I remember when I got my first big break at a large scale Ruby on Rails development shop. They worked with big brands; we’re talking Fortune 100 companies. They had an ultimate hacker house with a bunch of geeks working all day in this McMansion in the valley (suburbs of LA). I thought this was paradise. I remember referring to it as one giant frat house where everyone got paid.
When I finally went into business on my own, it took some time to learn the hard lesson. That lesson being that it’s very easy to get stuck in the bottomless hole of consulting. The constant hustle, the constant battles, whether it’s with clients, with partners, with team members, or with the constant internal time clock. When are we going to build our own product? Three years old. When are we going to build our own product? The Mythology of the 37 signals. Using your client’s dollars as a means to bootstrap your own business is the ultimate consultant’s dream. It’s also the ultimate pipedream because it takes a couple of years to truly recognize that the majority of your clients will always be playing the “Red versus blue” with them.
Now, what I didn’t know back then was if your digital agency becomes a recognizable brand, all you do is sell and manage more and hire more and hire more and hire more to the point where you have five offices and 200 employees and only receivables to show for it. You’ve developed no internal products. You have no equity other than your receivables and your talent has a higher turn-over ratio than a downtown nightclub. Every partner has to manage the “whale accounts” and constantly search to find juniors to manage the “low hanging fruit” accounts. Think Mad Men 4.0.
In the competitive world today, you also have to make sure you’re competing to keep your talent, which isn’t always an easy thing. It’s also harder to think of the exit strategy for most digital agencies, which is to become acquired.
The Right Brand, The Right Plan
Being a seasoned veteran in the digital agency world, working with the biggest brands in the world, the biggest companies in the world, the biggest talent in the world, the biggest entertainment folks in the world, I’ve realized that you’re just not that attractive for an acquisition from the big boys. For them it’s cheaper to treat you like a dog resource and just throw you a bone every once in a while than swallow your whole team.
In theory, when a digital agency does get acquired, in most cases it’s for the talent (aka an acquihire). If it’s a big company, they don’t really care about the receivables. The trend I’m starting to see is the bigger the client, the cheaper they are. They have a million vendors who would love to work for them just to put some worthless bragging rights on their website.
As such, it’s created a dependency on outside vendors to do all their design and development work. We’re talking about some of the biggest companies in the world. You pass by their ads on a daily basis or you use their technology on a daily basis or you view their content on a daily basis, and they are 100% dependent on outside people for almost all their hard-hitting design and engineering.
Sounds crazy, but it’s become the reality. Pivoting in a digital agency is the hardest thing because it means learning to say “no.” It means turning down new contracts. It means not scaling to accommodate new workloads. In other words, saying no to new money and more revenue so that you can put your team’s focus into what you do want to build, whether it’s games, SaaS products, consumer facing products, or what have you.
Don’t get me wrong. There’re plenty of companies that have done an amazing job at it. MetaLab seemed to have pretty good recurring revenue from some of the products they’ve created like Peak and that other one I can’t remember. There’re a few others out there but for the most part being in a digital agency and being the best digital agency means you slowly, whether you realize it or not, become trapped in quicksand.
You’re less lean. You have a higher overhead. You surprisingly make less profit because you have more net terms or more general expenses that you would have as a four-person team instead of a twenty-person team. You have to pay the $200 membership plan to Github. You have to pay $250 a month to Slack. Service products that you need to maintain your business can easily add up to a couple thousand dollars a month by themselves.
Trial By Fire (And Error)
What’s the solution? Well, the only solution is to try things. Some companies do the 20% methodology. It’s debatable whether Google got that from 37signals where 20% of your time goes into your own product creation. If it works, great, but do I believe it’s viable? No. The reason for that is focus. That’s a word I learned from the King of Kool Aid who was once a potential client. He was right about the focus part, though.
In order to properly execute an internal product, you need to be invested 100%. You cannot do consulting. You cannot be working on other projects in the environment you’ve created for yourself. If you try to do that, client work is always going to take precedence. Bug fixes, emails, bill collecting, feature development, more money, you name it. It’s always going to take priority. Once your product is de-prioritized, you might as well just open source it at that point.
Secondly, I believe the mindset of context switching for designers and developers between internal products and external products is tremendous. When a developer is working on a client project, there’s the expectation to build the best product they can make, but at the end of the day it’s not their product. If the client has some money and is consciously aware of being a feature creep, so be it. Does the developer care? Not really. Does the project manager care? Not really.
Let’s flip the coin and pretend that it was an internal product. If the developer had a vested interest, if the project manager had a vested interest, if the product owners (the agency) had a vested interest, do you think that feature creeping would go on? Do you think that passive ‘I-just-work-for-somebody-else’ type attitude would cross over? No.
I think milestones have always been a good solution. One thing I’ve always wanted to try is vacations — a vacation from consulting. If you’re going to sell out you might as well sell out big. Find the most dry, well-paying enterprise project you can. Make sure that it covers a six month burn in the bank. Tell the development team that we’re taking two months off from this whole engagement once we’re done. After that cycle, we’re at “full-capacity” no matter what.
You really have to keep your word if you are going to do it and build in cycles. Put up a landing page to your client; let them know you’re on vacation and have officially gone fishing. You could even build a pipeline — every developer’s dream.
You could cue up projects when you guys get back from your internal product vacation, and you don’t have to deal with the context switching issues. Something I’ve always wanted to try. In fact, I think I definitely will.
I’ll keep you all posted on how it goes!
