DeepSpecialization_EP 97_Nicholas Petroski_Video+Teaser_Edited_V1
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[00:00:00] Nicholas Petroski: Whoever's specializing is growing significantly faster than the people who are generalists.
[00:00:05] Nicholas Petroski: If you try to jump up too quickly, it'll punch cash flow in the face.
[00:00:09] Nicholas Petroski: Your option pool is ginormous.
[00:00:10] Nicholas Petroski: This thing is huge. You could do anything for anybody ever, and that's a generalist and that sucks.
[00:00:14] Corey Quinn: You wanna harvest the wisdom that exists within the business, and that's exactly what you're talking about.
[00:00:18] Nicholas Petroski: It's not been easy to be a digital agency leader or owner, or probably even an employee.
[00:00:23] Corey Quinn: The world is pushing towards, return to office. Yeah. Most agencies are staying work at home. we would joke at Scorpion, we would call it WFB, which was work from bed,
[00:00:34] Corey Quinn: which of course we would never do, but that was the joke.
[00:00:36] Nicholas Petroski: While Amazon's pulling developers into the office
[00:00:38] you can be like, Hey, you don't have to have any of that.
[00:00:40] Nicholas Petroski: Come work at my agency.
[00:00:41] Corey Quinn: Welcome to the Deep Specialization Podcast, the show where we blend focus, strategy, and client intimacy in order to scale and simplify our businesses and our lives. I'm your host, Corey Quinn. Let's jump into the show today. I am thrilled to welcome the founder of Promethean Research. His name is Nick Petroski and he is a friend.
[00:01:02] Corey Quinn: Welcome back to the show Nick.
[00:01:05] Nicholas Petroski: It's great to see and it's even better.
[00:01:09] Corey Quinn: So, uh, little bit background on you. Since 2015, you and your firm have been doing work with agencies. You worked with over a hundred agencies. With your con industry leading research, which includes data on over a hundred thousand digital agencies.
[00:01:26] Nicholas Petroski: Yeah. We counted them.
[00:01:29] Corey Quinn: I love that because the work that you put out and the, the conversation that we're gonna have today is all about your newly released 2025 report on sort of the state of the, the industry for agencies. And what I love about it is that. It's not just hunches or opinion. You're basing everything, you're doing your research on sort of cold, hard facts, which is always the best kind of research.
[00:01:53] Corey Quinn: So I'm excited to have you on. I'm excited to get into some of the details in the report.
[00:01:59] Nicholas Petroski: Yeah, no, I, it's again, fantastic to be here. I, I think that, yeah, there's so much in that one. We, we covered such a broad swath of topics that there's a lot, there's a lot of content there to, to dive into. Yeah. Should be a pretty interesting show.
[00:02:12] Corey Quinn: So let's kick off by talking about the title. So the title is Surviving and Thriving Through Tough Markets. So what inspired you to use that as the title and what's going on in the world of agencies today?
[00:02:27] Nicholas Petroski: I mean, fantastic question. It uh, I always write the titles last and it frustrates the promo team, but you kind of gotta do it.
[00:02:34] Nicholas Petroski: And this one was really inspired by, like, the industry has not been easy for the last three-ish years. It's not been easy to be a digital agency leader or owner, or probably even an employee. Sales have been really challenging for a lot of reasons, and what we've seen though is we've seen agencies reposition themselves.
[00:02:55] Nicholas Petroski: We've seen them restructure themselves. We've seen them be really fiscally prudent and make strong decisions that. Still maintain quality margins there, there's still growth in this space and some agencies are doing really well despite all of that other stuff. So it, it's really this, like this story of you're in this kind of really tough environment, but there are green shoots.
[00:03:20] Nicholas Petroski: There are places that are, you know, places of strength in different agencies that are doing really well, and we hopefully can look to those. Maybe pick a few like ideas that they're doing and a few practices Yeah. That they're implementing and, and make it life a little easier for everybody else.
[00:03:36] Corey Quinn: Well, speaking of that, in the report it says that 84% of agencies identify as a specialist.
[00:03:44] Corey Quinn: Yep. And specialists, outpace or outgrow the generalists. Why do you think that specialization is such an important factor in an ability, an agency's ability to grow?
[00:03:59] Nicholas Petroski: Yeah, this has been something, we've been watching this for a number of years now, and it always plays out this way. Whoever's specializing is growing significantly faster than the people who are generalists.
[00:04:13] Nicholas Petroski: And I, I think it comes down to that theory of, ooh. Communication is it? How hard is it for you to communicate the value that you can create for a brand to that brand prospect? And when you're a generalist, it's harder. There's more things that you have to convince them of. The social proof is tougher because you have.
[00:04:35] Nicholas Petroski: Social proof that doesn't necessarily match up with exactly who they see themselves as. When you're a specialist, you, you have all that you can show them usually down to the like industry size, location, their service mix, everything. Another version of them that you've done really great work for that you've knocked the ROI outta the park for.
