Chip and Gini often get asked what size is the right size for an agency. Is there a magic number for revenue or employees that works best?
Of course, the answer is the same as the one that the co-hosts end every episode of the Agency Leadership Podcast with: It Depends.
The truth is that there are many more important factors to consider than how much you bill or how many people you employ. Chip and Gini discuss how you should think about agency size — and why you shouldn’t be looking for a secret formula to give you the answer.
Gini Dietrich: “Our society is very focused on scale and growth and large. We all tend to have this belief that the bigger your agency is the more successful you are. And that’s not necessarily true.”
Chip Griffin: “The measuring stick that we use is revenue and headcount. And it’s absolutely the wrong measuring stick.”
Gini Dietrich: “Be open to the fact that things are going to evolve and change sometimes month by month, sometimes year by year, sometimes every five years, but it’s going to change. That’s the one thing you can guarantee.”
Chip Griffin: “How many direct reports should you have? No more than five. If you can’t count them on one hand, you’ve got too many direct reports.”
The following is a computer-generated transcript. Please listen to the audio to confirm accuracy.
Chip Griffin: Hello, and welcome to another episode of the Agency Leadership Podcast. I’m Chip Griffin.
Gini Dietrich: And I’m Gini Dietrich.
Chip Griffin: And this is the 150th episode of the Agency Leadership Podcast. The question is, is that the right size for a podcast episode archive? Right after this.
So there we go. 150 episodes. We’re going to talk about not that today, because that’s boring to have a whole…
Gini Dietrich: No. That is pretty impressive though. I’m impressed with us. 150 episodes. We’ve put up with each other for 150 episodes.
Chip Griffin: I know, I’m shocked that we’ve managed to get our act together enough to actually record that many episodes. So.
Gini Dietrich: To be fair if we had gotten our act together to do as many as we should have, it’d be probably closer to 175, but.
Chip Griffin: Yeah. Yeah. But you know, it’s, I think it’s proof that you don’t have to come out exactly every week at exactly the same time. People will still listen. Cause I know people listen to this show.
So, what we are going to talk about today though, is something more interesting than the self-congratulatory discussion that we just had. I think, maybe. It’s, what’s the ideal size for your agency? And this is a question that comes up a lot in different forms. Sometimes it comes up in the form of I’m working with a client and they just say, you know, I never want to be more than 10 people, or I want to have a 50 person agency, or they just straight up ask the question, how large should I get?
What’s the right size to do whatever. To be sold, to give me this or that, you know? And, and we’re going to talk about that today.
Gini Dietrich: Yeah. I think that, I think the challenge is that, especially Americans. We believe our society is very focused on scale and growth and large. And so we all, we all tend to have this belief that the bigger your agency is the more successful you are.
And that’s not necessarily true. It’s not necessarily true. So I think it’s an important conversation to have.
Chip Griffin: Yeah. And, and I think the flip side of that is that just because you’re a large agency doesn’t mean that it’s harder work for you as the owner.
Gini Dietrich: Fair. Fair, fair, fair.
Chip Griffin: Right. Because I see, I see both sides of this. I see people who are just, you know, they’re, they’re hell bent on building, you know, a $10 million agency or they want to get to 50 people.
And then just as many people who say, you know, I never want to be a million dollar agency. I never want to have, you know, a large team. Neither one is necessarily the best approach because it’s thinking about your business, I think in the wrong way. But you’re right. Americans do tend to think about business in terms of size.
And that’s usually two things: head count and revenue. Those are the two things. And for as long as I’ve been involved with the agency industry for 30 some years, and throughout that time, you always refer to agencies by their revenue and/or head count. And if you look at the lists that O’Dwyers and other people put out, it’s all about revenue and headcount.
So, it’s the measuring stick that we use. And it’s absolutely the wrong measuring stick.
Gini Dietrich: It absolutely is. And it was a very hard lesson for me to learn as an agency owner, because early in my career, I did early in my agency life. We grew pretty fast and I thought that adding more and more people was going to propel that growth even faster.
And so I was hiring ahead of business that was coming in – very stupid. And I had a team of 50 people. I did not have the revenue to support 50 people, 50 full-time employees. And I really believed that that it would come because I had that many people and we didn’t have the right process in place. We didn’t have the right structure in place. We didn’t have the – I didn’t have the right experience. Like there were all, all sorts of things wrong, but also I was borrowing against my line of credit to pay these people when I didn’t have the revenue coming in. So now I’m suddenly $300,000 in debt because I borrowed against a line of credit to pay these people and the revenue’s not matching it.
And I, it was because I believed that the more people I had, the faster we would grow and that just wasn’t the case at all.
