During our discussion we cover the founding of Barrel, big moments in their growth cycle which includes designing the annual report pages for large public companies, how Peter realized he as an owner didn’t need to be the salesperson for the company, and how they allocate excess capital at Barrel.
Think Like an Owner Sponsors
Live Oak Bank – Live Oak Bank is a seasoned SBA lender focused on search funds, independent sponsors, private equity firms, and individuals looking to acquire small companies. Live Oak has closed billions of dollars in SBA financing and is actively looking to help more small company investors across the country. If you are in the process of acquiring a company or thinking about starting a search, contact Lisa Forrest or Heather Endresen directly to start a conversation or go to www.liveoakbank.com/think.
Hood & Strong, LLP – Hood & Strong is a CPA firm with a long history of working with search funds and private equity firms on diligence, assurance, tax services, and more. Hood & Strong is highly skilled in working with search funds, providing quality of earnings and due diligence services during the search, along with assurance and tax services post-acquisition. They offer a unique way to approach acquisition diligence and manage costs effectively. To learn more about how Hood & Strong can help your search, acquisition, and beyond, please email one of their partners Jerry Zhou at --@----.com
Oberle Risk Strategies – Oberle is the leading specialty insurance brokerage catering to search funds and the broader ETA community, providing complimentary due diligence assessments of the target company’s commercial insurance and Employee benefits programs. Over the past decade, August Felker and his team have engaged with hundreds of searchers to provide due diligence and ultimately place the most competitive insurance program at closing. Given August’s experience as a searcher himself, he and his team understand all that goes into buying a business and pride themselves on making the insurance portion of closing seamless and hassle-free.
If you are under LOI, please reach out to August to learn more about how Oberle can help with insurance due diligence at oberle-risk.com. Or reach out to August directly at --@----.com in sponsoring? Send me an email at --@----.com Transcript:
It’s great to see you, Peter and have you on the podcast. As an original sponsor of the podcast, it was fun to get to know you that way and it’s been fun to get to know you, even get to meet you as well. I haven’t gotten to meet many people on the podcast. So the trip to New York was really fun with Yumi and Nick and your office. That was great to get to know you and chat with you for a little bit. So I’m excited to have you on the show. You gave us the background at our meeting, but I’d love for you to share it again on the podcast.
Maybe I’ll go back to when I first even got into the type of business that I’m in now, because actually back in high school, actually maybe even middle school, I was really into designing websites. And this was back in the days of mid ’90s, so we’re on AOL at that time. Got exposed to like the Mosaic browser and Netscape and this idea of being able to make a website using HTML, was really fascinating. So I ended up teaching myself how to use tools to do some graphics, and then also put together things using HTML and got some pages up for friends, just silly things.
But that really stoked my passion for being able to create websites. And this continued throughout high school, I was just making random websites for different things. One example was, I used to publish a monthly magazine for teens, and we just covered different topics. And I was the publisher and also the editor. It was like really fun to get friends and myself to write articles and put it up online. That was a great practice. And then we also had a three-on-three basketball league where the highlight of that was a website where we’d publish stats of every game and then also write little recaps, take pictures of it or videos and put up there too. This is all the fun stuff.
From that age, I was like, “Hey, this is exciting. I love doing things online, making things for people to come and check out.” And so that carried over so that when I was in college, I went to Columbia here in New York, and I ended up meeting someone who ended up becoming my co-founder, Sei-Wook. We met through a club, it was a cultural club at Columbia called the Korean Students association. So we’re both Korean-Americans. One thing that we had in common was we both were passionate about making websites. And so the two of us would go nuts, making all kinds of websites for the club.
And then once that wrapped up, we were like, “Hey, let’s continue to collaborate, make websites for others, maybe make some money while we’re doing it.” As students, if you get even a few hundred bucks to do websites, it’s nice beer money or whatever it might be. So we ended up forming a partnership early. I’m a couple of years older than Sei-Wook, so I ended up graduating. And in those days, the main thing, you get your Ivy league degree and you go a few paths, and investment banking was one of the main paths that a lot of folks went into.
And so I ended up working for a year at Lehman Brothers in the CDO banking group. So this is all the mortgage backed securities that we would be restructuring at the time. But while I was working there, I still was talking to Sei-Wook almost every day, and we’d meet up on weekends and make websites because that was still the thing that I was really passionate about. We had some freelance clients. And even if I was like putting in 70 to 80-hour work weeks at Lehman, I’d still be super stoked to come home on Friday and start working on websites and then working all through the weekend with Sei-Wook.
