In this episode of Trunk Talks, we speak to David Rodnitzky, Founder and CEO of 3Q Digital, an online paid search and search engine marketing firm. David’s accomplished record of building an agency parallels his successful venture investor streak. In 2014, 3Q Digital acquired iSearchMedia to expand into search engine marketing and was then acquired in 2015 by Harte Hanks - which provided additional services and scale.
David is a strong believer in co-operation amongst competitors and is open to sitting down with competitors to discuss new ideas and strategies. Agency owners are often focused on pursuing strategies to grow revenue rather than strategies to grow market share. A more prudent use of time and resources could be to make an acquisition to grow market share. By gaining a greater share of the market, an agency will have a much greater share of future industry revenue. This was the primary thought process behind David’s decision to acquire iSearchMedia, a leading competitor at the time.
One of the topics we discuss in previous episodes, is the challenge agency owners face in hitting their earn out metrics. An earnout is a contractual provision stating that the seller of a business is to obtain additional compensation in the future if the business achieves certain financial goals, which are usually stated as a percentage of gross sales or earnings.
One of the biggest challenges that prevents the seller from hitting these targets is new structures and processes that the acquiree often puts in place. In short, the seller is often forced to drastically change the way they have been operating their business in order to fit into the new model. This often results in a clash between the old and new regime, and prevents the seller from hitting their earn out metrics.
One of the smart things David negotiated during his acquisition was an autonomy clause that allowed him to continue the run the business without interference from the acquirer. This allowed him to hit his milestones and maximize the value of his earn out.
Creating an effective process is necessary to build a successful agency. Most agencies are started by one or two people doing all the work in the company, but as the company grows agency owners bring a number of people to handle the work. During this growth, owners should “fire” themselves from as many roles as possible and empower their employees with additional responsibilities. This allows for the agency to operate successfully without the founders being involved in day to day activities.
In this episode, David discusses how this process created enterprise value within the agency. As he became less critical to the business’s success, key man risk reduction and increased business sustainability drove the increase in enterprise value. An added benefit of this sharing the responsibilities and building the process is it allowed him to spend more time on the strategy of the agency and additional business development.
Julius is an influencer marketing platform that provides marketers with the data & campaign management tools required to organize a successful influencer marketing strategy
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