In the past decade, digital agencies have boomed. As the world becomes more tech savvy and interconnected, businesses of all sizes require a clean, clear digital presence that can compete in an increasingly screen-oriented world. Big or small, companies all need to be online. For our purposes, we will be looking at digital agencies on the smaller size. In a very competitive landscape, some key trends have emerged.
In order to survive and thrive, digital agencies usually take one of three paths and stick to it.
- Thrive within a certain business ecosystem. If you have worked with a certain type of business, why not recruit similar clients?
- Geolocate to your speciality. If you specialize in finance marketing, why not focus your energies on large financial markets like New York and San Francisco?
- Innovate across the medium. If you can perfect a certain corner of the digital market, why not transfer that across business types?
There are currently 4,183 companies listed as "Digital Agencies in Custom Web Design and Computer Services" in the United States. The vast majority of these digital agencies are small businesses (defined here as less than $500 million dollars in yearly revenue or less than five employees). In fact, 70% of digital agencies nationwide have less than 5 employees. However, the largest markets are saturated, with growth in top markets San Francisco and Los Angeles stagnant, and growth in New York actually declining. On the other hand, in less dense urban areas the opposite is true with Texas, Illinois, and Virginia seeing particularly rapid growth.
Tax incentives pay a large role in how businesses are structured. In New York, most businesses are incorporated where Texas and Illinois are home to many sole proprietorships. It's no surprise then that the vast majority of owners tap their personal credit for business loans--and they are generally a creditworthy group with an average score of 692 and a mean of 698.
A few tips and tricks emerged from our sleuthing as well.
- Many of the successful agencies we queried reported they used ZenDesk or Apex for handling their inventory and billing. Having a secure, trustworthy billing partner is crucial for settling a budget in a company's early months.
- Don't take risks with loans, scale what you are doing. Going into business is already risky, no need to double down. Also, if you are already using personal credit for loans it's best to remain a sole proprietorship for as long as possible.
- Expect 60% of revenue to go to human capital. At least for the first few years, you should expect to invest in yourself and your employees to make sure the engine is running smoothly before taking the business into another gear.