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How To Build A 6-Figure Referral-Only Agency

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Transcript

Introduction

Deepak: Hello, guys. Welcome back, again. If you're just joining us to this yet another SEMrush webinar. If you've been to my webinars before, then you know what the next five minutes are going to look like. Today, I'm here with Nick. He's the man in the headphones, the dashing man with the glasses. 

Every couple of weeks, we talk to ultimately agency owners of various kinds who are scaling and have built a successful business. Nick, of course, falls into that category.

We've got a really interesting webinar today. It's all about and focused upon building and scaling ultimately an agency via three areas, which is your personal network, looking at the white label model as well as business won by referrals, which obviously, implies that you need to be actually good at what you do. 

I'd like to introduce to you, Nick. Nick runs a very successful agency called the Purr Group. I've known him for around 15 years right now. We're going to be getting some advice from Nick, about how he's built his agency via personal networks, via the white label model as well as winning referral business. 

What I want to do, and begin with Nick, is just by introducing the audience for the next five to 10 minutes to Nick, as well as to the Purr Group. That probably will be a fantastic place for the audience to get to know you, buddy.

Nick: Brilliant, yes. Well I guess, it's worth saying a little bit about what Purr is and does, first, and then returning to the beginning before coming back to the end with other points to give wider context.

Purr is, at its heart, a development agency specializing in development. We do the development behind websites, behind apps, behind internal software for companies, all sorts of things like that. We ended up with that niche for a relatively roundabout way. 

Recently, we reached an interesting stage of our development where we'd grown the business really successfully through the methods you talked about, through referrals, through personal networks, through white labeling. We got the business to a certain stage where it was then about growing to a different level and trying to move away from that model.

What's going to be hopefully interesting today is talking about how I took it from being a one member and a freelancer, just coder in my bedroom, and turning that into a 15-person business. Where it needed to then move to the next stage of being more about direct clients, repositioning, and growing into a bigger beast. 

All of these methods work really well, and they work well for certain size agencies and for certain models out there. I think what I'm able to, hopefully, share today is a bit of the story about why that worked for me and why that worked for me at a certain stage of business and type of business.

Deepak: Let's let the audience know a little bit about who Nick is, in general. I think that's a good place. Then, we can start delving into the Purr Group and all of the bits in between.

Nick: Lovely. So, born and raised in London. My life didn't really start until I met a man called Deepak at age about 19. We were at university together at Warwick in England. Deepak was studying English literature, which is always amazing because he can't put a comma in the right place to save his life.

Deepak: That's true. That's true. Nick has saved me with my lack of grammar many a time.

The Early Days of an Agency: Going it Alone

Nick: We both went into this very corporate world, and Deepak was the only person who lasted less time than I did. I think Deepak lasted three months, I lasted nine months. I'd already managed to set up a business before joining, but it was a difficult time, 2009, I think, was when we were joining, and the economy was in a bit of a difficult situation.

Over nearly a year, I was there. I managed to grow that business, and it was a technology business that provided software to events, big student events. We grew that business, and I taught myself to code pretty well. 

After a year of doing that, I was able to leave the city ...we were able to sell that business and move on. I had this pause at that point having sold a business, I didn't leave with a very clear exit plan, I knew I enjoyed learning the technology stuff, but I didn't have much of a wider understanding of the industry or startup culture.

At the time, there was still quite a big agency culture. The people who were talking about development, web development, app development were agencies probably more than startups at that point. I thought, “well, let's go and get a bit of agency experience”.

I developed a little bit of a niche doing some consulting for some people on development projects, but really didn't have much of a wider understanding of how I was going to grow it or turn it into something. Like I said, I had only three months experience working in an agency and that was in a sales job. I knew how to code, but I'd never worked as part of the development team.

What happened was, I knew I needed to turn it into a company. Just consulting doesn't really mean anything. Yes, you've got your personal brand, but to build an entity is better, to have a name is stronger. 

To start with, I was very keen that it wasn't just me starting it. I had a couple of friends who did complementary things, and we'd work together as freelancers for a particular client. One guy came from a marketing background, one guy came from a design background. I was the tech guy, and we thought “perfect”. Who ever has thought of combining these three disciplines into a single company? That's marvelous.

We did about a month of work just setting up bank accounts and getting registered, and coming up with a brand. Then, the other two guys bailed almost immediately. I think this is a really common story for anyone starting an agency or a company of any sort, is that nearly always, by the time you've actually got everything set up, one of the people who was involved in the planning of it moves away.

