Every agency wants to be their client’s go to partner. It’s not enough to deliver top notch creative or marketing strategy. Today’s clients (as we learned in our CMO research study) want an agency who can think beyond marketing and help them with solving wicked problems.

My podcast guest, Gareth Kay, and his company Chapter, does just that. Tightly defining the fundamental problems that need to be addressed is what his creative business does best.  They weave this “solve wicked problems” attitude into every aspects of their business and if that’s not what a client wants them to do – they actually offer to help them find a better fit.  The result?  They don’t just change their clients’ messaging or marketing campaigns. They change their business by solving wicked problems.

Gareth comes from a traditional agency background but when he and his partners broke off to start Chapter, they knew they wanted to do something different.  They’ve successfully made this transition and you can too.  Gareth and I cover the following:  

  • Gareth’s decision to venture off and start Chapter
  • What makes Chapter truly unique
  • How to build a business model and hire employees when the work you do is very diverse
  • Becoming a client’s partner through absolute transparency
  • How to generate new business when you’re in the project based business
  • Creating ideas and solutions vs creating “stuff”
  • How Chapter develops and retains its staff
  • The importance of transparency with your employees
  • How Gareth’s perspective has changed since making the jump into ownership
  • Things agencies can do to move away from widget sales to selling ideas and problem solving

Gareth Kay is a strategist by trade. He’s co-founder of Chapter, a creative business partner dedicated to solving wicked problems facing pioneering businesses. Prior to setting up Chapter, Gareth was Chief Strategy Officer and Partner at Goodby, Silverstein and Partners and the Head of Planning at Modernista! In his decade in the US, Gareth has led strategy on brands including Google, Cisco, TD Ameritrade, the NBA, General Motors, the Bill and Melinda Gates Foundation. and (RED).

To listen – you can visit the Build A Better Agency site (http://buildabetteragency.com/gareth-kay/) and grab either the iTunes or Stitcher files or just listen to it from the web.  

If you’d rather just read the conversation, the transcript is below:

If you’re going to take the risk of running an agency, shouldn’t you get the benefits too? Welcome to Build a Better Agency where we show you how to build an agency that can scale and grow with better clients, invested employees, and best of all, more money to the bottom line. Bringing his 25 plus years of expertise as both an agency owner and agency consultant to you, please welcome your host, Drew McLellan.  

Drew: Hey, everybody. Drew McLellan here. Welcome to another episode of Build a Better Agency. Every week we try and bring you a guest who can give you a different perspective on your shop and how you can do things better and I have no doubt that today’s guest is going to do that. So many of you have heard of or know Gareth Kay. He’s a strategist by trade. He’s the co-founder of Chapter, a creative business partner, dedicated to solving wicked problems facing pioneering businesses. And so one of the things we’re going to talk about is how agencies are evolving and what a wicked problem is. Prior to setting up Chapter, he was the chief strategy officer and partner at Goodby, and head of planning at Modernista! His decade in the U.S., he has led strategies on brands including Google, Cisco, TD Ameritrade, the NBA, and lots of others. Gareth, welcome to the show. Thanks for joining us.  

Gareth: Hey, Drew. Thank you so much for having me. It’s a pleasure to have a chat.  

Drew: You’ve existed in big ecosystems in agency life and now you have ventured off and started your own. What prompted that decision?  

Gareth: I think it was in many ways, Drew, a long time coming. I was very lucky to have worked at some great ad agencies with some absolutely amazing people who are far better and brighter than me and really helped bring me on in the industry. But I think I got to the point towards the end of my time at Goodby, Silverstein where I began to really question whether we were giving the clients the type of advice they needed to drive their business forward and whether we were doing the type of work that was actually valuable to human beings out there in the real world to change their behavior.  

I guess my observation, it’s not rocket science, was when you work in an ad agency or a digital agency or an innovation agency or consultancy, unfortunately, the output you make tends to determine the advice you give to clients. If you’re an ad agency, you tend to see, as much as you try not to, you tend to see the world being full of advertising size holes. You think that way. Most importantly you have a machine as a muscle memory that’s really, really good at making a certain type of thing, and you have clients as well that tend to come to you for a certain type of thing they want to buy from you.  

