Video - Entrepreneur Mindset Q&A with Pete EverettJun 26, 2022
VIDEO: 50:41 mins
AUTHOR: Pete Everett and Robert Craven
In this GYDA Expert Seminar, our special guest Pete Everett discusses Entrepreneur Mindset - why what got us here might not get us there, and what you can do about it. Featuring David Gilroy of Conscious and lead by Robert Craven, this hour-long video holds great insight for any digital agency leader.
Robert Craven 00:00
All right, it just being after one o'clock. Thanks for turning up. We have a webinar GYDA initiative webinar. We've got Pete Everett with us today just a small, cosy audience, which is fantastic. And we're talking about how entrepreneurial mindset changes, you know what got us here might not get us there. So firstly, Pete's lovely to have you with us people who like to just tell us a bit more about ever what you do what you've done. And what right have you got to talk to us about growing agencies?
Pete Everett 00:40
Yeah, absolutely. And thanks for inviting me here, Robert, good to meet you all. I am a guy to coach and I'm an ex agency owner. So four years ago, I sold my interest in my agency, we had a couple of million in revenue. So it's still a small company. But we had gone through certainly some sort of key initial growth stages. We also had a subset office in the US. So a certain degree of complexity around managing the business. And the last three or four years, I've been working as an education advisor to small businesses, many of whom are agencies.
Robert Craven 01:18
Cool, excellent. So we'll just work through our sort of a quick conversation. If you got questions, put them into the chat. And then after about 15 - 20 minutes, we can throw it open to a bit more of a conversation. So what got us here might not get us there, open up talk to us about that.
Pete Everett 01:41
Yeah, well, I mean, the first thought I had about all of this is just how hard it is to get a business going. And to get it out of the gates. And through those initial stages, you know, so congratulations to, you know, to everybody for doing that. It's really, really hard. It's hard to get something going, it's hard to get it to grow. And it's hard to lead it. So I think this is extraordinary already. What happens, I think, as we go up through those early growth stages is that the job changes. As owner managers, we are both typically shareholders. And we're executives. And we're operators or operator managers. And we tend to start out early on, as operators, we're doing the thing that we're brilliant at and we're selling it, we're selling to someone in the first instance, and then we're selling it to more and more people. And as the business grows, that role has to change. Otherwise, you get stuck, working really, really hard as a billable resource in the business, and you simply can't work on growing the business. So it's about going through those role changes, and thinking about what needs to happen at the various stages. How do you go about those changes? What changes do you make in what order? What I think is really useful to do when you ask yourself that question is ask it as a shareholder first. Right? What do you want to do to grow the value of the business? What needs to happen? What's your instruction to yourself as the boss? Okay? And what's the boss's instruction to the operating staff, the managers, as an executive, to start to change how the organisation works so that you can grow. It's a lot about delegation, you've got to be less billable than you were in the first instance, you've got to start working on the business, if you've got your unit economics, right. If you're making profit, then in those early stages, you tend to have a good solution to the utilisation problem, right. You're busy all the time, you're selling stuff. If you've got the price, right, you'll be making profit from that. And so what you've got to do is you've got to take that profit, and you've got to not spend it, you've got to invest it and invest it means you're going to deploy that money for an expected return. So you're going to start to bring on staff, you're going to start to let go of various administrative things that you're doing and start to delegate that and outsource that. So you've got this time to think about sales and marketing. That's the source of new revenue to think about strategy, how you're going to differentiate yourself from the competition, you need time to do that. And you've got to let go of the time consuming things that are preventing you from doing that, as you go up through those early growth stages.
Robert Craven 04:41
So what do you mean by let go talking about delegating?
Pete Everett 04:45
Yeah, that's right. And it ain't easy to do. Or some people are naturally quite good at it, but it's something to learn. You've got to let go. And, you know, in the initial instances, sometimes that means you've got to invest some money, right? You've got to give somebody else that job and you've got to pay them. Okay? That's why you haven't the unit economics to do this, this growth bit is right you've got to be making profit from the time that you're selling. So you need to start delegating, and depending on the size of your businesses, as you go through the first sort of 5, 6, 7 staff up to 10 - 11 staff, you know, there isn't a huge amount of complexity to that delegation, there's not a huge amount of risk there either. As you go up to sort of 20 - 25 staff, you're delegating to a management team. Okay, so you've now got some senior people, some capable people, some highly paid people who themselves might not be as billable as the people they're managing, okay, and so that would be then another level of the delegation. So you're delegating even more control to experts in their fields, they might be operating experts, they might be finance experts, they might be marketing and sales experts, you're letting them get on with the job, so that you can get on with the job of being the CEO.
