Episode 12

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Karl Sakas served as the #2 man in a couple different digital agencies before he created the Marketing Agencies community at Inbound.org, which has over 1,000 agencies in 48 countries. As president of Sakas and Company, Karl advises agencies worldwide about strategy, operations, and leadership.

He also volunteers as a bartender on a 1930’s railroad car. He has recently published a book entitled, “The In Demand Marketing Agency: How to Use Public Speaking to Become an Agency of Choice.”

 

 

What you’ll learn about in this episode:

  • Why Karl launched Sakas and Company
  • High-growth agencies vs. lifestyle agencies
  • How agency owners can do what they love without getting sucked into the day-to-day client work
  • How to turn a high-growth agency into an asset that can actually be sold
  • Things that get in the way of the growth and scaling of agencies and how to fix them
  • Karl’s Time Bucket Template for improving time management
  • How agency owners looking to sell their agency should spend their time
  • Action steps agency owners can take to put these theories into practice

 

The Golden Nugget:

“Time management is less about what you do and more about what you do next.” – @KarlSakas Click To Tweet

Click to tweet: Karl Sakas shares the inside knowledge needed to run an agency on Build a Better Agency!

 

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Speaker 1:

if you’re going to take the risk of running an agency, shouldn’t you get the benefits too? Welcome to Build a Better Agency where we 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 expertise as both an agency owner and agency consultant to you, please welcome your host, Drew McLellan.

Drew McLellan:

Hey, everybody. Drew McLellan here and I am stoked to be with you today. This podcast is really my way of extending the work that I do with over 200 small to midsize agency owners every year. I help them mitigate the risks of owning an agency while reaping as many of the rewards as possible. As an agency owner of over 20 years, I know all too well the risk reward equation, and I want to make sure that we all maximize the reward side.

And that’s why I am really excited today to have our guest with us. Karl Sakas is with us today and Karl helps marketing agencies grow without the usual growing pains. And that is a big promise that we are going to dig into. He has founded and runs an online community with over 600 agencies from over 47 countries. As president of Sakas and Company, Karl advises agencies worldwide about strategy, operations, and leadership. He’s also written over a hundred articles on agency management. When he is not helping clients, Karl serves as president elect for the triangle AMA and volunteers as a bartender on a 1930s railroad car, which, Karl, we are going to dig into in a minute.

Karl Sakas:

Awesome.

Drew McLellan:

He lives in Raleigh, North Carolina, and he has recently published a book called The In Demand Marketing Agency. How to use public speaking to become an Agency of choice. And I have been doing a lot of public speaking for much of my professional life. And I got to tell you, when I read the book, there were still a lot of takeaways for me as a very seasoned speaker. So, whether you are a new speaker or you’ve been doing it for years, I promise you, Karl’s book has nuggets of wisdom that will make you better at the craft. So with that, Karl, welcome to the podcast.

Karl Sakas:

Drew, it is great to be here.

Drew McLellan:

So Karl, before we get into the big promise of growing without growing pains. Let’s talk a little bit about this 1930s railroad car.

Karl Sakas:

Sure.

Drew McLellan:

So, tell me about your bartending career.

Karl Sakas:

So, the car is called the Dover Harbor. It is a Pullman car built in the 1930s now owned by a nonprofit based in Washington DC. And we go anywhere Amtrak goes, into Canada on VIA rail as well. It’s like a 90 foot long, 90 ton RV, we’re rolling bed and breakfast hooked onto the end of an Amtrak train. There are six bedrooms. It’s like something out of an old movie. You know, the beds flip down from the ceiling. There’s a comfortable lounge with arm chairs, settees, which actually have lead weights in the legs to keep things from moving around. It’s very comfortable. More like mattress type seats rather than traditional seats. There’s also a rear vestibule in the back so you can wave at people along the way. And there’s a tiny submarine sized kitchen which uses the original coal stove, the original ice box for preparing onboard meals. We have amazing chefs and all of the crew members are volunteers.

