Episode 155

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It’s a bit of a milestone episode here, episode 155. It seems like an odd number to celebrate, but it means this podcast has been going strong for three years now! (52 weeks = 156 episodes) So thanks for listening, whether you’ve been around since the beginning, or this is your first time here!

As I speak with agency owners and decision-makers every day about their agencies and their business development efforts (or lack thereof!), we talk about the value of niching their agency. It’s the old brain surgeon versus general practitioner and the relative value proposition of each.

Your niches (note the plural) can be industry-specific, a certain methodology or in some limited cases – a specialty (PPC, etc.). But what do you do when you’ve narrowed down the niches you want to serve?

That’s what this solocast is all about. How do you actually walk out your talk and live/sell and profit from your niches?


What you’ll learn about in this episode:

  • Why establishing niches for your agency is so important
  • How many niches should an agency have and why?
  • How do you promote your agency’s special sauce/niches and expertise
  • How sweet spot clients intersect with your niches
  • The business development process to sell to your niches
  • Why helping your clients be better at their job is the heart of your biz dev plan
  • What to do with those clients outside your niches that you don’t want to fire

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 and key executive 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.”

The Golden Nuggets:

“There isn't a magic formula to this. You, you have to look at your niches and decide which one needs to be built up, and which one that you have the best shot at building up quickly and successfully.” – @drewmclellan Click To Tweet “For developing a successful content strategy, I advise using the following mantra: How can I help you, prospective client, be better at your job today?” – @drewmclellan Click To Tweet “One of the biggest mistakes agencies make is they lunge at the sale and they scare away the prospect.” – @drewmclellan Click To Tweet “Successful agencies have these things in common: they carve out their niches and they own them with their subject matter expertise.” – @drewmclellan Click To Tweet


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Helpful Resources from this Episode:

Ways to contact Drew McLellan:

We’re proud to announce that Hubspot is now the presenting sponsor of the Build A Better Agency podcast! Many thanks to them for their support!

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, 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, please welcome your host, Drew McLellan,


Drew McLellan: Hey, everybody, Drew McLellan, here. Thanks for joining me. Welcome to another episode of Build a Better Agency. In fact, this is episode 155, and while that probably doesn’t sound like a normal number that you would celebrate, I’m celebrating that number because 156 is 52 times three. So, I am just about ready to wrap up our third year of podcasting. And I have to tell you, next week, accomplishment of completing our third year, really reminds me how many great episodes we’ve had, how many great guests we’ve had.


  And mostly in terms of gratitude, I am grateful to you. So, thank you. Thank you for listening. Thank you for your feedback for your ratings, your reviews. Thanks for coming up and saying, hello, to me at conferences and telling me about an episode that really resonated with you, or that really helped you make a change in your agency.


  I’m so grateful for the feedback. I’m so grateful for all of you coming back every week to listen. I love the stories of where you listened to the podcast. I know I’m out on walks with dogs right now. I know I’m on treadmills right now. I’m probably on a commuter train too.


  So, thanks for taking me along with you, and for welcoming me and my guests into your schedule and your life. I’m grateful for every one of you. And I’m grateful that I get a chance to whisper in your ear every week. I love producing this content. I love talking to these amazing smart people that I get introduced to every week, and then I get to introduce you to every week.


  But what I love most of all, is that I hope in some small way am helping, that I make this tough world, this tough work we do a little easier, a little more profitable, and hopefully you feel a little less alone. So, thanks for listening. And here’s to year four. I’m excited for where we’re headed. We’ve obviously already recorded some of the early episodes into year four of the podcast, and you’re going to love them.


  And so, I just appreciate the fact that I know how busy you are, and I know that you have choices in terms of what you listen to, so I’m grateful that Build a Better Agency is one of the things you choose. So, thank you very much for giving me the ability to be that voice in your ear and to come alongside you on the journey.


  Another way I’d like to thank you, and another way we’d like to thank you every week is that we have all this amazing stuff that our podcast guests give us. So, if you loved last week’s episode with Daniel Lemin, about Talk Triggers, the book he wrote with Jay Baer, very, very soon, we’re going to be giving away a copy of that book and a little stuffed lama, that the guys sent me along with copy of the book to give to you.


  So, make sure you go to agencymanagementinstitute.com/podcastgiveaway. And as you know, if you’ve already signed up for that, then you’re all set. You don’t have to do it again. But if you haven’t done that yet, make sure that you go, because we give away workshops. We give away books. We give away classes. We give away access to some of our online courses. So, don’t miss out on that. And if you’ve already won, don’t worry, that doesn’t mean that you’re out of the running, so you can win again.


  So, thanks for joining us. Thanks for being a listener. And thanks for letting us share some of the great stuff that our guests give us to share with you.