Robert Craven 06:14
So your argument is that people should almost take on the role of CEO straightaway and start delegating, because that's not how the real world runs, real world runs, as in, you've got five people, they're all flat out, or you're flat out. More work comes in, you randomly recruit someone new, there may or may not be a fee earner. And the whole thing is kind of put together by as you go along. So I mean, you're suggesting there's a simpler version of growing your business?
Pete Everett 06:50
Well, there is. So that's the rubber meets the road. That's the reality of it. But it's not a binary thing. It's not one day you wake up, and now you're not doing any of those things anymore. And you're entirely doing this leadership thing overnight. So it's not binary, you're either or so it is a question of degree in an early stage, business 5, 6, 7 people all the way up 10 - 12 people, people are wearing lots of hats, and the owner manager has got an awful lot of them on. So you're not going to give it all up overnight. But what you're looking to do is create time for yourself to lead the business 10% of your time, 20% of your time, 30% of your time. And you're looking to let go of more and more operating stuff more and more service delivery stuff. So pay somebody else to run the campaign, build a site, all the rest of it, grow that operating team. Let go of administrative things, right? If you're if you think your time's worth 30 quid an hour then carry on doing the bookkeeping. If you think it's worth more than 30 quid an hour, pay a bookkeeper to do the bookkeeping. That's 30 credit now.
Robert Craven 08:03
David, you're on mute.
David Gilroy 08:07
It's very timely that you mentioned that example. So when we were in context, Pete with 36 people 2.5 million turnover is I'll take you back probably 15 years. We've been around 18 years. For a year, my wife was quite happy on a Sunday, I would go into QuickBooks, I would do file print invoices, and we would sit and watch TV and we would fold 50 invoices, and I would follow them and she would envelope them 100 invoices that was fine, file, print 300 invoices, she went this is the last time I do this. Hire a bookkeeper. We reached that tipping point where that was a full time job. Not the printing of the invoice but everything else. But it was the printing of the invoices. That was the tipping point. That's my point to exactly what you just said. And I think I mean, it's absolutely right. And it's that's one of the easier things to to delegate, right, there's that, you know, you can easily make the argument that that's not a good use of your time working on the weekends doing this administrative staff, it can be done by somebody else, and it should be done by somebody else. And you're not spending money to get that done. Right. You're investing money to buy back your time to spend on something that's worth more than 30 quid an hour or 30 euros an hour, whatever it might be.
Robert Craven 09:25
So are you arguing that there's an order in which you because the question is always do i get a salesman? Do I get an account director? Do I get a finance manager? In your view, is there a kind of an order in how you create your delegated team as you go from five to 10 to 20 people?
Pete Everett 09:45
Yeah, that's a great question. I think there's likely always to be some context to that. So you know, what is the context in your particular business circumstance? Like if you're really good at the service delivery bid, you might find that you've got clients that are referring work to you. And that looks like you've got a new business capability because new business is turning up, you know, more or less when it needs to. But that's an illusion, I think. So you've got no control over that. If you compare that to having a deliberate marketing and sales engine, then you've got more control over that revenue. And revenue is the driver of growth. And in many cases, your marketing spend is the driver of your revenue, which is the driver of your growth. So for a lot of small agencies, and it's curious, isn't it because for a lot of small, I think this is true for a lot of small marketing agencies, digital marketing agencies, actually one of the first things that you know, can be improved? Is those new business engines, what are the drivers of revenue? And I like to think about it. We'd like to sort of map out there'll be questions, perhaps about org structure, and you know, what kind of team what does it look like? I really like to think about the org as if you just track the way how money flow through the business, you need a strategy, you've got to market that. And you've got to convince people to buy it. So marketing, attracting them sales, convincing them to buy it, then you've got to deliver. And then you've got to get paid. That's how money flows through the business. So I like to think about the org structure in that way. So you can actually see it left to right. I've done some innovation, I've drawn people to it, I've convinced them to buy it, I've delivered it. And now I'm going to get paid for it. That's more or less the transaction flow through a business. So I like to think about that as approach the org structure in that way. And then your context will show you where you've got strengths and weaknesses, what you should be working on.
