If you are ambitious, then agency scaling will be something that receives your continual attention. It’s not everyday that an agency breaks into the top 5%, those agencies making $1m profit per annum. And this despite the fact that there is an unprecedented need for such services, along with marketing spend showing no sign of diminishing.
The most important reasons for scaling your agency are:
- A large agency is actually easier to run than a small one, once you are over “the hump”, the initial scaling planning, setup and organisational transformation
- Large agencies can be extremely profitable. The difference a scaled agency will make to an owner’s income is huge
- Large agencies can be sold for profit multiples that are much higher than small agencies
- Large agency owners often gain entree to lucrative business opportunities
Scaling an agency presents a set of challenges that are typically far removed from the skillset of most start-up and small agency entrepreneurs. To get to the point where scaling can be realistically pursued, a lot of things have had to have been accomplished and done right. Without these fundamentals solidly in place, scaling cannot happen.
Scaling an agency is a pursuit that requires advanced business skills. Technical and creative prowess will have little bearing on progress. This is borne out by the relatively low number of large agencies that have emerged in the last 10-15 years from a very large pool in a booming industry.
Agency Scaling Imperatives
For the purposes of argument let’s assume that we are talking about an agency that is operating smoothly and profitably and is ready to scale. What are the 3 agency scaling imperatives facing the growth hungry agency owner?
- Team: Developing a cohesive, competent and motivated team able to drive the business’s vision and growth agenda forward
- Client Acquisition: Expanding the number of quality clients
- Operational Scaling: Growing the agency’s client servicing capabilities
These are not complicated concepts and there is no rocket science here. Nevertheless these remain big challenges that are a test of organisational acumen.
The power and value of a good team is something to behold. Unless one has experienced this first-hand, it is not easy to grasp, and so, many fail to approach this with the right vision or focus. In this context, a team is not just a human resources issue, but establishing a cogent culture that will enthusiastically embrace the agency’s vision and values whilst at the same time push forward with its commercial goals.
Team building best practises
Alignment: In low performance team environments, it is common for members not to properly understand their role and mission within the context of the team and the business. Such poorly aligned members will simply not perform. Alignment is a prerequisite for almost everything of significance that a team member will undertake. Moreover, a team member that is not properly aligned will not be properly engaged. Without an engaged team, not only is scaling an impossibility but a management one too. The impact of this cannot be stressed highly enough.
Performance: It is obvious that poor performance in a growth orientated environment is untenable. So performance must be a key focus both on a personal and team level. Scaling is best accomplished using a team of teams approach where each individual’s performance is driven by a combination of interdependence, trust and peer dynamics. With performance as a shared focus, leadership competencies will emerge potentially alleviating inevitable recruiting challenges
Progress: It goes without saying that continuous improvement needs to be a priority. So the idea of transitioning from ‘the team you have’ to ‘the team you want’ needs to be part of the broader leadership philosophy. This is actualised through a continuous cycle of planned activities including:
- 360 degree feedback
- On the job development of functional and other skills
- Team learning and development activities and projects
- Senior to junior mentoring
Recruiting: This needs to be done well and remains an Achilles heel aspect for many. To do this successfully, the ability to get candidates to reveal their strengths and weaknesses, successes, failures, key results and important relationships from previous jobs must become an in-house competency. In addition, the use of suitable psychometric assessments is not only extremely valuable in helping avoid mis-hires, but helps to identify potential high performers for emerging management roles that are ever part of the scaling challenge.
Communication: The need for clear communication should be obvious. Yet it is quite common for miscommunication and misunderstandings to hinder effective progress. Some of this relates to insufficient levels of communication formality but a lot has to do with too little emphasis on clear, unambiguous communication, formal documentation and the need for communication discipline. Since most of the the issues you will face will rely on good communication, emphasis on making this a best practise is essential.
Leadership: A good team cannot exist without good leadership and this is an attribute that needs to be developed. Whilst leadership is a big topic in it’s own right, it is an aspect that generally does not receive enough attention particularly in smaller organisations. At the end of the day, it will be effective leadership, probably more than anything else that determines the ability to scale.
The most important agency scaling imperative is unquestionably client acquisition. It is the fuel of revenue growth which is one of the objectives of scaling after all. To put this into perspective, scaling must occur in correct proportions across the length and breadth of the agency on a synchronous basis. Without the volume of work needed to support the other growth imperatives, they can become growth inhibitors. And so client acquisition is effectively a ‘force multiplier’ growth catalyst.
Client acquisition remains the biggest single frustration of growing agencies, with 60% naming it as their single biggest pain point, according to the 2018 Agency Growth Report published by Hubspot.
