Navigating the Unexpected Sale of Your Agency by Thoughtful Negotiating with Kelsey Dixon | Ep #756

Navigating the Unexpected Sale of Your Agency by Thoughtful Negotiating with Kelsey Dixon | Ep #756 Speaker 2: Welcome to the Smart Agency Masterclass, a decade of interviewing the smartest agency owners all over the world to show you how to start, scale, and possibly sell your agency one day. I have a question for you. Are you tired of being stuck in the daily grind but you're scared to let go and really drive real growth because you don't know how? Now, it's time to break out of that rut and I want you to level up. I want you to join me and a select group of like-minded incredible agency owners for Elevate. Now, this just isn't another networking event. It's your chance to really transform into the leader and the agency CEO you've always wanted to be. Elevate is a place where you're going to make meaningful connections with other top-tier agency leaders who are openly sharing their game-changing strategies to really help gain clarity and boost your confidence while fostering relationships that will last beyond the event. Head over to elevatemyagency.com and grab your spot so you can level up. Go to elevatemyagency.com now. Hey, welcome to the show. I'm excited to have you on. Speaker 1: Thanks for having me, Jason. I'm excited to be here. Speaker 2: Yeah. Tell us who you are and what did your agency used to do, which we'll talk more about coming up in the show. Speaker 1: Okay. Yeah, sounds great. I'm Kelsey Dixon. I am one of the co-founders of the former Davies and Dixon. We were an organic social media agency based out of Seattle, Washington, serving clients globally. Launched the company in 2014, and then as you alluded to, in early 2022, we were acquired. Speaker 2: Nice. Awesome. What gets you started creating an agency? Speaker 1: I never envisioned myself as being an entrepreneur. And I think sometimes you have these people in your life who really unearth the full potential out of you and kind of like muster that up. Mackenzie, my co-founder, was one of those people in my life. We had interned together in 2010 in New York City and then kind of just stayed in touch. She then found herself moving out to Seattle, Washington, and I found me and my husband were also moving out to the Northwest. She ultimately convinced me to move to Seattle and then also ultimately convinced me like, hey, let's start a company together and let's do digital marketing. And I came from the events and hospitality travel tourism world. And I told her, you know, I really like this industry. I don't really want to leave it. I kind of want to move to the West coast and to a bigger city and pursue a career in that direction. And she said, well, I know marketing. I know agency life. Let's combine our skills and build an agency that serves the hospitality and tourism industry. So that's kind of how we started. But then as we moved out to Seattle, Washington, we knew nobody. Both of us were new to the city, so we just hit the pavement with networking and really getting to know the city and getting to know the people in it, which naturally led us to more in the tech industry and kind of like evolved our niche industry, so to speak, and who we served. But yeah, never really envisioned being an entrepreneur. It sort of happened organically by way of someone that knew me and knew the potential that we could have together and built it from there. And it's been amazing since. Speaker 2: What was the biggest surprise looking back when you, whether it be from starting to scaling the agency or even selling it, what was the biggest surprise? Speaker 1: I think my answer would depend, Jason, on the year that you're asking that question. There was a new surprise around the corner every year, every month, every week, right? It was 2014. Frankly and honestly, I was 24 years old. I had no idea what I was doing, which was probably a lot to my benefit. The naivety of starting a business or just being newer in your professional career gave me so much gumption to learn. I had to learn things on the spot. And like I said, networking and learning from other people. We had amazing mentors in our corner, which really helped guide us. They threw all the territories that we didn't know, which were vast. But the thing that I didn't expect, I don't even know if I could answer that question for you because everything was unexpected. Everything was new. And we were just learning as we went and being good people along the way and helping to serve and support others was really how we navigated it all. Speaker 2: How long did it take you to really kind of start niching down to really kind of pick that niche? Unknown Speaker: Did it take you a while? Speaker 1: I believe this is to be true for a lot of agencies and a lot of founders who start agencies. We thought we were going to kind of be one thing and then we're open-minded as we gained new clients, gained more experience, really followed what felt best and what, you know, we found through trial and error and iteration worked best. So at first we were very much everything. Because we were young and we were hungry and we wanted to build this thing and we wanted to earn the