[00:04:57] Nicholas Petroski: And so it's, it makes that, that communication of value, which is the sales process and marketing process, it makes that so much easier.
[00:05:07] Corey Quinn: So clearly specialization is driving a lot of value for agencies, but is there a type of specialization that is driving more growth? And what I mean by that is a specialization in a service like what you do, S-E-O-P-P-C, social media or a specialization in who you serve, like dentists, attorneys, manufacturing companies.
[00:05:28] Nicholas Petroski: That's another great question, and the, the, there's too much variance in the data to be able to pick out one. We looked at, um, I, I did a project a few years ago where I mapped all of the service mixes, the potential service mixes and groupings of them that agencies put together, and that they do. The numbers were astounding, like the number of different permutations of services, specialties that you can do, uh, through the roof, and then you wanna layer on industries into that, like you're slicing into like 10 and 20 potential agencies out of the hundred thousand anyway.
[00:05:58] Nicholas Petroski: But I, I, I think that there's a, there's a lesson there in that, in. We see specialists of all kinds doing better than average. Yeah. So it's, it's, while it is important what you choose to do, making that first step of going into specialization is, is probably super impactful.
[00:06:18] Corey Quinn: Do you have any practical tips or steps that would help a, a generalist agency begin to go through the specialization process?
[00:06:24] Corey Quinn: Like how would you recommend they approach that?
[00:06:27] Nicholas Petroski: Yeah, no, uh, I used to do that actually. I used to help shops go through that. I don't anymore, so please call Corey. Yeah, don't call me.
[00:06:35] Corey Quinn: I didn't know that about you, Nick. That's cool. I wanna know more. Yeah.
[00:06:38] Nicholas Petroski: Yeah. No, that, that was, uh, that was where we started when we started doing strategy work was, it was a lot of positioning.
[00:06:43] Nicholas Petroski: That's where we saw the biggest value. Like that was the biggest spot where we can make a difference in agencies. And I, I'm sure you've seen that in your work. It's very much like that is the, the taking that step is like, it's like lightning hits. First step was always like a, a super deep interview with the owner and leadership team.
[00:07:03] Nicholas Petroski: Understand what excites them about what they do, understand where they've had successes, where they've had failures, why they've had successes and failures. Doing a deep dive into where they see the various industries going. Like, is there, is there a pocket of strength that they see somewhere? Or is that like, are they seeing AI as a weakness for SEO firms?
[00:07:25] Nicholas Petroski: I don't know. That's up to the individual owner to decide, but those are the kind of questions you answer in that first thing. Yeah. And the, the whole goal of that exercise was to really narrow down what their potential like option pool looked like, right? Because if you just go into it, your option pool is ginormous.
[00:07:43] Nicholas Petroski: This thing is huge. You could do anything for anybody ever, and that's a generalist and that sucks. We wanna narrow that down. And so those, those questions and the, and thinking through those things, and usually it's really tough to do internally, like having an outside expert help you through that kind of thing.
[00:07:59] Nicholas Petroski: Who can say that's it, ah, is that, you said that's an option. Is that really an option? Or is, is that kind of bull like
[00:08:05] Corey Quinn: right.
[00:08:06] Nicholas Petroski: You gotta, yeah, I have somebody calling that up.
[00:08:08] Corey Quinn: So it's more of a, an objective opinion on the outside. It doesn't have such a vested interest.
[00:08:13] Nicholas Petroski: Exactly. Exactly. And some experience too, right?
[00:08:16] Nicholas Petroski: Like you've seen a lot of people specialize, like you, you kind of know the beats at this point. Like absolutely. There's value.
[00:08:22] Corey Quinn: Yeah. I mean, it's so interesting in the work that I do that we, that uh, we have this shared experience. Uh, one of the vertical markets that is typically very attractive for agencies who wanna get big is attorneys.
[00:08:34] Corey Quinn: And the challenge of course with specializing in serving attorneys is that there is a lot of really. Smart, sophisticated, well marketed, well sold agencies in that space. And while I don't necessarily cancel it out, as you know, as it's not an option, there's a way that you'd wanna approach specializing in attorneys.
[00:08:58] Corey Quinn: That would address the fact that it's a fairly, let's call it mature market relative to, let's call, you know, med spas are probably less mature as it relates to sophisticated agencies. So yeah, you, you have to have some outside perspective in being able to. Help that founder to be able to make a real, really well informed decision and know how to approach becoming that specialist.
[00:09:20] Corey Quinn: So I love, I love the fact that we have that shared background.
[00:09:23] Nicholas Petroski: Well, was that, is that your first step too? Like how do you, how do you approach that? Because I, I know different people come at this from very different ways. Yeah.
[00:09:31] Corey Quinn: So the way I, I think about it, I've, I've kind of. Developed kind of a framework.
[00:09:35] Corey Quinn: I wrote a book a bit about this and I've been thinking about it a lot.
