Denys Skrypnyk is a Ukrainian entrepreneur and one of three managing partners at The Gradient, a product design agency from Lviv. While many studio owners were building their businesses with little reference, Denys made his pivot to a businessman from a corporate employee.

I met Den in Lviv back in the spring 2022. Back in that time, Kyiv was in the siege by russian troops. I was a regular guest at his office, so we had a great chat about business and design. I was impressed by Den and his partners’ vision and management courage. Following my idea, we decided to interview him about agency numbers and what lessons could the Big Tech give to a small studio.

To avoid an old-fashioned interview manner, we skipped the small talk and collected the most meaningful takeaways and insights.

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About himself

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I was working in Eleks — one of the leading Ukraine outsourcing firm, previously owned by my father. Back in a day, I was head of the design department. It was when customers only began to understand the value of design. We witnessed a moment when customers stopped viewing UI and UX as unnecessary disciplines and got a fundamental understanding of why design is important for software development and product success. Before that, we used to push the design service internally and externally, explaining why design matters. This was the best moment to launch a Product Design agency in Ukraine.

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About the agency rates

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When we started our agency in 2016, we thought we were really cool guys, so we tried to apply significantly higher commercial rates than we had at Eleks. That didn’t work out well — having a little portfolio and being a new kid on the block, and we failed to sell at$60–70/hour. It took us a couple of years before we could get the first client at that cost. Currently, we would not go below the $50–60 rate without a significant reason, such as a really interesting client or product or a year-long contract. Luckily, we gained some recognition until now, so there’s no barrier as it was at the beginning of our career. Of course, now we have other challenges, such as a russian invasion and an economic crisis in the USA and Europe, so we need to be flexible with the pricing to get new clients. As a result, the number of efforts to negotiate and close contracts has doubled.

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About the pricing

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Price shouldn’t be always in a first place

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We’re trying to avoid the clients who put the price in the first place. That comes with a sacrifice: usually on the quality of the digital product. That is just the opposite of what we try to achieve. So if the client looks for a cheaper rate, it means plenty of compromises, and it leads to failure in the long run. If the client is looking for value and ways to solve business goals with our services — the price won’t be the main topic, and it is always discussable.

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About the business model

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We are huge fans of simple business models. Our billing is pretty simple, and we try to stick to it.

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We sign our clients up for weekly sprints with at least two full-time team members at a flat agency rate with a fixed scope and timeline. The second option, for more complex projects, is a dedicated team focused on delivering the design and requirements with a monthly discounted flat rate. Both are good for different cases, depending on the product and client lifecycle stage.

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This model makes it easier to plan resources and bill clients. No need to assign designers to different projects and look for the proper hourly utilization. The sprint model brings discipline to the client in a good way: they know there is a billing period and don’t want to be slow on feedback or bring too many edits. A dedicated team puts out the pressure so that the client can be focused on the long-term goals. Of course, both models work well only combined with effective design and communication processes.

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About surprising numbers

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I remember the time when we first managed to calculate our average project profitability, and it was around 60%. I was gazing at the numbers, asking myself: what the heck, is that real? Later on, we ate up the margin by some massive CAPEX, like investing in the new office, hiring more senior people, and building other non-delivery processes. Though I still remember, this was good evidence of a successful business model.

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About the big tech experience

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Things are pretty well planned in a company with 1000+ employees. It’s a matter of efficiency, not some preference. And it brings a good discipline that agencies may lack. Of course, some things are not applicable to a small firm: like having a matrix management structure. But the overall workflow and basic management practices, like yearly/quarterly/monthly plannings, are a must, even if you run a small firm. We’ve applied the best from the big company practices to the small firm, and it worked well. Now we’re constantly reviewing our approach to each process, thinking about the trade-off between process complexity and efficiency at the current company lifecycle stage.

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About key metrics

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One word: Net revenue

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Perhaps other agencies are focusing on other, more sophisticated metrics, like gross project margin, and average revenue per employee, but we have a simpler indicator — net revenue. Of course, we track a wide range of metrics to understand company health, plan vs. reality, etc. Our wages are good. Our commercial rates are good too. Since we run our projects in weekly sprints or months — our business model makes us consistently profitable for every project. The tricky thing is to have sales that nurture this model.

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About the plans for the future

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It’s quite hard to make plans nowadays, even for tomorrow. Obviously, war made some corrections to our tactics and financial plan, but our strategy remains the same — working with top brands and companies across the world, making products people will love. We are growing, hiring new people and building processes for the future growth even in these tough times.

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