Reddit wiped out of ChatGPT, what agencies are really worth, & the new services playbook

Did you see that Reddit got wiped out in the ChatGPT results?

Yes, it's pretty much almost zero. So did G2 and a lot of the other review sites as well.

So this is a graph from PromptWatch that I have pulled up right now. And so Neil, would you want to describe what we're seeing?

Yeah, so PromptWatch is talking about how often ChatGPT is citing Reddit. And if you can look on August 14th, it pretty much dropped down all the way. Now this is nothing new. I still love this data and chart from PromptWatch, but ChatGPT was cited really heavily early on in the Reddit days. Reddit went public. Sam Altman also has stock in Reddit. I believe it benefited him to do a deal. And then Reddit kept getting cited less and less over time. And you and I called this on previous podcasts. We also said we don't think Reddit is going to be cited that often in the long run.

Nope.

As well as G2 Crowd and a lot of these review sites. For ChatGPT to do really well, they got to look at proper industry websites and see what they say about businesses within that industry versus people who can sign up anonymously on Reddit and say whatever they want.

It's too easy to game.

In a bad way, in a negative way, yes. And actually in a positive way too.

Yeah. Well, everything, but actually when you think about, I was talking about with our mutual friends this week, everything is a game, right? Like the way you behave in a company, the way you serve your customers, all these things. But Anyway, so I thought that was interesting that PropWatch called that out. And these algorithms are always shifting, right? But I was also, I was looking at this tweet over here. So this guy, Matt Swolinski, he works for Victor now. He used to work at growth. He used to do growth for Whisperflow and Superhuman. So he said, Meta quietly ended the media buyer job and most SaaS teams have not noticed. So creative is the targeting now. A $100K a month, K account per month spend needs 400 to 500 new creatives a month to feed the algorithm. 2 static ads and a lookalike audience is not strategy. So we should talk about how we think about this because we're doing this for clients right now as well. But my opinion on this is that the really, whether you're in SEO or paid media, what we're hiring now, Neil, is what we call 4-deployed marketers. Okay? So 4-deployed marketer needs to be a T-shaped marketer that is deep in one area. So it could be SEO or it could be paid media, but then they're actually very broad across other categories. They know how to do analytics, they know how to do organic social, they know how to at least talk about this stuff, right? And so you can't, I believe in today, age in 2026, you can't just be a media buyer. Like, it's unfathomable to me, Neil, that people today, they're like, if you think back to when we were like 24, 25 years old, did we know how to do analytics? Like, yeah, we did. But now it's considered like a different job. And I do believe you should go deeper in it. But to be a well-rounded marketer, like, I think I look at you, I look at me, it's like, sure, we might've started in SEO, but we know affiliate well, we know SEO, sorry, we know paid media well, we know all these things, we know email well, we know copywriting well. And that's what I think it is. So this is not even the end of the media buyer job. I think this is the end of the— we're going to see less specialist marketing jobs and we're going to want more generalists that are just strong strategists at the end of the day.

Yeah. And I look at this as the same thing as engineering. If you look at a lot of the engineers now, I know there's more job openings for engineers, but the ones who are adapting and leveraging the latest technology are doing really well. The ones who are slow to adapt are getting fired and replaced. The same thing with marketers, whether it's media buyers or anything else, You have to adapt. And I think that's a big problem in which a lot of people just get stuck in their ways in marketing, but they don't realize that the number of changes these platforms make just to their algorithm is ridiculous. Like Google's at over 10 algorithm changes a day based on the last posting they did. It was around their 9-point-something. If you're not adapting, you're kind of screwed. And platforms change so often, technology changes so often. Don't get into a field that requires a lot of adaptation if that's not you. You want the same old thing over and over again? Fix roofs. It's a great job, pays extremely well.

HVAC.

HVAC is another one. There's not as much change. If you're going into a field that requires change, either buckle up and adapt or don't get into it at all.

I think one thing I'll speak for both of us is Neil and I, we're both looking to continue to hire and we're looking to continue to hire people who have a great relationship to change and are very, they are self-starters and they're learners, right? If you love learning and you have a great relationship to change, that's how you're going to succeed in this new world for a very, you know, a fast-changing environment. Again, if you're in HVAC, maybe not so much, right? If you're building buildings right now, maybe like I'm looking at the Amon that they're building over there right now, maybe not so much for the next, you know, little while before the robots take over. You know, Neil, I want to talk about something in terms of how we're thinking about marketing mergers and acquisitions or just mergers and acquisitions in general, because earlier Let's just say earlier this month, I sent you something on something that you might want to consider, but there's a reason you didn't want to consider that deal. So yeah, what can you say about your deal underwriting process in your head?

For that deal specifically or any deal?

