You land a new client and juicy project. They pay you 50% upfront.

You let out a sigh of relief. That upfront payment is clutch. Your team is delayed on a couple of other projects, which has pushed out some additional payments. Cash is tight, this infusion couldn't have come at a better time.

You can pay a few overdue bills. A couple of contractors have been grumbling about the delayed payments, but this should quell their concerns.

You can also make the down payment on the hotel for the team retreat. You've thought about calling it off, but you wince at the thought of disappointing your hard-working employees. It'll cost $30,000 for everything, money you don't quite have right now, but you'll figure something out.

And then there's that internal software project. You've been working with a freelance AI developer to create a proprietary AI tool that you think will differentiate your agency's offering. It's going to speed up delivery while also being a cool marketing asset. The AI developer is racking up some large invoices, charging you $200/hour. But you're convinced this is a bet you have to make to stay relevant.

Back to the project that you just won. You assign a team to do the work. A project manager, a designer, a developer. A couple of your senior people are assigned to oversee the work, a creative director and a technical director. They get going.

A few weeks go by.

It's been a slow month, the pipeline is sparse and new business conversations have been few and far between.

Your fractional CFO emails you with some concerns. She wants to talk. You hop on a video call.

"Are you close to signing anything new?" she asks. "Things aren't looking great."

You tell her no, but that you're trying hard.

"Even if we collect payment on outstanding invoices ASAP, you might not have enough for payroll," she says. "You might have to pull on your line of credit."

You frantically email existing clients and ping the few prospects that are sitting on proposals, trying to stir up some bit of new business.

Nothing.

You give the green light to your CFO to pull down on the line of credit. You make payroll, you pay some bills.

A few weeks go by.

Boom. You slap your hand on your desk. A much-needed win. You quickly send an invoice out for an upfront 50% payment.

The client writes back: "We'd prefer to put down 10% and pay on a milestone-basis."

You shake your head, but you feel like you're in no position to push back. You accept. A little bit of cash is better than nothing. Plus, at least you'll get the full amount as you wrap up the project.

A few weeks go by.

You've continued to pull more from your line of credit. It's almost completely tapped out.

The client project you signed a while back has been hit with delays. You're not sure when you'll see the remaining 50%.

And then you hear that the client who only wanted to put 10% down has not only not paid the deposit but has now put the project on hold.

Uh oh.

Things feel pretty dire. You're stressed out. You think about calling the hotel to ask for a refund of the deposit for the team retreat. Your CFO urges you to consider drastically cutting your expenses: the AI developer, some of the non-billable senior staff members, some of the fringe benefits for your team.

But you strongly feel that all it takes is a win or two to get things back on track. You can do this, you can turn it around. It's been done many times before.

And you have a Hail Mary opportunity, if it comes through, will definitely make everything all right. It's an RFP that you just received for a huge contract. Hundreds of thousands of dollars plus a fat retainer after the initial project. A game-changer. This is the way.

You assemble your top people and get to work crafting what you believe is the most beautiful and thoughtful proposal your agency has ever put together. You even throw in some spec work to show what your firm is capable of – a couple of design concepts, a video clip, a working prototype of a key user flow. You're sure nobody else has put in as much effort into their proposal.

The proposal presentation goes well. The prospective clients are nice. They seem impressed by all the things your team put together. They look very engaged. They thank your team and say they'll be in touch.

Now you wait.

A couple projects wrap up, allowing you to invoice and get paid. This helps a bit, but you're still drawing on the line of credit.

You get a few smaller projects, but with payroll and some contractor bills looming, there's just not enough cash in the bank.

That big Hail Mary project has to hit. You send a follow-up email. When you don't get a reply back, you send another one.

A few weeks pass. You're fully tapped out on your line of credit. You're pushing the team to wrap up the project from months ago. You need the remaining 50%, fast.

You've put your internal software project on pause. The AI developer's been pissed you haven't paid his last invoice. A few days ago, he informed you that he's taken a full-time job with an AI startup and that he still expects to be paid but that he'll no longer help you on the project.

Finally, you get an email from that Hail Mary RFP opportunity.

LFG.

"Thank you to your team for the excellent presentation and wonderful ideas. We regret to inform you that we've gone in a different direction. We appreciate your time and participation."