Deepak: I think that's a really important point, everybody, that Nick has raised upon. The first thing that Nick has just identified is you've got to be prepared to go alone. Nick started off with several partners. I think a big thing about this space is you've got to be prepared to take that step, and it's something that I know Nick has done time and time again. 

I'm really looking forward, Nick, with that in mind to delving into the journey of the Purr Group. Everybody, please do ask your questions. I've got the specific three areas that I definitely want to cover with you.

Cultivating Personal Relationships to Grow an Agency

What I would love to understand more, and it's I think something that people don't do a good enough job of, surprisingly, a lot of the time, how do you feel you've managed to cultivate relationships within your personal network that have allowed you to generate business with people that you know because it has happened, in some instances? 

I'd love to understand more about how one should approach personal networks, what your experience of it has been, and why you fell, in your case, it's worked because a lot of people go straight for an outreach approach, and yours has been a little bit different.

Nick: I think the really necessary thing to remember is that it's actually bloody hard, and it's really not an easy place to be when you are a sole founder when you are the sole person doing sales marketing, delivery, project management all of it. 

You're also trying to sell to people you know and service people you know. The opportunity to spoil relationships, or to upset people that you do care about, or all of those things, the pressure is so high. It actually gets easier. 

I guess when I started, it was who's in my network, who has companies, who knows people at companies, who worked in marketing departments. You put your name out there, and it's difficult when you're a freelancer, and you're operating under your own name. 

It gets a little better once you've established a company, and you're just the representative of the company, it gets easier. But again, in this world, you're only as good as the case studies or the credentials you have.

People will always go, "Oh, show me some other examples of work”. It gets easier because you're able to build up more, but the pressure is so high to begin with. I think it's really important to only do things that you are really comfortable doing, even if it does mean that the growth of the company will be slow. 

Just develop the relationships, develop happy clients who are able to be advocates for you, who are going to keep spending money with you, who are going to recommend you, and people will see, "That's good, high-quality work."

It might not be the best-paid stuff, it might not be the most glamorous, but just build enough of the base, so that you've got regular repeat income coming in from people, who you've not marked up the work for and are continuing to use you and trust you. Don't just go, "I'll take on a design project, I'll take on an SEO project. I'll take on X, Y, a Z." 

Try and not stretch yourselves too far because sooner or later, you'll realize "I'm not actually very good at that thing. I'm overservicing that guy. I'm under servicing that one. Suddenly I've got a really unsustainable business, where I can't scale it up because suddenly I need to hire people in 10 different disciplines to do so."

What you keep on coming back to in this world is that whether it's developing of your personal brand or not, that you're always having to replace yourself in a business. You start off being the guy doing the delivery, the sales marketing, everything. The sooner you can replace yourself in the delivery front and just be the sales marketing guy the better. The day that you're the delivery guy and the sales guy, and the project manager, you're too close to it.

The sooner I realized that there are better people in my team at delivery than me, that was when growth really took off, is because I suddenly wasn't the bottleneck. You're not waiting for me to finish looking at emails or going to a meeting before delivery work happens.

I think there's a lot of reticence when you bring in a personal network customer in the early days of a business to pass it off to someone else. Unless you find the tipping point...you'll always be the guy who's working seven days a week 18 hours a day, and never trust anyone else to build your business, along with you because it's so draining, personally. 

I got really, really lucky with my first hire. This guy called Rob Morris, but who still works with me today. He's left my employment but still works with me as a contractor. It took me a long time trying to hire that first person, especially when you're starting from effectively net zero. When I started the company, I'd splurged all the money I earned from selling my first company. I was desperately fiddling around on credit cards trying to keep myself afloat.

Moving to a Referral Model

Deepak: We're going to take a question now, Nick, actually. One of the questions that Carl's asked is, "Nick, how would you break down your new business acquisition across your networks and across personal networks, white labels and referrals?" 

Before you answer that question, Nick, what I want to say to that question, Carl, and just as a generalization, is that what's been really interesting is Nick cares, hugely, of course, about quality. That is never more exemplified by the decision to say no to certain projects and understanding where your skills are, and not diversifying into several different areas, which is very, very often the route that a lot of full-service agencies do. But then delivery suffers as a consequence. 

It's a very traditional approach that's clearly still really, really strong. I think that's one of the things that I've always admired about your business. Nick, I'd love for you to answer Carl's question with all of that in mind. 

