Episode 295

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To put it mildly, 2020 was a storm none of us saw coming and it lasted for much longer than we expected. Business as usual went out the window and everyone shifted to survival and then re-building mode. Now that we’re moving into a post-pandemic world, let’s explore some of the emerging agency trends that are impacting agencies today and will continue to play a role for the next 12-18 months.

I’ve divided the trends into categories like money, clients, agency owners, employees and tactics that are selling and we’ll go through them all, not just looking at the trends but how you can take advantage of them.

We’ve seen changes in our relationships with clients and our teams. We’ve been inspired to create new products to serve our partners. We’ve learned a lot about what we can do when forced to rethink everything and now we can use the lessons to create a stronger future for ourselves and our agencies.

A big thank you to our podcast’s presenting sponsor, White Label IQ. They’re an amazing resource for agencies who want to outsource their design, dev, or PPC work at wholesale prices. Check out their special offer (10 free hours!) for podcast listeners here.

Agency Trends 2021

What You Will Learn in This Episode:

  • Agency Trends in 2021
  • How the pandemic actually helped many agencies find their footing financially
  • Why smaller agencies are being invited to punch above their weight
  • Location is suddenly irrelevant
  • Why RFPs have gone away for some clients
  • The need for pricing integrity
  • Understanding client-pressures post-pandemic
  • Struggles agency owners are facing
  • Pandemic-inspired pivots
  • Employee expectations that need to be addressed
  • New selling tactics
“Smaller agencies are being invited to punch above their weight. They’re getting shots at bigger brand clients than they normally would.” @DrewMcLellan Click To Tweet “From the client perspective, all of a sudden, location is absolutely irrelevant.” @DrewMcLellan Click To Tweet “Agencies are feeling like everything is kind of a rush job with uncertain outcomes.” @DrewMcLellan Click To Tweet “You’ve got to find a way to turn off that crisis-mode reaction and get back to a more thoughtful, planning, long-range vision kind of a role which is your role as the visionary of your agency.” @DrewMcLellan Click To Tweet “That panicked pivot has now evolved into a very purposeful reinvention.” @DrewMcLellan Click To Tweet “You need to be very precise in your language around what post-pandemic life looks like in your agency.” @DrewMcLellan Click To Tweet

Ways to contact Drew McLellan:

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About the Author: Drew McLellan

For 30+ years, Drew McLellan has been in the advertising industry. He started his career at Y&R, worked in boutique-sized agencies, and then started his own (which he still owns and runs) agency in 1995. Additionally, Drew owns and leads the Agency Management Institute, which advises hundreds of small to mid-sized agencies on how to grow their agency and its profitability through agency owner peer groups, consulting, coaching, workshops, and more.

  • Leading agency owner peer groups
  • Offering workshops for agency 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 over 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 several books, including Sell With Authority (2020) 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.”

Speaker 1:                    It doesn’t matter what kind of an agency you run. Traditional, digital, media buying, web dev, PR. Whatever your focus, you still need to run a profitable business. The Build a Better Agency podcast presented by White Label IQ will show you how to make more money and keep more of what you make. Let us help you build an agency that is sustainable, scalable. And if you want, down the road, sellable. Bringing his 25 plus years of experience as both an agency owner and agency consultant, please welcome your host Drew McClellan.

Drew McClellan:           Hey everybody. This is Drew McClellan. Welcome to another episode of Build a Better Agency. Thank you for coming back if you are a regular. And if this is new to you, I hope this one in particular is helpful.

So at AMI of course, as many of you know, we have these live peer groups. So I get together and hang out with agency owners for two days, once in the spring and once in the fall. So every spring, I give a presentation where I look at the trends that I think are going to impact agencies for the next coming year. So what I always do in the summer after I’ve shared all of that with my folks, my inner circle if you will, I like to do a podcast on it to share it with all of you. And that is this podcast.

