How to think about agency M&A, and The downfall and rebirth of the Patels

So earlier you were mentioning M&A and you sent your team something in regards to M&A, like an outline or what did you send your team?

Yeah, because I write a lot of memos. So I wrote like an 8-page memo and then some people from my leadership team added to it. So they added like another 2 pages. So yeah, that's what I do. It's like that. This helps me get my thoughts out on paper. So it's very clear. And then we can like hash out any holes in my thoughts too.

All right. So, but what's your plan on M&A? Share what you're comfortable with.

Yeah.

So you're at how many employees now? You have a good amount.

Well, we have like 40-ish, but we had like 80-ish before, right? Because we had to cut from some of the M&A transactions that unfortunately didn't work out, right? But, you know, the fact of the matter is still, you know, looking into the future and I told you the book that I'm reading, right? Did you finish the book?

Almost.

I'm almost done. So I read it in the sauna. Dude, the sauna is great. So the book that I had Neil read is called How to Make a Few Billion Dollars, right? And this guy, Brad Jacobs, he founded not 1, not 2, not 3, not 4, not 5, not 6, but 7 multi-billion dollar companies. Right. Um, and his whole thing is just consolidation. He's consolidating industries. He's buying a lot of companies. Right. Um, great book. Everyone should read it. But anyway, going back to what I'm thinking is, you know, the economy's not good right now. Um, and that's when, you know, and you and I have talked about this, that's when people are fearful and when people are fearful, that's a good time to be greedy, assuming your balance sheet can take it. Right. Otherwise you might have to have some—

Yes.

creative terms. And so, for us, I'm like, okay, even though the economy is bad, it doesn't preclude us from starting to talk to people, which we're starting to do right now, right? And then starting to figure out, okay, what team do I want to assemble to do these deals too, right? The problem with this and the conundrum, I talked to my coach about it this morning, right? And the conundrum I have is if my thesis around like, okay, top 5% of people are always going to be needed, but a lot of people are probably going to lose their jobs. That makes it difficult because you have to balance acquisitions with this AI thing, right? My whole thing is like, it would suck if you do a couple of these acquisitions and you have to cut like half the people, right? So, you know, one memo is about the AI conundrum. The other one is about the M&A thesis, about like what the plan is and how we plan to attack this for the next 5 years.

In theory, if you can also find companies that are making good money but have tons of headcount, And you know, you can end up replacing a lot of the headcount with AI. In theory, you can buy them, cut— I know this sounds cutthroat— replace it with AI and your profit margins go up, but you're buying it based on a multiple of its existing business. Yes.

And so this is where we settled this morning with my coach, right? So I was like, look, you know, we're building product right now that's automating portions of marketing, like a lot of stuff that can be automated, right? If that proves to work well on our own stuff, we'll roll it out to other people. And if it proves to work there, Then we can start to play that thesis out. So the in-between right now is let's see how the product works out and then let's move forward. Because if that works out, then we can for sure start to do that. And yes, it's cutthroat, but it's also what private equity does. It's business and it sucks.

No one wants to ever see people get fired or lose their jobs. You know, it's a hard thing to actually fire people as well. At least for you and I, it's hard. But nonetheless, you know, There's a business opportunity. The question is, is do you want to strike at that? Or you can go after businesses that may not get as disrupted from AI and gobble up those.

We'll talk about how you guys are thinking about it, right? Because you have over 1,000 people, 1,200 people?

Over 1,000.

Okay, over 1,000 people. What are you looking at doing? Whatever you're comfortable sharing.

Sure. So we have a deal closing this month. They're in Southeast Asia. I don't know how many employees they have, 100 and something. We have another one that's closing in July, I think June or July. They're in Spain and Mexico. I just got back meeting with the company in Brazil that we're probably going to make an offer to. We're looking at one in the UK right now. We're getting close to making an offer to one in Italy, which I think will happen. We already talked to them about pricing and we're on the same page for dollar amounts. We just have to make sure cash flow is there, they're actually doing the profit that they're saying, double-check quite a few things, look at churn rate, all those types of things. But the Italy one we've been talking to for months. Even the one in Brazil, we started conversations with them I think end of January. So it takes us a while because we want to get to know the founders. We don't like acquiring companies unless the founders are going to come along.

Yeah. And why? Explain why.

