I recently shut down Friday Digital, a digital agency I started 7 years ago. I love this company and the people. They’re like children to me and it’s sad to see them go. But the show must go on. All I can do now is realize my mistakes and move on.

Why I made the call

The shutdown was not entirely necessary. There are ways to keep the company alive and well. I could down-size the team. I could cut costs. I could bring in outside investment. But I didn’t take it. Instead, I decided to stop everything. Let’s break down why.

Bleeding cash

We were low on cash as millions sitting in credit terms. We also started to run on negatives, bleeding cash each month. Overall, the business was nothing near healthy.

Passion lost

When things don’t go as planned for a long time, you start to feel tired. I used to go to the office feeling energized and refreshed. But now I go to the office not to innovate, but to keep things not broken. And I lose all my energy doing so. Eventually, I lost my will.

AI is coming

AI’s output is a prediction based on what has already happened. That’s why AI is so good with operational tasks where it repeats things over and over again. It never eats, never sleeps, and never makes mistakes which suites to replace operational labor. This means businesses that serve operations will be disrupted and are going away sooner than you think.

Many things will be replaced by AI in the coming years. The majority of what we do will face the same fate. If this continues (which it will) all we do will soon not be viable anymore. This renders the business not so sustainable. To survive, we need to pivot our business model. We need to pivot ourselves into doing something AI can’t replace. But how can people beat AI?

So to beat an AI, you need to do something that has never been done before. For a digital agency business, those are the Strategy and Creativity sides. I saw this coming, but I wasn’t prepared enough. Unfortunately, our runway was not long enough to test the new model.

The decision is made

If I had faced these problems one by one, I might have decided differently. But facing everything at once allowed me to make the decision easier.

Even if I managed to survive, without the pivot, the company would eventually die. So instead of fixing a dying company, why not just start a new one now? and for those reasons, I’m out.

What could I do better?

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Now comes the mistakes I made. If I were to start a new company, I need to address these mistakes ASAP. Let’s see what are they.

Build audience from day 1

It is great to have a lot of referrals where clients and friends keep bringing you leads. But this will eventually dry out. And not everyone they refer to you will be a good fit.

Referrals are mostly not your friends, but friends of friends. They come to you not because they want to help you and your business. It’s only because they expect special treatment from you. This usually comes in the form of personal attention where they expect you to oversee their project personally, or in the form of a discount.

It’s ok to work with them short-term. But don’t drag it too long. Keep in mind that you’re still paying your staff in full while you are not getting full compensation from them. Once you attract more good prospects, remove the discount or fire them. You heard me right. You can fire a client. But it can be awkward sometimes.

Alternatively, if you don’t want to face that awkwardness with your friends, you should start building your own audience.

Marketing is going backward with privacy concerns. Paid ads used to be so effective and so cheap that you could just buy your way into success. Not anymore, we can no longer just buy Facebook Ads and be successful. Marketing is becoming much more difficult than that.

If we’re not buying audiences, then we should build one. Kevin Kelly said you only need 1,000 true fans. If you added one fan a day, it would take three years. That’s why you should start now.

Boring but necessary stuff

If your business doesn’t pay you, you just get yourself a hobby. If it does and you still go to work every single day, you just get yourself a job. I got myself a job.

There are 2 important questions that every business owner should try to answer. 1) Can your business survive without you? 2) Can your business grow without you?

To answer those questions, you need to stop working in your business, and start working on your business. I made this mistake myself, spending many years doing and managing client’s work myself. While I enjoy doing so, I waste so much time not building up my business.

Instead, what I should do is create a system that allows my team to deliver great work without me. This can be in the form of documents, learning materials, tutorials, processes, SOPs, and training. Remember, your job is not to do the great work, your job is to unblock your team to do the great work.

Niche down

Imagine you have cancer. You don’t want to go to a generalized doctor. You would want to go to a doctor who specializes in cancer treatment, or even better, to those who already cure patients successfully.

One doctor can’t specialize in treating every disease. Just like an agency can’t specialize in every industry. To stand out from the crowd, you need to niche down.

I made this mistake by taking the generalized path. Doing so my company ended up being one of the options, not the only option. As you try to attract everyone, you end up attracting no one.

Niching down will also make it easier to package your deliverables. As you will have the same type of clients having the same problems. The solution will likely be the same. It’s more manageable to perfect one solution for one group of clients.

It’s okay to say no

An agency is similar to a school. Schools are great not because they have good programs or amazing teachers. It’s because they attract smart students.

