Episode 140

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I have the good fortune of hanging out with agency owners and their teams every day of the year. We work with over 250 agencies that range from a handful of employees to several hundred team members. While every agency is absolutely unique – there are some common themes and trends that bubble up as we work alongside our agency clients.

Every year I pull together the trends I see time and time so the agencies we serve aren’t surprised by any of them. I’ve categorized them into some big buckets: money, employees, agency structure, clients, tactics, and revenue opportunities.

There were too many trends to pack into one solocast, so I’ll cover half this time and the other half in July.

Here’s the good news – it’s a great time to be in the business. As always, both challenges and opportunity abound. My goal is to help you spot the opportunities so you can maximize them while sidestep the trouble spots.

 

 

What you’ll learn about in this episode:

  • How agencies fared financially in 2017
  • Why 2017 was a great year for agencies to make money – and where that profit got re-allocated
  • The factors complicating employee hiring and retention
  • Agency structure changes in terms of both department structure and employee life/work models

Drew McLellan is the CEO at Agency Management Institute. He has also owned and operated his own agency since 1995 and is still actively running the agency today. Drew’s unique vantage point as being both an agency owner and working with 250+ small- to mid-size agencies throughout the year gives him a unique perspective on running an agency today.

AMI works with agency owners by:

  • Leading agency owner peer groups
  • Offering workshops for owners and their leadership teams
  • Offering AE Bootcamps
  • Conducting individual agency owner coaching
  • Doing on-site consulting
  • Offering online courses in agency new business and account service

Because he works with those 250+ agencies every year — Drew has the unique opportunity to see the patterns and the habits (both good and bad) that happen over and over again. He has also written two books and been featured in The New York Times, Forbes, Entrepreneur Magazine, and Fortune Small Business. The Wall Street Journal called his blog “One of 10 blogs every entrepreneur should read.”

The Golden Nuggets:

“As I look at the trends facing agencies today one that stands out is digital is not a department. Digital is a blanket that lays over the entire agency and everything we do.” - @DrewMcLellan Share on X “Many agencies had their best year in 2017. If you were specializing and have a niche, you probably did very well. If you have more of a generalist agency, the trend shows that you may not have done as well.” - @DrewMcLellan Share on X “One of the big trends I’m seeing is everyone is poaching agency employees. Agencies have become the training ground for other agencies or client-side businesses. It might even be your clients hiring away your top talent.” - @DrewMcLellan Share on X “In today’s environment, you certainly want to have a competitive benefit set so that when people are comparing offers, you come out on the winning side.” - @DrewMcLellan Share on X “If you have owned an agency for 20 plus years and are adamant that you want all of your employees to be in-house under the same roof, I am here to tell you that model is going to get harder and harder to sell.” - @DrewMcLellan Share on X

 

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Ways to contact Drew McLellan:

We’re proud to announce that Hubspot is now the presenting sponsor of the Build A Better Agency podcast! Many thanks to them for their support!

Speaker 1: If you’re going to take the risk of running an agency, shouldn’t you get the benefits too? Welcome to Agency Management Institute’s Build A Better Agency podcast presented by Hubspot. We’ll show you how to build an agency that can scale and grow with better clients, invested employees, and best of all, more money to the bottom line. Bringing his 25 plus years of experience as both an agency owner and agency consultant, please welcome your host, Drew McLellan.

 
Drew McLellan: Hey, everybody. Drew McLellan here with another episode of Build A Better Agency. As you might guess, this is about time for a solo cast. So every five episodes instead of having a guest join us, it’s just you and me. And I to pick a topic that I think will be of particular interest to you. A lot of times it is something I’m talking to a lot of agency owners about or maybe something that’s come up at a conference that I’ve attended. And for this episode, we are going to dig into some of the trends that I’m seeing as I’m meeting with agencies all across the land. So, that’s what we’re going to talk about today. But first, a couple of things I want to just remind you about. If you’re listening to this in real time, so you’re hearing it in the summer of 2018, just a couple of reminders that are timely.

