How Kurt Schmidt Avoided the Trap of Low Margins in His Service-Based Business

[00:00:03] Hector: Hello and welcome to another episode of the How to Scale Business Podcast. My name is Hector San Esteban and I am your host. Our special guest today is Mr. Kurt Schmidt. He is a agency business coach, an Inc 5,000 leader, an author, podcast host, and we are going to talk about scaling a service based, company.

[00:00:20] Hector: So Kurt, thanks for hanging out

[00:00:22] Kurt: Yeah, thanks for, the invite. I really appreciate it.

[00:00:24] Hector: It's kind of funny when I talk to some. Are in the, business acquisition space. It's funny how they look at agencies and service providers as this sort of like, oh geez. Like, why would you get into that sort of business? You know, it, tends to be this, low margin, high stress, all these sorts of things.

[00:00:46] Hector: And I ask myself the same sort of, reason, but I think that there is something, it's not recession proof necessarily. I don't think it's AI proof, but I think that people are always going to need services So I'm curious how you landed on, you know, took this path and why you thought that now helping agencies and, and you know, essentially service providers, grow their business.

[00:01:10] Kurt: Yeah. It's funny you mentioned that. I learned early on I was never meant for the Navy. I was always gonna be a pirate. And that's the agency world is piracy on the high seas, right? So, the, goal for me always was, is that I liked building things but not for myself.

[00:01:27] Kurt: Like, I liked building things with people and for people and so that was always a very, something that was, I mean, even since I was a kid, I liked building Legos with people, not just sitting by myself and things like that. So, agency life kind of came naturally for me, but you're absolutely right.

[00:01:43] Kurt: A lot of people get a little nervous about the idea of, agencies because they seem easy to start and terrible to run. But if you know what you're doing, if you, have a very specific type of work you do and a niche and you're good at it, it be extremely fulfilling and, I've been fortunate enough to, sell an agency and, also be a part of some really agencies and work with.

[00:02:10] Kurt: And, the funny thing about it is that they're all just run very differently, depending on who the founder was, and how they go about, the type of work they do. And it is a industry where the, tail wags the dog a bit, right? The clients kind of determine what is valuable, a.

[00:02:30] Kurt: And, it's been a wild ride. But yeah, I would say for sure it's not for the weak of heart.

[00:02:36] Hector: what's interesting about the agency model and service-based, you know, businesses you mentioned there's a low barrier to entry and I think that a lot of people are drawn to it because of that, and they, kind of go to that freelancer sort of model. But a lot of people who listen to the show, they get past that stage and they look up and they're, now no longer the only cook in the kitchen.

[00:02:56] Hector: They're, they're no longer the, technician, but they're actually moving into sort of this. Manager owner role, and some people take well to that, some people don't. if there are some stages of a business, what do you see as, you know, generally sort of the key stages of an agency's journey, if you

[00:03:16] Hector: will?

[00:03:17] Kurt: that's really good. And, and again, I'm gonna speak in generalities because my, focus has been a lot in the software and design space. I've worked with a lot of marketing and advertising agencies, but. I haven't, been an employee or owned a, a marketing or as advertising agency, so I'm gonna speak mostly from my experience in the software dev website development and UX design side of things.

[00:03:40] Kurt: But I would say that, you'll never have as much fun and make as much money, as you do when you're somewhere between six and 12 people, in an agency. And from then on, the founder, who's usually a crafts person, has no longer has any time to work on that craft or, and if they got into it, because they're very creative, they're not doing that work on a regular basis.

[00:04:04] Kurt: They're meeting with people talking about their salaries and their vacation time and their, time sheets and things. And, some people it's a, like you mentioned, it's a natural transition. Other people. Begrudgingly go about it. And they can also create a very terrible culture, because they don't wanna be doing what they're doing, but they're kind of stuck and they feel stuck.

[00:04:23] Kurt: And then I would say between, 12 and 30 people, your margins will go down and you'll struggle a bit more with, how to build a hierarchy in your business, and what roles should you be hiring? How do you do sales? What does marketing look like? You start to go through this sort of, puberty period, right?

