{"id":34441,"date":"2021-07-09T12:03:31","date_gmt":"2021-07-09T11:03:31","guid":{"rendered":"https:\/\/www.prodpad.com\/?p=34441"},"modified":"2025-01-13T16:26:15","modified_gmt":"2025-01-13T16:26:15","slug":"avoiding-the-agency-trap","status":"publish","type":"post","link":"https:\/\/www.prodpad.com\/blog\/avoiding-the-agency-trap\/","title":{"rendered":"Avoiding the Agency Trap – Product Led Companies Scale-Up"},"content":{"rendered":"\n

When we were little, we talked about what we wanted to be when we were older. Some of us perhaps wanted to be firefighters, or teachers, or maybe even astronauts.

What about asking ourselves what we want our companies to be when they grow up? Do you want something that pays the bills for you and your business partner and your teammates? Do you want something that gives you purpose and something important to do? Do you want to solve hard world problems, and achieve financial gain, maybe IPO and make your millions?

There\u2019s a lot of different ways to run a respectable and profitable business, but there are limited ways to scale a business. And unless you\u2019re setting your goals and expectations early, it\u2019s easy to go off track and build a company that doesn\u2019t grow up into what you imagined.<\/p>\n\n\n

\n
\"And<\/figure>\n<\/div>\n\n\n

Do you ever feel like you\u2019re getting pulled in two directions?

As a product person, I\u2019ve often felt like I\u2019ve had the pressure to deliver like a project manager. It\u2019s a little like having an angel and a devil on each shoulder.

One is telling you to dive in and ask why, and to understand the problem deeper, and to maybe group together these two parts that solve similar problems into one\u2026 while the other is yelling at you to stick to the plan, to avoid scope creep, to just deliver on time and get the job done!<\/p>\n\n\n

\n
\"A<\/figure>\n<\/div>\n\n\n

As a product person, you should cherish every moment you get to spend in discovery mode.\u00a0This is where the big, juicy problems of the world are found and cracked, and real value is discovered.\u00a0

Delivery is when you\u2019re honing in on that one problem, and is really more of a means to an end.\u00a0You have to have <\/em>delivery, as it ultimately pays the bills, but it\u2019s not the earth-moving disruptive activity that discovery has the potential to be.

You have to have balance – you have to find enough time to discover problems, and of course, spend some time delivering on those solutions.

But what if this gets thrown off balance? What if you\u2019re like me, and you end up starting out with great intentions to discover problems and interesting ways to solve them, but before you know it, you\u2019ve got your hands tied with too many delivery commitments?\u00a0

About 12 years ago, I was a product person for a company in London. I was meant to join the team as a product manager, but after a week or so there, it became clear that I was really lined up to do a lot more project management than I\u2019d anticipated.\u00a0

The company hadn\u2019t knowingly mis-sold me on the job. They\u2019d just gotten stuck in a trap that I now know is really common, as I see it all the time amongst other product teams that I spend time with.\u00a0

I\u2019m here to warn you about it and hopefully help keep you from the same trap.\u00a0I’ve delivered this advice as a keynote talk at a number of product conferences and events. If you want to take the learning away, feel free to help yourself to the accompanying slides\ud83d\udc47 They should help illustrate everything I cover in this piece and can help you talk through the ideas with your teams.<\/p>\n\n\n\n\n

Download the slides<\/strong><\/p>\n<\/span><\/a>\n\n\n\n

The Power of Product Discovery<\/h2>\n\n\n\n

Why is discovery so powerful?

Discovery<\/a> is at the heart of what product teams do. The very nature is to cast a wide research net to identify problems and hold back from committing to a solution. The product team then has a process of, essentially, guessing and checking to optimize to find the best solution that\u2019s cost-effective, desirable to the market, feasible to build, and valuable for the business.

