Karl Sakas | [Top Agency Series] Strategies for Building a Powerful Agency

John Corcoran 12:44

done. And just a simple example is say like a website, if you’re, if you know that this website’s going to be worth whatever $100,000 to a company and you charge them $50,000 even though on an hourly basis, you could probably get it done in $1,000. That’s value based

Karl Sakas 13:02

pricing for a website. It could be at minimum its value anchoring. So value anchoring would be just that to say, okay, it’s worth $100,000 instead, you’re gonna make $100,000 a year, we’ll charge you $50,000. And then you know, you keep the difference. After that. For instance, I’m in the midst of developing a project management training PM 101, which I think might be available by the time the episode is going live. And the idea is that, you know, project management is not fun. For those people even having been a project manager, the thought is if your agency charges $150 an hour, you should save at least or you know, you have a value of 15 $100 or more. And the course is a fraction of that. That would be value anchoring to say you’re going to get way more in value even conservatively, it could be even more but good news, the price is a lot lower, right to do that in the work as well.

John Corcoran 13:59

Okay, so do we cover all three then so hourly milestone, and the third one is

Karl Sakas 14:06

value based. And it’s worth considering there is a lot of, you know, a lot of like, Oh, you should never charge hourly. And indeed, if you can charge on a milestone or value based basis that is ideal that’s connecting the outcome or at minimum the output of the work rather than solely the time it took to go in. But there is at least one case where it makes sense to do hourly, which is if you’re doing something for the first time, something you’ve never done before. You can’t accurately predict what the milestone scope would be and what it would cost to get it done and things like that. So in that case, if you’ve never done it before, or it’s something that is totally open ended hourly makes for SATs, but then the goal is to eventually get the milestone, right right

John Corcoran 14:53

now, you touch on project management in this world and in this digital agency The world that we exist and I was having, I was interviewing Ben cash from reason one agency yesterday on my podcast, we were talking about how really over the last 20 years, this is a brand new industry. You know, it’s it’s an industry of companies that are creating products that didn’t exist 25 years ago. So talk a little bit about what it was like, what it’s been like for you, particularly in the early 2000s, to be in this very much evolving nascent industry.

Karl Sakas 15:29

But it is one of those, you know, things are always changing. One of the questions I’ll ask when I’m hiring, the the question of what do you do for professional development, and that’s the thing where I, it almost doesn’t matter what people put, but they need to put something, right, if people aren’t keeping up, they’re going to get behind. But part of that also includes choosing where to specialize, right? So if you’re an agency owner, you don’t necessarily need to be an expert on every single thing. You know, the latest JavaScript changes, the latest in design systems, the latest in this or that, but you do need to know enough that you can manage the people or manage the people who are managing the people to get the work done. Right, you need to know enough to oversee things. So I mean, I guess my key advice there would be keep up in general, and then hire people who love their individual area, even more than you do, and then, you know, point them in the right direction and let them make it happen for

John Corcoran 16:28

you. You know, and I know that, you know, after you graduated from college, you had a couple of stints that a couple of different investment fund it looks like and then you become a director of operations for a rally web design and marketing agency by this time you’re moved down to Raleigh, North Carolina. What was it like for you in those initial stages of moving into that role, because being a director of operations, overseeing a large team, managing multiple people, all those are big challenges to learn,

Karl Sakas 17:04

for sure. And that role was a promotion. So I started as a director of client services, which you know, there are six agency roles that I’ve identified, I was doing a bunch of that I was doing account management, doing project management, I was doing some subject matter expert work, and I was doing client strategy. Sometimes I was helping with Biz Dev, and then eventually moved into support doing operations. So you know, there’s always a bit of juggling. The good news is the work that I did helped me sort out what do I like doing? What do I not like doing? You know, in general, I, I’m more on the project management side, rather than the account management side. So that helped, I think, move toward operations. For those who don’t know, explain, explain the difference between those. Sure, the way I define it, account management is keep your clients happy, and typically sell them more work. They are the voice of the client within the agency, but they still work for the agency, the goal is to find some sort of a win win. But you know, don’t forget that, you know, do work for the agency not got directly for the client. Project Management tends to be more internally oriented NPM is primarily about get the work done smoothly and profitably. That’s not to say that PMS can never be planned facing they usually are. But pm is more internally focused, get things coordinated, get things done. So that happens. And you know, that’s there’s often overlap. When agencies are smaller, they’ll have one person who’s doing both management and project management. The problem is, and you’ve probably seen this, and I imagine people, you know, we’re watching and listening, seeing this, people tend to skew one way or the other. So maybe someone who’s am oriented, great with relationships, everyone loves them, but maybe they’re not great on details. More, someone leans more for project management, great on the details this now but not as good about, say doing upsells or, you know, building stronger relationships. So the ideal is to specialize, you have someone who’s doing only account management, and another person who’s doing the only project management that lets people excel at what they do best, rather than putting people in a situation where they’re, they’re struggling.

