Episode 215

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For the last decade, I have been living in the perfect home. I love everything about it— from the size and layout to its waterfront location. I thought I would never move again. But everything changed when I adopted my charcoal lab puppy, Heather.

Heather is about four months old right now and she already exceeds the 30lb weight limit for pets, according to our homeowner’s association. It’s safe to say she’s not getting any lighter, so we don’t have any choice but to pack up and move.

Change is a part of life and yet even though it keeps happening, it’s uncomfortable. We don’t seem to get used to it. We get settled into a direction or path. And suddenly, an unanticipated event triggers change that we weren’t prepared for or can’t control.

In my case – this is change I triggered and I can control. But it’s still unsettling and disruptive. I know most of you are feeling unsettled right now too – because of the economy, which is out of all of our control!

Many agency owners are feeling stuck in a state of flux right now, when it comes to the economy. Every day an agency owner brings up the potential economic downturn and admits that they’re anxious because we don’t know if it’s coming, when it’s coming, or how bad it will be.

Let’s take control of this uncontrollable situation by adopting the best offense is a strong defense stance. In this solocast episode of Build A Better Agency, I am going to walk you through some things you can do to protect yourself IF a downturn or recession is coming. And even if it’s not – this will make you stronger as you enter the new year.

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.

What You Will Learn in this Episode:

  • How to prepare yourself and your agency for change
  • How to balance your client roster during an economic downturn
  • How to manage your agency finances during a recession
  • How to strengthen your biz dev program for an economic downturn

The Golden Nuggets:

“Just like good times bring challenges, bad times bring opportunities.” @DrewMcLellan Share on X “The number one thing you can do to recession-proof your agency is to balance your client-base.” @DrewMcLellan Share on X “I want you to start running and managing your agency by the numbers.” @DrewMcLellan Share on X “Adding more weight to the boat will sink the entire boat. Now is not the time to be heavy with people.” @DrewMcLellan Share on X “In an economic downturn, everyone takes longer to make buying decisions. So, you need to have an aggressive, consistent biz dev strategy.” @DrewMcLellan Share on X

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

AMI works with agency owners by:

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

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

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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 Agency Management Institute’s Build a Better Agency Podcast, presented by White Label IQ. Tune in every week for insights on how small to mid-size agencies are surviving and thriving in today’s market. We’ll show you how to make more money and keep more of what you make. We want to help you build an agency that is sustainable, scalable, and if you want down the road, sellable. With 25 plus years of experience as both as an agency owner and agency consultant, please welcome your host, Drew McLellan.

Drew McLellan:

Hey, everybody, Drew McLellan here from Agency Management Institute. Welcome to another episode of Build a Better Agency. This week, unlike most of my shows, where I have a super smart guest and we get to pick their brain together. This week it’s just you and me, and I want to talk to you about something that’s on my mind and that I know is on a lot of your minds as well.

Before we get into that, if you are watching the video, you have noticed that my bookshelves are pretty empty and there’s a bunch of U-Haul boxes behind me. That is because I am moving. I’ve lived in this amazing townhouse, it’s probably the house I have loved the most of all the homes that I’ve lived in. I’ve lived in this townhouse since my daughter went to college, which now is about, gosh, almost 10 years ago, and I thought this was going to be the house I lived in forever. It sits on a body of water. It’s the right size. I love the layout. There’s really nothing about this house that I don’t like. And so I couldn’t have imagined, unless my daughter moved to another place and I wanted to be near her, I couldn’t have imagined at least in the near run that I would move.

And then if any of you who follow me or are connected to me on social media of any kind, as you know, two months ago, my life changed a little bit when I adopted a charcoal lab named Heather. Heather is still a puppy, she’s just about four months old as of the recording of this video. And she already exceeds my townhouse’s weight limit for dogs at 30 pounds, and there is no signs of her stopping her growth. So I’m guessing she’s going to be about 75 pounds. So for that reason, and some others, I decided that it was time for me to move, and so I am.

