Growing an agency during inflation is a unique challenge…
But with the right approach, you can beat your fears and see your agency thrive…
Brian Davidson of Matchnode is here to share the key things an agency owner should do to ensure they can grow their agency during inflation.
And we’ll also discuss:
- Keeping office culture alive in the age of WFH
- Dealing with clients who fear recession
- Finding talent when salaries are high
- How to rightsize your business
- Optimizing for profit
- And more
Mentioned in this episode:
Voiceover: This is Performance Delivered, Insider Secrets for Digital Marketing Success with Steffen Horst and Dave Antil.
Steffen Horst: Welcome to the Performance Delivered Insider Secrets for Digital Marketing Success podcast, where we talk with marketing and agency executives and learn how they build successful businesses and their personal brand. I’m your host, Steffen Horst. The topic for today’s episode is running and growing an agency during inflation. Here to speak with me is Brian Davidson, who is the co-founder at Matchnode, an ROI focused internet marketing company that serves its clients in the areas of digital strategy, traffic generation, and conversion optimization. Brian, welcome to the show.
Brian Davidson: Thank you for having me. I really appreciate it.
Steffen: Now, Brian, before we talk about today’s topic, tell our listeners a little bit more about yourself. How’d you get started in digital marketing? What led you to founding Matchnode?
Brian: Well, a little bit of a long story, I’ll try to give you the condensed version. But in 2006, I was a ski bum at the time, and I got my first job, basically in customer service. Answering the phone at a company that helped kids find sports scholarships. A little bit like a match.com for high school athletes. And this is when web 2.0 boom is just starting to begin. And I went to my boss and I said I think we need a social media department. And he said, basically, kid, you’re in charge.
So I learned on the fly from there. And then we founded Matchnode. Nine years ago, my friend Chris, who I actually hired to do some consulting work at that initial company. We stayed friends. And we were having some beers before the first Pearl Jam show at Wrigley and looked at each other and said, hey, why don’t we start an agency? So we went to the coffee shop on Monday, and we took it from there.
Steffen: Interesting. Interesting. So obviously you said, you know, nine years ago, you founded it. So you have a few years under your belt running an agency. Now at the moment, and now we’re recording this in beginning of December 2022. It’s an interesting economic situation, right? There’s there’s a lot of talk as what is going to happen in 2023? Are we slipping into a recession. The R word that no one wants to kind of, you know, throw around. For an agency, what are the areas of an agency that mostly get impacted during inflation?
Brian: Sure, well, of course, our clients get impacted, on one side. Our finances certainly get impacted as just our costs are going up. And you know, the main piece of those costs is mainly employee salary. But then, of course, all the other things that go along with that. Benefits, et cetera. Fortunately, running an agency, we don’t have a crazy amount of cogs, there isn’t a lot of physical space, where we’re now a distributed team across the country. So we’re not seeing office space go up.
But we’re certainly seeing employee requests for salary go up. We’re having our employees, especially, you know, six, nine months ago on the market, and it was certainly really important for us to retain them. So that piece of the puzzle went up. Then the second piece of inflation that we jumped on as an agency, and probably in the wrong way, actually, frankly, is when we started the agency nine years ago, we bought our first Bitcoin. And a few weeks later, we bought a second one. And a few weeks after that, we sold some Bitcoin and started buying Ethereum. So we had this crypto background in the agency. Meanwhile, COVID happens all of a sudden, we got a dump of cash from the government that we didn’t really need, but our competitors, were going to get it.
So we took it as well, we certainly needed the first round of relief. And the second round of PPP was like, I can’t believe they’re giving us this money. But we took it and we didn’t really know what to do with it. And we saw inflation around the corner. And we started basically a crypto treasury strategy where we’re dollar cost averaging every week into Bitcoin and Eth. At one point that looked like a great idea to combat inflation. Today, not so much. But it changed a little bit, you know, of how we function as an agency, trying to think about how we’re keeping dollar reserves, and how those are depleting over time.
Steffen: Yeah, I want to go back to distributed team. You know, we here at Symphonic Digital when I founded the company back in 2013, that was the idea that I had. You know, I had worked for, for big global agencies, the likes of Mindshare, and Universal McCann, you name it. And obviously everyone is cramped in an office, you know, that’s kind of how it is at big global agencies, but we want to do something different. We wanted to have people, great people from wherever they are, you know, without having to worry about that they have to come to an office and we need office space.
You know back in the days before the pandemic that had some cost savings, right because you didn’t have to have an office, you know, and then your overhead basically kept to a certain extent. And also people didn’t cost as much because they understood if I can work from home, I don’t have to go into the office. You know, I trade it off a little bit from a salary perspective.
