Definition of Professionals
Professionals are who driven to be great will redefine marketing agencies and the industry. They derive fulfillment from being a part of something greater than themselves.
Their success is not defined by money, fame, or power, but rather by the pursuit of purpose. They challenge authority and quickly tire of tradition, seek autonomy and flexibility, desire balance, and value the freedom to pursue their passions outside their careers.
These professionals excel in agency cultures that reward collective success over individual achievements. They care less about why, and more often ask, “Why not?” Theirs is a world of endless possibility, and they are the future. Your agency will be defined by its ability to recruit and retain the best.
When all else is equal—processes, services, pricing, and infrastructure—it is talent that cannot be replicated.
The Model Agency
Model agencies are constructed one employee at a time. They do not allow market demand or outside expectations to dictate their growth, and they do not sacrifice the quality of their hires to satisfy short-term needs.
They take a controlled, almost methodical, approach to expansion. They develop talent from within and construct teams based on shared values, innate abilities, and complementary character traits.
These agencies are built on a culture of we, succeeding and failing as one. There is no room for egos, selfish behavior, or a sense of entitlement. They are led with an air of openness in which professionals at all levels are involved in agency strategy and decisions, and heavily engaged in its growth and success.
As a result, professionals are passionately loyal to the agency and to each other. They believe that their work truly matters to the agency and its clients, and they feel their time and energy in being invested in the achievement of a higher goal.
Although the founders may be the highest profile members of the team, they go to tremendous lengths not to overshadow the agency brand or its employees. Unlike many traditional firms that were named after their founders, hybrid agencies look to alternate naming conventions in order to focus attention more on the team, vision, processes, and culture.
They know that in order to scale a transformational agency, client acquisition and retention must be driven by the collective strength, reputation, and capabilities of the firm.
Leaders assume full responsibility when things go wrong, and turn the spotlight on the team when things go right. They take greater pride in the success and development of their employees than in their own achievements.
System-wide efficiency and productivity are essential. Any weaknesses or flaws within the agency's processes or people are quickly exposed. Professionals who are unmotivated or failing to live up to their potential can negatively impact the team's performance, but, more important, they can drag down the morale and momentum of peers and leadership.
Model agencies have to commit to consistently recruiting the best. This fosters a competitive, yet supportive and collaborative, environment. At the same time, to protect the agency's strength and stability, managers have to be able to effectively transition consistently underperforming professionals into alternate career paths.
Hiring standards are high, and expectations for employees are even higher. Professionals are given unparalleled opportunities for career advancement and encouraged to build strong personal brands.
From day one, they are immersed in comprehensive training and education programs designed to accelerate their learning and capabilities. They are brought up in the agency's well-defined systems and processes and immediately thrust into key account roles.
Young professionals quickly gain invaluable knowledge and experience, and, in return, they continuously infuse energy, curiosity, and fresh perspective into the agency and its account teams.
All employees have a confidence born from preparation and understanding and nurtured through the firm's persistent adherence to the highest standards. Professionals expect excellence from themselves and demand it from each other.
A Players, the Draft, and Free Agency
Constructing an agency filled with top talent establishes a distinct and formidable competitive advantage.
According to Bradford D. Smart, PhD, “High performers—the A players—contribute more, innovate more, work smarter, earn more trust, display more resourcefulness, take more initiative, develop better business strategies, articulate their vision more passionately, implement change more effectively, deliver higher-quality work, demonstrate greater teamwork, and find ways to get the job done in less time with less cost.”
Model agencies are constantly in search of professionals who have the desire and drive to be great. Social media has made it more efficient to identify and passively engage with these candidates over time.
Their activity on Twitter, Facebook, LinkedIn, and blogs provide windows into their personal brands, including communication styles, interests, and motivation.
At the same time, A players are able to more easily analyze agencies through blogs and social networks. These high-potential producers are very selective, and they usually have options, so firms must separate themselves in the recruiting process.
A Player Competencies and Traits
How do you recognize an A player? What are the common competencies and traits they possess that make them more qualified than their peers?
Although intelligence and experience are key, their character, internal drive, personalities, and innate abilities are the intangibles that truly differentiate great candidates from good ones. Let's take a look at some of the most desirable competencies and traits of marketing agency A players:
Analytical: They make quick decisions based on logic and reason. They love data and use it to educate, build consensus, and drive action. They are measurement geeks and look to apply critical analysis to agency activities, and they integrate it into every phase of client campaigns.
Balanced: They maintain a strong work-life balance. They have personal interests and hobbies that regularly present opportunities to unwind and recharge. This keeps stress levels controlled and energy high. Balance becomes more critical as professionals move up into management levels, and their responsibilities and stress levels grow.
Confident: They put in the extra time and energy needed to gain knowledge and experience, which translates into confidence and composure. Confidence is not to be confused with arrogance and entitlement, which are two of the most undesirable traits of an agency professional.
Creative: They bring innovative approaches and thinking to projects. They have an innate ability to work within standard systems while efficiently integrating original ideas and strategies that strengthen the agency and client campaigns.
Detail-oriented: They are incredibly organized and thorough in all communications and activities, which instills tremendous confidence in their clients, peers, and managers. They rarely make careless mistakes. Their attention to detail enables them to excel at time management and project management.
Focused: They avoid multitasking in favor of the concentrated effort. They know priorities at all times and work efficiently to deliver. They have the ability to shut off distractions, and are often the most productive and efficient workers.
Intrinsically motivated As defined in Daniel Pinks classic blog, Drive, intrinsically motivated people seek: autonomy, the desire to direct their own lives; mastery:, the urge to get better and better at something that matters; and purpose, the yearning to contribute to something greater than themselves.
The “it” factor: They maintain a strong presence and positive aura. They command attention when they walk into a room and exude confidence without an air of arrogance. They have an intangible element that cannot be defined, but it makes them uniquely capable of succeeding in an agency. They are born leaders.
Listener: They excel at listening and understanding the needs of others.
They are adept at making others the focus of conversations.
Positive: They bring positive energy to the agency that is uplifting and encouraging to the entire team. They make favorable first impressions. People want to be around them and work with them.
Relationship-builder: They know that strong relationships are the key to success in business, and proactively build connections with peers, clients, media, partners, and vendors. They are strong communicators who do the little things that matter, such as sending personal notes to recognize achievements and milestones.
Risk-taker: They take calculated risks. They do not let fear of failure hold them back, and, as a result, they tend to be more aggressive and proactive professionals on behalf of the agency and its clients.
Social web savvy: They monitor and participate in forums and social networks relevant to their interests and the industry. They engage with peers and influencers, and they maintain a professional presence on all social networks that positively represents themselves and their agencies.
Strategic: They are capable of fully assessing situations, and considering short- and long-term outcomes. They know how decisions and activities affect different audiences, and how they work to achieve business goals. They make seemingly unrelated connections others commonly miss.
Team player: They function extremely well within a team environment, but they also excel when working independently. They always seek opportunities to support team members and encourage collaborative learning.
Tech-savvy: They stay immersed in technology news and trends. They continually evaluate emerging products and solutions for opportunities to improve efficiency and performance.
Writer: They possess exceptional writing skills and the capability to clearly and concisely articulate their thoughts. They use creative and technically sound writing to produce powerful and effective communications. Copywriting is one of the most valuable competencies in a marketing-agency professional.
Building through the Draft
The top firms, which will lead industry transformation and deliver the most value, are built from within. Like professional sports teams that build through the draft, these model agencies excel at identifying and nurturing high-potential young talent, ideally straight out of school. These professionals are groomed within defined systems and trained to adhere to agency standards for performance.
Top performing young professionals are the most important foundation for hybrid agencies, specifically disruptors. In order to excel and continually differentiate, agencies must have a solid strategy to recruit, advance, and retain emerging talent.
Standard processes enable agencies to quickly get professionals onboard and transition them into revenue-producing roles. Meanwhile, the shift to predominantly digital marketing services transitions the balance of work to basic and intermediate levels, keeping labor costs low, pricing affordable, and profit margins high.
However, agencies cannot push growth beyond their capability to service it. One of the most challenging aspects of building through the draft is what I call the patience of potential. Although your recruits may have A-player potential, not all top picks are ready for primetime right away.
Any number of factors can influence how quickly they adapt from college life to the real world and embrace the opportunities ahead of them. These are a few of the more common factors agencies face:
Commitment: It is common for professionals in their early-to-mid-20s to struggle and even question their career choices as they adapt and seek balance in their lives. Those who resist fully committing to their careers in the early years risk falling significantly behind their peers’ development and stalling the agency's growth.
This is why it is imperative to recruit internally driven professionals who have an insatiable desire to improve, advance and succeed. They will put in the extra time and energy needed to build a solid foundation of knowledge that will rapidly propel them into leadership positions. Intelligence becomes secondary to effort in the agency world.
Perspective: Some young professionals lack the perspective to appreciate the opportunities presented to them. They may feel underpaid or undervalued because they do not understand the economics of agencies.
Or they may have a skewed sense of entitlement and not want to put in the work necessary to advance. A lack of perspective can be poisonous to agency cultures, and it may lead to high turnover rates, so agencies must be transparent and open with young professionals.
Speed: You often hear National Football League quarterbacks talk about how fast the game moves when they transition from college to the pros. The game plans are more complex, the competition is stronger and quicker, and they can no longer get by on athleticism and instincts alone.
Marketing agency professionals experience the same phenomenon. Expectations are high, and things move so quickly in the first year. In addition, mistakes are common, which can negatively affect a young professionals confidence.
Eventually, everything slows down as their knowledge and experience grow, and they are able to gradually improve their performance.
Some professionals are born ready, and others need help to realize and embrace their capacity for greatness. Agency leaders must be able to identify high-potential talent and have the patience to develop and nurture these emerging leaders.
Bringing in Free Agents
In professional sports, teams sign free agents with proven track records of success in order to strengthen their organizations.
When the time is right, agencies have to do the same and make the move to bring in seasoned talent. Their experience and capabilities enhance the teams capacity for growth, and they add much-needed leadership to help develop and advance young professionals.
However, be cautious when bringing in free agents. Professionals shifting from larger, more established agencies, or those coming from less demanding corporate and nonprofit jobs may struggle in the early going to adjust to the speed of agency life.
This can directly impact the agency's efficiency and productivity, and if they do not quickly adjust, their higher salaries can have an undesirable effect on profitability. Additionally, each hire adds a new dynamic to the agency culture, which is delicate during early growth phases.
To avoid making costly hiring mistakes, it is important to have very clear and open dialogue about opportunities and expectations. Make sure candidates understand the systems they will be asked to work within, and buy into the agency's vision. There cannot be any doubt on either end or else it will never work in the long run.
View free agents as the final pieces to the puzzle, rather than the building blocks of your agency. Use the infusion of experienced talent and a fresh perspective to push the agency to the next level.
Hire, Retain, and Advance Hybrid Professionals
Although recruiting talent is a primary responsibility of the agency CEO, prospecting for the next great hire should be top of mind for every team member.
Whether you are acquiring young professionals through the draft or enhancing your mid- and upper-level staff with free agents, the two best sources for prospects are inbound candidates—those who complete an online form or submit unsolicited resumes—and social candidates—students and professionals who separate themselves through their use of social media.
Let's examine nine steps agencies can take to build strong pipelines of both inbound and social candidates:
1. Start with brand and culture: You must define and differentiate your brand in the market and create a dynamic culture that attracts young professionals and free agents. Top talent is drawn to innovative organizations with strong reputations.
2. Define the career path: Highly motivated professionals will always be looking ahead and striving to advance. Although organizational charts evolve and new positions develop, there need to be clearly defined career paths in place.
Do not get too caught up in titles but focus on creating logical career milestones, and understand how important it is for professionals to feel that they are developing and advancing.
3. Maintain a strong online presence: Social media participation is essential to build reach and engage with professionals, and a strong agency website is a hub for educating and capturing candidates. Model agencies connect with professionals through the agency brand and extend their networks through the personal brands of their employees.
A strong online presence includes the essential elements of website, blog, Facebook, Twitter, and LinkedIn, as well as any secondary accounts and sites that are proven recruiting channels.
4. Capture inbound candidates: Build a careers page on your website with calls to action that enable you to capture candidates, gather intelligence, and grade their interest, just as you would with new business leads.
Encourage professionals to connect on your social networks as well, and watch for candidates who differentiate themselves by engaging with the agency brand and its employees.
Also, consider adding a brief online survey on your careers page that professionals can complete to further qualify themselves. We use SurveyMonkey for this purpose, and it has been very effective at filling the pipeline with candidates.
5. Invest in informational interviews: Even when you are not hiring, take the time to conduct 30-minute interviews with qualified candidates at all levels. This enables you to build goodwill, extend your network, and identify top talent, should hiring needs change.
6. Be selective: Model agencies never settle for less qualified talent. Commit to excelling at recruiting and retaining the best. As a starting point, refer to the competencies and traits of A players featured earlier in this blog.
7. Monitor and engage with social candidates: Use social media channels to monitor and stay connected to top candidates. Private Twitter lists are a great way to keep close tabs on prospective hires that have demonstrated A-player potential.
Also, look for professionals who continually differentiate themselves through their actions, activity level, and interest in your agency.
Candidates can also disqualify themselves from consideration by being overly aggressive and persistent in their use of social media.
8. Go offline: Do not forget to make time for traditional networking. Get out to marketing club events, industry association gatherings, conferences, and professional happy hours. Nothing replaces the value of a good face-to-face conversation.
Support employees who demonstrate a desire to be active in the industry and business community. Consider covering their membership fees and event costs, and providing flexible schedules that enable them to get involved in committees. These are great ways to meet candidates.
9. Activate a standard candidate grading system: Talent evaluation requires systems that can be taught and implemented agency-wide. Consider the traits and competencies most important to your agency, and build a simple grading chart to assess and compare candidates based on their interviews.
Following are sample factors to consider. I suggest a 1- to 5-point scale for each factor, with 1 being poor and 5 being excellent. This will give you a basic overall rating for each interviewee:
Social media savvy.
Most importantly, include a yes/no field for “it” factor. If you are not sure, the answer is no. Not all A players have the “it” factor, but you will know it when they do. It is usually obvious within the first minute of the interview.
When Is It Time to Hire?
Agencies are most productive and efficient when functioning near capacity. The heavy, yet manageable, workloads keep professionals focused and in rhythm.
Hiring too early and overstaffing in small and early-stage growth agencies are dangerous propositions that can lead to cash-flow crunches and productivity losses.
If there is not enough revenue-generating work to go around, it is only human nature to relax and not push as hard. Temporary lulls can be beneficial to recharge professionals, but challenges arise and bad habits form when they start to extend beyond a few days.
There is no perfect formula to tell you when it is time to hire, but, with the right system, agencies have far greater intelligence to make educated decisions.
Let's examine the key elements of a reliable system.
Know Your Capacity
Start with a breakdown of your client-hour capacity across the agency.
