Tim Barsness: Thanks for joining us in the fjorgecast, I'm Tim Barsness founder our webinar development team of fjorge. Today in our show we'll be talking with Karl Sakas about his agency consulting company, Sakas and Company. Welcome to the show Karl.Karl Sakas: Tim, great to be here.Tim: We're glad to have you. Can you tell us a little bit about your company?Karl: Absolutely. If you're running a digital agency and your hitting growing pains, I can help you fix this growing pains.Tim: Got it. So, you're a company that works with agencies?Karl: Yes, occasionally people say, "You're like an agency for agencies." Well truly more consulting, coaching and training but, the model works.Tim: How did you get in to that?Karl: I started in the industry in digital marketing 20 years ago, in high school I learned HP melawares, building websites and found that I enjoyed that but I was really interested in helping people solve their business problems. Fast forward to more recently, I helped run the business operation side of two agencies and put all that together in 2013 to launch my business.Tim: You took your experience within a couple of agencies and turned it into consultancy. What is your team look like now?Karl: I'm the full time consultant and coach and then I have several free lancers helping with marketing, admin, things like that.Tim: What prompted you to start your consulting service? I understand you had a background in it but what made you take the lead?Karl: I saw this opportunity which was that agency under typically starter agency because they love some aspects of work. Maybe it's design, or development or PR or writing or what have you, and so they start an agency. The problem is, running an agency is very different from say being a designer. Now you're dealing with hiring and firing and plan service and sales and more, and it's challenging.In my case, I had experienced supporting agency owners as the Director of Operations and as a Project Manager and I have experienced working with people as a consultant since high school, starting his web designer, and also family background in business. So business just seemed normal to me. I put it all together and so far, I've helped 300 agencies in 30 countries.Tim: 300, that's incredible. What is the typical engagement look like for you?Karl: It really depends on what people are finding to accomplish, if people are looking for an ongoing sounding board, getting advise and accountability in perspective, in that case I'll usually work with people as a coach. Let's say monthly retainer, anywhere from four to 12 months. Potentially longer if people want continued help. If people are more of a turning point or a crossroads, in that case, I'll handle things as a project, where I would gather the data, analyze things, make recommendations.For instance, some cases were say an agency has been growing on the top line, revenues are up, the margins are down. That's something that would work as a project. There'll also be a case surround an agency trying to re-position itself, whether competing against specialist and realized they need specialist, too.Tim: What is a good size agency for you?Karl: I've held people anywhere from one person just getting started up to about 700 people. Typically I'll work with agencies that are under 100.Tim: There are roughly maybe 10 million of revenue then?Karl: Up to, yes. And it's been arranged.Tim: I'm curious, as an agency consultant what is your day to day look like?Karl: Day to day, I am doing calls to advise agency owners, getting inquiries from people who need help, sorting out if things are matched for me to help them or not, creating content for my blog and other materials. My approach for marketing in a lot of agencies have a shoemaker's kid's problem, my approach is to ensure they specialize. I only work with agencies independently own digital agencies in particular.Do fault leadership marketing and share a lot of free advise, but then that's through blogging, podcast interviews like this, public speaking and more, read a couple of books. Then ultimately do marketing automation, encourage people to get on my list to learn more and when people need help they can always reach out.Tim: I heard you call out independently owned, is there something about independently owned agencies that makes them a good fit?Karl: Yes, because that means the people I'm working with are the ultimately the final decision maker, whether they are the CEO in title, or they're one of the partners running the agency, ultimately that simplifies the decision process. As opposed to having to go through layers and layers of management above the person and ultimately unable to make a bigger impact by working directly with the owner or one of the owners.Tim: Then you also said digital agencies, anything about digital agencies that makes them a good candidate?Karl: That's been my experience, occasionally people would say, "How did you get into digital?" and it's like, "I've been doing that the whole time." Starting as a web designer high school back in the days of dial-up and IE3.Tim: You mentioned you've helped 300 agencies, what is it about helping these agencies that really means something to you, Karl?Karl: