The Virtual CPA Success Show: Episode 83
JD Graffam understands the peaks and valleys of agency life. From bootstrapping his first agency, making tough personnel decisions, and learning best practices as a business owner, JD gives Jody and Jamie an honest account of his experience and how reading Jody’s book, "Digital Dollars and Cents," helped him apply financial metrics to his business. While his agency portfolio is extensive, he is currently the owner of Simple Focus, an agency he founded in 2009.
[00:00:00] Jamie: Hello everybody welcome today's podcast.
[00:00:02] This is one podcast that Jodi is extremely excited about. That reason is because we finally found the one person that has read his book and enjoyed it and gave us a really positive review. So wanna welcome to the show JD Graffam from Simple Focus. So welcome to the show. Jd, tell us a little bit about yourself.
[00:00:18] JD: So I'm a poet. Yep. Started an agency in 2009 called Simple Focus. I quit a job that I really like. . I've never actually not liked a job. No. It was a hard decision to leave a good job. And good people. But anyway, I started the company in 2009 because, I don't know, I believed in myself.
[00:00:39] I knew I could do it. There was no doubt in my mind. I was like, I got this. And in 2009, the economy was, can we cus?. .
Jamie: There's no sensors here.
JD: It was total shit, right? It was only slightly better than it is today. . And I was like, you know, if I could figure out how to run a business in this environment, you know, in 10 years when things are better, I'll be able to like match the accelerator and do really well.
[00:01:08] That was like the story I told myself. Anyway, you know, the, I went through the process of. figuring out what we wanted to do and you know, when to hire and all that. And I kind of always just trusted that, hey, everybody charges a hundred and something dollars an hour, and mostly that works out. And so if we just do good work and keep ourselves busy feeling and try and charge a hundred and something dollars an hour, I bet the math works.
[00:01:45] Just sort of trust the process and it did, like there were days in the early days of Simple Focus when I was like, I don't know where the money's coming from. I got a paper in like two days. , but you know, we've been doing good work and we've been charging a hundred something dollars an hour.
[00:02:04] Surely this'll work out. And like literally the night before payroll hits a check, shows up in the mail for like six grand and I'm like able to make payroll by 50 bucks and it worked, you know? It hasn't always been tight. And I, you know, I wasn't borrowing money or anything. I was just, you know, kind of doing the math and taking money out of the business.
[00:02:27] You know. To like in a renovate a kitchen. But then like, you know, I just paid a contractor to renovate my kitchen and now I'm tight on payroll. So like, you know, figuring out that balance was tight when we were small and figuring it out. But I was getting by and I was trusting that we could, you know make it based on the fact that like everybody charges, you know, 120 to 150 bucks an hour, they're doing fine, staying in business.
[00:02:50] So that must work. And so I just sort of really simplified it and. , it's still true, right? But as the business has gotten more complex, the things in your book are just a more specific expression of what I started out doing. Mm-hmm. . Yep. Right? So the math works. In a bigger business with 10, 15, 20 employees as you grow like I have over the years.
[00:03:23] You know, we've been up to 25 employees inside of Simple Focus, the agency. I've got probably closer to a hundred employees total now. But inside of my agency. . The more complex it gets, the more I look at, like, the stuff that I learned in your book and realize, oh, this is just the same thing. It's just more complex.
[00:03:40] Right. It's just, it's the same thing. Well, if you charge X and you have these sorts of things going on, it's gonna work, you know? And if this variable changes, well, this other stuff's gotta change You know. . Okay, cool. Like, but that's still just math, adding and subtracting multiplication of division.
[00:03:59] It's not [00:04:00] like you gotta do a sign and co-sign and tangent or whatever.
Jody: Right, right, right.
[00:04:04] Jamie: There's no square roots.
[00:04:05] JD: Yeah. This isn't calculus. Like there's no, there's there. It is just not that complicated. Once you know the rules and the inputs and the dials. But anyway, so I started Simple Focus of 2009.
[00:04:19] Did good, you know, had money piling up and sort of some little savings accounts and whatnot. And decided to take a modest sum of that and buy an app. I bought a software company in 2012. That did really well. Bought another software company, kept running Simple Focus, was thinking, okay, well we wanna do apps like UI design and UX for Simple Focus.
