Our job as an agency is to provide value to our clients and help them woo and win their best potential customers. After all, marketing, according to Peter Drucker, is about understanding the customer so well that the product or service fits him and sells itself. Value added marketing is one way to do exactly that.

Agencies are under the same gun – we have to be able to demonstrate value. But the game has changed and many agency owners are trying to re-tool their shop in today’s new selling environment. That’s why I knew I wanted to interview Sam Mallikarjunan, Marketing Fellow and Head of Growth at Hubspot Labs. Sam teaches advanced digital marketing at Harvard and has insight into how successful agencies are selling today and keeping clients by defining and delivering value.

Sam will encourage you to roll up your sleeves and really dig into your client’s business so you can help them make sense of all the information that is out there today, understand what needs to be done with and how to measure that information and be a driving force to get it all done.

Join Sam and I as we discover all the ways you can provide value to your clients and your own shop with:

  • 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
  • Value Added Marketing: What it is and why you need to utilize it

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).

To listen – you can visit the Build A Better Agency site (https://agencymanagementinstitute.com/sam-mallikarjunan/) 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:

Table of Contents (Jump Straight to It!)

  1. More on Sam’s Background
  2. How Sales has Changed
  3. Value, Value, Value
  4. The Netflix Example of Value Added Marketing
  5. Relevant Selling Techniques
  6. Marketing and Trust
  7. Why You Must Say “No” to Bad Revenue
  8. Building Personas You Will Not Sell to
  9. Why Knowing Your Audience is Key
  10. The More Measurable the Better
  11. Marketing vs. Sales
  12. Maintaining Relationships
  13. Where to Find Sam Mallikarjunan


More on Sam’s Background

If you’re going to take the risk of running an agency, shouldn’t you get the benefits too? Welcome to Agency Management Institute’s Build a Better Agency podcast. Presented by 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: 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.

Let me tell you a little bit about the guest who has the depth and breadth to have that kind of conversation. Sam … Oh, you know what, Sam. I knew I was going to do it. I want to try it though. Mallikarjunan, right?

Sam: Yeah. I’m seriously debating changing my legal name to Sam from Hubspot. More people say it anyways. But, yeah, Mallikarjunan.

Drew: Mallikarjunan. See, I practiced before we hit record. I did it right three times. Then, the pressure of the red button made me …

Sam: I know.

Drew: Anyway, let me tell you a little bit about Sam. 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 that it’s ironically available for purchase at Amazon.

Has had a wide variety of experiences that are very relevant to you and to me. We’re gonna just dig right into that. Sam, welcome to the podcast.

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

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

Sam: No worries.

Drew: One of the things that you talk about is that the rules of sales have changes. Give us a little bit of context around that. As you know, agency owners typically are the primary sales person inside their shop. 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.

Agency owners are always anxious about, and eager to talk about sales.

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

Drew: Yes.

Sam: I used to train them.

Drew: Wow.

Sam: 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 in sales training back then.

It was smile and dial, greet to eat. Just trying to crush through sales. That actually worked pre-internet.

Drew: Right.


How Sales has Changed

Sam: 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 featured they had to ask me. If they wanted to know pricing, ask me. If they wanted testimonials, they were going to get introduced to my buddy from college. All of that is changed now.

Now, I almost feel bad when I go buy a car.

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

Sam: Yeah, it’s really unfair. First of all, I find the guy who’s still in the parking lot when it’s 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.

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, it’s completely dead. The always be closing methodology is completely dead.

The bright side is that the new way of sales is actually a lot more fun and enjoyable and professionally personally fulfilling, which is that the problem is I have too much information.

I’ve got the entire history and wisdom of the human race literally in my pocket and a ton of cat videos too.

Drew: I was gonna say and Angry Birds.

Sam: All these … Angry Birds, or whatever.

What I need sales reps to help me with is to help me make sense of all that. To help turn … I don’t actually know that this is included in the pitch sheet, but my wife and I live on the road full time in a converted Mercedes Sprinter van. When I was buying that …

Drew: Really?

Sam: 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. 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 could help me make sense of the ridiculous amount of information, all the different features and everything else like that. It’s flipped the buying cycle on its head. It’s just more enjoyable, too.


