Firms Most at Risk
Which segments of our field will thrive in the near future and which ones will slowly lose relevance, and why? David wants creative entrepreneurs to continue being resilient and reinventing themselves every two years while keeping a watchful eye on constantly evolving industry practices and technologies (including AI).
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“Most At-Risk Shops” by David C. Baker for punctuation.com
Transcript
David: This one is going to be an interesting recording, Blair. I just wrote this thing a month ago. I don't even know if I believe it all still.
Blair: You probably never believed any of it. [laughter] Oh, my God. Our topic today, folks, is 'Most at Risk Shops.' If you haven't discerned by now, I will be interviewing David about an article he wrote, but he's now second-guessing. This is your favorite interview. It's like, "Oh, give him enough rope to hang himself." I can die after this. [laughs] No, but I was saying I identify with it every once in a while, when you're trying to predict the future, which is essentially what you're doing here, you don't have a responsibility to be right. You have a responsibility to provoke and to give people new things to think about, "Oh, well, I'm good at that, so we're good."
I appreciate you saying you don't know how much of this you believe. We'll get into the details here because there's a lot of detail and there's some of it, I think, "Oh, yes, that's smart, I get that." Some of it I don't understand, and some of it maybe I'll push back on a little bit, but I think it'll be a good conversation. I was going to open until you gifted us that cold open. I was going to open with, "David, Most at Risk Shops, is this an AI episode?"
David: We keep sneaking up on AI without doing AI, don't we?
Blair: Keep circling around it, doing the dance, but is it an AI episode?
David: No, no. I'm still not even close to doing an AI episode. There's just not enough clarity in my head about it. Even though I'm a really heavy user of it, I've got many clients who are heavy into it, it's not clear to me yet.
Blair: Where's the risk coming from then?
David: Oh God, I hate it when you ask these kind of questions.
Blair: [laughs] AI. The answer is AI.
David: I think AI is what prompted this article, but I think I would have written basically the same thing even if AI were not a part of our world. In other words, I think AI is probably just hastening it.
Blair: Yes, I get that.
David: I could have written this article four years ago, before AI was really big. No, it's not the AI episode. Quit trying to trap me.
Blair: Well, we'll get into the details here. You're basically taking a guess at firms that are likely to survive at some point in the future, and then you've got a list of the strongest traits or elements that you'd favor in any position. Then you've got the most at risk and then the most endangered species. You do have a section titled "The Role of AI," but like you said earlier, we're not doing direct AI episodes, but that's informing a lot of what we're doing. I'm going to skip down a little bit. At the top of the list of firms that you have as most at risk, you've got software platforms.
I think you mean something else. I just realized that you're talking about the platforms that some agencies have relied upon, like being a HubSpot agency, a Shopify agency, or WordPress specialist. You mean being all in on a platform? Is that what you mean by that?
David: Yes. I'm not saying dev shops here, and I'm not saying that SaaS is under siege, even though both of those things might be true. I'm saying that agencies that hitch themselves to a platform are probably the most at risk. That's what I mean by that.
Blair: Yes, and I think there's always a risk. Our friend Philip Morgan has written about this. We've referenced the post before. It's called, When the King Gets Hungry, about when the platforms see people making money off the platform, it's good for them initially, but at some point, in search for more margin, they start to eye that revenue and find ways to claim it for themselves. Just back to, is this an AI episode or not? You said even without AI, some of these things would still be relevant. I immediately thought of SaaS, and yet there's this idea that AI is killing SaaS or having a serious detrimental effect on SaaS businesses, but we were in a software recession. We were headed into a software recession before COVID, and then all the free Covid money sloshing around basically put that recession on hold for two plus years, and then it resumed afterwards.
I think there are a lot of agencies out there that rely on SAS as their client. I think that's one that, even if AI hadn't come along and given another nudge, it would still be an area that would be vulnerable.