So before we get into the trends and what I think they mean for all of us, just a few reminders. As you no doubt know, because I’ve been talking about it for a while, the Build a Better Agency Summit, which is a conference that I have built especially for small to mid-sized agencies is finally going to happen. So I was scheduled for May of 2020, and then the world imploded. And we’ve moved it a couple of times, but now I know for sure we are going to gather in person August 11th and 12th. And we are going to spend two days learning how to build and scale our agencies, how to make more money, how to keep more of the money you make. We’re going to talk about everything from biz dev, to imposter syndrome, to growing a leadership team, to succession, to selling your agency. We got it covered. So I’m excited to do it, and I’m kind of excited. A little nervous. I will admit, but kind of excited because really, we’re that very first agency conference that’s going live after the pandemic.

So it’s in Chicago, August 11th and 12th. We are requiring all attendees to either demonstrate that they’ve been vaccinated or show us a negative COVID test. So we know everybody’s going to be healthy and ready to engage. So I’m super excited about it. We do have some tickets left if you are interested. Head over to agencymanagementinstitute.com. And right in the upper left corner of the nav bar, you will see the BABA Summit, BABA Summit. Click on that. You can read more about the speakers and register.

This is not just an owner’s only event. You certainly can bring leaders. I don’t think I would bring entry-level people, but anybody on your leadership team would be a good fit. And we’re going to be doing a lot of round tables and things like that. So if you bring more than one person, you can kind of divide and conquer, and cover more content. So that’s the Build a Better Agency Summit.

Couple other things I want to put on your calendar. Every year we teach a couple AE boot camps. We teach the advanced AE BootCamp. That’s for folks in account service who’ve been doing it for four years or more. People always ask me how senior is too senior. Honestly, we’ve had people with 20 or 25 years of experience attend and walk away feeling like they learned a ton of new things. So I don’t think you can be too experienced for this content, but I’d say you have to have at least four or five years of experience to get the most out of it. That event is also in Chicago, August 17th and 18th.

And then we have the AE BootCamp for folks in account service less than four years. So it might be a project manager, an account coordinator, a junior AEE, or an AE, but somebody who has not been doing it as long. That event is September 14th and 15th again in Chicago. And you can register for those on the website.

All right, let’s get into the trends topic. So I want to start out with money. Because of course, that’s what we all are interested in. So from a money perspective, most agencies, keep in mind that I see the full financials of a couple hundred agencies. And then of course I have anecdotal conversations with lots of other agency owners in the Build A Better Agency Facebook group, and other places through email and all of that. So I feel very confident in saying to you most agencies that I interact with at some level actually ended 2020 in the black, and that’s before PPP funds.

So that’s not them claiming the PPP funds as income. And in fact, many agencies reported that they had their best year ever. So I had a lot of agencies that actually had a breakthrough year in 2020, despite the fact that for pretty much everybody, the second quarter was horrifying and abysmal. A few agencies that was not the case. But for the most part, everybody took it on the chin in the second quarter. But a lot of you did a lot of smart things very early on, and you recovered pretty quickly. And you were able to get back up on your feet in the third and fourth quarter. And because the second quarter was so frightening, all of you sort of took off the governor and we’re all about biz dev in 2020, starting in mid March on. So that effort really paid off in the third and fourth quarter and is paying off in the first quarter of this year as well.

So one of the things I want to remind you about is you don’t need a pandemic pushing you on your rear end to keep the biz dev machine going. You have seen when you consistently pay attention to business development, how good that is for you. So I don’t want you to take your foot off the gas, just because you don’t have a pandemic against your back.

So another money trend that happened in 2021 is most agencies started 2021 with a lot more cash than usual. So many of you spend down your cash towards the end of the year. You might give out bonuses, you might buy stuff to avoid taxation, whatever it is. But you kind of limp into the new year with not a lot of cash in the bank. And, your clients are typically in what I call holiday hibernation for the first two or three weeks of January, which means you don’t have a lot of cashflow coming in. Yes, the work you did in December you start making money and you start getting paid. But there’s sort of this dearth of revenue. But in 2021, because of the PPP funds for those of you in the U.S., you actually started with a big bag of cash. So I saw a lot of agencies investing much more than they normally would in the first quarter in people, in infrastructure. Build outs of buildings, things like that. So you all started in a pretty good cash position for 2021.