And so I knew like by the time my one year was up at Lehman and bonus time was coming, I made up my mind and I was like, “I’m going to quit. And I think we should give this like website thing a go.” And Sei-Wook was game for it. So we incorporated Barrel. This is back in###-###-#### I quit working at Lehman, got my bonus, which helped give a little cushion for like what I wanted to pursue for the next year, at least. I was like, “Hey, if it doesn’t work out, I could always go back to something in the corporate world.” But we’ve been at it since. This past summer, we just celebrated 15 years of being in business.
Our focus primarily has been on website design and development. These days, we’ve added to that, we do some email marketing as well as paid marketing for clients. The focus has really narrowed as well. Before, we used to be doing services for anyone who was willing to work with us, but over time we really saw an opportunity to go deep into the e-commerce space, so our focus today is on direct-to-consumer brands that are looking to scale their efforts on platforms like Shopify and really up their game in terms of email marketing and paid social. So that’s where we are today.
One other thing that we had talked about in our meeting in New York was, you walked through how, when someone wants a website, they don’t just want a website, they want usually branding or graphic design or copywriting. Can you walk through the different steps it takes for you to design a website for a client?
It’s so interesting because I think when it comes to websites, in many ways, it’s still like a very opaque product. I’ve heard this many times from clients and I’ve seen it myself where someone wants to know, “Hey, how much does it cost to do a website?” And usually, when people go out and try to get quotes, they can get anything from a few hundred bucks to something seven figures, and it really varies based on what you’re trying to achieve with the website and also on the goals of the client as well and what the needs are. And also what’s in place already for the client.
And this is why it’s been so important for us to focus on exactly what we offer, because you can be all over the place. I’ll give a few examples of different website projects and maybe that might make it easier to understand. If you’re a small business with a local clientele and you’re trying to just get, let’s say a restaurant, or even like a small retail shop. I think the needs there are a bit more straightforward where you can leverage something like one of those Squarespace or Wix to get a website up and running. It’s about basic information. So in those instances, the website process is pretty straightforward, you know exactly the content that you want there and then you’re able to get it in there.
And the money you’re actually paying to a professional at that point might be like, “Hey, make this look nice. Spruce it up more than I can if I was doing it myself on Squarespace.” There’s that level of website design. You don’t even need that much development, because a lot of these, you could take off-the-shelf templates and make it look pretty decent. But as you work with orgs that have some different needs, so let’s say it’s a much larger corporation, their needs are a little bit different in that, “Hey, like we have multiple groups within the corporation that need to be represented on the website. We have different target audiences that need to be represented on the website.”
This might be like the customers that are there, might be other vendors that they interact with, or it might even be on the recruiting side, folks that they want to hire. For sites like that, they need a really robust site architecture and they need a content strategy. They need to really think about how the navigation is going to be laid out. And then also just on the pages themselves, how is the content going to be structured? Are you going to have imagery that helps communicate certain things? Are you going to have different types of diagrams? How are you going to link things together? How are you going to label all these pages so that it’s clear?
And all of a sudden, it’s not such a straightforward website project. And there’s a lot of discussions upfront about content, about the user experience, about personas. And so that quickly turns into many months of discussions. And once you have multiple stakeholders representing different departments and people wanting different things represented on a homepage… Sometimes there’s the work but then there’s also the coordination amongst the people collaborating on this project that becomes as important as the work as well. So as we’ve worked on larger and larger scale websites, it’s more of this kind of project.
And then once you roll in the element of functionality like e-commerce where then now you’re talking about integrating with other systems, you’re talking about the flow, the purchase flow, how are payments being handled? How’s the automation of the emails? It just gets getting deeper in terms of the type of things you need to think about, the type of people that are involved that you need to continue to coordinate with. So that captures some of the ranges of websites. And so, just actually going to what you’re talking about is like, when someone says, “I need a website,” that’s the start.
It’s never like, “Okay, cool. Give me X dollars and I’ll make it for you.” It’s the start of a conversation of, “Okay, like what are you trying to accomplish?” And a lot of times, we’ve learned that the website is just the initial thing, but then what they really needed was a new brand strategy, what they really needed was a content shoot to really recast how their products are shown, or what they really needed was an organizational transformation that is much bigger than what the website could possibly do.
Can you talk about how you discovered that direct to consumer e-commerce brands could be a niche for you? Was there a light bulb moment you can remember?
It’s more of a gradual realization, but there were some key moments. So one thing I think in hindsight, we were pretty lucky, we were early adopters of Shopify. So this is back when, this is almost 10 years now, we need an e-commerce solution, a lightweight e-commerce solution for a client, and we came across Shopify and we’re like, “All right, this is cool. It’s easy to customize.” So we were able to do some early work there. It was great because we were able to push Shopify to do things beyond the initial templates that were in place. And so we were able to make some cool experiences with Shopify.
