How Can Agencies Avoid the Super Client Trap?
Do you have 1-2 big clients making up most of your revenue? Is the majority of your agency’s livelihood tied to just one major account? Riding the wave of a super client can be nice while it lasts but when the client leaves you will be forced to make some difficult decisions, just like today’s guest. The choices are shut down the agency or rebuild and hope for the best. Learn what he did to get through this predicament twice and how he protects his agency from it ever happening again.
Andrew Greenstein is the co-founder and Co-CEO of SF AppWorks a digital agency dedicated to exploring and harnessing new technology. With 10 years in the business with his current agency, Andrew recalls a few instances where they’d been on the precipice looking down and have managed to rebuild. In this episode, Andrew talks about ways to avoid this happening to your agency and the systems he has in place to avoid it happening to him agency again.
In this interview, we’ll discuss:
- Falling into the trap of having a “Super Client.”
- Buying your agency more time to work things out.
- Proactively preventing the super client trap.
Sponsors and Resources
E2M Solutions: Today’s episode of the Smart Agency Masterclass is sponsored by E2M Solutions, a web design and development agency that has provided white-label services for the past 10 years to agencies all over the world. Check out e2msolutions.com/smartagency and get 10% off for the first three months of service.
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Falling into the Super Client Trap
In 2008, Andrew’s first company created a music platform that grew and got to partner with MySpace before having to shut down and start over. The plan was to assemble a team of developers and designers build websites and apps for other companies. The idea was to use funds from that company to build another startup. That never happened and over ten years later that agency turned out to be their most successful startup.
In their first few years with the agency, they needed a foundational client to get things going. They that client by helping one of his friends build a marathon training app. Of course, they had other clients and made several other websites but this client accounted for most of their revenue. Once the marathon app failed to secure another round of funding and shut the project down, they were left desperately looking for a client that could replace them.
Riding the Wave and Forgetting to Develop Your Sales and Marketing
Andrew and his partner decided to go back to their day jobs and kept working on the agency in their free time. They did eventually get other clients about a year later and one of them became their next super client. They poured everything into working with this client while working alongside a larger agency. Over the next four years, they grew their team from two developers to thirty. They had enough cash flow to invest in the agency, grow their team, grow their services, and explore new areas. Life was good and they felt everything was falling into place.
However, they were growing on the back of one super client and, therefore, were not developing their own sales and marketing. Once that client shut down the project, they were left without a stable income.
When you’re riding the wave, everything is exciting and it seems like nothing can go wrong. We see this type of thing happen all the time. Maybe the agency owner is just too busy with all the growth and doesn’t consider “maybe we have too much revenue tied to this client”.
Like Andrew, you may be aware your agency is too reliant on a client but there’s just no sense of urgency to remedy the situation. However, when the moment came, he wondered why he didn’t prepare more aggressively. In the battle between urgent and important work, they had spent all their time working on the urgent and not enough on the critical task of diversifying.
Buying Yourself Time So Things Can Work Themselves Out
History repeated itself and the first decision they needed to make was what to do with a decent-sized amount of money they had in the bank. Should they just shut down the agency and walk away with the profit? Or take that money, reinvest it, and hope it worked out?
Because they loved their team, they decided to try to figure it out and came up with two strategies to keep the agency alive:
- First, they really needed to work on marketing and sales to attract and convert new clients as quickly as possible. They hired an agency to help them with sales outreach.
- They also decided to use their human resources to build an internal startup to go the investor route after six months.
Neither of these plans worked.
In retrospect, Andrew sees that sales outreach is a mixed bag and an aggressive way to get clients. If you happen to get some clients with the right message at the right time, it can work. One introduction can lead to a long relationship, especially in the software business. However, it takes a time to build it.
In the end, what did work was a hybrid of both plans. They needed to buy time to let things happen. The longer you can stay alive, the longer you give yourself the opportunity for something to happen.
For example, people that left the super client’s failed project ended up in new jobs and started calling on them. Indirectly one failed super client led them to four or five new clients. Since they had kept the team on standby, they had the resources ready and could reengage to build new relationships.
Should You Let People Go When Cash Flow is Tight?
Andrew says logically, the right call in a super client trap is laying off part of your team. Keeping his staff on standby waiting for something else to come up was definitely a coin flip. Fortunately, it happened to work out. However, he advises anyone in the same position to reduce their team.
It’s hard, but it’s usually better for your team in the long run so they don’t lose other opportunities. He learned this the hard way when he waited too long to make the right decision and let some people go. The experience has helped him reshape his values of communication and transparency.
Proactively Preventing the Super Client Trap
Today SF Appworks is more proactive about preventing the super client trap. They look at their clients, revenue, and expected contract end dates every week and strategize around it. They meet and focused on risks, biggest client that is most likely to end their contract, and the second largest client that may grow.
When they do lose a client they immediately consider how many more clients they can afford to lose and become proactive in figuring out solutions.
Admid growth, like everyone the pandemic caused more strain on the agency. They ended up waiting it out and eventually began to grow again.
Their approach now is to consider: “Can we buy ourselves more time?”
“What do I need to prepare for next?”
“Are we giving enough time to the problem?”
Their philosophy revolves around being patient and allowing enough time to figure out the situation at hand.
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