So we know the agency has the capability to deliver just less than 500 hours in a month at a 100 percent productivity rate. In theory, the team is performing at its peak, and the agency is very profitable at this threshold.
However, this is what I consider a soft capacity, meaning that there is room to flex above if needed to meet short-term demands for major projects and campaign fluctuations.
These one-time spikes can create false hiring signals, so it is recommended to take a quarterly approach to forecasts when nearing soft capacity. Exceeding soft capacity for one or two months is not the right trigger point to hire. Although there are exceptions, you should be able to predict sustained growth for at least three months before you commit to a new hire.
It is important when forecasting and determining when to hire to leave room for a 20 percent spike above the soft capacity, or what I call the absolute capacity.
In other words, if soft capacity is 490, and next months forecasts call for 540 client hours (approximately 10 percent above soft capacity), you should be able to deliver up to standards with the current staff.
You will notice in the example agency that the CEO, vice president, and senior account executive all have some room to pitch in during heavy months if they temporarily shift priorities.
Build a Strong Forecasting and Reporting Model
Hiring decisions must be data-driven, otherwise, you are putting your agency's financial stability at risk. Monthly forecasts give you predictive data—what you anticipate will happen—and time-tracking software provides the historical data—what has happened to date. Both are essential.
For predictive data, managers should be able to view and edit monthly forecasts by client and employee. Unfortunately, I have yet to find a reliable software product to perform this task, so we have built an Agency Manager dashboard in Microsoft Excel.
It requires manual updates, so it is not ideal, but it works well for THESIS SCIENTIST. If you figure out ways to improve on the template, I would love to hear about it.
For historical data, I have always relied on TimeFox by FunctionFox.
This information is vital to keep campaigns and budgets on track, produce monthly activity reports and invoices, and also incredibly valuable when conducting professional performance reviews.
Shift to Campaigns
Concentrate on shifting 80 percent or more of your client base to long-term contracts, which creates predictable recurring revenue and workflow. For agencies that are predominantly project-based, forecasting is nothing more than futile guesswork. If you plan to grow a stable and scalable agency, you must build a campaign-based agency.
Define Ahead-of-Need Triggers
Sometimes you have to throw out all logic and data, take a leap of faith, and hire ahead of need. The triggers will be different for each agency, but common ones include:
Launching a major growth initiative.
The anticipation of significant demand from a new partnership.
Deep new-business pipeline with potential for a number of short-term conversions.
Preparation for the transitioning of underperforming employees.
Understaffed core campaign accounts.
Opportunity to land a high-potential A player.
The Retention Issue
Identifying and recruiting A players is challenging, but retaining them long-term can prove to be even more difficult, especially given the industry employee retention issue.
Model agencies recruit to retain. They seek to hire career professionals who view the agency as a destination rather than a steppingstone. Although some top employees will move on to lead or found other agencies, the goal is to maintain stability through retention.
As professionals advance and compensation packages increase, this becomes more difficult, so agencies must grow and continually evolve to offer competitive pay and rewarding environments.
Keep in mind that A players are in high demand. Just like free agency in professional sports, there is always another organization willing and able to pay more. This is why culture and the pursuit of purpose, are so essential to your agency's success.
Retention starts by hiring intrinsically motivated talent. Although everyone has baseline financial needs that must be met through salary, bonuses, and benefits, money is not the primary motivating factor for these professionals.
Compensation certainly must be fair and competitive, but once they reach certain financial thresholds, and all their basic needs are met, more money has minimal impact on their motivation or happiness.
Assuming that an agency maintains competitive compensation packages if someone leaves on their own free will, and it is a solely money-motivated decision, then they were not a fit for the firm from the start or they lost their connection to the culture and purpose somewhere along the way. In either case, as hard as it is to replace top talent, it is probably for the best that they leave.
Model agencies are built around loyal professionals who passionately believe in the mission, vision, and values. They are your greatest asset and the only means by which you will create a significant and lasting brand.
Training Hybrid Pros
The most valued talent in the emerging marketing agency ecosystem will themselves be hybrids. Although specialists, connectors, and soloists can still excel with focused competencies and service offerings, disruptors are built on the versatility of social media and tech-savvy professionals.
They possess exceptional copywriting skills, along with dynamic personalities that enable them to build strong personal brands.
Hybrid professionals are trained to deliver services across search, mobile, social, content, analytics, web, PR, and e-mail marketing. They provide integrated solutions that used to require multiple agencies and consultants.
However, because there are not any college programs that I am aware of producing graduates with these diverse skill sets, the onus falls on agencies to develop customized training programs.
Agencies can mold young professionals into valuable consultants and practitioners by mixing internal curriculum and exercises with the wealth of education and resources available on the web.
Agency training programs should be structured like internal academies, with standard curriculum and milestones. Let's take a look at key components of a powerful agency program.
Content-savvy organizations are using webinars as lead-generating and thought-leadership tools. These are commonly free, and often available on demand, which makes them incredibly efficient training resources. Agency leaders should identify priority webinars on an ongoing basis, and make them required viewing for professionals.
Find reliable solutions for the sharing of communications, experiences, and ideas with employees as they happen. It is so easy, especially for senior personnel, to go about their days conducting meetings, communicating with clients, and making key strategic decisions about the agency without thinking to share what they are doing and why they are doing it.
However, these types of activities are some of the most practical learning experiences for young professionals. Furthermore, it keeps all employees engaged in the agency and encourages a more collaborative culture.
We rely on two platforms—Yammer, and Highrise by 37Signals—for the majority of our real-time, agency-wide sharing.
We use Yammer as our private, internal social network, which enables threaded and searchable conversations. If you are not familiar with Yammer, or competing solutions, it is basically like Facebook for the enterprise. Here are some of the ways agencies can take advantage of a solution like Yammer:
Post timely links and resources.
Share good news and positive client results.
Ask questions of peers.
Publish account management tips.
Get real-time feedback on client campaign strategies.
Provide account and group updates.
Suggest upcoming webinars.
Meanwhile, Highrise is a customer relationship management (CRM) cloud-based solution that enables agencies to track conversations, calls, e-mails, and meetings. Professionals can log in at any time and view the latest activities on the dashboard, and then click through to any items that are relevant.
This is an effective way for the entire team to stay informed of what's happening within the agency. Also, from an educational perspective, it gives young professionals insight into standard communications styles and habits.
Use management videos, presentation recordings, case studies, and handbooks to document policies, procedures, and best practices. Consider the most effective ways to capture and store your agency's collective knowledge, so that it can be passed on to the next generation of employees as the organization grows.
Practicing in front of peers and managers can be intimidating at first for many, but it is a great way to gain experience and build confidence. Look for opportunities, such as calls, meetings, and presentations, to integrate regular role-playing sessions into your training program.
Attending conferences can get expensive with fees and travel costs, but they definitely provide valuable content and networking opportunities, as well as unique experiences for your team.
There is a seemingly endless list of marketing industry events to consider, but for agencies serious about transforming into a tech-savvy hybrid, SXSW Interactive is the one cannot-miss conference.
The conference, which happens every March in Austin, Texas, brings together the brightest, most innovative minds in marketing and technology for five days of learning. If you have never attended, it is worth the investment.
There are some amazing online resources available to train agency professionals. For example, Google offers free courses that provide comprehensive training in Google Analytics and Google AdWords, and HubSpot certifies professionals through its Inbound Marketing University. Consider the areas your agency needs to strengthen and look for third-party courses to enhance internal materials.
Turn learning exercises, such as blog reading, conference attendance, and webinar participation, into agency blog posts. This is a perfect way to share valuable content on your blog and gives professionals the chance to hone their writing skills.
Assign challenges to the entire agency or select teams, and then meet to review, share, and learn together.
Here are sample questions that we actually used in the exercise:
How can we make the agency more profitable?
What can be done to improve client relations?
What can you do personally to improve your performance and value to the agency?
How can account groups run more efficiently?
How would you strengthen employee training and education provided by the agency?
If you were in charge of the agency, what three actions would you make the top priorities to improve efficiency, value delivered to clients, and profitability?
Group exercises like this are difficult to keep up with when client workflow is heavy, but model agencies recognize their importance and make them a priority.
Talent Evaluation and Professional Reviews
Formal professional reviews are an essential element of training and advancement. They ensure that employees are staying on track with their development, and identify opportunities to address concerns and challenges.
Although annual reviews should be standard for all professionals, more regular sessions throughout the year are a great way to keep managers in tune with the team's energy and motivation.
For most small agencies, the human resource duties often fall to the management team, which, most likely, does not have any advanced human-resource training.
Professional reviews should analyze competencies and traits, motivation, and performance. We use a process that encourages self-analysis as a means to discovery and understanding.
Professionals are presented with approximately 140 statements, which they answer with a 1–5 rating: 1 (strongly disagree), 2 (disagree), 3 (neutral), 4 (agree), and 5 (strongly agree).
Each state also has a notes column, which responders may use to further explain any ratings. There are no right or wrong answers, and we do not consider the cumulative total of the ratings.
Our goals are to:
Create a snapshot of mindset and motivation, individually and as an agency.
Clearly define expectations.
Strengthen the team.
Provide all the feedback, guidance, and support needed for success.
Improve performance, and prepare for opportunities and growth.
The review is not meant as a burden or a test. Instead, it is an opportunity for professionals to gain a strong grasp on where they stand in their professional development and identify opportunities to enhance their value and careers while helping to grow the agency.
Once professionals complete their self-analysis, managers review responses and develop qualitative follow-up questions based on personal ratings, performance history, and supervisor feedback.
Individual review meetings are then conducted with professionals and managers. Based on discussions, professionals develop and submit action-oriented, results-driven advancement plans. These serve as the basis for future evaluations.
Establishing Systems with a Personal Touch
Do not commoditize your talent. Although it is important to establish evaluation and advancement programs, take the time to personalize your approach based on the unique needs and personalities of each professional. Understand what is important to them, and treat them with respect and honesty at all levels.
Following are core components of an agency talent-evaluation system.
Define the Career Path
Where are they going? What are the opportunities ahead? How can they build a successful career at your agency? These are the types of questions you need to answer with a career path. It lays out the roles, responsibilities, expectations, and opportunities at different levels of the agency.
Start with Metrics
Give professionals a clear understanding of how they will be evaluated. Determine the metrics that matter to your agency and to the professional's advancement, and integrate them into evaluations. Model agencies focus on client retention and growth, as well as productivity, efficiency, and profitability.
Assess Competencies and Traits
Challenge professionals to critically analyze their strengths and weaknesses. Focus on the competencies and traits that are essential to their development. Here are sample statements you may present, and then have them rate their level of agreement with each, using the 1–5 rating system: 1 (strongly disagree), 2 (disagree), 3 (neutral), 4 (agree), and 5 (strongly agree).
I am quick to make decisions based on logic and reason. I am decisive in my actions.
I believe risk and failure are essential paths to success.
I have difficulty focusing on a single project or task for extended periods of time without being distracted.
I am adept at managing and controlling my stress levels, even when under tight deadlines.
I tend to get defensive when peers challenge my work or opinions.
Professionals must maintain high motivation levels. Although the drive is readily apparent to perceptive managers, it is important to gauge how individuals feel they are performing. You can use statements such as:
I focus the majority of my time and energy in business and life on the things I can control. I don't get distracted and overwhelmed by things I cannot influence.
I find myself constantly setting goals (personally and professionally) that require me to test my own capabilities, commitment, and limits.
No one will ever question my effort and desire to improve and succeed.
I create more value than I capture.
Connect to Performance
The most effective evaluations are directly tied to performance. Professionals should understand, and be able to prove, their value to the agency. For example, have professionals assess how their contributions have led to key outcomes for the agency, such as account retention and growth, and for its clients.
Create Advancement Plans
Use advancement plans to concentrate time and energy in the right areas moving forward based on training and education priorities. Advancement plans are personalized to address weaknesses identified in the evaluation process and include detailed activities and timelines.
Eliminate Billable Hours
Disruptive innovation is already happening in the marketing services industry, and it is going to change everything, including pricing and service models, measurement methods, tools and platforms, higher education, industry accreditation, marketing budgets, organization charts, and career paths.
Whether you are an emerging agency seeking to disrupt or a traditional firm on the wrong end of the impending evolution, there are several things to remember about disruptive innovation:
Disruptive business characteristics include lower gross margins, smaller target markets, and simpler products and services.
It often comes from the outside, and once you realize what is happening, it is probably too late.
Success requires an uncommon tolerance for risk and a desire to embrace the unknown.
Victory favors those who are bold and decisive in their actions.
Traditional agencies that are slow to adapt will fail, and many existing industry experts will become irrelevant. This will be good for the industry.
Unparalleled opportunities will arise for marketing agencies and professionals, and new career paths will be defined.
The underdogs and innovators will become the leaders.
Pricing strategy is a key component to disruption. Agencies motivated to change will shift away from the inefficient legacy system of billable hours, and move to more results-driven, value-based models accessible to the mass market.
This presents the opportunity for agencies and independent consultants to disrupt the industry with lower prices, and potentially higher profit margins.
The Salary-Rate Fallacy
A standard formula used by agencies to determine billing rates is to apply a salary multiple, commonly a factor of two or three. According to communications industry consultants StevensGouldPincus, the most profitable PR firms should target 35 percent of revenue for base salaries, and 50 percent of revenue for total labor costs, including salaries, bonuses, and freelance/outsourced labor.
So, in theory, if employees generate three times their base salaries in revenue, then firms will fall within target profitability ranges.
Firms may use variations when determining hourly rates, and take additional factors into account, but a simple salary multiple enables them to account for overhead expenses and employee compensation while leaving room for net profit margins.
Target net profit margins vary greatly based on agency size, growth rate, and life stage, but, most likely, they will fall in the range of 10 to 25 percent, depending on which benchmark report you reference.
In order to understand the deficiencies of this approach, let's take a look at an example of how an agency professional hourly rate would be calculated using a 3× multiple.
In this scenario, we will assume the professional's production rate or the time he is billable is approximately 57 percent (or 100 hours per month).
The remaining 43 percent of nonrevenue-generating time may be accounted for through administrative tasks, account management, business development, professional development, and networking. Here is how it breaks down:
Assuming there are 1,200 hours of billable work to be done in the year, this formula seems easy enough, and makes financial sense, at least for the agency. The problem is that the formula is completely agency driven.
It is tied exclusively to outputs, not outcomes, and assumes that all agency activities— account management, client communications, writing, planning, consulting, creative—are of equal value.
Thus, the fallacy: A marketing agency executive making X ($150,000) per year is worth Y ($375) per hour.
The fact is that the amount a professional is paid does not have a direct correlation to the quality or value of the services they provide, especially when you consider the impact of change velocity, selective consumption, and success factors, which were discussed in the introduction. And yet, we have an entire industry built on this pricing concept.
Maybe the executives time is worth $375 per hour to build advertising creative or to consult on crisis communications situations if that is what he built his career and salary on, but now client needs are rapidly evolving (change velocity). They are demanding different services (selective consumption) and measuring return on investment (ROI) in new ways (success factors).
