I've been in the online marketing space since 1998. Somewhere around the year 2000, I stumbled into affiliate marketing. I played in very competitive spaces via SEO from the get go - and ranked. In 2007, in order to scale my affiliate marketing efforts, I co-founded MFE Interactive, a website publishing company, and built out several affiliate brands.
I'd always done consulting here and there throughout the years, but never on a regular basis. To be honest, I liked (and still do like) the affiliate (on your own schedule and no one to answer to but your bank account) lifestyle.
In 2009 I made my first foray into running a consulting company. I quickly found out that there was a lot to making the jump from consultant to agency - a lot of which I hadn't thought about, hadn't properly positioned myself for and I decided to sell my shares less than two years after venturing into that realm.
After 18 months of what my friends like to call "semi-retirement" and living very comfortably off the passive income I'd spent nearly a decade developing, I decided once again to start an agency and officially launched PushFire in May of 2012 and we're already a team of 13 and growing.
But this time I knew a bit more about what I was getting into and as a result, had positioned myself better for the task. I figured I'd share with you what I've learned about making the jump from occasional consultant to agency over the last three years in hopes that maybe someone else can be better prepared for "the jump" if and when they decide to take it.
Deciding Whether to Go Solo or with a Partner
I personally know what I'm good at and what I'm not. I couldn't see launching an agency - at least one you want to experience quick growth - without having a partner (unless you want to invest the salary to have someone handle a "partner" position as a paid employee). There is simply too much for one person to do for them to do it all alone - and fast.
My personal weakness lies in operations. I don't like being chained to the office every day and travel too much promoting the agency to be the person managing operations. My personal strength lies in business development, growth and strategy. My weaknesses make me a horrible COO. My strengths make me a good CEO. I've found that the absolute key to creating a successful partnership lies in making sure that your partner has strengths where you DON'T. In PushFire, my partner Sean and I compliment each other very well. I'm a veteran with SEO and link building. He's great with PPC management (something completely foreign to me). I'm good at business development and client strategy. He actually enjoys (and is good at) managing the staff and clients. That makes him a fantastic COO.
Before you rush to launch an agency solo, ask yourself if you can really handle every aspect of running said agency (or are willing to hire to fill the gaps). If not, ask yourself who you know that would be a great COMPLIMENT to your skill set. And then make sure you vet that they actually have the skills you think they do and that you can work as a team without wanting to kill each other and being "locked" into a company from a public perspective. Work quietly together for a few months and see how it goes (that is what Sean and I did for about 3 months). And if all goes well, make it official.
Business Formation and Operating Agreement
Once you decided to make it official you need to form your business. I actually own part of an incorporation service (an accounting firm owns the other half) so I got my advice on what KIND of company to form from my partners in that site since I didn't know all the intricacies of owning a business in Texas (where I'd recently moved). If you're not sure of what kind of company will work best for you (Incorporation, Limited Liability Company, S Corporation, etc) be sure to consult with an accountant or attorney to figure it out. It's a pain to change after the fact.
If you are forming your business with a partner, it is absolutely imperative that you have an Operating Agreement from day one. IMPERATIVE. The Operating Agreement defines your ownership (if it's not a corporation which issues shares), your roles and your responsibilities. Be sure to include what happens should a partner want to leave, should you want a partner to leave, should a partner die, should a partner get divorced - EVERY POSSIBLE THING THAT COULD GO WRONG SHOULD HAVE AN AGREED UPON SOLUTION IN THE OPERATING AGREEMENT AS SOON AS YOU BECOME AN OFFICIAL COMPANY.
I don't care if your partner is your parent, sibling, friend - you need an Operating Agreement and you need one from day one. Sean and I are married and we STILL have an Operating Agreement that details out every possible scenario and what happens in the event of it. And if there is one area where you stretch the budget and pay a lawyer (and NOT use some free template online) it is for the Operating Agreement if you enter into a partnership.
The Business Paperwork
Next up you'll need to file all that awesome paperwork with the IRS, state and in some cases even your county. Getting an EIN, getting a sales tax number, and getting local operating licenses (or even finding out if they're required). And if you're hiring employees, then you'll need to file paperwork to pay unemployment taxes, etc. I personally hired a local accountant to ensure we didn't miss anything in regards to these. I'd rather pay a modest hourly fee now than much more expensive government penalties later.
