Is Your Firm Addicted to New Business?
Blair sees some creative firms as “black holes” where accounts go in and seemingly never come out, and others as “new business development machines,” consistently generating half of their revenue from new clients every year.
Links
“Is Your Firm Addicted to New Business?”
Transcript
David C. Baker: All right, Blair, today we're going to talk about an addiction problem.
Blair Enns: Oh, good. It's about time. I'm here to help. I love you, in sickness and health.
David C. Baker: Every time I think about that, I think about the one on Seinfeld, that was just so funny.
Blair Enns: I don't remember that one.
David C. Baker: Oh, you got to go watch that. We're talking about-- Is your firm addicted to new business?
Blair Enns: Oh, yes.
David C. Baker: This is the topic. You're the one that came up with this topic. Don't act surprised when I read the title to you.
Blair Enns: They don't want to know how the sausage is made. Come on. Oh, yeah. This is a great idea.
David C. Baker: That title only covers half of the equation. What you're really talking about is one kind of firm is addicted to new business, and the other one is absolutely not. Just paint the two extremes, the two kinds of firms, that you've seen over the last few years.
Blair Enns: Yes. This is a recent post on winwithoutpitching.com, where I talk about these two extreme types of firms where, on one hand, a firm is a new business development machine, they just excel at new business.
David C. Baker: You love these people, too.
Blair Enns: Oh, I do love them, but they come with problems. Then at the other end of the spectrum, is the firm that just never loses clients. I call them the black hole firms, where clients go in and they never come out. I love those firms too, but they both come with trade-offs. I'm really talking about the extreme ends of the spectrum. The truth is, when I think of these different types of extreme versions of each end of the spectrum, when I think of these firms, I can only conjure up in my mind three, four, five of each of these.
The reality is, most firms are somewhere in the middle, and share the good and some bad characteristics of both ends of the spectrum. I really wrote this post thinking about maybe less than a dozen firms, half a dozen of which are on one end of the spectrum and half a dozen of which are on the other end, where I've worked with them and I've been impressed by the strengths. We're so struck by the trade-offs.
David C. Baker: Everybody listening is thinking, "Is he talking about--"
Blair Enns: I was thinking that, when I was writing this. I'm going to get emails about this. "You're talking about me, aren't you?" Now we're doing a podcast on it. Hit me if you think I'm talking about you, and you're a client-- I am.
David C. Baker: I always get that, right after. "You just wrote that blog post a day after we were on the phone, were you thinking of me?" It's like-- No, I wrote this a month ago.
Blair Enns: Lie.
David C. Baker: Yes, another lie. Okay. Are you saying that either one of these is acceptable, or you're painting both ends of the spectrum and then you want firms to be a mix of the two? Or are you think it's okay to be one or the other?
Blair Enns: I think if you're one of these firms, out at the end of the extreme, too much of your focus is in one area. There's a muscle that you haven't built. If you would just build that muscle a little bit, life would be a whole lot easier for you. Dan Sullivan, founder of Strategic Coach, has this great line. It's something like-- If you spend all of your time focusing on your weaknesses, you're going to end up with some strong weaknesses. His point is-- Focus on your strengths.
I largely subscribe to that thinking. In the case of these firms, I think I've heard you say before, too, David, that your strengths become your weaknesses because you go to them too often. Talking about your personality, the same would apply in your firm. In these two firms, they really play to their strengths. One is keeping clients keeping and growing accounts, and the other is getting new accounts. These extreme versions of these firms just don't seem to be able to do the other thing.
David C. Baker: Now, I want you to describe the Black Hole firm in a second, but when you first started advising this field, you and the team, it was all about sales. Over the last few years, you've started to guide firms around account management too. Is there a connection between this topic and that?
Blair Enns: There's a little bit. We don't do a lot of work on account management. We do organic account growth. We take the win without pitching new business principles, and apply them to growing, existing accounts. That's actually more complex than straight new business because, for reasons we've spoken of previously, the delivery team, sometimes they're in leadership mode, and sometimes they're in server responder mode.
It's a bit of a skill to be able to switch back and forth between modes and not let one dominate the other. There's a lot of implications, especially in the black hole firm, actually. There are account management implications in both.
David C. Baker: Okay. Let's start by diving a little bit deeper into what a black hole firm is, the implications. I love your reference to Hotel California, one of my favorite albums. This is where they go and they never check out.