trust of clients and folks that came our way. So we said yes to a lot of things and then we brought in like really great talented contractors and folks who could execute on those things. We sort of like built our team. As we went, but we did PR, we did organic social, we did branding. And frankly, we're in probably in some spaces that we really had no business being in. But folks really trusted us. And like I said, we brought in those experts to really help execute. And then we learned where we did thrive, where we did shine and where clients really did give us wonderful feedback and gave us referrals into those spaces. So, niching was also a very organic process where we kind of had a plan, but that plan was loose enough to be open-minded to the new opportunities that came our way and to the testing and iteration that we saw and kind of were able to analyze and reflect on. Speaker 2: How long did it take you to start putting people in place where they were doing the day-to-day operations? Speaker 1: I don't know that we ever fully got out of the space of doing the day-to-day operations as founders up until the very end. And when we were acquired, that's really the graduation period of us being able to step out of the day-to-day. But from day one, we were involved in client work. We were involved in executing. We were the experts that were doing a lot of the work alongside the folks that we hired. And brought in and we, you know, our hiring strategy, we'd always say it was hiring people that are smarter than you. In a lot of areas, we were able to do that. But as the years grew, so we were about eight years old when we sold, we were able to kind of narrow down our roles a little bit. As co-founders, we thought we were very similar in our skill sets and like our personalities and our way of decision-making. We quickly learned that we were not, and that was very much to the company's benefit and to each other's. Because we had different perspectives on things that then we could find, you know, a good middle point that often was probably the best choice ultimately. So as we kind of discovered those specific skill sets, again, through trial and error, through testing and iteration, through following and trusting our gut, we were able to niche down our roles a little bit more specifically and that in leadership, what that meant for driving the business forward and serving our team and serving our clients. Speaker 2: Did you get a little depressed when you got out of that, like your role started transitioning? Speaker 1: It is. It is such a, an emotional ride. I think when you, when your business is your baby and you're building it from scratch and you take great pride, frankly, in your work and your relationships that you have, which is all the above for us. But the transition was a really good one too. It was a powerful one. And when you do put people in the right seats and hire people that you trust, which we did, we had some fantastic people on our team, it becomes a lot easier. And we found that when we got out of the way of these brilliant people that we put in place and helped, you know, like guide into these spaces. The work improved as well, and being able to get us into our sweet spots of area of expertise was best for us and best for the company and best for the team, best for our clients. Speaker 2: What was the reason for selling? I always find that there's a couple reasons. There's always a couple reasons why people sell, and I'm always just curious. What was the reason that your partner and yourself decided to sell? Speaker 1: Well, the buyer agency actually approached us. So like I said, our whole methodology, which could be right or could be wrong, it worked well for us and served us well, but we had a plan that was loose and then we We trusted our gut and our intuition and used data to analyze kind of those decisions and those opportunities as well along the way so that we could pivot and iterate and be open-minded to things that came our way. So when we got the email from the buyer agency and, hey, I'm interested in buying Davies and Dixon, it was not part of our immediate plan at that moment, but we definitely thought on it and weighed out the pros and cons. With two co-founders, it's a challenge to get on the same page always in any decision that we made as a business. And it's an emotional rollercoaster of a ride to decide, is this what's best for us? So we sort of weighed out the pathways. We're again, seven and a half, eight years in. So we said, really, we were looking towards the exit, perhaps around the 10-year mark, which is probably more average or more normal to look at. And we said, okay, we could push. This was on the cusp of 2020, 2021. 