John Corcoran 19:17

And do you believe that there comes a time with each agency where they must bifurcate those two roles, the account manager and project management, I do know some agency owners who they’ve gotten to a certain level with people that you know, with team members that are are doing both, but it always seems like they’re screaming, and they’re kinda like, I don’t know if I’m doing this, right.

Karl Sakas 19:38

Yeah, I mean, I, but I believe that most things in life are relative. So it’s not you have to split account management or project management. But if your agency’s model is to keep the roles combined, be aware that some people are going to skew one way or the other and look at ways to give them extra support. So for instance, as a project manager I was also doing account management, I would talk to a salesperson, if I if I was running into a difficult client conversation, I would talk things through with him first say, here’s what I’m thinking of doing. And you usually have ideas because he was a more relationship oriented person ideas to help me out. And you know what I helped him on sorting through details. So it was a win win for each of us and for the agency. So if you don’t split it, if you don’t do the bifurcation am and pm, make sure you’re given the support you need for your team. Because the most employees are not magical unicorns who can do everything amazingly. Don’t expect that

John Corcoran 20:41

right. Now. Another difference of opinion, I guess you could call it in the agency world is whether to organize your team in terms of pods, can you talk about that model and how that works. I do

Karl Sakas 20:55

like pods, but they are not right for every agency. So the idea of a pod is that you’ve got almost a self contained agency within a team. The exact makeup of the pod will depend on your services and various other factors. But usually there’ll be someone doing account management, someone doing project management, and then someone doing strategy that could be the account manager, it could be someone else. And then a mix of subject matter experts. So it could be people doing SEO analysis and implementation PPC, to be copywriting could be designed could be development. And you also might have some people who work across pod. So for instance, if you do video occasionally, but it’s not something you’re doing every day, you might have a videographer on team on the team who works across the pods, like they’ll help out as needed. But the idea of the pod is that they have a dedicated set of clients that they are working with on a on an ongoing basis. So the clients know them, they know the client this and that. And they they’re working together. So it’s almost like an agency within an agency. The downside to that is if you’ve got say, three pods, one of the pods, you know has a surge in in workload, or another pod has a drop in workload, say client pauses something or something like that. You can’t automatically load balance that you can’t say, Alright, we’re going to take this designer, we’re going to put them on the other team, we’re going to, you know, this that more complicated, or what’s up,

John Corcoran 22:21

it’s more complicated in order to balance the

Karl Sakas 22:23

workloads it is it is now you know, one of one of my views is that it’s hard for agencies to be profitable, with significantly more than 20 active clients. The exception to that is if you use a pod structure, because if you have more than 20 clients, usually you’re going to have a client dilution problem. That is, you know, a client is, you know, half of 1% of your revenue, because you’ve got 100 clients and you know, different sizes, but they want 5% of your team’s time, you know, they’re not paying for that kind of kind of thing. Having pods can fix some of the client dilution problem, though, we can also worsen what I would call the client concentration problem where you have more than 20% of your business from one client. You know, if you’ve got someone in a pod, and the client is like half of the revenue for the pod, and you lose the client, you’re probably going to have to lay people off, unless you make some really rapid changes in some lock on your pipeline.

John Corcoran 23:26

Unless you move people that you move clients from one pod to another, or would that not?

Karl Sakas 23:32

that defeats some of the purpose of the pod of having the continuity. Right. You know, you’re saying to the client, you know, you’ve got your dedicated strategist, dedicated account manager, if you’re telling the client, hey, we’re switching AM’s on you. Yeah, it’s like why, yeah, we got some internal whatever,

John Corcoran 23:48

that’s not like, we lost the client in this other pod got to balance stuff, right? Yeah.

