Don’t Get Caught in the Growth Gap

Growing a creative practice is a huge challenge. Especially when, as a creative, you lack business training. Learning on the fly is a big liability. It’s hard enough to grow a company when you know what to expect, but hitting a surprise gap can have dire consequences.

Last week we considered one of the early decisions an owner of a growing creative practice must face: filling the overhead roles of account management and new business. Though almost everyone tries to economize by combining these roles in the early stages of growth, it never works. And so you have to choose. That’s a known problem. You will face it, and you’ll be much better off being intentional about that decision. You need to be prepared to fill the account management gap yourself, for a time, if you hire for business development. Or you’re going to have to own the biz dev role if you hire an account manager first.

But this is not the only growth challenge you’ll face. There are other predictable and inevitable moments in the growth of a creative firm.

The Pyramids of Growth

Creative practices tend to follow certain growth patterns. Creative firms don’t grow one staff member at a time, incrementally, from one to one hundred. Rather they move from one tier to another. Very rarely do firms go from one to two, and stay there. Usually, once you start to hire, you end up needing at least one overhead role by the time you have two or three producers. And so you move from a company of one, to a small group of four to six pretty quickly. This size can be stable and sustainable. You can choose to stay put, right there, and do just fine.

But if you continue to grow, you will find that you quickly go from the four-to-six range up to the ten-to-twelve range out of necessity.

The Economic of Scale

These tiers of growth are based on simple economics. You generally are going to need three or four producers for every overhead role, in order to maintain an average productive utilization rare as close to the optimal 60% as possible. Production staff should average around 80% productive time versus overhead time. A new business person however will hardly have any “billable” time at all. And as an owner who is trying to stay in the creative production role, you will not be able to match your creative staff’s productivity. You will have more overhead time in your role. So, for example, if you have three creative staff plus yourself, and one new business staff your utilization might be three production staff at 80%, you at 50%, and your biz dev person at 15% tops (probably lower). This averages out to 61%.

If you were to try to add another overhead role at that size, your utilization would drop too low for you to remain profitable. And so getting to the next level would require you to add three or four more people, not just one. The next stop on the growth path goes from four to six up to ten to twelve

Moving Forward Past Ten to Twelve

A similar trend occurs when you move past the ten-to-twelve tier. But it gets more complicated. While at the four to six, or ten to twelve levels, your own personal leadership of the company is manageable. It’s possible, though not easy, to manage the company, engage in projects, and lead the staff. But once you get north of the ten-to-twelve level, you’re going to face a new set of calculations. Your own leadership won’t stretch much further, so you’re going to need to restructure your firm into units, or teams, and allow certain key management staff to take on higher leadership roles as they oversee their teams.

People, as well as Systems and Procedures, Must Change

Additionally, as you get to this scale, certain functions and systems, as well as your operating procedures, which may have been somewhat fluid before, are going to need to be solidified and may require dedicated staff to manage. For example, resourcing—the company-wide function of balancing project loads—will become a full-time overhead role.

Account Managers Increase Overhead Functions

What’s more, your account managers will need to take on more general company overhead as they deal with managing staff, and other leadership functions, which will put downward pressure on their average utilization. So the overall ratio of producers-to-overhead has to increase even more at this stage. When you need more producers to cover overhead, and all the while your key managers have less time, you end up moving from the ten-to-twelve tier to the eighteen-to-twenty-four tier.

These tier levels are generalizations. Not all kinds of creative services follow this exact pattern, and there are always exceptions. But the economic principles described here are real, and every growing business will face gaps where it is very difficult to add just one more new role, without also being ready to hire a bunch of others to support it.

As you grow your creative practice, keep an eye out for these moments, and take some time to do a little math and forecast your productivity ratios. If you try to stay put in one of those in-between areas, rather than leaping over the gap, you may fall into a gulf that you can’t get out of.