How “Agency” Should You Be?

When we talk about being an agency without understanding the nuances of that term, we tend to adapt to the extremes of insourcing vs. outsourcing.

When this happens, we completely ignore the middle ground — and there’s a lot of it.

The fact is, the term “agency” encompasses a spectrum. Think of an “agency” as a point on a bell curve where a company exists — and in all likelihood, not at either extreme.

The Traditional Agency Model

The agency model is built on the idea that the service provider doesn’t need to “own” or employ all the tools necessary to deliver the outcome. One of the services of the agency is gathering the right resources for each job.

The net result is that in the pure agency model, the company handles sales (customer acquisition) and planning (fulfillment), and direct work is outsourced.

Extreme insourcing means you never outsource if you can avoid it. All your resources are internal by design. Your goal is to sell to your internal capacity.

Extreme outsourcing, on the other hand, means you’re one person who hires out everything you need. Your goal is to win more business.

Ninety percent of owners fall somewhere between these two extremes.

About half of the event production companies out there have a bit of everything on their team. They have many of their own technicians and most of their own equipment. Maybe they have creative or design resources or a production studio. Nevertheless, they’ll outsource when they run out of their own supply.

The other half of event production companies — we’ve crossed the median in our bell curve and are moving to the right-hand side — are companies that rely more on sales and planning. They don’t have everybody on staff and don’t rely as much on internal resources. They expect to outsource and plan accordingly.

Think of it this way: The companies represented on the left-hand side of the agency bell curve prefer to use internal resources while those on the right prefer to outsource. The more you lean one direction or the other, the fewer companies you find that share your tendencies.

The point is, you’re already running an agency model; the question is, are you running the appropriate one?

What’s Best for Your Business?

The problem with moving too far left (insourcing) on the bell curve is that you take on more overhead. The problem with moving too far to the right (outsourcing) is that you take on more risk.

You have to consciously decide where your company falls on the bell curve — and it’s not a one-time decision. You’ll find yourself revisiting the insourcing vs. outsourcing decision as your mindset and circumstances change.

When deciding where your business fits on the agency model bell curve, consider Control, Risk Tolerance, and Value Proposition.

• Control: How much control do you need to exercise over the means of delivering services? If you’re good at sourcing and managing suppliers, you’ll require fewer full-time direct resources.
• Risk Tolerance: The more expertise, planning ability, and profitability you have, the higher your risk tolerance.
• Value Proposition: Do your customers value your ability to plan and execute, or do they value your tools? Are you selling the how or the what; the process or the outcome? Those selling the how rely more on insourcing, focusing on the capacity they have available (the process). Those selling the what depend more on outsourcing, focusing on what the customer needs (the outcome).

If, for example, your business is highly seasonal, you have a lot of ups and downs, and therefore you absorb a lot of risk. What do you do in the off-season? In order to reduce costs and improve your resource utilization ratio, you’ll probably want to do more outsourcing and less insourcing.

If your business is more predictable (which is different from seasonal), it’s less risky. You can choose to do more insourcing, knowing in advance what the costs to utilization ratio will be.

Final Thoughts

The Greek philosopher Heraclitus once said, “Everything is in constant flux,” and then wept. Nobody knows whether he was weeping with anguish or joy.

Regardless, Heraclitus was right. Circumstances are constantly changing. You have to consciously decide how to adapt to change if you want to steer your business toward the joy of success. There’s no black-and-white answer to how much of an agency your business should be.

Examine your lines of business. You may have some that respond well to outsourcing and others that don’t. You may have clients who pay for the outcomes you generate, and you may have some who think they’re getting the best price because you control your resources.

In one line of your business, outsourcing may be better, so it’s on the right-hand side of the bell curve. Another line of business, which is on the left-hand side of the curve, might be better for insourcing.

Bottom line: While business is situational, your decisions need to be intentional. It’s up to you to decide how much agency your company needs to be, not just today, but every day.