The business of expertise with David C. Baker

Speaker 1:

Are you tired of feeling like a lonely light housekeeper as you run your agency? Welcome to the Agency Management Institute Community, where you’ll learn how to grow and scale your business, attract and retain the best talent, make more money, and keep more of what you make. The Build a Better Agency Podcast is now in our third year of sharing insights on how small to midsize agencies survive and thrive in today’s market. 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. Welcome to another episode of Build a Better Agency. If you have spent any time with me listening to the podcast before, been to any of our workshops or really done any homework at all about what Agency Management Institute believes, you have probably heard me say more than once that it is very difficult for an agency today to be a generalist, that in the marketplace as crowded as it is today, and as complicated and sophisticated as marketing is getting, that it’s very difficult for you to get on a potential client’s radar screen if you don’t differentiate yourself.

And I believe that one of the ways, one of the most important ways for any agency to differentiate themselves is to define who they are and who they’re not. And in many cases, that is about who we serve. So for some agencies, they may niche through a deliverable, so, “We’re an SEO agency,” or, “We’re a web dev shop,” or “We’re a PR shop.” Other agencies may differentiate themselves by understanding an audience. “We are the agency you come to when you want to reach millennials, or you want to reach men over 55, or Hispanics.” And then the third, and probably the most common way to niche is by industry. So, “We are subject matter experts when it comes to the pharma industry when it is targeted at women over 50.” Or, “We are the subject matter experts when it comes to highly considered over $50,000 expensive equipment for agriculture or construction.” Those sorts of things.

And I talk about this all the time and I do believe that this is the way that agencies need to be thinking about themselves, but I also understand the difficulty of it. I understand that it’s difficult to leave money on the table. I understand that it’s hard to turn business away. I also think it’s very difficult, once you decide you do want a niche, what do you do with the clients that you already have that don’t fit the niches that you’ve defined? So I’m not suggesting that this whole niching idea is easy or simple, or even that it happens quickly. But I am suggesting to you that if you want your agency to be robust and profitable for years to come, this is something you need to seriously consider.

It is very difficult to survive and be a generalist today. So that’s why I invited David Baker to be on the show. So many of you are familiar with David. He runs a company called ReCourses. He owned an agency for a few years back in the late ’80s, early ’90s. And since then, he has been a consultant working with design firms, agencies of all shapes and sizes, basically anyone who runs a consultancy side kind of the business. And David has written a great book called The Business of Expertise, and it’s really all about this idea of, how do you define the subject matter expertise that you can own? And he’s got some great qualifiers, some things that have to be true for you to know whether or not this is a viable niche for you to consider. And that’s what we’re going to focus a lot of our attention today in our conversation.

I also want to tell you that I think David produces one of the best newsletters that goes out to agency folks on the planet. So if you have not gone over to davidcbaker.com and signed up for his newsletter, I strongly recommend that you do that. But in the meantime, let’s dig into this conversation of how and why should agencies niche? And how do you know if the direction you’re headed is a healthy direction for your agency? So this is one of those conversations that I know could easily go on for three or four hours so I do not want to dilly or dally, let’s just jump right into it. So, David, welcome to the podcast.

David Baker:

Thank you, Drew. It’s just so great to be here. I listen to your podcast all the time, and maybe I don’t know if I’ll listen to this one or not, but I sure do enjoy your podcast and I’m really grateful for the invitation to be a part of it.

Drew McLellan:

Isn’t that funny? I’m like that too. When I’ve been a guest on one, it’s harder for me to listen to, even if it’s one of my favorites. So I understand.

David Baker:

I hate my own voice. That’s part of it. Don’t we all hate our own voice? I just can’t stand to listen to myself.

Drew McLellan:

Well, I don’t know. I think that’s true of everybody, but I don’t sound like me to me. I’m sure I sound like me to everybody else, but to me, it’s like, “That’s not me.”

David Baker:

Right.

Drew McLellan:

Yeah, yeah. So you have been in the agency advice game for a long time. Tell everybody how you came to have that expertise and to decide to share that expertise.

David Baker:

Well, I owned my own firm for six years, and I’m not advising other firms because my firm was amazing. It was not amazing in any sense. It was a very typical, very average firm.

Drew McLellan:

And when was that, David?

David Baker:

So that was ’88 to ’94. So it’s been a long time, yeah. So 24 and a half years. And then I got into this through a strange set of circumstances, actually through a connection with Cam Foote who runs Creative Business, still a publication that’s out there. And he asked if I would be interested in doing some things for him. And the deal was I’d give him 10% of everything I made. And I didn’t think would go anywhere, but very quickly it took off so that it really took over my entire life. And so I’ve been doing this full-time now for 24 and a half, almost 25 years.

Drew McLellan:

So I’m curious, how do you think, or what do you think, so you think back to the early days of your advising 25 years ago, what was the big concern for agency owners back then? And is it the same or different from what you see today?

David Baker:

It’s very different, I think. Not only is the world that we’re serving so different, but the types of people that are running firms, very different. Back then it was, “Should I have a website?” This was before the world had been Googlized, and so all of our competition was basically local. So we hated everybody in our market and we were trying to win those battles. And that’s probably the biggest thing that’s changed, in that now the world is really our oyster, and thinking through positioning and lead generation seems to be really top of mind for people nowadays.

Drew McLellan:

So if you could wave your magic wand and you could change agency owners so that they stopped making what you believe is the most egregious mistake that they make as business owners, what mistake would you erase?

