Sounds harsh, and this is what many people hear when they present their agency like an innovative startup. The question I will try to answer is why.
First, this post was inspired by a discussion on the “French Start-Up” group on facebook. I was with others trying to shed light on this exact same topic.
Second, my position on this. I worked on the agency side, the client side and created, worked with or within tech startups. This helped a lot to understand realities inside a such business and how others will perceive it.
Long story short: an agency is not a start-up.
Here are some elements to explain why.
A non-academic startup vs agencies definition for 2019
From the founders eyes, especially corporate-dropouts who start their first business, everything looks like a startup: fewer process, maximum agility, working to get things done. It is in part very similar to build an agency at the beginning as hierarchy is not a big thing and usually account management is quite easy. Let’s call this the “garage” phase where the 2 models are quite blurry.
From the financial side, things are different from the beginning. People will look at your capability to scale immediately. A startup in this definition will look into scaling products from 1 to 100 and to 100 to 1’000 in a short time (0 to 3 years). Of course at an optimised workforce and innovative IP assets protection. There is a good reason why tech companies are well positioned for that expansion in the eye of an investor vs. an agency. They build a product designed to scale. Agencies, on the other side, when getting traction, needs customers, the ones who pay in times and who will not kill your billable rates by extra-workshops-and-not-planned. The innovative aspect is harder to differentiate and while you can protect methodologies from the beginning, it is still a tough innovation race vs. a tech startup. Agencies can still value brands and long-term retainer contracts but most of the time, you will see them invest also in immobilisation such as cars and real estate to re-insure banks that they do have tangible assets.
From the HR point of view, things get different at the end of this garage phase. Where the HR model of a tech startup try to keep things flat and build “projects clusters” that works like mini-factories inside the same pool of competencies, an agency is very much wired to build an account management and production management team that most of the times are pyramidal models. This is where the 2 separate in a hard way: while scaling your R&D for a tech startup is directly connected to your economic expansion, scaling your agency is depending on b2b marketing inside small or corporate players. We will address that point in the next paragraph.
Another thing is the turn-over. Where a tech startup is inclined most of the time to “incentivise shares” to its core employees, the agency is working most-often with the model of partnerships when you needs to earn your ranks after X years or to bring a substantial business volume to the firm.
From the customer and sales perspective. Let assume here we talk b2b corporations, it is hard for a garage stage agencies to get a big average basket as usually procurement would run risks assessment on a billable volume. The tech company selling a b2b service could easily license a product, find relevant networks of distributors such as IT companies who already have enough traction with customers. This is where an agency would work out really well relationships, taking sometimes months to close a deal. Bringing back metrics, this is then interesting to compare the LTV or Life-Time-Value vs. CPA (Cost-per-Acquisition) vs. CPR (Cost-Per-Retention). Applied, this is where you will realise that in 2019, building an agency for scaling it is a real tough jobs on paper. This was perhaps not that true for instance 20 years ago where agencies provided “innovative ideas” as part of their package. Ideas are now products you can buy out-the-shelf to startups.
In the next part of this article, we are exploring several scenarii emerging since years now.
Scenario 1: agencies running like a startup
As we have seen in the intro, you have possibilities to design your agency like a product. This requires that you have setup the proper culture and mindset for doing so. The product promise is for instance a successful launch of a brand, including all the value chain of activities behind.
Once you mapped it, you can package it better.
You will organise your shop better, pivot more efficiently, as well as organise your staff better as not everything needs to have a headcount. It will perhaps change the way you sell and open opportunities for larger collaborations. Moreover, this model is likely to help you spot unmet needs and help you build new solutions. Last but not the least, if you design your business like a product or a range of services, it is easier to design it as well for financial expansion, M&A or a pure exit.
Scenario 2: agencies producing startups
Agencies are in the front row of many industries. They see customers evolving and could easily take ideas and package them as products. Again, easier to do when as a business you already work like a startup (cf. scenario 1). For a marketing agency, spotting a new trend in media planning or social advertising could lead to a neat mar-tech product to develop. They already have clients so the business magic could happen fast.
