Scaling Your Agency Beyond $2M

Sei-Wook Kim (00:04.552) On today's episode, we'll be talking about scaling your agency beyond $2 million in revenue. We'll cover what typically breaks down as your agency starts to approach the $1 to $2 million revenue level and what actions you can prioritize to ensure your agency can continue to scale. Peter Kang (00:21.58) All right, so this is something that lands in our inbox every now and then, just various agency owners reaching out for advice. And typically it's funny how it usually falls right in that one to $2 million revenue range at which an agency owner starts to feel some of the things breaking down within the business and they've stretched their limits. So before we dive into what actually breaks down, I want to talk about what is causing the limitations. You and I talked about this before the call — a lot of this stems from the fact that at that size, when you're at that zero to one, one to $2 million size, you very much built an agency that is founder-centric. The big limitation to growth in many ways is a founder bottleneck. Maybe you could weigh in on what are some behaviors of founder bottlenecks. Sei-Wook Kim (01:25.435) Yeah, think of it as a hero complex where the founder feels like they need to do everything in the agency. They're doing the finances, they're doing the actual execution with client work. When you're starting out, that's great, because the founder is very intertwined and understands the business from top to bottom. But at a certain point, it's an inhibitor to growth. If you feel as a founder that you need to be involved in everything and no one else can do anything better than yourself, that's going to cap out how much and how fast you can grow. Peter Kang (02:07.405) And maybe just a little caveat for our listeners. Why the $2 million? It's not a hard number, but maybe we should dig into why we talk about $2 million as a moment at which these problems are probably more prevalent. Sei-Wook Kim (02:23.123) Yeah, $2 million is definitely a benchmark number and every agency is different — you could have one client doing $2 million, which is a very different story than 50 clients attributing to the $2 million. Things like the number of clients and the average contract value weigh into this equation. But typically at that level, there are many work streams and many team members that start to converge where the founder cannot be directly hands-on with every single project or every client in the business. Peter Kang (03:02.795) Yeah, great. So let's dive in. Let's talk about some of the areas — going back to the founder — where things start to break at this level. Sei-Wook Kim (03:13.715) Yeah, the founder is typically involved in new business at this level. So the constraint is how much time they're spending on new business versus getting to client work and making sure the client work that was sold in doesn't go off the rails. It's that time balance the founder has to weigh. Peter Kang (03:39.359) Yeah, and you mentioned earlier that in addition to those things, there's also some admin work the founder is typically taking on themselves, whether that's managing the books or making sure payroll is run properly. Those things can also weigh heavily on the founder. Sei-Wook Kim (03:56.198) Yeah. The other thing is around scaling your team — having enough people to do the work. This is the balance of when you're doing the work, you have to make the time to interview, hire, and find quality people that can help contribute to doing more and more work. Because sometimes you might rush that, you might get someone who's not quite the best fit, and the founder might find themselves back in the business trying to fill the gaps where team members didn't quite deliver what they needed to. Peter Kang (04:29.12) Yeah, and that's the other point — this drop-off in the consistency and quality of the work. You start to have some uneven delivery, maybe clients aren't happy with the work, and that pulls the founder back into the work. A lot of things contribute to that, which we'll talk about a bit later. But definitely some of the folks you might have hired quickly don't quite know what they need to work on or focus on to deliver at the level they need to. Those things all contribute to basically risk — client churn becomes a real risk as you start to hit up against the limitations of growth. Sei-Wook Kim (05:09.489) Yeah, definitely. And as you grow and hire more people, the financial health of the business becomes more and more important — understanding what clients are profitable, what clients aren't, what's the utilization, what's the forecast for the team in the upcoming months. All of these things that when you're a smaller team you organically figure out, but as the team size starts going 10, 20 people, you really need to manage tightly what everyone's working on and whether you're profitable enough to make payroll at the least and grow from there. Peter Kang (05:45.824) Yeah, and just to highlight some examples that we've gone through ourselves as operators or through our agencies in the Barrel Holdings portfolio — these things pop up. You realize that scoping becomes an issue where you end up charging too little for the work, but then you also end up paying too much on the labor side, maybe you brought in a contractor to support the team, and you just don't have this all figured out so that by the end of the project you're upside down, actually losing money on a project. But if you don't have the right systems in place, you have no visibility into this, and it's only too late when you realize you don't have cash in the bank to pay folks or have any profit left over. These are little cuts that add up, and a lot of it stems from a lack of a system in place. Sei-Wook Kim (06:44.019) Yeah. Moving into thinking about systems — what are the areas and what are the systems that you need to build as you reach this one to $2 million mark? Do you want to dive into some of the areas to look at there? Peter Kang (07:00.779) Yeah. So how about solutions? Everyone wants to hear: all right, maybe what we're saying resonates — I'm in this situation, things are really hard, as a founder I am the bottleneck. What can we do to improve? What are some of these things? And maybe we could talk about — and this is not that obvious, but the more we think about it, it's become more and more of a really great solution — putting in some processes. So you go first. Sei-Wook Kim (07:31.911) Yeah. The first is improving onboarding — thinking about onboarding holistically: clients to the agency, what does that experience look like in understanding how you work and what the engagement