Blair Enns: For you kids out there, that's The Eagles, the Hotel California, where you check out, but you can never leave. That's the black hole firm, where clients go in and they just never seem to come out. As an advisor, when I'm working with these firms, they'll say, "No, our average client tenure is 12 years," or something, three or four times what it is in the typical firm. When I wrote these descriptions, did some specific firms come to mind?
David C. Baker: Oh, yes. I'll say a phrase now, I'll explain it. If I had a hair on my ass, I would just name those firms.
Blair Enns: I don't know what that means. [chuckles]
David C. Baker: My motorcycle riding buddies and I were out, and we're daring each other to do stupid things. We'll get to the bottom of the hill and we'll all look at the guy whose turn it is today and said, "If you had a hair in your ass, you'd go to the top of that," and then if you're brave, you'd do it. Very specific firms come to mind. Although it's a lot easier for me to think of firms that are the black hole firms than it is the ones that are the sales firms.
It seems like those firms that were really good at sales and they would turn over 40% every year, were more common in the past than they are now. I don't know if that's just how I'm seeing things.
Blair Enns: I don't know about that either. I remember the first time going into one of these black hole firms, I was just so impressed. It was so grown up. The first hallmark of these firms is, obviously, they do good work. You can't hold onto a client for 12, 20 years, if you don't do good work. Another thing is that institutional memory and the account seem to reside in the agency. What I meant by that is the agency, and actually, agency personnel, tended to regularly outlast client-side personnel.
I'm curious to hear what you think about this. I think those firms that tend to hold onto clients forever also tend to hold onto employees forever. Would you agree?
David C. Baker: Exactly. Yes. In fact, I didn't see that on the list. I was going to say that's probably true too, because if the typical CMO is changing jobs every 2 1/2 years, or whatever it is, and if you're outlasting, it's not just the firm outlasting, it's often the account person outlasting too.
Blair Enns: We did an episode recently, on churning. There's this lack of churn on the employee side. As we've talked about previously, there are good things that go with that and there are bad things that go with that. Another hallmark of these black hole firms is, they're good at not just keeping accounts. They're very good at growing them. That typically means that their clients are relationship buyers, which is a little bit of a confusing term.
A relationship buyer, or somebody who tends to buy all of the services of your firm, or whatever their needs are in the, let's say, marketing communications area. They're not going to break up those needs among multiple agencies. They want to give it all to one firm. You tend to get these firms that have a relationship by our clients, there's less churn on the employee side that matches the less churn on the client side.
They churn slower than the client, so they become even more valuable partners as time goes by, because the institutional memory resides with the people on the agency side. As a result, you tend to get more grown-up, more senior account managers. The people who lead these accounts tend to be seasoned, senior, they're not going anywhere. They're paid really well.
David C. Baker: There isn't that disruption either, that occurs when you change the account representative on your side. Not only is the client and the agency in bed together for a long time, but it's the same person on the agency side. Sometimes, they tend to get overpaid, because they are very central to your firm success as well.
Blair Enns: I'm getting flashbacks to my early career as an account manager, where I'm the third account manager in a year, and the client looks at me and goes, "Look, what are you guys doing again?" Then when I moved over into new business, I would prey on that. When I'd heard a competitor was turning over their account person again, I would just go after that old account person and the competitive agency, I would go after all of their accounts, and was somewhat successful at that move.
It does create these fissures, these opportunities, when there's this constant turnover, and that turnover just doesn't happen in these black hole firms.
David C. Baker: The other thing that you mentioned here is that in these black hole firms, you tend to pick up new business when somebody on the client side moves to a new job too. That's more likely here, because of that deeper relationship.
Blair Enns: That's how these firms tend to grow. They grow the business by growing the existing accounts. There's very little pressure on the new business development function. The new business that happens tends to be when client-side personnel moves on to another division in the company, or to a new client organization, and they want that relationship, that type of relationship again. They bring that firm with them. That's how these firms grow.
Jumping to the trade-off here is, as a result, these black hole firms let the new business muscle atrophy. It's a fantastic position to be in. You're probably listening to this thinking, "What's wrong with this?" There's not a lot wrong with this model, with being a black hole firm, and there's some things we haven't talked about. Typically, they're poorly positioned, right? If they get hit by a couple of account losses simultaneously, or in a short period of time, it's a real threat to the organization.
They are not good at going out and getting new clients on their own terms, or at their own speed. Growth happens to them. It happens to them by serving and growing existing accounts, and having some of those people move on and take them with them. When they're suddenly placed in a position where they have to go get some business, they don't really know how to do it.
