In my time of working at agencies, freelancing for agencies, and finally running an agency with fellow entrepreneurs, I’ve seen many ups and downs. I’ve seen the triumphs and failures. I’ve seen the mistakes, and I’ve seen the mistakes blow up into bigger mistakes. I’ve worked with several agencies as both worker and co-owner and I have had a front-row seat to observe the decision-making processes of the majority stakeholders and witness the ultimate outcomes of all of these decisions.
Learn from these mistakes so you don’t fall into the same traps.
Hiring Before You Need To
Hiring a new person for your agency team is a big commitment. You are now on the hook to make them a productive member of your team. You need to keep them busy and make sure they are profitable for the business. You are covering their salary, but also covering them with whatever benefits package you offer. You are also bringing them into your workplace where they will forge relationships with other members of the team.
If you hold onto a new employee for a short while and then decide to fire them, then there are some ripple effects from that decision. You may have to cover their COBRA costs for a period of time, your unemployment taxes can go up, there could be a negative impact on the team morale, etc.
Firing people because of your poor decisions that led to overstaffing is a drain on the business and can mess with people’s livelihoods. Making these decisions needs to be based on the numbers.
- You shouldn’t hire someone just because they are a friend or relative and need a job.
- You shouldn’t hire someone just because you feel that they are really smart.
- You shouldn’t hire someone just because you think they have potential.
- You shouldn’t hire someone just because your employees claim to be swamped with work.
These can all be factors in your decision, but they shouldn’t be the sole reasons.
When to Hire
You should hire someone because the numbers tell you that your team can’t sustain the amount of work that you have coming in regularly. The business revenue needs to be regular. Everything has ebbs and flows, yes, but there are still long term trends to look at. You need to look at your monthly recurring revenue (MRR), consider your sales pipeline, see how many months are left on your current signed contracts and retainers, see how much revenue is being generated per employee.
A good general rule of thumb that I was taught was that you should be looking at 150k in revenue per employee. If your total annual revenue is less than your number of employees * 150k, then you are probably overstaffed. You need to look at where you are losing money and you need to make cuts immediately. You don’t have the business to support that many people and still remain a healthy agency. On the other hand, if you know that adding another team member will still have you below that threshold then maybe you can make a hire if you need one and the other factors all indicate it’s time as well.
Alternatives to a Full-time Hire
So what do you do if you have too much work for your current staff in the short term? This is where outsourcing comes in. Whether it be online freelancers, local contractors, contract-to-hire workers, or temp agencies. Signing on temporary employment where you are not locked into anything long-term is what you need to do.
As a CTO, I can recommend some specific platforms that I’ve used for outsourcing development work and each has its own ideal use case.
Elite Freelancers at a Higher Price Point
TopTal is a newer freelancing platform that boasts a 3% acceptance rate into their program. They take your project requirements and discuss your project with you to match you up with the talent that fits your needs. If it doesn’t work out for you within their free trial period, you can walk away without paying anything and keep any work that was done. While they primarily offer development services covering all platforms, they also have members in design, finance, and project management.
WordPress Experts at a Mid to High Price Point
Codeable has carved out its niche as the go-to source for WordPress development work. They are boasting a 2% acceptance rate for their workers. What you’ll find here are developers knowledgeable in every facet of WordPress, so I always go to Codeable for any WordPress-based tasks. You can post your project and get a free quote from the experts very quickly with no commitment required. I actually went through the process and was accepted into Codeable myself.
A Variety of Workers at a Lower Price Point
Freelancer.com offers all sorts of services, but they aren’t going to do the vetting upfront here for you. Whenever we have turned to Freelancer.com, it has been for more routine or menial work that doesn’t require a major level of experience or skill. While you may find a contractor who is very skilled, you will still be playing roulette of sorts if you are going to assume that they will deliver something that is technically done while still following best practices.
Freelancer.com covers all facets of tasks that you may need for any work related to websites, design, SEO, content, finance, etc. I personally stick to things like data entry because I don’t want to spend my time posting test tasks to vet and find someone when I could be spending my time doing something more productive.Try Freelancer
Making Ego-based Decisions
Being the owner and boss of an agency can feel cool and instill confidence. You’ll have a team ready to move on all your plans at the snap of a finger. They may look up to you as a role model and someone they aspire to emulate. They may be ready to follow you anywhere since you appear to have it all together.
This is where to ego comes from and you may become addicted to this feeling. You may do anything to preserve this public perception and crave to feel even more important.
Once your ego has a hold it can lead to prioritization of public perception of you and your agency over the reality of the situation you may be in. Obviously you will want your agency to look stellar to the general public to lure in potential clients, but managing optics among the actual people you work with on a day to day basis while preaching transparency can lead to mistrust and lies by omission. You should have your ideals set out from the inception of your business. Are you going to be transparent with the financial status of the company or operate on a ‘need to know’ basis?