Robert Craven 11:58
But isn't it the case that majority of agency owners, they start off on the kitchen table, moved to the dining room table into the garage with one or two staff and then on to the industrial unit. And the majority are our technicians, who suddenly find themselves running a business with 10 staff. And it's like, no one ever taught me how to run a business. No one ever taught me how to be a leader, no one ever told me how to do accounts. And here I am meant to be learning it. And like one of the reasons we have that. So few people get to above 10, in five years time, I'm going to have 200 people and sell this business for $5 million kind of approach. And it happens to be a digital agency.
Pete Everett 12:47
Yeah, so if you think about that, so three levels of influences that we talked about at the beginning, you as the owner manager, or the shareholder, the exec, and the operator, if you're looking at that stack as the operator looking up, okay, that's a different perspective than being a shareholder and looking down into that. So what I would encourage, I think it's really important that, you know, you do want to have a strategy, you do want to have some sense of where you're going, of course, that's a given. You also want to have a good sense of what you personally enjoy doing what you personally are good at. And it's a really good decision to make for some people with that shareholder hat on saying, well, actually, I'd like to stay with innovation, and work on product over here. And I'd like to relinquish these responsibilities over here given to somebody else who, you know, who's got the skills for it, he's got the interest for it's got the appetite for it. So there's a degree of sort of self knowledge of decision making about what you want to be focused on what you're good, that can help make that decisions about what to delegate first. I think you, the CEOs got to have the you know, the boss has got to have a good fluency across all the business functions, right? It's quite difficult to lead. If you don't, it's quite difficult, difficult to lead, to have marketing report to you or finance report you if you don't have a degree of fluency about these things, I think you've kind of got to get that. But you can have that degree of fluency and decide, look, I want to focus on this area of the business. So I'm going to need somebody else to focus on this area of the business, maybe that's an MD, when you get to 20 - 25 people that you engage, maybe that's a business partner that you're looking for. Maybe it's a lot of outsourcing that you're going to be doing. So there's different ways to solve the problem. But I think I have the business strategy, but also have the personal knowledge of what you're good at what you enjoy doing.
Robert Craven 14:51
So what do you think the challenges are? How do you think the challenges are different because that's what you're saying there's a stages of growth. So what are the challenges? Where did the challenges change? And what are the challenges as you go from 0 to 50?
Pete Everett 15:07
Yeah. Okay. I think there's a change around the sort of 10 - 12 mark, you know, at that point, you're not just a small team, where it's all about everybody's billable everybody's utilisable. You know, you've grown and grown from that initial infant stage of yourself, or, you know, a couple of collaborators. You arrived at a sort of small family, around 10 or 12 staff, you still know everybody, it still feels like a family, you know, everybody's name first names and surnames, you may know half the birthdays, it's relatively manageable to keep all of the relationships emotionally, at your fingertips in your mind. I think it changes again, when you get on the way up to sort of 20 - 25 people. Because what you've got at that point is too much complexity. To have all in your mind, from a relationships point of view, and you've got, you're going to need a certain degree of structure in the business functions, which means you're not going to have time to do all of those things. What you've got at that point is an early stage management team. Some businesses have quite sophisticated ones. Some businesses have fledgling management teams. But what the leader has got at that point is 2, 3, 4, people who are reporting in and they are looking after the business functions, maybe they've got a big operations function, it's way more than half the business is about doing the work. Businesses are growing faster, probably got quite a developed marketing and sales function, someone's looking after that. So yeah, there's a real change when that management team comes in. And it requires delegation. It requires a certain managerial skill, as the owner manager now has, you know, senior people reporting and they've got maybe even have a budget that they're spending for their department at that point. So it requires those kinds of changes. The other thing it requires is cash. You need fuel in the tank to cross over from 10 - 12 people to 20 - 25 people. This is why so many businesses, so many small businesses, so many small agencies, they plateau at around that sort of 10 - 12 mark, because it becomes you actually need cash to go across that, that divide, the reason you need cash is because you're about to bring on people who aren't fairness in the same way. Okay, they might be billable, still, but they're not 75%, target billable anymore, they wouldn't have any time to do any management, if they were, they might be 65, 60, 50, 40%, target, billable, 30 even. And that's overhead, that's cost to the business, you need cash to grow the business through that point where you can come back to the same level of profitability that you had before you brought on that management team. So that's why loads of businesses really struggle to go through that change.
Robert Craven 18:23
And then what about the other end of that are in 20 - 25? I believe there's a kind of a crisis point at around 45 - 65. Exactly what you're saying, which is you've got non fear, and it's all over the place. And you who never had any experience of running a management team, so to speak, because you've driven from the hip, suddenly, you've got a head of marketing, head of sales, or head of finance, or reporting in all reporting into you. And not many people are good at sort of being the entrepreneur at 0, 5, 10, 15, 20, 25, 30, 40, 50, 60 people. So what goes on beyond 25? Just talk to us about that a bit?