That allowed us to make a name for ourselves, with even folks at Shopify who are sending us leads. And then also just as Shopify started gaining more notoriety, folks would be like, “I need a really great Shopify site made,” and then Barrel would come up in conversations. And so I think that momentum allowed us to think about positioning ourselves to work more with these brands. And then over time, there were a string of clients. You start winning deals that are like more focused in direct to consumer ecom, and you realize, “Maybe we should go deeper and deeper instead of splitting our attention between this and that nonprofit website or that tech company website, which we may or may not win. If we just went deeper into this, chances are we’re more likely to win these deals”
And so it almost became like a bit of a flywheel that encouraged us to go deeper.
And over the 15 years of running Barrel, do you remember distinct phases of Barrel as a business? So were there different periods of time where the business had to dramatically change to advance to the next phase?
Absolutely. Yeah, a few key moments come to mind. And one thing I just want to make a note of is like, looking back on it today, there’s going to be a very distinct bias, or slash, I’m going to interpret the narrative in a way. But I always think about that because 15 years from now, I’m sure the story will be a little bit different. But looking back at it today, one moment was definitely the day that we had a client that was in the solar energy space, a small startup, we had done a logo design, a website for a few thousand dollars, but then they started gaining traction. I remember getting a call from the founder being like, “Hey, you want to do $40,000 worth of work for the six months?”
And we were just like, “Whoa, that means we can hire like an intern to help with the work.” So that was one key pivotal moment where we went from being the ones doing the work to finally having enough of a runway from a contract to hire someone to help. And then the next step up was when the iPad came out, that’s in ’10, the big thing with that was so flash, maybe listeners might recall Adobe Flash was the language, I guess. It’s a way that people made websites back in the day, and it was a cool flexible language that let you do crazy animations on the web.
But once the iPad came out, the browser on the iPad just didn’t support flash, and overnight, what happened was CEOs of Fortune 500 companies were all given iPads to carry around because it was a cool new thing and you look at stuff on the iPad. What happened was, overnight, all of these websites that they needed to view that were built on flesh became obsolete. And the biggest part of that was impacted was the annual reports because all the annual reports for these big Fortune 500 companies were done in flash. And when the iPad made that a no-go, there was a sudden demand for these HTML5, animations done using HTML.
We never really did much in flash and we always try to do things through HTML. And so that gave us the opportunity. We were actually subcontracted by an agency, it’s a media communications company focused on annual reports. Within a span of six months, we ended up doing the annual report websites for Goldman Sachs, GE, Blackstone, PepsiCo, American Express. Imagine going from doing like five to $10,000 websites to doing 50 plus K websites, just all across the board. And we were like a four or 5% team then, and I needed to scale as much as possible.
I remember posting stuff on Craigslist and just calling anyone I knew to come and help give us a hand as we need to get these… And remember, all the annual reports around the same time, it was such a mad rush. And I just remember, the team blowing up from four people, to 12, to 20. And we’re just flush with work cash and had to grow up overnight. And so that was a pivotal moment. And then I’d say the next one, just fast forwarding, that happened, maybe I say year four or five of Barrel, but I think it was a blessing and a curse at the same time because that rapid growth and those kinds of relatively lucrative contracts spoiled us a little bit, but it made us grow without really being deliberate about what growth meant.
We were so ill-equipped just as managers, as leaders just did not know how to run. We’re still in our mid 20s by then. And just still clueless about so many things. And so I’d say there was almost a period of things plateaued. We just couldn’t break out of a certain level of revenue and profit. And there was just operational challenges and it just felt like we were hitting a wall for several years. And a good turning point was around 2015, ’16 is when we started committing ourselves to really reading, that was like a big thing. Like, “Hey, let’s learn how to run a business, how to be good managers, how to do all these. Let’s just keep at it with educating ourselves.”
And that was really when we learned all of these concepts around positioning, around being able to focus, being able to structure a business in certain ways, being better managers, thinking about the client experience, team experience, all those concepts started to come into place. And so the last, I’d say five or so years have been, it’s just felt different. The energy has been different. It just feels like we’ve been level every year since then. And so I almost feel like, if anything, the first 10 years were like a slow learning period, and then the last five has just been an accelerated period for us.
I’d be curious. What are some of the books that you found the most value from?
