Episode 111:

Sam Mallikarjunan is a Marketing Fellow at HubSpot and former Head of Growth at HubSpot Labs, the somewhat-secret experimental arm of the world’s #1 Sales & Marketing platform. Sam teaches Advanced Digital Marketing at the Harvard Division of Continuing Education, and he is also the co-author of the book How To Sell Better Than Amazon (which, thanks to the publisher, is ironically available for purchase on Amazon).

 

 

What you’ll learn about in this episode:

  • The way the internet has changed selling so that there’s almost too much information
  • How salespeople can help consumers sift through the breadth of information out there
  • Structuring sales calls so they’re all about asking the buyers questions about their business
  • The power of inbound: competition where no one else is competing
  • Learning to say no to bad revenue
  • Why you need to build buyer personas — both for your ideal customers and customers that you don’t want to do business with because they’re going to cost you money
  • Why clients need agencies to teach them what to do — not how to do it
  • Getting involved with your client’s complete business — including the sales side of their business
  • How to get your clients to treat your agency like a partner instead of a vendor

The Golden Nugget:

“The ‘always be closing’ methodology is completely dead. The new way is more fulfilling.” – @Mallikarjunan Click To Tweet

 

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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 Institutes, 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 McLellan here. With another episode of Build a Better Agency. Today’s conversation is going to go all over the board. We’re going to talk about sales, we’re going to talk about business models, we’re going to talk about this notion of bad revenue inside an agency. And let me tell you a little bit about the guest who has the depth and breadth to have that kind of conversation. So Sam you know what, Sam, I knew I was going to do it. No, I want to try it though, Mallikarjunan, right?

Sam Mallikarjunan:

Yeah. I’m seriously debating, changing my legal name to Sam from HubSpot. More people say it anyways, so but yeah, Mallikarjunan.

Drew McLellan:

Mallikarjunan. See, I practiced before we hit record, I did it right three times and then the pressure of the red button [crosstalk 00:01:17].

Sam Mallikarjunan:

I know.

Drew McLellan:

Yeah. So, anyway, let me tell you a little bit about Sam. So Sam is a marketing fellow at HubSpot. He’s the former Head of Growth at HubSpot Labs. He’s worked in agencies, he’s worked with HubSpot’s partner program. He also teaches advanced digital marketing at the Harvard Division of Continuing Education. He has written a book called How to Sell Better Than Amazon, which he notes in his remarks is ironically available for purchase at Amazon. So he has had a wide variety of experiences that are very relevant to you and to me and so we’re going to just dig right into that. Sam, welcome to the podcast.

Sam Mallikarjunan:

Thanks for having me. I’m really looking forward to it.

Drew McLellan:

Yeah. I’m excited. I’m worried that we’re not going to be able to get it all in an hour, but I will do my best.

Sam Mallikarjunan:

No worries.

Drew McLellan:

So one of the things that you talk about is that the rules of sales have changed. So give us a little bit of context around that. As you know, agency owners typically are the primary salesperson inside their shop. And for many of them, it’s not something that they’re drawn to or something they’ve been trained to do, it’s just a necessity of the job. So agency owners are always anxious about and eager to talk about sales.

Sam Mallikarjunan:

Yeah. So the fundamental nature of sales has changed. And I say that with… I’m going to start off with a confession. You just have to promise to forgive me. You know those really annoying people in the mall who try and sell you cell phones?

Drew McLellan:

Yes.

Sam Mallikarjunan:

I used to train them.

Drew McLellan:

Wow.

Sam Mallikarjunan:

Yeah. But I have changed. I’ve progressed since then. But that used to be how we did sales. It was Glengarry Glen Ross, put that coffee down, always be closing. We literally showed Glengarry Glen Ross and Boiler Room into sales training back then. And it was smile and dial greet to eat, like just trying to crush through sales.

And that actually worked pre-internet. Because anytime somebody needed anything, I was the gatekeeper as the sales rep, I was the gatekeeper of all the information. If they wanted to know features, they had to ask me, if they want to know pricing, ask me, if they want to testimonials, they were going to get introduced to my buddy from college. All of that has changed now. So now, I almost feel bad when I go buy a car. First of all-

Drew McLellan:

It does seem a little unfair, doesn’t it?

Sam Mallikarjunan:

Yeah. It’s really unfair. First of all, I find the guy who’s still in the parking lot when it’s like zero degrees outside at the end of the month. He’s missing quota, so he’s fun to play with, he or she. But then when I get in there, he’s lost all of his power. I already know every model of car on his lot. I know what everybody else has paid for it. I know reviews of all the features. I know what his company has paid for that particular vehicle. So all of the traditional negotiating leverage or this idea that you’re going to be the gatekeeper of information and dribble it out and use that as your method of persuasion is completely dead. The always be closing methodology is completely dead.

The bright side is that the new way of sales is actually a more fun and enjoyable and professionally personally fulfilling way, which is that the promise I have too much information. So I’ve got the entire history and wisdom of the human race literally in my pocket and a ton of cat videos too but after all the information-

Drew McLellan:

I was going to say and Angry Birds.

Sam Mallikarjunan:

And Angry Birds or whatever. What I need sales reps to help me with is to help me make sense of all that. So to help me turn… I don’t actually know if this was included in the pitch sheet, but my wife and I live on the road full time in a converted Mercedes sprinter van. And so when I was buying that-

Drew McLellan:

Really?