is; then the team members who are going to work on the engagement; and also onboarding a new team member to the company. All these are points at which context needs to transfer from one person to the next. When you're a smaller team and the founder and maybe a couple of people are involved in the business, they've talked to the client, there's almost no handoff or onboarding needed to transition into doing the work. But the second you have different people selling the work versus executing on the work, that's when improving and really understanding what information needs to get passed along to the next person — and making sure goals and objectives are all aligned — becomes critical, because otherwise you're just not setting everyone up for success. Peter Kang (08:45.482) Yeah, and thinking back on our own experience, when it was the two of us we had a very easy flow. It was basically a two-person freelance shop. We were doing web projects — I did the design and talked to clients, you did the dev and the QA, and we had an implicit understanding that when I saved the files and sent them over, you knew what to do next. We just got it done, worked really fast, not much communication needed. There was a lot of implied shorthand communication between us. But as we started adding team members, we would make assumptions — like, this is how it's always worked for me and Sei-Wook, how come these people aren't picking it up? And you start to realize they need so much more context and information because they're new to the projects, they haven't been in the trenches with us. So a lot of stuff needs to be made explicit. This is why things like a project kickoff meeting, an orientation for clients or employees, documentation — whether that's SOPs, a deck, or whatever — are all important. And as you get more sophisticated, you might have some custom GPT where folks can ask questions and get answers. It's so important that as you scale, communication doesn't break down, and onboarding is a really important aspect of making sure communication stays smooth. Sei-Wook Kim (10:26.367) The next area is thinking about debriefs — internally debriefing after an engagement is done, or if it's a really long-term engagement, finding periods of time to take a pause and talk about how the engagement is going. Are there any gaps in the processes? How do we improve for next time? Are there other ways we can layer on more information from the client side as well? Sending the client a satisfaction survey and getting feedback we can use to drive improvement in the work. How do you think about the full start-to-finish engagement when there are many parties involved? Get as much information from the team to improve for next time. Peter Kang (11:18.397) Yeah, this is all about building an internal engine. Going back to what we said about being a founder-centric system — in those instances, the founder calls all the shots on what needs to improve, what could be done better. It makes sense because the founder is involved in the work, so it's a natural tendency. As you scale up and the founder is not in every client engagement, it makes absolute sense for there to be a repeatable process where the team can have the discussion, document it, and turn that into an SOP or an improvement that builds upon how well you can deliver the work next time. This is one of those solutions that really alleviates the founder bottleneck of continuous improvement, which is very hard to do when you're running a founder-centric system. Sei-Wook Kim (12:28.986) Yeah, definitely. We're talking a lot about the founder and how to scale the founder's impact or involvement. For a founder, it's about thinking about what your strength and focus is — what is the area where you're going to go deep, and where do you really need help in other areas? For example, if you're a founder who's all about client relationships or BD, less on the ops or execution end of things — where can you find, or if you have a co-founder, where can you each find a lane you can really go deep on, and then think about where you can get support externally in the other areas? Peter Kang (13:16.668) Yeah, and this probably resonates a lot with solo founders more, because when you have a co-founder situation like you and I did, you end up naturally gravitating to certain things or at least have a discussion on who takes what. Although we've seen situations where there's friction around skills and areas they cover. But when you're a solo founder, it is super important to think about what is your zone of genius — where can you add the most value for your business? And for the areas you're not as excited about, or maybe lack the skills or don't feel as confident on, those are opportunities to bring somebody in to help. It doesn't necessarily mean taking on a co-founder or partner — it could very well be an ops manager, a managing director, a BD lead, somebody who as an employee can help complement what you do best. Sei-Wook Kim (14:22.296) Yeah, and with that, a lot of it comes down to investing in hiring and thinking about the team and the roles you need. That in itself can be a very big undertaking. So you may bring on an admin to help with some of the admin aspects of recruiting, or even a part-time recruiter to help find people. Or maybe there's someone on the team who could be a natural people ops person to help support the organization. I think that's the next step — making an intentional investment in the hiring and recruitment function. Peter Kang (14:58.427) Yeah, and this is probably the time in the company where making an org chart, or at least starting to look more deliberately at org chart design, makes sense. With an org chart, you map out the agency founder at the top leading the charge, then who reports to whom — and a lot of times it's going to be pretty flat. But as you think more intentionally about how you're going to grow this department or service line, you can think about the different roles that are going to be needed. That in hand with investing in the actual recruiting motion is very powerful, because you go from being the person trying to do all the work to being the person who's going to find the people and hold accountable the folks who are doing the work. Sei-Wook Kim (15:51.921) Yeah, definitely. And the last point to touch on here is going deeper on finances. As the team scales, your expenses increase. Whether you're working with a fractional CFO or controller — whatever your comfort level with the numbers — think about how you track profitability across clients. We talked about utilization before: are you tracking utilization? Do you have the data to even look at it? Your