We can go with that one.

Yeah.

So you can make numbers up.

I can make numbers up. People aren't going to know the company. I can actually even say the real numbers because it's so generic, right? This person was in a pickle. They needed $350,000. And when they were needing $350,000, Eric messaged me and said, if you do a deal with this company and they can't pay you back, you can just take over the company and the company's worth a lot more. They have investors. They raised 8 figures. It's not that easy to take over a company when someone doesn't pay you back the money right away. That's number one. 2, I believe the company is going to have mass AI disruption. They already are facing it, and I believe it's already affecting their numbers. So I don't know if I even want to own a company like that. And then the 3rd one is, if I give them $350,000 and they only needed the money for 3 months, even if it was for a year, how much interest am I really going to collect on that money? Let's say they want to give me 50%, and then I had to pay 50% taxes of that money. Is it really worth doing all the legal paperwork and everything for, call it a profit of, you know, $75,000, $80,000 after taxes.

Also, how many more times are they going to need to do that?

That company?

That $350,000, that $300,000, the $350,000.

Oh, I think they're going to keep needing more and more money, but I'm not in that business of trying to make, you know, 10 cents on a dollar. There's a lot of people out there, they're in that business, they're in the lending business, and can be a great opportunity. I'd rather go invest that money and buy companies that have long-term potential. Dude, yesterday I looked at a company. I won't reveal the name. They work with most of the big tech organizations. So if you look at them, you'd see a massive agency. They do $30 million plus in revenue. They claim $11 and change in profit. In EBITDA, I see 9.8, 9.5, somewhere around there in EBITDA. I don't think they're at 11 either way, but they have heavy client concentration. They'll only grow 6% this year over last year. Their margins used to be 14%.

What kind of agency?

A creative shop.

Okay.

Their margins used to be 14% max. They all of a sudden jumped up because of AI, And their revenue jumped up. So if you look at the last 3 years, 3 years ago, they were doing okay, call it in the 20s. Then 2 years ago, they declined from the 3rd year. So did profit. Then a year ago, they grew rapidly because they got 1 or 2 big contracts, which made up the majority of their revenue, and they used AI to cut costs. So the profit shot up. This year, they'll grow 5, 6%. Similar margins as last year because they use AI to cut costs and they have a lot less headcount. And I told the banker, I love this business. I would've bought it 3 years ago if they were reasonable. The guy who told me when I talked to him in 2024, at that time, call it, they were doing, I don't know, $3, $4 million in profit. I'm just rounding, but let's call it, I know it was more than 3, but less than 4. He wanted 12 times his profit for a non-recurring business. I'm like, no one's going to give you 12 times. He's like, yeah, I'm going to get an offer soon. Someone wants to buy it. So I'm like, no, they're not. I didn't tell him that, but I was like, I'll just wait until they don't buy you and then I'll come back. Because everyone knows what things trade for. It's really hard to bullshit that. So then when I hit him up again, I'm going through it and I'm like, one, you have client concentration. It's too heavy. This company is going to see price compression because they just cut a lot of staff. They're using AI to do a lot of stuff and they're pocketing the money. They're going to get competition and the margins are going to drop. They're like, yeah, they're already starting to see it. And I'm like, yes. So the banker's like, yeah, maybe you can buy this company for 8 times. I was like, 8 times for something where I believe half the profit's going to go away. So now I paid 16 times. They have client concentration, so a little bit more of the profit's going to go away. I think the business was realistically run correctly when they were doing around 3 to 4 in profit. And at that point, I would've paid 8 times that business.

It's funny, you can actually reverse the math and say, hey, if we take away your other profits and everything, you actually divide it. So whatever he's asking for, like 20 times, right? You divide it by 2, divide it by another 2, right? You had to pay like 5 times or something.

Yes. And what I was willing to pay years ago, I would've given them 4 times their money upfront. And then did a few-year earnout where they can get the other 4, right? Because you just want to make sure the business doesn't go backwards, especially when everything's not recurring contracts and—

And then these businesses are very founder-driven too.

It's very founder-driven. So you have to be careful on that, but their clients are a lot of repeat. And then on top of that, when I looked at it and I told the guy this, because I remember talking to him 2 years ago and I was at Javier's, which we're going to later today. I talked to him when I was in Javier's.

The same one?

Same one in Century City. I was on the phone call while I was at Javier's.

Yeah.

