Here is something not many people know about me.
When I first started Magnet Monster, I was in a -£1,000 overdraft, living in London on a salary of £24,000 per year, and about to turn 30 years old.
I’d just come out of a recent failed business venture (co-owner in an eCommerce store for a year), entering a period of my life with crippling doubt and anxiety about the future.
Most of my friends were either in finance or upper-level careers and entering a period in their lives of economic stability and leverage.
The contrast to my current position was stark. In every sense of the word, I considered myself a failure.
The breaking point for me came when I’d just returned to London after a visit home to Liverpool and was scared my credit card would be declined at a meal with friends at a restaurant for £30.
The magnitude of my circumstances came crashing down on me like a thousand bricks.
“What will become of my life?”, “Why am I in this position?”, “Why am I so poor?”, “Will I be able to start a family, and how on earth would I support them?”.
I had to make this business succeed. And as a young, able-bodied man, living in one of the most developed countries in the world with little to no responsibilities, there are zero excuses that would be tolerable for not succeeding on this journey...
I share this to set the backstory for my journey to date growing Magnet Monster for the context of this article. I didn’t have any money starting out, nor financial security. But I did have 12 years of eCommerce experience (brand-side + agency) and a long freelancing career (plus a few other failed business ventures - stories for other days!).
I also know that many of my readers are marketers and small agency owners, a lot of who were probably in a similar position to me when starting out, so hopefully, you can relate to this and find it helpful.
In this article, I’m going to cover the 4 key components of managing a successful digital agency, alongside some bullet-pointed “Big Lessons” to finish off on, which are a collection of thoughts on key areas of the business I’ve learnt along the way.
One final preface before I begin: I am not an expert on managing a digital agency. There are far more financially successful people than me out there in the ecosystem. These are my own personal thoughts and lessons along the way. It’s not a gospel for growing your business, but it may be helpful.
I consider myself a much better marketer than I do a business owner. However, I’ve learnt a great deal about business in the last 4 years, and I finally feel comfortable sharing something on this subject.
The 4 Key Pillars of running a Digital Agency in 2024
To be a successful agency owner, you need to master the following components:
- Sales & marketing
- People management
If you’re running it alone, it’s highly likely that you’ll be doing all 4 in the beginning and learning about some aspects on the fly.
If you’re just starting out, it’s likely you excel in Fulfilment and you’re a dedicated expert in your field (like I was). You’re off to a great start, as this is the most important component of achieving product-market fit. Do a great job for clients and you can figure the rest out along the way.
I had zero sales experience in B2B and only marketing experience in B2C when I started.
I had never managed a single person in my life, although I was a kindergarten teacher for 4 years, which surprisingly gave me a lot of skills that have carried over to building teams.
For me, I knew very little about finances in a service-based business, but I did have an understanding of unit economics from my eCommerce experience which provided a rudimentary understanding of that aspect.
All in all, I’d score myself maybe a 2/10 for sales and marketing, 7/10 for fulfilment (only in the context of delivery strategy - NOT in the context of operations, which I’d score myself a 1/10), 2/10 for people management and 1/10 for finances when starting out.
That gave me a starting point of 12/40 so I’d like to think I’ve come a long way since then!
I’ll let my team judge me on where I am today on all of the above, but I’m pretty proud of how far I’ve come in all areas.
With that being said, here’s what I’ve learnt about each along the way that will hopefully help you too.
1. Sales & Marketing
There are 3 ways to generate sales as an agency, and here’s my opinion on all 3:
My favourite strategy as the long-term authority from creating great content is unparalleled. I’ve invested a colossal amount of time into content marketing, and it’s paid me back in abundance. If you’re reading this article, chances are you’ve subscribed to my Newsletter to hear more about my content.
You’re not going to get rich creating content or generate a huge amount of sales. However, you are going to build some serious authority in your industry if you’re disciplined with maintaining an active presence on social, and when leads do come in, they are easier to close by virtue of mental availability and proven expertise.
When I think about the overall time investment I’ve put into content marketing, you could argue that there are far more efficient ways to generate sales, and I’d agree. But I haven’t done this solely to generate sales; I also have a long-term vision for the company that is intrinsically tied to the content I’ve created over the years. For me, it’s a sound investment.
