I didn’t want to write this post.

Feel stupid for publishing it.

Would rather let the work speak for itself.

But these posts do have their place. Mostly to show you’re not shit. Even though your DIY website makes it seem like you are. (Guilty.)

So I’d thought we’d take a different route.

Instead of rambling for a few thousand words about how awesome, intelligent, and handsome I am (all true), let’s flip the script. We have done a lot of good things. You don’t grow that fast in a short amount of time if you don’t.

However, hopefully admitting some of the many, many, many, many, many, many, many, many, many, many, many, many, many, many, many, many, many, many, many, many, many, many, many, many, many, many, many, many, many, many, many, many, mistakes I’ve made will make this sound slightly less douchey.

Especially, when we start dealing with the not-so P.C. issues that people typically like to sweep under the rug.

Oh. And if you need pictures? Go buy a Dr. Seuss book.

Because hopefully the takeaways here are the painful lessons you normally have to learn the hard way.

➊  Moving too slowly

➋  Compromising quality

➌  Undercapitalization

Too easy to start new engagements

➎  Overestimating new people

Not getting out of the day-to-day ASAP

➐  Firing too slowly


1. Moving too slowly

$70k in about a year sounds good on paper. Seems like a decent go.

But this isn’t my first rodeo.

Before restructuring and doubling-down, we used to do the same generic services for the same generic companies. And had generic revenues to go with it. For more years than I can count. Not just because I suck at math. But because we’re talking MANY years.

The biggest problem in most new companies is positioning.

But the second? Pace. Urgency.

Here’s why.

Each week seems like an uphill battle. Tax issues, state regulatory bullshit, operations issues, payment delays, and more all conspire against you to slow the real stuff — the actual money-making stuff — down to a crawl. The simplest things can take hours to deal with, and a disaster lurks behind every corner that could ruin you by week’s end.

Just hire a few more people and problems solved, right? Wrong.

Adding more people to the mix only slows things down further. Yes, good people are amazing. But it takes awhile to find them (see #7 below). And the more people on a particular project or campaign or task, the longer it takes to accomplish.

That’s not even the worst of it, though.

Operational complexity balloons and payroll mushrooms. Which means you need to keep feeding the beast. Which means you need to start planning much longer out, because stuff done today won’t actually hit your top line until ~30-90 days from now (at the earliest).

The only potential antidote I’ve found to combat all of these issues is speed.

agency mistakes - speed to overcome momentum

Get. More. Shit. Done. In. Less. Time.

Then. Get. More. Shit. Done.

That’s easy for the owner or founder. They see the payroll. They see the mounting expenses. They live with the anxiety.

The tricky part is finding others with the same innate drive. People who can run through brick walls with you. And not make excuses when things look and seem and feel hard. (Because everything is hard initially. Every day is hard.)

Speed is the only antidote. It means delivering results faster. Turning deliverables around faster. Getting back to clients faster.

Yes, it sucks. No, work/life balance doesn’t exist. But you need to get over that hump from 1-3 people to 7-9 with a real infrastructure that can sustain itself.

(Preferably, before the President sends the economy into a tailspin by kicking off WWIII.)

2. Compromising quality

The Rock makes $22 million+ per movie. Plus back-end profits.

Actors like George Clooney or Julia Roberts or Will Smith haven’t made that much since the late 90s.

Is The Rock as good of an actor as anyone in that above sentence? Not even close.

Is The Rock the most charismatic big-budget action star in the world? Without a doubt.

First lesson here is positioning.

The second is that those at the top of the market get rewarded exponentially better than everyone else.

Doesn’t matter which industry you look at, or which line of work. Hell — the same even holds true for SERPs where positions 1-3 get ~80%+ of the results.

However, there’s an underlying reason quality drops which most service companies can relate:

Undercharging.

Everything’s connected. It’s like a black hole to bankruptcy. You charge less, so you have to staff with less, so you deliver less.

But I’m not just talking about undercharging at the bottom of the market. That’s obvious.

You can also undercharge at the top of the market, too. To a point where even $500/article (which sounds middle of the park for most), isn’t nearly high enough.