Sam Mallikarjunan:

Yeah, yeah. We are in Yukon territory, Canada, right now on our way to Anchorage, Alaska. We’ll dig into that later. But when I was buying the vehicle, what I needed was somebody to help me understand, okay, here’s the job to be done that I’m trying to accomplish. So Henry Ford’s famous quote, if he’d asked his customers what they wanted, they would’ve said a faster horse. Obviously he didn’t open the Henry Ford horse breeding company, he opened the Ford Motor Company. I needed somebody who understood what I was trying to do and can help me make sense of the ridiculous amount of information, all the different features and everything else like that.

So it’s flipped the buying cycle on its head, and it’s just more enjoyable too. If you’re familiar with HubSpot, if you ever gotten a call from one of our reps, it’s weird for me. Because I went from the malls, having people literally throw stuff at us, to hopping on a HubSpot sales calls, and people get like excited. They get excited to talk to sales reps because they know that what it’s actually going to be is a value added conversation about their business.

So whether you’re selling agencies or whatever it is you’re selling, starting from that perspective of understanding the customer and helping them make sense of the information in the world and giving value before you ask for value actually will close more deals. So you’re more likely to hit quota if you are good at that, than if you’re a good, what we call classical closure.

Drew McLellan:

How do you combine that notion that idea of it’s really a more helpful sale and more authentic sale. It’s a more, I am helping you parse out from all of the information, the information that you need to make the best decision. How do you combine that notion with all of the emphasis on inbound and email marketing and all of that? How does that all intersect, do you think for an agency [inaudible 00:07:05]

I’m a typical agency owner. If I can sell four to six, good size new clients a year, that’s a good year for me because I’m keeping most of my clients. So I don’t need to sell millions of people. I just need to find a few of the right people. So how does all of this, from your perspective, fit together in this new kind of rules of sales?

Sam Mallikarjunan:

Yeah. So let’s break that question into two components. One is how does it fit with the sort of inbound marketing inbound lead flow? It changes the whole context of the conversation. Like if I called you and said, “Hey, Drew, this is Sam from HubSpot. I just want to take 15 minutes of your time to tell you how our software can help you grow,” you don’t want to talk to me. Man, let’s be honest. You’re going to hang up if you answer it all. But if I call you and I say that, “Hey, Drew. I saw you downloaded the guide to using podcast to generate sales leads. I took a look at some of the other podcasts in your industry, but before we talk about that, what are you working on? Why podcasting? Why now?” And we just spend the whole time talking about you. First of all, I get all of my qualifying questions answered that are native to the sales process, but I do it from the perspective of here’s some information I’m doing for you.

And I think this is what people forget about marketing is especially in a B2B role, our job is to start value added conversations between two people, between a sales rep and a prospect. Our job is to make the start to that conversation as valuable to the prospect as we can, and with as much contextual information for the sales rep as we can.

Now, the least work that we can do is tell the sales team to cold call, because there’s no context on the prospect side and there’s only whatever the publicly available information is on the sales rep side. The best way that we can do it is to get the customer to give, or they get the prospect to give us information in advance that we can then pass along to the sales rep.

The best model for this, I think actually is actually Netflix, even though it’s not at all a B2B sales model. I’ve rated it between 800 and 900 movies for Netflix. And the reason I do that is because I know, because most of us would kill to have our customers fill out a 900 question survey. But I do that because I know that Netflix is going to use that information to make my experience better. They’re not going to just use it to spam me or whatever, they use it to make the experience that I have with Netflix better. So I’m willing to give them all that information. And it’s the same psychology in inbound marketing and inbound sales. Is consumers will give us a lot of information in exchange for some educational material. And as long as we make it clear that, listen, we’re going to use this information to help you make a better decision, because that’s what prospects really want help with.

And then splitting up the second piece of the question which is, not just how it fits into the sales process, but how it fits into the design and such at the agency. You’re going to get, by definition, when you’re doing inbound marketing, when you’re educating people, you’re not going to get people who are ready to buy right now. You’re going to get some of those-

Drew McLellan:

But where?

Sam Mallikarjunan:

… But you’re not going to… That’s not going to be the only people that you get. Yeah. It’s not going to be the only people that you get because by definition, what you’re doing is you’re moving up the buying cycle and deciding to compete in the awareness and research phases of the buying cycle. Because if you’re competing in the purchase phase of the buying cycle, first of all, you’ve lost all your power. The only thing left is price. And second of all, you’re competing against [crosstalk 00:10:42]-

Drew McLellan:

Now, you’re basically in the RFP model? So right now you’re just filling out the form with everybody else/

Sam Mallikarjunan:

Yeah. And you’re competing against just whoever has more money. So if you’ve ever done PPC and bid on terms for purchase phase, like buy whatever now sort of terms, you’re going to be hit with whoever’s willing to take the lowest margin of profit on the process.

So the concept of inbound marketing and inbound sales is let’s build an audience of people to whom the product or service might be relevant and then let’s nurture that audience along an acquisition lifecycle. So you were saying, for example, you might only do four or five deals a year, but there’s still… that four or five deals a year can be powered incredibly by a 100,000 person community of people who you’ve given free education to.

I like to use… He actually worked at an agency by the way before he became a HubSpot customer, there was this guy who got a tattoo of the HubSpot Sprocket on his leg.

