5 ms·

Seems like the author is just working backwards from a conclusion, picking numbers that "work out" to $50k. Obviously growth plateaus when churn matches new + r

by tqi 3y ago

Seems like the author is just working backwards from a conclusion, picking numbers that "work out" to $50k. Obviously growth plateaus when churn matches new + resurrected, that's just basic growth accounting. Why is $50k such a barrier? Is it even?

oefrha 3y ago
Yeah, they used a bunch of completely random magical numbers: $2k/mo/client, 2 new clients/mo, asymptotic churn rate of 15%. All they’ve demonstrated is there’s likely a ceiling somewhere for each agency, which is obvious to anyone. Big thumbs down, save yourself the click.
- sshine 3y ago
  > that’s just basic growth accounting And a monad is just a monoid in the category of endofunctors. This stuff is not obvious to everyone. The arbitrary numbers are called an example. The point of the article is to say, when you experience a plateau and you begin to speculate why, it’s mathematically expectable.
  - manmal 3y ago
    This use of the term math irks me. Math exists within the bounds of its own rules, and often it explains the world well. Sometimes, math can be used to make predictions about the world. But to infer that such a prediction is valid „just because I can make the numbers line up“ is IMO too hand-wavy and maybe even pseudo scientific. I wouldn’t drag mathematical models into this so early in the process.
    - sshine 3y ago
      He’s expanding on how rates grow in proportion. It can hardly be controversial to call this math. But ok, it’s not “the mathematical reason” but rather “a mathematical explanation” - the math is a property of his explanation, and the reason is growth, churn and employee psychology; while well-explained mathematically, they aren’t math. Somehow this seems to be besides the point, being: here is a common reason for plateau’ing.
      - magicalhippo 3y ago
        Reminds me of our introductory course in math at uni. The lecturer was showing a concrete example of how to integrate using the technique we'd just learned. After a lengthy manipulation of the integral, he said "and then you can just plug this into a calculator and get an answer, but that's not really interesting so I'll stop here".
      - deleted 3y ago
        [deleted]
      - itiro 3y ago
        Is it common? The point is asserted at the top of the article, but no data is provided to back it.
      - manmal 3y ago
        What I mean is this: Making some anecdotal observations that can be explained by a certain model, doesn't mean the real world follows this model. It might not even be a good approximation.
      - deleted 3y ago
        [deleted]
  - pc86 3y ago
    It's okay to use specific examples to explain a general principle or to make your point more clearly. But when those examples are more-or-less made up, as they are here, you'd better: 1. Be clear that they're examples and not some fundamental, mathematical truth. 2. Use multiple examples with different numbers to show how things could look different, even if only slightly. The author does neither of these. #1 is violated in the title. It's not clear at all that the author is using these numbers as merely examples.
  - tqi 3y ago
    It's not obvious that when the number if new customers acquired = customers churned, growth flattens?
jalapenos 3y ago
It's just concrete numbers to help the reader visualise. And as a reader who's worked at agencies before, he's right. The only part he's missing is that most agency owners grind on with this because of personal (psychological) limitations, and thereby get stuck. They get mentally capped out, so they can't move forward, and they form the core of the business, so they can't sell out. All they can do it stay locked in grit-your-teeth mode, until age and/or health fixes the situation for them despite their will. Agencies cap out very much like this, because of their fundamental scalability issues, but that's also why people enter that market. Easier to enter, because no one person can dominate it like a Google or Facebook. The number they cap out at is very tied at the intelligence, work ethic, etc, of the founder, but it always caps out in that asymptotic graph kind of way. The only way I've seen them successfully break out is to know this effect, and to use the cashflow to cover a product company offshoot that gets traction - basically a self-funded startup. But it's a rare case, because they we're attracted to the immediate and certain money lure of agency, vs the valley of death gamble of product.
- 3np 3y ago
  I also imagine a fair share of owners are actually content enough at ~$50k MMR. If you have expenses under control and not too much staff that can work out to a decent profit/salary.
- interactivecode 3y ago
  agree. From my experience I’ve also noticed that agencies usually have a shelf life of 10-15 years max. At the start they are the young fashionable agency doing great work. At some point due to a combination of great employees leaving for bigger jobs and the company getting bogged down with stable but boring long term clients, the company dies. Sometimes they end up cashing out and retiring. Most often they go bankrupt or get bought out by a consultancy looking to brand themselves as fresh. It’s fun working in ad agencies on the uphill. You’ll be able to do great work and learn how to ruthlessly prioritize quality output. On the downhill it can really corner you with little career growth and little pay.
- JimDabell 3y ago
  > And as a reader who's worked at agencies before, he's right. I’ve worked at a load of agencies and I don’t recognise what he's saying at all. What agencies sell $2k/mo packages? They are all either much larger finite projects or they have much larger retainers. What would you even sell for $2k/mo? That’s not going to cover anything beyond absolute basic maintenance to keep the lights on; it’s certainly not where agencies are making their money.
pc86 3y ago
It's pretty clear by the second sentence of the article that the author has no idea what they're talking about and is just making shit up: > Hardly anyone ever breaks through that [$50k MRR] barrier and reaches that next level where the agency generates reliably $300k+ in monthly revenue. Why is $300k the "next level" after $50k? So if I have a $50k MRR business and 5x its revenue, I'm still not at the "next level?" I've never heard a single person say that and they present it as if it's fact and move on.

