Six lessons agencies can learn from software companies

Who would start a research agency these days?

If you’re thinking about doing it in the UK, make sure you read the latest Plimsoll report into the sector first.

It’s a sobering read.

It is based on financial analysis of the 720 largest market research firms in the country.

If that stat by itself doesn’t give you pause, then these will:

  • 400 of those 720 make no money: their average net margins are -0.2%.
  • Net margins for the industry as a whole are 4%; you’ll need to sell a LOT of projects to pay off that mortgage early.
  • One third of companies in the sector are rated as danger or caution – a strong indicator that they will go under within the next 2 years.

No wonder clients get frustrated at the lack of commercial bite from their research agencies: many seem to be run more like hobbies than engines of growth.

Of course, much of this is driven by technology: new sources of data, new tools to get things done faster and cheaper.

But this has created a systemic problem for agencies that is especially acute in the UK: overcapacity, terrible margins, massive price pressure, unsustainable low-balling on costs, any revenue prioritised over good revenue just to keep the lights on for another month.

Depressed yet?

Don’t be. It’s OK. Stay with me.

The demand side of the industry is convulsing just as much as the supply side: clients are changing fast, they’re being disrupted by technology just like agencies; and they’re desperate for fresh approaches.

Opportunity is everywhere, and there are some fantastic high margin agencies out there doing very well.

Just over 100 of them grew their enterprise value by more than 50% in the last year.

And some are being acquired for healthy premiums by management consultants – and believe me, they know how to do their due diligence. They’re not buying basket cases.

So if you think there is white space for a new agency, you’re right.

But don’t build it like you would have 10 or even 5 years ago.

Learn from today’s most successful businesses – tech firms – and steal from their playbook.

Having worked both sides of the fence, here are six practical suggestions that agencies – existing or new – can take from the world of software and technology.

1. Be a Teacher

No – I’m not saying give it all up to work in a primary school. I know people who have. The grass isn’t always greener.

I’m talking about technology companies who have become teaching organisations. B2B buyers now make 60% of their purchase decisions before they even speak to a vendor. Buyers conduct research online and educate themselves with free content.

Tech companies provide extensive pre-sales materials via their blogs and social outlets (short form articles, ebooks, white papers, how-to guides … ). They educate prospects, convert them to leads, and nurture them until – one day – they become customers.

These companies know they compete for attention with everything in their category and beyond.

It is rare to find an agency with the same commitment to educational content marketing. Most still run business development around existing relationships, lunch, asking to be considered for RFPs and waiting to be invited. Occasionally, they present a client case study at an annual conference (to an audience of other agencies) or take a stand The Insight Show.

For the cost of that booth, you could create  5 or 6 high quality pieces of original content – articles, white papers, e-books – to help build an audience, capture leads and drive your long term sales pipeline.

Practical tips 

Get to grips with the basics of content and inbound marketing (the Hubspot and Marketo blogs are good places to start).

Read The Challenger Sale and get to grips with the concept of insight-led selling. Clients really want you to educate them.

And get your segmentation right: create two or three simple customer personas, build a content plan to educate them on problems you might one day help them with. Build a calendar. Set some clear goals to measure success. And start educating.

2. Sell Products

Software companies sell tangible things. Things that do a specific job, things with clear inputs and outputs that you can see on your screen and play with before you buy.

Agencies rarely build tangible things. Most offer capabilities or methodologies. For many ad hoc agencies, productising means simplifying, dumbing down, stripping out nuance. But ad hoc service propositions are hard to sell, get re-invented each time and have limited scope for efficiency gains.

Good product, on the other hand, drives scalability, stickiness and – done right – increasing margin over time.

Most agencies could turn some aspects of their work into standardised, easy-to-understand solutions. They don’t need to be world-beating. They just need to start by gaining a few customers, delivering good learning and adapting on the fly.

Practical tips

If you’re an existing agency, look back over your last 20 projects.

Pick two or three themes where you can credibly offer a simple, standardised version. Sketch out the inputs, process and deliverables, and then sound out a handful of clients. Build it with them, using lean startup principles. Get your MVP in the hands of a few more clients, learn from their response and refine on the fly.

In these early stages, agencies even have the advantage over software companies. They have well-trained people to do stuff ‘behind the curtain’, without throwing money at developers from the start. Call it vapourware if you like. But plenty of successful product companies started out with people delivering ‘fake software’ like this.

3. Reveal your Pricing 

Most B2B software tools now have transparent pricing.

Providers who don’t reveal pricing on their site or in their app are increasingly the exception. Buyers expect it, and many will rule a vendor out of contention if they feel pricing is hidden or needs a phone call to find it out.

The 3 or 4 tier freemium model is well established; and so is the assumption that ‘enterprise’ pricing will be custom. This transparency has raised expectations that costs will be easy to find out early in the process. Before long, this will transfer to other categories, including professional service providers.

Price transparency will hit most sectors of the economy over the next decade. As software solutions increasingly compete with professional services, price-shy vendors will be at a disadvantage.

So far, barely any professional services providers have adopted this approach.

Research agencies are no exception. For years, procurement teams have tried to wring cost metrics out of agencies: hourly rates, cost per interview, cost per group. Agencies, understandably, have resisted. These unit comparisons drive towards commodity purchasing and lower margins.

But agencies will have to find smarter ways to get on the front foot with pricing – or risk losing those buyers who demand to see it up front. In the future, agencies who don’t reveal some elements of pricing will be suspected of having something to hide.

Practical tips 

As you develop a few standardised product offerings, make sure you build tiered pricing structures for each of them.

