Mistakes agencies make ...
The journey of building a digital agency is not the same for everybody. One of the mistakes agencies make is looking for a silver bullet that will make them a success. Another is underestimating the time it takes to build a business. There are 4 key milestones in the life of any digital agency:
STAGE 1 – Micro Agency (2-4 people, < £250k revenue)
STAGE 2 – Lifestyle Agency (5-15 people, < £1M revenue)
STAGE 3 – Growth Agency (16-50 people, < £5M revenue)
STAGE 4 – Established Agency (50+ people, > £5M revenue)
Navigating each stage requires plenty of hard work, desire, determination and a little bit of good fortune. But it also needs something else; at each stage you need a fundamental change of approach. “What got you here, won’t get you there” is a crucial mantra for growing an agency.
For many people, getting to STAGE 1 is a major achievement. Becoming a Micro Agency means they’ve broken away from being a freelancer. They’re now an employer and running a small business. But at this stage, they’re still spending the majority of their time delivering client work.
To move to STAGE 2 requires that they delegate at least some of the delivery work and start to develop their team. I consider agencies at this stage to be Lifestyle businesses. Its possible to run a good company, enjoy what you’re doing and make some decent money running this type of agency. Some founders are happy at this level. For most people though it’s not enough. They want growth. They want to create a valuable business asset. Getting beyond £1M in revenue is an important milestone which many smaller agency owners focus on to fuel their ambitions.
Some agency owners achieve 7 figure revenue easily, others find it more of a struggle. Despite a lot of time and effort, many never manage it at all. The reality is that most of the people that do break the £1M barrier get stuck at some point beforehand. They usually find themselves north of £500k revenue with around 10 people when their growth hits a plateau. These are the archetypal STANDSTILL agencies that I describe in my award-winning book STANDOUT OR DIE. The more time that passes and the more growth stagnates, the more frustrated and disillusioned the agency founder becomes.
There are many contributing factors as to why agencies can find themselves at a STANDSTILL. But the over-arching reason I see time and time again is the fact that they don’t recognise that to grow they need to change. One of the mistakes agencies make is not realising what got them to this point, is not going to get them much further.
STAGE 1 - A fight for survival
People rarely start completely from scratch when setting up an agency. Most new agency owners have some established relationships or a network they can tap into to start them off. But getting going is usually a struggle. The need to make some money and get the agency off the ground means that new founders usually accept work from any type of client. They’re in survival mode.
Often agencies at this stage also take on projects needing skills outside their own interest or skill set. Few manage to focus on a type of client or core service provision. The result? Another agency is born and starts to grow. It might even reach STAGE 2, but it has a mix of clients across different sectors with different needs. Its offer can soon become what I call diluted (but what these agencies more commonly refer to as “full service”).
STAGE 2 - More of the same please?
They say success breeds success, and once agencies experience early growth they assume it will continue. It’s easy to see why they think adding more clients, more services and more people we will propel their revenue to the million and beyond.
Agencies wanting to get out of STAGE 2 tend to expand their thinking. One of the mistakes agencies make is to assume broader is better. If they do more diverse work for more diverse clients using people with more diverse skills then growth will follow. Not necessarilly.
It’s counter-intuitive, but the key to getting from STAGE 2 to STAGE 3 is not breadth but depth. Rather than expand, you actually need to narrow what you offer (and who you offer it to). You need to become more picky about who you work with, not less. You want deeper relationships with fewer clients. You need to offer fewer services not more. Your task is not to grow your team, but to grow a team of experts.
In STAGE 2 you shouldn’t be in survival mode, so you shouldn’t be using survival tactics. Adding new services and working with more diverse clients might make your agency a bit bigger, but it will also cause you to become less focussed and bring you more problems. To get to the next level, STAGE 2 agencies need to be in growth mode and when growing agencies at this stage, less is more.
Step back to spring forward
In the UK 20% of businesses fail within their first year and 60% within their first three. When people first start out running an agency, it’s entirely understandable that they will do practically anything for anybody to make their business a success. It’s a crucial time.
Once established though they must change their approach. If they want to avoid becoming a STANDSTILL agency they need to take a step back and refine their business model and offer. They must become more focused in terms of the clients they are targeting and what services they are providing. This is the key to breaking through the £1M revenue barrier.
Once you get beyond 7 figures and into STAGE 3 of your growth trajectory, you might then decide to broaden out your offer. But in order to get there you need to be more single minded. If you don’t want to call this “niching” then so be it, but whatever you do, sharpen your focus. A sharp knife cuts through far better than a set of blunt ones.