Drew McLellan:

And you’re a volunteer because you love railroads? Tell me how you got involved with this.

Karl Sakas:

I’ve always loved trains. I grew up with model trains and my dad would take me to the train station in Virginia and we’d watch the trains go by. More recently volunteered at a train museum when I lived in New Jersey and in the New York area, and a friend had mentioned, “Hey, you should check this out. Check out the Dover Harbor train car,” noting that it’s a mix trains, a mix of travel, history, and I also get to use my client service skills.

Drew McLellan:

Well, given that you help agencies grow without growing pains, I don’t know how you have time to be a traveling bartender.

Karl Sakas:

Usually I’ll do one to three trips a year. My latest trip was to New York. Before that we did a charter to New Orleans and back.

Drew McLellan:

It sounds awesome. I’m going to have to check it out online after we get off the call.

Karl Sakas:

Absolutely. If you go to Doverharbor.com you can find out charter info and then we also have public trips where you can buy a ticket as part of a group.

Drew McLellan:

Sounds like fun. So, when you’re not pouring Manhattans on the rolling rails, you are working with agencies and helping them to grow. And, there are a lot of topics that you and I get to talk to agencies about every day, but certainly one of them that most agency owners are very focused on is how do I grow and scale my agency. So, let’s dig into that a little bit. Tell us little bit about your background and how you came to be in a position where you could advise agencies on something like that.

Karl Sakas:

I started in the marketing industry at an early age, starting as a web designer in high school in 1997 in the days of Netscape and internet explorer three. And I realized in retrospect, I was a terrible web designer but I enjoyed helping people solve marketing and business problems. Fast forward. I’ve run the business side of two digital agencies. I noticed a challenge that a lot of agency owners struggle with, and that is, they really love marketing or design or development or other aspects of the work. Yet, when they start an agency, they suddenly are in over their head. They’re now dealing with the challenges of running a business. They want to do marketing, but they are doing sales and they’re doing client service and they’re negotiating with vendors and they’re dealing with the toilet overflowing because no one else is in charge of that.

And so, there’s a challenge where people have gotten into their work for a particular reason and things aren’t working out as they expected. In my case, I am a fourth generation business owner, grew up in my family’s small business. One of my grandfathers was a business professor at Cornell for 40 some years. I would hear his stories about consulting with companies, helping them make things run better. And so ultimately, for me, business just comes naturally. And as the second in command at the agencies, I was used to helping owners make things run more smoothly. And so in 2013, decided to put all that together, that years of marketing experience, that experience as the head of the business side of the agencies, and that consulting experience launched what was then Agency Fire Box. It is now a Sakas and Company. And since then, I’ve worked with clients on six continents.

Drew McLellan:

Awesome. So clearly, you know your way around an agency and you’ve been around for a while, even though 1997 doesn’t seem like that long ago to somebody born in 1962. But let’s talk about today’s world versus the world that you entered when you started agency life. Is it harder or easier today, do you believe, to scale and grow your agency?

Karl Sakas:

Hmm. On one hand, clients appreciate marketing more. It’s not just buy a TV ad or buy a newspaper ad or buy something in the yellow pages. There are a lot more channels which creates opportunities for agencies. Thinking back to, you mentioned 1962 when there were three TV networks, marketing was challenging in some ways, but it wasn’t as noisy.

Drew McLellan:

Absolutely.

Karl Sakas:

And so, when clients are trying to connect with potential clients, potential customers, there’s so many options today. And that’s where agencies come in to help clients figure out what is the best way to meet their business goals when there are millions of options.

Drew McLellan:

So when you think about scaling an agency, what is the number one thing that an agency owner needs to wrap their head around if they’re going to scale their agency? What do they have to know in advance before they start this work?

