How to Niche Your Agency with Paul Bellows, Yellow PencilMar 24, 2023
In this GYDA Talks, Robert talks to Paul Bellows. Paul is President of Yellow Pencil, working with a talented team of web designers and developers running projects for customers across North America. We think deeply about the organizational, citizen experience design, and technology aspects of digital government.
Paul focuses on transformation and systems thinking. And does his best to stay out of the way of the smart people!
Rob and Paul discuss:
- Going from generalist to niche agency
- What are we good at?
- The journey?
- It is not just the tech
- Pros and cons of niching
- Location, location, location
- How to keep talent happy
- Getting productised
- Agency = a ridiculous mad business model
- Niche down or amplify your content
Robert Craven 00:07
Hello, and welcome to GYDA Talks. And it is my absolute pleasure to have with me Mr. Paul bellows from a Yellow Pencil who are a digital agency in Canada. Hello, Paul.
Paul Bellows 00:21
Hello, Robert. It's early here and not so early there. But it's great to see you.
Robert Craven 00:27
Absolutely. We are here to talk very specifically about niche and agency, which is something that people ask all the time about. But before we get into the nitty gritty of the niche piece. For those of you in the audience who don't know who you are, and what you do. Could you just give us sort of a quick rundown of a 30 second history of Paul Bellows and who he is and how he got to where he is today.
Bruce Daisley 01:11
Here we go. I started in 1996 in the digital agency space. And as you and I discussed, I thought at one point I was going to be a musician. And I was quite convinced doing the digital work was going to be my side hustle while I built my music career. And not so now I've got a team of 60, we're here in Canada 25 years later, and we've got a thriving digital agency and, and music is a wonderful hobby, something that I love to do. But we have one of the things we have in common is I started my first digital project, we ended up with a contract working for Peter Gabriel's multimedia division, and we were doing distribution so I learned how to build websites and E commerce and, and create all the things we need to sell CD-ROMs online, and that worked up until CD-ROMs. One weekend, in fact, I recall talking to a buyer and they said you know we're gonna get out of this CD- ROM thing this internet thing seems to be taking over and I realised I think this side hustle of my side hustle is actually gonna be my new thing. I don't think we're gonna be selling CD-ROMs very much longer. And so that was the founding story of yellow pencil.
Robert Craven 02:16
I'm gonna interrupt you right there. I'll give you a bit of a pause for breath. So Peter Gabriel. Real World studios are two and a half miles from where I am now. Pete used to live four doors down the road from where I am now. When I wake up in the morning and pull back the blinds, there is Solsbury Hill. So that's so he wrote, he wrote Solsbury Hill, from where we live now. And the final interesting thing is one of Peter's PA was a lady called Trish Yakni, who subsequently became my PA. So Peter Gabriel CD-ROMs keep going.
Bruce Daisley 03:07
Yeah, so we I mean, when we started, we were doing, you know, streaming audio, we were we were doing e commerce we were doing, we build CD ROMs, we did just a little bit of everything, you know, for the first 10 years or so it was it was really just hustle, hustle, hustle and in any work or ignore kinky Gideon. And it wasn't really until the early 2000s that we started to find the inflection point that was going to cause us to grow. And we at that point started getting into content management, we got really interested in the early 2000s in web accessibility, and this thing should be for more people than it is for and AV seems to be powered by some kind of like a database driven something and oh, yeah, some, you know, some of these websites are for larger groups with multiple authors and like publishing workflow and, and I mean, my educational background, I've got an English major. So communication and writing is, is my thing, and ultimately, that just the whole business was built around content and the delivery of content at scale. That's really what we've always done and how we've grown. So we work with large organisations now who have complex publishing needs, a lot of different stakeholders, a lot of different people trying to access and build on the website and use it for service delivery, and really changing how the business operates. And so we work those big, messy clients with a lot going on. And typically, those tend to be public sector clients. So those tend to be, you know, maybe a university, maybe a municipality, maybe a regional government or a Crown Corporation. Here in Canada, we have Crown corporations that are sort of arm's length organisations, they might run like liquor distribution in a provincial region, they might run power regulation in a region. So those are the types of organisations we tend to work with and that's the special See we built for ourselves.
