TMBA 546: Adjusting to the 'New Normal'
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What do you do when you lose over half your Annual Recurring Revenue and test positive for Coronavirus, all within 48 hours?
Jim Huffman described this exact experience in a post on his personal blog titled "The Hardest Day of My Career".
Jim is the CEO of GrowthHit and co-creator of FunnelTeardowns, and when we discovered his blog post we knew we had to talk to him.
Jim joins us on today's podcast to share his insights on how to create a successful marketing agency that aligns with your lifestyle, the strategies he deployed to save his company after facing such a dramatic event, and his plans for the future in the 'new normal'.
Listen to this week's show and learn:
Why Jim left the world of investment banking to become an entrepreneur. (4:08)
The benefits of offering value and asking for nothing in return. (15:20)
What Jim's business outlook for 2020 looked like before the COVID crisis hit. (31:47)
The strategies they used to recover a quarter-million dollars in accounts. (42:30)
Jim's thoughts on what the future holds in a post-COVID business world. (45:31)
Mentioned in the episode:
Before the Exit - Our New Book
TMBA Masterminds
Partner With Us
The Dynamite Circle
Dynamite Jobs
Dynamite Deals
Tropical MBA on YouTube
Jim Huffman
The Growth Marketer's Playbook by Jim Huffman
GrowthHit
FunnelTeardowns.net
"The Hardest Day of My Career"
General Assembly - Education for Professionals
The E-Myth Revisited by Michael E. Gerber
Andrew Wilkinson
Tiny Capital
Optimizely
Association of National Advertisers
The 4-Hour Workweek by Tim Ferriss
Fork Equity
Clickminded
Enjoyed this podcast? Check out these:
TMBA537: How Will Coronavirus Affect Your Business?
TMBA540: Are You Generating Income or Wealth?
TMBA541: An American Based in China Shares His Perspective on the Coronavirus Outbreak
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Have comments about the show?
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Thanks for listening to our show! We'll be back next Thursday morning 8AM EST.
Cheers,
Dan & Ian
Full Transcript
Jim Huffman: I like the agencies that own a niche and have that market of one, as opposed to being a general agency. Instead of going big, I like going small but where you can own that.
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Dan Andrews: Welcome back to the TMBA podcast. Bossman, how are you doing?
Ian Schoen: Wonderful. You’re moving out of my house pretty soon.
Dan Andrews: I know. I'm gonna find my new normal.
Ian Schoen: It’s been great having you in the backyard and you will be missed.
Dan Andrews: Yeah. And we're going to have to tell the inside story of what doubt went down here at the ranchette, maybe at the end of the episode, we'll come back and tell some ranchettes stories.Ian, today is an episode about some of the upsides of the strange times that we're living in. We've been on the web on the Twitters and the DC reading blog posts inspired and driven by the current situation. And you know, when you look at how the world's responding to how so many listeners of this pod are responding, it's inspiring because we are facing challenges. And and I guess that's sort of the theme for me - of being here at the ranchette and being on this podcast here with you guys is like, “Yeah, this is a tough time for everybody”. And it's scary but our job as entrepreneurs is really to do something about it, to solve problems and to keep moving forward.
Ian Schoen: I’m reminded of that famous line in ‘Dumb and Dummer’. He says, “We’ve got no food, we got no money, our pets heads are falling off.” I mean that’s what it feels like over here.
Dan Andrews: Longtime listeners of the show will know how much it pleases me when my RSS feed from Feedly dings up with an amazing blog post and today's guest did exactly that for me. It was entitled, in part, ‘The hardest day of my career, losing $400,000 in revenue, and testing positive for COVID’. So I just absolutely had to hear the story and it was written by this guy:
Jim Huffman: I'm Jim Huffman. I am the CEO of GrowthHit. We're a growth marketing agency that specializes in conversion rate optimization. We're a team of seven people and pre-COVID, we were approaching seven figures in ARR, recurring revenue, and then post COVID that essentially got cut in half.
Dan Andrews: Of course, Ian, one of the great things about the podcast and the internet and the telephone is you don't have to stay behind that wall of text. I picked up the phone. And I picked up the phone and dived deeper into the story
.So in this episode, we cover how Jim did indeed lose nearly half of his agency's income overnight, and what he did to address this challenge he faced. But before we get into that, I asked him to go into a bit about his background and how he came to set up GrowthHit nearly three and a half years ago. Ian, I really think this conversation will prove insightful to those of us thinking about starting an agency, or running one or starting one as a way to start some services on the side because in this conversation, Ian, Jim really goes into the nitty gritty of what has and hasn't worked for him and the clients he seeks and all that.
So, if you're in the services game or are curious about it or have ideas about it, I think you'll find this interview really fascinating. Again, we'll be back at the end of the episode to share some thoughts. So hope y'all enjoy it.
Music
Jim Huffman: Originally, I was a finance major that started off in investment banking only because I thought that was the only option you had as a finance major was to do investment banking. What that meant was I was watching these people come in to do an M&A deal, mergers and acquisition and sell their company and I was the guy on the sidelines helping value those transactions. But what's fascinating was seeing these people build up these businesses and sell them and I was like, "I don't want to be on this side. I want to be on that side." From there, I quit investment banking and I started to go working for startups.