It\u2019s a process that can take years, and is messy, and doesn\u2019t guarantee success by any stretch. But when it is successful, it pays off in spades.\u00a0

Contrast this with how agencies work. In an agency, a client identifies a problem for you and enlists your team to tackle the problem, and then you and your team get paid for that piece of work.\u00a0<\/p>\n\n\n

\n
\"An
What do you sell?<\/figcaption><\/figure>\n<\/div>\n\n\n

The biggest indicator of your ability to scale is to look at what it is that you actually sell, as a business.

This determines whether you\u2019re more of a product company or an agency.\u00a0<\/p>\n\n\n

\n
\"The<\/figure>\n<\/div>\n\n\n

Agencies sell their time in exchange for money. This usually takes the form of client contracts and projects.

Product companies, on the other hand, sell value that they create.\u00a0

Time is the one thing we can\u2019t create more of, it\u2019s the ultimate limited resource, and so agency-style businesses can only scale with more human resources – more people providing more of their time to the business.\u00a0

Product companies are able to create value, by investing time upfront, into a mix of products or services that can be resold again and again, without needing a directly proportionate number of humans involved to scale.\u00a0

This is why product companies can go from start-up to scale-up and grow into such enormous tech giants, and fundamentally, why agencies can\u2019t.

Now, there\u2019s absolutely no shame in building and running an agency. It\u2019s a brilliant way to make money and create purpose, solve problems, and get paid. But if you want to become a unicorn it isn’t the business model you need.<\/p>\n\n\n\n

Product companies change the world!<\/h2>\n\n\n\n

But agencies don\u2019t change the world. Product companies do! <\/p>\n\n\n

\n
\"This<\/figure>\n<\/div>\n\n\n

If you take a look at the companies storming the charts in the last decade, it\u2019s tech companies who invest in scaling the product side of their business. <\/p>\n\n\n

\n
\"A
via Suzie Prince – @pm_suzie<\/figcaption><\/figure>\n<\/div>\n\n\n

Here\u2019s a look at the S&P index, and how Netflix, Amazon, and Google are outperforming even the best of the best, with their product-minded approach.

And so, so many companies go in with this idea of building and scaling a product company, but end up in this same trap that I did in this previous job.\u00a0

Acting like an agency.

Taking on client jobs and commitments, and carving into their time that would otherwise be spent on discovery.\u00a0

And rather than take off, it can cause companies to sputter and fail.

What\u2019s going on here?<\/p>\n\n\n\n

How agencies work<\/h2>\n\n\n\n

Imagine you\u2019ve got a business, and it\u2019s got a monthly cost – let\u2019s say this is you and 3 team members. And that\u2019s you in month 1.<\/p>\n\n\n

\n
\"A
Month 1 costs, for your 3 people<\/figcaption><\/figure>\n<\/div>\n\n\n

Assuming all things equal, this is you over the following months too. Low-cost team, but still a cost.<\/p>\n\n\n

\n
\"A
Monthly ongoing costs to cover you and your team<\/figcaption><\/figure>\n<\/div>\n\n\n

Now, you can\u2019t go on spending forever, you need money. If you\u2019re setting yourself up to be an agency, then you can take on work and start selling your time. <\/p>\n\n\n

\n
\"A
Costs versus income in a very basic business model<\/figcaption><\/figure>\n<\/div>\n\n\n

If you\u2019re any good at business, you\u2019re selling your work at more than it costs you.\u00a0

Your cumulative sales go up, and your monthly profit is tidy but small.<\/p>\n\n\n

\n
\"A<\/figure>\n<\/div>\n\n\n

Okay, so you want to grow your profits? You can grow your team! Then you’ll have more time to charge out for client projects. Your profit goes up a bit. Your growth is still a stick straight line, however. There\u2019s no exponential growth in sight.\u00a0

If you wanted to be rolling in it, in this agency model, you\u2019d have to hire and manage a lot<\/em> of people.<\/p>\n\n\n\n

