When to let go of your Agency

The Toughest Decision

I’m not saying you have to ditch your agency in order to launch a SaaS. But I am unequivocally saying if you really want your SaaS to fly, it’s not going to happen whilst your SaaS is your side project.

For many (but not all), that means making a decision at some point that you are going to make your product your main thing. A lot of people I talk to want that to ultimately be the case, but they’re not sure how to get there and what the magic sign is that it’s time to make the switch. Unfortunately, there is no magic sign and even when (or if) you do, there will probably be that nagging doubt at least for a while.

In my case, we knew we were at the point of no return when our first VC investor demanded that we sign a side letter that said if we hadn’t sold our agency (as was our plan) by the time he put his money in, then we would shut it down. At that point, our SaaS was doing about $250k in ARR. A lot less than our agency. But the growth trajectory was good and we were about to get more money in our bank account than we’d ever had before and so the thought that our SaaS was now our future wasn’t too terrifying.

And while there is a risk of putting all of your eggs in one basket too early, there’s also a risk in going too late. Running two things at the same time will always mean both things will be sub par. Leaving your SaaS to languish in its sandpit could just kill it off before it’s had a chance to spread its wings. I saw this time and time again with our own side projects. We launched 15 in total. A few did OK and got to around $30k in monthly revenue but they plateaued there and then started to contract. Why? Because scaling a product business takes a lot of effort. It won’t just blow up on it’s own.

If you’re wrestling with these thoughts and not sure where to go, here are some insights around the types of signals you may want to monitor.

1. Product Validation and Serviceable Market

Before you go doing anything that involves a radical shift in direction, you absolutely have to validate the product idea. You definitely don’t want to make any rash decisions based on a gut feel. Believe me, been there and done that and it’s just stupid.

Validating your idea is about asking the right questions and being honest with yourself about where it leaves you. I wrote more about this here.

As well as asking yourself and your potential clients about the scope of the need you think you will be solving, you also have to be realistic about the size of the opportunity. If the SOM, or Serviceable Obtainable Market isn’t particularly exciting, you may have a brilliant product, but your ability to scale and your ability to command a decent valuation when/if you sell are going to be restricted.

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Don’t ignore this. As entrepreneurs we like to think that if we feel something ‘should have a massive appeal’ then that’s often good enough for us to invest months and $$$$s working out whether we were right or not. Gut feel has probably got you a long way, but don’t rely on gastro-intestinal superstition when the real answers are out there for free. Read my piece on product validation and do some research on your TAM/SAM/SOM.

2. Financial Health and Stability

This is the most obvious one and, and if you’ve successfully run an agency for a while you’re not about to do anything crazy where you run out of money on the back of a fantasy business dream. But it’s worth thinking it through. Do you have enough money saved for you and your co-founders if you have them, either personally or in the business, to sustain yourselves if things get worse before they get better?

Are you prepared to invest a finite amount to reach a key milestone? If you get there, what would you need to do next? Can you afford to keep bootstrapping it, or is that the tome when you would get investment from somewhere else?

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I really try and get people to work out realistically what they need to get them to the first milestone: and what that milestone will look like. Let’s say that milestone is $100k in Annual Recurring Revenue and it’s going to cost you $200k to get there. Where is that money coming from and what happens next?

Breaking things down like this really help take the fear out of what can sometimes feel like a bottomless pit of investment with no clear path out of it.

3. Product Traction and Potential

Is there an obvious point where your product has enough traction that you can throw caution to the wind and jump in with both feet? I gave the example above when we were at around $250k and we had to sign a side letter. But it wasn’t just about the monthly income, it was also about the traction. We were growing at around 20% a month at that point and so, even factoring in some ‘growth persistence’ I could see where we were heading and that gave me a lot of confidence.

This graph shows revenue where you grow in month one at 20% from a starting point of $20k with a monthly growth persistence of 98%. I didn’t know whether this would be accurate for us, but I could see that our best interests were served doubling down on this.

