The Financial Understanding of an Agency

I manage at an agency where every ounce of business we get is entirely dependent on the individuals doing the work. Creative agencies are the epitomy of the knowledge industry; we have nothing to distribute or stockpile and our entire product is in the transfer of expertise from our employees to our clients. In many ways, our product is similar to a financial instrument; it has the same intangibility, measurable history, susceptibility to perception, and risk.

So for each type of “investor” you have a different style agency. Those interested in a stable return on their investment usually seek out agencies that can both predict (in the form of market research) and then measure return. These activities take additional resources and so your return is diminished by the overhead of the agency. On the flip side, you have agencies that cater to market speculators. They exercise great latitude in their interpretation of client need, but engender substantial risk in the process.

So I kinda left Drucker’s book to start rambling on my own, but I think the point of the previous two paragraphs is that it may take a different type of mind and a different approach to capture the essence of the new knowledge society and that, is something Drucker was quite clear about.

Networks and the Outhouse

Drucker spends a good deal of time talking about flat organizations, teamwork and organizational networks. What he’s seen is the emergence of knowledge professionals along career paths that have nothing to do with imposed authority and everything to do with one’s depth of knowledge and talent. In many ways, we’ve all become the new trade worker… in the same way that a doctor or a blacksmith becomes ever more valuable with practice and specialization, so to does the worker in today’s knowledge economy. So much so in fact, that it is no longer possible to “promote” them to management. In other words, the skills they’ve developed are too valuable to waste time having them manage others. Instead, knowledge workers continue to hone their skills and their career has more to do with the nature and complexity of the problem, then it does an artificial hierarchy.

So then, who are the new managers (and are they even necessary)? Drucker suggests that like anything else, management is a knowledge skill practiced and honed by those with the talent and desire to learn how to do it; however, this has some interesting implications. One, is that many new managers will be “managing” individuals much older than they are. I’ve had to do this and it’s a tricky proposition in the best of circumstances. I think we are all still living the transition more than a decade after these concepts first entered the collective business consciousness.

Another implication of this flattening is the emergence of small networked clusters of in-kind business. In my industry (loosely interpreted) we’ve got copywriting, graphic design, media buying, internet marketing, programming, public relations, etc… and the history has been to consolidate much of this under one roof. Even now I’m witnessing one of my main competitors (Xylem CCI) attempt to create an in-house SEO department… this, right after a large merger. Texture Media tried something similar and–to the best of my knowledge–had quite a bit of trouble getting anything to work. In my opinion it is risky to diversify one’s offering so thoroughly with the understanding that you’ll never be as good as the new breed of specialist… The Booyah Agency is one of the nation’s best SEO firms; they’ve got the best local talent and can help my clients achieve returns on marketing dollars faster than we ever could… which, ultimately means more business for our core competencies in design and interactive.

So I think managing in the knowledge economy means three things: disciplined focus on core competency, the development of resource networks outside one’s core competencies and the recruitment and retention of knowledge workers. It is this last, which I believe to be the hardest of all.

My employees are your employees

Employees no longer spend an entire career at one company… and in the interactive world, turnover seems to be even more prevalent.  Retention can come at a significant financial cost–I’ve seen companies like Walls Street on Demand slap on the golden handcuffs pretty successfully–but I don’t think this is sustainable in the slightly less fortified interactive / advertising industry.  Drucker suggests that managers of the knowledge worker will need to focus on “meaning” in addition to compensation.  Now, meaning can stand for different things at different companies, but the underlying theme (in my interpretation) is that life, work and purpose are becoming ever more intertwined as we all become more digitally connected; my computer travels with me, my online social and business networks are the same, my code is both open source and making money…  I’m not sure what meaning is for every company and indeed it may vary by employee; however, I suspect that this concern will be one of the defining characteristics of the new manager.

Jameson is more memorable than Jamie

Drucker touched briefly on the idea of personal brand, but enough that it stood out to me as an important factor for success in the new economy.  One of the problems we knowledge workers have, is the variety of jobs currently, or likely to show up on our resume.  This dispersion of focus makes it difficult for potential employers to evaluate one’s ability to succeed at a new post.  What Drucker suggests (and I agree strongly with), is that the responsibilty has shifted to the individual to shepard the cohesion of one’s past.  In other words, everyone needs to become a marketer.

