Why Start a Digital Marketing Agency?

Why Start a Digital Marketing Agency?

[This is Chapter 1 of my upcoming book: How to Start and Grow a Digital Marketing Agency]

Congrats on picking up the most comprehensive book on how to start a digital marketing agency in India. You will have plenty of things to learn in this book. You will learn almost everything that is required to start and grow a successful digital marketing agency.

I am writing this book not just from what I have learned, but also from what I have experienced. I have been running a digital marketing agency called PixelTrack for more than one year now and it has been nothing short of a roller-coaster ride with lots of excitement, disappointments, failures and learnings.

As it is evident from the title of this book, “How to Start and Grow a Digital Marketing Agency” we will be mostly focusing on the How part. However for anything to be successful, it helps to start with a clear Why. Why start a digital marketing agency in the first place? That’s what I want to address first, before we get started learning the how.

Once the Why is clear, the how will present itself. Once the how presents itself, it is easy to execute it and go to the other side, because you know where you are going. Most of the people are not stuck with lack of information on how to do something, but rather, why they should do what they do.

That’s why I want to dedicate an entire chapter on Why you should be starting a digital marketing agency. May be, after reading this chapter, you will decide not to start an agency and that’s completely ok. Agency life is not for everyone. There are pros and cons to starting a digital marketing agency.

My goal for this chapter is to make it very clear about what you are signing up for. You need to have clear expectations of what you are going to get out of starting an agency and also what is expected of you to make your agency a successful one. I will be explaining my own decision process to decide to start an agency and that might help you see if this is the right thing for you.

You might already know about my digital marketing and entrepreneurial journey, and might have seen my TEDx talk. If you haven’t, just search for “TEDx Blogging Deepak” on YouTube and you will find my talk. The long version of my digital marketing journey is laid out in my talk.

Here’s a short version of my 10 year journey: I graduated in 2008, ran a motorcycle publication for 4 years, had an exit in 2012, came to Bangalore and worked as a digital marketing manager in noteworthy startups like Exotel, Practo, Instamojo, Razorpay and MoEngage. Quit full time jobs around early 2017, sold digital marketing courses through my blog and started my Digital Marketing Agency PixelTrack by late 2017 along with a co-founder, Sanjay Shenoy. Now the team is around 10 people and things are better than ever with PixelTrack.

I am writing this book based on the assumption that you already know a little bit of digital marketing, or you are a digital marketing professional already in a job. If you are completely new to digital marketing, I would recommend you first sign up for my free digital marketing course at www.LearnDigitalMarketing.com, and then continue reading this book to get the maximum benefit out of it.

The Need for Entrepreneurship

One of the main reasons I started a digital marketing agency is because I wanted to be an entrepreneur. I wanted to be my own boss. Statistics say that only around 15% of the people who are going for full time day jobs are actually happy in their job. For creative and open-minded people, it is even more difficult to stick to a job where they are expected to do certain tasks in a framework of expectations.

Most of us go to jobs because we have to, not because we want to. Having a boss and taking instructions is always going to be a little bit boring and frustrating. If you are in the 15% who actually enjoys your job very much, you should still consider becoming an entrepreneur for the financial freedom that it can give in the long term. And in most of the cases, entrepreneurship also gives you financial security, which a job can never give.

When I worked as a digital marketing manager, I was paid extremely well. My CTC was 25 Lakhs per annum in my last job which included some equity as well. That put at least 1 Lakh a month in my bank account which I can save and spend. There are times where I considered whether I could do this long term. But my heart said no.

A high paying job comes with it costs. Firstly, there are a lot of demands in such jobs that it hardly lets you have a personal life apart from the weekends. You are basically trading 5 days of work for 2 days of weekend and there is no end in sight. There will always be a little bit extra pressure on you to deliver, even if you are at your maximum productivity. And working for fixed income can get frustrating because unlike a business, extra work hours do not have a compounding effect in the long term.

Secondly, as work descriptions become more specific across the industry, there aren’t too many similar jobs in the market. This puts you at a risk because when the time comes for a change, you will not be able to find another job quickly enough at the salary and location that you prefer.

