Should freelancers partner up to form an agency?
I often come across freelancers who want to partner up with other freelancers to form an agency.
The logic is simple: birds of a feather flock together. Two freelancers working together to solve a problem is better than one.
But is this a good idea? Should freelancers partner with someone just because they have complementary skill sets? The goal of this post is to answer that very question.
So let’s dive into the keys to forming an agency partnership — when this may be a good idea, and when it doesn’t make sense.
The frustration of freelancing
Freelancing is a lonely business, and your ability to land clients is often limited by your own skills. Having a partner with a complementary skill set allows freelancers to increase the number of services they can offer, land bigger clients, and grow revenues.
For example, a PPC freelancer may find that partnering with a web developer to be advantageous. The partnership allows the freelancer to offer clients a full service package (PPC services along with landing pages) versus just executing PPC programs.
For many freelancers, this seems like a logical next step in their business. Add more services, appear bigger to prospective clients, and grow bigger as a result.
But is this a good idea for a business owner? The simple answer is no.
What makes for a good partnership?
Partnerships between freelancers can consist of anything from client-sharing to merging companies. A key to forming an agency partnership is that you work well with the person or company you want to partner with. This usually begins with a trial-period where freelancers team up to deliver a project to clients. By working on a trial project, you can usually figure out whether or not the partnership is a good fit.
The best partnerships are formed when each partner has a core skill that the other a) can’t do or b) doesn’t want to do. But it’s not as simple as just picking someone with complementary skills.
It is about truly unpacking what each partner can bring to the business relationship.
The three roles of partners in a business
There are three major roles that a business needs fulfill in order to succeed:
- Business-focused — this role covers everything from finance to HR. A business-focused partner represents the functions of running a business smoothly and profitably. They should understand the legal side of running an agency.
- Business development focused — this role lands clients, develops relationships, drives sales and do marketing for the company.
- Delivery focused — this role is in charge of delivering the products and services that the company offers.
When seeking out a partnership, you want to account for each of these three roles.
The two most essential roles are business development and delivery. The most important role is driving sales to grow revenues. Great business development skills are hard to outsource, so it often falls on an equity partner to lead business growth.
Next, it’s important to deliver the results. This is where subject matter expertise and proven processes come in.
The final role focuses on the business. This may be an equity partner, or it may be a role that the agency fills through their hiring process. Of the partner roles, this one may be filled without giving up equity. Agencies often hire a controller to take care of HR, finance, payroll, and other back-office functions.
Getting back to freelancers
Why shouldn’t two subject matter experts team up to form an agency? Because they are both focused on the same thing.
If you have two freelancers with complementary skill sets, the ensuing partnership will be out of balance. They will both be focused on service delivery, with nobody left to manage sales and business operations. Two delivery experts do not make a well-rounded company.
Two partners focused on the same thing makes it harder to attract good people in the future. In the example we gave of a PPC and web development partnership, the company now has two delivery partners focused is on service, creation, and delivery. Meanwhile, business development (and the business itself) is neglected.
Stepping outside of comfort zones to fulfill partnership roles
The role a partner plays in a business is not just about natural talent. It also involves sacrifice and doing what is best for the company. A subject matter expert may need to go from being a delivery expert to a business development rainmaker, because that is what is best for the business.
Hiring a great business development person is very difficult. That is why one of the freelancers will need to focus on this area if they want the business to succeed.
Why is that? Because it is easier (and more profitable) to hire someone focused on delivering services when the revenue is already booked. It is the best thing for a business.
How should partners divide equity?
Then comes the question of how to divide up equity among partners. The most common agreement is a 50/50 split of equity between the two freelancers. This way you can avoid uncomfortable situations and everyone is happy, right?
Equity should be granted based on a combination of timing and risk taken to build the company. Timing is when someone got involved with the company. Risk refers to how much risk they took to get to that point.
Founders will naturally take on the most risk, and spend the most time with the company. Time in the early stages of a business is exponentially more valuable than time spent in the later stages.
If you want to learn more about dividing up equity, we go in depth in the Agency Jumpstart Course.
A partnership should make a business 200% better
In a partnership, 1+1=3.
At a minimum, partnerships should produce three times the output of an individual freelancer. Adding a partner should allow you to grow your business by 200%. Otherwise, it’s not worth the additional effort! If adding a partner only grows revenues slightly, then what’s the point of partnering?
Partnering with other freelancers to form an agency is something we should all consider. But you need to think carefully about what each partner brings to the table. It will involve sacrifice, compromise and compatibility to grow a thriving business.
And it shouldn’t be taken lightly. Like a marriage, a partnership can be equally as messy when splitting up. Make sure you choose wisely before committing.