2
A Worthless Business?
Ted Gordon had been a family friend for decades and had inspired Alex to become an entrepreneur. Ted had built and sold a number of businesses over the years and Alex had watched him reach new heights of personal and financial freedom.
Ted was a serial entrepreneur. He had made his first million starting, and ultimately selling, an insurance agency. He had moved on to build a consulting company, which he sold to a global firm. He had also sold a commercial real estate business a few years earlier. By the age of fifty-nine, Ted had started, built, and sold four businesses. His net worth was well into eight figures. And not only was Ted a success in business, he was also a success in life. He had been married for twentysix years and had two adult kids who still talked to him. There were also annual ski trips and long summers at the beach house. It seemed like Ted had figured things out, so Alex decided to give him a call.
“Hi, Ted. It’s Alex.”
“Hey, Alex. How are you?”
“I’m okay. Would you mind if I came up to see you? I’d like to get your advice on something I’ve been contemplating.”
Ted’s office was on the top floor of a building downtown that overlooked the water. When Alex arrived, a receptionist informed him that Ted would be right out. A few minutes later, Ted came out of his office and put an arm around Alex.
“So, I see you’ve met Cindy. Did she offer you a drink?”
“She did, and I’m fine, thanks.”
They walked into Ted’s office, which had a panoramic, unobstructed view of the water. The office was large—probably a thousand square feet—adorned with pictures of Ted’s family and a hefty oak desk that Alex imagined had been the epicenter of many deals.
They shunned the desk for a more comfortable spot on two white leather chairs divided by a glass coffee table. Ted rested his feet on the coffee table.
“Why did you want to see me?”
Alex knew that he could confide in Ted, so he got to the point. “I’ve decided I want to sell my business.”
“That’s a big decision, Alex. Let’s back up a minute, what made you decide to sell?”
Alex recounted the story of MNY Bank, Sarah and the rest of his mediocre team, and the company’s lumpy cash flow. He talked about how clients always wanted to deal with Alex himself and his agency’s dependency on MNY Bank. Ted listened carefully, asking questions for clarification.
After about thirty minutes, Ted asked a question that seemed somewhat odd. “How would you describe your business to a stranger at a cocktail party?”
Alex thought about this, slightly aggravated to be answering a question Ted knew the answer to already.
“We’re a marketing agency. We create marketing materials like brochures, print ads, and Web sites.”
“Who’s your competition?”
Alex launched into the list of marketing agencies in town. “There are other small shops like Reynolds & Harper, Fuel, and Curve Designs. Sometimes we lose out to regional offices of large agencies. There are a lot of freelancers who work from home and—”
“So you run a service business highly dependent on a small group of important clients who in turn demand that you personally tend to their account, and you compete with a lot of other players who provide similar services.”
“You could put it that way.”
Ted paused a minute before offering his valuation analysis. “Alex, your business is virtually worthless today.”
Alex couldn’t believe what he was hearing. He’d spent eight years building the Stapleton Agency, and now the man he most respected in life and in business proclaimed it worthless.
“Are you saying I can’t sell my business?”
“No, I’m saying that you can’t sell it today. If you want to sell it, we need to work on making some changes in your business. I can help, but it won’t be easy. You’ll need to make some tough decisions and bold changes. Are you prepared to follow my advice?”
“Yes.”
“Let’s meet here every Tuesday morning at 9:00. In the meantime, I want you to go away and think about what kind of projects you’re really good at. Come back next week and we’ll talk about what’s involved in selling your business.”
On his way home, Alex opened his mobile phone and checked his e-mail. John Stevens had seen the latest round of revisions and had more changes to make to the brochure.
Back at the office, Alex took an inventory of projects that needed to get done for the week. In addition to finding a way to placate John Stevens, the Stapleton Agency needed to design and print the Free Checking branch posters for MNY’s retail banking group; redo a Web site for the largest BMW dealership in town; optimize the Web site of a local bike shop to improve its natural search ratings; design a logo for a new software company; and write a direct mail package for MNY’s credit card division. It would be a busy week and Alex needed extra effort from each of his employees.
