Is Anything Real In Paid Advertising?

[00:05.4]
Welcome back to "Is Anything Real In Paid Advertising?", the podcast where we pull back the curtain on marketing myths and growth games. I'm your host, Adam W. Barney, and today's guest has sat on both sides of the table. Agency founder and fintech disruptor Alexander Steele is the founder of Opal, a financial platform and credit card solution purpose-built for ad agencies.

[00:30.2]
His team is flipping the script on how cash flow, client billing, and scale actually work. And today we're unpacking what's real, what's broken, and why your agency's growth ceiling might not be your ads, it might be your bank. Welcome, Alex.

[00:45.7]
Thanks, Adam. This is super fun. Thanks for having me. You got it. To start off, let's sort of rewind. You built an agency that only ran newsletter ads and became the number one buyer in Canada. What made you go that niche and what did it unlock?

[01:02.8]
It was kind of a mistake. I wanted to start a newsletter, like a magazine. And then, and you monetize that through ads. And then. So we. We were super good at getting, like, customers for that, but then we were really bad at making the magazine. And so we had, like, a list of people who wanted to buy ads.

[01:20.6]
And then I was like, well, let's just go find other publications to put these on. And so we would buy, and then we'd mark them up. And it was, like, total accident, to be honest. Like, it was just. We knew the customers wanted ad space, and so it was sort of an accident that we started an agency.

[01:36.7]
Like, I wanted to be a magazine publisher, like a newsletter publisher. I always thought that would be cool. And, yeah, it's kind of a mistake, but it worked out. You gotta love how mistakes sometimes lead to things that you wouldn't have expected or didn't plan on. But after four years of that, you made the leap to launch Opal.

[01:55.6]
What was the insight that made you go all in on financial tools for agencies? Yeah, I mean, it was a couple things. The biggest one was that somebody offered to buy the agency, but it was such a headache to run, I didn't really want to sell it and then stay working at it for another four years, which you have to do, really, when you get acquired.

[02:12.9]
And I was like, if there was a tool that would make my job a lot easier, I'd probably want to stay in it. And I bet you there's a lot of other people who feel the same way. And so that was really the reason why we, why I took the plunge. And yeah, I don't know. That was also like not really on purpose.

[02:29.6]
Like the fintech thing wasn't on purpose. Like I wanted to start a software company not a bank, like a neo bank. We're not a bank for compliance, but like credit cards and all this stuff. Like that really wasn't intentional. But then it's what our customers want and need and so it's like we're in service of them.

[02:46.6]
So that's what we end up doing. And now it's ironic that most of our time is being spent like doing banking related stuff like dealing with debt and underwriting and equity. All this stuff that like software is a lot easier than fintech. Like just like pure play software.

[03:02.3]
It's like you build it and then you sell it. Fintech is like, you have to like we have a partnership with Visa. We have, you know, we've all, we've all these little things that we need to manage and deal with all the time. So it's great but like very different. Again, it was kind of a mistake. Like we didn't do it on purpose exactly.

[03:18.7]
I have to say, working with clients in my marketing career with like Bank of America through the 2008 financial crisis, you became acutely aware of Sarbanes-Oxley compliance and those fun things that you never would have expected. I know, Alex, one of the other things that we've mentioned and talked about before is how banks massively undervalue ad agencies actual scale.

[03:43.6]
Yeah. I'd love for you to explain kind of how Opal underwrites differently than those traditional players. Yeah, so we, that's what we noticed too. And like the big things like Amex, or Chase, or B of A, like they'll, they have very, very broad underwriting terms and underwriting is basically how they decide how much credit or if they'll give credit to someone.

[04:04.1]
Whereas we specifically have an underwriting model built for agencies and brands to do ad spend. And so the way our model typically works is either we're underwriting the agency and we're giving them like a huge pool of credit to manage all their ad spend through, or the agency just refers us direct to their customer, the brand, and then we underwrite that brand.

[04:22.3]
And so like we're looking at LTV to CAC, we're looking at CAC to payback, we're looking at ROAS. Like we directly connect to your Meta, and your Google, and your Microsoft accounts, and we're monitoring your ad spend as it goes to make sure it stays profitable. And then we fund that spend as it goes.