Deciding to be transparent with the company financials means that you are being transparent during good times and bad. Hiding financial instability from employees while preaching transparency is hypocritical. It’s probably partially fear of employees leaving on their own from fear of company bankruptcy, and it’s probably partially the fear of looking like an inept leader and businessman. If you are in a bad enough state though that you want to hide it, then you are probably going to be doing layoffs in short order anyway. When the layoffs come, then the employee trust that you are being transparent will be shattered.
If you can’t handle sharing the truth of the books when they are bad, then you should probably choose to operate on a ‘need to know’ basis and keep the books closed to employees. Then, even though the layoffs will still be a shock, it won’t be seen as something coupled with deception.
Nothing can feed an ego more than bragging and publicity. An acquisition can certainly provide a great topic for boasting and press opportunities. Interviews, articles, and fun side bragging to your friends will be plentiful with an acquisition. It’s true that being a company that acquires another company really does exude the impression that your company is doing really well. As the owner and face of that company, it’s easy to see why this is major ego-bait.
There needs to be a really definitive path to benefit for a merger before you should actually make such a move. The owners of the companies getting acquired generally get a huge benefit off the bat. Whether it be a pile of cash or ownership in the acquiring entity with a cushy salary, that’s generally going to be a beneficial move for the owners. It’s much more of a challenge for the acquiring agency though.
Mergers are hard to manage. There can be lots of conflicting methods, overlapping employee responsibilities, differing management styles and work cultures, new overhead costs, new services that need to be promoted. The list goes on and on. Can they work? Yes, but it’s generally going to be a bumpy road and you need to have a solid business plan set with projections for the impact and a nice buffer of cash flow while it gets sorted out.
If you jump into one without fully planning the impacts and making too many assumptions, then you can end up jeopardizing your agency. Cash flow and profits can rapidly turn into mountains of debt. The wreckage can result in the acquiring agency being left brutally wounded while others are left to fend for themselves.
Catering to Bad Clients
Everyone encounters some problematic clients at some point. They demand too much time, they are never happy with the work, or they may just be unpleasant in general and become a source of stress for your employees.
What you don’t want to do with these types of clients is cater to their needs at the extreme expense of your agency. A lot of times clients may just need to vent and you can hop on the phone to lend an ear and possibly take a verbal lashing, but you can smooth things over. Other times, they seem to never be happy and it’s clear that you can’t make them happy. This repeating negative feedback on work gets back to your employees and could affect their morale. The client can hold their invoice over your head and make you jump through hoops to collect. In the end, they may not pay at all or they may even sue. Even if they do pay, was it worth it? The answer is easy. No.
As the agency owner though, it is your responsibility to fire the client. None of your employees have the power to do that. If they are stuck with a bad client and you aren’t helping them get out of it, they are just going to put their heads down, try to get through it, and start to dread coming to work as a result.
Client Coddling Example
I’ve seen this bad client coddling happen to an extreme degree. There was a client who had a website design and development project. Design kicked off and the contract had two rounds of revisions for this project phase. The meeting after designs were delivered had our design leader fuming about how the client was talking to them and treating them. After the two revisions were done and the client was even harsher on the staff, the lead designer again raised the red flag to ownership and suggested firing them as a client.
Instead, the lead designer was just moved off of the project and the client was given another round of designs. In the end, the client hired another designer entirely to guide the designs and by the time the designs were approved for development, 80% of the development hours were already gone from design overages. In development, the same attitude was given by the client and the similar problems were had. Ownership again said to push through on several rounds of complaints. Then at the point where we were roughly 800 hours over the scoped budget, ownership finally fired the client.
Ignoring those initial red flags hurt team morale for an extended period of time. It also meant the agency went unpaid for both the contracted amount and the 800hrs of overage time. It could have been a small loss of time of maybe 30 or 40 hrs when the initial complaints were raised. The lack of action and insistence to continue the work instead made the agency end up eating roughly 1000 hours of time. Let that soak in.
Ideally, this client would have been fired early on and then all of those other wasted hours could have instead been put into working for a client that valued our team’s work and would actually pay their bills. It may seem stupid to fire a client so early when you have a signed contract, but just remember that even with a contract things are not always guaranteed.
Everyone will be happier working with clients that value what they do and the health of the business depends on clients seeing that value and paying for it.
Assuming Clients Will Sign or Stay On
Clients come and go. It doesn’t matter how long you’ve had them, there is still going to be a churn rate. This is why you can’t assume that a client will always stay with you and you also can’t assume that a prospective client is going to sign with you.
Existing Client Churn
No agency should be receiving a majority of their revenue from a small batch of clients because all it would take is an unexpected departure or two from these clients for your agency to suddenly be going belly up. Let’s say you had 3 clients that made up 75 percent of your business. If two of those left, the business is going to be in a real rough spot.