Another point that worried me a lot is that the salaries are inflated and unrealistic. India is a heavily over invested market with huge expectations of return in the future. Venture Capitalists are betting huge on India, but the real market opportunity might be less than the expectation. Private equity funds are flowing from international markets, not just because India is seen as a place for huge returns, but because the returns on investment across the globe has come down to near zero.

Learning about the global financial landscape made me realize that such high salaries and fancy jobs are unsustainable in the long term. These salaries are not coming from the revenue right now, but from the investor’s money. And it is a gamble to expect that all startups will do extremely good in the future to continue paying such high salaries.

If the startup fails to raise the next round of funding, or worse, the startup shuts down, people will get laid off and it is very difficult to find a job that pays more. And it is insanely difficult not to have a job, or to reduce your standard of living due to a lesser paying job or a lack of job. Once you move into a better home, buy a better car and get better vacations, it can be excruciating to level down because each moment you will feel like a failure.

I felt that a job like this was good to have in the short term, but risky in the long term. During my work tenure, I saw it as an opportunity to learn while I was getting paid, but no way it is going to be a long term thing. Though I worked hard, I didn’t feel like my activities were directly adding to the bottomline of the company in terms of revenue, and I could clearly see that my salary was funded by venture capital money.

When I want to quit to start my own thing, my family demotivated me and even warned me that they cannot do anything to help me if I screw myself up. But family, especially parents, come from a different era, where jobs where not this demanding and also they were more stable. My dad worked in a bank for 20 years. I don’t think I can work as a digital marketing manager for 2 years straight, if not 20 years.

People usually look at jobs as less risky and entrepreneurship as more risky, but I did not feel that way. Based on what I’ve learned and what I thought through, I felt it was the right decision to make to jump into entrepreneurship.

Safeguarding my future and my career was my main motivation to start a digital marketing agency. However, before I dived deep into starting a digital marketing agency, I also tried starting up a product company. Let’s discuss about the pros and cons of starting up a product company before we talk about the agency.

Starting a Product Company

Many entrepreneurs are attracted to starting a product based company instead of a service based company. As a general rule, product based companies look more sexy from the outside and gets more PR than a service based company. A product based company might also look like it is easier to run and scale up. But the reality is different.

A digital marketing agency is mostly going to be a service based business. Many services can be automated and ‘productized’ but it can never become a pure product company. Starting an agency and running is not going to be easy either. For this reason, not many people are dreaming about starting a digital marketing agency. Both product and service companies have their advantages and disadvantages.

One of the biggest challenges in running an agency is client management. If you are in a job, you have to report to your boss. In an agency, your clients are your bosses. And there will be multiple clients for your agency. You might get a request on a weekend and you cannot say no, at least in the initial years of scaling up your company.

Some clients will also have unrealistic expectations and you need to make a choice whether to fire a client or continue working with them. The decision can be as difficult because not only you will be making lesser revenue, you will also be responsible for the people you have hired. You need to be responsible for their careers as well.

However, you have to keep in mind that a product based company also has huge challenges. Initially, I had a dislike for service based companies, so I didn’t start a digital marketing agency immediately after quitting my job.

I haven’t talked about it much, but I have given my try in running a product company. Having worked in many product based companies and seeing them scale, I was attracted to start a product company. It felt like the right thing to do. I didn’t want to have the hassle of managing clients.

Creating or manufacturing physical products was out of the question. Everything is made in China anyway, so we don’t stand a chance here. Starting something in the technology space seemed more practical. So I decided start my own SaaS (Software as a service) company and scale it with revenue.

I incorporated a company called Happymatic with another tech co-founder and we launched two products initially. OptinChat.com and HelpNinja.com. The first few months it was exciting to see a great product come up which only existed as an idea in our minds before. But then it became challenging, really challenging. The numbers did not work out as we expected.

One of the biggest challenges with scaling a SaaS company is the amount of investment that is required initially. Investment, both in terms of time and money. To build and sustain a good product, one needs a good base of paying customers. To get a good base of paying customers, we need to build a good product and sustain it. It is a chicken and egg problem and the chances of failing are higher than a services company. In a services company, you work for guaranteed returns from the client for a specific work done.