To get to the point where scaling has become an agency’s key focus, means that one or more people other than the business owner are engaged in marketing and sales activities. Up to this point, most are able to source clients from personal networks, general marketing tactics, individual’s hard work and perseverance. Getting one’s client acquisition to the level where it can support serious scaling, means you can no longer rely on rainmaker business development managers, personality driven wins and other sales heroics.
Client acquisition needs to become a core, strategic, industrial grade capability and as such will be the focus of considerable planning and execution. It requires that one develop systems, processes and metrics that provide certainty of consistent target achievement and the ability to predictably ramp sales as required by the plan without excuse or setback.
If you are like the CEO’s of most agencies who have achieved initial market success, these are some of the questions you may find yourself asking as you scale:
- How do we consistently identify and find high value prospects with a high win probability?
- Where will our next $3 to $5 million in revenue come from?
- Are we investing correctly between marketing, brand/messaging and inbound campaigns as opposed to targeted outreach?
- Will our current client acquisition operations serve us through the next phase of growth? What client acquisition scalability issues should we be anticipating to continue building revenue momentum?
- How do we make ourselves immune from losing our scaling momentum as a result of loss of client acquisition staff?
- Am I able to relax in the knowledge that our growth trajectory is stable and in capable hands?
Unless you are able to answer these questions, it will be difficult to confidently invest in continuing scaling initiatives.
The significance of the client acquisition function within an agency cannot be overstated. It is a significant organizational discipline that is unavoidable if you want to scale. It may challenge CEO’s whose background is marketing or technical. If this is you, you are not alone. 80+% of agencies out there are in the same boat, frustrated with their client acquisition progress.. Get this part right and you will have significantly contributed to your scaling progress.
Agencies looking to scale will be facing a new set of operational challenges. Until you have developed a sufficiently sophisticated approach to this, it is a highly non-linear advancement over what you may have experienced in your agency journey to this point.
Your agency’s ability to scale is rooted and constrained by your current operational realities and your organisation’s change capability. This is usually only good for slow incremental growth, not scaling. Can you add team members, new systems and processes while preserving your agility and nimbleness? To what extent will unforeseen issues that arise as you scale absorb energy and take focus away from other demands or compromise efficient client fulfillment?
This is the stuff of stories about companies that failed because they “grew too fast”.. This is a real risk that needs to be understood and anticipated.
A Transformative Transition
Scaling means more people. This means that the business must transition from a ‘few people each doing many things’ arrangement typical of small businesses to ‘many people doing each doing few things’. Sounds straightforward. But to deal with that effectively, a transformation has to take place at both a leadership level and at an employee level. Natural change aversion, particularly amongst inexperienced staff members even when there is a clearly laid out plan, needs careful handling. Take the time to clearly define roles and responsibilities and results accountability, along with meaningful KPI’s and standards. These elements are essential for operating at scale. Some level of resistance is inevitable, but alignment, education and clear communication of the vision are the leadership steps that will pay off.
Your Operational Playbook
As you continue to scale and build out a management structure, you will need a set of tools, methodologies and best practices to link your business strategy to day to day operation, to delivery of results. This is all about getting traction and results through people, step by step, milestone by milestone in a way that has every team member make their full contribution. Whilst this is not rocket science, it is hard work until you achieve a proper operating rhythm.
There are a few more scaling hurdles that can affect your results, up or down. They include:
- Communicating regularly at all levels within your organisation. Everyone must hear what is going on from you. Don’t leave anyone out.
- Plan your recruitment – give yourself plenty of time to hire the best people. It usually takes longer than you think to recruit well. Understand how pivotal good talent is to your success. The small extra cost of appointing the right person early is much cheaper than the saving you think you make by waiting until you really need someone whom you will inevitably have to recruit in a hurry.
- Build your intellectual property. Intellectual capital, which is the knowledge in the heads of the founding team and key employees, must be documented, shared and institutionalised to avoid the high cost of reinventing the wheel.
- Continually re-factor systems and processes that are no longer effective or won’t scale.
- Keep making organizational tweaks to ensure that contribution concentration is minimised and that your growth and profitability goals are being met.
Scaling is very much a momentum driven activity. Inattention to any of these elements can put a drag on progress, affect morale and lead to 2nd rate performance.
Making it all work
It is easy to see why so few agencies are able to effectively scale. Scaling is an advanced business practice that few first-time agency entrepreneurs have the knowledge, know-how and experience to tackle on their own. Agencies are not easy businesses. There are a lot of moving parts and you are dealing with people. But, the rewards are there.
Take heart from the fact that once you have worked your way through the tough transition to make your agency scalable, things must start getting easier or you’re probably doing it wrong.
And one other thing. When it comes to making an exit one day, having implemented the three scaling imperatives and achieved a level of scale, your effort and tenacity will be rewarded with a premium valuation and the opportunity to make a lot of money when you sell.