Dan Andrews: What things did you see in those meetings?
Jim Huffman: What was the most impressive, I'm in a room and there's these MBAs, there's these lawyers, all these people that on paper are supposed to be extremely impressive but the person I was always gravitating towards was the entrepreneur. And I was in Dallas, Texas at the time. These entrepreneurs half the time they didn't have a college degree or the other half, they didn't have a high school degree but they had built up this substantial business and they really understood their customer. They understood how to make money and they would own the room. For me, I think early in your career you have that question of, "Am I learning or am I earning?" I wanted to learn and I wanted to learn that skill set. That's what made me want to jump ship and go learn from those entrepreneurs and those types of founders.
Dan Andrews: I can relate to your recognition in that meeting room but to me, it seems pretty risky stuff because you're on a pretty decent track there. So, what was your career calculus at that point? Why take a jump into a different direction?
Jim Huffman: When I was in investment banking, it was around 2008, and leading up to 2008 investment banking you got great bonuses. It could be fairly lucrative. I'm coming into it, very excited about that, but we had a meeting where they talked about our bonuses. They were going to be very, very strong. I made some very bad decisions in getting a new apartment, getting some nice furniture. Two weeks later, the economy crashes and it was, "By the way, remember those bonuses. Nobody's getting those and by the way, we're laying off essentially everybody." In my class, they laid off every investment banking analyst other than me but I still saw a significant drop in income. Making the jump to startups for me wasn't necessarily risky because my concept of a ‘safe path’ was flipped on its head because after that crash, I was like, "I don't know what is safe anymore. I should probably follow my interest and what excites me more than where I think I can make money."
Dan Andrews: Now, you saw this upheaval back in 2008. I think so many of us jumped into the entrepreneurship boat but part of the reason we're talking to you here today is because you had this enormous hit again during this recession to your own business. Now looking back at the two situations, did it effectively mitigate that risk that you were seeking to mitigate?
Jim Huffman: Yeah, I think if you set up your business the right way, you can 100% mitigate that risk. First, ‘Is it the lifestyle I want?’ As hard as entrepreneurship can be, the pros of it significantly outweigh the cons. Me being able to play basketball on my lunch break or on Fridays, being able to pick up my daughter whenever I want, and if you do it the right way, you can make significantly more money and build up those cash reserves to prepare for a day like this and hopefully be more in the driver's seat when there's a downturn.I think if you're cautious and you're planning the right way whereas we work with a lot of venture backed companies where these founders are very aggressive and it's all about growth where they do that by sacrificing a safety net and some cash reserves. As far as mitigating the risk, I think in 2008, that made me somewhat paranoid and to be prepared for that doomsday, which I don't know if that's a good thing or not, but it has somewhat prepared me for this.
Dan Andrews: A lot of people Jim then, they're in a position like you where there's this crack up of a worldview like, "I thought this was going to go the right way and now entrepreneurship seems to have more promise." But it's still very confusing how to go down the entrepreneurship path. Can you talk about how you made that less confusing and how you started taking action?
Jim Huffman: As I was getting into startups working for other people I knew eventually I wanted to do my own thing. I just had no idea what that was going to be and I didn't necessarily know my skill sets, but I decided just, "Let me find the smartest people possible and just go all in and try and learn from them." What's funny is the end result isn't necessarily what I was going for was to build an agency or consultancy. That definitely was not the goal. It's the byproduct of what was coming out of this because as I was working for a media startup, as I was working for a technology startup, I started getting these skills like the non-technical person that does marketing. I was living in New York at the time, I was teaching in ‘General Assembly’, I got connected to some startup accelerators.
Dan Andrews: What's General Assembly’?
Jim Huffman: Oh, sorry. ‘General Assembly’ is continuing education for professionals. I was teaching a lot of those digital marketing classes. By doing that, working with startups on the side, advising on marketing, people started coming towards me being like, "Would you help us with our growth plan?" "Do you do any consulting?" That led to me in the mornings and at nights and on the weekends doing this side hustle as far as helping people build their growth plan or figure out how to get their startup up and running and get some traction. From that I was like, "Wow, there's a pretty big opportunity here. I'm not even trying and people are coming to me wanting to work with me. Maybe I should try and vet this to see if this is a business opportunity that I would want to go after."
Dan Andrews: You're calling me from Seattle today. Is that correct?
Jim Huffman: Yeah, Seattle.
Dan Andrews: You just told a story of being in New York. How important was your location to giving your journey clarity?
Jim Huffman: For me it was quite significant because especially being early in your career. I do think it is about learning as much as possible. Location has a massive impact on that on who you're surrounding yourself with not just what they know but how ambitious they are. The thing that was really inspiring about New York is that, it's people from all different walks of life doing very different types of things but are super motivated and hungry to make something happen. For me, that was extremely contagious. Just to be surrounded by that, even moving outside of it, it's hard sometimes to replicate that energy and that hunger that's there. With New York, there are so many parts of it that are tough and frustrating but that part, as far as the people and the community around it, for me, was quite significant.