[00:04:43] Kurt: Where you're doing well, but your voice is cracking a bit and you know, you got growing pains and, and you're sore. And then on the backside of that is where you're more optimized. And as you start to grow past that. you really want to see as, much growth as possible to kind of launch you into the, you know, the hundred plus people.

[00:05:04] Kurt: And that's when, you know, now you can really start looking at the, business as a, vehicle for you to do a lot of things in life that you want to get done. And so I've seen a lot of people really embrace that. But, having a nice lifestyle business of like five to 10 people, it's not a bad place to be.

[00:05:24] Kurt: nobody's gonna buy it from you. Nobody's gonna come in and, purchase that. you need to build something a lot more impactful, with a lot better logos, for people to wanna come in and actually give you a, good chunk of change to, purchase what you're doing. So.

[00:05:39] Hector: Yeah. I think one of the big, at least for me, I went through this and I, I'd imagine that a lot of, service providers go through, or a lot of creatives, if you will, go through the, challenge of, how do I replicate my expertise if I'm a, painter or I create, you know, amazing works of art, no one else can create works of art like me.

[00:06:00] Hector: you know, I think there is this, paradigm shift that they need to go through? Or maybe it's a perspective shift or it's, it's something more than, or perhaps it is just make more widgets. coming up, I was like, if only I was in like the t-shirt selling business, it would be so easy because every single product is the same and they've got, you know, there's no change in, in the deliverability.

[00:06:21] Hector: And of course it comes with its own challenges, but how do you sort of approach that process of expanding the founder's, output into the organization,

[00:06:32] Kurt: Well, with creatives it's a little easier because they generally have a growth mindset With engineers who found companies, it can be a little bit more challenging because they kind of wanna, engineer their way out of problems. Right. And these are a lot of problems that you can't measure them.

[00:06:48] Kurt: And so, you know, a lot of people say you can't manage what you can't measure. Well, there's a lot of things in business, especially in the service business that you just can't measure. there's a feeling, there's a, there's an experience, there's a gut that goes with it where you know, this is a good client, this is a bad client, this is a good employee, this is a bad employee.

[00:07:08] Kurt: And in terms of, trusting your gut, because that, where a lot of imposter syndrome sets up upfront, right? Because you're like, well. I'm just playing a business person on tv. I'm not one in real, real life, you know, I'm actually an illustrator or something. And, but I've seen people who embrace the mentorship aspect of becoming an owner be really, fulfilled, moving into that role of, instead of being the person who's going to.

[00:07:34] Kurt: Kind of lead the charge on this is what good looks like. I'm going to help elevate everybody. You know, kind of that rising tide lifts all boats sort of mentality. And the sooner those people can transition into, I'm a leader and I'm a mentor now, and not just a. boss or the person who signs the paychecks, the better off you are.

[00:07:54] Kurt: Because when you're a small agency, every, you're all kind of buddies, you're all kind of friends, right? You go out to happy hours and you do this and that and, you can slack each other at 11 o'clock at night and it's not a big deal and things like that. But then as the business gets bigger. All of that sort of has to go away and you have to start putting on more of a professional cap.

[00:08:14] Kurt: And that's where, you make or break how you can scale the business if you can become that leader and that person. And it takes a lot of curiosity. It takes a lot of, I want to grow as a person, not just as a creator or a craftsperson.

[00:08:29] Hector: Yeah, it's like, said put on more of a, a professional hat, right? Like that is, something that has to happen at a certain point or, or what I've been talking about with my team is sort of that the things that got us to that first stage are not going to allow us to get to sort of the next stage.

[00:08:46] Hector: And, you know, the things that work, like you said, between zero and 12 employees are not going to work at, 13 and beyond and, and so on and so forth. what are some of those things that. a founder is going to have to be willing to either adjust or give up, or be okay with the change that's coming.

[00:09:07] Kurt: Yeah. Well it's funny because you know, as the founder and owner, you get stuck with a lot of the crap work, right? So you're sending out the invoices, you're checking time sheets, you're doing a lot of this stuff that kind of is necessarily the blood, but it's kind of the veins that's keeping things going.