I just increasingly began to think are we, in all conscience, doing the best thing for our clients to solve the problem that lies at the heart of what’s holding their business back? As much as I loved my time at Goodby and frankly, I think I realized when I’m facing these marketing problems wasn’t a brand issue, as a category issue, and I began to realize that I need to maybe try and start a different type of company that in many ways colliding together lots of different types of creative organizations to try and build something a little bit different and a little bit new. That was I think the bet myself and Neil Robinson and Brandon, who are my partners here, took to leave our good agency lives and try and start a different type of creative company.  

Drew: So when someone says to you, “Is Chapter an agency?” how do you differentiate the work that you do from what most people would define as agency work?  

Gareth: Well, I think a lot of the time it’s not so much the word agency. I think the word agency does have some issues too, but I think it’s the prefix you put in front of the word agency where you define yourselves by the type of output you’re making, whether it’s a branding agency or a design agency or an ad agency. You’re very much beginning to define your business by the outputs in a very neurospecialization. I think that when we talk to our clients about is really being a creative business partner. Being a company that’s really obsessed about solving the real fundamental business problem by whatever means are necessary. As a result of that, the type of work we do, the type of advice we give, is deliberately diverse because there’s so many problems that are intrinsically different that a client faces. They require different solutions.  

A lot of what we do frankly exist in the collision between product innovation and brand communication. One observation we made was there’s been a false wall put up, we believe, between the worlds of product and the worlds of brands, both inside client organizations, but also inside the companies that serve clients and offer them marketing services. We felt that there was a job that should exist where colliding those two worlds together to actually solve the problem by what the business demands and what people need rather than perhaps a muscle memory or a specific type of outputs is just a much better offering for clients.  It’s much more fun, frankly, to work in. It doesn’t mean you have to build something different in terms of a structure of the agency, but I think it’s something that it just creates something that’s far more valuable to businesses.  

Drew: One of the questions I suspect agency owners have as they’re listening to you is how do you build the business model for that? How do you know who to hire and how do you know how to charge for that kind of work?  

Gareth: Okay. We’re 18 months in. It’s only experimental in the moment, but here’s what we’ve learned so far. I think the first thing we’ve learned is when you’re hiring people, really hire people who are very diverse in their background, their experience, and their thinking. We haven’t just hired advertising people, for example.  We’ve hired people who worked on the client side. We’ve hired people who worked more in I guess a digital space, an advertising space. It’s just that real mixture of people’s experiences. Just letting them see wicked problems differently. Secondly, with the type of person you hire, you have to look for people who are very curious. They are, to use a horrible cliche, T-shaped in nature, so they’ve got really good, deep skills in one particular specialization, but real interest in other areas.  

We really expect, for example, our strategists to be able to think creatively and not just write very smart, briefs and PowerPoints, but actually be able to come up with good initial creative ideas of what the thing might be that the solution it suggests. We also expect designers and creative folks to be able to be good strategic contributors and they’ll be able to think strategically and say, “We’ll look for people who are that very T-shaped model.” Then I think the other thing we’ve realized was the biggest mistake you can make is to try and have all the skill sets and all the resources under your one roof and have that control of ownership.  The closed agency system tends to build where… Certainly it’s good being an AKQA as they are alma maters of the partners and we love those places. But one of the issues I think there is they try and do everything under one roof and have all the talents inside the agency. One, because it’s how you make money is by selling people’s time, but secondly, I think there’s a bit of ego and pride that exists in terms of we want to literally have our thumbprints on absolutely everything we do.  

We made the decision that if we’re going to really deliver best in class solutions across very diverse outputs, we have to have an open networks model where we would actually partner with people to bring them the best in class skill sets with very specific tasks. It just means we have to build up what we jokingly call a rebel alliance of some really awesome partners.  Whether it be in video production, motion, graphics, user experience, whatever, that we can bring in depending on the project to build the team of awesomely deep skill sets of solving wicked problems. Part of it is about the people you hire. Part of it is about I guess a structural thing which is about being open rather than closed. That’s the structure piece. I think in terms of the pricing, it’s a decision you make as a company how you want to charge them.  