To do this, we need a personal value proposition (or more likely a set of arguments stored in our head) such that the jump from Medical IT Manager to Creative agency Interactive Director is not just accepted, but seen as a logical and natural transition.  I think the perception may be changing naturally as hiring managers see ever more colorful applications, however, it is my belief that those who actively focus on their personal brand will excel faster than those who don’t.

The proposal problem

Proposals aren’t meant to assume the responsibility of a complete requirements specification, but they are meant to illustrate a broad definition of scope. They often list deliverables, dates and process; however, if you’re planning to use a contractor for the development portion of your interactive project then most proposals aren’t specific enough. Contractors often need to schedule chunks of their own time and put together a proposal of their own (based on yours). This all needs to be done while courting the client to ensure resources are in place if the project is a go. Unfortunately, if you write your proposals with hard deadlines and strict penalties, no one will bite, and if you write a complete functional specification, your potential client might just shop it around to other firms; your competition will always have a lower bid because they didn’t need to spend hours fine-tuning a proposal and researching the time required to complete a given task.

The other option is to pull from a pool of developers that charge by the hour and pass that rate through with a margin. In my opinion, this is never fair to the client even if you manage to land one who’s extremely rich, used to slow government contracts and enjoys spending vast sums of cash on prolonged phone calls and meetings with three team members ($150/hr * 3 attendees * 2hr meeting = $$$). In addition, most clients have very little understanding of a project’s scope or the consequences of making seemingly small changes in the middle of development. This always leads to a frustrating client relationship and can compromise a potential referral.

The accountability problem

Most contract software developers have shunned the corporate world for a reason… the amount of non-development energy required to finish a project and make a client happy can be equivalent to the time spent writing code (if one accounts for the time costs of communication, research, training and deployment). It is much simpler to carve out the programming portion and leave the rest to an agency; however, this disengagement will inevitably lead to ambiguities of responsibility, and a higher risk of failure.

Finger pointing (responsibility) can generally be avoided by robust contracts, but this really just takes us back to the proposal problem. The process can also work if you happen to use contractors serious about their long-term reputation. In other words, contractors who treat the agency with the same level of customer service with which the agency treats the client. I’ve seen this work–it’s the epitome of capitalism–but it doesn’t take long for these developers to understand their real value and raise rates accordingly, thus making it ever more difficult to justify their use on “every day” projects.

When working with a development contractor, there is always the risk they will fire you… if the project starts getting difficult, relationships go sour, the time-line changes (when doesn’t it?) or they take a full time position with another company. For all these reasons and more, a project’s risk profile expands as outsourced development is integrated into the process. I’ve seen this successfully managed by extremely talented project managers. Unfortunately, they also tend to realize their true value after a period of success.

The training and support problem

Another consideration is the time it takes for internal development staff to fully understand the code written by a contractor. This can be necessary in order to provide ongoing support at the conclusion of a contract; however, there is little consideration for the additional hours this process takes, not to mention the sour attitude any internal programmer will develop when tasked with leafing through someone else’s code.

One solution is to write perfect software such that your client has nothing to complain about. Believe it or not, I’ve had reasonably good luck with this mostly as a result of working with rock star developers. But, in all likelihood this is the exception not the rule.

Another alternative is to hire a full service development agency (more middle men), and rely on them to handle ongoing support. This can work if your goal is to completely isolate the creative from any of the software development, but I tend to dislike any arrangement that releases ultimate responsibility for client relationships. In addition, these agencies are always at least as expensive as you are, and thus rarely a money-making proposition.

What now?

We’re probably heading for a recession, but it may be that as companies cut budgets from traditional advertising, alternative means of accessing their customer base become more attractive… thus the case for continued growth in Interactive business. It’s usually better to run your agency a little lean, but with the growing demand for interactive work it may be time to stick you neck out there and start to hire.

Main topics — Stop meeting. Stay small. Say no.

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The first presenter was Carlos Segura. He’s apparently a huge name in print; maybe some of you design-minded individuals know him better than I. Some questions he did a really good job of answering: How do you manage design(ers)? How do you manage a client? What is brand? How do you market yourself?