There are tons. I’d say if I was to reflect back, one book that I always keep going back to is The Fifth Discipline by Peter Senge. The syllabus heading is, The Art and Practice of the Learning Organization. It’s a book that I’ve gone back to time and time again. It’s about systems thinking, it’s about understanding this idea of being a learning organization means you’re not looking to cast blame, you’re not focusing, zeroing in on a problem and trying desperate to fix it in a reactive manner. But instead, you’re able to take a step back, understand how the whole is operating with all the different kinds of inputs from different parties and the different incentives that exists for others involved, and trying to make high leverage decisions that really can move you in the right direction.
And so it was just like such a light bulb went off when we started to grasp that concept, because for such a long time, running a business, felt like a whack a mole kind of a thing, a problem happens, you go at it hard and trying to fix it, deal with it. And then before you know it, another problem pops up. And so it feels like you’re fighting fires all the time. We were always joking, “Oh, we should have an FDNY hat on, because we’re just fighting fires all the time.” But once we embraced like systems thinking and we were like, “Hey, look, the best thing to do is like not actually do anything, but just try to understand the underlying structural issues that are causing the problems and try to change that.”
It might be slow going, but in the long run, it’s a hell of a lot more effective. And so we started thinking more in that way. And so along with that, we’ve been guided by other ideas and books and concepts as well. I’d say another good one is like anything around like the 80/20 rule. And just thinking about like, “Hey, how should we really concentrate our efforts on the 20% that’s going to have the out-sized impact.
Are you willing to share any of the structural problems that you encountered and eventually solved in your business?
Definitely. One thing that I’ve thought a lot about was, especially our business professional services, a lot of the problems that we might face in delivery, in client satisfaction, all those things, it actually stems from business development. In fact, it actually goes back to positioning because if you’re positioned well as a business, so like us, let’s say we do Shopify websites for direct to consumer brands. Clients know exactly what they’re getting and they’re coming to us because they value our expertise. The positioning is effective at that level. And with that on the business development side, we’re able to command higher prices because our expertise is sought after, and we’re able to secure bigger budgets, and clients are going to listen to us when we’re like, “Hey, you need to consider XYZ things because, take it from us, we’ve done it 100 times and these are things that you’re going to have to pay for and also be aware of.”
And if you have that positioning and you have the case studies and the experience, they’re going to say yes. So you’ve already set the team up for success at the business development level, and everything flows down from there where it’s like, “Cool. When the team starts to work on it, they have more time because the budget allows for it. They’re already the ones leading the client on the process instead of the client being like, “Hey, shouldn’t you be doing this? Shouldn’t you be doing this?” There’s no second guessing because of the way we’ve positioned ourselves.
And conversations are more around like, “How can we be more collaborative?” A relationship’s on a much better footing as a result. And so for the longest time, we used to just try to figure out, “Hey, why isn’t this project profitable? Maybe if we like did this faster, or maybe decrease the number of deliverables or whatever,” that was the wrong way to think about it. And once we realized the structure of positioning and business development and just being able to charge more, so many of the problems just went away. We didn’t have to address the head on. It’s crazy to see now too, the stuff that we might’ve charged, just because we weren’t well positioned and we were just so like eager to win a project, we might charge 50K or whatever.
In reality, we should have charged three times that, let’s say, to be able to do that and get the right price for it, and then to be able to deliver a superior product because we’re not rushed and everything, it perpetuates the success of on its own because then the client is happy with the results, and then they’ll ask us to do more work and then they’ll sign onto a retainer. And then they’ll happily go out there and advocate us and we’ll end up getting referrals as well. So it’s one of these things I wish that we had 10 years before, but I’m glad that we’re able to get to a point where we’re solving it in this manner versus just reacting to problems.
One other thing that you mentioned in our meeting was that you realized that you didn’t have to be the sales person in your business, that you could actually hire a sales team. You didn’t have to be the one interacting with every new customer. Can you walk through what led to that realization and then how you went about building a sales team?
This has been literally like a life changer because I think even for say the first 12, even 13 years, I thought myself and say with my co-founder, we’d never get out of having to be the ones to, A, qualify the client, and B, put the proposals together. This is on top of all the other operational things that we were overseeing. So I distinctly remember like holidays and weekends were just like, heads down, write the proposal. When you start trying to take shortcuts, you go, “Huh?” Instead of having that extra conversation with the client, which would have been probably better for the relationship anyway, like, “I’ve seen this project before, I’m just going to put a proposal together, just get it out the door.”
And of course we’d lose because we didn’t do our proper due diligence. So what happened was we decided to test out, bringing in somebody to help just oversee some clients, but also just start to ease our sales activity, just to be like, “Hey, maybe this lead that comes in, you can handle it.” But we got really lucky because the person we brought in to offload some of the sales workload ended up having a neck. He was one of these individuals that gets super energized from interacting with new people and just learning about new businesses and can do back-to-back sales calls and not feel trained, but feel super energized, and, “Wow, that’s awesome.”
