Agency Unfiltered - Rich Wood from Six and Flow

Lessons Learned from a Merger Breakup

Rich Wood, Managing Director of Six and Flow, joins us to talk about a merger attempt that ended in a breakup. While never easy, Rich walks us through why they opened up a merger discussion with another agency, how the team integration went, and what ultimately led to the split.

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Episode Transcript

Hi folks, my name is Kevin Dunn and welcome to Agency Unfiltered, a bi-weekly web series and podcast that interviews agency owners, around agency operations, growth and scale. Nobody knows how to scale agencies better than those that are already doing it, and they're happy to share an unfiltered look into what has worked and what hasn't.
Today, we talk to Richard Wood, Managing Director of Manchester, England based Six & Flow. Based on some forecasted changes in the market, Rich and his team began sourcing opportunities for a merger, and once they seemingly found a fit, the merger ended up in a breakup between the two teams. We discuss how those early merger conversations went, how the initial integration went between the two teams, and what ultimately led to the two teams splitting up. This is Agency Unfiltered.

KD: Rich, what's going on, thank you so much for jumping in for Agency Unfiltered. Happy to have you, excited to dive in. I think this topic is going to be the opportunity to really get some unique perspectives. I think it's a top-of-mind type topic for a lot of folks, but you have a very interesting experience with it so, talking about mergers, right, when they go right, and maybe when they don't go so right, but let's just set the table stakes. Why don't you just give us a perspective into what your merger process looked like and then kind of where we're at today.

RW: Yeah, so it's probably a good idea to set the scene of kind of like why we decided to start looking at it, so I remember a couple of inbounds back HubSpot announced the fact that they were starting to look at the Shopify Integration, which kind of put, as an agency, put ecommerce on our radar. Historically we'd never really done anything apart from a little bit of paid in ecommerce, so we started thinking about how could we capitalize on a new direction from HubSpot. And I'd always been quite friendly and had a kind of good relationship with another agency based in Manchester who is a development house, primarily ecommerce. And we started having discussions around the trials and tribulations that agency owners had. In Manchester there was a spate of quite regularly different projects-based agencies going under because they couldn't fulfill the needs of general agency stuff, couldn't land new business. So there was kind of, that was kind of going on in the background and so what we started to talk about was, "Hang on, what about if we brought these two things together", and if we brought these two agencies together it would make us one bigger agency, their project work would, our retained work would support the agency, their project work would become the profit, and we would have something that was quite stable and almost like a unique way in the market that we were kind of working in. So we started to think about that more seriously, and then we kind of made a snap decision to actually kind of jump into it, and I think that's when the lessons started to be learned from it. So it's a process that we started, we went through, we wholeheartedly jumped into it and then very quickly started to realize actually we've made a mistake so we started to pull back out of it.

KD: You said it was a snap decision, you rushed into it from the initial conversation of like, "Hey should we start thinking about this…”— how long was that process?

RW: So if I'm being brutally honest, the first conversation that we had was a very drunken conversation at a networking event, which tends to be where...

KD: That's where the business happens at.

RW: I mean this is when big decisions get made. And that, we then were just discussing it on and off over the course of maybe 12 months. We're like, "Should we do this?", "Is it a good thing?", "No, I don't think it is.", and I think we actually made a decision, "No, I don't think it's the right idea for us at the moment." And then it started, like the development stuff started, we were being asked to, could we do things around Shopify Integrations. We had several clients that we could go, "Actually, this is a really good fit for you" if we had more development capacity and we could actually roll out some ecommerce experience into that good fit. And then it became, actually, "I think if we merged immediately we could increase the business that you've got coming in and you can add some real value to us", and, I mean ultimately, make us a bigger entity overall, it would have increased the size of our business, well, the headcount did increase the size of our business by about 30%, so it was, on paper, made sense. And then, when we started to actually consider it again, coincided with the same time my second child was due so, it was kind of fraught all around, but we kind of, yeah, started to make the decision around then and it was pretty quick after that process.

KD: Once you actually made the merger happen, you said that you started to quickly realize it might not have been a fit. What were those telltale signs?

RW: I think the primary one was culture. So, I would have said before we'd kind of gone through the process, and, I mean, the reversal of the process obviously is a lot of emotion on all sides there, a lot of angst and kind of tensions that come up out of that reversal, but I think initially the, culturally I would have said me and the other agency owner were a good culture fit, us personally we could hang out, we both had similar aspirations. And it was the team that wasn't, that our two teams weren't gelling, culturally we just couldn't get them to fit. So our agency has always been culture and we've always been team first, culture is a big part of it and we have a recruitment process where the final stage is everybody gets interviewed by the agency, so it's like a speed dating session. And because we then dropped another, what, six or seven people straight into the agency, almost overnight, and kind of they hadn't gone through that same vetting process, they hadn't earned their stripes or, it just, it started to really grate and you could see there was some tensions on both sides, I'm not saying, like my team were definitely as much at fault for a lot of that, but—

KD: It wasn't one way, right?