[00:09:25] Kurt: And what I find is that even though it's terrible stuff, founders have a hard time giving up. That stuff because they're so used to having real time data on the health of the organization that giving up some of these, minutia can be very challenging for them. So I find it really funny because.

[00:09:43] Kurt: A lot of them are like, oh, I don't want to be doing this anymore. And I'm like, okay, well let's come up with a plan for you not to do it. And they're like, yeah, but how am I gonna know, where this and that is? And I was like, well, we build a dashboard and we're gonna use this tool that's gonna help you with this.

[00:09:55] Kurt: And they're like, I don't know. So that's, I mean, I would say that's one challenge is, being able to let go of, some of the more important tasks. In the organization. But then I would say also, you know, holding people accountable to the job and the promises that they make. I find that in that stage, you know, you fire very slowly.

[00:10:15] Kurt: you hire, super slow and you fire super slow. But the goal is to, hire slow, fire fast, You need to get people in that are a right fit. And as soon as they're not a right fit, you gotta get 'em out as quickly as possible. And that's where I feel like another area where they stumble.

[00:10:30] Kurt: And then the other is taking things like HR and that sort of stuff seriously, because a lot of times people get into a small business because they're like, oh, HR is so terrible and I don't want to deal with HR in a big organization. And, you know, I used to argue with a, founder who said, you know, hrs job is to protect the company from its employees.

[00:10:50] Kurt: I said, that's 50% of its job. The other 50% is to hold the company accountable to the promises it makes to its employees. And, if you can't be that person on a daily basis, that is checking to see are you fulfilling the promises? Not only have you made to your clients, but the promises you've made to your employees. Then that's an area you need to give up quickly as well, is that if you have no interest in managing people, do not manage people. Hire somebody who likes to manage people and get them in there and tell them what your expectations are and let them go. And I would say, you know, again, the letting go of stuff is very challenging for folks.

[00:11:33] Hector: Yeah. When we get back from break, I'm always curious about individuals who have had a lot of experience their sort of frameworks or order of operations or there's, so many things that a, a. Founder could be paying attention to, what do they give their attention to?

[00:11:49] Hector: And so,

[00:11:50] Hector: uh, we're

[00:11:50] Hector: gonna get your insights on we're gonna get into it right after this quick break.

[00:11:55] Hector: Hey, on today's episode is brought to you by Amplify Media, and we are a podcast and content production company. Well, we actually like to think of ourselves as thought leadership accelerators or business development, gurus for your company because, let's try that again.

[00:12:08] Hector: Victor. I don't like gurus or business development aids for your company because. Chances are if you're listen to this, you probably have a product A, a passion, a mission, a message, something that you're trying to get out to the world, but you might not have the time, the team or the tech skills to be able to do it well.

[00:12:21] Hector: If that's the case, we can help amplify media com. That's Y media com. You can also check link and that back.

[00:12:32] Hector: So, Carol, I cut you off, before we went to break because you were about to spoil some of the secrets on how to, have a, a, a successful agency. When it comes to prioritizing or thinking about all of the things that go along in an agency, what, how do you sort of think about that?

[00:12:50] Kurt: Yeah, I would say in the first few years, depending again on how fast you're growing, the founder is gonna be the head salesperson. There is nobody who sells better than the founder. There's nobody who markets better than the founder. There's nobody who closes better than the founder. And I've seen so many people in their first few years talk about, again, back to what I was saying about, sending invoices and things, doing sales is something they don't want to be.

[00:13:17] Kurt: They don't want to be doing, but there is nobody who can sell better than them. They are the ones that have the passion, behind what's happening. They're the ones who can answer something on the spot. They're the ones who can make a concession on the spot. And bringing in an outside salesperson might sound good, because Oh, wow, I can be freed up now and no, because you're still gonna have babysit that salesperson.

[00:13:42] Kurt: And until you get to a sizeable. Space where you have fixed processes, you have fixed sort of offerings and services and costs and everything sort of mapped out in a way where some you can plug and play somebody, it's gonna be you. And you have to embrace it. You have to, find ways to enjoy it. And for me, being a founder, you know, one of the earliest things, something you know a lot about was I started a podcast and it helped me.