It doesn't matter how smart you think you are. If you look at someone else's business, and you're like, oh, I can do this better, I can cut this, replace founders, do this better. And you can have your own list. And you're like, I can make double, triple the money. You haven't been in the business actually for years like the founder has, or the founders. They know stuff you don't. You need time for there to be a knowledge transfer. And ideally what you do is you want to keep the founders on because they built something amazing, assuming you want to buy it and you're buying something because it's an amazing company. Now there's some private equity and some buyers who buy distressed assets and they just cut and it's a hack job, and that's different, right? What you and I are talking about is buying good companies that are growing still. They're going up and to the right, and typically the founders have done something right. There's something in them. that the market likes, their team likes, whatever it may be. So what you ideally want to do is you may have all the ideas of what they're doing wrong, but you got to give the founders credit for building what they built, and they're doing something right because you want to buy that company. If they weren't doing something right, probably shouldn't be buying that company. So ideally, you want to keep them and let them keep doing what they're doing right, and then you go and fix all the stuff that they're doing wrong. But before you go and fix it, Let it be and work with them for 6 months to a year before you start making major changes so you can understand the culture yourself, understand why they're doing things a certain way before you go in and just disrupt too many things. And when you do the changes, do it slowly. Yes, you're not going to make as much profit. You're not going to make as much profit as quickly, but you'll usually will keep the business growing. You'll keep great culture. And what you'll find out is you'll drastically reduce the risk of the deal going sideways. Because if you do 10 deals, it's very unlikely that all 10 deals work. No matter how smart Apple is or Google is or Elon Musk is, all these guys have had bad deals. That's what happens when you buy companies. Not all of them work out. So your job is not to just make sure it grows. Your job is to also mitigate risk and make sure they don't fail and go to zero because taking those losses really hurt.

All right, everyone, quick message from the Agency Owners Association. So this is the peer group for agency owners. That Neil and I both put together. This is for people that are doing 6 figures, 7 figures, 8 figures, even 9 figures as well. And we're all here to help you grow your agency faster. In this group, we share leads, we share learnings with each other. It's a community where people can ask questions, their most burning questions personally, professionally. We'll share templates, reports, things like that. We're constantly adding more value to the group. I will tell you that the price is continuing to increase. The good news is that there's no long-term commitment, so you can just learn more by going to marketingschool.io/agency. Once again, that's marketingschool.io/agency to learn more. And we hope to see you inside. A lot of deals don't work, right? I think it's greater than 50% that don't work.

In fact, I have no idea.

I saw from some study before, I forgot what it was, but I'll talk about what I would have done differently. So to Neil's point, I would have kept the founders on because there's also something to be said about—

Go back. How about first describe when you did the deals? Because you did more than one. What'd you learn? What were the timeframes of the deals and all that kind of stuff? Go into detail.

This was 2021. Okay, 2021, in May, I believe May of 2021, we did one, right? I can't give too much detail around the company, but we did one, okay? And then we basically, this was like a, they focused on paid media, e-commerce, right? And they did some CRO work too. They had some good logos, right? So that was part of the reason we wanted to do it. And they were pretty hardcore workers too. It was a small but mighty team, but they were really hardcore, right? 2, 3 months later, we did an acquisition. This was, this was an SEO shop. They had like 30-ish, 35-ish people or something like that.

So you did 2 acquisitions, 2, 3 months later, you did another acquisition.

Yeah. So that's the first little thing, right? We did these pretty close together. So we did these. And you want me to go into what I would have done differently now?

Go into what happened to the deals. I know you can't go into too many details. I think you, you, well, you just said they didn't really work out the way you wanted.

Yeah.

But can you explain a little bit why they didn't work out the way you wanted? What happened?

Yes.

And then how you, you know, fix things and then what you would have done differently?

That's a lot. So just remember those. The reason why these deals didn't work out, one, is we didn't do enough due diligence, right? So we had That's the first thing. And by the way, I'm not blaming anybody. I'm going to take responsibility. I always take responsibility first on these things, right? It's always the leader's fault at the end of the day. So we didn't do enough due diligence. The deals sped through pretty quickly. We had a broker that you and I know that was really incentivized to push the deals through quickly. Then the third thing is I didn't trust my gut. So when I met these people in person, one I actually thought was a great leader, right? The other one that I met, I just felt like there's a lot of things that were off. There's like that little gut feeling that you have, right? I didn't trust the gut feeling because I thought that the way that you know these deals would work out, like I would still be okay no matter what, right? So it's those three things. The other thing I would say is we should have kept the leaders on, right? The reason for that, this goes into my my point, is when you're an agency, especially when you don't have like hundreds or thousands of employees, when smaller agencies everyone looks up to the leader. That leader is so critical. Once that leader leaves, the the wins are taken out of their sales, right? And they get really demotivated. And so. Once we closed on the first acquisition, one of the key lieutenants from the first company left because he was so burnt out from working so hard that he left, right? We should have structured it where there was some type of earnout and where maybe there's some equity holdback too, where the founder could, you know, get a second bite of the apple. And in fact, he probably would have been down to do it. So just those couple of things. That answers your first part.