[00:09:38] Nicholas Petroski: Fantastic book, by the way, please plug that. Thank you. That was sick. Thank you. That was helpful. So there's three,
[00:09:43] Corey Quinn: there's really three steps. Number one is you wanna harvest the wisdom that exists within the business, and that's exactly what you're talking about.
[00:09:49] Corey Quinn: It is doing the, not only the quantitative research, the numbers, the grouping clients by vertical, looking at revenue, profit, margin, retention, all those great things. But then also really trying to be intentional about, you know, from a qualitative perspective, who do they like working with? What is
[00:10:08] Nicholas Petroski: a hundred percent, you know, what
[00:10:09] Corey Quinn: do our cl client services team like?
[00:10:11] Corey Quinn: Get information. Yeah, interview them as far as, well, who do they like working with? Talk to your sales team if you have one, and use that as, uh, data that can help inform the decision. That's step one. Step two, this is a step that a lot of people miss, is that you actually have to give a damn about the vertical market.
[00:10:30] Corey Quinn: Here's why it's not enough to just have a landing page say that, Hey, we focus on working with landscapers or uh, med spas to. Have a true impact, what I call deep specialization. You actually have to sort of join their industry, which means you have to actually care about them. The people, if the in care about the industry trends, you have to write content for them to go to their conferences.
[00:10:55] Corey Quinn: You really have to get immersed. And if and if you don't really care about these, this industry in particular, if you don't see yourself really falling in love with it at a certain level, yeah, it's gonna be much more difficult to have long-term success. And then of course, the third step. Is for understanding the, the size of the market potential.
[00:11:11] Corey Quinn: And that's usually where the founder gets excited, where it's, okay, how big is the market? And if we're successful, what does that mean to my company from a revenue perspective?
[00:11:22] Nicholas Petroski: I love you, man. You could tell you wrote a book on this. It was so much more succinct than my answer. Sorry to flip the table, but I was just interested.
[00:11:28] Corey Quinn: Yeah, no, I, well, this is my favorite topic, so I, you know, and, and, uh, I could riff on this forever, so Yeah. But effectively it is trying to mine as much relevant data, both within the company as well as in the market, and making the best decision you can based on available data. Yeah. Yeah.
[00:11:45] Nicholas Petroski: Makes sense.
[00:11:47] Corey Quinn: So another thing in the report that stood out to me is that agencies that are expanding their services grew about 10% greater or faster on average.
[00:11:57] Corey Quinn: While those that cut services saw revenues decline, what type of services align or, or, or correlated with the, with revenue growth and, and how should agencies be thinking about this?
[00:12:10] Nicholas Petroski: Mm. Yeah, we didn't, I didn't suss it out by services. 'cause again, it's a mix. Everybody's doing lot. Like on average in this survey, there was about six services per agency.
[00:12:19] Nicholas Petroski: Okay. So some combination of that. You're not gonna be able to get that level of fidelity out of it. But what I can, I can speak to that a little bit on the, like the amount that you expand. Or the amount that you contract because there, there was a different magnitude of growth or contraction based on where you were in the service expansion or contraction.
[00:12:41] Nicholas Petroski: And those that expanded services, they obviously, they did grow faster, but the ones that that expanded it a lot had a little more operational challenge, like interesting being able to. Quickly tie in a bunch of new services and do it seamlessly and still earn the same kind of margins and keep utilization rate up and pricing and all that stuff.
[00:13:00] Nicholas Petroski: That's hard to do and the data backs that up. Well, I, I'll, I'll share
[00:13:05] Corey Quinn: with you. Yeah. I share with you my, my own experience in, uh, it's, so I, I was at a company called Scorpion. We were, you know, we had at one point a thousand employees. We started at a hundred employees when I started. That grew to a thousand.
[00:13:17] Corey Quinn: Yeah. And with 13,000 clients and. Rolling out, let's call it a service like Reputation Management, which is a fairly standard agency service for agencies that are targeting local businesses. It took us probably six months to roll out that one product. Such that all the people in the company knew what it was, how to support the product, how to sell it, what it costs, so on and so forth.
[00:13:41] Corey Quinn: That's just one product and obviously scorpion's a bit larger relative to most agencies. However, I have a great appreciation to moving too quickly because you end up breaking a lot of things.
[00:13:54] Nicholas Petroski: Yeah, absolutely. Absolutely. You could smash a lot of vases doing that.
[00:13:59] Corey Quinn: Absolutely, and and I think the biggest challenge with, with expanding too quickly, just reflecting on that was.
[00:14:04] Corey Quinn: The fact that we didn't get the adoption that we wanted. Yeah. In the context is we had a lot of clients. We were just upselling a new product to them and we said, we're gonna close 80% of our, of our current clients on this new product. It's a perfect product for them. And months after launching, we were stuck at like 10 to 15%.
[00:14:23] Corey Quinn: And we were scratching our head saying, oh, what, what did we miss? And the, the, the challenge was, is that we didn't do enough internal education about, again, the product, how it worked. Yeah. And as a result of that, we had that poor result. Of course, we fixed it and then we were able to see the results. But yeah, moving too quickly is usually detrimental.