Many SaaS companies get featured in the news and are celebrated. They scale fast and they have exits which are noticed by everyone. Two co-founders starting a tech company and flipping the company for a few million dollars within a few years is something that everyone pays attention to and wants to replicate.

As I spent more time trying to build a product company, I realized the harsh reality that for every success story of a tech company having a multi-million dollar exit, there are 10s if not 100s of failed product companies that could never take their product to the market let alone increase revenue.

SaaS companies also face tough competition from other SaaS companies across the globe that have raised millions of dollars in funding. Another product company can always gain more marketshare by developing a similar product at a cheaper price using investor money.

Unless you are building a product with some network effects built into it, it is very difficult to retain customers if pricing is not your advantage. And if you are not a funded startup, you cannot make your products cheaper beyond a certain point.

All this has led me to believe that it is quite ok to start a digital marketing agency. A services company has some unique advantages compared to a product company. And given my experience and field of expertise, a digital marketing agency seemed like the right thing to do. This has led me to start a digital marketing company called PixelTrack along with my co-founder, Sanjay Shenoy.

PixelTrack is not just a digital marketing services agency but also includes other products and services under the digital marketing vertical. I have run this agency for more than one year now with my co-founder, and I’ve learned plenty of things. This book sums up all the learnings I’ve had in running a digital marketing agency.

Pros and Cons of a Digital Marketing Agency

Though I am writing a book on starting a digital marketing agency and encouraging my readers and followers to start their own agency, it wouldn’t be fair if I said it is going to be easy. I have laid out all the pros and cons based on my experience and also based on the conversations I’ve had with other agency owners. First, let’s start with the downsides.

The Downsides

There are 3 major challenges in starting a digital marketing agency. Client management, growth management and price wars.

1. Clients: A digital marketing agency is a B2B business. Instead of having a large volume of customers who pay for your products, you will have a small handful of businesses paying for your services. This means that they would expect you, the founder of the agency to get involved.

You can’t build a company and expect that your employees will take care of everything. Having clients is as good as having multiple bosses and some clients can be particularly hard on you. You need to be very careful when choosing clients. Some clients are also known not to make payments on time and that is a huge challenge especially in India.

2. Growth: In a product based company, you can double your marketing spend and expect the revenue to double. You might be able to grow 2x in a matter of a month or two. Though it is unlikely, it is very much possible. However, an agency cannot grow like that. If you onboard new clients, it will take its own sweet time for things to fall in place. You need to identify and hire new people, get the process in place and only then your bottomline will go up.

3. Pricing: Your competition can price the same services at a lower cost and you will be forced to bring down your prices. This is not just a problem with services company but with product companies as well. There is always someone around the corner waiting to undercut you. This problem is a little bit more prevalent in the service industry because you cannot build a product overnight and go to market with a cheaper price, however, you can build a service overnight and take it to the market.

In the future chapters, we will talk about how to best position yourself as a premium digital marketing agency focused on one niche to command high prices and maintain market dominance.

Another downside to consider when starting a services business is that it cannot be sold. Product based companies have a better chance of being sold or having a big exit at some point in the future. Many services business have been sold but the chances are less than product based companies.

The Upsides

Now that we have discussed about the downsides of both agencies and product based companies, let’s talk about the upsides of a digital marketing agency.

The pros of such a service based company is not immediately apparent to a common wanna be entrepreneur, but anyone who has run a service based company for a while would understand the benefits.

1. Income Predictability & Low Investment: One of the best advantages of running a digital marketing agency is that you will have predictable income. When you build a product and take it to the market, you are betting on assumptions. If the assumption is true, you will make sales, else you have to make changes and repeat the process again.

The amount of revenue a product will make when it goes to the market is not predictable. Such a risk always exists with a product company. However, when you are selling services to clients, they agree to a specific pricing and you can expect in good hope that the money will come to the bank.