Pete Everett 19:10
Well, I think what's getting added in there is maturity of process, complexity of structure, complexity of the relationship, the management layer, and you know, we're still a small business at 50. Right when we're not 100 people. We're not 200 people. We're not that yet. So we're adding in we're maturing a management team, I think over that growth period. And it really starts to bite. Is the business growing as fast as the people in the business are growing? So it's kind of starts to impact hiring strategy, right? Are you going to be hiring people in above that person that you thought might run that department? What about hiring someone in above yourself? Okay, do you want that job? Do you want to be running a 50, 60, 70 person business as the CEO? Or would you rather be running in the innovation? Would you rather be running business development? Would you rather be shareholding? So we're adding in a lot of complexity, as we go up through those numbers, culture, the people function, how we're thinking about our talent, how are we attracting talent? How are we retaining talent? How are we keeping that talent from going to our peers and our competitors? So this is where the people function really kicks into gear, I think you've by that point at 20 - 25, people, you've probably got quite a lot of things sorted on the finance function, and maybe a bit on the people side, but 40, 50, 60, you're going to need quite a lot on the people function, the HR function needs to be humming, and it's complex. It's really complex, especially for the modern workforce that we've got now and all that means.
Robert Craven 21:06
So why would you want to do that? I mean, what do you believe is the driver that makes someone want to set up in the kitchen? And go on that journey? Because the complexity is the thing that kind of does your head in and when you're a one person business, and you got one client and you just get up in the morning and you serve the client, you go home and you take home 100k a year? That's fantastic. Now you've got 20 people, and you're wiping 20 people's bottoms. And you're still taking 100k a year home? I mean, there's I seem to be something sort of like, hang on. Yeah, how did this happen? The number of people I know who have 20, 30, 40, 50 members of staff, who aren't a total frazzled, because, you know, as soon as they sorted out the HR problem with the member of staff who did this pops a piece of work, that was shoddy, you thought that bit out, and then up pops, recruitment problems, talk that out, and then somebody's not paid? We're not cut out for that, surely.
Pete Everett 22:21
No, that's right. And you're right, like how many people sort of find themselves saying, How did I get myself into this? You know, this isn't the where's my passion gone? You know, I used to love doing this. And now I've got this job. And, you know, it really is running around keeping plates spinning. It's still a small business at 50, right? It's not a mature process, everything's organised, everything's written down, there's still the need for a lot of agility, dynamism as the client bases evolving, so you know, it's to a certain amount, it's firefighting into a certain amount, it's maturing as fast as you can keeping plates spinning. And I think what people discover, and they're discovering a truth here, I think, what people discover is that actually running a business. It's not that fun, it's actually really hard work. It's repetitive, is boring. And that's the job. And you've got to know, as the shareholder, you've got this beautiful, beautiful position as the shareholder, you don't have to do that job. If you don't want to, someone has to do that job. And it's actually the CEOs job to figure out who's going to do that. So you are in this position, you don't have to do it. But if you're gonna do it, don't be under any illusion about what it is. It's relationships. It's difficult, it's the humanity kicks in, right. And there's a lot of problems, it's boring and repetitive. And you need to be very disciplined, and you need to carry on doing that thing. And by the way, it's not the passion thing that you started out.
Robert Craven 23:59
So I mean, that kind of fits in with your stages of growth thing in a way that you get to a stage where you need inverted commas a professional manager, if there is such a thing, or someone whose day job it is to wake up on a Monday morning and have that list of things that need to be sorted out and processes that need to be put in place, and conversations that need to be had. And KPIs to look at and score sheets to check and do all that dot join. And I don't think very many of us actually signed up for that. Oh, holy, what's it, you know, like, this wasn't what I signed up for. I mean, I know one lady who ran up a PR company. She took it up to 25 people and she did the maths. When I'm on my own I earned 100,000 pounds and when I employed 25 People I earn 100,000 pounds. And so this is just bonkers. I could have total control and total pleasure I'm on my own, and she sacked 25 People like and recreated the night, the PR company with her name. Because she just I mean, okay, so the downside is she has nothing to sell in the same way that you roll the history on 10 years at 25 person agency might have been 75 people, and she might have had something to sell for 5 million, but maybe she just wasn't up for that. Maybe that's okay. I think we're starting to get some questions coming in. So David theory says it's very hard sometimes to do that. I guess the question, David, is why are you doing it? Because you could, presumably, one, there's the Woody Allen thing about, you know, relationships should be like a shark and always needs to be moving forward to be breathing. I guess what we've got on our hands, darling, is it a sharp, it's not moving forwards. But I think there is that sense of moving forwards into uncharted territory. Is that the excitement? Or is the excitement building an asset, or the excitement of it's all yours, what keeps you going?