And I remember him saying, oh, we're part of an agency network and we get a lot of business from that. And I was like, well, we're not going to get business from that network because we're a competitor to almost all those agencies. Well, you only offer creative services, so people of course will push you business. And on top of that, he gets a good chunk of his business from other competing large holding companies like the WPPs, the Dentsus, the Publicis. I'm like, they would never drive us any revenue because we're direct competitors and we do Majority of the services that they offer in a lot of the countries that they focus on, while you only offer creative services in the United States. So I was like, you start wiping out all that revenue. I'm like, I can't pay what he was looking for. But because they have such solid brands and do such good work, I would've gave him 8 times his profit, call it 2 years ago when the economy was bad. And even with the AI disruption, because I knew I could take that business and grow it globally into something that was like 4 or 5 times the size.

But also these things take the, the, the, Unseen point Neil's making here as well is these things take time because Neil might check in with him in a year or 24 months or 36. He will not sell this company for the deal he's thinking about. Neil's just going to keep— a lot of these things take time, whether it's recruiting an executive or doing a deal, you just need to keep checking in.

Dude, out of every single M&A deal we did, how many do you think happened from the first conversation?

Zero.

Only one.

Yeah.

All the other ones happened years after we originally reached out. It doesn't mean that the businesses didn't grow or there was something wrong with them back then or when we bought them. It's more so it was hard to align.

All right, so I wanted to take a moment to tell you about my podcast co-host Neil's agency called NP Digital, and they work with a whole host of global companies or a global organization. Also, Neil has SEO tools such as Ubersuggest and AnswerThePublic. All you have to do is go to npdigital.com to learn more. And we'll see you on the other side.

Expectations with what the market's willing to pay and what some of these founders want. I find that in almost every single deal, I reach out to tons of companies and I end up buying them 3, 4 years later. Do you know what the equation is for— Actually, 2 years later.

Do you know what the equation is for happiness?

What?

It's your expectation minus reality is your happiness. So if your expectation's too high and reality is this, then you end up depressed. You're not happy about it, right? And this is the situation. Like they've gotten, they've gotten told that the multiples are supposed to be this and that, that you just keep following up with them until their expectations drop because then they start to realize what the reality is, right? And I'll tell you how I'm thinking about M&A for us in the next few years. For us right now, right, I'm thinking more so how are we selling all this stuff? Because when we're on conversation with these, they're like, what do we do about data hygiene, data security, permissioning, all these things, right, that we're building with the AI implementation stuff? So for us, it's still much more about signal for the next 12 months or so, right? Then we can figure out, okay, once we have more or less product-market fit on this stuff, then we can go out to market and plus the market will have matured a little more, right? Because I think going out there to buy, at least for us right now, agencies, because chances are we're probably— they're not going to be aligned from an AI standpoint, right? Chances are you're going to have to cut. You look at what Bending Spoon is doing, private equity model where they're just buying companies, just cutting a lot of headcount, right? I'd rather focus more on, hey, what have we figured out? What do we need to plug in? And then 12 months into it, once we figured it out, we go out there and we go to market and then we can say, okay, We know exactly what we want, but we're going in right now because this stuff is so nascent, it's a little too early.

Dude, you want to know what my favorite thing about M&A is?

What?

I get to talk to—

You like the negotiation, I'll tell you that much.

Yeah, I do like the negotiation. I talk to so many entrepreneurs, I learn a ton. I would probably say I do 2, at least 2 new calls, or not every day, because I don't really do them Saturday and Sunday because people don't want to talk then, but I do at least 10 Wow. New M&A calls a week with brand new companies that I'm hitting up. Forget my team, this is just me, right? It's even more if you count my team. And I remember I was talking to a guy in the UK and his agency operates all over Europe. So I hit him up to see if he was interested in buying his company. I asked him for numbers, he wouldn't tell me the numbers. I told him what we pay and I'm very direct because I don't like wasting time. So he wanted me to sign an NDA, I signed the NDA. And then we jumped on a call this week. So when I jumped on the call, he landed from his flight. It was an hour late, which I didn't care for because I wanted to learn more about the business. And they had a good amount of employees. And I'm like, man, if I plug them in, they can help us in multiple markets all at once. And he tells me about the business. He's like, yeah, this is a perfect time to sell. I don't want to keep working on this business. I'm over it. So one, I never want to hear that.

No.

