Creative, marketing , digital, communication and other agencies are very much the type of business to be in these days.

Whys that?

The Interactive Advertising Bureau’s Australian Online Advertising Expenditure Report for Q1 2018, cites 13.2% year-on-year growth at more than 5 times higher than the GDP growth rate for the same period. 

So if you were trying to decide what is the best type of business to be in then this must be it! Right?

The creative/marketing/agency/tech space attracts many people who want to run their own businesses. Some are seeking creative freedom, some freedom from the shackles of conventional employment, some a better lifestyle, more money or simply those that want to do their own thing.

But despite favourable conditions, mastery of business basics plays heavily into the success trajectory such businesses.

After 15 years of working with these businesses, I submit that much of this has to do with the ‘seven deadly sins’ below that will undermine your agencies success and rob you of your long term financial prosperity.

Sin No 1. Poor Business Strategy

Whilst the industry is strong, so is competition. It used to be that the market was dominated by large, multidisciplinary agencies that operated very much like a one stop shop for their clients, where ongoing retainers were common and long standing relationships were the order of the day. This style of agency had a lot going for it in the eyes of the client.

But things have changed a lot, and for a growing agency this is not an easy strategy to build a business around unless you are really good. What’s changed is that we are now in an era of specialised niche agencies, that tend to operate on a project by project basis rather than on an ongoing retainer basis. 

Progress in digital marketing technology has been very fast, with technology driven opportunities evolving constantly giving rise to even more specialisation. Specialists are niche operators who can be very lean and competitive compared to the old style of agency.

At the client end, it can be quite hard to understand and keep up with all the developments and innovations. What they see is a steadily rising marketing costs and increased risk of wasting money with campaigns they don’t fully understand.

One thing is for certain though, in a confusing market, specialists have the upper hand. Coming across as an expert in a market of generalists can give you a tremendous competitive edge..

To compete effectively you need to have made some careful decisions about strategy.  And here we are referring to the position you take in the market to strike the best compromise in relation to your value offering vis-à-vis the market opportunity..

  • Broad or narrow target?
  • Low cost or highly differentiated?

Once these are decided you will need:

  • a clear value proposition
  • a specific market focus in order to not have to compete on price too much of the time.

Identifying and being very clear at articulating what you excel at and where you can provide maximum value is crucial to getting the right clients. A sharp focus on a particular market makes marketing and delivery easier to do and to scale.

By contrast, the broader the focus, generally the thinner the capability and capacity; the weaker the impression on the prospect.Unless you have a speciality, there will always be someone else prepared to do the job for a dollar less. 

Probably the most compelling argument for developing strong strategy is that is that the hourly rate for specialists is at least 25% higher than for generalist agencies. 

Furthermore, from a prospective customer perspective, they will always prefer to deal with a specialist than a generalist, so it’s important to look like a specialist. 

Your business strategy is the point of departure for your agency as a business venture. There is probably no doubt in your mind or in your conviction as to the need to work hard at it. But remember this: Working hard on a poor strategy is STUPID. So make sure you get this as right as you possibly can.

Sin No 2. No clear plan

In a perfect world, a good plan, accurately followed should yield the planned result.  Whilst it is different in the real world, a business following a well thought through plan will achieve a much better result than one not following a plan.

Its generally acknowledged that more than half of small to medium enterprises do not have a formal business plan. Not only that, but many that do, only do it to secure finance and don’t use it as a business growth tool.

Astonishing! If one is unable to clearly figure out and specify how you expect your business to fare and progress on paper, it is highly improbable, if not impossible, that you will be able to do this in practice.

Not only that, It’s not smart!

Why would you try and define how best to do things with real people, real deadlines, using real money in real time? That’s really hard and why human beings invented planning in the first place.

Without a plan, it is difficult to delegate management and get your team engaged. Everything then falls precariously on the owner. 

Some might consider that the Monday morning meeting constitutes planning and therefore they are covered.  Not so.

Whilst its possible to have a plan without a strategy, it’s not smart. Whatever you do, the chances are that you are going to work hard over a period of time. That being the case, you must make sure that you have the best strategy and the best plan worked out, or risk wasting your time and money or, if you play it really badly, end up somewhere  from which where its impossible to recover.