David: Yes, I agree. I think it wasn't just the free money sloshing around, it was the fact that people weren't shopping, which drove e-commerce. They weren't shopping in person at the beginning, drove e-commerce, and they were working remotely, which drove lots of other SaaS platforms that were necessary to make this work for the gears of commerce to keep working. We are in a SaaS recession if you compare now to two or three years ago. I'm not sure we're really in a SaaS recession if you compare now with 2019 or something. I have to look that up to see. I would have said this regardless of AI. That's why this is not an AI episode, because the fact that I don't think you should be tying yourself to a software platform, or you need to be very careful about it, that has nothing to do with AI.
It's something I wrote six, seven years ago, and I keep sending people this article and saying, “Be really careful. You're downstream. You don't have much control.” People have already made the big strategic decisions, and now they're looking for an implementation team. It's just lots of bad signals there. I'm not saying you can't make a good living doing this. You can, but you don't have the same control. In the article, there was an illustration that showed when you're hitching your agency to a software platform, you're on a train track. The only choice you have is this isn't really true, but kind of. Big choice you have is how fast you want to grow. You're not in an off-road vehicle, where you can go anywhere you want. No, you're following the tracks that somebody else has laid, and there's some danger in that. The most at-risk firms, one of those categories, is anybody tied to a software platform, which has nothing to do with AI in my mind.
Blair: Since we're on most at risk, do you want to touch on the others here first before we go to the ones that you think have a better shot?
David: Yes. I think small firms are at risk. I don't like to say this because I feel very ambivalent about how big your firm is. I just don't care. I think the size of your firm ought to be shaped by the role that you want to play. If you're good with people, if you're okay with financial risk, if you like systems and processes and all that, and you're okay with lots of new business activity, then growth is a fantastic choice for you. If all those things are not true, and you don't like the financial risk, you don't like to be in the people business, you don't like to spend all your life doing new business, then being a smaller firm, especially if you like being close to the work, is exactly what you should be. Here I am saying, "That might not be a great choice."
Now, if you're going to be a small firm, though, I think the solution is you need to be very tightly focused. In fact, there's an inverse relationship between the need to be focused and the size of your firm, measured in people. You can still be a small firm, but my God, if you want to be a small generalist firm, like maybe you can get away with right now, you don't have much of a future. That's what I mean by this.
Blair: What don't you like about small firms?
David: Oh, I love small firms.
Blair: Maybe you just explained it, and I missed it. Just small generalist firms?
David: It's mainly small generalist firms, yes, because a lot of small firms are generalists. What I should say here is that the firms most at risk are, we've talked about firms tied to software platform, second is small, generalist firms. I should have that qualifier in there. Otherwise, I'm fine with small firms.
Blair: Do you think with all the AI tools and the massive increase in productivity that some people and some businesses are realizing, do you think the future is a whole lot more smaller firms, because that's what I'm anticipating? I'm anticipating smaller firms, where a 12-person firm is now a four-person firm, a 20-person firm is now an 8-person firm, and a 5-person firm is now a 1 or 2-person firm. Are you seeing that in your crystal ball?
David: I think that's a possibility, but I don't really know if that's going to happen or not. I read this really interesting post this morning from a PE guy, and they talked about their eight AI agents. They've named them, and they treat them like employees and so on. They're spending as much in tokens as they might spend for an employee compensation package. That's one approach that people are playing with. I don't know if that's going to happen or not. I just have no idea.
It could. If that does happen, you could see it going one of two ways. You could see it going down the efficiency route, where that's their primary advantage, and they can do so much more with the money, and maybe they get away with being a generalist firm. That's not my approach. If you would have been five people and now you're one or two, then I think your best path is to be really, really tightly specialized. I think AI search engine answers are going to reward that. I don't see how you're going to get around that from a new business standpoint. New businesses are going to be more complicated than it ever has been. There's going to be so much more noise around there. The only firm recommendations that surface are going to be very tightly positioned firms, especially if they're small.
Blair: Then the third thing on your list of at-risk firms is affinity positioning. A bunch of things come to mind, but you want to go through the examples? I can hear it in your voice saying, "Yes, you're not a big fan of this." Neither am I.
