Our unexpected long journey pivoting from digital agency to product company

Photo credit: Pixabay.

It was Christmas of 2013. I was at home but I was talking to my co-founders Luke and Mark on Skype. We started our digital agency, Codegent, in early 2004 and now, almost 10 years later, we were trying to figure out what to do next.

It’s not that things were going wrong. Things had plateaued since the 2008/2009 financial crisis but we were still making money. Nevertheless, something had changed in us.

We were all tired of what felt like the endless treadmill of agency life. We were tired of putting our hearts and money into pitches and not winning them. We were tired of being ignored after giving people some wisdom from our experience. We were tired of constantly having to chase work to replace the work we had just completed.

And we could see the writing on the wall: A lot of what we did was being commoditized. Clients were developing their own in-house teams. Offshoring to Eastern Europe and India meant that there was a downward pressure on the prices we could charge, and this was combined with an upward pressure on UK developer salaries, as in-house teams increased the scarcity of available resources.

This is not to say that there wasn’t a future for the agency. It’s just that we reached the end of where we wanted to go with it.

Becoming a product company

By contrast, we had early successes with mobile apps, SaaS products, and JVs (joint ventures). And we were excited for the emerging possibility of being a company that made its own products, where we were the client. We took our own advice and could see that we were building up a head of steam and applying all the years of accumulated experience to create something that worked.

And as we started to understand more about the potential scale of these businesses and how compelling the metrics became at that scale, we were sold. We were convinced that we could create something bigger, more ambitious, and world-changing than we ever could by continuing on the agency path.

But while making the decision that we wanted to become a product company was relatively easy, making that happen was not plain sailing. We had no idea how we would get there, what it would look like, and how long it would take. So, we took a stab.

We envisioned it would take two years and, at the end of that period, we’d have replaced our clients with our own portfolio of companies. These would be a combination of JVs and our own products, such as our mobile apps and social listening tool Twilert. In this future vision, the staff we had in our agency would transition to working on our own products. We would also eventually say no to any new client work and be able to sustain ourselves entirely with the revenues from the stuff we had built. Perhaps, we would raise some funding and become a bit of an incubator or accelerator.

In reality, it didn’t work quite like this. We didn’t properly understand it at the time but there were some flaws in our fantasy future.

1. JVs

The problem with JVs, we soon found, is that people generally want to do a JV with you because they don’t have the funds to pay for development themselves. We had some success with Tepilo, our online real estate platform. But that was a fairly unique model, as the other founder was a celebrity and not working full time on the business.

But for most businesses, they didn’t see us as a co-founder in the traditional sense, where we are an integral part of decision making and the evolution of the business. They just wanted our developers to build them stuff.

A year or so in, what did we look like?

A minor pivot

Did the plan work?