[00:14:09] Kurt: With my networking, it helped me with my pitches. It helped me get better at, engaging with people on questions about the type of work I do and being able to answer it better, and just being able to have that repeatable process over and over again. Besides the fact of just having this great piece of content that I could share out in the world, I got better.

[00:14:30] Kurt: At, presenting, myself and the business in a way that, nothing else I was doing offered that kind of opportunity except for maybe speaking events, but they were far and few between as well. So, yeah, you've got, you've gotta just load in, lock and load in, that you're gonna be the salesperson for a while.

[00:14:49] Hector: Yeah. I'm glad you brought that up, especially about the podcast. Yeah, you're preaching to the choir here, and we're gonna have to flip that up as some, some testimonial material because you're, you're absolutely right there. There really is few other things that allow someone to do that. When it comes to, you know, we're, we're recording this at the beginning of 2025, and I'd imagine that a lot of this is gonna be pretty evergreen, but when you look at the business landscape and you, you sort of.

[00:15:19] Hector: Think out however far you like to think out. What, what might be relevant for agency owners or how should they be, be making sure that they are, are in a position, you know, to, in a position of advantage, you know, over these coming years with technology and the economy and

[00:15:37] Hector: geo. I mean, name it, there's so many different factors going on.

[00:15:40] Hector: What, what sort of things are you thinking about?

[00:15:42] Kurt: Yeah, I mean, honestly, and I'm not saying I'm wishing for this, but I will say that a recession is usually good for consulting and agency owners. And, and why it is, is because, you know, these organizations will do large layoffs, but the work doesn't stop. It still needs to get done. And that's where there's a lot of opportunity to bring in people that are not on salaries and people that are more expendable, air quotes, if you will, to get the work done.

[00:16:10] Kurt: And so in 2008, I was working in an agency and when the financial crisis hit, I think we tripled in size in the next two years after that. It was amazing the amount of work that was coming in and it kept going for a while. And then my second, agency that I founded, we. During the, during covid it exploded in growth.

[00:16:34] Kurt: It was fantastic. So when the markets and people are getting nervous, it's better to bring in people that can be more, contract. Folks then, you know, committing to long-term hires. And so it can be a really good time for those people. I would say this year, SaaS people are gonna struggle a bit. People are not gonna sign up for annual plans as much as they'll sign up for maybe monthly plans, for example.

[00:16:59] Kurt: So, you know, those types of things are gonna struggle a bit more. But again, this year. The, the word of 2025 is, is efficiency. And, I suggest any agency, owners or founders or people that work inside of agencies that might be listening. Focus your marketing efforts on talking about, how you increase efficiency, how you increase speed to market, how you can do things faster than other people, how you're using and leveraging AI to make that happen.

[00:17:30] Kurt: And you'll see a much more positive response than just talking about like your logos and things like that. More people, more business owners are looking for the business impact, than they are just like. A LinkedIn advertising campaign, they want X amount of leads per month. They want X amount of ROI.

[00:17:49] Kurt: And so if you can be speaking in those terms, and those are the more mature firms that can get there and can speak to those things versus the firms that are just kind of the what do you need today, firms, they're going to see exponential growth this year.

[00:18:05] Hector: Yeah, well, it's affirming that you say that, and you know, we, we've got, we've been in the podcast game for I guess six, seven ish years, you know, depending on when you draw the line. And, you know, we started off talking about the features and the, and the benefits and the. The actual deliverables of the services.

[00:18:22] Hector: And now we're, we're almost solely focused on how it can help grow. And you know how it's a business development tool and, you know, you sort of, you, you, you kind of move along that path and, and perhaps you can just cut straight to the, you know, to that side of it. But it seems that the, the longer that we stick around, that's just, that's what clients actually care about.

[00:18:42] Hector: How it.

[00:18:43] Kurt: Well, and as you mature, and, and early on, you're just happy to have the work. You're not asking a lot of questions when you, when it starts, when you start to mature in your process, you start to ask clients questions like. How's the website doing that we built for you? You know, can we, can we have access to some of that data so we can see how that campaign is going?