RW: No, no, just a bad fit and then it escalates and then people start chipping away at each other. I mean we had stupid stuff like arguments over bins and, just stuff like that. And that just started to really not work, and then a lot of the clients we thought we could then immediately upsell decided that they didn't actually want that kind of process in, so then there were struggles with, like, we couldn't then feed them immediately with the work. They were still self-supportive because they hadn't, obviously, cut away their clients or anything like that. But we made some assumptions around how quickly we'd be able to mobilize that side of the business and we got it wrong. And then I think there was also stuff around processes; so as a development agency we'd made some assumptions around that their processes would immediately be a lot more formalized than ours so, I mean historically, as an agency, we've been kind of a bit haphazard and learn on the job with our processes and we spent probably the last two years formalizing that and we were hoping that their development processes would be a lot more structured and formal and we could learn from that. But we were then informing back on that and we have developed a capacity since the merger, like reversal, we've actually kind of built that side up organically ourselves. But we've built those processes and what we were finding is that we were having to spend more time and effort fixing things that we thought were fixed than actually kind of growing the business, which is, from an operational standpoint, is just huge overlays of time.

KD: So Rich, I'm just curious to know, all right, so the decision has been made, that you guys need to de-merge. Put me in that room, what did that conversation look like, I can imagine it wasn't very easy, but what was it like?

RW: I mean, honestly, it's probably the worst conversations I've ever had to have since running Six & Flow, it was emotional and horrible. It was literally like kind of breaking up with a friend and firing somebody in the same kind of capacity. And also, kind of, that element of we'd talked about dreams and aspirations, and I think it was much more of a shock for the other side than, obviously because it was me, kind of instigating the conversation, but I think it was not expected and that, and I think some of the lessons we learned around that was being kind of, maybe, we needed to have more regular check-ins and are we on target, and I think we did to a certain extent, but with retrospect I think actually, more hindsight, there could have been a lot more of that from our perspective, but yeah, it wasn't a good conversation. But it's one of those things that, like, I can be, when I set my mind on something and think it's a good idea, I can be all-in and I'm like, this is a good idea and I don't care what, like you're just not, if you don't think it's a good idea you're just not understanding it properly. And when I look back at it everybody was telling me it was not a good idea. So, even Steve Vaughn, our Cam, and every time he tells me something is not a good idea it pans out to not be a good idea but I still refuse to listen to him out of principle, but he's a guiding light in our kind of decision making process, but I still ignore him from time to time. He was, he questioned it, "So why are you making this move, what is around it?", and I explained it to him, and he was like, "In theory it's sound, but have a think about the kind of implications around it; are they able to actually kind of feed into helping sell HubSpot?", or like all of these kind of things and it made sense, what he was saying, but it also, I could see the opportunity was there. And then, I have a business mentor, when he, I started working with a mentor after we'd made the decision and I was telling him about the issues we were having and the processes that were missing and the effort that was being spent in other places and we did a very simple kind of pros and cons type list. What are we gaining; what are we losing? What are the differences, why don't you just build this yourself? Because actually having played around in the ecommerce market with the experience that we had with them, it was like actually this isn't really a space that our core strengths lie, so why were you pursuing something that we're not very good at, let's stick to the B to B stuff, let's stick to the places that we can have some real traction, and so I think, even my wife was like, "Why are you doing this?", like you're taking on somebody else's problems. Not that they had intrinsic problems, but they are a project agency, there is risk, you are, in worst case scenario, you're taking on seven salaries that you may just have to pay if they can't land project work. If not, you have to lay people off, so why are you doing that? And that's, again, exactly what Steve said, so I think, with hindsight, looking at the people who were advising me, you idiot, you should have listened to them.

KD: How did you, so how did you bake in the opportunity to de-merge, was there like a trial period that was time bound and you there was this exit clause, how did you build that in to give yourself the option?