Drew McLellan:

Wow.

Sam Mallikarjunan:

And it was because-

Drew McLellan:

Okay, that is serious customer loyalty.

Sam Mallikarjunan:

I know. First of all, it’s weird. I mean, let’s be honest, that’s weird.

Drew McLellan:

Yeah, right.

Sam Mallikarjunan:

We’re a software company, so weird. But it was because we, we did all this information that helped him get into the world of marketing. So he read our blog, all of our webinars, et cetera. We had a certification that helped him get his job and a community board like jobs board, inbound.org that helped him get a job. And then we have this ongoing support to help him be successful.

And even if he’s not, so he wasn’t a customer, but even if he wasn’t a customer at the time that he got that tattoo, do you really think that we’re going to have to compete on price when it comes to once he does have the authority, and the budget or whatever, whatever reason was keeping him from buying at the time. Once he does have that, we’re not going to have to compete on price. And that’s an extreme example, but that is… When you’re talking about filling your pipeline, particularly with agencies, that’s the real power of inbound is. You’re competing where no one else is competing. It’s brutal. It’s hard to teach and to educate and compete in that phase. So if you do it successfully, you’re going to see a lot of positive results.

Drew McLellan:

Yeah, absolutely. Well, and I think the other part of that too, is that I actually think that the new model of sales fits much better with an agency model. Most agency people that I know love to teach, they love to help their clients have those aha moments. They like to guide them along the process. And so that sort of fits more comfortably, that feels less confrontational or less yucky than traditional sales.

Sam Mallikarjunan:

There are people, people, right?

Drew McLellan:

Yeah, right.

Sam Mallikarjunan:

You go into a people business, like otherwise they would start a software company. So it’s not just yucky by the way. Every year we do a survey that asks a simple question, “Who do you trust?” And in 2016, in North America, at the top where firefighters and teachers, and then further down are barristers and professional sports athletes. And then at the very, very bottom, there’s a tiny sliver of people who say they trust politicians and lobbyists. And then below them, rounding up to 1% of sales and rounding down to 0% is marketers. So in North America, in 2016, if you’ve followed politics at all, it was an interesting year, we lost to those people.

Drew McLellan:

That’s sad.

Sam Mallikarjunan:

We lost to those people in terms of who consumers trust, because we’ve spent the last century abusing people’s attention and making it all about us. So, you’re right. It feels better. It’s a more enjoyable sale, particularly for the people, people that you tend to find at agencies and it’s a better business, like it’s better acquisition and retention economics and it’s just better for the world. Marketing is weird.

As far as I know, one of the few industries that had another industry spring up with the sole intention of stopping us from doing our jobs. So like TiVo and DVR and ad blockers, there is a very large industry whose goal is to prevent marketers from doing their jobs. And it’s because we’ve been incredibly annoying about it for the last 100 year.

Drew McLellan:

Yeah. Yeah. I think this is a better phase for us, hopefully, that’s for sure. So one of the things that agencies are really wrestling with is as you and I talked about offline, before I hit the record button is agencies are struggling. The whole idea of a retainer or ongoing work becomes more and more elusive. Clients are much less likely to sign an agency of record contract, clients are a little cagey or with their budget, and they want to piecemeal it out project by project. And you were talking about this whole idea of really thinking through and designing the business model and that there is a way to get more retainer income built into that model. So you want to talk a little bit about that?

Sam Mallikarjunan:

Yeah, absolutely. So if you ever take finance courses, particularly the US, you’re eventually going to come across a phrase “cashflow is more important than your mother.” And I get that. And I get it and it’s what we’re taught in school. It’s one of the foundations of capitalism is that capitalist [inaudible 00:15:57] resource and you want to keep cash flowing into the business, sometimes you’ve just got to keep the lights on. And I understand that.

But that being said, there is such a thing as unhealthy revenue. You can grow yourself out of business, either by making it so that the time to payback, so the cost to acquire a customer versus how much they pay you. If the time to payback is too long, you could just run out of cash in the bank, that’s one way. Or if you’re just acquiring them, the wrong types of customers, the wrong way, you can lose money. So the cell phone people that I was telling you about, the reason they no longer harass you in malls is because it turned out that the average contract length for somebody who was activated from one of those malls was about three months before they canceled their cell phone contract. And in my store, honestly, it was probably even less because we were just focused on closing. We didn’t really care or talk about what the customer did. And the cell phone company was actually losing money, even though we were closing deals, we never missed quota. I never missed quota. Even though we were closing deals, bringing in revenue, the cost to acquire a customer was out of balance with what that customer is worth to us over the longterm. So they shut down that process.

And we know this intuitively. We know that there are some customers who are worth more to us than other customers. And we’ve all had that one customer where we’re like, this person has got to be costing me money. But we then get stuck in this constant cycle of, well, let’s just bring in any revenue, any revenue is good revenue and that can be really damaging to the business.

So project based work can make sense and you can actually get good cashflow for it, and there’s a time in an agency’s life cycle where that’s absolutely the appropriate thing to do. But if you want to scale and grow and build a sustainable business with healthy revenue, saying no to potential revenue is actually a very important skillset. It’s a very important piece of decision-making, so that you can focus on either increasing the monetization of the existing recurring revenue clients, or investing more cash, more capital in acquiring some of those retainer clients.