Karl Sakas 23:52

In general, you know, my view is that your clients generally shouldn’t hear about other clients, to the extent that it negatively impacts the client you’re talking to. Right? I mean, they know you have other clients, I’ll share different examples from my work anonymized right. You know, if someone’s dealing with somebody that you know, another client was struggling with that last week, you know, here’s what we talked through, right? Let me think more of a you’re not in this alone. Yeah. But I would never say to a client, you know, and people are listening, you know, uh, well, you know, I need to move your meeting next week because another client came in, it’s like, another problem. Yes, right. Now you are able to use that if it’s something specific to the client. So I had a client, this is as an agency PM, he made a request that I assigned to one of our developers, and then the client had another request, which unfortunately could only be fulfilled by that specific developer who the client knew they had talked and I said, Well, you know, glad to do that. Um, you know, so and so is the one who would be doing it. Would you like us to keep on the original path to the first First and the Second, where do you need to accelerate this new request? That’s a technique by the way that I called reason options, choose a negotiation technique cideries, hey, we’d love to do it. Just one person is able to do that. two options, keep with the original order, or swap it, and then let him choose.

John Corcoran 25:17

And it’s nice because they feel like they’re in control to a certain extent.

Karl Sakas 25:21

Yeah. So although that particular client, his response was Karl, I hate it when you make me choose. But you know what he did choose? And we got it done. And we kept him as a client,

John Corcoran 25:32

I would generally people like choices, right? So yeah, that’s kind of pretty unusual. What about you talked about client, the client concentration problem. And, you know, I’ve interviewed a lot of hundreds of business owners over the years. And it’s shocking, but you hear all the time that people that have clients to take up the makeup 40% 50% 80% of their revenue? What do you recommend to agencies, when they find themselves falling into that

Karl Sakas 26:01

scenario? Well, first, I approach it from a perspective of compassion. Right? Like people know, it’s not a good idea, they usually do not choose intentionally to make that happen. You know, I think sometimes there’s sort of this idea of like, how, why did you do that? They did it because they needed the money, the client was willing to spend more money. Yeah, probably struggling to make time for business development to to keep bringing in fresh new business, rather than solely the upsell. So I think the key thing is, from a compassion standpoint, it’s like it happened, it happened for a reason, or a set of reasons. Okay. Now, now, let’s fix it going forward, you know, what do they want going forward, then we’ll find a solution. Usually, it involves amping up their business development, you know, so their marketing, their sales and their partnerships work, to bring in additional business to reduce the percentage of that client, you know, in their business. It’s really tough. You know, if someone came to me wanting help, and they had 80% of their business from one client, I’m not sure I could help them. You know, there are things I could do, but it’s going to take a long time. I mean, imagine if you wanted to get that 80% down to 20%.

John Corcoran 27:22

Like, we need two more, or three more 80% of clients of the same size.

Karl Sakas 27:27

Yeah, yeah. So um, you know, in that case, it’s really more of a triage perspective of Okay, you need to amp up your marketing, your own marketing, your shoemakers, kids problem. And, and then, you know, get new business in, but then they still need to fulfil it, there is one opportunity, which is, oftentimes if you have a client concentration client, it’s usually the agency’s longest term, or one of their longest term clients. And usually the client is at some sort of a legacy rate. And I’ve done a lot of work with agencies lately, helping them raise prices for their clients. In one case, an agency said they hadn’t raised one of their clients prices in six years. I mean, when I became a director of Client Services at that first agency, I learned one of my first jobs was to raise our prices. 30%. I don’t think they had mentioned that when I when I started the

John Corcoran 28:25

video, just dropped it on your lap, like, oh, by the way, this is what you need to do. They’ve been charging

Karl Sakas 28:29

95 an hour, but don’t do that. And then my job is to sell everyone on why to pay 125 an hour?

John Corcoran 28:38

And how did you go about it? Did you get each client on the phone and say, Hi, I’d like to introduce myself on the new director, Client Services, and your rates are going up, nice to meet you.

