2019 was a year of growth for Agathon. Our team expanded; we increased our focus on marketing; we developed additional systems and processes; and we were able to tackle more projects than ever before.
For years, our official stance has been that we didn’t want to grow much bigger. We didn’t want to reach the point where the whole team couldn’t get together for our in-person meetings. And we didn’t want to have to add middle managers to what has always been a fairly flat organizational structure.
But in addition to the challenges, we’ve come to understand that growth also offer opportunities: It allows us to accept the interesting projects coming our way, and it helps us continue to serve our clients well.
We’ve spent a lot of time in discussion with our virtual CFO—Jamie Nau with Summit CPA Group—about these issues. He assures us that growing pains are normal as companies reach certain milestones. And while there are certainly some companies that choose to scale back and limit their workload to stay below these growth points, the majority choose to push through. That means adding staff, developing processes, and investing money to create a strong foundation for continued growth.
The owners of digital agencies often find themselves wearing a myriad of hats. They might be providing services directly to clients, handling the marketing, overseeing operations, etc. Being a generalist is sustainable for a time, but it slows the growth of the company because there’s only so much that one (or even a few) people can do.
But growth isn’t just about adding capacity. It also means hiring specialists who can focus on an area with expertise. That might mean adding a project manager, marketing specialist, or an operations director, for example. Hiring these specialists frees up the management team to focus on things like the overall direction of the company and how individual decisions are impacting the future.
As the company grows, this process continues. The first growth milestone may involve hiring specialists for specific roles. Next comes a point where middle managers are needed to oversee groups of employees and report back to the management team with higher-level questions. There are a lot more people involved.
It’s just this constant evolution of business that the more you grow, the more you need to pay people; the more you need to pay people, the more revenue you need to bring in.”Jamie Nau, Virtual CFO
Hiring ahead, hiring behind
Of course, some hiring decisions are easier than others. When it’s time for us to hire a new developer, for example, we can easily review the projects in the pipeline and determine the additional staff needed to handle those projects. With forecasting, we can also see how those hires will impact our bottom line.
However, the biggest question a professional services firm faces is whether to hire ahead or hire behind. In other words, do you hire in anticipation of additional projects or do you wait until you have more work than availability and then hire?
Jamie’s answer to this question comes down to whether you have sufficient cash reserves. When you do, it’s okay to hire ahead in anticipation of an increasing workload. If the project doesn’t come through, the cash reserve provides a cushion to continue to pay that employee while you work on closing the next deal. But if you don’t have cash in the bank, there’s added risk to hiring ahead. In those situations, there may be a little more creative juggling of the billable hours to meet client obligations before you’re ready to hire.
Employees or contractors?
Which brings us to another option. In some cases, it makes more sense to bring on an independent contractor rather than to hire an additional employee. Conventional wisdom says that contractors are more expensive but a little bit safer. Using contractors protects a company from hiring someone new just to part ways in six months when the project concludes.
Some companies—and we’ve used this approach ourselves—will hire a contractor temporarily with a goal of transitioning to full-time employment. This approach provides capacity for a short-term project while the company seeks additional long-term projects, while also helping everyone confirm this is a good fit. Contracting is a bridge.
Sometimes outside vendors are the solution
Outsourcing is also a valid strategy. For example, our business is the strategy, design, development, and hosting of tech solutions for organizations of various sizes. While Rachel, our business manager, handles bookkeeping, payroll, and other financial tasks, we don’t have the need for a full-time CFO. Instead, we’ve hired Summit as an outside firm to help us with that.
Similarly, we work with organizations who don’t have the capacity for developing an app or website internally. They may or may not have an internal IT department. We join forces with their team to offer expertise in both strategy and development. This allows them to expand their capabilities without having to hire more staff or manage a large project internally.
When staff equals overhead
While we’ve talked about producers up to this point, there’s not always a clear correlation between new hires and billable hours or income growth. However, staffing shouldn’t be considered a sunk cost either. Adding an additional admin person or manager frees up someone else to do more business development or production work. It can also provide the management team with more bandwidth to focus on the overall vision for the company.
Jamie continuously reminds us of the need to have a documented forecast. A forecast allows you to manipulate the numbers to see how various decisions play out over time. This helps minimize the risk when making those hiring decisions.
When it comes to growing a digital agency, the way forward isn’t always clear because there are so many varying factors. One of the first steps should be building that cash reserve so there are options when the time comes. As with any business strategy, it’s important to have a trusted advisor who understands these factors and can demonstrate how each option impacts the company in both the short- and long-term.