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

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.

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.

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.

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

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

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

@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.

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!

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.

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.

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