Q/A Part Two: Should I Close Up Shop?

About two dozen great questions surfaced in response to a LinkedIn post stating that I was going to do a Q/A this week. I’ve grouped them roughly in categories, and last week I covered positioning and marketing. This week we’ll finish up. If you have a question, send it along and we’ll try to do these from time to time.

Staffing, Culture, Careers

What are some of the typical effects on work culture in agencies that position themselves across a service offering and/or industry? In other words, what impact is there on the culture if a firm decides to position horizontally versus vertically?

The only pattern I’ve seen is this: younger teams are more reluctant to embrace a vertical positioning, and that’s because they don’t want to be “stuck” doing work for one industry. The age delta between principals and the team remains largely fixed, though, so as the leader ages, the team will also age, and over time the team will taste competence, and it’ll be more satisfying than the variety they are chasing earlier in their career. The longer someone works in this field, the more they settle in and decide that they owe clients more competence than they owe themselves creative stimulation.

I'm being recruited to go in-house at a dream, global organization to lead a major transformation. One that would give me lasting career-defining credibility if I get the job done. But I see myself as completely unemployable. How would you weigh the trade-off between an opportunity of a lifetime that gives financial stability while I sharpen my skills and the freedom I have now as an independent consultant?

Well, if they’ve offered you the job, you’re obviously more employable than you think! Besides, get used to the idea that everyone can have multiple careers. Think of those couple of years as an even bigger launching pad for what’s next. Learn the client side, save up money, get your teeth worked on while you have dental coverage, plan your launch, and do it for a few years. Anybody who can work on both sides of the aisle should do just that because they’ll learn a ton about the other side.

When is the best time to hire: prior to the revenue to get all ready for that work, or after the revenue but possibly too late to be effective?

If we were any good at objective projections in this industry, and if we could afford the cash to pre-invest, I’d say ramp up first. But we are notoriously bad at this stuff, and in almost every case I’d say wait until you get the work. If you do decide to staff up first, your core people should be in these three areas: AM/PM/Strategy—the rest can be contractors. ?Near- and off-shore teams might be even better. The two easiest ways to drain the health out of your firm are people sitting around because some of your clients don’t want to use you for “that service” or hiring in advance because you think something is happening right around the corner. And given how many great people are searching for jobs these days, it shouldn’t take as long to build a great team.

Once you identify?that cost cutting needs to be done for profitability, and that some roles are now effectively?unnecessary, how can you get your senior team (outside of the principals, who already will be) on board with redundancies that will affect more junior people—without raising red flags about the team culture changing etc.?

What freaks senior teams out the most is when leadership is deficient, and not adjusting staffing levels to match your workload is a key leadership deficiency. In other words, you’re more likely to foster a lack of engagement with your senior team by not adjusting staff. Leadership vacuums are always filled, and so if you aren’t going to lead, suddenly those decisions are going to get made for you. Besides, lack of leadership on your part will prompt your most employable people (that usually means your senior team) to go look elsewhere for work, leaving you with the less capable ones. Not good.

I'd like to know, from your perspective, how relevant the ReCourses Functional Model is in after all these years and how you might update it today (if at all).

The original model remains 90% applicable, but it’s been modified to account for these changes in the marketplace:

• IT is no longer a function. Desktop software is more intuitively useable, and users are more capable.
• Frontline software engineering people largely have the same personality profile, but technical leads have evolved a bit.
• We’ve decided to devote a slightly higher percentage of time to marketing (because people are so bad at it) and slightly less time to sales (because people are generally decent at it).
• We can now chart possible career paths for PMs and AMs.

Overall, it’s remarkably applicable, especially when you account for the four primary sub-models: marketing, coding, strategy-led, and in-house departments.

What tips do have for a marketing firm outsourcing (including offshoring) most execution? Background: I’ve been a marketing agency owner for over 30 years and have had up to 40 employees. At this point in my career I don’t want the aggravation and risk of a large team but I do need the capacity to hit revenue goals. We have 4 people currently (all family). Our core skills are strategy, analysis, creative direction, and client?management. I’m comfortable outsourcing everything else (research fielding, design, writing, production, project mgt, etc.). We are familiar with and can direct these services. I generally regard them as specialized but commoditized. I am particularly curious about offshoring to minimize cost.

The firms that do this the best tend to “cluster” their near- or off-shore team in a specific geographic location, and then have a minority owner who lives in that area, wherever it is. The two primary things to consider are time zone offset and English fluency. There’s less stigma than their used to be to employ significant teams in eastern Europe or certain countries in Latin America (Mexico, Costa Rica, Colombia, Guatemala, Chile, Argentina, especially). The quality can be excellent and the work ethic can be refreshing.

I'm freshly back from [a business retreat] in Atlanta with a head full of fresh ideas and insights.?Any insights into common mistakes made when attempting to scale an agency from a >3 team to a <10 team?

You bet. The biggest mistake is not understanding what growth means. The bigger your firm, the further away you’ll be from the work, and the more you’ll be in the people business. If you’re willing to embrace that change in role, go for it. Otherwise, you (and those around you) are going to be miserable. The other thing that changes around the 5-6 person range is how much detail you can retain in your head. Above that boundary, you cannot expect to know everything that’s happening, and if you try to be that much in touch, your team will be the next group I start getting questions from about their control freak principal! One last point, and this might be the most important one: never grow your firm to absorb all that opportunity. Instead, maintain some amount of gap between your opportunity and your capacity: that forms your ability to say “no” in order to keep prices high and retain some optionality in which clients you decide to work with.

Do you think there's a role that's undervalued/underutilized at a company?

Absolutely. Data science, especially if they can navigate strong conversations around first-party data.