[04:37.8]
And so my opinion, this is a very loft arrogant thing to say. I think we're going to like double the GDP of the world because we're basically going to say to every small business and every brand in the world like, hey, you have this ad set that's working at a small scale. We can give you credit and monitor to see if it'll work at a bigger scale.

[04:54.8]
All right. I think it'll be cool. I don't know, exciting to me. I love that lofty goal of doubling GDP in the world. That it's about figuring out the small steps to get there. Right. You know, you said something in a previous conversation that I loved.

[05:13.9]
You know, saying that we looked at ad spend, not revenue. Yeah. Why does that shift matter so much for agencies who, honestly, from my experience and everything that I have heard from so many others, live or die by client media budgets?

[05:30.3]
Yeah, I mean, well, I mean there's a few different agency models as we know. Pretty common would be like percentage on top of ad spend as a fee. And so we really help a lot there. If we can triple all your clients budgets without them having to pay anything extra. Like beyond the fact that you're now managing a bigger budget, I mean, that's super helpful.

[05:48.7]
But then there's also like ads are an expense, but they're an expense to generate revenue usually pretty quickly. And so it's not just like you're buying laptops and laptops also generally do also turn into revenue. It's just not as like clear and quick.

[06:04.0]
Whereas like ads, it's so clear. Like you, you literally have pixels like and you have these like purpose built solutions to tell you where the money is coming from. And they're usually coming from ads, especially if you're working with a good agency. And so for us it's like, yeah, the revenue of course matters, but it's like the revenue doesn't scale as well as ads do.

[06:23.9]
And ads will scale your revenue. Right. So I don't know if that's a good explanation, but. I get it. And then I guess looking beyond sort of that capital side of it and that efficiency, what does the Opal software suite help agencies do better?

[06:40.2]
Does it also get into contracts, invoicing, payments? And then how do you connect those to ad execution? Yeah, so they, yeah. So when an agency onboards, they have full access to contractor templates, client templates, NDAs. Anything really that an agency is going to need for their core business and that's just included with the software suite.

[07:01.8]
I don't even think we're charging for it. I think if you're on the card, then that's just included. And then on the invoicing side, yeah, like client invoices. So monthly recurring percentage of ad spend, all of that's included. And then you can accept ACH or credit card payments through us. And the whole point of that was just because we're like.

[07:18.9]
And all this by the way, connects to QuickBooks to automate your bookkeeping. It's just like, all an agency owner should be doing is either giving their client results or getting more clients. Everything else is like nonsense. It's sort of like it, I mean in your world too, like with the podcast, like we should either be talking or not.

[07:35.8]
Like there shouldn't be like 50 intermediate steps for you to do like busy work in between. It should just be like, this is what you're great at, so this is what you should focus on. That's what we found. That's what I found. At least running the agency was like I could get clients, we had service them. It was like the other stuff in the middle, it was killing me.

[07:51.8]
It was just, I was like, I don't want to do the busy work, I just want to do the fun stuff. And so that's basically what Opal is designed to do is just like give, give you the tools you need so you can just focus on like high impact work. Help on the paperwork trail and those things that nobody wants to do necessarily.

[08:09.9]
Exactly. You know, I also know that you've already hit capacity on new card customers. What's been the hardest part of growing that fast? Well, because the credit card, we're constantly raising more debt, like debt and equity.

[08:25.1]
So that is a whole other beast. That again is like not needed with a pure play software company. That's been interesting. Honestly, the customers are really easy to work with. Like agencies get it. Like there is also the bar is super low for any banking related product.

[08:41.2]
Like most credit cards, you're used like an interface that was built in the 1990s. You can't get a hold of the customer support. Like if you want anything, they charge you a fee. It's really, really easy to be better than that. Like most of our customers have my cell number. They can just text me and I'll reply in two minutes.

[08:56.9]
Like, it's not like that. It's not super complicated for us to provide really good service. Now what we're running into is, like, we need bigger and bigger amounts of money to give them better credit limits and, like, bigger and bigger credit limits, which is great for us as a business. It's good for our customers. But that would be like our number one constraint right now.

