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Differentiate or Die?

I recently spoke to quite a few digital design shop owners, and the consensus is that the first quarter of 2014 sucked, and for some, criminally so. Shops depleted their cash reserves, struggled to meet payroll, extended their lines of credit, and yes, downsized.

For our firm, it seems to be a chronic first quarter kind-of-thing. And while it doesn’t happen every year, it has happened in four of the last seven. We always try to prepare ourselves during the last quarter of the year so we can bridge the Q1 gap, just in case. And that’s a challenge, because you’re also trying to get cash off your books, figure out if you have money for bonuses, and leave enough liquid assets as a safety net.

I’m fortunate to be able to draw insight and advice from a lot of my contemporaries who attended Owner Camp, of which I’m a co-founder. I won’t name names (that’s against our rules) but I have permission to share this stuff. Some observations they’ve noted with respect to Q1 2014:

  • Prospective client budgets are 50–75% lower than years past
  • The sales cycle is taking months instead of weeks
  • Payments for existing projects have slowed significantly
  • Project teams are becoming taxed with more work
  • Prospective clients are performing more work in-house (a vastly shared sentiment)
  • Agencies are putting hiring on hold and freezing benefits
  • Agencies are relying more and more on one or two “anchor” clients
  • Large scale projects ($250K+) are few and far between
  • Prospective clients are fielding proposals from many more firms
  • Decisions are increasingly being made by large committees

To add to that list, some say due to the ongoing commoditization of design, you need to differentiate; otherwise you’ll forever be at the mercy of the industry’s fickle ebbs and flows. You need to have a unique point of view, and being a generalist doesn’t help you stand out. You’ll also have to start taking marketing seriously. Stop treating it like a thing you’ll get to if you have time, or have a few extra bucks to throw at it. It’s business 101 stuff. I’m reminded of the importance of differentiation by something Bill O’Reilly unapologetically said about being called a sensationalist. Regardless of how you feel about the guy, you have to give him these 25 seconds.

Others have gone as far to say that the very concept of a user experience-focused agency simply isn’t a long-term play, largely because of what the big folks are up to. Facebook and Google went on a design/product buying spree specifically because they needed to figure out how to own this thinking themselves, and other tech companies have followed. And more traditional industries, like insurance, media, and retail? They’ll develop robust in-house capabilities soon, if they haven’t already.

Ready to pack up your things and start a landscaping business? Not so fast.

I’ve managed teams in some large organizations, many of which were building their own in-house capabilities. And, while on paper, it made sense for them to do so by snagging talent to achieve the promise of glorious self-sufficiency, the one thing that they never accounted for was their own politics. Time and time again, ideas were presented to various internal stakeholders, all of whom had their own agendas and budgets. Pushing ideas through the maze of red tape and exhausting levels of buy-in was usually a soul-sucking effort in futility. Even though everyone was theoretically working for the greater good, everyone was working against each other at the same time. Great ideas became mediocre ideas that became ghosts of ideas put on the back burner. And ultimately, the only way for them to ship something was to hire third party design firms. That dynamic hasn’t gone away. I don’t think it ever will.

And, as another Owner Camp colleague pointed out, agencies tend to provide better work environments for creative thinking, through a variety of projects and design-oriented cultures. And when talented design professionals leave an in-house team at a larger organization, those organizations are often left with mid-level production people and their managers. Those managers are going to look at their team and recognize that they can handle some internal work, but that they are going to need to bring in niche specialists in order to achieve their goals.

Finally, there’s this thought from another successful agency head: there is a massive amount of untapped work out there that is waiting for you. You don’t have to change a thing with your business, you just have to find it. Again, this speaks to the fact that you need to spend money on marketing. The industry has many more talented players than it used to.

When you’re in the middle of a tough situation, it’s human nature to wonder what the hell you’re doing wrong. I believe the best thing you can do in these circumstances is to talk to others who are going through it themselves. And talk to those who aren’t, too. Take stock in what they share. Apply what you think makes sense. Remain true to your gut.

But most of all, remember that cycles are cyclical.

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