And he just craved more of the responsibilities and more of the challenges, and over time, we were like, “Hey, you can take this over and really lead it. As founders, we can step away and really entrust you to do this.” And it was about a two year process where we really just worked really closely to make sure that all the things that we’ve learned, all the tricks and the techniques that we might’ve used to land new deals were passed on. But after a certain point we were like, “Oh, he’s actually doing this better than we ever could have. And he’s closing deals at a much higher budget than we ever could have.”
We were able to carve out a role for a director of business development and really create this group, and now he has a business development coordinator working under him. And so the two of them, so Dan who’s our director of business development, just has been killing it and just has been so instrumental. And it’s been such a huge asset because Sei-Wook and myself, we’ve been able to focus on other aspects of the business and really build out and think about the areas where we need to scale, or we need to strengthen systems. And I didn’t realize how much of a drag doing day-to-day sales was and our ability to focus on other parts of the company.
I’m curious, what’s happened since building out more of a formal sales team, have other pieces of your business improved dramatically, or just pieces of your life improved as a result of not spending that day-to-day time on sales and focusing on other things?
I think the biggest piece has been to be able to think about the business beyond the next series of proposals we’re sending out. It’s like stepping away from it, I’ve worked to broaden my time horizons to be beyond the quarter or even the year. It’s thinking about things like 18 months, maybe even two, three years down the line. And the space to be able to think for the longterm has been really just eye-opening because it’s like, “Oh, let’s start to have a real vision for where we want to be as a company in three to five years. And let’s start setting some goals for that.”
And if we have those goals, what are the structural things that really need to change? What are the new departments we need to create? What are the services we need to have? How do our client roster need to evolve? Is the process of being able to ask and answer these questions and have these discussions, it’s led to so many different new initiatives and it’s been super energizing. One example is, as we’re growing the biz, we want to essentially in the next five years or so, we want to be able to three to 5X the business. That means we’re just going to have to get more efficient and effective at recruiting and managing talent.
And so until that time, we always relied on our different department leads to do the hiring and figure out, just post the job, and go do it all yourself. But being free of day-to-day sales, we’re just able to spend more time on these challenges and we can ask around and be like, “Hey, what’s the biggest challenge about hiring new people?” And we hear things about how much of a time suck it is to sift through all the resumes and then schedule calls and follow up and all those things. And we hear stories like, hey, by the time I get around to respond to somebody, they’ve already interviewed elsewhere and they’re gone, they would have been a great candidate.”
And we’re like, “Wow, there’s real need here.” We’re able to identify, “Oh, if we bring in a talent acquisition manager who can handle all this stuff, maybe that can solve our challenges.” And we talk about, “Okay, what’s the vision for this talent acquisition manager? How would they impact the company?” And then we create the job role for hire for it. And then all of a sudden, it’s a totally different level. We were able to sift through hundreds of candidates daily and queue up for hiring managers like, “I need to qualify candidates.” And it’s really great seeing that momentum build. And it’s only possible because we’re able to spend time on these challenges.
What challenges are you working on now?
I think the big one for us, it’s interesting because we have four partners at this point. So myself, my co-founder, and then we have two partners that came up through the company. They’ve been with the company for a long time, and we divide and conquer different aspects of the business to really build out, and then it all feeds the similar purpose. So one area that I say we’re all obviously focused on is still on the hiring and recruiting side because when we looked at the vision and the roadmap of how we want to grow, we saw that there were some gaps in terms of functional leadership that need to be really addressed.
And so thinking about, we used to have a single dev team, and one of my partners, Wes, he was the head of the dev team, but we realized if we want to scale, we need a separate software engineering team and a solutions architecture team. And in terms of who’s going to lead that we need to fill those gaps. And so now we’re trying to hire for those leadership roles. That’s very exciting because now we have to think about, okay, what’s the kind of talent we need for that. And what is the vision for scaling each of those departments? And likewise, on the creative marketing services side where Lucas, our chief experience officer leads it, we’re trying to scale up our CRM team.
So we’re going to have to find a CRM director and also think about other pieces that we need to hire for. So I think that’s top of mind. For me personally, now that I’m away from the day-to-day sales, one thing I do want to make sure we’re building up is on the marketing side of things, and this is marketing for Barrel. So as agency, are we getting in front of the prospects, the right prospects? And are they aware of what we’re able to achieve for them? And so this is trying to put together a more robust infrastructure for posting on social more frequently, just upping the number of email newsletters we send, maybe growing our email list.