Robert Craven 05:00
And how did that happen? How did that specialty come about, because nearly every agency that I meet, when they start off, you look on the back of their imaginary business card, and people still actually had business cards. And it says, we work with entrepreneurs, startups, charities, government organisations, small, medium businesses, intergalactic global business, I mean, and you just go, Come on, guys, there is just no way you can work with all these people and deliver to all of them. And, and, and people really, you know, especially kind of five to 10 staff, maybe 15, staff, agency owners, I mean, they really struggling, when he when he put forward the argument for niche, they go, Yeah, but the thing is, we'd be saying no to other business, and we don't, we don't really know what our niche is an and it's alright for him over there. Because he only works with solicitors. It's alright for him over there. He only works with accountants for us, you know? So can you just explain that? Was it always going to be a niche business? Or do you just suddenly wake up and go?
Bruce Daisley 06:14
So if I went through the exact journey you're describing of, you know, fear of losing market opportunity, you know, what, what if we picked the big? And also, what is it that we're actually uniquely good at? That's a really, really challenging question. And it took us decades to have an answer to that question. It took us a long time. So one of the early inflection points for us in our company was in the mid 2000s. And we got a contract. So my headquarters and where I live, and work is here in Canada, in the city of Edmonton in the province of Alberta. So we're in Western Canada, a little bit farther north, for those of you and for those folks in the States, you know, the states, you know, Montana, and look way north, and that's what that's where I am. So just just do north of Montana. But here in Alberta, the provincial government, there's a province of about four, just north of 4 million people. So not not a huge area, but a decent population size here. And we're known for energy. And depending on which side of energy you're on, some folks like to call it the oil sands. Some folks like to call it the tar sands. And I'm not going to take a side on that. But here in Alberta, the provincial government is fairly well funded. And because of the, you know, the energy source, and so they hit a point where they were looking to replatform, their main website, they wanted to redesign and they wanted to move forward. And they came to us for the visual design, we were a local agency, and we knew a lot about accessibility. And we were known for knowing quite a bit about accessibility. So that was a real strong point, they wanted to make sure this website was gonna be accessible. And they were using a contribution of how many people?
Robert Craven 07:58
How many people have you been to at that stage?
Bruce Daisley 08:01
Well, at this point where, you know, 10, or 12, people were small, you know, we were, we were, you know, in the mid 2000s, we hadn't really hit a growth spurt yet. So we were just barely into double digits. So this was a very big contract. For us. This was huge. And they were using a content management system by a company out of Germany called Red Dot, which was popular for a number of years. And they were really struggling with it. They said, You know, we got to get rid of this thing. It's not working, we don't understand it. And we said, well, we you understand a little bit about content management systems, why don't we help you with the build, and we ended up doing not just the visual design for their site, but building out the whole infrastructure, building out the content management system, and really rolling this out over over a number of years across, you know, hundreds of thousands of pages and hundreds of websites, it was just this massive transformation project. And we did a portion of it, you know, that with a dozen folks. There's only you know, there's a limit to what we could do. We were heavily involved through that period. And by the end of it, they said, Oh, no, we really, we really understand how this thing works. We understand the nature of this system. And we're actually quite happy with this platform now. And then Red Dot the company took notice and said, this is actually one of our flagship customers that one of our largest licensees here was growing in North America. And they brought us on as a partner. And they sent some folks out to visit us and did a lot of training with us and started bringing us into new deals.
Bruce Daisley 09:25
And so we ended up working for a fortune 500 exam in the US and across Canada for some global companies for large kind of really well known Ivy League universities who were buying this platform and said you know, who can help us get this thing right and his company Red Dot would bring us along and then we would end up doing the work. And that was our entire growth strategy and our entire strategy for for quite a while the good almost 40 people through that relationship. And during that time, Red Dot got acquired by another company called Hummingbird who then got acquired by another company called open text who was actually a Canadian company, a big enterprise content management company. And so now suddenly, we're a partner of a Canadian company. And we're working with them on their projects, and right up till about 2011, when they awarded us, you know, open text award as their global partner of the year award. So we're on stage down in Tampa, or wherever we were at this, their global award show, the global conference, and we're up there with Deloitte and you know, national telcos and, and CGI, these massive technology companies and yellow pencil this little 40 person agency from northern Canada who's getting awarded alongside all these other global consultancies, but it was 2012. The next year when we started looking, started looking at what open text was doing and realised this product is going farther and farther down their website. And they had acquired a company called Vignette. And Vignette had a big mask and a Java based content platform. And we realised that that open text was picking a favourite, which is going to be a Vgnette and that was gonna become their primary tool.