Value, Value, Value

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 Hubspot sales calls. People get 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.

When you’re … 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.Value added marketing stems from this idea. You are more likely to hit quota if you are good at that than if you’re a good … what we call classical closer.

Drew: How do you combine that notion, that idea of it’s really a more helpful sale, a more authentic sale. It’s a more … I’m 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 owner. I’m a typical agency owner.  If I can sell four to six good size new clients a year, that’s a great … that’s a good year for me. Because, I’m keeping most of my clients.

I don’t need to sell millions of people. I just need to find a few of the right people. How does all of this, from your perspective, fit together in this new … rules of sales?

Sam: Let’s break that question into two components. One is, how does it fit with the inbound value added marketing, inbound lead flow? It changes the whole context of the conversation.

Or, like if I called you and said, “Hey, Drew. This is Sam from Hubspot. I just want to take 15 minutes of your time and tell you how our software can help you grow.”

You don’t want to talk to me, man. Let’s be honest.

Drew: Right.

Sam: You’re going to hang up if you answer at all. But, if I call you and I say that, hey Drew, I saw you downloaded the guide to using podcasts to generate sales leads. You know, 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 near to the sales process. But, I do it from the perspective of, here’s some information I’m doing for you.

I think this is what people forget about value added marketing, 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 worst … The least work that we can do is tell the sales team to cold call. Because, there is no context on the prospect’s 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, to get the prospect to give us information in advance that we can then pass along to the sales rep.


The Netflix Example of Value Added Marketing

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 between 800 and 900 movies for Netflix. 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. I’m willing to give them all that information. 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.

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 designs and such, of the agency. You’re going to get, by definition, when you’re doing value added 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. 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 in the buying cycle, first of all you’ve lost all your power. The only thing left is price.

Drew: Now, you’re basically in the RFP model, right?

Sam: Yeah.

Drew: Now, you’re just filling out the form with everybody else.

Sam: Yeah. And, you’re competing against just whoever has more money. If you’ve ever done PPC and bid on terms for … 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.


Relevant Selling Techniques

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 life cycle.

You were saying, for example, yeah, you might only do four or five deals a year. But, there’s still a … 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. It was because …

Drew: Wow. Okay that is serious customer loyalty.

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

Drew: Right.

Sam: We’re a software company, so that’s weird. But, it was because we did all this information that helped him get into the world of marketing. He read our blog, all of our webinars, etc. We had a certification that helped him get his job and a community board, jobs board, Indog.org that helped him get a job.

Then, we have this ongoing support to help him be successful. Even if he’s not … 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 …

Drew: Right.

Sam: 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. 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 very … it’s brutal. It’s hard to teach and to educate and compete in that phase.

If you do it successfully, you’re going to see a lot of positive results.

Drew: Yeah, absolutely. Well, and I think the other part of that too, is that it … 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. That fits more comfortably. That feels less confrontational, or less yucky than traditional sales.

Sam: Yeah, they’re people people, right?

Drew: Yeah, right.

Sam: You go into a people business … Otherwise they would start a software company, right?

Drew: Right.


Marketing and Trust

Sam: It’s not just yucky, by the way. Every year we do a survey that asks the simple question, who do you trust? In 2016, in North America, at the top were firefighters and teachers. Then, further down are baristas and professional sports athletes. Then, at the very, very bottom, there’s a tiny sliver of people who say they trust politicians and lobbyists. Below them, rounding up to one percent is sales and rounding down to zero percent is marketers.

In North America, in 2016, if you’ve followed politics at all, it was an interesting year, we lost to those people!

Drew: That’s sad, yeah.

Sam: We lost to those people who, in terms of who consumers trust, because we’ve spent the last century abusing people’s attention and making it all about us.

So, yeah, 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. It’s better acquisition and retention economics. And, it’s just … It’s better for the world.

Marketing is weird. It’s, 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.

Tevo, and DVR and Ad Blockers. There is a very large industry whose goal is to prevent marketers from doing their jobs. It’s because we’ve been incredibly annoying about it for the last hundred years.

Drew: Yeah. I think this is a better phase for us, hopefully, that’s for sure.

