Jesse Schoberg is cofounder of software-as-a-service (SaaS) company DropInBlog and on track to hit seven figures in annual recurring revenue during 2022. He is a developer who has been running remote teams since 2005, including at the six-figure web development agency he exited when DropInBlog started growing quickly. Schoberg’s experience of going from agency to product inspired him to help other founders do the same. I interviewed him to find out why and how agency founders are launching software projects instead.
Why go from agency to product?
Software products are far more scalable than agencies,” Schoberg explained. “Agency owners constantly run up against workforce problems when trying to scale.” Even if you have a great ads manager, designer or developer, if you have a tenfold increase in customers you simply can’t service them with the same team. Schoberg knows, “It can be hard to hire and train new people that can operate at the same level as your core staff, but with a software product, you could probably handle a tenfold increase in customers with only double the number of people.”
Whilst there are plenty of examples of successful agencies, growing profitably and excelling in their field, Schoberg still thinks that software products win overall. “Products are harder to start but give much more freedom over the long run.” When starting a software product it might take years to overtake the income from your agency. “Getting those first customers and finding market fit can be tedious,” explained Schoberg, who said this is simply the first hurdle. “Once you are making a basic living, your efforts toward growing your software company are exponential.” There are benefits in the more hands-off nature of software compared to an agency, and “the work is more fulfilling,” argued Schoberg. “You can work directly on your own product and improve the lives of many others instead of putting out constant fires with your agency clients.”
Risk and preparation plus luck equals success. Schoberg said this equation is key in framing the transition from agency to product. “Taking the leap (risk) is hard, spending the long unpaid hours (preparation) is tiring and finding the right market fit and first customers (luck) can be insanely tricky at first.” However, Schoberg knows from personal experience that persevering with all three will lead to success. He compared the leap to product as similar to when you leave your job to start your agency in the first place.
But it’s not just risks in going from agency to product, the rewards are much bigger too. “Agencies normally exit for six or seven figures,” said Schoberg, “whereas SaaS products often exit for seven to nine figures.” Zooming out and seeing the endgame with perspective makes it clear. Even bootstrapped software products have much larger exits than home-grown agencies.
How to go from agency to product
Schoberg’s first piece of advice is simple. “Do not grow your agency.” Instead, “remove yourself from the agency as much as possible.” He suggests that agency founders should “stop directly doing client work, sales and administrative tasks and instead automate, delegate and eliminate their role until they have freed up a good portion of their schedule.”
With this newfound space, it’s time to find a product idea. Schoberg’s advice is to, “look to your agency in a bid to leverage your agency’s skills and resources.” Many agency owners find a product idea by looking at the pain points of their agency’s clients. How could a software product make their lives easier? What tasks are you doing for them that could be automated with software? What problem would they be prepared to pay $20-200 per month to have solved?
With the ideas in place, it’s time to get to work. Schoberg recommends agency teams dedicate “eight hours a week as a start” to working on their product and “set timelines and expectations for outputs, including a fixed schedule.” He knows from experience that, “Without something in the calendar it’s too easy to get caught up in agency fires.” Perhaps start with two afternoons per week. Get started and bring your team on board to help with the product creation, putting them on a similar schedule to yours. Schoberg believes that whilst this takes “vision, and a couple years of focus to make the transition, it’s well worth it in the long run.”
Schoberg has tried and tested this method, to spectacular results. Whilst running an agency he and his team started four different products, each of which were making around $2k per month. Then they hit a plateau. “For a while we couldn’t seem to get over the wall with any of them. This is where I learned the lesson that you have to force yourself into scheduled times to work on your product. You also have to be prepared to kill those that aren’t going anywhere.” Once the team were more focused, it soon became clear that DropInBlog was beginning to outperform the other products as well as the agency itself. “That was when we knew it was time to go all in, and we offloaded or sold all our other projects.” A few years on, DropInBlog is on track to hit seven figures in revenue during 2022, at a 96% gross margin. “We could never have dreamed of those kinds of numbers in the agency.”
As an agency owner you’re in a unique position to start a SaaS product. In Schoberg’s words, “You have experience solving problems and managing projects, existing team members and a base income to fund your new venture.” Although creating and launching products is a different way of working, and there will be many stumbling blocks along the way, there are benefits to life on the other side. When you go from agency to product you stand the chance of your business being more profitable and saleable, your time less booked and your work more fulfilling. Is today the day you take the first step?