The Case for Service-Based Businesses: The Salt Water Digital Story

Service-based businesses are often overlook in favor of e-commerce, SaaS, and other popular online business models. However, there’s a lot to like about starting and running a service-based business, either online or offline.

Daniel Thompson and Stephen Johnson transitioned from niche websites to running an agency about ten years ago. In this interview, Daniel shares how he went from being laid off to co-owner of a lean, profitable agency.

There’s a lot to take away from this interview. Daniel explains his logic on team size, hiring locally and overseas, the value of Twitter, and much more.

How much revenue and profit does Salt Water Digital generate?

We generated $800,000 in revenue and ~$150,000 in net profit in 2023.

Tell us about yourself and your business.

My name is Dan Thompson and I am the co-founder of Salt Water Digital. We’re a digital marketing company based in Vancouver, BC. 

My partner and I got started in 2011 building niche sites. We would rank websites, put affiliate links on them, and earn a commission. 

In 2014, we made the switch to start serving local businesses. The main reason, it was a lot easier to rank a local business than it was for lucrative affiliate terms.

Since 2014, we’ve built three FBA e-comm businesses (sold two) and Salt Water Digital, our marketing agency. Our primary customers are small businesses just like us. 

How does Salt Water Digital make money?

We are a service provider. The three services we offer are SEO, Google Ads, and Website Design & Management. 

In the past, we’ve strayed beyond our core service offerings, but ultimately this is what we’re really good at. I’ve been working in SEO for 10+ years, my partner has 10 years of Google Ads experience, and our web designer has been with us for 6 years. We try to provide clients with tremendous value.

What was your inspiration for starting the business?

Salt Water Digital started as My Local SEO (we got sued for the name, so we had to switch), and before My Local SEO, it was a handful of content sites. We felt good about our SEO abilities and felt we could fill a massive need in the market.

Most businesses need some form of digital marketing. Trying to find solid providers at a reasonable cost is difficult. Bigger agencies tend to be very expensive and working with freelancers can be a coin flip in terms of quality. Truth be told, the quality at bigger agencies tends to be suspect at times as well.

We wanted to try and fix that by delivering really great value. Not every campaign is a slam dunk, and sometimes we miss, but we try to be transparent and upfront with our clients at all times.

How and when did you launch the business?

The beautiful thing about service businesses is they are incredibly simple to launch. There are virtually no upfront costs outside of our own time. 

In 2013, we signed up our first client who was a referral from a friend. I think we charged him $400/month, and I spent a ton of time working on his campaign. And we grew from there.

How much money did you invest to start Salt Water Digital?

Service businesses don’t require any significant start-up capital. You can use platforms like Upwork or your existing network to find your first client or two. You can whip up a DIY website. 

There are tools that are nice to have but for SEO, Content Marketing, or Web Design you can get by without them initially. So our startup cost was effectively $0.

How did you find your first few clients or customers?

Our first client was a referral from a friend. Our second and third clients came from a networking group. Our fourth client was from our existing network. And it just compounded from there.

It’s strange to think that today, in any given month we might sign up 5-10 clients for various services. When we started we were thrilled to find one person to pay us money each month.

What was your first year in business like?

Skinny. As in, we didn’t make a lot of money, and we didn’t have a lot of expenses, so anything we did make, we were able to take out of the business.

Some businesses can’t grow without significant capital expenditures, digital marketing services is not one of those businesses. The market is starved for good service providers. The most challenging part is getting the flywheel started. Once you start getting clients and you deliver good work, you’ll get more clients.

What strategies did you use to grow the business?

When we first got started you’re just trying to get some clients that you can deliver results for. Once you get some reps under your belt, everything gets easier. Marketing is easier because you can use your past experience as assets, sales is easier because you’ve got more sales calls under your belt, and you can talk confidently about your results & processes, delivery is easier for the same reason.

Basically, the more clients you get the easier it gets until you hit a tipping point where you need to hire people. At that point, you face a different challenge – building a team.