Dan Andrews: You started getting people inquiring about your expertise and asking you to implement it. What was a moment when you felt like, "I got a little bit of a light bulb moment here that maybe this could be something more than a side hustle?"
Jim Huffman: Someone, after I taught a class, they had me make a marketing plan and they're like, "How much do you charge for the marketing plan?" I was so dumb, I'm just like, "Oh, $250." Which if you make marketing plans, it's not a good price. I spent so much time on that marketing plan. I'm sure I made below minimum wage on it. But after I presented it to them they said like, "This is fantastic. Will you execute it? What's your price for that?" I was like, "Oh, wow, I didn't expect that as a follow up." As that started to happen, it just made me think I've had so many people come up to me after these classes, asking me for these little one off things. What if I actually got very intentional about what I actually offered and put it out there?
Dan Andrews:Just swooping in to say that, due to a technical malfunction, Jim had to switch mics here, just in case you notice a slight difference in quality.
Jim Huffman: And so I was able to get two people to commit to, for me, significant engagements, basically six months each, and the combined income from both of those would offset the salary I was making at the startup and actually a little bit more. For me, that was my jumping off point where, "If I'm ever going to do this and really try it, now's the time." Because I'm able to mitigate the risk with getting them to commit to that initial time and if it didn't work out, I can maybe go back to the startup or figure out something.
Dan Andrews: Now, Jim, a lot of people will bang their head for years trying to figure out a way to make income on their own terms rather than from a job. But for you, it seems like it's something that popped up relatively simply at least in that telling. What was it about your approach that resonated with your customers and allowed you to make decent income off of it right away?
Jim Huffman: I think I was very lucky in that the way I was introduced to people was already as a thought leader just because all of those initial clients that came in where because they were at a class, I was teaching a ‘General Assembly’, or I was introduced to them through a venture capitalist or through someone that's at a startup accelerator. So as far as earning trust and credibility that happened out of the gate. By the way, this was not intentional at all. I just got very lucky in that that was how it was happening.And the other thing, I'm actually more surprised when entrepreneurs take a huge leap without any validation, whether that's committed customers pre-sales or a waitlist, or people committing money because it always takes a little bit longer than you think. It's always harder than you think. Because I think Richard Branson even with ‘Virgin Airlines’, he was able to mitigate his risk when he started out by essentially leasing the planes and only if he was able to actually get them up and running would he have to pay. For me, I'm actually fairly conservative whenever I'm trying to take a risk. I was trying to be very thoughtful with this.
Dan Andrews: You wrote a book called ‘The Growth Marketer's Playbook’. If people are seeking to, I don't know, become a thought leader themselves and maybe recreate that position you had in that room so that you could pick up clients relatively easily, what's maybe one fast route, relatively fast speaking, not fast, but relatively fast way people could create such a sense of trust and thought leadership in their practices?
Jim Huffman: That's super easy. Most people won't do it because it can sound like a really bad idea to start but it's just add value for free and ask for nothing in return. With some of these accelerators I was working with, I would just do a cold outreach and be like, "I'd love to help your startups for free. Let me know if any of them would like my services." One of them actually responded. “Actually, we have a portfolio company you might be able to help out with”. I just went all in on helping this founder out with her growth plan so much so that she was like, "This is fantastic. Whenever we hire we'd like to bring you on." I actually turned it down but it was nice to just build up some credibility, build up a portfolio of people I've worked with. If you're going out there just adding value to people and you're doing a decent job, if you don't charge anything, you're going to be able to get a lot of clients really free or really quickly and start to build up your trust and hopefully build up your name.
Dan Andrews: How long did it take to replace your professional salary with... Say to the point where you got your team running the business and you could maybe go on a three or four-week vacation.
Jim Huffman: Yeah, so out of the gate, day one I was able to replace my salary. But to your point as far as building up a team to do my work where I can still make that income, that hadn't happened until essentially this past December. For anybody out there that's working at a startup, a lot of times your compensation is in this thing called equity. It's in this thing called stock options. I have a lot of stock options that I can't even go buy a cup of coffee with. I have stock options that I thought were going to be worth a lot but now are worth nothing. So, whenever I was starting the agency, one of my main goals was - it is time to earn. It is time to make money because I've been working my butt off for a long time and I'm not really seeing the benefit of that. You can make money really fast but the sacrifice and time and just bending over backwards for clients is really hard.
As I was able to build up cash reserves and hopefully get to the point I want, just in this past year, I was able to start making investments in not junior people but in senior people that can also do my job better than me. That's why COVID was so rough because I finally got this team where I was able to fire myself. When that happened, I was like, "I don't want to have to get rid of anybody because I finally feel like a business owner." I think in ‘The E-Myth’ there's this quote around, "If your business depends on you, you don't have a business, you have a job." That always stuck with me. Everyone talks about having a business, I talked about having an agency, and I had this title of CEO, but it was a joke. It was just me delegating some things to some junior people but I was still doing all the work and that switch didn't really happen until late last year.
Dan Andrews:About three years?
