Q/A No. 01: Your Questions and My (Attempted) Answers

Q: "I think I've heard you say on podcasts that ESOPs are immoral. Why is that?" —Chris, in Atlanta; "I'd love to know why you say ESOP is universally a mistake on your website. I can come up with my own reasons, but would love to know specifically your thoughts on it." —Josh, in California

A: Maybe immoral is too strong a word, but "almost always a bad idea" would be accurate. I'm writing a long article on this, but for now, here's a quick summary. First, you are folding someone's job into their tax-advantaged retirement savings, and you'd never suggest that. E.g., you'd never tell your kid to invest all his retirement savings in the publicly traded stock for the company where he works. That's an even worse idea since ESOPs are very thinly traded, with a very small subset of players. Second, they are extraordinarily expensive and complicated to maintain, from the annual filing to the exorbitant valuation expenses. Third, there is no life after an ESOP. It is extremely unlikely that you can sell the firm later. Fourth, ESOPs are inevitably run more by committees, many of whom are self-interested with little aptitude for risk. There are six other reasons, but I'll stop there.

Q: "I would like to hear about transitioning from having the owner doing sales to getting a salesperson and/or an account manager involved." —Frederico, in Italy

A: The last two things an owner should do in the sales process is to verify fit and signal that the pending relationship is so important that we dragged the aging principal out of bed, put a blanket over his lap, and wheeled him into the meeting. If an owner participates beyond that point—by closing the sale—then three bad things happen. First, the AM inherits silly promises that a principal has made on their behalf and is now charged with reluctantly fulfilling them. Second, the prospect bonds with the principal and feels like having to work with the AM is a bait and switch move. Third, the principal gets bogged down in the early stages of the relationship instead of leaving the cave and going out to kill something else and drag it back to the cave. There's lots more, including a diagram, on making the transition from sales to client.

Q: "Would you modify your advice regarding positioning if you’re located in a smaller market than the US? Say I can’t build a list of 2 000-10 000 companies within a specific vertical, what steps can you take to create a unique positioning?" —Thorstein, in Norway

A: Yes, as I explained in The Business of Expertise, the mathematical competitor/prospect test applies to whatever market you are addressing. I'll use myself as an example. I've done work in 42 countries, and so my market is the developed world. That means I should find between 10-200 competitors and 2,000-10,000 prospects in the developed world. If there are more than that, in either category, I need to have a tighter geographic focus...or I need to narrow my positioning further if I want to retain that geographic latitude. So if your firm works primarily within the six Scandinavian countries, your positioning would need to be wider than normal to make those numbers work.

Q: "I've heard that there's a really unique seminar coming up in Atlanta on valuation and M/A and succession on Tuesday, June 28. Is that true?" —David, in Nashville.

A: Yes, that's true, and you should go. There are only a handful of spots left. Register here.

Q: "How can owners avoid burnout? How does having leaders who are perfectionists impact the team (and what to do about it)?" —Erin, in Texas

A: The simplest, but totally vacuous, advice I can give is to run your firm as if you are going to sell it, but at the same time run it so that there's nothing about the firm that slowly grinds you down. The latter half of that advice might mean that you dismiss the asshole employee, fire the abusive or ungrateful client, build a strong marketing plan so that you never feel the stress of not enough work, and then put systems and processes in place that make it more self-governing. It's also important to get out of all PM and AM functions as soon as your firm grows large enough to justify having professionals who do that for you. Sabbaticals also help, as does a lot of therapy. I too am one of those control freaks that make the world worse, and so I have strict limits on the number of people I'll work with. Mainly for their sake.

Q: "Great writing, as always. I don't know if you've addressed this before, but I would love to hear your thoughts on paid traffic. In this email specifically, you only mention inbound traffic. Is that deliberate, do you not think it's worth advertising?
Do you believe that a firm's positioning should be so good that they don't need to advertise at all, just put great content out there and rely on inbound traffic?" —Olivér, in Hungary

A: Well, ideally your positioning is just that: so good that inbound is sufficient. I mean, the ideal marketing plan would be a widely popular book every 3-5 years and some huge speaking engagements. But since that's not accessible to me or you, we have to step down a little bit lower on the lead generation ladder and focus where we can. I'm a huge believer in paid media, and most firms should probably be spending $2,000-5,000/month on it, but only if their positioning yields an addressable audience. That spend should be on Google and LinkedIn and nothing else, usually. Be sure to refer to Gini Dietrich's PESO model, which appropriately distinguishes between Paid, Earned, Shared, and Owned. Of those four, Earned can have the best ROI, but Owned is, well, "owned" and can be relied on because you control it. Paid has a role; Shared should be <5% of your money and effort, and most of that is about recruitment and not client acquisition.

