Digital Marketing Agencies don’t scale, right? Actually, now they do.
If you manage a digital marketing agency you probably think it all the time: scale is your business, but your business doesn’t scale.
Day after day, your job is to help clients get more out of their budgets. When you do your job well, you help clients achieve 2x and 3x results with the same budget and thus scale their entire marketing operation. Your case studies are homages to your domination of scalability. Yes. You, like many digital marketing agencies, are the high priest/priestess of scalability, yet your business model doesn’t scale.
Scalability, this idea that we can get more and more with the same or less, is the object of pursuit of a generation of entrepreneurs: the word sits on the tip of our tongue without ever being swallowed. Indeed, it has become a cliché now that every meeting where new ideas are discussed builds up to the question, “this is a great idea, but how does it scale?”
The trouble with agencies and scalability
From the times of Mad Men to the present, agencies of all sorts have depended on a key equation to be successful: keep fixed costs down, increase the share of variable costs.
Agencies are probably more like restaurants than any other business model. People start agencies more out of a passion for the work more than anything else.
As a result, there is an abundance of agencies out there, and that abundance keeps prices & profitability down. Also, like restaurants, within that abundance of choice there is a world of difference in terms of quality. Unlike restaurants, as an agency it’s harder to get people to try your product first to understand that difference in quality and value.
Agencies managers therefore have two options in building out their business model:
Seek many clients, try to build a solid revenue cushion, and hope that the quality of the service doesn’t dilute itself across your book of business. This model represents the classical scaling model for agencies.
The alternative to the classical model is not to compete on price but to compete on quality. You charge more but you keep your focus. Instead of building a team of junior people to whom you hope to delegate more and more because they have a lower hourly cost, you build a strong team of high-performers with your clients. You stay involved. You work day and night for a loyal group of clients.
Though the classic scaling model seems ingenious, your clients have figured out what you’re doing. They notice you’re not around any more. They see names on marketing emails of people they’ve never met. They’re on to you.
But the quality over quantity model also has its risks too. You’re business is more susceptible to the departure of one or two clients. Because the type of client you’re looking for is more niche, it’s harder to find new clients and the sales cycle is slower. Even when things are going well you’re highly aware that at any moment an unanticipated loss of a client can throw you back in the red. You stand by the quality of your work, but sometimes there are extenuating circumstances beyond your control and beyond your clients’ control.
The Wrong Way to Scale an Agency
Having thought about potential solutions to the scale conundrum, there is a seemingly simple conclusion: outsourcing. Take everything that is not core to your agency’s existence and send it off to someone else. Even if you have to pay more than you normally would in some months, at least you don’t have those fixed costs on your books week after week.
Maybe, in the hopes of keeping those variable costs down, you’ve come to another conclusion: offshoring your outsourced work. The dream is a beautiful one: we’ll send stuff to India before we leave at night, and we’ll get it back in the morning complete and ready to ship.
You saw the aggressive emails come in to your inbox from people offering this very service. After ignoring them for some time you decided to give it a try, then reality sinks in: quality & coordination. “That’s not what I wanted” is a sentence whose response takes 24 hours to elaborate. Even then you might not be fully satisfied. Who really are the people on the other end of the ethernet connection anyway? In whose hands are you putting your clients work, your lifebread? Can they be trusted? As a response to a bad experience you’ve given up on outsourcing and decided to bite the bullet and hire in-house.
Outsourcing Grows Up
Outsourcing has been around for some time, and like any industry that experiences a boom such those enabled by the growth of the internet, that boom produces players of all different types of quality. Following the cycle of innovation, we have divergence in the explosion, and then convergence as new players begin to consolidate.
As part of the convergence that emerges from the acceleration post the big bang of outsourcing we now have nearshoring. Nearshoring is what it sounds like: take advantage of talent that is actually not that far from you and that works on your same time zone.
In the case of the United States, most Latin American countries are less than a five hour flight from the major metropolitan areas. These countries produce a wealth of programming talent, including many individuals who study in US and other overseas universities. Companies arise that focus on finding, harvesting & organizing top talent in nearby locations.
Nearshoring also takes advantage of another phenomenon that is born both as a result to save costs and ubiquitous connectivity: remote working and distributed teams. With tools like Trello, Slack, Zoom and Github, having your entire team in one place is unnecessary: in fact, Wordpress recently shut down its San Francisco office because no-one was using it.
The Agency Scale Solution
When you look at your iPhone, you know that its components were sourced in dozens of different companies, and the idea doesn’t bother you. Taking advantage of the opportunities to scale offered by globalization, companies like Apple realized that the value-added they offer is in design, and not necessarily manufacturing. Despite the fact that Apple manufactures abroad, they aren’t careless in choosing their providers; they painstakingly select the materials and the providers that end-up in their products.
Similarly to what happened to manufacturing in the 90s, the agency world is waking up the fact that the idea that all offshoring is low quality is a false dilemma.
There are high quality outsourcing firms that can help agencies keep fixed costs down without sacrificing quality. These nearshoring firms operate on the same organizational principles found in the remote work and distributed teams many agencies already use. They also solve a bunch of secondary and tertiary problems agencies face, including recruiting, retention & skills upgrading, not to mention project management, quality assurance, etc.
Are these high quality firms as cheap as the shops in India? No.
High quality nearshoring is the answer to the agency scale conundrum, because it allows companies to focus on the activities where they add the highest value. At Jobsity, our “Small Batch” style is designed to achieve exactly that for all our clients.