So I know it’s hard. Trust me, I wish we could sell HubSpot ad hoc, just pay us on a monthly basis [inaudible 00:18:15]. But no, we have to sell it as a subscription because we know that if you’re not successful with the software, you’re not going to stay around, you’re not going to be a customer longterm. And so we know that if we don’t make that work, that you’re not going to… the business model is going to break down. It’s the same thing with an agency. If they’re not successful with the agency work, they’re not going to stick around. You’re not going to be able to build a long-term business off of that revenue.

Drew McLellan:

Well, one of the metrics that I really encourage agencies to look at as profitability by client, because of exactly what you’re talking about is when you look at the money in, in a big bucket, it’s hard to know who’s contributing to that bucket and who’s not, especially compared to what it costs you to service that business. But it’s pretty easy when you do a client by client comparison of profitability. It’s easy to see. And for most agencies, the first time they do that, it’s a little disheartening because they literally, in most cases for the lower 5% or 10% of their clients, they’re paying for the privilege of doing that work for the client.

Sam Mallikarjunan:

Yeah. And it’s easy to brush it off, because we don’t usually, especially in smaller agencies, we don’t charge for our own time. And so we don’t think about the opportunity cost of other things that I could be doing as well when working with some of those customers. But we all know that. The person who’s paying you the least amount of money is always going to be the loudest, most obnoxious and most demanding. And if the agencies listening have not yet done the buyer persona exercise. It’s not just a useful exercise because it helps you do better marketing and sales, it is how you should segment the user acquisition economics of your business.

If you want a case study on this, by the way, Harvard Business School wrote a case study on HubSpot’s persona based unit economics. But there’s a reason, for example, that we don’t go hard after the enterprise space. So even though the enterprise space might pay us more money, I got to fly 12 people out there to buy 14 other people, 26 different steak dinners in order to close the fricking deal and then they’re going to keep my half the engineering team busy-

Drew McLellan:

Yeah, tweaking.

Sam Mallikarjunan:

… for the next six months customizing it the way they want. Yeah. So, we look at they actually do have a higher monetization value, but they also have a dramatically higher cost of customer acquisition and cost of servicing that deal. And because of that, the business model is out of balance. It’s that is why HubSpot stays in the mid-market space. We don’t want to spend a ton of time acquiring and servicing enterprise.

Now there are some enterprises that are way ahead of their time that [inaudible 00:20:55], things like HubSpot, but it’s not a good business for us. We don’t want to be in that company. So we actively don’t pursue those people because we know that putting a dollar into acquiring a mid-market company might give us $5 out [inaudible 00:21:10] putting a dollar into acquiring an enterprise company might give us $3 out, in terms of monetization.

Drew McLellan:

Well, and I think many agencies don’t have a really clear picture of who their sweet spot or their best customers are. And so they tend to splash around in the water, just looking for anybody and everybody. And in the end those are the clients. Those are the customers who either come and go, or a lot of times out will look at those numbers and some will say, I know we’re not making a lot of money now, but they’re one division of this big company that’s, fill in the blank house. Okay, how often has that worked well for you? How often have you taken it in the shorts for three months and then all of a sudden magically, the vault opens up and money just starts pouring out? But I don’t know if it’s agency owners are just optimistic or they’re afraid to say no to any dollar, but a lot of agencies struggle with this whole idea of this as you call it bad revenue of, I’m taking a $1 in, but the reality is I’m spending a $1.25 between my labor and all my other expenses to service that dollar.

Sam Mallikarjunan:

Yeah. We actually have a exclusionary buyer persona. So people that we won’t sell to, unless there’s a really compelling reason. And as you probably know, we give all of our buyer personas cute alliterative names-

Drew McLellan:

Of course.

Sam Mallikarjunan:

… like Marketing Barry and Owner Ollie. Internet Ian is our exclusionary buyer persona, because, I don’t want to talk about HubSpot too much, but it’s just an example I know well. Our value proposition is that it’s all in one. Everything is stitched together, you have all the tools that you need. Internet Ian is the sort of person who’s going to write their own queries in sequel and then stitch together their own series of tools using API in Python and stuff like that. Even if we could get a person like that to buy HubSpot, they’re going to be such a pain in the butt, on our support team and our product team and everything else that we’re just not going to sell to you.

You’re right, that is a hard thing to say, but you to have that vision down the line where it’s like, yes, this might be a short term injection of capital. And again, I get it. Sometimes you need a just a short term injection of cash. But once you get past that, hopefully you don’t live in a persistent state of that. If you do, then we have other problems. But once you get past whatever that phase is, you have to look at what’s going to be the longterm monetization potential, and is this customer going to cost me money? And it’s hard. It’s hard, but you have to be able to say no to some potential sources of revenue, otherwise you’re going to build a business that doesn’t know who it is and that can’t make money.

Drew McLellan:

I love the idea of having a persona that you won’t sell to. I think that’s… because you know what, as soon as you create that persona, then you recognize them. You go, “Oh, I know who that is.” Okay, I’m going to sidestep that.

