2019 is wrapping up–in fact it’s hit or miss whether I’ll finish jotting down these thoughts before the ball falls. I wanted to spend some time organizing and putting to paper the lessons I’ve learned running Delta Growth with Brendan, my business partner, in the last couple of years. This might be a very long, very dry read, but for me it was a roller coaster.
First, Delta Growth is a two and a half year old digital marketing agency. Among many other unique traits, these affect our finances the most:
- We have a 6 hour work day. In SCRUM this amounts to about 23 weekly billable hours per employee. We can’t squeeze our employees for margins.
- We work essentially on time and materials, meaning I have reports on how many hours / resources we’ve committed and used on each client versus what they’ve paid for. We can’t squeeze our clients for margins.
- We provide direct access and training to our clients on their success metrics. We can’t squeeze results for margins.
- Our hourly rate markup is 3.5x versus the normal 3x model that agencies use. Essentially a $60k salary is an $87 / hour rate for most agencies, for us is $101. This is where our little margin comes from.
We did all of this on purpose, of course, as we saw a lot of problems with marketing agencies taking advantage of employees, clients or results to put cash in their own pockets. We know our margins are smaller than most agencies–or businesses for that matter–at 5-10% while we’re growing, or 15-20% on a theoretical, we’ll get there eventually good day. It means we’re good to our employees, good to our clients, and good at getting results.
With that in mind, I’ll start with what I personally learned in 2018 and then move into 2019.
A good partner is great to find.
In January of 2018 Brendan and I signed a partnership agreement in which he got half the company if he could double the revenue against my projected ability to sell by the end of the year. And I had an aggressive sales schedule for myself. In February 2019, Brendan hit that goal and now he has to deal with all of the crap of running a business with me. I’m forever grateful that he’s gone through all of this with me.
I don’t have the experience to call this a lesson or share any tips, but I can’t imagine that most people are as lucky as I’ve been to wind up with such an amazing partner, and I wanted to reflect on that.
Hiring on small teams is hard.
We opened 2018 with one founder and one part time media specialist.
In August we had a two founders, a director, a project manager, two full time intermediate specialists and a part time media specialist.
2019 started with two founders, a director, a project manager, three full time intermediate specialists and a part time specialist.
We ended 2019 with two founders, a director, a project manager, 4 intermediate to senior specialists, and two junior specialists.
Every one of those hires, even the part time one, was hard.
I joke about how much work we had to put into getting people on the team–inviting them out for dinner, stealing them away from other organizations, intruding on a social hangout to make a job offer, making our director an offer he couldn’t refuse, or trying to turn our charm up to ten to get the right people in the door. All of that masked the fear of hiring the wrong team, of knowing from hiring experience that we, often as not, don’t make the right choices.
It masked the fear of not being able to sell. A team of one SEO specialist becoming a team of two means needing to double your sales to fill their workload and stay afloat.
There’s no wisdom to this other than, maybe, “prepare yourself.” Or, I guess, “I’m so happy we’re through that part.”
Strategy is key.
We’ve always had some form of marketing strategy framework, but we ironed out the major details in 2018. Setting business and channel goals with clients to reflect budget and reality, along with assumptions, considerations and risks that could get in our way, and broad strokes tactical direction. Laying this out let us become more than just a digital agency, which generally have vague and ad hoc constructed strategies, and made us a strategic partner.
Brendan and I constantly wish we could do strategy better, but both agree that we’ve never seen strategy at an organization, agency or consulting-level that rivals our current practice. Perfectionism, I suppose.
My lesson here was that all organizations should have some strategic framework with achievable, failable, time-based goals checkered with assumptions, considerations and risks.
HST, or Harmonized Sales Tax, is a Canadian consumption tax.
I know how HST works, but it, like many things, wasn’t fully clear to me at the scale that Delta Growth was hitting. We had switched our accounting software to Xero early in the year and I wasn’t very well versed in it (I’m still not), so I’d asked our accounting firm a couple of times to call out HST owing in their monthly book keeping emails, and when we finally got that going we owed over $20k in HST.