Most clients pay only after the work is finished, but most clients will pay the promised amount. When you are expanding your team and hiring people at a certain pay scale, you can do so with confidence by predicting the amount of revenue you will make. Growth is less risky in a digital marketing agency compared to a product company.

Another benefit of starting an agency is that you don’t require a lot of money to start with. Just make sure that you have enough money to sustain yourself (and a co-founder if there is one) for 3-6 months. Start working on sales and get some clients. Once you get the client’s confirmation, you can start hiring people and expand your team. Unlike a product startup, the up-front investment required is not much.

2. Options to Fire Clients: When you are working as an employee, you have one client. If you get fired by the client, you lose your job. You will lose all your income sources until you find another job. However, as a digital marketing consultant or an agency, you can have anywhere between 3-5 high paying clients or 5-10 medium paying clients. And if a client is not easy to work with, you can stop working with the client and get another client within a few months to make up for the loss.

No agency will face a situation where all the clients leave at the same time. This gives great stability for the company and for paying yourself. Though you have to manage multiple clients and meet their expectations, you will be able to let go of people you don’t like (both clients and employees). And that would make you feel very much like a boss. Reaching such a stage will take some time (1-3 years) but once you go through the initially grind, you will be set for life. It is also important to make sure that you have a strong footing in the market, which takes us to the next point…

3. Specific Knowledge & Process as USP: Many agencies start out with providing all the services for all the people. They want to be everything to everyone. However, it makes far more sense to focus on one thing across industries, or focus on all the things for one industry.

For example, if you are a design agency, just focus on design. You can do design for many different industries. Or if you want to be a full-fledged digital marketing agency, do it just for one industry. That way you will carve out a niche for yourself and people will seek you out for their marketing needs.

When you focus on one thing, you will be able to build processes that are not easy to replicate. You will also gain specific knowledge about an industry, and that becomes your USP. The process that you develop over time and knowledge that you gain over time will become assets of your agency. This will help you command premium pricing and you will not get into a price war with other agencies. This will help you make sure that you are going to stay for the long term without being disturbed by the competition.

4. Founder’s Salaries: Founders of a digital marketing agency can withdraw decent salaries from the company, from the beginning. It is easier than product companies because you are not going to wait for a long time for the product to finish up and taken to the market to start seeing revenue. As a founder, you will also be working actively on the client projects in the initial days and it makes sense that you pay yourself for your time.

That’s why more often than not, product companies do better when they are funded by an investor. Most investor’s money goes into office rent, cost of tools, founder’s salaries and so on. As a services business, you will have more cashflow from the start. It is a great way to get started into entrepreneurship and move on to products from there after saving up some money. Which takes us to the next point…

5. Ideas & Money to Build Products: When you have a very clear understanding of the market and the market’s needs, you will be able to know what kind of products you can build and sell. Once you start saving up some money from your service business, you can start investing that money into products, or at least ‘productize’ your services.

For example, we do a lot of reporting work in our agency and now we have started building a tool to create automatic reports for our clients. Once the tool becomes better, we will also release this tool in the market as a product. We might never become a pure product based company ever, but adding more product offerings gives us higher possibilities of scaling revenue.

A product startup looks for problems and create solutions for it, and many times they don’t “get” the problem right. When you are focusing on one service offering or one industry, the amount of knowledge you will gain about that industry will be priceless. And with that specific knowledge you can build products and enjoy the benefits that products can bring to your company.

You can let the income from your services fund your product development and you will be building the product only after knowing about the need very clearly. That way, you are reducing your possible risk of failure by a great extent. You will by default be a lean startup. The services that you offer before building the product will be your MVP (minimum viable product) which validates the need in the market. (I recommend you read the book The Lean Startup by Eric Ries).

6. Vast Opportunities: Many product companies operate in a winner-take-all market. For example, if you look at cab aggregator apps, there are two major players: Uber and Ola. If there is a third or fourth player in the market, they usually get consolidated by merging with one of the top two players.

When it comes to e-commerce in India, you have Flipkart and Amazon as the major players. Snapdeal, the third player is losing marketshare quickly. The third player usually dies a slow death, or they merge with one of the top two players.