David Gilroy 26:16
And one of the things we talk about in the business, too, that relate to how you grow is, we always talk about hiring peer and above. So I have just hired a head of marketing to replace the one I hired two years ago who was nowhere near my peer. Unfortunately, it took me a year to realise that this guy absolutely is. And then you use a much posture word. Now, appropriate word for fluency in all areas. Okay? My team, say I've got enough knowledge to be dangerous about most things in the business. I prefer yours, because it makes me sound more educated than I am skilled. But you know, I can't talk to my techies. We've just hired a systems administrator. We're doing a perfectly normal interview. And then I said, if I was using the grep command, what would I be doing? They look to me like, What do you know that? You're the MD? And you're not a techie? I've checked you out kind of thing. He could have lied, I'd have had no clue. I do know the answer. But it was one of those things where it's just complete left field question to see how he reacted to the MD being slightly techie. But I wouldn't Alexander's laughing, I wouldn't know a left outer join if it smacked me in the face. So, you know, I'm not sufficiently technical, so that enjoyment bit, Robert, I think it's carries on for as long as it does, and when it doesn't stop, and I have a management team behind me, and there's six of them, who will heads off, you know, and build a business that wants you but doesn't need you is my personal mantra. Which team I've heard. So I think it still wants me.
Robert Craven 27:57
But there's an interesting dynamic isn't that the business has a name, which isn't David Gilroy Incorporated, you're going to, at some point, you're going to exit the business. So Is it under your stewardship, that conscious solutions become?
David Gilroy 28:19
Feeding me my own lines?
Robert Craven 28:21
No, I'm not feeding your own, I could be feeding your own. I don't know.
David Gilroy 28:25
What we talked about before, I very much feel like that, you know, we're 18 years in. And we've grown very steadily last year, set us back a bit we'll get back to we're back to pre pandemic levels will accelerate from here. And my team have heard me say the direction of travel is an employee and business. And I can say that even though I'm in the office, because we've all heard it. That's the direction of travel, not a decision today. Because if we get to that point, and somebody offers me double, well, I'm probably gonna have to have a serious look at that. You know, but that's, and I involve the team in those in that kind of thinking early. So one of the other things that we use, some of you will know the business well enough to know that we have this wall full of our mantras, and they're on our website. So if you wanna go and take a look, but one of the ones it's not on there, because it really is, is internal to the business is I forgotten what it is, I don't like, I don't care that you don't like something. What I care about is you didn't say you didn't know what you say you didn't know. So we'll be way more transparent and potentially other businesses. And that almost never causes us trouble. Once in a blue moon, somebody is too young or too inexperienced to deal with the information. But the vast majority of the time, it only helps us that everybody knows what's going on. And you don't have to have these kinds of conversations where you get talking Double Dutch, just because one person doesn't need to know what's going on. Well, there's lots of running and get in and out of meeting rooms and stuff. Wouldn't it be nice to have lots of people in meeting rooms but meeting maybe on June the 21st?
Robert Craven 29:58
So how was Sunday Talk through quickly, David, the how your mind set changed as you as the agency went through the different stages?
