Welcome back to the Attribution Marketing Podcast, powered by LeadsRX. In today’s episode, we have the pleasure of speaking with Jon Morris, a digital marketing pioneer who founded RISE Interactive at 30 and transformed it into one of the largest independent digital agencies in the world. Over the next 16 years, Jon developed a robust framework for growth and success in the digital marketing realm, which we’ll delve into today.

From Humble Beginnings to Digital Marketing Success

Jon’s journey began in 1996 when, as a recent college graduate rejected by major consulting firms, he decided to start a computer company. Despite knowing little about computers, he focused on building websites. This was in the early days of the internet, and the websites created at that time were, in Jon’s words, “horrifically ugly.” Nevertheless, his curiosity about how websites could be found online led him to study search engine optimization (SEO). His expertise quickly grew, and he became a sought-after SEO specialist, with major advertising agencies outsourcing their SEO needs to him.

However, the dot-com crash left him a casualty, leading him to the University of Chicago for business school. There, he entered a business plan competition, not necessarily to start a business, but to win. His plan to teach digital marketing to small businesses won second place and earned him $10,000 in seed money, which he used to found RISE Interactive. Over the next 16 years, Jon grew the agency from a one-person operation to a global powerhouse with 250 employees and nearly $40 million in revenue.

Key Strategies for Running a Successful Agency

Jon shared critical insights into the key performance indicators (KPIs) that matter most for agency success. Drawing from his experience with both a failed and a successful agency, he emphasized the importance of focusing on three main KPIs:

1. Cash Relative to Monthly Overhead: Cash is often overlooked but is crucial for stability and growth. Maintaining a healthy cash flow ensures the business can weather unexpected expenses and seize opportunities.
2. Profit Margin: For professional service companies, aiming for a 20% EBITA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is ideal. This provides a buffer for reinvestment and growth.
3. Year-over-Year Revenue Growth: Consistent growth of 20% annually marks a top-performing agency. This metric reflects the agency’s ability to scale and adapt in a competitive market.

Jon also highlighted the significance of gross margin, the difference between net revenue and the cost of service. Agencies should aim for a gross margin between 50-60%, allowing profitability and reinvestment in the business. Understanding and managing costs, particularly unbundling payroll in accounting software, is essential for accurate financial insights.

Differentiation and Sales Strategy

In a crowded market with 120,000 agencies in the United States alone, differentiation is key. Jon advises agency owners to clearly articulate what makes their agency unique and be able to prove it. At RISE, their focus was on media data, supported by a proprietary optimization platform and a rigorous hiring process that ensured their team was truly analytical.

Jon also discussed their sales-driven approach, emphasizing the importance of regional and vertical strategies. Initially, they targeted four verticals and built relationships with local Fortune 500 companies. As their brand grew, so did their reach, eventually attracting clients globally.

Valuation and Exit Strategies

For agency owners considering an exit, John explained that multiples are typically based on EBITDA, ranging from three to fifteen times, depending on factors like company size, growth rate, financial order, and the vertical market. Agencies that serve recession-proof industries like healthcare and finance often fetch higher multiples.

Jon’s Current Endeavors

Today, Jon focuses on helping professional service companies improve their financial health and performance through Engine BI and Fiscal Advocate. He developed a proprietary CPR score, akin to a credit score, to help companies measure and improve their cash flow, profit margin, and revenue growth. His offerings include mastermind programs, one-on-one coaching, and a tool called Engine BI that automates financial rituals.

Jon Morris’s journey is a testament to the power of perseverance, strategic thinking, and a relentless focus on key metrics. Whether you’re starting, growing, or considering selling your agency, his insights offer invaluable guidance for achieving success in the competitive world of digital marketing.