Clients are willing to pay a premium for experience and knowledge they do not have, but the unfortunate reality is that young professionals, who have grown up in a digital world, may be more qualified to provide consulting and services in high-demand areas such as social media, SEO, and mobile.
It is almost a reverse of how the industry has traditionally worked. Clients would pay for inefficiencies of junior account executives while they learned the craft and gained experiences, but the labor and hourly rates were cheap. Now clients pay for the inefficiencies of senior executives to learn the digital game, but their hourly rates are not coming down.
In addition, as costs increase to run and grow the agency, including rising employee salaries, there are only two obvious options to maintain or increase profits: (1) raise hourly rates or (2) demand professionals work more hours, neither of which creates greater value for clients.
The salary-rate fallacy is the core reason that billable hour is a broken system. Unfortunately for many traditional firms, it is the basis for their financial structure and incredibly difficult to change.
Even for firms working off retainers, rather than project-based hourly rates, in order for the agreements to make financial sense, retainers still must be based on an estimated number of service hours using the hourly rate formula.
For example, if an agency has a $5,000 per month retainer, the number of hours that will be dedicated to the account each month could look like this:
If the agency exceeds its monthly allotment, they either absorb the losses or request more budget. The other, less desirable options are to push more hours to cheaper junior staff with less experience, record the time against other projects with available budgets, or make it up by shorting time spent on the account during the next month.
In other words, traditional retainers do not really solve what is wrong with billable hours.
The Cost of Inefficiency
To further explore the challenges of the billable-hour model, consider the case of a press release. What do you think a press release is worth?
The correct answer, like any product or service in a free market, is whatever a client is willing to pay. However, in the traditional model, the cost comes down to two primary factors: hourly rate and the producer's efficiency. So let's examine the practical application of billable hours in an agency.
Professional A is an assistant account executive and an exceptional copywriter who requires minimal oversight. She is assigned a press release that will be distributed on a national wire service.
She completes a strong original draft that is reviewed internally with no edits, and it is then quickly approved by the client. As a result, the cost is relatively straightforward.
Now let's look at what happens to the price had Professional B, who also has an hourly rate of $150, been assigned the same press release. Although she wrote a few releases in college, this is her first real-world project. In addition to her raw writing skills, Professional B is easily distracted.
She is addicted to her Twitter stream and has e-mail alerts that pop up every two minutes, so she rarely focuses on her tasks for extended periods. As a result, she takes a bit longer than Professional A, and the quality is subpar, requiring multiple revision rounds before it even goes to the client for approval. The cost for the first draft:
However, we are not done yet. We also need to account for the one hour of a senior associates time to edit and revise the original draft, 15 minutes to review the edits with Professional B, 30 minutes for Professional B to make the edits, and another 30 minutes for the senior associate to edit and approve the final version.
Oh, and the senior associate's hourly rate is $250 an hour. So, the final cost looks like this:
There is zero added value for the release from Professional B, yet, the client pays nearly three times more for the exact same deliverable. The client is actually penalized and forced to pay for the agency's inefficiency and professional development.
The model is broken.
There are countless factors that can affect a professionals efficiency, but distractions, time tracking, and motivation are three of the biggest culprits.
Marketing agency professionals are multitaskers. At any given moment, they are connected through an array of channels competing for their attention— Twitter, Facebook, Internet, TV, chat, e-mail, phone, text, Skype, Intranet— not to mention face-to-face time and meetings.
In essence, they are always distracted or anticipating distraction, and, therefore, they are never performing at their peak and never achieving flow.
Yet clients are expected to pay full hourly rates when, in reality, professionals rarely are focused solely on the project at hand. I know if I were paying someone for their creative work, I would rather they spent 60 uninterrupted minutes straight on my project than 60 minutes over three hours with calls, e-mails, tweets, and instant messages in between.
I will take efficiency with higher levels of creativity and attention every time.
Distractions lead to higher costs and lower quality.
Time tracking is not exact by any means. Although agencies and professionals may have the best of intentions for accuracy, it is easy to accidentally leave the meter running or even to forget to start the meter as you battle distractions and jump from one project to the next. As a result, it is common to estimate or around your time in logical increments.
This means clients commonly pay for the time that never happened. A five-minute phone call tracked as 15 minutes may not be a big deal once, but multiply that out over a 12-month campaign, and you are looking at hours of wasted time and money.
Plus, professionals responsible for billable-hour quotas certainly do not want to miss any client time, so they try to account for every activity, no matter how mundane. This time adds up and can eventually start to take valuable hours away from more meaningful and measurable work.
My experience was that, over time, clients would often avoid calling or even stop keeping us in the loop on key strategic discussions because they did not want to incur the charges for us to have a chat or read and compose an e-mail.
So agencies make a few dollars to fulfill billable-hour goals but lose out on long-term opportunities. This is the type of shortsighted thinking that will doom agencies.
There is little motivation for agencies or their professionals to complete work more efficiently. The value of employees to an agency, and, therefore, their ability to advance and build wealth, is directly tied to how many hours they log and how many of those hours actually get billed to clients.
As a result, professionals often are more worried about meeting hour quotas or staying within monthly retainer limits than they are with delivering the level of service and quality needed to produce measurable results for clients.
Going back to the press-release example, which professional looks better on paper based on the standard model? Professional A, who finished the release in three hours for $450, or Professional B, who took more than seven hours with the help of her supervisor for a cost of $1,262.50?
Well, if the client had the budget available to allow for the inefficiency, Professional B comes out ahead and the client never knows the difference.
Low-quality work should not cost the client more, but that is exactly what happens. Either that or the agency eats time as professional development, but that is not something most agencies are eager to do.
Just think what an agency could accomplish, and how much value it could bring to its clients, if it rewarded professionals for retention and growth of accounts, rather than how many hours they bill in a year.
The Power of Transparency
There is a certain mystery to billable hours and agency services. Clients are not always sure exactly what they are getting or what it costs. This works for agencies because billable hours are an imperfect mix of art and science, and as long as the agency produces results, clients are happy.
However, there are those times when things do not go so smoothly. Maybe the client anticipated a return on investment sooner, does not feel like the account is getting enough attention, or is just too demanding and unrealistic.
There is also the possibility that the agency may have slightly overpromised to win the business and just cannot deliver to the expectation levels that were set.
All of a sudden, invoices are being scrutinized a little more closely. The client's chief financial officer (CFO) takes a keen interest in the growing monthly expense, and now the chief marketing officer (CMO) has to explain the value of the agency to his executive team.
The problem is that he has no idea. After four months at $10,000 per month, he has invoices full of activities but nothing tangible to share with his bosses to justify the relationship. The mysterious nature of billable hours is not that much fun for either party at this point.
Now the agency team has to invest nonbillable (in theory) hours reviewing and explaining invoices and scrambling to demonstrate some meaningful and measurable impact they have had.
Even though both sides entered the engagement with the best of intentions, the relationship becomes tenuous, and time and energy that should be focused on producing outcomes are diverted to saving the account.
This scenario, which played out continuously over my first five years in the industry, was a primary motivating factor in my desire to create a different agency model. I became obsessed with the idea of making services tangible with clearly defined costs, features, and benefits, almost like buying a product off a retail shelf or signing up for a software service.
My theory was that, if clients understood exactly what they were getting and agreed ahead of time what it was worth, then we could remove the mystery from the equation and focus on delivering value and results.
Transparency would build trust, remove the friction from the client-agency relationship, and make it simpler to sell services to the mass market. The problem was that the billable-hours model was the only one I had ever known. How would I build an entirely new financial model and productize a service business?
The Move to Standardized Services and Set Pricing
My solution was to standardize services and apply set prices based on a number of variables. In essence, I believed it was possible to achieve economies of scale in the production and delivery of services, much like a manufacturing company does with products.
If we could lower the cost of services over time by improving efficiency, then, in theory, we could increase profits, possibly even above industry benchmarks.
Set prices would enable us to bundle services into packages designed to fit specific market segments, such as franchise owners, and it would dramatically reduce time spent building new business and account development proposals.
Plus, we would be able to make marketing agency services more affordable and effective to the underserviced market of small businesses in the United States and around the world. Everyone wins.
I took the approach that if you can define the scope, which is possible with nearly every marketing agency service, then you can standardize the service and assign a set price.
Although some services, such as website projects and marketing plans, are more complex than others, the vast majority of agency services can be standardized by clearly defining the scope of what is to be done.
Sample Standardized Service
Standardized services, such as the following case-study example, commonly include a description, features, benefits, and set price.
Provide prospects and customers with powerful examples of how your products or services deliver value and results. Case studies are ideal website content for your visitors, make great marketing and sales tools, and can be used as editorial submissions.
In the traditional billable-hour model, the basic formula to determine cost is hourly rate × billable hours. It is simple, but as we have seen it is also inefficient and favors the agency's needs over the clients. On the other hand, the value-based pricing model takes seven primary variables into account:
1. Estimated hours.
2. Hourly revenue target (HRT).
4. Perceived value.
5. Builder vs. driver.
6. Loss leader.
7. Service level.
In most cases, you will be able to determine prices by simply calculating estimated hours × HRT, but you want to take the other variables into account before finalizing the price.
At peak efficiency, how many hours will it take the agency to complete a project? Keep in mind peak efficiency is the key here, and one of the main differences from the traditional model.
For services to be value-based, clients should not pay for agency inefficiencies. They should be charged for the estimated time in which the agency is capable of completing the service.
The actual time invested will vary project to project, but if your estimates are accurate, and your team works efficiently, it should average out over time. The best way to determine estimated hours is by referencing historical timesheets. Let's say you want to standardize blog post copywriting.
Pull reports from the last 10 blog posts your agency has completed, and look at the average hours needed. If you do not have timesheets to reference, analyze the scope of the service, and forecast time to complete based on your experience and educated best guess.
I can tell you from more than six years experimenting with this model, value-based pricing is about testing and revising. You will get some pricing very wrong, and you will get burned a time or two, but as long as you have the right tracking and reporting systems in place, you can quickly adjust and move on.
It is important to note that the value-based model does not eliminate the need for timesheets. Accurate time tracking actually becomes more essential in order to monitor efficiency and productivity, evaluate employee performance, produce activity reports, and evolve pricing.
Hourly Revenue Target (HRT)
How much revenue does the agency need to generate per hour of client work to achieve profit goals? For solo practitioners, the HRT will probably be similar to your hourly rate, but, for agencies with multiple employees, you will need to consider additional variables such as expenses, growth goals, payroll, and target profit margins.
In essence, the HRT is similar to a flat rate in the traditional billable-hour model, but now it is only one of seven factors taken into consideration when determining service prices.
My best advice is to talk with your accountant or financial advisors to determine your agency HRT, but following is a very simplified way to look at calculating it using the industry standard benchmark of revenue per employee.
We will assume an agency has five full-time professionals with varying client-service hour capacities. For example, the CEO may be forecasted for 50 hours per month, whereas the assistant account executive is targeted for 140 hours per month. The agency's annual revenue per employee goal is $120,000, which translates into $600,000.
So, if the agency delivers 5,880 client-service hours, it would need to earn $102 per hour in order to achieve its annual revenue goal of $600,000 ($600,000/5,880 = $102 per hour). Again, this is not the only option to calculate HRT, but it provides a basic structure to determine a starting point.
Are there any costs associated with the production and delivery that will be built into the price? This may include fees from partner agencies for services such as graphic design, video production, and editing, or licensing fees. I suggest considering these costs when determining your HRT.
For example, you may decide that, on average, it takes your agency eight hours to write a 1,000-word sales sheet, and your HRT is $105. Your price would be $840, but that does not take graphic design fees into account.
So you contact your preferred designer and negotiate a fixed cost of $500 on design. Now you have a price of $1,340, which you can leave as is, or round up to $1,400 to account for markup or to give yourself a little flexibility on your time estimate.
Is a 1,000-word, professionally designed sales sheet worth $1,400? That question leads us to our next factor, perceived value.
What is the fair market value? What are clients willing to pay for the service? In many cases, this is the most important factor to consider. By drawing on your own experience and researching what other agencies are charging, you can often settle on pricing that fits market demands.
Revisiting the example sales sheet, you may determine that $1,400 is too low. You have been charging clients $1,800 to $2,200 for the same job for the last two years and have had nothing but rave reviews. So put the price at $2,000 and move on to the next one.
You have now created a value-based price that meets client needs and gives you the chance to earn more than your HRT of $105. Use your time-tracking system to ensure that future jobs are actually getting completed on time and on a budget, and adjust the set price as needed.
In some cases, clients will put tremendous value on project work that has no measurable impact on the bottom line. This may be because they simply do not have the resources or knowledge internally to deliver the services your agency is capable of providing, or because of basic supply and demand rules.
If your agency has capabilities that are scarce and in high demand, then you are in a strong pricing position, and I suggest you take advantage of the fundamental economics working in your favor.
Builder vs. Driver
Is the service designed to set the foundation for future success (builders) or to produce short-term results (drivers)? This directly affects the perceived value and what clients are willing to pay.
For example, if a client comes to your agency for support to create and grow the company's social media presence, it is going to take time before your services have any real impact. You have a lot of building to do, and, therefore, the client may not consider the services as valuable.
On the other hand, say a client comes to you with a sales database of 25,000 prospects, and your agency plans and conducts a webinar that generates 1,000 qualified leads. That is driving real business results that organizations highly value.
Is the service designed to entice first-time clients with attractive pricing? Is it proven to create cross-sell and up-sell opportunities?
In retail, loss leaders are products sold at lower prices in order to drive sales of more profitable items. For example, we originally used PR and marketing plans as loss leaders, assuming they would convert into ongoing campaigns.
We would charge a few thousand dollars and invest 100 hours or more of our top talents time building incredibly comprehensive and valuable plans. Project-based clients would thank us, use the plan to justify hiring more staff, and then take everything in-house.
We have learned that plans as loss leaders are a bad idea, so I do not suggest replicating that approach. I highly recommend requiring clients to commit to contracts of six months or more before providing detailed strategic plans.
This goes for the business development process as well. Do not give away the whys and how-tos just to win accounts. If prospects or clients want plans for free, they will never truly value your agency's services and knowledge. This is a primary reason that requests for proposals (RFPs) are often so detrimental to agencies and such a flawed system.
Agencies invest significant time and energy developing creative and strategic concepts for prospects, and the organization only compensates the firm that wins the bid. RFPs are an archaic process that devalues agency experience and expertise.
Will basic-, intermediate-, or advanced-level talent produce and deliver the service? Even if you are no longer charging hourly rates, there is an hourly cost associated with every employee, so do the math.
A senior account executive making $75,000 per year in total compensation —salary, benefits, and bonuses—costs the agency approximately $32 per hour, while an assistant account executive earning $30,000 costs approximately $13 per hour. These hourly rates are based on 260 business days per year at nine hours per day or a total of 2,340 hours.