Before he was able to panic too much, Alex forced himself to confront the first task of the day—reviewing the most recent draft of a direct mail letter his only copywriter, Tony Martino, had created for MNY Bank’s new travel rewards credit card. Tony was by all accounts a mediocre writer, but he had chosen a career in advertising because he thought it would make him more attractive to the opposite sex. He had been in the bottom half of his class at college, and upon graduation had bounced around five agencies over three years. On his résumé, Tony characterized his long stretches of unemployment as “freelancing,” which was a charitable interpretation of his time spent toggling between video games and online poker. Somehow, Tony had managed to land a short stint at a respected agency in town, so eight months ago, when Alex was desperate for a copywriter, he hired Tony after a thirty-minute interview.
Now Alex regretted his haste. Tony’s most recent copy was a string of bad clichés held together with spelling and grammatical errors despite the fact that it was his third draft. Alex drew a large black line diagonally across the page and scribbled REWRITE at the top. He tossed the page to the side of his desk and promised himself to get rid of Tony as soon as he could replace Sarah.
Since Sarah had been preoccupied with the project for John Stevens, Alex had put his youngest designer, Elijah Kaplan, in charge of the Free Checking branch posters. Elijah came in to show Alex’s his designs, and even though Alex thought they might be a little too edgy for the bank’s taste, he was relieved that they were done. He sent Elijah to have the posters proofed and printed in the morning. That left Chris Sawchuk as the only designer to work on the Web site for Buddy’s BMW and the optimization project for the bike store. Chris was reasonably savvy with Web sites but by no means a specialist. Through some reworking of copy and tags, he had managed to get the bike store ranked fourth among Google natural searches for road bikes and fifth for bike service. The client wanted to be first or second in both categories. Chris broke the news to Alex.
“I can’t get them above the fold. I’ve tried all of my usual tricks and they’re still only coming up fourth.”
Alex resigned himself to another difficult conversation with a client.
Elijah was the son of a marketing manager at MNY Bank, so Alex had been inclined to hire him six months ago. Word had circulated among the design team that Sarah was leaving, and Elijah spotted his opportunity.
“Hey, Alex, do you have a minute?”
“Sure, Elijah, come on in.”
Elijah walked into Alex’s office and closed the door behind him.
“I’ve been here six months now and we’re stretched pretty thin these days. I’ve been logging some late nights and I think it’s time I get a little bump in my salary.”
Alex started counting under his breath so as not to explode. Because Elijah’s mother worked at MNY Bank, he was given a starting salary that was 10 percent higher than was typical for a junior designer. Alex was furious that this little brat had used Sarah’s resignation to ask for a raise when he knew full well Alex couldn’t refuse.
Choosing his words carefully, Alex said, “What do you have in mind, Elijah?”
“I think a $5,000 raise would get me to where my peers from design school are. It seems fair under the circumstances.”
Alex decided to buy himself some time.
“Elijah, you’re a key member of the team and I appreciate the extra work you’ve been putting in lately. Let’s set up a meeting next week where we can sit down for an hour and talk about your progress over the past six months. I’ll consider your request and will have an answer when we meet next week.”
Elijah, sensing he had his prey on the ropes, agreed.
The following Tuesday, Ted greeted Alex warmly and offered him the same leather chair beside the coffee table.
“So how was your week?” Ted asked.
“Brutal,” admitted Alex. “My best designer is leaving, I need to find a writer who can write copy for a credit card campaign, a Web guy who can decode Google’s black box, and my youngest designer wants a raise despite being barely qualified to create a branch poster.”
“Sounds like you had a tough week,” Ted said. “Did you give some thought to the question I asked you last week?”
Alex had spent time thinking about the types of projects the Stapleton Agency was really good at. He had started by sifting through a file of thank-you letters and testimonials from clients. He looked at the time sheets his designers submitted and tracked them back to his most profitable projects. He also thought about the disaster projects over the last year and made a list of the ones that had caused the most problems.
“It seems the work we’re best at is designing logos. We have a system we follow every time we get asked to create a product logo. Clients like the work we produce and we’re able to charge a good dollar because clients know a product logo is something they will use for a long time. Once we create one product logo, we have our foot in the door and clients often come back as they launch new products.”
