Own More, Run Less: The Agency Holding Company Playbook with Peter Kang | Episode 263

Episode Summary

Most boutique founders believe you need scale before you can stop running the business. Peter Kang disproves this. As co-founder of Barrel Holdings, Peter made the transition from owner-operator to pure owner — not by growing headcount, but by building a portfolio of specialized agencies run by other operators. In this session, Peter shares the holdco playbook: how he structured the entity, found operators, acquired firms without cash, and created durable cash flows that free him from day-to-day delivery. If you’ve ever thought about owning more and running less, this episode shows you exactly how to get there.

About the Guest

Peter Kang

Co-Founder & CEO · Barrel Holdings

Peter Kang is the co-founder of Barrel Holdings, a holding company that owns a portfolio of specialized digital agencies. He co-founded Barrel, one of the leading Shopify Plus agencies, which he ran for 18 years before stepping back as an operator. Peter is the author of The Holdco Guide: How Entrepreneurs Structure and Build a Holding Company That Lasts, available on Amazon and Audible.

Key Takeaways

• A holdco is not a size milestone — it’s a capital allocation decision any owner can make
• Most agency acquisitions require little to no cash: seller notes, acqui-hires, and revenue-share structures are all viable paths
• Durable cash flows from a portfolio of operators let you transition from running the business to owning it
• Building a house of brands means finding operators first, not deals first
• The entrepreneur’s job shifts from delivery to capital allocation — and that shift is learnable
• Incubation and acquisition are complementary strategies; early incubation failures pushed Peter toward acquisitions with existing cash flows

Full Transcript

Greg Alexander: Hey, everybody. Welcome to the Pro Serv Podcast. I’m your host, Greg Alexander, founder of Collective 54. If you are new to this show, we aim to do three things, and that is help you make more money, make scaling easier, and make an exit achievable. And this show is dedicated to founders of boutique professional services firms, so if you market, sell, and deliver expertise for a living, this is for you.

And on today’s episode, we’re going to welcome back a guest of ours on this podcast and a member of Collective 54. His name is Peter Kang. And the reason why I asked Peter to come back on the show is because Peter ran Barrel, which is a New York digital agency, and he ran it for 18 years. Before he built Barrel Holdings. And Barrel Holdings is a decentralized holding company that acquires specialized agencies and lets the leaders keep running them.

And he wrote the Holdco Guide — excuse me, that’s a mouthful — to show founders how to move from running one business to owning a portfolio of cash flow operating companies. And he was on the show about 2 years ago to talk about the holdco idea. But I wanted him to come back because he’s now got 2 years of scar tissue, so to speak. And he’s going to share with us what he learned in the last two years and how it’s going and what we might be able to extract from that.

And I’m really intrigued by this personally, because I have a side hustle myself, and that is called Capital 54, and I invest in boutique professional services firms, and I have admired Peter’s work. I follow him and read his stuff, and I think he’s got a lot to share with us.

Peter, with that, welcome back to the show, and if there’s anything else you’d like to add to your bio and your intro, please do so.

Peter Kang: Yeah, Greg, really great to be here. No, I think you captured it all, so we can just dive right in.

Greg Alexander: Okay. All right, so what I’ve learned from you recently, and reading all your stuff, is that there’s a myth out there right now, one of many, and that is you have to be a really large firm to do this. And it appears that that’s not the case. And even smaller firms — air quotations — can actually deploy this strategy. But I’d like to get your perspective on that. Is becoming a holdco a size milestone or some other aspect?

Peter Kang: Yeah, I think the thing is to decouple size and scale from the actual definition of what a holding company really is. And really, a holdco is just an entity that oversees a bunch of different operating companies underneath it. So if you think about it that way, it really becomes all about the act of capital allocation. So you have operating companies that spit out some amount of profits, and that goes to the holdco. And it’s about taking those profits and allocating them a different way. Sometimes that could be reinvesting back into those operating companies. But other times, it could be doing M&A, whether it’s bringing a new operating company into the mix or maybe doing a tuck-in acquisition to an existing operating company.

So it’s all about what are you doing with the cash flow that you’re getting from these operating companies? And sometimes you could just be giving distributions to your shareholders, yourself — so that’s another way. But yeah, it has nothing to do with size. You can have a very small revenue footprint holding company.

