How big should you go? Part 1

What’s the best size for a digital agency? This is such an interesting topic, so make sure you read Part 2 (coming out shortly).

Recently I’ve been speaking to a few agencies at the 12 – 15 staff level, who have got a great business but struggle to get beyond that level, and asked corporate advisor Matt Costello (who is the workshop leader of MBA in a Day) for his take. Matt points out that: “The main reason is that agency founders are fantastic at digital but don’t necessarily have the capacity or management skills to manage a growing business. They spend more time working in the business and not on the business.”

Often agencies are more profitable at 15 staff. At that size the company has full utilisation of staff and resources which makes for a more efficient operation. The founder/s play close attention to revenue generation; no one can hide.

Tim O’Neill, Reactive’s Joint MD and Co-Founder agrees: “As an agency grows in staff numbers there are a few peaks and troughs which seem to be pretty consistent with size. Generally it’s at each point where you need to introduce a new layer of management; this has a short-term impact on profitability and some “growing pains”. With luck you grow beyond that, and the extra senior people start paying for themselves.

12 – 15 is a typical comfortable spot. To get to 20 you start wanting someone to oversee operations (like a GM), of course this depends on the background of the founder/s but they are typically from a creative or technical background rather than operations.

Reactive hired a GM quite early in our growth (in Melbourne), and that helped us continue on a pretty consistent 25% – 35% YOY growth during our first 9 years. We then expanded to Sydney and London, each office has had much the same experience as in Melbourne. And now New York and Auckland are tracking the same.

To be honest, finding the growth has not been the hardest part, it is managing the delivery of larger and larger projects as you grow, and the continued training and growth of the team skills that is required.

Work on the business

When you get above 50 staff it’s necessary to do proper strategic planning, and mandatory that someone (doesn’t have to be the founder) is working “on the business”. I think this is where a lot of agencies stall in their growth, the management team keep their heads-down winning & doing work, rather than planning for the business.

We had a Business Coach who helped us for about 3 years, and that really helped Tim Fouhy and I to get our heads in the right place and treat Reactive as a real business. I would recommend this to anyone who is struggling to change their business for the better.”

Further reading: interview with Tim O’Neill, and Matt Costello on valuing the digital agency.

About Claudia Sagripanti

Involved in the evolution of mobile marketing and advertising from the early years, including co-founding Mobile Marketing and Advertising Awards, founding chair of AIMIA's Mobile Industry Group, development of mobile advertising guidelines for industry as well as commercialisation strategy.

  • [...] 2 by Claudia Sagripanti on Mar 21, 2013 with No Comments Pin It Continuing the discussion in Part 1, on ways to grow a digital agency. One way is strategic investment; another is pure grit and hard [...]