Schools don’t make them smart, but they are already smart before they join. What schools do is only provide good environments to keep students on the right path they already are. That’s why they say no to not-so-smart kids all the time. How do schools say no? Entrance exams.

Agencies are the same. We don’t turn bad businesses into successful ones. 90% of new businesses fail, leaving only 10% to survive.

The 10% of clients are already on the path to success (or at least have a good idea of the direction) before they hire an agency. What we do is to keep them on the same path or make them a bit faster.

The rest of 90% have no idea what they are doing and they expect agencies to run their businesses. They expect us to make them successful from day one.

The agencies’ job is to manage those expectations. Some are manageable, some are not. With some experience, you can immediately tell if the clients’ businesses are going to work out. You can also tell if the experience with the client is going to turn badly. Many times I didn’t trust my guts and it turned out to be a disaster for the team.

There will be some times when you need to bring in the cash. But whenever possible, do not take in bad clients. You will regret it.

Rely on the law, not trust

Many new founders are optimistic, just like me, and trust that people are good and honest. Turns out there are a lot more bad guys than good guys. Many may look like good guys. But they are bad ones in disguise. Try giving them an opportunity and they will turn bad so fast.

Regardless, you can’t choose to work with good guys all the time. You will eventually run into bad guys in disguise so you need to be prepared to protect yourself.

Business relationships rely on trust. This is bullshit. You should always rely on the law. These are things you should consider when running a B2B company.

• Make sure a contract is signed by authorized directors. If they don’t want to sign the contract or let their subordinates sign instead, they’re probably up to something shady.

• Don’t provide long credit terms if not necessary. Make it due immediately for the first invoice. For the rest, NET 45 is more than reasonable, NET 90 is max.

• Do not accept that late payment is normal. A good client will respect you as a vendor and pay you on time. Make sure you have a limit on when to stop working.

• Don’t keep working if they don’t pay their invoices unless they issue a dated cheque. Otherwise, I guarantee you that half of those times you will be working for free.

I made this mistake by trusting my clients too much, especially when it comes to personal connection. If you allow them to cheat, most of them will gladly take the opportunity. Clients from personal connections are the ones I end up losing money on the most. So don’t let your guard down.

Build good culture

Agencies rely on the process and the people executing it. Without the team behind it, the business is nothing. I believe I did quite well in this part. Our culture is pretty much close to the way I want it to be. For those who are new to culture building. Here are some advice.

You can’t simply set rules and force people to fit in the rules you set. I tried it, doesn’t work. Similar to the school concept earlier, people don’t change that much. If you want a good culture, bring in good people. People create culture, not the other way around. And choose the one with a good mindset. You can always train their skills but not their mindset.

Once you have good people in, you can start building a good environment for them to shine. When it comes to people in your company, this goes the opposite from the business you work with. You trust them by default. Trust them until you lose that trust.

However, there will be some bad days as people make mistakes all the time. Make sure you leave some room for them to fail and grow. But not too much. Some people make mistakes and improve. Some keep repeating the mistakes. This hurt your business in the long run. When you find it, you also need to have the courage to let them go.

Hire slow, fire fast

You can’t be unemployed in this era. If you are, the problem is not the world, it’s probably you. In the modern world, information is so easily accessible. Opportunities are lying around for you to pick up. This goes the same for the job market.

Because of this, people tend not to stay with a company for so long. As soon as they see a better opportunity, they will jump ship. And it is okay. I always support my employees to take good job opportunities, even helping them get one.

As a small company, you can’t expect anyone to stay with you for more than 2 years anymore for skilled junior positions, especially Gen-Zs who were born with the Internet. No matter how good your company is, great talents will always have curiosity and want to explore the world. Once you accept this fact, you need to prepare for it.

When an employee resigns, you need to find a replacement. The problem is you have 30 days to find someone. But that someone also needs another 30 days before they can quit their current company to join you. You will always have the gap that stresses you and your team. And because of that, you end up hiring someone because you need them now, not because they’re the best.

Instead, we should hire slow by recruiting passively. Accepting job applications for junior positions and collecting candidates over a long period, even when you don’t need one now. This way you have the opportunity to be absurdly selective on who will be joining your company.

And when they join the company, set clear goals to evaluate if they fit the position. If they don’t, don’t force them into a different role. I made this mistake so many times, and regret it every single time. Just fire them fast. It is always better to fire one person than to fatigue your entire team. If you want to be compassionate, then be compassionate for your hard-working team.

That’s all

There are a lot more small things I learned along the way. But these are important things I can think of right now. If you happen to be a fellow agency founder, feel free to add the points I may have missed.