David Baker:

Oh, wow. Now, you’re catching me off guard here. Right? I think probably this is the one that comes up so much, and it’s this notion that they have to grow to be substantial in their marketplace. I wish I could wave that magic wand and help them get to the point where they understand exactly the implications of size, as in, “What does it mean for me, my role as a five-person or a 40-person firm?” Accept that and embrace it.

Drew McLellan:

And decide which one they want, right? Because I think you’re right. I think a lot of times they add more bodies and then they don’t love their job as much anymore.

David Baker:

They don’t. And then they find themselves feeding this machine. A corollary to this is every time they get more opportunity adding capacity so that then it just increases that pressure. “Now we’ve got to keep more bodies fed.” And that the father of all this compromise is financial pressure, it feels to me, and growth drives that because they’ve created this bigger, fatter machine. So that, I don’t know, I might have to go back and answer that question multiple ways, but at the moment, that’s the one that really hits me.

Drew McLellan:

In our work, I see the financials of all the agencies that are inside one of our networks, and I got to tell you, it’s not about size. And in fact, some of the big ones would kill for the profitability percentage and the net profit dollar-wise of some of the smaller ones.

David Baker:

Right, exactly. And if you don’t mind, I don’t want to take us too much off track, but I think one of the most amazing things about the work that you do and the work that I get to do as well is that we get to draw correlations between like systems and processes and positioning and financial performance. So we’re actually seeing, we’re not just reading something on a website and making assumptions. We’re actually seeing the implications of the advice. So you give an agency advice and you know whether it works or not. I think that’s a really rare window into how this works.

Drew McLellan:

Yeah. Well, I think it’s one of the privileges of the work that we do, is that we get to see the net result of when we’ve given good counsel and when we’ve coached someone to the desired outcome, we get to see the results of that, which is a more profitable agency, a more relaxed, happier owner getting to do the things that they love to do. And I think you’re right. I think for a lot of agency owners, they still equate seats on the bus with success. And I think they really have to rethink that, especially in today’s world where a lot of agencies are really moving to a hybrid model where they’re having to accept the fact that they’re not going to be bigger in terms of head count, because they’ve gotten smarter in terms of how they meet some of those client needs and demands with partners and contract labor and things that aren’t a full-time equivalent.

David Baker:

Right. And as clients take over more of the implementation away from the agencies themselves, there isn’t as a bigger need for a huge staff. And so they’re moving upstream, which means they don’t need as much people. And in another world, that might be viewed as a negative, but it’s really not a negative at all. I find it interesting, you go to a conference and you start talking to somebody, or you can overhear two agency principals talking to each other. And one of the questions that inevitably comes up is, “Where are you?” Of course, that’s easy to answer. And then, “Well, how many people do you have?” And then based on how they answer that question, they start to listen differently. If it’s like a 50-person firm, they listen more intently. If it’s a five-person firm, they’re not quite as interested. And that’s sad to me because some of the smaller firms are the most well-run most profitable firms as you said.

Drew McLellan:

Absolutely. I think a lot of this then leads right into the conversation, which is the crux of your book, which is this idea of establishing a subject matter expertise and owning a positioning for your agency. And so I want you to talk a little bit about the core premise of why that matters to agencies. And if you will, comment on, do you think it’s more or less important today?

David Baker:

It’s clearly more important than it ever has been. And I see that continuing to move in that direction. So the point of the work that I’m trying to cover in this book is that we need to craft a positioning so that we are less interchangeable in the marketplace. If we misunderstand the role of great positioning and lead generation though and we think that it’s about staying busy, then we are not going to listen in the same way. Really great positioning, great lead generation is about delivering a price premium for your work. And we can’t turn this into a price premium unless the client doesn’t have many options. They need to view us as one of two or three or 10 options, which justifies. And then it’s not just the positioning, but there’s also personality and process and all of that stuff. So it’s really about turning a position in the marketplace that’s very difficult to find elsewhere into a price premium.

Drew McLellan:

So really, I think you’re right. I think the commoditization of the business, the, “I have a Mac, I have Adobe tools, I’m an agency.” I mean, that, unfortunately there’s no barrier to entry to our business, and so I think you have to demonstrate how you’re different than someone else. And what I find interesting about this, and I’m curious about your take is, this is the same stuff agencies preach to their clients every day, all day, right? We teach branding and positioning. I mean, these are not new concepts. Why do you think it’s so difficult for agencies to wrap their… I think intellectually they get it. I think it’s the actual deciding to do it and then actually living the positioning that’s so difficult. Why do you think that is?

David Baker:

Part of it is that they’re inside their own jars and they can’t read their own labels, but it’s much bigger than that, because they could just work for each other, right? They could hire each other to do their own positioning. But I think it mainly stems from one thing, and that’s that as they walk down this path of positioning and try to narrow their influence in the marketplace, the biggest struggle is that they’re trying to draw a circle around as many things that they’ve done in the past as possible. So they’re afraid of leaving behind some of the hard-won experience that they have and it doesn’t make sense to them to craft a new positioning that doesn’t include as much of that as possible.

And so you end up with this horse designed by a committee looking thing where you just step back from it and say, “Wait a second, that doesn’t really make sense.” I mean, it makes sense if we’re trying to include as much of your past experience, but to somebody that’s never worked with you, they’re going to hear your positioning and it doesn’t make sense at all. Or they’re just simply… I read this website the other day from an agency, it said, “We’re a focused firm. We focus on B2B and B2C.”

Drew McLellan:

Wow. What’s left? Right.