David Gilroy 30:11
Yeah, I think an 18 is a long time, Robert, and somebody is blurred in the midst of time. But I think the day I remember there being a step check, well, the MBO was a step change, because I became the sole MD before that we didn't insult each other with joint MDs, because that's just stupid. You know, I was Sales and Marketing Director Andrews was operations director was when I was talking with a client or my clients or law firms and the managing partner of a business bigger than us. But not much. There were 4 million we were probably 1.5. He said, so how much figuring do you do? And we're 1.5 million. I said, Sorry, I don't understand question. He said, Well, how many days work do you do in a month? And I don't understand the question. I was playing with him. And he said, You must do some work. Right? Now I run a business. And this guy's face just when Oh, my God, what have I been doing wrong? He was still earning money 50% of the time. And that's why his business wasn't growing. He wasn't investing enough in sales and marketing. He wasn't investing in his management to, you know, low, 4 million. But he had the same number of people that we did, because we were billing at five pounds an hour. And he was billing to underneath five pounds now. Kind of thing I think the average was about three times what we were charging. Because lawyers can apparently digital, you can't charge what lawyers charge shipping. I tried it once the most successful afternoon's work ever did, I got paid 1000 pounds for refereeing a fight between two law firm departments, they didn't care how much it was gonna cost, but as anyone wants. So I don't think there's been a clear if I went back. And you know, when I write my memoirs, Robert, there was a clear at this point, we did this at that point, we did that. But the stages that Pete has talked through, it's exactly where we went. You know, we're at that stage now, where we're trying really hard not to add more billable, non billable people trying really hard not to do that, you know, got a good management team in place, none of whom feared very little work that says that generated that amount of money. The head of account management works with all the account managers on generating fees, their Head of Production works with all the people on doing production stuff on time on schedule, and the project management team, or the marketing services does all the PPC SEO, but she couldn't put an SEO campaign together if you paid her. But boy, is she a great operations person. So, and the only time I get involved in finance now is signing off payroll, signing off VAT. And chasing big debts.
Pete Everett 32:42
David, did you have to as you were going up through those growth stages and adding in your management team? Did you manage to keep your profitability the same? Or did you sort of deliberately decide right and just spend the profit? I'm going to bounce it? Yeah. Okay.
David Gilroy 32:57
So that what are the shareholders model, call it and jump model? And then the decision is over How long do you take to invest it? Anybody thinks profitability does that all the way through is just living in Coca Cola?
Pete Everett 33:13
And I think this is a really useful thing to you know, that this is a part of the fluency that's needed, I think. So you know, you've got your profit, what you've got in front of you, as a decision maker in the business is a number of investment options, not spend, invest? And one of yours is, shall I invest in a sales and marketing director or a marketing director? Shall I invest in this initiative over here? And those investment options, you've got a chance to judge one against another and have an understanding of what you think the return might be. And then you execute on that you make a decision, let's take marketing. So it's quite a useful one, as you're trying to grow marketing is driving the revenue. So you think, right, well, I'm at 18% net profit, or 22% net profit, or whatever the number is, I'm gonna go down to 10% net profit for three or four months. And then when I creep back up, I'm going to be at a new revenue level, because I've now got an engine that's running that's driving more business. Yeah, I need some more operators, but that's okay. That's paid for by the revenue. Whereas the person that's creative that the management person, that's an overhead cost.
David Gilroy 34:33
So the thing that we talk about is hiring ahead of the curve. Right? If you have a predictable Marketing Engineer ready and I met a lot of agent centres who don't I'm on lots of calls are people talking about funnels and topper pipeline, I'm just like this. This has no relevance to me. Oh, you must know where your next pipeline of sales comes from. So I've got no clue. That's from an inquiry to a sale for us is maybe eight weeks if it's gone slowly. So we know it's that we just don't know when it's going to arrive but it's predicted to be a problem. And we can measure predictability in the past. The next bit is we still this year was spent 4% of turnover on marketing, right? So on 2.4 was spent 100,000 pounds plus a marketing exec and now head of marketing, no full time new business salesperson, we've absorbed that into our account management team. Since I kicked out the fucking idiot, they are doing new business sales previously. And then the last point is you have to know in a sales and marketing role, if you want to scale is what your acquisition cost is. My acquisition cost every year is between 811 100 pounds per customer. The customer on average in the first year will spend 15,000 pounds give or take. And the average customer lifetime is 6.47 years. Yes, I calculated two decimal places. So I know if I spend this much I'll acquire that much. I forget customer retention. This is just new business. And then we can predictably last year screwed those numbers up. But let's take that year and equation. And we know predictably, if somebody comes along to me and says, Would you spend 1000 pounds on this thing I go, I've only got to get one customer from this thing, whatever that is. And it allows you to make those decisions much more quickly.
Pete Everett 36:13
I love that you did two decimal places. And I think there's a really, there's a really magic KPI there that we're looking at. So the acquisition cost to the lifetime value. Yeah, so David's keeping his clients for six and six points, but something he's doing whatever he's doing revenue, on average per year, he'll be doing whatever he's doing is a gross profit on that. Okay, so that number, that gross profit income versus the acquisition cost, David knows how many months before he's paid back on that acquisition cost. And I bet you would take that deal for as much growth cash as you're willing to deploy.
