If you could choose between developing your own product and doing client work, what would it be? Would you rather deep dive into the world of high risk and high reward type of business or would you choose steady client growth and more secure profit?
DesignRush sat down with Tom Car, an entrepreneur who says he has never worked for someone other than himself.
As the co-founder and CEO of Infinum – a software design and development agency – and co-founder of Productive – an SaaS tool that helps agencies become more productive and successful -- he’s the right person to talk about the differences between running a product company or an agency. After all, he has successfully done both.
DesignRush: What inspired you to start an agency?
Tom Car: We started building software about 15 years ago. Those were the early days of technology, and we didn’t really know where this was all going to lead to. But we were young, bold and loved coming up with innovative technology.
Fast forward to today and we are now a 200-person shop doing software design and development. Our clients are from all over the world, mostly global companies, where we build and design digital products for various aspects of their businesses.
DR: In addition to your agency, you also founded a SaaS company. Where did that idea come from?
TC: Every business, in the beginning, starts with a spreadsheet – and you really don’t need anything else to keep track of those few invoices and payments from the first few clients.
But, if everything goes well, you’ll eventually be working on many projects at the same time, with dozens of clients and employees alike. With a larger workload, it becomes much more difficult to keep track of how profitable your business is unless you have multiple tools at your disposal.
This same thing happened to us. In the early days of Infinum, we just couldn’t manage our business in Excel anymore so we started looking for other tools on the market. Nothing quite fit our needs and we hated the idea of using 5-6 different tools for things like project management, time-tracking, customer-relationship management, profitability, and more.
So, we decided to scratch our own itch and build a tool of our own - we called it Productive. Years of development and multiple iterations went by until Productive became what it is today.
Our experience in building software for others and running an agency helped us build a tool that solved most of the problems a typical agency runs into. For example, understanding our utilization, knowing how profitable we are with some clients, how much we still need to invoice, who’s available to work on projects we will sell in the short term and so on.
As time went by, Productive grew way beyond a time tracking or task tracking app. Having so much data about our business allowed us to build profitability and forecasting reports the likes of which we haven’t seen in competitive tools.
Overall, Productive became the single most important thing that allowed us to grow Infinum.
I can guarantee we wouldn’t be able to grow to 200 people so quickly without the profitability insights we get from Productive.
DR: What makes Productive so different from other project management tools?
TC: This is the most common question people asked back when we had to decide whether we are going to turn Productive into a spinoff business.
Yes, the market is saturated with project management tools to the point that it seems crazy to try and reinvent the wheel. But, we did not look at it that way. Our focus was different and it revolved mostly around profitability and streamlining internal agency processes.
It’s also no secret that having too many tools generates a lot of overhead costs. It can be very difficult to get any kind of report that helps you make important business decisions. That’s why many agencies still resort to spreadsheets when calculating profitability.
People often ignore the impact of multiple tools on employee onboarding, which is another problem. If you hire someone, they should start pulling their own weight as soon as possible. This can be a problem if they waste weeks getting used to 5 different tools.
You can do everything in Productive. Sales, resource planning, time tracking, project management, budgeting, invoicing, reporting. It’s all there and it’s built specifically for agencies. The coolest thing is that we factor in things like employee salaries and company overhead costs into profitability reports automatically. This gives you accurate profit margins without spreadsheets. The only assumption is that your people track their time, which they probably do anyway.
DR: How do Productive and Infinum compare to each other? What would be the main differences?
TC: In an agency, you have the opportunity to work on various projects for clients with their own product ideas and requirements. This opens up a lot of opportunities to learn new technologies and work on interesting products across different industries. The main drawback, however, is that you don’t own the intellectual property you build.
Also, the business model is different from the perspective of scalability. When you grow an agency, you mostly grow by hiring more people. Sure, getting clients with long term contracts who are willing to pay higher rates is another strategy, but you have to acquire a certain reputation first, and that takes years.
In a product company, the situation is very different. You’re focused on your own intellectual property and you’re always iterating on the same product. You typically don’t have to hire that much in order to grow, but you have to grow your product and subscriber base. Which means, of course, you need a product that people are willing to pay for. That brings us to the greatest differentiator when comparing agencies to product companies - market risk.
DR: What do you mean by “market risk”?
TC: Digital products typically have two types of risk associated with them. One is called “technical risk,” which is, Can we actually build this thing? The other is “market risk” which is, Can we actually sell this?
When you’re working as an agency, the client is the one that takes on the market risk. You’ll get paid for the work you did, but if the product or service you’ve built doesn’t fly well in the market, the loss is typically on the client’s side.
It’s much different when you’re a product company. You’re basically betting on a market need for your solution. You’re investing your time and money in building, marketing and selling the product and you take on both the technical and market risk.
If you’ve failed in doing your homework, built a product, raised some funding, but you just can’t seem to find customers - you’re going to run out of money pretty fast.
DR: What are the differences when starting up an agency or a traditional product-based business and what growth can you reasonably expect?
TC: Starting an agency usually costs less upfront as you don’t need that much capital to get going. You also start making returns much faster, depending on how you set up payment with clients.
When you’re building a product you need more capital, and you need time to build a product before you even have an MVP you can start pushing into the market. If you’ve played your cards right you will eventually start getting a return on your investment, but by the time this starts happening, you may already be out of money. It’s very capital intensive.
If you rely on investment to keep going, the more you raise, the longer the period before you need to become cash flow positive, but you also need to give away more equity.
For some companies, especially the ones that rely on venture capital to sustain themselves, being cash flow positive is not even what they’re aiming for in the short term. The goal is just to acquire more customers in the shortest amount of time.
The fact is that the more you spend, the faster you can get back on track. If you can afford it, it’s always good to spend more and ensure faster and bigger returns in the future. It’s only natural - your product becomes better, your brand becomes more recognizable, so more people are willing to pay more money to get their hands on it.
DR: From your own experience, would you say it’s more enjoyable building an agency or a product company?
TC: For me, both have been equally satisfying, because each has its drawbacks and advantages and it’s a great learning experience doing both.
But I believe this is because we’ve started building a product in an industry where we already have a track record and we understood that Productive would be something we could sell relatively easily. And we weren’t wrong.
Productive now works with a lot of agencies all over the world, and they all share Infinum’s problems. We focus on helping agencies understand their profitability without generating too much overhead cost while analyzing all of their data.
We’ve hired a lot at Infinum, especially last year, and I can’t stress enough how beneficial it is when your new people have to learn just one tool they will be using on a daily basis. It simplifies onboarding too and that’s something that shouldn’t be underestimated.
DR: What do you think are some key new features you’re bringing to Productive in the future?
TC: We’ve now started experimenting with a lot more than just historical data analysis. Productive’s resource planning allows us to plan in cost and revenue and look at what will happen to our budgets way into the future.
Projects typically have a start and end date, and if you don’t have enough projects to keep you going, you may end up shutting down faster than anticipated. We try to help agencies anticipate droughts and plan their capacity accordingly. And I think this is our biggest advantage too. We don’t want to, nor try to be an all-purpose tool for everyone.
We know who our customers are - agencies, consultancies, studios, professional services firm. We understand them, and we want to help them run their business more easily and effectively.
Do you want to improve your business's productivity and increase revenue? Contact Productive HERE to start a free trial!