Balancing Your Business
by Heather West
How many clients should you serve? In what categories? And where? Three consultants who work exclusively with creative firms offer advice to help you develop the ideal client mix for your business.
Just as a balanced financial portfolio provides a thoughtfully planned sense of security for your fiscal future, a balanced client portfolio can offer creative-services firms a stronger, healthier business outlook. Like a solid investment mix, your ideal client roster may include a strategic blend of large and small companies. Some accounts may appeal to you for their potential fiscal and professional rewards, while others may bring personal benefit and artistic merit that boosts your design team's morale. And you may pursue a few national customers to complement your local clientele.
But have you ever really thought-strategically-about which prospective clients are right for your firm? Or do you answer every new-business call that comes in? If you're in the latter camp, you're not alone.
"Unfortunately, most designers don't take time to breathe and assess their strengths, their weaknesses and the success they've helped their clients achieve that's going to lead them to more work," says Emily Ruth Cohen, a consultant to creative professionals who's based in East Brunswick, NJ. "Many designers do a poor job of selling themselves because they're too busy doing the work and meeting deadlines to think about their businesses."
Brent Hodgins, partner and director of client services for New York City-based Mirren Business Development, also sees creative firms take this reactive approach to business development. "Too many agencies attempt to grow their roster by feverishly running from pitch to pitch, desperately trying to bring in new work. This random, undisciplined fashion leads to a tremendous waste of resources and a roster with no particular core strength or long-term plan."
The time has come for designers to get smart about building the right client roster, warns David C. Baker of ReCourses, a consulting firm in Nashville, TN, that coaches creative businesses. "When the tide rushes out, most firms will find they've been accidentally successful and are very poorly positioned to gain new ground," Baker says. "Sure, they're competent, but they weren't selective. When you have more choices, you have the option of saying ?no' to things that aren't the right fit. When you have more options, you have more power."
Wielding this power to forge successful client relationships boils down to money, control and impact. "Everything else revolves around these," Baker says. "If a client is too small, you may have control, but you don't have the money and rarely have the impact. If a client is too big, you have lots of money and should be making an impact, but you lose the control."
Defining your firm's future
Establishing a balanced and profitable client portfolio begins with what Hodgins calls "a basic understanding of who you want to be when you grow up. How many clients? What kind? How much revenue? Once you have a clear understanding of where you're headed, then you can consider the best fit for your long-term growth plan."
This can mean different things over the course of a firm's life cycle. Baker describes three growth phases that design firms typically experience. First, the start-up phase, when the solo practitioner or new design agency takes any and all clients. "Many firms get stuck here," Baker says. "This is in part because most firms don't start out well-capitalized. As a result, they make compromises. They have mouths to feed and they start to lower their ideal standards."
Baker says the second phase comes three to five years later. "By now, something has happened that gives them a reason to pause. Perhaps they've had a client take advantage of them; perhaps they've realized they're on an unsustainable path. They start being more choosy. They get a couple of the right kinds of clients and they taste the difference. Firms that reach the second stage rarely stay there for long because they get a lot pickier."
In the third phase, design firms become highly selective about which clients they'll work with. They've identified their core strengths and they pursue new business that meshes with those competencies. At this point, Baker explains, "You're qualifying your prospects and making smarter choices about the right fit. As most firms prior to this stage are still generalists, they also may have a growing sense that their services are replaceable. They want to reposition themselves in a way that makes them more valuable."
To reach the third phase, firms have three options: using internal resources-with the principal doing all the marketing and selling, or by hiring a new-business development director. They may seek advice from outside business consultants. Or, they may do both. Whatever the course, this change in the way a design shop finds new clients is driven by a motivation to change because something's not working-the firm's primary customer leaves, perhaps, or a client is demanding nickel-and-dime projects that sap the firm's creative energy.
Creating the Right Balance
Play the numbers game. How many clients should your firm serve? A few big ones, or many small ones? While you may love the one major client that feeds you tons of work, Cohen raises a red flag. "If one client dominates by 25% [of your revenue], you have a bad business model," she says. "If any two clients are 25%, it's still very dangerous. No client should ever become such a behemoth."
Baker's formula is even more specific: "Eight to 12 clients are a good balance. More than this, and you probably are working with clients that are too small. Fewer than this, and you don't have enough to carry you if a client leaves."
Commit to business development. Any strategy for honing the perfect client mix requires investments in time, money and dedication. "Most firms can't afford to hire a business-development director," Cohen says. "You're talking $75,000 to $100,000 on salary, plus a draw for commissions. The first year is especially costly as they learn the business and how to sell it. They build wonderful relationships, but it's often two to three years before a firm can see direct results."
As an alternative, many firm principals manage and drive new-business efforts themselves-which also requires commitment. Cohen recommends that at least eight hours per week of a principal's time should be focused on cultivating new clients. She admits that it can be very difficult to commit to a full day out of every week: "You have to decide if you're willing to stop designing and grow."
Start in your own backyard. Local customers are the logical foundation for nearly any business venture, because it's often easiest to make connections with companies in your hometown. Working with Baker, Minneapolis-based GeigerBevolo Inc. simultaneously evolved from generalist to specialist in health care marketing, and from relying solely on Twin Cities clients, to working with hospitals, health systems and other providers across the Midwest. As they developed expertise, principals Scott Geiger and Chris Bevolo invested in original research and competitive intelligence to generate blogs, white papers, presentations, articles for publication and, ultimately, new products and services. Today, GeigerBevolo has earned a national reputation as a thought leader shaping health care's highly competitive landscape.