So what goes wrong?

Some find doing all this properly can be frustratingly hard work, that seems interminable and it simply never gets finished.

Others may think they have done the work well enough but discover that their lack of rigour has produced a sub-par plan that simply does not deliver the desired results.

For your strategy and plan to be any good, it must be done well. The better the job you do on this, the better the outcome. It will make a massive difference.

Strategy vs. Plan. Aren’t they the same thing?

These concepts are often used interchangeably and incorrectly. Here’s how they relate:

A business strategy describes how a business organises itself in order to obtain the best possible competitive advantage within its chosen market scope.

A business plan, identifies a set of  resources and future actions that once executed, will deliver an expected result.

Once you have worked out the strategy that your agency is going to follow, you have to develop that into a plan, otherwise it’s of little use.

Sin No 3. Ineffective Management and Team Structure

All too often, far too much management responsibility is left to the owners. To some, it may make them feel significant but in reality it will slow the business down. A lot. 

You may be thinking, ‘but there’s only 6 or 7 of us, how organised do we need to be?’

The answer is more than you think. You see for you to end up with a business that is not too hard to run and is scalable, then it has to be the team that looks after the clients. For that to happen, it must be the duty of the owners to put a suitable team in place. That means to organise them, empower them and to hold them accountable.

Every single thing that goes on in your agency needs to have an owner and at least an outcome expectation defined so the team can do what they need to do effectively and autonomously.

If not, the owner becomes tied up with the wrong things and cannot focus on generating the momentum needed for growth. 

This principle is not necessarily well understood by many a business owner, even after a long time. Some find it difficult to hand over operational  responsibilities or delegate authority. If that’s you – the sooner you get beyond that, the better your business will do.

Structure, Efficiency and Growth

These three things are closely inter-related. Without a good structure, you can’t be efficient and if you are not efficient, it’s  difficult to grow.

Most agencies go through a mini restructure every time a new person joins. Duties and responsibilities get shuffled around. Roles are split and others merged. Documentation (if it exists) falls behind and peoples jobs lose clarity. Without clarity, accountability suffers and operational effectiveness and efficiency drop. Needless to say this is not a recipe for growth.

Organisational clarity takes a load out of day-to-day management. Things makes more sense and fall into place. Growth can happen.

Sin no 4. Inefficient Operations

Operational effectiveness has a major impact on on-time delivery and profitability. If your business is about providing services, you have to know how to do this in a way that makes money. That’s just how it is.

To make a profit every year you have to make a profit every month. To make a profit every month you need to make a profit every week, and to make a profit every week you have to make a profit on every job.

That means you have to be efficient all the time. Now of course there may well be strategic reasons not to be profitable for certain jobs, but that’s entirely different to not knowing how to make consistent profits from the work that you perform on an ongoing basis.

It’s common for agency principals to understand their business’s raison d’être to be creative and solution orientated. Efficiency is not part of their focus. When they start out and are operating on a small scale, efficiency is of low consequence. But if growth becomes a focus, as it usually does after the novelty wears off, it rises to prominence as it must.

Operations management may not be a strength of the agency, but over time, needs to become one. Becoming efficient is something that takes focus and effort over time. It requires a holistic approach because of the typical project complexities, that usually encompass multiple people, a variety of skill sets, bespoke solutions and detailed processes.

There are a variety of other related KPI’s that can effectively be used that will serve almost as well.

Of course there has to be some unavoidable overhead for time that needs to be spent on non-client matters, such as internal meetings. For most agencies with salaried staff performing the bulk of the work, this is between 15 and 20% of working hours. It can be less but when you over optimise, other aberrations start to appear. After all you are dealing with people, not machines. This is just a cost of doing business.

Improving efficiency is very much a top-down exercise. It requires effort  and cooperation at all levels of the business.

Is it a worthwhile exercise?
Absolutely. Because it will speed up the time it takes to achieve virtually any business goal and add a lot of value to the business.

That all said, there are some clever ways to boost agency performance when you reasonably high levels of efficiency.

How efficient is efficient?

