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Why do so many dreams turn into disappointment? Why do so many agencies fail?
In my experience most failures will be caused, not by a lack of talent, but by an absence of wider business or commercial knowledge.
What are the things that new agency founders need to know to get through the early years? Here are the most important:
New Business
New business is absolutely vital. You have to cover your costs and then some, and you must do it every month. You need to balance doing the work right now with investing some time in making sure there is enough next month too.
It's easier when there are just one or two of you to support but as your team grows that fixed cost becomes ever more pressing. The work from your initial clients or contacts won't be enough and you will need to widen the net for new clients.
Making sure you have multiple channels for new business is really important. Don’t rely on just one route, however successful it has been for you in the past. Whether it is outbound, inbound, networking, alumni, events or clients who have moved on, making sure there is a robust and diverse pipeline is vital.
Financial Insight
You don't need to be a qualified accountant to be successful at running an agency. You do need some insight into what your numbers mean, what they suggest you need to do and how quickly you need to do it.
If you do only one thing over and above looking at your Xero or QuickBooks P&L then please, please do some reading about these metrics, how they are (simply) calculated and what they mean for your business:
Revenue per Head
Compensation to Revenue
If you need help measuring and understanding the metrics that count, we're here. Our Remote CFO Reporting is a simple way to boost the quality and insight of your agency's monthly reporting.
Client Concentration
Having any one client make up too high a percentage of your revenue is a risk. It’s attractive because of the money coming your way but it is a risk nonetheless. Any client who can wipe out your profit with one phone call can sink your agency. The only way to mitigate this (apart from making sure they are happy with your work) is having a notice period and providing a service they need during that notice period. That and a decent pipeline of course. Always a decent pipeline.
Reaction Time
The best way to deal with a problem is to react quickly. Too often I see agencies suffer a potentially fatal crisis where earlier action could have avoided possible disaster. Part of this is down to human nature; most founders are optimists who believe things will get better next month. To make sure this doesn't happen to your agency you need to do a couple of things.
First, make sure you have a robust forecast. Let me repeat that. If you’re reading this and take only one piece of advice away from it, let it be this; make sure you have a robust forecast. By robust, I mean a forecast that only includes revenue you know is going to happen; not what might happen, not what you think might happen. What you absolutely, 100% for sure know is happening. Everything else goes into the pipeline. This will make it far, far easier for you to know when to react.
Secondly, if your forecast reveals there is a problem you need to react quickly and take action. Our Crisis Management Tool will help you decide how to move forwards. It gives you the clearest view of what action you should take – whether you just need to trim some overheads or whether you have to reduce headcount.
Most businesses that fail will do so not because of a lack of talent. They will probably fail due to one or more of the above reasons. The good news is that these are avoidable and with a little financial management and planning you can make sure your agency doesn’t join the long, sad list of failures.