David: Again, yes. I have probably 50, 60 clients that fall under this umbrella. It's not like they're not wonderful people doing wonderful work, but there is a weariness around this nonprofit B Corp purpose-driven mantra. I know that there's not an exact overlap between those three things I just mentioned. Historically, this started around 2007 or so, and then it's just gotten bigger and bigger. In the beginning, it was, "Okay, we just got Obama elected. Now, what do we do? Well, we'll start a firm that has that same outlook."
Now it's not driven by that. It's driven by folks in the space who are very progressive, very well-meaning, very educated, very urban, who want to find clients who align with their personal values. It's a very laudable thing, but it's not a positioning. It's more of an affinity. It's like we want to work with clients who believe like we do. Some of these firms follow that up with a deep expertise in that, but a lot of firms don't. I think there's too many of them, just too many of them, and not enough expertise. I would say that the future of those affinity-driven firms is bleaker even than it is right now. That's just an opinion. It's a perspective. Obviously, I don't know if I'm right here.
Blair: For those listening, wondering about the reference to the Obama campaign in 2007, that really was a sea-change of a campaign in a campaign style. He recruited a lot of tech-savvy younger people to the campaign, had a big impact. Once he got elected, there were indeed a lot of young, technical savvy, progressive communication specialists who went on to form their own agencies. You and I have spoken to groups of these, and to a person, wonderful people, and some of them ran some very excellent businesses. That really was the beginning of aligning your business to an ideology.
David: Exactly right. We'll see what happens there. That's not news. Folks in this space, they feel the pressure already, and many of them are understanding the role of a tighter positioning and are embracing that and are doing fine.
Blair: I want to go to the most endangered species, which we would typically cover at the end, but we're right here. You've cited three that are most at risk. Anybody who's tied to a software platform, small firms, but especially small generalist firms, and the affinity positioning, what's most endangered.
David: I wrote this a month ago, and I'm already questioning myself. My answer a month ago was the small generalist dev shop, but what I wonder is, well, maybe that will be the most disrupted, not necessarily the most in danger. As long as you're willing to ride that disruption wave, maybe you'll be fine. You're facing a lot of people who have very little background in dev work, who are starting with vibe coding. Oh, my God. If I read another website of a firm that is now, "We are AI-first." Four years ago, I bought a massage chair, and one of them was $1,000 more, and it was AI-driven. I asked the guy, "What's the difference here?" He said, "I don't know. It's just a label." I bought it anyway. [laughter]
Blair: An AI-driven massage chair.
David: Yes. Maybe this is the most disruptive, maybe not the most at risk, because it feels to me like a small dev shop of three to four people that's fully embraced AI, and they're mid to high-level dev people, deeply experienced, who know how to use AI, maybe they'll be getting a lot done. Who's going to trust a three - four person firm with a massive, very important project? I'm not sure. There are a whole lot of small dev shops who are not well-positioned, and I would say they might be the most at risk. If not, they'll be the most disrupted. I didn't list it here, but in that category, it would probably be pure content firms as well as SEO firms. I don't know. This is why I'm not ready to do an AI episode because I'm not sure how to predict that.
Blair: We're recording this at the end of March. I don't know when it'll drop, and things may have changed by then. I've noticed in the last week, speaking of content firms, all of a sudden, there's all these people on LinkedIn who are AI content generation, and various expressions of that idea. creating all of this, what I'll call bullshit AI content out there, and I've railed about this on LinkedIn quite a bit. I think I'm known as the anti-AI guy on LinkedIn. I'm not anti-AI at all. I'm pro-AI. I'm for robot overlords. Speaking of Vibe coding, our new website just went live, and it's completely Vibe-coded. There's no CMS, there's no backend, there's no outside designer or developer. You could pick at it. It's still early days, but the idea that we could do this and save tens of thousands of dollars, do it on our own, and take back full control of this, we do have some dev skills in-house, some technical skills that were helpful.