Jim Huffman: Yeah. One of the issues too was I was in denial that I had an agency. I wasn't going all in on it. I was like, "I'm going to do this agency thing, I'll make some money." But really I'm going to work on this e-commerce SaaS product for ‘Shopify’. I'm going to look at these other opportunities. I wasn't really going all in on it until really about a year ago where I was like, "If I'm going to do this, let's do this. I'm doing a decent job at a lot of things. I'm not doing a great job at one thing." It was really killing me not to be focused because I think when you can focus on one thing, that's where you can have the best results and the best outcome.
Dan Andrews: Why were you in denial about it?
Jim Huffman: That's a good question. I think it's because that wasn't the exciting thing for me to make an agency. I was more excited about building a product that you could scale and really grow. I think I was caught up in the idea of building this venture backed startup that you can scale and then exit for millions of dollars. But the more reps I got in seeing people go after that dream and that goal and then just actually make really good progress and then it not get to the result they want, the more I realized that's not necessarily the goal that I want. I don't necessarily want things. I want time and freedom. I want to be able to work at the pace that I want, the schedule that I want, and have the lifestyle I want. That's not super expensive. Once I started to understand the reality of that, that's when I understood that, "This agency could actually enable me to get to that goal. What am I doing trying to go for all these pie in the sky ideas? This is where I need to focus."
Dan Andrews: And so what would be the endgame? What's your analog of that startup ‘sell for millions’ dream?
Jim Huffman: Yeah. I'm beyond excited about this muscle we're building at ‘GrowthHit’ which is this really powerful growth team. If we're such a good growth team, we should be able to grow our own businesses. I still want to have a growth team but I want all the clients to be companies that we own. I'm beyond inspired by guys like Andrew Wilkinson from ‘MetaLabs’ who now has ‘Tiny Capital’ which is the mini Berkshire Hathaway of the internet.I think our goal is as we build up growth, had built up our cash reserves, take that money and invest that whether it's micro acquisitions or starting our own products and we're testing both of those in two very small ways where we're launching a productized service called ‘Funnel Teardowns’ where it's essentially our CRO service pared down where we do audits and we do A/B testing. We're not doing any acquisitions right now because we have no experience in it but it's something that, down the road, we would like to do because right now we have more time than money to invest in companies, but eventually we'd like to be able to make small bets to see if we find a tool that we really like that is lacking in growth where we could plug in our skill sets to hopefully take that up a notch.
Dan Andrews: What is the difference between your version of a good agency and a great one?
Jim Huffman: I think a good agency, they're great at customer service, they're great at delivering results, they're great at keeping people happy and engaged. The great ones, for me, the way I evaluate them is: have you built a machine that can run without you and you found a repeatable and scalable way to grow. Because so many agencies can be dependent on just the one person that started it. If you can move away from that and build this process that can run without you, for me, that's what I think is amazing. That's more on the internal facing. The external facing is I like the agencies that own a niche and have that market of one as opposed to being a general agency. Instead of going big, I like going small but where you can own that , whereas that might not be from an outsider the goal that has the biggest dollars, but I think it's the goal that can have an amazing lifestyle, amazing profits, and it can be a really nice business to have.
Dan Andrews: What conversations might we have and how would you present your pricing to me and how does that process work where you ultimately convinced someone to sign up for a contract that's worth a great deal of money to you?
Jim Huffman: Yeah, I think I'm actually a horrible salesperson just because I'm maybe too honest and direct. But I try and disqualify people as fast as possible because I've learned the hard way that if we can't really add value, I don't want to take it on because we're not going to have fun conversations in three, six, nine months.So essentially, what we do is we want to qualify, make sure we can be the right fit to actually get results that will justify our retainer. If we're like, "This is a qualified lead." If you look at some of the fastest growing companies, what are the things they have in common? It's this culture of testing. It's a culture of fast testing velocity and being customer centric. This idea of data driven, everyone talks about, but nobody's truly implementing it.For example, you can make fun of the website ‘Amazon’ because it's essentially been the same forever but that thing is a conversion machine. Because they run so many experiments and so many tests, it has been optimized better than any other site. It is scary how easy it is to do a transaction on there. For us, we've literally worked with over 100 companies where we see the difference between the ones that had exponential growth and the ones that don't and it's having a fast testing velocity, knowing your customer and building this culture of growth. Just by doing tests alone, you can get a lift of 10%. If you make it research driven or data driven, you can get a lift over 30%. ‘Optimizely’ actually ran this analysis that showed the difference between sites that are testing versus ones that are not.
Dan Andrews:‘Optimizely’ is what?
Jim Huffman: ‘Optimizely’ is an A/B testing platform that a lot of CRO agencies use to increase conversions. Just by doing that alone, you're setting yourself up to succeed.
Dan Andrews: It occurred to me when you're making this value proposition to a client and you're qualifying them based on basically how much results you can achieve for them. How do you decide how much to charge them relative to... Are you taking into account the margin you need to create for the client on top of what you're going to be charging them?
Jim Huffman: Yeah. For us, we do an ROI calculator. That's why we want to understand traffic and ‘average order value’ and existing conversion rate because we want to be able to show them with a very simple model the impact CRO can have in their business. A 10%, a 15%, 20%, lift, if that can show two, three X of what our retainer is, then it should be a no brainer for them to work with us. If they have to get buy in from a board or from an investor, they can literally take our ROI model and show like, "This is what these guys charge. But if we're running tests, if we can get this lift on CRO, they're going to pay for themselves. We try and give them the actual tools and deliverables in the closing process for them to make that decision and to visually see the impact we can have on their business.