Steffen: But I have to say these days, I don’t see that anymore because obviously working remote has become the new normal, right. So we don’t really see when I put a job post out. The salaries anyway have gone up, right. But there is no difference between remote and having someone in office. How is that for you guys?
Brian: That’s spot on for us. So I was a big office guy. I loved going our office, downtown Chicago. I love getting on the train in the morning, I actually liked the cold weather. I don’t mind walking through Chicago in the middle of winter. I liked interacting with people, being able to wheel over to someone’s desk and show someone junior how to do things. I thought that we’d always be an office person. Of course, pandemic hits, and we can’t be office people. And all of our systems just translated beautifully to being remote.
Using Asana, using Google meet, we’d just moved over to Zoom a few weeks prior to the pandemic. Because I thought we needed more FaceTime with our clients. But all of our, and using Slack, all of our systems translated beautifully. And even though we were just distributed across Chicago, we could see immediately that this was going to work for the long term. I end up buying a house in Indiana, so I kind of forced our hand as an agency. But shortly thereafter, we started hiring more people.
And in the background of all this inflation and change happening. We also had the iOS 14.5 update, which really disrupted digital marketing. And my co-founder and I also were trying to look at where the puck is going. And we realized that creative differentiation and technical differentiation was going to be really important for paid social agencies like ours going forward. So the key hires that we hired, coming to that year, were a creative person who was on the east coast at the time. And we hired a developer who was in Kansas City at the time, she’s actually now back in Brazil.
But we actually helped her get her visa, which I’m really proud of. And we started hiring people all over the country. And that’s been great. But like you said, initially there were some cost savings, like developer we hired if she was in Chicago, I’m sure she would cost more than Kansas City at the time. That hadn’t quite evened out. But since then the employees we’ve had, we’ve hired, I feel like it’s kind of table stakes as far as a salary, it’s doesn’t really depend on the market nearly as much as it used to. But the other funny thing that happened is, in theory, we were saving all this money on not having office space. But I was an office guy and really believed in that office culture and how important that was.
So we took all the money that we’ve been saving on offices, and we’ve been getting together once a quarter in different locations, and investing it right back into flights and Airbnbs and programming to keep the culture high. And how that shifts over time, frankly, we’re very young agency. So my co-founder and I have kids, but only one other employee has a kid. And of course that starts to shift on how often you can do things like that. But it’s interesting that reinvestment, and that kind of equalizing of salaries across the country.
Steffen: Now, in an economic situation as we are and as we’re most likely moving into, clients usually start cutting back on their marketing investments. Now for agencies likely like Matchnode or Symphonic Digital, you know, that has an impact on the bottom line at the end of the day. Which at the same time means we might have to either cut back on time spent on specific accounts, because if you get less that needs to be reflected somewhere, or you have to spend the same amount of time, but you have to accept that your margin will shrink, basically, what’s your thought on that? And then how do you how do you approach that situation?
Brian: Well, I would hope that our campaigns with our clients are so profitable, that there is no pullback. That they might see a compression in their margin. But for you know, that incremental dollar, they’re still seeing profit investing in digital. I was listening to the Walmart CEO talk yesterday on CNBC, and he was pointing out that yes, they are seeing addition, traditional dollars into digital because that’s where they see that the ROI is.
So if we can prove out that ROI, and that’s really the hardest thing to do for some clients, but very, very easy to do for pure play e-commerce clients. If that ROI is still there, and you can prove that incremental dollar is still driving value. There shouldn’t necessarily be a pullback in budgets on marketing. In fact, that’s probably the last thing you want to cut. You want to be working on cutting expenses across your business.
Steffen: I mean, that’s what marketers, like you and I usually say well, why are you cutting it. But the reality is they still do, right. Because the situation the market is in this economic climate, people also lose their job. And we’ve seen a number of layoffs throughout Silicon Valley and other areas, right. Which means people don’t have the dollars anymore to really buy some of the things that they might use to be buying. Which means there is an impact for businesses, right. If your conversion rate might go down, or the demand in general goes down. So before you had x amount of people, on average, that would come to your online store and buy your products. But that might go down by 10, 20%, depending on how many of the people that are impacted by the economic climate, actually sit within your target audience.
Brian: That’s true, that’s true. We work with a couple of large banking clients. One had a very large refi business. Basically shuttered. Home purchasing, still very profitable, but volume declining. Actually an increase in some of the things that are a hedge against high-interest rates and that savings rates for awhile, were skyrocketing. And we’re seeing a lot of deposits on both just the savings accounts, and the CDs accounts. But then we have another clients on the e-commerce side where their supply chain has gotten crunched. We have a client that sells stationery.
