Expert of the Month - Jonny Tooze - LAB
VIDEO: 58:28 mins
AUTHOR: Robert Craven and Jonny Tooze
In this GYDA Talks, Robert talks to Jonny Tooze. Jonny is the founder of LAB and has been part of the UK digital community for the last 20 years. LAB is a digital agency specialising in human behaviour and innovation. Jonny has recently formed a group and started to acquire other agencies. He's an advisor to many agencies outside of LAB, and has helped them grow and tackle complex challenges. He has also obsessed about leadership and decision-making for the last decade and coaches many leaders.
Robert and Jonny discuss:
Mindset
Pillars of growth
Whack-a-mole
Barriers to growth
Fear of letting go
Glass ceilings
Leadership from fear
Acquisition
Suppliers not partners
Getting too comfortable
Reverting to type
Acquisition at Lab
CFO-based acquisition strategies
What next in the agency landscape
Top Tips - understand yourself and your motivation
Transcription:
Robert Craven 00:46
And hello, and welcome to the GYDA Talks. And today I am absolutely delighted to have a real proper legend in his own lifetime, which is Jonny Tooze from LAB and he's one of these guys that you go to breakfast with and people say, I saw Jonny and he said that, he said that, he said that. So it's absolutely great to have you on board for this interview.
Jonny Tooze 01:11
Thank you. Thanks for having me. I am really, really kind of you. And what a lovely introduction.
Robert Craven 01:20
Normally. And here we have Jonny, who they say he's a very good speaker. But l let's just see what he's got to say on the test. You do kind of get those as you go on stage. I'm sure some people say he's very good. I'm not sure. But let's see. Interesting or not. So without further ado, why don't you just give us a brief intro to the many facets of what you do.
Jonny Tooze 01:51
Sure. So I'm Jonny Tooze, I'm 39 years old. So getting on a bit in the agency world. I, father of three kids and an amazing loving wife. He's very supportive of my adventures over the last 20 years in digital. I started LAB 17 years ago, which is a digital agency from a bedroom. And that has grown to quite a well known agency in the UK. And it's going on further now of doing other things that we'll talk about later. I've been involved in digital since I was a kid. So programming on a ZX Spectrum. That was my first computer that I actually coded on and learned to program quite early on. So I left school at 17, moved out of home and then really started businesses. So various businesses over the years, I've had some amazing mentors. 17 was my first business, which was promoting economic investment. And that ended quite abruptly, I won't go into why. But actually, I think he was shot and killed actually, for his anti corruption work in Malawi, which was quite an interesting start to my business venture. And then I was lucky enough to meet a guy who was a property guy who started to found a business and I was part of that. And he was a carpenter of a school and he was an absolutely brilliant guy who taught me a huge amount of that business. And so I did a couple of interesting businesses really early on in my career at 18 years old, I was in a boardroom pitching to seven at a table of 17 venture capitalists. So I kind of got schooled really quickly in terms of how the world worked in business and everything else. And then I worked in a digital agency myself, at the same time started my own agency. And then I was lucky enough to get a digital role at Panasonic, over in fashion when they used to build mobile phones in the mobile division. And this was a long time ago. So you know, the iPhone had just been released in that kind of era. So, you know, whap was still there, you know, so it was kind of like the early days of mobile, but I was in a content team and web services team. So it's all digital focused. And I mean, perfect timing to have a really deep understanding of mobile as it became. So you know, it's just on the very cusp of its growth curve. I was offered a role in Panasonic Europe to run digital missus when I was 20. To have a half million euro budget and actually run the digital operation under the CMO at the time, a guy called superpower who was absolutely brilliant. And Panasonic was flying in a digital space at that time. So it was great to be close to a very, very large brand or be part of a large brand. doing digital brilliantly, but they had twice as many visitors as any other competitor in India. Europe was incredible. So some really great times there. But I was offered this role it was based over in Germany. And I was already making more money out of my agency that I'd already started. So I kind of made it. It was amazing. But it gave me the confidence to say, Look, I know what I'm doing in digital here, I've got a mobile background, I've got the digital background, I've been offered this amazing role, and decided to go down the agency route. At the same time, Panasonic pulled out of mobile in Europe. So all of my friends that I've made there, went off to Vodafone, Motorola, orange, you name it. And I had my first clients as a result. So it was a nice way to start an agency. And lab kind of has grown from there really.
Robert Craven 05:43
Are you an agency person? Who runs a business? Or are you a business person who runs an agency?
Jonny Tooze 05:49
Is a difficult one to answer actually, I love business. I've always wanted to be an entrepreneur, since I could remember. I love the whole concept of starting something amazing and doing something different in the world, I've always wanted to do things differently. That's been my core focus of life really is, there's a better way. And so I am quite disruptive naturally. And I think, you know, I love the agency world, for a number of reasons. And this is why I'm still here 20 years later, after working in this space, especially in digital as well, is because I do love the opportunities that it brings. I love the fact that I get to speak to a range of completely different businesses and industries. I've learned so many different skills, both sort of technically how the world works, but also around marketing and communication, around creativity, around consulting and boardrooms, around culture, and people. You know, there's sort of leadership who's obsessed about leadership for the last 15 years, I've had an opportunity to do so many amazing things that apply to pretty much every walk of life, you know, literally from kind of businesses, every industry, to family, to everything, to hobbies and disciplines and my own personal development as a human being as well. So, the agency world has given me so much. And I always forget to mention, but friendship as well, you know, I've met some incredible people who have inspired the hell out of me who I've helped as best as I can. And you know, and there'll be no long term, very, very long term, hundreds of long term friends that I've met who I respect incredibly and get on with brilliantly. So I've had so much from the agency world, but I think for me, in short answer, your question is a mix. I love the business element of agencies. But I love what agencies do in the creativity and the inspiring, innovative work that agencies can do as well. So for me, it's just one big mix.
