CEO of POWERSHiFTER Digital, and Co-founder of a funded luxury e-commerce search platform start-up called Luxxee.
Selling agency services is volatile in the best of markets. Months are spent preparing, pitching and nurturing relationships; projects are won and revenue peaks, then work is put on hold, and weeks go by without new opportunities. Amid a pandemic, client needs, budgets and resources are even less predictable.
Due to the increased level of uncertainty, many agencies are looking to pivot. This positions product development as a possible alternative. Compared to service-based business models, products can offer more consistent revenue and can scale exponentially.
The most common way agencies transition to product development is by building a solution that solves a problem they experience or is frequently encountered by clients. The less discussed approach is with investors.
I’ve embarked on a journey of building a product through equity investment while simultaneously running a digital agency in Vancouver. I want to discuss how I got started, and share lessons learned to help others who may be considering this route. I hope to inspire others to take the leap with confidence knowing there is no better time than now to bet on yourself (again).
A Light In The Dark
We considered a move into building our own product long before the pandemic. After years of being approached by startups, an idea we felt aligned with our team surfaced. Once we confirmed the market demand, we agreed to move forward. Then, just as we were about to celebrate, we lost our biggest client.
Initially, we backed out of the opportunity. After all, how could we build two companies essentially from scratch? My wife’s sage advice was that this might be the light in the dark we needed. So, we went back to the founder and decided to push forward despite the uncertainty.
Lessons Learned
What have we learned so far? Here are five big lessons to help you prepare for your journey ahead.
1. You’re Already A Gambler, But This Time You’re Betting On Yourself
Building a product and running an agency aren’t all that different — you’re still “gambling,” just in another way. An agency rolls the dice every time a proposal is submitted. Building a product necessitates convincing someone to bet on your idea that you not only have to develop but find a successful product-market fit. It’s hard to move forward if no one wants what you are selling long-term.
2. Find The Right Investment Partner
We chose to partner with an investor who is a subject matter expert and has a broad network. Success depends on the product’s ability to solve a real problem, and without intimate knowledge of the space and audience, the risk of failure rises. Additionally, one person can’t know everything. Having access to other experts to bridge gaps is immensely valuable pre- and post-launch.
3. Do Your Homework
When evaluating an idea, conduct your own internal and external research. Internal research includes consulting your team to identify interest and value alignment. When staff is engaged early on in the process, the level of productivity, dedication and quality of work increases.
Externally, evaluate market demand and competition for yourself. Your investor wouldn’t be pitching their idea if they didn’t believe in it, but you need to do your due diligence. For us, this process of looking internally and externally took a year. The more thorough your research process, the better prepared you are for the road ahead.
4. Raise Money
Founders are taught to follow a playbook when raising capital: friends and family first, then angel investors, and finally, VCs for later-stage rounds. As much as there are specific ways to acquire funds, they all come with a downside. Typically, the hardest parts are the pitch to raise ratio and the raise to equity ratios. The first is time-consuming, and the latter is control-forfeiting.
Our agency didn’t follow any of these prescribed approaches. We raised significant capital through one successful (but relatively inexperienced) investor with little pitching on our end. While the upfront work was minimal, we still face our own set of challenges. The takeaway here is that there is no “right” way to raise capital. Every approach has a downside. You and your team need to have an honest conversation and evaluate which drawback you are most comfortable with managing.
5. Uncouple The Product From The Agency
Before embarking on our product journey, I interviewed different agencies who had successfully or unsuccessfully pivoted. The consistent theme was that a dedicated, encumbered team was necessary to meet deadlines, ensure consistency and create a cohesive product. After having experienced the struggle of running an agency and attempting to create a product back in 2016, I realized this approach was necessary to take if we wanted to give our new venture the best chance for success.
In addition to having full-time team members working on the product, I take two days out of my week to dedicate myself fully to realizing the vision. It is worth noting that if you do not have a leadership team who can find, sign and deliver on agency work autonomously, removing yourself may be challenging.
Innovation Is Born Out Of Necessity
We shifted to product development during a time of crisis. Given the current climate, many agencies are also facing instability and uncertainty about their future. In my experience, building a product can be a viable option. It’s not easy running two companies, but if you’ve been considering the switch and don’t have an idea to pursue on your own, investors are a great option.
Learn from our mistakes — shift your mindset early on, find the right partner, do your homework, raise money, and uncouple the product from the agency. We don’t know how our story will unfold, but we’re hopeful for our companies — and yours.
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Author: JP Holecka, Forbes Councils Member