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The Life Cycle of Agencies and What You Need at Each Stage
Upsourced introduces The Life Cycle of Agencies - a framework designed to help agencies navigate growth at every stage.
Upsourced introduces The Life Cycle of Agencies - a framework designed to help agencies navigate growth at every stage. This roadmap helps agency owners identify the common problems they'll face at each inflection point, and arms them with the tools and solutions to overcome them.
The Life Cycle of Agencies consists of four distinct phases:
The first stage in the framework is Create Mode. Create mode agencies are focused on one thing - getting the business off the ground.
At this phase, the primary “job to be done” is to perfect the positioning and the go-to-market in order to grow revenue. And growing revenue is, without question, the most important and most difficult challenge these agencies will face.
The business is new, it doesn’t have brand awareness, and it must build its client base. No matter what industry it’s in, this phase is all about sales. And that job lives with the agency owner - it cannot be outsourced.
Once the business has begun to generate revenue, it’ll need to figure out how to service it. But creating a staffing model at this phase is tricky. In the very early stages of the business, there won’t be enough work to support a full-time staff, so it’ll rely on freelancers. As the agency progresses through create mode, though, it’ll need to methodically replace those freelancers with a full-time staffing model in order to earn margin. This transition is delicate and will create client service and financial stress.
The main focus is on go-to-market, so create mode businesses should keep their administrative footprint simple. An easy first step is to open a separate bank account, get a debit or credit card, and keep all business-related transactions in only that account.
There’s no need for fancy financial models or complicated business plans at this stage - these are classic activities that feel productive, but aren’t. The future isn’t predictable. Owners should understand their fixed monthly operating expenses, and manage their revenue and collections to cover them. It’s that simple.
As long as create mode agencies are laser-focused on the things that matter - sales and service - and they manage everything else as lean as possible, they’ll put themselves in the best position to earn their first $1M.
As we often say, there are very few problems in a create mode client that we can't eventually fix in the next stage.
For more in-depth conversation around stage one - listen here
Stage two in The Life Cycle of Agencies is Build Mode. You’ve made your first million; now, how do we grow that one million to three million?
Entering this stage is the first major inflection point for an agency. The owner is running out of energy and time to wear every hat. It’s time to build a small leadership team and change your thinking from “let’s build an agency” to “let’s build a profitable agency.”
What should you be focused on financially?
Clearing The Hierarchy of Financial Needs and mastering capacity management and repeatable revenue generation.
The Hierarchy of Financial Needs:
The Hierarchy of Financial Needs is a way to approach our financial KPIs sequentially, treating them as stage gates - meaning you don’t think about the next stage until you’ve cleared the stage you’re currently in.
Once you’ve cleared the steps of the hierarchy, your agency will be ready to move on to the next life cycle stage. Don’t rush out of build mode; focus on each step of the hierarchy and build a solid foundation for your agency to live and grow on.
For more in-depth information surrounding the different stages of the hierarchy, watch this video.
The third stage and second major inflection point in your agency’s growth is Grow Mode. You’ve cleared The Hierarchy of Financial Needs and things feel easy… until they don’t.
The business may start to feel some tension and strain at this stage. Things start to “break” a little, employees leave, clients churn. The leadership team you appointed during stage two is too far removed from key decisions, so it’s time to empower your next layer of leadership.
These new deputies are key to carrying out the vision and processes of the agency that you’d once managed on your own. Success hinged on your ability to empower, incentivize, and hold accountable this next level of leadership.
Your first order of business is to determine how to divide and conquer the organization. We recommend organizing into either departments or client portfolios. Departments are best for agencies with separate and discrete service areas like development, design, SEO, etc. Portfolios of clients work best for more integrated service delivery, like typical branding agencies. One isn’t better than the other, whatever works best for your agency is the better option!
Set expectations and hold people accountable. Give each leader their own piece of the P&L (department net income, or portfolio gross margin, etc.). As the owner, it’s your job to empower them to manage that P&L.
The secret sauce to really make this work is the feedback loop. Exceptional divisional performance should be rewarded, and poor performance should be addressed, supported, or triaged. Regular means of reviewing expectations with leaders is essential. We like to use the Monthly Business Review. These monthly meetings are when the partners meet with their deputies and review their divisional reporting. You want to create an environment where leaders feel accountable to their expectations and can share what is working and support each other to improve what is not.
This stage can feel uncomfortable, but it’s a natural evolution for your growth. Once you’re able to successfully elevate and empower the next level of deputies to run your agency, you’ll be well on your way to Scale Mode.
For more on Grow Mode, tune into this video
This is the third inflection point for an agency. At this point, your agency has made the decision that they don’t just want to be a successful business; they want to be a big business, too. Making this transition requires a fresh approach to thinking about systems and leadership. Your priorities and metrics are highly dependent on your goals for this stage.
There is no single path through scale mode, but all roads start with preparation. Owners need to define their strategy and ensure the team is positioned to execute against it. And if you’re in this spot but unsure how to start, we’re here to help review options and select what’s best for your business.
For more on Scale Mode, check out this video