Work that primarily requires basic-level service should cost less in the value-based model, and high-level services should cost more.
Consider the service-level factor in the example of an e-mail newsletter and a crisis communications plan. Assuming both are completed in 10 hours, which is more valuable?
I would argue that the crisis communications strategy, which requires advanced capabilities to devise, should be priced at two-to-three times the e-mail newsletter, which can be completed efficiently by an assistant account executive.
Remember, we are pricing on perceived value, and a strategic plan to mitigate risk and protect your clients brand is gold. When demand exists for advanced expertise, you have the opportunity to create and capture tremendous value. Always make your profits where they are justified.
Although estimated hours to complete a service are heavily weighted in the value-based pricing formula, prices are no longer based on how many hours it takes the agency to deliver services.
Efficiency becomes the primary driver of success. So rather than relying on straight billable-hour reports to determine agency performance, we came to focus on revenue-efficiency rates (RER).
Simply stated, the RER measures how efficiently your agency turns one hour of service into X dollars in revenue, with X being the HRT.
The RER formula is relatively straightforward, once you know your target HRT. Let's say that your agency strives to generate $100 in revenue for every client service hour. The goal is to deliver the service as close to 100 percent efficiency as possible in order to achieve your desired profits.
As we discussed in the previous section, you want to take costs into account as well. Here is how to calculate the RER of a completed project: RER = [(Price – Costs)/Hours]/HRT.
Sample 1: Website Project
This is excellent. The agency's gross profit (or revenue after subtracting vendor fees) on the project was $12,000, and it invested 120 hours to complete the project. That means that it generated $100 for every hour of service for a 100 percent efficiency rating.
Assuming that the services were provided by an account executive earning $45,000 per year, or approximately $19 per hour ($45,000/2,340 hours), the agency has plenty of room in there to cover operating costs, employee compensation, and a nice profit margin.
Now let's look at an example of how this can go wrong.
Sample 2: Marketing Plan
Marketing plans can be time intensive, and they often drain significant agency resources to execute. In this scenario, the HRT is $100, and, like the website project, it takes the team 120 hours to complete the project.
At a set price of $5,000, the revenue-efficiency rate is only 42 percent. In other words, the agency only generates $42 per service hour. To make matters worse, the marketing plan requires heavy senior-staff involvement, which costs the agency more to deliver the service.
The agency can absorb the inefficiencies as long as it is being delivered as part of a larger contract and campaign, otherwise, it can be a major problem. But what is the alternative? Charge the client for all 120 hours at whatever the hourly rate is?
If we assume a billing rate of $150 per hour, then it would be $18,000 for a marketing plan that will be outdated by the time it is presented. Are there clients willing to pay that much for a plan? Even if there are, will you be comfortable with the value they will get from it, knowing how quickly plans change?
I would argue that with a 12-month contract in place, this is potentially a loss leader worth taking. Your goal is to build long-term client relationships, and this gives your team the chance to immerse itself in the industry and put a solid foundation for success in place. However, do not make a habit of taking on low-efficiency projects like this.
When Do Billable Hours Make Sense?
Even knowing all the challenges with billable hours, when the variable scope is involved, they may be the only viable solution.
This applies to services such as consulting time and media relations, which can be very difficult to forecast, given their dependence on variables such as ever-changing client needs and demand from third-party audiences.
For example, a PR firm may forecast 20 hours to make targeted pitches to 10 high-priority journalists, and coordinate any follow-up communications and interviews.
If it takes 15 hours to research, craft, and distribute the 10 pitches, 5 hours are left for any additional work. However, when all 10 journalists respond and request supporting materials and onsite interviews, the agency realizes it dramatically underestimated hours.
My solution would be to define the known scope—research, craft, and distribute 10 highly targeted pitches—and commit to a value-based set fee for that first phase, regardless of how long it actually takes to complete.
Then, have a contingency allotment of service hours available based on media demand. Although still integrating billable hours, this approach is preferred for a few reasons:
Clients know exactly what it will cost to develop and send the pitches, and they agree to the value of that work, knowing it does not come with any guarantee of results. In other words, they see the value in the outputs provided by your firm, which they would prefer not to handle in-house.
The up-front set fee forces your professionals to be focused and work as efficiently as possible, knowing that if it takes longer than forecast, the agency, not the client, is losing time and money.
The hourly-rate contingency will only be activated if the client will gain additional value from your services because it only comes into play when the media responds and expresses interest.
Focus on Recurring Revenue
There is an enormous, albeit unstable, market for project-based services. The success of solutions such as Logoworks, crowdSPRING, and the HubSpot Services Marketplace has demonstrated a rising wave of interest in affordable marketing support.
As a result, agencies and professionals that figure out models to profitably meet the growing demand for project work stand to prosper.
However, project-based work is less predictable, making it incredibly difficult to forecast workflow, expenses, staffing, and income. In other words, if you are planning to stay a solo practitioner or if you are building a distributed network of contractors, project-based opportunities may be exactly what you need.
However, for those of you focused on building an agency, success depends on your ability to create recurring revenue from a diverse and stable client portfolio.
The goal should be to sign up the majority of your client base to long-term contracts, preferably 12 months or more, and to have 80 percent or more of your annual revenue coming from those contracts.
This ensures a predictable and steady cash flow, assuming clients pay their bills on time, and it gives you the confidence to invest in growth and take the calculated risks needed to innovate and excel.
While building your contract base, your largest client should not account for more than 20 percent of your annual revenue. This rule is flexible if it is a long-time loyal client that has grown organically over time, but never for newer, high-risk accounts. You take on too much exposure, to borrow an insurance industry term when you rely so heavily on one account.
No matter how good you are, there are too many variables out of your control that can lead to an accounting loss.
We have had solid contract accounts disappear overnight due to bankruptcy, mergers and acquisitions, internal shakeups, and poor management decisions. On the other hand, we have also had to drop clients for a variety of reasons.
You have to protect yourself and your employees. When accounts leave, you are stuck with the overhead, and you either need to quickly replace the business or make difficult decisions to cut back expenses, which may include staff reductions. You can mitigate your risk and give yourself the freedom to walk away from deadbeat accounts by having a well-balanced portfolio.
Transform into a Hybrid
A real-time world demands real-time agencies.
Every Firm Is A Tech Firm
Hybrid agencies will come to rule the marketing world. These emerging leaders are tech-savvy, offer integrated services, hire and retain versatile talent, and profit from diversified revenue streams.
They thrive on change, and continually apply shifts and advances in technology to strengthen their businesses, evolve their services, and deliver greater value to clients.
As change velocity accelerates, traditional agencies unwilling or unable to adapt will quickly be left behind. Meanwhile, more nimble upstart firms are utilizing technology to construct efficient agency-management and client-services models.
Whereas legacy systems slow down large, established agencies, hybrid firms can activate the software and introduce processes that lower operating costs, increase productivity, and drive profitability.
They are able to build more scalable models that largely operate in the cloud, capitalize on advances in online communications and mobility, and rely on their social graphs to create a more open and collaborative agency ecosystem.
The cloud, which metaphorically refers to the Internet, has given agencies access to affordable hosted solutions for time tracking, project management, customer relationship management (CRM), lead nurturing, sales, accounting, data storage, campaign management, monitoring, analytics, website content management systems (CMS), enterprise social networks, technology infrastructure, virtual meetings, and communications.
These cloud applications, which run on third-party servers rather than internal networks and local computers, become the backbone to more dynamic and innovative agencies. Systems and processes that used to take years to build on internal networks can now be activated and integrated in real time, often for small monthly fees.
As selective consumption—the principle that consumers choose when and where to interact with brands—continues to drive marketing strategies and budgets, agencies must seek opportunities to bundle their services through a value-added reseller (VAR) and affiliate programs.
Agency partners are featured in the HubSpot Services Marketplace, an online directory that connects providers with organizations seeking marketing support.
HubSpot uses a Customer Happiness Index (CHI) score, which is automatically calculated by its software, to grade partners based on the marketing success of their clients.
HubSpot and non-HubSpot customers can search the Marketplace for services including:
Do inbound marketing for me
Call to action button design
Landing page design
Social media marketing
Blog article writing
On-page search engine optimization (SEO)
The Challenges of Becoming a Product Business
The most profitable and efficient opportunity for most agencies is in third-party software integration; however, there are a number of reasons marketing service firms may venture into proprietary product development, including pursue perceived market opportunities, create recurring revenue streams, differentiate from competitors, improve internal processes, and increase valuation.
Although some marketing firms, such as SEOmoz, an SEO software company, have successfully transitioned from a predominantly service-based to product-driven business, it is a challenging proposition for most.
He goes on to describe the three main problems that arise, which can negatively impact an agency's core service business.
1. Agencies do not realize how difficult product businesses are to build, and they falsely assume their successes selling services will translate into a competency selling products.
2. Increased costs associated with product development create larger exposure risks in down markets, thus destabilizing the business.
3. As resources are funneled into the product side, firms can lose sight of their core business—services.
The moral of the story: Be cautious when pursuing shiny objects. Do not let delusions of grandeur or product envy cloud your vision for building a strong service-based agency.
The Tech-Firm Transformation
Evolving into a technology-driven service firm, an essential component of every hybrid agency requires two common elements: immersion and integration. Let's examine how each plays a role in an agency's transformation:
Agencies, particularly their leaders, must have an insatiable appetite for knowledge about the technology industry, and a desire to be early adopters of products and services.
Agencies that understand technology trends and innovations are able to more readily adapt their own business models, continually increase efficiency and productivity, evolve client campaigns, and make strategic connections of seemingly unrelated information. This requires professionals to:
Read the essential publications, such as TechCrunch, Engadget, GigaOM, Gizmodo, Silicon Valley Insider, All Things Digital, and Wired.
Watch the technology trendsetters, such as Apple, Google, Facebook, Salesforce, and Twitter. Monitor for news that affects client campaigns and looks for opportunities that apply to agency services and agency management.
Follow and engage with influencers, including media, bloggers, venture capitalists, and entrepreneurs.
Attend conferences and webinars in search of inspiration and ideas. Seek out events that deal with start-ups, mobility, and enterprise technology.
To understand the value of technology immersion lets take a look at how changes to Googles algorithm—admittedly, pretty geeky stuff to follow—directly affect marketing agencies.
Although SEO professionals and webmasters are commonly in tune with Google news, I would argue that the search giants moves are equally important to PR, advertising, web, and content agencies.
In February 2011, Google began rolling out its Panda algorithm changes. The goal, as stated on the official Google blog, was simple: “To give people the most relevant answers to their queries as quickly as possible.”
The first rollout impacted 12 percent of Google queries and was designed to reduce rankings for low-quality sites in favor of sites that featured valuable original content, such as research, reports, and thoughtful analysis.
We will stop there for a minute. Google, which controls approximately 65 percent of the search market, was telling companies in very plain terms that duplicate, low-value content is bad, and original, high-value content is good.
This was not anything new, but for years outlaw agencies have built their businesses preying on clients’ needs for short-term results at any cost.
They use unethical black-hat SEO tactics, and flood the Internet with low-quality content, in an effort to boost search engine rankings and drive website traffic. These agencies are a black eye on the marketing services industry. They sell shortcuts, not long-term solutions.
Agencies that had not taken note of Googles moves yet hopefully were on high alert at this point. However, just in case companies were not making the connections, Google, which usually is relatively tight-lipped about its algorithm changes, made another announcement in April 2011 on its Webmaster Central Blog.
This change, which affected all English-language Google users around the world, incorporated user feedback signals to help people find better search results. Google claimed it affected approximately 2 percent of U.S. queries.
Then, in May 2011, Google provided very pointed guidance on how to build high-quality sites, and explained how the Panda change was just “one of roughly 500 search improvements” they were expecting to roll out in 2011. Their advice to marketers in general, and spammers, scrapers, and content farms in particular, was this:
Search is a complicated and evolving art and science, so rather than focusing on specific algorithmic tweaks, we encourage you to focus on delivering the best possible experience for users. Google went on to offer 23 questions that organizations can ask themselves in order to assess the site and content quality.
The googles core message, which has not changed through the years, is to create lots of valuable content that people will want to link to and share.
Therefore, in order to grow smarter and faster than the competition, organizations (your clients) must continually publish multimedia content online through blogs, podcasts, videos, optimized press releases, case studies, white papers, ebooks, and bylined articles.
As a result, savvy agencies have been listening and building services around the demand for high-quality content creation.
However, it does not stop there. Remember the lesson of selective consumption and the importance of recurring revenue in building a strong agency. Agencies have to construct campaigns that cater to consumers’ evolving needs and demands.
They have to help consumers find the information and products they are looking for when they are looking for them. Content creation is just the beginning. How will the content be spread (social media, e-mail, and PR), found (SEO), and consumed (web and mobile)?
In other words, this one example of the Googles algorithm change, which professionals who were immersed in the technology world saw first, demonstrates the need to constantly adapt and integrate services across traditionally detached marketing disciplines.
Digital and traditional services have to be aligned, and specialized agencies must begin working more closely together for the sake of clients and each other. It is the only way to create stable recurring revenue from campaigns, and achieve the success factors that matter to clients today.
Being immersed in the tech industry is the first step, but, as we saw in the Google Panda example, you must have the willingness and ability to change your agency's services, processes, and infrastructure to accommodate market shifts.
This requires the consistent investment of time and money, often without an expectation of ROI. The key is to take calculated risks and learn to trust your instinct.
My agency's relationship with HubSpot started this way. In fall 2007, when we first signed on as a customer, I had no idea how we were going to use their software, but, at the time, I felt the industry was rapidly moving toward search, social, and content.
I had read about HubSpot in a tech article, and I saw them as a vehicle to train our team in new methodologies and to eventually differentiate us from other firms.
It was only a matter of months before we began to recognize the true potential of bundling our services with their software and expanding our capabilities to provide a more measurable impact on our clients’ businesses.
I have had similar experiences with other software platforms after first reading about them in tech blogs and learning about them at technology conferences. Applications such as Yammer, Basecamp, and Highrise (both 37Signals products), GoToMeeting, Skype, TweetDeck, and Evernote have changed the way we do business.
Although you will invest a lot of time and energy in testing platforms that are not a fit, you should always be experimenting and looking for ways to improve efficiency and increase the value delivered to clients.
Meet the Demand for Digital Services
The demand for digital services is immense and growing. According to the Ad Age 2011 Agency Report, digital services accounted for an estimated $8.5 billion, or 28 percent, of U.S. agency revenue in 2010.
In addition, Forrester has reported that interactive marketing spending on mobile marketing, social media, e-mail marketing, display advertising, and search marketing will near $77 billion by 2016, representing 35 percent of all advertising dollars.
However, it is becoming more difficult to differentiate these dollars. Every agency, or at least the ones that will still be relevant in the coming years, is a digital agency.
Although the resources dedicated to social, search, mobile, web, e-mail, and other digital strategies will vary, interactive marketing should be fully integrated into every program and budget.