2020 was such a tumultuous year for all businesses, right? It was good and bad for our bottom line. But then 2021 came and it was the great resignation and we lost two full-time people to LinkedIn recruiters within two months. And we were so happy for them because they were getting great offers, but it wasn't something we could match as an intentionally small boutique agency. So we kind of found ourselves in this We're in a space of definitely burnout, definitely a lot going on and a lot of new valleys to climb out of. And as we got this email in our inbox, we're like, we could push, we could go this other direction and push a couple more years and get to that 10-year mark, and then we'll explore exit opportunities. Or we could explore this option that just came into our inbox and offers a lot of solutions, frankly, to the current issues that we're facing. And McKenzie and I had started the agency as a company that would support our lifestyle. We never got in it to make millions of dollars, just to be totally frank, but we did want it to support our lifestyle. We wanted to have a life outside of work. We wanted to enjoy the place that we worked at, create a culture that people also enjoyed coming to, both our clients and our team. And so when we looked at those options and those routes, we went back to our overall original vision. What supports our lifestyle best in this moment and what helps achieve that two years from now? And so as we really chatted with the founder of the buyer agency, we really wanted to make sure that synergies in that space matched and aligned. And as we chatted through negotiations and it really explored this as an area of opportunity, again, it pointed back to solving a lot of the current issues that we were in, provided more opportunities for our team for promotions and raises and new professional development, provided more services for our clients in a very tumultuous economy and like areas of ups and downs where organic social media maybe wasn't at the top of the line item for budgeting. And then it also provided Mackenzie and I with new professional development opportunities. Let's utilize our last eight years and the things we learned into a bigger, better space with bigger revenues, bigger clients, bigger teams. So ultimately there was a lot of reasons that went into deciding to sell and to become acquired. But those were, those are kind of the key areas. Speaker 2: How long was the process from when you got that email? Speaker 1: We got the email in late summer of 2021, and then we were signed and acquired starting integration in January, 2022. So relatively, from what I understand, relatively shorter time period, it's about six months. Speaker 2: Hi there, agency owners. Let me ask you, are you ready to scale your agency without increasing your overhead costs? If yes, then you need to know about E2M Solutions. Now, E2M is the number one most reliable white-label partner for agencies. 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That's e2msolutions.com slash Smart Agency. Go check them out and tell them Jason Swenk sent you. Looking back, because it sounds like the email and the offer came at the right time, because I got to many points where some days it's still like, you'd be like, God, if someone offered me a dollar, I'd take it. You'd be like, okay, just take it. I'll chat with a lot of people. I'll say, all right, you're coming to me. You want me to buy your agency? What's the real issue? And they're like, well, we have, There's a lot of uncertainty in the market. You know, our pipeline is not growing as much as it was in the past. And you use your example, I lost key employees. Now I'm having to do more work. I couldn't afford to pay them more. I want to pay them all more. If you figured out a solution that wasn't selling, would you have taken that or sold? Speaker 1: Oh, good question. I don't know. And I think, again, because our format of making decisions was both analytically, like testing iteration, looking at data and trusting our gut and what feels right, being open-minded to those opportunities in the moment. I can't, I don't know if I can go back two years, two and a half years ago and, and put myself in those shoes to see what we would have decided. And it's not just me, right? It's also my co-founder. It's also the consideration of our team and our clients. So at those given moments, I think we would have thrived either way. If that makes sense, like I don't think there was a wrong answer in this scenario, which is such a beautiful position to be in. And frankly, one of the reasons why we did choose that we're like, okay, somebody is approaching us to buy. So we're in a seat of like, we're in a good seat right now to be able to, to negotiate and to have a really great conversation and not really. Have a, um, like lose out on anything really, because they came to us at this point and it's a little bit earlier in our timeline than we anticipated and expected. So we're pretty fortunate in that sense, you know, and it's kind of that intersection of good fortune and working our butts off to be able to get there and have those conversations. Speaker 2: Yeah. At the end of the day, I always tell everybody. You'll never make a wrong decision if you trust your gut, right? Like, and there's a thousand people in your year giving you advice. And I always tell people, I'm like, well, what feels better? At the end of the day, if I look back when I sold my agency, we were having partner problems. I felt like I was holding the agency back. I knew my partner was holding the agency. And I was just like, great, someone's going to pay us a lot of money. Now I don't have to worry about this anymore. I don't have to worry about anything