Sam Mallikarjunan:

And it feeds the marketing team too. So I was running our expansion into the e-commerce market and as marketers, it’s easy to fall into the trap of, I want to write content that I find interesting, but impresses my friends and family. And so I had on the queue, I had an ebook that was going to be the e-commerce marketers guide to advanced statistics. Now fortunately, I meet with the sales team and I listened to their connect calls before I go out and create content, because again, my goal is to start a conversation between two people. The sales team saw that on the queue and threatened to throw me out of the fourth floor window, because anybody who actually… Because HubSpot is not a statistics tool. Like we’re not selling R or Looker or something here. It’s not even a BI tool really. So anybody who downloaded the e-commerce marketers guide to advanced statistics would be such a pain in the butt to sell to, and then would be a terrible customer if we actually close them-

Drew McLellan:

And be disappointed.

Sam Mallikarjunan:

And be disappointed. They would not be happy, successful customers who are going to leave us great reviews on Gartner’s Magic Quadrant. So I can see that in advance because we know that Internet Ian persona, the sales team and the services team, or even I should have before putting it on the list, raise my hand and said like, listen, this does not matter to E-commerce Ernie. This is an internet Ian thing. You’re going to generate the wrong kinds of leads with this, which is going to generate the wrong kinds of sales, which is going to generate the wrong type of revenue.

Drew McLellan:

Yeah, yeah. I think that’s a great idea. I want to dig into a little bit about what you’re teaching in your advanced digital marketing class. But first let’s take a quick break.

I get that sometimes you just can’t get on a plane and spend a couple of days in a live workshop and so hopefully our online courses are a solution to that. Lots of video, hours and hours of video, a very dense, detailed participants guide and all kinds of help along the way to make sure that you get the learning that you need and apply it immediately to your agency.

Right now, we’ve got two courses that are available. We have the Agency New Business Blueprint, and we have the AE Bootcamp. So feel free to check those out at agencymanagementinstitute.com\ondemandcourses. Okay. Let’s get back to the show.

Okay. We are back. And right before the break, I told Sam, I wanted to pick his brain a little bit about what advanced digital marketing things he’s teaching, because as the agency owners and as agency leaders, we’re constantly pushing to try and sort of stay ahead of the curve. So as you are building out your curriculum, a couple of things, one, what are some topics that you think agency owners need to have top of mind, and two, what sources do you use to make sure that you’re always staying ahead of the curve?

Sam Mallikarjunan:

Yeah. So I teach at a couple of different schools, University of South Florida in Tampa and then Harvard University, obviously. I specifically teach in the division of continuing education and knowing your audience is very important. I don’t actually like teaching to undergrads that much. I’ve done some guest lecturing at Boston University and such because they’re just there to like check something off their list. They thought it was going to be an easy class because… and they don’t really care.

The people who take my courses because it’s their one week of tens of courses are generally existing professionals. So they have context and they’re taking a week out of their time and, I’m not going to pretend the courses are cheap, and so they’re spending a fair amount of money to go to a course and try and figure out the way of thinking that we have along with the specifics. If you just want to learn the specifics, there were ways. Inbound.org is a great website. Just go there, ask a question, or go to [Cora 00:28:17], ask a question wherever you want to go and somebody will answer it or you can generally find on Twitter or just Googling around the answer to a specific question such as, “Should I have a country code top level domain for this country I’m expanding into?” That’s a very niche SEO question, you can Google the answer to that.

What we focus on is because these people are existing professionals. One of the people who took my class the spring semester was VP at a Fortune 100 company who had just absorbed the digital marketing team onto his unit. He had previously not managed the digital marketing aspects for this brand. And so he took it to try and learn the ways that we look at the world. It’s easy again for us to say that it’s super, super obvious that you should measure your entire funnel. But in the State of Inbound report, stateofinbound.com, we found, I think the latest number was like 30% or something of marketers don’t measure their ROI in any way whatsoever. And then looking at it, introducing the concepts of customer centric, unit economics. So when I say that, what I mean is that idea of persona cohorts, where you put a dollar into acquiring a customer of a specific type and you monetize that specific type of customer over a period of time. That’s actually a new ish in the world of business, specifically the idea that you can lose money to acquire a customer. That’s new. It wasn’t until Jeff Bezos at Amazon really started teaching us that you can grow it to be one of the most valuable companies in the world without actually issuing a bunch of dividends.

So we touch a lot on that, which is the different frameworks for looking at business and marketing economics. And then we do go into a lot of specifics. So I want, ironically given the podcasts that I’m talking to. When I’m teaching SEO or social media or something, the people in my class are generally not going to be the practitioners, they’re going to be the people hiring an agency to do it. And my goal is to make sure that they can have an informed conversation with an agency, because I’m sure it’s no one on this podcast, but you’re going to end up with some agencies. Like I play this voicemail when I’m teaching, that’s, “We have a position reserved on page one of Google just for you.” And it’s so stereotypical and everybody will eventually get one of those calls.

Drew McLellan:

Yeah, absolutely.

Sam Mallikarjunan:

So a lot of what I do is I’m teaching them sort of like my understanding of software engineering. I am not a software engineer, but I was able to work at HubSpot Labs because I knew enough to speak intelligently to the engineers, tell them what the vision was and then also know if what they were saying didn’t make sense, or it didn’t jive with my experience. Not really liking to tell them they’re wrong, but it gave me a more informed perspective. And it’s the same thing for them. I want them to know enough about a broad spectrum of things. So we talk about the sales process, the sales cycle, we talk about economics bit. We talk about SEO and social media, at some decently advanced levels. So for example, I introduced the basic concepts of machine learning and AI when we’re talking about SEO now. Because if you’re dealing with an agency that’s working on SEO, they should be living in a rank brain world. Right. But a lot of them are not. So I want to equip the students with the tools to go have those sorts of conversations with agencies.