[00:14:42] Nicholas Petroski: Yeah, there's a fantastic amount of support work and, and structure that goes into launching something new that to be able to make it a success, it requires a lot of work. You can, you can just say, Hey, I, I do SEO now, and that's easy, but to make that actually successful and make that happen, right, that's a little bit
[00:14:58] Corey Quinn: Yeah, absolutely.
[00:14:58] Corey Quinn: And so, but, but it looks like, it sounds like six is the magic number.
[00:15:03] Nicholas Petroski: That's what most people run as far as, and I, I really should get into growth rates based on exact number of services. Yeah. I think that'd be really interesting. But that's, that's the average and it's generally, it's been pretty stable.
[00:15:16] Nicholas Petroski: Like it's not moving around a lot. It's, it's right around six, six and a half for the last few years.
[00:15:21] Corey Quinn: Okay. Well that, that's interesting. And then as a agency owner, I listen to this, I've been thinking to myself, well, how, obviously, how many services do we have? Yeah. Do we have greater than six? Do we have less than six?
[00:15:32] Corey Quinn: And how does that number sound? Like, what does that, what does that mean? Should we consider expanding? Potentially, the
[00:15:38] Nicholas Petroski: takeaway is if you're gonna add one, if you're at six and you're gonna add a service. Or two, maybe considered depreciating one or two services. Like Don, let's not, let's not get to 12 services.
[00:15:51] Nicholas Petroski: And I, I had a client with 13 services recently. Uh, let's, let's stay away from that. That makes it more challenging. Yeah,
[00:15:58] Corey Quinn: I love that. There's so much, there's so much there. Another finding was that agencies serving larger clients typically grew faster than those that were serving. Let's, uh, let's call it smaller clients.
[00:16:10] Corey Quinn: What do you see as sort of, you know, driving this trend?
[00:16:13] Nicholas Petroski: It was really the, there's different movements, uh, across the market for economic reasons, right? So like the, the macroeconomic picture is going to push different industries around and thus different, uh, and in conjunction with different industries, different size companies around.
[00:16:28] Nicholas Petroski: In different ways. Sometimes capital access is much different at a smaller company versus at a large company. A large company, you could just issue bonds. You could, you know, do, there's, there's, sorry. There's a lot. I'm getting into finance now. There's a lot you can do at a larger company that changes your ability to operate in different economic environments.
[00:16:47] Nicholas Petroski: And so when you think about being an agency and selling into a certain ICP or or ideal client profile, certain buyer persona, you have to take into account those kind of puts and takes that they're dealing with on a day-to-day basis in their own businesses. And so we can see clients that are getting larger and agencies riding that wave up, working very well.
[00:17:12] Nicholas Petroski: Like you get in when they're mid-size and they grow 20 or 30% in a year. Well, if you're on a retainer contract and you're doing some type of PPC kind of thing, or SEO or content, you can probably ride that up with them and say, Hey, we we're, you're obviously crushing ROI figures, so you can just increase the size and scope of your projects as they get larger.
[00:17:36] Nicholas Petroski: And writing that up is, it works really well.
[00:17:38] Corey Quinn: Yeah. So maybe it's less, less risky in that regard, in that that specific regard for an agency to focus on mid-market to enterprise level clients because there is that potential for growth relative to an SMB type of client.
[00:17:55] Nicholas Petroski: Yeah. And yes and no. So relative to an SMB, they can double really easily, but they're doubling a really small base of spend.
[00:18:06] Nicholas Petroski: Yeah. Yeah. A mid-market. Harder to double, but larger spend. Enterprise, you're fighting over percentages, like single digit percentages, but the spend is enormous. I think the real. The real takeaway, and we did a whole, I did a whole research report on how agencies grow, uh, separate from the one we're talking about today.
[00:18:26] Nicholas Petroski: Yeah. But the sales complexity changes drastically as you move up in client size. Yes. And that sales complexity isn't just like. A little bit more. It's going like exponentially more as you get into enterprise and the, the sales cycle, the number of meetings that you have to have, uh, the, the fighting with procurement and requisition and all of this stuff.
[00:18:51] Nicholas Petroski: It's a lot. I. And, uh, if you try to jump up too quickly, you're gonna get smacked down very fast. It'll punch cash flow in the face.
[00:18:59] Corey Quinn: I have a firsthand experience of that at Scorpion when I Excellent. Yeah. Hell yeah. I have, I have, I know exactly what you're talking about. Uh, at Scorpion, we, uh, when I arrived there in 2015, we were primarily selling to attorneys.
[00:19:11] Corey Quinn: Okay. And the Salesforce were really, really good at talking to small business owners. It was much more of a, it was a consultative sale, meaning we were kind of positioned as a trusted advisor, but we typically were able to close on the first sale or the second sale. And you're closing on the founder. In other words, the buyer is the founder.