Nick: Yeah. Well, first of all, I'll caveat it by saying that things have moved on a little bit because we're not so referral reliant now. It's a big part of what we do. We do have more of an outbound marketing reach and a new business drive now.

But certainly, during the first five, six years of my business, I would say, that in general, 80%, something like that, was a referral level, on average, in most years. I'm not going to blur the line too much between what was referral and through direct to personal network and agency white label because often referral can mean agency to agency. 

We were getting resold by one agency, and then another agency would go, "Do you know anyone who does this?" Then they would make a good recommendation. Yes, it might be a white label job, but it would still come through a referral basis.

The other thing to consider is that agencies go bust, get sold, they merge, people leave, people stay in a job for a couple of years. We had an interesting example a couple of years ago. One agency went bust, I think it led to four or five other agency partnerships as a result because everyone at that agency we'd worked with that their new jobs took us with them. 

It was roughly 80/20 in terms of things that were being driven directly through people like Matt or existing personal network, and then referrals from people we'd already worked with, or agencies we'd already worked with.

Going from Consultant to Establishing a Company

Deepak: Okay, brilliant. An 80% referral-based business. Sustaining that level of growth through referrals is really, really impressive. With that in mind, I want to go back a step because Sabiha has asked an actual really, really interesting question. Guys, the question is how much money do you need to have made to transition between a consultant to establishing a company so?

Nick: One is that the establishing of the company differs depending on the country you're in. Different countries have different rules about establishing companies and how much money you need to have in the bank or resources behind you. For example, if I want to start a company in America, it's almost impossible for me as a UK citizen without having a green card and some money in the bank over there. Whereas in England, it's pretty straightforward. It's a 10-minute form I fill out online, and I've got a company.

In terms of where you go from being one man to being a team is there's a slightly different answer which is that, I would say, to feel comfortable, you try and have three months burn rate in the bank for the amount of team members that you've got. So, salaries and overhead of doing so.

One of the things that often makes life easier for early agencies is you don't take on the overheads like expensive offices or you're able to add another seat to your coworking place rather than take on a larger office space overall. You don't necessarily need to take on a ton of additional fixed cost overheads, but it is advisable to try and put money in the bank before you join. That is really difficult in the early stages, where you're trying to earn money for yourself, not just earn money for other people as well.

My role in the early days was if I'd found I was doing more than one all-nighter in a month, that probably meant I needed to hire someone else. I need to have money in the bank before I hire them, and it was more necessity. What I realized in retrospect was that was only really because I was massively underselling my services and I was charging way too little.

As much as it's a case of how much money do I need to have in the bank, stop thinking I'm a consultant, start thinking I am a business. Yeah, I am an employee or a representative of that business. The moment you're charging for the business not for yourself, you realize that you're putting the money aside faster anyway.

Deepak: Yeah. That makes complete sense. I think having that transition in terms of mindset and therefore approach that you're selling your company services is a big thing that Nick hit upon. 

How to Actually Drive Referrals

We've had a flurry of questions that have come in. Jayesh, it's a really good question that you're asking. It relates to that 80% referral-only figure. He's, of course, asking for the keys to the kingdom. 

Nick: Step-by-step blueprint.

Deepak: Over to you, sir.

Nick: I think one of the really interesting things to talk about is that often you'll see some referral scheme. I've never once had anyone go, "I saw your referral scheme advertised, and I'll send work to you." Motivated people, if you communicate with them that there's a commission available, if work comes your way, that's going to incentivize them, but it's not something I've advertised without it being a discussion. 

It's always been a case of just speaking to as many people as possible, making them aware of what you do, and making them aware that a referral bonus or commission is available if work is brought to you, that's commercially viable.

One of the hard things is when you're starting off, and this is a big part of the previous question about how you transition from a one-man-band to a company is that you'll nearly always be charging too little. When someone comes back to you two years later and they realize that you're now four times the price or whatever it was that you were before, sometimes, some people don't keep up with that. 

There are lots of referrals you go, “sadly, that's not going to work for us”. It's about culturing or developing relationships with people who charge more than you do, who do a better quality of job than you do, who have exposure to bigger clients than you do.

We were cheeky about it. We do things like, if, let's say, we took over a website from someone else. Whatever companies sacked their agency, and we now look at the website, we'd look at the code and we realized it wasn't them that built it. It was their outsourced development team. 

I can then go back to the original agency and say, "Sorry, that didn't work out for you on this one. Just so you know, we're around in the future if you ever want to do this work." The previous guys did a great job. But here's how we would have done it differently. 

