Ben Lee

@BenLeeNR

The Problem with the Agency Model

February 1st 2016
Photo courtesy of Nesster

The App Development Agency Model is Broken. We’re Going to Fix It.

At a glance, the mobile application market looks incredible. Apple’s App Store has 2 million apps available for download, and that number keeps getting bigger — upwards of 1,000 new apps are submitted every day, and even the daily submission rate is growing. For so many new apps to come on the market, the financial incentives must be huge — the businesses behind these applications ought to be raking in the cash, right?

Courtesy of Statista

Wrong. Gartner, Inc. estimates that only .01% of applications will remain profitable by 2018. So where’s the mismatch here? How can so many apps fail to make their developers a profit?

There are many answers to this question. All the new apps coming to market means there’s stiffer competition than ever for consumer dollars, and many developers fail to budget in the costs of maintenance and upkeep. But part of the problem is systemic: the model for how an app is developed is flawed in a deep, fundamental way.

Here’s how the traditional model for developing a mobile app works. First, someone has an idea — an idea they’re sure will make them millions or dollars, change the world, or at least create another “Angry Birds”-scale phenomenon. Next, they raise some money, either through friends, their own personal funds, or, if they’re lucky, through capital investment. Armed with their idea and a few hundred thousand dollars, they engage the help of a development agency.

But here we come to the problem. An app development agency bills hourly. For each hour that their coders work on your project, they charge a fee. They don’t see royalties after the app is released, they don’t get a bonus for delivering the project on time, and they certainly get nothing for delivering the project under-budget. The more hours they bill, the more money they make — and that means development agencies are inherently incentivized to create the largest apps they can for their clients and bill for as much time as possible.

In other words, app development agencies are inherently incentivized to make their clients fail.

That seems like a big jump, but it’s not. We can think about a new app the same way we think about a startup — and as we’ve said before, the job of a startup is not to execute on an idea, it’s to find out if the idea is right in the first place. That means that when building an app, the most important thing is to get an MVP — minimum viable product — into customers’ hands as quickly as possible, collect data from those customers, then go back and make the app better based on that data. Release a product iteration, gather data, improve, and repeat. This model leads to sustainable businesses that grow in the long term and add real value to the lives of their customers.

But this is not what development agencies want to see happen. Development agencies want one thing: billable hours. To get those, their incentive is to convince their clients to build the biggest, fanciest, most feature-filled apps that they can — even if those features are completely useless to users. That means big, bloated apps that no one wants to use — and it goes a long way towards explaining why only one in ten thousand apps ever makes a profit.

We need a new model for app development. We need a model that focuses on validating an idea in the marketplace before drawing up wireframes, on solidifying the key value proposition before writing a feature set, and on touching real customers before ever writing code. In short, we don’t need an app development model: we need a business development model.

At Neon Roots, we are trying to build that new model. We’ve tried to create a process, Rootstrap, that answers all the problems in the traditional development model: we focus on defining and validating the idea first, on interacting with real users and customers before coding, and on having a clearly defined, absolute-minimum-viable-product as the primary goal. We prefer to ship bad product and gather feedback instead of shipping a streamlined product that no one wants. We want to be the solution to a model that is fundamentally flawed.

Our approach is working. Rootstrap alums have gone on to do incredible things, raising millions of dollars in venture funding and touching millions of users. We’re excited about our past successes, but this is just the beginning. We learn more about this process every day, and we can’t wait to see what the future holds. If you’re interested, join us. We promise you it’ll be a wild ride.

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