And the second part was, and To go to it, do you want to talk about how much revenue you acquired between both the companies?

No.

Okay. So the second thing is, is what happened and how'd you— well, you broke down the lessons you learned, but what happened and how'd you fix it? Because it didn't work out, right? So what'd you do to try to repair and salvage?

I talked to my coach about this this morning. The way I used to run it was these risks, these deals, because you want to do a deal that's low risk, high reward, right? And, you know, like VC, for example, is high risk, high reward at the end of the day, right? But, you know, I, these, I would say these were higher risk. And so the risk profile was, was too high there, right? I would say the things that happened was we did these deals and then what happened was immediately there was a GM that came from one of the deals and she had worked at big agencies before, right? So we appointed that person to kind of run the day-to-day while I had 5 other projects to focus on. So I, Did the deals. I thought that was done deal, right? And I became— I disinvolved myself and said, okay, trust, trust these people, get out of their way. So I trusted but didn't verify, and I wasn't involved. And that was a big piece of why they didn't work out. I do believe they could have worked out had I stayed more locked in.

So the businesses struggled. Did the revenue pretty much get wiped out fully from whatever you bought?

Yeah.

So it's pretty much a loss. There's nothing to fix. The clients pretty much were gone.

I would say it made it— it made things a lot worse because when you combine, like, you have your culture, right? That's one family. Okay, let's do it this way. You have your family, you have your 2 kids, right? Your wife, right? Let's say I have a family, right? I have like 2 kids and a wife too. But if you— your family has its own set, it's like organized chaos. Would you agree with that?

Yes.

Okay. That's like a company too. A company is organized chaos. When you combine not only one other entity, but another entity together, it totally deflated the original Single Grain team because some people were good, but some people were really bad and they didn't really enjoy working with the people that were really bad, right? And I'm not blaming anybody. Like, that's just how it is, right? And then there was one company that had been burnt out. They worked, they overworked themselves. The other one, these people would instead of going to a client call, they would take yoga classes. So they would go to yoga class instead of client calls, right? So that ruined the culture, I would say. And you have to, you had to basically like cut people and rebuild the culture from scratch because I'd taken my eye off the ball, right? And so my key takeaway for everyone here is if you want to do this stuff, you're going to do it for a very long time, 10, 20, 30 years. You got to stay involved, right? And the third thing is you have to be, you have to trust but verify. All right, quick note. This is about my company. It's called Single Grain and Single Grain is an ad agency where we're focused on driving innovation. We'll talk about a couple of new strategies. And if you need help with marketing, great. If not, here are a couple of new strategies that you should try out. One is programmatic CRO. So we are doing programmatic conversion rate optimization on our site. So it's building products that will automatically optimize your site to increase conversion rates. We're also auto-optimizing, auto-updating from an SEO standpoint. And we're constantly thinking about what else we can do in terms of enriching the visitors that are hitting your website and also tailoring custom messages for them using AI. And so there's a handful of things that we're doing from a marketing standpoint, and our mission is just to drive more innovation. So if you want to learn more, just go to singlegrain.com, grain like rice. So singlegrain.com to learn more, and we'll see you inside. Do you know one story you've never shared before? You know, most people don't know the background of Patels, but if you come from that lineage, and the fact that you have a UK passport means you're part of that, right? And I feel like that's a story you should maybe tell because you told about how your mom's an entrepreneur, you're an entrepreneur, And there's a whole like business and marketing story that I want to get to. But one thing, you just talked about feedback and then we'll come to the Patel story. The feed, we've gotten feedback on our content adjustments. So, I've had people text me and I've seen comments on YouTube saying this is the number one thing they watch when they're working out because the videos are 15 to 20 minutes now. And then, we have one mutual friend, Chirag. He was like, I used to only listen to the stuff that had a good headline because it hooked me in. But now, I listen to every single thing. That's how good it's gotten. Hopefully you guys all think the same thing too, because we put a lot of time and effort. I have to see him every week for this, guys. No, but in all honesty, it's been fun and it's been— you have to think about adjusting your content. And if you don't, then you risk losing your reach.

Dude, I totally agree with that. And what's funny is I do get messages as well. People are like, oh yeah, the podcast has improved, like the quality. It's funny because For you and I, it's fun. And just like anything that you do in marketing, it's— I've never seen you or I do the same thing forever in marketing. We always adjust tactics, whether it's for SEO or podcasting or social media. We always adjust because not only do algorithms change, but people's preferences change as well.