[00:04:45] So like, we'll tell people, look, we dog food, like we have our own software companies. We should do software design for you. It turns out, the types of people who had software companies like I was buying, they're insanely cheap and they have this, I can do it myself mentality. So that's not really a great strategy.
[00:05:05] It didn't work. You know, I wasn't getting a bunch of indie software developers to let us redesign their UI and charge, you know, a hundred and something dollars an hour to do something they could do on their own. 80% is good, you know, but You know, I was doing really well on the software side, so I split 'em into two businesses and around this time I was like, you know, Simple Focus was taken off and we were getting corporate customers, and this is around the time I read your book.
[00:05:32] But lately in the last five or six years, I've continued to acquire software companies. Over the years I've bought other little agencies and rolled them into Simple Focus, or now I've got like a separate dedicated agency. For content marketing. You know, I founded and sold to my partner, like a custom dev shop.
[00:05:53] Over the years I've been in the staffing business. I've, I've done all sorts of things, but the one constant has been my UX agency, which [00:06:00] has performed well over the years. Now. It's had some ups and downs and that's one of the reasons we know each other is like, your advice helped me get through the ups and downs.
[00:06:09] Right. You know, and so, . Yeah. That's my story. I run Simple Focus or own Simple Focus. The day-to-day is kind of run by two guys, Matt and Patrick. But I own and operate like a portfolio of companies. It's kinda cool. And I write poetry.
[00:06:28] Jody: And you write poetry,
[00:06:30] JD: So you pretty much bootstrapped everything is what it sounds like. , I, it certainly feels like I was bent over pulling my boots up the whole time. . Yeah, like bending over and retiring. I'm constantly, cause I'm tripping on my shoe, on my boot laces, but yeah. I have totally just figured it out along the way.
[00:06:50] And started with, you know, 5,000 in savings, you know, to get Simple Focus off the ground and get the courage I needed to quit my job. My wife and I had more in savings, but you know, I said, look, I wanna deposit 5,000 in my business account and go. And that's what I did. And so, you know, it's been great since then.
[00:07:11] I wouldn't go back and do it again cuz it's so hard and scary and stressful. But, you know, I'm glad I did it.
Jody: So you say you wouldn't go back and do it again cuz of all that.
JD: No, I mean, unless, I mean, so people will ask me sometimes, would you go back and do it again? And I'll say,
[00:07:27] Yeah. I said yeah, if I could go back and do it 10 years ago. . . Yeah. And you knew that was like, would I do it today? , start over today, . No, but if I could say, yeah, I'd do it again 10 years ago. Where that was 10 years in the past. Absolutely. Yeah. Because it was, it is. No man. . It's not easy. No. I mean, there are, it's not easy because of the hours.
[00:07:51] Sometimes it's not easy because of the tough decisions you gotta make other times. you know, when you [00:08:00] make promises to people that you can help them, you know, your team members, your employees, that you can help them make a living, and then one day you gotta look up.
[00:08:12] and things haven't been going right, and you gotta tell 'em, Hey, we can't do this anymore. You're on your own. That fucking sucks. because you want to, you want to be able to do everything for everybody, but sometimes a business is business and you just can't.
[00:08:32] And so that's tough because, Because of what you have to put other people through. You know, I'm certainly not gonna lie about it. That's not like nobody wants to hear the person who has to let 'em go, say, but this is so hard on me. Like, you know. Yeah. It's definitely hard on you.
[00:08:51] you know . It just sucks because you develop relationships with people who didn't do anything wrong, you know? Right. And, and you gotta let 'em down and then it, you know, screws up their life, but then you look up a year later and they're making more money working somewhere cooler.
[00:09:07] Jamie: So that's to remember. Yeah, I've done it so many times, and every time you, it's so hard. But then when you look at the backside of it, you're like, oh, okay, actually, look at this person's doing really well, or they're maybe not making more money, but they're in a better place of, in terms of a better fit for them.
[00:09:22] And so I think that's, you know, the both of us, all three of us work in a service business, right? And so in a service business, the best part is that you get to work with people all the time. But sometimes the hard part is that you're working with people and they are people, and you have to kind of think through.
