6 Surprising Lessons I Learned From Scaling My 7-Figure Agency
6 lessons from 5 years of learning and building
I started my agency, Stackmatix, in 2018 with Matt Pru, my friend and colleague from my previous company, MightyHive. We paired up initially out of convenience, knowing we wanted to work together but without crystal clarity on what the business would look like. The first 2 years were just the two of us and a few part-time contractors, which I’ll characterize as our ‘solopreneur days,’ while the next 3 years involved scaling the agency and making a run at building a big business.
Over five years of collaboration, we created a robust startup growth agency with 10 full-time employees and an annual run rate comfortably into the 7 figures. While I left in December 2023 to pursue other opportunities, I learned many valuable lessons from my experience scaling an agency, many of which are counterintuitive. I want to share these in today’s article. Anyone not interested in reading the full article can find a summary with all of the critical points here.
#1 - Being a solopreneur is way different than building a scalable business
Whenever I peruse the “young hustler” sections of Twitter, I’m inevitably confronted with overly enthusiastic young men talking about how you can “escape the matrix”, “be your own boss” and “gain financial freedom”. They talk about how they travel the world running their businesses (usually some form of ad agency / copywriting / coaching), and they are far superior to the wage slaves chained to their desks. The monologues never fail to be cheesy and overly dramatic, as if the pinnacle of financial achievement is making $8k/month completing basic service contracts.
There is a massive difference between being a solopreneur and building a scalable business. The former is much easier and often a lot more glamorous. Once you determine how to get clients and get skilled at delivering services, you can build a business tailored to your goals. If money is the goal, you might take on as many clients as your schedule will allow, hitting $20k-$30k/month in revenue with a few hours of help per week from contractors. If your goal is freedom, you can meet your basic financial needs by working 10 hours per week and spending the rest of your time traveling, exploring, or pursuing passions.
It can be a magical place for a while. Still, eventually, it grows tiring because you will always be capped on how big the business can get unless you start hiring and building a real team. However, hiring employees and leading and managing a team is a giant leap in difficulty compared to being a solopreneur. Your short-term pay takes a big hit since you need to start paying others and reinvesting into software and systems that enable you to scale. There are tax / legal implications you need to become well-versed in. Employees will also want a clear and compelling vision: where is this company going, what is in it for me, and how does my work fit into my long-term career goals? Especially when things get tough, the decision to scale is easy to second-guess. Still, you must never forget that you are playing a different, far more complex game than the solopreneur, and the two are not remotely comparable.
#2 - You cannot build a scalable business with just contractors
In addition to what was mentioned in #1, another issue with being a solopreneur, especially for ambitious people, is you don’t want to be doing the same kind of work over and over for 10+ years. At a certain point, you will ask, “What’s the next level? I want something new that’s going to challenge and stimulate me.” Folks who don’t want to be tied down managing employees say, “I can build a world-changing business with just a team of contractors.” This sounds great on paper, but in my experience, it does not work at all in practice.
Don’t get me wrong - I’m not saying you can never work with contractors; I have worked with many outstanding ones that saved me a lot of time and helped me run my business. I am just saying that for the things that are bottlenecks and suck up most of your time in a service business, contractors are insufficient. For my own business, that was hopping on client calls and dealing with tricky client technical and performance problems that would spring up randomly. I tried having contractors lead client engagements and own client relationships, and it was a colossal disaster. Even for the most talented contractors, the work quality was subpar at best.
They would do a good job initially and coast once things were humming. Many of them had their own agencies and would attempt to outsource my work to someone else. When confronted about poor quality work or mistakes, they apologized but did not genuinely care since they had no skin in the game. Furthermore, with every contractor I worked with, within the first 6 months of working together, there was always at least one time when they would fall off the face of the earth for at least a week and be unreachable. I’d get an answer later (e.g., sickness, family emergency, etc.). Still, because I was just another one of their clients, I never got advance notice and was left scrambling to pick up the pieces.
I have talked and worked with friends with similar types of businesses and tried scaling with armies of contractors. It does not work, and even if it did, no buyer would ever take your business seriously if your workforce is not W-2. Don’t trust the “geniuses” on Twitter—hire employees if you want to build a big business.