  As you can see, if you’re watching the video version of the podcast, I am in hotel room. I am in Chicago for one more day, and then I’m headed to Philadelphia. So, and the sun is just coming up. So, I’m guessing that the lighting in the video is going to change a little bit as we talk, but hopefully that won’t be too distracting because I have a lot of things that I want to share with you.


  So, one of the listeners shot me an email and said, “Hey, I think we’re good. I think we’ve figured out what our niche is, but I don’t know how to convert my agency from being a generalist to an agency that really honors the niches that we’re going to serve.” So, Kathy, thank you for asking the question. Thanks for forgiving me a great topic for the solo cast. So, that’s what we’re going to talk about today, is why niche? And if you have identified the niche or niche areas, and we’re going to talk about why I think it should be niches, not niche, how you go about moving your agency from that more generalist position to more of a specialist.


  So, let’s first talk about why you should niche. So, the reality is, we know that clients prefer hiring an agency that has expertise in their industry or subject matters. So, in 2015, as part of our Agency Ed Research series, we talked to a bunch of agency decision makers. So, they were CMOs, business owners, anybody who hired an agency. And what they told us is with a resounding yes, it was not a small number, that they really prefer to hire an agency that has expertise in their world.


  And we all know this, every client believes that their industry or their business is completely unique, and that if you’re not familiar with the work that they do, then you can’t do as good a job. And so, we then asked them, “Well, how much of the agency’s work needs to be in your category or industry, or niche for you to think of them as a specialist, as opposed to a generalist?” And the number was 25%.


  So, if you have 25% of your billings or your clients in their space, they consider you a subject matter expert, they consider you an expert. So, you are a niche player for them, and for them, that has value. And that value by the way, translates to how you can build those clients. So, the analogy that many of you have heard me use is, there’s a very big difference in what we pay a brain surgeon versus a general practitioner. And if I have to have surgery anywhere near my brain, while I’m sure the general practitioner is good at what he or she does, I want the specialist. And I will pay anything that it costs to make sure that I have the best person doing the surgery on or near my brain. Right?


  So, the clients are telling us that that is their attitude as well, is that if they have a strong opinion about wanting a specialist, they get that your specialty means that you are going to be more expensive. So, in a world where a lot of our work is being commoditized, because we’re competing, not only with other agencies, but in-house agencies, with freelancers, and it’s difficult sometimes to make in there in terms of what you need to charge per hour. Not that I’m suggesting you charge by the hour, but as you’re building out your estimate, one of the ways for you to be able to charge a premium price for your work is to be a specialist.


  And also, quite frankly, it’s easier as an agency, it’s easier for you to stay current. It’s easier for you to have a true depth of expertise in a couple of industries, rather than every industry. It’s also easier for you to create a thought leadership position for you not to create content, which we’ll talk about in a minute that is generic, and that any agency could own. It’s easier for you to truly be a thought leader and to have content that really informs and educates around your expertise. When you have 27 different kinds of clients in 27 different industries, it’s pretty tough to produce that kind of volume of content. And it’s pretty tough for them as the buyer to sort through all the other 26 industries to find the industry that matters to them. But when you only have three or four specialties, it’s much easier for them to identify that you really understand their business.


  It’s also easier when you are a niche agency to have a strong point of view about that industry and where the industry and marketing collide. And that strong point of view is what differentiates you from all the other agencies, who also have that specialty. Because let’s face it, you’re not the only agency out there that says that you know how to reach moms, or is the only automotive agency, or whatever it is, the only healthcare agency.


  So, you’ve got to have more than the niche to really be differentiated in the space. And having a strong point of view around the work you do and how to reach the audience, you need to reach, that’s much easier, and you have a much more credible story, if the niches you serve are not vast, but it’s just a handful.


  And at the end of the day, and this may be the most compelling reason of all for you, it’s a lot easier to fish in one pond. So, if you know that your agency is focusing on a specific industry or category, then it’s easier for you to go out and be known in that category for you to show up at the right trade shows, for you to produce the content, for you to put together a targeted list of prospects. All of that is easier when you only have one pond to worry about.


  So again, if you have one pond per niche, and you have a finite number of niches, which we’ll get into in a minute, it’s a much easier prospecting world for you. So, all of those reasons are why I think it’s super important for you to niche out your agency.


  So, why don’t all agencies do this? Well, honestly, and you all know this is true about yourself too, it’s tough to walk away from a dollar. If somebody walks in the door and they’ve got a big bag of money, it’s difficult to say, “Thank you no, but that’s not the kind of agents who we are. Let me give you a referral to somebody who I think can help your business.” And it’s a little scary to put all your eggs in one basket. So, by the way, I’m not a fan of the one basket, but I am a fan of a few baskets. And I’ll elaborate on that in a minute.