David C. Baker: I got to just add some of my own experience here, because when those firms reach out for help, to me, or somebody like me, or to you, they have just lost one or two clients in a row, and it's a jarring event for them. It just rocks them because they're so used to not having that thing happen. They take it very seriously. Then the first struggle is, as you said earlier, they're not very well positioned, so you almost have to fix that first.
That strikes them as such a painful thing to do, and so unnecessary, because they've been so successful over all this time. Then when you just brainstorm with them about a marketing plan, it almost always veers towards building relationships and contacts rather than insight. Right? Getting famous for that. They're Rolodex people. There are certain segments of our industry that are more like this than others, and the entertainment and fashion side are, because of those relationships. It's really fascinating.
Blair Enns: All of those points you just hit are quite profound. They're poorly positioned. You're brought in as an advisor and you say, "Okay, well, let's begin at the beginning. You've got to go and sell this thing. You have to actively go to the marketplace with a value proposition, the value proposition that you're using to serve your current clients. Hey, we'll do everything for you. That's not differentiated enough. We can't sell that, so we've got to pick something." What do we pick?
It's all contrary to the years of success that this firm has had. In my experience, it's actually really difficult for somebody like me, as an outside advisor, to come in and build some capacity to turn these black hole firms into not even new business machines, but just something with a decent new business capacity. It's almost like a rebuild, and everything about the rebuild goes contrary to the proven success the firm has had for years, maybe even decades.
David C. Baker: Yes. It's hard to sit here and criticize them because you look at their performance and it's a really steady chart up and to the right, so it's hard, but they're also a little bit boring, or at least they're a little bit boring to people that like things disheveled, [laughs] like you and me. Anything else you need to tell us about these firms, before-- I want you to contrast the new business machine firm next, too.
Blair Enns: Yes, I know, I think that's it in your point, that they're a little bit boring. They can seem boring in a nice way, to somebody like you and me, but you know, there are people in this industry who just love the chaos and the frenetic pace. They might walk into one of these shops, look around, and think, "This is different. This is just a whole bunch of grownup people doing a whole bunch of grownup business." [laughs]
David C. Baker: The firms that you've just described too, they don't get listed in the big news releases about a new account landing with them. Right? You never hear about them. That's partly why they're boring, because nobody issues a press release about, "Hey, the client just started using us for this now," as opposed to a new win.
Blair Enns: This is quietly doing really good work for good businesses, over long periods of time. Look, what's not to like about this, right?
David C. Baker: All right, the other side of this is the new business machine firm. [laughs] This is crazy.
Blair Enns: I love these ones too, right? I'm the new business guy, so when I encounter these, everything that they're good at, I find so impressive.
David C. Baker: You're looking at the front door, where new clients come in, you're not looking at the back door, where people are all discouraged and pissed off, stomping off, going to find another agency.
Blair Enns: Yes. A new business-- I haven't studied this in a quantified way, but anecdotally, I see these new business firms as replacing 40 to maybe even 50% of their business every year. Every year, they go into the year not knowing where half of their revenue is going to come from. Those numbers, how do they sit with you?
David C. Baker: Yes, probably 35 to 45, something like that. Furthermore, it doesn't even terrify them.
Blair Enns: No.
David C. Baker: Half of the people listening to that number are terrified, "What if I had to do that?" This doesn't terrify, they view it as a great challenge.
Blair Enns: Yes, it's kind of living on the edge all the time, and they get used to living out there on the edge.
David C. Baker: The more you talk about this, the more I see firms like this.
Blair Enns: In your mind, names are coming to mind, right?
David C. Baker: Very specific. Yes.
Blair Enns: Yes. We're talking about you. [laughs]
David C. Baker: [laughs] What's interesting to me, too, is that this black hole firm, the one we were just talking about before switching to this new one, they lose a client. It's very disruptive. It happens every five or seven years. When they land a new one, it is through a relationship, somehow, that you can trace back through three steps to the client they just had in the past, or something. It's just an odd thing. I want to ask you a question about this firm, that's the new business machine firm. Is this the kind of firm that says it's everybody's job to sell?
Blair Enns: Sometimes, you get that. The new business culture just permeates the firm. There can be a lot of that. Culture always starts with the top. Typically, you've got a firm that's run by a principal who is very good at new business, and their expectations, they want everybody else to become very good at new business, but it's rare that the owner can find people who can replicate his or her success. When they do, they end up paying a lot of people.