Example:

We were working with a best-in-class client who rightfully wanted best-in-class content.

The problem? We were only charging them upper-range prices instead of best-in-class ones to match.

The net result was decent quality, a 7/10, instead of the 10/10 they were seeking. However, because we weren’t charging for 10/10, we were only able to afford staffing them with 7/10 writers.

Otherwise, the margins didn’t make sense.

Agency mistakes - undercharging shrinks your margin

Take a wild guess at what happened? After a few months, quality wasn’t reaching 10/10, and we lost the client.

“Quality” means many different things to many different clients. Probably not what most service companies think it is, though. “Quality” doesn’t necessarily mean pixel perfect.

The goal is to find out how they, not you, define it. Then exceed those things. And then charge them a lot for it.

Because at the end of the day it’s in their best interest to pay more.

It means you can sustainably deliver the best, so they can get the best results, that make your investment seem paltry in return.

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3. Undercapitalization

SaaS products are notoriously capital intensive. A ~6-12 month breakeven period on a customer is considered pretty good.

But the same issue plays out in service companies. At much bigger dollar amounts. Without the luxury of dipping into some frothy seed-stage market.

<rant>

Service companies, despite what many people apparently think, aren’t banks. We don’t make money through lending.

And waiting to bill (or collect) after services are rendered creates a lose-lose for everyone.

‘Delivering the best’ usually means hiring in-house people so you can train and grow. It allows you to deliver better quality at faster speeds. (Nailing both #1 & #2 above.)

The problem is that Net 30 doesn’t actually mean 30 days. It’s more like 60. Or in my experience, 90.

Which means you have to fund ~45-60 days worth of expenses until eventually, one day, sometime in the future, hopefully, fingers crossed, collect.

Any negative cash-flow position is bad. Even if you’re still charging a premium.

Agency Mistakes - negative cash flow can kill you

Because when Enterprise, Inc. doesn’t even meet their own Net 30 terms that you’ve been counting and budgeting for and promising people…

You’re fucked.

Sorry for the Big-Boy language. But the truth hurts sometimes.

Friendly Company, Co. is 90 days late, despite it only taking around 60-seconds to swipe a credit card that amounts to what they spend on cold brew every month. And you’re left scrambling, trying to figure out how to keep the lights on and keep paying the people who are doing the actual work for the company that is 90 days late on payment for work done last quarter.

Yet, this scenario happens all the time.

Small companies with tight cash flow might drop off the radar at any given point. But the bigger the company, the worse at paying bills on time.

So you need to (1) charge them a ton to make up for it, and (2) have a Plan B in place for when (not if) they can’t figure out how to pay you on time according to their own contract they wrote.

</rant>

Plan for it. ‘Cause it’s going to happen. You need backup plans to your backup plans. And then any additional cost you incur should be passed back to them in the form of higher fees.

4. Making it too easy to start new engagements

New employees help you make money.

… 90+ days after being hired.

Factor in the usual onboarding, plus everything you spent (hard + soft costs) in sourcing, recruiting, and vetting new hires, and you’ll quickly see just how upside down you are in those first few months.

(Employees: Watch Wil Reynolds break down the math, and how that relates to your own compensation.)

Most business owners understand this to a certain degree.

But what’s less obvious is that new clients are also unprofitable at first.

We tend to focus on the positives. New client. New deal. New invoice.

However, we don’t always take into account all the promotion and sales and brand building it took to acquire them in the first place. That means you’re yet again fronting massive amounts of cash, to hopefully, one day, sometime, generate new leads in the future.

Agency Mistakes - fronting massive amounts of cash

What does all this mean?

Making it too easy for prospects to ‘try you out’ only digs a deeper hole for yourself.

When you’re established and have bathtubs overflowing with cash and you can use it as a competitive advantage, it’s incredibly shrewd.

But when you’re trying to reach breakeven? It’s not.

[Mini-lesson within a lesson: ‘Breakeven’ doesn’t = enough to cover 1-3 peeps. Breakeven = enough to cover enough peeps to deliver awesome quality, as quickly as possible. Which is closer to ~8+ peeps.]