Drew McLellan:

So as you’re equipping them with that, what kinds of things… If you were going to hire an agency, what are some of the things that you’re looking for? And it’s not that the listeners probably don’t have it or know it, but they may not be talking about it in the way that they should. So this is a rare opportunity for them to get a peek into the buyer’s brain or the buyer’s brain that you’re influencing. So what are some of the things that you’re telling your students to ask or look for or listen for as they are engaging or looking to hire an agency?

Sam Mallikarjunan:

So I’ll tell you from my personal perspective as well as the students. What I’m really looking for is somebody who has insight and a unique perspective that’s very measurable, so somebody who is going to help me understand the model better. I have confidence that you have great designers, and I believe that you have wonderful copywriters and great videographers and everything else. That’s not really a competitive advantage. There are lots of those everywhere in the world, especially we live in a remote work world. I have confidence that you have those skill people.

Where I usually see agencies fail in a relationship, either with brands I’ve worked with or heard stories about is a lack of understanding about the business. Having the breadth of experience to, for example, dig in and talk to the sales team. I talked to tons of marketers who generate these inbound leads and the sales team still insists on cold calling because they know that process. And I want an agency that can help me with a diversity of those alignment issues, but then get really good at metrics and measuring and helping me understand the complex buying cycle, where am I losing people right now.

Knowing what to do is a much more significant challenge than knowing how to do it. As I said, I can Google the answer to most questions or I can find some expert and buy the answer from them. But I have limited time in my day, I have limited resources in my budget, I need to know what I should be doing and I need somebody who can make an informed and educated case for why we should be doing what, much more so than I need somebody who’s just great at PPC.

Drew McLellan:

So one of the things that I do for agencies is I put together a trends report and things that I’m seeing impact agencies. And without a doubt, one of the things you just talked about is smacking agencies across the face right now, which is the whole idea of measuring and metrics and being able to help a client. So when an agency interfaces with a client, in many cases, even big clients, big Fortune 100 clients, even talking about measuring and metrics, the clients often don’t have the mechanisms inside of their organizations to easily do those measurements. And so agencies used to take that as we can’t do it. And now today agencies are really rolling up their sleeves and working with clients to try and figure out, okay, how can we do it? We have to be able to measure. We have to be able to monitor. We have to be able to tie ROI, as you said, all through the sales funnel. And if you don’t have the tools inside to do that, then we have to figure out some tools or some workarounds or some methodology that allows us to measure and track if what we’re doing is working.

Sam Mallikarjunan:

Yeah. Or again, that may not be a client that you take. So when I do my side consulting, if you’re not going to me talk to your sales organization, I’m probably going to decline the engagement. Because all the traffic and leads and stuff in the world mean absolutely nothing if I’m pouring gasoline into a leaking engine. And that’s my personal setup. I’m not saying every agency here has to insist on talking to the sales team, but just the advice that I’m going to give you is not going to drive a return. And you’re not going to stick around for a really long time as one of my consulting clients, if we’re not building this alignment between sales and marketing. And so if the customer is not going to be committed to helping me get the information that I need, I know that I’m not going to be able to make them successful and that’s bad revenue.

Drew McLellan:

Right. Well, and the other interesting thing about that is it used to be in the good old days of marketing and advertising, you didn’t talk to the salespeople. Often cases, they were the enemy. There was this line between marketing and sales and often they were-

Sam Mallikarjunan:

They hate each other.

Drew McLellan:

Yeah, there were spitting across the line at each other. And so as an agency, you are very much aligned with one side or the other and it was typically the marketing side. And I think you’re right. Today, I think one of the big changes for agencies and some agencies have really embraced this and others are having a hard time wrapping their heads around it is you have to step over that line. You have to be as involved with the sales team as you are with the marketing team, otherwise you’re not going to keep that client for very long.

Sam Mallikarjunan:

Yeah. No one blows up the bridge connecting two parts of the city. So that’s actually some of the best agencies I’ve seen so far, have been the ones who just got really good at making a bridge between divisions, whether it’s sales and services or marketing and sales or whatever. Because you are not a line item. You are an integral piece of the continuation of the business model. And if you can do that, you’re golden. Then you can land and expand into all these… Like your agency from earlier if you said, well, they’re just one piece of this much larger company. I might believe that if they were positioning themselves as a bridge inside the company who could then expand out into the rest of the company, but short of that, I absolutely don’t believe it. And again, just say no. It’s a bad revenue.

Drew McLellan:

So back to the stuff you’re teaching in your class. So as you are working with your students, I’m also assuming that they don’t come in without already having interacted with agencies or might have a relationship already, where are they banging their heads against the wall? From your perspective, what could agencies be doing better and what could the listeners either put a spotlight on if they’re already doing it, or ramp up, if they’re not, what are the things that they can do that would actually make them different than the sea of agencies out there?

Sam Mallikarjunan:

Yeah. The things that I hear most people complain about with agencies are, again, lack understanding, either you don’t understand me, or you’re not helping me understand what you’re doing. And then there’s also… There tends to be this inertia in relationships with agencies that you sort of alluded to earlier. So inertia, yes, is an object in motion stays in motion, but it’s also an object at rest stays at rest. I just helped one of my friends fire their agency and it’s not that they were a bad agency. It’s just that they never really took the time to dig in and like proactively help understand. So proactively help. Yes, the sales team was not passing information back and the product team didn’t have very clear messaging around the offering.