Bruce Daisley 11:05
And the software we were working with was slowly going out of vogue. For them, it was a little long in the tooth and, and they weren't using it. And so around 2013, all of our leads dried up, they just stopped selling what we were working with. And we didn't like them yet. We just like it was a great platform at the time that was just really different from what our customers need. It was a little more focused on commerce and really complex, complex system integration. And then it wasn't quite us. We were really focused on content publishing and you know, digital experience, but we decided we weren't gonna go along with Vignette. So we made a disastrous foray into Oracle technology, not that Oracle makes bad technology. It was just the tech stack they were using in the 20 teens was not a great tech stack. They had acquired some software, and we worked with it and won a few awards. But it was messy and complicated. And they actually backed off that technology a couple of years later. Which led us into 2015, which was we didn't really have a strategy, the company, we didn't have a channel partnership, we didn't know how we were gonna sell. We started working with open source technology, which was great, but there was really no differentiation for us. And we struggled for several years, just not really knowing where to find our customer, not really knowing who our customer was, or what differentiated us looking out into the market and seeing all these other agencies and thinking we really do the same thing that they do, but what we do is not very different. And plus, we're working with open source and anybody can compete with us, you know, we're really, but we've grown a little bit, you know, we're big, we have some management structure, we have, you know, 40 people, you know, you have HR and payroll, and you have overhead and you have managers and you can't just take any local web project, you know, you've you've grown to a scale where we're, you know, you've specialised, and you have, you know, highly specialised team, and they have highly specialised salaries, and you need to feed all those modes with a certain kind of work a certain side of project. And we weren't finding a steady supply of that, that work. And so it was around 2017, I had a business partner during that time. And the two of us were just frustrated, we were really at odds with each other, we were dealing with financial pressures, we weren't hitting our profit numbers that we were hoping for. And his business partner was also my brother.
Bruce Daisley 13:29
And so we wanted to continue to be brothers, we wanted to continue to work together, but we just weren't able to, and we had different visions for where we wanted to go. So we had a wonderful handshake deal here United still wonderful friends, he's gone on to a stellar career in technology. But we parted ways because I said, I know what I want to do with this agency, I want to niche down, I want to pick one market, and I want to specialise in it, and I want to go after this market and I want to own in the regions we work in, I want I want to own that space. You know, I want to own the mindshare, and I want to own this part of the market, I want to be the best at something. And I don't want it to just be the technology that we choose to work with. I really wanted to be able to understand a customer's space and be able to speak to them. And we picked the public sector government. That's really what I wanted to work on. And I wouldn't second guess that in 1000 years, it's not easy to make that journey and to really specialise and start to move other customers off. And to really say, No, we just sell in one space, it takes time. It's not overnight. But the dividends for us, you know, in terms of how we operate now, are just so clear. We know who our customer is, we know how to sell to them. We know what they want to buy, we know why they do or don't buy things. We know the specific kinds of services they need, the types of technologies that we'll work with, and they know less, you know, and we know how to reach them. We know how to market to them. We know how to how to respond to the sales opportunities in a way that we tell the story that we know they need to hear and then actually show up with the services that we know that we need and the types of project management structures and the types of contractual directors, we've just learned who they are and be, we are a good partner to them now.
Robert Craven 15:06
Yeah, so, history is written by the winners. I can hear people saying, Oh, it's alright for him with his 60 people and his guitars, you know, he does what he doesn't. And what he doesn't understand, you know, is I'm running, I'm running an agency with 15 people, you know, my next hire is going to be a non fear nurse, her profits gonna get slammed down, I'm working too hard. We've got loads of different clients, you know, we pick them up here, there and everywhere. All websites look like everyone else. Our proposition looks like everyone else's. And he's saying that we should niche down how, where on earth? How on earth? What do we do? Yeah, how do you do that? Because if we do our niche down, we're going to be saying no to the business that we work with now. So just can you just try and unpick that a little bit so that people can understand how they might go about doing it?