Robert Craven 07:52
Okay, so why do you think that agencies get stuck? I mean, there are these clear stick points at about 5 or 6 and about 15 or 20, in about 25 People. And some agencies, you know, they don't get stuck. I won't necessarily say sail through but they navigate growing up, they go from baby to toddler to infant to young child, some people are able to do it. Is it a peculiarity of the agency world? Or Is it like all businesses have to go through this? And this is why we have a country full of bloody startups and one and two man businesses. And, you know, if you look for 500 person businesses, I mean, they're few and far between?
Jonny Tooze 08:42
Yeah, um, so part of what I've done for the last probably five years now is non exec work. So I get the privilege of working with some amazing sort of smaller agencies that are wanting to grow and help them to do that. And obviously, in the lab we're acquiring businesses in a group. So we're also, you know, I get the privilege of working with new agency owners that have come into the group as well. So I have seen this and obviously, I've been through those things. I mean, I've always referred to them as glass ceilings. People were sort of hitting above it, and they don't know why. And there is some reason, some force that is stopping them from growing. I think there is a number of reasons for that. And a lot of what I do is helping people understand what those glass ceilings are. I think fundamentally, and this is probably a thread for a lot of conversation. A lot of it comes down to human behaviour, and our own psychology. There are many, many glass ceilings that are created by our own sort of needs and fears. So I see some people who are so desperate to grow, that they missed the basics and they just live in a sort of, I'd say a vision but it's not it's a hallucination. And expect things to kind of happen around them which they need to understand that actually there's some legwork to do to it. she got to that point, and you can't just have a vision without a roadmap and steps. So There's also people that, in effect, this is the majority of small agencies as well, or small businesses in general. But I would say actually, they listened to the doctrine of growth. And they think, for some reason, that you are not a successful business unless you're growing. And they are because of that doctrine, they fear a lack of growth or even shrinking right, that a lot of people fear that thinking that, you know, if, unless you're on the way up, you're on the way down, it's not true. And actually, the majority of people and I believe personally, it's why so much. So this industry has so many mental health problems because of that doctrine. Because actually, it's okay to run a lifestyle business, a small business.
Robert Craven 10:53
And there's two things going on. I mean, so the one is we've been fed this bloody American Dream, which is you go from the kitchen table to the dining table to the garage to the industrial unit. And they buy you for $50 million, and you're happier enriched in your wildest dreams. That happens as often as people playing football for England. And it's the same quality of idea if you listen to your kids. So what do you want to do when you grow up? I want to play football for England. Right? Okay, cool. What you want to do with your age, in five years time, I want to sell out for 10 million, I mean, bloody wake up. Second thing is gone out of my brain. Second thing, the first thing was so important. But it's Oh, yeah, that's after some emancipatory agency UK in Bath has figured it out, he looked around, running a 30-35 person agency, saw people running 65 person, 100 person agencies and thought, actually, you know what, that's not what I want. What I want is the intimacy of a small agency. What I want is the intimacy with clients doing really great work that we're proud of, that they're proud of. And at 30-32. That's the point where we have the absolute minimum amount of administration and bureaucracy, maximum number of fear and is doing great, cool work. So we're just gonna put a line under 32. And when we get to 32, we're not gonna take any more people, I love that boldness. I love that recognition also, that I mean, there's a fancy theory grinders theory of growth, that I love, the recognition that the scale, the positioning, the opportunity, the admin, the way they sell, the way they charge, the way they price, all reach this sweet spot. And he knows that at 40, the bubble will burst. And he'll be into more meetings needing heads of data. So I really respect that, that decision 30 And someone else, it might be 100, or it might be 15.
Jonny Tooze 13:08
And I think that comes down. So it's not a glass thing that I talk about quite often, of sort of phases of growth. And it can, as you said, happen at different levels. Some people, it might happen at 15 people, others it may happen at 60. But at some point, you move from informal communication strategy to formal communication strategy, which takes a lot of the sort of startup gung ho, you know, bootstrap fun out of it. Because at that point, you do need more people and overhead and margins or tighter processes need to get locked down better. But fundamentally, you know, you need to change your leadership style, like massively. And it's very, very easy to let left, leave people behind and to become unaligned as a business. And it becomes quite messy. I think it's where, you know, if you understand formal communication strategy in a business, and leadership and management and the differences between those things, but also about autonomy, and about motivation, and discipline and engagement of employees, then, you know, fundamentally you can get through those barriers. But if you don't get it, right, what you end up is I see it all the time agencies going up to a point and blowing up and coming right back down again, and going up and blowing up. And it's kind of like the roller coaster, I call it the roller coaster. And I think that is one of the reasons that is a glass ceiling of growth is understanding actually that you need to step into a more formal and more organised world of understanding the needs of people because, you know, in a small agency, when you're all in one room, it's easy. You know, they hear the MD on the phone, having a chat with the client, and they're setting the tone with the client. This is how we will speak to clients. By the way, guys, that's not all they say. But that's what's implied. And they hear people chatting across the room and you don't need processes to make sure that context is given through a project all the different teams work on a project. It's just there because everyone can hear what's going on. Bob said this about a project. So let's make sure we do it that way. But you know, if you have multiple teams around the world, or like we are now remote working, you know, this is a big challenge that people are having now more formal communications. And it's not about size anymore. It's just about the fact that we're not all in the same room. And all of a sudden, you have to have the disciplines in place, which, fundamentally, you know, it's another one of the disciplines of success. And, you know, if you want to grow an agency, and if you want to get a big agency, there are disciplines there. But also, there's a discipline to actually say, actually, you know, what, I'm happy with it being this size. And I know agency owners that have had an agency that have, you know, has never been more than 15 people, and they're multimillionaires. And you know, they might do 2 million revenue, Amina, that is profit. But you can do an agency like that if you want to.
