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 mask 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 — consistently being deferred in favor of (even unprofitable) 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 only see and understand the level of investment their own business suffers they could change its future.
Fret Equity
Acknowledging the atrophy in your own business can change its fate. All businesses live or die by equity (assets minus liabilities). I refer to this equity flip as fret equity — what began as an asset, constant anxiety and overworking each decision to keep this infant alive, switched to a liability. The default amygdalic surveillance for danger consistently reduces us to short—term thinking and immediate need to remediate discomfort. Every client request is a state of emergency. Each mistake a fatalistic reinforcement that 'if you want a job done well...'
"Fret equity" is sweat equity that slides 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. One day you wake up and realize that you have a team of talented employees who consistently rely on you to approve anything before it leaves your factory — you have both the short-term bias and the overbearing need to increase throughput to bail out your finances. People often refer to this as the owner being the bottleneck.
"We'll get to that..."
It's comforting to imagine that one day, when we have more crew, we'll have more muscle to row our boat faster. It's a nice idea, one that solo founders and tag-teams of sub-$1M outfits dream of. Unfortunately, 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. Realistically people are complex, adaptive systems who only compound probabilisitcally as you add them to groups. While it's tempting to hope higher bands of revenue entitle you to an easier time with people (surely these people will sort themselves out and get to work without a fuss?), we know in our bones that entropy bites down harder given more variables and more time. 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 that's news, I'm sorry.
Profit is not a four-letter word
If you're truly a company of one, kudos. That stuff is hard. 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
- To sell some day
- To raise cash and sell some day
One of these three has to be true. 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 (avoiding the hard parts) 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 because they profit 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 (you can have one well paying job that provides wealth for life) has been abused by big business at the expense of small companies. (Small firms' employees are now suspicious of all owners, even the ones they don't know are drowning in debt.) 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.
Including your team in economic conversations
Owner-operator guilt when it comes to profit is abundant, if not always openly so. The same owners who protect their employees from bad news, who bury poor financial performance, their line of credit maxed-out, and their pipeline barren. Those same owners are then shameful when things go to plan or better. These habits help 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. In my world it's typical to hear from project managers that their employer has never onced mentioned a project budget. 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 believed 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 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 finances to time (hours rather than dollars), but if you feel guilty about the amounts you're paying people, that's some soul searching and introspection you need to confront. 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. AI's early promise was to supplant juniors and pocket the difference. Maybe not in polite circles, but the arms race was instantly and forcefully alive in conversations among employers — "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. 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, test 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 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 — it's a signal that we have a gap in expectations, a clue pointing to the next most important bottleneck.
Success with AI — you can break down complex, subjective tasks to provide simple expectations which are hard to get wrong — means you're capable of success with juniors (the opposite is not necessarily true). The subsidizing of AI will mean paying considerably more for the same product after the habit is established, switching it from 'nice-to-have' to 'cannot-do-without'. That dependency already comes at a substantial cost given owners' clamor to avoid being 'left behind.' Should the promise of AI fall short of the mark, I can guarantee an abundance of proven leverage by facing the inevitable: junior talent — given the chance to play a role, to learn on the job — remains the hardest, most rewarding form of leverage available today, that improves all levels of people in your business. It's almost never a choice between A or B in life, but a portfolio of risk. 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. If you're not, you're risking far more than a competitor who's not yet an AI whizz. Hire more juniors.
Three sets of books
Those desperate to make AI work are clearly happier working with machines than people. But context for people is simply describing what done looks like, about what to expect. When an owner makes a sale they unclench, relieved. But the team responsible for delivering the work are spiked with anxiety; your people hear sales claxons and wonder what impossibilities they've been committed to. They know more than one set of books exist: one for the client and one for the agency.
The three sets of books (the gap in understanding) are:
- clients' expectation
- Principals' mediation
- Employees' frustration
It's not possible to satisfy two crowds who want different things. Closing sales wins with a well-defined list of work that includes both what you're including and excluding needs to be mandatory. If you sell a car, is a full tank of gas included? How long does the warranty last? Do they get free lifetime detailing? Again, many small companies are wrongfully terrified about socializing their numbers. Survivorship bias means what's worked so far is what's comfortable for the person selling the work.
Concern about your two sets of books grows into panic easily. Your employees want to do a good job, and you want to hear: "can do, boss!" If there exists any uncertainty about what it is, there will be a gap that forms, encouraging replacing a solid plan (we 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 wait until the boss leaves the room. 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. Despite how hard it is to change to a single set of books, it's what makes your team's lives easier, clients happier, and profit more likely. Isn't that why we're here?
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 — principals' mediation and employees' frustration. Principals sell ABC while omitting key details (usually a promise they wouldn't want their team to know). 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 that looks like LMN. The principle tries to push that LMN 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 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 boss stating a desperate need for ABC.
Principals 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 news we cannot trust is worse. Bad news early is the best way to keep important relationships intact, and 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 is flying without instruments. Don't leave it to chance.
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 on the schedule for delivering the project with both the team and the client
Commitment is a powerful tool, but only works if commitment is genuine. 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. If they commit to it in good faith, you can hold them to it. You turn yourself into your best client by installing and maintaining such high standards.