These two words have always been synonymous to each other. Even industry moguls like Bill Gates said that “Business is a money game with a few rules and a lot of risk.” This rings true if you have a lot at stake.
Running a business is not the usual nine-to-five office work with a steady paycheck—you’ll be investing more of your personal time in keeping your business above water. All these for the sake of independence, personal fulfillment, financial freedom, and, let’s be honest, the chance of becoming the next Facebook or Twitter.
According to research, 20 percent of small businesses fail in their first year; 30 percent fail in their second year; 50 percent of small businesses fail after five years. On the 10th year, only 30 percent of business owners manage to make it.
What causes a majority of these businesses to shut down in a short amount of time?
The ultimate goal for agency owners is to scale their business operations and maximize profits. However, there are some aspects that can obstruct the expansion of an agency. Failure to detect these challenges can mess up your strategy or blur your perspective on the current state of your agency. The great thing is that familiarizing yourself with them beforehand can help you prepare or, better yet, avoid experiencing the headache that these obstacles can bring you.
What are the common problems agencies face when scaling operations?
1. Scaling too early
Premature scaling is one of the main challenges why most SEO companies experience a tough time reaching that next level.
The whole point of scaling is to grow as cost-effectively as possible.
But, when an agency scales too early, neither the product nor the operations are ready for that expansion. As a result, the agency loses control of both internal and external aspects of the business.
One indication of premature scaling is when you have lower profit compared to operational costs.
Before thinking about scaling your agency, do a temperature check. Whether it’s with the product team, sales team or marketing team, gather and analyze the necessary data with your stakeholders to determine if your agency or company is ripe for scaling.
To scale effectively, identify your competitive edge, build your network, and find ways you can work quickly without compromising quality. Automating your processes (ex. payroll, sales order or sales processing) is one way; another is getting help externally for work that takes up a lot of your time, like outsourcing web design or getting virtual assistants to do administrative tasks.
Here are the nine metrics you need to consider before scaling your operations:
- Customer Loyalty Retention
- Conversion Rate
- Gross Margins
- Cost Per Customer Acquisition
- Lifetime Customer Value
- Sales Revenue
- Monthly profit and loss
- Objectives (short term and long term goals)
- Results of the Set Goals
2. Mistaking growth for scaling
There’s a huge difference between growing and scaling. Most companies automatically think the two mean the same thing.
But to have a clear understanding of both terms, here’s a quick definition from the dictionary:
Growing – Becoming greater over a period of time; increasing
Scaling – Represent in proportional dimensions; reduce or increase in size according to a common scale
When a business grows and gains more clients, the need to add more staff people to service these clients increases. In other words, when an increase in revenue happens, an increase in resources follow at the same rate.
Scaling a business is about maximizing profits, but the demand for resources increases at a much slower pace.
When you translate ‘growing’ and ‘scaling’ into the context of business, the definition will be:
Growing – When an increase in revenue happens, an increase in resources follow at the same rate
Scaling – Profits are maximized yet the demand for resources increase at a much slower pace
This shows that growing doesn’t necessarily mean scaling. It’s good to see your business expand, but the moment your company is able to handle the increasing amount of sales while providing quality services in a cost-efficient manner, then your company is effectively scaling its operations. This is an indication that your company’s performing positively and ready for the next level: market domination.
Scaling a business isn’t a walk in the park. It takes a lot of hard work and experience, coupled with the ability to adapt to consumer behavior.
It doesn’t stop there, though.
The skill to understand the dynamics between the sales and marketing departments, plus having a solid understanding of the whole business process is also important to successfully scale your operations.
Growing can also be seen as a prerequisite of scaling. The growth stage is when you realize that you’re no longer a team of just five, but an agency with 10-30 employees
Scaling is a level post-growth. These are usually companies with 20 to 300 employees who are able to handle an increasing number of clients and sales cost-effectively.
You know you’re scaling when you have:
- Predictable revenue
- Diverse income channels
- High customer retention
- Low customer acquisition cost
3. Not having that product-market fit
Product-market fit is when the product finds a market with a strong demand for it. When customers want the product a business is selling, you have reached the ideal state for product-market fit.
It’s important to understand this concept before even thinking about scaling, or before selling a product. A study showed that 42 percent of startups fail because they released products nobody wanted to buy, while 80 percent of new product launch fail for big corporations.
Hire a Product Leader or appoint a Senior Product Specialist. There should be coordination among this specialist, the Product Manager, Sales Manager and Marketing Manager to align information on the product value, cost, and market trends.
For instance, there’s a great demand for real estate SEO services among realtors and real estate companies. Your Product Manager, Sales Manager, and Marketing Manager should come up with a strategy that matches the demand for this niche.