Robert Craven 15:47
I did an event in Amsterdam. And there were like, 50-60 people there and the rooms split up. So on the left hand side, you've got sub 10 people, and on the far right, you've got agencies. So over, over 150, I think. And the guy put his hand up and says, you know, this is interesting. I'd like to understand why you've done this. And I explained why that different people have different needs, tables. So he said, but I really want to be on that table there with the people over 200 people. I said, just look at them. He said What do you mean? I said they are all gibbering wrecks they have. Yeah, they're all wearing their Versace shirts and jeans and stuff. But they're all gibbering wrecks. They've all been clutching their phones. And they're petrified because they're trying to run a 200 person business. He said, Yeah, but the wealth they've accumulated. And I said, let's just go through this really, really quickly. You're 15 people, let's just say you're a million euro to a million pound turnover. And let's just say you're 20% EBITDA. And let's say you get five times that as a multiply just to make the sum simple. So you can sell your business for a million pounds now. Oh, yeah, right. Now you get a million pounds. And also you can go and do something else. Interesting. So now let's go over there to the 200 person agency, 15 million, or 250 person. So 20 million turnover, that's cool. 10% EBITDA, that's 2 million times. 2 million times, that's just making the numbers really, times eight makes it 16 million. That's pretty good. By the way, I'll take you there. How much of the business do you now own? Now you've been through three rounds of funding in 10% of the business. So 1.6 less costs. So you're going to come out with just over a million pounds, having worked your backside off for an extra 10 years, yeah, you've had 10 years of good stuff, and you've got the big BMW, I get that. But I'm not so sure that Freddie, with a 15 people all around him, isn't in a better place and doesn't have a better relationship with his kids and his family than stressed out Jamie, with his 200 staff and his five offices in four countries. And I mean, if you obviously want to grow, and that's what turns you on, I've not got a problem with that. My thing is always will help you run the agency you want to run? I think part of the problem is everyone thinks because of that American dream, they think bigger is better.
Jonny Tooze 18:26
I think there's a different mindset. And I think I do see people that have grown large agencies, and they are incredible. I mean, there is incredible pressure there. But I think most of them can do it. Because again, it's another glass ceiling. And it's a psychological thing of an owner or, you know, owner operator of an agency. And most you know, most to the person agencies that kind of got there by one person growing it, one or two, or three or whatever, but people growing it. And again, there's another psychology thing here is that some people don't like the stress or can't handle the stress, or actually more than that, is that people see it as stress. And I think there is a different mentality between agencies that are probably always gonna stay small and agencies that are going to grow is that the owners don't see it the same way. They don't see it as stress, they just see it as you know, that's their job to deal with these big, big challenges on a regular basis. We're not a 200 person agency, but you know, we're probably knocking on door about 90, so it's fairly big. The reality is that, as you know, the My job is big stuff. You know, it's one of my accountabilities actually is dealing with big stuff.
Robert Craven 19:45
I spoke yesterday to a guy who runs a 35 person agency, and he says to me It's tough. So you need to get the bloody sales engine going because yeah, I know I know. So what's what's going on to make the sales happens? They said, well, it's difficult. It's like, don't tell me why it's difficult. So well, the website's not ready. I've been working on it for a month. And it's like, Sorry, just run that Bumpass me again. Well, I've been working on it for a month, and it'll be ready in about a month time. Why your agency is stuck? Because you are working on the linking website. I mean, people you can do on a fickle about getting these things, right. It's got to be right now he could well be absolutely right. Only he can do the perfect website. But they're not doing any sales because the website doesn't reflect what they do. And it just, it's like, that's why and he's a lovely guy, and a lovely agency. Don't get me wrong, really like a really lovely guy, but that's why he's running a really nice 30-35 person agency where people are really nice to each other and have a really good time. And there are people I know who have said, you know, Alex Blanchard, who I interviewed, said, I decided in five years to I was gonna grow an agency, and in five years, we would sell to the likes of a senator or Dentsu, and that we would probably have 175 people and I worked with him, I helped him. And it was like, you know, tick, tick, tick, tick, tick, tick, tick, tick, tick, tick. And literally three was three weeks out. And at the five year mark, they had 185 people something like that. And Dentsu, I think the third suitor, they had turned up and the handshake was done. And the rest is history. Absolutely. But he knew where he was going. And lots of the generalist marketing, full service agency, guys are like that they care. This is the business we're in, we work our backsides off for five or seven years, 30% of the business, which will get sold out to the likes of the big boys, we're not quite sure what that's going to be. So let's go through it for growth from the beginning. And with no illusion, which is a very different model from Oh, I'm on my own. Oh, I got three or four people working with me. Ooh, that's 10. I think I need someone to do the accounts for me. Oh, yeah. I could have a head of death. Oh, yeah. I could have someone selling. Oh, we're 15. Now. Yeah, I haven't seen my wife for a while. I carry my bloody phone with me wherever I go with what's happened. And that's cool as well, you know, it's not prescriptive. I think that's my point that it's different versions of it.
