Research & Strategy for Digital Agencies

Building an Innovation-Driven Agency: The Power of Experimentation

Published 10 months ago • 5 min read


  • Innovation is expensive in both dollar terms and in the required changes to an agency.
  • Because it’s expensive, agencies must establish a strong foundation before they try to innovate.
  • When shops are ready, there are some activities and mindsets they can adopt to increase their innovation by creating an environment that encourages experimentation.

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Most Agencies Shouldn’t Worry About Innovation

This one’s a bit more soft(?) than my normal topics, but it keeps coming up, especially in light of the recent developments with AI. Maybe next time we’ll get back to some numbers and maybe even an economic outlook. Haven’t done one of those in a minute, and things are looking a lot better these days.

But on to today’s topic:

I read this line recently that made me cringe.

“In the fast-paced world of digital agencies, the ability to innovate is not just an advantage—it's a necessity.”

That hurt to even type out…

In absolutely NO way is it a “necessity” to be an innovative shop.

If it was, we'd have ~45k fewer digital agencies in North America.

In fact, too many shops are trying so hard to be innovative that they lose the plot and end up with poor growth, garbage margins, and frustrated teams. The trick is to build a solid agency first and then worry about innovating.

By waiting to innovate, you can actually build an agency that has higher margins, better growth rates, and is easier to run.

Change Creates Opportunities to Innovate

Unfortunately, waiting to innovate gets kicked in the teeth as soon as something like AI comes on the scene. Or a global, unplanned remote work experiment caused by a pandemic. Or a Great Recession caused by collateralized debt obligations that were bursting with hidden sub-prime mortgages. Or when some goofy billionaire speedruns destroying $44B in enterprise value, killing a globally recognized brand.

The reason innovation became such an annoying buzzword is precisely because of how valuable it can be. When significant changes happen, opportunity forms. Opportunity to do something a new way that’s either better or more economical. That new way of doing things is “innovative,” and the companies doing things in a new way have the opportunity to become significantly more valuable.

This all boils down to changes in our environment that increase competition and thus the need to innovate. So while most agencies shouldn’t worry about innovation now, they will need to eventually, and that’s the heart of this newsletter.

When You’re Ready to Operate on the Cutting Edge

The real key to fostering innovation at an agency lies in creating an environment that encourages experimentation. Such an environment empowers everyone in the agency to explore new technologies, leading to a more innovative and forward-thinking organization. Your job as a leader is to create that environment. So, how can you cultivate this environment in your agency?

Here’s a short list of where to start:

1. Cultivate a Culture of Curiosity: Encourage your team to explore new technologies and trends. I’ve seen shops do this through show-and-tell style meetings and Slack channels where employees are encouraged to engage in diverse topics. Be careful that this doesn’t become simply sharing the latest McKinsey report that no one reads.

2. Provide Necessary Resources: Ensure your team has access to the tools and resources needed to experiment and innovate. More importantly, make sure they have the mental space to experiment. If they’re at 100% utilization, while it might be great for margins, it’ll burn them out and remove any mental space for creativity.

3. Encourage Risk-Taking: Foster an environment where calculated risks are not just accepted but celebrated. This is a rough one because many of these risks will cost you real dollars. This is a major reason why it’s critical to have your fundamentals in order before embarking on your innovation journey.

4. Celebrate Failures as Learning Opportunities: Shift the perspective on failure. See it not as a setback, but as a stepping stone to success. Try – Fail – Learn – Try That’s the loop you have to encourage, and you do that by making sure people aren’t being punished at the “Fail” stage and that they’re encouraged during the “Learn” stage.

5. Implement Regular Training and Development Programs: Go a bit beyond the traditional professional development spend and keep your team updated with the latest trends and technologies. This one’s kinda self-explanatory with AI, but I’ve seen agencies have a lot of success cultivating resources and sources and then using discussion around their publications to drive professional development.

6. Encourage Cross-Functional Collaboration: Promote collaboration between different teams. Often, the most innovative solutions come from diverse perspectives coming together. This is another area where going beyond the traditional can be helpful. Think of cross-functional beyond the walls of your agency. Incorporate non-work related hobbies and interests and encourage discussion around them.

7. Reward Innovation: Recognize and reward employees who bring innovative ideas to the table. This not only encourages more innovation but also fosters a sense of ownership and pride in the work. You can do a lot to keep employees engaged by putting them on innovative projects that they came up with.

8. Foster Diversity and Inclusivity: Diverse teams bring a variety of perspectives, leading to innovative solutions. Don’t just pay lip service to this and hire some neutered DEI lead that sends your devs to “training” twice a year. That’s for the large dying corporations. It’s too big of a topic to explore here but understand that there’s real power in diverse opinions that have the ability to sway decisions. The trick is learning to trust people who don't look or act like you to make decisions that impact your business.

9. Promote Open Communication: Encourage open dialogue and the sharing of ideas at all levels of the organization. The next big idea could come from anywhere and you need to make sure you have the structure in place to bubble them to the top.

10. Provide Time for Creative Thinking: Allocate specific time for employees to focus on innovation and creative thinking. That 20% time thing at Google wasn’t fluff at first.

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“There’s no ******* way I can afford all that!”

If that was your first thought after you read through those, then:

  1. You’re not alone. In fact, you’re in the vast majority. Innovation is expensive, and few shops can afford to invest enough to get much out of it.
  2. Look back at your agency fundamentals through the lens of Foundations of agency growth and What’s it take to grow an agency?
  3. If you’d like help getting to the point where this feels doable, check out my Agency Assessment service. It takes a few months and a decent amount of work, but the results speak for themselves.

Building an agency that supports experimentation is about creating an environment where innovation can thrive. It's about fostering a culture of curiosity, encouraging risk-taking, and celebrating both successes and failures. Implement these steps, and you'll be well on your way to creating an agency that's not just keeping up with the times but defining them.

After all, isn’t that what most of us jotted down on our napkins when we started these things?

Research & Strategy for Digital Agencies

Nicholas Petroski

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