One of the biggest problems in the UK, and I would say Ireland as well, is that digital or ‘new media’ agencies only ever decide to incorporate new Web apps or social networks into their thinking when they bubble up from Silicon Valley or elsewhere. Few ever think to jump in and create a few apps themselves. I have lost count of the number of agencies I encounter who blabber excitedly about their “Facebook marketing strategy” when the developers inside their businesses could probably have built Facebook, if they’d only been given their head.
But an encouraging trend is smarter agencies starting to use some down-time between those interminable client pitches to build new, interesting projects which might just turn into startup businesses in their own right. One example is Isotoma in York, which created the Forkd social network for recipes (TCUK write up). Another is London-based Howard Baines. It was amongst the first agencies to work with Visual Studio 2008, earned a Microsoft case study and a lot of press as an early adopter of Adobe AIR with their AlertThingy Twitter / FriendFeed / Flickr application. Here’s co-founder Clive Howard’s reasoning about why agencies should start building web apps.
As a web agency we spend most of our time working on client projects that cover a range of services from design and development to strategic advice. As a business we face other challenges such as promoting our brand, winning new clients and staying current with the latest trends and technologies. The relentless pace of evolution within internet technologies creates another problem. That is: how to sell clients exciting new concepts when you have nothing to show in terms of previous work.
I’m sure that many agencies reading this will be very familiar with these challenges and often find themselves frustrated in search of answers. When we started Howard Baines we made it a priority to find a way of addressing this. Our solution was to build our own start-ups.
We deliberately chose new technologies or concepts and then used them to design and build web apps. The process not only provided a way of rapidly moving up the learning curve but also resulted in proof-of-concept applications that we could use to demonstrate our experience to clients and act as great PR vehicles for us. The whole process of developing a web application is also a good exercise for learning more about what our start-up clients go through and improving our own design and development processes.
Of course we’re probably not going to be building enterprise scale applications but we have found that small apps can be good for business and also incredible fun to do. As we usually work to a client’s brief having complete control over a project is great and seeing the results very satisfying. Picking a cool new technology, brainstorming ideas and then pulling something together fast is a fantastic experience on an individual and company level.
As an agency we have all the skills in-house to do these projects and so the only cost is our time. The big question therefore is how can this be done around a busy schedule of client work?
Well, because we had the in-house skills and only ourselves to please, it turned out we could produce these apps in very short timescales. Having seen the numerous benefits to building our own Web apps the time investment required seems extremely well spent. We already have plans for a third app to come later in the year.
We recommend that other agencies start producing their own apps and we look forward to seeing and hearing about what you come up with. Again, the experience of designing and developing an app in a short timeframe could unearth new ways of working that may help you day-to-day. In addition a great little add-on or side project may help generate some great PR for your start-up (remember that Twitter started as a side project).
I thought that most commercial interaction with social networking were not working, and users were not interested in interacting with brands…
It’s my opinion is you have to decide what business you’re in and be the best at it – whether media owner, agency, creative or software dev house. Lose focus, and things start to go pie-shaped (or are first for the chop i na downturn). Outsource this stuff, and keep the dev guys busy on more relevant activity. If they are not busy enough, you’re overstaffed.
BTW – everyone talks about Twitter – can someone tell me what their profit is?
Thanks
AG
Hi Clive, really interesting post. It’s a great idea and something we talk about all the time at NixonMcInnes. I’d love to know how you manage to fit the internal projects around the paying client work – this is where we seem to get stuck. I’m impressed and envious that you’ve managed to make it work.
The trouble is that if you have lots of client work, then the opportunity cost of the time spent working on an internal project instead is equal to your ratecard (i.e. more than £100/hour). Hardly bootstrapping, and difficult to justify the investment. It would actually be much cheaper to pay some freelancers to build the app to your specification. But then obviously your team wouldn’t get the learning (and fun) which is half of the point.
The other option is in joint ventures: Find an investor willing to pay enough money to cover the costs of the project, but at a large discount to your ratecard, and then share the ownership of the end product. Then the work can be resourced and scheduled in like any other assignment. If any investors reading this are up for it then I’d love to hear from you.
Local agency Clearleft did this http://silverbackapp.com/
At Inuda we set out with this in mind from day one. The most important thing for us is that our team are happy and the easiest way to achieve this is to give them time every week to work on their own ideas.