Jonny Tooze 22:40
Yeah, I mean, there's a lot of agents here. I mean, just going back to what you said, there's a few things that I think I should mention is that one, you know, I see agency owners in his constant game of Whack a Mole, and I call it whack a mole, like my glass ceilings, I call it a game of Whack a Mole. And I see this as a glass ceiling that agency owners tend to take on things themselves. And there's a number of reasons I'll talk about that in a second. But fundamentally, there are key pillars of success that you need to work in any business, but in agencies, specifically, things like sales and things like marketing, and things like leadership and culture, and things like recruitment, and things like process. These are all just really easily defined. pillars, that fundamentally, if you haven't got that pillar, you know, really risen up and high, you will have problems, right, and you will, you know, the classic one is going like activity around sales, shipping to sell, go and sell, you're gonna sell loads of stuff and the rest of it, then you come to delivering and you're gonna have got to deliver it, and you spend the next six months delivering it, and then all sudden, you turn around and go, Oh, no, no sales again. And you're just going from discipline over here to discipline over here. And you're talking about the whole time, that's the classic sort of roller coaster that I see in most Eight Most small agencies. And fundamentally, the game is to be able to afford really, really good people to own that pillar. And that's their job, that's their single minded job is to own that pillar, raise it up and have it working brilliantly. And what I find is that one of the barriers to growth, again, I come back to the psychology piece, is that there's a lot of fear in agency owners of letting go and you hear about this, this is a classic SME growth kind of doctrine of learning to let go. And people don't really understand what that means. But fundamentally letting go is about hiring someone better than you to do something. Because you don't need to have faith that they're going to do it. If someone's letting you down the whole time, then yeah, you're right to be worried about it and you're right to get involved. What you should be doing is finding people who are better than you at something. Now that doesn't necessarily mean they're gonna come in and just wave a magic wand and it's going to be done. But what it means is that you're going to have to work with them and train them and lead them brilliantly. give them direction, give them clarity rules. Hold them when they're great, and do the leadership piece. And that is also something that I think a lot of people miss out on. They don't really understand what leadership is. Leadership from fear is, you know, I see all over the industry, people are worried about what people are doing, and whether they're working hard or not, or whatever how, you know, is a good enough job is not good enough for me. And that is not leadership that is just fundamentally, that style of leadership is just stealing from the future, rather than investing in it. And that is a big, big problem I see in our industry is that people don't have the leadership skills. And that's a big problem.
Robert Craven 25:36
But the problem mob, there are a number of problems, there's what I would call escape velocity. So most agencies are trapped within the gravitational pull of mediocrity. They don't earn enough, they don't charge enough, their clients aren't big enough that people aren't well enough qualified. So you kind of entered this doom loop that you can't employ the best people because you haven't got enough money, and therefore you don't get the best work. And so you go down, but there are agencies who charge disproportionately more, I would argue, disproportionately better work giving clients disproportionately better value, therefore, they can employ disproportionately better people, therefore, they can acquire disproportionately better clients overall, they can do disproportionately better work. And there are numbers around utilisation rate, price point, cost of sale, and so on and so forth, those agencies succeed in hitting, and it's kind of like, the rump of the bell curve gets stuck, because they can't see a way out of that they can't charge 150 pound an hour, because of the type of clients they have, and the sort of people they employ. They can't employ a big hitter, because they don't have the margin to do. You know, there's a it's kind of it's another I mean, I love the idea of Whack a Mole apart from the fact that Boris has stolen it. But the concept of, you know, how do we play like a Premier Division team? What do we do? Well, it's kind of like, it's a bit late, because you've employed the centre half allowing you centre forward and a really poor goalkeeper, you've got a bad pitch. We need to kind of rethink and almost reskin this. And I guess that's about setting off early. You're quite heavily into acquisition and m&a Now, so what have you seen in terms of acquisition? What makes something an acquisition target?
Jonny Tooze 27:53
So I think it's a lot that comes down to psychology. It's great to be ambitious, but, you know, again, there's a difference between sort of vision and hallucination. You know, a vision is something that someone is actually doing something about, whereas a hallucination is just an idea that they've got, they're not actually working towards. And I think, to answer your point to start with, I think, yeah, I mean, it's fundamentally, I think, to grow an agency successfully, you've got to understand that it's stepping stones, and you can't just go, Oh, we're going to be that Premier League business with, you know, charging 1500 pound day rates for a developer, you can't just jump to that you can't pretend that you're because you won't be delivering that that quality. But you need to put a plan in place of how you're going to get there and go, that's where I want to be, and then work backwards. Okay. So if I want to be charging 1500 pounds for that, how do I do that? So okay, so I need a brand that is a well known brand that's got a good reputation around it, the people see straight away and buy into that. So how am I going to do that? I need great people. And I need discipline. Because if people can pay 1500 a day for a developer, then they're going to expect bloody good quality and accountability from me. So how do I put the process in place to do that? And how am I going to train my people to be able to get to that point? Do I have people that can actually get to that point or not? These are all big questions you have to ask, but they're part of a strategic plan to get there and you can get there, you can fundamentally get there. And also, it's just a bit of you know, I mean, sales is a key thing is like how you're selling stuff to people. You've got to be confident in your team, the biggest problem small agencies and one of the biggest problems again, another glass ceiling is pricing strategy. And people get that wrong all the time, like all the time and it's about their confidence. It's about their psychology, the amount of agencies I've gone into and I've turned around and gone for 50 a day. You're joking, right? That's way under market rate. That's you making it too easy. yourself, like why you're growing at the moment is because you're just undercutting everybody, which anybody can do. Right? Anybody can do that. Because you've commoditized yourself. As a result, you will always be in a position where you're the supplier, you're never a partner, you're just a supplier to them. And you're a cheap one, which they like, don't get me wrong, because they like your costs versus quality, that's great, but have a sensible conversation with them going that we're willing to market rate, market rate is 750, for this type of developer or whatever, we're charging you 500 a day, we're actually gonna put our costs up to 650 a day, and they're gonna go well, it's still cheap. Yeah, right. And they just massively increase their profit margin. And now they can afford it, that new person to lead marketing for them and sort of brand out and, or a new salesperson start bringing new revenue for them, or head of development or an operations director or wherever else, they need to begin that process of doing that. So there's so many things like that. And also, people get comfortable as well with a team, they look at a team and go with kind of how we've all grown up and whatever. And what they do is they it's like the boiling frog syndrome is that they are so used to certain things working a certain way they don't realise there's another way of doing things. And it's only when you kind of get the visibility from, you know, either a non-exec or an organisation like yours, or visibility of an inside another agency or suddenly realising You're so much better at this than us, we thought we were all right. And all of a sudden, you know, the penny drops and you go, we are not doing very well at all. And then you need to realise, okay, we need to reinvent this and do something in a different way. And that makes a big difference. I think it's kind of like the Wake Up Calls, people need to all of a sudden realise actually, we are never going to if we carry on doing things this way, we're never going to be that agency. There's disciplines that those agencies have success agencies, there are disciplines they have that you need to have, if you want to be as good as them, like a premiership football team.