Also just being able to position ourselves with different events and collaborations with different folks to make sure we’re getting in front of the right people. That’s my focus right now is to make that a much stronger part of the business. And then there’ll be reflected by the number of quality leads that we get on a regular basis.
Is there a part of your business you’re dying to share that I haven’t asked you about yet?
In terms of the evolution of the business, one thing that’s exciting is this is a solution born from a challenge that we faced. So being around for 15 years, you accumulate a lot of different types of clients. And so we have a pretty sizable book of legacy clients that no longer fit our positioning, but we’ve still just done work for them. A lot of it is website support and maintenance work. And these clients they’re great to work with, but the type of work that we’re doing for them, it almost becomes a challenge to staff our core team on these projects because they’re so focused on doing a Shopify website, but then these other clients might be a nonprofit or a real estate company that have different needs.
And so one thing that we decided to do, and this is happening very soon where all the structures are in place, it officially happens next week is we spun out a new company. So we created a holding company structure, and so Barrel is one of the companies there. And then this will be a new company that would be focused just on support and maintenance contracts. And the main focus or channel for them would be helping other agencies offload their support and maintenance contracts and be supported that way. And so we’re seeding it with about 15 clients coming over from Barrel.
We’re already getting a sizable amount of interest from other agencies that are really excited to leverage this company.
Is this going to be a different company entirely that will have its own client base even outside of Barrel?
Exactly. Yep. So the company is called Vaulted Oak. The way that we’re going to really work with Vaulted Oak is we’re going to continue to do websites, let’s say when we do a Shopify website for a client. Now afterwards, a lot of clients have ongoing needs, but some of them don’t need as many hours to do work with us. And one thing we’ve learned also beyond just the legacy clients is that when clients have needs that are under a certain number of hours a month, it’s really hard for us to staff too. It’s really hard to get our team assigned to 10 hours of work a month or anything that. We’re just not set up to do it that well.
So unless it’s at least 100 hours a month, we really can’t handle the requests that come in that are too small. So Vaulted Oak would actually be a great partner for Barrel to be able to take on those contracts. And at any point, those contrasts ended up going north of 100 hours Then Vaulted Oak will kick it back to Barrel because we were set up to handle those better, but Vaulted Oak would also be taking on these contracts from other agencies and then growing their revenue as well.
I’d be curious, where do you see reinvestment opportunities? Is it through just team building and these other spin-off companies that you’re doing or are there some other places that you’ve found that are pretty fruitful?
I’m glad that we can touch upon this because a lot of this is capital allocation, which is always top of mind for me these days, especially. So just to take a step back, one thing that we started doing, this is about five years ago is we embraced the profit first. It’s a method, I don’t know if you’ve heard of it. It’s based on a book by this guy, Michael Michalowicz. And it’s a way of running your business. He’s geared it towards small businesses and entrepreneurs starting out.
And it’s almost like way you would run your personal finance, you know when you get a paycheck, you just make sure certain amount just goes through retirement, certain amount goes to certain costs and you just don’t think about it, you automate your finances that way, you do that with the business too. So you go, “Okay, revenue comes in and X amount,” you might subtract out the subcontractor costs that might’ve gone out. But then after that you go, “Okay, whatever’s come in, I’m going to take a percentage of it for owner’s comp. And then I’m also going to deposit a certain amount into profit.” Whether or not we’re profitable, we’re just going to take money out and assume that it’s profit.
So let’s say I go, “Hey, no matter how the business is running, I’m going to put 10% of all the money that we collect in the last two weeks into a profit account.” And it just goes out. And you do this, so then every two weeks you’re paying out owner comp out of the revs, and then you’re also depositing a percentage into a profit account, which you then pay yourself out of every quarter. What this does is it forces you to realize, because at the end of making all these subtractions, you’re left with a certain amount of money to pay all your expenses
And if you can’t pay your expenses, you’re not running your business well. Basically that’s the premise, and you have to cut costs and you have to be more efficient. And so at first we adopted this because frankly we weren’t really profitable, we were just struggling a lot because we were solving problems by over-hiring or doing things that maybe we shouldn’t have, or taking on projects that were too low budget. But once we installed a profit first, it really put the discipline, and we ended up just paying ourselves a lot more as owners, which actually it was a great motivator in a sense.
And also one of the things that helped us think more longterm, because one thing that I’ve seen, especially with agencies and this digital spaces, if you obsess on growth, but don’t pay yourself enough, and then you’re so desperate to get to that light at the end of the tunnel, which is usually just selling a company or something, you end up making some poor decisions along the way. And so we wanted to take that off the table and just be really long-term focus and independence minded. So the profit first model has helped us do that. It’s been great, as we’ve scaled the business, it’s like, “Cool, our comp’s going up naturally with it. And our profit distributions every quarter is awesome too.” Because you just take it.
