In this eye-opening episode, Nick Avaria, Founder of Agency Acquisitions, shares why many stage 4 founders get trapped in the missing middle. If you’re growing revenue but profits are shrinking, complexity is overwhelming you, and your team feels misaligned, you won’t want to miss it.
You will discover:
– What it takes to transition from founder to CEO so you stop being the speed limit
– Why growth rewards you with more problems and a dangerous chasm called the missing middle
– How to stop promoting individual contributors and build real middle management systems
Episode Transcript
Scott Ritzheimer
Hello, hello, and welcome. Welcome once again to the Start, Scale, and Succeed podcast, the only podcast that grows with you through all seven stages of your journey as a founder. I’m your host, Scott Retzheimer, and we have got to talk today about the gut punch that nobody warns you about. It’s that moment that your business becomes so successful that your profit margins start going backwards. Yes, you heard me right. You get so big that your profit starts going backwards. It’s a total head scratcher, because you’ve done the right things. You’ve hired managers, you’ve added people to your org chart, you’ve got your team selling more than ever, revenues typically going up, setting records either year in and year out, or even month in and month out.
Yet, despite all this, and despite the fact that you’re working harder than ever, you’re making less and less, and most founders blame sales or staffing or something else, but the real problem is usually buried in your operations, and most owners can’t see it because they’ve never had the right system to diagnose it. Well, my guest today has built that system. He’s bought, sold, scaled, and all the other things – seven agencies along the way. Nick is here with us today. Nick is a serial agency owner and strategist who scaled market multiple marketing agencies beyond seven and eight figures. He’s bought and sold seven firms and built a system that’s helped countless agency owners finally get their time and sanity back, all while growing profit significantly.
Nick’s not just another consultant, he’s still in the trenches. He owns two agencies that run without him, giving less than four hours of his time per week, and he’s also on a mission to help 100 agencies scale to $10 million or hit 1 million in profit annually, while building workplaces where people thrive. He’s here with us today, Nick. As we were getting ready for this episode, we were commiserating around the challenges of this, this stage four for business owners, and you call it the missing middle. Why is that?
Nick Avaria
The missing middle is basically the things that you know, mean to put in a bit of a cliche, what gets you from point A to point B doesn’t get you to point B to C, and like so forth and so on. So the problem is, and like I think you said in your intro very well, is that you’ve done the right things, and now you are rewarded with more problems, and you know, like, I hate to be the bearer of bad news, if anybody thinks differently, but your reward for fixing problems in business is growth, and growth rewards you with more problems forever, so you never outgrow this, right? You, the problems just change, and the team that comes along with you changes, and there’s going to be parts that maybe you like in certain parts, like in certain areas, like where you could make all the calls unilaterally, versus like now having a team and relying on them, but the constant is problems, no matter which way you really look at it, and the missing middle really is the fact that you made the right calls when you were, you know, a founder entrepreneur, you were the only manager for a while, maybe you had like a second in command or something like that, but now you’re building these middle management systems, or the middle management layer, if you will, and all the things that made you successful, and all that vision and culture that you were able to directly inject into your frontline employees is now gone, and that’s a really tough transition.
Scott Ritzheimer
Folks watching this in particular at a disadvantage, because I know at least I’m cursed with looking like a 22 year old still, and they’re probably like these guys are too young to like it can’t be that bad. How do they know? But you’ve done this, it’s not like this is something that you’ve made up or read in a book somewhere. You’ve been through this multiple times. When was the first time you recognized, oh, this is something that actually happened, as opposed to feeling like just the world was falling apart.
Nick Avaria
Yeah, I mean, like, for one, it happened to me various times, like personally, and also like just in working with others, like in the sense of when we were looking to acquire agencies, right, especially like very early on, and I’m going back more than 10 years now to date myself a bit, but 1015 years ago the problems that we were seeing when we were, you know, writing LOIs, like letters of intent, and like taking a look under the hood and seeing what was what, we just saw this problem over and over and over again, because people were like, I’ve thrown the kitchen sink at it, it’s like me, my co-founder, me, like second in command, like we’ve gotten this business like 1520 people, or whatever, like you know, couple million bucks, and we’ve tried to grow. We once grew to 3035 people, and it’s almost like it chewed us up and like spit us out, and now we’re back at, you know, 15 to 20 people again, and we’ve done this like over the last like seven years.