As a business owner, knowing your HST owing every month is super important. I’ve had many conversations with other business owners whose accounting practice screwed them on this.
Source deductions suck.
Canadians pay into the Canadian Pension Plan and Employment Insurance. Essentially, if an employee makes $100, $4.50 (4.5%) comes out of that $100 as the employee share, and then $4.50 (4.5%) comes out of the employer’s revenue as the employer share. This is $104.50 total in expenditures for the employer.
The employer also holds onto the employee share (source deductions) and remits them to the government on some schedule. I thought Quickbooks Payroll did this automatically as that’s what payroll systems should do… They do not. So, that sucked. I think that was $30k that we thought we had but did not. We switched to Wagepoint which we’re much, much happier with.
Pre-working the holidays.
Since we work time and materials, it’s tough to shut down for a week. That’s 25% of a month. In December 2018 we killed ourselves working our hours. We vowed in 2019 to pre-work some of that in November, and defer a bit to January. Spoiler, we managed to pre-work all of it in November 2019 =)
Sales lessons–media is expensive.
Our media management retainers followed this track in 2018:
- $300 + 12% of spend.
- $300 + 15% of spend.
- $1,000 or 15% of spend.
- $1,500 or 15% of spend.
The problem we ran into was that clients of all media budgets require significant effort. Making a $1,000 budget profitable takes 95% as much work as making a $5,000 budget profitable. We ratcheted up our minimums to make sure that we could address the needs of these businesses without massively over investing to get there. We lost a lot of money working on cheap retainers.
I still wince looking at the books sometimes and seeing 40+ hours of overwork ($6k+) on a $700 retainer. Those businesses are now very successful, so that’s great, but all of those cases in sum cost Delta Growth an entire employee in 2018.
In 2017 and 2018 I frequently lent the corporation money and didn’t manage to pay myself until the end of the year in a small cheque that I was happy to get as it let me pay rent.
Obviously I wasn’t broke or I wouldn’t have been able to do that, but I definitely was broke by the time the end of 2018 came around. Brendan and I started paying ourselves monthly in January 2019, and it finally let me stop worrying about making rent.
I’ve gotten the advice that the founders are the most important, least expendable people in the company and therefore should make the most, but… I mean we get equity. No employee owns half of a business valued in the millions, or can develop to that at least. I could invest some extra cash in stocks or other people’s businesses, but the ROI of investing in my own is much better and more fulfilling.
Project Management is super important.
We finally fixed our Project Management structure in 2019, and really ironed it out throughout the year.
I’ve watched a lot of marketing agencies use “Email Project Management,” essentially long chains of emails trying to figure out how to do things with garbage inputs and lots of re-work. The output is generally weak at best, unless one especially aggravated specialist just took it on and sacrificed their weekend for it.
I’ve seen some use tools like Trello, JIRA, Pivotal, Asana, Basecamp and Teamwork. For them, I noticed process issues. No one followed it, it wasn’t associated to a timely workflow, there was little accountability, management didn’t know how much actual work was required in a time period, tasks were poorly defined, quality assurance was missed, timelines were missed, clients were angry.
We use Teamwork but have massively customized it for our purposes. Now we’re SCRUM-ish and run sprint planning on Thursday mornings. The team can reasonably define a Ready Task from memory and no tasks are allowed to be assigned if they’re not Ready. We have time estimates against every unit of work we engage in, and we log time against those tasks.
This made the team much more confident in the work, and management much more aware of what was being asked. It’s easy now to talk to a client and let them know what we can reasonably commit to at a budget range.
We got benefits in 2019! We’re with Desjardins, through a gentleman named Chris Gory.
Most employees were only marginally interested in this for a bit and then that waned. I guess I thought it was a bigger deal than it is, but I suppose that it’s an expectation of a business, no matter the size, to offer benefits.
What I learned was that it’s pretty pricey. We pay about $200 per month for families and $130 per month per single employee.
I also learned that the benefits industry is awful. Adding coverage for glasses requires that all employees are covered and almost doubles the cost. Further, you must go through a broker, it’s impossible to direct get benefits. Essentially it’s cheaper to just buy glasses for employees out of pocket, and you’re always sure that the broker is getting a markup even if you’ve done your own research.