Another example is 37Signals who wanted to try and sell their product, Basecamp as a SaaS alongside their agency. They figured that if they could get it to $5,000 Monthly Recurring Revenue ($60k Annual Recurring Revenue) after a year, then they would consider it a success. It actually took them three months. After a year, Basecamp was generating more revenue than the agency side of the business and so they made the decision to stop taking on client work and instead focus full time on Basecamp.

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Obviously it helps if your agency is small to begin with, as the opportunity cost is less to contend with. Ours was only doing about $1.5m and so we had a lower bar to reach. My advice would be to work out what you need to give you that reassurance and aim for that. As with my earlier point, if you can figure out what that number looks like by forecasting both costs and revenues and assign some sort of traction target. If you look like you’re heading there, maybe it’s time to start working out your plans.

If you’re agency is doing a couple of million and you are only ready to jump ship once your SaaS hits the same number, I suspect you will find it hard, or at least it will slow you down.

4. Resource Allocation and Focus

With us, we’d had a couple of side projects that had done OK: one we sold to a Private Equity company and one we’d got investment for and hired a CEO. In both cases, I’d offered to spend a day a week helping them as part of the deal. I charged them a fee so the agency wasn’t funding my time, but it was a massive distraction. At the same time I was trying to sell the agency and we were working on an early iteration of ScreenCloud. I was spread so thin that I was basically doing a terrible job on everything.

If this sounds like you, know that it will never get better, it will only get worse. Unless you do something radical.

If you’re at this point you are probably realising that you are holding everything back. I remember (pre-ScreenCloud) noticing that if our agency sales were starting to dip somehow if I worked harder, worked longer hours they would start to pick up again. Can’t put my finger on what specifically I did each time, but just spending all of my energy on winning more work translated into winning more work.

It’s the same with product. When we were all able to devote 100% of our time to our SaaS, it really began to take off.

Action
Take an honest look at whether your agency and your product are being held back by your lack of focus. If it doesn’t have an impact right now because you are still really early on with the product and you still have some basic work to do (launching your MVP or getting your first ten unaffiliated customers), then there’s no need to do anything yet. But if you can see that you are well on your way to a $1m in ARR and you’re still spinning multiple plates, then the time is right to have an honest conversation about what the next few years look like.

5. Emotional Readiness and Commitment

Let’s be honest: it’s not just about the money. It never is. If you’ve built something up from scratch and it’s been the thing that has sustained you and your loved ones for years, then changing that is never going to just be the result of a spreadsheet that concludes your financial future would be better served doing something else.

But sometimes it’s time to let go. Some agency owners I speak to who are embarking on the product route see their futures as being product only and some would rather have both. I don’t see one as right or wrong, but I also don’t see much evidence of significant scale of products where they are a side project of an agency. But at the end of the day, it’s a personal choice:

• Are you emotionally prepared to let go of your agency, an entity you’ve built over several years, to pursue a new path with your product?

• Is your conviction in the product's potential compared to the security and familiarity of running your agency, high enough for you to make the switch?

• Do you have a clear vision and passion for the product that outweighs your attachment to the agency?

For us, the answer to all of these questions was ‘yes’. Not necessarily right at the beginning, but at some point (and maybe at different points for each of us), it became clear.

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If your answer is a clear ‘yes’ or ‘no’ to these questions, then you know what you need to do. If it’s more of a ‘yes, kind of but not completely’ then maybe you need to sit with it a bit longer and work out what you need to do to feel an unequivocal ‘yes’ and then work towards that.

6. Support System

OK, I have to do a bit of a plug for myself here. But do you have a support network of useful mentors, advisors, or industry contacts who can help guide you through the transition?

The trouble is that there are hundreds of people who say they can help you in one way or another. But I’m the only one I know who has done exactly this, come out on the other side AND specifically looking to help others do the same thing.

Working with me (or someone like me) helps remove the guesswork out of a lot of this. Having someone acting as a third party with no vested interest other than what’s best for the company, I’ve been told, is super helpful. It certainly would have been for us when we were at the beginning of our journey.

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Why try and work out what paths to take via trial and error when you can work with experienced people who can help? Spend some time assessing what help is out there and take a view about the cost vs the potential upside of getting it right.