Robert Craven 31:47
Surprise for when it's something that separates out the winners and losers. So the graveyards are full of Asians as it said, we had leadership, we had mindset, we had process, we had systems, we had the clients, we had the IP, we had the office address, and we communicated it and we had those strikes psychological profiles. Dadda, Dadda, Dadda, Dadda. Yeah And, you know, the insolvency practitioner took my house away. Yeah. And then he talked to the winners, and they lifted off the identical list. We had strategy and process systems, people in place, mindset, psychological profiling, client, this location. And now look at us, I'm richer than your wildest dreams. Because history is written by the winners. There's an assumption that what the winners say is good. But I would argue that loads of people have done that they've gone on that course, if that makes sense. But the secret sauce hasn't worked.
Jonny Tooze 32:55
I think that's fundamentally down to one or more pillars just not working and not being talked about, because anyone could turn around and go, I did all the right things. But did they? You know, so you've lost your key clients in the last six months and what you're doing about it? Well, I'm hoping I can win more one more clients, okay, well, that's the wrong thing to do. You should have cut your team, right? That's the discipline, their discipline is plan profitability at all times. If you're not planning profitability, you're gonna go bust. Right? It's as simple as that. So do you have that discipline in place? Do you have a good CFO, or FDA or financial manager or whoever you are, or an advisor that will turn around to you and go, you're being an idiot, you're living on hope ain't gonna work, right? You will go bust. And as you do this, you need to get rid of some people, or whatever other costs you've got in your business. But if you don't have that discipline, then you will be in the graveyard. Absolutely. Right you find or unless you have amazing relationships, your bank, which again, most people, most agency owners don't get that they look at their bank or some faceless weirdo, because they've grown up, they grew up, they started a business. And they had an account manager at a business bank, which had 1000 accounts and never spoke to them. And they never turn around to the bank. And when are we big an outcome? We have someone bigger, and they go, yeah, Shawn, and he's the guy who runs 100 accounts, and you go on lunch with him, and you have chats with them. You work out how banks work, and you make a relationship. And you understand there's a world out there of banking facilities that can help you put suspension to your business as and when you need it. Right. But most people don't do that. Most people run with almost zero suspension across rocky terrain. It drives me insane. I'm like, So how often do you meet your bank manager? Or other people that can fund you and finance you? Should you need it? Never. Okay, well, that's crazy, isn't it? Because that's the fuel that you're going to need to run your business.
Robert Craven 34:33
This is about, you know, are you a technician? Are you a supervisor or your manager? Are you a director? Or are you an investor in a business, and most people were the technician or maybe the supervisor, maybe even the manager had some understanding of what the role of a director is, although they won't have a job description and they won't be able to define what it is. I'm a director or what have you. If you've got a job, disagree Okay, so I've KPIs and then there's this additional bit, which it's about acting like an investor if you will act like an investor your perception about what needs to happen and your kind of viewpoint. And I guess, just going back to this kind of thing about you now being an acquisition, m&a, I mean, what do you look for? Do you have a checklist? Or is there a sense of fear? Is it about fit? What's the piece there?