[00:09:36] You know, what's the impact on them and how are things gonna work. And sometimes it's just easier to, to move on if the match isn't right. So I wanna talk about, , it sounds like recently you've experienced a challenge that almost all agencies either go through or worry about going through.
[00:09:51] So I think this is a really good topic for our listeners because if they haven't gone through this before, they are worrying about going through it or thinking about it might happen to them in the [00:10:00] future. So let's kind of talk about the, what you're going through and kind of how you've started to work through it.
[00:10:05] JD: So at the beginning of 2022, we had a big customer. They wanted to bubble up their contract with us really big. And so we worked with them to put that in place and grow the team to support it. And over 2022, they grew about 20 sorry, 60% of our revenue.
Jody: 60%. Six zero.
JD: Six zero. Yeah. And it wasn't all, you know, at once, at the beginning of the year it was 25, 30%, and then in the middle of the year it was like 70 or 80%.
[00:10:37] By the end of the year it was 50 or 60%, but over the year it was just a total of about 60% of our revenue. And maybe closer to 50% by the time December closed out, that's probably more accurate. But still half our business was coming from one customer. Mm-hmm. now. This is scary. The whole year long.
[00:10:56] But it was a fun ride. I mean, you know, they, it wasn't that we did less work for everybody else. We were doing just as much work for everybody else. We grew to this and so it was really exciting cuz the, you know. We were getting to add awesome people to the team. We were getting to like optimize processes and like really streamline their business and leaders were being, you know, forged any like people leveled up their careers at Simple Focus.
[00:11:20] You know, over the course of the year and really learn how to do things, you know, hire the right people, put the right processes in place, and we're doing, you know, cool enough work, right? I mean, you know, it wasn't the coolest work for a big, big customer, but how many times is your biggest customer, your coolest customer?
[00:11:37] So, you know, we were okay with it. As the year dragged on they, we looked up and they had a new CEO and then we looked up and they had a whole new C-suite. And then we looked up and they were doing a layoff. I don't want to say the wrong number, but I would think it was like 135 people in their corporate offices.
[00:11:57] and we, and then we realized, hey, the [00:12:00] people we're working with, we don't really have long-term relationships with, like we, because we've worked with this customer for eight years now.
Jody: Oh, wow. Okay. Yeah. And so they're big time anchor client.
JD: They were consistently an anchor client that was about 25% of our revenue, sometimes less, sometimes a little bit more.
[00:12:15] But generally speaking, they were an anchor client. And we had relationships throughout the organization, kinda like a cancer, you know, it would be hard to extract, but we looked up and they had sort of, you know, cut off the arm and cut out the liver. And you, there's no cancer left. We're, we're not like a cancer anymore.
[00:12:35] You know, we're, we could be removed. And we started hearing rumors that that might happen. And so ultimately it did happen by the end of the year. . One of the things I wanna be very liberate about getting across to anybody listening is like, we never had hard feelings about it.
[00:12:55] We had to make some tough decisions because of this, but the people we worked with, they treated us with respect. We liked them, mutual admiration, et cetera, et cetera. The work wasn't the most rewarding, but we did get to do cool work sometimes, you know? And sometimes it was rewarding. We feel like we did get a chance over the years to make a difference in their business.
[00:13:17] But anyway, the decision came down. Rumor mills started swirling and we heard you guys are gonna be out, out and everything's gonna go to like one agency, you know, with a new leadership team in place. They were bringing in their. . We're like, but we're good people. You know, maybe you don't understand what we do.
[00:13:37] Exactly. You know, we would love to stay and help out in complimentary ways, you know? we tried everything. , , and the funny thing is they had this agreement with us to like spend a bunch of money in 2022 that never got signed. And I think it didn't get, yeah, I don't think it got unintentionally not signed early on.
[00:13:57] I think early on in the year it was like [00:14:00] some just dysfunction that is normal in a corporate environment. Like somebody left, you know and it didn't get signed. And then it was like, well, hold on, we, we haven't really talked about this. And it was like, Hey, where's, what's the status on this? I don't know.
[00:14:14] Lemme go find out. And like, we didn't hear it back for a month, you know? And. The next thing you know, we're six months in and we don't have a signed agreement for this big old contract, and now it's now the foundation's getting shaken. You're scared of losing all the money, but here's the thing that like didn't scare us the whole time.