Dan Andrews: What happens when you're nine months into an engagement and you've taken out a lot of the low hanging fruit and you've created enormous results but now you get into a situation where your results are becoming more marginal?
Jim Huffman: It's two things. Are you selling on strategy? Or are you selling on execution? Because if you're selling on execution that's a tough game to be in because you can always get cheaper. But if you can position yourself as a strategic partner that's helping them make decisions, that's the right camp to be in. What that means is: we're getting a lot of insights from customers on the website, how they're engaging with it. Those insights we're using on our test but those insights can also be used for ads, for email marketing, for customer service. If we're able to present that information in a way that the rest of the team can use, they view us as being extremely valuable. It's not just getting results but getting those insights, that analysis that can actually impact some of their business decisions and some of their marketing plans.
Dan Andrews: There was a podcast guest who was on the show recently and he had sold a productized service. There was the implication that if you were to buy his product, which in this case, it was like content marketing packages, "Here are the potential ROI you would see on this product." But he said it was ultimately very important to him to only sell the deliverable which was the content itself. I'm wondering, do you have a perspective on that? Of course, during the sales process you present the potential ROI but maybe over the long haul, what you're actually delivering is a test every week and that test would be packaged with the lessons for the rest of the company. Do you think that's an important distinction for agency owners to consider?
Jim Huffman: A hundred percent. I love productized services and I think doing it based on deliverable makes a lot of sense and it's good for that being your lever in moving pricing up and down based on what those deliverables are. But as far as going the strategic partner agency route, a lot of times, it is based on that ROI because you have such a high cost, you really have to justify it. Hopefully, you get the ones where you know you can have that impact because the other thing with being this growth agency, the CRO agency, it's almost the hardest thing when you put ‘growth’ in front of your title because right out of the gate, the expectations are so high that you have this big green growth button you just hit and the results follow. Managing those from the start can really make or break an entire engagement.
Dan Andrews:Aside from the mechanics of your specific product, are there personality or organizational red flags that you see that help you to disqualify leads?
Jim Huffman: Yeah, if people need us to be the savior to come in and rescue their business, that's a lot of pressure that can be a red flag because a lot of times the problem goes beyond anything we can do and the problem lies with their core product and not having product market fit or having real traction.
Another one is just out of the gate if they're beating us up on price. This might not be for them because sometimes especially with CRO, we know we can be ROI positive but it's not going to happen with the first swing. Sometimes that needs to happen after three months into the engagement. It just really depends. Those two things we definitely are aware of.Dan Andrews: I think this might be an appropriate time to ask you to share a vignette, a few weeks before the COVID crisis hit and how you were thinking about 2020. What did you think was going to happen this year for your business?
Jim Huffman: The grass was super green. It wasn't even that we were approaching a million dollars. Our goal was to hit two million for the end of the year and we were actually in a position where we were about to bring on two people. So the question was, who are the right hires?
Dan Andrews: For context at this time in early 2020 you have about how many clients and what would be the average monthly retainer that each client's paying you? Just a ballpark figure.
Jim Huffman: Yeah, they're paying us around 7500 bucks a month. We're at 12 clients. We're almost at capacity with our team. On my team, I would probably say we're overcapacity.
Dan Andrews: By the way, I have to ask, sorry to interrupt, but I've noticed that price point is a common resonance amongst agencies to startups and larger businesses. Is it because it's about what you would pay a marketing person? Is that where that pricing comes from?
Jim Huffman:That's exactly what we sell against because we're not usually competing with other agencies. Should they do this with an internal person? We want to be competitive with that and be like, "You can hire an internal person. That's fantastic. It will take three months to find them. Hopefully, they're good. If not, you're going to figure it out in six months and make a rehire or hire us, we'll start tomorrow. We have a team of four at your disposal to get off and running."
Dan Andrews: You're almost at a million dollars ARR. You're thinking you might be able to double the business in 2020. You're in an interview process for two new people. Where were you when you realized that your plans weren't going to work out?
Jim Huffman: I was in Colorado for a trip with some friends and I started seeing a lot of things slowing down. We had a couple startups that I would have guaranteed they were going to raise money and they're just, "This isn't going like we want." We had some clients on ‘Shopify’ with products that are not essential that are in premium fashion. I'm just like, "Man, that's not going to be good for those guys as well." I just see these things coming and I'm like, "What is the ripple effect this is going to have?"
Dan Andrews: How did your clients cancel on you?
Jim Huffman: We had some call. We had some email. We actually have pretty good relationships with all of them. We feel like we're part of the team. The ones that pause, it was a call. They're just like, "We don't know what's going on here." And then some others I could tell they have a lot going on and it's just emails like, "We can't do this. We got to pause. Talk to you later." I was calling those ‘email bombs’. Those email bombs would drop and I was like, "Oh, man." The first one wasn't too bad. The second and third ones are the ones that started to sting.