Ted considered Alex’s conclusion. “Tell me about the system you follow for creating logos.”
“It’s nothing too formal, but we always start off by asking the client to describe their vision for their product and how they differentiate themselves from their competitors.”
Ted began to make notes. “That sounds like a good first step. Let’s call it Visioning.”
“What’s the next step?” asked Ted.
“After we establish the client’s goals, we go through an exercise where we ask the client to personify their product. For example, we’ll ask questions like, ‘If your product was a famous actor, who would it be?’ and ‘If your product was a rock star, who would it be?’ One of our favorite questions is a little goofy: ‘If your product was a cookie, what kind of cookie would it be?’ These questions force the client to think about the personality they want to come through in their logo.”
“That sounds unique, Alex. Let’s call that step two and give it a name like Personification.”
“What’s your next step in designing a logo?”
“We then go back to the office and use a pencil and paper to freehand sketch a bunch of ideas. We’ll use the business the client is in along with their vision and the personification exercise to come up with a few icons that represent their product.”
“Why don’t you use a computer for this step?”
“We’ve found that if you use a computer to show a client rough drafts, they tend to focus on small details they don’t like instead of judging the concepts. So by showing them concepts in rough, we force them to focus on high-level ideas instead of details like colors or fonts.”
“Let’s call this step Sketch Concepts.”
Ted updated his notes with the following:
“The client will usually like one of the sketches, which then acts as our basis for creating a version on the computer. Again, we limit the variables a client can see by only designing in black and white. That way the client judges the logo on its design merits before we get into colors.”
“I’ve never heard of a design shop doing that—very smart.” Ted added a fourth step to his notes:
Step 4: Black-and-White Proofs
“Once clients like what they see in black and white, we show them color options and they select one. After they select colors, we provide the client with digital files and a brand standard guidebook, and then our work is done.”
Ted updated his sheet with the final step in Alex’s process:
“It sounds like you have a five-step logo design process.”
Ted angled his notebook so Alex could see what he had written:
Step 1: Visioning
Step 2: Personification
Step 3: Sketch Concepts
Step 4: Black-and-White Proofs
Step 5: Final Design
Alex took in Ted’s notes and was surprised to see the process they had been following unconsciously for some time suddenly appear on paper.
“What if you focused your business on just doing logos with the Five-Step Logo Design Process?” Ted asked.
Alex immediately recoiled. “There’s no way we could build a business on just logos! MNY Bank doesn’t even use us much for their product logos, and they represent 40 percent of our business today. Plus, our other clients think of us as their agency and we get asked to do all sorts of projects for them.”
“That’s the problem, Alex. You’re accepting too many different projects, so you need all kinds of different talent on your team. You’re a small shop, so you have to hire generalists who are inevitably not as good as the specialists the big agencies can hire. So you’re asking generalists to perform specialists’ work and the results are weak.”
TED’S TIP # 1
Don’t generalize; specialize. If you focus on doing one thing well and hire specialists in that area, the quality of your work will improve and you will stand out among your competitors.
“But if we just do logos, we’ll have to stop working for MNY Bank.”
“Alex, relying on MNY provides you with some cash flow, but it’s going to make it very difficult to sell your firm. Nobody wants to buy a business where 40 percent of the revenue comes from one company. It’s too risky. If you want to sell your business, you should have a diverse group of clients where no one company makes up more than 10 to 15 percent of your revenue.”
TED’S TIP # 2
Relying too heavily on one client is risky and will turn off potential buyers. Make sure that no one client makes up more than 15 percent of your revenue.
Alex contemplated this advice for a moment and asked for clarification. “So what exactly are you suggesting, Ted?”
“In each business I’ve sold, we created a standard service offering, a consistent process for delivering our product or service. We made sure the product or service was something clients would need on a regular basis so we could count on recurring revenue. I’m suggesting you become the world’s best logo design shop. Write down your five-step process and start talking to prospects about your standard service offering. I’m not asking you to fire your other clients just yet. Start using the Five-Step Logo Design Process with new prospects. Create a one-page description of your approach to creating logos and find ten people to pitch it to. Come back next week and tell me how you made out.”