In the context of professional service business operations, efficiency can be calculated as

(revenues from billed hours)/(total attributable employment cost)/(nominal operating margin)

An alternative, simpler (but not quite correct) measure is

Utilisation = (total billed hours)/(maximum billable hours)

(Gasp!)

Neither of these are easy to calculate. You need to have the correct data available, but it is possible.

Sin no 5. Sloppy Performance Management and Financial Controls

In any business, the owners ultimately take responsibility for performance.This covers all areas of performance in marketing, sales, operations, administration and finances. 

In most instances where this takes place, it is a lack of ownership of the issue that is the root cause. The ‘culprits’ are often blamed for not doing their job properly, but upon analysis, one invariably discovers that there is a gap between what is expected by management and what is understood by workers.

Only when there is an aligned understanding and agreement between these parties can corrective action be taken. And all of that is the responsibility of the firms management.

Poor performance control leads to a range of obvious consequences: missed deadlines, rework, inefficiency, quality of work, delayed invoicing, unhappy clients etc., etc. On their own, each of these areas can be quite easily be fixed. Put them all together and it’s a monumental job, and a huge source of stress for almost everyone.

You have to start off by accepting the premise that performance is relative and good performance therefore, is standards driven. So all performance measurements are made relative to the standard. So the very first principle in correcting sloppy performance is to make sure that there is an up-to-date standard defined, in writing, and the standard forms part of an individual’s position definition or a department’s operating definition.

Once this is in place, the relevant people need to accept these definitions and accept accountability to them as a term of their employment.

Another performance control area is clients. Sometimes clients don’t keep their end of the bargain and that can generally end up costing the agency money. Again, if there is a gap between expectation and delivery this is bound to happen. So this needs all expectations to be laid out properly in an appropriate document. When an event is triggered, you should have procedures in place for quick and independent action with or without the need for management approval.

This is how financial control is linked. There are some non-negotiable undertakings a business implicitly makes; tax payments, sales tax payments, staff entitlement payments etc etc. Unless this is run strictly, one can easily get behind.

Sin no 6. Inaccurate Quoting and Losing Proposals

It is not difficult to understand why inaccurate quoting can have dire consequences. If the quote is too high, you don’t win the business, but more importantly, if your quote is below what it needs to be to make the right level of profit, you cannot make money, no matter how good you are in any other aspect of your business.

Depending on your agency’s area of activity, this topic can have varying degrees of difficulty. Most agencies base their quotations on hours of work they expect to do. Some clients will be price driven, others hours driven. There are of course all sorts of games played in order to arrive at a justifiable price, depending on the client and the nature of the opportunity, the competition, the type of work etc., etc. but at the end of the day you have to strike the best compromise. What you cannot allow to happen is that the final amount that the client pays is less lan or equal to your cost plus your profit margin. 

There are three things that could potentially go wrong:

  1. You get the hours wrong in the quote. This happens. You leave a section out of the calculation or miscalculate
  2. You get the solution wrong. You discover once the client has given the go ahead that the solution you had worked out was not quite correct and additional work is needed.
  3. You don’t understand your costs properly, get the solution and the number of hours right, but base your price on an incorrect hourly rate. 

Of course you could get more than one wrong too!

There are all sorts of software tools available to help you put a price together if you are looking for an extra monthly subscription to pay. But the part that the software can’t get right for you is developing sufficient understanding of what the work entails and how many hours that will translate to and of course accurately calculating your base hourly costs.

To add to the complexity, it’s very common in my experience for agencies to fail to do adequate risk and contingency analyses and build this into their quoting process. Every project has some risk. The amount of risk relates to your experience and how many aspects of the project is not well known to your agency. You should be incorporating a ‘factor of safety’ into your pricing to cover these. Not doing this will restricted projects to a size and complexity limit that matches your ability to quote accurately. If you factor into this the empirical truth that bigger jobs are invariably proportionally more profitable, then this a great opportunity for improvement.

Of course the quotation forms an integral part of the proposal as a whole. This is usually quite a big effort, often with a deadline. It’s not uncommon to miscalculate the amount of work required to do justice to the proposal, end up with something that is not quite good enough to win the work.