David Baker:

I think, yeah, that pretty much covers all of it. Yeah, so it’s just this pressure to not waste any of their previous experience. I think that’s the biggest thing.

Drew McLellan:

Well, and I think too, I think it’s difficult because new business is challenging, and so it’s scary to leave money on the table. So I think of an agency, they’ll say, “Well, our expertise is in healthcare.” And I say, “Well, every agency has some expertise in healthcare. What part of healthcare?” “No, healthcare.” “No. Is it rural hospitals? Is it pharma for women over 50? Is it medical devices? What is it?” So I also think they struggle with narrowing far enough that it’s actually a differentiator.

David Baker:

Right, exactly. Some of the positioning choices we could have made in the past, like healthcare, like financial services, like tech, they’re just entering a room and now we see there are 13 doors here. We have to pick another door. Absolutely, yeah.

Drew McLellan:

And how far do you think, how narrow does the position need to be for it to be effective, do you think?

David Baker:

That was one of the pieces of research that I really enjoyed conducting for the book. So if we envision this firm that’s not differentiated at this point and let’s say they’re on the far right here and they’re walking to the left. And as they walk to the left, they’re making more and more choices about where they’re going to focus. And at some point, they’re watching this light and the light turns green. The light turns green at a certain point and they’re walking, they keep walking, they keep walking, and then the light turns red again. So there’s this beginning and end, and somewhere in there is the right choice for them.

It’s a little bit too simplistic, but it starts by saying, “Okay, we need to narrow this down until we have no more than 200 competitors and no more than about 10,000 prospects.” So that’s when the lights turn green, we keep walking, we keep walking. And ideally, if we have enough courage, we are going to keep walking when there are fewer than 10 competitors or fewer than 2,000 prospects, qualified prospects, then the red light comes on again.

Now, sometimes those two things do not occur at the same time. I was talking about this the other day with somebody who wants to specialize in industrial marketing for industrials, and there are hundreds of thousands of potential clients out there and very few firms that specialize in it. What’s the message? The message is that these industrial companies don’t care that much about working with a firm that specializes in it. So here we have fewer competitors and many more prospects. So there’s different ways to interpret all that, but in general, we want to have 10 to 200 competitors, 2,000 to 10,000 prospects.

Drew McLellan:

And how do you recommend, or how do you work with an agency to get that data? So is that subjective? Is that something they can actually quantify with research or in some other way, or am I really ballparking?

David Baker:

In some ways you’re ballparking that it’s easier to answer the question about how many competitors there are because you’re crafting a positioning for yourself that isn’t emerging from thin air. You’re already in that space, you know who [crosstalk 00:17:26]. I can sometimes answer that question, and of course, Google’s our friend. On the prospect side, that does involve some significant research, and we have to narrow that down too. You and I talk a lot about what makes for a qualified prospect. They have to be willing to spend this kind of money, they have to have used a firm like yours before, on and on and on. So that’s a little bit touchier.

We can go a little bit by instinct, but then I usually start with Data.com where I make all kinds of choices there and see how many prospects we have. I was doing this last week with a firm and there were 7,200 and some, so a perfect number. But it does require some research, for sure.

Drew McLellan:

As you’re leading an agency through this and you say… Because I am imagining my listeners when you said you stop when there’s about 2,000 prospects. And to them, that probably seems like such a small number. So I think part of it is I think agency owners, it’s a little like going to dinner with somebody at an all-you-can eat buffet and they load up their plate like they’re going to eat for seven days. Right? I mean, I think sometimes when it comes to new business, our eyes are a lot bigger than our stomachs. And agency owners don’t really do the math to understand you don’t need a lot of new clients. You need a few right-sized, good fit clients. So how do you talk an agency owner through the thought process of, “2,000 prospects is plenty for you?”

David Baker:

We can do a little bit of math, and then we have to do a little bit of psychology, and maybe added with some bourbon, I don’t know. But the math is that in professional services, and particularly in our space and the marketing space, you can safely assume that you can lock up 1% of the marketplace. So 1% of 2,000 is 20, and that is a big enough client base. So if you do everything right, so that’s the math that helps you relax just a little bit. The psychology comes in, and I’m not a psychologist. Goodness, I’ve worn out three of my own just trying to become a little bit more mentally healthy. And those of you listening here, hold your comments to yourself on that one.

Drew McLellan:

Right. So it’s good that this is a monologue, not a dialogue. Right?

David Baker:

Yeah. We operate from such a mindset of scarcity we’re terrified that we’re not going to have enough opportunity. That’s why… I’m sure you’ve seen the same thing. If I switch gears just a little bit; so let’s say we have a complete proposal where there’s no question about scope, the only thing missing is a price. And I make three copies of that, print it out three times and I put the three different stacks in front of three different people. One’s a principal, one is account person, one is an internal project manager.

The principal will invariably price that the lowest because they’re thinking of payroll. They’re thinking of, “Oh, my God, I’ve got to keep this train running.” And I don’t know exactly when this flips, but somehow the marketplace, not me, not you, the marketplace has to give them the confidence. And when they’re in the early days of positioning, they don’t yet have that confidence. And so it is terrifying. It’s very hard for them to make a bold enough choice.

Drew McLellan:

Right. Well, and typically, in a lot of agencies, they’re so far away from the work that they don’t really know anymore how much it takes to get it done. And to your point, they’re thinking, “Well, I’d rather have $5 in my pocket than no dollars,” even though it may take $8 to do the work.