by tqi 3y ago

oefrha 3y ago

Yeah, they used a bunch of completely random magical numbers: $2k/mo/client, 2 new clients/mo, asymptotic churn rate of 15%. All they’ve demonstrated is there’s likely a ceiling somewhere for each agency, which is obvious to anyone. Big thumbs down, save yourself the click.

sshine 3y ago
> that’s just basic growth accounting And a monad is just a monoid in the category of endofunctors. This stuff is not obvious to everyone. The arbitrary numbers are called an example. The point of the article is to say, when you experience a plateau and you begin to speculate why, it’s mathematically expectable.
- manmal 3y ago
  This use of the term math irks me. Math exists within the bounds of its own rules, and often it explains the world well. Sometimes, math can be used to make predictions about the world. But to infer that such a prediction is valid „just because I can make the numbers line up“ is IMO too hand-wavy and maybe even pseudo scientific. I wouldn’t drag mathematical models into this so early in the process.
  - sshine 3y ago
    He’s expanding on how rates grow in proportion. It can hardly be controversial to call this math. But ok, it’s not “the mathematical reason” but rather “a mathematical explanation” - the math is a property of his explanation, and the reason is growth, churn and employee psychology; while well-explained mathematically, they aren’t math. Somehow this seems to be besides the point, being: here is a common reason for plateau’ing.
    - magicalhippo 3y ago
      Reminds me of our introductory course in math at uni. The lecturer was showing a concrete example of how to integrate using the technique we'd just learned. After a lengthy manipulation of the integral, he said "and then you can just plug this into a calculator and get an answer, but that's not really interesting so I'll stop here".
    - deleted 3y ago
      [deleted]
    - itiro 3y ago
      Is it common? The point is asserted at the top of the article, but no data is provided to back it.
    - manmal 3y ago
      What I mean is this: Making some anecdotal observations that can be explained by a certain model, doesn't mean the real world follows this model. It might not even be a good approximation.
    - deleted 3y ago
      [deleted]
- pc86 3y ago
  It's okay to use specific examples to explain a general principle or to make your point more clearly. But when those examples are more-or-less made up, as they are here, you'd better: 1. Be clear that they're examples and not some fundamental, mathematical truth. 2. Use multiple examples with different numbers to show how things could look different, even if only slightly. The author does neither of these. #1 is violated in the title. It's not clear at all that the author is using these numbers as merely examples.
- tqi 3y ago
  It's not obvious that when the number if new customers acquired = customers churned, growth flattens?

jalapenos 3y ago

It's just concrete numbers to help the reader visualise. And as a reader who's worked at agencies before, he's right. The only part he's missing is that most agency owners grind on with this because of personal (psychological) limitations, and thereby get stuck. They get mentally capped out, so they can't move forward, and they form the core of the business, so they can't sell out. All they can do it stay locked in grit-your-teeth mode, until age and/or health fixes the situation for them despite their will. Agencies cap out very much like this, because of their fundamental scalability issues, but that's also why people enter that market. Easier to enter, because no one person can dominate it like a Google or Facebook. The number they cap out at is very tied at the intelligence, work ethic, etc, of the founder, but it always caps out in that asymptotic graph kind of way. The only way I've seen them successfully break out is to know this effect, and to use the cashflow to cover a product company offshoot that gets traction - basically a self-funded startup. But it's a rare case, because they we're attracted to the immediate and certain money lure of agency, vs the valley of death gamble of product.

3np 3y ago
I also imagine a fair share of owners are actually content enough at ~$50k MMR. If you have expenses under control and not too much staff that can work out to a decent profit/salary.
interactivecode 3y ago
agree. From my experience I’ve also noticed that agencies usually have a shelf life of 10-15 years max. At the start they are the young fashionable agency doing great work. At some point due to a combination of great employees leaving for bigger jobs and the company getting bogged down with stable but boring long term clients, the company dies. Sometimes they end up cashing out and retiring. Most often they go bankrupt or get bought out by a consultancy looking to brand themselves as fresh. It’s fun working in ad agencies on the uphill. You’ll be able to do great work and learn how to ruthlessly prioritize quality output. On the downhill it can really corner you with little career growth and little pay.
JimDabell 3y ago
> And as a reader who's worked at agencies before, he's right. I’ve worked at a load of agencies and I don’t recognise what he's saying at all. What agencies sell $2k/mo packages? They are all either much larger finite projects or they have much larger retainers. What would you even sell for $2k/mo? That’s not going to cover anything beyond absolute basic maintenance to keep the lights on; it’s certainly not where agencies are making their money.

pc86 3y ago

It's pretty clear by the second sentence of the article that the author has no idea what they're talking about and is just making shit up: > Hardly anyone ever breaks through that [$50k MRR] barrier and reaches that next level where the agency generates reliably $300k+ in monthly revenue. Why is $300k the "next level" after $50k? So if I have a $50k MRR business and 5x its revenue, I'm still not at the "next level?" I've never heard a single person say that and they present it as if it's fact and move on.