Bruce Daisley 16:10
Well, I think I think, if you think of your agency in the same way that that you know, the old chestnut about, like retail location, location, location, if you have a shoe repair shop, and you put it on a terrible corner, you know, like where nobody goes and walks, it's gonna be really hard to build your business. But if you put it on a good corner, you know, where there's a lot of foot traffic, but not a corner that's so busy that there are already three shoe repair shops there, you know, you got to look carefully, but you know, you're gonna get more business likely, especially in those early years where you you're not No, no, you have to deliver a good product, you know, you have to have a good reputation as well, this is a very reputation driven industry. But you're gonna have more success if you pick the right location. So what does location mean, in a digital agency? Well, it could be your actual geography, maybe you are the shop in the town that is like the one really great webshop in your region of the world and your geography. And you can sustain that to grow a small practice and just by word of mouth, and by being in a community and going to the local Chamber of Commerce events, or the IABC mixer, or whatever it is you do, you continue to network and build relationships. And that's great. And that will grow you to be you could potentially grow to be the most successful agency in that geographic region, you might also pick a certain you know, your location might extend to a certain kind of technology that you work with, you know, you might do the, you know, the number one craft CMS shop in your region. And so everyone who wants to work with craft CMS, and that, that starts to break the orbit of your geography, right, like now, maybe you know, your word of mouth, and your reputation moves into other regions, and you're really good at something. And that's as good as, as long as craft is a technology that lots of people want to buy that has a good reputation, word of mouth, and when people are searching for, you know, great agency craft, CMS, you know, you can really start to own that geography or that location.
Bruce Daisley 18:09
But ultimately, you're still at the mercy of, you know, like geography, you know, good, you know, you can grow, but there's gonna be a ceiling to how much you can grow their technology, good, but you're gonna be, you know, at the whims of tech trends, the minute something else comes along, you're gonna have to reinvent your business, that's gonna be hard. But knowing a specific, specific kind of customer and starting to put yourself at the intersection where that customer is. So this doesn't happen overnight, it doesn't happen. You know, you don't just say it one day, and suddenly all these customers flood in. But you can build this slowly and organically, you can sort of, you know, one brick at a time is how you build the wall. So, you know, maybe you start to update your website and say, you know, we're quite good at this type of work. This is the thing we've done, you know, you look you can look your project portfolio and say, you know, what have we done that has worked well, or the customers were, you know, kind of culturally who they tend to be, you know, maybe, you know, litigators or maybe accountants or maybe manufacturers or maybe startups, you know, you've done some projects, you thought, you know, we really, we connected with those folks. We understood them, we understood they were trying to do our team, like the work we did, we were profitable on the project. I wonder if there's more work like that. So you know, you might start by tweaking some of your website content to tell the story about that. You'll worry that everyone else will disappear. And it's not the case, you know, we still get customers who will show up and say, Hey, so my friend told me that you're good. I know, you've just worked with the government, would you make an exception for us? You know, we get we get that all the time, you know, and so, it's not that all the other customers go away, and especially not immediately, but then you maybe, you know, you update your website, and then maybe you go to a conference or two, you start looking for, you know, where did these folks go? Where did they find partners where, you know, what are their events, you know, maybe it's local regional business mixers, or maybe it's an industry conference and you by an ad in a brochure and you show up and you just attend the first year, you know, just who are they what are they talking about, you go to the marketing session at their at their regional conference and you hear who's pitching and what they're talking about. You need to start to learn their business, you need to start to learn their problems.
Bruce Daisley 20:15
But as a location, knowing a customer, it's the most durable way to build your agency business. If you're in this for the long haul, and you want to grow something over time, tech trends change, geography, it's good, but there's a real ceiling on it. Building a customer base, that's, that's a really resilient business strategy in terms of building your location where you exist, you know, that customers, business problems, you can speak to their pain points, when you show up, they feel heard and seen, because you understand something about them and how they operate. And you're also you stopped selling the technology, and you stopped selling, you know, another website design, and you start selling expertise in their business area, which is the best way to sell. That's how you charge a premium price. Because the customer says like, there's 600 firms that can sell me a WordPress website, you know, I don't think that's highly differentiated. So I'm not going to pay top dollar for that. But if they say, I've only found one firm, that has actually shown up and told me something I didn't know about my business or spoken to me in a way that I that was that felt true about me and how I operate, you spoke to my pain, that's something that customers gonna pay a premium for, because that's actually what keeps them awake at night. That's actually the you know, the pain that drives them to make decisions. WordPress is not, you know, it's not a pain point, there's not a pain driver, it doesn't solve a business problem for customers, just how you would do something. So knowing how to do something versus sort of the, you know, like the Simon Sinek why that's the centre, that that golden circle from Simon Sinek. It's like, Why is the customer doing what they're doing? If you can speak to that point? Well, now you've got their attention. Now you can talk about the budget. And what you can probably start to do and this is the other problem that agencies face all the time is the peaks and valleys of a project work, you know, when you have too much work, you can't service it, when you have not enough work. It's not like you can just reduce your cost, but your cost is your people, your people, your talent, and that's the most precious asset you need to retain in your business.
