TL;DR
- Build a strategy for your agency that focuses on developing valuable options.
- More doesn’t equal better when it comes to options.
- You need to be able to execute on them for them to have value.
- Don’t ignore the “day in the life” aspect of your options.
Today, we’re discussing options.
Not the financial instrument but actual options. The various paths your agency can go down at a point in time. I believe the value of these options can have profound implications for the value of an agency. I also believe most agency owners, leaders, and advisors, miscalculate the value of an agency’s option pool. So, in this newsletter, I’m going to take you through how I think about designing agency strategies, valuing options, and helping agency leaders find their way.
Quality Options Make Life Easier
I’ve been helping digital agencies build growth strategies since 2015. Since then, my core service has revolved around evaluating potential paths, valuing them, and helping agency leaders build strategies to realize the best options.
We have to know where we’re going if we’re to build a plan to get there.
The endpoint of that path is decided by the owner’s personal goals for the firm. What do they want out of it – wealth, fame, opportunity? The path begins with the options the agency has available to it. When we have better options at the beginning, it’s easier to design a strategy that achieves the owner’s goals.
This is why I love working with agencies that have a decent number of quality options.
All Options Aren’t Equal
Simply having more paths doesn’t mean one shop is more valuable than another. Most people assume that generalist agencies offer more optionality. They have the ability to take on any size client in any industry and offer just about any service within the realm of digital services… usually. While this creates a ton of optionality for generalists, they don’t grow as fast or make as much as specialists.
The difference lies in the executability of their options.
Can they realize the value they’re placing on their options? For most generalist shops, the answer is no. It’s not because they’re incapable. It’s really quite the opposite. Most agency leaders are overly capable. They’d absolutely crush any one or two options, and this causes them to over-value their option pool. This restricts their ability to focus on a single path. When you spread anyone’s focus too thin, you reduce their ability to execute. This is the crux of the issue with generalist shops. Of course, it then waterfalls into issues in developing expertise, marketing, sales, staffing, and so on, but the core issue stems from a lack of focus.
So, when we think about the pool of options available to an agency, we need to understand that just because one pool has more options in it, it doesn’t necessarily mean it’s more valuable.
That sounds simple, but it’s tough to really internalize.
Valuing Options
To have value, an option must be executable. To be executable, your agency needs to have sufficient resources available to devote to that option.
Let’s get more concrete. If you’re a generalist agency who has aspirations of spinning out some internal software, you might value that option pretty highly. You might value it so highly that you build your firm in a way to ensure that option stays available. For example, you might not downsize specific talent when you should because they know the product really well.
If you never have the resources required to successfully execute an option, your strategic decisions to keep it available may have actually decreased the value of your agency.
If we look at valuing options through the lens of required resources and then layer in some idea of expected payout, we can pretty quickly quantify each path. There are plenty of resources out there these days that’ll allow you to create a fairly realistic picture of what it’ll cost to develop each of your options.
The reality though is that the value of most options is actually $0.
Be cautious about optimism here, especially when there’s ambiguity. Optimism thrives on ambiguity and agency leaders tend to be a pretty optimistic bunch.
In addition to the financial portion, evaluate the “day in the life of” aspect. Look at your example roadmaps and ask yourself seriously if you’d like to spend your days doing what’s required to get there.
This exercise is what I run through with agency leaders to narrow down and value their potential options. It’s a key component of my Agency Assessment Service. An outside perspective for this is invaluable, so seriously consider having an outside advisor help, even if it’s not me.
If you would like help with this, simply hit reply, and we’ll schedule a quick chat.
Until next time,
-Nick