#3 - “How do I get customers?” is for amateurs, “new customers minus churn” is for pros
One of the most common questions I hear from aspiring agency owners is, “How did you get your first few clients?” The truth is that your first few clients are relatively easy to acquire by tapping your network (or attending networking events and building your network if it’s not already strong). The real challenge is not getting clients but getting them fast enough and ensuring they are sticky enough to make up for clients who churn. The dirty secret of ad agencies is that most clients churn very quickly.
Sometimes, it’s because the client should not be running ads in the first place and is set up to fail from the start. Sometimes, the client has pie-in-the-sky expectations from some article they read in 2006, and they refuse to be realistic. Sometimes, when results lag, clients would rather throw you under the bus than themselves. Sometimes, the ad agency did a lousy job and deserved to lose the client. Whatever the cause, I have heard from others I know who run agencies, many of whom are very skilled, that their clients only stay around 3-6 months on average.
At Stackmatix, we had clients stay close to 15 months on average, and many who left came back months, sometimes even years, later. The critical thing, though, is that even with our phenomenal service, these clients still churned, so we always needed to be signing to outweigh the churn if we wanted to see the business scale year over year.
#4 - Don’t seek out the projects you personally find most fun or interesting
This one is all but guaranteed to get misinterpreted, so I will do my best to be as straightforward as possible. Early in a services business, when you are a solopreneur, in the weeds, and doing the day-to-day work yourself, there is almost always a tendency to seek the most creative and stimulating work. Sure, you are also going to jump on lucrative projects. Still, all other things being equal, you are likely to do the kinds of projects that you get the most enjoyment from. These might be projects with an entirely new type of client, where you learn a technology, where you get to do your favorite kind of work, etc. It means seeking out projects with some level of novelty and complexity.
The issue is that novelty and complexity are two of the biggest hindrances to building a truly scalable business. To sell your business someday, ultimately want to create a giant, well-oiled machine with clear processes and best practices (as described in #5). To do this, you need a relatively standardized type of client or client problem that you solve. You also want to have solved that problem repeatedly, looked at it from all angles, and have a robust system that allows you to quickly solve it repeatedly. If you, the creative and enterprising founder, were given a clear set of instructions and told to follow a set playbook repeatedly, it would feel agonizing. For many employees, though, this level of consistency is what they crave. Get yourself out of the day-to-day work of the business as quickly as possible; otherwise, you will inevitably start seeking exciting projects instead of building an exciting company.
#5 - You need to plan your exit strategy years in advance
Near the end of my time at Stackmatix, I read the book, “Built to Sell,” which had been recommended numerous times by different people in my circle. The book is about a marketing agency owner who has spent years building a respectable business. He has worked with some decent-sized brands, built his own internal team, and even won several local awards. He decides to sell the company, so he seeks counsel from a serial entrepreneur he knows, asking him what would be a reasonable sale price. The entrepreneur returns to him the next day and says, “I don’t mean to discourage you, but your business is unsellable and thus worth nothing. A sellable business needs to solve a particular problem or service, have clear systems and frameworks documenting how the process will be solved, and can’t overly rely on human talent.”
The issue with the way the agency was built, according to the entrepreneur, is that the owner took on too many varied projects and clients, did whatever the client asked, making it impossible to build a clear system or framework, and the over-reliance on his people meant that they were the true source of value and could also refuse to work at the new acquiring company, nullifying the value of the sale. The book is about how the agency owner must let many clients and employees go and reconfigure his business from scratch. Many years later, he finally created a sellable business for which he got a reasonable price.
Reading this book pulled the wool off my eyes. I realized I was that agency owner and was simply operating off the assumption, “If my business has enough revenue, I’ll get a solid acquisition.” With this newfound knowledge, I realized I should have built my business differently from the get-go, preparing it to be sellable to the right buyer from day one. Am I saying you need to be like Bran Stark from “Game of Thrones,” having a clear vision of your business’s future from day 1? Yes. Yes, I am.
#6 - Apathy is the employment-killer
While the title is poking fun at the Dune line, “Fear is the mind-killer,” through my 10+ year career, I have one consistently reliable indicator that someone needs to be fired: apathy when confronted with a big mistake.
When it comes to apathy, there is a pattern I have witnessed at least 10 times that has always been the canary in the coal mine for letting someone go. It goes like this: one of your employees makes a huge mistake. Maybe it had a massive negative impact on your clients, cost your company a lot of money to clean up, or something similar. You confront the employee about the problem, explaining as clearly as possible why this was a huge mistake and the damage it has caused and conveying through your tone the gravity of the situation. The telltale sign that they will not make it is if they respond with total nonchalance or indifference. “Oh yeah, I get it - my bad,” or “Yep, won’t happen again.”
