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Two years after graduating from college I decided to start a design agency with my best friend. We bought two computers, sublet some office space, and began looking for work. And then, all of my idealism went out the window as I realized starting a design agency, and keeping it running, is really difficult.
The journey of starting our creative agency began thirteen years ago. Along the way we made some good choices and bad, experienced success and failure. And we grew Pelago into a successful web design and development agency. The following are the more memorable and timeless lessons learned, the ones that kept us afloat through the dot-com bubble and a recession. In learning how to start a creative agency, we feel these are the lessons that should be applied, be it design, marketing, advertising, or digital.
Cash flow may be erratic, but it doesn’t have to be
I wouldn’t be surprised if the phrase “feast or famine” was coined by the business manager of a creative agency. Small jobs bring in small payments and big jobs bring in big payments, but both are erratic. Whether you are starting a creative agency or a small web design company, your bank account will see a surge of deposits one month and next to nothing the following month.
Chances are your clients are paying a larger sum up front when the job starts. You will have to budget the money well enough to last through the middle or end of the job, when more payments are made. Creating and sticking to a budget requires discipline and is not bulletproof.
One way to help regulate cash flow is to offer your clients retainer agreements. This allows your clients to purchase a block of hours each time. Once the hours are used up the client may pay to renew the agreement. The payments may be smaller than a big job, but they are consistent and predictable. And they lead to clients who want to develop a long-term relationship.
Don’t work on spec, just don’t
This goes without saying. Unfortunately, it needs to be repeated. Don’t work on spec.
Working on spec is when a client offers to pay you for a job “if” they like the results. They are probably stringing along a few agencies at a time, betting that one of them will produce something they like. Not only is this type of work a waste of time, it’s insulting.
You are a qualified professional offering a valuable service. Clients should pay for that service. Period.
Don’t take equity in exchange for creative work
During the dot com days we received multiple offers from start-ups asking us to do their creative work in exchange for equity. Guess how many of those startups made it? Zero. Good thing we said no to each and every one of them.
Equity offers may seem attractive, but the math just doesn’t work out. Assuming that one in every ten startups are successful, taking equity would be similar to reducing your rates by 90%. You would never agree to a client paying you 10% of your hourly rate, so don’t take equity as a payment either.
You need cash in the here and now, not the possibility of cash a few years from now.
Don’t give over exclusive rights to your work without proper compensation
Your contract should specify that you are extending limited rights to your client to use the work you create. For example, if you design a wine label, and the client then uses that design on shirts, they should compensate you. They paid you for a wine label, not a free-for-all license. Just as a photographer holds onto the copyright for her photos, so do you for your creative work.
You will encounter clients who will ask to amend the contract to give them full and exclusive rights. If they are willing to pay for the additional rights, than go for it. But most clients who do this aren’t willing to pay extra.
By signing over full rights, you are granting them to do as they please with your creative work, including reselling it. Don’t you think you should be compensated for that?
Invest in a good, solid contract
Whether you are starting a project at a web design agency, or any other type of creative agency, every job should have a signed contract. A contract that is clear and concise. There are several services that will sell you a contract template written for creative agencies, or you can download our contract for free. This is a good place to start.
If you are working for a fixed fee, make sure the contract includes a thorough and precise scope of work. Otherwise, you might find yourself in small claims court because the client misunderstood your ill-defined scope of work and your crappy contract. Communicate clearly, up front and in writing, on every client job to avoid confusion and catastrophe later on.
Keep track all of your time, tasks, and projects
Online task tracking and time management software is a must have for any creative agency for three good reasons. It helps keep your team organized, it helps you know how much to bill your clients, and it helps make you accountable to your clients should they have questions about the work completed.
Our agency began before this type of software existed, so we had to build our own. Until we built it ourselves, we subsisted on paper timesheets, Excel spreadsheets, and a web-based task tracker we cobbled together from open source projects. Some agencies still do it this way. Trust me, online task tracking software makes it so much easier.
Try out our app, Intervals, or any of the other options available online. The goal is to find one that works for you and stick with it. The less time you spend managing your agency, the more time you will have to pursue the creative work that inspired you to start your own agency in the first place.
Photo credit: tableatny