David Baker:

Right. And they sometimes have overhired so they’re not in a position where they’re consistently turning work away. They’re accepting almost all the work that comes to them. Yeah, exactly right. So they’re thinking, “Okay, I know I should price this at $100, but I’m going to price it at 80 because this way I won’t have to lay people off.” And it just feeds itself. And I want to break that cycle. I want people to be running firms where they’re consistently turning work down because it’s not a great fit and not finding ways to say yes.

Drew McLellan:

One of the things that I talk about is if about a third of the time, the clients or the prospects don’t say no because of price, it means that your price is too low. I mean, if everybody says yes, then what that means is you’re leaving money on the table.

David Baker:

Yeah. It’s not a good sign, right? We want to interpret it. It’s a bad sign. Or if you’ve mentioned a price to a client right in a meeting and they immediately accepted and it’s like, “Oh, darn, man, that was too low.” Then yeah, your pricing should always terrify you. And it’s not terrify, maybe just make you nervous is probably a better way to say it. And as soon as you get comfortable with your pricing, you need to raise it a little bit more on the back of brilliant positioning and great research and all that stuff.

Drew McLellan:

Well, and I think when you believe that you are charging a premium price, I think there is a psychology that means that it reminds us that we need to be doing really good work. I think it’s easy to phone it in for clients when you feel like they’re getting a bargain.

David Baker:

There’s just something that allows you to sleep so well at night when you’re treating the client well enough so that it’s not a distraction. You’re not hiding poor positioning by over-servicing the client. So you’re treating them well enough so it’s not a distraction, and you are courageous and you’re coming up with concepts. It’s clear that you even care a little bit more than they do, and you have just done great work. And you don’t even care how the client responds all that much because you’re so confident in the work that you’re doing. That’s the kind of feeling that I want to replicate with agency owners out there.

Drew McLellan:

So if agencies are saying, “Okay, I get it, I need to lock into a position, I need to really define my subject matter expertise.” I know you have some rules, if you will, or some steps that they can take to evaluate their position. Can you walk us through a couple of those?

David Baker:

Sure. And some of those you could undertake beforehand. One of them, and probably the best one to start with is this number of competitors and number of prospects. The other one, and this is the one that’s a little bit harder to explain to me, but it just resonates so well in my head. And I just call it the “drop and give me 20.” So you pretend that you’re on the army training field and you do something wrong and the sergeant could say, “Drop and give me 20 pushups at the moment.” Or you’re on an athletic field and somebody says, “All right, run 10 laps.”

So the idea is that I’m on an airplane, I’m sitting next to somebody and I’m curious about what they do for a living because there’s this delay. And I ask them, “What do you do?” And it’s like, “Oh, that’s interesting.” You don’t know a lot about it, but you’re intelligent a fair bit, you’re well-read and so on. But in the ensuing conversation, you learn 20 things. That’s the “drop and give me 20.” You have 20 aha moments. And you’re intelligent and you’re pretty well-read, but you have 20 aha moments about their field that you learn immediately. They don’t have to go look them up. They know them off the top of their head.

Do you know those things about the positioning that you’re putting out there publicly? Where I pretend for a moment that I’m intelligent, that I know a fair bit about marketing, could I learn 20 things, could have 20 aha moments? So that’s really one of the best tests, I think, after you get through this count thing. Does that make sense?

Drew McLellan:

Yeah. So what you’re saying is that you are such a subject matter expert that you can just in casual conversation point out 20 truths, if you will, that are true of this industry or this product or service or whatever it is that your expertise is in, that would make somebody even in the industry go, “Oh. Either, “Oh, yes, you’re right,” or, “Oh, I hadn’t thought about it that way.”

David Baker:

Right, exactly. It’s such evidence that you really have been in this space so deeply that you’ve noticed some patterns of other people that are not as differentiated as you would not have noticed. So exactly right, yeah.

Drew McLellan:

Well, and you know what I love about that is now you’ve got 20 cornerstone pieces of thought leadership that you can do podcasts around, or write articles around, or chapters of a book or whatever. So again, as agency owners, try to figure out, how do I demonstrate our expertise in this Googlized world where people are trying to find me in lots of ways, that to your point early in our careers, didn’t exist? How do I demonstrate that subject matter expertise? How do I speak at conferences? How do I get invited on panels? And this 20, this list of 20, every one of those is a nugget that you could merchandise in a lot of different ways to really convince the marketplace that you know what you’re talking about.

David Baker:

Yeah. And principals… I know that other folks are listening to this as well, but principals say the same, very smart things so many times that they don’t necessarily recognize their own brilliance. And so you almost have to have a staff member following this person around. They’re not going to sound all that brilliant when they’re back at the agency, but when they’re in front of a client or in front of a prospect, they’re going to make these really interesting, insightful observations. Those are the things you write down, when you see the prospect or the client nod their head and have own aha moment. And then those, like you said, get turned into the first bits of IP, because folks struggle. If they’re not used to writing or speaking, then they’re not uncomfortable so much with that process. They’re just not sure what to say. They’re not sure that people will believe that it’s insightful enough to listen. And I think they lack confidence in an unfair way. I find those folks barely interesting listening to them.

Drew McLellan:

Well, and I think you’re right. I think they almost take it for granted. I’ve said this for 15 years so it doesn’t seem that brilliant to me anymore. I’ve rattled it off. And it’s an interesting comment that the owners don’t recognize it. I bet you if you went back and said, “Tell me 10 stories your boss tells in every client meeting or new business pitch,” or whatever, the staff could probably rattle them off faster than the owner.

David Baker:

And roll their eyes too where they’re saying them.