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 cagier with their budget and they want to … piecemeal it out project by project.


Why You Must Say “No” to Bad Revenue

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. Do you want to talk a little bit about that?

Sam: Yeah, absolutely. If you ever take finance courses, particularly in the US, you’re eventually going to come across the phrase, the cash flow is more important than your mother.

I get that. I get it, and it’s what we’re taught in school. It’s one of the foundations of capitalism is that capital is this scarce resource, and you want to keep cash flowing into the business. Sometimes, you just gotta keep the lights on. 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 pay back, the cost to acquire a customer versus how much they pay you.

If the time to pay back 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 customer the wrong way, you can lose money.

The cellphone 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 cellphone contract.

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 cellphone 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’s worth to us over the long term. So, they shut down that process.

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

That can be really damaging to the business. Project based work can make sense, and you can actually get good cash flow for it. 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 very important, like peace or 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.

I know it’s hard. Trust me, I wish we could sell Hubspot ad hoc. Just pay us on a monthly basis or whatever. 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 long term.

We know that if we don’t make that work that you’re not going to … that 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: You know, one of the metrics that I really encourage agencies to look at is profitability by client. Because of exactly what you 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. For most agencies the first time they do that, it’s a little disheartening, because they literally, in most cases … for the lower … five or 10% of their clients, they’re paying for the privilege of doing that work for the client.

Sam: 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. 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. 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 out hard after the enterprise space.

Even though the enterprise space might pay us more money, their… I gotta fly 12 people out there to buy 14 other people 26 different steak dinners in order to close the frigging deal. Then, they’re going to keep my … half the engineering team busy.

Drew: Yeah, tweaking.

Sam: For the next six months, customizing it the way they want. We look at yeah, okay, 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. Because of that, the business model’s out of balance.

That is why Hubspot stays in the mid-market space. We don’t want to spend a ton of time acquiring and servicing enterprise … There are some enterprises that are way ahead of their time, that do buy things like Hubspot. But, it’s not a good business for us. We don’t want to be in that company.

We actively don’t pursue those people, because we know that putting a dollar into acquiring a mid-market company might give us five dollars out but putting a dollar into acquiring an enterprise company might get us three dollars out, in terms of monetization.

Drew: Well, I think many agencies don’t have a really clear picture of who their sweet spot or their best customers are. So, they tend to, kind of, splash around in the water just looking for anybody and everybody.

In the end, that … Those are the clients, those are the customers who either come and go, or a lot of times I’ll … we’ll look at those numbers and someone will say, yeah, 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, here. Okay, how often has that worked well for you? How often have you taken it in the short for three months, and then all of 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 called it, bad revenue of, yeah, I’m taking a dollar in. But, the reality is I’m spending a $1.25 between my labor and all my other expenses to service that dollar.


Building Personas that You Will Not Sell to

Sam: Yeah, we actually have exclusionary buyer persona. 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: Of course.

Sam: Like, Marketing Mary 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, right?

Drew: Right.

Sam: 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 and sequel, and then stitch together their own series of tools using API and 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 on our product team and everything else, that we’re just not going to sale to you.

You’re right, that is a hard thing to say, but you have to have that vision down the line, where it’s like yes, this might be a short term injection of capital. 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 long term monetization potential, and is this customer going to cost me money?

Yeah, it’s hard. It’s hard. But, yeah, 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: I love the idea of having a persona that you won’t sell to. It think that … Because, you know what, as soon as you create that persona, then you recognize them. You go, oh, I get … I know who that is. Okay, I’m going to side step that.

Sam: It feeds the marketing team, too. I was running our expansion into the eCommerce market, and as marketers, it’s easy to fall under the trap of, I want to write content that I find interesting, and it impresses my friends and family. Value added marketing is the right direction.

I had on the queue, I had an ebook that was gonna be the eCommerce Marketer’s Guide to Advanced Statistics. Fortunately, I meet with the sales team, and I listen 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. We’re not selling our looker or something here. It’s not even a BI tool really.

Anybody who downloaded the e Commerce Marketer’s 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 closed them.

Drew: And be disappointed.