But this is the crazy thing, even after all of that, we still have access capital. So it’s like, how do you deploy that stuff? Most of it has been reinvesting to grow Barrel because I think there’s room for Barrels to continue growing and we can easily, I said, three to 5X in five years, but even with that, I like to diversify a bit. So we’ll take some streams of that profit and we’ve created a separate fund for partners that’s minimal, but it’s actually added up.
And one thesis I’ve always had that I really wanted to act on was, hey, as agency working in digital and marketing, we’re early adopters of really great technology tools and things that we’re probably going to be ones to try it out before it’s widely used. And so we have in many ways, front row seats to allow these things. What if we had invested in those companies all this time? I even wrote a blog post where I just hypothesized, “Hey, if we had invested in Adobe when they went SaaS and all that stuff, how much would our stock had grown over that time?” And my guess was a lot
But after I wrote the blog I was like, “Hey, what’s stopping us from doing this now? Let’s just put aside some money every quarter and just invest in some of these businesses, publicly-traded companies that we’re using the tools for, and we know are going to be sticky and around for a long time.” And so we ended up doing this and we’d invest in stuff Slack or Sauna. These are apps that we use, and we were like, “Okay, cool. That’s just one way to just have to allocate some capital and just de-risk a little bit and diversify.” But it’s just automatic now.
We don’t even think about it because every quarter we just have a few different picks that we want to make and then we just buy the stocks, and the portfolio has grown pretty well in the last year.
Yeah, it seems a really easy place to just put any excess capital since with it being public markets, you can pour virtually any excess or any amount. It can be absorbed by a public market portfolio. That’s an interesting strategy. How far out of your diversification would you go if you had invested in Slack or Adobe? But you may have an Apple computer. Would you invest in Apple or go that far? There’s still probably a circle of competence you’ve developed that you can utilize.
That’s a great point. We’ve mainly focused on productivity like SaaS tools. So that’s one area. And then anything along payments as well, just because we’re so exposed to those. And so our recent investment was in PayPal because that’s something that we’re using quite a bit with our contractors and others. And so we’re like, “Hey, we’ve only seen them continue to expand their offering as well and it’s something that we think is going to continue to compound.”
Would you do any venture investment at some point?
Actually, yeah. And that’s another area and we call it the Barrel Venture Partners. Initially it was started because there were some opportunities where clients would be like, “Hey, if you discount our fees, maybe we could give you equity.” And we did a few of those deals where it was work just in kind or discounts. And so we have some of those investments in the portfolio, but over time we were like, “I’d rather just take the full fees or whatever, and then if anything, let us just invest real cash into your businesses if we think it’s has great upside.” So yeah, we’ve done those.
We’ve done about, let’s say, eight or so investments today, but our goal is trying to do at least four investments in early stage companies every year. So we’re always looking for opportunities. Initially we were like, “Oh, maybe it’s the direct-to-consumer brands that we get exposed to.” But over time we shifted that to be more… We love the tech enablers of direct-to-consumer brands. So the next Shopify would be ideal, that kind of space. So that’s what we look for these days.
That’s fascinating. What are you most excited to see Barrel do in the next 15 years?
The next piece is actually, and I forgot to go into it, it’s just within this holding company model, we really want to take all our learnings for the past 15 years of the importance of positioning, how you structure sales, how you structure client services, how you do recruiting, all of those learnings, because I think those are repeatable processes and you can port them over, but focus on different types of services. These are still on the drawing board, but we talked about Vaulted Oak, which is the support and maintenance.
But if we want to, let’s say focus on doing work for cultural like arts institutions and just do website design or marketing for that, launching a separate agency within our holding company for that. Or if you wanted to do stuff for SaaS companies and do marketing focus especially for them having another agency for that, but then all following the playbook that we’ve with great difficulty written at Barrel.
One last question before we get into closing questions, what do most websites, especially business websites do wrong that you think they should be fixing more?
I think part of it is mostly on the copy and just getting to the point of what’s the value prop, who is their target audience, I think that’s still something that we still continue toy with it and tweak it. It’s almost never ending, but a lot of sites they miss the mark by trying to be everything to everyone or trying to be too aspirational lofty or in many respects, the websites are designed for the owner, the business owner and making sure they’re entertained or their vanity is, what do you call it? Expressed in a certain way. And so I think most businesses could benefit a lot from being like, “All right, what do the people coming to us really need to know right away.” And being able to address that in the copy or content.
I love it. What class would you teach in college if you could teach about any subject you want to?