Mm-hmm.

Right? And what people prefer, you know, change over time because there's new things that come about or market conditions change. Or like, if you think about it, TikToks really change how we consume content online.

Do you use TikTok?

I do use TikTok.

Really?

Yeah.

Huh.

I use TikTok and Reels.

Wow. No, I mean, like, but do you look at TikTok yourself?

I do, but I don't look at TikTok or Instagram that often.

I don't— I try not to look at TikTok because it's actually— I don't even have it installed, like, because it, it like hooks you in.

Instagram Reels is the same thing. There's not really any—

I have a lock on Instagram too. I can only log on after 7 PM. Before 9 AM.

If I had to take a guess, I log on to Instagram and TikTok for no more than an hour, hour and a half a week.

That's good. A week?

A week.

That's good control.

That's good control.

I don't—

I have kids. That's the easiest control.

My time's already taken. Share the Patel story. So was it Uganda? Uganda?

Sure. So my mom was born in India. My dad was born in Uganda, which is Africa, of course. And eventually the Indians got exiled But in Uganda, they were rich. Yeah, a lot of family members on my dad's side had nice cars like Mercedes and stuff like that. But you couldn't take that with you. You were just—

Oh yeah, they nationalized your assets, right? They took all your assets. They took all your businesses, everything. Correct. Yes.

So then, you know, being that, you know, Britain at one point ruled India, we were able to go back to the UK. My dad went to the UK and we, he ended up living there. Eventually he met his wife or my mom through a mutual, you know, our family introduction and they ended up getting married and I was born there. But what was funny is my mom is smart. She's more entrepreneurial than my dad. She takes way more risk. She's much better at business than my dad. Book smart. My dad is much more book smart. He never really did that well. Nine to five, never got an amazing job. Eventually, you know, he worked for a bank. Maybe they paid him max of sixty grand a year, and that was a lot of money for him. And my mom maybe made like eighty-ish grand after expenses from the business, but that was good money for both of them. They bought their home for two hundred something thousand dollars. But my dad, if none of that stuff happened, and him getting exiled because in in the UK they had very little money and they were struggling, right? So everyone lived in one home and they. They all had to work. So my dad wasn't able to go to college or anything like that. I think if my dad went to college, my life would have been different. I don't know if I would have done as well or been an entrepreneur or what would have happened, you know. So everything worked out for a reason. But I think he himself, for his career, he actually would have done quite well if the circumstances were different.

The reason I bring this up is because I was listening to a pod today with Mohnish Pabrai, right, the Indian Warren Buffett, right, with Sean. Yeah. So he talks about the Patels. Did you listen to it?

I did not listen to all of it.

So he listens to the Patels and so he talks about the Patels, sorry. And basically it's these Patels, the reason they were so successful in Uganda is a lot of hotels, right? And then when they came back to the United States, a lot of hotels, right? Like a lot of Marriotts and things like that, right? And he kind of, I'm paraphrasing here, but he's like, yeah, you don't fuck with the Patel, right? Because they're like hardcore entrepreneurs, right? So I think your dad probably still had it in his blood. Your mom for sure had it, right? And then you for sure brought it back, right? Maybe entrepreneur blood like translates across generations. I don't know, but I thought that's fascinating because when he brought it was like yeah, you know a chunk of people were shipped to the U.S., a chunk of people were shipped to the U.K., India wouldn't let them back. It's like oh, you have a British passport.

That's why I have a British passport. Yeah, but no entrepreneurship does run in the blood. My mom got to be entrepreneur when we moved to America. My parents didn't have enough money to pay their rent. We were in low-income housing, but we were short, so my dad would borrow money from his brothers.

My mom eventually got a teaching job, but she got the teaching job by walking to.

school a few miles each way in a stroller with my sister and I, said, I'll teach for free for 6 months, then eventually pay me. And then they accepted that because free teachers, then—

Gotta be hardcore.

Yeah, exactly. She eventually got it. But what was funny is, when she started her own business, my parents on a monthly basis didn't have the cash flow for my mom to quit. But her brothers, who are all entrepreneurs, I think each gave her maybe $5,000 or something like that. So it was enough money for her to start and they helped her out. So we had enough cash flow to pay mortgage and all that kind of stuff. And that's what changed our life.

So you can try to knock someone down. You can take all their assets away, do all these things, but you can't take the spirit away. And no matter what, they came back. Yeah. Yeah. Anyway, that's interesting. Interesting stuff, man. You never know. Like all these connections happen.

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