Chip Griffin: Right. And this is a sidebar to the main conversation, but never, ever, ever use a line of credit to grow.
Gini Dietrich: No, that was so stupid.
Chip Griffin: Lines of credit are valuable to have for agencies, but they’re there to deal with emergencies, to smooth out cashflow, things like that. It should not be used as an investment tool for the growth of your agency.
Gini Dietrich: That was very, very stupid of me.
Chip Griffin: It’s a tough lesson. A lot of people end up learning it the hard way over the years. Hopefully we can help prevent you from doing that.
Gini Dietrich: Don’t do that.
Chip Griffin: But when it comes to the size of your agency, I think the mistake that people make is that they think that there is a, there’s a direct relationship between the size of the agency and what you do as the owner.
And the reality is that it, it really depends on how you structure your own role. And I know this is something that I tend to harp on quite a bit. But you need to figure out what that role is. And I’ve seen, you know, multi-million dollar agencies where the owner is very hands-on in every detail of the business and others where they’re very hands off and neither model is necessarily right or wrong.
You need to figure out what works for you. So instead of saying, I don’t want to be a 25 person agency, because it’s going to be not the kind of work I want to do. Well sit down and define the kind of work you want to do, and then see if you can get there, if that makes sense, right? If you’re continuing to grow and it’s continuing to put more and more money in your pocket, because that by the way, is the dollar sign figure
you should be looking at. How much money you’re putting in your own pocket. Not how much is on the top line. That top line number it’s nice for bragging rights. It does absolutely nothing to pay your own bills, to pay your mortgage, to fund your retirement, to do any of those things that you want to do with it.
Gini Dietrich: Sorry. I had to take a cough break. Yeah. You’re absolutely. You’re absolutely right. Okay. I’ll cough in the microphone next time. You’re absolutely right, because we tend to say, oh, Well, gosh, if I have 25 people, then that means I have 25 direct reports and that’s 25 people I have to manage. And that’s not the case at all. Like you have…
Chip Griffin: Well, too often it is, right? I mean, I don’t know about the agencies that you work with, but I’ve seen plenty of agencies where they’ve, you know, the owner has got 12 or 13 direct reports and it’s nuts. You cannot do that.
Gini Dietrich: You cannot do that.
Chip Griffin: How many direct reports should you have? Five. No more than five. If you can’t count them on one hand, you’ve got too many direct reports.
Gini Dietrich: That’s insane. Yeah. There’s, there’s no way. So I, I mean…
Chip Griffin: But I understand why, right? Because look, here’s the thing. A lot of people have their perception of the size of the agency based on what they’ve done before. And so a lot of people have worked in a larger agency before they start their own.
And they’re like, oh, the red tape, the bureaucracy, the layers of management. You can grow and have reasonable amounts of red tape and management without having it be excessive. You just have to make the conscious decision to do that. Just because the big boys out there are doing that now, doesn’t mean it’s the right way to do it.
Gini Dietrich: Correct. And I can understand that if you have 12 or 13 direct reports and you think you’re going to double in size and that you can’t handle the workload you have now, that does seem really intimidating and overwhelming. So yeah, you saying I’m going to go from 12 or 13 employees – AKA direct reports – to 25.
But you don’t have any time left in your day. It makes sense that that’s, that, that you would say, oh, I don’t want to get to 25 employees. That makes total sense, but that’s because you have too many direct reports.
Chip Griffin: And, I think that, that people make the mistake of sitting there and say, okay, I’ve got five people now.
And oh my God, the amount of time I spend on HR issues is crazy with just five people. I can’t even imagine being 25. Guess what, if you do things right, when you get to that level, first of all, you’ve got managers who are dealing with sort of the non HR management of that employee that you’re confusing as HR.
Plus you’ve hopefully hired some help to help you with HR, whether that’s an office manager, who’s actually got some skill, an outside HR consultant. And then of course larger, you actually have full-time employees who handle things like finance and HR. So, you shouldn’t look at what you do now and say, if I’m five times as big, I have five times the amount of this kind of thing to deal with because you should be getting help for that along the way.
You don’t just hire client service people and keep handling all of the rest of the running the business for yourself. So, and that’s a mistake that people make because they don’t, they look at it in terms of, I’m just taking what I’ve got now and multiplying by five or 10 as I grade. You’re not. It’s changing. Your role changes.
The role of the team changes, the shape of the organization changes. It’s not just the revenue and head count that increases.
Gini Dietrich: Yes. And I know I’ve told this story before, but I have a really good friend who is co-founder at a web design firm and probably six or seven years ago, he went to his business partners and said, listen, I’m not, I don’t enjoy what I’m doing.