Now on the client side of things, there were some interesting trends that we’re seeing too. So one of the things that happened I would say in the back half of 2020, and it’s really happening right now in 2021. And I expect it to happen for at least another year, is that smaller agencies are being invited to kind of punch above their weight. They’re getting shots at bigger brand clients than normally they would have been invited to participate in. And I think there’s a couple of reasons for that. One, I think you’ve done a good job of being very visible over the past year. Two, I think a lot of the big box, the holding company agencies are kind of a hot mess right now. They suffered much greater losses because so much of their revenue is from the media side of things. They suffered much greater losses in 2020. So they really had to shuttle a lot of their people. And many of them are the walking wounded right now.

So smaller agencies looking good, looking healthy, winning business, having some confidence and swagger. While the large holding company agencies look like they are still licking their wounds. So brands are saying, “Okay. You know what, maybe I don’t want to take the risk of working with a big agency. Maybe I want to be a big fish in a smaller pond.” So many of you, and this is happening whether you are working with national brands, regional brands, or local brands, everybody is getting a shot at a slightly larger client base than they normally would have gotten. So that’s great news for everybody.

Another thing from the client perspective is all of a sudden, location is absolutely irrelevant. So for those of you that are not in a major ad market, and you always felt like you had to justify explaining why you didn’t live in London, or New York, or Sydney, Toronto, wherever a major market is in your country. All of a sudden, that really doesn’t matter. We have learned to connect obviously digitally on Zoom and all of that. But also, I think we’ve proven that good work comes out of every different place. So clients are all of a sudden less concerned about your proximity. And we saw that in the last couple of years of research that Susan and I did as part of the agency edge research series, Susan Baier from Audience Audit. The last couple of years, what we’ve seen is that more and more clients are choosing agencies that are more than 200 miles away. Now this is pre-pandemic. And we asked them why. It was because the agency had a specialty or an area of expertise that the client was hungry to have. So they didn’t really care about location. So that combined with a year of everybody working from home has completely eroded the concern about where your agency is based. So that’s great news for those of you that are not in a major market.

Another thing that’s happening on the client front right now, and I expect that we will see this through the end of 2021, and maybe even longer, is more and more clients were bypassing the RFP process. Now, if they’re a state entity, or they’re a government entity, or they are a higher ed client, a lot of them are bound by their board or by law to issue RFPs every so many years. Those didn’t go away. I’m talking about the privately held or the publicly held brands that are not beholden to a rule or a law like that. So many of the clients who could opt out of doing an RFP did. And when we asked them why, there were a couple of reasons. Number one, RFPs take a long time. It takes a long time to get the RFI, and then read them all, and then narrow it down to the three people, and then schedule the presentations. That just is time-consuming. And right now, our clients are feeling very time pressed and really stressed about overcoming whatever deficits they experienced in 2020 if they couldn’t sell to their goals or their KPIs.

Another reason why is because clients feel like the chemistry checks, which is a lot of what RFPs are all about. After the RFI, the next phase is do I like them? Do I want to work with them? Do I like way they think? What they were finding is that those chemistry checks were really hard to do on Zoom. In a sort of group presentation way, that it was just hard to get a sense of people that way.

So what a lot of clients are doing is they are identifying two or three agencies that they think have the skills, specialty, knowledge base that they need to solve their problem. They’re doing a quick phone interview or a Zoom interview. They might ask them to do a little pro bono work or a project. Maybe they pay them a little. But they’re very quickly getting to awarding the work. So they are moving much quicker than normal in terms of selecting their agency.