 
  Remember that we have an AE bootcamp coming up on September 24th and 25th in Chicago. You can register for that on the website. We also have a workshop that is just for agency owners. So, no one can attend at this workshop if they do not at least on a minority position in an agency. And it’s called the Best Management Practices of Successful Agency Owners. And that we spend two days talking about all kinds of things from staffing to biz dev, to finance, to operational issues. All the things that I think are critical for you to know and the best practices that I see agency owners implementing in their shops to be successful today. So that workshop is September 27th and 28th, also in Chicago. And you can read more about it. Register on the website or ping me with any questions by email.

 
  So, I just want to take a quick second. Several of you by email have asked me to give you a better sense of what the AMI networks are all about. You hear people talking about them and you’re wondering for who those might be best fitted for or what those look like. So, I just wanted to take a quick second and walk you through those. We have three different kinds of networks. Two are for agency owners and the third one is for what we call key executives. So, think of it as a right hand person to the agency owner. Oftentimes, it’s someone who is on the leadership team who is heading up a department. It’s not uncommon for it to be a department of the account service folks, so a director of account service, sometimes it’s a COO. The titles are different. But basically, it’s somebody who really helps the agency owner run their agency everyday.

 
  And so what this network does is this network brings together people who do that work in agencies all over the land. They get together for two days in the fall and two days in the spring, October and April. Those meetings are always in Chicago. So you’re put into a peer group that is predetermined. So, you always meet with the same people. So, you get to know each other and each other’s agencies. Obviously, we don’t put competitive agencies in the same network. And you spend two days learning from each other, talking about best practices, talking about operational issues. For those of you that are followers of the traction methodology or operating system, typically these are the integrators of the agency. So, oftentimes the agency owner is the visionary. We bring the integrators together and we help them figure out how they can best support their agency owner.

 
  In some cases, the folks in that group are a minority owner. But in most cases, they don’t have an ownership stake. We don’t share financials in that group. But we talk a lot of very specific things, specific challenges. Everybody leaves setting very specific goals that they have to report back to the group on. And that has been really well received and people are enjoying that. And really are, the owners are reporting that the folks that they send to that workshop are coming back fired up, enthusiastic, and are making some great changes in the agency. And then, the other two networks we have are the agency owner groups. So, we have two. We have the virtual group. So those folks meet once a month on a Zoom call. And so obviously, you can be anywhere on the globe and do that. And again, they spend time talking about their agency, their challenges. There is some time where the facilitator is teaching something that we think you need to know as agency owners.

 
  And then, there’s a lot of sharing in between the meetings amongst the group. So there’s a lot of, “Hey, does somebody have a copy of this?” Or, “Hey, I’d love to see a master services agreement.” Or, “I’m having this issue with an employee. Does anybody have any thoughts?” There’s a lot of that in between the meetings as well. And then last but not least is what started AMI many years ago, which is the live owner network. So think of it as a Vistage group or an EO group where 12 agency principals, so 12 agencies. So it’s 15 to 25, depending on how many of the agencies have partners. People in a room, again same group together over time, so you build a great relationship with those folks. And we share a lot of best practices. In the live groups, you do share your financials. You don’t in the virtual groups. But in the live groups, you actually hand out your P&L and your balance sheets and a special spreadsheet that we give you to fill out.

 
  And so there’s no blowing smoke up each other’s skirts in terms of how things are going. It’s great intimacy is created when you actually can see each other’s financial statements, you know how everybody’s doing. We share best practices. We wrestle challenges to the ground. We have speakers. And my job in those, because I facilitate those, is to really bring sort of the macro level of here’s where I see other agencies doing as we talk about certain topics. And so, those are the three networks. I’m happy to chat with you more about them. If you shoot me an email, I can drop you a PDF that describes in detail all of the networks and the cost and all of that. But some of the benefits of [inaudible] to any of those networks are a couple of things.

 
  One, you obviously have a seat at the table, so you are a part of all those discussions. You get to create relationships with your peers. Two, there’s a lot of contact in between the meetings. So, you have a peer group that you can ask for resources or support or help or questions whenever you need it. At every meeting there’s teaching. So we’re always teaching the owners or the key executives, things that we think from an operational point of view, they need to know about their business. We might be talking about biz dev. We might be talking about recruiting staff. It could be a lot of different topics. But we’re always trying to teach something new into each of those meetings. You obviously would have access to your facilitators. So that sort of a thinking partner, a sounding board that you can use on the good days and the not so good days. If you belong to any of the networks, you also get discounts on pretty much everything we do at AMI.