It makes sense because consumers do not want to have too many options in mind when it comes to a particular product category. The mind can hold only a few options. As a consumer, you wouldn’t want to have 10 equally good e-commerce stores. It could become confusing and frustrating. We prefer mostly two options in each category.

Every mature industry eventually becomes a two player market. There was a time when there were 400 different airline manufacturing companies that made passenger aircrafts. Now you have Airbus and Boeing dominating the market.

This is also the reason why some startups attract large funding rounds. Investors bet very big on a startup. Not every startup will become a Google or a Uber, but one in ten can and that’s the bet that investors are willing to take. The chances of winning are low but if one wins, they win big.

Service based companies cannot scale like product companies. Though large organizations like Accenture provide digital marketing services, a small company like PixelTrack can also survive in the market. And we’ve also managed to attract big name clients like HDFC Realty and Nikon Lenswear. And since service based companies cannot become a very large player in many market, it is also unlikely for a service company to raise funding rounds like product companies do.

Scaling with products is easier because it doesn’t need a proportionally higher number of employees to serve the customers. But with services, you need to hire more people, and hiring is a slow process. Identifying a candidate, making an offer, the candidate joining your company, getting trained to become a valuable asset and the candidate becoming a part of your company’s culture, it is a slow and lengthy process. The team expansion process can take from 6 months to a year.

As consumer behaviour rapidly changes, businesses are forced to market where consumers are hanging out. There is a sudden shift from traditional media to digital media in a very short span of time, thanks to low cost decides and internet. If you look at LinkedIn, there are 1000s of open positions for digital marketing managers and other digital marketing positions. (Note that most of these jobs do not pay very well. High paying jobs are rare in this list. That’s why serving these companies as an agency is a better idea).

Any business looking to hire digital marketers, is also looking for an agency that could help them in digital marketing. This alone could be your client acquisition strategy – look for businesses looking to hire digital marketers and contact them to offer your services.

There is no doubt that the industry is expanding and opportunities are plenty. In 2018, 7000 crores was spent in digital marketing in India. By 2019, experts predict that around 19,000 crores will be spent in digital marketing. If that much money goes into digital marketing channels as marketing spend, who will run the campaigns for the businesses that want to leverage digital? Agencies!

The opportunity is so vast and as a service based business, big players cannot eat up all the available opportunities for themselves, no matter how hard they try. You can become a digital marketing agency focused on one industry in India, like restaurants, automobile dealerships, salons or apparel.

As the average age of Indian people goes up, their average household spending will go up, which means all businesses will make more sales in the next 10-20 years. And the opportunity for digital marketing agencies is immense.

For me, that’s one of the best advantages of starting a digital marketing agency. There is an opportunity for every player. If I think that competition can eat me up, I wouldn’t dare publish a book like this and create competition for myself!

Even if all the people who read this book start a consultancy or an agency, it wouldn’t affect my business. We have less than five clients right now for our agency, but all are very happy and I am pretty sure that we will be working with them for a long time to come.

Setting Up Your Digital Marketing Agency

I hope this chapter has helped you decide if starting a digital marketing agency is the right thing for you. Even if you are not completely convinced if it is the right thing to do, its ok. You can start out as a independent consultant and then convert your practice into a full-fledged agency. Your stint as a consultant will be your experiment to see if this works for you.

From the next chapter, we will start learning how to actually setup your agency. We will start with the legal requirements, then discuss about naming strategies, selecting your niche and then move on to client acquisition, delivery and reporting. Hiring is also an important process in growing an agency and we will discuss extensively about how to hire the right people for expanding your team. People make a company and without the right people, you will only be an one man show.

I’ve done the mistake of hiring the wrong people and almost letting my company die before my co-founder came and gave me a wake up call. Within a few months, we restructured the whole team and rescued the company from dying. You will get to learn everything from my experience and mistakes.

If you have any questions or feedback so far, please mail me at deepak@pixeltrack.in. I will be updating the content on this book every year and your feedback helps me help you with the right content.

So, let’s get started! I am sure you are as excited to read the further chapters as I was excited in writing it.