Episode 100

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Drew McLellan is the Top Dog at Agency Management Institute. For the past 21 years, he has also owned and operated his own agency. Drew’s unique vantage point as being both an active agency owner and working with 250+ small- to mid-size agencies throughout the year, give 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 — he 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, Entrepreneur Magazine, and Fortune Small Business. The Wall Street Journal called his blog “One of 10 blogs every entrepreneur should read.”



What you’ll learn about in this episode:

  • Two types of agencies: “Artisan bakery agencies” (every project they produce is custom made for a client) and “Wonder Bread factory agencies” (where they follow systems and processes to produce the same limited set of things for every client)
  • Why clients often work with both of these kinds of agencies, sometimes even at the same time
  • Misconceptions owners of both kinds of agencies have about each other
  • Assessing what type of agency you own (and why it may fall in the middle of these two types)
  • Some of the pros of running an “Artisan bakery agency”: you can hire millennials, you can be a partner for your clients, and the prestige that comes with the work
  • Some of the pros of running a “Wonder Bread factory agency”: you have a lot of clients and losing one won’t kill you, cheaper employees, the agency is easier to sell, and clients are easier to obtain
  • Why “Artisan bakery agencies” still need to specialize and focus on their niche
  • Aligning your goals with the kind of agency that helps you fill those goals


The Golden Nugget:

“Every agency is a little different in structure, and they all can turn a profit.” – @DrewMcLellan Click To Tweet


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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!

Automated voice: 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 to you. Please welcome your host, Drew McLellan.


Drew McLellan: Hey everybody, Drew McClellan here with another episode of Build a Better Agency. And actually this is an exciting episode. It is our 100th episode. So if this is your first time listening, it’s a great time to jump into the podcast. If you’ve been with us since the beginning, thank you so much for your time and attention. We started this almost two years ago, and we started as an experiment to see if you guys would like it. And if we could find guests that would hold your interest. And if I was a decent host and I’m grateful that you stuck around. I’m grateful that you find it valuable and we’re going to keep going. So a 100 is just the beginning. So thank you for helping us hit this milestone, I’m really excited about it. But I will tell you this, we’ve been doing some things at the end of the podcast that I think you’re missing out on, because I suspect that as soon as you hear me go, “Well, this wraps up another episode of Build a Better Agency.”


  You go on to the rest of your day. So I think you’ve been missing some good stuff. And I’m going to flip things around on this podcast, and I’m actually going to run the end of the podcast right now in the very beginning so you can’t miss it because I haven’t given you the good stuff yet. So I know you’re going to stick around. So I’m not going to do the thanks for listening part, because that would be silly. But I do want to tell you about something that I normally tell you about at the end of the day. So as you know, we have all these amazing guests who have done great things. They’ve written books, and they do online courses and they have all kinds of offerings. And many of them have been generous enough to give us for free some of the things that they normally sell.


  So it might be a course or a book or whatever it may be. And we’re giving those away one a week. And all you have to do to be in the drawing for those gifts every week is go to agencymanagementinstitute.com/podcastgiveaway. Once you sign up once, you don’t have to do it again. You just sign up once and you are all set. You were in all of the drawings. So again, that’s agencymanagementinstitute.com/podcastgiveaway. And here’s why you want to do it this episode. So here [inaudible], if you’re listening to this, we’re experimenting with some videos, so you may be seeing video clips in this podcast later. You also are going to see my cat’s head probably at some point in time in the podcast.


  So if you’re watching the video, I apologize. If you are listening and you hear him, it’s not me making weird cat noises. I’ve been traveling for the last 10 days, so he’s very attentive today now that I’m back at home. So anyway, so here’s why you want to jump into the agencymanagementinstitute.com/podcastgiveaway this week, because we are going to give away a huge, amazing prize. I’m really excited about it. We are launching a new workshop called create content that creates revenue. And it’s all about how to create content, how to author a book, how to launch a podcast or video series, how to get on the speaking circuit.


  We’re not only going to show you exactly how to do all of those things in a way that does not impede on your day job, but we are also going to show you how to monetize all of those things. There’s lots of different ways to make money, everything from sponsorships, to getting paid to speak, to new clients. And we’re going to show you all of the different ways to take what all agencies are doing, which is creating content. And instead of it being a cost to your agency, now it can actually be a revenue stream. So for two days, we’re going to be teaching that content around how you create the content and how you create the revenue from that content. That workshop is January 16th and 17th in Orlando, Florida. If you know me at all, you know that when I say Orlando, Florida, what I really mean is, the workshop is being held on Disney property.