Here’s some of the mistakes we’ve previously made, all at the same time, like a perfect shit storm of stupidity:

❌ Not charging (something, anything) upfront

❌ Scheduling too much ‘free’ work within a certain time period

❌ And not scheduling the ‘free’ work all at the same time when your ‘paid’ work naturally ebbs.

You know what happens when you do this?

You overcommit to unqualified leads, spend money you don’t have on stuff you shouldn’t, all while lowering the quality of all your paid work by creating a massive (entirely avoidable) distraction.

5. Overestimating new people

Society teaches you to “look at the bright side” and “value all people equally” and “be optimistic about what others can contribute.”

All of those things are great. I hope to reach that level of Zen Master one day.

Because if there’s anything I’ve learned, you should vastly underestimate people (at least initially).

We test new writers the same way most clients do: Test articles.

And one lesson we’ve seen after reviewing over 2,000 writers is that most people vastly overestimate their own ability and experience. While also underestimating your admittedly-high requirements.

So if you take them at face value, without throwing a ton of hoops in their way, you’ll have inappropriately-high forecasts for their early production.

(Read: You think you’ll be able to make money on their work faster than you will.)

This problem is only exacerbated when you piggyback it on top of the last few mistakes listed above.

The only realistic solutions I’ve found include:

✅ Immediately discount their ability and experience. People with the “most experience” are often the worst offenders. (Don’t worry. They’ll become immediately obvious when they hit you over the head with their “experience” every time you talk to them.)

✅ Plan for them doing only ~25-50% of the amount of work they think they can confidently start on. 

✅ Then plan for them taking 2-3 times longer than your existing people to actually take that work over the finish line. Which means…

✅ They’re going to cost you more money for awhile until hopefully, some day, fingers crossed, you don’t have to kick them to the curb (see #7 below).

Agency Mistakes - new employees are less productive than existing ones

You think I’m over-exaggerating. I wish I were.

6. Not getting out of the day to day ASAP

Earlier, we defined ‘breakeven’ as closer to 8+ people.

That will give you the solid foundation to build upon.

And it means the owner or founder won’t be slogging away, day after day, in the day to day.

The hard part is getting to this point.

In the meantime, you’re running around like a headless chicken, following up on invoices one minute, and banging out client work the next.

Little-to-no time is left for the ‘long-term’ stuff that’s also the important stuff, like brand building or finally getting around to updating your terrible website. (Guilty again.)

Agency Mistakes - doing too much urgent stuff and leaving no time for the important stuff

It’s a Catch-22, though.

In the early going, cash is tight. You probably can’t afford the senior-level talent it’s going to require for you to truly step out of the day-to-day.

So step out too soon and it can be counterproductive. The ‘work’ is being performed by less experienced, less talented people, and the quality won’t be anywhere near your own expectations.

Plus, there’s one other thing:

Why on Earth would anyone who’s remotely talented at what they do risk everything to join your fledgling idea?

Put money aside for a second. Let’s assume you could afford them. (Even though, on paper, you probably can’t or shouldn’t.)

Why should they join you? 

Good people are surprisingly rare. Which means good people have options. Which means they don’t need you.

The faster the founder can get to sales, strategy, and systematizing, the better.

But getting to that point, with an awesome surrounding cast who can perform as good or better than the founder, is probably the hardest checkpoint to pass through.

7. Firing too slowly

We’ve saved the best for last.

This is going to sound incredibly harsh. But there’s a reason if you read to the end.

If accomplishing #6 is the toughest thing to do in a new service company, it means you need to take on as much work as humanely possible, as fast as possible, to cross that line.

However, as you probably already know, this approach also dooms you.

You take clients you shouldn’t. You take projects you shouldn’t. You sell services you shouldn’t. And then you need to hire, ASAP, people you shouldn’t.

The trick is getting the balance right.

Ideally, you shouldn’t hire anyone who isn’t a perfect fit. Which means you can’t be ‘forced’ to hire. And you can’t be ‘forced’ to pick between a dozen people when you should have looked at a hundred.