You don’t have to commit to creating an article per week or hundreds of Youtube videos and podcasts like I’ve created. But I’d encourage all founders to at least document their thoughts and where possible, client results, in one primary medium where their target audience hangs out (I chose LinkedIn, but Twitter is also great and even Facebook Groups are still valuable).
1.2: Outbound (including Direct Response)
I’d include paid advertising, cold outreach and applying on job boards (i.e. Upwork) as Outbound strategies.
It still staggers me how many agency owners I’ve met who have built their small or large businesses solely off the back of outbound marketing strategies. For me, it just always felt like wasted effort and hardly being effective, but I know I just haven’t been consistent in following the right strategy.
Paid ads are incredibly difficult to get a scalable Cost Per Lead even with a killer creative for agencies. Upwork is nearly impossible to get on these days. And cold email (i.e. using Lemlist) always felt like a poor usage of time for me (I even did personalised Loom videos and mountains of personalised outreach on LinkedIn in the beginning).
None of this should deter you from going down this route if you wish to experiment with it. There are plenty of successful agencies who go down this channel, but I much prefer to invest effort into long-term plays such as content as opposed to the aforementioned methods (for now).
P.S - if you have mastered outbound sales, please email me, I’d love to chat.
I was very late to the party with partnerships, mainly because I was incredibly protective (and still am) of our clients and never wanted to jeopardise those relationships by passing them on to a poor service provider.
In hindsight, it was a mistake to not double down on this channel.
For nearly 3 years, 80% of Magnet Monster’s sales were inbound leads through content marketing I’d produced on LinkedIn. It was fantastic but not scalable and when we expanded the company to over 20 people, it was difficult to forecast growth and profitability relying on good karma. Partnerships opened up another profitable and mutually beneficial sales channel for the agency that has repaid us in abundance.
Another benefit of working with other partners has been the friendships that have developed from them. I now have a core group of amazing friends who own agencies, and they’ve been a great support system and sounding board for innumerable challenges I’ve faced over the past year, and hopefully I’ve been able to repay them with the same.
The key to successful partnerships is to find people on a similar level to you so that you can reciprocate opportunities that are within the skillset and size range of the organisation you’re referring to. If you are a freelancer starting out, a 100-person agency is not going to want to work alongside you. Understand that you’ll have to earn your way up to eat at the same table and develop partnerships accordingly.
A final note on partnerships: people will see straight through you if your intention is just to poach their clients. Think about the value you can not only bring to their clients but also to their organisation as well. Partnerships should transcend sales and encompass other areas of business development to make them work long-term for both parties.
Which ones should you invest time in? If you’re starting out, focus solely on 1 and be diligent with it for 12 months (yes, 1 year) and be prepared for little returns.
General advice on Sales & Marketing
Before I move on to the next chapter, here are some quick, effective tips that will help you become better at sales and marketing.
- When you’re just starting out, don’t toe the line - be a contrarian. It will help differentiate you from a saturated marketplace and allow you to make some noise, generating attention which you desperately need.
- Do not drop your pants when a potential client starts to haggle you down on price. Most of the time, you’ve already closed the deal. Lowering prices will be the first time they test you - scope creep and delivering things you hadn’t promised/aren’t capable of will be next. Stand your ground and walk away if you don’t feel valued.
- Never stop searching for sales. You are selling digital services, you’re not a miracle worker. Whether you like it or not, many aspects of a client’s business are out of your control and when they need to cut costs, you’ll be up for consideration in that conversation. When this happens, you need to replenish that lost income, and staying focused on the sales pipeline will allow this.
I typically break fulfilment down into two areas: client success/delivery and operations. While they are intrinsically tied together, you can, in fact, have great client success even with poor operations, but not at scale. When you start to scale, you can’t have great client success and delivery with a poor operational setup.
Another reason I separate them is that there is a fine line between what works in the client’s interests VS what works in the agency's interest from an operational perspective. The client invariably wants to have an unbelievable level of service, but this can sometimes be at odds with what an agency is able to deliver, from an operational standpoint. Therefore, you first need to be very clear with what you’re good at and the results you can achieve and then analyse the complexity from an operational standpoint to systemise processes and maximise profitability.