Their time period before Christmas, to get Christmas cards out, is basically a lot shorter than it used to be. Because it just takes longer for things to get to people. It’s the same on e-com, right? If you’re gonna buy a t-shirt for someone for Christmas, it has to get there in time. So so far knock on wood, our Black Fridays are very comparable to last year in terms of return on ad spend. But we are seeing those kind of macro shifts. And the other place where we really see it is in some of our restaurant groups. The restaurant groups that are at the higher end, interestingly, are still doing very well. It’s the mid-tier restaurant groups that we’ve seen some softness in.
But then there’s other things, you know, entertainment and that sort of thing. You’re still seeing and hearing about flight numbers taking off. The professional sports teams that we work with, we’re still seeing strong numbers in terms of ticket sales. We’re working with the Chicago Cubs on activation at Wrigley Field this winter of people ice skating bascially on Wrigley Field and a Kindle market around it. Very strong demand. Return on ad spend is is great. So I think there are these pockets, even as things shift where people can be successful, but it’s definitely one of those environments where you’re looking where the puck is going next.
Steffen: Yeah. Now, from an employee perspective, going back there. You know, with increase in salaries, right, depending on what they work remote or in office, how are you finding talent to support the growth of your agency when salaries constantly goes up? Go up, right. And, I mean, what I see is, I sometimes have conversations with with with individuals and their salary expectation is just, I have to use the word, it’s ridiculous for the experience, but apparently there are companies out there that pay that amount for that. So how are you finding the needle in the haystack, the people that are actually good. They are actually good, you know, and demand a reasonable salary.
Brian: So a couple things there. We did release to our internal employees, salary ranges for all the different positions to try to give them a range of what we think is reasonable. Those are certainly higher than they used to be. But that’s one way we’re trying to kind of calm expectations to some degree. We used to use a search firm for a lot of our high-quality hires, that’s kind of out the window right now. We’re not in a position where we’re going to pay their fee on top of things. But we do have an extremely methological hiring process. It takes four or five different interviews, where we’re pulling someone through to make sure that they’re absolutely the right person.
And I think we’re taking even more time now to make sure that we’ve got the right person. And we’re valuing different things in different ways. experience isn’t nearly as important to me as it used to be. I know I can teach someone to do these types of things. I’m more interested in someone who has a passion for this business, and really wants to work at Matchnode and thinks we’re the right fit for them as a vehicle to grow. Those are kind of main things that stick out to me.
Steffen: So you’re kind of moving away from looking for people that already have the have the experience to people that have the ambition to get there, basically. That are capable of kind of soaking up the knowledge that you’re willing to share.
Steffen: Interesting. Interesting. And have you adjusted your benefits? Or is that not the differentiating factor when competing for talent?
Brian: Our benefits have improved over the years. Ironically, I just finished up selecting our insurance plans today. During the pandemic, one of the things that we had to do was move over to a PEO for paying people all over the country. And we were able to take advantage of a PEO offering insurance rates that were better than our previous setup. So I guess our benefits actually just naturally improved there. As of today, we haven’t made any major adjustments on 401k, or anything like that.
We do offer HSAs to all of our employees as well, in terms of saving. We did used to reimburse people for cell phones and gym memberships, we did basically cut that and just gave everyone a small bump. Because that wasn’t gonna be, in the past, we were at an office, we said, we pay for your gym membership, if you went x times per per month, basically. We didn’t really police it, but we wanted to make sure there was some buy-in, we realized that was impossible in a remote environment.
So we punted on that. But no, I don’t get the sense that benefits are the differentiating factor right now, compared to the culture fit, the pace with an agency, the lifestyle, that’s the biggest thing that I’ve seen in terms of pure benefits in a traditional way. The other big wildcard is vacation time. We did have an employee come to us with another offer, that involved more vacation time that anyone at the company ever got. So I knew that was going to be an issue almost immediately, and we ended up moving to unlimited vacation for everybody.
So there’s a lot more vacation happening, than used to. I’m not sure if that’s a good or bad thing. I tend to be a workaholic, who works all the time while I’m on quote-unquote, vacation. But that’s not for everybody. And that’s not going to keep people with your agency long-term. And the people that I’ve talked to that have implemented an unlimited policy in the past, they seem to not think that it’s affected them at all. So hoping it doesn’t come back to bite us.
