TL;DR

• The value of a digital agency is directly related to the quality of its leadership and management.
• There are three core areas that you need experienced managers to lead: Revgen, Value delivery, and Ops.
• You can build your management team through acquihires, hiring from bigger agencies (but not too big), and hiring from industry.
• Don’t be afraid to remove those who don’t fit.
• As you fill out your management team, level up your agency’s sophistication by setting a solid strategic foundation, planning for the future, and elegantly integrating your agency’s functions.
• If you’d like help with any of this, I have room for another client in mid-May and another opening in early April. Feel free to book an intro chat to see if we’re a fit.

​

This newsletter adds context to our latest Agency Chats episode we did with Productive. If you missed it, check out the first intro episode here.

​

The value of a digital agency is directly related to the quality of its leadership and management. The more experienced and sophisticated they are, the more likely it is that they’ll grow faster and operate more efficiently than their competition.

​

Three core areas

Building a quality leadership team requires expertise across three core areas:

• Revgen
• Value delivery
• Ops

Your revgen covers everything under sales, marketing, account management, and business development. This is the most critical area for a leadership team to get right. It’s why I designed an entire service around evaluating agency revgen.

Value delivery is what you actually do for clients. This segment contains things like marketing (for clients), development, design, etc. Project management can fall under this, but I’ve also seen it under ops. I don’t have any strong opinions either way.

This’ll annoy some people, but value delivery isn’t as important as revgen w.r.t. better agency valuations. So, if you need to decide between the two, shoot for “good enough” value delivery with the intention of improving it over time. “If you build it, they will come” doesn’t work for products, and it definitely doesn’t work for services.

Operations is the interface layer that is added as complexity increases. It includes things like HR, accounting, finance, management, legal, etc. Most of this is outsourced or ignored until agencies grow beyond 15-25 full-time employees. Not because it’s not important but because other things are more important. Of the three core areas, this has the smallest impact on valuation. It’s also where acquirers first look for redundancies.

​

Building the team

Acquihires. In the mini-series episode, I brought up acquihires as a great way to build out your management team. The upside with these is you can get some seriously experienced team members across revgen, value delivery, and ops. The downside is it can take a while to find them and then do enough due diligence to figure out if they’re a fit. Cultural fit is just as important as capability here, maybe more so.

Hiring from bigger agencies. Be careful about hiring high-level talent from a company significantly larger than yours. While they can bring more advanced processes and best practices, they also typically have a more robust support structure that you probably don’t have. It’s much easier to bring on talent from a more similarly sized agency. They’ll integrate more seamlessly and with a faster ramp time.

Hiring from industry. This may be my favorite way to build out a revgen team that I only really see at larger agencies (100+ FTEs), but there’s no reason that a 50+ FTE shop couldn’t implement this too. Be aware that there’ll be a longer adjustment/ramp period with these hires.

Finally, and this is the toughest, remove those who don’t fit. The bad news is that it’s going to be hard either way. It’s hard to make those calls and to have those conversations, but it’s harder for everyone to work with a team that isn’t set up to succeed.

​

Increasing sophistication

A strategic foundation

The first step is to understand where your agency lives on the Factory-Consultancy Continuum. Once you understand that, you can tailor your strategy and tactics to push your shop closer to your desired spot. This should ideally be one of the two extremes.

At the factory end, your sophistication needs to align with your firm’s ability to solve simple, routine challenges faster and at a lower cost. Efficiency is the name of the game here.

On the consultancy side, you’ll build sophistication in your ability to solve complex challenges of massive importance. Your utilization rates will be sub-standard, but you’ll more than make it up in your ability to charge industry-leading rates.

​

An eye to the future

Once you have that strategic foundation in place, you can begin to think about the future. This is another area that separates the more sophisticated agencies from everyone else. I love McKinsey’s three-horizons framework for this.

It’s a great way to visualize how your agency is spreading its resources over H1, H2, or H3 initiatives.

• H1 activities are those within your core business. Use the proceeds from these as a foundation.
• H2 activities are where you’re investing in emerging businesses. Things that are commercially viable today but the market’s still early. These are where your real growth comes from over the next 3-5 years.
• H3 activities are your long-shot experiments.

Balancing the three gives the best chance for long-term success and thus makes those agencies more valuable. At a healthy agency, that balance looks something like 50% H1, 30-40% H2, and 10-20% H3. This is skewed more toward future business for digital agencies than it is in slower-moving industries.

​

Adding elegance

Finally, the third most impactful way to increase your agency’s sophistication is by elegantly connecting your agency’s various initiatives, focuses, and goals. As agencies grow, they can inadvertently build silos. You can combat this with communication and education.

Communicate what’s happening across the company and foster 1-to-1 conversations across functional groups.

Educate your employees on the importance and impact of the projects and initiatives your agency is undertaking.

Build a culture where employees naturally bring others in. Add a marketing lens to that new project. Add a dev lens to your H3 activity brainstorming. Have account management surface common challenges to sales and marketing. When functions work together seamlessly, it elevates the entire agency.

​

Building valuable agencies

Experienced leadership and higher sophistication lead to better valuations. Building these into your agency is helpful far beyond a better valuation. Even if you’re not looking to sell, it’s worth the effort.

If you’d like help with any of this, I have room for another client in mid-May and another opening in early April. Feel free to book an intro chat to see if we’re a fit.

Hope this perspective is helpful!

Until next time,

-Nick