But I’m not hiring agencies to do things that I know need to be done, I’m hiring an agency to help me understand what needs to be done and to help be a driving force for that. This is one of the most bizarre things about human behavior, but it is absolutely true that sometimes an agency will go into a company, say the exact same things that the internal champion has been saying, but now suddenly because it’s an objective third-party everybody believes it. There’s a lot of power in the agency relationship and in being an outsider and not leveraging that outsider power and relying on benign neglect, like just, “Oh, good, they forgot to cancel their retainer this month,” is not a way to build a healthy long-term business.

Drew McLellan:

Yeah. I think some agencies have had their hand slapped. And I also think part of this is a little bit of leftover behavior from the recession where agencies were just, as you said earlier, just sort of scraping to get by and there was no bad money. Money was good money. I think agencies lost a little bit of their bravado, a little bit of their courage to go into a client and really have a bold opinion and be, especially if it was in conflict or contrast to what they thought the client’s opinion might be. And I think I’m watching agencies get their swagger back and really embrace the fact that they have knowledge and insight and perspective that makes them valuable, but it’s only valuable if they voice it.

Sam Mallikarjunan:

Yeah. We all got taken down a peg 10 years ago, didn’t we?

Drew McLellan:

Yeah.

Sam Mallikarjunan:

And that’s definitely true but… And you’re right. I see this behavior, there’s this temptation, especially when you’re talking to the CEO or something. But unless they’re a terrible CEO who has no level of self-awareness or a terrible CMO who has no level of self-awareness, they’re hiring you because they don’t have the resources or the skill sets or whatever. So, people, it’s easy to get intimidated by your customers. But you have to remember that they’re paying you by definition because they’re not as good at it, or as efficient at it as you are, otherwise, they would just do it themselves. And you’re absolutely right. That courage to champion a cause inside of a company, if you can implement a program that the key stakeholders don’t actually agree with, that is an incredible triumph of trust. And normally that’s reserved for inside a company. So at HubSpot, if I wanted to launch a campaign or something like that, even if our CEO disagreed with it, I’ve still done it in the past. I have launched things that he disagrees with, but I have that trust because I’m inside the company.

If you can have that same level of trust as an external agency, that’s incredibly powerful, but you have to have the confidence to ask for that level of trust and you have to be able to demonstrate that that trust is well founded. So make a solid argument for it. Be able to measure the impact of what you’ve done.

If you can’t measure what you’re doing, by definition, you can’t improve it, at least not in any methodical or intentional way. And if you can’t improve what you’re doing, first of all, you’ll probably be replaced by a bot in the next 10 years. But second of all, you’re just a line item. You’re an expense line item that’s disposable at any time. So that’s absolutely jived with what I’ve seen, is having that courage to be a force for change inside of an organization is why we hire agencies? Otherwise, I would just hire a PPC person. There are plenty of PPC people in the world. I’m trying to hire an agency that brings with it a holistic set of competencies that can help me change the direction that I’m going in. There’s no other reason to bring on an agency.

Drew McLellan:

Well what I find fascinating about all of that is one of the grouses that I hear agency owners talk about all the time is when they get treated like a vendor and yet sometimes they show up like a vendor, ready to take the order. And then it’s like, well, you’re being treated in the way that is consistent with how you’re showing up. And if you want to be treated like a partner, part of what a partner does is a partner asks questions and a partner pokes and pushes and challenges. And so I think to be a great agency partner today, you have to have the courage to step out from the shadow and to have a strong opinion and have a point of view that may or may not align with where your client’s head is at that moment.

Sam Mallikarjunan:

And have the courage to ask stupid questions. So I don’t have an agency but I do consulting. And when I’m working with a new client, I make it very clear that I’m going to over-communicate in the beginning and I’m going to ask a lot of stupid questions, because fear of asking stupid questions is how mistakes are made. And I don’t have that fear because I have another job. So if I’m working with somebody, it’s because I think they’re working on something interesting. I get that there’s a different level fear when that’s also, potentially 20% of your revenue that you’re talking to. But you have to have that confidence, that keeping that 20% of your revenue that you’re talking to maybe base on having some hard conversations.

When I was an onboarding consultant at HubSpot, my manager, this is eight years ago, my manager walks up to me because she heard me talking on the phone to one of the prospects or one of the customers and she’s like, “You can’t talk to people that way,” because I had used some expletives and I had told him that what he had just said was the stupidest thing I had ever heard. But that was me customizing myself to what he needed to hear, the client, the customer needed to hear in order to drive change. He spoke that way, he acted that way, he was a gregarious fellow and he wanted to feel like he was being told what to do by somebody who was confident and competent and frankly smarter than he was. And that was the relationship that I had to build with that particular customer. And maybe he cancels and says a like, listen, I’m not going to blog three times a week, I’m not going to launch a podcast, I don’t care what you say, but that’s fine, then he’s not going to stake around anyway. He’s not going to be a healthy customer. I should feed that data back to the sales and marketing team and let them know not to bring me customers like that anymore.