Drew McLellan:

Absolutely, right. Absolutely. So after the drop… So again, this is my first litmus test. Do I have enough expertise that I can legitimately claim this as our area of expertise? So the “drop and give me 20” is the first one. What’s the next one?

David Baker:

So another one would be, is somebody going to travel? And I used to say, “Well, experts travel.” But the truth is that often the client nor the agency has to travel, but is somebody willing to reach geographically to work with you? Another way to look at this is to plot out all of your best clients on a map. Are 80% of them within 50 miles of your firm? That’s probably a sign that you are not as well positioned as you could be. It might not be. It could mean that you’re in a huge metropolitan area, you’re in Chicago or something, or New York and nobody needs to necessarily reach outside of that. But generally for firms that I work with, I want there to be evidence that people are reaching geographically to work with them. So that’s another one that you would use to test your positioning.

Drew McLellan:

I often am having conversations with agency owners and they’ll tell me how they want to position themselves. And I say, “Well, but there are probably three agencies in their local market that say that exact same thing. So why would they choose to work? Why would they make work more difficult? Why would they choose to work with somebody who is across the country when they literally could work with somebody who’s across town?”

David Baker:

Right, yeah. And in some ways that’s true. Right? But I think that as an industry, we’ve gotten more comfortable with this notion of we’re… And well, plus, what are we going to do if this firm is in, say, Lincoln, Nebraska or some small town in Montana or something where there are not sufficient clients of any kind, much less ones that are willing to pay a price premium? So [crosstalk 00:29:39]-

Drew McLellan:

Right? So again, you have to have enough expertise that somebody goes,, “No one local will do.” Even though they may say healthcare, but this agency that is in the other part of the country understands medical devices for cardiac procedures, “Okay, I’m happy to hop on a plane or hop on a Zoom call, or do whatever, or pay travel for them to come to me because their depth of expertise supersedes the value of local.”

David Baker:

Right, exactly. Right, right.

Drew McLellan:

So I want to dig into, I know you’ve got a couple more and I want to dig into them, but first let’s take a quick break.

I wanted to take just a quick second and remind you about one of the core offerings of Agency Management Institute, and that is our peer networks. So we offer them both for agency owners, and also what we call key executives. So if you’re a traction follower, these would be for your integrators. These are your right-hand people who help you run the business day in and day out.

So from the owner’s perspective, imagine a vestige group or an EO group, only everyone around the table owns an agency. And these folks become like your board of advisors. They become trusted friends that you learn a lot about their business and they learn a lot about yours. So not only do you learn from us, the facilitators, but you’re constantly learning from your peer group as well. And the same thing happens in the key executive groups. We bring them together and we help them learn how to help you bring your vision to life as an agency owner. If you want to check out either of these peer groups, you can go over to the AMI website and look under the ‘Networks’ tab. And there you will find information on both our live and our virtual agency owner peer groups, and also our key executive group. Check it out, and if you’re interested, let us know. We’re happy to have a conversation. Okay, let’s get back to the episode.

All right. We are back with David Baker and we are talking about how agencies can litmus test a position that they think that they want to establish in the marketplace. And we’ve talked before the break about the “drop and give me 20.” And we talked about the “will someone travel” litmus test. David, give us another one to run our flag up the flagpole.

David Baker:

Another one, and this one, I don’t mean it to sound cruel at all, but the more positioned you are, the more some of your earliest employees may not be a good fit. And I’m not suggesting that would be cruel here. There is some sort of a social contract when you hire somebody and then pull the rug out from under them and change the rules. But you’re going to find that there’s a smaller universe of capable employees who can work for you.

And usually, this must include some element in that employee’s past. They have to have had some experience in wherever you’re focusing, whether it’s on the client side or whether it’s some vertical that you’re addressing, or whether it’s some horizontal or some demographic or something like that. You’ll find that employees or prospective employees are as interchangeable as they were before. You start looking for people differently.

Drew McLellan:

I want to take a tangent off of that for a second. So let’s say that I am moving to a positioning, and you’re right, that some of my employees are better generalists than they are specialists. What are you seeing agencies do to give those employees the opportunity to develop their expertise? I think one of the most lovely but often most expensive traits of agency owners is that they’re very loyal to their staff. And so I see them sometimes making choices based on, “Well, but if we do that, Jim and Bob won’t fit anymore.” Or, “You know what, if we go in that direction, I’m not sure what we would do with Mary anymore.”

And sometimes, quite honestly, I see them making choices based on what’s best for that employee rather than what’s best for the agency. So assuming that I know I have to position myself, that I have to narrow the focus, and I’ve got a couple people who, to your point, maybe aren’t as specialized or have the expertise that they need, what are you seeing agencies do to give those employees the opportunity to better themselves to keep adding value inside the agency?

David Baker:

They’re not doing much. I wish they were doing more, but for some reason, I’ve never been able to figure this out. Maybe you have and I can learn something here, but we don’t have a training culture in our firms. Maybe it’s because there aren’t enough good opportunities, I don’t know. I know that you provide all kinds of that sort of training, but we don’t value it to the point where… We don’t pay for it, we don’t give them the time off. And maybe we just haven’t bothered to look.

It comes in part because there’s so little actual training for this field. You just fall into this field. You’re a failed something and then you discovered this field and then you thrive, but you didn’t get training for this. So it’s a little bit, I guess, counterintuitive. But we’re not very good at bringing people along. But you bring up such an interesting point about to what degree we should open up this decision we’re going to make about positioning based on the employee base we have. I do find that it’s harder for younger firms to be well-positioned because usually those folks, the folks working there are still in a stage in their career where they don’t really know what they want to do and they want to explore all kinds of things. The idea of narrowing that down for them is almost like death.

