Have We Hit Peak Strategy?

Blair thinks too many design firms and other service providers are trying too hard to raise prices by presenting themselves as more “strategic.” Both he and David see these agencies losing more and more work to competitors moving to off-shore teams and AI centered services.

Links

Blair’s “What Is Strategy?” episode of the Ditching Hourly podcast with Jonathan Stark

Transcript

David C. Baker: All right, Blair. Today I'm going to interview you on how to be less strategic and make more money.

Blair Enns: How to be less strategic and less expensive. I am keenly aware of the fact that I appear to be walking back two decades of advice.

David: You have no idea how much joy this brings my heart.

[laughter]

Blair: I actually enjoy it too.

David: Yes. The title is Have We Hit Peak Strategy. I actually had to look that word up. I didn't know what strategy meant because I quit using it-- I think it was about eight years ago, nine years ago, just because I was so sick of it. It's like it didn't mean anything to anybody, and that's the point.

Blair: What did you find when you looked it up?

David: Oh, I didn't really look it up, but I switched nine years ago. I'm sure I still use it, but it's not intentional. I always replace it with research and insights instead of strategy. I don't know if that's better or not, it just had to be different because I was so tired of strategy.

Blair: No, it's not.

David: Oh, come on.

[laughter]

Blair: Those are different things.

David: All right. I'm going to let that go. This is your topic, I'm going to let that go. Have we hit peak strategy? That's the topic. What's this about?

Blair: Yes, we have.

David: Are we done now?

Blair: No. Have we hit peak strategy? I'm begging the question here. The impetus for this topic is I just feel like everything is so expensive. All the basic services are so expensive, including when you want to hire a designer, sometimes a developer, and other professionals too. Part of my problem is it's hard to hire a designer because they make me eat my own dog food. They throw my pricing back in my face and they charge me ungodly amounts of money.

I'm fond of saying sometimes somebody just needs something designed. Do we really have to do a full brand audit for this little PowerPoint presentation or whatever it is I need designed? It got me thinking quite a bit. I think this topic is another reason why-- I'll extrapolate from my own experience and say another reason why for you to be an expert on a topic, you have to write about it because I could not articulate my thoughts on this until I started writing about my frustration.

My frustration is I think too many firms are too expensive, they're feeling it in the marketplace right now, whereas other firms aren't as expensive enough and some should try to get more expensive. I think something's happened in the last decade or so, and maybe I've contributed to this, where generalist firms who are simply service providers, design, development are pricing themselves out of the market because they're getting too enamored with selling strategy, with tacking strategy onto the design or the development.

David: The strategy is adding to the cost and you're questioning whether it's necessary?

Blair: Yes.

David: I'd like the audience to note that.

[laughter]

Blair: I'd like the audience to note the affirmation and yet the tentativeness in Blair's voice.

David: [chuckles] Right.

Blair: If we go back in time, if I go back 22 years ago when I launched Win Without Pitching as a solo consulting practice, one of the universal problems in the market that you and I served and continue to serve independent creative and marketing firms-- I'll use designers as a surrogate for all kinds of other businesses here and then we'll broaden it out maybe a little bit later because I think the lesson applies in different domains. The lay of the land 22 years ago was most of these creative firms, most of these designers got paid for what they did. They didn't get paid for their thinking.

It was one of the problems I endeavored to solve, and I won't speak for you but I think you and others did as well. I was using these words, get more strategic, start charging for strategy. I would say start charging for the thinking that precedes and wraps around the doing. Most people, probably myself included, refer to this as strategy. I think firms en masse started to move up market, not because I was out there cajoling people because I think it was just inevitable in the market.

It was a way to move up market, to move from this place where initially you saw yourself as a waiter in a quick-serve restaurant where you wait for the client to brief you and you look at the brief and go, "Great," and you write it down and you go, "Would you like some fries or chips with that?" The client's always right and the client's highly specified saying, "This is what we need."

I show up and I'm saying, "No, you're a professional and you have the same professional obligation to diagnose before you prescribe or before you accept the client's diagnosis or self-prescription. You should push back. You should codify how you think about the problem, how you think about the context, and how you do the work. Let's call this strategy. Let's start operating that way, let's change the way we show up in the sale, let's be more of a 'strategic partner',-" I want to put that in air quotes, "-and let's charge for this thinking." I think at the time that was exactly right. It's still largely right, but times have changed.

David: I heard you speaking one time, and I've heard you actually give this illustration several times, it's about the car mechanic you went to in Kaslo where you live, and you said, "Hey, I need this. This is what's wrong." Your point was that the mechanic would not be doing his job if he just accepted your diagnosis, but he should tell you like, "I'll let if that's what it needs." It's like, "Just leave it here. I'll figure it out. Maybe that's right, maybe it isn't." That would be an appropriate level of strategy, but he wouldn't need to do a whole UX research study about your driving, would he?