It’s amazing how we think we’re on a path, and we think we’re heading in one direction. And then all of a sudden, some event triggers a change for us. Some unanticipated, and honestly, if you would have asked me a year ago, if I was going to adopt a puppy, I would have told you no, because of my travel schedule, but I was wrong. And so now, Heather and Maggini, the cat which many of you have seen walking across the camera when I’m doing podcasts, and I are moving at the beginning of December. And you know what? I think work is that way too. I think sometimes change surprises us or it comes in a package that we didn’t anticipate. And that’s actually what I want to talk to you about today.

But before I do that, I want to remind you that we are now in early bird pricing for the Build a Better Agency Summit, which is AMI’s is first conference specifically built for small to mid-sized agencies. There are a ton of conferences out there that teach you new skills. There’s Content Marketing World, there is MAICON which teaches us about artificial intelligence, there is MarketingProfs great B2B Forum. There are lots of conferences out there that teach you how to do your craft better. But there really are no conferences out there that talk about the business of running your business, which happens to be an agency. And as you know, that’s the AMI focus.

And so I’ve known for a long time, that there was this hole in the marketplace that needed to be filled. That agency owners and leaders needed to be able to come together and talk about everything from how to make sure your agency is profitable, to succession planning, to building an agency that has a true value that someday if you wanted to you could sell, to how to diversify your revenue streams and have money coming in from different places, to biz dev, to imposter syndrome, which I know a lot of people struggle with. There was no conference that talked about that specifically to the small to mid-sized agency owner.

And keep in mind, the average agency size in the US is eight people. So if you sit there and you think, “Oh, I’m a super small agency. I’m 10 people.” Actually you’re not. You’re above average. So there’s no conference out there that really talks to the issues that an agency of 100 people or less face. There are other agencies that call themselves small agency this or that, but their definition of small is 300 plus people, and they live in a completely different world than you and I do. Anyway, I’ve known for a long time that the conference needed to happen. Honestly, it’s a really scary proposition to sign those hotel contracts and make those commitments, but I just decided that now was the time.

And people have said to me, “The US might experience an economic correction soon. Why in the world would you sign those big contracts now?” Honestly, I signed them because I know we need it. I know we as an industry need it. And I know that, thanks to all the amazing people I’ve met who serve agencies, that I could bring together a group of people who would really rock your world, who would get you thinking in a bigger, better way, who would set you up for success no matter what’s coming down the road in the economy. And that’s how the Build a Better Agency Summit came to be.

Anyway, it’s May 19, and 20th. If you’re an AMI member, there’s an AMI family day the day before on the 18th. But it’s going to be amazing, I’m super excited. I’m thrilled that the people who have agreed to speak and be presenters there and share their expertise, most of them are giving presentations they have never given before. I’ve asked them to step out of their sort of regular routine presentations and talk to you as an agency owner, about their world.

And so it’s happening in Chicago. We are at early bird pricing right now. I am pretty confident that we will sell out and I don’t want you to miss out. So please grab your ticket now while they are as inexpensive as they’re going to be. Book your hotel room right now, because it’s also National Restaurant Week Association in Chicago that week. So hotel rooms are going to be hard to come by. We’ve got a big block for you already to help you with that. I hope you join us. I would love to meet you in person if we haven’t met before. And I’m proud of the fact that we are in a position that we can bring this to the industry and that we can serve you in the way that we do in this new and exciting and quite honestly, candidly between you and me, frightening sort of way. So if you want to ease my worry, and you want to really set yourself up for success in 2020 and 2021, buy a ticket. All right.