The other thing that happens is that they open up the decision-making too broadly. So we need to socialize this decision, but the principal needs to make the decision with input from other people. It cannot be a democratic decision or it will get watered down.

Drew McLellan:

Or never get, right?

David Baker:

Or never get made, even worse, right.

Drew McLellan:

So one of the principles that I find agency owners really struggle with is at what level of decision is this? And so one of the things I teach my agency owners is there are three levels of decisions. One is a, “Hey, everybody, I’m going to tell you about this decision we get to make and we’re all going to vote, and whatever we all decide, that’s what we’re going to do.” So that’s a level three decision. A level two is, “Hey, subset of my employees,” typically a leadership team or whatever it is, “We have a decision to make, I would like your input and then I’m going to decide.” And then level one decision is, “Hey, everybody, I made a decision.

And I find, and I’m curious if you see this too, I find that agency owners are incredibly reticent to make level one decisions, that they believe or want everything to be democratic. Do you see that too?

David Baker:

I do see it. And I think part of it may be, this is a guess on my part, but they have worked so hard to get themselves out of doing certain things by bringing key employees in, and the idea of an employee and moving backwards down that path and then having to take over something that they worked for years to get rid of. So they want to build consensus with folks. And I think it can be a mistake. Now, obviously, some principals are much better at these decisions than others, but this is a decision that needs to be socialized, but it needs to be made at the highest level, for sure.

Drew McLellan:

Yeah. And back to your comment about training, I think agencies, A, struggled to budget for proper training. B, they don’t even really have internal training programs, many of them, that allow those who already know something to teach those who need to learn it. I think, and part of it is I think everybody believes that they’re super busy and they can’t make the time for it. But I think you’re right, I think probably because we all, many of us fell into these career, as you said, because something else didn’t work out or because we were a psych major or English lit major, whatever it is. I think we’re self-taught. And so I think there’s also an attitude inside agencies that everybody should be self-taught and professional development is an individual responsibility.

David Baker:

It’s what people who aren’t very smart have to rely on instead of picking it up in themselves. But, and as long as the turnover is for the right reasons, I find that the freshest, smartest firms are the ones where people are changing jobs frequently, as long as it’s for the right reasons. The firms that seem to be dying intellectually are the ones that have employees who’ve been there 13, 18 years and there’s not constant fresh blood. Now, again, it’s really important that it’s for the right reasons, that they’re not leaving just because of the culture or something, but there’s this constant stream of new people that we can learn from. And it’s a very healthy thing, as long as it’s for the right reasons.

Drew McLellan:

One of the things I wanted to ask you before we get deeper into the, how do you define the niche, is I think agencies struggle with what a niche looks like. So certainly probably the most common niche is a industry or a subject matter expert inside an industry niche. Do you believe that an agency could niche based on a deliverable like an SEO agency? So what they do is specialize, but who they do it for is super broad, or do you think that it always has to be inside an industry that the expertise is defined?

David Baker:

I don’t think it needs to be inside the industry. That’s usually the last choice that an agency wants to make because it seems most like death to them to be tied to one. Yeah, exactly. They’re afraid of an economic downturn, they’re afraid of not having a sufficient conflict strategy when there’s conflict of interest meet. And so for all those reasons, many firms want to have something besides vertical and so they go with the horizontal. That can usually be defined as some sort of a service offering, or it could be aiming at a particular demographic.

The big downside of that… There are all kinds of upsides to that, but the big downside is finding your clients in a compelling way. That’s the struggle. So if let’s say you want to work with clients who are growing really quickly, well, how do you find those? Or ones who need to go public in the next two years and they need to create some story out in the tech world, how do you find those clients? As long as you can find those clients, then a horizontal positioning can work really well.

Drew McLellan:

What about audience positioning? Like, “We are millennial experts. We know how to reach healthcare buyers, we know…” Whatever the audience is. Is that a viable option?

David Baker:

It is a viable option. The marketplace never quite puts their stamp of approval on it like we think they should. We’re sitting here and it’s like, “Oh, this makes perfect sense. Let’s market to millennials,” or, “Let’s market to the Hispanic market,” or something like that. And in the end, most of the clients out there that might work with us are choosing a vertically focused agency, so then we’re stuck right back where we are. You’ll find, I think it’s 85% of agencies are focused vertically. And the main reason is only because they struggled to find their client. Their prospects don’t find that message all that super compelling.

Drew McLellan:

Right. So, all right, so we had the “drop and give me 20,” we had the “will they travel.” and then refresh my memory, what was the third one we were talking about?

David Baker:

Well, and then we also have the whole count, like 10 to 200 and so on. And then how irreplaceable are employees and so on? And the other one-

Drew McLellan:

That’s right. That was right. It was, your employees are harder to have generalists on the staff.

David Baker:

Right. And then the final one is really, can you buy a list? But I don’t want people to hear that and say, “Oh, I don’t want to buy a list,” because the point is not, “Will you buy a list?” The idea is just test this positioning by saying, “Can I buy a list?” Because if you can’t buy a list of your target market, then it probably means that they don’t share enough common pain that somebody has gone to the trouble to create a list and take advantage of that pain. So because you can’t buy a list, that means there’s no conferences that hit them, there’s no blog, there’s no particular way to focus in terms of service offerings. So that’s a really [crosstalk 00:42:15]-

Drew McLellan:

And there’s no trade pub, there’s no trade association.