You should take your sweet-ass time to make a decision. And then when you know you’ve made it, move like a thief in the night to lock them up before they find something else. (Made this mistake, too.)

Good people are incredibly hard to find. And retain.

Based on a super-statistically-accurate survey (my opinion), like 1% of the workforce is amazing. That leaves like 9% who fall into what could be charitably characterized as “meh.” Leaving 90% to be deemed “terrible.”

“Terrible” meaning they think just showing up is good enough. Not reading or following basic instructions a second grader could comprehend. Giving you bullshit excuses for why they couldn’t do what they said they could do like we’re all back in high school again. Then, actually getting offended and belligerent like a spoiled adolescent when you call them on their bullshit.

Truthfully, you could give or take a few percentage points on those ranges. But business owners will empathize.

The warning signs pop up early if you know what you’re looking for. And within a few weeks, the writing’s on the wall.

Yet, instead of doing the right thing and ripping off the band-aid, you persist. You try to talk to them, coach them, cajole them. You feel like an asshole, but just as importantly, you feel like an idiot for making the same mistake again.

Plus, you’ve already sold the work! So you need production. At (almost) any cost.

But again, this only digs you a deeper hole in the long run. It burns cash you don’t have, jeopardizes quality you’re already struggling to maintain, and pushes out timelines you can’t afford to push out (’cause it holds up the next payment).

Your limited resources are never enough when there are hundreds of things you should be spending money on to grow a company. So you can’t afford to squander them on bad decisions because you don’t want to hurt somebody’s feelings or feel like an idiot.

Now, here’s the thing. I’m not just referring to new hires.

This applies to clients, too.

Hiring issues often come back to taking on work that’s not right, from clients you don’t like, with a scope that keeps growing and growing and growing like a hideously-unfunny Energizer Bunny.

Which means you need MOAR people to do it. Which places you at greater risk of making one of these classic mistakes.

Until, you say enough is enough.

Turn the tables for a second. If our quality dropped, consistently, we’d be fired. Rightfully so. Well, client services are a two-way street.

In the past year, I’ve done something I’ve never done before. Not just avoid bad prospects from the beginning. But also purposefully firing clients.

These are companies willing to pay us good money. Good people in many cases. But the work no longer made sense, for one reason or another. And we willingly stopped accepting it, parting ways before one of you tells the other party to politely go F-themselves.

And you know what?

I’ve never regretted it.

Agency Mistakes - too many low paying clients

In fact, now, I’m actively looking for clients to stop working with. Literally eyeing the bottom 10% of our client roster, just waiting for them to slip up.

Sound like an asshole? Maybe.

But the less bad work we do for other people frees us up to do good work for the good people. 

We have some amazing clients. You can probably tell by now that I’m not one to beat around the bush. I’m not being insincere when I say that I feel lucky and fortunate to work with them. The hundreds of terrible clients over the past ~8 years of self employment has taught me to appreciate what I have. Same feelings apply to the people I work with on our team.

Which means purposefully culling the bottom feeders stresses our already-limited resources less, so we can put them behind the clients that do care. That do matter. That do push for excellence. (And that do pay on time.)

Conclusion

Running a company sounds like fun. Seems romantic.

However, those who’ve done it will beg to differ.

It’s exhausting like 90% of the time. Terrible like 9% of the time. I still work 10x more, stress 10x more, yet pay myself like 50% of what a cushy corporate gig might provide.

But that 1% of the time when everything clicks? It’s magical.

It makes all the other bullshit worth it. The staring at the clock as it ticks by 3am for another night in a row. The difficult money conversations with your spouse. Explaining to your kids why daddy “works all the time.” The hiring (and then firing) the wrong people.

Growing a company to $70k MRR isn’t easy. Or fun all the time.

But it does get a hell of a lot more exciting once you pass that threshold.

Codeless - SaaS Content Creators

Brad Smith

Founder of Codeless. Content highlighted by The New York Times, Business Insider, The Next Web, and several dozen more.