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Agency Forward explores the future of agencies as tech and AI drive down the cost of tactical deliverables. Topics include building competent teams, developing strategic offers, systemizing your business, and more.
New episodes delivered every Tuesday.
Chris DuBois 0:00
Hey everyone, today I'm joined by Ryan Watson. Ryan is a partner at Upsource, providing outsourced accounting financial strategy and m&a advisory services for creative agencies. I previously heard Ryan on a lot of podcasts and news man and the number so I was excited to get them on an episode so that we could talk about the financials behind running an agency. And like most of these conversations, we ended up covering so much more. In this episode, we discussed how the hierarchy of financial needs can focus your efforts, why you should pay attention to the lifecycle of agencies, how project profitability is changing, and more. Today's episode is brought to you by Zen pilot, there are lots of tools out there for agencies to manage projects, but any project issues aren't usually caused by the tool. They're from your own processes. Zen pilot helps agencies implement their project management tools while streamlining operations. So your team can move from chaos to clarity, you can see for yourself at Zen pilot.com/forward. And ladies and gentlemen, Ryan Watson, it's easier than ever to start an agency, but it's only getting harder to stand out and keep it alive. Join me as we explore the strategies agencies are using today to secure a better tomorrow. This is agency forward. How can I set realistic goals for my agency?
Speaker 1 1:29
Well, it's a good question. I mean, I'd answer that in a couple of ways. The first thing that you want to do is you want to be contextual with your goals about where you are in the so we have y'all say this word a bunch of times when we talk, we have a bunch of frameworks that just kind of like frame out how we think about the world of agencies. And one of our frameworks is the lifecycle of agencies. And it just sort of recognizes that agency growth is a journey. And each stage, they're not same agency agency before they arrive. And at each stage, the things that you focus on the things you should care about the solutions are going to be different, right? Sort of contextual, based on the stage. And so the first question is like, what should your goals be about? So for instance, like, if you're, you know, if you're an agency, and we got plenty of clients who have found themselves in these situations where you have a solvency crisis, right, where you have got your payroll to payroll, you don't have a lot of cash in the bank, margins are terrible. You shouldn't be setting goals around things like repeatable sales growth, or like net margin, like, oh, I want to get a 20%. net margin, like, yes, you do. But oh, my gosh, we have several steps in the hierarchy of financial needs. Before we can even work we have the privilege of thinking about those things. Right now, we got to like, make payroll. But number two is like, we need to figure out a way to like get an adequate gross margin first before we can worry about, you know, take home profit and those sorts of things. So, you know, not to get all the way into the weeds. But the first is, is like making sure you are realistic about where you are and what you should be focused on right now for your agency. The other thing that you should do is, you know, there's this concept of like, bottoms up versus top down, top down as sort of like a swag like, you know, an example of top down would be like, hey, this year, last year, I did 2 million in revenue this year, I want to do 4 million in revenue, I'm just gonna, like start there, I'm gonna pull that out of the sky, my goal is 4 million in revenue. It's top down number, it's not based on anything, it's just your desires realistically, top down, especially early on, they're just their wishes, they're not goals, right? Bottoms up goal is is again, based on the reality of your organization at this time, right. So a bottoms up goal would be to say, I have $2 million of revenue, right? F of that, each year, I believe, based on history that I can retain 70% of my revenue, that doesn't necessarily mean it's on a retainer. It just means 70% of my revenue comes from clients I've worked with before, often that's just follow on projects, right? Like I work with Yale, and I have a variety of projects with you. So the goal is to say I know that a reasonable expectation of revenue retention would be 70%. And I have one seller and their quota is a million dollars, we've historically been able to hit that. So okay, if I retain 70% of my 2 million, that's 1.4. And if I have one seller who can hit a $1 million quota that's 2.4. So if I don't do anything differently, 2.4 million is a reasonable goal. Now if I want three, I got to do something differently. I either have to find a way to retain more than 70% or more realistically, I got to put more investment into new logo generation because I've only got one person I know what they can do. So that's a bottoms up goal. So set bottoms up goals and make sure that they're based on the things that are you should be focusing on now based on where you are as an agency. Anyway, right? Makes sense? Yeah,
Chris DuBois 4:56
yeah. Do you ever get pushback from founders who still want to Keep that top down goal, just as like.