RW: So, because we were quite cavalier or haphazard in the way that we approached doing this, so we were two mates who had, we started out as business acquaintances and became mates and kind of, would talk to each other about things outside of work, like the struggles that we were facing, either running an agency, family life, stuff like that. So we kind of thought it was a good idea, we kind of rushed into it, and sort of did that whole kind of we'll figure it out over time, we'll make it work, we'll learn on the job, and as part of that, thankfully, we decided that we would have a six-month period, so six months we wouldn't, all right, for all intents and purposes, publicly, with kind of externally, everybody knew that we'd merged so there was a big PR release we talked about our aspirations, like where, markets we wanted to go into, stuff like that, and then it was a six-month period that, at the end of that six months we would then legally and financially bind the companies, merge the books, kind of make each other direct, well, close down one business and make director on the other. And it kind of all made sense, but I mean, thankfully we put that process in place because there was nothing to legally untangle, it was only operationally untangle and emotionally untangle and that kind of stuff.

KD: Yeah, so I mean it does, having that kind of out clause or that six month window it did help just avoid some of the real complex aspects. I would imagine if you merged or binded the books, you know, that'd just been incredibly complex, but you knew, you had the wherewithal to say, "Here, we're just going to try to mesh the teams, mesh our processes, validate if it works".

RW: I mean, the worst part, like apart from the kind of tension between the relationship between me and the other MD, and that's a real shame, but the real difficult bit about the unmerging was they were, they'd moved into our office, so we then had to, after we'd made the decision, we then had to wait for them to be able to find a new office, to then move out, so we then had an agency within an agency and because we already had that cultural difference, there was nothing holding back either side from, like within the teams, from actually kind of playing nice anymore, which, when things then started to escalate, again, over stupid things like bins or like who's using which chair, or like that kind of stuff, just, there's nothing, there's no kind of true north point where everybody's like, "Look, we're all trying to do the same thing, well actually no we're not, not at all".

KD: Now they don't have that play nice.

RW: Yeah, and I think that's the bit that was the most difficult, and like, I can't speak how their teams handled it because we're not, obviously, working with them anymore, but my team have kind of understood, they all understood the process. The senior team were kind of consulted about it before we went through and sort of, "Do you think it's a good idea?", and on paper it did. But now, since we've gone through that process, I hold my hands up and say, "Look, that was a fuck up, my bad, I made that mistake", I hold my hands up but we've learned some serious amounts of lessons out of it. And one of them is that those big decisions, there needs to be more structure and more due diligence, you have to understand what the implications are, all of that kind of stuff, and that's powerful because we're in an agency landscape, we're not looking to be bought or sold or anything like that, but we now, we have an understanding of the pitfalls, so that if we ever were, then we know what we are and aren't looking at and how we should approach those things and that's powerful. More intentional, more checking, like the processes, so we would have, we would, some of the things we found that weren't quite right with the other agency once we went into it is stuff that you would never find out in a normal due diligence process, it would only be once you start working side by side that you actually see that stuff. And, so I think what we would do now is to start to look at how do we bring in, like we would staff-swap, so we would put a member of staff in your team for a while, vice versa, see how each other works—

KD: And exchange program

RW: Exactly, or even do, what do they call them, like a CEO type swap, and that kind of stuff will give you insight that you would never learn from a spreadsheet, so numbers are only part of the business, and that's, I think that is part of what I've learned from this experience is that, like you have to make sure that culturally it's not going to damage you business and it has to add real value. Like looking to, obviously we've just heard Halligans talk about making sure that new products add value and all that kind of stuff, or team members and that is, for us, if we were to ever kind of combine with another agency or acquire, be acquired, anything like that, it would have to be because it was adding value to what we're actually trying to do as an agency ourselves. So, and again, like for us to be acquired, like my line in the sand would always be around the team and the culture. The thing that we've built as an agency above all else is culture and brand and how we approach the market. And that would be the thing that you need to make sure is being kept with any kind of acquisition deal or there needs to be kind of common understanding of who's losing what and what's going where. I think because we rushed into it, none of that was really done.

KD: You mentioned that when the merger happened, at least at the start, there's a major PR play, a lot of communication externally to the market. On the flip side of the unmerging or de-merging, how did you handle the communications?

RW: So, when we did that first PR release we were, not aggressive with it, but we were very, "This is our line in the sand, this is why we're doing it, this is why we're trying to achieve it", and we believed it all and we worked hard on that. It was all obtainable numbers, but I think it was a mistake to announce it like that. What we wanted to do was show everybody, here is our intent, here is how we're doing it, but I think it was also confirming it for ourselves. We told everybody we were going to do it now, so we're actually going to have to do it.

KD: Sure, now we're holding ourselves accountable to making it happen.

RW: And, which also means that if it doesn't work it's a very public fuck up, so that's kind of an intent... sorry, am I allowed to swear on this?

KD: Yeah, it's like Agency Unfiltered, so...