We got a note from a client the other day, saying, "Our cost of sale two years ago was $650,000 for the year, then it went to 350, and this past year, went to 50." From $650,000 cost of sale, to 50,000, and that didn't include salaries, is my understanding. It's maybe a $10 million in revenue firm. That's a lot of money to spend on new business outside of salaries. When I look at a new business machine firm, their cost of acquisition tends to be high. Not always.
If they're working with us, it's one of the things we work to do, is to drive that down, but they tend to pay new business people real well, because everything in the firm is about new business. Where we contrast that with the black hole firms, they don't even have dedicated new business people.
David C. Baker: Right. Yes.
Blair Enns: Whereas the new business machine firm has a really strong principal, who's good at it, typically, then sometimes, a small department of people who are dedicated to the function. They're no bigger on average, typically thinking of my mental sample size, than the black hole firms, but they have a lot more resources dedicated to new business. That new business function is very successful, bringing in 40% to 50% of the revenue, as you say, 30 to 35.
Somewhere between 30 and 50% of the revenue every year, coming from somebody who was not previously a client.
David C. Baker: This kind of a firm is often also acquisitive. In other words, they're looking for firms to buy, because they're so enamored with growth. They're likely to apply to those ink 5,000 kinds of things. I was keynoting a conference three years ago, as a PR conference, and right before I was supposed to get on stage, somebody else was speaking, who runs a large global firm. He was basically boasting, but it wasn't in an arrogant way.
He was just talking about how great the firm is. He listed all these things. One of the things he mentioned just struck me as so odd. He said, "And as another further sign of our growth, we responded to-" then he said something like, "-657 RFPs, this year." That's a new business machine firm, where they think that's exciting that they had that many opportunities to sell.
Blair Enns: Yes.
David C. Baker: I died inside when I heard it.
Blair Enns: Yes. I need to have a conversation with this person. [chuckles] Pass me the name. [laughs]
David C. Baker: [laughs] They're very successful at client acquisition, but what's the cart? What's the horse here? It's a leaky bucket. They're really good at new business, so then they just don't care about clients leaving, or they panic because clients are leaving, so they have to be good at new business. I think it must be the former, though, right?
Blair Enns: To be honest, I haven't really thought about it before. I come in because they think they have a new business problem, because they're only generating 20% of their revenue from new clients. [chuckles] They want to take it to 40 or 50%. Regardless of the success we have, at some point, I look at the back end and go, "How come the firm isn't growing? You should be growing really fast, based on your new business wins."
You know how I was describing, in the black hole firms, you have these senior account people, they're there a long period of time, they're paid really well. These people do not exist in the new business machine firm. That is the hole in the firm. They do not value the delivery function as much as they value the new business function. They're paying the new business team all this money. They really need to upgrade the backend, and not just bring senior people in.
They need to bring senior people in and give them some authority, thereby changing the culture of the firm.
David C. Baker: Yes, and I also wonder if this firm that's driven by new business may have lower standards as well. The clients they bring in are not capable of growing like some of the other ones might be.
Blair Enns: I said usually it's the new business development drivers, the principal of the firm, and they excel at this function. There's something in that person's personality, tends to be high competitive drive, go, go, go in pursuit of growth. If that's your personality, you are prone to the mistake of taking on clients you probably should not take on. If you can slow down the leaking at the back end, you can become more discerning at the front end.
You could choose to not be discerning and grow the business faster, but if you really want to strike the balance, you want to create a little bit of breathing room for the new business function, by getting more serious about delivery, then take some of the pressure off of new business, and just say, as a matter of policy or direction, "Don't bring us X amount of revenue next year. Bring us two clients, as large as you can make those clients." Don't try to paper over quality clients with a high volume of lower-quality clients.
David C. Baker: Yes. Give us some more specifics about what it looks like in these firms, some commonalities that you find in firms that are like this.
Blair Enns: I've used the term grownup to describe the black hole firm. It's not like these are adolescent firms, but there's a frenetic pace about these firms. You go into firms that have a real pitch culture, and I'm not saying these things are necessarily correlative here, but when there's a pitch culture, there's a lot of excitement. There's a lot of fatigue from staying up too late the last few nights working on the pitch, et cetera. There's that energy and enthusiasm that permeates the walls of the firm.
It gets old in time, but there's something wonderful about it when you're young and you're in the middle of it, and it's a little bit exhausting. It's a startup culture. That startup culture tends to pervade throughout the entire firm. One of the things I noticed, and this probably speaks to why the firm is good at selling, but not keeping clients. The value proposition in these firms is spin. I'm not sure how broadly this applies. I'll say it and you try it on with the firms in your mental sample.