Well, I come from a business background, I'm a fourth generation entrepreneur. I helped in growing up help my family's small business. One of my grandfathers was a business professor for 47 years, so business just seems normal. The thing that I like is that often agency owners don't have any sort of a business background. Maybe they've worked at an agency before in different roles. A number of my clients have never worked at an agency before starting their agency.I like that the things I'm good at make life easier for agency owners, and having been an agency employee in the past where you experienced that ups and downs, ups and downs roller coaster, I like that I'm making agencies a more stable place to work for thousands of people.Tim: Do you find that most agencies have similar problems?Karl: There's definitely overlap. Everyone is unique, of course, but there tend to be certain themes. Three themes in particular, one is around positioning in marketing challenges. If you describe your agency as a full service agency, and we work in any industry, you're going to have trouble competing with agencies that are specializing. In the battle, I use , if you need surgery, you'll going to find a specialist, not just any surgeon or any doctor. So specializing is important, it's risky though.It's risky to say, "We're only going to work with this type of client and we're going to say "no" to everyone else." I occasionally get inquiries from people who only do print design or print marketing and that's not a good fit for me. In that case, I will forward them to someone who would be a better fit. The specialization, positioning, marketing is important. That's a key challenge that agencies struggle with.Another is around the agency structure they need to get the work done. For instance, agency client facing roles tend to fit in three categories: Account Management, Project Management and Subject Matter experts. If you organize those in a way that don't make sense, you're going to run into all kinds of head aches. Also keep in mind that the structure that worked when you were 10 people is not going to work when you have 25 people, or 50 people, or 100 people.The third area is looking at positioning in marketing, we're looking at agency structure in terms of team structure, and the third area is around Leadership and Management. You don't have to be a great manager to start an agency. But you better become one, or else everyone is going to quit and you don't have an agency anymore.Tim: I'd love to get in to those a little bit more if you're willing. Let's start maybe with the third bullet point you mentioned which is Leadership and Management. Like you said, to start an agency, you don't necessarily have to be a leader or great at management, but to run an agency in scale you do. Now, can you first talk a little bit about what changes when you go from those 10 people up to those 25 people?Karl: One of the big things is specialization. When you got 10 people, everyone is doing a bit of everything. Say you do development work among other things in your agency. You've got a developer whose also doing client service and he or she is also doing project management. They are taking all pieces fit together, managing their schedule, things like that. As you get larger, you start splitting things out. Typically around the 8 to 12 mark, you're going to hire a dedicated project manager, and as you head toward 25, you're going to start hiring more PMS, and also split out account management as its own thing. Sometimes that means building pods, sometimes it means having functionally oriented teams, but ultimately you don't have someone who's a generalist doing everything and anything anymore.Tim: What do you do with people who are historically generalist?Karl: They ultimately need to choose where they want to focus. I they want to stay as generalists, you may have an opportunity for them or it may be that ultimately the agency has outgrown them. I ran into that with the client where they had been at that transition point where a number of their team members had started around like employee number seven, number eight, they were at about 25 and they were heading toward 35 and employees were like, "I want to do a bit of everything." Unfortunately, that's not what the agency needs anymore.Tim: Stop to manage an entire team of people doing things slightly differently startup process.Karl: Yes. My advice in that case was be open with the employees about the direction. And if people conclude this isn't what they're looking for anymore, help them find a new job that's a better fit.Tim: Let's go backward then, you said you also help with structure. I'm curious, do you have an organization chart that you feel is the best for a typical digital agency?Karl: I have certainly some benchmarks I use. I think the challenge is that everyone is coming into the situation with the team they've got. In an ideal world it's like, "Okay, let's start from scratch, what would we do?" But of course, no one is starting from scratch.I'm working with a client in the Midwest that has 20 some employees. They probably should have added account management awhile ago. Now, the thing that we're running into