There’s a lot of technique in preparing a top notch, winning proposal and developing the right relationship with the prospect to put you in the most advantageous position, particularly in competitive bid situations, which is usually the situation for the big projects. The good news is that this is eminently systemisable and an absolute necessity in the long run.

And finally in relation to winning proposals, to submit a proposal in a competitive environment for a big project requires building-up-to. If you take the big leap and tackle something much bigger than you may be quite ready for in terms of the quality of the proposal (and possibly the perceptible capacity to do the work) you increase the risk of losing. The combination of the substantial amount of work these big proposals represent, coupled with the relatively high risk of potentially not winning, is something to think through very seriously.

Sin no 7. No Client Acquisition Plan

This is the ‘Big Kahuna’ of the 7 sins.

It’s fair to say that most first time agency owners have little understanding of, or exposure to, the running of a professional, effective and productive client acquisition system. Typical online articles and resources simply fall way short of providing enough of the right kind of information for the typical agency to gain a real understanding of what’s involved.

It is important to understand how pivotal a role your client acquisition system will play in agency growth. It will provide you with:

  • The ability to bring on clients virtually at will
  • The assurance of predictable cash flow
  • This will translate directly into the opportunity to 
    • Attract top talent
    • Target top brands and top opportunities
    • Convincingly and comprehensively deal with the number one agency challenge

Being able to reliably and consistently acquire new clients is by far the most common concern of agencies that are trying to grow in my experience. 

In many agencies, most of the business development effort rests with the owners. They typically have many other duties and responsibilities and usually struggle to keep pace with the ever increasing demands on their time. In many cases, this is not how they envisaged it and not what they enjoy. Unsurprisingly, consistent sales growth is elusive and often stress inducing.

Most agency owners admit that it’s something that they know needs to change, but at the same time find it frustratingly difficult to do. It requires a lot more than just hiring a ‘sales guy’, which is the most common but also the most risky and lowest outcome tactic.

Here’s why: Most of the decent business development people are in jobs where they are managing decent opportunity pipelines and they look forward to earning pretty respectable commissions. It takes quite a bit of time and effort to get to this point and so there is a natural reluctance to abandon ship and start again elsewhere. Add to that the reality that are not about to start working for a small agency on a low base/high commission package, with high targets, little support and probably a number of other responsibilities to boot. So the type of person coming to interviews usually falls short in terms of knowledge, experience and capability. 

If you do a thorough analysis of the effort and the process that has to be undergone for this to work, you will realise just how marginal it is. 

So what are the options?

  1. In the first instance, one could persevere on a trial and error basis, to organically develop a method that works. This could conceivably work out but will always be slow and highly dependent on your ability to support and train.There is a great deal of knowledge to be acquired and process to be developed before one can end up with something that delivers. So it’s costly both in terms of the error part of trial and error, and of course in terms of opportunity costs. These costs are quite difficult to forecast (even if attempted) at the start, when deciding how to solve the client acquisition conundrum.
  2. Alternatively, invest in going with a proven method that really produces results. This will shorten implementation time and avoid the lengthy and time consuming trial and error elements and reduce your risks. 

A good client acquisition system understands:

  • The full gamut of human resources issues that have to be dealt with including
    • Cost effective recruitment to lower the risk and cost of selling
    • Appropriate outsourcing
    • Training
    • Performance management
  • The intricacies of both inbound and outbound lead generation implementation including
    • Important market segmentation, positioning and targeting
    • The best cold outreach techniques and communication frameworks that produce results
    • The key software systems to use to maximise results with minimum management effort
    • Crucial division of labour practises to ensure consistent performance and good sales outcomes
  • How to implement effective sales funnels for conversion rates well over 50%
  • How to manage your client acquisition momentum so that your business can really grow and scale
  • How to structure and implement robust service agreements and negotiate ‘agency of record’ agreements

If you look at the big, successful agencies you will note as I have that at a point, they committed to building out their client acquisition function. The flow-on effect from tha coalesced to produce the unstoppable momentum that drives success after success, high valuation and the ability and option to exit at a time of their choosing.

“Leaders get results through people.”

Patricia Fripp

Former President, National Speakers Association