We’ve tried to go, and we get to like 3035 and then we shrink back down. It’s like, yeah, like that’s exactly what I’m talking about. There’s like this chasm where you either complete the missing middle and get to the other side more profitable than ever before, meaning like similar profits when you’re super lean, like in terms of percentage points, but now you’re like three times as big on the top line, so you either make it to the other side or the missing middle, like quite frankly, it’s kind of like a chasm, it chews you up and spits you back out and puts you right back where you started, except that now you’ve successfully wasted a ton of money and probably around like 18 to 24 months of your time just giving it a go, and then you’re gonna have to reset for another 12 to 18 months, and then basically like preparing for the journey once again through this chasm, and either you’re going to make it the next time or not, and a lot of people, frankly, never make it, and it’s not just my opinion on this, the numbers suggest it, right, because the number of firms that reach a million dollars versus the number of firms that reach 10 million, the numbers kind of tell themselves, so like they’re,
Scott Ritzheimer
yeah,
Nick Avaria
they’re the success rate on a million bucks per year, which I mean is a great accomplishment. Don’t get me wrong, it’s good. It’s something like five to 10% depending on what industry you’re in, right? But the success rate of 10 million is like point 3% so it’s three out of 10,003 out of 10,000 people, I think, is like the actual number, so it’s a massive, massive chasm that you actually need to cross, and very few people actually make it. Yeah, so what I look at this as is the data need delivery. You’ve done really good things there, you’ve built up a client base, you’ve built out like a service-based, loyal customers, whatever type business you’re in, you’ve built that, and the delivery is good, meaning like there’s some word of mouth there, there’s good reputation happening, good things are happening. Then you say to yourself, like, great, this is too much from your manager, let me bring in some managers, and I’m just going to focus on the strategy and planning, I’ll put out fires as needed, et cetera, et cetera. The problem is, is that I think a lot of entrepreneurs are entrepreneurs and founders, they’re not necessarily CEOs quite yet.
So, like, I can get into that a bit later, more deeply, but they’re not CEOs, and they haven’t made the transition to CEO. They’re founders, and number two, they were managing the business by feel, so for example, like, you’re going in, you’re like, you kind of know when things are going wrong instinctively, because the business has grown organically around you as this founder, and when you detach yourself from the front line by instituting middle management, that feel is gone, and you can’t actually predict things before they happen the way that you did, because you don’t have proper data systems in place, right? So, the data you need to understand how to actually operate the business, what is day in danger before it’s actually in danger, like things that predictively can tell you what’s going wrong aren’t there. And number two, before you were just amending the behavior of the people around you by giving them feedback, and when you saw the right behavior, or like that, that’s the thing. Keep doing that thing.
Now you don’t have direct access to those behaviors, and you haven’t built any behavior change systems to enable your managers to actually amend the behavior of others. So, just because you can amend the behaviors of others doesn’t mean that the person below you, who’s now a middle manager, can do the same, and so those two are the primary things that are missing, but it’s beyond that, like the problem is, is that generally the first managers in a business are not actually managers, they are individual contributors that you have promoted to a management role, because they’re good at doing the frontline things, but here’s the problem, in small business, around 65% of managers are negative, meaning they are of negative value to the business, and then there’s probably like another 10 to 15 that are neutral, and it’s all because we are placing technical experts in management roles, and what we don’t understand, because, like, I think a lot of founders are very humble.
Is that we teach people how to succeed in the business, meaning like how to set expectations, like what actually drives results, how to do time management properly, how to work well with others, how to hit objectives, how to prioritize, how to align with culture. None of these things that I just mentioned have anything to do with the technical skill required to deliver whatever product or services, so in my head a manager’s role is 30% take care of the technical stuff, teach the technical delivery items, and 70% is teaching people how to perform, and when we promote somebody who is a doer into a manager role. What do we get? We get the 30% technical, but the 70% performance is nowhere to be found.
Scott Ritzheimer
Yeah, it’s so fascinating. We didn’t talk about this ahead of time, but there are three different levels that happen here. There’s this level three reluctant manager. Which most of these folks have been through. There’s level four, I call it the disillusioned leader, which is this kind of messy middle that you’re talking about. And then the fifth stage is CEO, exactly like you said, they are not CEOs yet, same language, there’s fascinating, but the thing about what you learn in level three, and you get past that reluctance as a manager is to get great players, right? And then who do we keep the best players closest to us? We move up a level, but they don’t necessarily move up with us.
Nick Avaria
That’s exactly,
Scott Ritzheimer
and yeah, and it’s just.. it’s yeah, it’s stunning. So,
Nick Avaria
here’s the problem. Like, I think that it’s like, look, if it’s not my problem as CEO, I can’t control it. So, like, it would be really easy to sit here and say like these people let me down, it’s because of them that I’m not succeeding. However, that makes us feel good, but it doesn’t get us the results that we actually want. So we have to figure out how it’s our fault to be able to actually take control the situation and make it better moving forward, and so this is where I think that, yes, we have potentially promoted the wrong people, but I know for a fact we haven’t given them the right systems to succeed. So, yes, did hire the right people, would they succeed where these people have failed?
And so, the question that I get all the time is, like, how do I know if my actual middle management team, or even my senior leadership team is the problem, or my systems are the problem, like there’s only one way to find out, unless it’s like glaringly obvious qualitatively, because like these people are nightmares culturally, which is like a different problem, but if you put the systems in place and they can take ownership over said systems, and like basically like shepherd the rest of the company through these systems, they’re not the problem. It was the systems, now the systems are in place. We’re good to go. People turn around on a dime, but if it’s the people, even with the systems, they’re still going to fail. Like, how far is far enough to get these things into place?