Having a digital division or group within an agency is not sufficient. Your agency's future depends on its ability to adapt, deliver measurable and meaningful results, and develop professionals who are capable of providing consulting and services across multiple disciplines.
Although there are tremendous opportunities to build businesses focused on niche markets and services, the generalists who excel at blending interactive and traditional strategies will control the power and budgets.
Resist the Dark Side of Digital
There are no shortcuts to success. Building your digital capabilities is a process that requires significant time, training, and experience. If you want to move into blogging, social media consulting, SEO, video, e-mail marketing, mobile, and other high-demand areas, prove you can make it work for your agency first.
Invest the resources now to launch a blog, engage in online communities, gain a following, experiment with new content-publishing channels, conduct webinars, boost search engine rankings, and generate leads through custom-built landing pages. Focus on creating value, and use it to demonstrate your expertise and advance your agency.
The market is moving fast, with growth opportunities everywhere, but do not come into it unprepared and try to sell services you are not qualified to deliver. Agencies can quickly get themselves in trouble when they overpromise clients to win new business.
Never lose sight of your ethics and reputable business practices in pursuit of a dollar. The cost to your agency and the reputation you have spent your career building is far too great.
Let's examine the case of JCPenney to see what happens when digital services go wrong and explore four lessons agencies can learn from the debacle.
JCPenney Wears the Black Hat
In an exceptional piece of modern-day investigative journalism by David Segal, the New York Times uncovered an elaborate JCPenney link-building scam, orchestrated by its former black-hat SEO firm.
Allegedly unbeknownst to JCPenney, the firm built thousands of spammy paid links to http://JCPenney.com for key search terms such as area rugs, dresses, and furniture.
The result was top rankings in Google for JCPenney products that most likely drove millions of organic site visits during the 2010 holiday season—a critical time for the retailer, which had seen sales sink to 2001 levels and was still reeling from the death of its catalog business.
According to the Times, the number-one spot in Google for dresses alone could have generated as many as 3.8 million organic visits per month.
The Times had an SEO expert, Doug Pierce, head of research at Digital Due Diligence Advisors (formerly with Blue Fountain Media), analyze JCPenneys remarkable organic performance. Pierce described the program “as the most ambitious attempt to game Googles search results that he has ever seen.”
The Times turned over its findings to Google, which took “strong corrective action,” according to Matt Cutts, head of Googles webspam team, resulting in significant drops in JCPenney's organic rankings.
So what can agencies learn from the JCPenney fiasco when building their digital services? Here are four takeaways:
1. Google will win: Googles webspam team is on a mission to protect the quality of Googles search results. They are smarter than SEO professionals and far more powerful. So it is best to play by the rules. Like anything else in life and business, just because the other guys are getting away with it (for now), does not mean it is all right to cheat the system.
2. Don't be desperate: Decisions driven by desperation can be very dangerous to your agency's long-term health. Do not let client demands for short-term results, underperforming campaigns, or financial pressures force you to sacrifice your integrity.
3. There are no shortcuts or guarantees: Pleading ignorance when Google catches you will get you nowhere, so make sure your practices are ethical and that they pass the “icky” test—that feeling you get in business when something just does not feel legitimate and most likely is not.
Authentic SEO requires time, and a combination of on-page optimization—page titles, URLs, page descriptions, ALT text, headers, copy—link building from credible sources, and regular content publishing on your clients’ domains. Commit to doing it right over time, and you will reap the rewards.
4. Focus on content and the long tail: Content publishing is the most powerful strategy available to build inbound links, boost search engine rankings, drive website traffic, and generate leads. Concentrate your services on attracting organic traffic from long-tail keyword phrases.
The long tail applies to the collective strength of lower search volume, longer keyword phrases in the demand-curve tail, and their ability to outproduce a relatively small number of top traffic-driving keywords at the head of the curve (or header phrases).
For example, a marketing agency would be considered a header term, whereas how to build a hybrid marketing agency would be a long-tail phrase.
The Greatest Opportunity for Growth: Content
Although agencies have been clamoring for their share of digital budgets and influence in the areas of search, mobile, and social, content publishing has largely been overlooked. Agencies that provide strong, multimedia content services are a rare and valuable asset in the new ecosystem.
Powerful, action-oriented content has become an essential part of every marketing strategy, and it offers an enormous opportunity to differentiate and grow your agency and your clients’ businesses.
There are undisputed benefits to blogging—more indexed pages, inbound links, website visitors, and social media reach—and tremendous lead-generating potential in ebooks, case studies, webinars, white papers, and original reports. The general rule is, the greater the value of your content, the greater the return on your investment.
However, continually producing premium content worthy of links and leads is not easy. It requires significant time and resources, executive support, long-term vision, internal expertise, and often a willingness to share the knowledge businesses once held sacred.
More than anything, it requires the ability to be effective business copywriters, generating content that engages audiences and motivates them to take action.
There are many talented writers and content services available, but few that possess the wide range of capabilities needed to satisfy the core elements of effective business copywriting.
Public relations agencies, communications pros, freelancers, former journalists, and traditional publishers are all in the conversation as possible sources, but many have yet to step up and evolve their capabilities to meet the growing demand for results-driven online content.
Let's take a look at seven core elements of effective business copywriting, and some tips on what to look for when hiring writers:
1. Strategic: Online content has to connect to business goals and brand messaging. Hire writers that understand marketing strategy, and how to deliver copy that integrates across web, search, social, and PR strategies.
2. Brand-centric: A brand is the sum of experiences and perceptions. When someone hears a company name or sees its logo, what comes to mind? It may be based on their last interaction with a customer service representative, the referral of a friend, or a lifetime of personal experiences with its products or services.
Words, images, and actions define your brand every day and, with selective consumption, websites and online content may often serve as the first—and possibly only—opportunity to make an impression.
Business copywriting must convey core brand messages, tell an organizations story, and create positive perceptions that motivate action.
3. Buyer-persona focused: Great copywriting makes personal connections with readers. Copy needs to speak directly to buyer personas, address their pain points and bring value. Therefore, copywriters—whether internal or outsourced—must have a clear understanding of your clients target audiences, and know how to engage them.
4. Optimized for search engines: Online content must be crafted for visitors, but optimized for search engines. Ideally, business copywriters will have core SEO knowledge and capabilities.
5. Technically sound: Technically sound copy is concise and powerful. It uses proper grammar and is written at the appropriate reading level.
It is also consistent in person, voice, tone, and format. Copywriters need strong technical writing skills and the ability to apply these skills whatever the task, medium, or subject matter.
6. Creative: Never underestimate the value of quality creative writing. Although many of the other elements we have discussed can be learned, business-savvy creative writers are in high demand and scarce supply and can be an invaluable asset to your agency.
7. Results driven: Copywriting needs to be tied to organizational objectives and should play a key role in delivering results, such as generating leads, educating key audiences, and positioning as an industry leader.
Copywriters should be invested in tracking the success of the content through metrics such as page views, content downloads, social media reach, and leads. This enables future content to be strategized based on past performance and can encourage the incorporation of new ideas and topics, to drive traffic and capture audiences.
Understand Your Role in the Ecosystem
The evolving marketing-services ecosystem consists of six agency classifications: disruptors, traditionalists, soft serves, specialists, connectors, and soloists. Each plays an essential role in the development of a more open and collaborative community.
Lets first take a look at the marketing agency profiles, then visualize how the ecosystem functions.
Disruptors will be the dominant players in the new ecosystem. They are the most advanced of the hybrids in terms of technology integration, diversified services, and talent versatility. Disruptors are always pushing to evolve services and pricing, and they have the most aggressive growth goals.
Unlike their traditional-agency brethren, disruptors are risk takers that fight to remain nimble, always thinking like start-ups and acting like underdogs.
Few firms have emerged to date that embodies all the elements of these leading hybrid agencies. As a result, tremendous opportunities exist for the agencies with the will and drive to develop model firms.
Services: Able to build fully integrated marketing campaigns that adhere to the principles of selective consumption. This includes content publishing, social media consulting, SEO, online advertising, mobile marketing, website development, e-mail marketing, lead nurturing and analytics, as well as evolved forms of PR and brand marketing.
Core capabilities will center on digital services, with a mix of traditional activities as needed. Some services will be outsourced to partner agencies, including soloists and specialists, especially in the early years as they develop talent and advance internal capabilities.
Staff: Versatile professionals with strong backgrounds in marketing, communications, and business. A high value will be placed on expert copywriters who are trained in authentic on-page and off-page SEO methodology and can function as Internet marketing consultants. All employees are heavily engaged in social media.
Pricing: Value-based with wider appeal to the mass market of small businesses.
Results: Leading marketing agencies consistently produce more measurable outcomes, including inbound links, website traffic, leads, and sales. Quickly shifting away from arbitrary metrics such as media impressions, reach, advertising equivalency, and PR value.
Technology: Fully immersed in the technology industry. Will breed a new generation of tech-savvy, entrepreneurial-minded professionals. Cloud platforms play a key role in their growth and adaptability.
Infrastructure: More agile and tolerant to risk than traditional marketing service firms. Built to be highly scalable in terms of a number of clients and employees, geographic markets, and revenue streams.
Leadership: Prototype founders have 5 to 10 years of agency experience, with exposure to a diverse collection of accounts and industries, and strong insight into agency management.
They will be digital natives who understand what is broken within the current agency model and have the drive and desire to do it differently. There is a significant financial risk, so the ideal professional lives a modest lifestyle has solid personal savings.
Growth: Dramatically more aggressive growth models due to mass-market appeal. A wave of mergers and acquisitions of complementary firms—PR, SEO, advertising, web developers, e-mail marketing, mobile marketing—is possible, although most will look to remain independent and grow within the collaborative ecosystem.
Market focus: The industry leaders will have a mass-market focus and international appeal (the Internet has no borders), but, like any emerging industry, there will be plenty of room for smaller agencies to prosper by concentrating on niche market segments and/or services.
The unfortunate truth is that traditionalists are the irrelevant aristocracy. They are still influential due to their large networks, established client rosters, and legacy brands, but they have minimal impact on the emerging disruptor class.
Their archaic business models are difficult to evolve, and, therefore, they will struggle to compete as more companies seek innovative approaches to interactive marketing needs.
The advertising and PR industry conglomerates are not going anywhere soon, but in the meantime, disruptors will gladly chip away at the underserviced small-to-midsize business (SMB) markets, and begin infiltrating larger enterprises one division at a time, slowly undermining the traditionalists’ influence and authority. Following are characteristics of traditionalist agencies:
Current market leaders with solid reputations and brands, and respected leadership teams.
Strong in traditional services, but struggling to profitably integrate digital services. In many cases, they may have divisions or groups internally that specialize in digital; however, digital services and thinking are not ingrained throughout the agency.
Staffed with some of the industry's best and brightest young talent, but stand to lose A players to emerging firms that offer more innovative cultures. Top traditionalist professionals are also prime candidates to launch disruptor firms.
Maintain top-heavy staffing models with high-paid executives and partners. This makes it difficult to evolve pricing models and build more efficient value-based services. Stuck in legacy systems that inhibit their ability to make the drastic infrastructure changes needed.
Some top traditionalists have the resources to acquire upstart disruptors in an effort to remain relevant, but many will look to merge or get acquired as competition intensifies.
Unless these firms make dramatic changes, they run the risk of becoming obsolete over time.
A subcategory of traditionalists will develop that successfully evolve into tech-savvy, hybrid agencies but lack the vision and growth goals of disruptors.
They will be able to maintain strong, profitable businesses as long as they can retain their top young talent, but these professionals will be highly motivated to find more dynamic career paths with disruptors and soft serves.
Soft serves are a relatively unknown yet quickly evolving breed. Technology companies, which concentrate on marketing software development, are building service divisions, either based on customer demand for advanced product expertise or out of necessity to improve utilization and performance, thereby reducing churn rates—a key metric for software companies. Note these characteristics:
Soft serves is an emerging classification that includes marketing software companies, such as HubSpot and Radian, which offer varying levels of services and consulting.
Their presence creates an intriguing dynamic in the ecosystem given their intimate knowledge of client needs, financial resources, and their role in driving change velocity. In essence, they have significant leverage, and can always be one step ahead of the agencies that rely on them for referrals.
Their services are directly tied to supporting adoption and success with their proprietary products.
Soft serves are unlikely to build full-blown, in-house agencies in the near term since service-based businesses earn lower valuations.
However, their presence can be a disrupting force for marketing agencies. Overall, the existence of soft servers pushes marketing agencies to continually innovate. As a result, they present more opportunities than threats to the ecosystem.
Specialists focus on niche markets and opportunities. The top specialists are in high demand, and thus, they can charge premiums for their services. Specialists also have opportunities to build strong brands as thought leaders by sharing their expertise on blogs and within their social networks.
These agencies may have direct clients, but also commonly rely on full-service agencies and online marketplaces for business development. Specialists are:
Narrowly focused on maintaining expertise in niche markets and services, such as SEO, PR, web development, content creation, video, mobile, or graphic design.
Niche-focused, which may still be lucrative, but limits motivation to evolve. Finding it increasingly difficult to remain specialized in service areas, as selective consumption principles are driving increased client demand for complete marketing solutions.
For example, website effectiveness is commonly being measured by lead generation, which requires content strategies and social media integration.
Sometimes building strong partnerships with traditionalists and other specialists that they rely on for business development and revenue.
Likely more project-based, which makes it difficult to create reliable recurring revenue needed for growth and stability.
Prime candidates for acquisitions by full-service hybrid agencies looking to pull resources in-house.
Firms who, if they stay independent, can prosper through disruptor agency partnerships—as long as there is limited crossover in services.
Connectors are often the thinkers and networkers, not the doors. They prefer to make connections and build provider networks that enable them to earn comfortable profit margins.
This business model frees up their time to pursue multiple ventures and affords them the opportunity to prosper off their reputations and profiles through activities such as consulting, speaking, and publishing. Common connector characteristics include:
Their strongest capabilities lie in networking, promotion, sales, and/or project management.
They rely on a distributed network of soloists and specialists to do the work, while they may remain involved in planning and consulting.
They are likely more interested in building wealth and a balanced lifestyle than investing the time and energy required to create a full-service hybrid agency.
They are often social media influencers who have built large followings that give them flexibility in their career paths.
They could be a primary competitor to disruptors with the right partners and systems in place. However, they will struggle to compete at lower prices, due to tighter margins from the distributed workforce model.
Soloists have modest growth goals. They are limited by their own time capacities, and, therefore, either have a small collection of larger accounts or are taking advantage of emerging online service marketplaces, such as crowdSPRING, to find consistent project work. Soloist characteristics include:
Not looking to build an agency, but to simply make a comfortable living as a part- or full-time freelancer and subcontractor.
Possibly motivated more by lifestyle goals than monetary achievements.
Most likely gained experience from a prior agency or corporate marketing positions.
Work directly for clients or as outside agency contractors.