I don’t think we got to necessarily the final answer on this yet, but we made some very simple decisions early on. One which was we were not going to sell people’s time. So, there’s no time sheets that exist inside the organization. We ask clients to do one of two things. One, which is either to pay for what we believe is the perceived value of the work and then we use some of the tools. Like mirror pricing for example, where we try and talk about what we believe the value of the project we’re working on can bring to the business. But secondly, if we’re not going into that model, and not all clients are open to that, I understand why because of the degree of ,I think uncertainty around that model.  That’s why I actually go, “This is absolutely going to go and deliver this value.” The other thing we look to doing is, frankly, a fixed pricing model.  

As an agency, we tend to work on a sprint basis.  That’s one of the big things we’ve taken, I guess in being in the Bay Area and being heavily inspired products development inside Silicon Valley.  And actually really build a team is based around sprints and how much sprints essentially cost per week depending on the team we’re putting together for them. Then you work at how many sprints we think we’re going to go and need to be able to go and build the deliverables. It’s still a model that’s based to a degree on the cost of human capital, but I think it’s one that’s a little bit fairer than just the normal kind of FTE model, which is the predominant way of pricing certainly in the companies I worked at in the past.  
Drew: From your client’s perspective, how transparent are you guys with all of this in terms of A, kinda still a big experiment, B, we’re pooling in a lot of partners from the outside depending on the work we’re doing, and C, this is our billing. How do you have those conversations?  

Gareth: Well, I think the biggest thing we’ve learned is just be really honest and transparent with our clients because at the end of the day, it’s that model of being partners with them and not vendors. I think one of the biggest things we’re very, very clear with our clients about is when you buy into Chapter, you’re not just buying the people.  That what you’re buying is a network of talent that we can bring to bear on the problem we’re going to solve. We are very open to our clients about who the partners are we’re going to work with and why we’re choosing them. We don’t try and white label them.  We’re actually, we believe there is real value in talking to our clients about we’re building this constellation of stellar talent for you.  

The amazing thing in doing that is so obvious.  Is you have partners who are really excited to work with you because then they’re not being passed off as essentially white label freelance talents.  They’re being having their brand built at the same time. I think that’s been a really positive thing and all the clients we’ve worked with have been very, very open to that. In terms of experimentation and being very honest about where we are in life, I think we attract a certain type of client.  That notion we have of pioneering companies, is one where that isn’t about size of client or a type of clients, but our mindsets of clients.  

And clients who’ve got a degree of bravery and who know that they have a problem, but don’t quite know how to address it, are very open, I think to working with us.  Because they see us as being I guess, fellow pioneers and provocateurs trying to get to a better and different solution. I think that’s just a really important thing in terms of getting the fit of your clients right with the company. In terms of pricing, we’re incredibly open about our pricing structure. We are very clear about when we’re going to work. We have a discussion upfront about how do we feel about the value based pricing versus more of a fixed price approach. And then we explain to clients the reasons why we offer the model that we do.  

We think there’s huge upside to basically focus on the output we’re delivering as being the driver of price, rather than the hours it may take to do it.  Because we feel there’s an incentive that when you talk about the hours it’s going to take, the tendency on the agency side can be to have as many senior expensive people working as long as possible on a problem to go and drive the biggest price and profit for the company. We talk about we want to be nimble and lean and agile, and our pricing reflects that. It, frankly, gives the client a reward of us not trying to overstaff a solution and actually deliver a lean and nimble team, but also incentivizes us as an agency to actually work fast and work smart.  

Because if we can deliver it quicker and cleverer and with perhaps lower intensity of efforts, then that means we have an upside in terms of profitability which I think is a fair thing to do. It’s about having an open conversation with clients. I think one of the things, Drew, that I think was important to us and enabled to build this model was to make a decision very early on that we didn’t want to be an agency of record for our clients. We didn’t want to be someone that came in and said, “What I want to do with you is sign a multi-year, multi-million dollar retainer.” We actually want to come in and actually have our scope very tightly defined around a specific problem and solving that problem. Of course, we hope that we’re going to get other engagements from those clients based on the quality of work we did for that project.  