Blair: [laughs]

David: I'm listening to this very carefully because I wrote a whole book about the two-room strategy, right?

Blair: Yes.

David: The first room and the second room. You do have to lead the client, but could we pause for a minute, what do you mean by strategy? You said it's the stuff you think before you do. I've always said strategy is what you can completely include in a 10-page Word document without any pictures or illustrations. That's strategy. It's not a great definition, but I don't really know a better definition. How are you using the word strategy?

Blair: Without going down the strategy definition rabbit hole, and I have gone down that a few times-- I did a podcast interview with Jonathan Stark on this a few years ago. I'll find it and post the link in the show notes. It's titled What is Strategy? I'm ignoring those definitions of what you might consider to be corporate strategy. What I'm saying, a little bit glibly, is that strategy in the design world is simply some sort of thinking around the goals and the context of the business decision. Client wants something designed. Okay, why do you want something designed? Let me better understand the larger context of why and how this thing would be used in the world and what else is going on with your competitors.

The simple version is it's just some of the thinking around the goals and the context of the situation. You could look at it from two different points of view. On one hand, you could say every designer does this. That certainly was not universally true 20 years ago. 20 years ago, it was more like the client says, "I want this." The designer says, "Okay." The designer designs the work and the client says, "Now change this, now change that," and they micromanage. They end up art directing or creative directing the design.

Whereas today's designer, who is more strategic, who has codified how they think about the work and how they do the work, would push back and challenge the client on any false assumptions or false notions of what it is that they need. When I'm talking strategy in the design context, I'm seeing the designer step up, be more of a professional, see themselves as having this professional obligation to just make sure that you're about to deliver to the client what it is that they really need rather than what they've asked for.

David: Right. Now, I think the way you ended that sentence is probably the way we're all on the same page about thinking about this. Client wants you to do something, you step back, and say, "Hey, what are we trying to fix here? Oh, okay. Yes, that's the right way, or would you be open to--?" I'm on the same page as you. Now, apart from this whole strategy thing, how did the word strategy slide away from all the things we were doing into how we were describing? It's like, how did strategy become an elevated word and why does it show up everywhere?

Blair: I think the first thing that many firms started to do is they started to put strategy as a line item on their proposals. They would have design, $10,000, strategy, $5,000. Strategy would be first. There was this amount that they never charged previously for the time and the value of the thinking that they did on the project. They would have a line item. Then the first thing that happened is clients would look at that and they would just cross it out, and they'd say, "Yes, let's go ahead with this, but we don't need the strategy. We've already done the strategy." That's one example of what started to happen.

Then the other thing that happened about the same time, when firms were charging for strategy in this way, they were charging for it in units of doing instead of in units of thinking. They were charging by the hour. That became problematic. Then at some point, most of these firms came around and they would move to some sort of flat fee that had the strategic work upfront, what you might call diagnosing and prescribing, and then the initial creative concepts.

All of that would be packaged up into one flat fee. That really made sense to me. That was the reaction to people crossing out the line item and what they saw was an a la carte menu. Then from there-- I don't know if you remember this. I don't know if there are many firms who use this vernacular anymore, but I started to see the rise of strategic design firms, strategic branding agencies, and strategic communication firms.

David: Oh, man.

Blair: They were just these same old service providers who were saying, "we also do strategy, and we charge for the strategy." It was a way to signal smarter and more expensive. In hindsight, that was messy. I never really liked it. The reason we're talking about this now is times have changed. We'll get to that in a second. Now, I think some of these things were in some ways hacks, hacks to let service providers stay service providers and not pivot their business to something with more meaningful value propositions for specific audiences where the service they were providing was merely a tool in a toolbox that helped them solve the urgent and expensive problem for their clients.

David: Yes. I would say that this was also not a well-thought-out response to a legitimate facing of competition from two places. Underneath, you had designers who weren't all that strategic so they wanted to differentiate themselves from them, but then the big thing that changed was really from above reaching down. These were all strategy firms and these design firms, just to use that label you're applying here.

It's like, "Wait a second, we can do that too. We can actually do a better job because there'll be one throat to choke at the end of this. We'll do the strategy and the design. These people don't know how to carry over the strategy into a visually and verbal integrated message that's going to compel anybody." There was part of that too. The reason I say it was illegitimate, because they were trying to solve a positioning problem by just adding the word to the beginning saying strategy.

That always just makes me laugh because I picture a board meeting in this independent agency where they're saying, "All right, team, things are not going as well as we'd like. Now, we tried the unstrategic thing. That didn't go anywhere. Let's try the strategy thing." The reason that makes me laugh is because you can't demonstrate the veracity of this claim. Now let's turn this around. Let's say I'm the prospective client and I'm in a board meeting and we're trying to decide which firm.

