Big vs small: Which agency size is better?
Size matters. But, does that mean bigger is better?
At a November 2016 SoDA Academy session, Jack Skeels, CEO and Founder of Agency Agile, described how he realized at a previous job, the bigger they got, the bigger he felt the shark chasing them got as well. Essentially, as they grew larger as an agency, so too did their efficiency problems in delivering good work.
Skeels’ exploration led to the study of the Theory of the Firm, rooted in pioneering research from Ronald Coase in The Nature of the Firm.
Coase explores three areas when asking the question: is a bigger better?
- “First, as the firm gets larger, there may be decreasing returns to the entrepreneur function, that is, the costs of organising additional transactions within the firm may rise.
- Secondly, it may be that as the transactions which are organised increase, the entrepreneur fails to place the factors of production in the uses where their value is greatest, that is, fails to make the best use of the factors of production.
- Finally, the supply price of one or more of the factors of production may rise, because the “other advantages” of a small firm are greater than those of a large firm.”
The first two reasons given most probably correspond to the economists’ phrase of “diminishing returns to management.”
‘I wish we could go back to the days when we were larger,’ said no one ever. The research suggests that this is due to the intersection of “economies of scale” and “dis-economies of management.”
- Economies of scale simply means cost-sharing within an agency (e.g. a fixed yearly expense such as social media monitoring platform Sysomos) amongst a larger group of clients brings its cost down for each client.
- Dis-economies of management means that as an agency grows in size, so too does its costs because it means an increase in management, which leads to an overall decrease in productivity and in turn increased cost to provide service.
So, size does matter. What you do with it too. And hitting that sweet spot in the middle is your key to agency satisfaction.
Diane Bégin is VP, brand communications & social marketing at ruckus Digital / APEX PR (mid-sized agency). Need digital help? Drop us a line.