As a result, part of our core business model is that we only do client work 4 days a week. Obviously, there are times when the constraints of a project mean that this is not possible, but we always make up the difference afterwards.
We’ve found that by working in this way way our clients actually get the same value out of us in 4 days as they would in 5. Fortunately, we avoid daily/hourly rates as much as we can, instead charging in iterations where we commit to delivering somewhere between a minimum and maximum set of requirements. This means we don’t have that psychological barrier, by worrying how much money we’re ‘losing’ when working on our own projects.
Tom, I’d think twice about outsourcing your own app ideas. No-one in the world will implement your ideas as well as you can yourself. The satisfaction of turning your own ideas into reality is just as important as the learning experience it provides.
Jon, great to see you’ve managed to get 4-day working into an agency environment. This is something I blogged about a while ago:
http://www.tomnixon.co.uk/2007/12/could-a-web-age.html
How many staff do you have other than directors?
I agree, I’d much rather have our internal team working on the project, but it’s just that opportunity cost snag that you hit once your overheads are at a certain level and the paying client work is waiting for you.
This is something that we’ve been trying to do at Best Served Cold for a while but the costs involved with no immediate revenue can be a big stumbling block. One of the best ways we’ve found is to work alongside clients and work for a reduced rate to earn some money but also take a percentage of the new website. Of course, this only works with some projects!
Our latest project is going well, but finding the time to market, create widgets, make improvements and keep it up to date can be more time consuming than we initially planned. Most of the work we can do in spare time and the type of site (css, flash, ajax showcase site) more or less runs itself but trying to find the time to add more features can be difficult. Just to create the site we had to put aside a weekend and build it in 48 hours!
@Clive
As you know, we’ve also done this since the start. Blogfriends, Buzzspotr and others. About to launch another, hopefully.
@Agency guy
You can do both, but it’s very hard. An alternative is to consult like mad, save all your pocket money and then go on a self-funded 1yr project bender! Best way to burn money… second only to taking an extended trip to Rio I’d think.
@Tom – opportunity cost
Surely the opportunity cost of NOT doing a startup is much higher, given the max possible income per capita from an agency is relatively low and it’s non-trivial to scale
@Tom – outsourcing
We know a fair few people who are successful doing this, including some brands you’d recognize. Odesk makes a fortune from my friends
@Jon – timing
It’s a bitch working like that though, isn’t it? Clients projects and startups don’t work well together. Unless, of course, your clients are helping you DEV the startup. It’s nice when that happens, and it’s often achievable. Also, your clients can become your first product customers too.
@All – outsourcing
Depends on your goals. You might want to insource because it’s fun. Not everything has to be about the bottom-line. Also, insourcing may be essential due to IP/security/iteration issues.
@Jof – I like your point about opportunity cost. Will point this out to our finance director next time it comes up
Agencies are too busy with client work, especially UK agencies as US agencies have more slack to give with bigger budgets. I know I started and ran one here and pretty much left to get a startup off the ground. You have to commit to manoeuvre.
This agencies as idea hubs idea became the incubator in the late 90’s, where they provided a sort of agency approach to entrepreneurs with finance and support. Those all failed because you cant get lightening to strike twice in the same spot.
Agencies don’t cut the edge. The edge cut by rebels that leave agencies
@keld
One BIG advantage an agency has is that you get to see your client’s problems. There’s no faster way to get a list of actionable business ideas that will/could make money as you already know your first customers.
Since you know me, I’ll not take that edge-cutting thing personally, and I’ll chalk it up to you rebel ways
@Jof, Tom – one can use an expected gains x DCF x % prob to model opportunity costs of options. But for companies that have employees, the opp cost argument is much more real.
Having run companies, I think you need to have both for long term sustainability – but I do like customer inspired innovation, as that way you know there is a market!
The other thought is that with Web 2.0 stuff its often as much about getting buzz (ie the biz dev budget). For e.g. our blog (Broadstuff http://www.broadstuff.com plug plug ) is best thought of as a marketing expense – at least until I sell it for a small fortune to some MSM company
At Fat-Man we’ve been working on our own start-up app, Qajack a video Q&A site spliced with Poker. It’s been a summer project, 3 months, now running over a bit and it’s the thing that get’s us out of bed in the morning… but, running an agency and a start-up in tandem in extremely difficult, as in the end you give neither the time and dedication they require to be successful.