David Baker:

Right, exactly. So if we’re going to market to millennials, is there a conference about marketing to millennials? Yes, there is, obviously. So that’s the final test to wrap up this looking at your own positioning to see if it’s viable. Can you buy a list? And it’s not about whether you will buy a list. It’s, can you buy list?

Drew McLellan:

So let’s assume that an agency has gone through all of these steps and they have landed on what they believe is a positioning that they can defend. They’ve got some expertise in it inside their shop. How does one go from deciding, “this is my position,” to actually being a viable choice as an agency in that position? In other words, how do you go from choosing to do it to actually being it?

David Baker:

Well, that might be six months or it might be six years. Right? And to me, I think that’s where the whole lead generation thing comes into play. And that’s a part of our world that has changed so differently from the past. Now we can reach higher than we ever could. We probably need to simplify our plan, but most important, we need to be disciplined. You’ve probably been asked to build a lead generation plan for a firm that wasn’t positioned. How in the world do you do that? It’s just such a painful exercise. But once you’ve got the positioning done, then building a lead generation plan is a pretty easy thing to do.

Drew McLellan:

Again, one of the things I just find fascinating is that agencies, this is what we do for clients every day, all day. And we know what makes it easier, we know what makes it more effective. And so I always find it fascinating when agencies resist the very thing that they prescribe to their clients.

David Baker:

Yeah. They come back from a client meeting and they’re just whining to themselves about, “Oh, why doesn’t the client just make a courageous decision?” They’re saying that not realizing they’re struggling. Or, “Why does the client want to mix all these different seven elements into the messaging? Let’s just make it simple.” And then of course, they have to look at each other and say, “Ah, we’re kind of doing the same thing here.”

Drew McLellan:

Right. I was recording a podcast with an agency search firm, and they were saying that one of the biggest mistakes that we make in our RFP responses and in our pitch decks is that we try and shove so much messaging into… Five pounds of message in a one pound bag. And I find it fascinating because you’re right, we come back from every meeting complaining that clients are doing the exact same thing. So it’s, how do you help agencies look in the mirror and see themselves more accurately? How does an agency learn how to recognize their own foibles?

David Baker:

Well, sometimes I wonder if somebody, an outsider like me can even make much progress in that regard. It seems to me like most of the reliable messaging they’re going to get in that regard would come from some of their trusted employees who are having courageous decisions and speaking without triggering any sort of defensive mechanism on their part. But it’s also, I guess, a little bit about being self-aware or just having research that you can lay out on the table and just show them. But sometimes, they just have to make a leap, and they won’t know for sure that they’ve made the right decision until six months or 16 months from now.

I, most of the time, I’m not effective, just honestly. When I look at the number of firms I’ve worked with and the number of firms that are out there, obviously, most firms don’t feel like I’m going to be all that helpful in that regard. I just try to be honest with them, try to be helpful, try to not trigger defensive mechanisms and help them see what their desired future state could be. What is it that they’re struggling with? They’re not generating the money that they want, they’re struggling finding clients that they really love working for. So if we help focus on that and say, “Maybe this is the way to solve that,” that continually gives them that motivation to keep looking at it.

Drew McLellan:

Yeah, it’s a challenge, I think. And to your point earlier, I think we all struggle with our own self-awareness and being a better version of ourselves, and so it makes sense that we have [crosstalk 00:46:46]-

David Baker:

Oh, I don’t. I’m very, very self-aware, I’m very self-aware.

Drew McLellan:

And perfect in every way. Right?

David Baker:

I’m hoping my wife doesn’t listen to this particular episode.

Drew McLellan:

You and Mary Poppins, right?

David Baker:

Yeah, right.

Drew McLellan:

You’re perfect in every way. What trends are you watching right now? What are you seeing on the horizon for agencies that they need to be mindful of as we march into… It feels like every time we turn around, it’s a new season for agencies and for business. And I don’t know about you, but the rate of change that happens in our industry today is so much faster than when I first got into the business. So it seems like that there is no resting anymore, that you’re constantly reinventing. And so, as you look out into the future on behalf of the agencies that you serve, what do you see out there?

David Baker:

Such a great question it makes me want to be at a bar and just you and I chatting for a couple of hours about this.

Drew McLellan:

We should have liquor in front of us.

David Baker:

We probably should, yeah. It’s a little early on my side, but all right. So I’ll just rapid-fire some of these. I don’t have a list in front of me, so hopefully I’ll come up with some that makes sense. One is that we are going to lose entire industries. Like I think SEO world, I doubt there’s going to be any SEO firms out there in four or five years. That’s one. Another is the rise of staff augmentation as a particular corollary in this world. I’m seeing so many of my clients who are dabbling in staff augmentation and making tons of money at it, but not knowing exactly how to do it. It doesn’t mix well with traditional staffing models. You can’t take your employees and make them staff aug people. They’ll quickly resent it and you’ll lose that objectivity that the client wants. So that’s another one.

Another is that we are constantly losing at an even rapid, more rapid pace, as you say, we’re losing opportunity for implementation. Look at how few firms can actually make money building websites anymore. That kind of thing is just really quickly leaving us. Another trend I’m seeing, and this one… None of those trends disturb me. This one disturbs me. And it’s that everybody seems to be calling themselves a UX firm and it’s almost like the new branding. And it’s going to become meaningless because we’re misusing this word. You shouldn’t be calling yourself a UX firm unless you have people on staff who have had serious academic training in UX, and even at a PhD level, maybe you’re a 30-person firm, and one of your people has a PhD in UX work. So that’s the next, I think, phrase that’s going to get watered down. I guess I could go on and on. You’ve poked me here, but there’s a lot to talk about there.