Sam: And be disappointed. Yeah. 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, and 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, raised my hand and said, listen, this does not matter to eCommerce 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: 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.

Okay, we are back. 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 agency owners, and as an agency leaders, we’re constantly pushing to try and stay ahead of the curve.

If 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? Two, what sources do you use to make sure that you’re always staying ahead of the curve?

Sam: I teach with a couple of different schools. The University of South Florida in Tampa, and then Harvard University, obviously. I specifically teach in the division of continuing education.


Why Knowing Your Audience is Key

Knowing your audience is very important. My … I don’t actually like teaching to undergraduates that much. I’ve done some guest lecturing at Boston University and such, because they’re just there to check something off their list. They thought it was going to be an easy class because … They don’t really care.

The people who take my courses, because it’s so … they’re one week intensive courses, are generally existing professionals. They have context, and they’re taking a week out of their time. I’m not going to pretend the courses are cheap.

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 are ways. Inbound.org is a great Web site, just go there ask a question, or go to Quora, ask a question. Wherever you want to go. 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 this 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.

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, state of Inbound.com, we found … I think the latest number was 30%, or something, of marketers don’t measure their ROI in any way whatsoever.

Then, looking at it, introducing the concepts of customer centric unit economics. 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. You monetize that specific type of customer over a period of time. That’s actually a newish concept 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 to be one of the most valuable companies in the world without actually issuing a bunch of dividends.

We touched a lot on that, which is the different frameworks for looking at business and marketing economics. Then, we do go into a lot of specifics. I want … Ironically, given the podcast that I’m talking to … When I’m talking … 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.

My goal is to make sure that they can have an informed conversation with an agency. Because, you’re … I’m sure it’s no one on this podcast, but you’re going to end up with some agencies … I play this voicemail when I’m teaching, that’s … We have a position reserved on page one of Google just for you.

It’s so stereotypical, and everybody will eventually get one of those calls.

Drew: Absolutely.

Sam: A lot of what I do is, I’m teaching them in …it’s sort of  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. Then, also know if what they were saying didn’t make sense, or didn’t jibe with my experience.

Not really liking to tell them they’re wrong, but, it gave me a more informed perspective. It’s the same thing for them. I want them to know enough about a broad spectrum of things. We talk about the sales process, the sales cycle. We talk about economics a bit, we talk about SEO and social media, at some decently advanced levels.

For example, I introduce the basic concepts of machine learning in 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 right  brain world. But, a lot of them are not. I want to equip the students with the tools to go have those sorts of conversations with agencies.

Drew: As you’re equipping them with that, what kinds of things … If you were going to hire an agency, what are … What are some of the things that you’re looking for? 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.

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.

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?


The More Measurable the Better

Sam: 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. 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 skilled 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 understand about the business. Having the breadth of experience to, for example, dig in and talk to the sales team.

We talk to … I talk tons of marketers who generate these inbound leads, and the sales team still insists on cold calling, because they know that process, they utilize value added marketing. 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 could Google the answer to most questions, or I could 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: One of the things that I do for agencies, is I put together a trends report of the things that I’m seeing impact agencies. 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.

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.

Agencies used to take that as a we can’t do it. 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.

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: Or, again, that may not be a client that you take.

Drew: Sure.

Sam: When I do my side consulting, if you’re not going to let 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.

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.

So, yeah, 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: 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 sales people. Often cases, they were sort of the enemy.

Sam: Yeah.


Marketing vs. Sales

Drew: There was this line between marketing and sales, and often … they were spitting across the line at each other. As an agency, you are very much aligned with one side or the other, and it was typically the marketing side.

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: Yeah. No one blows up the bridge connecting two parts of the city, right?

Drew: Right.

Sam: That’s actually some of the best agencies that 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 value added marketing and sales or whatever. Because, you are not a line item. You are an integral piece of the continuation of the business model.

If you can do that, you’re golden, right?

Drew: Yeah.

Sam: Then, you can land and expand into all these … Like your agency from earlier who 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. Again, I just … Just say no to bad revenue.

Drew: Back to your … the stuff you’re teaching in your class. 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 things that they can do that would actually make them different than the sea of agencies out there?

