In this episode, Chip and Gini explore strategies for agency owners contemplating an exit plan. They discuss the importance of planning and the different options available, depending on the agency’s size and structure.

They talk about the limited choices for solopreneurs, as well as a wider variety of possibilities for larger agencies, including mergers, transferring ownership to employees, or simply stepping back from daily operations.

They emphasize the need for a solid timeline and a leadership team to ensure a smooth transition and successful exit. Additionally, they caution about potential pitfalls and unrealistic expectations, sharing insights from their own experiences and those of others in the industry.

The following is a computer-generated transcript. Please listen to the audio to confirm accuracy.

Chip Griffin: Hello and welcome to another episode of the Agency Leadership Podcast. I’m Chip Griffin.

Gini Dietrich: And I’m Gini Dietrich.

Chip Griffin: Gini, I’m getting out. I’m done.

Gini Dietrich: Finally.

Chip Griffin: Finally. It’s all over. Maybe we can have a click bait headline or something like that on this episode. I quit.

Gini Dietrich: I quit. Chip quits in a fury.

Chip Griffin: You know, I really hate all those YouTube videos where that’s, you know, they use that as the thumbnail or something like that.

And it’s just like, you know, I’m not going to, I’m going to, you know, stop drinking coffee or something like that. Okay, great. Like, what does that have to do with anything?

Gini Dietrich: Right.

Chip Griffin: No, we won’t do that. We’re not, we’re not that clickbaity. We’d like you to listen. We’d like you to click over but not at the expense of our ability to have a straight face and pretend that we’re serious.

Gini Dietrich: Right. Be somewhat intelligent.

Chip Griffin: But we are gonna talk about exiting because it’s been a while since we’ve talked about the different ways that, that agency owners can leave their businesses. And this is something that continues to come up on a regular basis. I talk with, with plenty of agency owners who are thinking towards the future and trying to figure out what is their exit strategy for the business. Either because they’re burned out, fed up and, and want it sooner rather than later, or because they’re just trying to think somewhere down the road, you know, what is, what is my objective here?

What is the point of all of this? And so I think it is helpful for anyone who owns an agency to be giving at least some degree of thought to how they might want to exit the business someday, with the understanding that a lot of it is not really fully within your control. So you have to be flexible and adapt as things come up and as your life changes or as the business changes and that kind of stuff.

But you should be thinking about the different ways that you can exit the business.

Gini Dietrich: Yeah. And I think you have to think about a few things too. Like, if you have, if you’re a solopreneur or a micro agency, or you have a lifestyle business, then I think you have to think about what kind of workout you’ll have with a buyer. Which means how long are you willing to work for a new owner as you work out and get your, your equity that way?

Is it two years? Is it five years? Is it, you don’t want to do it at all? Those are considerations. I think you also have to think about, is there, who, what is the, what would the buyer be buying? Are they buying you and your talent? Are they buying you, your talent, your clients, and your team’s talent? Like you have to think about all those kinds of things too.

And I think you have to give yourself a pretty good runway of five to eight years. So if you want to sell in eight years, you got to start thinking about that stuff now so that you can start to prepare and plan for what that eventual exit would look like.

Chip Griffin: Yeah. And I think, I mean, let’s, let’s break these, the exit possibilities down a little bit because what’s possible does depend in part on what kind of business that you’ve got.

And so. Sure. If you are a solo, your options, frankly, are pretty limited. I mean, if you, if you are a solo, your main options for your agency are likely to go the acquihire route, where you basically just decide, I, I don’t want to do this on my own anymore. And so you go work for some larger agency.

It doesn’t have to be large. It could be a two person agency or, you know, a one person agency that’s becoming a two person agency or something like that. But, but the exit is that, that you go effectively work somewhere and maybe you get paid some value. Sort of a signing bonus, if you will, and that’s typically called an acquihire.

The second possibility is that you simply try to sell off your book of business and essentially get referral fees from whoever decides to take on those clients. I mean, those are pretty much your only options if you’re a solo. You’re not going to sell in a traditional way because you don’t really have anything other than your talent and your client roster to sell.

You haven’t built, in all likelihood, any degree of appreciable intellectual property. You don’t have a team that you put together. You don’t have a whole system of business development or any of that kind of stuff. You’ve got a relatively narrow book of business. You can still exit as a solo and it doesn’t have to be just shutting down the business, but those are your two likely routes.