Dan Andrews: You have overhead costs at this point. You lose almost half of your annual commitments in terms of revenue. What thought process do you go through?
Jim Huffman: I was immediately doing a game of math where it's like, "Ok, our recurring monthly revenue has been down to this. What is my monthly burn? And what does that mean for dipping in to cash reserve?" It's immediately playing the numbers game.
Dan Andrews:Give us some context on this, Jim, do you have a rule of thumb for what margins agencies should run at?
Jim Huffman:Yeah. A lot of times, the rule of thumb can be around 40% that you want to have and that can fluctuate-
Dan Andrews: 40% gross profit?
Jim Huffman: That's everything. That's with my team and with my expenses.
Dan Andrews:Okay.
Jim Huffman: Yes. I'm factoring that and the other thing that I'm thinking through is I'm on some Slack channels with other agencies where, ‘How much cash should you have in reserves?’ Do you want to have three months of runway? Six months of runway? A year runway? It definitely depends on your risk tolerance. That was another thing going on in my head. I did a lot of conversations with people that are founders in that agencies to think through this and I came up with my own solution which I don't know if it's the right one but I was like, "I finally built this team with people that I'm so excited about that can help run the business so I can work on it, not work in it. I'm not ready to let this go."
So I made the decision, I'm going to dip into those as much as I have to keep this team intact and not only not to let anybody go, I don't want to touch anybody's salary. I want to keep everybody working at that same pace because if I look at my worst possible option, I deplete all the cash, I lose the team, I'm still going to be fine. I do teaching on the side, I know I could close two clients and do the work myself and I'll be fine.
Dan Andrews:So what did you do?
Jim Huffman: After running the numbers, I started just talking with the team where I was like, "I don't have the answers but we're going to figure this out. But we need to increase our frequency of talking to get our plan together." Because I also didn't want there to be too much time with the team thinking, "Oh, what does this mean for me? What is my future like?" I wanted them to feel pretty secure because I think if they're secure, they're going to be focused to work on the right things.
And then from there, I think everyone was on the same page of like, "We've got to figure out a way to actually get some business coming in the door." You think of two ways of growth. You have scalable ways and non-scalable ways. So I went to the non-scalable ways because we need to just fill the pipeline. I went through the Rolodex of people I had that had been interested in what we're doing and for the most part, they were all on pause. But just by luck, we had a few companies that were in industries that were actually doing pretty well like online education. Those companies started to be interested.The other thing we realized is, this is a whole new playing field. Are we offering the right product or service in this new world? Maybe a pared down version of CRO. That's where we've got into this idea of productized services where instead of being 7500 per month what if for 5000 or 4000? What would that look like where we can still add value and hit our margins?
The other thing is we decided that let's actually continue to spend on paid ads, Google ads, they work pretty well for us and actually spend more. We double down on that. It's funny because if you asked me before COVID how we got leads I'd like, "They fell into our lap through referrals, through me doing speaking engagements." That's a horrible thing to be proud of, I think, because what this exposed is: we didn't have a repeatable, scalable way to grow. We can't grow if we're not going out there and talking to people. It really made us focus on: how do we get business just by doing other tactics. We went all in on account-based marketing which if you have a lifetime value or annual revenue from someone that I think the rules it's either 2000 or you could say 10,000, you can do an ABM strategy.
Dan Andrews: Wait, an ABM?
Jim Huffman: Account-based marketing.
Dan Andrews: Okay. This is a term that I'm not aware of.
Jim Huffman: With account-based marketing, you can essentially flip the funnel in its head where you're like, "Who are those people or customers or companies that should be doing transactions with us?" For us, we do extremely well with websites that do over 50,000 sessions per month. They're doing over two million in revenue. If they're on ‘Shopify’, that's a bonus. Their average order values over $75. If we can find a list of all of these companies and just go out to them in the most genuine, authentic way, we think that what we offer is so good we'll be able to convert some of them. We started essentially deploying the strategy where we created this pipeline.
Dan Andrews: is this like a cold email strategy?
Jim Huffman: Well, the way we orchestrated is even before you do cold email, you start doing ads to them just as a thought leader. You start engaging with them on social two weeks out and then you do a cold email outreach strategy, but the goal is to be positioned as a thought leader and not try and sell them. It's also doing free work which again is an investment in your team and time but if you can get off on the right foot, because we're used to being viewed as thought leaders rather than doing cold sales so we wanted to try and keep that as much as possible.
Dan Andrews: It's almost like a virtual way to do what was working for you in the old world where you used to meet real people and talk to them. Where do you learn about this concept called ‘account-based marketing’?
Jim Huffman: I do some teaching through the ANA, the Association of National Advertisers. It's an online education platform for big companies. I do some teaching there and one of the most requested courses is around ABM. Once I heard this, I was like, "I need to go all in on reading and learning about this." Because if anyone is in the service business where you have a pretty strong lifetime value, it can be something that works for you.Because for our business, if you think about it, we really only need 20 clients to hit our goals. When you put the number to 20, that's super attainable. That's really exciting. I could write on a list who those 20 are. What could you do to add the most value to them to wow them, to get them excited about working with you? That's the core of it from my perspective.