Best Quote: “We lose more clients than we get”

2nd Best Quote: “If a client says ‘money is not an object’, quote them one million dollars… they’ll give you a budget”

How do you manage design(ers)?

I thought his process was simple, but appropriate. First, he’s (almost) never met a client in person, thinks meetings are generally a waste of time and is much more likely to turn down a project then to take it. Part of the reason his team can do this is because they remain small and focused–they needn’t take on work “just to feed the beast” –so to say. He also claimed that creativity exists at the fringe, and thus… designers will do their best work when they have too much to do combined with inspiring projects. On a practical note, when a new project first comes in, Carlos has many designers go off and work on their own. After a period, they gather again and he helps determine which ideas the client will see.

How do you manage a client?

From what I gathered, it was the combination of three vital practices that cumulated in a successful client relationship. First, record everything (notes) that a client says they want and then briefly remind them of it shortly before presenting. Second, only show what you’d eventually be happy with as a designer and third, get the budget up front. Carlos also said several times that it is imperative to communicate a clear definition of target audience (i.e. “the design is for your customer not for you…”). Thus, there must be a sense of trust that we (the expert) can–and will–do a better job of understanding the ultimate consumer of the creative product. In addition to these guiding principles, Carlos said he always fought for his ideas and in many cases fired clients that wanted too much control over the design. His justification was that the Segura brand was evident in every piece of work he did… in other words, don’t compromise your design integrity if you are trying to build a long-term reputation.

What is brand?

It can be difficult to explain what branding means, and quoting something aloof like “brand is the visual representation of the benefits your product/company provide,” may well be lost on your client. Carlos instead uses the example of several car companies: What is BMW? — excellence in engineering. What is Volvo? — safety. What is Cadillac? — American luxury. What is Ford? — ??? Ford is trying to be all things to all people.

How do you market yourself?

I asked Carlos to what extent his personal brand was a conscious effort and how much was a byproduct of his work. He said that his personal brand–and by extension, that of his company–were a conscious effort every minute of every day. This response surprised me somewhat as I guessed it would have been some combination, but it goes to show how much of himself has been dedicated to the craft that no distinguishable line can be drawn between the man and his work. Finally, when you’re pounding the pavement Carlos claims that great and unique marketing/presentation material will always win the deal.

He did case studies on:

Re-branding Corbis
Rock Shox
Labels for Express Jeans

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The second presenter was Jason Fried founder of 37signals. He and his business partner David Heinemeier Hansson (creator of the Rails application development framework) have created some of the most influential web apps that exists… think Basecamp. He did a wonderful job framing his business philosophy, which can be summed up with a few basic concepts: planning hurts your business, size matters, open works, and interruption kills productivity.

Best Quote: “I’d rather have a client grow out of our products then make them so feature laden that we raise the barrier to entry for new customers.”

2nd Best Quote: “There’s no such thing as a one hour meeting. If it’s a ten person meeting that takes an hour, it’s a ten hour meeting.”

Planning hurts your business

A lot of businesses spend time and meetings trying to figure out where they want to be one, five and even ten years from the present. Jason’s argument is simply that by planning for an uncertain future, one is donning a set of blinders. In other words, the plan itself can limit your ability to grasp opportunity at the fringe. Jason expanded on this topic by making the suggestion that rather than focus on large decisions that require company-wide consensus and considerable commitment of resources, focus instead on small decisions that can be made frequently. This allows the company to fail and fail often without compromising it’s overall health. The idea is that these small failures provide a sustainable platform for learning from one’s mistakes by minimizing the risk associated with each decision. It also empowers employees to take personal responsibility since the risk of failure doesn’t endanger their employment status.

Size matters

Staying small was a theme that permeated each presenter’s talk. Like Carlos, Jason consciously keeps his team small in order to prevent the need to take on work just to pay salaries, but also because he thinks it leads to better products. He argued that businesses will most often scale up their workforce to match the perceived scope of a project. He instead suggests you scale the project scope to your companies head count. This forces the team to focus on only those features which really make an impact for the end user. All 37signals products adhere to this philosophy (they are a company of ~10).