pipeline from your new business efforts — do you know how much revenue you have committed already versus how much you have in the pipeline? Cash flow, there are so many aspects that are all intertwined, and the importance of it increases along with the diligence required on the accuracy of the numbers and who's doing it. Just making sure there's a system in place to help look at all of these. Peter Kang (16:57.497) Yeah, definitely. And as you mentioned, working with an external third-party expert is very helpful in this regard. I recommend the book *Simple Numbers, Straight Talk, Big Profits: Four Keys to Unlock Your Business Potential* by Greg Crabtree. That's been a helpful book that lays out some of the basics of small business finances, which folks might find helpful if they haven't read it before. Cool. So yeah, that wraps up the different areas and the immediate things folks can look at to address some of the pains that come with trying to scale beyond $2 million. But a couple of considerations or takeaways. One of them is just the idea that as you invest in these areas, be ready for profitability to maybe take a short-term hit. Obviously, if you're actually growing revenue and able to deliver profitably, you could weather that pretty quickly. But there's always the case that you might be bringing on some non-billable roles — whether it's a people ops manager or somebody in a more oversight role — and that's going to shrink margins temporarily. You just have to be careful and be ready for that. Sei-Wook Kim (18:18.519) Yeah, you've got to look beyond the temporary costs. It may seem like a cost in the short term, but it's really an investment for growth, because you definitely need those roles to help scale beyond yourself or a couple of people to get there. And also thinking about externally — how can you get a fresh set of eyes? We've had a lot of success bringing on a business coach to give us perspective on what we're doing. We've also, over time, explored EOS as a system, and a lot of agencies bring on EOS implementers to help create some structure and scale for the business. There's no one way to look at this, but really this is all about bringing on fresh perspective and systems to help you scale. Peter Kang (19:13.765) Yeah, and there's no shortage of coaches, and it doesn't need to be one coach. We've gone through a lot of different coaches for different needs — whether you're trying to go deep into the positioning side of things, trying to improve the sales side of things, or really improve the finance or ops side of things. It's actually good to invest — think of these as investments, like you mentioned — to gain fresh perspective, new ideas, and bring in folks who have seen this pattern, match your challenges, and can help guide you to scaling more successfully. Cool. All right. Just to wrap up, I do want to highlight something we've been working on. When we think and talk about scaling, it's really a function of how robust your systems are in driving and supporting growth. To that end, one tool we've been really working on through Agency Habits and sharing with our Barrel Holdings portfolio companies is this Agency Systems Playbook. The way this has been a helpful framework for us is that we've split the agency into five different systems that drive the agency. We'll have a link to the Agency Systems Playbook in the show notes. Just to give you a quick highlight of what that entails, maybe we'll walk through each system and a couple of things within each one. Sei-Wook Kim (20:57.702) Yeah, the five are: client, business development, team, strategy and leadership, and delivery and operations. Those are the five overarching areas. The first is the client system, which is all about how we onboard, retain, and grow relationships — the delivery, communication, and feedback to really grow and be successful with clients. Peter Kang (21:29.271) Yeah, and we have a bunch of modules under each. Maybe you could share a couple of the modules as an example. Sei-Wook Kim (21:35.106) Yeah. Client account growth and retention is one. Client feedback and survey processes is another. Client and team onboarding, like we talked about. Proposals and contract best practices. Debriefs and after-action reviews. And then effective meeting practices. All of these are under the umbrella of client relationships. Next is the business development system — thinking about how to position the agency, generate demand, and close deals. This system is about strategy, marketing, sales, pricing, and everything involved in driving predictable growth in the agency. Some examples there: strategic planning and visioning, brand positioning and differentiation, and marketing fundamentals and tactics. The third is team systems — it's about how we attract, support, and retain talent. This system is about hiring, development, performance, culture, and the health of the people doing the work at the agency. Things in this include talent acquisition and hiring, compensation and incentive structures, and skills training and development, as examples. The fourth is the strategy and leadership system — how we set the direction, measure performance, and make strategic decisions. This is the structure for planning, transparency, risk management, and accountability across the agency. Modules here include strategic planning and visioning, business performance dashboards and KPIs, and risk management frameworks and how you can handle those situations. And then the last one is delivery and operations systems — how we scope, execute, and manage the work. This is around project quality, profitability, and operational efficiency, and really ensuring that the agency can deliver what it's selling. Some important modules here include project scoping and estimation, resource allocation and utilization, and having SOPs — standard operating procedures — across the agency. Peter Kang (24:16.066) Yeah, and all these systems have a bunch of modules — the ones you mentioned are just a few examples. What we've learned is there are 40-plus different modules. When you're at that one to $2 million range, you don't need to try to do all of this. There are obviously certain things that are going to be necessary at that stage. But as you scale beyond, and get to five, ten people and beyond, you're going to want to go deeper into these different areas and make sure you have those systems set up. That's the blueprint we've put out, and we'd be happy to share this with everyone — it'll be available on agencyhabits.com. Be sure to check it out. And that's it for this episode. Thanks for checking in, and we'll see you next time. Sei-Wook Kim (25:10.153) Thanks.