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I can tell you that 20 years in the project business leave their mark. Almost everyone I talk to in the industry is intrinsically fed up with it. Too much movement, too many “moving targets”, too much stress. Sooner or later, almost every digital agency expresses the desire to launch a product. And often this seems like the “promised land”, a place where milk and honey flow in abundance. This is usually due to two things: Frustration with the existing business and a lack of imagination what product-based business really means.
To tell you the truth, during the course of many years I rarely experienced a project that ran really well at every level. This doesn’t mean that the projects fail; rather, it has to do with how a good project is defined.
In my view, to be truly successful, a project must have three winners:
It’s been my experience that one party suffers in most projects. Usually it’s the employees, who have to muddle through somehow and to some extent must put up with a pretty stupid circus. Unfortunately, this is common practice. Have a look around; there are enough agencies with glaring churn rates.
I think business people have the responsibility to do two things here; a) hire only really good people and b) to then protect them. Not rarely from themselves – if truth be told. For occasionally, some employees, especially the younger ones, simply take on too much and aren’t able to withstand the pressure.
Most of the time, an agency’s profit line suffers too. If all agencies were really capable of calculating things through, our industry would be in a completely different position financially. However, this isn’t the case.
In rare instances the customer suffers due to the other two parties. As a rule, though, agencies are adept at preventing this from having too big of an impact. Therefore, all parties usually suffer a little bit. The result is well-known project frustration.
It begs description what I hear customers and agency reps say about other projects. And I can state with a clear conscience that there isn’t a single noteworthy agency in Germany or Switzerland from which I haven’t heard a memorable project anecdote.
From a business perspective, projects somehow have very little sustainability. The reason being that a project is characterized by having a defined start and finish. And most customers just don’t have enough projects to ensure long-term, sustainable revenue at a mid-sized agency. Once an agency has reeled in such a customer, then it quickly becomes dependent on this customer, which isn’t very good either.
The other point is: Before the project is after the project. I can tell you from my own experience that there is a lot of excitement at the beginning of an agency’s history (or when you are new to the industry). The first project of more than 100K, the first 500K plus project, the first of more than 1M, the first that exceeds 5M.
These are moments you won’t ever forget. But the champagne (or whatever you prefer to use to toast the event) flows less and less freely each time. At the end of this development, you simply go home after closing the next big deal; the next morning you’re back in the office chasing the next big thing.
Currently, another problem is that the agency business can only be scaled through manpower – at least for the most part. This is stupid from a business point of view. Finding good people, giving them great work to do and making them a part of the company is extremely difficult. And expensive.
A product seemingly solves all of these problems. Especially a software product. It can be copied and sold limitlessly, and without having to hire additional personnel. Or it can ensure regular, recurring revenue as an SaaS subscription. And one is rid of all the stress, because the customers are merely using the product. This is far less complex than leading a multidimensional project. And the deadlines? YES, finally, no more stressful deadlines.
You’ve probably noted that all of this is too good to be true; because the product business is just as hard, just in a different way. I’ve had countless ideas pitched my way during the past few years and I love to give feedback (just send me a mail and invite me to lunch), and I try to give friendly yet honest feedback. This can be very difficult, because what I hear regarding product business ideas is often simply a “scratch your own itch” kind of thing from agency owners that are project-weary. Most business people make fundamental mistakes and have idealistic, glossed over beliefs. Here’s a small, by no means comprehensive selection:
Ideas usually fail because of the basic strategic concept. For example, digitalizing an existing process has gained widespread acceptance. At first glance this a good and logical approach – however, most ideas are based on simply transposing tried-and-true processes and industry constellations into a digital scenario. I think this is pure nonsense.
A strategic concept must always be targeted at solving a customer’s problem. The simpler and cheaper, the better. This automatically fosters unconventional concepts and these are then truly new, with a much higher shelf life.
Find a quiet place to think on occasion, and consider how to solve the problem with the technical equipment you have at your disposal today, without seeing existing solutions or best practices in your mind’s eye. And expressly not: “How can I digitalize an existing solution?”
Having functional code doesn’t mean you have anything near to a finished product
I often meet people who already have a running application. They generally think all you have to do is pretty it up a little bit, write some documentation and set up support and a shopping cart, and then they can get started. You might say that this is hogwash, that it goes without saying that marketing, sales, etc. need a lot of effort and cash. And you would be right.
But even before that, what is necessary is to harden the code. Questions such as what happens when 20,000 customers use the platform or what happens when you have to quickly deploy a security-relevant update across the entire customer base.
If, despite this, you still dive into it full throttle, you can experience a crash relatively soon, though this doesn’t necessarily have to happen. This will likely happen, though, whenever a product is heavily used, but you are constantly having quality issues. This has the exact same feel to it as an off-kilter project – but with 20,000 project stakeholders on the customer side.
Support is important. I’m aware that many startups are radically moving their focus to autonomous platforms and, for one reason or another, have very little interest in human interaction. As a rule, VCs also push this attitude. I basically find this to be a congenial concept. Nevertheless, I also place a strong emphasis on really good support. For two reasons:
The biggest fallacy, though, is that it is possible to organically grow an agency business into a product business. Of course there are high-profile examples such as Magento or 37signals (now Basecamp), but this generally doesn’t work.
For, to build up a product business is complex, requires a lot of resources and needs to be worked at continuously. This is especially difficult in small business (< 100 FTE), because projects, after all, need to be carried out and, as soon as something goes wrong, need 100 percent of our attention again. And, no surprise, what is neglected is the product.
Another issue is the fundamentally different culture. Project business is much more dynamic and short-term. If you develop and market a product you need far more foresight, including the financial sort. And regarding investments in general, of course. After all, without these the whole thing simply doesn’t work.
Thus, many stay with the project business, despite all the ideas and discussions. It’s simply far easier. Someone who can sell himself teams up with someone who can program. You can bootstrap this with a single credit card.
Of course I’m exaggerating, but the industry is moving in this direction. Since demand is at such a high level and customers have such in-depth knowledge, almost anyone with good digital know-how can generate revenue in the very first month.
Even if many agency owners view product sales as a sort of higher level of corporate existence, I think this idea belongs in the land of fairy tales. I think, rather, that the true challenge is for businesses to become increasingly autonomous.
In such a way that the agency team can carry out projects without management’s involvement. I find it unbelievable how many larger agencies can’t function without their leaders. And I mean on a daily basis.
For many business people this should be the challenge that they have to overcome. Because if they master that, they could also find the time and energy to take care of the product. Because. If. Could.
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