If you plan to have an office and employees (which is likely because you decided to no longer be a sole consultant), then you're going to want to get insurance. The basics would be General Liability and Property Insurance and Workers' Compensation Insurance.
Additionally, because what we do for a living as online marketers is not an exact science, you'll likely want to look into getting Errors and Omissions (E&O) insurance too.
The GLP and Workers' Comp insurance was fairly easy to find and get setup. E&O was another story. Most insurance agencies I spoke with didn't handle "digital marketing firms" and it took me a long time to find a recommendation to a company that not only provided E&O for people who do what we do, but also was willing to include copyright infringement into the policy (say for an employee using a picture or content they don't have permission to use, unbeknown to you). I finally was referred to TechInsurance and was able to get all three insurance policies via them.
For the record, I was not compensated in any way for mentioning them - I just had a REALLY hard time finding an E&O provider and they had all the coverage I needed and at what I thought was a fair price. Cost for the policies will vary on a multitude of factors, including your personal experience at what we do, if you've ever been sued, etc.
Also know that if you plan to take on Fortune companies as clients, this insurance - and proof of having it - will be a standard requirement and they usually request that your GLP and E&O insurance covers you in the 1-2 million dollar range.
As an agency, you're going to need contracts if you weren't using them as a consultant. And you're going to want them to be drawn up by (or at least overlooked and approved by) an ACTUAL LAWYER.
We had a Master Services Agreement (MSA) drawn up as well as a Statement of Work (SOW) for each service type we provide (which at the moment is SEO, Link Building and Promotion and PPC).
We also had a Mutual Non-Disclosure Agreement (NDA) created. Additionally, if you plan to use contractors or employees, you'll need contracts drawn up for each (one for employees and one for contractors). While some clients require you to use THEIR contracts (they like to keep any legal disputes in their home territory) many clients will not have these types of contracts and you will need to provide them.
For the record, I don't "hold" clients into contracts. If a client wants to stop using our services they can do so at any time. We have a 30 day notice "out" clause (for either side) in our standard MSA. But we still have contracts that clearly state what we've been hired to do and what our (and the client's) responsibilities are. Even if you don't have clients signing "one year deals" etc, you still should have contracts. Cover Your Ass - it's a statement to live by as a business owner.
Finding Office Space
Since you're opening an agency, that means you plan to have employees - otherwise you'd remain a consultant. Office space is a tricky issue for a brand new company. You often don't need a lot of space in the beginning, but if your company does well and finds itself quickly expanding, you could find yourself outgrowing your initial space soon.
I'd recommend you'd do your best to find office space (at least initially) with a short term lease (which for office space is usually 1-2 years). Also, since most of your business - at least in the beginning - will be over the Internet, you shouldn't kill your budget trying to rent a Madison Avenue worthy space in the beginning (whether you should do it at ANY time is up to you).
We took a 1 year lease in an industrial building with a killer Chicago loft like interior and a great kitchen. From the outside, it looks like a trucking company (because we're next to one). But it's got a great look and feel on the inside and 90% of our clients will never come to our office anyway. The one year lease was key because we were way too small for the space when we took it and will be way to big for the space when our 1 year lease is up.
Additionally, don't stress too much over location. I talk with a lot of folks that ask us when we'll be moving from the small town we're in (Katy, TX) to the "big city" ten minutes away (which is Houston, TX). Sean and I just discussed this the other day and I don't know that we'll ever make that "move" so to speak. It is much easier to get local press coverage and be a "top" employer in a smaller town. And again, most of our clients will never come to our office anyway. I take my cue from Marty Weintraub, who, rather than ditch Minnesota for the more "tech" scene states as a newly minted Inc 500 company, instead chose to become a pillar business there.
Contractors Vs. Employees
I was very adamant from the day we launched that we were going the in-house, local employee route. It is tempting to work with long distance contractors - especially when you know they're talented but would never move. As a consultant, I utilized long distance contractors for years (and all of our long term contractors are "grandfathered in" to this new decision).
But if you plan to grow an agency, it's my opinion that you need people in-house to effectively do it. Especially when it comes to management positions. It's simply much easier to call a company meeting with in-house staff then to arrange a Skype call between 13 people. It's much easier to develop positive relationships and company camaraderie as well.
What to Know about Hiring and Having Employees
Hiring is a task you pretty much only learn via experience. You have to make sure you find people who will fit in with the company culture you want to build - so you'll need to put some thought into what that is before you start posting "help wanted" ads.
