Incubating Your Own Products: Insane or Smart?

Incubating Your Own Products: Insane or Smart?

Studio life.

This article was originally published on Adage.com as the second in a three-part series authored by AREA 17’s leadership team.

At one time or another every agency has considered creating a commercial site that has nothing to do with its client work. Developing a new product takes time, focus and the ability to go into it with your eyes open. And when handled correctly, the payoff can be huge.

At AREA 17 we’ve done it—several times. It has been part of our evolution from a design studio to a full-service agency and has completely changed the way we approach our client work and relationships.

We embarked on our first product after a revelation. In 2008 we realized that we had experience with almost every aspect of a digital business except actually running one. That year, we decided to take our work one step further and create our own product so we could better understand our clients’ needs. We launched our first effort — Subfolio, a simple tool designed to manage and present files online—soon after.

Incubating Your Own Products: Insane or Smart?

Welcome to Subfolio.

Since then we’ve created several commercial online businesses, including our current product, Krrb.com, a hyperlocal classifieds platform; and we’ve learned a lot along the way. Building our own large-scale consumer websites not only gave us the ability to explore new technologies and design choices, it has also actively taught us about community-building, member retention and content creation. But most important, it helped us to profoundly understand that creating a great product is one thing while developing it into a viable business is a whole other beast.

Incubating Your Own Products: Insane or Smart?

Welcome to Krrb.

If you run an agency and are thinking of creating your own product, here are five considerations that will save you time and money while helping you succeed.

1. Build a product that you know.
Our first product was created to meet an internal need: We needed a better way to manage and present files to our clients. That’s really the best way to incubate a new product because, anecdotally, there’s a substantially increased risk of failure when you build something to solve a problem that you don’t understand inside out. Our most successful ventures have been based on our interests and experience, which we used to validate our ideas throughout the process.

2. Create a business plan.
From doing due diligence, to speaking with legal, to protecting your interests, to making sure that there’s actually a market for your idea, it’s important to do legwork before embarking on a project, not after you’ve already committed time, capital and staff. If you decide not to seek other investors, then the budget should be taken from your agency profit margin. Ask yourself: How much profit am I willing to give up for this product? Do not go over that budget. If the funds are not enough, either reduce the scope or get outside investment.

3.Treat every product as a stand-alone company.
Once you have your plan, you need to create a structure for the product, including accounting, that is separate from your agency. Even though the project itself is not billable, you should treat it as such. Agree on an hourly rate, and bill the product at that rate. You can treat it as an investment or a loan. This is important because you will need to know how much time and resources you are diverting from your agency work and whether you are meeting the budget.

4. Build a dedicated team.
This may sound impossible but you are not going to be able to run a commercial website “between the cracks” of client work. Remember that the real work starts the day the product launches, and it requires 110% of the team’s energy to make it succeed. You may also want to look outside your company for expertise; you might even be able to trade stock options on your product for the expertise and support of others. That’s been successful for us. But don’t—and I repeat don’t—exchange your agency’s services for the services of others. Your team costs money and, if they are working “for free,” you might as well pay for the services of others.

5. Know your endgame.
When we created Slash Paris, we didn’t have a final goal in mind. When the site grew into what it is today—the leading art agenda website in Paris—we realized its success was draining our agency’s resources and we had no exit strategy. That’s why, today, before we consider a new product, we ask ourselves if it is sustainable in the long term or something we can incubate and then sell for a profit.

Bottom-line: Creating a product can eat up your agency profits and drain resources. And if you jump in without thinking, your bread-and-butter business can suffer. However, if properly planned and managed, it can help you build your brand and internal skills enormously. Because in the end, running your own products can be a game-changer for your agency and clients.