Expected to benefit from a more collaborative ecosystem, but capacity is always an issue—which makes them difficult to rely on for growing agencies.
Visualizing the Ecosystem
The ecosystem is client-centric, meaning agencies must continually evolve to meet their needs and demands. Change velocity, selective consumption, and success factors are the environmental factors that dictate agency pricing, services, staffing, and infrastructure.
Disruptors and soft servers, the most motivated to continually adapt, will come to control the workflow and budgets, whereas specialists, connectors, and soloists will increasingly rely on the leading agencies for opportunities and growth. Traditionalists gradually will fade from prominence and lose market share to disruptors and soft servers.
Here is a breakdown of how it works:
Clients are shown at the center of the ecosystem.
Change velocity, selective consumption, and success factors are the
catalysts that are fueling agency transformation and driving the evolution of client needs and demands.
Solid lines represent direct workflow from client to agency and agency to agency. For example, clients may work directly with specialists or the work may flow from clients to traditionalists, who then outsource work to specialists.
The arrows along the lines are multi-directional in many cases, because work may flow both ways. For example, an SEO specialist firm may bring in a disruptor to handle content marketing or a disruptor that does not have SEO capabilities in-house may outsource to a specialist.
The dashed lines represent pass-through work and referrals. For example, soft servers have a solid line from the client demonstrating that they may do direct consulting, and they also have a dashed line that runs to the other side of the ecosystem, which shows how they commonly refer clients to other agencies.
Varying sizes of the agency circles are meant to show relevance in the evolving ecosystem.
Soft serves and connectors are isolated from the other agencies because they are not pure service firms. Soft serves are primarily marketing software companies, whereas connectors are mainly networkers, educators, and facilitators.
Proximity to the core shows how strongly connected agencies are to clients. Disruptors, traditionalists, and soft servers tend to have the most in-depth knowledge of the client, and the deepest relationships throughout the companies. These agencies often are the most heavily involved in strategic planning and have access to analytics and business-intelligence data.
Are PR Firms the Perfect Hybrids?
As budgets continue to shift to content marketing, search marketing, and social media, PR firms have an opportunity to assume unparalleled levels of leadership and influence in the marketing mix, if they can expand their services and consistently deliver measurable value to their clients.
Consider the following:
Social media participation is nothing more than relationships and communications through online channels. That is what PR pros do build relationships and enhance communications with audiences— employees, media, customers, prospects, vendors, and partners.
It seems to be universally accepted these days that “content is king” in the new marketing world. Content marketing requires strong technical and creative writing skills, business acumen, marketing savvy, and strategic thinking. Again, a perfect fit for the capabilities of top PR professionals who tend to have strong copywriting skills.
Content-management systems (CMS) have made web development and management far less complex. Websites have become communications and content-distribution vehicles.
As a result, professionals who understand brand positioning and buyer personas, as well as the content and social media strategies, should guide website design and content. PR firms and web developers are a natural fit for future mergers, acquisitions, and partnerships.
Are You Building a Disruptor?
Building a dynamic, full-service hybrid agency designed to grow beyond 10, 20, and even 50 employees, requires an incredible drive, remarkable patience, and an undying belief that you are creating something of great significance.
Money cannot be the primary motivator. It is the need to create change, to push boundaries, and to positively impact the lives of others. Professionals who choose to build disruptors believe they have a higher purpose. It is not the right career choice for everyone.
Some professionals will be better suited to make their mark as soloists, connectors, or specialists. Historically, many agencies have been built by professionals who, having excelled at their work, wanted the freedom and financial rewards that came from owning their own business.
They were practitioners by trade, not businessmen and women. However, in order to construct a disruptor, the practitioner function must become secondary, and your passion has to be for building and running a business.
Like all entrepreneurs, agency principals have to make sacrifices in the early years, especially if you have a vision for growth.
This includes working endless days followed by sleepless nights, taking smaller paychecks (if at all), investing profits back into the agency, fighting with increasingly conservative lenders to secure capital, dealing with mundane details such as health-care benefits and taxes, putting employee and client needs ahead of your own at all times, and learning to live with and embrace the unknown.
In order to thrive in the new agency ecosystem, you have to start by being honest with yourself:
What are you willing to sacrifice?
What motivates you?
How will you define success?
What type of agency do you want to build?
What are your greatest strengths?
What are your greatest weaknesses?
Are you a leader?
Are you in the financial position to take the risks needed?
Do you have the ability to recruit and retain top talent?
Will you be happy running a business, rather than doing the work?
If you plan to build a disruptor, you will come to spend 90 percent or more of your time on three things: (1) recruiting and retaining talent, (2) setting and pursuing the vision, and (3) driving growth.
If you do not have the desire or ability to excel in these areas, you either need to find a business partner who does to assume the role of CEO, or you should consider pursuing a different path in the ecosystem.
The Art of Outsourcing and Collaboration
Whether you are building a disruptor or planning to stay small and enjoy the freedom that comes from life as a soloist, outsourcing and collaboration are essential.
Change velocity makes it nearly impossible to stay at the forefront of every trend, and selective consumption is driving demand for a vast array of services and expertise that most firms are not prepared to deliver.
Until you can make a strong business case for bringing new capabilities in-house, either through an acquisition or hire, it is best to focus on your agency's core competencies and find great partners for the rest. Start by determining the service mix needed to plan and execute client campaigns, and then go to work finding the right partners.
Based on digital-services demand and selective consumption, standard agency competencies will include brand marketing, website development, SEO, online advertising, local search, e-mail marketing, social media marketing, copywriting, video production, PR, graphic design, and mobile marketing.
Services that require very specialized capabilities, software, or equipment are logical competencies for full-service firms to outsource to specialists and soloists.
What Makes a Great Partner?
Like any relationship, trust and shared values are essential to building strong agency partnerships.
Every time you choose to outsource, you are putting your brand, reputation, and financial success in another agency's hands. Here are some of the key factors to consider when evaluating and selecting partners:
Services: Services must be complementary, with the limited crossover between agencies. Crossover services can create confusion among clients and conflict among partners who have different styles.
Pricing: There must be transparency and consistency in pricing for partnerships to work. Ideally, both agencies use similar pricing models and are in the same general cost range. For example, an agency focused on selling $1,500 to $3,000 per month retainers will not work well with a graphic design specialist firm that charges $400 per hour.
Process: The most efficient and productive partnerships will share very similar project management and communications styles. As the ecosystem evolves, agencies will search for partners who use the same cloud-based management platforms, ensuring seamless integrations.
For example, two firms that both use 37Signals’ Basecamp project-management system will more quickly achieve economies of scale in the planning, production, and delivery of joint services.
Performance: Partners have to deliver on budget and on time with the highest quality work. You must have complete confidence in your partners’ ability to perform at the levels you demand from your internal team.
Financial strength: Do not be afraid to ask the tough questions about your partners’ financial health. Agencies that struggle financially often are under pressure to keep overhead costs down, which directly impacts the quality of their staff and their capacity to take on new projects.
Be especially cautious with soloists and specialists who are more reliant on project work, and, therefore, generally less stable. You cannot rely on partners who are stretched too thin or are too dependent on you to stay afloat.
Diversify Your Revenue Streams
Hybrid agencies will be immersed in technology, and they will deliver a results-driven blend of digital and traditional services, but the most important factor in their ability to surpass traditional financial performance benchmarks lies in diversified revenue streams.
For some, that will mean moving into software development, which can offer higher profit margins and lucrative licensing fees, but the more logical strategy for most agencies will be to explore channels as educators, publishers, value-added resellers (VARs), and affiliates.
Educator and Publisher
Once an agency positions itself as a thought leader and establishes a proven performance track record, it opens up opportunities to create and capture value on a larger scale through speaking engagements, online courses, webinars, digital publications, blog publishing, and teaching.
In order to monetize your knowledge and capabilities outside of services, you have to differentiate yourself and bring real value to audiences. Do not be afraid to start small, and remember to have patience.
Creating recurring revenue through education and publishing requires that you build up significant reach and influence through online and offline channels.
Seven Steps for Building an Effective
A sound speaking strategy can have a dramatic effect on the growth of your agency, and it can position your professionals as thought leaders and innovators. Here is a step-by-step guide we often use to help clients looking to build speaking strategies that deliver results.
Step 1—Identify Topics
Speaking topics establish the foundation for a sound speaking strategy. These topics, which will evolve over time, and support the identification and pursuit of opportunities.
Step 2—Select Audiences
Define, segment, and prioritize target audiences.
Step 3—Define Objectives
Establish quantifiable objectives to provide direction to the program and define success. These may include a number of appearances, content downloads, SlideShare views, and leads generated.
Step 4—Research and Evaluate Opportunities
Identify venues for potential speaking engagements, including colleges, trade shows, conferences, seminars/workshops, career fairs, and professional organization events.
Establish a valuation system to rate each opportunity based on defined criteria, such as event organizer, audience, topic, date, location, and objectives.
Create an event calendar of opportunities at targeted venues.
Contact venues to inquire about submission guidelines.
Prequalify high-value engagements through media coverage, past speaker status and feedback, attendance history and projections, and first-hand experience with venues.
Monitor and assess trends to identify timely opportunities with targeted venues.
Step 5—Positioning and Placement
Create a speakers packet, including biography, bylined articles, testimonials from past organizers and attendees, topic list, photos, contact information, A/V requirements, and rate card. Although it may not be required, a speakers packet gets you organized and prepared.
Research and evaluate membership in professional speaking organizations. Build the speakers resume through preliminary appearances within an existing network of business and trade organizations, as well as academic institutions.
Enhance credibility and value through PR and content marketing programs, including the submission of bylined articles and guest blog posts to targeted outlets.
Use the event database built in step 4 to pursue high-priority speaking opportunities.
Maintain communications and relationships with all targeted venues.
Define protocol and prepare responses for declining unsolicited opportunities that do not meet defined criteria.
Attend events at which you plan to speak in the future. For example, if you want to present at South by Southwest (SXSW) Interactive, attend it first to gain an understanding of the audience, content, and venues.
Establish a grading system to measure the return on investment (ROI) for speaking appearances.
Assess and grade each appearance and venue.
VAR and Affiliate Programs
Value-added reseller (VAR) partnerships, such as the HubSpot VAR Partner Program, are an ideal way to generate referrals, differentiate your firm, and create recurring revenue through license fees.
In VAR relationships, agencies provide services, consulting, training, customization, and integration around third-party products. VAR programs give agencies the ability to expand their services and reach, without investing resources in developing their own software.
Affiliate programs also offer opportunities to nurture recurring revenue through the referred business. However, do not get distracted from your core business pursuing too many affiliate relationships.
Focus on the software products you know and trust, and if you think your clients, prospects, or peers would gain value from utilizing them as well, then consider affiliate opportunities.
Hybrid agencies and professionals will come to rule the marketing world. Evolving into a tech-savvy hybrid firm requires two common elements: immersion and integration.
Agencies, in particular, their leaders, must have an insatiable hunger for knowledge about the technology industry, and a desire to be early adopters of products and services.
Digital and traditional services have to be aligned, and specialized agencies must begin working more closely together for the sake of clients, and each other.
Becoming a hybrid firm requires a consistent investment of time and money in technology, often without an expectation of ROI. The key is to take calculated risks and learn to trust your instinct. Every agency, or at least the ones that will still be relevant in the coming years, is a digital agency.
Building your digital capabilities is a process that requires significant time, training, and experience. If you want to move into blogging, social media consulting, SEO, video, e-mail marketing, mobile, and other high-demand areas, prove you can make it work for your agency first.
Agencies that provide strong, multimedia content services are a rare and valuable asset in the new ecosystem.
The evolving marketing-services ecosystem consists of six agency classifications: disruptors, traditionalists, soft serves, specialists, connectors, and soloists.
Whether you are building a disruptor or planning to stay small and enjoy the freedom that comes from life as a soloist, outsourcing and collaboration are essential. Every time you choose to outsource, you are putting your brand, reputation, and financial success in another agency's hands.
Once an agency positions itself as a thought leader and establishes a proven performance track record, it opens up opportunities to create and capture value on a larger scale through speaking engagements, online courses, webinars, digital publications, blog publishing, referrals, and teaching.
Make Decisions That Fit Your Growth Goals
In my experience as an entrepreneur, and through our work with hundreds of clients, I have learned that opportunity is everywhere for unique and innovative companies that bring real value to customers.
However, opportunity can be overwhelming if you do not adapt to changing markets and increasing demand, and build a scalable infrastructure capable of effectively accommodating growth.
Intro to Infrastructure
Infrastructure refers to structures and systems that facilitate the production and delivery of agency services.
Basically, it includes any physical or organizational element required to run and grow your agency. Core components include financial systems, information technology, management systems, and human resources.
Growth for growth's sake, without a profitable business model, results in little more than an entrepreneurial ego boost. Expansion in prototype agencies is driven primarily by the desire to attract and retain talent. They opt for controlled growth, often resisting the urge to accelerate business development initiatives.
They focus on building a stable operational foundation with nimble management systems that enable them to execute and adapt faster than the competition.
They make calculated investments in hardware, software, staffing, partnerships, advisors, and office space designed to support their foreseeable future needs while maintaining the highest levels of service quality, efficiency, and productivity today.
Making decisions too far ahead of the growth curve can cost you valuable resources now, but not planning for the contingencies of growth can be detrimental to your ability to profitably build your business in the future.
Goals, Trends, and Timing
There is no standard formula to guide infrastructure investments. You have to consider your unique business goals and growth trends. For some, that means modest growth of 5 to 10 percent per year, whereas others may have aggressive growth prospects of 50 to 100 percent or more per year.
The more aggressive agencies must be incredibly smart about their infrastructure choices. It is easy to spend thousands of dollars on a phone system, server, or project-management platform that becomes obsolete as you expand.
You also have to consider your timetable when planning infrastructure. I tend to look at business decisions as current (next 12 months), short-term (1–3 years), mid-term (3–5 years) and long-term (more than 5 years). Infrastructure planning should account for current and short-term needs, with contingencies for midterm possibilities.
Change velocity principles dictate that trying to plan for anything beyond three years is an exercise in futility. Have a vision for the long term, but make infrastructure decisions based on current and short-term realities.
Let's take a look at five of the critical agency infrastructure lessons we have learned through the years.
Lesson 1. Prepare for Perpetual Change
I launched THESIS SCIENTIST with $25,000 in loans from the friends-and-family network. I did not have any personal savings to fall back on, so this gave me a six-month runway to cover basic start-up expenses, health-care benefits, and a paycheck.
I knew from day one it would be an iterative process, and it still is today. The velocity of change, especially in technology, is relentless. You must construct an agile infrastructure that positions you to continually evolve.
Lesson 2. Build through Trusted Solution Providers
Whereas large traditional agencies are often bogged down by legacy systems, emerging firms have the flexibility to experiment with product innovations and hot new start-ups when building their technology infrastructure.