Drew McLellan:

I don’t disagree with anything that you’re saying. And one of the things I find interesting is for some agency owners, all of this change and turmoil and chaos, which also, by the way, is what leads to opportunity, for some agency owners, that’s exciting. And for other agency owners, that’s exhausting. So for an agency owner that finds all of this rapid fire change that is our new reality, is there a salve for that? Is there a cure for that or?

I can remember really early in my career, I was probably in my 20s and I was sitting with this age old agents, this grizzled old agency veteran who was probably 40 and I thought he was ancient. And he said to me, “You know what, Drew, this is a young man’s game.” And I can remember looking at him thinking, “Oh, my God, I’m going to have to find a new job by the time I’m 40.” And I think he was wrong. I don’t think it’s about age, but I do think it’s about energy. And I think it’s about this, some people are wired to keep changing and growing and evolving, and other people want something steadier.

For the agency owners that are looking at our industry and saying, “I miss the old days where we would spend four weeks concepting a TV spot and three weeks on location,” and for the agency owners that long for the good old days, is there a cure for that? Or is it really that at a certain point in time, you got to tap out?

David Baker:

Wow. I was talking with Blair Enns about this. We were just ruminating in our personal lives like what drives us. And for me, it’s the constant opportunity to learn. So if you love learning, then the rapid pace of change will not be terrifying to you. And I don’t see many people wanting to tap out and say, “Okay, I’m done with this.” I think if there is a downturn economically, people are going to start to feel that way. Because now, it’s okay to have to learn quickly when there’s lots of opportunity, but when you’re scratching for opportunity, you all of a sudden, the learning is not at the top of your list. It’s more of a distraction for you.

I think it’s a fantastic time to be alive. I absolutely love the agency world that we’re in right now. I think there’s a little bit of a frailty and that just underneath the surface there’s a little bit of rot and some of the firms are going to disappear quickly if the economy turns. But in general, most firms are making really good decisions, better decisions than they ever have. The cultures are better. Their financial performance, it’s maybe average, but they know more what they’re doing even if they aren’t making as courageous of choices.

I love the fact, too, that there’s less doing than there used to be and a lot more thinking, which means that it’s not as much a young person’s business as it used to be, because the older you get, the smarter you can be, as long you’re open to learning from your world.

Drew McLellan:

Yeah. You know what? I think that’s a great way to wrap this conversation, is that I think you’re right. I think just like we did in the last downturn, we will see the marginalized agencies drop away. But I think there’s a lot of good agencies out there doing really good, smart work.

David Baker:

Absolutely.

Drew McLellan:

And I think as they continue to grow and learn, they become more and more valuable to their clients, which to your point from the very beginning of this conversation is how you charge a premium price and how you build the business that serves your life goals, which is really why anybody should be an entrepreneur.

David Baker:

Yep, absolutely. Aren’t we in such a great place just being able to see the inside of all these great people making great decisions? I’m just so grateful for the work I’ve got.

Drew McLellan:

Yeah, I always say to people, it is a great gig to serve people that you love doing work that you love. So, yeah, I’m like you, I feel very blessed that I get to do it every day. So we’re lucky, that’s for sure.

David Baker:

Thank you for having me on here, Drew. We could talk for hours, but I really appreciate the gracious invitation, and it’s been really fun to chat with you and just let people forget that they’re listening for a minute, I guess.

Drew McLellan:

Yeah, no, it’s been great. And like we said, before we hit the record button, next time we do this it’ll be over over a scotch or a bourbon and we’ll wax on for hours, I’m sure.

David Baker:

Thank you, Drew.

Drew McLellan:

Yeah, thanks so much. All right, guys. Hey, David, before we wrap up, if folks want to learn more about you, I know as I mentioned in the intro, I think you have one of the best newsletters for folks in our industry that’s out there. I think it’s always thoughtful, it’s always thought-provoking. If people want to be able to access that, they want to learn more about the work you do, I know you hold some workshops and do other things. What’s the best way for folks to learn more about the work you do and to reach out to you?

David Baker:

Well, thank you, Drew. It’s very kind of you. David C., so middle initial C, davidbaker.com. There’s a way to sign up for the free newsletter and join the other folks that get that. And it’d be a pleasure to have you on the list, for sure.

Drew McLellan:

What does the C stand for? Does anybody ever ask you?

David Baker:

They do, and it’s so pretentious. I hate it. It stands for Charles. But my name is a disaster for SEO purposes so I have to use a middle initial.

Drew McLellan:

Yeah, no, that makes sense. It’s David Baker. There’s probably one or two of you out there, right?

David Baker:

There are a lot of them, yes.

Drew McLellan:

Yeah. All right, guys. So I highly encourage you to head over to David’s website, sign up for his newsletter, check out what he’s doing. As I said to you in the intro, make sure you read his book if you’re really looking at how to future-proof your agency for the future. So take advantage of what he offers because there’s a lot there for you. So that wraps up another episode of Build a Better Agency. Thanks so much for listening. Hopefully today was thought-provoking. As always, I’m trying to bring you guests that get you to shake up your thinking a little bit and see a wider perspective than your day-to-day work allows you to do. And I think we did that today. So I’ll be back next week with another guest. And in the meantime, you can always track me down at agencymanagementinstitute.com. Till then, I’ll talk to you next week.

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