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Running an agency

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Most people running service businesses have no idea what they're doing. 

Even after they've done it for years. Because they likely fell into running their business but never introspected to build efficient processes for it.

I was like that too. I tend to bury my head, get into a flow state, and just work.

But I was forced to wisen up when a new partner joined my agency and demanded I take note of everything that was inefficient. He has zero tolerance for having his time wasted. And I didn't want to lose him.

As a result, we've iterated extensively and now have a great workflow. And we finally understand how to choose the right clients.

I'm no longer stressed. I have more free time. And I earn the same. In other words, thanks to the tactics in this post, I reclaimed lifestyle balance.

If you're running an agency, this is critical to your mental health and productivity. 

I will be for you what my partner was for me. I will force you to introspect. F—— using your flow state as an excuse to leave your workflow unoptimized. Let's be smart.

Agency problems

After much introspection, I was able to categorize agency problems. These apply to "agencies" of every type — from web design to wedding planning:

Even if the tactics I'll be sharing aren't appropriate for your business, use these categories to identify the types of stressors you encounter.

I've come to realize each of these is mostly addressable except client interaction. Meaning, your willingness to run a service business for the long-haul reduces to your tolerance for interacting with clients.

But let's put that aside for a moment. First, let's elegantly solve these other problems.

Revenue volatility

Your income will be volatile due to short-term, custom contracts each constituting a sizable portion of revenue. Since you have few concurrent clients.

Here's what you can to do minimize revenue volatility.

Downscoped contracts

After your contract is complete, offer an ongoing, reduced-scope contract.

At Bell Curve, once we've established a client's marketing funnel (consisting of market research, web design and copywriting, and ad experiments), we offer monthly ad management at a drastically reduced price.

In essence, we run two concurrent client tracks:

It took us a year to realize how critical this is. We were blinded by thinking of ourselves as "high-end only." What we didn't realize is that we don't have to publicize the lower-end contracts. We simply introduce clients to them after their initial contract is up.

It's through low-earning contracts that we've transitioned volatile short-term revenue into stable long-term revenue. Over time, as we've accrued downscoped contracts, the combined increase in revenue is significant. Enabling us to sign fewer clients per year.

By design, downscoped contracts require less customer interaction and less strategizing. Because we justify the price reduction by removing high-touch services. 

This means the downscoped contracts can be better delegated to junior team members.

That is a key example of working smarter instead of merely harder.

If you cannot identify a reduced yet valuable scope of ongoing services for your market, consider pivoting to something that allows for it. Otherwise, you will not progress toward passive income. You'll be hustling for new clients until you retire.
Filter new clients by their interest in working with you indefinitely: If you're choosing between two clients, choose whoever is more likely to receive value from ongoing, downscoped services.

Excess leadflow

Even if you're at capacity, continue generating leads

It's only through having surplus demand that you can let go of mismatched clients without hesitating. And the ability to let go is critical to keeping your team happy.

What constitutes a mismatched client? Simple: If they're A) stressing you out or B) taking up a disproportionate amount of your resources for significantly longer than the average client, they are a mismatched client. Even if they're great people.

What does this have to do with minimizing revenue volatility? Well, if you have more leads than you can sign, you can quickly fill the revenue gap left by losing a client.

To repeat: Never stop generating leads. Having a surplus gives you the freedom to let go of mismatched clients without introducing revenue volatility.

Client/employee balance

Here's one last tactic for minimizing revenue volatility.

Find the balance between the number of clients and employees such that losing one or the other doesn't introduce a revenue gap or workload strain that lasts long.

For example, if you have two employees and three clients, losing one employee or one client is going to hurt.

At Bell Curve, we're 8 people. Here's the unintuitive part: I'm not earning more with 8 than when we were 4. (Because my salary had to be reduced to pay for new hires.) However, I'm earning the same but without any of the month-to-month volatility. That equates to significantly less stress and significantly more consistency.