really. And I was like, yeah. So when I look back, I'm like, I used to second guess myself. I think maybe two years after when I started, like when my old competitors came to me, they were like, Hey, how'd you do this? How'd you do that? And I started helping them out. And then I was able to start looking at their agency emotionless. And then I could see them start scaling way past where we were a lot faster, but with my advice and I was like, dang, I sold too quick. I should have held on to it. Like I could have taken it to 10 times that. And as I kept growing, I was like, damn it. And then I started realizing I did the right decision because I'm in the right place at the right time of what I do. It all worked out. Speaker 1: Right. And I think, I mean, as entrepreneurs, we could all get stuck in that, like, could have, should have, what, because we're dreamers, right? And we're visionaries. And we're like, Oh, I could, I could see that path working out this way. But that's really the mindset I tried to try to stay. Rather, the mindset I tried to stay in is no regrets, right? We made this decision, like you said, and we trusted our gut and we have trusted our gut for many years and it's given us dividends because of that, right? And this is the path that we chose and it's the correct one. And we really have truly no regrets. It went so well. The integration went so well. We learned so much as professionals. Our team did get more opportunities. Our clients did get more and better well-serviced. So all of the above happened. And yes, two and a half years ago, if we considered going a different direction, could that have worked as well? Probably. But that's the path we chose. And I think it was, it was the right one because it was what we chose. Speaker 2: How many times did you have to say no to the offer or counter to the offer? Cause everyone always thinks once you get an offer, you have to say yes. And like one of my friends that built Pardot, he said no two or three times he was telling me, like the first was like 25 million. He said, no, now this was a software company. So it's a little different than agencies, but they were losing a billion dollars a year. I'm your host, Jason Swenk, and I'll see you next week. Speaker 1: No, and, and, you know, we're all, again, we're all business owners, entrepreneurs, negotiators at heart. What's interesting about this type of acquisition, and I know this isn't the case for all agencies, but in my case, there was an acquihire portion of this. So we would, we were going to be, my co-founder and I would serve in leadership for two years after the acquisition as part of the integration process to bring over our clients and our team. Mackenzie and I were crucial in that. We were key. And then the goal was to help scale this agency, which we did. We helped 5X it in two years, which was incredible. But to go along with that, the interesting part about a negotiation in this type of scenario is you're going to be working with this person for two plus years. So you want to Do your absolute best to lead with kindness, to lead with thoughtfulness, and set that agency up for success too. You don't want to suck them dry of every last bit. Not that we would have, or could have, frankly, but suck them dry of every last bit because you want that agency to be successful. And this is not only that, it's your legacy as well. You're leaving a legacy when you get acquired within that success of that next agency. So we really wanted to treat it with kindness, with thoughtfulness, with collaboration in mind. We did not say yes to the first offer, but we did negotiate with like the greater good in mind too. And then part of that involved things and figures other than just the sale price or the number, the valuation. There's lots of financials involved with an acquisition, but I think perhaps what could be overlooked is the auxiliary pieces. We're really proud of the culture that we built at Davies and Dixon, and we were really proud of how we put our people first and our team first, because literally in an agency, your team is your asset. You have to, and it's also just the right thing to do. We negotiated in bringing some of our cultural, like the benefits and the perks and the things that we built for our team over into the larger agencies. So PTO policies, work from anywhere policies, home office stipends, things like that. And then we had also negotiated a signing bonus and promotion or raises for our team members too. So not just like what's in it for us, but what can our entire ecosystem get out of this for the mutual benefit and moving forward. Speaker 2: Did anybody on your team not go with the new agency that bought you? Speaker 1: Yes, one person did decide to part ways, but they decided to do that in a beautiful way, which again, I think points back to the culture and kind of the collaborative nature that we built. They took a three-month transition period. So they stayed with the new company for three months, ensured that everything was trained up and that their departure was smooth and easy for the rest of the team. Speaker 2: Is there anything in the process that you would have changed looking back now? Speaker 1: I don't know that I