Sam: The things that I hear most people complain about with agencies are again, lack of understanding. Either you don’t understand me, or you’re not helping me understand what you’re doing. There’s also … There tends to be this inertia in relationships with agencies that you alluded to earlier.

Inertia, yes, is an object in motion stays in motion. But, it’s also an object at rest stays at rest. Agencies … I just helped one of my friends fire their agency. It’s not that they were a bad agency, it’s just that they never really took the time to dig in and proactively help understand.

Proactively help … Yes, the sales team was not passing information back, and yes, the product team didn’t have very clear messaging around the offering. But, I’m not hiring an agency to do things that I know need to be done. I’m hiring an agency to help me understand what needs to be done, such as value added marketing, 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.

Drew: Right.


Maintaining Relationships

Sam: 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: Yeah. I think some agencies have had their hands slapped. 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 scraping to get by, and there was no bad money, money was … all 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.

I think I’m watching agencies get their swagger back and really embrace the fact that they have knowledge, and insight, and a perspective that makes them valuable. But, it’s only valuable if they voice it.

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

Drew: Yeah.

Sam: That’s definitely true. 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, they’re hiring you because they don’t have the resources or the skillsets, or whatever.

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 efficient at it as you are, otherwise, they would just do it themselves.

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.

Normally, that’s reserved for inside a company. 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.

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 in any methodical or intentional way. 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.

That’s absolutely jibed with what I’ve seen, is having that courage to be a force for change inside of an organization, is why do we hire agencies. Otherwise, I would just hire a PBZ person. There are plenty of PBZ 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: 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. Yet, sometimes they show up like a vendor, ready to take the order. Then it’s like … you’re being treated in the way that is consistent with how you’re showing up.

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 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: And have the courage to ask stupid questions. I don’t have an agency, but I do consulting. When I’m talking, 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 mistake are made.

Drew: Yep.

Sam: I don’t have that fear because I have another job. 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 of 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 may be based 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 the customers. She’s like, “You can’t talk to people that way”.

Because, I had used some expletives. 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.

That was the relationship that I had to build with that particular customer. Yeah, maybe he cancels and says, 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, then that’s fine. Then, he’s not going to stick 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: Yeah. I think part of the courage of owning an agency is having the confidence to know that you have something of value to offer, and to your point earlier, when somebody’s paying you a hundred and fifty 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: Totally.

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

Sam: Yeah, don’t be a commodity. If you’re an agency, and you’re going to compete off the commoditized work that I could buy on eLance or Freelancer.com, or whatever, you’re … First of all, you’re now fighting a price depression war. Because, you are comparing 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 can replicate without adopting the same cost structure. You’re 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.

Yes, I could go hire a PPC person. I could hire an SEO person, and all this kind of other 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. If you let yourself be treated like a commodity, if you build your business around being a commodity … 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: Well, that’s why the consulting firms, the Excenters of the world are kicking agencies’ asses right now, is because they come in with a, what you’re buying is my strategy and smarts, and a lot of agencies are still selling stuff.

Sam: Yeah, that’s a good way to put it. You’re not selling stuff, you’re selling the context of your experience. Those consultants at Excentra 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 Excentra or BCG or any of those folks.

Drew: Yep.

Sam: The difference is, I joke about this with Harvard sometimes, because a lot of times … We do a survey of the majority of people who say they took the class. We ask them what was the key factor in you choosing this class over other classes? It was the Harvard name, right?

Drew: Sure.

Sam: So, even this material may be available elsewhere, David Skok’s 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.

You know, Excentra 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 … Listen, we’re lean, we’re adaptable. I have experience in this, in this industry, that is particularly valuable to you. You’re not developing your 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: Yeah. Amen to that. Well, as I suspected, I have more questions, but we are out of time. 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?


Where to Find Sam Mallikarjunan

Sam: Absolutely. I do have a personal website. It’s Mallikarjunan.com

Drew: Of course it is.

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

Drew: 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. As you’ve probably heard me preach, I believe a lot of agencies chase after the wrong new business prospects.

I think we do that because we have not taken the time to clearly define who our sweet spot clients should be. 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 imaging, 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.

That’s all for this episode of AMI’s 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 rule the agency you’ve always dreamed of owning.