That actually led to more work for us. We're still working with a number of agencies that we won by coaching them off their original people, where they'd lost the work in the first place.

It has to be very targeted. The moment you start approaching partners or people who could refer you that are going to be threatened by you, it doesn't work. It has to evolve as the company evolves. 

Suddenly, as a 15-person development team, if I start approaching two-man created partnerships, they'll go, "Why would we send it to you. We can use a freelancer.”

It's about trying to evolve the offering and match the people that you're partnering with. Much of developing a really good referral strategy or a partner strategy should be about ensuring that you know the kind of people you want to work with because often, they're working with the kind of clients you'd like to work with. 

I remember, we had an early partnership with an SEO agency, who I thought, you guys have absolutely nailed it, and they gave me a little presentation about the kind of agencies they were looking to partner with. They said, "We like working with companies that are in London and southeast England regions."They probably got somewhere between 1 million and 10 million turnover.”

If you're able to say the kind of clients you want to work with, you're probably also going to identify the agencies you want to work with. Suddenly, you start developing a network of people like you, motivated by the same things who aren't trying to do everything. Who are specialists in their fields and are happy to make recommendations to other people who are seen as specialists in their fields, who have good reputations, who aren't slated on online reviews, that sort of thing.

Deepak: First of all, Nick said, originally, that Nick has a core specialism in the development space. In that way, when you look for referrals, it's important to self-identify that someone can easily pinpoint what you do as a business. 

I do think that what you can infer from that is that if you're a full service, or you position yourself as a full-service digital agency, it's going to be very much more difficult for you to then to try and build an alignment with another agency because they're going to look at you as competition.

The second thing that Nick spoke about, and this is not in the order, but he did mention it, which I thought was really, really important advice is there's got to be an alignment in terms of size of business. There needs to be an alignment in terms of the size of business that you're approaching, as well as them having a different specialism to what you do.

Advice on White Labelling to Grow a Business

I think the next question we're going to take is Ankit's question. I think that a lot of people in the audience, and we spoke about this off-air, of course, Nick, want to try and establish building a white label relationship with a bigger agency actually. Because then the economics of scale makes sense, if you're a two-man, and you can supply to eight-man or a 10-man, it makes sense. 

But for the most part, including probably, myself, I think, there's been times where I've got it wrong. What's your advice for anybody who's listening who thinks "I'd love to be a SEO agency or whatever agency who outsources to a bigger agency that has bigger clients?" What's been your experience of it? What advice do you have to the audience?

Nick: It's a tricky one. White labeling is an incredibly powerful way of growing a business. It doesn't work consistently... or at least it didn't for us, and I think it's worth considering why we've tried to reduce our dependence on white labeling and why we're only really white labels for a few people now. 

It was far more the case to begin with. Part of that is because our own presence has grown, our reputation has grown. You realize that people are one of the reasons that someone would consider white labeling you rather than just reselling you and taking a commission bonus. Because they're worried about the risk to their reputation.

Let's say, I introduce Pearl Lemon to a client, and I don't feel as though you've done a good enough job for my client. Suddenly, I've taken a personal hit in making that recommendation.

Whereas, if I've white-labeled you, and I'm doing some project management over you, and I can assess the quality, then I've got a bit more control over it and yes, it's costing me more money. I'm probably beating you down on price. It's a good way of getting in with an agency, but generally longer term, it's better to try and find a way of working together that isn't white label and is more about referral and commission work, that sort of thing.

On that white level topic, I think something to remember and to ensure that you try and build this into your process is that just because someone is white labeling you, just because an agency has a bigger presence or better clients or more money than you does not mean they have any idea how to do your job better than you. 

Certainly, we've had experiences in the past, where we were being white-labeled by an agency, but effectively, have to write their account management emails to their clients for them because their understanding of technical work or of how the process works was so poor that they were so reliant on you. It's normally at that point where they realize maybe we should actually just be making an introduction because we were just losing time and money managing this process.

The other side to consider is that normally, what happens if you've been white labeled is that unless you're lucky enough to have been brought in from the off, like through the sales process, through the pitch process, that you've got so little control over what's actually been agreed to be delivered within the scope of work. 

The budget's already been set, and suddenly you're told, "Here's the budget, here's the deliverables, make it work." That's always a really difficult point to come from. You're told your constraints: time, money, and what's got to be achieved. It's just, well, do it. Do it. Not an opportunity to say, "Well, if you want to have all of that, it's going to take longer, or it's going to cost more money, or whatever the compromise needs to be."