[00:19:30] Nicholas Petroski: Yeah.
[00:19:30] Corey Quinn: Compare that to down the road. We got into healthcare and specifically healthcare systems as well as franchise brands, multi-location brands. And the sales motion to your point was much different. It was. Selling or buying by committee. There were RFPs you had to do to fly to the the prospect to do a dog and pony.
[00:19:50] Corey Quinn: Yeah. You were typically selling to subject matter experts, marketing people in marketing, maybe a marketing department within an organization. You had to sell your services to them. You were also selling to the executive, so it was a much different sale, to your point, different sales team, different sales cycles, different investments for both of those different.
[00:20:10] Corey Quinn: Quotas and compensation plans, like everything was different and it is, it is. What I typically see in the market is you typically see agencies that are exclusively focused on SMB or exclusively focused on the mid enterprise level. They're really built for that. It's, it's rare to see one agency that can do both concurrently.
[00:20:30] Corey Quinn: I wouldn't recommend it.
[00:20:32] Nicholas Petroski: No, no, no, no. I wouldn't either the like, yeah. Just thinking about the team and the, the amount of work on your salespeople to go through the RFP process and go through procurement. Yeah. And all of that, like everything that comes with that, all of those other moving pieces, you have to have a dedicated team for that.
[00:20:47] Nicholas Petroski: Like that's not just something you wake up one day and like, I'm focus solely on RFPs because.
[00:20:54] Corey Quinn: It is horrible. Now the question is, is the juice worth the squeeze? Theoretically, enterprise clients have big, you're solving bigger problems for them. They have more sophisticated and more complex needs, which means that they require more sophisticated support, meaning you can charge more.
[00:21:13] Corey Quinn: Typically, there's, there's better margins from an, from an overall, um, perspective. And so assuming that you can. Be productive from a sales perspective in the enterprise world. You can build a very successful agency. Oh yeah. Targeting those people as well. It's just a different muscle.
[00:21:30] Nicholas Petroski: Absolutely. You just, you just, you have to architect it in a way that matches your icp.
[00:21:35] Corey Quinn: Exactly. So another insight here in the report that I wanted to get your thoughts on was that value-based pricing. Outperformed standard pricing models, yet it's still a minority approach as it relates to agencies. What are your thoughts on this?
[00:21:52] Nicholas Petroski: I mean, if I think about the difficulty and the prerequisites necessary to make value-based pricing work, it makes perfect sense.
[00:22:02] Nicholas Petroski: You have to have your positioning dialed in otherwise. If the client's just gonna go, this is a stupid price, I'm walking. Right? They can't think that walking is a, is an option. Like you have to be the spot that does this thing for them. And that mean that's, there's no other agency that can do this. With that context, it makes a lot of sense that only like a third of the market is employing it because most of the market isn't well positioned.
[00:22:32] Nicholas Petroski: It's just not like it's, it's a tough thing to do. It takes a lot of time and effort and investment, frankly, to do it right and to do it well.
[00:22:41] Corey Quinn: Could you define, I'm thinking of Alan Weiss, as you were saying that, and I'm not sure if you, if you're familiar with him, but he is, he's an author, a thought leader in the space who works with consultants and agencies on specifically teaches them value-based pricing models.
[00:22:54] Corey Quinn: So,
[00:22:54] Nicholas Petroski: nice.
[00:22:54] Corey Quinn: What you said aligns with what he, what he talks about. Hell yeah. But just for, yeah.
[00:22:59] Nicholas Petroski: For, for,
[00:23:00] Corey Quinn: for audience sake who may not be too familiar with what a, a value-based pricing is versus, let's call it service-based or standard approaches. The agency space, how would you just loosely define value-based pricing?
[00:23:11] Nicholas Petroski: It's pricing based on the quantifiable value that you can deliver to your client. So if, if you doing a website can make, I don't know, uh, make a giant soup company sell $10 million more in soup than all of a sudden that has $10 million. Well, the net. Yeah. Not revenue, but total value net $10 million. That has a certain value to them.
[00:23:38] Nicholas Petroski: It's not $10 million. Exactly, but it's close. And so you can take that and you can say, Hey, I can, I can juice profit margins by $10 million by doing this project, a portion. Would you know, would you be willing to part with a portion of that value? For me to do that thing for you. Right. And that conversation, obviously it's much more eloquent than that.
[00:23:59] Nicholas Petroski: It's much more detailed than that gist
[00:24:01] Corey Quinn: of it.
[00:24:01] Nicholas Petroski: That's essentially it though. It's
[00:24:03] Corey Quinn: pricing based on the the outcome, the benefit of the client's.
[00:24:07] Nicholas Petroski: Exactly.
[00:24:08] Corey Quinn: Outcome of having this new website, marketing strategy, so on, so forth.
[00:24:13] Nicholas Petroski: And it's different from performance marketing or performance based pricing because it's based on the the forecasted future value.