Karl Sakas:

I’m a fan of the idea of begin with the end in mind. Where do you want to go? As importantly, how do you want to get there? And this is the number one question, which is what kind of an agency do you want to grow? In my research, I’ve identified, ultimately, two ends of a continuum. So, if you’re an agency owner, you’re going to lean toward one way or the other. One option is high growth. If you’re looking to run a high growth agency, your goal is to grow as quickly as possible to maximize valuation so that you can sell your agency and get as good a deal as possible. You may not be selling for a year or three years or five years or 10 years, but ultimately if you’re leaning toward high growth, your goal is grow your agency typically to sell it.

Drew McLellan:

Okay.

Karl Sakas:

At the other end of the continuum is what I would call a lifestyle agency owner. A lifestyle agency owner’s number one priority is quality of life. Their goal is to make a nice salary, make profits in the business. Ultimately though, that work life balance or quality of life is the key focus. They’re not necessarily looking to sell their agency, although they might consider it if they get the right offer. But for them, their goal is to create work that they love, people they enjoy working with, client projects and retainers they enjoy doing rather than work is kind of crazy hours to sell their agency.

Ultimately, most people tend to fall somewhere in the middle. Maybe they’re looking to sell, but don’t want to do a hundred hours a week or they want work life balance, but again, they’re open to selling. But people tend to lean one way or the other, and the reason this is important is that this impacts almost every decision you’re going to make when it comes to your agency strategy and a lot of day to day things. For instance, it impacts who you’re going to hire on your team, how you’re going to structure your marketing and sales for the agency itself, the types of clients you’re going to work with, and a number of other things. So ultimately, you need to figure out, do you lean toward high growth or lifestyle and then go from there?

Drew McLellan:

So one of the things I hear from a lot of agency owners is that, and it’s the old e-myth sort of paradigm. They were great at baking the donuts, but then all of a sudden they own the donut shop and now they don’t get to bake the donuts anymore. Now they’re sweeping up the back and they’re counting the money and they’re hiring the clerks that sell the donuts, but they don’t get to bake the donuts anymore. If someone wants the option of, I want high growth because I want to sell it someday. Do they still get to bake the donuts or do they have to abandon that part of the work that they love?

Karl Sakas:

They may not be able to spend a hundred percent of their time on baking donuts. But when I work with clients who are frustrated dealing with things they don’t like, I do look at well, what do you want to do? One of the things that’s most common is people enjoy doing client strategy work. That is they can come in, create a plan for the client, and then their team can make it happen. But frequently agency owners don’t want to be sucked into the day to day client service.

Drew McLellan:

Right.

Karl Sakas:

I met with an agency owner yesterday who’s run her agency for about 20 years and she and her business partner split client service. They’ve got other people on the team, but the other people on the team are doing design, they’re doing development, they’re doing strategy work, and she still is doing strategy. And one of the things we were talking about is what can she do to delegate that so she’s not the primary contact for most of clients?

So, in that case, say, if your goal is doing client strategy, figuring out the fun part of what should clients do and then you turn it over your team to execute, well, that’s totally doable. You do need to have someone else handling account management and project management, but then that makes it a lot more fun because your account manager is handling day to day client concerns. Your project manager is keeping things on track, and then they let you know, “Hey, it’s time to do a strategy meeting. Let’s get that scheduled.” And they’re the ones scheduling the back and forth about the meeting and you just get to show up and do a great job. And then your team makes it all happen.

Drew McLellan:

Well, interestingly, I know a lot of agency owners that’s sort of the role they play, that they’re sort of the chief strategist, if you will. But one of the challenges they have is how do I translate that skill through the rest of my team so that I don’t have to be the one who’s doing… So it’s interesting. Some people want to do that. And on the flip side of it, there are other agency owners that they’re really good at it, and it’s not that they don’t like to do it, but they don’t want to be the only one who’s capable of it in their shop.

Karl Sakas:

And that’s risky because if it’s the point where the client sees either one of the partners is the strategy expert, or it could be a strategist who’s an employee, they don’t want to talk to anyone else. This can be good at times. I worked with a client that one of their contacts at one of their clients, they’d gone through a bunch of contacts. And part of the reason that the agency had been around so long was that the agency’s account manager who’s doing the strategy, knew more about the client than any of her contacts at the client.