  And sometimes when you decide to niche down your agency, so once you’ve decided what those niches are, and you look at the team that built or the processes, or the software you subscribe to, or the deliverables that your agency is known for, the reality is, and some of that may have to change, and sometimes that means swapping people out, or it may mean adding a new discipline or skillset into the shop that you don’t have now. So, either you have to train the people you have, or you have to hire for it. So, all of these things make it super difficult to have the courage to really niche. And yet we know that the benefits outweigh the risks.


  I cannot tell you, you know that I hang out with agencies every day, and I will tell you that the agencies, and by the way, I see their financials, the agencies that are killing it, the agencies that are growing and doing well, and adding staff, and that new business is getting easier for them, and they are crushing their content, all of those things, those agencies have niched down, so that they are specialists rather than generalists, without exception.


  So, it’s really, as I’ve alluded to a couple of times in my comments, I believe that it is not an all or nothing thing. So, I am not a fan of an agency having 100% of their AGI or their revenue tied to one niche or industry. And I’ll tell you why I’m not a fan, is because we don’t get to control the economics of our world.


  So, there were a lot of agencies that were making a lot of money and doing really well right before the recession hit. And those agencies, especially if they were in the home building space or some of those kinds of industries, they completely tanked, or they went out of business because there was absolutely no demand for their expertise, because of the economy. And they had to be able to just basically downsize and skinny up as tight as they could, oftentimes just down to the business owner or partners, and let everybody go. And then they had to just survive on whatever scraps they could get until the recession ended. And I will tell you, the agencies that survive that no longer do work in the home building industry, they have carved out different niches for themselves, because they realized that it was just too risky.


  So, many of you have probably heard me talk about this before, but I think it bears repeating. I am a fan of a three or four legged stool. So, I am not a fan of a one legged stool. I don’t want to sit on one of those. I don’t feel that it’s particularly stable. Not a fan of the two legged stool, again, not very comfortable, and feeling stable on that, but a three or four legged stool that is a sturdy stool. I can sit on that. And if one of the legs gets a little wobbly or a little loose, there are still two other legs or three other legs to prop me up.


  So, from a numbers point of view, what I’m saying to you is, I would like you to have three or four categories of clients. And for most of you, let’s look at the three legged stool first. So, the first leg of the stool is going to be your biggest client or clients. So, it might be your largest couple of clients in a specific industry. So, that’s industry number or niche number one. The second leg of the stool, same thing, an industry where you have multiple clients and a depth of expertise, niche number two. And I would say each of those legs needs to be about 40% of your overall AGI.


  So, one of the keys with niching in this model, this three or four legged stool model is trying to keep the legs pretty balanced, so that one is not longer than the other, because again, what that does is it makes the stool a little unstable. And it will take a while for you to balance out those legs. And that’s fine. You just need to watch the numbers. And we’ll talk about that in a second. You need to watch the numbers, so that you can balance out the stool.


  And the third leg of the stool in my three-legged model is what I call the kitchen junk drawer. So, everyone has a drawer in their kitchen that’s got this… You’ve got your silverware drawer. You have your utensils drawer. You might have a kitchen towel drawer. But you have one drawer in your kitchen that is the catch all, it’s got stamps, it’s got tape, it’s got notepads, it’s got pens. It’s a junk drawer, right? So, in the agency world, I think of that as your buddy’s boards and brag worthy of stool legs. So, that is legacy clients that are now your friends, that don’t fall into your niche, but you’re not going to make them go away.


  We all serve on boards, or we have family members or something, where we have some obligation, some familial obligation, whether it’s a true family, or it’s like you sit on a nonprofit board that generates work for you, that you can’t really say no to. And then there are probably a client or two on your roster that are just, they’re either a great name, they’re a great referral source, but there’s something about them that makes them sort of brag worthy and worth keeping, even though they don’t fall on your niche. And the key is to manage that junk drawer, so that it doesn’t get too big.


  So, in my three legged stool model, I would say the first leg of your stool, that first niche is about 40% of your AGI, ideally. So, this is what you’re working towards, right? I’m not saying that off the bat, this is what it’s going to be.


  The second leg of your stool, also 40%. And your junk drawer stool, your catchall, your buddy’s boards and brag worthy, is no more than 20% of your total AGI. And if it’s more than 20%, then you’re getting very close to not being a specialist.


  So, I’m giving you permission in air quotes to have some things outside of the industries or the niches that you choose. And by the way, a niche doesn’t have to be an industry. It could be an audience. It could be something else. But typically it’s an industry. I’m giving you permission and I’m saying, it’s not practical for you to say, “All we do is rural non-profit healthcare systems, and we will turn down all of their work.” It’s not practical. So, you’re going to have a little bit of work that sits outside of your industry specialties.


  On the four legged stool, as you might imagine, you’re going to divide those four legs by about 25%. So, the first leg is going to be your first niche or industry. And that’s typically either one or two large clients. And then the second industry or niche is about 25%. The third i