David Gilroy 36:57
And this is we try and work this model with our clients P and I go, if we can work those model for you, I'll guarantee that if you spend this will get you that if we can work out those numbers with you. And they don't have the data to work numbers. So therefore all bets are off. Because they just don't know the numbers well enough. Whereas we mean, forget the fact that we've got recurring income and retainer work, which again, law firms don't have, you know, the rest of our stuff is pretty predictable. I mean, it'll be like this from month to month. It's never a straight line, as always.
Robert Craven 37:31
But I think there's an interesting thing going on there, David, which is, you know, we always as a running an agency with five people, we don't approach in the same way, as if we employed 15 or 25, or 45. So your one's brain kind of catches up eventually with the size of the business? Yeah, wouldn't it be great if on day one, you had the mentality of someone who employed 50 people, because the way you would make decisions would be very, very different.
David Gilroy 38:06
Yeah, and the only people who do that are people like me, who had an agency with 110. So we just when we set up conscious, 18 years ago, we just did all the same stuff. The spreadsheets weren't as deep and weren't as wide and they weren't as complex. But we applied this same thinking, and so it's much, much easier second time.
Robert Craven 38:24
So first time round, employing five people, you can't imagine what it's like employing 10 people, nevermind 15, 25, 30. So you're, you end up with five person itis for want of a better phrase, you know, I've got to do everything, it's all down to me if I do not go to work at the weekends, you know, I gotta keep my phone turned on all the time. You know, and obviously, when you got 50 people, it's like, I don't have anything on my phone or part of my family staff. I work from Monday to Friday, if there's a really big emergency, one of my team will get hold of me. And you have that shareholder kind of mentality about the investments and what the investments are. And I guess part of the question is: How on earth do it's clear that the people who go from five to 50 staff have that mentality, but there's a lot of people with five staff who want to grow but they can't because they're stuck in technician trader developer mode, developer with staff.
David Gilroy 39:26
Michael J. Gerber approach, which is one of the things we did do even conscious second time around, we set up so we wrote very simple job descriptions, as if we were a 50 person business. We didn't know that we need a finance assistant very quickly. We didn't know when we did a finance manager or junior copywriter, but we thought we might need them so we just wrote very small two paragraph job descriptions. And Andrew had eight and I had seven and our had a technical had five and then as we hired people we went right these two paragraphs that are Nubbins of it now let's make it a proper job description, then go and hire people. But we knew we have multiple jobs that we were already beginning to describe, even when we were, and we launched at five people, I think.
Pete Everett 40:13
I think one of the things that I noticed quite a lot is the agencies with five person itis. They often haven't got the unit economics quite right yet. So they're not making quite the profit that allows them to start investing. Okay, so quite often put the prices up is a thing to look at. I think, you know, the flip side of that coin is maybe your prices are right, but the way you're managing the projects,, it's just not right. So in the end, you've got this, you've got the difference between the billable rate that you'd like to be at and the billable rate that you're actually at, if you count up all the hours you're actually doing. So getting the unit economics right is important. Maybe you've got some investment, cash, maybe you've got some startup cash, you can spend that instead of the organic profit that you're doing. But you do need to invest some things. And I think the other thing I'd say is for first time business owners, the one of the investment decisions to make is about getting advice. The advice is out there is enormously valuable and the return on the investment is high. So get the advice. Pick the moment think of it as an investment. And I spend this what return am I going to get.
David Gilroy 41:50
One thing as well about that unit numbers you call it P is we realised you know, marketing is what we call marketing work. So PPC SEO, it's much easier to control. The project is quoted at 10 hours a month, you didn't deliver 10 hours you stop the web development stuff is quoted at 20 hours, you get 20 hours not finished, you got to keep going. And then the question is do you eat the money? Or does the client pay more? So we spent a lot of time through 2019. When I did the MBO 2019 for us was called D. And this year, we're back to just a year. Okay. But we started back at the beginning of 2019, evaluating our projects more closely getting better with our quoting, quoting for things we previously just included, because we went and I remember talking about the head of DEV one day ago. What do you mean, we don't quote for QA and testing? Well, we do it built in? Well, no, it's not. So we started quoting, there'll be pushback. And we reduced our project overrun from 300,000 pounds to 100,000 pounds. In two years. We were still over running by 100 grand, but my God, how much better is that and 300 grand.