[00:19:04] Kurt: Or even if they do have access to some of that data, they don't pull reports other than for the client. They're not pulling them internally and saying, look at how this campaign helped this client grow by 30% and they spent, you know, half of what they spent last year. And those are the types of case studies people wanna see.

[00:19:23] Kurt: Not, look at how crappy this used to look and look at how great it looks now. Like everybody's like, you know, great, you like, those types of case studies are great for hunting down employees, right? But, not for finding clients. You, you've gotta, you've gotta speak to the business problems you solve, like you alluded to.

[00:19:42] Kurt: And, and the better you get at that, the easier. Your lead gen and your sales and, and easier to close is because, you know, instead of like, oh, you don't want this new thing, you don't want a new website, you are saying, oh, you don't want a 30% increase in incoming leads this year. Okay.

[00:20:03] Hector: Yeah, it's, it's a good reminder that the, the sales and fulfillment are. Gonna pick my words here. Should be more connected than, than seems, than they

[00:20:16] Kurt: Yeah. And that's, and I'm glad you, you just mentioned that because that's the other danger. As you grow an agency, and I see this in most agencies, once they get over 50, 70, a hundred people, they be, starts to become two companies. You have sales and marketing on one company, and you have production as another company.

[00:20:34] Kurt: And what happens is, is because, the founder or the people in charge. Are are used to giving, individual metrics to people and those, what happens is those metrics start to grow, in size and scale and importance that they become, and this is again, like how do you. You know, I heard so many people complain about like how siloed some of these big companies are.

[00:20:58] Kurt: Well, that's why they're siloed because, you know, it has a very different, KPIs than marketing does. Right. And so the companies that are doing really well, you know, you look at the Facebooks and the Apples and all these different things, while they do have silos. There is KPIs and things that cut through all of the departments that they all are responsible for, that is key to the success of the business.

[00:21:25] Kurt: And those KPIs take value over whatever your silo does. And so you think about it, you've been an employee before. I've been an employee before. The boss comes in and says, oh, I want you to focus in on this now. And you're like, yeah, but I know what I get yelled at for, so I I'm not really gonna pay attention to that.

[00:21:45] Kurt: I'm gonna focus on what I know I'm incentivized to do and what I'm gonna get yelled at for. And that's why when you're growing your agency, or any business, to be honest, you've gotta pay attention that, that you're installing measurements and, and managing to, global goals within the organization, not just individual sales goals or individual.

[00:22:07] Kurt: Time sheet goals with production or things like that?

[00:22:11] Hector: Yeah, it is a, it is a fun challenge. I think that's, that's also what I really enjoy about the. Agency or agency industry and service business is that it seems like there is, you know, I'm a tinker and so it's always seems like there's a, there's a way to get better. You, there's always.

[00:22:30] Kurt: And that's, and that's where the, the benefit of AI is coming in. 'cause I know a lot of agencies that are, really scared of ai, but the ones that are leaning into it are having a great time. And but if you look, even though there's so much talk about AI in the world, any business I talk to, I don't even care.

[00:22:48] Kurt: If they are a new, more modern type of SaaS business or things like that, less than 10% of the business is leveraging AI in any respect other than to write emails with chat GPT, they're, they're not doing anything really with AI other than, and a lot of agencies. You look at a lot of marketing agencies and they're like, yeah, we're leveraging ai.

[00:23:08] Kurt: Well, what you're doing is you've got some copywriters that are using chat GT or something like. They've not built agents and they're not auto automating things, and they're not leveraging that stuff. And even some of the SA platforms that make dabbling. In this idea of, of doing that. And then you look at larger companies and a lot of larger companies are building some of this stuff internally, but it's so small because if you've ever worked in a large company and just tried to get a website built internally, then a small project, it takes all very long time.

[00:23:44] Kurt: So now you've got this new foreign technology and you've gotta set up your own internal LLM and all this stuff. It's taking a while and there's a lot of opportunity there. To, to help folks with that. And what I've found is that, especially like with my business, with my coaching and consulting business, where, I see a lot of success is, is offering, a, a teaching mode and a doing mode.