Karl Sakas 28:47

I may have waited a week or two, something like that. But the good news was a lot of people have been at that 95 an hour price since the agency started. So the fact that they’ve been at that low rate for a while, I think

John Corcoran 29:01

it’s easier, make it easier that they’ve been at a lower rate for a long, long time. Because some agency owners think like, oh, they’ve been at this rate for so long, it’s gonna make it that much harder.

Karl Sakas 29:11

So I approach this from a portfolio perspective to look at your entire list of clients. I have a tool that I built for this, I call it the client ranking matrix, reload all your clients in, look at their current value, high, medium, low, and their future potential high medium blow. And that’ll help you sort out is this a client you want to grow Is this a client you want to leave as is, this is a client that you should prepare to lose or a client that you should fire? You know that, based on that combo, you can decide, you know, if you’ve got a client concentration problem, maybe you’d either raise them a small amount, or maybe keep them the same, but you tell them that new people are paying more, right, the rate has gone up for new people, they’re locked in for this period of time. That’s what I describe as strategically freeing strategically discounted, strategically free is okay. But don’t be secretly free Don’t let them Don’t let them think they’re getting this deal that they’re they need to realize they’re getting a special deal if they’re getting a continued special deal. So the portfolio approach is sorting out who’s getting a high increase who’s medium, low, I mean, every client is unique situation. So that portfolio approaches rather than saying everyone pays an extra 10%, or an extra 50%, or everyone stays the same, you’re deciding based on each client based on your experience with them. If they’re a client that you don’t enjoy working with, they probably need a nuisance fee. You know, if working with them wouldn’t be as annoying if they paid you an extra 20%. That’s the deal. And if they don’t want to pay the extra 20%, then they’re not worth it. So that portfolio approach is looking at the overall portfolio of clients and doing a really a diversified approach. But regardless, everyone does need to know whether their price goes up or not, that the new rate is x for new clients, and they’re getting some sort of a special deal. But that doesn’t last forever. So if you’re listening, if you want to raise prices tell clients sooner rather than later that your rate goes, it goes over a lot better if they hear Oh, they’re locked in at the current rate for three months, six months, four months, whatever, rather than the rate is going up tomorrow.

John Corcoran 31:27

And, and, and let me be devil’s advocate here. So I’m listening to this. I’m an agency owner, and you’re saying I should send an email to this client that’s been me for with me for however long period of time, they’ve been paying a lower rate, I don’t want to rock the boat, you want me to send them an email saying, hey, FYI, that rate, you’re paying his sweetheart deal. I’m gonna keep doing it for six months. But after then our current rate is x. I mean, I guess the fear would be that what if the client just quits right then and there as a result of that email and pisses them off?

Karl Sakas 32:02

Well, first, don’t send an email, don’t send that decision. So yeah, if anyone’s like, Oh, I don’t want to talk about without the client, I’m going to send an email, that will be a self fulfilling prophecy, that is not news to deliver via email by either use that as an example. Ideal is sharing it in conversation, preferably in an existing call that you have with the client, you know, toward the end, say, you know, but by the way, we’ve been at the same rate for four years, two years, three years, whatever the case may be, we are raising rates for new clients effective immediately, pause for a moment, because they’re going to be like, oh, and then you can say, you know, we enjoy working with you, we’re actually going to give you an extension on your current rate, for such and such paradigm. And you have the option of saying, you know, the new rate would normally be such and such, but we’re willing to give you a 15% discount off that new rate. So the ideas are paying something in the middle. So maybe they’ve been paying 125 an hour of new clients for 200 an hour, you could say you’re locked in 125 for three months, and then instead of paying 200 an hour, you’ll get a 25% discount and pay 150 an hour.

John Corcoran 33:14

And that helps to soften the blow a little bit, I

Karl Sakas 33:17

guess. Yes. And of course, not every client is going to I don’t know if anyone likes the price is going up. But you know, ultimately, if they realize they’ve been getting a good deal, it’s going to go over better than if they feel entitled to their crazy low price. Right,