Speaker 1 5:02
I mean, I wouldn't, I wouldn't necessarily describe it as pushback, what I would say is like, every agency has one of them. I mean, they just often do like, we there's no again, there's nothing wrong with making wishes, there's nothing wrong with saying I sure would like this to happen. And again, it's especially true for agencies that don't have repeatable revenue generation. So that whole exercise I just described, I have a seller and they have a quota and I have a retention. at an earlier stages of agencies, it's like, well, actually, my revenue is mostly project based comes from word of mouth, that comes from referrals, the way for me to predict that I doing a bottoms up exercise would be quite difficult. And so I'm just going to hope to the stars that those word of mouth organic referral activities, results in, you know, 3 million of revenue or whatever the number is, there's nothing wrong with that. So long as we are real about what it is, which is a wish, hope. It's not something we manage our business around, right? It's not we're not going to make decisions with any kind of expectation that that 3 million or whatever my top down number is going to come to fruition, right? Am I going to make staffing decisions? Am I going to make investments and not leaning forward in any way? I'm going to make decisions based on the realities of this business? But yeah, I just want to say like, sure would be cool. If this happened, great. I agree. We'll keep that in the back of our mind. And we'll high five if that happens.
Chris DuBois 6:26
Right? So is there a point where you can say, hey, we have enough data to be able to make these decisions, like for example, if you're, like, trying to measure churn, right? There's all these different formulas where you can measure churn before you have like an actual client base. And before you're actually you're three months in, and you can estimate some things. Like, is there a point for a newer agency where it's like, okay, now you do have enough information that we should be able to accurately predict these numbers.
Speaker 1 6:55
Yeah, I mean, it's not like a objective science, obviously, right? Like I am in the data business, I care about data. But probably for an accountant, I buy us away from data more than than most like me, I think, though, so we, here's another framework. When we think about thinking about the future, we sort of distinguish the concept of a forecast versus sort of a plan. And a forecast is something that I would predict outcomes beyond which I have line of sight to right, like, so I'm going to predict what's going to happen beyond what's in my CRM, just and the thing that allows you to do that is a repeatable revenue generation function. And so the definition of do I or do I not have repeatable revenue generation is like pretty subjective. So, again, that it really just refers to I do activities that have a reasonable expectation of results. And I think like, there are some conversations on the margins to be had, like, Oh, I do some things and maybe it's predictable. Maybe it's not, whatever, whether you you choose to try to use the data or not, I don't think makes a huge difference. But for the eight, the 80, for 20, is very clear to tell the difference. Like again, the difference is my agency gets its projects from its new clients from word of mouth, organic referral, incidental, that would not be repeatable revenue generation, in which case, yeah, you don't have any data to use. Versus I do activities like I, you know, I have an outbound function, I'm sending emails or LinkedIn requests, and I, and I, maybe I don't have a perfect number for what percentage of them convert, but some of them are converting, and I'm getting sort of like a feel, and I can apply some assumptions. But I'm like doing real activities that have arisen that have shown results, versus just kind of, uh, you know, existing in the world. I think if you're in the latter camp, then you can start to use some assumptions and just refine over time. It's just the former camp where you really can't you know what I mean, then there's nothing there.
Chris DuBois 9:08
And so I guess, would you use the, this is me doing a bunch of research on here before before the episode. Oh, good. Yeah. Love it. The the lifecycle of agencies.