Robert Craven 43:11
But isn't the reason for that, David, because the whole industry runs. So everyone talks about benchmarks the whole time. benchmarks for this, but actually, there aren't any benchmarks, primarily, because as we alluded to earlier on the profit, you have 13 people may well be very different from the profit you have at 17 pre poster, a fee earner, and there are reasons for your strategy. But more importantly, most of the industry works on pricing, which is determined by I was at a conference and I asked the bloke next to me what he charged. So I thought I charged that. And that goes right the way through the industry to what what your, how much you pay people through to how much utilisation they deliver, and so on and so forth. So the industry is kind of almost built on clouds. Like there's no substance to a lot of this information and then people run agencies, under the belief that 75 pounds an hour is a good rate. 65% utilisation is good. You don't need a financial controller until you're 12 or 15 people as a whole bunch of myths, which actually aren't real headed in reality.
David Gilroy 44:31
Because everybody's got a different story. Like, you know, Pete touched on GP, we do not work out GP in our business. I only care about the net net net profit. What everybody else got paid. All our overheads got covered. There was some embryo financing. I take some money, what's the number that's left? And that's the only number we look at, because everything else is fake news in my book and people go RGPS 81% The first thing I go see You're not including your salaries in there. Oh, we issued some of them. Well, which ones? And there's no industry benchmark for that kind of thing? Do you include a percentage of your non billable hours because variables can't be run without some you know, and all that I can make lies, damned lies and statistics. There is no norm to it. So if I just focus on the single True, true net profit, everything else takes care of itself. And we're in we are lucky that the revenue takes care of itself as well. But when we were looking at those stats that I talked about it that and the only way you do that is with time recording, if some people go well, of course, you know, it's our industry hates it, I hate it. I hate every day, when 11 o'clock, an automatic time reporting, email goes out to the whole business, and my name is not up to date. So there's a carrot and stick for doing it. But that's what allows us to measure proper profitability in the business.
Pete Everett 45:56
Is the thing we're selling, right? With services, businesses sell time, you can package it in an agile format, you can dress it up one way or the other, but you're selling time, not atoms, you know, so not product.
David Gilroy 46:11
The product should take under now, if you take 150, you know, if we keep your clients 6.47 years at an average spending actually might make some profit at the end of it. And then help hope you sell them loads of other stuff along the way that helps.
Pete Everett 46:25
Interesting to think, David, how much revenue you'd have had to add it added to get to underground, more on the bottom?
David Gilroy 46:32
Yeah, That's something that got reinvested. I mean, we did add people to help with that reduction. But it's still on that site with us being ahead of the game. And actually, everybody feels better. Can you show a number that's doing that? It really feels like they're helping the situation. And ultimately, at some point, somehow they're sharing the profit, whether it's a better Christmas party, or we're just about starting proper employment benefits for everybody. Because we feel we are sufficiently profitable, we can do that.
Robert Craven 47:03
Wow. So Well, I think our time is nearly up. So Pete, would you like to kind of just sort of put your thoughts together about, you know, these different stages of growth and how we can respond to the stages of growth and what it actually means to an agency owner?
Pete Everett 47:27
Yeah, so I know, we all have already heard it time and time again. But you grow by working on the business, not in the business. So if you're still fully working in the business, that's something to change. It's not a binary thing you either are or you're on, it's a question of degree. So can you look at whatever you do to get 10% back, 20% back, 30% back, and then you've got some space to decide what you're going to do with that time to focus on growing the business. I would encourage us always to think about investing money rather than spending money. And think about what's the return that you're going to get on that investment. You need to do some of this stuff up the way to sort of tend to help people and you need to do a fair bit more of it up to 20 - 25 people, as you're beginning to add in overhead. If you've got a good strong business at 8, 10, 12, people, make sure that you've got predictable revenue growth, and you've got good cash in the bank, you need some fuel to cross over that divide, your profit is going to take a hit. That's the game, make it take a hit, you're investing but have enough cash to get across to the other side, do a plan for it. And it will mean you get across there on your first attempt not on your third or fourth, which is often what can happen.
Robert Craven 48:57
Lovely, very nice. And of course the devils in the detail.I t is so hard to actually maintain that sort of high level view. But that's kind of what has to happen. It's what people have to do. Absolutely lovely. has been absolutely great. Pete, I've really enjoyed listening and talking to you. Do contact me afterwards if you'd like to know more about what he does and how he does it and who he does it with him or he does it. But on that note, I think I will say thank you very much for a really lovely 15 minutes. It's been really interesting, thinking about how we prepare ourselves and how we actually do the right things in order to grow our agencies. So on that note, I'll say thanks very much for being in the audience. Thank you very much David Gilroy has been featured we will edit as appropriately don't worry about that and specifically Pete Everett, thank you very much for the great guest.