T and R each ran successful agency businesses for over ten years.

Both their shops offered similar creative services. They each had an eclectic roster of clients including some global and national brands as well as a few smaller regional businesses. They both produced high quality work that garnered respect from peers and awards from various industry groups. Their reputation had allowed them to charge premium prices.

Over the past year, both T and R began to notice a shift in client behavior. Clients’ budgets were slimming down and new engagements were taking longer to sign or put on indefinite holds.

T and R had each grown their agency headcount to over 75 people. The lower budgets and fewer projects started to impact each firm’s revenue and profitability. They also experienced some client churn, which created further pressure on the business.

==

T was concerned that a growing number of clients and prospective clients didn’t “get” the value that his agency brought to the table. T’s team had won numerous awards and been part of campaigns that people remembered for years. He believed his agency’s work had helped his clients achieve record revenue growth and fat profits, immense outcomes relative to the fees he charged.

T was also disdainful of the newer, younger agencies cropping up–smaller shops with less than ten people or ones that used offshore or nearshore talent. These companies often worked as distributed teams with no real office. T felt that great creative could only be done by people working in the same space. His agency worked out of a beautiful loft office bustling with creative energy. There was, in his mind, no suitable substitute if you wanted quality.

The year was turning out to be a bloodbath. T’s firm had experienced multiple months of negative earnings. He was drawing down on his company’s cash reserves at precipitous rates. His CFO had recommended doing a round of layoffs, but T felt that some new projects would come through to help turn things around. Plus, he had never had to lay off anyone before, the prospect of doing so made him shudder.

After a decade of consistent growth and healthy profits, these months in the red were new for T. He had never felt more stressed, and it showed in his demeanor. He lashed out at his leadership team whenever they brought up bad news about clients cutting back further or new projects being put on hold. He went on rants about how social media had ruined people’s appreciation of quality creative and how clients were cowards for pandering to debased tastes.

His employees began to gossip about T becoming unhinged. They also fretted about the lack of work as utilization dipped and no new engagements were forthcoming. Some began to take jobs elsewhere. T still resisted his CFO’s pleas to cut costs.

Then all of a sudden, one day, everyone at T’s company was summoned to their large conference room. T, standing next to his CFO and looking down, not making any eye contact, told the room that he was shutting down the agency. Everyone, effective that day, were out of a job.

Several months later, after the dust had settled on the agency’s closing, T, through a former client contact, found employment as a brand creative leader at a venture-backed tech company. While not the level of compensation he experienced during the heyday of his agency, he had a stable high-paying job with equity in a fast-growing business.

T was glad to be out of the agency life. He had a good run, he thought, but it was a terrible business model in the long run with clients who simply didn’t understand what great creative entailed.

==

R had weathered slow periods in the past, but something felt different this time. She decided to get curious. She began reaching out to clients to learn more about what was happening in their businesses. She wanted to understand why budgets were going down and why projects were taking longer to get the green light. Furthermore, she wanted to find ways her firm could be a better partner to her clients.

After several weeks of calls and in-person meetings, R learned that her firm’s clients were under pressure to cut costs while still showing results. They were experimenting with lower cost resources for creative work including in-house talent and freelancers. They shared with R that they valued the strategic and creative thinking of R’s agency but that certain aspects of the production felt too expensive. This also echoed some things she had heard from prospective clients who ended up going with different agencies.

R reflected on her findings and realized she needed to make big changes. Unlike the past, where she replaced more cost-conscious clients with ones that had larger budgets, she felt that things were different this time around. The perception of value around her firm’s services had shifted in the mind of her clients, and her firm needed to evolve.

Over the next 3 months, R worked with her leadership team to roll out some major changes. They expanded ways for clients to work with her team on strategy, research, and creative concept creation, building high margin, fixed-scope and fixed-fee engagements. R went back to her clients multiple times to get feedback on the new services, making tweaks and even piloting some services at discounted rates to iron out the kinks.

R also made the tough decision to let go of 40% of her staff, mostly involved in the production work. This bought her time to roll out the new services. She partnered with a firm in Argentina to take on the work, saving her significant costs and overhead, while also passing on those savings in the form of reduced rates for her clients.

Morale was low at times but R remained resolute and pushed through. Six months later, things were starting to look up. Existing clients bought into the new services while also re-engaging R’s firm for more production work at the new lower rates. The lower cost basis allowed R’s firm to make greater profits even on budgets that were lower than in the past.

It hadn’t been easy, but R was proud of the turnaround. She also realized that moving forward, she would need to keep a closer pulse on how her clients felt about her agency’s services and where they could provide greater value.