is how do we add account management when it hasn't been there before? They've got all of these silos and so that's a challenge. If we had talked 10 people ago, we would have started building out a separate account management structure. The problem is they need it but they don't have it, and they've got the silos. We're currently working on that.One of the other trends that's popular and it can work there are some challenges to it, too, is building a pod model. That is you've got be it be teams within the agency. They're headed perhaps by creative director or other manager. You've got a project manager, you've got- depending on the nature of your work, a designer or two, a developer or two, a strategist two, maybe someone handling some of the implementation as well. The advantage of the pod approach is you can spin up new pods as you bring in more clients.The downside risk, of course, is that that can lead to excessive competition within the agency. You've got pod number one versus pod number two. As long as you do it in a way that everyone realizes they're still on the overall same team, the pod structure can be a good way to scale.Tim: Who is the leader of a pod and then what do you call them?Karl: I guess the generic term is there the pod leader. Depending on the agency that that person could be a project manager, so they're an expert in getting projects retainers done. They could be a senior strategist, in that case, they're an expert in the business and marketing and technical strategy for the clients. In some cases, they could also be creative director, that mix of team management, project management strategy and mix of everything.Tim: Let's go on positioning now. How do you help agencies with their positioning? You mentioned the cobbler's kids scenario. But I would love to hear more about that.Karl: I think one of the challenges when you're running a business, any business but agencies in particular, is you don't want to say no to revenue. You would think that the way to get maximum revenue is to do anything for anyone, and that leads to some sticky situations, For instance, a friend was working as a PM at a digital agency, one of their largest clients was moving to new office and they asked the agency which did web design and online marketing, the client asked the agency to do the interior decorating for the client's new office.The agency had no experience doing interior decorating, yet they said "Yes." because they wanted the revenue, and they wanted to keep the big client happy. That's how my friend, the project manager found herself at the fabric store looking at upholstery swatches. Did she have any experience in that? No. Does she have an interest in it? Yes, she did have a personal interest in that. Was it a profitable engagement? She didn't really want to get into that.If you're going to say yes to everyone it tends to lead to getting an overhead. In contrast, if you're working with the same industry day in and day out, that makes your sales process easier because you can say, "If we work with blah blah blah before, that's all we work with." Here are some examples of people similar to you. It makes your project management process easier because you're not doing everything for the first time, it makes your marketing easier because, you're marketing is targeted to a particular group or a category of people.For instance, I have a client who specializes in adventure travel. All of her agencies marketing focuses on running in adventure travel business, and that's an exciting example. I have another client who specializes in marketing for commercial HVAC, heating, ventilating, air conditioning contractors. Not quite as exciting but extremely lucrative. Help a client close a new deal there, this is going to be a six-figure deal easily for them.Tim: I'm curious, you mention making sure that you're not-- hopefully you're not saying yes to everything. You know who you are, who an ideal client is. In your experience, is that best developed as a forward-looking, "Here is the type of client I would like to work with?" Or a hindsight looking, "Here are the best clients that I've worked with thus far?"Karl: When I work with clients, it's usually a combination of the two. Where do you want to go? Stephen Covey said, begin with the ended mind, then w can work backwards from there. Knowing the type of agency a client wants to run, in the future is helpful. For instance, are they planning to sell or are they planning to run it for the rest of their career? That helps to know.But usually, there is a looking backwards part in the sense that your ideal future focus probably is an industry you've served before. It's probably not one you're parachuting into for the first time. Ultimately, we're looking at who are your most lucrative clients? Who are the people that have been good to work with? Sometimes clients are surprised. One of my clients specializes in professional services marketing, law firms, commercial real estate, accountants, stuff like that, and we're looking at new market opportunities. I asked them to list their top five clients, five in terms of revenue but also they enjoyed working with and things like that.Only one out of the five are their