One thing that I know that you are all seeing, this is a trend that is not going to be a surprise to any of you, is that clients are working with smaller budgets. Often frozen budgets and smaller staff. So as a result, they are squeezing as much as they can out of their budget. And they are expecting their agencies to help them hold down and justify costs.

I want to caution you that this does not mean you have to reduce your fees. What it does mean is that you need to demonstrate to your client that you’re being a good steward of their money, that you are sending projects out for multiple bids with third-party vendors, that you are holding vendors to their contracts, that you are negotiating favorable payment terms. Whatever it may be, that you’re helping your client manage their money, and that you are helping them get as much as they can out of it without minimizing or diminishing the value that you provide by lowering your prices. I want to remind you what happened for those of you that have been around for a while after The Great Recession.

So when The Great Recession hit, a lot of you to survive, I’m not being critical. It just is what it was. A lot of you reduced your fees. All of a sudden, you were really skinning down your margin. You might not even make margin, but at least you were making enough to make payroll and keep your people employed. So you really lowered your own value proposition in the eyes of clients. So all of a sudden, you were less expensive.

And then when the recession passed and you wanted to get back to your normal pricing, that was not easy to do. A lot of your clients were like, “I’ve been paying this for the last year or two years. I don’t want to pay that.” So be really, really careful that you do not fall into that same trap again right now that you hold your pricing integrity solid, but that you do other things to demonstrate that you are being a good steward of your client’s money, which I know you are as a general rule. But merchandise it better. So I’m guessing you’re not going to do anything any different. But what I’m suggesting is that you talk to your client about what you’re doing to help manage their hard costs or vendor costs with more detail and being more explicit. Okay?

Another thing from a client perspective is in the fourth quarter, so second quarter, awful. Third quarter back up on your feet, or at least on your knees. Growing, having some good business conversations. Many of you landed some good clients in the third quarter. And even early fourth quarter.

But right around mid October, all of a sudden, everybody put on their brakes client-wise in terms of awarding new work. And what they were saying was, “I just want to wait and see.” And what they were saying is, “I’m nervous about how the pandemic is playing out.” In the U.S., there was a lot of concern about the election in November of 2020 and how that was going to go. And regardless of who won, how that was going to play out. And then even after the election, I don’t think that anybody sort of felt like things were ‘normal,’ or that there was a calm in the sea until after the January 6th event or the inauguration. Everyone was just sort of waiting for something to get locked in. Whether they were happy about the election or not, they just didn’t want the uncertainty on top of the pandemic uncertainty. So for a lot of you, you got a lot of, “No, let’s wait and see. No, let’s wait and see.” In the last six weeks, eight weeks of the fourth quarter.

And then interestingly in January, all of a sudden, much more than normal, you were getting a lot of green lights. You were getting clients to say, “Yep, I’m ready to sign that master services agreement. Let’s go.” In fact, pre-pandemic if you remember for many of you, the first quarter of 2020 was killer. Many of you were projecting that you were going to have your best year ever. You came out of the gate so strong in 2020. And then of course, the pandemic hit in mid-March and all of that sort of petered away for a while.

This January and February, and even March, 2021 felt a lot like the January of 2020, only the boost that we got in 2021 was the vaccine starting to be available. And I think spring hit at least here in the U.S., spring hit in March, April, because people were starting to get vaccine. So literally, winter was going away. But also, I think the malaise of the pandemic was feeling like it was beginning to ease up as we got into spring. So for many of you, your first quarter has been very, very strong from a biz dev point of view, both with existing clients and with brand new clients.

One of the challenges that 2021 brings for all of us is that as I said before, clients are super stressed. They’re working with smaller staff, frozen budgets. And yet they have this pressure to deliver results as fast as possible. They’re getting a lot of pressure from internal audiences, from a board if they have one of those. So as a result of that, the way that trickles down to us is our planning time gets shortened. And our production timelines get shortened. And they are even more complicated because every time we think we have a good direction, the client’s changing it. So the client is responding to real-time marketplace changes, internal pressures, whatever it is. And right when you think you have something nailed and you’re ready to go to production on it or to release it into the wild, the client calls and goes, “Wait a second, we have to change this or that, or add this, or subtract that.” So agencies are feeling like everything is kind of a rush job with uncertain outcomes.

