Agency

The Business Model Of Service Providers And Agencies

Building A Business In The Online Space – Service Providers and Agencies

In this series of articles, I am introducing new ways on the internet to work when your job will get blown away through the disruption announced.

I, first of all, write about the current mindset most of us carry around with us and the options we think we have to then dive into the new world setup.

My ideas and statements are driven by real-life experiences, applicable to different situations and industries. They are not just theoretical constructs but lead to empirical theories that can be substantiated by statistics and common methods.

In this third part, I focus on Service Providers and Agencies in the free market.

In the blog about artists, celebrities, and freelancers, I identified 3 major requirements for building a sustainable business:

  1. Good products with good revenue.
  2. A big market interested in the product, where you can attract your niche.
  3. A plan.

Here I add a SALES STRATEGY.

What are the products you could sell? What is your target market? What is your plan?

After first working for a financial service provider as a programmer while studying Physics I started my first attempt to build a company on my own in 2004. I had no idea about what it takes to establish a brand, provide a service and produce a product. What I had was a niche I believed in, where I could start without a big investment up-front.

At the time, the black culture was not documented at all and was slowly gaining its importance. I bought myself a camera and started filming music and dancing while developing my brand in a 1 room flat I used to live in.

It was my mission to publish videos online of the beautiful and untouched culture I found to provide these artists with a voice.

There was no chance at the time for me to enter any market here in Switzerland with this initiative and I went to work for a private bank where I was introduced to the hardcore financial side of the business. Things went quite well until the financial crisis hit the markets in 2007-8 and caused strong turbulence over the following years.

I had to change the industry as there have just been no jobs around in banking anymore so I started to work for a small service provider, learning IT support for clients from scratch.

Service Provider

Working at a small service provider as an employee was a very different experience than working for big companies. The performance of each employee has a strong implication on the wealth of the company so the productivity of each and everyone is key. The company I worked for was in business for 30 years and had a loyal, quite diversified client base.

From the old generation, I learned the value of loyalty and a service provider mindset.

• The client is always right!

• Costs to find a new client are a lot higher than activating existing clients.

Do these values still apply?

The changes in the quality of Computers, as well as the margins of selling these devices, disrupted the business model at the time.

First steps to cloud infrastructures made small server infrastructures obsolete. To provide hosting services at a scale required a new product structure with a subscription model instead of an offer-based service. This just started to evolve at the time, while it is very common now. At the same time, I think we are entering the next step of disruption in the hosting industry. Even for big data centers, it gets difficult to compete with Amazon AWS and Google on hosting services.

As a service provider, you have to find clients on one side and have employees or freelancers, working for you on the other side. Depending on the sector you’re positioned, the margin between what you sell by providing offers to clients and what you spend for the work done by your employees, administration and other expenses make up your revenue.

Scaling this business model is most probably related to more hiring and a bigger staff to manage.

As an entrepreneur who just loves to work on your craft and offer a service, through this business model you most probably find yourself back as a manager, fighting with your administration, IT systems and infrastructure, and acquisition.

This does apply for cleaning services as well as for an IT consulting service. To optimize the business you have the possibility to negotiate contracts with clients over a longer time, for example, to clean a building month in month out or to maintain an IT infrastructure. This could be charged by an hourly rate or by a recurring monthly fee.

A service provider mainly focuses on stability and basic needs of the client and gets paid without depending on the progress of the business of the client.

There is no rule without exception. As an example, a service provider in the financial services industry could absolutely be financially involved in the performance of a client portfolio. Will this still be a pure service then? I would call it more of a mixed business model.

The main thing I learned in the service industry, providing IT services is to be able to efficiently solve a concrete problem of a client efficiently.

You need a very special mindset and character to do so in my point of view. It is the mindset of serving, where it is all about taking inconvenient tasks off the client’s back. Taking responsibility for a part of the life or business for a client.

Agencies

Agencies are actually sort of a service provider but at least in the old world setup, they had some sort of profit on a campaign and the price of the service was mostly not directly attached to the effort measured in time.

An agency (especially in marketing) in comparison to a service provider is mostly not just operating on the cost side of the clients budgeting but on a growth side as it is closer to the sales and business development side of a client company.

When I started to work for a design agency this was a mind-shift for me, coming from a service provider background. Especially in design, there is no rule how long it takes to establish a design in a creative process. It depends on the idea, the speed of implementation and most of all if it is being liked.

If you program a system or set up a network for a client it is not a question, if a client or the audience likes the visual output! The question in these cases is if the system works! In the case of the design, this is very different as there is subjective interpretation involved. A logo or a flyer could be ugly in the point of view of a graphic designer but it could be exactly what the client wants and likes.

I like to do design work for myself and my brands, even if it is not my main strength. When I had to design a logo and flyer for an event (with 4 other partners involved), stepping into responsibility as 10k were at stake and there was no marketing material available, it was actually the reason for me to burn out. I didn’t want to do it, as I was aware of the problem expressed in the design process and it ended in a disaster. The reason was, that each partner involved had another opinion and background about design and visual preference.

In a marketing or media agency, there are many other sectors involved and most of the work involved is not directly coupled to the value for the client.

This might be:

• Copywriting (Texting)

• Visual promotions as graphics

• Visual promotions as videos

• Campaigns through many different channels

• Providing suitable tools to measure promotions

Most agencies in the old world setup have contracts with promoters as part of their business model, getting a kickback for bringing in clients, maybe at TV stations or newspapers. A business model that might lose relevance in a world of Facebook and Google.

A short copy text might be the most relevant promotion for a client and bring in a huge upside on revenues. It could be created on the toilet without time effort and crush the market. It happened …

On the other side, an agency could massively invest in a video promotion and even trigger a loss of clients. The outcome of campaigns can never be forseen. Between creativity and the client, there is a black hole of a gap.

I am still missing one part of the puzzle, retail sales and franchise businesses will be covered in part four.

Stay tuned …

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