They go to the marketplace with something that sounds compelling, and at the end of the day, it isn't. I suspect the clients hire the firm, and then after a little while go, "Oh, you're not who I thought you were. You're quite similar to the firm that we hired you to replace, but there's no real there there, there's no real differentiator." They sound different enough that it's easier to sell the services of the firm, but the real-life experience of the clients is, this isn't all that meaningful, or meaningfully different.
David C. Baker: Yes. There's a positioning problem for both of these extremes, but they're different kind of positioning problems.
Blair Enns: Yes. The black hole firm isn't even trying to put forward a buried positioning, and the new business machine firm is trying to spin a faux positioning.
David C. Baker: Yes. All right. Obviously, by this point, people have picked up. We don't necessarily want to be either. We want to strike a balance. You've got some advice for both firms, about what they might do?
Blair Enns: Yes. We talked about the new business problem of the black hole firm, when they do arrive in a situation, perhaps they lose two clients pretty close to each other. It's like, "What do we do now?" We've talked about the frustrations you and I have felt, in advising these firms. First, you got to specialize then you got to staff the new business development function, et cetera. We're asking them to make decisions that are contrary to all of the decisions they've made for many years, that have led to much success.
I think the solution for a black hole firm, and you can do this before you get to the point where you need to do it, is embark on a skunkworks project, don't reposition the entire agency. Take something that you do across a few clients that's narrower, like a narrower discipline, or for a narrower market. It's probably a narrower discipline maybe for a narrower market. Create a separate entity and start marketing that, because that is easier to sell.
When the time comes, where you really need to crank up the new business machine, it will be easier to spin up that more specialized offering, and you don't threaten the mother ship.
David C. Baker: These folks that you're asking to do something are far less likely to do anything that might upset whatever is left of that black hole firm. This frees them up from that fear, because they've never done any marketing anyway. That stuff that has kept coming to them for many years is going to keep happening over the transom, without any new business efforts on their part. This is also an exciting way for them to experiment with new business, and like you said, without upsetting the mother ship, so to speak. A sub-brand, essentially.
Blair Enns: Yes.
David C. Baker: What would you say to the new business machine firms where it's 40, 50% turnover, frenetic, and so on?
Blair Enns: I would say the big problem is, the promises being made in the sale are not being paid off in the delivery. Here, again, I would relook at the positioning. I think that there is a smoke-and-mirrors positioning, a value proposition, that isn't really real. I think the hard work to be done is actually getting meaningfully narrower and then building these skills, capabilities, processes, and even eventually IP, in a more narrow value proposition.
I think when you have, through the cult of personality or natural skill of the owner, when new business comes easy to you, you can get away with a broader positioning. I can't prove this, but I think one of the real, true hallmarks of this new business machine firm, that has a problem on the back end is, the positioning is fake. They're not meaningfully different, but they're taking a meaningfully differentiated message to the marketplace.
Let's take real, proper stock. Let's hire some senior delivery people who will push back on the value proposition that we're selling, and let's create something that is actually meaningfully different. When a firm who has that skill has something that really is meaningfully different, that's the secret sauce. That's the magic intersection.
David C. Baker: I'd rather help a firm solve that problem than the black hole problem.
Blair Enns: It's easier.
David C. Baker: Yes. As you said that, about creating something that's more meaningful. I think the clues to the fact that you're not paying off the promises are already there. I think some of your senior people, in your closed-door executive team meetings, are pushing that point. They're saying that there's more opportunity here and that we need to deliver at a higher level. I think the clues are there.
The last thing I want to say about this, as I just apply what you're saying to what I've observed, is that a lot of partnerships are built around this fact. You have one partner who's really good at new business, and you have another partner who's really good at not only keeping clients around but also keeping team members around. That can be a very effective partnership, particularly when each partner recognizes how important the other one is to the whole equation.
Blair Enns: I would agree with that wholeheartedly. Like we said a few times, most firms are somewhere in the middle. When you have the strengths of both of these firms, that's a wonderful thing to behold. I think you're right that in most firms that do combine the best of both of these extremes, they're represented in the partners in the firm.
David C. Baker: Well, this is really interesting. Are you ready to be inundated with all kinds of emails, wondering if--?
Blair Enns: It's not even live yet, and my phone's already going on.
[laughter]
David C. Baker: Thank you, Blair.
Blair Enns: Thanks, David.