I’ve met with VC’s about funding Qajack, as it’s video based, it will cost money to scale, something we can’t afford at present, so it’s chicken and egg.
To grow a community will cost £X, server space, bandwidth etc, to fund that means seeking outside investment, outside investment means you have to focus on the start-up as no VC will pay you to have 2 jobs, thus the agency operates with a skeleton crew and in our case devoid of the CEO, CTO and another title ending in O that I’m not about to make-up.
The incredible designers, developers and animators we’ve been lucky enough to attract depend on our client work, so it’s a case of damned if we do and damned if we don’t.
I’m biased, but Qajack (as a platform) is incredible.
In my convesations with VC’s I’ve talked about other agencies I know all of whom have great ideas, but suffer from the same situation, or not being able to schedule or finance time to build their own app whilst managing bread and butter client work. A new job comes in you’re duty bound to service it or kiss goodbye to your reputation and ultimately your business.
@ Adam – I think this is a common problem for tech startups that are actually making money
@Adam – I feel your pain! As mentioned above, in this current climate the “safest” bet would be to fill your books for 6 months to save some pocket money then take the rest of the year off for your startup. Or get funding, if you are jammy.
For us having a product has been a pre-requisite for doing business, especially in these tight economic times. It gives us a means of differentiating ourselves.
In terms of B2B products it seems sensible to us that we know who our target market is and direct our marketing efforts towards them. Otherwise it would mean trying to market ourselves as an agency service (with no particular focus) to a range of potential clients who are also talking to many other agencies. We know who our competitors are and we know what we have to do to make it to the top of the pile.
I look at it in terms of being a product based agency. We find clients, directly or through resellers (and frequently prospects find us), who wish to sell to a fairly niche markets via online auction and we are able to offer them an enterprise level licensed product that contracts in renewable incomes.
It means the client does not have to pay for the full development cost and we get to establish a long term relationship with them. This flattens out the peaks and troughs of the typical agency cash flow cycle. It also means all our development goes in to a common goal – improving the overall product. It means our developers are focused on the one thing as well meaning we become specialists in a particular field both technically and in an industry knowledge sense.
Of course we had a good opportunity to do this. We had spent two years working for one client in this area and had built up a lot of knowledge. This gave us the knowledge and uniquely the benefit of hindsight to look at what we had done previously to go and create our own product. We also have the benefit of having something to show prospective clients what we had done in this space previously.
To me it makes sense for agencies to at least look at how they can commoditize their knowledge, skills and code libraries to form a product in a similar way. From that who knows what will happen.
@Tom Thanks for your words of encouragement. I read your blog post back in December, it was really useful for us in thinking through the pros and cons of what we do. We currently have three engineers, not including directors that are taking this approach.
Jof’s comment is spot on, I absolutely agree “that the opportunity cost of NOT doing a startup is much higher”. By not doing a start up you’ve got zero chance of creating a product business that could provide you with long term sustainable revenue.
@Jof It’s certainly not easy balancing things, and I can’t claim we’ve yet mastered it perfectly. The key to it is being disciplined and turning down work that doesn’t fit with our model.
This article resonates with me and multiple levels. I left a Digital Agency in India to start my own startup (http://www.socialwebfactory.com) precisely because they would wait to find a client before experimenting brand interaction on a new social platform or use a new technology.
Although the opportunity cost argument is valid, it should be also looked up in the sense that experimenting provides an opportunity to provide differentiated and unique opportunities to your clients before the mainstream agencies have caught up and started offering similar run of the mill solution.
Plus having a relevant application demonstrates that you can put together a successful strategy, if you previously do not have an established track record
This post really hits home at what we are trying to do here as well. When do we stop doing the client work, which they are screaming for, and have some fun and maybe build something that will make us more cash than the client work can in the future. It’s a hard one to do alright. We built http://www.teamworkpm.net in our spare time after work and on weekends but we have loads of other web apps we would love to build had we the time and cash to do so.
@ Agency guy I agree with you on Twitter it’s great and fantastic but where is the money in it for them?
I always seem to read on TechCrunch about how a startup got 5 million or 500 million funding, also with a lot of them I don’t really see where the revenue stream is either. I wonder is there another bubble about to burst soon?