TL;DR

• Inconsistent growth makes running a digital agency harder for everyone.
• You can build a more consistent agency by building a strong foundation.
• Building a strong foundation opens up a world of possibilities. It gives you the ability to take chances and become that cutting-edge innovative shop you wanted to build when you started.

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Consistency is rare

I’ve been tracking agency growth rates since 2015. While the average growth rate has been consistently in the low teens (ex-Covid), individual agency growth rates fluctuate massively. It’s not uncommon to see one grow 43% one year and 7% the next.

Agencies grow in more of a step function vs. a smooth curve, so some inconsistency here is expected, but large shifts can cause massive headaches.

We can split the causes of these fluctuations into those caused by internal and external forces.

Externally, things like pandemics, recessions, tech shifts, etc., all influence your ability to grow an agency consistently. Many have tried to time the market, holding back investment because of the “immanent recession” that’s been just over the horizon since 2019, and they’ve grown significantly slower as a result.

It’s impossible to time the market without luck. The best we can do is create resilient agencies with appropriate buffers for potential shocks.

If we want to improve consistency, we’re left to work on the internal forces. These will be the focus of this newsletter.

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Inconsistency is expensive

The issue with inconsistent growth is the uncertainty.

If you knew your revenue would slow down in 6 months, you could staff accordingly, invest in revgen, or pivot to another service/industry. But when it’s difficult to forecast, investments in expansion become riskier. When you think you'll keep growing and it doesn't materialize, that's when things get rough.

It’s the uncertainty of the growth that makes life difficult.

This is one of the reasons why we saw such margin pressure last year. Most agencies were forecasting 30%+ growth, and they staffed up for it, and then actual growth came in at half that.

Right-sizing headcount sucks. It sucks when you have to do it because of market forces, and it sucks even more when you have to do it because of your own agency’s missteps.

The combination of uncertain sales pipelines and the unenjoyability of right-sizing teams delayed reaction times and crushed margins. This then makes growth investment even more difficult this year.

Beyond the financial impact, inconsistency wreaks havoc on morale and erodes trust in leadership.

It’s easy to see why agencies that grow more consistently command a higher valuation multiple than those with wild swings.

In every sense of the word, it costs more to run an inconsistent agency.

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Building a foundation

Solving that inconsistency isn’t easy, but it's worth it for the simple benefit of making life easier.

I’ve met many owners and agency leaders running head-first into the same walls for years. Their thinking narrows, and they get discouraged about what’s possible.

The creation of a stable foundation allows them the freedom to be creative again. It unlocks optimism, and that optimism is contagious.

The following is a summary of the process I use to help agencies build these foundations. This is the same process I use in our Agency Assessment service. It’s served my clients well, and I hope sharing it helps you build an agency that delivers more consistent results.

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Phase Zero: What Are You Building?

Review your vision, mission, and goals for the agency. They need to be well-defined and clearly communicated. In order to do that, there can’t be any confusion around them in your mind.

Knowing exactly what you’re trying to build is mission-critical. Don’t skip this step.

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Phase One: Research & Planning

• Ensure that your management team and front-line employees can articulate your mission, vision, and goals and that they know their role in achieving them.
• What’s the market look like? Not that we’re trying to time it, but what’s the general outlook for the industries you’re selling into and for the service mix you’re offering? Now’s a great time to build out systems for assessing each. Where and how often do you collect and analyze market data and what do you want to do with it?
• How’s your positioning? You’ll need something better than “We’re an innovative digital agency for brands who dare to be bold!” (I made that up, so please don’t come after me if that’s on your website) There are over 45k+ digital shops in North America now. If we cut out the small and solo shops, there’s still over a quarter of the market in the 11-50 FTE range. That’s a ton of noise for a prospect to sift through.
• Review your revgen systems to understand how well they’re working together and if the various campaigns are appropriate for your target audience.
• Determine where you land on the Factory-Consultancy Continuum and where you’d like to be. Much of my work revolves around helping shops better align themselves here.
• Evaluate your agency’s Roles, Goals, and Structure and make sure you have the right (and qualified) people in the right seats. Does the agency’s structure match the firm’s strategy? Are you hitting your operational metrics? Are your salaries in-line?
• What are you working with financially? It’s always better to begin this exercise from a place of strength vs. fixing the plane while it’s in a nosedive. You’ll want a larger-than-normal cash buffer since these changes can cause temporary inefficiencies across the agency.
• Talk to your team. Ask them where the strong/weak points are and what to do about them. Most of the time, agencies already have the answers in them. It just takes some trust and communication to surface them.

Compile your findings and look for gaps. Stack rank those gaps in order of impact and create a plan to address them. Assign success criteria to each that are measurable and time-bound. That’s the most generic advice I’ve ever given, but without knowing anything about your firm … ¯\_(ツ)_/¯

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Phase Two: Implementation

This is where it gets sketchy.

Typically, the reason there’s a gap somewhere is because it’s something difficult to solve. If it was within your wheelhouse, you’d have solved it already.

Don’t be afraid to seek outside help here. I work with a team of trusted subject matter experts who I call on for particularly specialized projects. Just make sure you’re bringing on specialist help at this point.

Expect this to take a quarter or two. Even in cases where the team’s on board, leadership is motivated, and there’s capital to invest, this can be a process.

My most common advice at this stage is to over-communicate and then communicate even more.

You’ll need your team to understand and appreciate the need for change because they’ll be the ones actually implementing the improvement. It’s critical that they know (and remember) what you’re all trying to build and their role on the path to getting there.

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Phase Three: Monitoring & Course Correction

This phase runs in concert with Phase Two as you implement the various changes in your agency.

Here’s where you find the answer to “Is it working?”

The closer you are to where the change is happening, the more frequent your check-ins should be.

Take implementing time tracking for instance. A dev tracking their time will think about it daily (ideally). Their manager will monitor this weekly. The VP of ops will check this monthly. Then the CEO will look at it quarterly.

This can flex with the importance of the change (aka where it falls in your stack-ranked list). Higher-priority items can and should be checked more often.

As the implementation unfolds, you’ll probably find that some of the plans you made need adjusting. Either the implementation is taking too long, or it’s not delivering the results you expected.

That’s normal.

Building a solid foundation takes time and a few course corrections to get right.

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Using consistency to your advantage

Building a strong foundation opens up a world of possibilities. It gives you the ability to take chances and become that cutting-edge innovative shop you wanted to build when you started. It lets you forecast your core business more accurately, which opens up the option to chase shiny objects successfully.

Those additional “risks” can be anything from 4-day workweek experiments, to offering new AI services, to exploring new verticals.

Once you’re here, you’re among the top performers in the industry. Now you can get creative in layering on more elaborate systems and strategies.

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Hopefully, this helps you think through how to build a more consistent agency.

Feel free to reach out if you have any questions! I’m always happy to connect.

-Nick

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Expert Spotlight – Katie Jennings ​ Katie Jennings, a long-time agency biz dev leader, is offering coaching and consulting services as Upwell Consulting. She’s got a lot of experience to share on pipeline management, lead qualification, proposal development, and pitching, and how to implement systems that will help you track progress and increase revenue. If biz dev is one of your challenges (and isn’t it always), I encourage you to reach out to katie@upwellconsulting.com to talk about how she can help.

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