How to Start an Agency

Dear Mr. Steimle,

I come from a creative marketing/media background and recently went back to school to get my MBA degree. The final project involves creating and implementing a business plan for an integrated creative marketing agency such as MWI. I was hoping, if you have time (if not I understand) to give me some insight into your world. Since I come from a creative services background I feel I am lacking in marketing research, especially target market numbers as well as the not so obvious startup costs.

Ask a question, get an answer. Here goes…

I only know a lot about my own company, and my company and my experiences may differ greatly from those of the industry at large. But what I have experienced I’m happy to share, just don’t assume it will be the same for you.

1. Decide how much money you need to make. Many entrepreneurs make the mistake of spotting a problem, figuring out a solution, and only after they’re in business figuring out that they’re not making as much money as they need to. Start with a financial goal in mind, and then work backwards. And I don’t mean total revenues, I mean figure out how much you want to take home personally along with your business partners, if any. Would you be happy making $30K your first year or do you need $50K to maintain your lifestyle? Or would you not be interested unless you’re going to make $100K your first year? Decide what you need financially first.

2. Decide what kind of agency you want to start. Now that you know how much money you want to make, decide what agency you are going to run. Is it going to do advertising, general marketing, web design, direct marketing, or graphic design? Are you going to focus on a certain industry like home builders, retail, entertainment, or technology? The answer to this question will largely depend on what your own background is and where you have connections. If you’ve got no experience working in retail then focusing on it is going to be tough because chances are you don’t really understand the needs of retailers.

3. Go talk to agency owners and find out if you can achieve your financial goals. Once you know how much you want to make and what type of agency you want to start, go find some of those agencies and try to talk to them. This is much easier when you’re a student than when you’re a direct competitor, by the way. At this point you’re going to find out quick whether you can make as much money as you need to with your idea. If you talk to five agencies similar to the one you want to start and they all say “I worked for six years before I got out of debt” or “I didn’t take a paycheck for four years” then you might need to reconsider whether that’s really what you want to do.

4. Forget it all and go with your gut. I haven’t made much money doing what I’m doing…yet, but I don’t regret it. Sure, there are a lot of things I would do differently if I could go back and do it over again, but that’s only because I’ve been through it. I had big dreams when I started, and while they haven’t all materialized, I’ve gained more from it than I could have hoped for, and I’m still relatively young. Many of my competitors hadn’t started their agencies when they were my age, and I’ve already been doing this for seven years.

Ok, so all that said, what does it really take to start an agency? Well, there are three principal ways I’ve seen people start agencies.

1. Freelance and grow from there. Buy a computer and some software and go to it. Get small clients, do a good job, and bulid on it. When you start getting more work, start hiring contractors. When you get more work, hire a full time employee, then another, and then another, until you’ve got a fully-staffed agency. This is more or less how I started, at least my first time around.

2. Start with a big client. Spot an opportunity to do a lot of work for a big company and get them to fund your company. I’ve seen this happen several times where somebody is working for a company and they go to that company and say “Hey, how about if I leave, start an agency, and then we’ll do all your marketing work?” and somehow they’ve got the connections to make it work. Another similar way to do it is to get a job at another agency, effectively have them pay you to learn their business, and once you’ve learned enough go get your own clients and start your own agency. Your experience may allow you to start right out of the gates with some good clientele. These are two ways to jumpstart an agency. I wish I could have done either one of these but seeing as how I started my firm while I was in college I wasn’t in the right position to do it.

3. Start with a lot of money. Get someone to give you a million dollars, hire the best people you know, and then count on not making much money for 6-12 months until you’re able to build a name for your agency by doing work for free or on the cheap. This is what I tried to do the second time around, but I underestimated what constitutes “a lot of money.” When you hire a few full-time employees your burn rate can skyrocket quickly. If you lack the connections or experience to take route #2 and you don’t want to bother with #1, you just want to start big and make it work, then I’d recommend having between $500K and $2M in cash on hand, otherwise you’ll run out of money before you become profitable. Well, unless you want to take route #4.

4. Get lucky. I don’t know any good luck stories when it comes to starting an agency but I’m sure they’re out there. Stories of guys who started out freelancing and a year later had a $2M agency and six figure salaries. I’m sure it happens and those people would read my post and say “C’mon, it’s not that hard, you just jump in and it will work out,” but I haven’t met one of those people yet.