Speaker 1 9:18
Oh, hey, there it is. Yeah, yeah. So well. So what I would say, Yeah, I mean, I think that, so I'll give just like for those who have not done the research. So the lifecycle of agencies is the framework we use to sort of describe the different phases of an agency's life where we can help them understand that you're going to have there's a class of problems that agencies and these stages often face. And there are solutions that have the best chance of success for those stages. And, you know, without going into all the details, we have sort of the create, build gross scale. That's what we describe. And so in our Build Mode, and that's, that's like phase two, if you will, and then It is generally between like a million and call it 3 million in revenue, roughly speaking, we have the what we call the hierarchy of financial needs, right. And that's like, the hierarchy financial needs like based on Maslow's hierarchy of hierarchy of needs, it's kind of like to sequentially ordered, these are the KPIs, you should be focused on one at a time, we're gonna clear one, we're gonna go to the next one. Anyway, the capstone to the hierarchy of financial needs is repeatable revenue generation. And so generally like, it's our belief that in order for you to graduate to what we call a grow mode agency, which have happens, generally speaking in like the two three, maybe ish range of revenue, you need repeatable revenue generation set differently, I'm not familiar with that many agencies who have cleared that revenue Mark, just incidentally, by word of mouth and referrals and things that don't have direct inputs, I, you definitely can get to the one to two, maybe even three, because you have a strong network and whatever. But like at a point, you need repeatable inputs to generate predictable outputs. And that is kind of like the that is the, the, that's your degree to graduate from, what we call build mode to what we call grow mode. And that of that opens a sort of host of new problems. So yeah, we use the hierarchy of financial needs, or the lifecycle of agencies to sort of help you define when you're likely to be in that forecasting phase, and when you're likely not to be.
Chris DuBois 11:27
So I was just talking with an agency owner who refuses to set up recurring revenue, because they find it too annoying to manage. And so they do projects, but they're questioned why this
Speaker 1 11:40
thing I've ever heard was the opposite of what I've ever heard from any agent keep their
Chris DuBois 11:44
question to the to the group was, how do I keep projects coming consistently? Then? Like you do it by setting up recurring revenue? Like, yeah, it was a recurring,
Speaker 1 11:56
I mean, like recurring revenue is the holy grail. I mean, it's the Holy in other like belief that I have, is that I, and I don't know what the threshold is. But that, you know, we like to think about revenue as new or existing, which is slightly different, but in the same manner as recurring non recurring, the difference is recurring has a very narrow definition, which is, you know, kind of like a retainer, right. Like, I'm, I have this thing, it's predictable. And it's sort of contractual in nature, right? Whereas existing offers the flexibility to say in a given year, did I mi selling to a person that I worked with last year or not, right? Have I retained that revenue? One way to retain it is recurring revenue, like I just have this monthly retainer is the same every month, I just keep sort of cashing that check. Obviously, that's the best no question. The other way to do it is what I call an annuity of projects, which is what your person was asking for, right? How do I get follow on projects? And that absolute, I mean, to be honest with you, that's, that's easier to do for the right, you know, if you're at the right phase, like if you have a middle market client, you know, your clients are like, Main Street, small businesses, well, that's pretty hard, right? They're gonna do a branding project once a decade, not gonna get any follow up. But if you're working with Procter and Gamble, Kimberly Clark, Salesforce, whatever, like LinkedIn, Facebook, then it is very possible to get a project and then another project, and then another project like you, that's the land and expand strategy. And so for sure, you can't do that. And I believe that there is a ceiling on agencies who don't, or who are not able to get at least 50% of the revenue in a given year from existing stuff sources, because it's just like if if more than 50% of your revenue is coming from new logos every year, like unless you build this giant sales team, which by the way, is kind of incompatible with the way most agencies grow, then you're not going to do it. Like, you know, this one person can only do so much every year, like you just you lose it, you gain it, you're saying flat, like you have to stack revenue, you have to stack revenue. And that has to come from can retaining some of it, whether it's an annuity of projects, or it's recurring revenue. So anyway, my my answer to this first is like, oh my gosh, Don't look a gift horse in the mouth. This is your oxygen. You must, you must forget about it being annoying. I'll help you. You got to do it. Right. If it's there, if it's there. Yeah,
Chris DuBois 14:36
that was the response, I think echoed in the conversation. Yeah,
Speaker 1 14:40
we because a lot of folks struggle to have not every service lends itself incredibly naturally to recurring revenue. There are some areas of marketing where it just is the way it's done versus others, where like branding and you're just like a straight brand strategy. It's a little tricky to get out recurring revenue arrangements do in that work? Exactly. There's opportunities for different follow ons and other things. But some limits are better than others. But if you have it take,
Chris DuBois 15:13
agreed. And that's where I think finding those adjacent offers things that you can still deliver that fall within your realm. Your area of specialization, that, yeah, they might not have been asking for it upfront, but you delivered that, and you know, they're going to need this that's like a subsequent offering. And it's like, let's tote that in front of them. And then yeah, even if it's a smaller retainer, right, it's still recurring revenue that's coming in, give you a little more predictability in your growth.