Initially, we relied on networking. Today, we have a good mix of marketing. We generate leads from SEO, Google Ads, Twitter, Referrals, and Networking.

Tell us about your team.

Our team is a blend of local employees and overseas staff. The one place we hire extensively from is a local Facebook group called “Irish New to Vancouver.” Three of our “local” staff members are from Ireland, only one is from Vancouver. We’ve found the talent from this group to be really strong.

We’ve been really lucky to find and retain great employees. My business partner deserves all the credit for that. He makes Salt Water Digital a fun place to work. 

Recently we’ve started adding some overseas staff members to our workforce as well. They accelerate what our local team can get done. A lot of people assume overseas staff replace local employees which couldn’t be further from the truth. Our Filipino employees (both full-time and very important members of our team) allow us to deliver better results for our clients.

We use Elevate and Delegate to find and hire our overseas team members. It’s run by a friend of mine and is a great company. 

What are your future plans for the business?

We grew a lot in 2023, so in 2024, we’re trying to dial in operations. We’re pretty mindful of growing too big, we like working with a smaller team. Once you get beyond 10 employees, it’s hard to maintain a close-knit workforce, which we have.

So, 2024 will be the year we try to improve margins and processes and continue to improve lead flow quality and quantity. 

What are your favorite books, blogs, podcasts, or YouTube channels?

As far as books are concerned I like everything Ryan Holiday has written. The Obstacle Is The Way is worth a read. 

I spend a lot of time on Twitter, I don’t listen to many podcasts or really watch YouTube. As far as who I follow on Twitter, it’s mostly other small business owners. There are honestly too many great people I’ve met on that platform to name them all. 

If I were looking at starting a digital marketing business, Twitter is a goldmine. I would ignore the gurus who show you how to build an agency. Follow the guys who are good at their craft, not selling you on how to start a business. And also follow physical business owners (guys that own plumbing companies, HVAC companies, tree removal, etc.) 

How did you make the transition from side hustle to full-time?

I was working on a couple of content sites and then I got laid off. That gave me all the momentum I needed.

I half-heartedly looked for jobs after getting laid off but I knew that it was now or never and being an entrepreneur was always a goal of mine. 

I was fortunate enough to be generating a little bit of money ($1,000/month) from an affiliate content site and unemployment insurance paid me a few thousand more. A supportive girlfriend (now wife) who worked full time as well also helped.

What advice do you have for other entrepreneurs?

Starting a side gig has never been easier. There are so many good ways to make money and learn a new skill or two. And once you start you never know where it’s going to take you. I never imagined that learning SEO would lead me down the path I’m currently on. 

My first site sucked, and whatever you do at first also won’t be very good. But you just need to start and start practicing.

What is your favorite quote?

I have a few quotes I really like. But one that I think about often is Arnold’s quote “Be useful”. It’s simple but it’s so important.

Be useful to your customers. Be useful to your family. Be useful to your friends. Being useful is such a powerful way to live your life. Being of service to our fellow humans is a surefire way to live a fulfilled and happy life.

If you had to start from scratch, where would you begin?

I would start with a service business. Start a project and learn a skill. Work for cheap to learn a skill. If you get good at SEO, Copywriting, Automation Setup, Paid Ads, Email Marketing, Web Design and are willing to work at it you’ll find businesses that need your help. 

Alternatively, if I was starting all over again I might go cut some grass and start a physical business. It’s less appealing than a digital business and has a ton of its own challenges, but it is less competitive (online you compete with the world, locally you compete with your city).

A lot of aspiring entrepreneurs want to start an e-comm business or a SaaS company because they seem more attractive. But the capital it takes to get those off the ground is far greater and the likelihood of failure is much higher. Service businesses wind down but they rarely bankrupt an owner if they were started from scratch because the capital requirements are very low.

The experience you gain building any business will be invaluable to your future entrepreneurial endeavors, why not start with something that has a low failure rate?