We did see some innovators, but they quickly increased the minimum number of employees covered from 10 to 20 to 50 in the year that we were contemplating it.
Dealing with challenging personal situations amongst employees.
As an employer I have almost no one I can talk to about employee secrets. Suffice it to say that Brendan and I have had a couple of severe breakdowns in 2019 that, to me at least, made the most stressful period of my life seem like a cakewalk.
I joke about how my employees are my kids. I have never had to take more responsibility of someone else’s challenges and opportunities than of my employees, in so many ways.
Controlled chaos amongst incoming / outgoing specialists.
We let go or had 5 employees leave and hired 7 in a 5 month period in 2019. The causes were wrong hires, long term travel, an employee starting their own SEO course, and health. No matter it being mostly outside of our control… that really, really sucked.
This is a 10 person company. If you’re an employer you’ll feel my pain.
We only had two clients who really felt the bumps though, which is amazing, and in both cases we over-worked and were transparent about the changes throughout.
Besides getting through it mostly unscathed, I think my lesson here was that if we can deal with turning over half the company in some slew of unfortunately overlapping circumstances, we can deal with a lot.
Hiring for culture vs. hiring for skill
Brendan says that if you want to work at Delta Growth, you have to give a shit. It’s on us to hire you in at a remuneration level that matches your skills and responsibilities in our eyes, and beyond that as long as you give a shit there’s always a place for you here.
It’s my firm belief that you could stick at cost of living increases and not significantly improve your skillset and be an amazing employee. I go out of my way to let people know that I value them as they are.
If you do want to grow, of course, we’re entirely on your side. We’ll sacrifice ourselves to make you stronger. I want you to have a growth track that keeps you with us forever (mwahaha) 🙂
This means that we also need our employees to treat each other with the same sentiments: giving a shit about each other and supporting employees at any level.
We had to change our interview process significantly to lean into hiring for culture versus hiring for skills, and every candidate we’ve brought in since has been a perfect fit.
Hiring Juniors & committed training.
In 2017 when I was by myself I hired a junior. My client base at the time had agencies whose digital marketing practices I was building, massive-growth startups I was doing CMO-level consulting with, and some small and medium businesses I was doing traditional consulting for.
She was an amazing employee, but I didn’t have the team or work to support a junior.
In 2019 we hired two juniors into a four person specialist team, and a three person specialist team with all levels of seniority on both. We committed to a training schedule for both.
While I’m proud of the entire team, I think part of me needed to see Delta Growth succeed at raising up and supporting juniors to lessen the pain of letting an amazing employee go due to not being able to support them at the beginning. I’m extremely proud of them 🙂
Employee checkpoints & goal setting.
We kept an employee for the better part of 5 months when we knew we weren’t a good match in 3. The problem was that we didn’t feel we had given them a chance to improve on issues we had identified in the first 3, not enough training and one on one time, so we kept them on. In the remaining months we did give that feedback, training and one on one time but at the end of the day we parted ways as it wasn’t a good match for the role.
Yes, we’re bleeding hearts, yes we know that it was dumb, but no we’re not going to change our desire to help put people on the right path.
We have a check point at the 2 month mark in probation now. At this point we let the employee know if they’re on track to stay with Delta Growth and, if not, we build a plan together to figure out how we can keep them. This lets us be bleeding hearts while also letting the employee transparently in on the process.
Brendan also built checkpoints for all employees where we each answer survey questions, give each other feedback, and create a growth plan with goals that we’ll help each other achieve. This process has been extremely helpful both in understanding what’s going on in employees’ heads while also giving them the option to build their own growth track.
We’re not a bank.
But we do charge interest!
We bill net 30 for most of our services, meaning we start with a client, work for a month, send an invoice, and sometimes get paid 30 days later. That’s 4 rounds of payroll before we see a dollar, which is exceedingly reasonable.
We’ve got some delinquent clients, and we’re sympathetic to their issues, but we have to make payroll. In 2019 we chose to add a 24% APR late fee. It sounds like a shitty rate, and it is, but we’re not a bank.