Speaker 1 15:39
1,000% 1,000%. And if nothing else, like these are not mutually exclusive. So it gives you a I mean, if it's a small client, then maybe that's the end. But if it's a Salesforce or an IBM or whatever, to seat at the table, you're it's a touch point, every single month and a paid opportunity to sell them new, larger projects or to get introductions to other groups or division leaders or whatever. So yeah, absolutely.
Chris DuBois 16:04
So going back to the lifecycle of agencies, yes, with with AI tech market, I think a lot more agencies are being created right now than ever before, even if a lot of them are kind of leaning towards the solopreneur side. Yeah. Yeah, I guess, are you seeing any changes for what each of those stages will look like internally? Because of all of these other things happening within the market?
Speaker 1 16:35
Well, you know, it is a good question. I mean, and I have, everybody has biases. That. And I think I'm actually going to steal this from Sam Altman. But so not even a bias is the man himself, right? Or one of like, my bias is, AI could even could be even bigger than we think in terms of opportunity. But no, and I'm not sure how much I believe, is it gonna be big or small or whatever. But it is definitely going to happen slower than we expect. And so to be honest, like, Yeah, everybody else included, we were implement, we're learning we're implementing, we're trying this, we're trying that. I mean, at least from what I've seen, we work with about 115 agencies or whatever, something like that. I have yet to see a meaningfully transform the operations of anybody, like I get to see it meaningfully transform the blueprint of how a person operates. I mean, the most natural thing that it will happen to the lifecycle of agencies, is it'll shrink the size of the organization that occurs at each revenue number, right. So like, you know, you're just going to create some natural efficiencies within the organization. So what was the, you know what, and I think it'll extend the inflection points. Because some of you know, when we think about the lifecycle of agencies, some of the inflection points, the new sets of challenges are a function of the complexity of the organization, the operating model that got us here won't be the one to get us there. And that's in part driven by the size of the org and the management structure to kind of make it all work. And so if AI is, you know, compressing, shrinking the org, and getting an increasing leverage the leverage we get out of each individual, then I suspect you can sort of go a little further with a smaller team, and maybe the sizes of these spaces grow. Right, the inflection point that what used to be at three, it's now five, something like that. I don't know. I mean, I, I'd be interested in your point of view. And I mean, knowing what you know about the lifecycle, but also, I know that you have a little bit of a, you have a little bit of a bias toward and like you've spent more time with with AI and some of these agencies, I'd be curious what ways you're seeing it like meaningfully impact some of these things and how you think it'll change the operating model at different stages. And
Chris DuBois 18:54
I think it's either going to be a huge benefit, or the the ultimate end for for an agency, depending on what what stance they they choose to take a presentation I did with, with Zen pilot, actually, I think last month was on the order of operations for AI within your agency. And so just how do you roll out AI in your agency so that you're not just using it to kind of facilitate all these creative things your agency is doing that people are hiring you specifically for? Right, like there's a term don't outsource, like the main thing. And I think a lot of agencies are currently doing that by saying, I'm gonna let AI write all of our content, I'm gonna let it create all these graphics. It's like people are paying you for that specifically, because you have strategic expertise after seeing this over and over. deliver that. So why don't we use AI to get rid of all those tasks that like, don't matter in order for us to get like it's just the simple automation. I think it it makes sense for a lot of people but a lot of agencies still aren't using it because it's sexy. You're to go use it for all of these other things. And so, yeah,