Greg Alexander: So if I’m somebody listening to this show, I’m a Collective 54 member, and I’ve decided that I want to do this — the first question I’m gonna get from them is, well, I don’t have the money to do it. That’s what I mean about size. Like, how do I go buy agencies if I don’t have $10 million in dry powder sitting off to the side of my desk somewhere? So how does this get done with somebody that has modest means?

Peter Kang: Yeah, so I think it all depends on the goals, and you can argue that an agency — if you have one agency or one firm that you’re running, and that is your main source of cash flow — you can still structure that as a holding company, and then continue and buy other agencies. And a lot of acquisitions actually don’t need much cash to buy at all. A lot of these you could finance as a seller note, where the seller is obviously the one financing for you, allowing you to pay over time. You can always get a short-term loan, maybe your line of credit or whatever, as a way to pay a small down payment. Or a lot of times, there’s an acqui-hire type of situation where you’re bringing folks into the mix. And you might structure it so that a certain amount of revenue carries over, they get paid a percentage of that.

There are so many different ways to do this without the dollars being the gate for making these moves.

Greg Alexander: Now, you went from being an owner-operator for many, many years to being an owner and no longer an operator. That’s a big structural shift in one’s career. What triggered that? And now that you’re two years in, what have you learned?

Peter Kang: Yeah, so the quick recap is, part of it was organic. So I was running, with my co-founder Saywook, we were running Barrel, our original agency. We ended up shifting to Shopify and focusing our services there. Ended up spinning out a portfolio of clients that became our first company outside of Barrel, and put someone else in charge to run the day-to-day of that. And that was a blueprint, because we were like, wow, we’re just shareholders in this business, but now we’re getting cash flows from this business. And so that gave us the idea to spin up another business, put another operator in charge. This was B2B marketing websites, and that started to do well as well.

So that gave us the confidence to say, hey, if these two businesses are running without us, why should we be running Barrel? Maybe we should step out of that as well. And so we began the steps to untangle ourselves from 18 years of operating the business. And so we took a step back and identified a successor from within the company, handed over the reins. So that was about a year and a half to two-year process, where we had to really get this person up to speed on the biz dev side, the finance side, and all the aspects that a CEO needed to know.

And once we handed over the reins, that freed us up to then focus on the holdco. And that’s where we really, over the last two years, mapped out the strategy for what our holding company would become. Because initially, we only knew what we knew, which was — oh, we’re gonna launch new agencies, we’re gonna have an idea for this agency, and we’ll find an operator, and we’ll try to incubate and launch this business. But we quickly learned that we might have gotten a bit lucky with the first two, and there were some tailwinds that we were able to take advantage of. The next few launches didn’t quite work out as well, and this is where we started looking more seriously into acquisition possibilities. And so we started to look at, hey, there are some agencies that seem to have service-market fit, have a good roster of clients, have talent servicing them. Maybe we can bring them into our portfolio and share our playbook on how we can help them grow. But at the same time, they already have cash flows happening, and this is something that we can acquire with a bit of leverage.

Greg Alexander: Yep. You know, in our conversations, in all of its forms, we talk about investment philosophy and this term — capital allocation — which is a term that really defines what it means to be a great investor. And allocating capital, which is in my opinion three things. So, money, obviously. People — finding an operator, to use the words that you just used. And then also time — as Peter has evolved, he spent all his time at one point being an operator, and now he spends all his time as an owner. That’s a shift in the allocation of a form of capital.

So, for the audience that might not have done the amount of self-study that you’ve done on what it means to be a great investor — what is your capital allocation strategy at this point?

Peter Kang: Yeah, I’d say a lot of it is thinking about how do I — what are the activities and resources as well as actual dollars I can allocate to create durable cash flows in the future. And so that becomes always kind of top of mind.

And this has to do with design and also goals and what kind of vision you’re working towards. And so you’ve got to work back from the vision that you have and think about what the steps and moves you need to make now are. So, both my co-founder Saywook and I really thought about designing a business for the next 20-plus years. We were like, hey, we worked for 20-plus years together, met in college, and really feel like our partnership is something we want to continue, but we wanted a different chapter. And from there, we thought, okay, what is the business that we want to be owning 20 years from now? And it really wasn’t any of the operating companies, but it was about our ability to own multiple companies and create the structure around it.