RW: Oh, cool, fine, so yeah, with the unmerging side of things, the other agency had started to, well had stepped away from their brand, they were still a live site, they were still, the brand still existed, but they'd stepped away from it and kind of put it on ice and joined us. So from the original PR release we had the, kind of the exposure, the Six & Flow brand. But then from the, so for the de-merger stuff, we just kind of went, "Look, you guys do what you need to do, you release the releases you need to release, and you promote your brand in whatever way helps because that will help you.” They're a project business so there wasn't any damage to their long-term, and it's a fairly unknown brand, so it's, it wasn't a massive detractor but it was us saying, "Look, you guys do what you need to do, and the communication was honest. It was kind of like, "We've tried, we tried to do it, but it's not worked, we've decided to go our ways as separate brands", and that makes sense because one of the key things for me about making the decision to unmerge was that, what was it, it was totally in my head then, is that we are very good at the B2B, inbound, ABM, conversational type stuff, that is our core strength, that's how we help our clients, but then, and they're very good at the ecommerce side, but what we were finding was that as we were merging the two, we were detracting from both. And I don't want to be an agency that is marginally good at everything, I would rather be nailing what we do and having that reputation. Like in HubSpot or the Academy certifications as you know well. You talk about having a niche, and it was kind of like when I started looking at this, and do you know what really drove it home is we were redesigning our home webpage and we were trying to look at how we can graphically depict all of our different services, and so we've got inbound marketing and sales is like the key one, then we've got conversational, we've got development and other bits and pieces. And then there was just this ecommerce thing that just kind of sat there and we're like, "What is that, why are we, how does that fit in? And it doesn't. There's like, there was nothing that kind of fit with it. It just looked like an add-on. And I was like, "We are doing something that...", and I think maybe it's because I come from a design background, but that was the thing that stuck in my head and I was like, "It doesn't fit, it just doesn't fit". So that's what I think, kind of the beginning of the end.

KD: You said that, obviously, the conversation, the decision to make, was one of the hardest conversations you ever had to have? What is then the conversation with, to the wider team, what is the vibe, how do they react, like how did you kind of announce it internally, you know what I mean?

RW: So we sat down with my team, well, I sat down with my team, he sat down with his team, and we just kind of explained to them, "Look, we tried, here are the reasons that we tried, like we've all spoken about, and here's the reasons it's not working, and here's why we're splitting". And I think, I guess if you could say a benefit of that kind of friction that was happening between the two teams is everybody going, "Oh, thank God for that", so I think there was relief.

KD: It was as well-received as it could have been?

RW: Yeah, but also I think the team appreciate that I was then in a position, holding up my hands, going, "My bad, I made a mistake".

KD: You took ownership: “my bad, my bad.” You've mentioned a couple of times that obviously there's a number of lessons learned. I feel like we've uncovered a few of them, are there any other lessons, like any other big takeaways from this?

RW: Not that I can, not that we haven't covered. I think it was definitely an eye-opening experience, but I think, for me now, if we were to ever go down that road again, culture would be the main thing, so don't focus on the numbers. And now, in retrospect, it makes sense, we are a culture led agency, we are team first, why didn't we focus on the culture first? And I think we looked at, "Okay, your revenue is that, my revenue is that, together that's a really big kind of chunk, we are becoming a serious player and there's all this opportunity", but actually what does that mean for the underlying processes and culture and how the agency actually runs. So I think that was my biggest lesson.

KD: Final question for you, Rich. I ask this for everybody, but I feel like this entire episode fits in pretty well, I ask what do you think is the strangest part of agency life? So maybe what's the strangest part of post de-merger agency life?

RW: Weirdest, oh, I don't know what the weirdest thing about agency life is, but we've got a boardroom table that has all of our, basically our Instagram is, which is all like beer, dogs and cakes, it's much more of a recruitment tool more than a client finding tool. But we print them out and they go under a glass sheet on our boardroom table and it's nice because when we bring in clients they are literally sitting around our culture and understanding how we are, but I think the weirdest part of agency life for me is just, like, I don't think anything's weird. I think maybe just because I've kind of grown up to it or just become accustomed to it, maybe it's like Stockholm Syndrome...

KD: Yeah, it's the new normal.

RW: I think the hardest part of agency life is that there is, as an agency leader, and I think it's because I've not got it right yet, there's no detachment. I am always thinking about the agency, I am always doing something for the agency, I am always communicating with somebody about something, so there is no off button.

KD: There's no end of the work day.

RW: No, there's, yeah, and that's, I mean, that can be a struggle, like it can be a real struggle sometimes, but it's, I think that part of the job, and actually I think, in a weird way, I kind of enjoy it.

KD: You have to because you continue to do it, you know? I really appreciate you coming on, man. That was a great story. I appreciate you opening up for us.

RW: Any time.

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