Whether you started your digital marketing agency as a contractor with one-too-many clients. Or as part of a funding-backed team ready to take on anything and everything. Once you're established as an 'agency' with a team to support and clients to service, you'll be locked into the ups and downs of a shifting marketplace.
We all plan for good years and set our goals to focus on an upward trajectory, but the truth of the matter is that we likely won't see continual year-on-year growth until the business gets acquired. That path, though set as the golden standard, is elusive and rare.
You will be far more successful over the long term if you're aware of the ups and downs, and plan for a more typical 10 year business cycle.
What is the 10 year business cycle?
In a 10-year business cycle you can expect to have:
- Two great years,
- Six good years, and then
- Two terrible years
Many businesses are having a terrible year in the midst of the COVID pandemic. Their doors are shuttered and they're not sure if they'll make it through. Others, like Slack, Zoom and EduTech companies are thriving, with record numbers of new users and revenue through the roof. The COVID pandemic is an excellent example of how you can't always predict what forces are going to drive your company into a great/terrible year, or even when they're going to happen. But for most of us, they will happen.
Two Great Years
Every great year is hopefully just a glimpse of an even better subsequent year. When you have an incredible year, build from it. Plan for a better one on its tails. But don't forget that it might not happen. Use the extra cash on hand during your great year to invest in the people, infrastructure and marketing that will help you grow even further. These fundamentals will help you weather any storms, should the following year(s) not be as bright.
When your business is growing each year, it's incredibly important to save. You need cash to grow, but if you lack cash on hand to operate when times are tough, your business might not survive.
Six Good Years
You are getting paid, your team is getting paid, bills are getting paid and you have a client roster that you enjoy working with. You win some clients and lose some clients, but you're able to 'turn off' and leave the office for a vacation now and then.
Two Terrible Years
You may be too familiar with the feel of a terrible year. Right now many companies are having their worst years on record. You may be furloughing your team. Clients are leaving. You're looking at what expenses can be cut. You might be running the numbers to see if you're better off cutting your losses and cashing out now. These are the years that we don't want to have but we need to be prepared for.
To make it through a terrible year you must always be prepared to take a revenue loss. Having solid margins and cash in the bank can help you make it through when this revenue loss happens. Having six months to a year of operating costs saved up will help you make it through for a loss in revenue, especially if it's a big one. When it's a really big one and you have to downsize, make a crisis management plan and stick to it.
You can (roughly) predict the future
The 10 year business cycle is not a new idea and is not one that I've come up with -- but it is one that I have lived. I was fortunate to start my career in the early 2000s in Alberta when there was a booming economy. Jobs were plentiful, pay was good and we all had good and great years. I started my agency in 2006 and had two good years before the global recession in 2008, when we lost 80% of our revenue. Thankfully, we were able to make it through and we even became more resilient from it. I sold that agency in 2016 in another boom. The pain you are experiencing now with the pandemic is not going to be the last time your business faces financial difficulties or potential closure. Do your best to prepare for it ahead of time and you'll be better equipped to make it through the next 10 year business cycle.
Need help identifying your agency growth plan? We can help. Contact us for a no obligations chat today.