And so we were like, alright, what are the different levers we need to really develop and pull? Part of that was, okay, we need to build this machine where we’re continually bringing in new businesses, and also we need a system where we are continuing to improve the businesses that we have. And then we also need a mechanism for bringing in fresh talent to run some of these businesses. And we also need some idea of, if these companies reach a certain scale or there’s a certain appetite to exit, we have a pathway for that as well. And there’s a benefit to that — where we have a successful exit, then we can bring more capital onto our balance sheet, which then allows us to do even more acquisitions. And so it all became this kind of flywheel design that started to take shape. And that really informed the investment philosophy — okay, cool, if this is what we’re optimizing for and trying to build towards, then all the decisions that we make need to be in service of that vision.

Greg Alexander: Yep. Starting with the vision — you know, sometimes I ask members, what’s your vision? And it’s really not a vision. It’s like, what am I going to do in the next 6 months? And what you just described with your partner is a 20-year vision, and I admire that about you guys very much. We live in a world of instant gratification, and to think 20 years in advance is quite a remarkable thing, so congratulations on all that.

And then, once you have that North Star, so to speak, you can work backwards from that. And to your point, what are all the things that you have to be good at — your core competencies — for that vision to be realized? And if you have that degree of clarity, decision-making becomes easy. Am I taking a step towards that vision, or a step away from that vision? And what is my opportunity cost? It allows you to say no to a lot of things that I’m sure come your way.

Sometimes when I speak to members who want to sell, they want to sell because they don’t like what they’re doing anymore. They’re tired. These days, sometimes people are worried that their firm’s going to go out of business because of AI. There’s a lot of people drama sometimes in running these firms and that can wear people down. And it usually happens around the 10-year mark.

What I find interesting about your space is that you’re buying firms and the founders are staying on and continuing to work. So, when you’re meeting with an operator who wants to join your holding company, tell me how that conversation goes, because most times when people sell, they’re looking to cash out.

Peter Kang: Yeah, and so, a bit of nuance there is, some of our acquisitions are full founder buyouts, but the way we underwrite for them is we make sure they have a very capable number two, who may already be a shareholder in the business, or just somebody who’s very incentivized to continue to run the business. And so we do look at what’s that transition going to be. And the reason being — and this is not because we’re opposed to that — but there are some limitations with the financing that we use right now at our stage, which is SBA. And so with that, there is a one-year limitation on how long the founder can stay in the business, and so we have to make sure that transition plan is in place from the get-go.

But a lot of these folks, especially at the size and scale that we’re acquiring these businesses — their fingerprints are all over it, the founder’s fingerprints are all over it. And part of their motivation in selling to us is they love that we’re not there to absorb it and make it disappear into something bigger. They know that this agency is going to live on as the brand that they had, and we’re really preserving the culture of that business. And if anything, we’re acquiring them because we like certain aspects of what they were doing, and we wanted to do more of that. And then, of course, on top of that, we might layer on some best practices, or try to institutionalize or scale certain aspects of the business.

But fundamentally, yeah, we’re helping to push along faster the trajectory that they’ve set the businesses on. So I think that is a compatible message to a lot of people who — of course the money is important, but they also care a bit about the legacy side of things, or the relationships that they’ve developed with the people that they care about.

Greg Alexander: Yep. You know, Collective 54 is about professional services. That’s why the number 54 is in the name — that’s the industry code. Marketing agency is one of nine sub-verticals in it, sitting alongside consulting firms, law firms, accounting firms, etc. The holding company idea is most prominently displayed in the marketing vertical, more so than most other professional services by a large margin. Some of them are huge, like Omnicom and others. What is it about the marketing segment that has allowed the holding company model to work so well, and why hasn’t it spread into the other segments?

Peter Kang: I actually think the holding company model is more prevalent than we think, because if you think about something like accounting — tons of roll-up activity there. And a roll-up is, in a sense, still a holding company. You see some of these accounting roll-ups where they are able to keep different brands under an umbrella and still operate with a shared back office. So you can argue that those are happening. And then even in the consulting space, there’s definitely been some consolidation slash holding company movement.

Here’s my take on why — I think when you talk about holdcos in the marketing space, specifically the advertising space, the WPPs, Publicis, Omnicoms of the world, they were like the big holding companies. Whenever you thought about holding companies, those came to mind. So they kind of put their stamp on the industry. And whenever people talk in passing about holdcos, it’s always about the big four. And so I think there’s a bit of a conflation with that.