[09:14.7]
Gotcha, gotcha, gotcha, gotcha. That's a hard one to wrap your head around, but it's gonna get easier as you scale up over time. You know, sort of looking at the lens of, knowing you and I both work with those sort of $250k to $5 million a year agency founders that are wearing too many hats, what do you see as the most common operational trap that they're falling into might be?

[09:36.2]
I'd say, honestly, ironically, probably hiring too many people too quickly. That one can be a tricky one. And then the other one is more controversial. But it's like, you might have a bit of money, but you're not retirement successful yet.

[09:54.5]
And I think a lot of people act like they are. So I've seen people get to that point and then, like, they don't return client calls nearly as quickly. And it's like things just a little bit start to fall through, and then maybe they lose a client. And then it, like, then it all comes. They're like, oh, my God, this is not what I thought I would be doing.

[10:11.8]
Like, then all of a sudden, they're back in it. But I've seen that happen probably five times, and I know that because I did it myself. Maybe. It's like, when the business is going really well, it's very easy to be, like, kind of just get distracted. And so that's why having kids is good, because it keeps you very focused, as you and I both know.

[10:31.1]
But, like, yeah, I think those are probably the two big ones. It's like you can do a lot with a small team, especially right now, you can do, like, incredible, incredible amounts, especially for an agency, like, with tools like Opal or I'm sure there's others. Like, administrative tasks are now, like, kind of can be an afterthought.

[10:49.8]
They still need to get done, but they can take a minute a week instead of a few hours a day. And I remember in my early ad agency days how many times we would have to sit talking with our internal finance team about invoices and payments.

[11:06.0]
And I can't tell you how many times our invoice processing team forgot to pay the bills to places like Google. And you talked about managing, or I would talk about managing $20, $30 million dollars a month in terms of ad spend on those platforms, and you get that letter from whoever the tech power might be saying they're going to shut your accounts off.

[11:32.4]
That's never something that's an easy conversation to have. No. Well, and it's scary because it's like these things are almost like you almost look at them in the moment and be like, we'll deal with that. But the reality is like that, that is sort of like if we use the glass ball, plastic ball analogy, like at a certain point if Google kicks you off and you're an agency, like that's a glass ball, even though it doesn't feel like it in the moment.

[11:54.6]
Right, right. And it's something you can't predict either. Right. So in that sort of realm, do you think too many agencies scale ads before they scale their systems? Is that one part of the problem as well? Yeah, it certainly could be, yeah.

[12:10.4]
I mean it would definitely depend. Case by case. But yeah, for sure. I mean that could definitely happen. Like, I know, yeah, they need capacity to manage the ads. AI is not really there yet. Like you still need human beings to do it. And I think, I mean, I guess you could still get like one good ad manager running multiple campaigns, but as those campaigns scale, there's going to be, I mean, if you triple your budget, you don't necessarily triple the work that goes into it.

[12:36.2]
You might be like one and a half Xing the amount of work. So you might need another 50% capacity for that one person. Right. Yeah, it definitely gets more complicated. That's definitely for sure. As you grow, like everything changes. And then I guess reflecting back, what advice would you give your past self as an agency owner that you know, now that you're in the sort of fintech trenches on the agency side?

[13:01.3]
I would leverage tools more often, I think. Like we were very much like peanut butter and duct tape. Like we're like, whatever, we'll figure it out. We'll make it work. Like, that's not really built for us, but whatever, we'll figure it out. And that would work for a few months and then we'd have to like do a complete overhaul of our systems three months later and it was just like a nightmare.

[13:22.5]
And so probably, that would probably be one and then number two would be high, like, spend more money to hire people that are actually worth hiring. Right. Like, I think with Opal, we raised a bunch of money for it. And I've never in my life, like, then had the budget to hire like the best of the best and whatever we're hiring.

[13:40.4]
And that is like It doesn't even feel like work. It's like mind boggling how much smarter they are than me. And so like, but with an agency, like, nobody will fund it. So it's all out of cash flow. So that's like you're basically, you give up your income to hire somebody. And so I, would 100% if I go back, take half the income, but hire twice as good people.