If you’re just starting out, it’s likely that you’ll be focused heavily on fulfilment in the business as you deliver the work yourself for the client. You should do this in the beginning as it provides helpful context into how to structure the business from an operational perspective, even if it does evolve over time. It will also enable you to make your first hires, analyse your strengths and weaknesses and also conduct effective forecasting around how many resources you need to allocate towards projects.
2.1 Client Success
Find something you are extremely good at that enough of the market struggles to fulfil in-house and you will be able to build an agency. It really is that simple.
When it comes to client success, be aware that as you grow the company, the true superstar who clients sign up to work with will often not be who is doing the work. You’ll have to manage expectations very clearly here, and often be faced with a conundrum: do you go with a templated approach or bespoke for each brand you work with? We opted for the latter, but it requires a lot more senior people and rigorous training to deliver it to a high level. You will have to increase your prices to maintain profitability, and you’ll cut out a large portion of the Total Addressable Market (TAM). It’s also not as scaleable and carries higher expectations with clients.
A templated cookie-cutter approach, on the other hand, can be systemised at scale quite quickly, and requires a lot less skill from senior staff (strategists, in particular), since the work is rinse-and-repeat. It works best off a volume approach to sales, and the service provider can often end up commoditised in the workplace competing at price.
Pick which direction you want to go in the beginning and what your motives are. If I wanted to be a rich man, I would have gone down the templated route. However, my whole positioning (as well as Magnet Monster’s) is focused around personalisation, so it would be counter-intuitive now to reverse direction.
2.2 Standard Operating Procedures (SOPs)
It’s actually comical that I didn’t know what these were or their importance until starting this company. Now, they govern everything we do, from sales to delivery.
My advice here is very simple: document everything you do with both written and video content, especially if you have to do the same task more than once. When it’s complete, create a repository of them in your project management software (i.e. ClickUp) and have them accessible to all members of the team. When they have a question, they first search through these rather than distracting you.
The earlier you start with SOPs, the better prepared you’ll be to scale the company. Don’t make the mistake we did of mind-reading yourself to success until you can’t any longer. We did it in reverse, and it was painful. Now, we’re in an excellent place, but we could have grown the company more quickly with far fewer mistakes and churn at times had we been diligent about documenting things along the way.
Understand: one day, you are going to step out of day-to-day client work. When this happens, the quality of your work will be determined not just by the people who replace you, but equally by the systems and processes that govern them.
General thoughts on Fulfilment
- Decide which agency you want to be early on: templated VS bespoke. Templated = easier to deliver the work, lower price point, higher volume of sales needed. Bespoke = incredibly difficult to scale, higher price point, deep quality work. This is a rule of thumb, not gospel.
- If you lack operational chops, aim to hire somebody as soon as feasible or promote from within. I was a creative/strategic guy with little understanding of system and process creation, and it stunted the business growth. We found a brilliant operational manager, and it completely changed every facet of the business for the better, along with happier staff.
- Research agile methodology and workflows. You don’t have to implement them as they aren’t always ideal for managing an agency, but an understanding of SCRUM has helped me immensely in so many other projects and how humans work to deadlines.
3. People Management
Geez, this one needs a book written about the topic, not a few hundred words in an article!
The people you hire will make or break your agency and be responsible for carrying the baton as you move towards more “business-oriented” activities. It is absolutely critical that they are happy, fulfilled and feel as though they are progressing with your company.
I’ve probably hired around 35-40 people to date. Maybe 3 of those were bad hires, and apart from this year, we’ve retained the large majority of our staff since they started, which is impressive in a fiercely competitive environment.
This is an area I’ve been pretty strong in and other business owners have found my advice extremely helpful, so I feel comfortable going a bit deeper in this area as it’s also a part of the business I love.
Let me break it down into 4 key areas: Hiring, KPIs, Pay/Incentives and 1:1s.
First and foremost, hire for a positive attitude, above all else. Do not discard experience, but you need somebody who really wants to make a contribution and grow with you as the primary attribute when hiring somebody.
You should not hire somebody off the back of a good conversation. While it is a great indicator that they may be a good cultural fit, you should screen more diligently before sending them a contract.
Give the potential candidate a paid test on the skill they will be performing if they are to enter your company. Paying shows that you value their time upfront and should you not employ them, it doesn’t leave a bitter taste in the mouth of wasted time on the candidate's behalf. You will be able to gauge immediately if the experience in their CV/portfolio matches up with the quality of work they produce in the trial.