favorite clients was in the professional services category. The rest are ones I would categorize as associations in economic development organizations. They stumbled into a new industry focus but it helped that they already had experience there, it wasn't the first time.Tim: Let's go back to leadership, just one follow up question there. You mention oftentimes a founder is very good at the type of work you do but has however not good leadership. Can they be coached or should be recognized staying with their strengths and finding someone else to potentially run the agency?Karl: I would say yes and yes, both. That is if they want to get better they certainly can, and that's the background to my second book "Made To Lead" which is a pocket guide to managing marketing creative teams. If you want to get better, you absolutely can. That's a matter of having the right tools and practicing and just wanting to do it. On the other hand, you may conclude, one of my clients said managing people to her she said felt gross. No matter what tool she had she was never going to enjoy it. In her case, I helped her restructure things so that one of her other team members was doing most of the day to day management and then she was focusing more on the future around agency strategy.Occasionally, I have cases where agencies under hate management so much that I recommend that they ultimately reposition and revamp the agencies so that ultimately they become more of a super consultant rather than an agency owner, which has been that their team is going to have to find new jobs. I think life is too short-- if you're running your own business, life is too short not to enjoy your work.Tim: I'm curious if you're familiar with more general business operating systems like Geo Whitman structure or the Rockefeller habits?Karl: Yes, many of my clients use them.Tim: What is your feeling using something like that for an agency?Karl: Any kind of system is going to help you make things easier. I'm currently reading one of the Warren Buffett, biographies Snowball, and one of the things he talks about is having discipline about not making decisions that are passion based. That's not always going to work in agencies, it certainly works in finance and investing. But I think and having any structure is helpful. I'm actually working on my third book right now which is around agency systems and that will be specific to what works at agencies.Tim: Let's move in a couple new stories today, with two stories from the Sakas and Company blog. The first one titled, Charge More with Value Anchoring. Karl, can you tell us about that?Karl: A lot of agencies see value based pricing as the holy grail of agency pricing. Now that there's this—Tim: They do?Karl: Well, people see it as that, there are some challenges which is where value anchoring comes in. There are three agency pricing models, hourly, milestone and value based. The promise of value based pricing is that you're ultimately getting compensated proportionally to clients results according the value they're getting. The challenges for that to work, you need to be good at measuring the value they're getting.Clients need to be on board with how you're measuring it, they need to be comfortable with the measurement themselves often they're not. You also have to trust the value they're reporting. There can be some challenges there. Also assumes that you're good at getting the work done both efficiently and effectively, because if you're focused on delivering value yet it takes forever, to actually deliver on the value, that's not a great way to make money.The opportunity is what I call value anchoring. The idea there is it's a sales technique where you're comparing the value the clients get from hiring you, which is going to be high to what you're charging, which is going to be low relative to the value they're getting.Tim: In a sense a way to help people help customers understand the cost benefit of what they be buying?Karl: Exactly. Here's an example, in the past, one of my clients says the head of Client Services an agency client focused on cosmetic dentistry. They would do everything from teeth cleaning to what they called a Smile Makeover which was $30,000. In my work with them, one of the things I dug into, "What was the lifetime value of a new patient?" Because the client was on retainer, they would occasionally do projects but I wanted to sort out.We knew that we were bringing in a certain number of clients every month. What was the value of those clients? Ultimately, their estimate was that a new patient was worth about $4,500 as one of the partners in the dental practice said- she was a dentist herself, she said after that we've maxed out their mouth.Tim: Is that revenue or is that margin.Karl: That is revenue. She didn't have margin details but ultimately based on how she structured the business, she was happy if she got $4,500 in revenue. Based on that, now that I knew was $4,500 and she was she was on board with $4,500 because that was what she came up with herself, I was able to demonstrate every month in my reporting, "Here's how many new clients we help you bring in." We're able to do that because we had lead tracking set up with her