Differential: Digital Product Agency

Professional Web and Mobile app design and development for great digital products.

Background

Tim Metzner and Ry Walker had an idea to create a venture studio in Cincinnati for startups. They recognized that many startups in Cincinnati couldn’t build a quality MVP and lacked the technical ability to do so.

We started as an 8-person partnership with a plan to discount our services for startups in exchange for equity in those startups. We would also take on other work to fund our discounted services. We also raised close to $500k to continue operations so we can make investments and we had a pool of investors who would look at the deals we did to fund them.

I joined Differential right after they had their first client, Cladwell, and were being to take on additional work.

I was in the middle of winding up Canopi, and I wanted to learn the ins and outs of development. I joined as the 8th partner.

After about 6 months and 4 investments, I did some financial modeling that was, I’ll say, deflating for our model. Basically, at the current deal structure we would need to work with 20 startups a year for 20 years and 6 of those would have to sell for over $100M for each partner to make about $2M dollars. It was sobering.

After many conversations, we decided to split up the partnership. A few partners started their own businesses, a few decided to jump into one of our investments, a couple wanted to stay as investors and fund managers, one didn’t know what he wanted to do, and I was left with the agency.

I wasn’t “left” with it, I wanted it. I had seen too many friends hate their lives by working for an agency. Low hours, mediocre pay, and a culture where the client dictated every move you made.

I believed that could change and in the high demand development environment, I felt we had a chance.

I convinced Gerard Sychay to stay, offered a partnership to a contractor David Woody, and we set off on building a agency we could be proud of.

As we built, we hired other developers with startup experience, and consistently iterated on our model and pricing until we reached a few million in revenue.

After 5+ years, we employ ~ 30 employees, have been a INC 5000 fastest growing company 2 years in a row, our employees are paid well, and we have created a culture at an agency that we are proud to be a part of.

Investment Thesis

Professional services is a lower risk business model.

Customer pay you for your time. If you charge more than it costs you, you have a profit. When you don't have work to do, you don't get paid. It was very straightforward and after a failed startup, I was ready for simple.

Developers are in high demand.

The US will have millions of unfilled development positions over the next decade. Being in a high demand and growing industry can cover up for a lot of the mistakes i'd make along the way.

You can spot opportunities when you work in more than one industry

As we get to work with a lot of different clients in a variety of industries, we are exposed to how each industry solves their biggest problems and which problems don't yet have a good solution. When we find one of these opportunities, we can build something to solve it.

Digital Product Partnerships

I have this theory that if we build great digital products for other people, that IP could be reused and commercialized in other industries. I assume that we would be able to structure a license deal with our client partners, but commercializing an existing tech that already solves a problem reduces the risk to starting that business. Our first Digital Product Partnership is with The Apollos Project (which i'll right about soon).

Industry

Professional Services

Dates

Summer 2013 - Current

How did it work out?

My goal with Differential was to prove that we could build almost the "anti-agency" where our people work a normal schedule, are treated like humans, and can still deliver world-class work for our clients.

I wanted to be able to take a company from a couple hundred thousand dollars in revenue to about $5M and learn how to hire and build a team and management team. To that end, I have been successful.

The next chapter of Differential is expanding our offerings as well as proving out the Digital Product Partnership model.

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