can live in that space. I think what we decided was the best choice moving forward. I haven't actually spent a lot of time thinking about what would I do differently other than when I'm speaking to other agency owners or leaders who might be interested in an acquisition, I listen to their story and kind of apply some of my experience of here's some advice or some things that you could consider in your conversations. But in terms of our situation, no, I don't think I would do anything differently. I would have suggestions or advice for others though. Speaker 2: Did you guys have any earn-out? Speaker 1: Yes. Speaker 2: Were you guys able to hit it? Speaker 1: Yes. Yeah. We had a successful first year integration. Speaker 2: Good. That's the one thing I always tell everybody is And earn-out a lot of times is designed for you to fail. Like that's when I look back and going, man, like we lost millions from, we still did really well, but we had two years or hit a certain number or in the event they sold before then we had to be at that number and they sold nine months later. And we were outside that number for one day and they sold on that one day. And what I tell a lot of people. Now, especially, you know, there's always going to be an earn-out. There's going to be cash up front, which you should be happy with because that might be all you get because even if they give you ownership in the new company, they may never sell. You may not see things that that person only knows. You just never know. But I always tell everybody with earn-out, And my message is this. It's designed for you to fail, but if you can negotiate in, or I think everyone should negotiate this. If you were buying me today, I would say, and you have an earn-out on it, I would say, you're not going to tell any of my clients, anybody from the public, and I have total control until the timeframe or I hit the earn-out. And when I hit the earn-out, if you don't pay me the earn-out, I get my whole company back and I get to keep everything. Speaker 1: Oh wow, yeah. So you mean keep secret the acquisition, like that you're still your name, your agency, okay. Yeah. Speaker 2: Yeah. Because a lot of times I've seen it both ways. I've seen where my version, they get outside the mark and then they don't get the earn-out. Or you're supposed to get the earn-out, but they don't have the money to pay you and now you're stuck. And then you're suing them. I'm like, no, this is an easy clause. I get a hundred percent back. I get to keep the cash. I get to keep all this stuff. Everything turns over to us. Free and clear abuse. And now I'm like, cool, we got $20 million paid up front and then we get to keep the rest. Like, all right, cool. Like this was a good training. Speaker 1: Yeah, I mean, I also can see how there's value in both ways too. In our scenario, we were very transparent and upfront with our team and with our clients as early as possible. And we were very much still embedded in the business. And again, an intentionally small boutique agency that had very close-knit relationships with our clients. And because of the approach that we took, I believe in our specific scenario, it did lead to our, I think we had like 80% or 80 plus percent retention after the, you know, even after the first year. So people did stick around, people did, you know, enjoy the benefit of new services, but it did require our team and McKenzie to stay very involved and very transparent with our clients. And using the transition and, you know, like freezing fees for the clients as well, like freezing certain things that nothing could increase or. Anything like that. And actually our prices were always very comparable anyway to the buyer agency. So that part was an easier transition. Speaker 2: Well, awesome. Well, so excited for you. You know, I just got news of one of our Mastermind members that sold last week and that she's retiring and everyone in the Mastermind was celebrating for her. It's always a great news to see someone be able to do that and then go spend more time with With her kids, and she's still young, even though I told her I'm sending her little walking sticks. Unknown Speaker: She's retired. Speaker 2: She's retired, right? Like you need to get like the hat with the big bill, you're hugging them, then the walking sticks. Speaker 1: You just got to own it fully, lean into it. Speaker 2: Which, I will tell you, when you're hiking a mountain, walking sticks actually do help. Speaker 1: Any age, they help. Speaker 2: Yeah, like it helps your knees. So I make fun of them, but I still use them. I don't use the walking sticks going down the road. Speaker 1: Not yet, anyway. There's still time, Jason. Speaker 2: Yeah, I know. I do have gray in the beard, but we'll see. Well, thanks so much for coming on the show. If you guys enjoyed this episode, make sure you like and subscribe. Also too, we put out some really cool free advanced agency training for you guys. If you go to agencymastery360.com and click on training, there's free advanced training from generating more leads, better clients, The perfect offer for agencies and even how to scale your agency and sell it for what you want. So make sure you go there now and until next time.