But being a deliberately project driven approach, I think this allows us to have a much more honest conversation with clients, and frankly have clients who are prepared to take a chance on a young company who are very much a work in progress and a bit of an experiment, but not taking a long-term very, very expensive risk in working with us.  

Drew: While you are guys are in your startup mode, you certainly all have a pedigree that would make a client have a lot more confidence in working with you. It’s not like you’re 20-year-old kids who’ve never done this before. You guys have all worked for some pretty impressive agencies on some pretty impressive brands, so I’m sure that helps.  

Gareth: It helps hugely, Drew. Certainly the best bit of advice we got when we started the company was Gary Briggs, who was my old Google client and now the CMO of Facebook, has just been an incredibly generous man of this time and counsel to us when we started up, and giving advice and looking at what we were doing from a client’s perspective. The thing he kept saying to us was, “Don’t forget who you guys are individually. That’s what clients are going to buy at the beginning.” And he was absolutely right. In the beginning, they were buying our reputations and our pedigree. I think the nicest thing for us as a company I have to say though was, I think about March or April of this year when we did our first new business meeting where we only showed work made by Chapter and there was no mentions of past clients, sizzle reels of past work.  

It was all based around the work that the team here has done as Chapter. That was a wonderful moment where you can actually begin to go, “We’re actually building something as a company now where there’s hopefully credibility and capability being demonstrated in the work we’ve made.”  

Drew: I think you’re right. I think now all of those talents have come together and you’ve mixed up a different recipe. I’m sure it’s nice to be able to lean on that, although I’m sure still people are relieved at the skill level and the experience level that you guys bring.  

Gareth: I think you’re right. I think that’s what clients buy is they buy the people, they buy the chemistry, they buy the experience, and they buy the skill set. It’s, I think, the often forgotten thing about the agency business is that’s what clients are buying.  

Drew: You mentioned that you guys are purposefully choosing not to be agency of record. As you know, I think a lot of clients are walking away from that model anyway, but there a lot of agency owners who still hunger for that because of the consistency. Any agency that is going to be project -based by nature has to always have their new business machine churning. How are you guys generating opportunities for yourselves?  

Gareth: That’s a good question. We’re not as good as an industry as we should be. I think that’s probably one of our biggest learnings starting the company is trying to better understand the new business pipeline. I think we’ve had a couple of learnings. One is, it takes much, muho runs the creative group at Salesforce, worked with Neil at AKQA. He really respected Neil. They have a habit of bringing in relatively young companies to work at Salesforce around specific prch longer than you think it’s going to to get from initial conversation to having a signed piece of paper for a project. It shouldn’t have surprised us, but it did surprise us at how long that can take. In terms of how we’re filling the machine, certainly initially we were very lucky to have, I think, some friends and family, I guess not really family, but people who are really tighter than friends, who wanted to give us a chance to work with us. We were very lucky that JD Swartz wojects. Our first thing was working with Salesforce.  

We had, I think, a bunch of those where friends reached out to us to see how it would work. But really what’s been happening I think over the last, I don’t know, year or so, has been a word of mouth thing that’s begun to happen where thankfully, I think, some of the clients we’ve done work for have begun to recommend us to bend that work of friends and peers. And then slowly but surely word is getting out about the company and that’s led to some really awesome engagements. But there’s no doubt that the first thing we did and we still do is just harvest our LinkedIn profiles pretty heavily and just see what people are up to, so either past clients or friends of clients that we worked with in the past.  

If I’m going into a new role, we will try and reach out, somewhat have a conversation. We certainly found that we probably have the best chance of having an offering that’s right for a client when they’re often either going into a new role themselves or they’re at a company that’s going through a significant moment of change. That’s really been our biggest things in terms of a new business is really looking for almost like identifying moments of opportunity rather than necessarily people or brands. I think very much our ranking order for working out who to reach out to is going from moments of opportunity, then people, then the brand itself.  