Let’s get back to this idea of change. And the fact that oftentimes it comes when we are not expecting it. That’s what I want to talk about today. Specifically, what I want to talk about is when I am hanging out with agency owners, which you know I do pretty much seven days a week, there are two conversations that I can always count on no matter what the year is. It is conversations around finding and keeping great talents, and it is around biz dev. But there’s a new conversation that I’ve been having with agency owners for probably about the last year or so. And the tenor and the veracity of the conversation is getting higher and more fever pitched in the last six months. And that’s around the recession that everyone is expecting, the economic correction here in the US that everyone is expecting.

I don’t know if it is because of the election. I don’t know if it is because of the political climate of our country. I don’t know if it’s just the economic pattern, where things can only do well for so long before there has to be a correction. Everything I read says that it is not going to be like the recession of 2007, 2008, but there is going to be some sort of a correction in 2020, 2021. Most people are saying 2021, but I want you to start thinking about how to prep for that now. Because I think there are ways for you to ready yourself so that no matter what happens, good or bad, maybe there’ll be no recession at all. Maybe there’ll be no correction at all. Or maybe the recession will be as bad as ’08 was. But regardless of where on the spectrum that falls, I believe I know that you can prepare yourself and your agency so that you can ride through it. And that you will come out on the other side, strong and stable and ready to carry on.

Remember that in our world’s history, it’s not just in the US, in our world history, every country goes through economic ups and downs. And many businesses not only survive, but thrive in those environments. You think about back to ’08. If you’re in business now, and you were in business back then, you are running a really good shop. You are a hearty agency owner, and whatever is coming down the road, you are ready for it. But there were some upsides to having to be more mindful about our money. Certainly the talent pool got greater, it got less expensive to agency owners, or certainly on the other end of the pendulum on that right now, where employees are super expensive. And an economic correction changes that, because all of a sudden the marketing departments of all of the big corporations who have been stealing our employees, the very first thing they cut is their marketing department. And so all of a sudden those people are available for us again at a more reasonable salary level. It’s also a way for you to trim back your C and B players, and really keep your superstars, invest in them, grow them.

So just like good times bring challenges, bad times also bring opportunities, and I want you to focus on that. However, there are some things you can do to ready yourself. Think of this as your emergency survival kit. These are things I want you to start thinking about now I want you to start doing now so that you are ready.

My dad lived down in Sarasota, Florida before he passed away. And one of the things that he had to do, because he was right on the coast, was he had to have sort of a hurricane readiness protocol. Everything from special covers for the windows to all kinds of other things. What that allowed him to do was feel confident and comfortable that when a hurricane came, because it was inevitable one was going to come sooner or later, when it came, he was going to be prepared and he was going to survive it and get through it and be fine on the other end. So think of this as your survival kit for whatever economic correction is coming. And even if there is no economic correction, none of these things are going to hurt your agency, they’re just going to make you stronger.

Let’s first talk about what I want you to do in terms of your existing clients.

One of the ways you can survive any change in our economy is to have a nice stable base of clients. So the first thing I want you to do is I want you to look at your client list. I want you to make a list of all of your clients, of the AGI they represent to your business, and the profit margin that they provide. So company ABC, the AGI is this number, and which represents 12% of my overall AGI, and they’re 13% profitable. So four columns: client name, dollar amount of AGI, percentage of AGI they represents, and profitability of that client. And if you don’t know how to get those numbers, that’s homework assignment number one. Is I want your financial reporting to give you that data on a regular basis. Now that requires that you do timesheets, and that requires you do other things, which I’m not going to get into in this episode, because I have hounded you about those things forever. But I want you to prepare that list.

And then what I want you to do is I want you to look for a couple things that are red flags. Number one, I want you to stop working for anybody who is less than ideally 10% profitable. Now, I’m not saying fire everybody tomorrow, and then as a result impact your cash flow. What I’m saying is, I want you to have a plan for those clients to grow their profitability. I don’t care if their AGI grows or not, I want you to make them more profitable. I want you to partner with your AEs to look at those clients and say, “Why are we only making 2% on this client?” Or, which I am sure you’re going to find, “Why are we actually in the red on this client? We’re actually paying for the privilege of working for this client.” That’s number one. Is I want you to look at the profitability, and I want you to put a plan in place to raise the profitability of each client to a minimum of 10% profitability.