  If you were to register for that workshop, which you are more than welcome to do, and we would love to have you. You would pay $1,695. So we’re giving away one seat to that workshop. So all you have to do is get there and pay for your hotel and everything else is calm. So not only are you going to get two days of the workshop, but you’re going to get the food in the workshop and you’re going to meet all the other agency folks and network with them. And if you come prepared with a little bit of a speech, we are going to actually shoot video of you. So you have a bit of a speaker’s reel to put on your website to show people what you look like and sound like when you speak. All of that’s happening January 16th and 17th.


  And if you sign up for the free giveaway agencymanagementinstitute.com/podcastgiveaway, you could win a seat to that workshop. All right. So now let’s get into the actual content. Here’s what I want to talk about. Today’s podcast as you might have gathered by now is a solo-cast. So if you’re new to the podcast, what that means is normally I have a guest on the podcast with me and really, my job is to pick their brain and to get all the smarts out of them that I can. But every fifth episode, I do a solo-cast. And that’s just me and you talking about something that I’ve been having a lot of conversation with agency owners about, and I want to make sure that it’s on your radar screen. And that’s what we’re going to do in episode 100. It is a solo cast.


  So if you know me at all, you know that I like to talk in analogies and I like to teach with analogies. And so the analogy that I want to set up for today is the idea that every agency is structured a little differently. And many of you are like artisan bakeries. So you are creating these amazing loafs of bread and other baked goods that you learned from your grandma or your great-grandma. And you’re still using the same recipe and you’re doing it all by hand. And it is a work of art. And it is a work of art because it is this age, old tradition, you do it. Every one is custom and a little different. And so you have to charge a little more for that. So it’s not an inexpensive loaf of bread. On the other end of the scale is the Wonder Bread Factory.


  And those are the agencies that are cranking out work, and they are doing the same thing every day. And they have fewer options, right? So you can’t get as many different varieties at the Wonder Bread Factory as you can than artisan bakery. But the bread is a lot more inexpensive. So they have more volume of customers. So the reality is the artisan bakery is what most agencies look like today, that you do everything custom. So you’re passionate about your product, you’ve lots of variety in terms of the way you serve your clients and how you deliver for those clients. You take special orders, right? When a client asks you for something that you’ve never baked before, you figure out how to make it for them. You say, “You bet you, we can make you that upside down pineapple cake, even though I’ve never done it before, but we’ll figure it out,” right? That’s an artisan bakery kind of agency.


  And with that comes higher prices because the time spent on each project is longer. It also means that oftentimes because of the prices are a little higher and because everything is custom, not everybody can afford to go to the artisan bakery. And so oftentimes that an agency has fewer clients. So when one of the clients goes away, when someone stops buying your bread, it’s tougher on the business because each customer represents a larger percentage of your AGI. Now, in some cases, some of you who have artisan bakeries, you also have clients who on occasion go to the grocery store to buy the Wonder Bread. So they might be working with freelancers or a smaller shop or less expensive shop, but they come to you and they have a project that is big or important. It might be an annual report. It might be a new creative campaign. But odds are, you’re probably sharing that client or customer with other folks.


  Now, on the flip side, if you have a Wonder Bread Factory agency, you are much more focused on process and systems so that you can efficiently make the bread. It is all about making as much bread as you can, as quickly as you can at a quality level that you’re happy with. So this is not about not doing a good job. This is not about not offering value. It’s just a different value in a different kind of product. So you’re offering your customers your options, but you’re very consistent. So every loaf of bread looks and tastes and feels the same. And oftentimes to your customers you’re less expensive, because you as a bakery or as an agency, you count on the volumes.


  So you’re probably serving a lot more customers or clients than the artisan bakery kind of agency. And honestly, as I look at the agencies that I work with, and I work with agencies that are very artisan bakery [inaudible]. And I work with agencies that are very much like the factory. They have an efficiency and they’re like a machine. They just crank out the work, and it’s very defined work. And both of them, and by the way, there’s a lot of room in the middle between those two. I’m not suggesting you have to be all in on one or all in on the other. What I want you to start thinking about as I’m describing this is, A, “Where’s your agency?” And B, “Is where your agency at today, where you want it to be? Have you really weighed the pros and cons of the spectrum of how agencies are structured and are you in the right place?”