In short — up to a point of diminshing returns — being slightly bigger can drastically reduce stress when you're still small. Even if it means more people to manage. 

For tech entrepreneurs like myself who value staying lean, you won't be able to appreciate this until you've built your first business employing more than four people.

To summarize, have enough employees that you can service enough concurrent clients that losing one won't cataclysmically affect revenue.

I considered including another revenue stabilization tactic in this section: binding clients into the longest contract lengths possible. However, I've found that simply doing good work usually keeps clients around for as long as your max feasible contract length would have been. So I'd rather encourage you to put systems in place to deliver consistently great work than to force unhappy clients to stay.

Workload volatility

Another pitfall of running a service business is sporadically intense weeks. These hone your skills in year one, but they eventually reduce to wholly unnecessary stress.

After aggressive iteration, Bell Curve has settled on four workload stabilizers:

Timelines

Before signing a client, tell them you work on a timeline basis. Here's how timelines work: At the beginning of each month, spec out the upcoming workload and get the client to agree to it. Here's an example

Next, make it clear no additional work will be delivered unless you're given two weeks' notice of desired timeline changes. By continually agreeing upfront to what will be delivered, you have a framework for reducing workload volatility when asked to do more, "Sure, we'll do X, but it means we won't be doing Y on the timeline. Are you okay with that?" Now the client will have to consider the tradeoffs when asking. 

If a client is unwilling to agree to a timeline-based workflow, they are a bad client. Fire them. They'll eventually introduce workload volatility. And, when servicing several such clients at once, you inevitabtly encounter weeks of very high workload that kill morale.

If monthly timelines are infeasible for your business, at minimum impose bi-weekly sprints. These are two- instead of four-week timelines that protect you from clients surprising you with same-week work that pushes you or your team above 40 hours.

Pointing

Timelines successfully reduce workload volatility across your team. But we must also reduce volatility among each team member. 

Since timelines make your workload expected and therefore measurable, you can delegate which tasks be done by whom and — critically — tally how long they take. 

As long as you've completed a task type once before, you have an idea of how long it'll take to do again. (Most agency work is repetitive, so you'll quickly find yourself familiar with how long things take.) 

Using meta-fields in your task manager (e.g. Trello, Asana), assign the expected number of hours each task will take. That's called pointing. When pointing, ensure no employee has more than ~32 hours of scheduled tasks for that week. (The remaining 8 hours is buffer for surprises, revisions, and discussions.) 

If they exceed ~32, re-assign their tasks to other people on your team. Even if it means senior staff are doing junior work. Never overwork a team member. If you do it often, they'll start looking for work elsewhere. Instead, do the excess work yourself and take this as a lesson to better scope your timelines: agree to less total scope next month.

Backup freelancers

Here's the final workload stabilizing tactic: Have vetted freelancers on-hand to supplement your team's labor during hectic weeks.

Identify the type work you do (e.g. design, copywriting, coding) that's most susceptible to spikes in demand. Then invite quality freelancers into your team's Slack channel to be there as backup whenever your team is overworked.

Having freelancers on-hand also helps avoid hiring new full-time positions until you really need someone full-time. So this tactic is also net cost effective in the long-term.

Work inefficiency

Time is money — especially with agency work. Remember that.

Dynamic labor

Beware high-paying contracts.

To understand why, consider this. An agency has two types of labor: First, static labor. This consists of tasks that can be completed on near-autopilot. It's your routine, low-stress work executed without much volatility or client back-and-forth. The more value you can provide with static labor, the more efficient your business is.

Second, an agency also provides dynamic labor. This is custom work dictated by a client's needs. 

Across your clientele, optimize for the least dynamic labor possible. Because it's very time intensive relative to static labor — and it's therefore cost inefficient.

For example, consider an engagement priced at $1,000 for 10 hours of labor. Let's say 7 of those hours consist of static labor and 3 consist of dynamic. That means you have a 30% dynamic workload.