Drew McLellan:

Yeah. I think part of the courage of owning an agency is having the confidence to know that you something of value to offer. And to your point earlier, when somebody’s paying you $150 or more an hour, they can go to Elance and find a designer or a copywriter, or as you said, an SEO person or whatever, or PPC person.

Sam Mallikarjunan:

Totally.

Drew McLellan:

They’re buying the bigger brain capacity and the whole view that you bring to their business. And so we have to have the courage to offer what it is that we sold in the first place.

Sam Mallikarjunan:

Yeah, don’t be a commodity. So if you’re an agency and you’re going to compete off of the sort of commoditized work that I could buy on Elance or freelancer.com or whatever, first of all, you’re now fighting a price, depression war because you are going to compare yourself against my Lithuanian college student who writes great script and only charges $20 an hour. Your competitive advantages, your extendable core if you will, which is the Harvard phrase for the piece of your business model that no one else could replicate without adopting the same cost structure, your extendable core is the knowledge and experience and context that you have again, to help me know what to do and to manage that process effectively. So yes, I could go hire a PPC person, I could hire an SEO person and all this other kind of stuff but I may not also know how to direct their talents most effectively. How to help them focus, because I can only hire one PPC person, so we’re only going to explore one paid channel at a time, how to know which one of those to do. That’s the special extendable core, that’s the special thing that I’m hiring an agency to do.

So if you let yourself fall be treated like a commodity, if you build your business around being a commodity and it’s, again, I know it’s tempting but it’s one of the reasons I really hate project based work, if you let yourself be siloed as a commodity, it’s going to be very, very hard for you to build a big business or a happy, healthy, even sustainable long term business because you’re not going to have the investment from the client that you need in order to make them successful.

Drew McLellan:

Well, that’s why the consulting firms, the Accentures of the world are kicking agencies asses right now is because they come in with what you’re buying is my strategy and smarts and a lot of agencies are still selling stuff.

Sam Mallikarjunan:

Yeah. That’s a good way to put it. You’re not selling stuff, you’re selling the context of your experience. And those consultants at Accenture and BCG, smart, delightful, wonderful people, there are plenty of agency owners in the world. I would almost argue the majority of agency owners in the world who have as sophisticated or more sophisticated experience than anyone at Accenture or BCG or any of those folks. The difference is, and I joke about this with Harvard sometimes, because a lot of times we… So we do a survey, the majority of people who say they took the class and we ask them, what was the key factor in you choosing this class over other classes? It was the Harvard name.

Drew McLellan:

Sure.

Sam Mallikarjunan:

So even though this material may be available elsewhere, David [Scott 00:49:09] got a wonderful blog on customer acquisition economics. That name, that credibility, helps you overcome a lot of inertia in the institution not moving forward.

Accenture and BCG have that, your agency doesn’t have that, so don’t be the puffer fish. Don’t try and pretend like you have that. Go in as like, listen, we’re lean, we’re adaptable, I have in this industry that is particularly valuable to you. And you’re not developing a relationship with this nameless, faceless, large brand. I’m going to be in your business, helping you grow with the context of my experience. Don’t fight battles you’re not designed to win.

Drew McLellan:

Yeah. Amen to that. Well, as I suspected, I have more questions, but we are out of time. So if folks want to track you down Sam, if they want to read what you’re writing, if they want to follow your content and your thinking, where’s the best place for them to track you down?

Sam Mallikarjunan:

Absolutely. So I do have a personal website, it’s mallikarjunan.com.

Drew McLellan:

Of course, it is.

Sam Mallikarjunan:

Of course, it is. And I’m on Twitter @Mallikarjunan, but if no one can spell either of those, the primary place that I write and share my research is thinkgrowth.org. thinkgrowth.org is where I publish most of my research.

Drew McLellan:

Okay. Well, we’ll make sure that we have all of those URLs, including the ones with your last name in them in the show notes. This has been awesome. Thank you so much for making the time to do this and for sharing your expertise. I really appreciate you being so generous with your thinking and your time.

Sam Mallikarjunan:

My pleasure. Thank you so much for having me. It was a great conversation.

Drew McLellan:

That wraps up another episode of Build a Better Agency. Hopefully you found it incredibly helpful and inspiring, and that you are ready to go out and do some great things.

I also want to talk to you about another tool that we’ve built that I would love to offer you. So, as you have probably heard me preach, I believe a lot of agencies chase after or the wrong new business prospects. And I think we do that because we have not taken the time to clearly define who our sweet spot clients should be. And the way you do that is by looking at your current clients and then developing out who your prospects should be based on your best current clients. So we’ve put together a sweet spot client filter, say that five times fast, that I would love for you to take advantage of and for you to use inside your shop to figure out exactly who you should be targeting for new business. To get access to that free tool, all you need to do is text AMI for Agency Management Institute, as you might imagine, AMI, text that to 38470. Again, text AMI to 38470, and we will get the sweet spot client filter out to you right away.

Thanks again for listening. If I can be helpful, you can find me as always at [email protected] Otherwise, I will touch base with you next week with another great episode. Talk to you soon.

Speaker 1:

That’s all for this episode of AMI, Build a Better Agency, brought to you by HubSpot. Be sure to visit agencymanagementinstitute.com to learn more about our workshops, online courses, and other ways we serve small to midsize agencies. Don’t miss an episode as we help you build the agency you’ve always dreamed of owning.