How product companies work<\/h2>\n\n\n\n

A product company, on the other hand, has an entirely different way of working.\u00a0

They usually start off with a group of founders, and maybe some ideas and connections, but not a lot else.\u00a0They\u2019ve got a monthly cost, but aren\u2019t selling their time in agency work. They\u2019re investing it in a product that hopefully will sell in the future.<\/p>\n\n\n

\n
\"A<\/figure>\n<\/div>\n\n\n

The cumulative sales is huge though. Once you\u2019ve got something of value that sells, the sky is the limit.\u00a0

Yes, you\u2019ll sometimes need to bring the size of your team up to support the growth, but nothing like the 1 for 1 nature you get with trying to scale an agency when you\u2019re selling project hours worked.\u00a0<\/p>\n\n\n

\n
\"A<\/figure>\n<\/div>\n\n\n

You might notice that I didn\u2019t include the profit on this diagram. That\u2019s because it\u2019s probably still way below zero.\u00a0

This is the fundamental problem with product companies and what makes them tricky. In order to get to the point of having something that sells in a scalable way like this, it can take months or years. That\u2019s months or years without getting paid. How does that work?

Well, this is why startup funding is so popular.\u00a0<\/p>\n\n\n

\n
\"The<\/figure>\n<\/div>\n\n\n

It buys your team time to figure out what the product that creates value will be, so you can survive the months until you actually generate money of your own.\u00a0

Or, if you\u2019re so lucky, maybe you have money of your own to invest in, or can live and work without a salary for a while, or have access to government grants.\u00a0

Okay, now this might seem really oversimplified, and it is, for anyone who knows their way around how startups work. But it\u2019s important to keep in mind because I\u2019ve seen even the savviest companies fall prey to this one trap.

See, there\u2019s a danger zone.\u00a0<\/p>\n\n\n

\n
\"An
Watch out for the danger zone<\/figcaption><\/figure>\n<\/div>\n\n\n

It\u2019s so much easier and faster to make instant money in an agency-style business.\u00a0

If anything ever goes wrong in the plan, or heck, sometimes all it takes is a little bit of temptation, it\u2019s easy to fall into this habit:

A client who comes to you asking for something a little bit custom. An offer of what would otherwise be a month or more of payroll in one fell swoop, and all it takes is you to stand there and say or do things that you already basically do for free for the company otherwise.

What\u2019s the harm in taking on one little project if it lines your pockets or keeps the lights on?

Because what happens, is you go from envisioning this scenario, where you\u2019re able to discover a problem, solve it well, and make lots of money before anyone turns up asking for rent…

To this scenario:<\/p>\n\n\n

\n
\"The<\/figure>\n<\/div>\n\n\n

Your initial investment ends up running short, your costs are that much higher, and it takes longer than you might imagine getting to product\/market fit. All of a sudden, you\u2019re a dollar short and a day late.

Nearly every start-up starts off with great intentions of following a scientific methodology of measuring, learning, and iterating until they\u2019ve solved the most valuable problems in the world.

But these go out the window in times of stress.

Sometimes, \u201cwhatever we need to do to get to the next round\u201d actually becomes selling time for money.<\/p>\n\n\n

\n
\"The<\/figure>\n<\/div>\n\n\n

Agency work, done by a team who has otherwise configured themselves as a product team. It solves the immediate problem at hand, which is preventing the lights from going out…<\/p>\n\n\n

\n
\"This<\/figure>\n<\/div>\n\n\n

…but it also usually means that the product work gets delayed and delayed.

Because let\u2019s admit it. Making money and cashing cheques is addictive.

After all, ideas are nothing, it\u2019s all about the execution right? That\u2019s the power of delivery.

Except that every minute of time a client buys to have you work on their problems is a minute you can\u2019t spend discovering and solving the bigger problems in the world.