Q: "There are lots of folks predicting a recession. Aside from the running of a tight ship that we should always be doing, do you have any advice around activities that are particularly helpful in preparing for a downturn or recession? (Especially focused in the volatile tech sector, as we are.)" —Audrey, in San Francisco

A: Keep an extra thick cash cushion. Give one-time spot bonuses instead of permanent salary increases. Use contractors rather than FT staff. Do not borrow money unless your kid is kidnapped and you need to pay the criminals off. Watch your metrics carefully so that you can see a downturn as soon as possible. Oh, and most importantly, fix your positioning and spin up a marketing plan; if you do that out of panic, later, you'll cast the net too wide and you'll still panic and take clients you shouldn't.

Q: "I enjoy reading your emails and have filed away lots of good nuggets for running my own business. My question is, what are your tips for effectively closing pieces of business when you struggle with coming off as pushy? Are there certain urgency buttons that you suggest pushing to get a lead who's interested and taking more time to sign with you? Note that in my particular case I am a solopreneur, so I am doing the new business pitching, closing and account management." —Melissa, in Pennsylvania

A: If you think you are being pushy, you are probably being pushy. Prospects run like hell from pushy sales people, and that's particularly true of experts who seem desperate. I would quit thinking of the sales process as fragile, like something that could easily be derailed or which needs constant prodding. You should come across as kind and interested in exploring a relationship, and glad to answer their questions (objections), but all of the sales calls should be viewed as responsible exploration to determine if there's a fit, on both sides. If there's something urgently wrong in a client's situation, you can even feel urgent for them: "I agree that this is urgent and should be fixed. Whether or not I'm the person to help you is still an open question, but you really do need help from somewhere. Let's figure out if I'm the right choice or not, and if I'm not, I'll introduce you to someone who might be a better fit."

Q: "What would your advice be to an agency where the co-founder/owner does recruitment/HR AND outbound business development/selling (including all the paperwork) and, as both essential functions are often done simultaneously, there is a consistent bottleneck?"—Helen, in Nottingham

A: This one is confusing to me. No matter how big the firm is, I think one person should be able to do both new business for clients and new business for employees. That assumes that you have a strong positioning for prospects and culture for employees, that you have some help with the marketing plan for both, and that you are not doing the transactional part of HR (forms, compliance, benefits, etc.). And as you'll see above, no owner (or any decent sized firm) should be doing the paperwork of establishing new accounts. That's the job of an AM.

Q: "I'll take you up on your offer to ask a question. How do you suggest people think about the word 'expert' so that they can allow themselves to rightfully step into that title? I notice my clients hesitate to call themselves or allow themselves to be referred to as 'an expert.' Their protestations include: I don't know enough yet; other people know more than I do; I don't want to brag; I can't just call myself an expert. And so on. Thoughts create reality, so the person who believes "I'm not an expert" will resist becoming an expert. How do you suggest people think about the word "expert" so that they can allow themselves to rightfully step into that title?" —Geraldine, in Idaho

A: So on the one hand, the appellation should come from other people and not yourself. "Expert" is not something you self-anoint yourself with. On the other hand, anyone who sells their thinking (vs. doing) is an expert, in the sense of how I use the word in the field I advise. You aren't going to penetrate a market, though, until you figure out how to carefully combine a fair degree of genuine confidence...and an epistemic humility about all the things yet to be discovered. You might explore the second pre-test of positioning and assign this to them (Drop and Give Me 20), but ultimately confidence comes primarily from two things. The first is the adults who believed in you in spite of all the contrary evidence (especially parents). The second is marketplace acceptance. So you can prop up their confidence all you want, but it won't take hold until enough clients confirm your pronouncements and pay them money for their thinking.

Q: "My question — What have you seen and/or what’s the biggest mistake that agencies make that hinder them from growth — in growing revenue, scaling their teams, building capacity, etc.?" —Melissa, in Georgia

A: It would be a combination of not letting things go and moving to an executive role, as well as not getting the layer right below them right, which means the right sort of leaders to fill that vacuum credibly.

Q: "One question in response to your 'mail bag' invitation below… I don’t think I’ve ever heard you and Blair address the question of contract structures that can incentivize clients not to foot drag on deliverables during an engagement? Due to your and Blair’s counsel, we’ve largely moved to value pricing a set list of deliverables, billed monthly. But we find some clients are very slow turning product around. At a minimum, it lengthens our engagements w/o any adjustment to our upside. At worst, we are blamed for the results of their cumulative delays. If you and Blair could address, I imagine many of your listeners might benefit." —Mike, in Virginia

A: Time is not a renewable resource, and so if you "reserve" the time for a specific client, whether they use that or not, they have to pay for it. If this continues and they don't want to pay for it, they have to relinquish that slot and then get in line like everyone else for the next one. Your payment terms need to never put you in a position where you have too much "unearned income", meaning time spent but not yet paid for. Ultimately it comes down to your fear of using power legitimately in your relationship with clients, for fear that they will leave. But you can't keep shielding them from the consequences of their decisions.

Thanks for all the great questions! Keep them up, and I'll make this a regular feature if there is sufficient interest.

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