If I'm buying you and giving you money and you tell me you're just done with it, I'm like, okay, then why would I give you money? But I never stopped the conversation. I asked why and I tried to dig in. So then he tells me, oh, I sold 70% years ago and he sold it for a good amount of cash. The business, let's say it was smaller at the time, I don't know what he got, but let's call it $10 million. It was something like that. It's different currency. It was in pounds, but let's round with roughly $10 million. And when he was telling me about this, so he still owns the remaining chunk. Maybe his team owns some percentage. I didn't ask him. Even though he operates in a lot of different countries in Europe, I was like, why are your investors and you looking to sell? You must have grown. He's like, well, we're struggling. Valuations are down, so I'm over it and I'm just willing to take a loss. I'm like, but what about your investors? He's like, oh, I can talk to them. I'm like, well, the decision is up to you because they own majority. That's the first thing. So then I was like, this guy's not going to even be able to sell. It's not up to him. It's up to the investors. 2, I don't want this business because the guy running it doesn't even want to be here. So then 3, I start diving into all the countries they're in. And he's telling me on how he has this model in which you can run an agency for one country, but service many countries all at once. We haven't been able to do that. We actually have offices and people in a lot of different countries, which just increases costs drastically and just makes the economics less efficient. I was like, this guy's model must be better. He's growing because you can look at LinkedIn and look at headcount, but a lot of times it's off. So when he's breaking it all down and he's breaking down his revenue and his churn, I quickly see that the economics aren't working out by being in all these countries and not having too much of a physical presence. He's getting some business, but he can't scale and actually get the big clients because when he's telling me the issues that he's facing, such as, oh, we can have meetings here and there, but it's hard for us to build relationships because then you need salespeople, you need account managers on the ground, you can't be centralized. So our model better. And I'm like, wait, that isn't better because you're not closing all the accounts and you're telling me why you can't close the other accounts. But I learned from that call that buying an agency that does multiple regions may not be the best. And the original approach we had, it was validation that even though it's expensive and it takes a long time to break even, it is probably the better financial move for the long run.

Yep. So here's what I outlined with my thesis here, and then we can move on. So I actually created an entire document when I was flying back and forth with Arizona, right? So the goal right now for us, you look at Sequoia, Andreessen Horowitz, and Y Combinator, right? So Sequoia calls its thesis the services, the new software. That's the blog post that they wrote. So basically they distinguish tools from completed work. So Copilot sells the tool and Autopilot sells the work. Its playbook starts with outsourced intelligence-heavy tasks, then expands towards in-source judgment-heavy work as the AI compounds. And so you can do this for marketing, you can do this for accounting, you can do this for a series of different services. Andreessen Horowitz, the other venture firm, uses 2 distinct formulations. So you have vertical SaaS now with AI inside, argues that AI lets vertical software take on tasks previously too complex for software, and describes a 3rd wave of cloud plus fintech plus AI. So software is eating labor is one of their arguments, right? And then YC, finally, last but not least, the accelerator calls the opportunity vertical LLM agents, right? So you can have agents again for like finance or for marketing or sales and things like that. And so The whole idea here is that still, if we don't establish the thesis on our own first and establish a, you know, over the next 12 months or so, what things should look like internally, then we cannot define what the buy box looks like, the underwriting standards, the diligence process, integration model, founder compact, scoreboards, all these things, right? And so at least for us, as quickly as I want to move, I think it's more prudent to establish it more aggressively because we're learning so much as we're getting on these calls right now. And I think it's still very early days right now. So I'm very much the executive sponsors on these. But this whole memo talks about who else is included, what the lesson is with all this stuff over here. But the cool thing too is I had this breakout looking at Bending Spoons, looking at Jellyfish and Acorn, looking at S-4 Capital.

Jellyfish, the agency?

Yeah.

Who's Acorn?

So let me read this to you. So I think you'll enjoy this because it has 2 agencies in here. Okay, so BrandTech acquired 100% of Jellyfish, the agency. Jellyfish founder, Rob Pierre moved to chair while Nick Emery took day-to-day CEO authority and Pierre stepped down months later to a different path. Acorn Eye founders Claire Leon and Ro— this is another company— Ross Cavallari remained founders and directors while becoming global leads of the combined Jellyfish commerce capability. So that this is like an agency buying an agency by an agency situation. And the core lesson here is founder retention is not one structure. BrandTech shows founder transition and retain capability founder tasks. Single grain must specify whether each founder is operating vertical CEO, portfolio capability leader, or a bounded Transition executive. So there's all these lessons here. There's all these different models like S4 Capital and Monks, right? Remember they named it Media Monks? And so—

Now it's Monks.

Yeah, now it's Monks. So the— so this describes the operating model as one brand with unified systems and a single P&L. So in fiscal year 2025, reported net revenue declined 10.8%, while marketing service operational EBITDA margin improved from 14.2% to 15.1%. So the lesson for this one, Neil, Is one, P&L centralization can improve coordination and cost control, but margin improvement can coexist with revenue decline. Single Grain must track retention, organic growth alongside efficiency, not treat cost reduction as proof of successful integration. So my point of saying this is like you look at Bending Spoon, like they have this, they're all about buying these successful SaaS companies, cutting, and that works for them. There's all these mini lessons from each one that you can integrate into these playbooks. And I think that the meta lesson is you have to figure out what works for you.

So yeah, to figure out what works for you.

So, so anyway, that's it for today and we'll catch you later.