u/DearAgencyFounder

How do agencies that deliver design and development continue in a world where a $100k development project can now be done for $20k?

Clients can now generate multiple design directions themselves without getting a human involved at all. What does this all do to revenue and margins?

Do agencies have a future at all?

There are two fundamental truths I fall back on which say design agencies will exist and dev shops will be valuable.

They just need to focus on where their value will lie.

The first area is speed combined with quality. If you've tried to get something of high quality out the door fast with the support of AI, you'll realise it's actually really hard.

Caveat: If you have designed a one-shot prompt that can deliver work your clients pay for, then that's great, I'm not knocking you.

But we aren't talking about the same quality bar or sophistication of client.

There are many different playing fields in the agency space, and if you can win on yours with a one-shot prompt, then fair play.

The playing field I'm talking about is where the refinement we need requires a combination of different prompts, human judgment, manual edits and feedback loops.

It’s the type of design you have to steer and the type of development where you are still reviewing the code.

Making processes more efficient while keeping the quality of the outcome high is valuable because you have the knowledge of the existing process and an instinct for what good looks like.

Clients will say, "Can't we do this faster with AI?"

You say, "I can, you can't, and that's why you're my client"

Speed could be commoditised with the introduction of a tool that holds that process but I doubt it. Fundamentally design quality isn’t decided by the tools. You process is your value.

Expect downward pressure on the amount you can charge, but you don't need to accept reduced margins because you're still doing something the client can't.

Your margins can even go up if you can provide that process which delivers not just quickly but to the quality they need.

The second truth is that no matter how efficient and fast you are in achieving a super high-quality outcome, it still needs to be the right outcome.

We need to point that outcome in the right direction by leveraging our experience and knowledge of what works.

Clients want agencies with calluses on their hands with first hand war stories. AI cannot give them that.

Remember AI is just “intelligence”, and that’s only part of the picture - there is no artificial taste, courage, experience or accountability.

Being more strategic is not a new idea. The strategic advisor and partner have been in the agency growth playbook forever.

The way to play the game has shifted, but there's still a game to be played.

An agency with its broad experience, mix of people, and technology is well-positioned to deliver. It's just moving from a growth strategy to table stakes.

There's still plenty of room for us. More than that, there's room to grow into.

You just need to take this thing you've created, add some AI and create the next version of it focussed on the value that only you can deliver.

Good luck!

A hill I will (and perhaps did) die on is that design agencies are different.

• They are more likely to grow organically around the founders talent. They are doers first and entrepreneurs second
• The founders "natural talent" (taste, eye, creativity) is harder/more expensive to replace (SOPs don't work for those skills)
• The work leans towards project based so they also have to be good at sales because new business is critical (design clients don't churn, the projects just finish)

All this means that getting a design agency off the ground requires a person who is hard to replace. And they can get pretty far, they are good enough at everything you need.

But the longer you go without a plan to scale the more entangled you get. The business hardens into a shape that is you.

This can happen with any business but I think it's more prominent for a design agency and thus the common agency advice is often sorely lacking.

Come, as the saying goes, at me.

Ops is one of those things your business does, even if you don’t think it does it (like marketing)

You don’t think you do it until you have thought about it and put systems and processes in place.

But systems and processes aren’t Ops, they are the tactics by which you achieve Ops.

And at first your tactics are, well… scrappy, and tightly coupled with everything else you are doing.

To work out what Ops should do, get yourself a definition of what Ops is trying to achieve.

Here’s mine:

>Deliver the work we’ve won, on time, to the right quality, to a target profit and get paid for it.

All the rest: Resourcing, utilisation reports, integrations between systems, project management, are tactics to achieve that.

This explains why your Head of Ops (or you, the founder, if you’re still wearing that hat) ends up with such a broad remit. Because at first the way you achieve that goal is basically the same as “Run the business”. Hire a good team, manage the clients, say the right price, chase the invoices.

As you grow, some of those thing become entire departments (HR, Finance, Client Services) and others stay Ops and get more structured.

It also explains Ops FOMO. When you are smaller you don’t have time for all of the things the LinkedIn consultants tell you high performing agencies do. You have to make time for some of it but if you went all in you’d be using your resources badly and would end up with slick systems but no sales.

You can do Ops badly just as easily by over complicating things too early as you can by not organising yourself at all.

So you need to work out the Ops you need today, create it, and then get on with it.

What’s “Ops” at your agency?

People massively over-index on lead generating tactics and ignore the part that reputation has to play.

And that's why we have so many people coming to this sub saying, "How do I get leads? I tried the tactics, and they didn't work. What am I doing wrong?"

And the answer is, there's two parts to getting a lead. One is getting the click or the eyeballs or the ears. And the other is having the credibility and reputation required for someone to be interested in working with you.

The less you know someone, the more that reputation matters and the road to building reputation is a long one.

The good news is that if you really want to start an agency and are prepared to make that slow progress, then you can know a huge proportion of your competition is trying for a couple of months, posting on here about how they can't get anywhere, and then disappearing, leaving the road clear for you.

But you've got to focus on the long game. And if you're spending your time on tactics that require an established reputation when you don't have one then do we think that's going to work?