[00:14:36] We knew our numbers because for the last three or four years we've been implementing the Jodi Grunden Method. It started out as your thing, we sort of morphed it into our own thing, but like we, yeah, sure. We have a monthly meeting where we look at utilization, all the KPIs, like actual billable rate.
[00:15:03] We created one, I don't know if you have theoretical revenue generated right? So we have a metric that we look at that's like, here's. we think we're gonna make in the future based on the work we've done. I mean, further out in front of that, more in the future would be like pipeline, right?
[00:15:24] So you've got pipeline, then you've got theoretical revenue generated. So, you know how much money in theory did we produce this month? Right? Then we've got deposits, cash deposits, which is like, how are we doing right now? And then we've got. , you know, rear view mirror called ABR. So when a project closes and it's done, what do we actually bill per hour?
[00:15:52] How effective were we? Right? And one thing we do different than you, Jody, is because of the way [00:16:00] we bill, I remember reading in your book that the goal is for your ABR to approach your stated rate. . So if you, if you state at a rate of $200 an hour and your ABR is like 178, and then it's 185, and then it's 186, you're improving, you're getting closer to your stated rate.
[00:16:24] That's great. Like our ABR very often comes in over our stated rate because of the. . That's the way we structure the deals. Right. So if we have a fixed fee project, , we have to like create a stated rate of, let's just call it, you know, $200 an hour. This is what we budgeted for, even though the client's not necessarily paying that.
[00:16:43] Right. And we'll come in at 250 or 280 or 320 or 450 something, you know, it just depends. And so our ABR I think has creeped up from when we started doing this three or four years ago from like the 150s, I think it was 207. So we have an ABR of 207 you know, and our stated rate is closer to 175.
[00:17:09] So anyway we were never scared, like everything was gonna like, come apart of the seams easier, you know, but having a little bit of. keeps you on your toes and keeps you mm-hmm. in a prone position, you know, ready to jump on opportunities and fight, you know, to not lose business.
[00:17:32] And so, we had a little bit of fear and concern about losing such a large customer, and we had anxiety and worries about letting the team down because we had hired up for it, right? But what we knew all along, this was a possibility. and everybody on the team received, you know, consistent and transparent communication.
[00:17:58] You know, [00:18:00] about, you know, hey, we got this big customer and we got some shaky news. So just fyi, you know if that happens, you can't just lose half your revenue and. . Well, the decision came down and there was a little bit of work left to do and so we, you know, we looked at the team and just kinda analyzed the numbers and part of it was just putting people into spreadsheets and seeing what numbers were part of it was looking at what's the composition of the team that we need go forward for the type of work we wanna be doing next year.
[00:18:38] And part of it was you know about the people and you know, where the fit might be long term for somebody. beyond this. And you balance all that together and you mix it up and you. , at the end of the day, you make decisions you hope are the least wrong. And, and you go in and you know that, you know it's gonna hurt people, it's gonna mess people up financially, potentially.
[00:19:02] And you know, you do what you can from a business perspective in terms of severance. You know, you can't do more than you can do, but you sure certainly should do all you can do. And so, we put that together and ran the numbers and said, okay, here we are. And , you know, we've been through that and what's different is that it, it's tough and it affects everybody, but we have been this, we had been through this four or five years ago.
[00:19:33] Which is why I got into your book and looking at the numbers except four or five years, except four or five years ago, we were like, Hey, maybe if we pray, we can find clients to replace this big customer that went away. . You know, like maybe if we call up old clients and we just send 'em an email and say, Hey, you got any work for us?
[00:19:56] We've got some unprecedented openings in our capacity , [00:20:00] that doesn't work. Because if you're gonna replace a big customer, you know, the life cycle on closing a deal like that is 6, 12, 18, 24 months. You know, like,
[00:20:12] Jamie: That's what find the most interesting about your story is like, you know, I think the fact that they were only 60% of your revenue for less than 12 months makes it really hard to, to prepare for, right?
[00:20:22] Like, you know, I worked with the client for a long time where they had, they had that problem. They had one client that was majority of their revenue, but we constantly, every month talked about, okay, we need to find the second client. , that's the same size. But with 12 months, like you said, that's the amount of time it's gonna take to close that next deal.