Back to the AI-generated content on LinkedIn, I'm outing people who are using AI-generated comments, and I have noticed in the last week or two weeks a sharp drop in the number of AI-generated comments on LinkedIn. I've noticed that in your feed. I've noticed that in my feed. I've noticed that all over the place. There's still tons of AI-generated content, but there was this wave for a few months of people getting on this hack of having AI generate comments for you and boost the LinkedIn algorithm, and that seems to be waning and waning quickly. I don't think the AI-generated content is going to go away anytime soon, but it's clear to me it's either a change in the algorithm or, I think more likely, these growth hackers have figured out that the net effect of this hack is zero to negative. What do you think?
David: We can only hope that gives them a lot more credit than I would. I hope you're right. 1 in 15 of the comments on my threads on LinkedIn strike me as AI-generated. It's always longer than it needs to be. It's always very even. It feels like it's written by a robot. It's like somebody that I don't hate, but I don't want to talk to at a party, like somebody that's rehearsed something, memorized it, rehearsed it, and then they tell me it's just, "[disgusted]." This feels so negative, but I am really bullish on this market as long as you incorporate certain things into it. I'm very bullish on this market. I just want to raise my hand and say, "Listen, if you are a small generalist firm, you're screwed, but there's a bright future for you if you're willing to do certain things."
Blair: We're down here at the bottom. I want you to address the issue of the role of AI because this is something that I thought we should talk about. The role of AI and your use of AI, or the term AI in your positioning. What's your point of view on how firms should or should not leverage AI in their claim of expertise?
David: I don't think I'd talk about it unless it comes up. If it comes up, then I would quickly, without any hesitation, explain how you've woven it into your workflow and some of the guards you've put around it, and so on. Some of the fences you've put around it, but I think you ought to experiment with it a lot. You ought to set aside a lot of money to do it. This is so weird to me, especially the data center argument. It wasn't too long ago, especially during the pandemic, when some folks were saying that internet access was a fundamental human right because here we have people who can't go to work, they live in rural settings, they don't have internet. That seems to not be fair.
Now we have a data center debate, and it's like if AI is going to be a net positive for mankind, then it seems like AI needs to be a basic human right too, and there ain't going to be any AI without data centers. It's just sort of interesting to think about the impact of all of that. I just think it's going to be ubiquitous. Nobody thinks about internet access. Back when I was first running an agency, I had to dial up internet to download updates to software. We didn't have Ethernet even. We had Apple Link done over twisted pair, four-wire phone lines, and now we don't even think about it.
We're going to get to the point where we just don't think about it, so ubiquitous. The people who are going to lose are the people who haven't incorporated it thoughtfully into what they do, but the internet did wipe out things. Cars didn't wipe out things. Railroads didn't wipe out things. There's going to be creative destruction, obviously. Yes, we said this wasn't AI talk, but it's going to be creative destruction. The ones who lose are the ones who just say, "This changes everything," or "This changes nothing, and we don't want anything to do with it." It's like, no, just don't have your head in the sand. I guess that's my perspective at the moment.
Blair: You say in this post, "There may be a one-time opportunity to bring your clients up to speed on it, but that will be one and done, and I pity the firm that treats AI adoption as the new digital transformation. It will be short-lived and not a game-changer except in very small pockets with custom AI applications." I have noticed, and I think you have too, I think we've talked about it, is there are some firms that are just caught flat-footed by AI, and it's like the tidal wave that's swamping them. There are these digital transformation agencies that made their living under that banner for a decade or so that really are at the front now of AI adoption and helping their clients use it.
I'm seeing those firms are quite successful today. You and I think maybe we're fans of digital transformation early, but we're suspicious of how long it would last. Then at some point it was like, "Okay, this is over. It's no longer a valid claim." I think you're saying we'll go through the same thing with AI, but at a much faster pace. Is that what you're saying?