Bruce Daisley 22:19
So when you can start to speak to a customer, you can start to say, Well, what else can we do for you, you know what else, and you can start to grow with that customer. And then you can start to build a relationship over time, we say, Look, we're not just going to show up and do a big website project, you know, work our butts off, and then do some support, and then just try and convince you to give us a retainer, we actually know the six or eight other things that we might be able to do for you around like certain kinds of marketing activity or, you know, digitization of other parts of their business or integrating into key systems, they might use, you know, maybe you build some cool connectors into the way they do payroll, or they do CRM, you might know the software tool that they tend to use, maybe you can help them with, you know, AR AP integration, because you know, that, you know, in their market, this is the kind of technology they use, and you've got some extra keys. So you can start to build that individual customer relationship into something much more. And you're, you're less sort of vulnerable to sort of the peaks and valleys so you can start to stabilise your business and have more predictability as well. When you know that customer in their space and what else they do other than just every five or six years, we want to redesign our website, you know, that's a really bumpy business, it's really hard to sustain that and have it be predictable. But knowing that customer lets you grow your business over time, this takes years to make that transformation. But the payoff of the journey is you know, at the end you operate in a space where you know the customer you know, what they sell, and you know what else you can sell them and, and how to grow that relationship over time.
Robert Craven 23:45
So I mean, I guess there's one other but which is, you know, I've watched I've watched someone create an agency focusing on lawyers in no time at all. And because the average is so low, you only need to be better than the competition and you blow them away. Care Homes is another example. Because you go in and you say, I know more about your industry than you do. Do you know how much you should be paying to acquire a client? No, I don't. Well, it should be 735 pounds. Where did that number come from? That's the industry average and you're currently paying. I've done the counts from your p&l, you're paying 1000. How would you like it? So I get that but I also know, an agency that specialised in, in wedding venues that hotels, a niche within a niche Robert Craven recommends a niche within a niche wedding venues at hotels. Of course, when COVID came, they lost 96% of their business in one day. They stopped on the phone. So I guess the question is, is it possible that that niche can be recession proof? Or do you have a number that just wants you? Are you saying you should have a number of niches? Or do you just think you kind of dodged the bullet by being in government and not in hotels or restaurants or catering or, or anywhere that would kill you in that time period?
Bruce Daisley 25:19
Well, I suppose the way the way I would answer that question, because, you know, you could describe I mean, the pandemic is the black, the classic black swan event, you know, it's the thing that you did not expect to happen, you had not built any systems for it, you were not you were just, it's a thing that's theoretically possible. But no one was anticipating quite this level of disruption. You know, like, we've been talking about pandemics for decades, you know, here in North America, in particular, and really, no one was thoroughly prepared for this to happen. You know, the US CDC had plans that, you know, this is really the first time that as as a species, we've responded something at this scale at this kind of a global scale, even, you know, not 1918 was was slower, more regional, kind of rippled through, you know, people stayed at home, but we didn't have this the same kind of urbanisation, we didn't have the same kind of, you know, global economy, we didn't have air travel, you know, the way we have today, just the rate of spread of this thing.
Bruce Daisley 26:19
So you could say, how would you build a business that is, recession proof is one thing we do get recessions, from time to time pandemic itself was it was it was a pretty rare, you know, so my friends who are in restaurants, for instance, have a lot of friends who own restaurants. And they were all devastated by this, by this event. And one could say, how do you build a pandemic proof restaurant? And, you know, I don't know that there's a great answer to that question. You know, some things you just need to, you know, if you have strong numbers, if you have a good team, you're going to need to pivot, you know, all the folks I know, in restaurants who made it through the pandemic got really, really good at delivery really fast, they build really good connections with Uber Eats and all the, you know, the food delivery companies, they figured out how you know how to reach out to their customers. And in marketing, the customers say, hey, you know, we've got these things for order, we've shrunk our menu, we do these six things really well. We've learned how to like make cocktails, you can order it homes, we can give you a good restaurant experience at home, while you're sitting at home, we can get Uber to bring it to you, or whatever local food delivery company, the ones that survived this had great fundamentals had strong cash flow, had good people who knew their business and knew their customer. And they had to find new ways to do work. Most of them had to lay off most of their frontline staff, you know, they just kept the kitchen staff and the management staff. They could not operate the way they did. But I think it was having strong business fundamentals that let them survive at all. So you know, you pick like, if you do wedding venues in hotels, and that's all you do, it's a thriving business and a pandemic hits, you're going to need to pivot, you know, there's nothing else. But I would argue it was the strength of your business before they gave you the fortitude, the cash flow, that the smart people who were in the business, who you'd retained over the years who, who were loyal to the business and who really wanted to succeed. Those are the assets that are gonna get you through, I don't think you can build a business that is ready for a black swan event like that. But you can build a business that's ready to pivot when something like that occurs would be my answer.