Gini Dietrich: Yeah, and I think you have to think about too, if that’s the case that you and you are going to work with/for someone else, how do you, I think one of the big, biggest risks in that is the clients that you service now may or may not want to go along. So if, typically, if you’re going to continue servicing them and they’re just going to make their checks out to somebody, a new company, then typically that’s okay. But if they’re having to work with, you know, your, your new business partner or their team, it’s a little bit more risky. So I think you have to think about that from the perspective of, okay, in year one, this is what we’re going to do.

I’m going to sell my, my business or get us, get, do an acquihire. And, and then in year two, I’m going to start transitioning some of my clients to their team, but still be involved. So that by maybe year three, you’re finished. So it’s still a, you know, three to five year deal. It’s not just, you’re going to be sell and be done.

So you have to think about those kinds of things too, because the biggest risk and having… having made an acquihire in the past in my agency life, clients don’t really like that so much. Even if you’re super talented and my, my team and I are super talented, but the, the acquihire that I made, their clients wanted nothing to do with it.

And so I made a really big investment in something that didn’t work out. So you have to think about it from that perspective too.

Chip Griffin: And if you’re watching this on video. Another cameo appearance from the dog.

Gini Dietrich: Oh my gosh, this puppy. She wants her ball. No ball right now.

Chip Griffin: Oh well you know, I think and I think this there’s a couple of good things that you pointed out here. First of all anytime that you are thinking about selling your agency, you have to think about the reaction of clients because that does matter. Because the reality is you’re unlikely, whether it’s an acquihire or it’s a larger agency and there’s a larger deal in place, you are likely not going to get paid as much if you have clients that don’t stick around.

And so if because of the acquisition they decide to move along more rapidly than expected, well then that is likely going to impact the amount of money that goes into your pocket as the seller. Because these days, if you get, you know, a third of the total deal value up front, you’re doing well and most of it’s going to come through an earn out.

The second key point that comes along with that and that you also made is you have to think about the idea that you’re, whether it’s an acquihire or not, you are in all likelihood working for that buyer. And, and that is a huge shift. We’ve said this many times before, it is a huge shift to go from owning your own business, particularly if it’s been for 5, 10, 20 years.

And now all of a sudden becoming a, an employee of someone else, particularly doing the exact, it’s not even just becoming an employee of someone else. That’s hard enough. But doing it with the business that you made all the decisions on in the past.

Gini Dietrich: Right.

Chip Griffin: I mean, that is jarring. Yeah. I can tell you, I’ve done it.

Yeah. It is, it is not an easy experience.

Gini Dietrich: So if that’s the case, if you’re a solopreneur or micro agency, what, let’s talk about what it looks like if you’re like boutique to small, so less than 20 million, I would say.

Chip Griffin: Yeah. I mean, so, and which is the vast majority of agencies, right? I mean, the, the vast majority of agencies are somewhere in that general ballpark.

And, and if you’re, you know, if you’re a seven figure agency, but not larger than, than 20 million, you have a lot of different options that you can explore. Certainly you can sell. But selling is not, when we talk about exiting, most people instantly think of selling. But the reality is there are a lot of ways that you can exit your agency.

In a good way for you that don’t involve actually selling. You could merge. You could simply step back. You can, you can arrange it so that someone else is running the business on a day to day basis and, and you are, you effectively become the, the chair of the board. And, and show up for important stuff and, and maybe some key strategy meetings with clients and that kind of stuff.

It’s, it can be a very good way for you to downshift while continuing to have an ownership interest in the business. You can transfer the business to employees who pay you off over time. You can transfer it to family members if you’ve got someone who wants to come in and run the business. There’s a lot of different things that you can do along the way to exit that don’t involve having to go through a formal sale.

And the larger you are, the more options you have.

Gini Dietrich: Yeah, absolutely. I really like the ESOP, the employee stock one because

Chip Griffin: No.

Gini Dietrich: Yes. I love it.

Chip Griffin: ESOPs are awful.

Gini Dietrich: Yeah, no, they’re not. No, they’re not. They give, they give your employees ownership. They give them an ability to, to, you’re just shaking your head at me.

I, I think they’re good. I, I’ve seen them.

Chip Griffin: I’m just glad that, that finally after doing this for like seven years with you,

Gini Dietrich: we finally disagree on something

Chip Griffin: have something that, that I can very, very strongly disagree with you on.

Gini Dietrich: No, I, I think they’re good. I think that they’re great for morale. I think they’re great for loyalty.

And I think they give you an opportunity to, to, to your point, to let the employees pay you off over time so that you can still stay involved, but you’re not doing all the day to day management.