Because the more I’ve studied this — and just in my research for the book — once you understand the holding company structure, you see it in all industries. It’s really remarkable. Like, the other day, I was just thinking about Olive Garden, for example. I’m like, oh, they’re owned by Darden Restaurants, right? It’s like a holding company, which also owns other restaurant brands, and they’re continuing to acquire more. And so these things are everywhere. There’s one that’s rolling up HOAs across the U.S., and that’s a holding company as well. So you kind of see a lot of this stuff that is more prevalent than we think. It’s just, yeah, historically they’ve just had the kind of press. It’s been sexy to talk about holdcos at the advertising level.

Greg Alexander: You know, I’ve studied this myself, and one of the things that I ran into was this debate between the branded house or the house of brands. So for example, you talk about Darden Restaurants — many people don’t realize that they own the Olive Garden, but they also own The Capital Grille. A high-end steakhouse versus a moderately-priced Italian restaurant. That’s an example of a house of brands, as opposed to a branded house.

So there you were with your partner, grinding it out for 18 years with Barrel. And those 18 years, you were a branded house, not a house of brands — at least as I understand it. And then you made this pivot to become a house of brands. Why? Why not just concentrate your capital and continue to grow Barrel? Why go this diversification route?

Peter Kang: Yeah, I think this is really key to our thesis for the holding company, which is about having a portfolio of very specialized agencies. And we had already gone down this path with Barrel of becoming specialists in e-commerce, specifically the Shopify platform, and even within that we went further — hey, CPG, especially on the food and bev side, that’s our core focus. And we thought that was a real strength because there’s durability in that. You get these clients coming to us because we’re well-positioned, and we felt like, hey, that’s a nice asset to own.

But to dilute it or try to add more to it just felt like it would defeat the purpose — the strength of that asset. And so we thought, okay, what if we also want to diversify? And remember, we had a couple of other agencies running, and we had one that was really positioned as a B2B marketing and web agency, and that too made the growth of that agency a lot smoother, because we could focus our sights on the ICP, all the marketing activities, partnership activity could be really focused. And so, leaning into that, we were like, okay, we really can’t put this on Barrel. It would just make it really awkward — you have two totally different ICPs and all that. And so that was kind of the genesis of, hey, we like owning these.

And these are sub-$10 million a year agencies that are generating anywhere between 20–30% cash flow, and owning several of these just started to make more sense to us. And it gave some diversification too — I remember there were periods where e-com was hit bad or something, and you have a down year, but then there’s a big push with AI funding and stuff, and our other agency, BX, would do a lot better. We like that kind of diversification.

And the more we started to look around, we were like, wow, there are agencies specialized like this that have that durability, have that really great positioning that we could bring into the mix and further diversify. So our most recent acquisition is a lead gen agency in the home services space, specifically within water treatment, and that’s a whole new ICP that we haven’t had exposure to. All this, let’s say, if there’s a funding bubble on the AI side and that kind of dries up, maybe that hurts our B2B tech marketing agency, but water treatment — big tailwinds, very different, uncorrelated — and so you can see growth on that front.

And we’re building for durability of cash flows, as we talked about, so we like that kind of diversification going in. And that’s not to say — I think there might be consolidation down the line. We have a couple of Amazon agencies, we have our Shopify agency, and that’s commerce, and so there might be natural opportunities to do some internal M&A to consolidate, or maybe create a group to share more services together. So I’m not saying I’m against that, but there are always different approaches that we have.

Greg Alexander: You know, when I listen to you, you mentioned the durability of cash flows several times, which I love. And diversifying the cash flows would be a way to build in durability, if you will. And it’s a stark contrast to the way that private equity does it. I’m a limited partner in several private equity funds that invest in the professional services space. You mentioned the accounting industry, and I’m a limited partner in a couple of those. And they’re just the opposite — they are buying a platform, and then they’re doing adjacent tuck-ins. And by definition, it’s concentrated, because they think their value creation plan is: I’ve got this platform, they have the client relationship, and the client wants to be able to do X, Y, and Z, so then they go buy little firms that have X, Y, and Z capability, and they bolt them on. But all of a sudden, if something happens to the core problem or the core client, that’s a house of cards and it’s all going down.