office staff.We're able to sort out people that come through our efforts versus others. For instance, if they brought in 20 new clients, thanks to us, I could point out in the next monthly report, "We delivered $90,000 in value." Considering they were only paying us $4,000 a month, that's—Tim: Someway it was worth it.Karl: That was a great ROI for them. We were happy with the $4,000 we were we were doing and it certainly made things easier to renew the retainer each year.Tim: I'm curious, in that lifetime value model that you called out because -- I believe there was a dentist office, is that right?Karl: Correct.Tim: As I understand it, a dentist office likely extracts some value over time--Karl: Extraction, no pun intended.Tim: Yes. Good point. [laughs] Are you using an average rate of attrition to estimate longer term lifetime value?Karl: That ultimately is going to give you a more accurate picture. Some of that's going to depend on your business. If you're focused on really high value clients or that is your client is focused on high value clients, it's going to be hard to model that. For instance, if you were a lawyer who specializes in certain types of business deals and you're going to get a $100,000 dollar fee and maybe you're doing a couple of those a month, you're not going to have a ton of data computer to say a SAS company that selling something for $20 a month and they've got thousands and thousands of customers. Some of that's going to depend on the nature of the business.Tim: Let's move into our second article here, also by Karl, it's titled Symptom Versus Root Cause. Can you tell us a little bit about the article, Karl?Karl: People have a tendency to focus on the symptoms, what is it they're noticing and they tend to jump to assumptions about what the problem is the underlying root cause. Problem is, if you've misdiagnose it and you're not treating the root cause, you're not going to solve the problem. In the article I share a medical example which is that I went to the doctor after several days of abdominal pain.He diagnosed it as one thing and it turned out that was actually misdiagnosis, because rather than what he thought it was, I actually had a ruptured appendix. Few days later, I went to the emergency room, thousands of dollars later was somewhat better. Then it actually came back again a couple months later and they removed my appendix, thankfully. I think that's a reminder that different symptoms can suggest different root causes. You have to dig into the details to sort that out.The nice thing there is that depending on the fidelity of the decision. If it's a high risk situation, you want to spend some extra time figuring it out. If it's a low risk one, you don't dispense much. But you need to figure out the root cause rather than getting distracted by the symptoms alone if you want to sell things.Tim: What can people do to understand whether they're solving a root cause or solving a symptom?Karl: What I do as a consultant is I'll ask why, I will ask a series of whys. I met someone at an agency couple years ago where he described himself as an incubator agency. That is people would join after college, they'd worked there for year or two and then they would leave to make to make dramatically more money somewhere else. As I was digging into this-- he wasn't a client, I'd met him at a speaking engagement, that's one of the ways they give free advice.I figured, let's ask some questions see if I can help him help him solve that. I asked some questions around why did they leave? He said, “I pay them below market salaries.” Well, that's a factor. I said, “Why do you do that?” He explained that. I said, “What is your process for giving people raises?” He said, “People really have to ask for that.” and I was like, "Why do you assume that?”He had a rationale for that which ultimately didn't match how recent graduates were approaching their career trajectory. I ultimately had some advice for him. I later learned more recently that there were probably some other personality problems going on around him as a boss which also made me glad that I didn't work with him as a client.Tim: Essentially justifying turnover as a strategy instead of as an issue?Karl: There were a lot of things going on there.Tim: We're out of time so that's it for today on fjorgecast. We have a quick offer for you, Karl is willing to a signed copy of his latest book Made to Lead. Is that your latest book, Karl?Karl: Yes, it is.Tim: To one lucky person who shares the fjorgecast with Twitter. If you post on #fjorgecast, we will pick one lucky winner to be some to a signed copy of Karl's book Made to Lead.Karl: I'll send it to you wherever you are on the world. I've helped people on six continents, so far no one in Antarctica, but if you are in Antarctica, I will figure out how to get it to you.Tim: Very nice. Thanks for joining us on the show today, Karl.Karl: Tim, great to be here.Tim: You can find Karl's company at sakasandcompany.com. S-A-K-A-S and Company.com. Thank you to our listeners for joining us as well. You can download episodes of the program by going to fjorgedigital.com/fjorgecast or subscribe in the show on iTunes, Stitcher, SoundCloud and iheartRadio.