Robert Craven 28:25
Yeah, I'm nothing. I don't think you're right. I think that, you know, those who had deep pockets because they're running a decent business in the first place, okay, because they had the funds to pivot and change and move around. And basically, if it works for wedding venues, it'll work for E-COM or it'll work for lawyers, you just need to take your stack and put it back down again and reorganise it in a different way. And just going back to your, your, your niche thing, there's another question which is kind of floating around in the back of my brain, which is the agency owner who says, Hey, we employ bright people, they like to be stimulated by new and interesting projects. Yeah. And, if one day, they're dealing with a sports brand, and the next day, they're dealing with a mock manufacturer, and the next day, they're dealing with a gene manufacturer, then they're always going to be interested in their work. But if you get them working with the same thing, day in, day out, they work with a with a lawyer on Monday, a lawyer on Tuesday, a lawyer on Wednesday, a lawyer on Thursday, a lawyer on Friday, they're gonna they're gonna, it may be good for us as a business because we grow expertise and thought leadership, but they're not going to be as as members of your team, they're not going to be as entertained or stimulated by doing a bit more of a rinse and repeat. Is that a valid, valid criticism of the niche approach?
Bruce Daisley 29:51
Well, I think I think the way you want to think about it is not how do I keep the folks in the room today into retain, and keep them working in my business because talent management is something that always keeps owners awake at night getting a resignation for someone who's really good at their job, who can just go in and do the work is the owner nightmare, right? You know, oh, that person made my life easy. They could go in, they could work with the customer. And so we have this fear of, are we running a business because everyone, I mean, one of the key pain points, especially in 2022, and for the last few years, in the digital agency space, I am trying to hire the same people as Meta, and Google and Apple. And the biggest companies in the world, the most funded companies in the world, if you think about what an agency is, at a business level, it's, I'm gonna work on the kind of work that is, that is, there's no barrier to entry, anyone can hang a shingle up and say, I'm a digital agency. And with very little skill, maybe with a two year diploma, or with some really good hustle and some good instincts, you can build a website for someone you know, it's not, there's not a lot of barrier to entry. So constantly, people are entering the market.
Bruce Daisley 31:04
If you look at what we do, and the thing you know, that that specialty, that thing you are good at that is, you know, well we know a whole lot about, you know, there was a little while, I mean, I'm old, so I'm gonna like I'm gonna talk about flash for a minute, you know, everybody wants a great flash it was it was the hot skill, and everyone's doing cool experiential stuff on the web, trying to out compete. And for a number of years, if you could do great flash work, you could just write your own meal ticket, he was he was he was easy. And then years later, but these days in web and technology, that cycle of what's hot and what's not is like maybe on an 18 to 24 month cycle, like what you can do now that's competitive, differentiated and unique. versus you know, what the customers are gonna be buying. In two years, you're constantly commoditizing this, like the value of this work to the customer, and the ability for others to do the work, you know, you're just on this treadmill, and you're chasing it. And so you're relying on these highly talented people that can come in and figure it out, want to try different things. So that's, that's an adrenaline fueled business is what that is, you know, and that's exhausting to run.
Bruce Daisley 32:05
So you ask your question, not how do I entertain and keep happy all the talent that I have today? But ask yourself, If I had a stable or business, a business that was more predictable? What kinds of people might want to work for me, then, you know, what kinds of people might want to retire working for my agency? You know, what would that look like on the other side? So if they had more predictable profit margins, who could I hire, who was maybe just had more experience who wasn't here just for the novelty of it, or for you know, the adrenaline of entering, you know, it worked for me for that, that two to three years that typical employees, you know, churn cycling agencies, you know, people come in, they go, it is a bit of a revolving door, sometimes, because we're a mid market employer, and there might be somebody, someone has their first kid and goes, Okay, I need now more benefits, and I need, you know, retirement contributions. And I need, you know, I need these other things, because now I have a kid, and now I'm afraid of, you know, not providing for my kid. So I can go take this job, and I'm not.