I really want to do the marketing of the agency. I want to speak, I want to create content. I want to do lead generation. I want to do the marketing. I don’t want to manage developers. I don’t want to manage designers. I don’t want to do any of that. I don’t want to run the business. I want to do this.
And so they made him the chief marketing officer and they brought in a CEO. So there are lots of ways that you can go about this, that allow you to do what you want to do and what you do best without it being an additional headache.
Chip Griffin: Right. Now, the flip side of this is there’s nothing wrong with continuing to have a small agency and not taking it up to a larger revenue or headcount size. Right? So I’m not telling you that you need to do that. It really comes down to what you want to get out of the business and what you want your role to be. Right. And then, then evaluate things against that as, as things come along. And it may be that you decide for, for other reasons that you’re never going to be 10 or 25 or 50 people.
Right. But, but don’t use that as an artificial governor on your business. Do it because it makes sense for the other things that you’re doing, because otherwise you’re going to end up making decisions based on something that doesn’t really impact your happiness, your financial wellbeing, and the progress of your own career.
Because many of the agency owners who are listening to us have a long runway ahead of them and lots of career left.
Gini Dietrich: I think the other thing that we need to, to discuss is outside of revenue and had headcount. One of the most important things is, is whether or not you’re making money. And you alluded to this earlier about putting more money in your pocket.
So really it’s finding the, creating the business that you want to create, having the role that you want to have and make the money that you should, you should be making, A, and B that allows you to have the lifestyle that you want to have. Because if you don’t do those three things, you’ve just created a job for yourself and not a business. You’re not a, it’s not a business that works for you. You’re working for your business, which are two entirely different things.
Chip Griffin: Right. And, and I think, I mean, look, that’s, that’s something I work with a lot of small agency owners who think it’s, it’s okay to have a salary that’s not six figures. I don’t understand that.
Gini Dietrich: I don’t either.
Chip Griffin: And it’s not because I’m greedy and money oriented. Although I am those things.
Gini Dietrich: I am also those things.
Chip Griffin: But the reality is that when you are running your own agency, the work that you’re doing, if you were doing it anywhere else would almost certainly be at least a hundred thousand dollars a year in the United States.
So while you may be living somewhere and you may have a lifestyle that you can support very nicely for less than that. And that’s fine. I get it. I appreciate that. The reality is if you’re not structuring your business such that you’re at least in the six figure compensation category yourself and preferably a good deal above that basic level.
You’re not really structuring a business that’s sustainable, right? Because you know, you’re probably charging far too little. And we’ve talked previously about how, if you don’t price correctly, you put yourself into a bind because it makes it very difficult to grow effectively if your margins are not where they need to be, right.
It’s going to make talent acquisition really difficult. Cause if, if your sub six figures, then your team, if you’re building it right, needs to be way below that. I mean, it’s really hard. I mean, coming straight out of college, it’s hard to get anybody for less than like 45 K a year here in the US. Right. I mean, I I’ve worked with a lot of agencies…
Gini Dietrich: You cannot.
Chip Griffin: Almost, none of them can get anyone, which to me is mind boggling because my first job paid $12,000 a year and I thought I was…
Gini Dietrich: But you’re old, so.
Chip Griffin: Wow. I’m not that much older than you are. So in any case, moving along from that little dig, so it, because look, here’s the thing. You cannot be hiring employees that are at your salary level.
Gini Dietrich: Right. Right!
Chip Griffin: That’s not a structure that works. You need to have meaningful differentiation at every level within your agency. And so that means that each manager needs to be making meaningfully more. And that depends, you know, you can define it however you want, but you know, certainly we’re talking 15 to 20% higher at each level.
If you’re, if I’m only making a couple grand more than the person who’s reporting to me then over time, no matter how hard you say you, you ignore that. I guarantee you don’t. I guarantee at some point you sit there and particularly as the owner you say, Hey, you know, everybody else gets to go home at five o’clock and you know, geez, I’m working until 10 o’clock at night and I’m barely making more than they are.
Why am I even running this business? So don’t do that. Make the decisions that are putting you in a position where you don’t have to make those kinds of complaints.
Gini Dietrich: Yeah. I mean, this is your business. Do what you want. And if you’re taking on too much work and you don’t have the revenue to support it, that means that you aren’t charging enough money.
So you have to look at the whole thing holistically and say, okay, what do I want to do? How much do I want to work? Like for me to work 40 hours a week, I would not enjoy that because I like some of the things that I do beyond, you know, my client service work. So for me, like 50, 55, 60 hours a week is, is the right balance.
