Being a freelance software developer seems like a dream from the outside looking in. You get to work from anywhere, on projects that you want, all while making a decent amount of money.
It sounds like a step up from the monotony of being a 9-5 software developer. But when you think about it, there’s not much difference between the two. Both still involve you trading time for money.
As an agency owner, however, your income isn’t directly tied to how much work. Instead, you get all the flexibility of being self-employed plus the added leverage of having a team working for you. If you’re interested in learning how to go from freelance developer to agency owner, keep reading.
Benefits of owning a software agency
First things first, let’s clear something up. Being a freelancer is not the same thing as being an entrepreneur or business owner. “Freelancer” is just another way of saying “self-employed.”
A lot of people hear the word self-employed, and they think, “cool, I’m my own boss and can do whatever I want.” That’s technically true. But being your own boss as a self-employed person comes with one big limitation — you have to keep working to make money.
It’s like having a job without employee benefits. Maybe the only perk you get is the ability to tell all your 9-5 friends that you’re your own boss. They’ll look at you with admiration, but in reality, you’re doing the same thing as them, except you can’t take a vacation without risking your income.
If you look at the cashflow quadrant below, you can clearly see the difference between being self-employed and being a business owner.
There are only two things you can do to make more money when you’re self-employed. You can either a) increase your rates or b) work harder. But even if you were to max out your rate and productivity, you would still only have 24 hours in a day, so there would always be a theoretical limit to how much you could earn.
By becoming an agency owner, you save yourself from the day-to-day grind of being a freelance developer. And your income stops being dependent on how much work you put in, but more on how much value you generate through your business. It’s a great position to be in, but only if you consider a few things beforehand.
Things to consider before starting your software agency
The first thing you need to consider is your skillset. Being a business owner is a lot different than being self-employed. When you’re self-employed, your success depends on how good you are at what you do. The better you are, the more clients will be willing to pay you for your services.
When you become a business owner, all of that changes. Your technical skills take the back seat. Instead, your ability to manage a team and grow your business becomes the main factor in your success.
For a lot of technical freelance developers, this presents a big roadblock. How are you supposed to manage people, do marketing and sales, and talk to clients when you’d rather be coding all day? The answer is simple — by expanding your comfort zone.
Your comfort zone
If you want to become an agency owner, you’ll have to adopt a growth mindset and be willing to get uncomfortable. Things will be tough some days. You won’t find all the answers on Google or Stackoverflow to all the problems you run into. But that’s ok. As long as you’re committed to continually learning, you’ll be able to make the transition from freelance developer to agency owner in no time.
Most people get stuck in self-employment simply because it becomes comfortable. Business ownership remains a big unknown for them and, therefore, a source of fear. But it’s just like anything else that you’ve never done before. You won’t know what you’re doing initially, but things will become easier with practice and gradual exposure.
Besides having a willingness to get outside your comfort zone, you’ll also need access to startup capital to start your software development agency. Otherwise, you could end up exposing yourself to a significant amount of risk that could be hard to recover from in the future.
Your current financial situation
Take a look at how much money you have currently saved up. Do you have any outstanding debts or expenses that you always put off until later? Are you spending more than you’re earning?
If you’re currently not disciplined at managing your money as a freelance software developer, then make sure you improve financial literacy before opening your software agency.
Remember, finance is the language of business. Your agency won’t reach its full potential if you don’t understand basics like balance sheets, income statements, and cash flow. Here’s a useful resource you can explore to learn more about finance.
I would also recommend investing in a financial management software like Freshbooks and getting a good accountant on your team. That will save you countless hours of work (and headaches!)
Steps To Transitioning To Software Agency Owner
Once you’ve decided that being an agency owner is the right thing for you, the next step is to start putting your plans into action. There are three main steps involved. These include identifying your niche, building out processes, and hiring people.
1. Identify your niche
Your niche refers to the specific group of businesses you’ll serve. It’s a subset of a larger market. So let’s say you’re a full-stack software developer. Instead of offering full-stack software development to all types of businesses, you can choose to niche your agency according to skill specialization and industry.
The key to finding your agency’s skill specialization is to look at the cross-section between what you’re good at and what people are willing to pay money for. The good news is that are many software specializations available, most of which offer significant earning potential.
Once you’ve found your agency’s skill specialization, you’ll want to determine the best industry to target. Ideally, you want to choose an industry that you have experience in and has good growth potential.
Here’s a list of the fastest-growing industries you can use as a starting point. Looking at that list, you could, for example, offer DevOps services to e-commerce companies or data science for the healthcare industry. Serving a specific niche will help to limit your competition and increase your growth potential.
2. Build out the right processes
As an agency owner, you’ll also need to put some time into developing your business processes. These are the sets of activities that help you streamline and standardize your business operations. Below is a list of all the main processes you’ll need to have in place and the tools I recommend for each.
Client onboarding and management
First, you’ll need a process for onboarding new clients, finding out about their goals, and managing relationships with them. This process has to be the same whether you’re working on a one-off or a long-term project.
Once your client is on board, you’ll need a process for managing deliverables. Everyone on your team should know which tasks their assigned, when they’re due, and how to report their progress. Your project management process should also define how you will communicate with your clients.
Marketing and sales
To protect your software agency from the dreaded feast-famine cycle, you’ll need to have a marketing and sales process in place. This process will define how you will bring in new customers to your business. Whether that’s through your website, referrals, or other sources.
If you need help building out your software agency’s marketing and sales process, be sure to contact us for a demand generation consulting proposal.
How will you know your processes are actually making a difference? By having a data management process, of course. This process should highlight how you will measure and report your performance against your business goals.
You’ll know you have the right processes in place when you can step away from your business and everything continues working as if you never left. If you can’t take a month off (or however long you need) from your business without things falling apart, it means that one of your processes is broken. Keep refining and adjusting. It will be worth it.
3. Hire the right people
Another thing you’ll need to consider is your team. This isn’t an area you want to overlook. Selecting the right team members will allow you to deliver high-quality work and scale quickly. You can take a look at this article to get a better idea of how to structure your organization as you grow.
You’ll also need to decide whether to hire full-time employees or contractors for your projects. Employees are generally more expensive because you have to factor in expenses such as payroll and taxes. Contractors, on the other hand, are a more cost-effective option. You can hire them using platforms such as Upwork or Toptal. Ultimately, your decision to hire an employee or contractor will depend on goals and budget.
Once your client base begins to grow, you’ll need to know when it’s time to hire additional people to your team. Here are some signs you should look out for:
- Your employees report feeling burned out or overworked
- Quality of work begins to decline and careless mistakes become more frequent
- Your workers call in sick more frequently
- Higher client churn and complaints
With remote work becoming more common, you’ll want to make sure your employees are engaged and appreciated for their hard work. Make time to check-in with them weekly. Offer performance incentives. Go the extra mile to keep them happy. Your agency will grow faster if your employees know that you care about them.
There’s nothing wrong with staying small and being self-employed for the rest of your career. However, sooner or later, you’ll find that the benefits of being a business owner outweigh those of being self-employed.
It won’t be easy to make the jump. But stick to it. Develop your processes, hire the right people, and understand everything about your target market. This will help you build a business that gives you more freedom and fulfillment.
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- Business growth consultant specializing in the B2B SaaS and IT service industry.
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