[00:24:22] Nicholas Petroski: What that project can do, performance is, is the oth flipped the other way. That's based on the actual results that you've delivered for them and, and costed out in, in, uh, afterwards.
[00:24:34] Corey Quinn: Right, right. So in other words, for attorneys, it would be a cost per case, right? That, that they may pay an agency to source the leads and set the appointment.
[00:24:43] Nicholas Petroski: Yeah. Yeah, exactly.
[00:24:45] Corey Quinn: Yeah. So, but, but the, but the takeaway here that I, that I love, I, I'm a big fan of value-based pricing. I, I believe agencies leave a lot of money on the table with typical pricing models. So value-based pricing is a big one. And that the data actually does support that value-based pricing.
[00:25:02] Nicholas Petroski: It should be in the mix, for sure. Yeah. Like if you think about the pricing mix similar to a service mix. Yeah, value-based pricing should be in there. I love it as a component and not the sole kind of pricing methodology because what we have seen in the past is. The efficacy of various methodologies changes based on economic positions and then where things are Sure.
[00:25:25] Nicholas Petroski: In the market. So yeah, have it as a, a leg of the stool, but you are a hundred percent right in that the amount of value left on the table is, is immense.
[00:25:35] Corey Quinn: It's immense. Absolutely. And I encourage listeners not only based on this data, but just in general to, to definitely consider value-based pricing and how you could.
[00:25:45] Corey Quinn: As Nick is saying it, maybe include that as an option for, for how you go to market and to your point as well, the positioning of an agency that the, the stronger or more uniquely positioned they are in the mind of the buyer, the more. I guess less friction they'll have in being able to, to sell based on value versus on service.
[00:26:06] Corey Quinn: Time and time and
[00:26:07] Nicholas Petroski: effort. Yeah. Yeah. And keep in mind, your buyer has better info usually than you do on the market rate for services. Yeah. They know. They know more. They see more, they see, get more bids, they see more projects. They, yeah, they know what. 10 other agencies are charging for the same thing. So the There is a market component to this.
[00:26:27] Nicholas Petroski: Yeah. Value-based doesn't just shoot it to the moon, but it can help a lot.
[00:26:32] Corey Quinn: Let's talk a little bit about ai. We're in a very rapidly changing world. Yeah. Of ai. As of this recording, I think it was on Friday last week chat, GPT came out with this image generator that is, I would say, not as bad as previous versions.
[00:26:46] Corey Quinn: It's pretty good. And that I think has made a lot of waves in the agency space. But yeah, as it relates to ai, obviously a big disruptor in creative services and agency services. Uh, your report share shows that most agencies are using it for copywriting and coding, but not really focused on design or sales.
[00:27:09] Corey Quinn: Where do you see some big opportunities for agencies to leverage AI even deeper than they may be already?
[00:27:16] Nicholas Petroski: It's moderately well ingrained in the production sphere. So yeah, like you, you said, coding, copywriting, those things there, most people who are going to use it are experimenting with it or already have it integrated.
[00:27:30] Nicholas Petroski: Yeah. The place that I, I could see this doing something very interesting is in the support structure. So coming alongside an account manager or a PM or even any of your back office stuff. Really making those typically under invested in and under matured areas of an agency, bringing those up to par and maybe even exceeding par.
[00:27:54] Nicholas Petroski: That could be, that could be a force multiplier for a lot of places. Okay. Like, just think about having an that, I just wrote about it today in my newsletter. A lot of account managers, they're not compensated, they're not incentivized to actually grow accounts. Just a fact of the industry. Imagine if AI all of a sudden pinged your account manager and said, Hey, I saw this account was doing really well and we did this for them recently.
[00:28:23] Nicholas Petroski: Here's a pre-written kind of outreach email on some new cool stuff we could do with them. Send it out. And it did that for every account on a regular cadence, and all of a sudden your account manager turned from somebody who just keeps accounts happy to a like driving force of growth in your. Wow. Like that alone changes a shop now.
[00:28:43] Nicholas Petroski: That's amazing. Do something similar for pm. Do something similar for, yeah. All of the back office stuff that you do onboarding an employee, you know, like making that an actually great process instead of the frustration that it is at a lot of shops.
[00:28:56] Corey Quinn: What I love about that is that it's really leveraging the strength of AI in that it is, you're able to feed it a lot of data.
[00:29:05] Corey Quinn: That can help to tell a very contextually relevant story for the client. Whereas an account manager who's managing that today as human beings, you and I and everyone else, we don't have the same capacity to crunch data, no, to pull insights that are meaningful and so on and so forth. So I think that is a, that's an area that I've not actually heard anyone talk about, and I love talking about this.
[00:29:24] Corey Quinn: So I think it's very insightful and it's interesting. Could be, could be really game changing. So anything else about AI that, uh, interests you in this context?
[00:29:34] Nicholas Petroski: Of the big takeaways was it's not as far along as everybody thinks. It's as far as agencies actually using it. Yeah. And that was surprising to me because there was a, like all of the, the ranker and fervor over the last few years about integrated into your agency or, or you're gonna disappear.
