Secrets of Scaling Agencies? (TLDR)

Secrets of Scaling Agencies? (TLDR)

Way back in 2019, before the pandemic – which feels like a different lifetime – I interviewed Kristin Luck, a brilliant lady and entrepreneur, about scaling agency businesses.

Kristin has been responsible for growing and selling several businesses in the marketing and tech space, with exits in the multi-millions of dollars. She now runs Scale House, a company that helps its clients to, you guessed it, scale their business.

Kristin and I spoke about some of the critical barriers that agencies need to overcome as they grow and scale their businesses; what are the ingredients of success, if you like. You can listen to the full interview here, but here are some of the highlights if you prefer to read. (it’s a little over 2,300 words)  

1: Focus on your strengths and find your state of flow

After selling her last business, Kristin had a period of self-reflection. She followed Marcus Buckingham’s approach to identifying her strengths and weaknesses, in the belief that if you’re not good at something, you probably don’t enjoy it either. So why not focus on the activities that you enjoy and that you excel at?

When you find the intersection of what you are good at and what you enjoy, you get into a state of flow. Kristin summarised this as that feeling when you’re having a perfect day at work, and everything’s coming together, and you feel energised by it. This feeling, in turn, leads to high performance in business.

When you apply this thinking to growing marketing agencies, it’s common sense. If you are not comfortable selling, get a business development professional to spearhead this for you. Same with copywriting, public speaking, doing your accounting and so on. Play to your strengths.

As agency owners, we often take too much on and lose sight of working on the bigger picture. It’s the same principle as Gino Wickman’s EOS. Get the right people in the right seats before your business can grow.

2. Get the founders out of the way

“The one thing that I see hold businesses back the most frankly are the founders. And it’s more about behaviours than they didn’t adopt the right technology, or they missed this thing in the marketplace. Mostly what I find is that there are unhealthy or unproductive behaviours going on in the company that keep it from growing.”

This might be quite a hard pill to swallow if you manage an agency you started on your kitchen table all those years ago.

But, sometimes, as the founder, you need to get out of the way. You don’t need to sign-off every last press release, holiday request and piece of creative. See point one, are you in a state of flow?

Kristin elaborated on this point:

“A lot of founders, they’re quarterbacks, you know, they are great at everything. They can do the work. They can sell. They understand the technology they’re working on. Their biggest issue is that they cannot back away from the day to day and enough to focus on the right activities they need to grow the business.”

The classic working in the business and not on the business. Hands up who’s been there. Yep, me too.

“At some point, you have to start backing away from the day-to-day and entrust the people that you hire to do the work.”

“There was this ridiculous article in fast company or Forbes a couple of weeks ago. And it was a CEO who was bragging about ‘I can do every job in the whole company. And unless you can do every job in your whole company, you shouldn’t be running a company.'”

“Well, that’s just ridiculous. There’s only so many hours in the day. And this tells me that’s a CEO that’s not focused on the right activities, which are strategically building and growing the business.”

A trigger that Kristin sees consistently across companies that achieve growth are founders that have stepped back. They allow themselves more time to work on rather than in the business.

“What I see in high growth companies are CEOs that understand what their role is in the business, which is not to micromanage people day to day. I meet a lot of CEOs that are perfectionists, but the best ones are the folks that don’t let perfect get in the way of good enough.”

3. Measure the important stuff 

Of course, measurement came up early in the conversation. As the old saying goes, what gets measured, gets done. But of course, you need to make sure you measure the right indicators of success.

“The firms that I see that are high-growth have the right systems and the processes in place, so they understand how to use data to tune their business performance. They’re tracking the right metrics. They’re very measurement focused and very goal-oriented.”

“They set objectives and key results at the beginning of the year, and they’re monitoring that closely throughout the year.”

“It’s easy just to get distracted by other activities and not pay attention to the metrics that are going to drive the growth of the company.”

Kristin was clear about understanding the difference between metrics and KPIs too. A metric might be web traffic, for example, whereas the KPI is the number of leads that convert through the website. Only one of those shows future direction.

Key tip: make sure the KPIs align with the business objectives.

4. Be customer-centric

Growth requires you to deliver results for your clients. Whatever that looks like, it could be media coverage, leads into a pipeline, a growing market share or better NPS. The only way to deliver this is to truly understand your customers, which requires customer-centricity.

“When I think about the firms I work with that are growing rapidly, they’re really client-centric. And by that, I mean, they’re not just focused on bringing in new clients, but they understand their entire client funnel has to be healthy.”

“They’re very focused on existing client engagement… a big mistake that I see a lot of folks making is that they get very focused on bringing new clients in, but they’re not servicing or paying attention to their existing clients.”

I have seen this first-hand many times within an agency environment. It’s no secret that agencies need to have their foot on the pedal at all times, looking for new business to ensure their longevity, but not at the expense of delivering exceptional work for your client roster.

“You end up with this kind of leaky sales funnel where you’ve got new clients coming in, but guess what? You’re ignoring them. And now they’re going out the other end of the funnel. If you lose a client every six months, it doesn’t matter how many times you win a new client. You’re always trying to fill the well.”

5. Build your competitive moat

“Warren Buffet coined the term economic moat, and it means you must have a defensible space around your business.”