Speaker 1 20:05
totally agree. And again, that's, that's, that's kind of what I mean by leverage, right? Like, can I get more outputs from a single input? Whether that's just internal stuff, right? What you know, what used to take some of my non utilized time I can sort of dispense with because I'm automating it with AI? Or what would take, you know, or even just sort of like, can I do, can I create a framework for myself on the creative work that I can apply my expertise to? Can I take what was five hours and take it down to two hours? Because some of the, some of the scaffolding is is constructed? For me? I think it'd be I mean, I don't think you can draw a a specific parallel, but like, part of me is, you know, part of me thinks about, like, the sort of web 2.0. And, you know, and accounting, right, like I can distinctly remember I used to consult for this company zero, which is a competitor to QuickBooks, and the, you know, the Gosh, it's been probably like, a decade now, since, like, I would go around and speak to different accounting firms about the future of technology in the accounting space. And, you know, the, at the time, like, the number one accounting software in the world was Excel, and here comes at the time QuickBooks Online wasn't very popular, it was really just a zero, right? Zero, ultimately pushed to QuickBooks to or Intuit to generate, you know, massive investments in this tool here in the US. And so there was just all this discussion around how like, these tools are going to, like automate all these things, and the way that all this work is going to change. And, and so anyways, fast forward like 10 years, then landscape looks a lot like it did 10 years ago. I mean, it has changed some, but like, all the things I said 10 years ago, still true, still definitely true. But man, like the world, we projected back then for 2024 is so much different than what we thought it would be. And it's so much more like it was, which again, just kind of goes back to like, I believe in the promise, but just human beings and their rate of adoption are just slow and stubborn. And, and so again, I think all this stuff just gonna happen a lot slower than we expect. And people again, like that. I'll get off my soapbox. As soon as I'm done with this, I'm going to keep people okay, great, like people, you know, take the creative stuff, right? Like, people assume too much. Oh, I can just write a very brief prompt. And then I'm going to, it's going to create like a movie trailer or whatever, like a commercial, and then it comes out with something is really good compared to what you thought a robot could do. But certainly nothing that you could put a client put in front of clients sell, right? Like it doesn't. And so then we're just like, Oh, this sucks, move on. Right, like, and so because of that humans like misusing having the wrong expectations, we work against ourselves. And so it's just the adoption cycle slows down, right? We just hit these, you know, read the article about it, McDonald's, like abandoning the AI drive thru, because it made some mistakes, of course, made some mistakes, right? Like, we have a labor shortage problem, like it's a wonderful solution for this. But we'll put it in context. Like we can't, you can't turn on the keys to the car and expect it to be perfect on this first iteration. But we do that, and then we say, Oh, we're done. So we set the whole exercise back, however long we set it back, because we put it in a position of fail and they're dead. It failed. And so I just, we do that as humans. So I think because of us, it's just gonna take longer to get out of it when we think we can. So
Chris DuBois 23:38
I guess, what would your what's your outlook for 2034?