So if you are experiencing that, know that you are not alone. That that is very much what a lot of agencies are experiencing right now. Because clients are just feeling like they’re in a noose and they have to quickly, quickly, quickly move because they know their window of opportunity to be successful is short. And a CMO position has never been a great longterm position. But right now even more so, CMOs are under a lot of pressure, which rolls down to their agencies.

So depending on where you sit, this can be a good trend or a bad trend. Another thing that I’m observing, and actually I’d already talked about it last year. So again, this is a trend that’s been coming for about three years, but is getting more and more magnified right now.

Clients are absolutely doing more with less, and they’re feeling stressed. So they’re trying to simplify their life. And one of the things we’ve seen over the last couple of years, and we really saw it in 2020, was clients narrowing the number of their agencies.

Now I’m not seeing a lot of clients say, “We’re going to go with just one agency.” But they are saying, “Instead of five, let’s get down to three.” Or, “Instead of seven, let’s get down to two.” Whatever it is. So this is either awesome news for you because you are one of the winners in that narrowing, or this sucks for you because you’re one of the agencies that got narrowed out when they whittled down the number of agencies. But know that there will be fewer foxes in your henhouse, which is great. Doesn’t mean you still don’t have to play nice with the other agencies. It doesn’t mean that the agency that is the most collaborative and cooperative doesn’t still win, because I still think that’s true. I think clients don’t need the drama of agencies throwing other agencies under the bus. So whoever is the grownup, and recognizes, and actually values with the other agency in the hen house is delivering I think ends up being the winner. but the good news is fewer foxes to deal with. All right. I want to talk to you a little bit about some trends I’m seeing with you, the owners. But first, let’s take a quick break.

When it comes to conducting a client satisfaction survey, your agency has three choices. The first one is adopt a don’t ask don’t tell policy and just roll the dice. Your second option is to do the study in-house. And the third option is to use a third-party to conduct your client satisfaction survey. If you decide that you’re ready to invest in protecting your client relationships and improving your win and keep ratios, we believe there are some benefits of using AMI as your third-party research partner.

Number one, we know emphatically that your clients will tell us things that they just won’t tell you. The reality is they’re going to speak more freely if they’re not talking to you directly. They don’t want to hurt your feelings, and they don’t want to get into a big conversation about it. So a third-party is a safe place for them to share their real feedback.

The second is that at AMI, we don’t have a bias about any particular client. We don’t know if you like them, don’t like them, if they’re a pain, if they’re your favorite. So because we understand the agency business but we don’t come into those conversations with any preconceived notions, we can absolutely give you unbiased and unfiltered information based on what your clients tell us.

And you know what? We know agency clients. We can hear what they’re saying, and we know which threads to pull on as we’re talking to them, to get more information for you and more insight. Your clients will be comfortable talking to us because we speak their language. If you’re interested in having AMI do your customer satisfaction survey, head over to agencymanagementinstitute.com and look under the how we help section of the website to learn more. All right, let’s get back to the show.

Okay. Welcome back. If you just jumped in the middle of the show, which I can’t imagine how you would do that and find yourself right at the end of a break, but let’s just say you did. Just a reminder, I’m walking you through some of the trends that I see impacting you for 2021. And some of them are a reflection of what we’ve gone through in the past year and sort of the outcomes of that. And others are just some new things that I think are on the horizon.

So before the break, I told you that I wanted to talk next about some trends I’m seeing amongst the owners that we work with every day, or we interact with in the Facebook group, or by email, or however we are connected to you. This is a very common thing that I’m seeing. You people are wiped out. I mean, you are dead dog tired. And I talked earlier in t