 
  So that could be a workshop, our on demand courses, onsite consulting, the client satisfaction, studies that we do for agencies, all of those sorts of things. You also have access to what we call AMI Marketplace. So many vendors have come to us and said, we would like to put together a special pricing deal for your agency. So everybody from Hubspot to SharpSpring, to Costco, and Staples, Zoom, influencing company. Lots of places have put together discounts and deals just for AMI network members. So, you have access to all of that. And it’s pretty easy to save hundreds, if not thousands of dollars, just by shopping in the marketplace. We also bring together all of the owners from all of the groups for an all AMI event. So, you’d be invited to that. Why you think that’d be enough? But no, there’s more. We have lots of exclusive content, webinars and other educational opportunities that we host just for our network members, and you would have access to all of that.

 
  We do a lot of research as you know. So, we put together special reports from that research that is only shared with our AMI folks. And we also do a salary survey that we normally charge for and people in the network get that for free. And there’s lots of other things like that. And we have things like a job description bank that you would be able to [inaudible] some through everybody else’s job descriptions as you’re writing your own and some other shared resources. So, lots of benefits to membership. And like I said, happy to chat with you about any of those opportunities, either the key exec group, the virtual owners group, or the live owners group, and see if any of those make sense for you and your shop. But today, that’s enough of that.

 
  But today, what I want to talk about, the topic I want to talk about is these trends that I’m seeing across the land. And I actually, if you remember last summer, I did a trends solo cast that I had to break up into two episodes because otherwise it was just too long. And I’m going to do that again this time. So, you’re listening to part one right now. And in five weeks, I promise I will give you part two and you will hear the rest of that. But let me give you the lay of the land as I see it. So remember, we worked with about 250 agencies all over the globe, mostly in the US, but all over. And we see their financials. We’re talking to them about the issues that they have. We are watching where they’re growing. We’re watching where they’re struggling. And so, these trends bubble up pretty apparently over time. And so, they become kind of glaringly obvious when you step back and you look at what 250 agencies are doing.

 
  So, the first one is let’s talk about money first. So that’s the big topic, the first big topic that I want to talk about. And one of the things I know that a lot of agencies are worried about is many agencies are paying a lot of attention and trying to learn about blockchain. And I’m here to tell you that it is not the year of blockchain for agencies. Maybe a couple of the huge holding company agencies. But if you are privately owned agency, you do not need to worry about blockchain yet. And I’m going to go out on a limb and say, I’m not sure unless you buy a huge amount of media that you will ever have to worry about blockchain. I don’t think it’s going to actually become a common currency that we all have to deal with. So if you’re worried about it, if you’re studying up on it, what I’m saying to you is take a breath. You don’t need to worry about it quite yet.

 
  The other trend around money that as I look back on the last 12 or 18 months, most agencies had a really good year in 2017. Many agencies had their best year in 2017. Now, I know that if you’re listening and you had a tough year, you’re saying, “What are you talking about, Drew?” There are certainly exceptions to that rule. But as a general rule, most agencies had a good financial year in 2017. Some of the reasons why you might not have had a good year is A, if you had a gorilla client and that gorilla client went away. I had several agencies that suffered through that. B, if you are a generalist, so if you don’t have areas of specialty, either in the deliverables or the industries that you deliver them in or the audiences that you serve, if you’re more of a generalist, I think it was a tougher year for you than it was for some of the agencies who’ve narrowed their focus a little bit. But for the most part, agencies did well in 2017.

 
  Now saying that, most agencies even though they did well and for many of them had their record breaking year, most agencies also lost about 15 to 20% of their AGI. So not gross billings, but of their AGI to attrition, which is about normal. So in terms of whether or not it was a year where there was a lot of client acquisition or moving or anything like that, it was not out of the norm. So on an average year where there’s not a lot of unusual movement, most agencies are going to lose between 15 and 20%. So by the way, as you’re setting your new business goals for 2018 and 2019, you need to keep in mind the fact that you are probably going to lose a minimum of 10% of your AGI. And if your typical, that is going to be closer to 20%.