[00:20:40] If they're only gonna be there for less than 12 months or 10 months, then it's just not gonna give you enough time to find that second big fish to really help you increase or decrease your leverage, which is, which is the scary part there.
[00:20:51] JD: Right. Well, you know, the cool thing about this customer on the way out was, you know, despite that everybody on their end was put in a situation.
[00:21:02] Having this verbal agreement that never got signed, right? We had an advocate or two on the inside who were like, Hey, yeah, but we did promise these guys, so can we just, you know, finish out their, their, you know, this verbal agreement that we had with them that, I mean, they did hire up for us , you know, which we did.
[00:21:20] And you know, if they didn't finish out the contract, we wouldn't have had any profit from it. We would've walked away, you know, maybe break even on the year. From scaling up this operation, but with, you know, with paying out some severance and you know, the overhead and all of that, like, they could have really screwed us.
[00:21:40] And to their credit. They were able to let us finish out the year and finish the work, the amount of work that they had promised that we could finish and so that was, you know, that was really cool. Like I said, the whole time, like we never had a chip on our shoulder about the fact that they were making this decision for their business.
[00:21:58] Right. That's just, that is what it [00:22:00] is. Like that's, you know, the game is the game and we love the game. . It's, you know, it goes to show that like you build strong relationships with people and you take care of them over the years. They're gonna do what they can to help you out.
[00:22:13] But, you know, five years ago when we went through this we weren't able to make the decision right away. We didn't have our finger on the bus, right. The money was coming in from the big client. Then the big client went away and there was still money there. And I was like, well, let's just see how long we can hold on.
[00:22:29] And the next thing I knew, you know, I had dug a hole and I was in almost a million dollars of debt. Fuck. Am I gonna fix that? The sba, that's how you fix that . And so and so we've been slowly climbing out of that hole since then, right? So I took a seven year note, I got a couple years left on it, but it's totally a manageable thing now.
[00:22:52] And but back five years ago we were like. . We just kept hoping and hoping that somebody would come along and save the day like they always had. Because remember in the early days I was like, if you charge this and you know, you stay busy, things take care of themselves. But like when you get more complex and you take one on the chin, if you don't make changes, things don't take care of themselves.
[00:23:15] And so I found myself after six months in a deep hole and I was like, shit, I'm running out of places to borrow money from. And so we didn't really have a choice and the business did not allow to do as good of a severance. Than you know, the last time. Yeah. And it was six months. It was six or maybe seven or eight months after the fact.
[00:23:38] Right? Like, we should have made the tough decision six, seven months prior. But we dug a hole for six months before, you know, we got the nerve to like, , call it a failure. And so then we made that choice way too late in the game. I was in a financial hole, made a commitment to myself that we will know our numbers going forward so that we don't do this to the [00:24:00] team.
[00:24:00] Because the cut back then was much bigger because it was too late. It was six months too late, you know? This year the cut was not as big. And we were able to do it sooner, which is, you know, on one hand somebody might look at it and say, God, that's ruthless and cold. , it's all about money.
[00:24:16] It ain't about money. I'm not gonna put myself in a million dollars of debt again, just yeah. That's not good for the company. That doesn't, you know, motivate me to make this company exist and you know, it's a cool place to work when things are rocking and rolling. So let's do what we can to take care of everybody the best we can and let's move forward and focus on what we can control and enjoy our work, you know?
[00:24:41] I mean, cuz we we're here. Cuz we enjoy the work. We enjoy the game, like I said. You know, and so small business can be stressful in times like these, but man, small business can be fucking cool when it's cool. Corporate customers are like so jealous of our lifestyle. Like, you know,
[00:25:00] You know, you've said a lot of different things there. I think the biggest thing that I took out of that whole thing is just simply having transparency in the numbers and really maybe managing those numbers. You know, transparency in the numbers, meaning you're letting your team know how things are going.
[00:25:15] You're letting your team know how things are going with the client. You're giving that awareness to the team, but you've, but you've got a good handle on the modeling part of how your business actually runs. That when you made the decision years ago as an emotional incision five years ago, completely emotional.