Jonny Tooze 35:31
So yeah, so there's a lot actually, that we've done probably slightly differently to other people. Just sorry, just going back to that last point, I just want to say one thing. And one of the biggest issues I see and one of those sorts of things I do from a coaching point of view, is getting lead agency leaders to understand what reverting to type is. Because as you say, a lot of it, a lot of people start I mean, a lot of small agencies are basically turbo freelancers. That's pretty much what they are, right? They're freelancers, they're freelancers that want to do great work. And they've got, they start off as a freelancer, and they've got people underneath them. And they might have ended up with 60 people underneath them turbo freelancers, that's a super turbo freelancer. But fundamentally, anyone who is a technician to start with, or you know, a doer, and they've started a business because they're a good doer. What happens is when the Shi T hits the fan, and they've got a stressful situation in front of them, the natural instinct is to revert tight and to do what they didn't know what best, which in case, you know, might be rolling up the sleeves and coding, it might be rolling it might be getting on Photoshop all night, you know, whatever it is, and that is a that is one of the big disciplines have been able to run an agency successfully, is to understand that actually, as the leader of the agency, your job is to keep your desk as clear as possible. And when the shit hits the fan, your job is to lead right, maybe to manage, maybe to manage a fire or whatever. But fundamentally, it's about leadership, ideally, leading somebody else to manage the fire, right to deal with it that way. That's where you need to get to as you grow, if you are feeling that you revert to type and when things go wrong. Or when you're under pressure, when the client projects late or something's gone wrong or whatever, if you're the person that obviously isn't going right, let's get on with it. How do I do this? What you're doing is you're stripping autonomy away from your people, you're showing that it's just me, don't worry, ownership goes completely, because who cares? Why do I need to work hard as an employee, when the owner of the business always comes to the rescue, if something goes wrong, I don't need to worry about that sort of stuff, right? You're stripping so many disciplines out by doing that reverting to tight. And it's a really important thing, all agency owners need to understand they're putting the glass ceiling above their head, because their own psychology because they revert to tight when they have fear. And as soon as they understand that, the better it is because what you need to do is revert to leadership in those kinds of situations. Because when shit hits the fan, most people know about an agency and when people are under distress or when there's something going wrong. That is when people are most susceptible to a definition of culture. And it's the leader's behaviour that sets that about 70% of agency culture or business culture is set by the leader of the agency of the business. And 70% of that is set by their behaviour in a crisis. So when there is a crisis going on you fundamentally you absolutely have to learn to revert to leadership, which is go and take a cold shower, if you need to go and have a breather, don't rage, don't let your emotions flow don't get irrational, go rational think leadership, leadership discipline to replace and this is what you know, this is why like martial arts, you practice your blocks 1000 times. So when the punch comes in, it's your subconscious that does it, you block and that's it, right? That's what happens. You do not like sit there and go well a punch coming in and try and duck it or something stupid because you're gonna get hit. And in the leadership game, it's exactly the same thing. When there's a crisis hit in your lap, the first thing you do is look at it, and you go okay, revert to leadership basics. And you go okay, guys, let's sit down. Let's plan this right? It's alright, don't worry about it isn't nothing we can't fix. Right? And then who's gonna take point on this? You? Okay? Tell me what you need to fix this, right? That's the leadership game. People miss out on that all the time. And I think that's one of the biggest glass ceilings that I see in people is not being a hammered crisis. And when the agency world, we do have crisis, you know, we're in a lot of a project based, there will be crisis, there'll be ups and downs. That's the way to handle it. And if you can't keep a cool head on that, you know, you're probably the wrong person to lead the agency or you need lead leadership training to understand the game a bit better. But in answer to your question, Robert, I mean, I think it's very good. In terms of acquisition, for us, we looked at the world I immersed myself in the world of m&a About five six years ago and met some incredible people that were doing some incredible deals at all had done them on the on the sort of buy and sell side and we were involved in the m&a world some and I had lots of breakfast, lots of lunch, lots of beers, and and I have done for the last six years. So I got a really good perspective of this because my ambition was to build an agency up to then be acquisitive and to grow in organically as well as organically I'm so I understood the landscape and I saw the different types of buyers, obviously, there was the big network agencies at WPP ease of the world that were doing the normal transactions. And I spoke to loads of people in their m&a team about how they did it. And it was really interesting, you know, some of the sort of tricks they used and some of the deals they did and what they looked for in businesses. And then obviously, there's the sort of the new consultant wave of consultancies that came in, obviously led by Accenture, because they're public rather than partnership own, like all the rest of the consultancies. And looked at their sort of models and how they were, they were looking to do deals. And then obviously, you know, looking at the landscape, and majority, the deals are one off purchases, they're not by the big networks, or whatever. And then sort of like the mid market as well. So you know, looking at the depths and business like that came sweeping through into P back to roll ups and the increase of P and in the m&a world as well as been dramatic over the last five years, it was next to nothing five years ago, and then you go back to 2017, it was like 11% of all transactions globally, up back, the next year, it was like 25%. And now I don't know what the start figures are for 2019. Haven't seen them. But I'm sure a brilliant m&a Genius will tell me but it wouldn't surprise me if it's 35% - 40% of deals being backed by private equity now. So slightly different games. So immerse myself in this world, see the structures and whatever. And what I realised is that most of the roll ups or you know, sort of acquisition strategies that you see our CFO based kind of like spreadsheet based kind of strategies, and many of them have a kind of thread that goes through them of like, this is what we're trying to do as a group. And, you know, it's normally about geography and reach. And I get that right, you know, so you know, like, we can then go to much bigger clients, global clients and have people on the East Coast, West Coast and 24/7, operation, blah, blah, blah. So I could see some of the threads that were there, and some of the strategies that were there in terms of roll ups, but fundamentally, I saw that they were very driven by the spreadsheets. And I didn't want to do that at all. And my vision was to create a group focused around IP generation and art and our USP, which is around human behaviour, but also to grow it profitably and to help agencies through these challenges as well. So our model was