A Dozen Common Mistakes

Introduction

The reason marketing firms fail is not creativity, location, or the marketplace. It’s management ability. Your firm is a direct reflection of you, and you must take responsibility for it. Here are the most common dozen mistakes we see marketing firms make. If you are managing a firm now, you’ll identify immediately. If you are an employee, this might give you some context for the decisions you may not agree with. If you are considering starting a company, this will help you learn from the mistakes of others.

#01—Rely on Referrals

Enough good work does not come from two traditional sources: referrals and repeat business, but rather from new leads. The problem with referrals and repeat business in a growing, changing firm is that a prospect’s perception of you will not keep pace with reality. Some firms wait around for work to drop in the lobby. Others look for new clients. Even better, some firms look for clients they can do effective work for and make money in the process.

#02—Confusing Why they Come and Why they Stay

When you talk about being cost-effective, responsive, and full service, you’re talking about why clients STAY with you. If they COME to you for those reasons, you’re screwed. And in the marketing phase, such language translates to “quick, cheap, and desperate.” The only good reason to come is expertise. Keep ‘em coming with those other things.

#03—Stay a Generalist

Specialization occurs in every area of life. We stay a generalist, not because the marketplace demands it, but because we get bored easily and because we don’t have a marketing plan and thus feel compelled to cast the net wide. Firms that specialize generally thrive. What will this do? It will make it easier to find business, to do effective work, and to make more money.

#04—Feed Gorilla Clients

It’s unsafe to have any client that represents more than 35% of your business. Our studies show that it’s difficult to recover from the loss of any client larger than that. (It doesn’t matter if you have different contacts in other departments.) If you have a large client, be honest; have a marketing emergency folder that contains a specific plan, including staffing; set aside four months of overhead; have a maintenance marketing plan in place for at least six months; and job your implementation work out, retaining account service, project management, and actual work oversight. You can borrow money, but you can’t borrow marketing. On, and the biggest mistake in a downturn? Not letting your employees go soon enough.

#05—Misunderstand Growth

Smaller can be better, based on what you want. Growth in employee count isn’t about making more money, or even playing on a bigger stage. It’s more about your individual role. If you embrace management, go for it. Otherwise, work at staying smaller and enjoy the hands-on role. You don’t typically hire a dozen people at a time. If you did, you’d quickly notice how your role changed. But since you generally hire a person at a time, this change in your role is very incremental and easy to miss.

#06—Hire to Delegate To

So...you get really busy, and you have more than you can do. You hire people to delegate to. That moves the upside down funnel higher, and you become even more of a bottle neck. In the process, you want people to implement your ideas. You judge work instead of shape it. In effect, you are working “in” your business instead of “on” it. Instead, hire people who have something to teach the firm on their first day with you. You don’t ask them to help you with tasks on your plate--you give them work to do because they’ll do it better than you would.

#07—Manage for Significance

Hiring all these people doesn’t solve the problem, and you are still too busy. You learn to be important because you can do everything. You are forced to peel off areas of significance and re-learn your role. If you continue struggling, you’ll likely refuse to put things in writing, insist on seeing everything in the shop, steal the credit, and manage for loyalty, not results. If this carries over into client relationships, you won’t be effective because you’ll take on assignments with hopeless budgets and schedules to be the white knight. In effect you’ll be looking for acceptance from clients instead of a fighting for a strong direction. Instead, get a therapist and relearn who you really are.

#08—Think Employees are Entrepreneurs

One of the reasons you left the big firm to start your own was because you hated structure. So you vowed to avoid all those stupid rules. One day you begin to realize, though, that many of those rules have a purpose. And that the people who work for you aren’t entrepreneurs. If they were, they’d be starting their own firms. Employees usually always want more structure, communication, job descriptions, regular reviews, etc., than you think they do.

#09—Ignore Project Management Issues

Having more than five employees per principal/senior manager will feel big unless you have good systems. Without them, you’ll be unable to do a mind dump. The best systems have centralized responsibility for budget and schedule. Most firms are deadline-driven vs. profit-driven, and as a result they bill for only a portion of their time because it’s not as important as meeting the deadlines. That national average for utilization is 42%. The standard is 60%.

#10—Spend your Way into Prosperity

More than 80% of those making lots of money have no fixed obligations (leases, loans, or credit card balances) for depreciating assets. In a small service company, there is little separation between how a principal views money and how money is used in the business, and that can spell trouble. Is cash the best filter for acquiring a depreciating asset? It may apply the brakes for companies who are growing too quickly. And the act of spending cash makes it less likely that you’ll acquire more than you need. Avoid loans and leases for depreciating assets.

#11—Not Staffing According to Sound Ratios

One of those key ratios is not paying more than 45% of your agency gross income (fees + markup income) on compensation, including your own at a normalized level. This doesn’t include taxes, benefits, bonuses, or distributions. It’s just “unburdened” salary. If you are spending more than that, you are either top-heavy or your utilization is too low. That is, you are underpricing and/or overservicing, and so your 45% allowance isn’t big enough to pay people who aren’t necessarily overpaid.

#12—Count on Selling Your Firm

It doesn’t usually happen. Often the likely buyer is someone in your firm with no money, who wants to use your money to buy you out. If you want to sell, institutionalize your firm. In the process, build a strong retirement fund, assuming you won’t sell it. Then try anyway. The value in your business comes from the cash it throws off regularly (and the building you may buy to house it). There are only four of us who know what we are doing in the M/A field for this market segment, and between all of us we probably handle less than 100 M/A transaction per year.