  So it’s interesting to me as I look across the spectrum of agencies I work with. And most of the agency owners who run artisan bakery kinds of agencies, they’re agency people, they grew up in an agency. They might be an old art director or copywriter or account person, but they grew up in an agency and now they happen to own a business. So many of them are what I call accidental business owners. Where they left a job or they got downsized, they hung up a shingle and next thing they know, they’re running a business. And they have 10 employees or 20 employees or 50 employees, and they’re looking around going. But I love their work. I want to do the work, I miss doing the work. So if you sit in your office crunching financials and dealing with HR issues, and you long for the day that you can go back to being an art director or copywriting or just dealing with clients strategy, you love that, odds are you’re running an artisan bakery sort of agency.


  On the flip side, I have agency owners who are not from the agency world that they decided they wanted to start a business. And they looked around and they saw what was happening in our industry. And they decided to jump in. Many of them started digital oriented shops. So they might be an SEO shop or a PBC shop or a web dev shop. But these agency owners didn’t grow up in the agency and they don’t have the same passion for the work that the artisan bakery kind of agency owners do. These guys, and they’re not all guys, obviously. These people, they are passionate about running and building a business that serves them in the way that they want a business to serve them. And so they very much are a business owner who happens to own an agency. And that’s a very different perspective. So when I think back over the last 10 or 15 years, it’s not like this is a brand new thing, right?


  But a lot of agency owners, agency owners who ran the artisan bakery, right? They look at the Wonder Bread Factory kind of agency and they go, “No, I would not want to run that kind of a business. I wouldn’t be excited by it. I wouldn’t be inspired by it. I wouldn’t get excited to get up out of bed in the morning and go to the office if I was cranking out the same stuff day in and day out.” And on the flip side, the Wonder Bread Factory agency owners saying, “Oh, the headaches that come with the dramatic creative directors and having to reinvent the wheel every single day, and having to price everything separately and figure out what it is. I wouldn’t want that headache. I want a simple methodical business that allows me to create a good revenue and allows me to serve clients absolutely to give them value, but in a value that I define. That they’re going to buy one of the things that I offer to sell. I’m not going to just let them come in and do the special orders.”


  There’s nothing wrong with either of these or again, the spectrum in the middle. You just have to decide why you’re in business and what you’re trying to get out of your business. But I will tell you for those of you that are artisan bakery people instead of turning up your nose at somebody who’s selling web pages or websites for three grand or two grand or whatever, I see their financials. I see their PNL and their balance sheet and I got to tell you, they’re doing just fine. So one thing I want to dispel right now is the myth that agencies that have a formula or a package pricing, or have fewer deliverables that somehow they are not profitable, or they’re not making money because I got to tell you that is just not the case.


  And in fact, most of them have a much smoother bottom line in terms, they don’t have the up and downs that artisan bakery agencies do. And there were some reasons why that’s the case. Many of you have read the book, Built to Sell by John Warrillow. And in fact, he was a podcast guest. His episode was episode number 47, and we talked about this. And the book if you haven’t read it, it as a business parable ironically about a guy who owns an ad agency and wants to sell it. And finds out that because he serves everyone and he does a little bit of everything, and because he’s so ingrained in the business, because everything is so custom that his employees can’t handle the strategic side of the business. He can’t get out of the day-to-day, I don’t know if that sounds familiar to you. So he gets some advice about how to make his agency more saleable and the advice he gets and what the book is all about is, how he turns his artisan bakery agency into a Wonder Bread Factory.


  And in fact, the book like all business parables goes to a bit of an extreme. So he’s a generalist agency and by the middle of the book, all they do are logos, that’s it. All they do is design logos. So first of all, it’s a book and it’s a business parable. So I’m not suggesting that the Wonder Bread Factory agencies, or you artisan bakeries who want go down the spectrum of that would get that narrow in your delivery because I think that’s crazy. But the book is a great book, and it makes a lot of good points about how to think about your business a little differently, especially if you grew up in the agency business. So I want to dig into the pros and cons of each of these business models. So you can think through not only where you’re at, but where you want to be. But first let’s take a quick break.