to take smaller agencies, and to help them grow into big agencies. And we've proven that model. I mean, it really has worked, we've, you know, taken reflect digital in, based in Kent, and you know, within six months, they were doing twice the revenue, they were they went from zero to 1 million to 2 million revenue, and most of that was profitability. So, you know, we've done that, and we've stripped out all of the problems around having to hire an expensive finance manager, and we've got that centrally. So we've already got those in that group. So we can help them do that. And disciplines around HR processes. I mean, they reflect great anyway, to be honest, but there's stuff that we can do. And we've got the sort of the expensive pillar owners already in lab. So for us was going to do one hopefully closing tomorrow, actually, another one another creative business this time, but we wanted to buy agencies that weren't just about kind of like more of it was complementary businesses where we can work together with this sort of deep understanding of human behaviour that we have to sort of supercharge what they're doing. And, you know, I mean, what do I look for in a cultural fit. The first real thing is, we have an obvious understanding of human behaviour and have a lot of amazing psychologists and behavioural economists in the business. We were quite lucky. And we've got a really good model for cultural duty due diligence. So we've got a process that we go through to understand whether there's going to be a fit there. Obviously, the business itself has to fit into the group, but how does it fit? How does it look? And then obviously, you know, can we add value to them? What's the real value we can add here? Is it just to kind of grow them more? Or is it to teach them what we do and make it better? Like, can we improve their pricing strategy quickly? or increase their pricing strategy? Can we help them hire better talent? Can we help them train their talent? You know, can we help them save costs? Can we help them with a client base? So there's a lot of questions that we asked ourselves of each of the acquisitions we've done, you know, is it going to be strategically does it work for us isn't going to be something that we can build quickly. And you know, so far it has worked. But you know, we will build and we'll continue doing this. And I think the model is very different, because it's less strategic, it's less planned, and it's more organic. It's about getting close to businesses and understanding what they do and I'm saying their ambitions and drive, understanding where we can help them how they would fit, potentially partnering with them. And then to move to a position where it just makes sense for everybody to do it. And fundamentally, you know, one of the things is that it's really hard. It was hard before, you know, like, you know, even from 2008, it's been hard to be a small business, right, you're vulnerable. And we wanted to create a home for businesses to grow autonomously, and all the businesses that we're acquiring will remain autonomous. I sit on their board, but fundamentally, all decision making is mutual. It's not like we have reserved matters in the shareholders agreement, but very rarely do we just discuss them. And that's just a matter of good corporate governance and discipline. But fundamentally, if people you know want to do something, I'll support them and go, Okay, well, I probably won't. But if you want to do it, fine. And there's plenty of times where they've done it, and they've owned it. And they've nailed it, even though I sort of said, No, I wouldn't do that. But that's the model that we're building here is, and one of the things we're doing as well as not taking 100% of shares and agency, the maximum we'll take as 80% of an agency, excuse me, because we want people to be incentivized, we want them to grow their own agency, but we want to fast track them through all the crap, like all the stuff that fundamentally means you've got to take your phone on holiday with you the whole time, and the stress and those lessons, you want to guide them through them. So they learn them, but without all of the pain and when we've proven that model, it does work. And fundamentally, you want to make everyone wealthy out of this, I mean that the aim is that to get to a point where, you know, someone knocks on our door and says we want to buy you. But we've all made enough money on the journey that we turn around and go well, we don't really need to sell. And that's the ultimate aim that we want to get to is that we want a position where actually we can turn around and go, you know, what should we sell? Now we're loving this. And that's what I'm maybe at that point, I might leave and get bought out or something I don't know, maybe there's someone better to run the business than me. But you know, it's gone. You know, for me, personally, lab has changed. And my role has changed completely from an owner, founder kind of manager role. And it's very much changed now into a I represent the shareholders, I'm here to create culture, I'm here to ensure that our decision making framework is here to buy everybody? That's a really simple one. That's the group ethos around a decision making framework is great work people first and commerciality. As long as people have got those three things in their head, they're free to make decisions. And they can justify what they thought about them. And that's how we roll. Because we want to increase autonomy in the business and my job is to make sure people are doing that and understanding that really. And then obviously acquisitions and starting to understand different businesses and acquire them. So yeah, lab has completely changed, I think as a business and we're about to launch two new agencies, ourselves underlap to sort of, you know, the lab agency is moving down and lab group is, as a brand, moving up a bit. So it's all changed. But, um, it's quite exciting. And you know, we've got the whole innovation stuff going on as well, which I think a lot of agencies sort of try and do but don't necessarily get quite right. And you know, a lot of people try and launch products and things like that, and some are successful and most aren't. And I think there's a certain discipline around launching products. And I think the best example I've got is probably Nikki Gatenby at propeller net, who has launched a couple of amazing projects, and I just rate her a million million miles in the sky. She's an incredible, incredible human being. And you know, she's done that really well. So if you ever want to, I mean, she wrote a book called super engaged, I'm not sure whether you've read it or not. But it's a brilliant book. And she talks there about launching products and how that works. But a lot of agencies trying to get it doesn't really work so well. But again, we took a different approach that was what are the disciplines around decent product development. And we've got an innovation team at the lab. And that's what we're doing. And that's why we've won about 600,000 pounds of grants in the last six months, which is useful timing, because of COVID and all the rest of it as the market kind of dips for everybody. But you know, they are, you know, I think the monitoring officer Innovate UK, so there was the third highest ranked Innovate UK grant that he's ever seen, which was quite a nice compliment. And, you know, got backed by MIT and all sorts, you know, and we just got all the right people in the right place to do this brilliantly. But I think that the other thing is that the agency landscape is changing quite rapidly.
Robert Craven 49:32
Everything's moving all the time. You know, Google used to be the only gig in town that's clearly not, what can go on and on. How do you see that landscape developing and more importantly, how do you see the role of an agency fitting into this new world?
