Should I grow into an agency?
Posted by Paul Silver
This has been a reoccurring theme through the history of the Farm group. Once you’re doing at least fine as a freelancer, should you grow into an agency? I’m basing the below on the agency I used to work for full time, and the many agencies I’ve known over more than twenty years freelancing.
The positive
The positive side of this is easy to understand: more people in your company means more work gets done means you can bill for more work being done. A spread of talents means you can do whole projects within your company, giving you the ability to go for bigger pieces of work. If you can grow enough, you could potentially take a back seat and be getting money for little or no work.
That’s all great, why not hire some staff straight away?
The negative
So, the negative sides of running an agency are:
Getting work
You need to keep enough work coming in to keep everyone busy enough that you can afford to pay them every month. You may think “I’ll hire a sales person to help with that.” Well, good sales people are very difficult to find. Bad sales people are relatively hard to find. Working out the difference between the two is difficult and can be costly, in the meantime, you are doing the sales work.
You may think a sales person is going to find clients and get projects from them. This is not usually the case. They are there to open the door to a potential client, the senior people who understand the work then need to land the project. That will be you.
Cash flow
A perennial problem for any business and especially a projects based one, you need enough cash flow to be able to pay all of your staff. If there are cash flow problems, often it is the directors who forego being paid so there’s enough money in the company to keep everything else going. So, you may find you’re often earning less than you were before as your employees need to be paid, whether the company has been or not.
You may think “I’ll get milestone payments,” “I’ll get money up front,” (not for lots of bigger projects, you won’t,) “We’ll charge monthly.” That’s all great. I’ve known agencies that did this. Agencies that are gone now. All of these can mitigate problems, and they’re a good thing to think about as a freelancer or agency, but don’t fool yourself that you won’t get caught up in payments not arriving, having to deal with awkward terms with a big client you really want to land, delays on projects and therefore payments starting, or myriad other cash flow problems.
Keeping staff
You’ll be needing to handle your staffs wants and needs, from pay levels through understandable conflicts within projects due to differing roles and priorities, to incomprehensible behaviour conflicts about who keeps cooking smelly fish in the microwave and who doesn’t flush the toilet.
Alignment with other founders / senior staff
Once you’ve navigated all of the above and more, you’ve made it! You’re running a successful agency and you’re making decent money. Congratulations! You now want to grow and reach the next level. Hang on, your co-founder wants to kick back and kitesurf more.
You need to have your goals aligned with your co-directors and your senior staff. A partnership between people who want to shoot for the moon and some who just want enough money to enjoy their lives doesn’t work once you hit the level where one side is happy and the other isn’t. So now you need to sort that situation out, or better, not get in it in the first place as “sorting it out” usually means “paying someone to pass their part of the company to me.”
Getting to do what you want
Let’s say you’re a designer or developer and you love your work, but you also want to run an agency as you want to work on bigger projects. You are not going to get much design done, or code written. You will always be either sorting out problems or getting work in. The more successful you are, the further you will get from doing what you were at the start. That is not a problem if you also enjoy running a business, but it is if you are only running the business in order to do what you love as work, because you will not be doing much or any of that.
If you do not enjoy running your business, you will burn out on it. Even if you do enjoy that side of things, you may still burn out. Running an agency is hard and takes a lot of energy.
How agencies close
The most common reason agencies close is not getting enough work in. Often this is combined with a bad project that goes over budget and finally takes the company out, but in reality, that’s not the real reason they went. They were usually bumping along barely making money for a while before that. You can recover from a single bad project, you can’t recover from always having bad projects, either cash flow or staff turnover will take you out in the end.
The other common reason is management burn out. Even a successful agency is a lot of work to keep going. The management can easily find it’s more effort than they can put in. This type of closing is often a little cleaner for the staff of the company, as some I know that have closed due to burn out have helped their staff get new jobs. Much better than discovering you’re at best out of a job, and at worst have no pay coming.
Selling to a larger company. This one is rare in that I’ve only known one agency sell as a going concern and keep all staff on. That is perhaps an unrealistic level of success, but it counts for a lot if you’re one of the staff. More commonly, part of the agency is sold to another company, but often with staff redundancies before the sale or soon after the new owners take over.
I still want to grow into an agency
My final piece of advice is one I received at a business review many years ago: start with freelancers.
I don’t say that because I run a networking group for freelancers, I say it for the same reason my business reviewer said it to me fifteen years ago. Hiring freelancers to help you gives you a simple way to try taking on larger projects without the risks employing people gives you. Freelancers may look more expensive than employees, but remember that you won’t be paying employers National Insurance Contributions for them, or holiday, or sickness pay. You can try handling the management side of projects and doing your normal role in them, and freelancers tend to be good at coping with imperfect management.
If you find your projects are working out, you can start hiring staff to replace freelancers. Don’t expect the freelancers you’ve hired to want to turn into full time employees for you. Some might, but freelancers who have been working on their own for a while tend to want to stay independent.
I’ve done this. I’ve hired freelancers to help and some of the relationships lasted for several years. Should I have grown into an agency? Covid disrupted enough of my work that I couldn’t afford to keep hiring the freelancers and had to shrink my business back down, but they understood and we remain friends, referring each other work when we can. The situation worked for us, even though the growth didn’t.
Want to find some good freelancers? Start here.