You went the other way. You went to diversify durable cash flows, at least as I understand it, as opposed to greater concentration, cross-sell, upsell to the same customer. Tell me — because that’s a really distinct difference in how you’re doing it versus some of these mega funds — why did you decide to do it that way?

Peter Kang: Yeah, I mean, a lot of it is leaning towards what I know and what I want to pursue. Because, you know, part of it is — we might be diversified on the ICP front. But you could argue we’re very concentrated on the business model front — it’s agency businesses. We’re not doing software. We’re going into this service business, and sure, we’re going to augment as much with AI and integrate that as much as possible. But fundamentally it’s the business model that we know and we really want to lean in. So you could argue there’s concentration of a sort, but it’s kind of the devil we know, and we’ve had two decades of experience, and we want to make use of that.

And part of our value-add to our portfolio companies is, hey, we’ve seen some of these situations — you’re at this crossroads of making XYZ decision, this is how it’s going to play out, we suggest you make this decision. And that’s highly valuable. That’s our kind of value creation map that we offer for our agencies.

Greg Alexander: There’s a very big learning there for listeners, and I want to underline it and make sure that everybody just got what you said. So, to the layman, when you tell me that you are investing in a lead generation business in home services, and that’s a firm that sits next to a Shopify eCommerce business in food and bev, to an outsider you would say, holy shit, those two things are so different, it’s not even funny. But to you, you know what your core competency is, and that is you know how to run an agency. And the domain of the agency is not as important as the expertise on what it takes to grow and scale an agency. That’s your core competency. And that’s very, very important for listeners.

And again, I really want to emphasize that. That’s why sometimes people ask me, hey Greg, when you started Collective 54, why did you go all the way up to the 54 level? What does an accounting firm have to do with a healthcare services firm? And I’m like, it’s the exact same business. They’re marketing, selling, and delivering expertise for a living. What that expertise is — yeah, that’s a nuance, but the business model, which is where all the value is created, is the same. So I just wanted to highlight that.

Tell me a little bit about the guide, the holding company guide. It’s a book, correct?

Peter Kang: Yes.

Greg Alexander: Okay. So, what’s the book about? Who was it written for? Why did you decide to write it? And for those that want to read it, where do they find it?

Peter Kang: Yeah, so I don’t know if you saw the acknowledgements — I actually called you out, Greg, in it.

Oh, yeah. So when I read it — and it is funny because, I remember, maybe a year, almost a couple of years ago, you were writing interesting stuff on LinkedIn about holdcos. And you asked me like, hey, what are some things I should read or listen to on this? And I started putting together the list, but I was like, you know, these are bits and pieces, and really, I was like, I should really think about summarizing some of the things, or putting down on paper some of the takeaways that were relevant to my experience. And so I did that. And then I was like, oh, let me go research this company. Oh, I remember this company that I read about — I should go deeper and write more about that. And so it ended up becoming like 25 to 30,000 words. At that point, I was like, I don’t want to just send over a PDF of this — maybe I should turn it into a book. And so that’s how it happened. So thank you, I think.

Greg Alexander: Thank you for that. Yeah. So what is it about? What’s the core thesis of the book?

Peter Kang: Yeah. So it’s basically what we talked about earlier — helping folks understand, hey, a holding company is nothing more than this entity that sits atop the operating companies. And it’s about this idea of capital allocation, and it comes in a few different flavors. You can think about it like, hey, there are holding companies that are very decentralized, right? Where it’s strictly capital allocation — you leave everyone alone. Berkshire Hathaway is a good example of this. And then there are companies that are incredibly hands-on. They will make the acquisition, but then once you enter their system, they go, hey, you’re gonna do it our way now. And so Danaher, for example — they have this thing called DBS, the Danaher Business System, and they put these companies through it, and they see instant margin lift or efficiencies realized.

And the common denominator is a lot of these companies have that long-term outlook. And even within the book, I make some distinction between the holding companies with the long-term outlook, and then — you could argue — certain aspects of private equity. They are technically holding companies, but they have a very different motivation. They have a fund timeline that they need to respect and operate towards. And so they’re going to show different behaviors versus some of these permanent capital type of holding companies where they’re recycling cash flows.