4. Failure to identify the brand voice and value proposition
Brand voice is your way of communicating your product to the world. Value proposition is the aspect that sets you apart from your competitors. Neglecting to determine your brand voice and value proposition in the beginning will bury your brand under thousands of other businesses offering the same products and services. Knowing your brand voice and presenting it consistently across all your relevant marketing channels can increase revenue, as well.
To determine the agency’s brand voice, take note of these action points:
- Review the agency’s mission statement and talk to the agency decision makers. Learn how they want to portray the business.
- Check previous content, articles or messages and list down the words that came to mind while reading them.
- Research on who the customers are. Pick 3 or 5 and study them. Who they are, what platforms they frequent and what they’re interested in. This will allow you to communicate your target audience and if the brand voice resonates with them.
Ex. ‘Agency X’s clients are mostly female professionals in their mid 20’s who frequently watch TedTalks on Youtube or listens to podcasts on Brain.fm.’
- List down what the agency is and what the agency isn’t. This will allow you to specify what exactly the concept of the voice is.
- Create the template
- After finalizing the brand voice, set the tone. Is it professional, serious, laid back, informal or formal? Do you change it in relation to the medium? In what way?
- Form a guideline that the agency can follow with accurate description for everyone to use.
Read How To Build An Agency Brand to begin developing an agency’s value proposition.
5. Failure to determine which marketing channel is performing
Before scaling, it’s important to know which marketing channel works for you. Whether it’s social media, email marketing, PPC, TV, radio or catalog – every business has a different style of selling. The difference not only includes the product or services offered, but it also extends to the location and target audience. This means a particular marketing strategy that increases one company’s ROI might not work for another.
Failure to determine which marketing platform works for your business will not only waste your time, but it will also waste your resources.
One word: experiment.
Experiments allow you to know what works and what doesn’t. Don’t be afraid to run tests and spend on research. This will save you more money than if you blindly went through with what you have seen the competition do.
Be smart and outsource any of your marketing efforts if needed. This will not only save you time, but also increase your productivity. Stay on track with progress reports and get advice from Project Managers who know how to run successful campaigns. Analyze your data. This will let you know which channels you need to optimize and which channels you need to let go.
6. Talent shortage
Getting the right talent for your expanding agency isn’t easy in this increasingly competitive industry. Research shows that 45 percent of employers are struggling to find the skills they need. You need people who have both the skill set you’re looking for and a perfect fit for your company.
The goal is to move forward, and no company can do so without adequate manpower. There are numerous solutions to this dilemma. Here are our top two:
- Develop Talent – Invest in developing the talents and train existing employees to fill up the position your company needs.
- Outsource – Considering the costs to hire and replace talent, it’s often more practical to outsource to a provider. This eliminates the need to train in-house staff, which can cost you both time and money.
7. Failure to adapt to change
In business, it’s always adapt or fail.
The majority of the time, what made an agency successful when it was built won’t necessarily be the factor that will keep it going. As people and technology develop and advance, it goes without saying that businesses and the way people work should change and cater to that development.
The reasons agencies fail to adapt vary – from poor planning by their leadership team to measures beyond their control like lack of resources.
1. Poor planning
Poor planning will lead to not only your team losing confidence and morale, but also project failure.
2. Lack of resources
Every brilliant plan has a cost. Adapting to change and maintaining it doesn’t come free. This is something leaders should know and should prepare for. It doesn’t end with just the implementation of the plan—companies have to refine and reimplement their plans if necessary. Cost-cut if necessary. Outsource if needed. For example, if there’s a need to optimize digital marketing and boost ranking on search engines but the budget is not enough to hire an in-house expert, then outsourcing to a reputable SEO white label agency is the ultimate power move. It saves time, effort and cash while effectively doing what needs to be done.
3. Fear of change
The moment for change can come to an agency at any time. Even a number of successful companies and industry leaders have stopped growing because of their resistance to change. It’s not the lack of skills to plan or the resources to implement one, but the over-precociousness that’s stopping them from trying something new and something necessary.
To know if it’s time to make any changes, check the sales and revenue report. These are the main indicators if you’re on the right track or your company needs to change strategies. Meet with your company’s leadership team to determine your best move.
8. Neglects experimenting
Why are experiments important?
Simple— it decreases uncertainty and provides solid data that you can use as a basis for decision-making. May it be about a new strategy, product or design, this is the best way for any business to reduce risk and discover new opportunities along the way.
Experiments may not always be successful, but this provides you with the opportunity to adjust what needs to be adjusted before you implement at scale.