[00:25:33] I can handle this, I can figure this out. We're gonna dip in this time. It wasn't an emotional decision. It was more of a knowledgeable decision. You had the knowledge, you were able to, you know, to tell yourself, you know, Hey, based on what we know, here's our runway. Here's our cash runway.
[00:25:50] Here's what we have to do. Here's what we have to actually cut now because we lost this big client and you took all the emotion out of it, which is really tough as a business owner, cuz those [00:26:00] people mean so much to you and I as a business owner that it's a tough thing, but it's one of those things you have to do because what you don't want to do is you don't want to.
[00:26:09] Do what you did last time, keep them on for a long time. Morale starts getting bad money's not there. And then you make the sweeping change, which you're eliminating a ton of people that you probably didn't need to do had you reacted quicker, I guess. So I commend you a ton because it takes, it's, that's a tough decision to make and it's a great foundation to learn from, is just knowing your numbers so that you can actually. [00:26:34] manage your company the way that it should be managed.
JD: One of the things I wanna point out give credit where credit to is the leadership at Simple Focus really stepped up for the last four or five years and has taken accountability for knowing the numbers, you know, and helping to make these decisions along the way.
[00:26:53] And they still come to me and we consult and we talk about it. And I sort of serve as the you know, the more financial minded. Hey, here's the facts. You know? You guys got the numbers for me, but look at 'em. You know? I'm gonna advocate for the numbers. You guys advocate for the culture, you guys advocate for the operations and our ability to deliver.
[00:27:16] And everybody's representing different parts of the business that need to be represented in a debate about, you know, reduction in force and ultimately would come to the decision, you know, collectively. that feels the least icky and that feels the, like this is the best decision for the business and we make it.
[00:27:34] And but having a strong leadership team in place that understands the numbers and understands the values and has been there alongside me the whole way, that's been like one of the most wonderful things in the world. To work with them over the years and develop, you know, help them develop into those.
[00:27:54] Jamie: Yeah. I think you know, Jody did a nice summary there and I, as I was listening to your story, I was taking away very similar [00:28:00] things. And as I was thinking through it, it's, you know, as you told the story, there's two things you did consciously, but you did them well ahead of any problem. Right? So the first one is, like Jody said, you had the planning in place.
[00:28:10] You had the planning in place, so when something happened, you were able to make quick decisions and act on those decisions. And that was something. you've consciously done for however long because you've made that mistake before. So that was, that's number one. And Jody kind of expanded on that to me. The other one was you had that good relationship, you had that strong relationship with the client, and that's probably what you do with all of your clients is you had that strong relationship.
[00:28:29] You had the connection, and they were, like you said, it was a deep connection. It wasn't just with one person, it was with multiple people. So when things got a little sticky, where Uhoh, there's not a signed contract here, they could totally screw us. Luckily they didn't because you had that strong relationship.
[00:28:42] And again, that wasn't something that you can decide to do. Oh. This client's walking away, it's time to get that good relationship with them. No, you had to do that way ahead of time, and I think that's really what business is about a lot of times is the things you do every day and the things that make your business are the things they're gonna end up paying off in the long run.
[00:28:58] So that's definitely what I took from your story is those two things that you probably do with every client and that you do with your business every day are the things that end up paying off for you when it comes to these tough times to make this tough time a little less tough. So with that said, I know Jody kind of gave his his thoughts there.
[00:29:11] I wanna, we're getting close on time here, JD, so I wanted to give you one last chance, kind of final thoughts for our listeners. Again, loved your story, thought it was really helpful, but any final thoughts that can help our listeners out?
[00:29:22] JD: Man, I would just encourage my business owner, homies out there that are listening to this to figure out your numbers.
[00:29:34] figure out what works for your business and check in on 'em regularly. Our check-in on our monthly metrics is, you know once a month. takes about an hour. It took us probably two years to dial in the formulas and figure out what we wanted to see when we looked at theoretical revenue generated.
Yeah. The fact that you understand the numbers, I think like I’ve said helped you made decisions, the tough decisions and make them quick. It was just the important thing, knowing everything. I appreciate you sharing that.
Jamie: And thanks for joining the show and appreciate you coming on.
JD: Thank you so much. I'm Happy we did this.