Tech. Why it was a money pit and what I'd do next time.
Coming in second place, just behind HR (see here), tech was my weakest area of running an agency.
Even now, over two years on from exiting my business, it still feels a bit like the one that got away.
We spent huge amounts of money on developing tech. I'd guess around £1m over just four years of running the business before the acquisition.
The holy grail of the tech-enabled-agency increased valuation multiple.
I don't think it even moved the needle.
In the very early stages I listened too much to people advising me that developing tech was essential for an agency to build a moat, increase margin and improve their valuation.
Now that I've come out the other side, I've seen so many other agencies make the same mistakes. Building tech for the impact on valuation, rather than to improve their business.
Armed with this knowledge, and the faint sting of £1m down the drain, I thought I'd share my learnings, and how I would do things differently next time.
Start with the owner
I am very good at understanding client challenges and building a service offering to solve it, and a sales narrative to sell it. As a result, my agency won clients because it solved their problems and clearly articulated how.
I am not good at tech and analytics. As a result, we struggled to create any tech or analytics products of value.
The biggest and most costly mistake I made, very early on, was hiring junior developers and analysts, but not hiring the person to give them the direction. I kick myself now looking back as my mistake seems so obvious.
Our first tech team was made up of 3 people, straight out of uni, costing around £65k in total. I assumed that volume was the key to developing great things quickly. But of course, I don't think I need to tell anyone reading this, that I should have started with a £65k product leader. Someone that could identify a customer challenge, the competitive landscape and build a MVP and then build a team around them.
We took too long to hire this person. Probably going through 5 or 6 more junior people in the process. Trying to solve the issue with the same solution. It actually annoys me just writing this. Such an error.
I knew what the right solution was, but thought that a product leader might come in and start again, wasting everything that we'd invested up until then. If we had, and they had, it would have saved us a fortune.
So my advice to any founders thinking of developing a tech offering. Dig deep in your pocket and hire the most experienced and expensive person you can tempt, to lead the project. It'll save you a lot of money in the long run.
Build for yourselves before others
We focussed on building products that we thought would look impressive to clients, rather than tools to do the less sexy things that we should have been automating. As a result, we ended up with a tech product that basically did the same thing that dedicated tech businesses were creating, with millions of dollars of funding behind them.
If I was starting again, I would sit down with the client teams and the time tracking data. I'd look at where we were spending the most time doing low value tasks. And I would develop tools that could automate them.
At the very least, you would end up developing something that would save you time, and therefore money. But very likely, if you solve a problem for your own business then you probably end up developing something that can solve problems for others too.
Solving the problem vs SaaS
Because I was chasing the tech-enabled multiple, I was adamant that I wanted a shiny SaaS product that clients could log into and use themselves.
But that was crazy. We were charging clients a monthly fee for the service we were providing. If we were to start to move some of that service to a tech platform, we would likely have been challenged on our fees. SaaS fees are far lower than agency fees. So really I was spending all this time and money developing something that might have caused us commercial issues in the future.
If I had my time again I would do it like this. Forget about our tech offering being a self-serve SaaS platform, and focus on finding out exactly what insights our clients struggled to find and make that the service. I would hire that £65k big hitter, and they would become a one person business unit. They would ring clients, find out what data challenges they had, and then solve them with custom dashboards that could be created quickly with PowerBI or Looker. The £65k salary would easily be covered by a few paying clients, and we could start making money from day 1. Possibly a SaaS product may end up being developed as an output in the future, but that would only be once we were armed with significant market feedback.
My advice. Your tech offering doesn't need to be a tool. It could be a partially automated service. Focus on what can get your market feedback and revenue quickest and start there.
Embrace 3rd party tech
We used a number of market leading software solutions from 3rd party developers. For example, a specific software that added automations and intelligence to PPC bidding. Some other agencies had developed their own version of this software, so we always used to be embarrassed when clients asked us which software we used. Like we were inferior for using an off the shelf product.
The reality is actually the opposite.
Why develop your own tech when there is much better quality product already out there. We got feedback from clients that had worked with these other agencies that the tools they had developed were terrible. It was a great thing to have on a website or pitch deck, but actually it was a huge disadvantage to the client.
So we started to embrace it in pitches. We offered up the names of the software we were using, and stated that we don't develop our own tools because they would never be as good as the ones with massive funding and teams. We turned what we thought of as negative, into a positive.
My advice would be to develop your own tools that fill a gap. Don't just try and design the same thing that everyone else has for the sake of it. And if you use market leading tech from a 3rd party then don't hide it. Just explain to the clients why it's beneficial to them.