I’m actually going to go back to the book that I talked about. The inspiration for this came because when I was a senior at Columbia, I took a film course. For the whole semester, we watched one scene from a movie, Orson Welles movie, Touch of Evil. And I think it was the opening scene that was a long shot, a few minutes long. Actually it was maybe seven, eight minutes or something. But for the whole semester, we analyzed that scene. And that was the whole class. That always stuck with me because I’m like, “Wow, you can go really deep if you really focus, and you can tackle it from so many different angles.”
But I think my course idea would be with a single book, The Fifth Discipline, which talks about, it’s a dense book, it’s not something that you can just quickly read. It’s something that you’re got to revisit, but I think the foster teacher course, I would love to just tackle it from different angles and go deep into each of the sections and talk about the applications to running a business. That would be a really fun course. And I’ve written a lot of blog posts about that book. So it’s some of those things that I have some course material ready for.
Yeah. You’re already ready to go. What’s a belief is to hold strongly that you’ve changed your mind on?
I’d say it has to do with people, management, hiring, firing, all those things because I’ve read a lot of different things around this and the more you learn about it, the more you realize how nuanced and how every situation is different. For example, I’m sure many of us have heard the phrase, hire slow, fire fast. And it sounds cool, and if you look back on things you’re like, “Oh man, I should’ve fired that person so much faster.” Or, “Oh, I hired people too fast and now there’s problem.” But once you live through a lot of different experiences and go through the processes and really analyze situations, that’s not always the case.
There’s other factors that play and other structures at play and other things, the underlying problems are there that were the real costs. For example, I’d say a lot of hiring mistakes are actually not because the person was wrong, but because the expectations weren’t clearly set up or the onboarding wasn’t well designed. And so that person was literally set up to fail and you can’t blame the person, you got to look in the mirror and be like, “All right, what could we have done better?” There are lessons like that. And even on the firing side, firing fast was a thing.
There’s so many employees that if given the right performance improvement plans or guidance and mentoring, they can turn around, become really great employees in the long run. And we’ve had several situations like that too. So it’s such right with nuance and things that need to be considered more carefully and on a case-by-case basis. So it’s always a humbling thing to be managing people.
Yeah. It certainly is. What’s the best business you’ve ever seen?
My answer was going to be oh, I think it’s Facebook just because thinking about all the money that I’ve seen our clients poured into Facebook in order to get extra sales and stuff, if you look at the P&L of Facebook or think about their cashflow, it’s just incredible. I’ll share a business that I always thought was really fun. I think people derived lifestyle businesses often just because if you’re serious about business, you should be scaling and all that, but there’s one business… I met somebody a couple of years ago and he was trying to tell me what he did.
And it was fascinating. He’s like, “Oh yeah. I run a website where people come to rent chairs for their weddings.” And I was like, “Cool.” It’s a very specific kind of chair, he’s like page one on Google. And he’s been like this for, I don’t know, five, 10 years. But he’s like, “When I started the business, I actually had these chairs, and I’d put in a storage and any time someone want to rent it, I would put in a van and I would deliver it to them. But over time, I realized, first of all, that’s a lot of work. And if there were multiple parties going on at the same time, I couldn’t do them.”
So he’s like, “I just fired myself as the fulfiller of that and I just became the middleman.” Basically, leads come in and he would have multiple folks that would just fulfill the order and he would just take the cut of the cost of renting these chairs. He’s like, “Yeah, all I do now is about three to four hours of work a week.” And it’s afforded him a living, and most of the time he’s spending with his kids and he plays tennis five times a week for hours. And it’s like, what a great life? And he’s really leaning into the lifestyle business and it’s the thing that he’s made it work.
And I was like, “That’s fascinating. It’s so niche.” And putting my entrepreneur’s hat on, I was like, “Oh, any other product extensions? Are you trying to upsell them on other wedding equipment?” And he’s like, “No. Just the chairs, man. That’s it. All I care about is making sure that I’m on page one of Google for that.”
What kind of chairs were they? Were they really specific wood, I guess, certain wood design or something or?
There’s a keyword. It’s like an Italian word design that all folks getting married are supposed to know, and it’s that specific chair that is requested for weddings.
And is it anywhere in the US now?
Most tri-state area? I think is in the focus.
That’s fantastic. Thanks, Peter for coming on the podcast. This has been fun. It’s been really fun to get to know you as a sponsor, but also get to visit you and meet you as an entrepreneur, and getting to chat with you and hear about your business growing. It’s been super exciting and fun to watch. So thank you for sharing a little bit on the podcast too.
Great. Thank you for having me, Alex.
52 views
0 comments
Sign in to see all replies.
Create an account.