Category: Fundamentals

One of the things that frustrated me for a long time about the agency business model, was that it wasn’t very predictable. Consider a business with:

• Custom, variable priced products (projects.)
• The kind of customer impacting the price and amount.
• Smaller quantities (sell tens not thousands every year.)

Because of these factors, the income of creative agencies paints a jagged line of peaks and valleys.

What can an income statement tell you in that environment? Sure, last month was terrible, but a whale can swim into your office tomorrow and triple your revenue for the next six months.

The result of this is that many agency owners have a hard time investing in the business. You’re bursting at the seams with work right up to the moment that you’re dead as disco.

As time passed though, I noticed something odd: we hit a ceiling in revenue. Despite my efforts, every year we’d come in within a range that spanned around $30,000.

For the past couple of years I’ve tracked our business on a spreadsheet that I call, “OSTRUTA: One Spreadsheet To Rule Them All.” Beyond being a fun reference to Lord of the Rings, the spreadsheet ended up with grandiose acronym because it’s big. I’ve been tracking metrics from all the different functions of the business. But as time has passed, I’ve realized that it’s not helpful.

The two big problems it poses are:

1. It requires work to update. It’s not all on my shoulders, our PM updates our operational scores, but with all the competing priorities on my plate I can fall behind and update it after the fact.
   
2. Because I’m busy, I often get it up-to-date and leap on to something else without thinking much about it. It becomes a scorecard for what has happened, but doesn’t add value from a decision making capacity. Which is its highest potential value.

Right now, I’m leaning it down, making it easier to report on, and increasing our reporting tempo.

A couple of weeks ago at the DCBKK conference, I attended a session on hosting virtual summits.

What struck me about the speaker was that they created excellent offers for every stakeholder in their virtual summits. There was a compelling reason for businesses to sponsor their virtual events, to present as a speaker, and to attend.

A clear and effective value proposition is fundamental, but it’s something that many of us (mea culpa) tend to gloss over.

At the DCBKK conference a couple of weeks ago, they closed out with a speaker that talked about turning around a SaaS company that was on the verge of bankruptcy. They were hired in as a CEO after seven other CEO’s had failed to fix things and were able to get everything back on track in a couple of years.

What struck me about the speech was that it was mostly about fundamentals:

• Planning
• Financial forecasting
• Operational alignment
• Management

These are things that we all think we know pretty well.

But the speaker focused on deeper levels of these fundamentals:

• Detailed plans with three scenario cases for each stage of objective
• Pro forma business cases in forecasting
• Operational alignment using OKR’s, EOS, and financial metrics
• Managing like an investor rather than an operator

One of my working theories is that excellence isn’t found in the esoteric and new, but rather it’s discovered at a deeper level of the familiar.

If you were to evaluate the fundamentals of your business, what categories would be under developed?

Featured images is Philosophia et septem artes liberales, the seven liberal arts. From the Hortus deliciarum of Herrad of Landsberg (12th century). The seven liberal arts established in ancient Greece were: astronomy, math, geometry, music, rhetoric, grammar, and logic. Used under public domain.

I’ve long had a goal of leaving for a month and coming back with more money in our checking account than when I left.

After being out for a little more than two weeks I came back yesterday and that was the case. It wasn’t a month, but it was inline with the spirit of the goal. I didn’t know exactly where the revenue came from other than as a result of our operations. And, while I was gone, we hired a new team member and onboarded them without issue.

Yesterday, I wrote about identifying the edge of your capability. Understanding where that edge is provides intelligence about where to invest in growth.

Growing your business requires some form of energy. This energy is mostly provided through sales (less often, investment).

We tend to consider generating more sales with an internal focus. We believe that sales are a function of our marketing. Better and more marketing causes greater sales.

However, marketing is actually subservient and reliant on an external force: the ratio of supply to demand.

At it’s best, marketing amplifies supply and demand.

When you set a goal to achieve something new to you, one of the key things to include is measurements. As in, how will you know that you’re on the right track? What data will tell you that the goal is getting closer or further away?

Nothing exists without betraying some indicator of its existence. As quantum mechanics revealed, even the act of observation leaves a ripple.

As it relates to growth, one question to consider is:

What are your obstacles to growth symptoms of?

For example, if you have high turn over compared to your competitors: what’s that tell you about your business?

If a friend laid out your obstacles as if they were theirs, what would you think were the underlying issues?

Featured image is Asclepius (center) arriving in Kos and greeted by Hippocrates (left) and a citizen (right), mosaic from the Asclepieion of Kos, 2nd-3rd century AD. Ascelpius and Hippocrates are the forefathers of modern medicine. Used under CC BY-SA 2.5 without changes. By https://commons.wikimedia.org/w/index.php?curid=2270083

A couple of years ago, I had a beer with a friend who is a successful freelance programmer.  I asked him how he got work?  I expected him to say something about referrals, networking, or workshops.  Marketing, in other words.  

Instead, he told me, “Oh that? It’s simple.  I’m just on a job board.”

I dug a little bit and he explained that it was a job board specifically for enterprise clients with software projects.

His marketing was non-existent, but it didn’t really matter.  He had covered the essentials of what he needed to be successful:

• Access to clients
• Who had money
• Who needed significant work

He only sold a few engagements a year and lived a very comfortable life.

The essentials of larger businesses doing client work are similar:

• Access to clients
• Who have money (not their own, organizational budget)
• Who have larger projects and/or recurring needs
• Who are connected to and share with a network of similar people

( … and a few additional fundamentals for operations.)

If you were to advise an entrepreneur who was starting a business like yours, what would you tell them are the essential qualities that make it work well? What’s your short list?

How close does your business match those qualities?

Featured image is Da Vinci’s Vitruvian Man (c. 1485) Accademia, Venice used under public domain.

Back when startups were reinventing business, I remember hearing many entrepreneurs evaluate everything according to scale. As in, “We stopped doing that because it doesn’t scale.”

Scale is a useful quality to consider when thinking about your business’s growth.

Some businesses don’t scale well, if at all.

We have a towering Douglas Fir in our backyard. In trying to figure out how old the tree was, I attempted to look up the ratio between tree height and age. What I discovered was that height is not an indicator of age.

If you have a tightly packed grove of Douglas Firs they may be extremely old, but not very tall. On the opposite side, you might have a young and tall tree that dwarfs similar trees because it has more space around it.

Competitors in markets have a similar effect.