Open works

Rails–the platform upon which Bascamp is built–is completely open sourced, all of 37signals’s business processes are transparent to the public, and the company regularly publishes successes, failures and ideas to its blog (Signals vs. Noise). The idea is that “open” works and the analogy given was that of the Cookbook. Every well known and successful chef gives away their secrets in the form of recipes. This giving-away of intellectual capital actually enhances an organization’s ability to garner success (contrary to what many in the industry think). I believe this to be an extension of the popular theory that work in the interactive space is no longer about the idea, but rather the execution of that idea (could this trend may be a result of the rising knowledge-based economy predicted by Drucker in the 90’s?)

Interruption kills productivity

If you accept the fact that it takes a certain amount of time to focus and un-focus (think about writing an elaborate email, starting a new design or writing code), then it follows that the more times you are required to break concentration, the less productive you become. Think then about how many times during the day someone comes and interrupts your train of thought? As an exercise, Jason suggested we mark on a piece of paper the number of times this happens in a typical work day, then calculate the approximate time sacrificed. As an alternative, he suggests email or if it’s urgent, IM since it at least provides the 15-30 seconds required to finish a thought before responding. Implicit in this method is a social contract that relies on responses within a reasonable timeframe. Jason terms the two types of interruption, active and passive, with passive being the preferred method.

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The third presenter was Jim Coudal who–along with a small team–manages coudal.com and a few other successful businesses. He runs his shop much like the first two presenters but had a few good insights regarding client work, short attention spans, and truth.

Quote: “Hire us because of the way we think not because of what we’ve done”

Client work

As an agency one of the least talked about competencies is the ability to very quickly understand a client’s target market. His point for bringing this up was to make the case for engaging in entrepreneurial activities in conjunction with client work. In other words, if you have developed the craft on behalf of a client (to understand and analyze a market), why not use this for your organization’s own benefit; create something and sell it.

Short attention spans

As illustrated by the short film hosted here, many of us have an entrepreneurial spirit paired with a short attention span. The film casts this behavior in a bad light, but Jim took the opposite view and instead suggested that we embrace our short attention spans as a source of energy and enlightenment. If you’ve ever been part of a team coalescing around the latest “great” idea, then you know the kind of energy and excitement of which Jim speaks; however, the vast majority of these adventures fail either because of lost interest or because the market proves it’s a bad idea. Jim challenges that this cycle of energy and failure is actually a very positive part of his business because it keeps people energized and because you generally learn a lot in the process of failing (credit to the previous speaker).

Truth

During the Q&A session one member of the audience mentioned that while coudal.com was really cool, it didn’t feel elitist, patronizing or otherwise unapproachable–I think the phrase he used was, “too cool for school.” When asked about this balance, Jim simply stated that which appeared obvious (after a brief visual scrutiny) …”I’m not cool.” In three words Jim was expressing his view that customers in the digital age can sense authenticity, even through something as superficial as a web page.

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Some thoughts of my own…

During the lunch break an architecture expert–and fellow at the Harvard school of design–came and gave a presentation on the building we were in (designed by Rem Koolhaas) and the rest of the campus (designed by Mies van der Rohe). Much of the talk was focused on Crown Hall and how it becomes even more grand because of its transparency and bold openness. This didn’t appear to be a conscious reflection on the speakers personal business philosophies, but it did act–even if just below the surface–as a unifying theme of the conference. In an age where Google knows us better than we know ourselves, I think our clients and certainly our client’s clients are demanding a brutal version of the truth in everything they consume. Honesty and doing business in public–especially with regard to our failures–is the new credential. Think about our new politicians; in the past, Obama’s admission of organizational shortcomings might have emboldened skeptics and critics, but instead we saw attacks on his opponent’s veneer of modesty. I believe we may be witnessing the natural, but unexpected consequence of the information age… simply, that we can’t hide anymore. And those who take the first steps to embrace this fact in business, or elsewhere will be rewarded by a population willing to supply capital for something with which they feel a personal connection.

This concept of doing business “in the open” leads me to conclude what I think many in business already know, that the product is no longer separate from the company and the company is no longer separate from it’s employees. Consumers have started to demand that an organization embody the ideals of its product, but I think the next step is to demand that management also be held accountable for that very same ideal. As mentioned previously, I asked Carlos about managing his personal brand, but I think the conclusion is the same for all of the presenters. Product is the company is the person.

From left to right: Carlos Segura, Jason Fried, Jim Coudal