Change velocity, in essence, dictates that something better and more efficient is bound to come along sooner than later. Often, the breadth of options can be overwhelming and confusing for agencies.
There are endless providers to evaluate, with seemingly redundant feature sets. Some claim to do everything in one platform, and others are narrowly focused on single pain points.
Researching, evaluating, and selecting the right solutions for your agency can be a mind-numbing and frustrating experience. This also makes it difficult to pull the trigger on major technology infrastructure decisions.
The lesson here is always to test innovative solutions from emerging technology companies, but turn to proven organizations when it comes time to make major infrastructure decisions. Look for organizations with track records of performance, transparency, stability, continuous innovation, and exceptional customer/community support.
There will always be risks when you rely on third parties for key pieces of your infrastructure, so do your due diligence and find partners that give you confidence and peace of mind.
Although there certainly are viable competitors you should consider in each area, here are some of the providers that we have come to rely on for our technology infrastructure.
Pricing: $20/month and up.
Notes: A number of other solutions we use offer time to track features as part of their products, but we have always preferred Timefox.
It is intuitive and reliable and easily scales as new employees and contractors are added to the system. Even though it is designed to accommodate billable hours, we were able to customize it to fit our model of service packages and set pricing.
Accurate time tracking actually becomes more essential in order to monitor efficiency and productivity, evaluate employee performance, produce activity reports, and evolve pricing.
Project and Campaign Management
Company: 37Signals (37signals is now Basecamp!).
Pricing: $24/month and up.
Notes: Basecamp is one of the most essential components of our agency management system. Every project, task, and milestone is maintained in the system, and all campaign-based clients are given dedicated client centers.
These online group hubs are designed to foster communication and collaboration between the agency and its clients. They let businesses track campaign milestones, monitor agency tasks, and progress, share files, view communications, and submit and read messages. There is also a great iPhone mobile app called Insight available for $9.99.
Customer Relations Management (CRM)
Company: 37Signals (37signals is now Basecamp!).
Pricing: $24/month and up.
Notes: Another product in the 37Signals suite, Highrise is our CRM solution used to manage all agency contacts, including clients, prospects, media, and employees. It is billed as “simple CRM,” and though it definitely lacks some of the features in more robust CRM platforms, we have always found it be effective.
We use Highrise to track all important notes, calls, meetings, and e-mails, which gives managers and account teams 24/7 access to everything happening throughout the agency. Plus, mobile apps make it easy to stay connected and informed while traveling and working from remote locations.
Company: HubSpot (HubSpot | Inbound Marketing & Sales Software).
Pricing: $3,000/year and up.
Notes: HubSpot is an all-in-one marketing platform. It includes tools to help companies get found online, convert visitors into leads, and continually analyze marketing investments.
HubSpot also offers a wealth of education and training resources, an active online customer community, and a team dedicated to working closely with VAR partner agencies.
Company: Intuit (Smarter Business Tools for the World's Hardest Workers).
Product: Quickbooks Online.
Pricing: $12.95/month and up.
Notes: In 2010, we made the switch from Quickbooks for Mac to Quickbooks Online. It was one of the best decisions we have made.
Moving from the desktop version to the cloud simplified our accounting systems, improved our accounts receivable and accounts payable processes, gave us real-time insight into our financial health, and made it possible to integrate financial data into our account management systems.
Internal Social Network
Company: Yammer (Work Smarter, Work Together).
Pricing: $5/user and up.
Notes: After a one-month beta test with a small group of THESIS SCIENTIST employees, we rolled out Yammer as our internal social network in December 2010. As our staff grew, we needed a better solution to encourage collaboration, continuously transfer knowledge, and perpetuate our culture.
Yammer provided all of that and more. There are higher-end solutions in this space, such as Jive Software, but based on our experience, Yammer is an ideal solution for small-to-midsize agencies. Here are some of the ways we use it on a daily basis:
Post timely links and resources.
Share good news and positive campaign results throughout the day.
Ask questions of our peers.
Offer tips and share observations.
Add topics and daily notes for discussion during the next morning's group meeting.
Get real-time feedback on campaign strategies.
Publish account and group updates.
Take polls and announce agency events.
Online Meetings and Webinars
Product: GoToMeeting and GoToWebinar.
Pricing: $49/month and up.
Notes: GoToMeeting gives agencies an affordable solution to conduct online meetings and webinars. We use it for new business presentations and monthly client campaign reviews, as well as education and training. An online meeting platform, such as GoToMeeting, is essential for every agency.
Lesson 3. Understand Your Limits
Marketing agencies are bound by the limitations of human resources. One new employee is needed for every 120 to 140 hours of additional client service work per month. This not only affects payroll, but it impacts every piece of the agency's infrastructure.
Therefore, as your agency is forecasting its growth plans, it is important to take a macro-level view of how increases in revenue and staffing will impact your organization.
At the end of the day, great people define great agency brands. If you push growth too hard, you run the risk of burning out your most valued assets. If you hold back too much, you may not create enough opportunities to retain them.
You can only grow to the rate permissible by your infrastructure. This not only applies to information technology, such as phones, servers, computers, and software, but to your talent.
If you are considering an aggressive growth model, ask yourself questions such as:
Do we have the right leadership team in place?
Are we expecting practitioners to naturally evolve into managers or are we providing the resources needed to prepare them for the challenges ahead?
How will our agency management systems perform if we increase monthly client hours by 25 percent? 50 percent? 100 percent?
Is our current staff overworked?
How will the increases in staff affect payroll and productivity?
Is our training and education program maximized to quickly onboard new professionals?
Is our career path defined?
Do we have a solid recruiting program in place to fuel our need for entry-level A players?
Lesson 4. Find Reliable Advisors and Mentors
Make it a priority to connect with and engage an advisory board for your agency. When I was building Thesis Scientist original business plan, I identified my weaknesses and tried to find advisors who could bring complementary knowledge and skills to the table.
Specifically, consider core business areas such as finance, technology, human resources, legal, and accounting. If you are going to scale an agency, you need insight and guidance from professionals you can trust.
Also, look for mentors who have built and/or transformed businesses of their own. Entrepreneurs tend to welcome opportunities to help other entrepreneurs and share what they have learned along the way. Their experiences can be invaluable to your development as an agency.
Lesson 5. Create a Funding Runway
High-growth agencies take more risks than their peers. The risk is necessary to expand, but it comes at a price. In an ideal world, your agency has the profits and cash flow to fuel growth, but, more likely than not, you are going to need access to capital in order to excel and continuously innovate.
Cash-flow crunches are debilitating to agencies. If you do not have the proper capital reserves in place, making payroll and covering accounts payable can cause the best of agencies to stall.
The Realities of Costs, Funding, and Cash Flow
Although top-line revenue goals are important benchmarks for many agencies, rapid increases in sales and staffing can quickly lead to costs rising out of control. If these are not carefully planned and managed, then revenue growth becomes a zero-sum game. This is difficult and sometimes painful, the reality for agencies.
Despite the tremendous demand for services, and seemingly endless project pipelines, systems become strained, processes falter, staff performance suffers, and cash reserves run dry.
Agencies must have strategic approaches to their accounting and finance systems. We will cover some basics here, but model agencies will take the initiative to continuously expand their knowledge and competencies in these core areas.
It helps to have trusted outside accountants and financial advisors, but it is also important that agency leaders maintain a keen interest in the agency's finances.
Investing in Growth
There was a time when I was considering a significant expansion strategy that would have required approximately $250,000 in new financing. I spent a year or more meeting with advisors, talking to banks, and discussing options with potential investors.
At the end of the day, I opted for a more conservative approach, but in the process learned some valuable lessons about funding growth.
Here are six of the most important takeaways from my experiences.
1. Build a Stable, Profitable Business
You are a service business. Although the goal is to build a hybrid agency with multiple revenue streams, no marketing agency is cashing in on the pre-profit valuations enjoyed by upstart tech companies we read about in TechCrunch.
In order to secure debt and/or equity funding, you must prove you can run a profitable business that is capable of servicing its debt and providing a return on investment to its shareholders.
2. Understand Your Value
Determining your agency's valuation can be very difficult since everyone seems to have a different formula. According to HubSpot CEO, Brian Halligan, “When marketing services firms get acquired or merge with another firm, they are typically valued at a low multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) or a low multiple of revenue because services revenue streams are relatively low margin and inherently lumpy.”
For this reason, it is challenging to go after investments from angel investors and venture capitalists, and somewhat of a crapshoot if you decide to start selling shares of your agency. The reality is that most agency leaders think their firms are worth more than they really are.
However, disruptive agencies, with innovative models and diversified recurring revenue streams, are likely to stand the greatest chance of receiving strong valuations should they choose to pursue equity funding.
3. Explore Your Options
Having been through years of investigating and pursuing a variety of funding options, and reading endless blogs and blogs on the topic, I would advise that you focus your energy on the friends-and-family network.
This will likely be the primary source of debt and equity funding for most small-to-midsize agencies that require additional capital to grow their businesses.
Whether the financing is structured as a loan, line of credit or convertible note, friends, and family usually are the most captive audiences for entrepreneurs, and most flexible on terms.
During early growth phases, and once your agency matures, bank lending can be a viable option as well. However, if the agency has weak financial statements, banks will require that you or your business partners put up significant collateral in order to secure loans and lines of credit. This makes it difficult for start-ups to turn to traditional lenders for help.
4. Ensure You Can Service the Debt
It is easy to drown in debt if you are not careful. Be realistic about your recurring revenue and your ability to service additional debt. Now, expansion plans call for more staff and technology infrastructure upgrades. You do not have the cash reserves to fund the growth, so you consider another loan.
The terms would require an additional $2,500 per month loan payment, which would put you at a monthly deficit since you only have $1,500 in cash at your current size. Banks will not touch this, and you should not put friends and family in the position to make a tough call.
It is time to scale back your plans. This is a very simplistic example, but it is meant to demonstrate the importance of seeing the big financial picture when planning growth and scaling your agency.
5. Never Lose Sight of Cash Flow
Cash is absolutely king when scaling your agency. As we discussed in the previous section, revenue and profits can be deceiving signs of financial health. At the end of the day, agencies must be cash flow positive in order to maintain stability.
All of a sudden, a month that looks solid from a revenue perspective turns into a financial mess. You have to draw on cash reserves to pay your bills on time and make the end of month payroll.
So, do not assume a strong month of invoices and receivables translates into positive cash flow. Keep a pulse on money coming in and going out at all times.
6. Know Your Exit Strategy
What are you building for? Succession? Acquisition? If so, what is your price? Agency leaders should know their end game.
How is it possible to define your agency's purpose, and build a culture of passionately loyal employees, if no one knows where you are going? Plus, the answer to this question dictates the decisions you make regarding funding and growth.
Agility, Mobility, and the Cloud
According to Forrester, the global cloud computing market is estimated to increase from $41 billion in 2011 to $241 billion in 2020. Cloud computing, which consists of Software as a Service (SaaS), Infrastructure as a Service (IaaS), and Platform as a Service (PaaS), is revolutionizing business-technology infrastructures.
I will focus on cloud application services, or SaaS, in this blog, but for rapidly growing agencies, I would advise consulting an IT professional about implications and opportunities in all three areas of cloud computing.
Moving to the Cloud
Cloud applications offer rapid deployment, often without professional IT support. They enable agencies to build more agile systems that are capable of adapting quickly to changing business environments.
SaaS solutions tend to be more cost-effective upfront and long-term and can play an important role in improving productivity and efficiency.
They are designed to scale as the agency grows while facilitating a more mobile workforce, which is imperative as the utilization of smartphones and tablet computers explodes.
Here are four key points to keep in mind as your agency evaluates opportunities to integrate cloud applications.
1. Solve Real Business Problems
Look for software that brings real value to the agency and its clients. It is easy to get seduced by trendy new technologies, but do not force solutions into the agency that are not needed.
You should be able to make a clear business use case for cloud applications, just as you would any investment. Consider the following questions when evaluating solutions:
What problem will it solve?
Will it enable us to improve efficiency, productivity, or profitability?
Will it increase the value and results we deliver to clients?
Will it reduce information technology costs?
Will it create a more secure, stable, and reliable technology infrastructure? This may include server uptime, Internet speed, and data security and backup.
2. Reduce Redundancies and Avoid Feature Overload
There are solutions, such as NetSuite, which offer all-in-one software. NetSuite OpenAir, for example, is a cloud-based professional services automation software that includes project management, invoicing, project accounting, expense management, timesheets, resource management, and professional services dashboards.
These types of robust solutions may be ideal for some agencies. However, be careful to limit the redundancies across your agency's platforms, and avoid adding unnecessary expenses for features that you will never use.
For example, if your agency already uses 37Signals’ Basecamp for project management, TimeFox for time tracking, and Quickbooks Online for accounting and invoicing, then you are probably not in the market for a feature-rich platform that does it all.
I tend to look for solutions that excel in specialized areas. This means that our infrastructure consists of a collection of disconnected cloud platforms, which certainly presents management challenges, but the benefits we gain outweigh the inconveniences.
3. Have an Integration Plan
New cloud applications require sound integration plans to bring the desired benefits to your agency. Consider how the software will integrate with existing solutions, how you will encourage adoption by targeted users, and how you will monitor usage. You also want to know from the start how you will determine if the solution was a successful investment.
4. Know the Risks and Challenges
Cloud applications are not perfect. There are a number of inherent risks and challenges, whether you build your infrastructure through a few more robust solutions, or rely on a diverse collection of specialized providers. Let's consider some of the more common issues:
No central dashboard: Although there may be ways to customize program integrations, most solutions do not talk to each other.
In other words, the data and activities in each platform are isolated, which creates inefficiencies in tracking and reporting information. In some cases, this may even create the need for the manual entry of duplicate content.
For example, TimeFox does not integrate with Quickbooks Online, which means we have to manually enter timesheet data into a separate program in order to create invoices.
Inefficient user management: Without a single management portal, managers must develop their own systems for controlling user permissions and access across all platforms. For example, if a new employee joins the agency, a manager may have to update access across more than a half-dozen applications.
Outgrowing solutions: As your agency continues to expand, there may come a time when you outgrow the cloud solutions on which you have built your business.
This is why it is so important to evaluate your growth trends and timeline when building your infrastructure. If there is a chance you will require a larger solution down the road, consider issues, such as data portability, now.
Changes out of your control: There is risk associated with every cloud company, no matter how stable they are. Factors such as service outages, mergers and acquisitions, and product updates can all directly affect your agency.
The key is to mitigate your risk as much as possible by doing your homework and selecting trusted providers. Read the service level agreements closely, and ensure you have the ability to access and extract your data should you choose to change providers.
Monitoring and security: With the proliferation of mobile devices in the workplace, unauthorized access, and lost and stolen devices can be a cause for concern.
Again, the key here is to take precautions and educate your employees. In order to secure debt and/or equity funding, you must prove you can run a profitable business that is capable of servicing its debt and providing a return on investment to its shareholders.