To attract great employees we've learned two things. The first is not to skimp on paying for a job posting, especially if you live in a smaller town. We post our ads on Monster.com and haven't been disappointed in the quality of applicants we've received by doing so. Prior attempts using more local services were a waste of time, especially when looking for people with online marketing and/or technical skills - they're all looking online.
Secondly, you need to offer benefits if you want to be competitive with the other companies around you. A great company culture and an exciting position usually don't make up for a lack of health benefits in the United States. We looked to our banking service to get us recommendations for small business health insurance.
They introduced us to Digital Insurance who got us a great quote for health insurance for our growing team (again, I'm only mentioning them because we found them to be awesome and extremely helpful). When looking at health insurance keep in mind that - at least here in Texas - you need 75% participation in your plan and need to pay a minimum of 50% towards the health insurance premiums of all your covered employees.
To give us an edge over competing employers, we decided to get a higher quality plan with a low co-pay and lower deductible and contribute more than the required 50%. Make sure that you consider your health insurance costs for your employees when deciding on salaries. Even if you don't have health insurance for the first few hires, when you DO implement, you'll have to contribute for everyone, regardless of if their salary took it into account.
Additionally, once you're past having one or two employees, you're likely going to need an HR manual. Our accountant was able to get us a standard HR Manual we were able to edit to fit our specific needs - and once again, have a lawyer look over the final product.
We also work hard to keep the team motivated. From team building events with prizes (our latest was laser tag, our next outing is bowling) to performance incentives (this month, we're giving away the New iPad as a performance bonus), you'll need to ensure your team is emotionally satisfied in addition to being financially satisfied to keep retention high. We appreciate our team and their dedication to the company and do our best to show them that.
Creating Internal Processes and Tools
Hiring employees means you're going to need to train them. In the beginning, you'll likely do this by doing it verbally, but when you get to the point that you're hiring frequently, you'll want internal training documents for your new team members to read first and for you to answer questions about later. And different jobs will likely require different processes and training documentation. We've been creating this as we go. But we've found that a lack of written documentation can cause confusion and frustration. So the sooner you can get everything on pen and paper, the better.
Additionally, at some point you're going to find yourself doing a lot of repeated basic processes that could be better handled by legitimate automation. We just hired our first developer for PushFire to begin building internal tools to not only make our team's job easier, but to make it less mundane as well. Be sure to keep an eye when hiring on if you're hiring because of a genuine need or because your current team is wasting time doing things they don't need to do. When the latter occurs, I'd look into hiring a developer to fill those productivity gaps with automation. We're already seeing the benefits of making our team's life easier.
In the meantime - don't try and reinvent the wheel. There are tons of great tools out there that can make your team more productive. From Raven Tools to Ontolo to HighRise to tons of other services - there is likely someone, somewhere with a tool to make your specific team's job easier. Seek them out. Then hire someone to build what ISN'T available as you grow.
My opinion? Never do the books yourself. EVER. Because saving yourself a few hundred to a few thousand in accounting fees could cost you BIG BUCKS down the road. We use FreshBooks for our invoicing and have an accountant who then downloads the FreshBooks data into Quickbooks.
I find FreshBooks easier (though I used Quickbooks until recently) and she prefers Quickbooks. Our accountant provides us with a Profit and Loss (P&L) statement every month and keeps track of our invoicing and cash flow. This allows us to ask her any information we need to know financially while keeping our eyes focused on the business growth and day to day operations. For now, we outsource accounting, but we know that at some point we will need to take it in house as we grow.
We also utilize the payroll services at our bank (Wells Fargo) because it's easy and they pay all the required taxes for us. Our accountant still runs our payroll, but through their service. Additionally, most payroll companies offer you a guarantee that if you're ever hit for them improperly accounting for taxes, that's on them and not you. To me, it's worth the (what I consider) small fee to utilize the payroll services.
I'm Still Learning
I'm by no means the definitive source on making the move from an individual consultant to an agency. I can't offer advice on financing or funding because we've bootstrapped ourselves the whole way. But I hope the above let's you know some of what to prepare for and what you'll need, at the very minimum, to launch a successful consulting agency.
Lastly, DREAM BIG. DO GOOD WORK. BE A GOOD PERSON, PARTNER, BOSS, CLIENT AND SERVICE PROVIDER.
P.S. If you live in, near or are willing to relocate to Houston? We're hiring. ;-)