Which agency are you?

Inspired by the excellent agency coach Gareth Healey 's article on how most agencies are small - this is an excerpt from my book which adds to the subject.

How agencies form

Most agencies come into being by one talented freelancer joining another, getting a few good clients who then in turn need to hire staff to cope with the influx of work. Fast forward 12 months and they’re now a team of five or so people and they’re an agency!?

But this comes with inherent dangers. Mostly, the original freelancers are great at what they do but lack the required management and business skills. Some will pick up the extra skills, learn to delegate, and see that they need to grow the business to ensure stability. Others won’t. They’ll lurch from project to project, never being able to get off the tools because they’re the most skilled. It’s a merry-go-round.

Which agency are you?

Marketing and Creative Agencies are fairly easy to categorise. Whether you’re in digital, design or marketing, chances are you’ll recognise yourself here.

Stage One 0-3 People?

+55% of agencies

Easy stuff this. You’re a good designer and/or marketer and have a few contacts, so you decide to start your own agency and hey presto, you’re off! Overheads are low, confidence is high, you love doing what you do and you can work where and when you like. The trouble is, since this seems like a perfect place to settle, you may well be here forever. It’s a stage with pitfalls too, as you’ll find that holidays are difficult to take and new business is hard to secure.?

Stage Two: 4-8 People

25% of agencies

You’re clearly good at what you do. You’ve found your niche and people want to work with you. New business comes along too, but you often have a tendency to focus your work solely on these new clients and forget to look for further new business. This stops you from growing.

Stage Three: 8-12 People

15% of agencies

You’ve found a client you’re growing with. They keep giving you more and more work, which seems brilliant - though you start to realise that they’re dominating your workload. Since you’re working well with them, and you’re still growing, you end up focusing all your energy on advancing their interests.

This means new clients are potentially reluctant to come to you, because you’re overwhelmingly under the thumb of this dominant client. New opportunities pass you by, never really getting the attention that they merit.?

However, Stage three can be a great place to be. It’s an easy to manage place with predictable revenue and you’re still on the tools and doing a bit of managing. But in all reality it’s not going to provide any wealth in the long term. You’re more of a turbo-charged freelancer.

Stage Four: 12-30 People

5% of agencies

You’re an agency of some size now - a big player. You’ve crossed the threshold of being just a collection of people. Now you’re organised into teams with clients that have stayed with you for some time. You’re not overwhelmed by one dominant client, instead working with a handful of large clients, many medium-sized clients and an abundance of smaller ones. You’ve settled on the processes, disciplines and specialisms with which you want to work, all of which allow you to predict where your revenue will sit, your possible profit margin and an idea of where you can grow with some accuracy.

However, the pitfalls remain. You’re struggling with talent recruitment issues, not to mention that all the local competition want to knock you off your spot. As a result, you need to constantly pitch for new business, whilst still maintaining client confidence and satisfaction. Because of the resulting need for more business structure, overheads become higher, and management and financial structures are necessary.?

You've also had to make the transition from an on-the-tools worker to a business owner. Not something that everyone wants to be. But it will provide you with the platform to create significant wealth for you and to build a legacy.

Stage Five: 30+ People

<1% of agencies

99.5% of all agencies will never get here. It’s rare, particularly if you’re away from a big city. But the economies of scale kick in and profitability may well come back.?

To maintain this position you need to have a USP, otherwise agencies in all of the above categories will sneak onto your blindside and take you on. Key staff may leave and form their own micro agencies and take your clients and / or staff, irrespective of what it says in their contracts. It can be a real minefield at this stage.