Dan Andrews:I'm going to read back to you your crisis because you ended up recovering a quarter million dollars in accounts. Is that correct?
Jim Huffman: Yeah.
Dan Andrews: It was all through account-based marketing or... Let me read your process to you. “Overcommunicate to your team”, so you increase your frequency which I think is a very, very smart thing. “Learn from history, seek advice from people smarter than you. Achieve extreme focus by saying no. Being decisive and default to kindness”. What are you? Some kind of hippie?
Jim Huffman:Well, I haven't had a haircut in three months. Yeah, I guess you could say that.
Dan Andrews: What do you mean by kindness though? That's a strange thing to say.
Jim Huffman: We had some businesses that not only could they not work with us, they couldn't pay us. I think you have some decisions you can make there. It's like, "I can call up the lawyers and let's do this. Let's try and capture some money." Or it's like, "You know what? This is a crazy time. I get it. Let's be long term partners in this and if it takes you nine months to pay us, it takes you nine months to pay us. We need to get your contract done." That was the root of that. Even with my team... Because it's also like let’s say I was going to lay people off. What's the right way to do that? What's the humane way to do that? I was just thinking through that. I think if I have that lens first, it made me think about things the right way but as I watched this MJ Doc and having the killer instinct maybe I need to change my mindset. I don't know any more if that's right.
Dan Andrews:Congratulations on the recovery. I'm sure your team feels thankful that you handled things the way you did. It must have had a positive effect on morale given most people's jobs are going.
Jim Huffman: I think so. I'm also just thankful they hunker down because it's interesting how people respond if you're transparent. Sometimes they can be ‘rah rah and all’ and other times it might make them paranoid. But I think it has been good for culture overall just making people feel more a part of what we're trying to do here.
Dan Andrews: I have to ask. You wrote that you got the coronavirus. How did you know and what did it feel like?
Jim Huffman: I'm one of those guys where if you get sick you ignore it's like, "I'll be fine. I'll take some ibuprofen or whatever." I hadn't gotten the flu in a while but it definitely was an aggressive flu that would escalate pretty quickly where I'd be trying to work and I couldn't focus on anything. I would need a nap. I couldn't be awake for more than two to three hours without needing a nap. I'm super fortunate that I don't have any respiratory issues. I can't imagine people that got it at such a more severe level what that must be like because I think I got it at a very mild level and it just wiped me out. Actually, my wife got it. She lost her sense of taste. I had a throbbing headache for two straight days but we actually bounced back fairly quickly and then we just self-isolated ourselves in a corner of Seattle for quite a while.
Dan Andrews:I don't want to ask you to speculate about the future, but I'm curious to hear your thoughts about, I don't know, what do you think is going to happen? You have skin in the game you have to plan for it. What are you planning on having happen in the business space?
Jim Huffman: The more I read, the more I'm still uncertain. At a high level, it's a matter of people are starting to be reintroduced back into the world. There's things that are opening. “Is there going to be a seven second wave that pulls this back?” If there is, are the hospitals... Is everybody prepared for that? Because I think we will be a little bit more prepared than we were just because of what we've gone through but it's still not where we want to be.
Obviously, what does that mean and what is the ripple effect? Because some industries obviously that's detrimental. Other industries, that's fairly good. Because we work a lot in the ‘Shopify’ ecommerce space, overall transactions online, I think around 11% pre-COVID, after COVID, they went up to 30%. For some businesses online, they've been able to help people and it's been great for them.
As I think through that, I'm wondering, "If there's a second wave, what does that mean? Who's positioned to need our help if the economy comes back and ecommerce drops what does that mean for these other players?" But the summary of it is: I'm preparing for it to take a little longer than people are even speculating just to be as conservative as possible but who really knows?
Dan Andrews: You mentioned you wish you had heard of the podcast, the ‘Tropical MBA podcast’ it is, earlier in your entrepreneurial career. A lot of people want to build something like you've built that are listening to this. What else do you wish you knew when you were starting out?
Jim Huffman: When you're coming out of school, I was very limited in what are your options for career growth. Because as a finance major, I'm like, "I can either be a consultant, an investment banker, or a trader." Those are the three career options and the truth is, once you get out there, there's so much more and now with how things are advancing and how technology grows, there's even more options that are emerging every single day.Just getting exposure to what the different options are and not only that, but how you create your own career path. Because it's books like ‘The 4-Hour Workweek’, ‘E-Myth’, all the content you guys put out there, I think it really changes people's mindsets on how to think about career and how to think about growth. For me, that's what really changed because even as I got into startups you see the only option is: get backed by venture capital firms and scale, scale, scale, grow and hopefully go public. But the reality is that is so hard to do and so many more people fail and even if you go public or you exit, you get diluted so much you're not even hitting your goal and then you have these golden handcuffs to be with a company for X amount of time.There are these other paths that you can take that can make you potentially more wealthy and create the actual life you want that's more fulfilling. I was so stuck in that finance route that VC backed startup route where I wasn't aware of what all options are out there. I'm also really impressed with Ryan Kulp what he's doing with ‘Fork Equity’ with his micro acquisitions like buying these small tools and SaaS products and then growing them himself. It's owning all these small businesses that can compound to be a really nice portfolio.