John Corcoran 33:36

right. Yeah, the only one to ask about with this portfolio approach. I love that. My my business partner, Jeremy always talks about that. And I forget who he quotes this as saying this. But it was talks about the scariest number of businesses, one, one, anything one big client, one industry that you serve, one geography that you serve, and the last 18 months of the pandemic has really demonstrated to us how sometimes it can be unexpected. What parts of the economy, you know, you needed to diversify in a way that you didn’t realize it could be geographically like I interviewed, an owner of restaurants who had he didn’t even think about this beforehand, but he had 14 restaurants, locations, and you and they were in new New York and New Jersey. And you think, okay, that’s pretty good diversification. Well, a bunch of them were in the financial district, and pandemic hits, people aren’t going to work. They’re working from home, there’s no housing around that area. So all those restaurants did really poorly. So talk to me a little bit about how agency owners and by extension business owners should be thinking about diversification not just in regards to one large client, but other areas like geography or industry or niche or vertical or however you want to define

Karl Sakas 34:53

From a risk management perspective, when I’m helping clients evaluate new options new direction, I’ll recommend that they prepare in two areas, what is likely to happen? And what are the things that may not be likely to happen but would be catastrophic if they did. For instance, when I lived in New Jersey, I had flood insurance on my house, I was not in a flood zone. But I knew that my homeowner’s insurance wouldn’t cover flood damage, if there were if there was flooding. So for $400 a year, I could get the phone insurance coverage. So that was a case where you know, the odds of something happening were low, but it would have been pretty bad. So for 400 a year that was totally worth it. You know, on the other hand, if we look at you know, what is something that may not be quite as catastrophic, but, you know, is likely to happen. Thinking of, you know, say your, your team, you know, one of your employees will eventually quit to get a new job. So one solution to that is to do I call it always be recruiting. You know, Glengarry Glen Ross has always be closing, pros and cons on that mostly cons. But, you know, if you’re always looking to connect with people who might be matched to help your agency or might be, you know, you might be able to help other agencies, you work with things like that, suddenly, you’re not, you’re not going to suddenly panic when someone inevitably resigns. You can also build, for instance, a stable of freelancers. Ideally, you have three to five people in each skill area, you know, three to five writers, three to five designers, and so on. So that if someone does leave, because everyone will eventually leave. Um, generally, I, you’re not panicking, because you’ve got someone who can help and at least an interim basis, that also includes, ideally, you have at least two people at the agency that are contacts for each client, that would be a primary and the secondary, maybe the account managers, the primary, the project manager is the backup, so that if the am or the pm leave, you’ve got someone else providing coverage on things, that doesn’t mean No, you have to have everyone attending every single meeting, that kind of thing. But, again, the risk management is if it is likely to happen prepare for that, if it is unlikely that it would really bad prepare for that kind of like the $400 for the flood insurance in a very low risk flood zone.

John Corcoran 37:27

Right, right. And we’re getting a little short on time here. But this pandemic has been crazy. What was it like for you take us back to March, April 2020. We know how, how are your clients affected? What are some ways in which they and you with your assistant, they got through all

Karl Sakas 37:48

of this, it was difficult for most agencies, some exceptions, like ones that were e-commerce oriented, though even then there were still some challenges client mentioned that they had a client, you know, e-commerce site of their agency that did jigsaw puzzles, they paused their marketing span, because they were sold out. They had no more jigsaw puzzles to sell and they weren’t going to get any more. Wow, it didn’t make sense to you know, run PPC for

John Corcoran 38:16

camps and Kindle and people on your website, there is nothing they can buy.

