butt best friend from high school or whatever, that we're all the same, which a lot of business partners are. It's like, oh, the three of us, we all like to do the same thing. We're all the same. No, that's the worst damn thing you can do. You're treading in each other's territory. Yeah. Get the opposite of you, then maybe you have a chance of navigating some of this stuff as you grow and having something that is valuable at the end, because you're right, Nick. I mean, if it's tied to you as the founder, you're screwed. Right. And any good acquirer will figure that out in due diligence.

SPEAKER_04 44:41

So, Nick, there's one thing in your formula though that uh that I feel that's still missing, right? You got management, leadership, but what about that vision part? Because I don't think that either one of like you can have to be a great leader, great manager, yeah, but that doesn't mean you can see things. Amen to that too.

SPEAKER_01 45:01

What what I I don't know if that's a teachable skill, by the way. Like I I yeah, you know, but you know, I kind of group that under like leadership culture. Like, I mean, without a vision, you can't, I don't think you can develop like a full culture for sure, like mission, vision, values, etc. Like, I mean, really, it's like that's the thing that is gonna drive behavior and anchor people into like what the goal is, in my opinion. Uh, but do people do a good job of like writing their visions? Like, generally not, right?

SPEAKER_04 45:31

And even if you write it, like how do you see it, right? I mean, I think that it's I don't know, man. There's there's there's a little bit of a mystery there. And but I think that mystery that we're talking about is the entrepreneur, right? It's not the founder. A founder can be can found a company and be a great manager and leader. Yes, like they can come out of working at Walmart for 50 years and they're gonna go found a company, and it could be the best damn thing that's ever been founded. Right. But that doesn't necessarily mean they're an entrepreneur, like they're gonna freaking grind their teeth at night and live like they've been on cocaine for seven days straight and keep rolling.

SPEAKER_02 46:04

And not even have to be on cocaine, right?

SPEAKER_04 46:06

But you're not on cocaine, but live like you're on it. You know, like you are freaking, you are you're on the sauce.

SPEAKER_03 46:13

Man, I love it.

SPEAKER_04 46:14

Yeah, yeah. Mark probably probably found something that describes his life. You know, I I do live on it.

SPEAKER_02 46:20

You don't need any of that.

SPEAKER_04 46:21

You don't need that stuff.

SPEAKER_02 46:22

Yeah, no, you're right, but but this is what I'm talking about. Okay, we got okay, it is that spark, that vision, that's what's missing in so many companies. And when they cast

Mothership Strategy Equity And Vision To Sell

SPEAKER_02 46:35

off the the the founder, entrepreneur, whatever the hell you want to do, and and and they either don't need them because we're professional managers or we've got all these great leaders or whatever, they lose something. Well, yeah, you're gonna be able to do that.

SPEAKER_01 46:48

Well, sometimes the vision doesn't match, though, right? Like after purchase, like, can you even hunt the vision anymore? Like, if the vision was very specific, because again, very well crafted for not selling the business, like this is our goal. Like, it's very specific, right? People can see it. Problem is like, is that still true post-purchase?

SPEAKER_02 47:08

Yeah, they gotta have a new vision. You're right.

SPEAKER_01 47:10

Well, and then anytime I've seen people pivot vision, like it's not gone well. It's a very hard thing to do. You're right.

SPEAKER_04 47:17

You know, it's it's interesting. Like, it would be like you go and acquire SpaceX. Are you gonna kick Elon Musk out? That could like that could be one of the dumbest things that somebody could ever do. But how do you cooperate with that? I know because that's a true entrepreneur, right? That is somebody that doesn't care about anything other than solving a problem and will put everything. There's no leadership course or management course that's gonna teach that. If he stays there though, he's gonna be gonna be a problem.

SPEAKER_02 47:45

Oh, he's gonna be a huge problem for leaders and managers. But it's just like uh getting rid of uh, you know, uh uh uh Apple, you know, oh Steve Jobs. Yeah, it's the exact story, it's the same thing.

SPEAKER_04 47:58

It's the destructive but how but how does an acquire like because that's I think is a problem, right, Nick? How do you that entrepreneurial spirit? Like, how do you incorporate or do you agree with Steve Jobs beforehand? Hey, look, we just gonna we're gonna like here's the deal. We just want to buy you for your product, we don't need any more of your entrepreneurial vision. Do you shake agree with that? Like, okay, sounds good, no harm, no foul.

SPEAKER_01 48:27

I think that there's like two sides of this. There's like the side of on the entrepreneur side and the acquire side. So I would say this on the acquire, like fortunately for most entrepreneurs, the person acquiring like seldomly do they look at vision because they're like, we're gonna impose our own. So I think that they undervalue what it currently is. And I think that's to own like entrepreneurs' benefits, by the way. Um, I think that as an entrepreneur, like I think what I said before, which is like your business is a product, the vision is a big part of that product, and is it congruent with being able to sell this thing? Like, does it dovetail into like ultimately what the vision is? Like, once this thing gets acquired, or no, and then you have to pick your purchasing party carefully as the seller, right? That's that's my vision is to build up and sell.

SPEAKER_02 49:16

All right, on that note, we gotta wrap this up. I I say we have to begin. Let's get Nick back again. Love talking with Nick. He's great, he's a brother from another mother. That's right. Okay. Love talking with Nick. He's he's got a very good way of being able to sort of put things together in a sensible fashion that people understand.

SPEAKER_01 49:38

Anytime you you guys let me know the time and place from there.

SPEAKER_04 49:41

This is a great topic, Nick. I mean, like if you're an entrepreneur, like I mean, going through this when when you're you're building something and you wanted to sell one day, that you're going, you're driving for that dream. Like, it's not nothing's as rosy and beautiful as you think it is, right? I mean, it is great to be acquired, it's great to sell your company, build something. I mean, it's an honor. That is definitely an honor, but but it is there's nothing clean and roadmapped about that thing. And so having your perspective, Nick, working with so many folks that you've been through is excellent for us. Appreciate you being on the show today.

SPEAKER_01 50:13

My thing is like build it to sell, but then don't sell if you really want.

SPEAKER_02 50:17

Yeah, we're cut, we're coming back to this again, Nick. Don't don't uh don't think we don't want to have you back on the show as soon as possible. So we got to wrap this up today. Last thing, if somebody wants to reach you, how do they get you? What's your email? Perfect.

SPEAKER_01 50:33

So you can go to agencyacquisitions.io or you can add me on LinkedIn, Nick, N-A-C-K-Avaria, A-V-A-R-I-A, and you'll find me on there. Just DM me. More than happy to chat. Awesome. Awesome. Great.

SPEAKER_04 50:48

Well, hey, this has been another episode of Big Talk about Small Big

Where To Find Nick And Closing

SPEAKER_04 50:56

Us. Thanks, Nick.

SPEAKER_01 51:00

Thank you.

SPEAKER_00 51:07

Thanks for tuning in to this episode of Big Talk About Small Business. If you have any questions or ideas for upcoming shows, be sure to head over to our website, www.bigtalkaboutsmallbusiness.com, and click on the Ask the Host button for the chance to have your questions answered on the show. Stay connected with us on LinkedIn at Big Talk About Small Business. And be sure to head over to our website to read articles, browse episodes, and ask questions about upcoming shows.