💰 Scaling Service x Stephen Waddington: a different way to fund an agency
Just fly to Boston and knock on some doors
Scaling Service is a monthly newsletter from The Family. We interview agency founders and ask them about everything from funding to sales to exits. First up, we’ve got Stephen Waddington on how he funded Rainier. Next month, we ask Andrew Bloch ‘how do I sell an agency?’
“There are those moments, you must have had them, you've been working on a big pitch or working on a big campaign. You're in the office, eight or nine o'clock at night. And you have the conversation: have you ever thought about doing this yourself?”
When it comes to starting your own agency, you have options. You can look for funding. You can remortgage your house. You can chew through your savings, find a way to cope with no money at all for a time. Or you can do what Stephen Waddington, Steve Earl and Tanya Lepojevic did, and fly from the UK to Boston, Massachusetts, knock on some doors, and see if anybody fancies partnering up for an international office.
In 1998, with the dotcom business booming, Waddington and two colleagues realised that they were perfectly placed to provide an American company with a route into the European market. “We were all directors at Weber at the time, and we were seeing incredible growth around the internet, around applications and infrastructure. But we were frustrated. We thought we could unlock more personal value.”
Personal circumstances meant that they couldn't simply jump ship and start from scratch, though Waddington, with his first child on the way, admits that the thought did occur. Instead, they began looking for a company in the US with the right profile: not too big, but not too small. A firm that could benefit from an office in the UK but didn't have one already.
A recruiter led them to Rainier, and to several “good conversations” with founder Steve Schuster. “They were focused on electronics, enterprise and infrastructure tech, and had ambitions to come out to Europe. And we could see how we could add to the proposition and management structure.”
Waddington, Earl and Lepojevic shared a draft business plan and then headed over to Boston for a long weekend. “He was a good guy that we got on with personally, and was a good fit for clients. We felt we could pitch the proposition in the UK.”
“I guess we hit lucky” – Waddington would do a few things different if he took this route again.
That was 23 years ago, and as Waddington acknowledges, it was a moment of serendipity. "If I was doing it today I'd be much braver and just go direct. And in all our naivety, our list was limited. Two or three others. I guess we hit lucky. If I was looking now for equity or for an agency to partner with, I'd maybe cast the net a little bit wider. Pull out a longer list, go looking around a few more places."
Bringing experience and networks from the UK, however, didn't automatically translate into clients.
"We thought, naively — and this was the end of the 90s — that we would be able to persuade big brands to come with us. And we had some really good conversations. When the shit hit the fan though, and we'd gone, those conversations remained friendly, but suddenly it was 'oh no, sorry, we can't take the risk, you're an early stage business, you're a startup'. And so we hustled, and found business ourselves."
Waddington quickly came to realise that "an office has to live and survive on its own feet, and anything that comes from around a network is sort of a bonus."
“Really fucking tough.” Waddington on launching a tech agency shortly before the dot com bubble burst.
A year and a half into operations, the dotcom bubble burst, a moment that Waddington describes as "really fucking tough. There was literally two whole weeks where every call was: we're cutting budgets, we're retrenching."
But he identifies a common thread between that crisis, the financial crash of 2008, and the Covid-19 pandemic: "Everyone thinks that you get a moment like this, and you fall off a cliff. It's calamity, and the world has changed. But it's not at all. Markets come back. You've just got to be able to manage your cash during that time."
What’s in it for me? The merits of this route to market
The three partners - Stephen Waddington, Steve Earl and Tanya Lepojevic – each received a minority stake in the newly formed UK business, along with £300k in funding. This cash covered an office, technology, tools and salaries, although looking back it was more than they needed. “We didn’t need anywhere near that amount. We were cash positive in nine months.”
In return for funding and equity, Rainier in the US would get a founding team with local knowledge to drive their international expansion.
It was a win-win, and set Rainier UK up for long term success. While Tanya left the business after a few years due to a change in personal circumstances, Stephen Waddington and Steve Earl led a management buyout in 2002 to acquire the whole UK entity, before selling the agency to Loewy Group in 2006.
For Waddington, establishing a successful agency isn't just a question of solving the funding question. there's the whole "infrastructure and support umbrella" to consider. He has been studying incubator models in other markets, and praises such knowledge-sharing as "a mini-MBA".
"That's a hackneyed phrase, but you learn all this other stuff. And that other stuff is absolutely invaluable. That's what really unlocks the growth, and makes the difference between becoming an able freelancer or building something substantive with an enterprise value."
But this leaves out all the juicy stuff 😇. Fair summary, although marrying the staff wasn’t part of the strategic plan.