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Between MailChimp and Basecamp, it seems like a few products have spun out of agencies. Is it a good idea to first start an agency to maintain reliable cash flo

Between MailChimp and Basecamp, it seems like a few products have spun out of agencies. Is it a good idea to first start an agency to maintain reliable cash flow until a product strikes it big, or is it a distraction/time sink? Curious on the community's thoughts. In my opinion, it seems smart because you can float by indefinitely with a handful of clients until you have market fit with some product, though I wonder if statistically it would make more sense to just focus on the agency without the distraction of product.

ncallaway 6y ago
If you have a specific product in mind, I don't recommend the strategy. Find investor funds and build the product. If you don't have a specific product that you want to build, then I think it's a more viable path. Running the agency gives you a stable revenue and base to bootstrap a product when a product opportunity becomes available. Running an agency also gives you insight into pain points that multiple different companies are hitting. So, an agency as a path to eventually developing a product makes some amount of sense but an agency as a path to develop a specific product vision probably doesn't.
- creaghpatr 6y ago
  Also puts a lot of back-office infrastructure in place to serve as a starting point for a transition rather than have the founder(s) have to manage that as well.
- michaelbuckbee 6y ago
  FWIW - I've also seen a lot of SAAS companies come out of individual consulting engagements. I know of two services that started with "I'll give you a 25% discount on my normal rate if you're ok with me keeping the IP for this portion of the project" type negotiations. I think this is a neat way to start as it's validation (someone is paying) and your first customer (which is the hardest to get) all in one shot.
  - deleted 6y ago
    [deleted]
kbanman 6y ago
Hootsuite also started as an agency side project, and I'm sure there are more. Intentionally following this model doesn't seem sensible though; with VC money so accessible if you have already put together a good team you might as well focus on the product itself. Agency work is not fun.
- Brendinooo 6y ago
  VC money takes time to get, it requires you to give up some part of ownership/control, and puts pressure on you to be a unicorn. Fine for some; certainly not foolish to go a different route. Basecamp never wanted to be huge, just successful. I'm working on a project that our company funds through agency work, and it's fine.
offtop5 6y ago
Option three, create an agency which is building out its own product as the base for the projects you're taking on. For example let's say You're building homes using a special process that you're developing in house. Your clients just want homes, but while you're building those homes you can and keep working on your process until you can sell the process to a conglomerate of some sort.
- claudiulodro 6y ago
  Smart. I hadn't heard of this approach before, and I like it.
  - offtop5 6y ago
    It's actually amazingly common for SAAS companies to do something like this. I will say it can be extremely stressful since you have to both support your core product, and your agency shop work.

ncallaway 6y ago

If you have a specific product in mind, I don't recommend the strategy. Find investor funds and build the product. If you don't have a specific product that you want to build, then I think it's a more viable path. Running the agency gives you a stable revenue and base to bootstrap a product when a product opportunity becomes available. Running an agency also gives you insight into pain points that multiple different companies are hitting. So, an agency as a path to eventually developing a product makes some amount of sense but an agency as a path to develop a specific product vision probably doesn't.

creaghpatr 6y ago
Also puts a lot of back-office infrastructure in place to serve as a starting point for a transition rather than have the founder(s) have to manage that as well.
michaelbuckbee 6y ago
FWIW - I've also seen a lot of SAAS companies come out of individual consulting engagements. I know of two services that started with "I'll give you a 25% discount on my normal rate if you're ok with me keeping the IP for this portion of the project" type negotiations. I think this is a neat way to start as it's validation (someone is paying) and your first customer (which is the hardest to get) all in one shot.
- deleted 6y ago
  [deleted]

kbanman 6y ago

Hootsuite also started as an agency side project, and I'm sure there are more. Intentionally following this model doesn't seem sensible though; with VC money so accessible if you have already put together a good team you might as well focus on the product itself. Agency work is not fun.

Brendinooo 6y ago
VC money takes time to get, it requires you to give up some part of ownership/control, and puts pressure on you to be a unicorn. Fine for some; certainly not foolish to go a different route. Basecamp never wanted to be huge, just successful. I'm working on a project that our company funds through agency work, and it's fine.

offtop5 6y ago

Option three, create an agency which is building out its own product as the base for the projects you're taking on. For example let's say You're building homes using a special process that you're developing in house. Your clients just want homes, but while you're building those homes you can and keep working on your process until you can sell the process to a conglomerate of some sort.

claudiulodro 6y ago
Smart. I hadn't heard of this approach before, and I like it.
- offtop5 6y ago
  It's actually amazingly common for SAAS companies to do something like this. I will say it can be extremely stressful since you have to both support your core product, and your agency shop work.