Greg Alexander: Yeah. And they can find this book on Amazon?

Peter Kang: Yep, Amazon. And it’s also available on Audible.

Greg Alexander: And the title?

Peter Kang: Yeah, it’s called the Holdco Guide. And that’s how entrepreneurs structure and build a holding company that lasts.

Greg Alexander: Okay. And it’s written for people that might want to build a holdco, but I would imagine the secondary reader is also maybe agencies that might be thinking about selling and why they may consider becoming a portfolio company inside of a holding company. Is that accurate?

Peter Kang: Yeah, yeah, definitely — it kind of explores it from all those different angles. But actually, the other aspect is just for the operator of a single business — it’s just to get them to think about capital allocation, and that they have options.

Greg Alexander: Got it. I have one more question for you. I could talk to you forever, just because this is a personal interest of mine, and I’m sure after this episode gets released I’ll probably text you five times.

There’s a debate in the investment community. Should you bet on the entrepreneur? Should you bet on the market? Which is, you bet on the service offering. And all the great investors who I’ve studied — and it’s a hobby of mine — there’s no consensus. They’re all over the map. Particularly when you get into venture capital, which is dangerous waters, long-tail investing big time.

But since you’ve been at it now for a couple of years, and it sounds like it’s working for you — you’ve built up a nice portfolio of firms that have durable cash flows — where do you come down on that? Is it the individual? Is it the market itself, or is it the service offering?

Peter Kang: Oh, God. This is so — yeah.

I’d say the service offering I would deprioritize, just working backwards, because if you have the right entrepreneur, they can usually get there. I do think market selection is really important. And I didn’t fully appreciate this, because early on I was like, oh, let’s find a cheap agency that we could just buy, and we’ll fix it. But if there are headwinds in that space and the ICP is crushed and their wallets are tight and it’s a bloodbath and it’s hyper-competitive — no manner of high-level execution will overcome that. And so I almost feel like you’ve got to be very — and this is where I started to understand better — great investors develop theses on markets. They try to look ahead. And then you pair that with a great entrepreneur, a great operator, and that’s where the magic happens. So that’s kind of where I’ve landed with that.

Greg Alexander: Yeah. You know, for what it’s worth — and this is where services is different than products — if you’re a tech investor and you ask the great tech investors, they would tell you the product is the number one thing by a mile, because it’s the tech itself. Like, imagine if you were an early investor in Anthropic. The Claude tools are so incredible. Now they happen to also be in a great market and they have a great leadership team, but tech investors lead with investing in tech.

In services, I agree with you — it’s less about the service offering, which is the equivalent of the product. Market is so important. We have a lot of members in Collective 54 who I think are fantastic entrepreneurs, and they’re running tiny little firms. Not because they are inferior entrepreneurs — it’s because they’re in the wrong market. There’s just too hard. They’re doing $5,000 a month retainers when they need to be doing $50,000 a month retainers. And if they just pointed themselves to a different market, all their problems would go away, and they would reach their scale. So market is so, so important in my view.

And then, yes, you do have to have a great entrepreneur — a lifelong learner, somebody with a ton of grit, somebody with a few extra IQ points, someone who can deal with adversity, because that always comes up, someone who has the same vision that you do, the same time horizon. On and on and on. But I just wanted to get that out there because we’re gonna have a lot of people listen to this episode and they’re probably reflecting on themselves. And they’re saying, should I become part of a holdco or not? And I think it’s important to start with, what are we betting on here? The market, the service — it matters so much.

Peter Kang: A hundred percent, yeah.

Greg Alexander: Yeah. Well, listen, Peter, thanks again for coming on the show. Let’s not wait another two years for the next time that we do this. I hope to see you at one of the Collective 54 events. Thanks for putting the book out there. You’ve been a great member. It was wonderful to have you today.

Peter Kang: Great seeing you, Greg.

Greg Alexander: Okay, just a couple of calls to action for listeners. Go to Amazon and buy Peter’s book, I hope. If you want to read more — just general commentary about things like this that are happening in the professional services space — I’m going to direct everybody to my new Substack. That is Greg Alexander C54, and that’s the number 54. I write a newsletter once a week that I think you might find interesting. But until next time, I appreciate your attention and listening to the show, and I wish you the best of luck as you try to grow, scale, and someday exit your firm.