[00:29:52] Nicholas Petroski: I remember, I mean, it's still out there a little bit, but it, it's a lot of agencies have like a third are still on step one. Of that kind of integration and evaluation process. Sure. That's a large, like we talked about it earlier, over a hundred thousand agencies in the market, 30 some thousand sitting at stage one.
[00:30:15] Nicholas Petroski: Yeah. Like that's a lot.
[00:30:17] Corey Quinn: What do you think the reason for that is? If you could, do you have data? If you could guess?
[00:30:22] Nicholas Petroski: Yeah, so we've, we found that a lot last year. There were a lot of agencies that were moving into this space where they were trying AI. They were experimenting it with it in different functional areas of their group agencies, and those experiments appear to not have panned out because what we found this year was a large chunk moved from that experimentation and instead of going up into, we've already integrated this, moved back into, we're looking into it.
[00:30:52] Nicholas Petroski: So they, what I think happened is all of that fervor that I talked about earlier, pushed people to experiment with it, and they did and they didn't. They weren't able to extract the value, promised that AI promised. And then they're just like, well, I have, I have work to do. I mean, I'm gonna go grow my agency and so I'm gonna go do that.
[00:31:15] Nicholas Petroski: And so I, I think you have a, a chunk of the market that is just not as enamored with AI as it used to be.
[00:31:20] Corey Quinn: Wild. Okay. Let's move to staffing and, uh, operations offshoring and Nearshoring jumped to 52% of agencies in 2024. What do you think is driving this shift?
[00:31:34] Nicholas Petroski: Just general globalization there. It's become, since the pandemic has become so easy to hire offshore and near shore, that it's like at this point, if you want to, you're, you're doing it.
[00:31:47] Nicholas Petroski: I don't know if we're necessarily gonna see a lot of shifts there. We might obviously, but I, I don't think there's anything right now that is driving any kind of big movements under that. It's kind of like half the market does it and they're happy with it. If it's something you wanna explore it, it's pretty easy to go test out and experiment with now.
[00:32:06] Corey Quinn: Yeah. I think with all of the tools that are available to all of us now in, in this, especially in the a agency context, it makes it easier than ever. And the talent is fantastic overseas and just, it's just about, uh, tapping into it. I love that. Uh, another, another piece of about operations and staffing headcount contracted by 4% overall from the agencies you surveyed, but contractor use Rose 19%.
[00:32:32] Corey Quinn: How do you compute those two?
[00:32:34] Nicholas Petroski: Yeah, that's what drove, that's what did the work for the growth in the industry. Like the industry still grew. Uh, it didn't stop doing work, and so that had to come from somewhere. And we've been watching this for a few years now, and it started at the upper end. It started at the really large agencies, basically maintaining contractor benches after 2021 that were,
[00:32:57] Corey Quinn: yeah.
[00:32:58] Nicholas Petroski: Double, maybe three times the size of their, their standard FTE counts. So they could scale up and they could take on projects that were huge because they, they already vetted all these contractors. They already had 'em ready to go, even if they couldn't get a hundred percent of time out of them, they still had a bunch of capacity that's just latent, just sitting on the sidelines.
[00:33:17] Nicholas Petroski: What we've seen is that move into smaller agencies. So now studio shops are like using, I wanna say, 20% of studio shop employees are contractors at this point. Not employees obviously, but like the, the workforce of a studio shop is like 20% contractors. And so you, you have these tiny ish companies, these tiny ish agencies that are able to basically have a bunch of SMEs in house and a bunch of internal corporate knowledge in house.
[00:33:49] Nicholas Petroski: And augment that with, with AI obviously, but with contractors primarily right now. Sure. And do tackle some much larger, much hairier projects.
[00:33:59] Corey Quinn: What do you, what do you think this means for the future of staffing for agencies?
[00:34:03] Nicholas Petroski: Yeah. It's, um, it's a smaller agency. Like there's, there's too many, there's too many forces going on right now that are shrinking the size of an agency.
[00:34:15] Nicholas Petroski: That doesn't, that means by, by head count. Now that doesn't mean by revenue. I, I think the, the revenue growth is, that story is still there. That's gonna continue. Not worried about that, but I, I do think that the, the Future agency looks like a smaller shop, really staffed by SMEs that is augmented by AI and contractors.
[00:34:38] Nicholas Petroski: A
[00:34:39] Corey Quinn: lot of the world is pushing towards, uh, return to office. Yeah. Most agencies are staying work at home.
[00:34:46] Nicholas Petroski: Yeah.
[00:34:46] Corey Quinn: And we would joke at Scorpion, we, would call it WFB, which was work from bed, which of course we would never do, but that was the joke. One of the advantages for agencies to be so flexible in this sort of work from home environment.