The sooner you can build a relationship with a client where they understand that you need to be involved not just in delivery and white labeling, but in account management, in sales, in everything down to the marketing level. That's the white labeling relationship for us that's been successful, historically. 

Making them aware of that early on is probably a better way of doing it because they don't want to discover it later on when you've sent an email on their email account that's upset a client. Ss long as you have a structured process, “look, this is how it will be white-labeled for you. These will be unified as email addresses. We will have a phone number that's answered in your name. We will abide by these ways of doing things. This is how we will run sales. This is how we will run account management." All those things as processes rather than just, "We're now part of your team."

Deepak: Nick, commonly, clearly through experience of the things that sounds like you've learned, Nick, along your journey of white labeling, about being fully embedded in the sales, marketing, and potentially account management process. Building those pieces into a white label deck is probably a very, very effective way to demonstrate your skills as an actual white label potential partner because for those who do have an overflow of business, making sure that there's that level of consistency is huge.

Nick: I think just one other point I want to mention on how you advertise your services as a potential white-label supplier is that part of our core message has always been, if asked by a client of yours, we're not going to lie. We're never going to say, "Oh, no, of course, we're part of the same company. We work at the same desks." 

It is, "No, we're a part of the company. We work under the same brand. The businesses are very aligned, and we do things in a way that means we're one on the same team." I think that's a better answer than going, "Oh, yeah, I've got a fake name on LinkedIn that you can check." Don't represent something that you aren't. You are a person and you are in a different city or whatever. That doesn't matter because you put this process in place, and you've got this understanding between US companies.

In terms of how it's worked for us, historically, generally what has happened is that white-labeled relationships have come with agencies, where there was a development team, but there isn't anymore. Where you have agencies and multiple founders, at some points, you have people go their different ways, development teams stop or marketing teams stop, whatever it is. Or an agency decides that we don't make enough money, or we don't make enough profit on this part of the work. 

The other way that it happened for us is that when we were starting off, what I did was shared an office with one other agency that then had various spinoffs. It was a relatively easy way of white labeling. That's what we are, literally, in the same office, and we can work with you. There are lots of people who have agency offices that are shared between multiple agencies or shared the same workspaces. 

Deepak: It's relationships, again, guys.

Nick: Yeah. We are physically located together. Also, that doesn't really work in a lockdown, unless you and your family have multiple agencies between you.

Paying Agency Staff Fixed Salaries vs Commission

Deepak: Nick, I want to start whizzing through some of the great questions we've got in the audience. Steve Miller asked a relatively, let's say, straightforward question for you to answer, I believe, when you bring on staff, are they mostly fixed salary, commission or a combination?

Nick: Good question, Steve. Invariably, it's always been fixed salary, with the exception of sales staff or people involved in sales. It's a difficult job to hire for the sales role, but it's useful to be able to offer some commission structure around sales. 

What we've found better in recent years is offering a commission structure across the team for any sales that they're involved in because there are some people who do generate leads in a personal network and assisting with sales stuff. It's useful to be able to reward them for that. Yeah, fixed salaries have always been the way of doing it for us.

Basically, my approach has always been, "Hire the person if you're confident that you want them to work for you. Don't worry too much." Or I might put it, "I've never done the thing of I'll put them on a three-month contract or a six-month contract." 

Generally, it's cheaper for the business to hire a permanent employee and put them in an office than it is to get a freelancer long term. The risk is actually pretty minimal, especially, when you consider by the time you bring your team a little bit, there'll always be a little bit of churn. 

You always basically need to be hiring or advertising yourself as a potential employer because you don't know what's going to happen the next week when your star employee might  give in a notice. You always need to be conscious of bringing people into the team.

I've found that employing people on permanent contracts has always worked for me. I've never used the strategy of, "Oh, I've got them. I'll wait 23 months until I can just about get rid of them at no cost to me" because if you're building a business that is growing, that's what we're all trying to do because if you don't grow, you're just selling, and you actually go backwards. Hiring permanent staff has worked really well.

Deepak: Yeah, absolutely. I think, guys, what I got from that, which is quite powerful for me is the salaries work. Having faith in the people that you invest in whilst equally being aware that, of course, you don't know, at any given time, your star employee can leave.

Everybody, thank you so much for tuning in. Please do Google Nick, Google the Purr Group if, of course, you want to reach out to Nick. He's going to be very easily found for both of those turns.

Nick: Thank you.

Deepak: I will catch you in the next show. 

Nick: Thanks for having me, Deepak.

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