[00:24:09] Kurt: And, and I have, I have, two offers that I do with my coaching, with agencies and, and service-based businesses, which is, I done with you or done for you. And that's it. The most agencies that I see that are presenting these types of options with clients saying, we can come in and do it with you, and, and we can, you can learn from us and get better at what you're doing.

[00:24:33] Kurt: Always turn into done for you clients. 'cause you get in there and they find, and you find out like they want to do like 20 things and they don't have the staff to do it and they're not gonna hire the staff to do it. So who are they gonna hire? Well, the people who's been teaching them. Like, it's easy.

[00:24:48] Kurt: So again, how you position yourself is, is really key. If you position yourself as just somebody that's an order taker, that's somebody a drive through where I come up and I order some fries and a coke, you know, you're gonna be, you're gonna be stuck in, you know, in a, in a small business. Why is HubSpot as big as it is, why is HubSpot one of the biggest CRMs, in the, in the world?

[00:25:12] Kurt: Well, it's because of their. It's because of their, learning resource library. There's nobody who has a better learning and marketing resource library than HubSpot on, on the internet. And that's why, because they've shown up and they said, we know what to do. Not only do we know what to do here, this is how you do it, and we're gonna provide it in video.

[00:25:34] Kurt: We're gonna provide it in audio, we're gonna provide it in blogs, we're gonna give it to you. Wherever you are at, we're gonna give it to you in downloadable eBooks and PDFs and webinars and, and they're just killing it, you know? They're just, they just keep growing and they're adding more and more.

[00:25:48] Kurt: So, take a page out of their book and, and start giving away more of the, the knowledge and you'll see how much of it comes back in, in dollars.

[00:26:01] Hector: Yeah, this has been, such a great conversation. Kurt, if people wanna go deeper into your world, find more about you. I think you even have your own podcast. Where's the best place for people to,

[00:26:10] Kurt: yeah, look for, look for me on LinkedIn, that's where I, I spend most of my, my time. It's my favorite platform to, to spend time on and, yeah, you can find, just look for, there isn't a lot of Kurt Schmitz. But there's a lot of bald, bearded glasses wearing, middle-aged guys there. But, I'm the only one with Kurt with a K, so.

[00:26:28] Hector: I feel like you lucked out. I feel like a Kurt Schmidt. Like I feel like I knew a Kurt Schmidt growing. I like, I know. Not every guy just has a, a Kurt Schmidt in their neighborhood growing up. You lucked up somehow. Hector Sanon. There's another, there's another Hector Sanon on LinkedIn who happens to be a doctor,

[00:26:47] Hector: so, yeah.

[00:26:48] Hector: Yes. And LinkedIn thinks that doctors are more important than podcast

[00:26:51] Kurt: Oh, oh, absolutely. They do. They, they love those, little, those little, certifications at the end of the name, you know, like. Hector md? Yeah, no, for me, like, I spend, I spend a lot of time on LinkedIn and, and, and I love, I love LinkedIn to death, and I, I do actually do a lot of training around LinkedIn for people because a lot of people use it wrong.

[00:27:12] Kurt: So maybe sometime in the future if you wanna talk LinkedIn stuff, I'd be happy to, come on the show on.

[00:27:19] Hector: On a, so.

[00:27:22] Kurt: All right. Well, I, I can help you do that. But yeah, I do webinars there. I post a lot. I have a, a newsletter there. I'm always sharing stuff about, challenges that my clients are experiencing and, and ways to, help get out of it. So, and I, I pay attention to the climate, and what's going on in the market and,

[00:27:41] Kurt: and how that's affecting what, what people are up to. So, yeah, follow me there or find me there. Connect with me. I'm more than happy to have a quick conversation if people have questions. I, I love, I love nothing more than meeting new folks, so thank you for the opportunity, Hector. I really appreciate it.

[00:27:57] Hector: Fun conversation. We'll link all that up in the show notes for you listeners, we appreciate you hanging out and see.