Karl Sakas 38:20

Yeah, yeah, that’s another another was a client that sold like dehydrated camping food, they were sold out, there was nothing to sell. So, you know, most agencies were struggling. But here’s here’s the thing, you know, the sort of the complex systems that we have, you know, today a great book on that meltdown, why our systems fail and what we can do about it meltdown. But one of the things there is I run outside of my my work work, I volunteer to lead a CMO, mastermind group cmo networking, no agencies allowed, I put that together through a Marketing Association. I’m there because I only work with agencies like I have nothing to sell to the CMOS. So there. And it’s interesting, right? At the same time, as agencies, owners were saying to me, you know, my sales pipeline is stalled. Like everything has dried up, everyone’s buzzing everything this and that was going on. The CMOS, were saying, my sales pipeline, my marketing pipeline, everything stopped. Our customers are flaking out, no one wants to buy anything. They were having the exact same problem. And so as often the CMOS were under pressure from their CEOs to like sell, sell, sell, push, push, push. And the CMO would be, you know, pushing back to say that’s not going to be good for our brand long term. Like we’re going to destroy all of this brand equity, if we’re just blasting things out. So you know, that gets gets back to empathy, right, understand where clients are coming from. Most agencies are struggling. Oh, toward the end of 2020, I would say People generally we’re doing better and some we’re having record years, in spite of the challenges, I think in general, this is one of those, it’s hard to predict how complex situations will unfold, do read the book meltdown for ideas, the goal is to reduce complexity. And if you can’t reduce complexity, and find ways to create looser coupling, that is the steps are, you know, immediately next to each other, you find ways to space them out about that gives you more leeway to get things done. But I do remember, in late February of 2020, when there’s the CDC centers for disease control announcement about, you know, basically the, you know, it’s happening, you know, it’s not a question of if, but when, and I had previously dated a woman who is a public health epidemiologist. And from that experience, my takeaway was like infectious diseases are less under control that I might have fought as a layperson under usual circumstances. And I also knew from a CI and shared, like, public health officials do not want to publicly declare that there was an outbreak, because they know everyone’s going to panic. So the fact that that announcement happened, and that it was public, and they’re sharing this and all, you know, I definitely assumed there would be a lot of negative health impacts. But I certainly did not predict the economic impact of of the shutdowns and the extended shutdown. So you know, the idea of the the danger of one, do the best you can, yeah, I focus only on agencies, I have not changed that focus. In part because, you know,

John Corcoran 41:46

agencies need help it will UN agencies by their nature are diversified. They’re different types of agencies, you know, so it’s not like every agency is going to shut down to the whole industry is going to shut down. I don’t think so anyways, well, yeah, we’re running a little short on time. So wrapping things up, you know, I’m a big fan of gratitude. If you look around at your peers and your contemporaries, however you want to define that. Who do you respect? Who do you admire that’s doing good work out there

Karl Sakas 42:15

today? You know, someone that that I think for the most part, or, you know, my clients would know, but others might not. As my colleague, Diane, Diane Stadlen, we had connected several years ago through volunteering. And in retrospect, it was like a two year long interview that neither of us realised was an interview. And I mean, this is how I found, you know, the best team members sort of, through serendipity or accidentally, but part of that is being intentional about meeting people rather than just, you know, being like, Well, you know, stuff going on, give me time for that. And she’s been a great role model and a great team member, she she will, unfortunately be retiring at the end of this year. She’s had a long career working in agencies. So you know, I, I really say thank you, Diane. Thank you again, and I hope everyone has that amazing team member or multiple amazing team members. Were there to help. And if not, you know, I hope that you do find that person or

John Corcoran 43:21

Yeah, yeah, for sure. For sure, Karl, this has been great. Thank you so much. I know that you have got you mentioned it earlier, you’ve got a course that you are releasing soon for project managers, right? And where can people go to check that out? And also learn more about the work that you do?

Karl Sakas 43:36

So the premise on the course by the way is there are a lot of people who are deputized project managers people who are stuck doing pm on top of their regular job they don’t really want to do pm there’s a lot of training out there for people who are full time project managers we need that however I have created this course Agency PM 101 project management fundamentals for people who are stuck doing pm they’re not thrilled about it but they need to do it well. So I created the course as a way to help people get through those challenges. It’s good if you’re an agency owner wants to get pm off your plate it’s good if you’re doing project management earlier in your career and you’re like there’s got to be easier way Yes, there is. Let’s even a match for people who are experienced PMS I’ve included tips that I wish I had learned before becoming a pm. So you can learn more about that the Agency PM 101 course at Sakasandcompany.com And you can also go there to get all kinds of free resources. I have hundreds of articles on my site, fine stroke that I have an article for everything. Almost. There’s still more I’ve got like 700 article ideas in the backlog. So there’s there’s always more but if you go to say sakascompany.com sa k, a, s, A N D, the word company .com. Check it out. And you know, running an agency is never going to be easy, but it doesn’t have to be so hard. That’s great, Karl, thank

John Corcoran 44:57

you so much. Thank you, John.

Outro 45:00

Thank you for listening to the Smart Business Revolution Podcast with John Corcoran. Find out more at smartbusinessrevolution.com and while you’re there, sign up for our email list and join the Revolution. And be listening for the next episode of the Smart Business Revolution Podcast.