Sudden client losses happen all the time without warning. Budget cuts, management changes, funding losses, and changes in direction are a few examples of why a company may suddenly move on from working with your agency no matter how good your actual results and working relationship are. That’s why having a good spread of client revenue sources is so important.
New Client Leads
On the flip side, you are playing a dangerous game when you are planning your future financial decisions assuming that clients are going to sign for amounts you are expecting with the timing you are expecting. If you find yourself always saying “once we sign this” and “once we sign that” to justify your current financial situation, then you are counting your chickens before they’ve hatched and it is going to come back to bite you. It can even be problematic if they do sign, but end up signing on a month or two later than you were expecting.
I’ve seen clients who were expected to sign a contract go with another agency. I’ve seen clients who were going to sign and even ones that just did sign a contract, suddenly lose funding and shut down entirely. I’ve seen clients start off with great communication and excitement with a proposal for half a million dollars of work that then shifted at the last moment to a minimum retainer project. Everything can change, but it’s especially fluid before you actually receive a signed contract.
Obviously, you can’t just ignore any new potential business coming in at all or you may not be prepared for the potential influx. New business forecasting needs to be done and it needs to be done in a conservative way that meets in the middle.
There is a lot of software out there to help with forecasting, but a method that I think fits in this middle ground well can just be done with a simple excel spreadsheet. Make a column of all your potential clients on the left and a row along the top with months. Fill in the expected monthly revenue from each of these potential clients in this grid with an assumed starting month. Then, to the right of all of the month’s revenue columns, you can add in a percentage value. This is the percentage chance that you think this deal will actually close. Now with some excel formulas, you can multiply the percentage by the monthly amounts and total it all up at the bottom of the monthly columns. Those totals will be the expected new business numbers that you can be a bit more comfortable working off of.
View and download your own copy from Google Drive here: Revenue Forecasting Sheet.
It’s important to select percentages in your sheet with a healthy skepticism. The larger the contract, the more skeptical you should be that it will get signed just to not let that one potential project affect the monthly numbers too much if it is an outlier. Clients already under contract would be assigned a 100 confidence level. This sheet needs to be kept as up-to-date as possible with any new developments or additional client leads so that it is always reflective of the potential reality.
Falling Prey to Shiny Object Syndrome
For those who aren’t familiar with the term, Shiny Object Syndrome is basically an impulsive weakness for someone to start something new rather than to stay focused on what they’re doing. It’s coined from this being the adult equivalent of a small child chasing shiny objects. In the entrepreneurial sense, it is an inability to finish a project or initiative because you are instead diving into some completely new project, business idea, initiative, etc.
It’s easy to think that because someone else created a successful business model or website, you’ll just be able to copy them and get rich too. I’m sure that those ideas were not fleshed out and completed in a short timespan though. They likely had people dedicated to the project for a while until it became a success. Someone else’s success does not guarantee your own success just because you copied their methods. It especially does not guarantee success if you can’t focus on following through with the idea. Proper planning and execution are key to the success of anything.
Software development projects specifically can’t be jumped into without proper planning. Technical documentation is crucial before building anything or this same shiny object syndrome manifests itself as demands for new features, improvements, and functional changes keep cropping up. The technical requirements document should be the project bible as far as features go for an initial product build. All of those unplanned changes and features boil down to extreme scope creep and you again end up with a project that never gets completed and has probably lost its original direction.
What shiny object syndrome gets you over time is just a giant pile of unfinished projects, lame-duck businesses, and new money-making ideas that just end up being a waste of the agency’s money and many people’s time.
Think about it.
What good is a new initiative if it isn’t followed through on?
What good is a new business entity when it never gets attention?
What good is a half-done product that you then can’t sell?
You’ll never really know if any of the projects would have taken off or been successful because they never got the full attention needed to be able to succeed. Your team members likely had put time into these projects as well and can develop a “why bother” attitude when they begin to expect that this latest grand idea will just fall by the wayside in a few weeks or months.
A side project can be fun for your agency team and can offer a way to keep team members busy if they hit any sudden lulls at work. If you want to chase a new idea, then that’s great. Just remember to step back and really decide if this is something that you will see through to the end. If you already have something in the works, then finish that first. Put aside this new idea for now. Write it in an idea book and come back to it later, but don’t just dive into it if you have something else going on now. The last thing you want is to look back after 5 years and see that you have 30 half-finished side projects and 10 LLC’s for no reason.
If you need any help starting, planning, or operating an SEO agency, then I highly recommend Ryan Stewart’s “The Blueprint Training” course. It covers all the topics you need to start and scale your business and provides the tools to help follow through. You’ll also get access to an amazing slack community where you have direct access to Ryan and other brilliant agency minds.