Anything more than that I’m going to die. Anything less than that? I feel like I’m not serving my business in the way that I want to do that. That doesn’t mean that’s the right thing for everybody. It doesn’t mean it’s the right thing for anyone else. It’s just the right thing for me. But I also know the kinds of things that I want to do in that extra 10 or 15, 20 hours a week outside of the client work that I’m doing.
So that doesn’t bother me. I also look at it and I say, okay, our goal this year is to have X amount of profit margin. So 20%, 25%, 30, whatever it happens to be, it’s more than that. But whatever it happens to be, how are we going to achieve that? And how are we going to do it in a way that everybody is happy and that everybody’s doing the things that they want to do.
Those are the things that I look at every year. And I look at the business holistically to figure out if we’re going to be able to get there. It’s not about how many people we’re going to hire. It’s not about how many clients we’re going to bring on. It’s about profitability and whether or not I’m doing the things that I want to do.
Chip Griffin: Well and I love that you said this year, right? Because one of the problems with this, this question of what’s the ideal size for my agency is, is you’re looking at an artificial metric or a time distant in the future. Right. If I’m, if I’m a five person agency right now, thinking about what it’s like to be a 25 person agency is entirely theoretical.
That’s not something that’s going to happen this year. You should not be. I know people love growth and they want to talk about I want as much growth as I can get. You know, I want to be on this list or that list. I guarantee you that if you go from five to 25 employees in one year, your life is going to be miserable.
Gini Dietrich: Yes!
Chip Griffin: I’ve owned businesses that have had incredibly rapid headcount growth. It’s really painful. Really painful. And so, so measured growth is much better. And so the problem is it’s sort of like, you know, I said all sorts of things when I was 20 years old about, you know, what, what I was going to be doing career-wise, 10, 20 years down the road, you know, at one point I wanted to run for political office, all sorts of crazy stuff.
The problem is that that I’m looking at a future point in time through the lens of the past effectively, right? And that doesn’t work because you learn things along the way as you go from five to 10 employees, maybe you make some adjustments. There are some things that you figure out, Hey, this actually, I can actually structure this in a way that I like, I don’t, I don’t need to put an artificial governor on growth. Flip side – maybe as you go from five to 10 you’re like, yeah, I just don’t like this. I don’t really see a way to restructure it the way that I want. I kind of liked being more of a really small, high level strategic boutique at five people. You weren’t doing a lot of the direct arms and legs stuff. We were just providing strategic counsel.
Cool. That’s great. You can make those decisions because now you’ve got the data points to do it and you’re not, it’s not based on some 5, 10, 15 year plan. That’s entirely theoretical at the time you put it together.
Gini Dietrich: Yeah, I think that’s the most important thing is. I think it was Jill Manty who shared on Facebook a couple of days ago. Something that somebody else posted, she reshared it. And it said something along the lines of, you may get to a point in your life where what you’ve done is enough. And you just want to do some something else, or, I mean, in this, this isn’t just for agency owners, I think this is for humans in general.
Like you may get to a point in your career where your director level and you decide that that’s enough for you. And you’re just going to continue laterally instead of vertically. Same thing with your business. You may get to the point where you’re like, This is enough for me and I’m okay with that.
And then maybe it changes again because life situation changes. So you have to be open to the fact that things are going to evolve and change sometimes month by month, sometimes year by year, sometimes, you know, every five years, but it’s going to change. That’s the one thing you can guarantee.
Chip Griffin: Right. And the key there is to be open to those things, to think about it, to look at the new information that you’re developing.
To look at how your own career and personal life and all that are evolving and how that impacts your decision making. Don’t, don’t be stubborn. Don’t sit there and say, well, so-and-so told me that, you know, really you don’t want to be more than 15 people, or in order to sell, you have to be at least this revenue or any of these external things.
Look at it in terms of the business that you have, the life that you have and come up with the right solutions for you at that point in time.
Gini Dietrich: Absolutely. I think if there’s anything that we can leave you with, that’s what it is, is what is right for you in this exact moment.
Chip Griffin: And with that, we will not only leave you with that. We will leave you.
Gini Dietrich: Well, until next week. 150!
Chip Griffin: Next week with the asterisk that, you know, if we get around to actually recording and publishing and all that kind of stuff, because we’ve missed a few weeks along the way. It’s life. You know, we, we make these decisions in the moment each week. We don’t say there’s a certain number of episodes that we need in order to be happy, but this is the hundred and 50th, and we’re pretty happy about that.
Gini Dietrich: We are very happy about that.
Chip Griffin: And we’re happy that you listened all the way to the end and we look forward to seeing you back here next week, or whenever we record again. I’m Chip Griffin,
Gini Dietrich: I’m Gini Dietrich,
Chip Griffin: And it depends.