Drew McLellan:

Absolutely. Right, right.

Karl Sakas:

Great for retention, but of course, if she, the account manager, chose to leave, that would create a problem.

Drew McLellan:

Absolutely. So realistically, how realistic is it for most agencies, do you believe, to follow the high growth model, build an asset that has value without having to stay in some sort of employment servitude for a while or whatever, and actually sell the asset and step away?

Karl Sakas:

It’s all going to depend on the agency. And it also depends on what your dollar goal is. For instance, worked with a client to help, ultimately, to double their profit margin, get their operations sorted out, figure out how to raise their prices and take better care of their clients and advised her as she received an acquisition offer. And although she had improved things a lot, the acquisition offer was still less than she wanted. And this was still a multi six figure offer, but from her perspective, she wanted more. And so her decision, ultimately, was to decline the offer. And we’re now regrouping to identify what can she do over the next three years to get two to three times as much money as they had offered before. So, again, some of it comes down to what you want. If you want millions of dollars and your agency is not performing at that level to get that kind of valuation, it’s going to take a while.

Drew McLellan:

Yep. And even the agencies that lean more towards the lifestyle. And, again, that doesn’t mean it’s a hobby, it’s still a viable business. But, to your point, they’re not building an asset necessarily to sell or they’re okay if they don’t sell it. One of the things at AMI we talk a lot about is getting your money out of your agency while you still own the asset and, in essence, making your wealth while you’re still employed by your own agency, moving that money into something other than the agency, because you and I both know agency owners who’ve left too much money in their agency and when times get slow, they make bad decisions and they burn through that money pretty quickly. So, getting the money out, investing in other places, building up their wealth, and then they have the freedom to decide, do I want to build something to sell or do I want to just let this thing wind down when I’m ready to wind down?

Karl Sakas:

It’s a parallel, in some ways, for parents, the question of, do you save for retirement or do you save for your kids’ college?

Drew McLellan:

Right.

Karl Sakas:

Well, there are scholarships, but there are no scholarships for retirement. And that frequently comes up. I think about the idea… I wrote an article about, put on your own oxygen mask first. If you don’t take care of yourself, it might be a bit much to say no one else will, because typically, as I’m working with agencies, people do care about each other. But when you’re the boss, often and times you don’t have someone to speak with. I think that’s an important value as you’ve seen with your networks where people have people, people have others they can talk to rather than feeling alone.

Drew McLellan:

Yep. Absolutely. Absolutely. So, okay. So, growing your agency to sell it sounds dandy. It’s hard to argue that would not be something that everyone would go, “yep. I want”… At least in theory, without looking at how much work it is, at least in theory, “I want to do that.” So in terms of growing and scaling your agency so that it is an asset to sell, what gets in the way of agencies growing and scaling their business?

Karl Sakas:

A few things. One is focusing too much on single gorilla clients. If you’re getting more than 20% of your revenue from one client, you have what I call a client concentration problem. And I’ve worked with clients who’ve had higher percentages than 20. And ultimately it comes down to if you’re that dependent on one client, they could choose to fire you and suddenly all the revenue goes away, which means you’re likely having to lay off team members unless you’re going to risk going out of business. When they’re big clients like that, you’re also at their mercy from a client service perspective.

Drew McLellan:

Right. Absolutely.

Karl Sakas:

They know that they’re your biggest client or one of your biggest clients. And so ultimately, when it comes to valuation, if you’ve got these enormous clients, the acquirer is going to discount the offer because they know that, “You know what? That person could leave, they could easily leave.” In fact, I was helping a client that was working to identify acquisition targets and was walking through helping him find potential other agencies to acquire. And part of the outreach process once we had NDAs was looking at the client distribution. And ones that had, from one of them, there was a client that was about 40% of their business. Yeah, that was contributing to profits nicely, but that’s a risk.

Drew McLellan:

Absolutely.