Speaker 1 23:44
Well, I don't know. It's good question. I mean, I I'm an optimist. I mean, I don't know. I mean, that's a broad question. I, I am an optimist in general, and I bias that way. I'm also a service provider. So I'm optimistic about the service. You know, like there's all kinds of predict predictions that okay, you know, accounting would go creative will go every industry has had its prognostication. And that the message I always said back then about what like SAS could do and the automation that was involved in SAS, I think I still believe which is again, I think I I think by 2030 we still won't I don't know that we're going to feel an exponential step change. I think it will have happened slowly and it'll end but we will. We will look back and I believe that we will have 50% leverage or whatever it is like it just you know, we will find we will get there Brick by Brick use case by use case. mean again like think of the the thing that is AI driven that we sort of take for granted is every meeting I get on has meeting has the meeting recorder fireflies on and grains on and this person is on right? This is somewhat new. It's great. Like it's a really helpful tool that we've kind of adopted. And now I got these great notes. And I got these. And I did that. And I think that we're just going to have use case by use case it infiltrate our life and create a little bit more leverage and flexibility on our time. And I hope as a force for good that. So I don't know if I answered your question. But like, I view it, at least through 2030. Kind of an incremental adoption, not necessarily like an exponential adoption. I think that will happen at some point. I'm not convinced it'll happen in the next six years. Right?
Chris DuBois 25:37
No, that was exactly what I was looking for the study, jury's still out. So I read one study, though, about just just through ai 10% of agencies, creative agencies will be gone this year, and like, separate from the normal attrition rate of agencies every year. But just from Ai, they're just going landscapes changed. 10% gone, you know, snap of the fingers was like F and Marvel movies, whatever. works better. If I knew thinos, there you go, I had his name, that would have been a better reference. But the end, so I was bringing that up. And what I realized is that almost no agency believes that they will be in that 10%. And so, because I think most of them are optimistic, right there. They expect to, to keep going and being able to do this, and they should be as entrepreneurs, you gotta be optimistic, otherwise, no one's gonna follow you. And so, so it really pays to be optimistic. But I think by ignoring the fact that you could be in that 10%, if you don't, if you're not deliberate in how you're using AI and how you approach all this, that the it could be way more than 10% that actually take that hit this year, and next year and the year after, as things continue changing. So yeah, we probably agree that things are gonna go slower than normal. But I don't know. I think there's still a lot of risk, inherent risk in not keeping up with the technology in a way that actually promotes your business.
Speaker 1 27:08
Yeah, I think I mean, I, I totally agree. I mean, I think I mean, it may be I mean, by the way, I do think a 10 person agencies probably will go out of business this year, but not for AI, maybe we sort of like post mortem of, you know, apply the AI moniker. It is tough sledding out there. Just, it's so fascinating. Like, last year was a tough year, we kind of all recognized it. I don't feel like this year, in, you know, the press kind of captured, I don't feel like this year gets quite the credit for being as tough of a year. But I think in our portfolio, we probably have more financial hardship than we did last year, not at all because of AI just because if anything, I think we're kind of coming off of the, like, the, you know, on the other side of the pandemic has a lot of free money. And we sort of buoyed organizations that would have just unnaturally probably shouldn't have existed like that, you know, not like not every business should exist, that's a cold, hard fact, you know, some, some should, um, shouldn't just based on market need, and you know, quality of the work, and you know, and so, but because of all the free money, we didn't see that natural attrition happen, that just always happens. And now we have the hangover, and it's happening. And combine that with think high interest rates, whatever. So anyway, I do think agencies are going out of business this year, for sure. I don't think it's aI outside of like, yeah, gosh, outside of like your Fiverr kind of level of creative work. I don't think you know, you're you're serious branding organization, serious creative shop is going out of business because of AI, I don't I don't believe their customers are able to outsource all their work to AI just yet. But it is a it is an existential threat. For sure. Again, I like to believe that it's an opportunity, more than it's a threat. But I just because that's what I like to believe it's both.