Even firms that appear to have geography working against them can successfully carve out a niche for themselves. Suburbia, a design firm located west of Vancouver, British Columbia, has virtually no clients in its immediate vicinity. With Baker's help, it has leveraged its 15 years of experience and passion for shopping into a retail branding focus that reaches across Western Canada and beyond. Suburbia publishes a regular e-newsletter, "Get Shoppers," that demonstrates its expertise. And it forges ongoing client relationships through brand audits, and brand-in-action and creativity workshops. Today, the firm lists many of the largest shopping centers and retailers among its clients.
Differentiate your firm. Creating and effectively promoting meaningful value is essential to attracting attention in such a crowded field. Hodgins cites Department of Labor statistics showing more than 76,000 marketing services firms in the U.S. "From the clients' perspective, they all look and sound exactly the same," he says. "It's a mature, hyper-competitive market. Much like the airline and automotive categories, these businesses have allowed themselves to become a commodity. One is perceived as no different from and no better than the next. Because they have so many options, clients have the power to set all the rules."
Hodgins attributes much of this predicament to design firms' aversion to risk and lack of distinctive services-ironic, given that designers urge clients to make bold moves to bring attention to their brands. "Agencies complain about clients not being innovative enough or having a clear focus," he says. "However, agencies are even more conservative and less focused in how they market themselves. Desperation for new business drives them to say whatever they think the client wants to hear."
Pick a specialty. So how do you make your design business different and more valuable to clients? Do what virtually every consultant in this field urges: specialize. Baker has long contended that general service providers are never valued as highly as specialists. "Healthy, mature firms narrow their focus to become experts," he says.
Your specialty can be either horizontal or vertical. Baker explains, "A horizontal focus means the firm specializes in an area of service and offers it to many. A vertical focus concentrates on a specific industry and offers general services to very few. Most firms are initially attracted to the horizontal focus, but this is more difficult to pull off with sustainable success [because it's hard to make a good living on a narrow skillset]. A vertical focus often makes it easier to find clients with higher rewards. These prospective clients talk to each other, helping pass along your name, and are more likely to take you with them in a job change."
That small-world phenomenon, while beneficial when you've defined your specialty, also makes it difficult to enter new markets, as clients in a given field tend to only know other people in their industry. "This makes it hard to change industries and cross over into another category," Cohen notes. "It's even more limiting if you've chosen a specialty that focuses on a service, like designing annual reports, rather than an industry, like financial services."
That's why a firm's best bet is to delve into a category it's already familiar with. The firm's leadership should consider the breadth of the agency's portfolio and select a market where they've already got some experience and where the design team's skills mesh. Not that it's an easy decision: Because creative-minded entrepreneurs often have so many interests, Baker says his clients' greatest struggle can be in narrowing the list of industries in which to specialize. "To avoid watering down your positioning, you should just choose one," he says. "If you don't find enough opportunity here, you can expand it later."
Really - pick a specialty, already. Contrary to most designers' fears, specializing in a niche can actually broaden their business base. Cohen cites one of her clients as an example: Louise Fili had developed a tremendous reputation as a book-jacket designer, but she found that market to be limited in both money and opportunity. "Realizing that book covers are just another form of packaging, she saw the potential for a crossover," Cohen says. "She also loved all things Italian. She traveled to Italy several times a year, spoke the language fluently and loved to cook and eat Italian food. So, she decided to specialize in packaging for Italian foods. She went to tradeshows, gift fairs and conferences. She networked with decision-makers and stayed in touch. And it paid off, project after project."
Hodgins also recommends focusing on one category, noting that doing so allows a firm to deliver the same new-business presentation over and over again. "When you're in reactive mode and jump on any RFP that comes calling, you're putting time, money and resources into a single pitch," he says. "Why not do that same amount of work, but leverage it in a proactive fashion and take it to five, 10, 15 prospects? This puts you in a position of strength, of credibility, of having something of real value to bring to the table."
Additionally, Hodgins advises firms to announce their specialization only to prospects within their target category. "What's brilliant about agencies that are growing quickly using this category-focused approach, is that they're better-known to prospects within that category, and less so to their agency peers. This creates a far better return on their marketing efforts and keeps other agencies from discovering the success of a unique approach to new business."
Become a consultant. MMG Worldwide is one company that Hodgins thinks is doing a good job of stealthy specialization. MMG bills itself as a "global marketing communications firm working exclusively with the premier travel, hospitality and entertainment companies of the world." The breadth of its category weathers seasonal and geographic limitations that a narrower specialization (such as marketing exclusively for cruise lines) would not. Leveraging this position, the company hosts an annual client summit to talk about future trends and influences shaping the industry.
"The more expertise you bring, the more consultative the relationship becomes," Baker emphasizes. "You're selling problem-solving, not velvet Elvis paintings on the corner. You want to be commissioned to solve something unique for this customer. It's not about the beauty of your work; it's about how your work does what the client needs. If you can get them talking, you can ask the right questions. If you ask the right questions, then you appear strategic. If you appear strategic, you get the job and then you do what every successful businessperson does: You go back and figure out how to deliver on the promise."
This article has been reprinted with permission from HOWdesign.com and written by Heather West. For more information, please visit their website at www.howdesign.com.