 
  Now, if your attrition was significantly higher than that, then I’m here to tell you that is out of trend and you’ve got some sort of a problem that you need to diagnose. So, you need to take a look at that and try and figure out what happened that caused you to have more clients walking out the door than the average agency did. Unfortunately, while many of you made money in 2017, most of you didn’t get to keep a lot of it. So you had a more profitable year, but at the end of the day, you ended up spending a lot of the additional money you made. And where you ended up spending the money, quite honestly was on staff. So if there is a trend that is going across every agency of every size every part of the globe, it is that you are struggling to find and keep great talent.

 
  So yes, you made more money. But finding good employees, whether you had to resort to headhunters or search firms, or it took you longer to find them, or when you did find them, they were more expensive than the person you were replacing, whatever that may be. Many of you spent more of your proceeds on finding people or keeping people. Lots of agencies are experiencing a significant amount of what I’m calling poaching. So more so than ever before have I seen, more in 2017 and early 2018, where clients hiring agency employees from the agency that they hired. So your clients are poaching your best employees and starting to build out either bigger departments, or in some cases, an entire internal agency. So, poaching is a problem. Not only are your clients stealing your best employees, but many of you feel like, and I think it’s accurate, that you have become sort of the training ground for some of the other agencies in your market and that they are plucking some of your best employees out from under you.

 
  And not only are other agencies cherry picking your employees, but if your clients are taking them, somebody else on the client side is. And so, many agencies are really struggling with keeping the folks that they have. And when they do lose someone to any of those sources, then it’s taking them longer to find the right fit to hire into that position and is taking more money to secure that person. So I hate to tell you, but I don’t see this trend lightening up anytime soon. I think we are going to continue to be in an employee shortage for at least the next 18 months. So the only thing that’s going to make that better is not good news, which is if a lot of agencies start to get softer and start letting people go, but that’s going to have a different economic impact on all of us.

 
  So short of a recession or a slowdown, I think the employee shortage problem is going to continue to plague agencies, which means keeping the people that you have becomes even more and more critical. So, I want you to be thinking about the environment that you’re creating. A couple of weeks ago I sent out a newsletter talking about the kind of benefits and perks that agencies are typically offering their employees. And you want to make sure that you’re competitive with that. I’m not suggesting you have to offer all of that, but you certainly want to have a competitive benefit set, so that when people are comparing offers, because often that’s what’s happening, or they’re comparing… They’re at in your shop now and somebody is making them an offer and they’re sort of trying to weigh apples to apples. You want to make sure that you come out on the good side of that.

 
  So unfortunately, I think that’s going to be a continuing problem. I do think speaking of the market softening and there being a slowdown, as I told you in a newsletter probably a few weeks ago, maybe a month ago, I do see early signs of things starting to slow down. Clients seem to be more inclined to build up their internal departments. Clients are pulling more work in-house. And in fact, a lot of you know that we put together that research edge series where every summer we go out into the field to do some research and we release those results in the fall. The topic this summer that right in the field right now asking people about is specifically how and when do they decide to keep working, how’s, how’d and when do they decide to far and work out to their agency partner, and what are some of the criteria that help them make those decisions.

 
  So, we’ll be back to you this fall to tell you more about why that’s happening more often and what you can do about it. But I do see it as a growing trend. So be mindful that although 2017 for most people was a fruitful year financially, and I think 2018 will also be a fruitful year, I am a little concerned about what 2019 might bring. So you might want to start tucking away some nuts for winter, just in case. But back to the employee issue. So not only are you being poached, but your employees have a different mindset about the workplace. And so many of you, especially if you have owned an agency for 20 plus years, you’ve been pretty adamant that you wanted all of your employees to be in-house, under one roof, collaborating together physically in the same place. And I’m here to tell you that’s going to get harder and harder to sell. More and more companies, not just agencies, but more and more companies, and certainly more and more agencies are starting to really embrace this idea of virtual employees and employees that literally live out of in different countries.