Gut punch. You needed this. And now what?

Your CFO lets you know that you're all but insolvent at this point. You should seriously think about alerting your team and start prepping them for layoffs. But you still have outstanding projects to complete, delayed as they are.

You start considering some alternative forms of financing. Maybe a small business lender could help. The rates are high, but maybe you can buy some time.

You start hitting up some other agency owners, asking if they have any spillover work or need help with any projects. No dice.

You make the tough decision to ask the hotel for a refund on your deposit. They tell you that the fine print says past a certain date, deposits are non-refundable. It's past that certain date. Oof.

You sit at your desk, staring out your window, wondering how it's come to this. In the past, things had gotten tight, but you always managed to get the next project to keep things going.

Maybe it's the economy. Maybe it's world affairs. Maybe you underestimated how external factors would impact your business. Maybe it's AI. People scared to spend with your agency because they want to see what AI can do. Maybe you should've invested in that proprietary software sooner.

Or maybe it's this agency model. It's a suboptimal model, not great with high margins like software.

I should've started a different kind of business, you think. I was a fool to do an agency. Should've created my own product or built a SaaS company.

You're exhausted, both mentally and physically.

Let's shut this down, it's not worth spinning on the hamster wheel. It's not fun to chase deals just so I can pay for costs only to have to chase more deals.

I've been running a Ponzi Scheme on myself, you realize. And it's all about to come apart.

But it's worse. At least in a Ponzi, the early investors get paid. Here, you've just been robbing your future to cover the past.

The End.

Lessons: How Not to Run a Ponzi Scheme Agency

1. Cash Flow Is Your Lifeline—Plan for the Gaps

• Agencies live and die by cash flow, not just revenue. A few delayed payments can put you in a death spiral.

• Lesson: Maintain at least three months of operating expenses in reserves. If you don’t have this, start building that buffer now.

  
  

2. Retainers Over One-Off Projects

• One of the biggest weaknesses of agencies is the constant hunt for new projects. If you’re always chasing, you’re always desperate.

• Lesson: Prioritize recurring revenue models (retainers, maintenance contracts, performance-based incentives) so you're not relying on big, unpredictable wins.

• Alternatively, prioritize re-occurring relationships that can bring you multiple projects per year from the same client. Further reading: "Project-based revenue can be good"

3. Kill the Hope-Based Business Model

• The protagonist in the story keeps hoping that the next project or the next big RFP will save them. But hope is not a strategy.

• Lesson: Track Net Revenue Retention (NRR) to see how much revenue you’re keeping from existing clients. If clients churn too fast, your business model is broken. Try our NRR tool.

4. Your Agency Isn't a Venture-Backed Startup; Stop Spending Like One

• Funding an internal software project while struggling to make payroll? That’s reckless, not strategic.

• Lesson: New investments should be funded by profit, not debt. If you’re still bootstrapping your agency, avoid large speculative bets unless your core business is already profitable.

5. Control the Expenses That Control You

• The protagonist books a $30,000 team retreat while struggling with payroll. It’s a classic agency mistake, spending for optics or morale while ignoring financial reality.

• Lesson: Cut fixed overhead ruthlessly. If it’s not driving client acquisition, improving delivery efficiency, or retaining talent, reconsider the expense. Recommended reading: Double Your Profits: In Six Months or Less by Bob Fifer

6. Be Wary of "Hail Mary" Projects

• The story ends with an RFP that doesn't land, sealing the agency’s fate.

• Lesson: Be selective with proposals. Track win rates and client profitability. If you’re losing more than 70% of your proposals, rethink your sales strategy.

7. A Line of Credit Is Not a Business Model

• Pulling from a line of credit to cover payroll is a red flag, especially if you don't have any visibility into future cash flows.

• Lesson: If you’re routinely relying on credit to survive, you don’t have a cash flow problem, you have a broken business model.

8. Always Be Building Your Pipeline

• Waiting until cash gets tight to chase new business is a losing strategy.

• Lesson: Sales & marketing should be a habit, not a scramble. Aim to have 3x your needed revenue in active deals to avoid desperation. Further reading: "Revenue Generation Habits"