Shakeup 2.0 and what it's going to mean for agencies

May 5th, 2020
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I graduated from college right in the bottom of the Great Recession, and went straight into an entry-level marketing job in an oversaturated industry. My monthly paycheck was laughably small, but it paid my bills and I made some great contacts. I was 21. What else do you need?

The marketing world was crumbling in 2010. Slashed budgets, lost clients, staff layoffs, and of course the onset of digital blitzing its way through all the old school agencies.

The type of agencies with old guys in khakis, still buying ad slots on local TV, and trying to "go digital" by pitching six-figure website redesigns to tiny mom & pop operations.

Well, those agencies didn't last.

What happened? Mergers, acquisitions, and chapter 13 bankruptcies. Everything just kind of folded up shop. A lot of people went in-house, started working for the bigger agencies that consumed the smaller ones, and a whole bunch of freelancers and specialists left marketing entirely to go sell insurance, or houses, or something profitable.

Right now, we're on the cusp of seeing the exact same thing happen over again. It's a different world now, but then again, just like Solomon said, there's nothing new under the sun.

I've heard both good and bad from friends in the marketing world. Some folks are doing fine (and will continue to be fine). These folks have made some consistently good decisions about their own marketing, sales, and business strategies.

Others, not so much.

There will be two results from the fallout of Shakeup 2.0: wins and losses.

The wins will come from folks (agencies, consultancies, freelancers) with the following attributes:

  • diversification of their client base
  • high value for their cost
  • low overhead & margins
  • medium/high volume client portfolio
  • sales process with little/no reliance on advertising
  • And I believe the losses will come from folks who unfortunately hold these attributes:

  • specialized/niched down in the wrong industries
  • high cost services
  • high overhead & margins
  • low volume "whale" clients
  • sales process with high reliance on outbound marketing
  • Let me walk through these one by one.

    1) Specializing/niching down

    When I first got into marketing, everyone told me to specialize and niche down. You can't be a jack of all trades, they said. Find your industry and be known for that industry! Be the expert in one thing!

    That's great, but if Anya and I had picked the travel industry, we wouldn't have an agency anymore.

    It's not to say that you can't find something you're good at, and become known for it (after all, we are pretty much 100% paid search and analytics) but tying yourself to a specific niche comes with an inherent risk. If you're going to niche down, at least find a niche which you carefully pick, like a long-term stock for a conservative portfolio. Which industry are you okay holding until retirement?

    2) High-cost services

    Nothing wrong with charging a lot. We charge more than average. But we do not charge ungodly rates.

    I've seen folks in the marketing world bragging about their hourly rates (in their website bio, nonetheless!) as if it's some sort of external validation of value. If someone is bragging that they "are one of the highest-charging marketing consultants in the world" at $1000/hr for consulting, you think that's going to go over well in a recession/depression? What's it gonna look like when this guy lowers his cost to say, $100/hour?

    Ungodly rates are cool, if and when you can charge them. But you are delusional if you think you're not going to be the first person who crosses the client's mind when they start looking at cost-cutting measures. At least be willing to cut your rates. Because some revenue is better than no revenue.

    3) High overhead & margins

    I am not against an office and employees and conferences. I like offices and employees. I'm fine with my current home office, but I wouldn't mind more employees!

    But what I do think is ludicrous (from a business perspective) are the rank-and-file agencies who put six figures a year into refurbishing their office spaces, upgrading to nicer views, and hiring 12 account execs and 8 social media specialists and 6 managers on top of that, and then pay to attend a half-dozen conferences a year.

    At the end of the day, some small agencies of 4-5 people are making more profit than agencies with 40-50 staff.

    4) Low-volume whale clients

    In college I interned at a great mid-size agency. Problem was, it was 2010 and they had one whale client which made up half of their revenue. They made a heck of a lot of money, but shortly after my internship ended they shut their doors. To their credit they gave everybody an amazing severance and ended without debt, but they lost their whale and the business was unsustainable after that.

    Whales are nice. You can make a lot of money with them. But I don't think relying on one, two, or even three clients is going to cut it in the coming months/years. All it takes is one to cancel.

    5) Sales process with high reliance on outbound marketing

    Spending on ads, spending on conferences, spending on account execs, spending on sponsorships and placements all have their place. In a bull market, it's great.

    But the problems don't arise in bull markets. They arise in bear markets. And if you require high-volume outbound sales tactics in order to keep your pipeline filled, you're out of luck.

    If you've got a solid reputation, and have built a solid system for generating inbound leads, you'll be fine. (For example, we get most of our leads from the marketing textbook Anya and I wrote, from referrals, and a tiny bit from SEO).

    So What's Gonna Happen & What Should I Do?

    I don't know what you should do. I have an opinion, of course, but I'll be the first to admit that I do not know.

    Going into April, I won't lie. I was quite worried. There were a lot of unknowns. I figured a few clients would drop out. And indeed a few did - all 4 of them within the travel industry. Most were just temporary pauses in advertising until a return in demand, but I suspect one might shut its doors permanently. However, with this concerning trend in client pauses came some opportunity as well.

    We made two immediate changes: First, I started being more flexible in our costs. Second, we picked up some clients that are smaller than we would typically work with (and several of these came to us after dropping their existing agencies from lack of results, reporting transparency, and high cost).

    As a result, our revenue in April did dip: but only by 6%. Our projected revenue for May is the highest we've seen for this entire year.

    I think we're lucky - I have heard from three different agencies directly that they saw a monthly revenue drop of almost 50%. I have seen more than a dozen agencies lay off staff. I have seen a flood of freelancers and specialists searching for new employment. We're going to see this happen even more over the next few months. Additionally, many small agencies or one-man-shops who perhaps aren't well established yet are going to fold. This isn't their fault, it's just unlucky timing. At the end of the day you have to feed your family, and I cannot blame anyone for going to a greener pasture.

    But at the same time I've talked to a few folks who are weathering it solidly, and these are the folks that will be fine. The great thing about higher margins is that you can take a hit to overall revenue...and still have margin.

    The ones who have a little margin to play with will pivot, cut costs, scale where possible, and end up okay. The losers will move slower, hemmorhage cash, shutter offices, lay off staff, and ultimately get bought out for pennies on the dollar or shut themselves down completely.

    I know that the marketing world has been hit with a one-two punch to the gut in the past two months. It's likely to get worse, and I'm still mentally prepping for a big revenue slap across the face. But I don't think it's the end of the world.

    Gil Gildner
    Gil Gildner

    Former creative type, current dork. Cofounder of search marketing company Discosloth. I've traveled to 45 countries, and I try to add more every year!