Chris DuBois 29:07
Right, I'm starting to have more conversations with especially like SEO agencies that are like seeing that challenge where people are bringing the work in house because they can show like an intern how to use AI in order to get an 80% result. And then it's just Okay, now we'll learn how to network it a little more and figure this out. But my comments, I guess back to these agencies, it's like you're not doing enough to provide value that only you can provide, right? Just being able to produce the content isn't going to get a win. That's got to be the right content with the right keywords, the right strategy, that's where you need to be leaning into. And and once we work that into offers, it's usually easier to
Speaker 1 29:51
look I mean, I think not to say that AI is only a risk for the bottom. It's not it's a risk everywhere, but naturally It's going to attack the bottom right. So like for instance, if it take the accounting world, right, like AI is a real risk to people who are doing volume based individual tax returns, right like your h&r block's of the world, it's a real risk to your very lower end bookkeeper, here's 250 a month, I'm just gonna like do a commodity like if you're providing a commodity offering, then you are at risk to something that can automate what you have always at risk. And so the natural like this is this is just a trend that has been written, this has been around for at least a decade, the idea of niching down having a specialty selling a true expertise. That was always true, still true. And if you don't, you are you were at risk of all other sort of forces, globalization, whatever, now you're at risk of an additional force, which is AI, it's the same kind of stuff that right so to your point, yeah, if you're providing a commodity offering, sure, somebody's gonna be able to outsource you. But if you are providing insights and expertise that you cannot get anywhere else, then you're you have a job. And I think to be honest with you, you will, quote unquote, always have a job, I believe now, what does the does the expertise and insight in what is uniquely you? Does that evolve? Sure. But I believe there's always space for that. Yeah.
Chris DuBois 31:21
So since I have you here, I want to spend more time talking about numbers, because I think that's, that's something I can get for the audience can get tremendous value from you with, not that everything you've shared already has been included in that. But the biggest, what patterns are you seeing most frequently in regards to like leadership teams, when you're coming in giving them like, you know, CFO type level advice on how they should be looking at numbers within their agency? What are some of those challenges? You're bumping up against that hesitancies? I guess from the from leadership or things that, you know, they could be doing differently in order to make a huge difference in their business? That's
Speaker 1 32:02
a good question. I think. Well, a couple things. One, again, I think the answer that question depends a little bit on the lifecycle of agencies, right. So different, different agencies at different sizes, have different inherent biases. But I think, again, I think overall, there is a lack of embrace for the idea that one operating model will not sustain you from zero to 50 million in revenue, it doesn't work, right. And so sometimes we get the agencies in Build Mode, who say, I don't want to track time, that's not what we do for our culture like this is we don't we don't do this by there's a whole kind of debate or whatever. But, you know, my relatively strong point of view is, that's fine. But there's a natural ceiling, I mean, outside of a small type of agency that sells a high volume of homogenous services, you can determine you can manage margin and supply demand without tracking to the hour. But if you're a more traditional sort of creative agency, where you have like a smaller volume of heterogeneous projects, they take different shapes. You there's a ceiling on how far you're gonna get without dragging time, like that's the input of that is the that is the resource that you're paying for on a fixed fee. And you have to match supply and demand. And to be able to understand, am I utilizing my team? And am I earning good project margins, there's just no substitute for that. But you you run it agencies are like, Yeah, that's a non starter for me, like, that's fine. But that's you've placed a natural ceiling on your agency, right? You, you, you face. Other agencies who have kind of gotten to the size of agency, where to this is another like inflection point where, you know, we say when you get into Grow mode, it's that you've, you had an agency that wasn't in profits, and it was rocking, and you were feeling really good. And then the wheels start to fall off. And there's tension with clients and employees, and you have some churn, and you see some clients. So employees leave. And part of that is because you've sort of like you've exceeded the size that your operating model can work. And so now you've got new employees who are not part of the family that you initially were hired in at. And, and they and you now have decisions being made that are like multiple levels removed from the core leadership team. And