Bruce Daisley 33:02
So we do see that revolving door effect. But if you have that stable business, you know, who might work for you, then who might work and say, you know, actually, your profit numbers are stronger, you know, you do have good retirement benefits, I can imagine myself working here, the longer what kind of business might that have on the other side of this transition? I think that's the way to think about it is, you know, do if you just like the hustle. And if you like the adrenaline fueled business, and if you like constantly changing chasing that thing, that you should probably stay as a regional agency, you should probably count the number of people that work for you stay just lean enough, not take on too much overhead, so that you can kind of weather kind of peaks and valleys and things and go for it, do it as long as you possibly can. That's, you know, it's not like I'm saying that's the wrong thing to do. It's a viable business, if you stay fewer than 15 people, and you don't take a lot of overhead on you stay pretty lean. You can do that for a long time. That's you know, and just stay at, you know, the number one brand in your region, your market will go to mixers, go to all the local business events, stay relevant, make your customers happy, get good referrals. There's nothing wrong with that you can be very profitable and very successful as an agency of that size. But if you do want to grow past that, you're going to need to think about how we are going to build something that's stable, because you can't really scale based on adrenaline very effectively. Everyone I know who's tried has ended up selling within two to three years of passing 50 people, do they it's exhausting. It wears you out?
Robert Craven 34:29
That is that is the phrase of the day scale based on adrenaline going to credit you with that one. But that is it that just sums the industry up. So I mean, just trying to summarise your argument which brackets which I entirely agree with is niche creates predictability and stability. It creates a slightly different workforce but a more reliable workforce. It enables you to charge a premium price CES enables you to get closer to the client, it enables your business to become more predictable and less project driven. What's not to like?
Bruce Daisley 35:13
Well, the thing that is not to like in this, this is this is the reality of it is you need to get good at something. And that takes time. And you will get bruises along the way, and you will make mistakes, and you will be wrong about things and you will make guesses and hypotheses about what the customer wants, and you will be incorrect. This does take time. And so you as a leader, as an owner, and with a management team, you need to commit to a journey and say, Look, we're gonna start down this path, we can't actually see what's on the other side. Exactly. We have hypotheses that we're going to test and validate. We're gonna move forward iteratively as we move closer to this customer space, we may get a year down the road and go, You know what, it wasn't lawyers. We were wrong. Okay, you know.
Robert Craven 35:58
The guy who did the care homes, yeah, and he's 30 people, I guess, after 18 months in a care home. So literally zero to 18 people, he tried lawyers, six, nine months, and, and he just, he did all the right things, right. Thought leadership went to the conferences and got on the stages, but the fit and the chemistry just just wasn't right. And, and, and he literally pivoted into care homes, and boom, he is in this country. He is Mr. Care Homes. And every time I go on LinkedIn or Facebook, there is a care home of the Year award. There he is at the care home technology convention. And he's just, yeah, he's become the man in that industry that is very much a case of you know, it's much quicker to become a become a, you know, a big fish in a small sea than it is being a small fish in a big sea and trans makes some traction about it. No, I absolutely love it. Look, we're about to run out of time. So I'd like to just ask our two questions.
Robert Craven 37:11
First one, is, I'll tell you what both of them are. So you can have a little think about the answer. First one is, so what's next for you? Because I'm sure the story isn't over. I'd be fascinated to know what's next for you. And what's next? What's next for the business? And the other the final question is, what are those, those kind of pearls of wisdom or those little, little things you find you're saying to people, you know, agency owners, especially when you kind of fall out of a bar at 11 o'clock at night and you you're swearing undying love? So what's next for Paul?
Bruce Daisley 37:52
Yeah. So what's next for us is we're doing the thing that agencies are, by legend, never supposed to do, which is we're getting into product. So we have built a really big managed services business as part of our company. And so a lot of our revenue comes from managed services, our customer, what we've learned about our customer is, the government is unionised. They tend to work nine to five people who work in that industry. And again, like there are people who love to slam on government employees is oh, they just do these. You know what, there's nothing wrong with saying, I really like a nine to five job in a pension, I want to be a parent, I want to live in a community, I want to be a partner, I want to read and I want to live a good life. I mean, I think that's great. And I would like to work in public service. And I would like to help my community. I think that's a noble calling. And I appreciate it. What that means, though, is when stuff goes down to two in the morning, you know, the government has trouble responding to that.