Chip Griffin: So look, I, I am a believer in selling the agency to a core key group of employees. Let’s see if I can say that without stumbling over it.

That is, and allowing them to buy you out over time. That is different from a formal ESOP. An ESOP is an ugly, ugly contraption that can help the selling owner put money in their own pocket, but it is generally a disaster for the business because it’s, it is an end point for the business. Once you have converted to an ESOP, It is insanely difficult to sell that to anyone else later on down the road.

Gini Dietrich: Absolutely. Sure.

Chip Griffin: So you’ve now, you’ve now effectively saddled. So if you had sold it out in pieces to key employees, they would have all the flexibility that you do to figure out what to do with the business. But once you make it an ESOP under the law, it is now something that becomes virtually toxic to most acquirers.

They will not touch it. It also comes with incredible paperwork and accounting burdens for the entity going forward. And so unless you are of a certain size and can absorb that, it can be really problematic. And it becomes really difficult for you to exit employees who have an ownership stake in the business.

And so you then have to add in cashflow planning for how to buy these people out so you don’t have ex-employees who still own part of the business. It is really, really complicated. I think the vast majority of agencies shouldn’t give a moment’s thought to ESOPs. Again, there are other ways to transfer equity to your team that can make sense, but ESOPs just I, I, you will not talk me down from this one.

Gini Dietrich: Okay, that’s fine. I don’t, I don’t need to talk you down. I think it’s great that we have differing opinions. One of the things that, you know, I, I serve on boards of businesses, and one of the things that I’ve seen work incredibly well is it in selling when the, the owner goes to sell is building a leadership team around that, the owner that allows the buyer to say, ah, okay, this business can survive without the owner and we have proof.

So I was on the board of an organization that sold in 2019. I mean, his timing was, it was December of 2019. His timing was perfect, but he started about eight years out. And the first thing he did is he put three core leaders in place. And then he spent several years with those core leaders, training, coaching, mentoring.

Making sure that they could run their different parts of the business. And then about three years out, so 2016 ish, he hired a president and then spent three years with him, like ensuring that he was the one that the clients called, that he was the one setting the strategy. And then he sort of just sat in the back and made sure that everything was working.

So that when the buyer came, they, they were buying the company, its assets, the president and the three leaders. And not the owner. And the owner did have a little bit of a workout. I think it was two years, but he did it as a chair, as a board member, not as an employee. So the way he worked it, and I’ve always, I’ve always thought that, that was really smart of him on how to, how to do that.

And so if you have a business where you can structure it in that way, where you’re building a leadership team, or to your point, a core group of people who might, you know, either buy it or go with, with the sell. That, that’s a really good way to be able to do it too.

Chip Griffin: And, and that, you’ve pointed out two key things here.

One is, is having a team around you, which means that again, generally the, the larger you are, the more options that you create for yourself. The other thing is the, the preparation. In that case, it was eight years. Look, the more time that you have, the more options that you have, the more value you can extract.

There’s no, there’s no minimum time frame. I mean, if you tell me you got to be out of your business in three weeks, I can get you out of your business in three weeks. You’re probably going to get zero dollars for it. It’s probably going to be that you shut it down. And if you’re lucky, you don’t have any accumulated debt that you have to tag along with you.

But if you have three years, if you have five years, if you have 10 years, the more runway that you have, the more flexibility and options you put in place. The larger you have, you are, the more that you have that core team around you, again, the more options that it gives you. And there are, it doesn’t mean that every option is a good one.

You know, a lot of times I’ll see folks who want to try to exit the business as quickly as possible. Maybe they’ve got a leadership team that allows that, but you have to balance that against the risk that you’re likely having an earn out. And if you take yourself out of the day to day operation, you’re now putting a lot of your compensation for the deal out of your control.

So I always caution owners who are thinking about that, even if the buyer is willing to say, yeah, you don’t have to play a particular role, other than maybe, you know, tell us what the passwords are and that kind of stuff. Maybe a maintenance type consulting agreement. That, that sounds good. But if there are earn out targets to be hit and you’re taking yourself out of the day to day, you’re putting that at higher risk.

So, you need to think those things through, but all of that, all of those options increase the larger you are and the longer your timeline horizon is.

Gini Dietrich: Yeah, I think that there’s, there are a lot of great opportunities. I mean, you’ve built something that has, you know, it is an asset. It has some equity in it.