Kristin calls this a competitive moat. For agency businesses, it’s about your positioning. It would help if you positioned yourself as providing something unique and special that you can market and sell against. You can’t be all things to all people.

“People do that because they think if I do everything, then I’m going to get lots of business. And I find this very counterintuitive. I find the more defined you get in terms of what you do, the services, products, technology, whatever it is that you’re selling, that you’re delivering, the easier it is for clients to understand and to call you when they have a specific problem.”

I had a good chat with Roland Gurney from Treacle about agency positioning if this is an area you need some extra input on.

This lack of focus is something I can relate to entirely. I once ran a very generalist marcoms agency, and now, looking at the agency landscape for client-side marketers, all I look at is a sea of vanilla, custard soup agencies staring back at me. Just like the agency I once ran. 

“Put a stake in the ground and say we’re going to do shopper insights, or we’re going to be the agency that specialises in property or tech or, or choose a sector and choose a specialism. You then become an expert in that space, and you can start to build your positioning.”

6. Define your niche and compete accordingly 

The marketing and communications agency market is vast. As a small agency, you can feel comfortable occupying a small space as a niche player and still grow a healthy, cash-flowing business.

“You know, don’t try to compete against the big boys in the same way that they’re running their businesses. Most of the firms, once they get to that size, are only growing through acquisition. They’re not experiencing much organic growth anymore. So, there’s a lot of opportunities to figure out your niche and, and to grow exponentially based on that.”

In my experience, most big brands like to play with other big companies. They want the stability, the systems, the processes and the kudos that comes with working with established agency players.

If you’re a small, agile agency, you might want to fish in the pond of clients at that scale, at least while you are building your name brand and credentials. The exception to this rule is if you offer something very innovative or have a new approach that sets you apart from the existing big agencies – and then your focus might be on preparing for an exit, see earlier point about growth through acquisition.   

7. A rising tide lifts all boats 

“Cindy Gallop is a friend of mind. She has a whole theory with the idea of collaborative competition, which is this idea that a rising tide lifts all boats.”

Don’t be worried about partnering or collaborating with other agencies. Even if you are slightly competitive or in a similar space, look for opportunities for new services, technology integrations or strategic partnerships that benefit both businesses.

“The really smart entrepreneurs I see aren’t going out and trying to create and build things entirely from scratch every time. They’re looking around for opportunities to partner. They can integrate. They’re not so egocentric that they think I have to build all this myself, and I can’t partner with anyone on it.”

8. Find recurring revenue streams and invest your profits in the business

It seems the days of readily available retainer work is a thing of the past, with many clients moving to project-based assignments. But in Kristin’s opinion, agencies need to be looking for ways to create recurring revenues that don’t revolve around having more people.

“There are lots of opportunities for creating recurring revenue models, whether that’s a syndicated study or tracking steady [in market research] or you work out some other contractual relationships with clients. This is the difference between a lifestyle company and a growth company. And, and there’s nothing wrong with lifestyle companies, but you run them very differently to how you run a growth company.”

How so?

“In a lifestyle company, a lot of times, the founders are taking distributions out of the company. They’re not investing that much in sales and marketing activity. They might be doing 10 million a year; they’re running a great business, they’ve got a great lifestyle. You know, they’re going on vacation four weeks a year, and they’re taking a million out of business every year, and they’re happy. That’s not a growth business, though. A growth business is one where you’re reinvesting capital. You’re strategically looking at how are you going to scale the business beyond this kind of ad hoc revenue model?”

“From my perspective, you always want to reinvest that money back in the business for growth because at some point, you know, at three to five years down the line, you’re going to sell it. And that’s, that’s when you’re going to make all your money. It’s in the equity that you have.”

How can agencies build recurring revenues? We talked about the application of technology as an excellent area to focus on by providing marketing infrastructure such as data hosting, marketing automation, email marketing or product packages that you can systemise alongside your highly bespoke creative or strategic consultancy.

It’s about getting away from the idea that selling time for money is the only revenue stream for an agency. 

9. Get your systems and processes working 

This is one you hear all the time. You need systems and processes to have a business that can run without you at the helm. What many agencies misunderstand is this is referring to the product when it’s not.

The systems and processes are how you run the business. In creative services or marketing agency environments, the product will always be tailored to your client. However, you can have a consistent delivery vehicle.

For example, always use the same approach for client onboarding, managing projects, recording time, invoicing, recording customer sat, handland ing complaints and so on.

“It’s like you’ve got the business of doing the research or doing the marketing, and then you’ve got the business of running the business. It’s two different things. When I’m looking at firms with the right systems and processes in place, they’re built to grow. They’re using a good CRM system, they’re using a good marketing automation platform. They’ve got a KPI reporting system in place. They’re understanding how to use data to tune their own business. And that’s what I mean by the right systems and processes.”

“If you’re thinking from day one that your exit is an ultimate trade sale, then it’s worthwhile getting those systems and processes mapped out fairly early doors so that you can ingrain them within the business.”

So, there you have it, nine key steps to scaling agencies.

If you want to listen to the whole interview here’s the link again. You can connect with Kristin here and sign up for her monthly newsletter on the Scale House website.

Thanks again, Kristin, for joining me for this interview. I had a blast chatting with you.