How to successfully invest in R&D and innovative ventures as an agency

Written by: Mario Grunitz

illustration showing a pie chart, a suitcase and a graph

Should agencies’ businesses have a side hustle?

At WeAreBrain we invest a lot of time into Research and Development developing our own spin-offs and product innovations. In the last four years, we have launched a series of our very own startups, namely Tur.ai (Intelligent Enterprise Automation), clevergig (SaaS Workforce Management), Elio (DevOps Workbot) and Maxperience (Q&A Knowledge Management).

Before this, we were heavily involved in ietsmooier (Medical platforms) and Yushift (Electric car comparison website), cutting our teeth on experimenting with new technologies and approaches to business which prepared us well for the coming years of innovation.

In this article, we’ll outline a few tips, insights and considerations for your business’s future R&D endeavours. We’ll also share our view on the importance of research-driven innovation, in an effort to share our learnings as we have pursued new projects.

R&D: What’s the big deal, anyway?

As a company, we invest an average of 10–15% of our resources (time, people and money) into R&D.

We do that for 4 practical considerations:

  1. In the service business, income is often based on hourly rates and/or fix project budgets which makes it difficult to accurately predict cash flow requirements to build exponential growth.
  2. In the first few years of an agency, large clients might overlook you for meetings, pitches, tenders or RFPs. So you’re stuck with the scraps, the tiny projects, while other more established companies sit at the dinner table.
  3. Traditionally, agencies and tech businesses have flat hierarchies, meaning limited career progression for your team members. So R&D and spin-offs are a great way to create a career path for your people through an entrepreneurial pipeline.
  4. Perhaps this is less ‘practical’ but equally important. We just love tinkering with new tech and trying new things to keep ourselves motivated and skilled with the latest technologies. This seems as good a reason as any to invest in R&D.

Therefore, R&D and developing your own innovation is a good way to address these challenges.

How?

  1. Launching your own products can create a more predictable and stable income stream. Think of SaaS’s monthly recurring revenue, licence fees, etc.
  2. Product solutions are an easier door to get through in order to secure your seat at the table with potential clients and can help circumvent the need for RFPs, etc.
  3. Developing your own new product is a great opportunity for your people to become invested in your business through ownership of their work in the creation of the product. This results in a very stable work environment and a very low staff turnover (less than 8% in 4 years for WeAreBrain).

What are the challenges to look out for when facing an R&D-heavy approach?

Identify your reasons for embarking on a R&D strategy
For us, it’s part of our DNA. We are entrepreneurs and so we see opportunities where other people see problems. We love to challenge ourselves, and we want to contribute to the shaping of our future society. Be clear and true to yourself and your own values before embarking on a potentially expensive R&D journey.

Difficulty in obtaining funding and time away from the business
If you’re a service business then traditional funding from banks is hard to obtain without collateral such as machines, raw materials, etc. Any form of funding (crowdfunding, angel investors, VCs, banks, subsidies) requires a lot of time from your business’s founders, taking them away from overseeing the daily needs and direction of the business, and reducing contact time with your team and clients.

Commitment and focus
In order for your R&D efforts to pay off, you need to be 100% committed to each of them. It shouldn’t be a side project. So appoint a single person to be in charge of every new initiative and properly incentivise the people involved. But you should also be ready to accept failure, as failure is just a learning opportunity to prepare you for the next round.

Clear KPIs
Give projects time to develop naturally but don’t let them drag along for too long either. We usually focus on one spin-off per year and give each initiative 12-18 months to deliver results (revenue, users, investment, etc.). Keep in mind that R&D is expensive so be realistic about how much time and money you are willing to invest in a new initiative.

Cash flow
Cash flow management is cumbersome when growing your business. This is normal, so don’t fret about it too much. Just get a sound mind and steady eye over your books and you should be fine.

  • Anticipated hires vs on-demand hiring
    the first is the kind you plan for and the second is the type you may only realise is required when you’re knee-deep in a project. Just by being aware that your business will likely need both and planning ahead for the ‘unplanned’ you’ll find yourself in a less tenuous position when you need to access your liquidity.
  • Bigger projects and bigger clients will mean later payments and longer lead times. When you have various overheads to cover, preparing for these kinds of delays can mean life or death to your fledgeling R&D initiatives.
  • Somewhere between 20–50 team members, you start needing additional resources that are not billable such as Marketing, Finance, HR and Office Management. It becomes important that you forecast for this in the beginning so when you’re building out your cost model you’re covered.

Why investing in R&D is the smart choice

Let’s say for a moment R&D was not a natural fit for you and your business but you knew you needed to evolve to survive, then R&D should be exactly what you should invest time and money in. It doesn’t have to be a brand new business or service that you build or work on straight out of the gate. It could simply be putting in the hours trying to understand which new big idea might suffocate your business and put it onto the cobwebbed shelves that companies’ like Blockbuster and Polaroid occupy. Once you’ve worked out what that might be, then go guns blazing into a building that new product yourself before competitors you don’t even know exist yet, do.

However, investing time in R&D is not always about building something brand new, at least for us it isn’t. Frequently we venture into a new R&D project because we simply want to refine processes and fix broken workflows. Often we find that OOTB solutions can be very expensive so we pursue potential solutions that will allow us to do things cheaper and better.

Pursuing R&D projects can be a game-changer and it’s always worth testing your assumptions and interrogating new ideas. It keeps us fresh and dynamic and I believe this is a universal truth for any company that has invested in their own R&D department.

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Last modified: April 17, 2020
Author info
Mario Grunitz
Mario is a WeAreBrain Co-founder. With more than 15 years of experience in the tech space, he has worked all over Europe and held countless leadership positions in corporate, startup and agency spheres.
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