Scott Ritzheimer
Yeah, and it’s just, and it’s work, it’s real work, it’s hard work, it’s people work, it’s messy, it’s challenging. You’ve, you touched on this a little bit, and I’ve got another question that I want to ask for you, but before I go there, I really want to give you a moment, because, like, you’ve done this, and you’ve been to the other side a few times, and I think one of the things that we lose when we’re in the middle of all of this. Muck is a vision for the fact that it can actually be better. So, what is on the other side of this? If we can develop that management layer, if we can teach folks to be good managers, if we can step into that CEO stage, why is that worth it?
Nick Avaria
Well, I mean, like it’s worth it if you like that, and like, look, I’ll put it to you this way. I am horrible at starting new businesses, like I am, like I am not a natural salesperson. So, like, I’ve great difficulty getting businesses to a million dollars in revenue. I am very good at transitioning companies from one to 2 million into 10, that’s like actually my sweet spot. After 10, I don’t like the politics that happened, blah blah blah blah blah, et cetera. I know other people should run these businesses for me, right? So, like, first of all, you got to get clear on like what you are good at, and then fill the gap in between. So, you have to have a clear vision, not only for the business, but firstly yourself, so that you understand where you can provide value to it or not, right.
And what I tell people is, like, first you need to make this clear vision. Step two is what numbers after the vision is clear. What are the numbers that make the vision possible, that make it real? And then what are the behaviors from the organization and specific individuals, not just ordinary organization itself, but also the individuals inside of it. What behaviors are needed to make the numbers real, right? And then what is the current reality versus the current difference to those behaviors? So, like, we have our behaviors today, what our behaviors should look like in order to hit those numbers, and what those numbers are to hit the vision, and ultimately, how we get the behaviors is how do we build new habits inside of each and every single person within the business to be able to like make the whole thing go. So breaking it down, high level vision is clear, numbers to make it real is clear, what behaviors we need to make the numbers real.
What is the difference between current state behaviors and future state behaviors? And then basically rank ordering the habits in order to build those behaviors, like that is how you make it real. And like, to me, a vision people are like, oh, you know, like to quote, like Microsoft’s like old one, it’s like, you know, a laptop on every desk, it’s like, okay, great. What numbers make that real? It’s like, well, they could quantify that, right? And then it’s like, okay, well, what do we need to be able to do to do that? And like, I don’t think people go far enough on the vision. To me, the vision isn’t just, hey, like, we’re going to expand across North America, like that’s not a vision, it’s what backs that up.
Scott Ritzheimer
Yeah, yeah, so good, so good, having the goals along the way as well. Nick, there’s a question before I let you go here that I have to ask, and the question is this: What is the biggest secret you wish wasn’t a secret at all? What’s that one thing you wish everybody watching or listening today knew?
Nick Avaria
I think the biggest secret is, is that good leaders only follow strong leaders. So, the problem I’ve seen this happen a lot. It’s happened with me previously, like, like a decade plus ago. You know, I couldn’t attract top talent until I became a really, really strong leader. Like, you’re not going to hire other leaders in your business that are that are going to be stronger than you yourself as a leader, so you are the ultimate speed limit of the business, and the most important thing to be able to attract good leaders is making the transition from founder to CEO, because good leaders work for CEOs, they don’t work for founders.
Scott Ritzheimer
Yeah, yeah, yeah, Nick, we could turn this into a very long conversation. I’ve got about 19 different things that we could talk about, but to stay true to our commitment to keep these nice and short and sweet for our guests, I’ve got one more question for you, and it’s an easy one. If folks want to find out more, where can they reach out to you? How can they find out more about the work you all do?
Nick Avaria
You can find me on LinkedIn at Nick Averia, that’s N I C K space A V A R I A, or you can look me up on Agencyacquisitions.io
Scott Ritzheimer
Fantastic, fantastic! We’ll get both of those in the show notes for you all, so you can get right to them. Highly recommend it, Nick. Thank you so much for being on the show today. Really was a privilege and honor having you here. Fantastic conversation, and love the way that you approach it. For those of you watching and listening, you know that your time and attention mean the world to us. I hope you got as much out of this conversation as I know I did, and I cannot wait to see you next time. Take care.
Contact Nick Avaria
Nick Avaria is a serial agency owner and strategist who’s scaled multiple marketing agencies beyond 7- and 8-figures, bought and sold 7 firms, and built a system that’s helped countless agency owners finally get their time and sanity back, all while growing profits significantly. Nick’s not just another “consultant.” He’s still in the trenches. He owns two agencies today that run without him (under 4 hours/week of his time), and he’s now on a mission to help 100 agencies scale to $10M+ or hit $1M in profit annually while building workplaces where people thrive.
Want to learn more about Nick Avaria’s work at Agency Acquisitions? Check out his website at https://www.agencyacquisitions.io/
Connect with Nick through his LinkedIn at https://www.linkedin.com/in/nickavaria/