Steffen: We have had unlimited vacation policy for a number of years now. And I don’t really see that anyone within the company, you know, takes that and just barely shows up, so to speak, right? I think if you have the right people within your team that as you said, they’re invested in a company, that love their job, that they love the culture and everything else, they will make sure that they balance it out. I mean, I still sometimes feel like I have to tell people to go on vacation. Because yeah, I feel like the mindset and look, I’m from Europe, I’m from Germany.
In Germany, on average, you have between 24 and 30 days, and then on top of that you have the national holidays, right? So you can sometimes go to 40, 50 days off, which is obviously completely unheard of here, right. But back in the days when I was at agencies, you know, you had like your 10, 12 days. And then that seems to what people still have in mind. So just unkept vacation is something I don’t think that changes people’s behavior when it comes to how much time they take off necessarily.
Brian: Well, two things to add there. We worked with a European eyeglass company. And yes, I could not believe how many days they head off. It was hard to be rescheduling calls all the time. But two, you’re right. One of our core values is accountability to your teammates, and to your clients. And if you’re on vacation all the time, that falls apart pretty quickly. So it’s important to have that as table stakes to make sure. Otherwise, you’re not gonna be around as an agency very long.
Steffen: Yeah. If we want to if we want to kind of stop talking about employees, from your perspective, what are the key things that you think an agency owner or an agency should do to ensure that in an economic situation like now, they continue to be able to grow their agencies, if you can bring it together, kind of in a short paragraph?
Brian: Sure. I think we’re at one of those moments where things that you were very certain about, you should be thinking very critically about. We’re very actively considering changing our service offering for the first time in five years. We’re considering adding some services, thinking that we can, there might be meat on the bone with some of our clients that we’re not getting. And we could be expanding profitably in a smart way. So I think it’s one time is a time to be thinking really strategically and not having any sacred cows.
The second piece, I would say, is understanding that your client’s strategy can be shifting, and you should be communicating really, really clearly with them as often as possible on that topic, and not being stuck in the reports. And looking at ads and campaign setup or landing page testing. I think it’s one of those moments again, where you should be stepping back and thinking about what has changed. How can we contribute to you succeeding as a business and what needs to shift within your offering. So I think it’s one of those moments where you can’t get stuck in the forest. You really got to, or stuck in the trees. You got to see the forest.
Steffen: That makes a lot of sense. Now, financials. I mean, that’s for an agency, I mean, for any business, that’s a very important area. You got to have control over your cost, you got to be able to predict what’s going to happen. How do you navigate that area with potentially declining revenue, and clients still expecting the same level of service?
Brian: Well, we have minimum thresholds that we stay under in terms of, or above, I should say, in terms of profit per employee. And we’re very rigid about right-sizing the business. We had to at the beginning of COVID. Felt bad about that. But we basically took the first round of PPP money, and once it was gone, I’m like, okay, well, we need to right-size the business going forward. When we started the business, my business partner had come just from a video game company that was very wildly successful in some ways in terms of partnerships and technology that they built. But they never made a dime.
The agency that I had come from down in Tampa, they had a lot of great partnerships. They were one of the first ever Facebook official development partners. But they also were unprofitable. And when we started Matchnode, we were both still on married. But you know, rents and credit card was about all we had to pay. So we’re very deliberate on we’re going to optimize this from the very beginning for profit, and paying ourselves first, and we’re happy to do the work ourselves if that’s what it takes.
So we’re going to be pretty stringent on sticking to that profit per employee. And if we need to right-size things, we have levers that we’re going to pull. And I think you can’t necessarily, you know, come into an environment like this, and try to be the nice guy. I think you definitely need to again, be really clear-eyed about where we’re going. And if the writing is on the table, that something is not right sized within the business, I think you need to be default alive.
Rather than trying to either take loan or cutting salary, I think you need to run a profitable business. And if that means right-sizing things in terms of salary, or benefits, or whatever you’re doing. Maybe outsourcing X, X and Y, are making cutting a tool that’s profitable. Or not profitable, very costly, might save you time, but not necessarily core to the business offering. I think that’s key.
Steffen: That really requires you having a firm understanding of your financials from an investing perspective, obviously, right. Where you’re kind of spending money. Obviously, people is quite important because they do the work, they kind of serve the client. And then as you mentioned, there might be tools that you’re using, but do you really need those tools? Some of these tools can be expensive. We’re using a software solution to normalize data for our reporting.
Whenever I get the invoice, I’m like holy cow, this is this is expensive. And we don’t charge for reports for our clients, right? It’s part of the fee they’re paying. But at some point, it’s like, do I need to start charging for building out specific reports, because we have a reporting template, which is standardized, but what if a client really wants more than that? And wants certain tools or systems integrated? Are we at a point where we have to say, you know what, it takes time, therefore, you know, someone has to do it, we might have to start charging for it.