Pick a bare bones offer with entry level pricing and enough restrictions that it contains your risk. Have some solutions ’starting from $x’ with a minimum price point. Have ‘enterprise’ or custom pricing as the get-out-of-jail card, to avoid being boxed in.

Being early to market with an open pricing approach will build trust and spook your competitors.

4. Drive Sales

Tech companies have a completely different investment curve and cost base to agencies.

They need up-front funding to build a product before it can generate revenue. They have on-going development costs to improve the product once it is in market. And they have sales costs that – as a share of total expenses – dwarf what an agency will spend.

Tech sales processes are highly structured: content marketing drives inbound leads; good leads become marketing qualified, are passed to inside sales teams and qualified further; some will become opportunities and move through a structured process to be closed by outside sales reps.

The process is clear to everyone; it is supported by sales automation and CRM platforms; and pipelines are forecast with a high degree of confidence.

Agencies typically build on a lower-risk, talent-centric model: selling a project requires little up-front investment beyond the proposal and pitch itself. It is rare for an agency to employ a full time sales professional, or to use a CRM system for much beyond contact management.

In fact, for many agencies, sales is dirty word: it is called Business Development, New Business or Account Growth. This is not without reason: in Europe, most buyers of professional services don’t like being sold to by professional sales people. They want to buy from people who actually deliver value after the sale closes.

But it doesn’t change the fact that agencies who want to survive and grow will need to adopt a more disciplined sales focus, process and team.

Practical tips

Align everyone in the business around the simple truth that if the business doesn’t grow, it doesn’t survive.

If you’re an established agency, hire in professional sales skills to run the process – even if you need your senior client staff to own the content (writing proposals, pitching, closing).

Build a clear sales plan with 1, 3 and 5 year horizons. Call it a sales plan.

CRM works, so put a simple system in place (trial a few with free tiers … pipedriveinsightly and hubspot are all easy to play with if a big beast salesforce is too complex / pricey). Use it to track every contact, lead, opportunity, deal and project.

Automate whatever you can. Over time, you’ll see the stress that comes from that sell / deliver rollercoaster start to recede. Pipeline forecasts will become more reliable. And you’ll be much clearer about where to invest.

5. Measure Everything 

Software companies are data obsessed: reach, engagement, visitors, leads, opportunities, conversions, average deal size, growth rates, ratios, everything as a function of everything else …

OK, so it’s not always such a positive thing. A crap idea well measured often gets priority over a good idea with fuzzier outcomes; KPI tyranny drives the wrong behaviours, encouraging people to game the system; and dashboard mania leads to the techno-terror of nine screens on every desk.

But just as one crap salesforce rollout doesn’t make all CRM systems the devil, a bad experience with metrics earlier in your career shouldn’t stop you measuring your agency performance properly.

Many agencies don’t even document the metrics that bring more intelligence to planning. How many leads do we have? How many clients? How many opportunities at each stage of the pipeline? How old is each deal? What is the average spend per client? How many do we need at the top of the funnel to hit our targets? How do we drive more conversion?

Practical tips

Once you have a CRM system in place, make it the single version of the truth.

Only accept analysis if it comes out of the system. Run weekly reports to find the data gaps. Analyse the relationships between all your KPIs. Enforce compliance, and have real consequences for the team if they don’t document things properly.

Love.Your. Numbers.

6. Automate Everywhere

Software makes you fat and lazy. If you sit for days binging on Netflix, ordering takeaway through Just Eat and simulating human contact with Snapchat.

Or it makes you fit and lean if you track your workouts, log your calories and submit to the tyrant in your pocket and on your wrist.

Either way, all this is only possible because software automates things. Once it is written and plumbed in, tasks happen at near zero incremental effort or cost.

Software companies approach their own business operations with the same automation philosophy they build into their products. Why have a sales person talk to a low-value prospect when they can serve themselves online? Why have a big support team when a chatbot can handle 80% of queries? Why recreate excel analysis and powerpoint reports when you can run the data straight from source into an online dashboard?

Most agencies have dozens of online tools and systems; but many processes still follow offline workflows.

Data gets moved between systems by people: from Word documents to online survey scripts. From databases to printed tables. From numbers in a PDF to charts in PowerPoint. It costs more, takes longer, and is more likely to go wrong.

If you’re starting a research agency now, you need to embed an automation mindset.

There are now hundreds of apps and tools that take cost, time and error out of research – for qualitative as well as quant. Automation should be everyone’s default start point.

Practical tips

Explore the Insight Platforms directory on this site to find tools to make your life easier, take out cost and deliver faster.

Check out integration tools like Zapier that can tie different apps together.

And if you’re an established agency, be ruthless in surfacing the pain you didn’t realise you were living with: over a one month period, have everyone in the agency write down each time they copy information from one place to another. Consolidate the list, find the themes, and set targets to reduce.

This is the philosophy that will underpin tomorrow’s successful agencies: take out pointless cost, increase your margins today because they will only be under more pressure tomorrow; invest the extra you make now in building resilience for the future.

In a nutshell

Here’ the blueprint building or re-modelling your research agency using tech company principles:

  1. Create an educational content marketing plan to teach your customers and prospects something of value.
  2. Transform some of your professional service offerings into products or solutions that area easier to buy.
  3. Be more transparent with some of your pricing – do it right and it will add far more value than it puts at risk.
  4. Build a professional sales process, team and platform to increase the predictability of your pipeline.
  5. Be disciplined in running the business on a CRM platform to deliver more consistent performance metrics.
  6. Attack your inefficiencies with software so your team goes home earlier, your clients are happier and you make more money.

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