There's an old joke that bounces around most agencies that sounds like the following:
"This would be a great place to work if it weren't for the clients."
Basically, if we could just get rid of clients, things would be great. Principals who find that funny are masking a guilty conscience, knowing that they are their own worst client. Consider how poorly the average agency treats themselves. They always fall to the bottom of their own priority list, important conversations — Proactively scouting for opportunities — always gets deferred in place of (even the unprofitable closed) client work. On a daily basis, they train their own staff to de-prioritize their own needs and standards in favor of satisfying their appetite for risky short-term gains. If they treated their clients this way, they would quickly find themselves in heaven — an agency with no clients.
If they could see and understand the level of investment their own business suffers, they could change its future. All business hinges on equity (assets minus liabilities).
Seeing and acknowledging the atrophy in your own business can change its fate. All businesses live or die by equity - assets minus liabilities - which needs to be top-of-mind when considering fret equity. What began as an asset, constant anxiety and overworking each decision to keep this infant alive, changed over time into a liability. Your constant amygdalic surveillance of danger consistently reduces your short-term thinking and immediate remediation of discomfort. Every client request is a state of emergency. Each mistake is fatalistic reinforcement that open single quotes 'if you want a job done well...' close single quotes.
"Fret equity" is sweat equity that metastasizes from an asset to a liability.
Over time, sweat equity (an asset) slides from one side of the figurative balance sheet to the other, mutating to become fret equity (a liability). The pulse of the business speeds up to service the need for instant gratification - 'We're busy, so we're being productive' - in response to the principal's latent belief that action equals progress. All the while decreasing both the staff's independence (ability to slow down and think creatively) and their own company's stature as their most important client.
"We'll get to that some day"
It's comforting to imagine that one day, when we have more crew, we'll be able to have more muscle to row our boat faster. Dysfunction in a five-person team only gets worse as you add more souls to your vessel. Picturing eager newcomers improving our team by default - 'We only hire good people, so things will naturally improve as headcount increases' - is a fantasy you cannot afford. Back in reality, more people add infinitely more complexity, and your belief that a company doing ten times more revenue has things much easier, well, it's sadly not true. The need to get the basics right before adding people is very real, and it's the only viable option to grow headcount without deafening those aboard with the complexities growth brings with it.
If you're truly a company of one, kudos. As soon as you bring on your first hire, you face the real challenge in business; the existential question of whether this thing is to raise cash, sell, or both (it must be one). In any eventuality, you must face the reality that this will never be easy, and the actions that make it less hard all look like prioritizing the hardest battles first, or at least acknowledging that the debt deferred only incurs painfully compounding penalties.
It doesn't sound like much fun, does it? it's definitely no fun if you do not have an image of success to strive for. top of mind for any owner needs to be the idea that making profit is good for them and good for their employees it's strangely common for owners to feel guilt about profiting from their own business. Not with other owners. That's a safe place to puff their chest out and be vulnerable or proud, but with their own employees. The employment contract has been abused by big business at the expense of small companies. Big businesses have squeezed the workforce out of single, long-term employment that keeps the working class in touch with the middle class and the middle class in touch with capital. but let's stick to the small scale so that we can attack this problem head-on.
it's common for owners to feel guilt about profit. The same owners who protect their employees from bad news, who bury the truth that their finances are in tatters, their line of credit maxed out, and their pipeline barren. Those same owners are then shameful when things go to plan, or better, when things go so well and so much better than they could have imagined or planned for. This habit helps explain the founder's isolation, by refusing to normalize finances upstream, they encourage the downstream consequences that present as operating dysfunction on the average Tuesday. A project manager confiding with me that their principal of five years has never mentioned a project budget is painfully common in my world. The symptoms show in the everyday, but the cause originates in the attitudes and behaviors of the person in charge. In the awkwardness of their communicating the purpose of their firm: We are here to make profit. Much of my time is spent confronting this tension; alleviating it releases discomfort and makes room for peace and quiet that the owner assumed impossible to reach.
Encouraging economic conversations with the people you employ feels unnatural to many owners. They feel that by sharing privileged information with the people they employ whose job it is to control many of the variables that information contains, it will let the cat out of the bag. That the owner is profiting off the backs of their employees to an unfair extent. One solution to this problem hides in plain sight and is quick (but not easy) to implement. these owners, who operate in isolation and uncertainty, could simply normalize conversations with their project managers about managing project economics. yes, that means sharing with your project manager the actual numbers that you pay people. you can abstract these in time if you feel sensitive about that information, but if you feel guilty about the amounts you're paying people, that's some soul searching and introspecting you need to do alone. if you do cross this threshold and talk money with managers, you may need to explain leverage to them and the actual business model you're using.