And I think unfortunately still, a lot of new business efforts tend to focus the other way around and look at the brand first and go, “I really want to work on this brand or work on this vertical category.” I just think it was an interesting model which is just looking more for moments of opportunity which is hard work. You’ve got to go and keep your eye on the ball and be aware of what’s going on in the world. I think it’s actually a much better quality of conversation than just going after a bunch of people you know will have friends who know, or going after the brands you perhaps think you’d like to work on.  

Drew: I think the referral model works for awhile and then sooner or later, you got to put a new business machine in place. Gareth, I think you guys, A, your reputation, B, I know the media follows you and pays some attention to what you do, so that also helps. Right?  

Gareth: It does. Certainly our personal profiles have helped that way. We have not put into place that kind of new business machine yet. I think we’re luckily at the scale where we don’t really have to be too concerned about that right at this moment. But we know it’s something coming and we know it’s a really difficult thing to get into place. Frankly, I think one of the things we’re struggling with and I’m sure many other agency owners go through this is do you begin to think about bringing on your own new business lead inside the organization. And certainly my hunch is that is absolutely the wrong thing for us to go and do because I was feeling in many ways it’s investments inside a discipline that should really be a cross people discipline inside the organization.  

And in many ways a big responsibility of the founders as opposed to bringing a specific new business person who is there to make it rain as they say. I’ve never been convinced about the efficacy in which certain investments that discipline brings to an agency. That’s my personal bias.  

Drew: My experience in working with 250 or so agencies a year is that the new business guy or woman rarely pays for themselves, let alone brings profit to the agency. It’s a very rare individual. And without a doubt in every case, the best sales person for an agency is one of the principals.  

Gareth: Yeah.  

Drew: So I think your hunch is right. As you’ve lived in agencies and as I have certainly been around them for, gosh, 30 years now, we certainly have seen the commoditization of agency work. And I think one of the challenges for agencies is a lot of the magic in the stuff that agencies make has really been with freelancers and computers and all of that.  It makes it harder to create real value around making the stuff, which is, I think why you guys have made the shift into really being a solver of these wicked problems. Talk to me about your stance on selling ideas and solutions versus stuff. Because it sounds like you have designers and other people who can implement and make stuff on staff and you talked about partnering with folks that make stuff. How do you balance all of your creative projects and continue solving wicked problems for your clients?  

Gareth: Okay. I think what’s been remarkable qualitization where agencies by and large were, it’s a horrible phrase, but selling widgets. They were selling bits of output and that’s just got increasingly commoditized. Just take a look at ad agencies in a moment. They gain squeeze at every which way they can from production companies to digital agencies, to PR agencies, to content agencies.  They’re really pushing down the pricing and they’re making command on the average cost of making an X length video for example. I think what we wanted to look at doing was to really build a model where we were looking at having that more upstream consultative approach where we’re really looking architecting against the fundamental problem for our clients.  But at the same time not just falling into the trap of “selling PowerPoints,” but actually being able to architect and make solutions.  

A lot of our conversation to client overall engagements, starts off with initially working out actually what is the problem we need to go out and solve. I think as an industry we’ve been pretty bad at actually really understanding what is the fundamental problem we need to address and solve. I think far too often we take the client’s brief at face value. I think far too often that client’s brief has ended up being diluted down to a game of telephone that goes on the side of the client organization where the CEO or founder’s imperative gets transformed into a marketing objective by the marketing director, then gets transferred into a communications objective by the head of advertising or the VP for advertising, gets transformed then into a certain brief by the supplier. I think that’s a really dangerous model.  

So we found that a lot of, I think, our best engagements and where we generated the best value for our clients and the engagement has come from spending really serious time in working through what is the fundamental problem facing the business. You have to look at that obviously through to two lenses, one which is understanding of how that company makes money. But secondly, looking at the human usage and understanding where the pain points are.  Then eradicate where the barriers are, then take them away, where the opportunities are to go and delight users. I think looking at the world through those two lenses and actually spending the time to really tightly define the absolute fundamental problem we need to address is the most important thing we do for our clients in many ways has been the thing that I think has set us up for success.  

I think it’s not so much about ideas versus the things you make, the widgets you make. I think a lot of the value we get is actually from just actually doing the problem definition piece upfront and making sure we’re solving wicked problems rather than basically becoming producers of very expensive band aids for symptoms.  