Investing founder time in all teams & employees
We spent a lot of time in 2018 making our SEO services the best they could be, and growing our media practice extensively. But the media team has been static or backed by consultants as we cover a lot of different channels. Until recently.
When we hired in two more full time members to the media team we realized that we didn’t really have a process–we had a practice. We invested the latter half of 2019 into building real process out of the existing practice, and we’ll continue to do that in 2019.
I wish I’d realized this earlier to be honest, as the exercise has been pretty straight forward of converting one to the other. I think the lesson here is, “identify what in your organization is a practice, and what is a process.”
Sales lessons–media is still expensive.
Per the same lesson in 2018, we didn’t really learn it. In late 2019 we changed our terms to $2,000 or 20% of media spend, whichever is greater. We also tack on $1k per channel you want to be in beyond the first, with some overlap for channels like Facebook/Instagram where they’re essentially one channel for the purpose of management effort.
For larger spends we’ll negotiate it down.
From what I’ve seen over the two and a half years of running Delta Growth, this lets us effectively manage all channels at the level they need to be managed at to create real results for a business. The challenge comes where a client’s monthly budget can’t grow above $5-6k, at which point it’s just not worth it for us to engage that client.
The ask is and has always been, “Create a profitable marketing platform from nothing in 3 months (but really I’ll fire you in two months but really I’ll panic in one).” This is a reasonable ask, it just isn’t reasonable at a discounted rate. Marketing is hard and repeatable growth is hard. While we’ve gotten success with most of our clients, the number one issue has been us over-resourcing, and the number two issue is the client not giving a shit about their own marketing, both of which can be helped with a bigger budget.
Sales lessons–no discounts.
This one I finally learned after having a client refuse to go up from a discounted retainer. We invested 25% extra work for three months to hit aggressive growth goals and prove ourselves. Also I wanted to help a small business that had been shrinking for five years.
We increased their revenue significantly in three months, where increased profit alone paid our entire retainer more than twice over.
At the end of the day, we’re now working with a client below our minimum retainer and will take almost a year to recoup our investment in their business, despite more than hitting their goals.
We’ve had enough successes that “prove yourself” or “give us a discount” just don’t fly with me anymore. A trial period is fine–we always treat the first three months as a getting to know you period. But it’s not a discounted trial period. If we can’t trust each other, then we can’t work together. Marketing (and business), whether it’s with a consultant, an employee, or an agency, is a risk. And it’s not my business’s risk. We do our own marketing where we take on our own risk. So should our clients.
I think If I could have done it over I’d have suggested our new retainer model (below) to this client. I believe that negotiations are important for finding a ground that everyone’s comfortable with, neither party making a sacrifice. If that’s not possible, then it’s best to walk away.
Flexibility with clients–consulting retainer.
We came up with a new retainer at the end of the 2019. It’s essentially pay as you go–buy a bucket of 10 hours with one consultant at their hourly rate, and use them at your own pace. If you bought 10 hours at $150 per hour, that’s $1,500. If you use that over three months, that’s $500 / month.
There are some clients who fit one or more of these criteria:
- The just want advice.
- Just want direction.
- Are slow at implementing or can’t execute.
- Don’t have a budget.
- Don’t need reporting, account management, strategy, or project management.
- Don’t need multiple specialists with different skillsets.
I’m glad we can cater to these folks now, and we’re in the process of moving some of our existing clients to this model. The flexibility here is in line with our values, and lets us decouple our “get things done” mentality from our slower clients.
Employer Health Tax
My Christmas gift from the government was realizing that we’re going to be paying the EHT now. Apparently after $490k in payroll you need to pay an additional 1.95% tax on the sum of your payroll above the $490k mark.
This really drove home to me how poor a job the Canadian government does working with small businesses. The first time I ever hear from them, it’s, “You owe us money” or, worse, “You owe us money… and we’re fining you for not knowing that.” Thankfully Wagepoint let us know about this so we’re not going to get fined this time.