 
  I just talked to an agency owner the other day and he has agency employees in five different countries. And they physically get together about four times a year. But in the meantime, every other workday they’re scattered across not only state lines, but country boundaries. And that’s becoming very normal. So I can remember when I started in the business that was unheard of. Or maybe it would be somebody who had worked inside the shop and their spouse or partner got a job in another city or another state and the agency might have allowed them to become a freelancer, but they certainly didn’t get to retain their employee status. And that was not the norm, that was an aberration. Well, today, it’s the norm in a lot of agencies. I’m not even talking about agencies that are completely virtual, although that’s becoming very commonplace too.

 
  But what I’m really talking about is brick and mortar agencies that have a physical office having some subset of employees that do not live in the same city, maybe not in the same state, in some cases, not the same country, but they certainly are not coming into work everyday in the traditional sense. And agencies are really figuring out how to make the owners more comfortable with that idea, how to make sure that somebody is delivering against their job description, against their client responsibilities, that they are not… The team is not sacrificing something because someone is not physically in the office. Agencies are getting better about figuring that out. And as a result, virtual employees are becoming very mainstream.

 
  And so if that’s not a position that you have in your agency, that’s not something that you have gotten comfortable with. I’m telling you, it’s going to be harder to recruit those new employees who want to see that sort of flexibility. Even if they’re somebody who’s going to come into the brick and mortar shop, they want to know that there’s that flexibility if they want it down the road. And certainly, we’re seeing a ton of flexible work schedule. So whether it’s four 10-hour days, or people working a different shift where they’re not coming until 10 because that way they can avoid all the morning traffic and then they don’t leave till seven or whatever it is. But agencies are getting very creative in terms of how the work gets done and how the team assembles kind of “Are they assembling physically? Are they assembling on something like Zoom? Are they assembling in a some sort of a hybrid situation?”

 
  So just know that if you are a traditionalist and you are still of the brick and mortar, everybody comes in every day, we’re all here from eight to five or whatever your hours are, you are becoming less and less the norm and I fear for you that it will be harder for you to attract employees, especially younger employees who expect a little more flexibility around the work schedule. And by the way, I think you have a right to expect that flexibility back. So, I don’t think it’s a one-way street. And I think a lot of agencies have figured out how to use that flexibility to the agency’s advantage as well. So just know that’s becoming almost expected. So it’s everyone having in a virtual employee or a remote employee every once in a while, that’s no longer the trend. The trend is now really that most agencies have at least some subset of their workforce that works in another office somewhere else and figured out how to make that happen.

 
  Another employee related trend that I’m seeing is it’s really an interesting one to me. So back in the early 2000s, when digital was sort of becoming the rage and certainly as we got into ’05 or six or seven and social started coming on board, agencies very quickly scrambled to assemble a new department inside their shop. It was a digital department. And that department held all of the people who have the expertise for everything digital. And that could be anything from social to PPC to whatever it might be. And those people were really the digital ninjas who understood all of that world. And the rest of the agency went to them as a subject matter expert and relied on them to sort of help steer the agency in a more digital path.

 
  Well, now what I’m seeing is the disassembly of those departments. And what I’m hearing is as I talk to agency owners about why those departments are going away. The overarching messages, we can’t afford to have some a sliver of our agency understand digital anymore. That digital is not a department. Digital is a blanket that lays over the the entire agency and everything we do. And there’s not any aspect of the work that we do that doesn’t have a digital play in it. And so it’s not in our best interest and it’s not in our client’s best interest for only a quarter of our employees to be really digitally savvy. And so what I’m seeing instead is that agencies are blending digital into all the departments.

 
  So on the account service side, the strategy side, there is no longer somebody who is a strategist or a planner for just traditional tactics or outcomes. But now, everybody is required to understand both the analog and digital world. And in the creative department, instead of it being sort of pictures and words. Now what I’m seeing is pictures, pixels, and words. So whatever somebody is creating, and if we’re making creative stuff, whatever that is, ads or whatever it may be, whether it’s going to go in a print magazine or a digital ad, that’s going to run online. The same people are being required and expected to be able to jump back and forth between the medias. On the media side, for a long time you had traditional buyers and digital buyers.