There\u2019s a chance that the client happens to identify a problem that\u2019s big enough to apply to a wider market and you\u2019re able to solve it at the same time as solving for the paying client, but those chances are slim. More often than not, you\u2019re really just in delivery mode, and you haven\u2019t just magically leapfrogged months or years of discovery.\u00a0<\/p>\n\n\n\n

Signs you’re veering into Agency Mode<\/h2>\n\n\n\n

So, as someone who\u2019s been there, and has seen countless companies end up down this path, I can share some signs that your company is veering into agency mode. <\/p>\n\n\n\n

1. Sales Led Roadmap<\/h3>\n\n\n\n

The roadmap is such a telling feature of any company.\u00a0

In a discovery-led company, the roadmap should be a series of problems to solve and should facilitate the discussion of what could be solved and in what order, to fulfill the product vision.

In a sales-led organization, the roadmap looks more like this:<\/p>\n\n\n

\n
\"A<\/figure>\n<\/div>\n\n\n

This is actually my roadmap, from years ago.\u00a0

The grey areas represented discovery-led work, where we were building for the wider market and trying to find the biggest, juiciest problems in the space to solve, and the best ways to solve them.

Unfortunately, our time was dominated by the work in the green strip, what we called \u2018Enterprise\u2019 and \u2018Partner launches\u2019. These were things that we were doing to close specific deals by specific dates.\u00a0<\/p>\n\n\n

\n
\"The<\/figure>\n<\/div>\n\n\n

Sure, it got us paid that month, but look at what the cost was. For the preceding quarter, in particular, the month and a half before this roadmap was generated, we basically did nothing<\/em> to further the vision of our core product. All of our work was tied up in partner work.

And while it looked like the partner work cleared up in the future, it never did. Our salespeople were always coming back with a big grin on their face to tell us about the next thing that they\u2019d sold, only for us to find out it required work on the roadmap to make it fit. Ultimately, we didn\u2019t do a fraction of the discovery work this roadmap suggests we were going to do in the future. Ultimately, this business failed.\u00a0

A discovery-led roadmap looks entirely different. <\/p>\n\n\n

\n
\"An<\/figure>\n<\/div>\n\n\n

It\u2019s centered around business objectives to meet, like revenue or user targets, and customer problems to solve, and the product manager uses the roadmap to make sure that things are prioritized to make the most use of resources, and are spending time discovering in the most interesting and valuable problem areas first.\u00a0

It\u2019s not overrun by client commitments.<\/p>\n\n\n\n

2. A Product Manager who\u2019s actually just a Project Manager<\/h3>\n\n\n\n

Another sure sign that you\u2019re veering into agency mode is when your product manager is having to act the part of the project manager.\u00a0

A project manager\u2019s job is to gather requirements, figure out the scope of the project, and then guide the project through to completion, managing resources, milestones, delivery processes, and other constraints along the way.

I\u2019ve been in this position, where I was hired as a product manager, but found myself sat in front of clients essentially taking down a list of requirements and helping to write up quotes for custom work.

I\u2019ve spent far too much of my time breathing down the necks of development teams, trying to get estimations, and creating \u201caccurate\u201d buffers to report back to the sales team and clients.\u00a0

This was all time that I couldn\u2019t spend figuring out if there were bigger problems to solve, and how we might be the ones to solve them.<\/p>\n\n\n\n

3. Feature Factory<\/h3>\n\n\n\n

Another sign you\u2019re veering into delivery mode and out of discovery is that you\u2019ve become a feature factory.\u00a0

This one is so easy to fall into, as it starts when the company is young.\u00a0

In the early days, each new feature gets you more downloads, more press, more sales. It improves your product, measurably.<\/p>\n\n\n

\n
\"a<\/figure>\n<\/div>\n\n\n

But over time, each new feature begins to weigh you down. It doesn\u2019t give you the same boost, and you end up with a Frankenstein of a product.\u00a0

We’re addicted to our features. We can\u2019t quit the habit of building features because of the pressures from those around us.<\/p>\n\n\n\n