After this, ask them for references and follow up on them and actually speak to previous employers or people who know them. I never used to do this, but recently implemented it. A bad hire can cost your business a tremendous amount of money so it makes sense to take more time finding the right person.
Include a 90-day probationary period in their contract. This is fair for the employer and candidate as it ensures the working relationship is a good match and the motivations are right from the beginning.
Lastly, when you do go ahead with the preferred candidate, throw everything at them to succeed. They deserve robust onboarding, mentorship and a clear support system in those first 90 days to get them up to speed. You are not just investing in their success, you are making a future deposit into the value they will give your business as well.
I’ve messed up onboarding so badly in the past and feel terribly guilty for it. I was very lucky we had some amazing people with great attitudes who forgave our flaws and stuck things out. Those people are now well-respected figures in the company who have influence over future decisions.
People need to understand very clearly what is expected of them in their position along with key targets to monitor their performance. And, when they do hit that performance target, they need to be rewarded, or assured of progress.
Do not make the mistake of hiring somebody to fill a role and not explaining to them what you are expecting in terms of consistent output. Variables may change in your business, but everybody needs to be held accountable to metrics to ensure you’re building a powerful growth engine.
Make it clear what the base pay is and what the incentive/reward scheme is based on the KPIs being met if there is one. Also, make it explicitly clear that you can’t pay out rewards if the overall company doesn’t perform to a certain level and is not profitable so that people feel as though they contribute to the greater good.
We are refining our pay structure and bonus scheme in 2023. I’ll update this section in due course, but overall, I am an advocate of profit sharing, assuming the employees have met their KPIs. It creates accountability and togetherness as a team, and having rewards for excellent achievements is a great way to maintain motivation and productivity.
People are going to come to you and ask for pay rises as you grow. Often, it’s with the naive assumption that you’re somehow crushing it and hoarding tonnes of money. Take the time to educate your staff and be transparent with them about where the company is at and how frequently pay discussions will be on the table. You cannot and should not be raising somebody’s salary every 3 months whenever they request a raise, it needs to be measured based on performance and schedules. On the flipside, if somebody deserves a raise, take time to appreciate them and proactively increase their salary. Trust me, this is the way to build a loyal combatant in this war we call business.
1:1s should be a staple in your business, and it’s the responsibility of upper management to conduct them, record them, and act upon feedback gathered from them accordingly.
Why conduct 1:1s? You should carry them out as you should never assume that your employees are ok simply because they don’t flag any concerns. In our company, we have extroverts who are confident in voicing their opinions, but introverts who don’t. 1:1s provide a safe opportunity for them to be transparent and open with you about areas for improvement if you ask the right questions.
What are the right questions? Often, I’ll conduct 1:1s with staff as an open dialogue as I think I’m a pretty good conversationalist. If you’re not or you want to deploy more structure (still recommended), these are some of my favourite questions:
- If you were the CEO of this company, what is 1 thing you would do tomorrow to change it for the better? (Favourite question of all)
- What part of your job do you enjoy the most?
- Where can I provide better support and resources for you to hit your goals?
There is a mountain of resources online, so I won’t go deeper here, but just know that 1:1s should always be mandatory, never optional. I sincerely regret not implementing them sooner.
General thoughts on people management:
- If your gut tells you something is off with an employee, it won’t go away: resolve it as soon as possible with radical honesty. Toxicity spreads like a cancer and can poison your company culture.
- If you need to fire somebody, be upfront with them immediately when you call them to a meeting. This is the hardest part of being a CEO as it’s people’s lives you’re dealing with but you owe it to the company and other people on the team to move on somebody who isn’t a good fit. If you don’t, the repercussions are that you’ll cost others their job.
- Train your staff relentlessly to be A-players. We invest massively in building support systems to upskill them, from training I conduct personally to external experts in our network who come in to teach staff. Training is the best investment you can make in your team and should not be viewed as an overhead. Implemented correctly, it creates massive leverage for you by extracting you from future problems in the business.
