Don’t Be Afraid of Outside Agencies

I’ve seen too many entrepreneurs view it as a point of pride to do everything in-house. Marketing, bookkeeping, full tech stack, et al — there’s sometimes a perception that other companies and investors will think there’s something wrong if you can’t do everything yourself.

However, we’ve worked with enough companies that built beautiful businesses that abandoned the own-it-or-lose-it mentality to know that this is not the only path. And, in many cases, those businesses did it for a fraction of the cost.

Specialization of roles has been around since we split ourselves into hunters and gatherers while living in caves, and it’s one of the primary drivers of social evolution over the past two millennia. While a startup outsourcing some of its labor is nothing this grandiose, it comes from the same principle.

Third party agencies tend to attract smart folks who are really good at one specific thing — whether that’s advertising on Facebook, managing startups’ books, handling payroll, building web frontends, etc. These folks work day-in-and-day-out doing the same activity over and over again for a wide group of companies and, in addition to honing technical skills, build out their powers of pattern recognition and benchmarking.

Sure, an early-stage startup could leverage one of its incredibly sparse resources to spend the time to get deep enough on a topic to sort-of handle it, but that employee is unlikely to get half as good in short-order as someone who does the task all day, every day. That leaves the next best option of hiring specifically for the functional area, which certainly makes sense at a certain scale, but in the early days, heads are not cheap — particularly if it’s a head that’s not core to revenue production (see more on revenue-to-headcount as a metric here).

One of the beauties of agencies, besides their depth, is that they come in very specific flavors — you can have three different agencies to manage three different channels plus a fourth to manage something else. Agencies always want to take over each others’ business, so the more transparent you are about their performance (and as long as you’re meritocratic in how you reward success), you can often drive really strong performance. Of course, there’s an equilibrium point between specialization and just having too many partners to manage — the right number depends on the tasks that need to get done and the available bandwidth of the team.

Some of the best CEOs I’ve worked with have recognized this and leveraged a roster of 3rd party agencies to fill functional gaps in their team. I’ve seen these CEOs become very effective “puppeteers” — closely managing partners’ productivity, keeping an active roster to play agencies off each other, and being ruthless when it comes to cutting underperforming partners. These CEOs activate their networks to find the best and brightest to work with and actively assess performance rather than ever letting partners rest on their laurels. Not every agency is created equally and partners can become lazy when you’re no longer their new and shiny client.

It’s important to remember that agencies aren’t cheap, and as budgets grow and teams swell, it makes sense to constantly reassess and bring roles back in house. At some point it becomes non-economic to pay 5–10% of marketing budget to a 3rd party versus just hiring someone from that agency to come in house (another benefit — talent pipeline!).

Particularly in the early days, however, agencies provide a strong ballast to a growing small team. There’s nothing more important when you’re in the midst of the storm trying to stretch every dollar without capsizing the ship.