Whether it’s something as strategic as a training program or something tactical like setting your SEO pricing, it’s better to run an experiment on its effectivity rather than finding out it doesn’t work after spending on it. Make sure the agency’s leadership team is well versed with the process of testing and it’s communicated throughout your organization.
Example: An agency was low on leads.
The goal: To find the most effective method in generating leads.
The experiment: To augment their current state, they created a landing page with a lead magnet to attract more prospects. To test which works best in promoting this page, they set up two strategies. During the first month, they promoted the landing page on social media. On the second month, they ran a remarketing campaign that will drive their visitors to the landing page.
Result: Comparing the results of the first and second months, they were able to see the difference in the number of leads they’re getting, and decide on which marketing campaign and channel to use.
For further reading about improving customer experiences and experimenting on developing new products, check out:
- The Innovator’s Hypothesis by Michael Schrage
- The Lean Product Playbook by Dan Olsen, this tackles a clearly defined methodology on how to implement lean product management for a variety of products
- Lean UX by Jeff Gothelf and Josh Seiden is a helpful read if you’re looking for insights to identify your most significant roadblocks and develop experiments that help your operations and product team isolate key successes.
- The Lean Startup by Eric Ries if you’re looking for strategies focusing on utilizing human creativity to drive success.
9. Not having a solid process for getting new clients
Half of the scaling process is acquiring new clients. Yes, there are dozens of strategies you can use to close new customers – SEO, email marketing, paid ads, online partnerships, and more. But, if your business doesn’t have that one solid process for acquiring steady customers, it can disrupt your company’s ability to grow and scale. That would be like trying whatever comes your way
You want your business to thrive, not merely survive.
Nothing comes easy. Even the biggest companies today began by being their own publicist. This means that whether you’re a startup or a growing agency, you have to be your own PR expert. Make sure your agency’s brand is right where your prospects can see it – magazines, newspapers, or online articles. There are always writers or publishing groups looking for relevant stories; like ProfNet.com or helpareporter.com are examples of websites where you can submit PR articles for reporters to publish.
Leverage the power of social media. This is a piece of overused advice, but for a reason – it works. Create a social media campaign that promotes your content and updates regularly. Three to five times of social postings a day can be a good start to make your brand visible on social channels.
10. Failure to define and understand cash flow
Failure to understand cash flow can lead to the collapse of your company from the following:
- Increase in debt
- Lack of inventory control
- Flawed or slow accounts receivable
Knowing your cash flow will give you the insight and knowledge of how to position your company’s resources, allowing you to strategize more effectively.
Example of Cash Flow Statement for Operations:
The table shows how much starting cash the company had at the beginning of January and how much is left by the end. Cash outflow took 55.48 percent from the cash inflow. This indicates the company needs to implement cost-cutting measures to reduce the number of cash outflows.
If you want to familiarize yourself with cash flow analysis, add the following into your reading list:
- Cashflow Quadrant by Robert Kiyosaki
- Cash Flow Analysis and Forecasting by Timothy Jury.
11. Core values are not known to people
Core values can be seen as the guiding principle for employees. Whether it’s integrity, boldness, honesty, passion or commitment to clients – your business needs to have a solid grasp on its core values. These will guide your employees from each department whenever they are dealing with fellow colleagues or clients.
What happens if a company lacks core values? Lack of these not only affects how your team works, but it will also extend to a disarrayed company culture.
A study showed that top performers consciously connect values and operations. This results in a more aligned and scalable business operations setup. So how do you determine the core values?
- Create a list of values that resonate with your company. Meet with your company’s leadership team and have them list down existing values they think define your people (personal values), product, and company culture as a whole. They can ask their team members to help with this, too.
- You can get up to 50 or even more values on the list. Next step is to group values that relate to each other like ‘responsibility’, ‘punctuality’, ‘accountability’, and then categorize and compile them into a master list.
- Highlight the main theme of each group or category and choose the best word you think describes that list the most.
- Narrow it down to the top three and give your personal values deeper context. Get really creative on this one. Make it memorable and inspiring so that it sticks to people quickly.
- Allot time on testing the effect of each value. Does it make you feel good and empowered? Do you feel that it resonates with the company, its products, and employees? Are they consistent or inconsistent with the company’s brand identity? Which value comes first?
Determining core values not only establish clarity within the organization, it also amplifies the company’s strategic capabilities.
Overcome These Challenges
Challenges don’t stop coming. Even after you’ve reached that next level, a new set of roadblocks will be there. This doesn’t mean the end of your agency. These challenges help agencies shape themselves into the powerhouse level they aim to be.
Now, it’s your turn.
Are you ready to face these challenges in scaling your agency’s operations? If yes, we’re here to help.