Financial Performance

How will the 25% tariffs affect the US marketing and advertising industry?

There won’t be much impact directly, but our collective clients hate uncertainty more than they hate tariffs, and this back and forth and the lack of clarity is not a good thing. Other than that, I don’t know.?

What, if anything, might you revise/update on your Eight Important Gauges On Your Financial Dashboard?

Nothing, except maybe make it clear how to calculate the impact of contractors and near- and off-shoring teams. Specifically, anybody you use on a regular basis should be calculated as an employee, full-time or otherwise, and not a contractor. If their hours truly scale with the labor, from week to week, they are contractors. Otherwise, for all practical purposes they should be viewed as employees when you calculate salary load. More on those eight here.

AI, or “Anxiety Implied”

What do you think clients feel is the role of creative agencies in a world inundated by AI tools that are simultaneously making the execution of ideas easy, but foregoing initial output for further strategic and critical thinking in the interest of budget and/or speed?

Honestly, I think they are still trying to figure that out and we don’t really know where they’ll come down on it. But my sense is that the “middle class” will get squeezed out a bit, leaving the less qualified firms to do even shittier work for clients who don’t care that much about quality, balanced out by the most qualified firms who will learn how to effectively use AI tools to do better (not cheaper) work for clients.

Will AI kill us all like everyone makes us fear.

Maybe, but I wouldn’t bet on it. It will be particularly disruptive to content, SEO, and coding, but truthfully, it’ll be more of a force multiplier, in both directions, making lame firms worse and strong firms better. Those of you who listen regularly to our 2Bobs podcast will surely have noticed that we’ve not yet done an episode on AI. That’s because our opinions would add to the noise more than it would clarify anything. We’re still trying to figure that out, just like you.

Has AI challenged the strategy of deep specialization? Is adopting a generalist approach now a wiser path? Have the traditional rules shifted?

Huh? Specialization will never be reversed! No, I’d say that AI has sharpened the argument, which goes like this: the world is too complex to know enough about everything. Traced all the way back to Frederick Hayek and other economists, the concept of the “division of labor” requires us to master certain things to be a valuable contributor to society. AI simply reinforces the fact that knowledge is even more widely available, is quick, and is free (or at a very nominal cost). You’ll prosper by going deeper and mastering the application of that knowledge, but your floor is higher now with AI at your disposal. Make sure your ceiling is higher, too.

Service Offering Design

What is the best way to “validate” an assumption aka prototype/test a service offering?

Once you notice more than one prospect or client asking for the same thing, throw it onto a non-indexable page of your website. Next time you detect some interest, share your screen (of that page) and see how they react and what they might pay for it. Experiment all you want, but don’t add a service offering to the Prix Fixe menu until you require most of your clients to buy most of those services most of the time, favoring any new clients who think that way. What you don’t want to do is to slowly migrate to those Cheesecake Factory menu monstrosities.

My goal is to add products to my current consulting offerings; these are based on issues I see frequently referred to in RFPs.? I am curious to learn more about how much time/resources I should dedicate to this task and if you have recommendations around how to best roll out new products?

See above, of course, but do this very, very slowly, and never because you’re afraid to lose the client when they want to dance with somebody else at the party. Only offer services that you expect all your clients to buy, and only if you really know what you are doing as an expert. Otherwise, build strong referral relationships and send work to other experts.

Should I Throw In the Towel?

Many agency owners are tired. We led through COVID, we led through the recession that wasn't a recession over the past two years, and now we're leading through the chaos of government uncertainty. This leads me to two questions based on where we find ourselves as owners: a) What are our best options or next steps if we're exhausted, burnt out, and ready to get out—especially if our agency isn't in its most "sellable" shape right now? b) For owners who want to keep owning an agency at the end of all this, what have been the best habits, exercises, and/or actions you've seen owners take to recharge and recover from burnout? These don't inherently fit any of the categories you listed, but pretty sure you'd have the best answers out of anyone I know based on your experience and history with so many agency leaders.

Your flattery prompted me to include this question, so good work. ? I’ll start by saying that this is not a down time. This is the new normal, and all the extra money flowing during the pandemic was the exception. It’s normal to go back and forth from the highs of those winning ways to deeper introspection, and that sort of unpredictable risk is why you (should) make the big bucks.

But there’s no earthly reason you can’t have multiple careers, and lack of engagement on your part will be harder to hold down than an inner tube under water: face it and deal with it or take a job somewhere to recoup, contribute at a high level, get a reliable paycheck, and then launch again based on all that you’ve learned. Or take a sabbatical?

Most of us start our firms because we want to make more money, work fewer hours, make a difference for the clients we choose, and have more control over who we work with. If those things are not happening for you, regularly, then you’ve lost your way as an entrepreneur. It could be from not adapting to what it means to run a bigger firm, sticking with a generalist position because of your fears, not realizing that job one is new business, not paying attention to your firm’s financial performance, or shying away from the difficult conversations that come with active management of your team and your client base.

Once you realize all this, of course, your life will certainly get worse before it gets better as you fix the things that have slipped, but there’s a remarkable joy at the end of that journey. One thing I’d make sure of is this: make sure that your job is just your job—your personal life should be so interesting that you start to resent interference from your job or insufficient money to pursue your hobbies. All that means that your job might not be going swimmingly, but your other life can be fine.

I’m a big believer in making big, bold decisions and being in charge of your life and not letting your firm drag you around so that you’re now feeding that machine instead of having it provide for you. If you know what to do and you have sufficient engagement to do it, please do. If you don’t, please admit that to yourself…and never walk away from your firm, but talk with an M&A person to see if there are other options.?

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