[00:34:59] Corey Quinn: Like what, what does that, what what those agencies that, that leverage this, like what is the advantage
[00:35:04] Nicholas Petroski: for them? Yeah. It's a, it's a hell of a talent gap grab. Like it that that's incentivizing talent to go work in an agency. Right there you look at the, um, the RTO mandates from large tech companies who are traditionally the toughest competitors for talent at agencies.
[00:35:21] Nicholas Petroski: Yeah. And you see that and you see recent stat I saw something like it's a two-fifths or three-fifths, fifths were considering quitting. Actively looking for other jobs because of an RTO mandate. My guess is that's probably a little low. I think you, you have this, this shift that has happened and if you wanna be an on-prem company, great.
[00:35:44] Nicholas Petroski: You, you can probably still do that. But the, the ability to attract talent is just so much greater. Flexibility affords an employee is huge, you know.
[00:35:59] Nicholas Petroski: I. Too sick to come into the office, but not sick enough where they're like going through it, right? Like they have a cold. I would rather them stay home and, and basically do a little bit of work from there. At least need to make check emails if they want to, rather than come into an office and sit there like a, like a zombie and just staring at this screen and getting everybody in the office.
[00:36:22] Nicholas Petroski: Like nobody, nobody wants that. So you, while, uh, I, I'm blanking on the large companies that did, did this. I think Amazon was one of 'em. While Amazon's pulling developers into the office and getting everybody sick and making everybody lose two hours a day to a commute, like you can be like, Hey, you don't have to have any of that.
[00:36:40] Nicholas Petroski: Come work at my agency.
[00:36:42] Corey Quinn: Yeah. I, I thought it was funny when Zoom, zoom did that as a, as a as.
[00:36:47] Nicholas Petroski: I didn't see that.
[00:36:48] Corey Quinn: Yes, a hundred percent return to office. But I think it making a very interesting point. I think it makes sense, which is that, uh, those folks who working in maybe high paying. Big jobs at a technology based company, maybe a FANG company, they don't wanna return to office.
[00:37:07] Corey Quinn: What are the alternatives? Well, maybe I'll work for an agency that has a great culture and IS is built around work from home, so,
[00:37:13] Nicholas Petroski: yep, absolutely. And as that trend goes towards smaller agencies staffed by SMEs, those are the SMEs you want.
[00:37:21] Corey Quinn: That's so cool. So. The co. The report itself, it covers a lot of ground, right?
[00:37:28] Corey Quinn: Growth dynamics, profitability, ai, m and a. We haven't really talked about that, but what is one finding that maybe has stuck in your mind as you were creating this report that every agency should pay attention to and act on right now?
[00:37:43] Nicholas Petroski: You're right. There is a lot in there. I. I think like, I'm gonna say ai, but that's not fully it, but like the AI portion of, there is some value there.
[00:37:57] Nicholas Petroski: Like everybody, even though only a third of the industry is, is, has integrated and another third is on step one. So there's a lot of room to run there. There is value as like, I wanna say something like 80 some percent of the responses said that AI is the biggest trend affecting their shop this year.
[00:38:14] Nicholas Petroski: Like you can't just. Stick your head in the sand and forget about ai. Like kind of have to like pay attention to this. Yeah. Regardless of if it is a, a value driver right now or not. So I, I, I think that that has to be said. I think the other really cool piece was just the, the impressive, like fiscal responsibility.
[00:38:36] Nicholas Petroski: It sounds like a boring one, but it has been. Surprising to say the least, to see the margins stay the same or like roughly similar with such a tough sales environment. Usually when you have to do layoffs and you ha your pipelines are dry and you're having trouble closing accounts like you, your margins suffer usually, and.
[00:38:58] Nicholas Petroski: I think this, this really talks to the maturity of the overall industry. Like it, it's just, it's risen. People are better at their jobs, they're better at running agencies, and so you're seeing this thing where sales can shift wildly and you can still maintain margins and still keep the lights on and keep employees employed and, and do interesting stuff for cool brands.
[00:39:20] Corey Quinn: Hmm. I love that. For those listeners who want to check out the report, they wanna dig deeper, get some of these more fine tuned insights you have in this report, where would be a great place for them to pick up a copy?
[00:39:33] Nicholas Petroski: All of our research is [email protected]. It's also all over our LinkedIn accounts, so Nicholas Petroski at LinkedIn.
[00:39:43] Nicholas Petroski: I think that's how they tag it. I dunno. But I think we can put it in the show notes. Right.
[00:39:51] Corey Quinn: Awesome. Nick, thank you so much for coming on such a wealth of knowledge. I love talking about this stuff and honestly, I look forward to your report every year. Thanks again for coming on and, and sharing this wisdom.
[00:40:00] Nicholas Petroski: Thanks So.
[00:40:03] Corey Quinn: Thanks for tuning in to the Deep Specialization Podcast. If you haven't checked out my bestselling book, anyone, not everyone, you can download the audiobook for free right now by going to anyone, not everyone.com.
[00:40:16] Corey Quinn: That's anyone, not everyone.com. And finally, a special thank you to our sponsor, E two M. We'll see you in the next episode.