Jonny Tooze 49:53
It's a hard one to answer because I, in many ways, see bleakness for the traditional agency, certainly media and advertising. You know, it's changing. Obviously, there's a lot of stuff going on in advertising at the moment, which is a bit scary. You know, there's a lot of brands boycotting Facebook because of Facebook's values and some of their behaviours. And I think there's a lot of brands boycotting Facebook because their competitors aren't advertising anymore. So they don't need to bother themselves. And I think there's a certain truth of that sort of, it's not really morals lead from a lot of people. But fundamentally ad spend is decreasing. You know, obviously spending through the crisis we're currently in is decreasing. And I think people are getting a little bit more nervous, I think, you know, I see a lot of swings and roundabouts in the game for 20 years. So I've seen multiple times where people are brands have gone through a phase of bringing stuff in house, and then you know, outsourcing it again, and whatever and industries do it in different cycles. But so it's you know, that's just kind of, you know, I'm long in the tooth enough to know that it's just kind of it happens. But I do see new levels of discipline coming in, I don't think it's going to be as easy to start an agency anymore. You know, you go back 5-10 years ago, and it was quite easy to be a turbo freelancer and just grind out creative work for a brand or whatever, and get a bit lucky with a few sales or just, you know, dabble in the local markets and local SMEs and shops and stuff like that. And that works too. And that, you know, that will exist for a while. But I think the divide between small agencies that deal with kind of simpler local staff versus the sort of the bigger agencies. For us, we saw this happening anyway, five years ago, that was one of our reasons for one of our strategic motivators was to see that there was a very big divide happening in the agency landscape. And you see that I mean, it's mainly through, you know, the acquisition, I mean, you know, there aren't many medium size independent agencies anymore, you know, there really aren't, you know, I mean, if you look at sort of the very top of mid tier, you know, jellyfish went not too long ago, and, you know, it was amazing agency, but I mean, they were kind of the last big, big, sort of independent agency, and there are some about and then some that won't sell. But fundamentally through the, you know, consolidation of businesses, it's very much a kind of, like very big agencies and very small agencies. And that's kind of how it is, and the very big agencies are coming into the small agency kind of world, when it comes to projects. So you know, you will be competing with the E pans or the Accenture's for projects where you thought before, oh, yeah, that 100 grand project will never be competing with those guys, no, they are winning those kinds of projects and taking on those kinds of accounts these days. So, you know, they are going for a longer tail of client, and it took time to grow and expand themselves. And that makes it very, very hard to grow. I mean, the glass ceiling is coming down. That's the truth of it. And that's one of the motivations for creating the group in the first place was, collectively we can punch, you know, way above that way we can compete with the big boys and girls. So you know, that's the kind of the way we thought about it. But it's hard, the landscape is changing, it's getting tougher, obviously, with the crisis at the moment, it's extremely tough for most agencies. There are some amazing success stories, which I love hearing, but most people are struggling because most industries are struggling. And that's just the truth of it, right? It's a very difficult time for all agencies, but it's now more important than ever, to have those basic disciplines in place to have the focus on sales and marketing to have the focus on leadership and culture, to ensure that your processes are great, and your brand is well protected, and the quality is there is absolutely essential right now, to have those pieces in place. Because right, you know, as I say, to all my non exec clients, on the agencies in the group, I mean, post COVID, the landscapes can be very different, it's going to be fairly barren, there won't be as many agencies anymore, and you know, the work will most likely come back, and probably not as fast as the v shape that everyone predicted in the first instance but it will come back and the landscape will be different. And so if you can survive this and come out of it better than you went in with a better culture and more better disciplines and have you taken the opportunity to transform during this crisis. You've got a new world that you'll enter into.
Robert Craven 54:40
Final question and you kind of half answered it or we've answered it all the way through the interview actually, but the final question is, what are your golden nuggets? What are your top tips? What are your pearls of wisdom that you share with agency owners right now? I mean, we're recording this as we go into August, so called post COVID. So called V shape. What's your advice to agency owners, agency leaders?
Jonny Tooze 55:18
So I think probably the highest level advice I can give, in terms of golden nuggets, would be to sort of understand myself. You know, you really got to understand why you're doing what you're doing. And you've got to understand when you're being motivated by needs and fears, and really be disciplined around unpacking that sort of stuff that's going on in you as a person. Because that will ultimately influence your decision making. And your decision making is the only thing that matters in terms of where you're going in the future. So understand what influences your decision making and be disciplined around not making decisions, when you're in a bad state, or whatever you get out of those states learn to get out of those states learn to think differently about things, don't fixate on problems, move on quickly. And think of it in different perspectives, have someone to bounce stuff off you off your thinking. So you don't get stuck in those kinds of ruts. Fundamentally, if you can focus on your decision making and make better decisions, ultimately, that will start that sled, it's that sort of the ball rolling. And if you want to snowball your agency and get it bigger and bigger and bigger as you go, you know, it's about constantly making good decisions, and you know, fundamentally underpinned by great leadership and great culture. But you know, deciding on who you're hiring, what clients are taking on what values you're going to live in your agency and define. So your decision making is everything and it's something that's worth obsessing about. And you know, when you make a decision, maybe they might work for you, if you write decisions down and go do it was that the right decision, really. But fundamentally, you can only make good decisions if you've got good feedback loops. So the leader's first job is to ensure every single feedback loop possible is open. So when you get feedback from anyone, whether you like it or not, you know, the only real response to that is Thank you. Now I appreciate your feedback. You've got to keep your feedback loops open, and I see it so often, your decision making will never get better unless you open your feedback loops. So always be gracious and grateful when people give you feedback and encourage it as well. The point is you have a bad reaction even if it's just as soon as you have that reaction, people are less likely to give you feedback the next time and you're closing your feedback loop. So the more discipline you have around opening a feedback loop the better decision, the better feedback you'll have in your decisions. And then you'll be, you know, fundamentally snowballing your agency.
Robert Craven 57:47
Absolutely perfect. Absolutely. I love so much of that. And your reputation. Of course, well earned welders. Thank you very, very, very much for being absolutely great guests. We could have gone on for about five hours. I get the feeling but we squeezed loads in. So a very big thank you to you, Jonny, thank you very much indeed.
Jonny Tooze 58:09
Thank you very much. I mean, Robert, it's been an absolute pleasure and yeah, really, really appreciate it.
Robert Craven 58:13
Great. Cheers.