so managing centrally with this core leadership team, or this core CEO is a bottleneck, it's slowing people down. It's creating frustration and other it's limiting people's growth. And so, you know, the the operating model that works at a larger size is by shrinking the agency into discrete departments or up or business units or service offerings, where you can create deputies who have autonomy, and accountability and incentives to drive their individual results that ladder up to your anyways, that's just an example of it requires a new operating model and you just occasionally have folks who have had Success to their point. And bias towards I do what worked. Gotcha. But just to be clear, again, this is a journey, the operating model evolves, what got you here won't get you there. And so if we run into challenges, it's just with, you know that that resistance to throwing the playbook out and pulling out a new one. But to be honest with you, it's required. I
Chris DuBois 35:25
don't know if it's the technical name. But I heard it referenced like this somewhere, but it's called the curse of the Red Queen. Right? What got you here today? Yeah, get you there tomorrow, because
Speaker 1 35:37
of the Red Queen. I'm gonna use that. I don't play a lot of chess. But it does roll up. nicely. So
Chris DuBois 35:45
good. But the but yeah, I think that's, I mean, it's well documented that one of the most dangerous phrases in the English language is that's how we've always done it. I mean, I've seen it in multiple organizations. So yeah, I have no zero doubt that that's the, the blocker for a lot of these companies. Yeah,
Speaker 1 36:04
totally. And I think and even all the way down to we had this conversation earlier, I can think of another another agency that that is really has been struggling and and, you know, back to the I don't believe you can exceed a certain level of growth, if you do not retain revenue. And having this really, you know, one of the hardest businesses to run is like your purely project based branding agency that serves like a lower middle market client, who's only ever going to get a rebrand, once a decade, 100% of your work is new, you can have a record quarter in q1, and you could go out of business in q2, that's just the reality of that business. It's no harder business on a planet to run. So I'm having this conversation, which is like, this is just the facts, it feels hard, it's always gonna feel hard. We have to find a way to move our segment or sell a different thing. If we are going to retain these individuals. And they're just there's just no interest, right? And so it's like, all good. Gotcha. But like this is the, in order to get Pele, you could do that to get here. But now that you're here, like this is going to be tough sledding unless we apply the new operating model and stuff. Inertia is a bitch.
Chris DuBois 37:21
Yeah, I think one of the like, challenges amongst leadership teams is like, you can't grow past whatever the constraint of that business is. Right? And so you're constantly seeking what is my current constraint that I need to remove so that I can advance? And a lot of times a leader does not look at themselves as that as it guys potential constraint. So when?
Speaker 1 37:45
Sometimes Sometimes it's true. Yeah, sometimes it's true. I you know, and yeah, yeah, I'll leave it at that. I totally agree.
Chris DuBois 37:56
Well, Ryan, great conversation. I got two more questions. I don't want to send your way. Hit me up. Let's Well, we got so first one, what book do you recommend every agency leader should read?
Speaker 1 38:09
Yeah, good. Good question. I, you're gonna have to edit this out. Because now I'm like struggling. I have like a good have an answer for this that I often use. But why am I forgetting it? Go to your second question. I'll give you the answer for the first question. Yeah, sure. Sorry. I just have this title. Yeah, go ahead. Yeah, good. Where can
Chris DuBois 38:33
people learn more about you?
Speaker 1 38:33
Oh, well, that I can answer for you. So you can find a couple places, obviously, our website Upsource accounting.com. And we also have a YouTube channel at up sourced, where we put on all kinds of content like this, and have great conversation with people like Chris, I want these days, we have to have you on our podcast. And I'd love to learn more about your coaching business. So yeah, cool. By the way, book, I mean, there are a couple books, they're the one to be honest with you. The one that I'm gonna go that's like a little bit old school that I still think holds up. And is also just like a little bit self serving because of how we operate is the E Myth. I love the E Myth. Like I just I love that as a core operating like lots of agencies retraction and there's you know, EMF is kind of like traction before traction existed. But I just love the sort of, there's no nothing fancy, bad. It's nothing like there's no new kind of like frameworks or whatever to sort of reinvent it's just like very core principles for how to create a repeatable business. Love it. Anyway, Inez.
Chris DuBois 39:44
Yeah. All right.
Speaker 1 39:49
So Chris, thanks for Yeah, this has been fun, man. Appreciate it. Yeah.
Chris DuBois 39:58
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