Performance vs Lifestyle Agency: Defining Your End Goal

What’s the difference between a performance agency and a lifestyle agency? The actual difference is very straight forward:

What is a lifestyle agency?

A lifestyle agency is established to support the founder’s (and potentially the staff’s) lifestyle, with a focus on longevity beyond 10+ years.

What is a performance agency?

In contrast, a performance agency is created with an exit strategy in mind, often aiming for a sale within 5-10 years, though this can vary. The founders of performance agencies tend to prioritise business operations over deep involvement in the agencies discipline.

Founders’ priorities and passions

The founder of a lifestyle agency is typically deeply passionate about their field and seeks to innovate and improve the industry. The drive to set up the agency was likely driven by frustration with previous employers who did not share their vision or enthusiasm. In contrast, the founder of a performance agency is more fascinated by the business mechanics, focusing on optimising operations and preparing for a profitable exit.

The founders of a performance agency are typically more business-oriented and slightly less obsessive about the discipline in which the agency operates. While the founder will always have an interest and passion for the agency’s discipline, I’m comparing this to the lifestyle agency owner who spends time refining their skills instead of focusing on the profit and loss or forecasting.

The lifestyle agency founder is often extremely passionate about their work and wants to pursue it for the rest of their career. The agency provides them with a platform to apply their skills at the highest level in the industry and drive improvements. They have a clear vision of how things should be done and likely experienced frustration when working for someone who did not share their perspective or match their enthusiasm.

To differentiate, the performance agency founder is highly passionate about the business itself, the mechanics of its operations, and how to enhance its effectiveness. On the other hand, the lifestyle agency founder is intensely passionate about the industry they operate in. They aim to build their knowledge and skills to be at the forefront of the industry as a pioneer, and the agency serves as a vehicle to achieve this.

Personal Brand & Marketing

As a performance agency, it is unlikely that you would want the agency to depend solely on your personal brand. While it is possible, when it comes to selling the agency, the buying company will evaluate the source of your leads. If all of the leads are generated through your personal brand and there is no strong pipeline of organic leads for the agency, the buying company may be hesitant to purchase your agency compared to another agency. Alternatively, they may reduce the valuation of your agency as the buyer would need to develop a marketing and sales strategy for the agency.

The lifestyle agency founder’s identity becomes ingrained within the agency, any form of thought leadership comes from the founder, and they are the face of the business for knowledge and innovation.

Personal life

As the lifestyle founder’s life evolves through significant milestones such as having children or moving houses, the agency directly facilitates these decisions. Longer-term, these founders typically take significantly more money out of the business to facilitate their growing personal lifestyle.

In contrast, the performance agency founder will be taking less out of the business to make the agency numbers look better for the sale process. In addition to this, when the agency sells, the cash in the bank is given to the founder as part of the sale, and using entrepreneurial relief, the founder will only pay 10-20% of tax on this large sum of cash from the business bank account. This founder may end up delaying big life milestones by 1-2 years until the sale process goes through and they get the life-changing lump sum.

Processes

Processes are often limiting in a lifestyle agency, and knowledge flows directly from the founder who is still deeply embedded within delivery. The founder may find it difficult to hand over control or sign off to others in the team as it’s impossible for anyone else to deliver work to the level of this passionate founder.

In contrast, the performance-led founder creates processes from day 1. Mainly to avoid reliance on the founder within delivery, again when selling, the founders typically leave the business within a few years if not sooner. Therefore, the delivery from the agency must be less reliant on them. It also looks particularly appealing to a buying company if you can point to a bank of processes that encapsulate all of the agency’s knowledge and processes as this is essentially the IP of the agency.

Hiring

A performance agency founder may put a higher emphasis on hiring experienced talent at the highest level of the industry. If the founder can’t be relied on to be the pioneer of knowledge and innovation within your discipline, then they will need to hire people who will be.

The founder of a lifestyle agency won’t be looking too closely at the numbers or marketing aspect of the agency. Often growing through word of mouth and referrals off the back of incredibly high-quality work. The majority of the business side of running the agency is outsourced to interim consultants so the owner still maintains control but can tap into the knowledge as and when needed. The founder may value more experienced sales and marketing teams to ensure there’s a steady stream of additional leads on top of natural inbound leads.

Final thoughts

It is very common for an agency to start as a lifestyle agency and eventually decide to sell. If this is the case, they will need to engage with an M&A partner and it may take 6-12 months to ‘optimise’ the agency to be ready for sale. For example, cutting back on unnecessary costs, maximising the sales pipeline, trimming any fat and just making the overall business more attractive to potential buyers.

I’ve always been told it’s an either or scenario and there’s no middle ground between these two options. That was until I discovered employee ownership which i truly believe is a hybrid of a performance and a lifestyle agency: the founder still gets rewarded as if selling but the company remains with no buyer and the staff benefit in the long term, the founder can remain as present as they want.

There is no right or wrong route for you to take, but I recommend that you determine your position as soon as possible. As an agency owner, your time will always be diluted, so deciding which route to take ensures that your priorities are clear and that your day to day decisions align with your long-term vision. Regardless of the route you choose, it will greatly affect how the business operates, who you hire, and what you communicate to your staff.