I spoke to a couple of people who told me that there’s nothing else that’s going to bite me in the ass, but I don’t believe them. I’ve been burned now a couple of times, and it’s hard to look at the business as a whole as something I understand. Having 1.95% of your payroll in surprise taxes for Christmas is very painful.
I guess I wish the government would do something to get ahead here. A brochure, something. Even if it just said:
- Start charging HST at THIS amount, and it’s a pass through expense so your clients won’t hate you.
- Keep up to date with your HST payments–it sucks to forget about it until the end of the year.
- If you’re self employed, you pay both the employer and employee parts of CPP and EI, which is 9% of your revenue (not profit).
- Make sure your payroll software remits source deductions for you.
- Benefits can be between $x and $y per employee per month.
- Review small business tax rates and cut-offs because they change every year.
- At $490k in payroll you now owe EHT on top of everything else.
That would have saved me a ton of headaches.
But most importantly…
I’ve been trying to figure out where to fit this in, as it’s not really a lesson I learned so much as a feeling I’ve had the entire duration of building Delta Growth.
I am so incredibly, unabashedly, grateful.
I’m so grateful to my team, past and present. A business is the people that make it up and the sentiments that they share. My team gives a shit, and they love and support each other. It kills me every time I disappoint you or give you less of myself than I think I could. It gives me joy to spend my time, attention, connections and money on making your lives better.
I’m so grateful to our clients. We’re creators, and we use that drive to shake up our clients’ lives. I’m always impressed by our clients who can hold on, and I’m inspired by the changes I’ve seen in their organizations and how they’ve dealt with their own problems. For some of our clients I could write another 4,000 words on challenges they’ve faced and lessons they’ve learned–challenges we sometimes faced together, and lessons I stole from their suffering without having to deal with it myself 🙂 I wanted to call out two of our previous clients specifically:
- Maple, who have been with us since before we were Delta Growth, with whom every year we set ridiculous growth goals and then hit them. Not only is this team amazing to work with but their rapid growth and our teams’ intertwined nature has led to both of us evolving off of each other. We always joke that Maple is the client that proves our processes, and all process building is done with an eye to how Maple would operate under it.
- CARFAX Canada, who we brought in early on and who’ve grown to include us in the digital marketing branch of their organization. This is an enterprise that put their faith in a baby marketing agency, changed their practices with our guidance to include a digital marketing team’s workflow, listened to our advice on a major, successful rebrand, and continues to grow with us. It took a long time as a specialist and then strategist to feel comfortable at the enterprise level, and the CARFAX team has continued to show that the agency as a whole is trusted at that level as well.
I’m so grateful to my business-y friends, partners, and mentors. GALE Partners, a business agency, who essentially funded our early years as I consulted there, working together to save and then kick ass for a large FI client. It was great being part of their big family for a bit while we built ours. CLIMAX Media for so much advice and not killing me for being Brendan and Shawn’s next step. Dr. Bill and Hirad Motamed for answering frantic HR questions in the middle of the night. Ben Dankiw and NAV43 for being our sister agency and giving us advice and security–hopefully we gave some of that back. Tiffany daSilva for always having good advice and introducing us to what always feels like half of our clients–check out Flowjo! Simplistics more recently for being down to earth, humble and transparent business owners (also we stole our consulting retainer from you). Future Balance and Ryan Zysman for dealing with me breaking down over accounting issues, and Vanessa Ibe from Rosembaum and Ibe LLC for eventually letting me sign my partnership agreement with Brendan.
I’m so grateful to Brendan. When we negotiated our partnership agreement I said I wanted 50% exactly, no majority, because I wanted you to suffer exactly as much as I did. And you have. We’ve been through a lot of shit so far and I’m sure we’ll run up against more. I can trust you implicitly about anything. Thanks for giving it your all, and I’ll keep arguing semantics with you in 2020 😀
I’m so grateful to my friends, family and girlfriend. Mostly for putting up with my shit, and definitely for being there for me. Especially at times when I’m finding new boundaries to the kind of stress I can (barely) manage, it means a lot to me that I can lean on your love and compassion, or just go on a canoe trip and not talk about it.
To everyone, thank you, and I wish you all an amazing 2020!