Drew: It’s interesting. I think one of the challenges you’ve solved and I’m anxious to hear how you’ve done that is a lot of agencies struggle…clients are used to and comfortable buying something tangible. They can associate a price value with that and all that, but it sounds like you’ve solved the problem of helping clients understand that there’s value in that discovery and defining of what we’re trying to actually do and getting paid for that. What does that conversation look like?  

Gareth: Well, I’m not sure about so much of a conversation, Drew, is I think it’s more about perhaps the type of clients we work with. We turn away quite a lot of new business leads here which, frankly, sometimes you wonder are we crazy doing this?  But I think it’s done for a good reason, which is when a client comes to us with a brief which essentially is, “I need an advertising campaign,” or “I need a social media campaign,” or “I need a new website,” we already worry whether that’s going to be the right kind of client for us because it kind of gets to a point where they feel they know what the solution is. And it’s almost like, “We’ve given you the paint by numbers picture. Please now go and paint this for us,” which immediately puts you into a commoditized trap.  

The brief we react really well to are clients that come to us and go, “Look, things aren’t right at the moment. We know we need to change, but we don’t know how we need to change.” Those are the kind of briefs we get excited about because immediately they’re predisposed towards, “Let’s go and work through what the problem is that we need to go and solve and address.” I think it’s less about in many ways the conversation we have. I think it’s about really making sure that the clients you choose to work with and the projects you choose to work on are the right ones. Where there is just that willingness to understand that we need to go and address the issue first before we get to going, “Here’s the solution. Let’s go and make it.”  

That ties us just fundamentally, what we want to go and do as a company is really have that fundamental moment of change on a client organization rather than just getting to the maintenance business. So, that just means it becomes, in many ways, a filter for the type of projects and clients we take on.  

Drew: You talked a little bit about hiring the right staff. Well, especially out of the Bay Area, you guys must be experiencing the same thing everybody else is in the country, which is the shortage of great employees.  

Gareth: Totally.  

Drew: How are you continuing to develop the people you have so they keep getting better? What does that look like for you and how are you creating an environment and a culture that hedges the bet that they’ll stick around?  

Gareth: Great question. There’s no doubt that talent is the biggest single issue facing this industry at the moment. It’s certainly the truth here. I think what we’re trying to do in terms of developing staff and, frankly, helping them keep them here is we’re in many ways pushing them outside their comfort zone and trying to give them new challenges, new problems, quite often a sense of “I don’t quite know how to do this” in every project they work on. I think one of the greater things about being project based is that there’s a stream of very different problems that’s going to hit someone’s desk and someone’s time over the course of six months or a year. If you’re looking for people who are innately curious, want to grow, want to feel the challenge, that in and of itself is both brilliant in training, but also a great retention policy because it’s really about people working things out in many ways for themselves, and trying to provide that environment where it feels safe and comfortable, and there’s counsel and advice, and there’s a permission to fail.  

Just that motivation of we’re going to give you a real range of challenges that are going to make you feel uncomfortable, that’s going to push you, is something that plays really well with the type of staff we’re trying to hire here. That’s just one thing I think that really helps, probably the single biggest thing I think that we do to really attract and retain staff. I think the other thing, I think, an abused phrase in many times is being really clear about the company values. Quite often company values become some kind of game of adjective soup about being nice and collaborating and all those types of very good, but just fairly bland types of values. What we try to do is really put a tight filter on defining values as the things that we value in the people we hire.  

It’s the things that help us make decisions about who to hire, who to fire, unfortunately, sometimes.  And also how we review and reward people over the course of a year.  And just being really crystal clear around those values and having them expressed to the staff consistently. Not just through words and some document, but most importantly in the behavior they see inside…

Drew: The decisions you make.  

Gareth: Decisions you make, yeah, particularly in the founders. I think far too often the set of words that exist inside an agency and then the decisions that you see happen are often at complete odds of one another. That thing, it’s that old Bill Bernbachism, “A principle is not a principle until it costs you money.” I think sometimes if you’re really going to go and get people to go, “Oh my God. They really mean this,” is when you’re making a tough decision around a project whether you take it on or not.