How does your creative firm compare to others in the industry?
It’s a difficult question for owners to answer.
At RevThink, our experience advising a wide variety of creative firms led to a discovery: the characteristics that determine whether a business thrives or fails follow a pattern. This pattern corresponds to seven overall areas of business that we call the 7 Ingredients of a Creative Firm™.
Weakness in just a single Ingredient will eventually threaten a firm’s survival. But conversely, mastering all 7 Ingredients forms a recipe for long-term success of the business and offers its owners greater exit strategy options.
Which Season Are You In?
In the diagram here, this production company scores a 26 out of a possible 35 in the 7 Ingredients. The business is strong in the Ingredients of Creative and Sales, but weak in Marketing, Finance and Operations:
With a total score of 26, this firm is in the Perform Season.
Overview of the Seasons
In contrast to the seasons of a human life which are measured in years, the Seasons of the Creative Firm are measured in annual revenue and team size:
For example, a score of 0-7 denotes a firm is in the Painful Season (team size of 1-4 with annual revenue less than $1 MM). Alternatively, a score of 29-35 denotes an established firm in the Power Season (team size of 30-50 with annual revenue $10 MM+) which scored 4 or 5 in each Ingredient.
Based on your score, in which Season does your firm currently reside?
Moving Through the Seasons
Seasons of the Creative Firm theory is not a prescription, but rather an observation. It describes how studios typically evolve: they are launched, they find their identity, they gain success, they thrive, then one day they come to an end.
The goal of the Seasons is to provide you the owner with knowledge – which itself does not create change, but rather provides you with options – to move towards a future consistent with your long-term goals. This exercise may also offer insights to help you avoid repeating the mistakes of firms that have preceded you.
What follows are some common patterns that RevThink has observed.
The Pros and Cons of Each Season
Annual Revenue < $1MM
Team Size: 1-5
PROS: One or more creative entrepreneurs launch a creative firm and establish a brand name.
CONS: Fear drives owners to accept all projects, wear all hats, and enter into unhealthy partnerships.
In this Season, the owner has mastered the sole Ingredient of Creative and is motivated by reputation and renown (fame), both creatively and professionally. But the firm is run more like a series of projects than a business.
The owner’s habits bring quick success, but they become the very habits which hold the studio back from reaching the next Season. Most owners experience burnout.
Annual Revenue: $1-2MM
Team Size: 5-10
PROS: Firm establishes a reputation and begins to sense its true potential.
CONS: Too few staff covering too many responsibilities can lead to owner exhaustion.
The jump up to this Season is the most difficult of them all as the owner must begin understanding and practicing multiple Ingredients all at the same time, the most important being Production. With growth comes the first taste of strong reputation… as well as strong revenue.
Here the owner begins the lifelong process of letting go and focusing on Genius.
Annual Revenue: $2-4MM
Team Size: 10-15
PROS: Firm starts getting “over the hump” and forms a dedicated sales function.
CONS: Owners often pay top talent more than they pay themselves.
In this Season the magic formula of expert Creative paired with expert Sales (example: a common pattern is the dynamic duo of Creative Director and Executive Producer) enables the studio to “punch” beyond the Push Season and produce its most brilliant work to date.
But this Season also requires the studio master the critical Ingredient of Marketing. The result is a firm finally capable of attracting consistent, sizable projects combined with consistent, bulletproof profits.
Annual Revenue: $4-10MM
Team Size: 15-30
PROS: Firm becomes well-known in the industry and produces its best work.
CONS: Owners focus on running the business and long for the days of doing the creative work.
The firm hits its stride in the Perform Season and it masters the Ingredient of Finance. Thanks to consistent, healthy revenue the firm’s staff expands well beyond Creative and Production expertise and now includes full-time Finance, Production, Operations, and related staff.
The owner becomes increasingly focused on his/her Genius (most likely Creative, Sales, Marketing, and/or Entrepreneurship) which empowers the studio to produce influential work which impacts not just its clients, but the industry at large.
Annual Revenue: $10MM+
Team Size: 30+
PROS: Large client concentration brings more projects and profits. Owners consider exit strategies.
CONS: Morale suffers as the rise of departments and managers poisons the culture.
Only a few of the most ambitious, tenacious, patient and lucky firms arrive at the Power Season where complete mastery in the Ingredient of Operations is a must. In this Season, the owner rarely plays a creative role but rather is focused on running the business and personally mentoring its leadership team.
This is the time when owners discover whether or not they have managed their regrets.
A Key Metric
By doing some simple math, you may notice an interesting metric (KPI): each permanent staff in your firm should be generating an average between $200K-250K in annual revenue.
If your average revenue per staff is well below $200K, you are overspending, leaving money on the table, or you are selling commodity services.
However, if your average revenue per staff is far above $250K, your firm is either in great demand (in danger of burnout) or your Splits (direct costs vs. indirect costs) are out of balance.
The Seasons Are Not a Formula
Do you want your firm to grow to the next Season? Probably. But now you may realize for the first time that moving forward from your present Season into the next season involves very real tradeoffs. A far better approach is to identify which Season possesses the tradeoffs that align with your values. Work deliberately to reach it, then tenaciously stay there.
What does RevThink recommend? Align ownership and your core team to arrive at either the Punch or Perform Season, then form long-term plans for asset growth and an exit strategy.
Only grow into the Power Season if you have previously taken a business into that Season before with strong experts on your team.
Ominously, when a creative firms experience a hugely successful “best year ever,” the next year is most often the year when they fail.
Tip #1: the Punch Season is more fun but less financially rewarding. In this season, it’s all about Creative. If you are a true creative at heart, this is where you will thrive.
Tip #2: the Perform Season is more financially rewarding but less about Creative. This season will require you transition your role from creative leader to business leader. If you are an entrepreneur at heart, this is where you belong.