Now, consider an engagement priced at $2,000 for 20 hours of labor. Because there are only so many static tasks you can deliver in a typical scope of work before more intensive, volatile dynamic labor is required, you're making up the additional 10 paid-for hours with mostly dynamic labor

That is very dangerous: You're earning the same per hour but are burdening your team with an extremely high distribution of dynamic labor that is harder to delegate to junior team members.

In other words, for most types of agencies, it's more efficient to accept two individual $1,000 contracts instead of one $2,000 contract. (There are exceptions depending on the industry you're in.) 

Note that this rule doesn't imply you shouldn't charge as much as you can. You should. Instead, it implies you should be realistic about the impact charging more has on a given client's expectations of your amount of labor. In other words, do charge a bigger business (e.g. a Fortune 500) more for your standard scope of work. Because they can afford it and are likely not expecting you to do more than normal. But don't charge a tiny business a lot or they'll expect a lot in return. After all, they're breaking their bank to engage you.

Rapid fire

These are the other highest-leverage tactics I've discovered for increasing efficiency:

Treadmill of tasks

Service work is extremely repetitive. Your primary defense against tedium is delegation.

Delegate as much tedium as you can. Plus train your team to be more capable so they can be delegated higher-level work next. Then rinse and repeat.

Easier said than done, of course. So, I'm writing a separate post on how to delegate work you don't think can be delegated. Subscribe at the bottom of this page to be alerted when it's out.

A good entry point to team-wide delegation is an operations hire whose sole job is low-level, low-skilled work others don't want to do. Assign this person assistant-like tasks throughout the week. Even junior team members should be able to assign operations tasks. This keeps everyone happy and gives your operations hire a whirlwind tour of the industry. 

It's a win-win so long as expectations are set upfront: they're doing low-level work.

After delegating rigorously, you'll still need at least two hooks to sustain motivation:

Client interaction

You can't remove the human factor from most service work. But you can reduce the likelihood of working with problem clients:

Should you start an agency?

If you pass this checklist, I would suggest starting an agency:

If you know someone struggling to build an agency in an in-demand market, it's not proof agencies are generally hard to start. It's more likely they're not yet sufficiently skilled. Consider how there are a lot of untalented graphic designers and copywriters out there — just to name two skills that come to mind. A lot of them are unsuccessful not because they're in competitive spaces (millions of businesses need these skills!), but because they're unqualified and don't know it.

Agencies versus startups

For me, an agency is more enjoyable than a traditional startup. (I write about that here.)

With an agency, instead of you incurring all the risk of success or failure, it's your clients that incur the risk. And you don't have to deal with investor pressure. And you don't have to carry the weight of an A-to-Z business on your shoulders. 

With agency work, as long as you're operating in a space with heathy demand, doing good work alone will be enough to keep your workload (and income) indefinitely. 

Plus, you can choose how much you want to make based on where you're at in life. Want to take it easy and travel? Or, perhaps you want to work hard to buy a home? Well, if you're doing great work, you can hire more people and sign more clients. It's just a matter of your tolerance for scaling managerial work.

You rarely have that control with a traditional startup.

All this said, starting a startup will still be a better choice for many people who are simply more passionate about startups or products.

But if you're not passtionate about startups, and are trying to conclude how to best leverage your marketable skills, put some serious thought into an agency instead. I tweet about agency life if you want to hear more: @shapiro.

Agencies versus freelancing

Running an agency is better than freelancing because:

Frankly, freelancing is overrated. While it's often better than working a traditional job, I'll be so bold as to say freelancing is rarely better than running an agency.

Workflow managment is everything

So, I ask you again: Do you have marketable skills? Can you deliver good work? Can you find your motivational hook? If yes, bookmark this page and start. You won't regret it — so long as you work smart and not just hard.

It's really easy to get overwhelmed. With agencies, workflow management is key.

If you'd like to subscribe, I'll be writing more about how to delegate work:

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Julian Shapiro

I try to write the best guide on every topic I'm interested in.
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