TL;DR

• Digital agencies grow through periods of increasing and then decreasing their options.
• Increasing optionality tends to come at the cost of focus.
• Don't forget to participate in the digital agency salary survey! We're accepting responses through the 29th.
• It's crucial for agencies to regularly reduce focus and experiment with new options.
• New experiments need to be closely measured, and the non-performers quickly culled.
• Being diligent about properly valuing various options can help agency leaders know what to focus on.
• I'm almost booked through the first quarter - If you’ll need support in the first half of the year, now’s the time to set up an intro call.​

​

Welcome to Strategy Season!

It’s my favorite time of the year when everyone’s thinking through their plans and finalizing their strategies.

When building a strategy for your agency, there comes a time when you need to decide between two paths. Will you design your agency in a way that enhances your options, or will you focus and only serve a narrow niche? Will you optimize for optionality or focus?

The fact is, most agencies need to do both. Depending on where they’re at in their journey and what their goals are, either path could be appropriate.

To help bring some clarity, let’s explore some of the nuances of how digital agencies actually grow.

​

Agencies Need to Breathe

Throughout their growth, most agencies will exhibit a rhythmic inhale-exhale cadence. Hyper-focused agencies that believe they’ve exhausted their growth potential in a particular area will inhale and expand their number of available growth options. They experiment with new service lines, serving new industries, or trying to build a product.

Filling their lungs with more options comes at the cost of focus.

On the other side of the spectrum, generalist agencies that are hitting a growth wall will exhale some options to focus on a core area of expertise. They’ll niche down into a particular service or industry and rebrand themselves to communicate directly to that narrower audience.

This exhalation of distractions increases their focus.

One thing to be clear about, neither path is “bad.” The entire cycle happens due to shifts in the market. As services commoditize, agencies shift away from them. As industries slow, agencies move towards faster-growing ones. As industries digitize (yes, there are still large pockets of analog out there) agencies move to assist. This reaction to market forces is what keeps the industry breathing.

Most of my work revolves around helping agency leaders understand what and when to inhale or exhale. Here’s how I think through these scenarios.

​

​

​

Inhale - Increasing Optionality

When you experiment with new growth strategies, broader positioning, or products, you’re reducing your agency’s focus. You and your team now have to manage and deliver on more things. This is one of the reasons that the promises of new experiments are often tough to realize.

Expanding optionality comes at the cost of focus. Reducing focus is generally a negative. So, if you’re going to reduce your team’s focus, it needs to be for an investment that’s worth that trade. Evaluating potential options is a core capability of many successful agencies.

How do you know what could be real vs. just another shiny object?

In SaaS, they call it product-market-fit. They measure things like growth rates, retention, CAC trends, etc., to get a gauge on traction. That won’t work for agencies. SaaS companies have orders of magnitude more clients than the average agency ever will. Stats make sense for them, not agencies.

To weed out the shiny objects, evaluate each in context with your overall service/industry mix. When you’re experimenting with something new, monitor things like your sales cycle, margins on the new service, average client size, retention rates (if applicable), referrals, and client satisfaction. Also, look at how/if the new service line impacts your current services. Is it cannibalizing sales or rounding out your offering and boosting demand?

It’s important to regularly experiment with what’s next. We’re seeing this play out now with AI/LLMs. Those that have the space to experiment are doing better. It’ll be the same with the next AI.

Unfortunately, it’s easy to go overboard. Expanding your optionality too much can cause a host of issues. I see this all the time with poorly positioned generalist shops. Everything’s more difficult, from marketing and sales to hiring to ops. To avoid this, it’s important to only run a few experiments at a time. Furthermore, be diligent about culling them.

By preemptively reducing your focus on areas that don’t advance your agency, you can double down on the areas that do. This means winding down experiments quickly when their metrics don’t pan out. It’s incredibly easy to get trapped by the sunk cost fallacy and hold on to suboptimal clients, services, or industries.

​

Exhale - Increasing Focus

There are a ton of agency consultants who bang the focus drum (specialization, positioning, niching down, etc.), and for good reason. Focusing on a niche is the fastest way to grow an agency. Full stop. No one grew a shop to any significant size with the slogan “We can do anything for anyone, give us dollars!”

Focus requires saying no to a lot of options. I believe most agency leaders are naturally optimistic. They see the opportunity in their options and value it higher than most. Agency leaders also tend to be highly effective professionals. They believe they could successfully take on any of their options, and they’re probably right. So you have this mix of optimism and effectiveness that leads to leaders significantly overvaluing their option pool. When someone tells them to reduce their options, they subconsciously interpret it as value destruction. Now, layer on a complex sales environment (most of 2023...), and it can become even more challenging to turn down work.

The realizable value of your option pool can be less than you think and actually increased by eliminating some of the options.

The key word in that line is “realizable.”

If you lack the resources to fully realize an option, its value should diminish.

A great example of an often unrealizable option is product. So many agencies try to bring products to market and very few do it successfully. A major issue is the resources and structure needed to pull off a product are drastically different from what’s needed to grow an agency. Investors will pour millions of dollars into SaaS startups before they become cashflow positive. A significant portion of those millions go into sales and marketing. It takes significant investment, a heck of a product (and a fantastic PLG strategy) to break through that amount of noise. Most agencies don’t have the ability or interest in VC money to compete here. This should significantly devalue the product option for most agencies. It’s simply not realizable.

Exhaling these unrealizable options from your agency goes a long way in increasing your focus on the ones that move the needle.

​

A Natural Cadence

Breathing, and thus staying alive, requires both inhaling and exhaling. To grow, agencies must elegantly transition between periods of optimizing for focus and optionality. This is one of the reasons I’ve never spent much effort creating recurring revenue streams for Promethean. The market has one built-in. With how fast the market changes, strategies are only good for 2-3 years at a time. This means that the 25 FTE agency I helped take a breath last year will probably come back for help exhaling as a 50 FTE agency next year.

With my current workload, and the preference I give to prior clients, I’m almost fully booked through the first quarter of next year. Don’t worry, if we’re already chatting about a project, I’ve reserved capacity for you.

As of today, I have availability for 1-2 more agency clients. Anything beyond this will have to start in April next year at the earliest. If you’ll need support in the first half of the year, now’s the time to set up an intro call. It’s easier to be proactive about strategy than reactive to an empty pipeline.

​