David: Yes. Now, you think about the typical agency. They have a client that's bigger, slower-moving, not as experimental, doesn't take as many risks, and so on. They're seeing this agency further ahead than they are. It's natural for them to say, "Hey, could you help us implement some of this, maybe save some money, maybe get more done with the same time and money, and so on?" Of course, if you're an agency, you should say yes to that because you're getting paid to experiment. Don't think that this is your new positioning. Whereas digital transformation, the height of digital transformation, I think, lasted maybe five or six years, and people were stringing it out to a decade. That's not going to last. It's not going to be that long for AI. That is not your new positioning.
It may be a service offering underneath a positioning. That's the big point I'd like to make. AI enablement for your clients is a service offering underneath a positioning. You still need a tight positioning, and this is just a service offering. Don't think that it's your positioning. All of a sudden, there's going to be 55,000 agencies doing that, and you're not going to stand out from the rest of them.
Blair: About 30% of the people in my LinkedIn feed appear to be making this mistake.
David: Yes, welcome to LinkedIn.
[laughter]
Blair: All right. We're out of time here, but we didn't cover-- you've got to give us something on the strongest points. What are the elements that you'd favor in any positioning? You've got about eight here, and we could go deep into any one of these. A few of them I wanted to, but we ended up going at this backwards. Which ones do you want to call out?
David: Data collection, for sure. There is such a need for zero and first-party data, and agencies should be at the front of that.
Blair: I'm sorry. What's zero-party data?
David: Zero first-party data, it's the closest, it's the data you already have about your clients. The privacy issues are not as serious. You're not buying data from somebody else. This is data you already have from the transactions that are happening. You ought to be a part of that collection and using that data. I'll skip over some of these. Storytelling and creativity, I just think those are never going to get old. That's not a differentiator, but it's going to really make your work stand out for sure. Hyper-targeting is really going to be big that we'll move away from personas that are built around demographics. We'll be working around demographics that are more about shared interests that have nothing to do with age or gender or anything like that. Live action is going to be big. Not so much animation, but live action that really looks live action-y.
Blair: Non-CGI live action, is that what you mean?
David: Exactly, yes.
Blair: Why is that? Is that a backlash to all of the fake stuff out there?
David: Yes, exactly.
Blair: I have to push back on storytelling. You and I have railed against the storytelling positioning for a while. Here it is on your list of positionings that will survive. Do you want to say more about that? Am I mishearing you?
David: I said that's one of the things I would favor in a positioning. It's not a positioning.
Blair: Got You.
David: Storytelling is not a positioning, but really being good at it, I think, is really critical to your success.
Blair: Then you say emotive storytelling, not manipulative storytelling. Not always trying to sell something, but rather the kind of connection that only real humans make with their next-door neighbors.
David: If you think about how our guard is up against all the messages trying to get through our barrier and sell to us, it's worse than it ever has been. I just feel bombarded every day. Some of that could be my own emotional issues. I don't know. I think a lot of people are going to simply dismiss any brand that's manipulative in any way. They are going to relax their guard around brands that treat humans like humans and not as somebody to send them money, but maybe that could just be wishful thinking on my part.
Blair: I think you're right. I think trust is going to be more important. I think you will erode trust when you start creating content that starts with, "I noticed, I experienced," when you didn't notice, or you didn't experience, and I think I know myself. I just like, "No, done. Done with you. You're lying to me, we're done."
David: I said on LinkedIn this morning, I wrote this post, or maybe it was last night, and I said, "Listen, I think we can boil new business down to a two-part phrase. It's to be known and trusted." If you're trustworthy and not known, that's not going to help you all that much, right? If you're known and not trusted, that's not going to help you. Known is pretty easy, that depends on a tight positioning. Being trusted is way more complex. It's about being human. It's about admitting when you don't know something. It's about sharing your expertise with this perspective of really helping your potential customers, even before they are potential customers. I just think it's a good way to live for a brand as well, not just a consultant or an agency.
Blair: Our topic today has been Most At-Risk Shops. This was not an AI episode, regardless of what you think. Thank you, David.
David: Thanks, Blair.