Dan Andrews:Really eloquently said, Jim. I appreciate that. Is there any final shout out you want to give to the fellow entrepreneurs, 80% of the people listening to this are active entrepreneurs and business owners?
Jim Huffman: No, I think if anything, create more than you consume. For me, I learned so much from people that are doing cool things that inspire me. Whether you think people will judge you or think that you are bragging or you're not, I think just putting yourself out there, talking about what you're working on is really fun because there's so many people that I talk to that are doing cool stuff. I'm like, "Man, I wish he would write about that or put that on a podcast," because that content I think can be really inspiring for other people.
Dan Andrews: I totally agree. And it’s almost an inverse proportion: the cooler the stuff, the less incentive there is to share it.
Jim Huffman: 100% agree. Our friend Tommy Griffith at ‘Clickminded’, he did a post last year documenting his journey. I was wanting him to do that for years but that was a fun read.
Dan Andrews: It was epic. Tissues and a bag of popcorn, he’s a great writer. Jim, it was great to get to know you just a little bit and I appreciate you sharing your perspective here on the pod today.
Jim Huffman: Yeah, of course. Thank you. I had a blast.
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Dan Andrews: Big ups to Jim from ‘GrowthHit’ for swinging by the show, sharing his story open kimono. Got Coronavirus, lost all this revenue, rallied the troops, started doing daily meetings with the team. I think about this Ian and it's like, on the one hand, you know, being an entrepreneur, you have that stress, you're responsible for all these people and clients and putting food on the table and stuff. But would you have it any other way? You know, this idea that actually, Jim had the I know it sounds ridiculous to say I guess in the context of taking such a big hit to your business, but the reality is, you know, one to one that actually happened, that's reality. You're responsible for it and people like listeners of this show, like Jim, step up and respond and then ultimately reap the benefits. And those benefits can be long lasting, whether it's personal wealth or free time with the family or just not having to drive to an office anymore.
Ian Schoen: I think losing that kind of money is devastating. But it almost might be worse to lose your job and not have any control of the situation. At least Jim had the opportunity to right his asset, to put it back on course, and to figure out a new way forward. And I think a lot of people are going through this right now, with this pandemic, trying to figure out the new way forward. Again, keep saying it on the show. This is the opportunity of a lifetime, I believe, to build or buy something. It’s a shake-up, it’s a time that wealth will be redistributed and what role will we have in that?
Dan Andrews: And it's been incredible, like everything from the mindsets that people have to how they're thinking about their lives. So just rules on every day pricing of things and the sorts of transactions that people are willing to do. And you see even through things like this podcast, the different sorts of advertisers that are coming through and that they're cutting deals with a style that they'd never cut before people are thinking, for lack of a better term, ‘outside of the box’, right now.
Ian Schoen: Well it happens a couple of times I guess in a lifetime where you can say, ‘That was the case yesterday but not today’.
Dan Andrews: Yeah. I gotta say also for public consumption, a sincere thanks for you and your family for hosting me here at the ranchette, it's been an amazing time. If people want a snapshot of how we spend our time together, it's basically exactly like this, but without the microphones. And for your sake, we won't publish all of those conversations, but it's been awesome like brainstorming, talking with the team, going on bike rides, hanging out here on the ranch. It's been a really creative, productive time. And I hope that y'all see that like rolling out here on the podcast in the coming months, some of the things that we were able to cook up here at the ranch in the past few days will start to roll out over the rest of the year.
Of course, tonnes of uncertainty about what's going to happen and everything but in some ways these kinds of situations, they're inspiring because you it would be easy, I think, for everybody, all of us to sit around and feel sorry for ourselves and how scary things are and whatever. Oh, and you know, ‘I don't get to go on an aeroplane to go to that thing I planned or whatever’. But, for me it's actually been the opposite. It's been a chance to get things down to a simplicity and ask yourself, ‘What do you really care about?’ You know, we were talking about the other night. You mentioned a lot of the things that we had to stop doing, you realise, ‘Well, maybe I don't need to do those things anymore’.
Ian Schoen: That’s right. We love to act like we have total control over our lives and our income and everything. That’s part of the reason we become entrepreneurs because we like to control things, in one way or another. But it's interesting when something like this comes into life and you think, ‘Well, this was totally out of my control and now I have to react to it and now I have to do things differently’. And I think part of the reason some of us are so excited is because you, and maybe I'll just speak for myself, you're so used to trying to control everything. Finally something comes along that you can’t control and you think, ‘Wo-ho, what a relief, now I can react, I don’t have to control.’
Dan Andrews: That's certainly part of the conversations that came up, ‘What did we used to do all the time?’ I can't even remember half the stuff I used to do. But it's been amazing to hang out, to have that mastermind and to speak with so many listeners of the show.
So next week, we're going to be back sharing some Coronavirus stories of how listeners of the TMBA pod responded to the challenges. If you've got a story to share with us, do drop by the website, drop us a comment or an email. We’re always sort of snooping around, digging around, seeing what you're all up to, and trying to create thoughtful and hopefully inspiring episodes for y'all. So that's it. We'll be back as always, next Thursday morning. 8am Eastern Standard Time.
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