Studio shops are purely about the craft. Studio shops have a higher concentration of production team members than any other size category. Owners here are typically doing a significant amount of production work while also handling revenue generation and back office tasks. Budgets simply don’t allow for the addition of overhead that could handle most of this. In addition to budgetary limitations, adding processes, procedures, and layers of management at this early stage can be fatal. This stage’s prime advantage is it’s speed of adaptation. If the market shifts, Studio shops are often most able to course correct quickly.

At this stage, owners begin to transition out of production roles and into more managerial positions. As this happens, they bring on support to backfill their old tasks. We see this notably in the Marketing function as it was ~3% of employees for Studio shops (aka very few even had someone in that functional area) but grew to 10% of FTEs at Small shops. This is where processes, procedures, and a bit of bureaucracy become important. A founder's transition from do-it-all superhuman to manager requires structure. It's needed because it's impossible to replace a founder with someone who's also able to do it all. If they could do it all, they'd be in charge of a competing shop. 

Once a shop enters this Medium stage, the challenges shift again. The founders have a few solid managers on their team, some great production talent, and by this time, a decent idea of where they're going and how to get there. So while the challenges of adding effective processes, generating revenue, and generally keeping the ship afloat exist, probably the largest challenge becomes talent.

Attrition begins to become a problem. Onboarding is now a real thing that needs to be organized. All of a sudden the "we're all in this together" culture that got you here is breaking down and new employees just don't seem to buy in as deeply. Being able to solve the tangled ball of talent challenges and successfully replicate production causes many shops to go a bit overweight on production employees, in this case developers. They need to add in a buffer here because production becomes a bit less efficient at this stage.

On average, projects don't require as many marketers or designers as they do developers.  A standard web project will typically only have a few designers, maybe a marketer or two and then a team of developers. An app, the same thing. 

For these reasons we see Account Managers, Business Development / Salespeople, and Operations FTEs remain at similar percentages as shops go from Small to Medium. We see Designers and Marketers decrease as a percent of overall FTEs and Developers and Project Managers grow. 

We view the Medium stage as a sort of filter since most shops won't make it past. Solving the talent challenge while layering on effective policies and procedures is incredibly difficult. For those that do figure it out, the rules change yet again.

At this stage shops tend to have relatively solid processes in place that allow them to scale fairly linearly. While the talent challenge remains, it moves over a bit to make way for a new core task, sales. While it’s possible to operate a Medium shop on a steady diet of $100k projects a Large shop could quickly starve. As you’re probably well aware, securing enterprise-level projects is different from securing “smaller” projects. As size increases, complexity increase, along with the probably that you’ll need to go through a procurement process to land the project. This is one of the key reasons why we see revenue from RFPs (Request for Proposal) increase as digital firm size increases. RFPs seem to be just another cost of business.

To continue to grow, Large digital shops put a more significant focus on sales. We see this directly reflected in the percent of FTEs dedicated to Business Development / Sales positions growing by 3x from Medium sized shops. We also see this reflected in secondary-revenue generation from Account Managers growing 2x as a percent of FTEs.