I can forgive you that, given the amount of advice and manipulation and influence that you're going to come under every day on this mess we call the internet.

But those people are just trying to create a closed system where there are no variables except their tactic.

No one sells courses on how to improve your reputation, because it's much harder, and takes much longer, and you can't really put it in an ebook.

But it's a bigger factor then how much attention you get.

And you need to be working on it.

We watch delivery margin. It's how you know a project actually paid for itself and contributed enough to your overall profit.

It’s project revenue minus direct project costs (subcontractors, the slice of salaries that project consumed etc). We didn’t track it for ages, and then you do, and it’s an eye opener.

Importantly the benchmarks say it’s a margin that you don’t want too high, it has an upper limit. That’s because you want some delivery cost.

Every other cost in the business you'd happily get rid of. You don't want to spend on ads, you want the leads. You don't want the accountant's bill, you want your books in order. If you could get the outcome for free you'd take it.

Delivery cost is different because it's not the cost of an outcome for you, it's the cost of the outcome you… well… deliver. It's the price tag on the actual value you provide.

AI and automation mean we can deliver at a lower cost, we have hyper-margin agencies breaking that benchmark now, and my question is: does this shift the benchmark or is this a leading indicator that the service is becoming less valuable and agencies that offer it will eventually have to find something else to do?

When a service gets cheap and easy to deliver and the margin balloons... that's the value getting easy to produce. And if it's getting easy for you, it's about to get easy for everyone. AI, automation, or someone cheaper and greener does the same thing for less.

Things like your brand and the risk profile of the work could keep this margin high, but if it’s just efficiency then is it the canary in the coal mine?

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(If canary in the coal mine is just something english people say then apologies, it’s a saying that means an early warning, it refers to miners taking a canary down into the mine because it would die first if there was poisonous gas and indicate that everyone should get out)

I ran an agency for 15 years and worked with clients spending next to nothing to clients spending £250k a year on design.

During that time, we had the goal of becoming more strategically important to our clients, to be more consultative, and to be in the room when decisions were made, because doing that made us more valuable, got us more work, got us more impactful work, which was great for growth.

Here's a couple of things I learned, though.

Firstly, how valuable you are is your client's decision, not yours. We believe in the ongoing investment in our services as being key to the growth of our clients' businesses, because this is our specialism. It's the thing we've dedicated our careers to. So of course, we hold the belief that it's a really important thing, be it design, marketing, brand, or whatever. However, if your client just isn't buying that ongoing retainer or letting you into the strategic decisions around their own growth, you need to have some empathy and realize that perhaps they don't hold that belief, and that they, like plenty of other businesses, are going to grow without your set of skills. And they, like plenty of other businesses, are going to grow with less of a focus on your set of skills.

To them, the services you provide might just be table stakes, not a multiplier. To them, the services that you provide might just be a thing they have to have rather than something they believe is going to provide them with huge results. The lesson is not to spend time trying to change the mind of people who don't see your services as that valuable. Instead, spend that time trying to find the clients who do. There's some clients you have to grow past till you find the ones that are going to retain you, value you, and keep working with you.

Second thing to know is that even when you do become that consultative strategic agency, it's still only a percentage of your clients that will treat you like that. On some of our largest accounts, we were still just order takers. And from there, you've got two choices. You either do what the advisors say and focus on having a roster of clients that truly treat you as a strategic advisor, or you accept that that's not going to be true for every engagement. We did the latter. There was plenty of money on the table to be had just for doing execution. And I don't know many agencies that don't say yes to some of that work, because it's profit and helps them grow in other ways.

Finally, if you want to become a strategic advisor to clients, you need to make sure you can actually deliver. Is your team experienced and able to be consultative? Because actual strategy is way more than just the best practices and thought pieces written by people in your industry, for people in your industry. Saying that you can help with design strategy and then going in and parroting things you've read in books isn't going to get very far. If you're going to actually be invited to the decision-making table, you need to understand the client's entire business, where your services fit within that, and provide advice within context.

We found that this was very rarely something that we pitched, and much more something that happened organically because we encouraged our team to ask questions about the client's business, to be consultative, to look at what was happening in the market, and bring those bits of advice into their projects. So rather than clients coming to me and saying, "Please help with strategy," it was actually via our team members that people would say, "What should we do next?" And we could then say, "Let's run a workshop and help decide."

Anyway, that was me! What's your split of consultative to strategy to execution, and how much do you focus on trying to be more strategically valuable?

Financial incentives for your team.

They feel like the right thing to do. Firstly they feel like the thing a nice boss 😇 and good company 🍏 would do, and you are both of those things.

Then they also a way to get the type of buy-in from a team that might allow us to step away from the day-to-day of the business a bit more (maybe even completely).

Personally I didn’t get them right (or they just don’t work as well as they should).

I’m not talking about commission for the sales team, although that creates and interesting tension and an awkward question: where is the commission for the design team, or ops? (answer: they don’t get one).

The thing that failed for me is once a bonus becomes a bonus scheme you find that an expected bonus isn't a bonus at all.

Also a profit share is too far out of people’s control and paying out on personal KPIs is just, well, paying people more to do their job.

So do you run a bonus scheme? How do you incentivise people beyond their salary?