Can You Be An Absentee Owner of a Digital, Marketing, or Creative Firm?
Written by
Doing this a number of years gives me a longer arc to see how some things have changed in the industry, and an entirely recent development is this crazy idea that independent marketing, creative, and digital firms are worthy investments for a non-participating entrepreneur who would cash the checks without participating in the firm.
By my calculation, there are 300-400 principals at this moment who are all considering the idea of keeping their firm but leaving it. I'm going to discuss this in a Q/A format.
Should it be possible for a firm to thrive without the principal's daily involvement?
Yes.
Why haven't more people tried it over the years?
Because they are in the field because they love the work—it's not an investment play.
Are these firms (digital, marketing, creative) a good investment for principals?
There's ample evidence that it's a fantastic option for an entrepreneur who makes the right business decisions. There's freedom, money, and impact, and it can be remarkably fulfilling.
Why are only some principals getting rich, then?
Because their love of the work makes business compromises less painful. Because making a lot of money isn't important to many of them. Because they are willing to pay a hefty price, year after year, to not have a boss. Finally, there's no barrier to entry, which facilitates approaching things as a job...with helpers.
Why are some principals rethinking their daily commitment to this business?
Lots of reasons. It probably starts with the fact that a career in this field is no longer a life sentence. Everybody can pretty easily have two or three unrelated careers, stocked on top of each other. I think 2020 had an impact, too. Absent the camaraderie, it all boiled down to a clearer picture of what work life meant. Life, as it turns out, is too short to _______. They are filling in that blank with things like manage people, scrape for new business, manage clients who are now more challenging than before, and competition from below and above. The biggest thing that's probably shaped their thinking is the fallout from chasing growth as some sort of panacea. When they get to that intersection, they have a bigger firm, sure enough, that requires even more of them.
Are they right to walk away?
Not usually. Most all of these things can be fixed if you are losing sleep over it, willing to make some tough choices, embrace risk, and just flat love kicking @ss. Yours is one of the best jobs in the world.
Why aren't they selling their firms instead of converting them to passive investments?
Either because they can't find an external buyer with money, because their internal buyer would require them to carry the note, or because they don't have sufficient energy remaining to make it through a 2-3 year earnout.
Some have tried to sell their firms, to no avail, but many of them are under some ill-informed assumptions about what happens when you walk away. Thus this article.
Why did you say that this was a "crazy" idea when you introduced this subject?
Because no one is starting a firm like yours as a passive investment, so why would it make sense to step away from one that you've already started? In other words, maybe outsiders realize that there are more process-driven, franchise-like firms that carry a better chance of a strong ROI outcome. They probably have a point.
But why is this industry different?
I wish I knew. It's a question I've been asking myself for many years and one day the light will go on and I'll write a better article that explains this strange phenomenon. I'm just here with a warning and not an explanation.
How many principals do you know who have tried this, in one form or another?
About three dozen. Some moved to another part of the country and left another partner in charge. Some just moved and then worked at running the firm from a distance. Some pursued a product idea and funded it with their firm. Some weren't successful at selling their firm, had zero passion left to run it, but were never going to just walk away.
How many have been successful?
About one-third of those who have given it a focused try.
What makes those successful?
A lot of little things, but mainly the exact right person to run things in their absence. The qualifications are so unique that you will typically err on one side or the other. Here are the two extremes that you have to somehow combine: sufficiently entrepreneurial to run it like their own, but not so entrepreneurial that they think they can do it without you (as the absentee owner reaping the benefits).
What remaining challenges are there even if you do find that very unique individual to run it for you?
- They may not spend your money like they would their own.
- They may focus on maintaining things instead of taking the risks necessary to keep innovating, stretching, reaching, and burying your competitors.
- IP and service level innovation may slow or stall entirely.
What happens to the firms who try but fail?
The wrong substitute leader stands guard while the firm fades over several years, or that person turns evil and uses their newfound leverage to screw you. When that becomes evident, you'll have lost your connection to clients and employees and stepping back into the driver's seat will be a challenge.
Summary: I believe that thinking this way is really smart, but don't fool yourself about how automatic your success will be.
Finally, are you interested in learning more about succession, M/A, and valuation? Sign up for notifications on a service we're launching this fall.