Be a market maker, not a follower

January 16, 2012 | Author: Tim Williams

As a professional services firm, the ultimate business strategy is to not just be a category leader, but to create a new category; to be a category of one.  The most powerful positionings create a new market, in which you are the leading – and only – provider.

Of course this isn’t easy.  (Nothing worth doing is.)  Writing recently in the Harvard Business Review, Seth Godin observes “If you can offer a scarce and coveted good or service that others can’t, you win.  What is both scarce and in demand.  Things that are difficult; difficult to conceive, to convey, to make … In fact, just about the only that that is not available in unlimited supply in an ever more efficient, connected works is the product of difficult work.” 

The alternative is to produce the same thing most other agencies produce; the stuff that the client community increasingly regards as “commoditized.” Here are the top criteria economists use to evaluate the degree to which a product or service has become a “commodity”:

• Homogeneous products and services.  The characteristics of the product or service do not vary much across providers.
• Industry standard specifications.  The means of developing the product or service are well understood and widely available.
• Excess supply of buyers and sellers.  There are an abundance of customers with the willingness and ability to buy the product or service at a certain price, and an abundance of producers with the willingness and ability to supply the product at a certain price.
• Wide availability. There is overcapacity in the market because the product or service is widely distributed and easily obtained.
• Low barriers to entry and exit.  It is relatively easy to enter or exit as a business in a “commoditized” market.

If your approach is to look around to see what other agencies are doing (so called “best practices”) for inspiration, your business strategy will just be a reflection of what already exists.  Your goal should be to develop a business model that’s “scarce.”  And you won’t find it through focus groups and “listening to your customers.”  Apple’s breakthrough product line didn’t come from customer input.  Brilliant business strategies – in agencies as in client organizations – are about leading, not following.  

Be creative about your own brand

Agency professional Darryl Ohrt’s guest column in Advertising Age, “Don’t Let Your Agency Be a Cover Band” makes the point that lack of originality is the reason most agencies never break from the pack.  Observes Ohrt, “It's ironic that so many in our industry have a hard time being original. They're coming up with innovative, original conceptual work for their clients each and every day. But when it comes to taking care of themselves, plenty of agencies stick with the ‘we've always done it like that’ approach. And in a noisy industry space, that's not enough to stand out, and leaves clients and talent looking for another band.”

In positioning your firm, your objective is to be exclusive, not inclusive. Strategy making is like map making; you can’t include everything.  “Cartography is essentially about dividing things up – deciding what’s in and what’s out,” says University of Toronto professor and business author Sarah Kaplan. “In order to draw a map of any sort, you have to take a stand for some things and not for other things.”

So make your mark by making a market – of your own.

A New Year’s resolution for agencies:  Start billing for what you really sell

January 4, 2012 | Author: Tim Williams

In groups of agency professionals around the world I have often asked the question, “What do clients really buy from your agency?” Their answers usually include things like “Solutions to marketing problems,” “Insights and innovation,” “Expertise,” and “Successful marketplace outcomes.”  Not a single person has ever said “Time.”  Because deep down inside we all understand that clients don’t really buy our time.  Time is just a means to an end, not the end in itself.

So here’s a game-changing resolution for your firm to begin the New Year: commit to bill for what clients really buy.  Instead of billing for time, bill in other creative ways that are tied to the value you create rather than the costs you incur.

For inspiration, consider the consequences of continuing down the path of the increasingly discredited hourly rate system.  Over the years, my colleagues and I have developed the following list:

1. The hourly rate focuses on efforts, inputs, hours, costs, activities, rather than outputs, results, and marketplace value.  It assumes the client is buying an activity rather than an outcome.
2. The hourly rate misaligns the interests of agencies and clients.  Clients want their agencies to spend less time, whereas the firm makes more money by spending more time.
3. The hourly rate places all of the risk on the client.  This is why most clients don’t really view agencies as true “partners.”  The nature of partnership is shared risk.
4. The hourly rate fosters a production mentality instead of spirit of invention and entrepreneurial problem solving.
5. The hourly rate encourages hoarding “estimated time” and produces a disincentive for people to delegate work and responsibilities.
6. The hourly rate creates a system in which as the agency gets more effective and efficient on a client’s business, it actually earns less money instead of more.
7. The hourly rate works against making more progressive use of technology to get work done faster.
8. The hourly rate commoditizes the firm’s intellectual capital and expertise, as if an hour from one person or firm is as valuable as any other.
9. The hourly rate places an artificial ceiling on a firm’s income, since there are only so many hours in a day. This amounts to a self-imposed limit on agency profitability.
10. The hourly rate creates a large bureaucracy centered around collecting, policing, reporting, analyzing, transferring, and managing time.  There are much better uses of the firm’s time and resources.
11. The hourly rate diminishes quality of life for associates of the firm. No one became a professional to bill the most hours, but rather to achieve something important.
12. The hourly rate looks in the wrong place for value.  Value is created out in the marketplace, not inside the four walls of the firm.  For pricing cues, agency should look outside, not inside the organization.
13. The hourly rate is based on the cost to the agency rather than value to client.  Clients don’t buy your costs.
14. The hourly rate discourages collaboration and integration, because account managers are constantly worried about going “over estimate” on an assignment.
15. The hourly rate puts the emphasis on efficiency instead of effectiveness.  No client hires an agency just to be efficient.

Ultimately, the main problem with hourly billing is that it keeps agency professionals trapped in the illusion that what they sell is time.  Clients don’t buy the time of the people working on their business any more than you buy the time of the mechanics who work on your car. As buyers of services, what we’re buying is a successful outcome – the solution to a problem. 

So consider making this the year that your agency really does move to a new level of success by changing your paradigm about what you really sell and what clients really buy.  If you do, you’ll join the growing ranks of innovative firms who are realizing greater profits and professional satisfaction by burying the billable hour.