Before we delve too deeply into this section, I’m going to be completely honest with you in that this is my weakest area of the business. I am highly fortunate to have a co-founder who has a lifetime of experience in business and who brought significant accountancy skills to the company. That being said, I know our numbers well and this year, I’ve invested a massive amount of personal time into understanding key OKRs and metrics we need to keep on top of and diligently monitoring our P & L on a daily basis. Next year, we’re going to take this up a notch further, and if you’re new to business, this is the second most important skill you need, after first identifying a problem you can solve in the market.
With that being said, here are some generalised thoughts on finance as well as figures you’ll need to track, in no particular order.
4.1: Sales solves (nearly) all problems
Keep the pipeline topped up and never get complacent. You have no idea what is going on in other people’s businesses and variables you can’t control. Top-line revenue is something you absolutely have control over if your marketing and sales approach is effective, so never take your eye off the ball here.
4.2: Understand your gross margin
You cannot grow your business efficiently and profitably without understanding your margins. In services, you will quickly realise that humans don’t scale like an eCommerce business or SaaS. Fixed costs quickly go up as demand increases, and margins can fluctuate whether your staff are at capacity or not.
This is one of the greatest challenges we’ve faced since starting the company: remaining profitable while maintaining the quality of the work VS time invested into client success. Our business model is not set up for scale, as our work is deep and we go for a quality-over-quantity approach.
You can and should systemise processes as much as possible to enable profitability, but not at the expense of quality work. It’s very tricky to manage, and it’s something you’ll need to do some soul-searching for over what type of business you want to be.
I believe every service-based business should aim for a 50% gross margin as a bare minimum. That will give you some breathing space when you encounter challenges such as churn, market contractions, and slow pipeline velocity. If you are almost making a bridge into consultancy as well with a very high level of service, aim for an even higher revenue per employee number, as the margin for scope creep and time will go up exponentially due to client demands. It’s tricky to balance, and time tracking and pragmatic forecasting are your friends here.
There is also a debate about pod-based systems VS cross-functional teams in agencies. We use a pod-based system, so I can only speak to the effectiveness of this system, but working out revenue per pod is great here, but needs to be weighed against the returns every employee can bring to the company.
Favourite trick for increasing margin? Increase your pricing. But it should only be done from a position of power, not when you’re breaking even or losing money. Play to your strengths.
4.3: Measure your churn / CLV
Meticulously monitor your average CLV and your churn rate. It will help immensely with forecasting and showing you where your current shortcomings are.
There is no general rule of thumb here but if you aren’t retaining clients for at least 12 months, you need to do some soul-searching on the value you’re providing to them, or re-examine the business model.
Don’t take churn too personally as well: there are variables out of your control that often lead to churn, such as a client’s acquisition being broken. It’s not always a reflection on you, but if you’re selling marketing services, you’re always going to be considered for the chopping block and weighed up against the value of outsourcing VS hiring in-house. Your job is to provide no-brainer value so the brand isn’t considering moving it in-house.
Bonus: Big Lessons from growing a digital agency
I’m over 4,500 words in so I’m going to finish off with some other really critical lessons I’ve learnt that will hopefully help you when succeeding with my email marketing agency.
- People behave (clients) how you let them treat you. Have some self-respect and stand your ground and don’t let them push you around. You’ll be able to charge more and be more valued for the work you deliver
- Have a very clear Statement of Work and contracts in place. These should be water-tight to eliminate ambiguity and scope creep and protect you and your team
- The money you generate is proportional to the value you deliver at volume. If you expand the business and the value doesn’t go up proportionately, it’s likely you either have a training issue or the team in place isn't good enough to deliver the service. You can either train them to the required standard or find somebody better suited to the role
- Celebrate the wins, as you are never going to “make it” if you have a growth mindset, so take time to appreciate your accomplishments and celebrate, no matter how small they are
- Make the winners win more; avoid distressed businesses. Not always practical in reality, but a much easier way to manage a service-based business
- Learn to enjoy the pressure, as you’re going to face mountains of it. Clients are hard work and demanding when they pay you money and you need to have thick skin to deal with their needs and rise to the occasion. Embrace this evolution and learn to love it and always think of the person you’re becoming in the process
If this article was helpful to you, I’d love to hear from you. Ping me a message on LinkedIn or Twitter below and consider forwarding this on to a friend if you found it helpful.
This will be my last article of 2022. Have a blessed end of year, and all the best to you and your families.
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