Bruce Daisley 38:51
So we built a managed services business. And we run a lot of the core systems for our customers. It's like retainer revenue. For us. It's predictable. And so what we've been doing for the last five years is starting to productize a lot of what we do taking some of the open source technology that we work with, we've partnered with Google Cloud, and we started to build a lot of our technology into their infrastructures, we leverage their cloud infrastructure for for scalability for security for your you know, encryption. So we have a lot of power tools to help our customers. And so I'd say about 20% of our revenue right now is coming from Product Revenue where our customers, you know, pay a monthly subscription fee to use the technology we've created. And we do all the care and feeding in the system and the software updates and the security management and the backups and the disaster recovery. We just take care of it all for them as a service. And so our next step is how can we grow that product revenue because what's true, but my business is, every time I want to onboard a customer onto that 20% of that recurring revenue. I have to do a fairly large project to redesign their website. We migrate all their content information onto our platform. So we're looking at how we scale, we've got this product, we're quite proud of what we've done, we think we've got some really unique and powerful features that others in the market do not have, that are unique for our customer. So we're seeing, could we scale to support other agencies who want all the care and feeding and the support and the security, patching and all the management and we'll get up at two in the morning and respond to an urgent ticket, if there's some sort of outage or a DNS, customer DNS server goes offline. And suddenly, the website turns off, and no one knows why. And someone needs to figure out, where did the break happen? You know, that's the service we provide. So we're looking to see if we could we partner with other agencies and support them and help them to scale by kind of white labelling our core service to them, that's our next, that's our next hypothesis is we can grow our product revenue by not having to take the project on to let other folks do the project work. And then we'll support them with our product.
Bruce Daisley 39:20
So that's our next frontier. And our hypothesis is that other agencies will benefit from that and will thrive that way and will want to partner with us. And we're testing that in real time right now. So that's our next frontier. The thing that I say to agency owners, I started, I said it earlier, but just we run a ridiculous industry, we're trying to hire the people that everyone else wants to hire, we're trying to pay them less than whatever else wants to pay. We're trying to do a kind of work that is completely indefensible from a form like a barrier to entry, like anyone can do what we do, and anyone can graduate from the design degree in the university and say, I'm as good as that person. And the customer probably can't tell it, but they probably can't tell the difference. Especially if it's there, they're looking at it as a design project, like, well, their stuff looks great, your stuff looks great, I can tell the difference, you know, at a certain scale. So we've chosen this on purpose, you know, we're trying to retain these people, and we're trying to chase these customers. And what that means is, if you want to take a project of a certain dollar, you probably have to accept a certain amount of risk. So we are constantly chasing risky projects like that. Well, I don't know how to do that. But I'm sure we can figure it out, right? Or we haven't done one of these before, but how hard could it be, or that's your budget, I'm sure we can make it work, I'm sure we can make something work for that budget, you're constantly accepting this risk, just to keep that level flow of project work. And that's exhausting. It's exhausting. And you need to acknowledge that this constant risk management is going to wear you out over time, you know, and it's going to erode your margins, and it's going to stress you out. It can be fun. It can be really fun. Sometimes, you know, like just the pitch and the wind and the Hey, we managed to deliver it. But you know, we're constantly exhausted, we're constantly tired, you know. And so I think that's, that's what I always get talked about is, you know, we've picked this ridiculous business model, you know, it's just it's so hard sometimes. And we're all just we're struggling to figure out like, how do you get it right? How do you actually just have that agency where you can relax, and you have a strong business. And I think it's always one or two things, you either niche down, or you amplify reputation, you just get known for doing stuff like consistently, you know, over delivering, it comes with a different kind of exhaustion, but you know, that that's that other kind of geography you can pick, you know, you got to sort of figure out it's either reputation or specialisation. Those are the two ways out of you know, just the treadmill of kind of risk management and hustle and kind of over promising and kind of trying to keep up and managing client expectations. That treadmill will wear you down over time. So like reputation or or specialisation are the two avenues forward.
Robert Craven 43:36
Ah, 100% agree with that. I mean, then, I'd say a third of our conversations, start with agency owners saying I seem to have lost my mojo. Yeah. And, and that, all of the above. You know, all of the above explains exactly why people kind of fall out of love with their agency, or they, they don't know how to wake up in the morning and go, Yeah, today's gonna be a great day. They start saying I have to, rather than I get to, you know, I have to go into work rather than I get to work with my team. And you just see that you see that happening. Paul, this has been an absolute pleasure and absolute honour to spend some time with you. I've really enjoyed it. And I think, the insights have been great, I think, you know, I just love it from the horse's mouth type stuff with somebody who's been through the journey, you know, it's been up, it's a proper hero's journey, you know, last found, you know, and eventually, eventually, it's all come together. But it's been a fascinating story so far. All I can say is thank you. Thank you so much for your time, and it's been a real pleasure to talk with you. Thanks. And we will talk again. Thank you very much.
Robert Craven 44:55
I hope so.