Agency Growth Tips 15/21: Growing. By shrinking.
It’s the Workend, see article 15/21 – so this one will be short, but hopefully insightful.
Today, I’ll like to go into more detail around a topic I mentioned yesterday in 14/21 – the topic is the title of this article.
If you’d to know more about me – see the preamble of article 1/21 Create Value. Not Things.
Aside: Usual dyslexia and swearing warning. I can’t spell, and I get a little sweary when I am trying to make a point. It’s enthusiasm.
So, here goes. Short. But a REALLY important concept.
Agency Growth Tips 15/21: Grow by Shrinking.
Everything is mostly going great in the agency. Your existing clients are growing. You’re winning new business. Brining new people on, but in line with increases in turnover.
You’re not making any money. And you seem to get more stretched the whole time. Quality is dropping. We’re doing things twice. Not enough work is passing through the agency seamlessly like it once did. Life’s getting complicated.
And you know what we are growing. But, actually most things aren’t actually going great. It all seems harder work than it should be.
“In fact, things were better when we were SMALLER.”
The amount if times I have heard this. And said it myself. I promise you, you are not alone. Most agencies feel it. And here’s the simple truth – they weren’t better when you were smaller.
They were better when you were SIMPLER.
Aside: Heard the phrase Turnover is vanity. Profit is sanity. Well, there’s a lot of truth in it, unless your a tech giant apparently. The dangerous bit is chasing turnover growth without maintaining or increasing margins in %age terms. That practice in agencies, is nearly always total INSANITY – unless you’re doing it for a strategic reason.
So let’s assume, you want your RESULTS to improve AND margins to INCREASE.
Running an agency is wonderful but it’s hard at the best of times.
Running a growing agency or team, well that can be off-the-fucking-chart hard.
You have to understand what growth you want and why you are doing what your doing. Chasing turnover is not good enough. You’re a business. You exit FIRST to make a profit. SECOND to create customers. And THIRD to delivering results for those customers with your services. Those are your mandatories – and they have to go in this oder to prosper. That’s not to say have to put profit over product – I never really have myself but these are not fundamentals you or your team can ignore.
Even harder, is coping with unplanned and unmanaged growth. It’s hell. Been there. Never want to go there again. When I began to plan and manage growth, reflecting on each individual client – every month – and what they were contributing to my own business, it was so much easier to make smart decisions.
I learnt a lot about this from some VERY smart people – and I have gone on to build some very simple but very clever tools for analysing client types and what I help base decisions on… no rocket science, just insight. And insight is as important as imagination in an agency. In fact it’s key – and your management accounts each month DO NOT ever give you the full picture of what’s happening in your agency.
If you don’t get into the detail, and managed by client and client group, at some point you will catch a cold.
One of the things I have learnt, that across most agencies – the bottom (by revenue) 10-15% of your clients probably take up 20-25% of your time.
The bottom 20% take up 30-33% on average. Sometimes more.
It’s absolute fucking insanity. And when you see this, you’ll notice it’s a trend. And it will shock you. And it keeps happening. And it’s dragging your profits, product and efficiency down. Probably morale too.
So consider this, as long as you have a balanced spread of clients, if you win a client that is going to represent 20% of your turnover… you have many options – but let’s consider the two main ones. You can grow by growing – recruiting staff and increasing your costs. Or simply, grow by shrinking.
You could resign those bottom 10% of clients, reapportioning your teams activity – you can achieve many things – making life simpler in the agency, bringing in no new costs, increasing your margins (See 9/21 Defend yourself at all times – all about margins) AND increasing your results. And it can be a brilliant approach.
Growing. By shrinking.
Growing by making strategic choices about what type of growth your want and shaping a healthier business.
Most often, something else interesting happens too… some of those clients won’t want to go. That’s find. Renegotiate with them. And if they will pay for all the resource the employ, on the right rate card, open your arms and welcome them back into the fold and re-establish that working relationship. Now you’re really managing your growth. It’s not happening to you. It’s happening by design.
Growing by shrinking won’t always be the right call… but it’s a serious option. Sometimes in the pursuit of getting big, the smart thing to do is start thinking small.
Get into the details of your business. Understand each clients profitability, contribution and utilisation.
It will change the way you make decisions for the better.
And that’s better business.