 
  And now, what I’m seeing more and more is that those departments are being melded together. And that the planners and buyers are being held accountable to understanding all of the channels that their clients might appear in and putting together comprehensive plans and buys that take into account both traditional and digital media. And then obviously, there’s still a sales and marketing department, and an admin finance, and HR that hasn’t really changed. But what’s interesting about all of this is that many agencies are now requiring everyone in the shop regardless of their title or their role or the department that they sit in, but everyone in the shop is being required to get some digital certifications. And the conversation around that is, I don’t really expect my account person to ever, for example, be able to do a Google Adwords campaign, but I do expect my account person to be certified so that he or she can talk about it in an intelligent way and can be astute enough to know when that’s part of the strategy that they need to bake into something they’re recommending to a client.

 
  So, a lot of agencies are doing this digital certification or this digital training together probably to force compliance in some way or to encourage compliance. So what they’re doing a lot of times is they’re doing like lunch and learns or things like that, where they are all taking the courses together and then taking the tests together. And then interestingly, everyone is waiting until everyone has passed the test before they move on to the next certification. So, there’s also a little bit of peer pressure in that. Saying that, okay, we’re all going to get this certification and no one is advancing to the next certification until we all get done with this one. So, that is keeping everyone sort of on track. By the way, a lot of agency owners are also going through this. So this is not one of those thing that is being dictated to the rank and file, but this is something that leadership including ownership is doing as well with the acknowledgement that everyone has to have a certain level of sophistication and understanding about all of these things.

 
  And the only way to do that is to immerse yourself in it in some fashion or form. So, that’s an interesting thing. So whether you have a digital department or not, I’m curious about how you are perceiving the need for everyone on your team to have a more digital prowess and how you’re making sure that happens. So just so you know, I would say half of the agencies that we see have dissolved their digital departments and have woven it into, depending on the skill sets of the people in that department, either the creative department, the media department, or the account service department, or a blend thereof. So, that’s an interesting one. So in today’s podcast, what we’ve covered is some of the money trends that I’m seeing and some of the employee trends that I’m seeing. In the next podcast, the next solo cast that I do for you, I am going to be talking about trends that I’m seeing specifically around clients and the business that they’re doing. And also the tactics and deliverables that agencies are finding very profitable, that clients are asking for more often.

 
  And that if you’re not delivering on those now, odds are you’re going to be asked or you’re going to have the revenue handed to somebody else because you don’t offer it. So, that’s what we’re going to cover next time. So, it’ll be client trends and tactics and deliverables trends in that space. So, I’m looking forward to having that conversation with you. I hope this was helpful. I highly recommend that you chat about some of these topics with your leadership team. And as always, you know how to reach me, so I’m at [email protected]. If you have any questions about any of these trends, if you have some thoughts about some of the trends, happy to hear from you. And in the meantime, I will be back next week with another guest who will help us think differently about the agencies that we’ve run and the directions that we want to take to them.

 
  That wraps up another episode of Build A Better Agency. Hopefully, you found it incredibly helpful and inspiring and that you are ready to go out and do some great things. I also want to talk to you about another tool that we’ve built that I would love to offer you. So as you’ve probably heard me preach, I believe a lot of agencies chase after the wrong new business prospects. And I think we do that because we have not taken the time to clearly define who our sweet spot clients should be. And the way you do that is by looking at your current clients and then developing out who your prospects should be based on your best current clients. So we’ve put together a sweet spot client filter, say that five times fast, that I would love for you to take advantage of and for you to use inside your shop to figure out exactly who you should be targeting for new business.

 
  To get access to that free tool, all you need to do is text AMI for Agency Management Institute, as you might imagine. AMI, text that to 38470. Again, text AMI to 38470, and we will get the sweet spot client filter out to you right away. Thanks again for listening. If I can be helpful, you can find me as always at [email protected]. Otherwise, I will touch base with you next week with another great episode. Talk to you soon.

 
Speaker 1: That’s all for this episode of AMI’s Build A Better Agency, brought to you by Hubspot. Be sure to visit agencymanagementinstitute.com to learn more about our workshops, online courses, and other ways we serve small to mid size agencies. Don’t miss an episode as we help you build the agency you’ve always dreamed of owning.