"Difficulty seeing the value"

Philip Morgan

A good question from my post opt-in survey: What’s your #1 question about specialization, positioning, lead generation, or moving into advisory work?

The lack of a signature service or package. I’m checking around this but need to refine and clarify and develop the right tiers. I haven’t figured out a profitable way to work with small and medium sized creative firms (who I am most passionate about helping). Creative firms have difficulty seeing the value in things like strategy and positioning for their own businesses.

Thank you for this question. I have three bizbuddies with businesses that generate a bit north of $1 million US dollars per year in revenue. Their target market? Small and medium-sized creative firms :) I don’t have all the context and details here, but I don’t think your target market, dear questioner, is the major constraint on your business’s profitability. It might be worth exploring the meaning behind “small”, because if you equate “small” with “1-employee business”, then that might change things. Here is some data: https://data.census.gov/cedsci/table?q=541810%20&tid=CBP2018.CB1800CBP&hidePreview=false It contains something useful to us, which is US government data on how many different Advertising firms there are at various size points. I use Advertising because there is a NAICS code that matches right up with that sector, even though Advertising is just a subset of the market (creative firms) you’ve targeted. Here’s what we find (column A is employee headcount, column B is number of establishments):

(Peruse the source: https://docs.google.com/spreadsheets/d/1gAAU_LNdD4YK8U5zQcq94v3FrjU-RfRzjKAeFHdZtvQ/edit?usp=sharing) Let’s say that you draw the line between small and large at 50 employees. That means there are 13,030 small Advertising agencies and 707 large ones. That’s not a too-small market, even with strong competition from several of my bizbuddies already killing it with their focus on this market (to be clear, we’re using Advertising as an easily-measured proxy for the somewhat less-easily-measured creative firms market; your actual market is larger). Next question: is there something different about these companies willingness to spend? I don’t have great data at my fingertips, so let’s use the payroll of these firms as a proxy. That data is easily available via the above Census Bureau download.

There is something different about willingness or ability to compensate employees. Generally, the bigger the firm, the bigger the per/employee payroll, and there’s a substantial jump when you get to the <5 employee size. This might be a reason to avoid those tiny creative firms; ones with less that 5 employees. Working with them could be less profitable, though there a lots of assumptions baked in there. Avoiding those tiny firms would substantially reduce your market size, but again, we’re looking at a subset of your defined market of creative firms, so I doubt this would be a problematic reduction. In fact, it might be helpful in differentiating. Anyway, dear questioner, I hope you see the point. I would encourage you to exhaust every profitability-boosting option before you start thinking that the market is the cause of low profitability. Maybe you’ve already done this, in which case I apologize for my flawed assumption, but maybe you haven’t. I don’t know how much “hands” vs. advisory work you do, but if you find it hard to get away from the hands work, then I think that’s your first place to start increasing profitability. And if any of what you do is already commoditized (or will be soon), then that’s a source of relatively lower profitability that has nothing to do with how large or small your clients are; simply nobody wants to over-pay for a commodity and so the profit potential of a business in a commoditized market comes from efficiency, and this is often incompatible with the kind of 1-person businesses we run. Innovation work tends to be more profitable for us. Thanks again for your question! Keep building; keep taking risks y’all, -P