Whether the financing is structured as a loan, a line of credit or a convertible note, friends, and family are usually the most captive audience for entrepreneurs, and they are often most flexible on terms.
Cloud applications enable agencies to build more agile systems that are capable of adapting quickly to changing business environments.
Make a clear business use case for cloud applications, just as you would any investment.
New cloud applications require sound integration plans to bring the desired benefits to your agency.
Never hesitate to head in a direction that others seem to fear.
If Your Model Is Broke, Fix It
History is full of industry leaders and business pioneers who have become irrelevant because they failed to innovate and evolve. Maybe it is the result of conservative cultures, poor leadership, a lack of will and vision, or the systematic inertia that builds from years of complacency.
Or, possibly, they were just afraid. People fear the unknown. They resist taking the bold and decisive actions that are needed to survive because they do not want to fail.
However, we learn from failure. It builds character, teaches us humility, shows us how to cope with adversity, and challenges us to continually test, revise, and improve.
Marketing agencies are no different. Agency leaders become comfortable in their positions. They learn to ignore their instincts for change, instead favoring status quo.
They make decisions to avoid short-term risk and pain, often to the detriment of their agencies long-term viability. Even worse, this tentativeness trickles down to employees and carries over into client campaigns.
Marketing agencies must take action to survive and thrive in the new ecosystem. They have to make difficult choices to break from traditional agency-centric pricing models, invest in technology, recruit and retain hybrid professionals, build scalable infrastructures, and transform their services. They have to be willing to make mistakes. They have to embrace failure.
We can learn nearly as much from an experiment that does not work as from one that does. Failure is not something to be avoided but rather something to be cultivated…. All creative avenues yield the maximum when failures are embraced. — Kevin Kelly, editor-at-large, Wired
The Disruptor Advantage
The unknown is one of the most exciting things about being an entrepreneur. It is the adrenaline rush that comes from taking chances and venturing down the road less traveled. That is the disruptor agency advantage.
These organizations, by their very nature, are risk takers. They thrive on change, easily tire of tradition, and pride themselves on their agility.
These emerging firms have less to lose than their larger, more conservative competitors. They are building new, hybrid agency models from the ground up.
They do not have the restrictions of legacy systems or the internal politics that hinder change. They have flexibility in their pricing, lower overhead costs, and more dynamic and versatile talent.
Disruptors need to be willing to take risks the established agencies cannot or will not. While traditionalists try to fix their models, you should be focused on continually reinventing yours. Never hesitate to head in a direction that others seem to fear.
The Traditionalist Opportunity
I have watched some incredibly talented traditional firms fade or disappear in the last decade because they continued to do what was familiar. While revenues fell, and their staffs slowly churned, they would just put their heads down and keep grinding.
Rather than getting to the root of the problem—a broken model—they would raise billable-hour rates, form a few strategic partnerships, and reach out to the same tired networks on which they built their firms.
Experiment with Services and Pricing
Although traditional firms may hesitate to make major overhauls to their services and pricing, they can start to progress by experimenting in niches or with select prospects.
Trust Your Instinct
Trust your gut instinct when it comes to determining direction. Research and analyze your options, but only to refute what you already know to be the best choice.
This can become challenging in larger agencies, but the most effective CEOs are adept at building consensus and support for their visions, no matter how unconventional they may be.
You should try to do things that most people would not.— Larry Page, Google co-founder, and CEO
Deconstruct Your Brand
Be willing to deconstruct your brand and business model to remain relevant, and position yourself where the market is going. History means nothing if you have no future.
Maintain a Sense of Controlled Urgency
Some of the greatest inventions and advances in business have come in the face of adversity, but do not wait for desperate times to evolve. The best time to pursue opportunities and innovations is when you are prospering. Something or someone will eventually come along to disrupt your agency, so it might as well be you.
Look Beyond Tradition
Following tradition and conventional wisdom is easy and boring. Take risks, be bold, and dare to fail.
Failing Forward: The Return and Revenge of Steve Jobs
In 1984 Steve Jobs was fired from Apple, the company he co-founded in 1976 out of a family garage. He went on to found NeXT, a computer company, which was acquired by Apple in 1996 for $429 million. Jobs returned to Apple as CEO in 1997, and he has since created some of the most transformational technology products in history.
Spend Less Time Planning, More Time Doing
Plans have their place in business and life, but I have found that they often serve as a convenient excuse to avoid action. We hold meetings, form committees, set goals, create proposals, assign responsibilities, and build task lists and timelines.
We spend months agonizing over details and gaining approvals, only to have our strategies be outdated by the time they are finally activated.
Business moves too fast to watch from the sidelines. Technology is changing, consumer behavior is evolving, and competition is emerging. Marketing agencies have to become more agile. They have to focus less on thinking and talking and more on doing, both for themselves and their clients.
Venture into the Unknown
In January 2011, Seth Godin, best-selling author of Linchpin, took to the Helen Mills theater stage in New York to share his ideas on the new dynamics of publishing.
It was an intimate affair with 100 attendees, including myself. There were no PowerPoints, splashy parties, or corporate sponsors. We spent six hours listening, asking questions, and discussing what is next for the blog-publishing industry. Although the event was targeted at authors and blog publishers, the lessons learned to apply to all marketers.
My favorite line of the day came when someone asked Godin how he so consistently innovates and creates remarkable content. To summarize his reply: “I practice staring into the abyss.”
His message was that if you are not scared and unsure when creating content and pushing new ideas, then it is probably not worth pursuing. We have to challenge ourselves to tackle the unknown. We have to look into the dark to find the light.
Failing Forward: Beds, Breakfasts, and a Billion-Dollar Valuation
Founded in August 2008 by Brian Chesky (@bchesky) and Joe Gebbia (@jgebbia), Airbnb is a marketplace that connects people who have space to spare with those who are looking for a place to stay. The concept was created by accident, when Chesky, an industrial designer, moved from Los Angeles to San Francisco.
An international design conference was coming to San Francisco and all the hotels were sold out. The two eventual cofounders were trying to figure out how to make rent, so they decided to create an “airbed and breakfast” for one weekend during the conference.
They ended up hosting three people, made some money, and had an amazing experience. The concept for Airbnb was born. They believed that one day, people all over the world would do this.
However, the road was not that easy. According to Chesky, in a TechCrunch Disrupt NY 2011 interview, out of the 15 to 20 angel investors they met with in fall 2008, half did not return their e-mails, and the consensus was that it was an awful idea.
They got their break after meeting with Paul Graham (@paulg) of Y Combinator in January 2009. Graham thought the idea was terrible too, but invested in them because, as Chesky explains it, they were creative, smart entrepreneurs, and Graham figured they would eventually change their idea.
Make it Safe for Employees to Fail
Innovation in agencies cannot always come from the top. Employees must feel empowered to contribute to the agency's advancement. Their ideas and inspirations should be nurtured and cultivated. Although careless mistakes are unacceptable, professionals should not be afraid to miss or falter.
It is easy to lose confidence and become conservative if you constantly fear your actions will be questioned and criticized. Agencies should build cultures that encourage and reward creativity and innovation.
If you don't make mistakes, you're not working on hard enough problems. And that's a big mistake. —Frank Wilczek, 2004 Nobel Prize winner in physics
Don't Make Promises That You Can't Keep
Sometimes when we are small, we make promises that are too big. Just remember, once you break a promise, there is no going back.
Keep expectations in line with your ability to deliver at scale. Do not let desperation or a lack of perspective cloud your judgment and actions. Be ready for increased expectations as you grow and evolve.
Master the Art of the Unexpected
Give people something they did not know they wanted, and take them places they did not expect to go. Think Steve Jobs. No one does it better. Apply this thinking to your content, business model, and personal brands.
In order to capture and keep the attention of the crowds, we must take chances and be willing to go where others will not.
Always Fight Like the Underdog
It is more exciting when the odds are against you. Underdogs have passion and the intrinsic drive to keep fighting, no matter the odds or obstacles. They have a purpose.
It is the purpose, not profits, which defines an agency.
Stand for Something
Success is not about money, or at least it should not be. We all have basic financial needs that must be satisfied, but no amount of money, fame, or power will bring happiness.
In fact, my experiences have shown me that they often have the opposite effect on people. In order to find happiness, we must be a part of something greater than ourselves, something that we truly believe in.
The same holds true for businesses. Although for-profit companies exist to make money, the most important organizations, the ones that have the potential to change industries and our world, are often started because the founders believe they have a higher calling.
They build, out of passion and an undying belief that they can create something of great and lasting significance, what others are not willing or able to. True entrepreneurs will never be satisfied with riches alone. They have to affect change and will risk everything to make their visions reality.
They had a great sense of purpose, which is a prerequisite for anyone who is nutty enough to want to start a company. That burning sense of conviction is what you need to overcome the inevitable obstacles.
The Purpose Pyramid: A New Planning Paradigm
We are programmed to set revenue goals, target growth rates, and measure our importance and value based on financial returns. We compare ourselves to industry benchmarks, flaunt our client lists, and tout our awards because they create the perception of success and make us feel good about ourselves.
There is nothing wrong with having financial goals and achieving milestones, but these are simply means to an end. If you believe that your agency exists solely to make money, then you likely are falling short of your potential and cheating your employees of opportunities to realize theirs. It is the purpose, not profits, which defines an agency.
What Is Our Agency's Purpose?
Have you ever stopped to ask yourself or your employees this question? You will not find the answer in the Blueprint, or any other blog for that matter. Purpose comes from within, often originating with the founder, and is perpetuated through the agency's actions and professionals.
An agency's purpose may be innate and unspoken at first, residing in the minds of its leaders. However, over time it becomes essential to involve employees. Purpose evolves as the agency and its employees mature, and their perspectives and priorities change.
To recruit and retain top professionals, you must instill in them a belief that their time and energy is contributing to the pursuit of a greater goal that transcends standard business measurements and personal achievements and enriches their lives.
The most successful people… often aren't directly pursuing conventional notions of success. They're working hard and persisting through difficulties because of their internal desire to control their lives, learn about their world, and accomplish something that endures.
The first level of the pyramid is the pursuit. This is where you define your agency's vision, mission, and values, and establish the financial metrics and growth goals that will enable your agency to recruit and retain talent. You look internally to determine if you truly have the passion and drive to succeed, and you make a commitment to be great.
This is also an opportunity for agency leaders to define their personal goals. What are you willing to sacrifice? How will you find balance in your life to remain focused and continuously bring the positive energy needed to motivate and inspire your team?
This is possibly the most important level in building an agency. Once you know where you are going, you can better identify the type of people it will take to get there. This includes employees, strategic partners, clients, advisors, and any other professionals who will influence your agency and its ability to succeed.
To create an enduring brand, you need to assemble a team of talented and intrinsically motivated employees, build partnerships with like-minded organizations, and surround your agency with clients who value your professionals and services.
Together, we had built a business that combined profits, passion, and purpose. And we knew that it wasn't just about building a business. It was about building a lifestyle that was about delivering happiness to everyone, including ourselves.
Much of the Blueprint has focused on process, which in large part determines your agency's efficiency, productivity, and profitability. It is the systematic way in which you construct and manage your agency.
I tend to segment process into logical business units—operations, human resources, finance, technology, and marketing—but it includes elements such as pricing, services, hiring, training, marketing strategy, sales systems, and client services.
Success itself is a process. It requires persistence, perseverance, and an uncommon drive to achieve remarkable things. There are no shortcuts and no guarantees.
You have to be able to find satisfaction and motivation in incremental progress over days, weeks, months, and years. You have to be willing to outwork your peers and competitors. It is not about rewards or recognition; it is about an internal burning desire to improve.
If you are not putting in the time and energy to succeed, someone else will, and you have no right to complain when they take what was yours. It is acceptable to be mediocre, but if that is the path you choose, then alter your expectations about what life will give you in return. Success is not easy, but things worth achieving never are.
These are the outcomes that fuel growth and success. Performance is the achievement of business objectives such as lead volume, customer conversions, client loyalty, employee advancement and retention, efficiency, productivity, revenue, and profits. People and process drive performance, which enables agencies to focus on their purpose.
The truly transformational agencies, the ones that will thrive and lead in the new marketing services ecosystem, will pursue purpose. Think of purpose as your agency's compass. The purpose is not necessarily measurable, but it provides direction and meaning. Every action and decision should align with this ultimate pursuit.
Purpose eases the pain of the long hours and gives you the fortitude to fail. It makes menial tasks meaningful and serves as the pivotal piece of your employee recruitment and retention strategy. The purpose is aspirational and, in most cases, something that is never fully realized. In other words, the pursuit itself is the end game.
Steve Jobs of Apple, in 1983, famously said to John Sculley, then president of PepsiCo, “Do you want to sell sugar water for the rest of your life or do you want to come with me and change the world?”
Brian Halligan and Dharmesh Shah of HubSpot building a software company to disrupt and transform the marketing industry to match the way consumers shop and learn.
Larry Page and Sergey Brin of Google and their unending desire to create the perfect search engine that understands exactly what you mean and gives back exactly what you want. Facebooks Mark Zuckerberg and his commitment to making the world more open and transparent, in order to create greater understanding and connection.
Fate, Destiny, and the Business of Life
Life is full of joy and pain, opportunities and obstacles. This is what we are given. It is our fate. Many people choose lives of fate, dwelling on what they have lost and living within the limitations that they believe control their existence. However, life also gives us choice. It gives us free will to create our destiny.
If you want to keep good people, work needs to provide them with a sense they are doing something important, that they are fulfilling their destiny. —Alan Murray, The Wall Street Journal Essential Guide to Management
Everything that we are given, and everything that we create, can be taken away in the blink of an eye. That is what unites us—our mortality. It is the decisions we make and the actions we take in the time we are given that define who we are and what we will be.
Life Lessons of an Entrepreneur
I leave you with a collection of life lessons I have learned along the way. I hope they play a small part in helping you discover and pursue your agency's purpose:
Fate is what we are given. Destiny is what we make. It is up to you which path you choose.
Our business and personal lives are inextricably bound. Finding balance is the key.
We live life in days, weeks, months, and years, but we remember it in moments. Seek to create, embrace, and cherish them.
Everyone has a story, a unique set of circumstances and experiences that make them who they are. Take the time to listen and understand before you judge.
Your energy is best invested in positive people whom you trust and respect and who challenge you to be a better person and professional.
Negativity will destroy relationships and ruin the chemistry and culture within companies. Build your personal network and business around positive people.
Loyalty and trust are invaluable traits of friends, employees, and coworkers.
Integrity takes a lifetime to build and a moment to lose.
We all need to be inspired. Discover the people, places, events, blogs, and music that inspire you.
We are all mortal. Money, fame, and power mean nothing in the face of death.
Get out of your comfort zone. Some of the most memorable experiences in life happen when you let go of your fears and anxieties.
Life is full of noise, interruptions, and distractions. It will pass you by if you let it. Take the time to quiet your mind, and find your direction and purpose.