That you should be able to find some way to exit in a way that makes sense for you. But I think it does depend on what stage the agency is, how, you know, if you’re a solopreneur versus an agency owner, like all of those things have to be taken into account. And also from a lifestyle perspective, what is it that you want to be able to do?

Is it, you know, I have a really good friend who’s selling their business, her business. And she said to me, it’s not FU money, but it’s a nice little nest egg. So, you know, isn’t a nice little nest egg enough? Then there, you have some options, right? I mean, we’d all like FU money, but I don’t think any of us are going to get it.

Chip Griffin: It is incredibly rare for an agency seller to get that. I mean, it’s, that is really catching lightning in a bottle, to achieve something like that. The vast majority of agencies that, that sell, you know, may sell for a nice piece of change, but nothing life changing in that way.

And so I think the other thing to remember here is that selling is, is not the only way to extract that value. You can, you can run a lifestyle business that does a nice job of giving you flexibility and, and, and the lifestyle that you want. And you can also reap the rewards out of that and, and bank all of that profit that you take out of it and invest it, frankly, elsewhere.

You can invest in real estate or stocks or cryptocurrency or, you know, playing the ponies, I don’t know, whatever.

Gini Dietrich: Playing the ponies. Please don’t do that.

Chip Griffin: No, please don’t do that. But the reality is that there’s a lot of ways to extract value from that business. And so you shouldn’t be of the mindset that the only way to do that is by building up this core value and then selling it.

Because in many ways, that is the riskiest strategy. It could pay off the best. But if you build the business and you’re reinvesting all the profits into it in, in the hopes or expectation that one day you will be able to sell it, if not for FU money, at least for, you know, a really nice chunk of change, if that doesn’t come to pass, you’re out of luck.

Yes. And so, so your safer strategy is to, to continue to reap the profits from it, reinvest it in other vehicles and retirement accounts, whatever. And, put yourself in a position that the business has provided for you. And then if you happen to sell someday, that’s gravy. Because I, I think that if you’re counting on that sale, that is, it is really tough to do.

And I can just tell you that the vast majority of agency owners are not selling for anything that is that impressive at the end.

It doesn’t mean you won’t be the one who does, but the odds are stacked against you.

Gini Dietrich: Yeah. I mean, in all of my years doing this, I know of one, one agency owner who has sold for FU money.

That’s it.

Chip Griffin: I know a couple of who have sold for very good money. I wouldn’t necessarily call it FU money, but you know, very good money that allowed them to do what they wanted to do. But I also know that, that at least in a couple of those cases, they didn’t really like the way it turned out. So even though the terms were good and they made good money, they didn’t end up making as much as they could.

Because it was too painful.

Gini Dietrich: Yep. Yeah, you’re right. The one that I’m thinking of, the exact same thing happened. He finally was like, I can’t do this anymore and, and took a loss, not a huge loss, but a loss based on what he could have made because he couldn’t do it.

Chip Griffin: And, and that is more common than people realize. That sellers, regardless of how big the money is, a lot of sellers walk away before the end of their deal because it’s just too hard to be an employee.

It’s too hard to, to give up that level of control. It wasn’t what they expected. All sorts of different reasons, but it is very, very common for the seller to walk away from the deal and just say, you know what? I don’t need 100 percent of that because it’s just not worth it.

Gini Dietrich: Not worth it. Yeah, absolutely.

Chip Griffin: So, you know, be, think about your different exit options. Think about what you really want. Have as much time to prepare for it as possible. Be realistic about what is actually possible. Talk to people who have sold their businesses. Talk to people who, like us, have talked to a lot of other people and know a lot of people who have sold.

Try to figure out what direction that you want to go. Absolutely have a plan for it. But at the same time be flexible. Because your life is going to change, your business is going to change. And as I always say you need to put your business to work for you.

If it’s not achieving the goals that you want at any point in time, you need to look at making a course correction

Gini Dietrich: Yeah, and this is your business. So you get to do what you want to do.

Chip Griffin: You get to try to do what you want to do. There’s no guarantees in the outcome, but there’s, there, there, you have the ability to make choices.

Gini Dietrich: Totally fair.

Chip Griffin: With that, we will make the choice to exit this episode of the Agency Leadership Podcast, with that great segue to the end.

Gini Dietrich: That was amazing. I know. That was, that was good.

Chip Griffin: I’ve been working on that one for a while now. That last five, ten minutes. I’m Chip Griffin.

Gini Dietrich: I’m Gini Dietrich.

Chip Griffin: And it depends.