The next thing I want you to look at is I want you to look at that percentage of AGI. And any client that is bigger than 20 or 25% is a gorilla. And a gorilla can kill an agency during a recession or economic downturn. The reason why is because you’re running so thin when times are slower, that when somebody big pulls out, you are left with a gaping hole and everything is in slow motion when the economy slows down. So biz dev, moving people through your pipeline, moving people through your sales funnel, is going to take longer if things are tighter economically. So I want you to identify if you have a gorilla. That’s any client that’s 20 or 25% of your business. You absolutely need to turn up the heat when it comes to biz dev.

I know that oftentimes what happens is when you have a gorilla, they’re so consuming and they’re so demanding that it’s really hard to step away and do biz dev. But the number one thing that you can do to recession-proof your agency is to balance out that client base so that no client is bigger than 20 or 25%.

Now, I’m not saying say to the client that is the gorilla, “Stop giving us money.” I’m not saying that. No agency would do it, even if I did say it. What I’m saying is, you’ve got to understand the risk that you’re in and mitigate that risk. That is you going through the hurricane without covering the windows. Of course, the windows are going to blow out. And of course, it’s going to damage your house sooner or later. You don’t know if the hurricane’s coming today, or in three years, but I promise you that your windows are going to blow out if you don’t have the proper protection. And for you, if you have a gorilla client, the proper protection is to mitigate the power that they have inside your agency by growing business around them. And that could be your existing clients growing them up and getting them stronger, or it can be setting your targets higher in terms of prospects. All right?

So client list, AGI by dollars, AGI by percentage and profitability, and fix those couple corrections.

The other thing I want you to do is I want you to start investing in your existing clients. I want you to figure out what you need to do to love on your clients, to have them know that they are incredibly important to you. That you as an agency owner or leader value them in a significant way. And I think that’s a couple things.

Number one, I think is pouring yourself into the relationship a little bit, deepening the relationship. I’ve talked to you before about my idea of what a client love meeting is, where you are spending time with a client socializing or just hanging out together, learning more about what’s going on in their business. And that’s a leader-to-leader thing, that’s not AE point of contact thing. So I want you to have more client love meetings, I want you to deepen the relationship, I want you to make relationships inside your clients with more people.

When there’s an economic downturn, one of the things that happens is our clients start laying people off. And if you only have one point of contact inside that client, then all of a sudden you’re at risk. So the next column I want you to add to that chart I’ve already had you start is how many people could you pick up your cell phone and call their cell phone? Because that’s a sign that we have a personal relationship. That’s a sign that we have a connection beyond just sending the CEO an email, or the head of HR an email. If you have their cell phone number, you have a relationship with them. I want you to have these relationships at multiple levels. I want you the agency leader to forge more relationships. And by the way, outside the marketing department.

I want you to be looking for opportunities to create relationships with HR, with sales, with R&D. All of those people, number one, have budgets and have projects that you could be helping them with. And number two, in many cases, they are the ones that are going to keep their jobs while the marketing director loses his or her job. So I want you to forge relationships inside those existing clients and I want you to have them at all layers. So again, I want you the owner or leader to have them at the C-suite. I want your AEs to have them with the department heads inside all of those departments I listed. But I want you to have a bigger presence inside your clients and I want you to surround them with agency folks, and agency help, and agency love.

The other thing I want you to be doing is I want you to be thinking about financial metrics. I want you to be living your agency life by the 552520. So for those of you that have not heard me wax on about this for eons, let me give it to you very quickly. Gross billings are meaningless. It’s a vanity number. I don’t care what your gross billings are, because your gross billings are dramatically impacted by your cost of goods. If you’re a media shop, you have a huge gross billings, but the lion’s sha