Karl Sakas:

And speaking of profits, typically, it varies, but I found big clients often are agencies longest term clients. They’re, maybe, the client that you had early on and you’ve had since then, typically those clients aren’t as profitable because they’re grandfathered at an older rate and you tend to over deliver. The things that you did in your first couple years probably aren’t the client service decisions you’re going to make five, 10 years later. But, it’s hard to change that with an existing client. And so ultimately, those big clients hurt valuation. So, that’s a challenge. Another is how indispensable are you? If you are indispensable as the agency owner, it’s going to hurt valuation, it’s going to make it harder to sell your agency. It’s also going to make it harder to scale, in general, if you’re not looking to sell. One of my clients describes the idea of, he wants to create things so that he is needed, but not necessary.

Drew McLellan:

And what does that look like, does he think? Or you think?

Karl Sakas:

One of the things is around delegation, letting people handle what they’re best at, finding people to handle, from a delegation perspective, bringing people in to get things off your plate and being clear about what the boundaries are. Leadership expert, Michael Hyatt, talks about five levels of delegation. At the lowest levels it’s go do some research and come back. And then at higher levels, it’s do it and tell me about it. And then at the very highest level, it’s do it and I don’t need to know about it. So ultimately, if people from a delegation perspective are at that lower level where people are consulting you at every turn, it’s going to make it harder to sell the agency because the acquirer is thinking, “Hmm, they are necessary rather than needed.”

Drew McLellan:

Okay. So, what’s one thing that agency owners need to know? So let’s say, they say, “You know what? Right now I am indispensable. I’m the answer guy or gal. Everybody comes to me when there’s a problem. There’s always a shadow in my doorway.” And what I hear oftentimes is, there’s no one inside my shop that I believe I can delegate to to the point that I am not indispensable. How do you fix that in an agency if you’re in that spot right now?

Karl Sakas:

I worked with a client recently who had that problem and the way he perceived it initially was, “I want to go to Jamaica. I want to take two weeks off and I just want to go on vacation and sit on the beach and have fun.” And he said, “But I feel like I can’t do that because not an hour goes by without someone asking me what to do or how to do it, between clients and team members. But in particular, he was focused on the team members. And I did an audit and I focused on why was he getting interrupted? Who’s interrupting him and how often? And for each of those, should they have interrupted him? Because sometimes when he was getting interrupted, it made sense. What I found was this. It was his own fault. He had trained his team members to go to him because, it turned out as I found in doing interviews with his team members, he was always second guessing their decisions.

Drew McLellan:

Ah-hah.

Karl Sakas:

And not only second guessing. If they made a decision that he didn’t like, he would publicly roll it back. So for instance, if someone had promised something to a client and he then later decided we aren’t going to do that, the account manager had to follow up and say, “Actually, we can’t do that,” which ultimately undermined the client relationship.

Drew McLellan:

Right.

Karl Sakas:

And so this was a thing of his own making. So, here’s how I helped him solve that. First, I looked at what are the areas where he feels comfortable with people making their own decisions. So one of them, for instance, from a client perspective, if the decision was under a certain dollar amount, they were all clear to make a decision on that themselves. If it was above that dollar amount, then they needed to consult with him. So that alone reduced the number of decisions and interruptions he had, because people were now making those smaller decisions themselves.

And then in addition to giving them boundaries about things they could decide, the flip side is what are the things where he did want to get consulted? So for instance, he didn’t want anyone signing contracts on behalf of the agency which made sense in his particular circumstance. So it ultimately came down to defining where are the employees free to decide? And then where are the areas that he needs to be consulted? And ultimately, he has been able to go on vacation since then. So it’s worked out.

Drew McLellan:

Well. And the real rub becomes in not making the decision, but keeping your mouth shut when they actually do what you’ve asked them to do, and not second guessing, even if you don’t totally agree with their decision.

Karl Sakas:

And that was the bonus part of that. In the areas where he said, “You can make a decision,” he agreed and told the employees that he was going to back them up. He said, “I’m not goi