I mean, that’s at least the way how I look at it, right? I mean, you want to, you want to be able to maintain the way how you do as long as possible, you know, but if you see that certain costs are increasing, then you have to think about if you might have to charge for it at the end of the day, if you gave that away, up to that point.
Brian: 100%. And one of the other things so important in terms of staying on top of your finances. An agency is watching your AR really closely. We actually outsourced our AR last year at the beginning of the year. And it was a really poor decision. Our AR actually grew by quite a bit. We actually brought it back in house and we hired someone in the Philippines to help us manage our books to cut that cost in terms of outside accounting. Lowering it in terms of overall costs, but also decreasing that AR and staying on top of it on a constant basis to make sure the cash flow is where it needs to be.
Steffen: Yeah. Now, with trying to maintain a certain level of profits, right? Again, economy is tough, you might not be able to maintain your 50, 40 or whatever the profit margin goal that you go for. Might not be able to maintain that, you got to be a little bit flexible. How flexible do you, or are you when it comes to clients kind of renegotiating contracts. So contract comes up, you know, client is happy. But you know, they send signs that it’s getting tough for them too. What is your approach to that? Are you kind of holding your ground? Like look, this is, you get a great service, this is what it cost period. Or are you open to conversations? And how do you, how do you frame those? How do you approach those conversations?
Brian: So at the beginning of this cycle, we actually proactively went and looked at all of our clients and looked at scope creep, and realized there’s a lot of places where we weren’t charging for things that we said we would do initially. So I’m sorry, we had X amount of pieces initially, and there was scope creep, and then we never charged for it. So we went to select clients and got small increases in different places. For some clients, we used a template that we got from another agency in Chicago that we’re friendly with.
And we simply sent out an email saying due to inflation and employee costs, we’re implementing X amount price hike, and those were met by all of our clients except one with understanding arms. Certainly, no one’s happy about receiving something like that. But everyone was pretty outstanding. But the way our contracts work for the majority of our clients is we start with a 90 day sprint to prove ourselves. And then things move to really a 30 day moving contract where either side can get out anytime, which I like, because it holds our feet to the fire.
In theory, our clients can try to renegotiate at any time, they’re not really locked in the majority of them. Some of the larger ones, like sports franchises, they need those sort of things just contractually. So those are in place. But a lot of our small clients feel nimble, in that they could turn us off. And I think that puts them at ease to some degree. I’ve only had one client so far come to us and look for savings. We did grant a little bit of savings in exchange for actually a reduction in the scope of work. And we’ll see going forward.
Some of our clients where there is a mechanism around percent of ad spend. We don’t like to do that because I don’t think it necessarily aligns both parties. But there’s one specific client where that’s a big part of our comp, that’s down a little bit as they haven’t been able to spend profitably as much as they would like to. So those conversations are happening. The way our model works, and it really requires trust on both sides do it every 30 days. And I think that flexibility has earned us a little bit of rope there.
Steffen: Interesting. I think one thing that you said earlier, I think it’s really important kind of looking at scope creep, right? I mean, unless you’re writing a contract that has so many guards in there, you know that it’s really hard to, that actually happens. In many cases, there’s scope creep. And then looking at what are we doing for a client, and having an honest conversation with your client about look, you know, this is what what we initially set out to deliver. And this is what we’re doing now might be a good first step to look at either kind of either taking that additional work off, because the client might have someone to take care of it, or you know, having a conversation about slightly increasing the fee in order to cover the costs and leave some profit over for that particular client.
Brian: 100%. And usually, it’s really clear. You look at the SOW and you look at all the things that you’re doing. And you can list out x, x and y that went above and beyond when you point out to the client, they realized how important that’s been to their business. They really jump on and understand your point of view.
Steffen: Now, Brian, unfortunately, we’ve come to the end of today’s podcast episode. Thanks so much for joining me on the Performance Delivered podcast and sharing your thoughts on you know, running and growing an agency during inflation. Now if people want to find out more about you and Matchnode, how can they get in touch?
Brian: Just come to our website. It’s just m a t c h n o d e. So match, like a good old match that lights on fire, n o d e.
Steffen: Perfect. Well, thanks everyone for listening. If you like the Performance Delivered podcast, please subscribe to us and leave us a review on iTunes or your favorite podcast application. If you want to find out more about Symphonic Digital, you can visit us at symphonicdigital.com or follow us on Twitter at Symphonic HQ. Thanks again and see you next time.
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