  One of my favorite parts of AMI are our live workshops. I love to teach, I love to spend two days immersed in a topic with either agency leaders, agency owners, or AEs in our AE Bootcamps. But most of all, I love sharing what I’ve learned from other agencies from 30 years in the business and all the best practices that we teach. If you have some interest in those workshops, they range from everything from money matters, which is all about your financial health of your agency to best management practices of agency owners, to new business, to AE Bootcamps, and a plethora of other topics. Go check out the list and the schedule at agencymanagementinstitute.com/livetraining. Okay, let’s get back to the show.


  Okay we are back. Drew McLellan here with you. 100th Episode of Build a Better Agency. As you know by now if you’ve been listening, this is a solo-cast. So it’s just me and you chatting about this really interesting phenomena of the spectrum of types of businesses that an agency can be. And I’ve been using this analogy of the artisan bakery, where you’re making your grandma or great-grandma’s old recipes. And you’re doing everything custom, and you do a lot of custom orders and special orders, and so your product is more expensive because of that. Versus a Wonder Bread Factory, where you crank out four or five kinds of bread and that’s it. And people don’t get the custom order or a special order, and so you serve a lot more people, you make a lot more bread and you sell it at a lower price point. So let’s talk a little bit about the pros of each of these, because honestly, I’m not trying to advocate for one or the other.


  I really just want you to think about where your business is and where you want it to be. So some of the pros of being the artisan bakery are, number one; it’s easier to attract talent. So young people going to college to study marketing or advertising or media or digital marketing, they want to work in a creative agency. They want to work in your kind of bakery. They don’t want to work in a factory. They want to be able to create, they want to be able to either strategically or creatively build something out of their head and serve their clients in a way that’s unique. So that’s number one. If you want to hire kids who went to school for advertising or marketing, an artisan bakery is absolutely what they think they want to work in . So that’s for sure. Also, it’s easier for you to get to be a partner with your client. It’s very difficult to do that in the Wonder Bread model because it’s off the shelf, right? “You got to buy what we sell.”


  But with an artisan bakery, you really can sit down, roll up your sleeves and figure out the strategy with a client and then come up with all kinds of custom solutions for them that solve their problems. So for those of you that really want to sit at the C-suite and have a strategic conversation with clients, the artisan bakery is a better place for you to do that. There’s also a prestige that comes with running this kind of a business. You get to create things that are memorable. You get to work with brands that people recognize and you win awards and do all things that make your business and you as the owner a bit of a celebrity. And everybody loves that, right? You get recognized for the good work that you do.


  So those are some of the great reasons why being an artisan bakery makes sense. You can certainly charge a premium price for your product, that’s another pro that comes with that. Because you are creating everything custom, there’s value in that, right? On the flip side, there are some pros to being the Wonder Bread Factory, too. Number one, and probably the most prominent one is that, losing a client is not going to kill you. Unlike an artisan bakery where you have few clients who spend a lot of money. In the Wonder Bread Factory model, you have a lot of clients who each contribute a smaller amount to the AGI of the agency. So some of my Wonder Bread type factory clients, they might have a 100 or 150 clients that they are serving every single day and every single week and every single month. Which is not at all what it looks like the creative boutique agency side, right? Or the artisan agency.


  So the upside of that is, if a client goes away, while you hate to see a client go away, it’s not 20% of your AGI. You don’t have to do a big layoff like you might have to on the artisan side if your gorilla client goes away. Another advantage of the Wonder Bread Factory is that, the employees are a lot less expensive because you’re teaching them a repeatable skill. You’re not asking them to be a marketing genius. You’re not asking them to be an amazing art director. You are hiring people who enjoy process and efficiency and systems, and doing something the same way over and over. I’m not suggesting that those employees are bright because they are, but they typically have a skill set that is more defined and more narrow in scope. And the people at the top we’re figuring out how to do it probably cost more money, but you have more people down below in the lower ranks who are just doing the same thing over and over again for different clients and so they typically cost you a little bit less.


  It’s also easier for you as the owner to step away. Your role as the strategic leader is not as critical in the Wonder Bread Factory. So you can train people to do and deliver the work that your company wants to deliver easier if you’re not sitting down and customizing strategy