The ideal response by a long shot is a genuinely sincere apology and a plan to ensure the mistake doesn’t happen again. However, even an emotionally charged, defiant response to a mistake is better than apathy. An emotional response signals, “I understand the stakes here, and I care.” An apathetic response at best signals, “I’m clueless,” and at worst, “I don’t care if this caused a lot of damage or pain; this means nothing to me.” Every time I have witnessed a highly apathetic response to a huge mistake, it has always been a sign that the person will be out the door in 6 months or less, and the sooner you can cut the cord, the better.
Conclusion
I hope you found this article helpful and enjoyed reading about these lessons as much as I enjoyed sharing them. Also, please watch for my next article, where I share my experience building my own custom GPT and the benefits of doing so.
If you liked this content, please click the <3 button on Substack so I know which content to double down on.
TLDR Summary
Focus of the Article: The article explores key lessons learned from scaling the marketing agency Stackmatix, highlighting the differences between solopreneurship and building a scalable business, the challenges of hiring, client retention, and the importance of long-term planning.
Key Lessons and Strategies:
Being a solopreneur is way different than building a scalable business
Insight: Running a business solo offers freedom and manageable workloads, but growth requires hiring and scaling, which introduces new complexities.
Challenges:
Scaling requires reinvestment, software, systems, and long-term vision, reducing short-term pay.
Employees need career development and alignment with company goals, making leadership more challenging.
You cannot build a scalable business with just contractors
Insight: While contractors can help in specific cases, they aren’t effective for scaling a business.
Challenges:
Contractors lack accountability and consistency.
Outsourced work was sometimes re-outsourced without notice, leading to missed deadlines and poor quality.
A scalable business needs full-time employees (W-2), not just contractors, to be taken seriously by potential buyers.
“How do I get customers?” is for amateurs, “new customers minus churn” is for pros
Insight: Success is not just about acquiring new clients but managing churn effectively to ensure growth.
Challenges:
High client churn is common across agencies, with many clients leaving within 3-6 months.
Even with excellent service, client churn is inevitable, requiring continuous new business to maintain momentum.
Lesson: Focus on balancing new client acquisition with retention to scale sustainably.
Don’t seek out the projects you personally find most fun or interesting
Insight: Early on, it’s tempting to take on novel projects, but this hinders scalability.
Challenges:
Novelty and complexity prevent building repeatable processes.
Scalable businesses thrive on consistency, standardized client work, and clear frameworks.
Lesson: Shift focus from interesting projects to building systems that allow the business to scale predictably.
You need to plan your exit strategy years in advance
Insight: To make a business sellable, build it with clear processes, not reliant on any single individual.
Inspiration: The book Built to Sell highlights that a business with varied, non-standardized services is difficult to sell.
Lesson: Design your business from the start with an acquisition in mind by creating standardized operating procedures (SOPs) and frameworks.
Apathy is the employment-killer
Insight: Employees who respond to mistakes with apathy signal disengagement, making them liabilities.
Red Flag:
When confronted with mistakes, employees showing indifference are unlikely to improve.
Lesson: The ideal response to mistakes is either genuine apology or emotional engagement, which shows the person cares about the impact.
Key Takeaways:
Scaling Requires a Shift in Mindset: Solopreneurship and scalable businesses are fundamentally different, requiring leadership, systems, and employee investment.
Client Retention is Critical: Managing churn is just as important as acquiring new clients to maintain growth.
Standardization Enables Scalability: Building repeatable processes and frameworks is essential for creating a sellable business.
Plan Your Exit Early: Start with clear goals and SOPs to make your business attractive to buyers.
Hire for Engagement: Address apathy quickly, as it signals deeper disengagement that can harm your business.
Hey James! Great article.
It sounds like you would recommend reading Built To Sell BEFORE starting a business, then? I've been meaning to read it for a while, maybe I should move it up my list. :)
A couple things I would be super curious to see articles about:
-How did you get most of your clients at Stackmatix? What worked well and what didn't?
-How do you manage relationships with clients? Daniel Fazio says that keeping clients is 50% getting them results and 50% getting them to like you. Would you agree with that? How do you get them to like you?
Great read!! Thanks for sharing!