Is AI leverage?
in the beginning, we thought so. The early promise was to supplant juniors and pocket the difference. Maybe not in polite circles, but the arms race was publicized instantly and forcefully by anyone who employed anyone - "We adapt or we won't survive." Over time, we've come to understand the real benefits and limitations of the tool, accepting that more examples of misuse and waste exist than resounding success stories. A useful way to consider AI is as a time machine which can only go forwards a few days at a time. Should you do a poor job of describing success before entering this machine, you can expect a mess upon arrival. Occasionally, even robust description, paired with thoughtful examples and ample steps describing what good looks like, will still leave you disappointed. It's common to ask for a bonobo and receive something half macaque, half cactus.
A machine capable of producing only combinations of old ideas is the opposite of a junior, of leverage. Any junior should bring energy, enthusiasm, and stamina - it's why they're one of the best hires you can make, because they supplement your more experienced people with new, mostly bad ideas, but original bad ideas. They challenge the incumbents. They rock the boat, challenge your culture - progress demands changing norms - and thirst for context.
Importantly, this is the overlap that begs the leverage question: context. Both AI and juniors need context. The difference in confidence is confidence. AI minus context is capable of leading you over a cliff edge. A junior without context frustrates their team. Within that frustration sits the key to leveraging your firm; if this person is frustrated, others will be scratching their head wondering what good looks like around here
success with AI means you're capable of success with juniors. The opposite is not necessarily true. The subsidizing of AI builds a dependency at an already substantial cost by owners' clamor to avoid being left behind. Should the promise of AI fall short of the mark, I can guarantee an abundance of leverage by facing the inevitable: junior talent — given the chance to play a role, learn on the job — remains the hardest, most rewarding form of leverage available today. If you're running a learning company that can siphon junior talent through the organization, you are already far ahead of the bulk of companies attempting not to be left behind.
On Context
those desperate to make A.I. work are far more supportive of giving context to machines than people. context for people is simply describing what done looks like , which is far easier when you sell something, it relieves you, but your team are anxious because you've kept two sets of books: one for the client and one for you. It's not possible to satisfy two crowds who want different things. Positioning aside, you need to close sales with a well-defined list of work that includes both what you're including and excluding. If you sold the client a car, is the full tank of gas included? How long does the warranty last? Do they get free lifetime detailing ? again, many small companies are wrongfully caught about socializing their numbers; your people hear sales clacks and wonder what impossibilities you've committed them to.
Concern about your two sets of books grows into panic easily. Your employees want to do a good job, and you want to hear: "You've got it, boss!" If there exists any uncertainty about what it is, there will be a gap that forms, encouraging replacing a solid plan (we believe in and endorse) with hope.
'God knows how this is going to happen on time'
for every team that feels safe to say the above to their boss, there are a dozen that say it when the boss is out of the room. Survivorship bias means what's worked to get you here is what's comfortable for you, the person selling the work.
One huge advantage sitting like a pie on a windowsill is to include your delivery team in the sales conversation and give them safety and responsibility to define what would need to happen to close the gap to a single set of books. Nothing would make your team's lives easier, clients happier, or make happier clients more possible, and profit more likely.
the three sets of books, the makeup, the gap in understanding, are as follows
- clients' Expectation
- principles Mediation
- employees' frustration
clearly, we understand the client's motivation to get value for money on a timeline that works best for them. I highlight here the key friction in-house that prevents anyone from winning. Client included. Principles sell A, B, C, but without key (embarrassing (details from their team). It's easy to understand why, and we're not here to judge; you try making payroll 24 times a year! Employees fall in the gaps of their understanding, guessing a delivery of L, M, N (they need some idea of what this thing is supposed to look like - they want to do a good job).
The principle tries to push L, M, N toward ABC without giving too much away - they don't want their team feeling taken advantage of - believing (hoping) that when delivery day arrives and when XYZ is presented to the client, they will have the necessary rapport to reassure them, 'this is how it's done', 'we knew this would be a process', 'we couldn't have done this without you'. Best case scenario is a client who takes our word for it. Sooner or later the client will remember (probably when advocating on behalf of XYZ - their skin is on the line once they approve it - when they agreed with their boss that they desperately needed ABC)
principles are in the trenches doing their best to win the day, but by founding their approach to delivery on hope, they neglect their best bet. Agree with everyone in the room on what to deliver and when to deliver it, and people will know what to expect. No one enjoys bad news, but when news we cannot trust is worse. Bad news early is the best way to keep important relationships intact. Good project management without time management is impossible. Scrutinizing every detail to plan for perfect delivery without considering, measuring, defining, and committing to the real-world implication, your time is flying without instruments. Don't leave it to chance.
here are some improvements you can make today.
- Calculate the budget (time) your team has to deliver the project on time.
- Divide the budget into parts, handing each part or role to each person responsible for delivering it.
- Build and agree with the team and the client on the schedule for delivering the project. Commitment is a powerful tool, but only works if the first commitment is to yourself. When your team co-signs the project plan, they're agreeing to the plan being solid (feasible and defensible), and to what needs to be done for it to happen successfully.