Here the agency is its own threat. Removing resources who work on client’s projects even 20% of their time is not realistic as a startup as its beginning is a black-hole when it comes to planning. It is also true when it comes to seek funding. Investors most of the time invest as much as in the idea than in the people running it. When they hear you have your eyes on something else 80% of your time, even if you have proof (LOI) that customers would buy your tools, they would probably think twice.
Solution: spin-it off.
Take one of the founder, take him out of the daily business and take a calculated risks. In the last example, 2 people from the firm could work on their spare time to build a prototype, seek funds and once secured, drop out and run the show. This is what happened for the startup www.lesroisdupq.ch where my partner Alex took its idea live and went all throttle to launch it. If you need the people internally then find a partner! This is what we also did by offloading Kumo, a file-transfer-tool to an external partner for development and re-selling. It is taking time to find the right platform to develop an idea but once you did, you have less trade-offs to deal with as your existing business can continue without being polluting by new problems.
Scenario 3: agencies becoming a startup
It could happened that an agency discover that offering services is not interesting anymore from a bottom-line perspective. In that sense, evolving to a SAAS CMS product if you have built websites for a living could be interesting. It is especially true if you are competing with emerging markets where quality is high and costs are down. Many tech products with today are agency that evolved into them, packaging their creativity and innovative ideas.
Scenario 4: agencies evolving into a new model of services
In this scenario, an agency is thriving through the relationship and impact it has with its customers. This is where agencies and consulting firms positioning is getting blurry. In order to survive, agencies are now asked to be orchestrator, and from tactics builder to strategic thinker. They are more and more requested to prepare a recipe for the perfect brand launch for instance, and becoming project managers more than assets producers. This is also because the value perceived by customers to handle certain tasks is evolving. Many customers small or big are thinking of internalising some activities such as social media marketing as it is mature enough now to deal with them. The reality is that the agency offering is now morcellated into tiny parts of tactics and you can’t be an expert of everything if you don’t have already a critical mass. In this scenario, agencies of small sizes are also getting either grouped into collectives to offer a 360° range of services, or being bought by bigger advertising or consulting firms. Some corporate clients are even now thinking of buying their own agencies to internalise competencies. In this last point, it is also interesting to witness agencies flirting with becoming HR placement vendors, where they delegate resources for a fixed amount of time within customers.
Scenario 5: tech products evolving into agencies
Well, this one is more reserved to scale-up and larger players as a critical mass of adoption is required. We do see that some products developed by startup are becoming so complex, that they provide now internal agency services to help you run them. It is the case with Google for instance who is helping more and more small businesses to get in their Advertising suite. It is also for increase the average basket of a customer as licenses are usually an easy get-in. You want to optimise your LTV and usually setup costs, consulting, campaigns, projects, audit, maintenance and training are some ideas that comes to your desk quickly as a customer. Recent trend is helping you innovate by selling you open innovation services or internal programs running on a tech startup suite of tools or softwares.
Where to go with all of this?
It depends, on your goals like always. Do you want to build a long-lasting business or something you want to sell in 3-5 years? Do you see yourself managing 5 to 10 people or you are thinking big? Most importantly do you know what the difference between a startup and an agency?
Coming back on the title of this post, the danger I foresee is founders painting themselves into something they are not and hence impacting their credibility. Running a consulting firm or an agency is a skill very different than running a tech startup. Trying to name yourself a startup for bringing an innovative flavour to your offering is dangerous if you do not live up to your promise or being into one of the scenario above. Knowing who you are and what you want to be as a business is one thing; How are you perceived and how your customers see the world is something else. Personally I would recommend to avoid self-calling yourself a startup if you are an agency. These are 2 different beasts to tame and you can be as successful and as proud of running either of them.