[13:59.9]
Hire the right people. And that, especially as a new dad, you know, is probably part of the shift of how you think about growth, energy, and time on a personal level as well. Definitely. Yeah, yeah. And hiring the right people also just like the biggest thing is just being able to trust them.

[14:15.0]
Like, hey, if I know with reliability that you can get something done, it's so much easier for me for my mental state if I'm like, I have to put my daughter down for a nap. Oh, but we have to do something in the next 20 minutes. I can't ask that guy to do it. That like, as soon as you make that decision in your head, you're like, well, I don't know if this is going to work out because, like, you have to be, our whole team really needs to be reliable, especially where it's a startup stage.

[14:38.2]
Like, we're so small, such a tiny team. I don't know if you've experienced the same thing. I've been there and I've seen it. I also sort of wonder if you, for instance, had to go back and build another niche agency from scratch today, where things are with the changing world that we're living in terms of marketing and advertising, what would you possibly focus on?

[15:03.8]
It's a good question. I would, I would probably just like a really quickly growing segments. Like I'm in Canada. So Canada is mostly like natural resources. And so that's where that's where we're focusing. If I was in, like, obviously if you're in San Francisco, I'd focus on tech.

[15:19.8]
If it's New York, I'd focus on finance. I think you could go do something like really, really interesting, like niche for grocery stores or like niche for a vertical, but then you go countrywide. And go city by city and say we're picking one client per city so we're not competing. And like, find one ad set that works for a grocery store in, like, Kentucky and just apply that everywhere and literally replicate the same ads.

[15:43.2]
Like, I think that would just crush it. And then I'd build a product alongside it. Oh, no, you didn't mean too excited, but I'd literally build like a product alongside it. Like some type of a loyalty product that you then bundle in with the agency to make it stickier. Interesting. Like purpose built for grocery or liquor stores or convenience stores or whatever it is.

[16:03.3]
And then I just go as hard as possible. Like, get them in the door with the agency with like a really, really compelling initial offer and then make it really sticky with the loyalty program. Right. That's probably what I would do. I'd probably. Yeah, that would be super fun. I have to say that that's that idea of niching down.

[16:18.8]
But then also what's come up here before is this idea of niching sideways. Right. That's the way. That's the way to do it. Awesome. Thanks. Yeah. All right, Alex. Sorry, go ahead. No, no, no, no, no, no, you're good. I was going to say, Alex, this was just such a smart breakdown of how real growth isn't always about, say, better creative or more ad spend.

[16:40.6]
It's really about the back end engine in so many times. Where can folks go to learn more about Opal and connect with you? Opalspend.com. O P A L S P E N D dot com. Sorry, I'm not that good mentally.

[16:57.4]
But we'll have that LinkedIn below as well, of course, with the show notes here. And then, yeah, I'm on LinkedIn like Alex Steel or Twitter. Both of them I'm relatively active on. I try to reply to everybody whenever people. People message me. Yeah, and I'd love to chat with anyone, like, ad agency or not.

[17:14.8]
Like, I'm very social, so as you know. Yes. Yeah. Fantastic. And then finally, for the ad agency founder who's scaling hard, but they're cash strapped every month, what's your one piece of real deal advice? I mean, it depends where the cash is strapping you.

[17:30.9]
Like, I'd say reach out to us. We might be able to help. Or it's like sometimes it's a revenue problem, sometimes it's like a management problem. Like sometimes you might be not bringing in as much as you might think. And like, it could be that the business model needs a tweak to really make the business work or you need more scale.

[17:47.6]
Like if you're charging 10% of ad spend but you're only spending $50k a month on ads, like $5 grand a month is great for yourself but it's hard to hire a team on that. So you might have to do the work of like three people to get to scale for you to hire your first people. So something like that probably. I love it.

[18:04.3]
That's deep insight on how you go from working as a solopreneur, building an agency model, to scaling up in the world. Awesome, Alex. All right, well thanks for tuning into "Is Anything Real in Paid Advertising?", the show where we find the signal behind the noise.

[18:21.9]
I'm Adam W. Barney. Subscribe, leave a review, and check the show notes for more. Amazing. Alex, thank you again for joining us today though. Thanks for having me, Adam. It was really fun.