I say, "I think we should hire these people. They're strategic," and somebody raises their hand and says, "Are the other ones strategic? Why don't you go ask them? Go ask them, are they strategic? Can you go ask them?" "Oh, yes. Oh, we are strategic. We just don't use that word. We just assume." It's just this hilarious skit to me. I don't think we even think through the next steps without all of this word salad stuff we're doing. By the way, the next ones are going to be data-driven and AI-driven. That's coming next, right?

Blair: Yes. I think we've driven through data-driven into AI-driven.

David: [laughs] Okay. I'm a couple months behind. Yes.

Blair: Speaking of AI, the reason why this topic is timely, and I feel like I'm talking out of both sides of my mouth-- I'm aware there are people listening to me saying, "Blair, we followed your advice. You're walking back some of that advice." Maybe, kinda, sorta in some way. What I've just finished saying is I think a lot of these attempts that I've just described, they were just hacks to cover up poor positioning.

What's going on now, there are two things in the marketplace that are driving this, making this problem more real, surfing it to the top right now. The first one is offshoring and the second one is AI. Offshoring, man, I'm curious to hear your perspective on this, but it's been around for quite a while, but has it gotten real since COVID?

David: Yes, it has. All of a sudden we learned we don't have to have employee pools right near us. "Oh, if that's the case, maybe it's not an $80,000 developer, maybe it's a $30,000 developer from some other country." Then there's added benefits too, right? Maybe the cultural fits a little different, expectation is a little bit different, teamwork, whatever. Yes. Oh, I see it everywhere. More in coding for sure and some other firms, but it's everywhere. You're seeing the same thing.

Blair: Yes, and I'm seeing it in marketing in the more technical stuff. The PPC, the SEO, that stuff is moving offshore to Eastern Europe. The Western world, we tried India first years ago. We've tried all these different domains and it seems like Eastern Europe and specific parts of Eastern Europe are winning. I'm just seeing more and more of this. I've written a post on this that I haven't published yet. I'm reworking it. I've got some verbatim quotes in here from agency owners, all agencies? Maybe there's a couple that might be closely associated with agencies, but mostly agency owners.

Let me just read some of these quotes that I've heard. on the subject of offshoring. "I replaced my $130,000 a year CFO with a certified accountant, they went to school here and moved back to India, for $7.50 US an hour." Here's another quote from somebody else. "These people-" referring to developers in Eastern Europe, "-are incredible. They don't know what a sick day is and they never want to know."

David: [chuckles]

Blair: Here's another one speaking about designers and VAs in the Philippines. "Their English is perfect and they work hours." Now, here's one from a friend of mine who used to have a 15 person agency. It's now just him. "I'm not hiring any more Americans. They're too expensive, too coddled, and too entitled. It's all offshore part-time people." The driving factor of this is COVID. Everybody went home. These business owners realized, "If everybody's distributed, why don't we get serious about being distributed? Let's go where the labor is good, the expertise is good and cheap." Now it's just going everywhere.

David: Yes. I think the biggest rise is not going to be Eastern Europe. I think it's going to be Latin America, specifically four, five, six countries, but the principles are exactly the same.

Blair: I want to read a couple more quotes from these things I collected because there's another issue here that's feeding this, I think. Our audience is not going to like it. These are, just thinking of all the people, to a person, pretty progressive people politically. Here's some quotes. "Rates are 20% to 50% of US salaries. No payroll burden." Here's where it gets interesting. "No sense of entitlement." Here's the most profound one. "No workplace issues around feeling 'triggered', 'othered', or unsafe-on slack while working from home."

I'm not attaching any judgment to this. What I'm saying is I am seeing a pattern of employers who have decided it's easier, it's more efficient, it's more productive, and it's less hassle to hire people overseas. We need to talk about this.

David: This ties back to being able to do sufficiently equal or even better work without charging more by tacking strategy on the front.

Blair: These organizations who are offshoring instead of hiring a $100,000 person here, they're hiring a $36,000 person overseas, they are driving the cost of these services down. We can talk about AI too, but we don't need to go deep into it. AI is doing the same thing. We all know this. It's changing every week. AI is driving the costs down.

If you are a service provider, if you see yourself as a designer or a design firm or a developer or a developer firm rather than somebody who solves very specific problems for very specific clients using design and/or development as a tool, if yourself as just the service provider of design or development, and you could pick a whole bunch of other services, you are in a race to the bottom that's already begun. You don't need me to tell you about it because you're feeling it right now.

David: This would be my suggestion. I don't want to put words in your mouth, but in times of chaos and rapid change, you have to talk out of both sides of your mouth. You have to re-examine the things that you pounded the desk about 10, 20 years ago, including you and me. While you could go back and pull up hundreds of LinkedIn posts where I'm fighting the other side of this argument, it doesn't matter how strongly I believe about it. I'm not big enough. You're not big enough running a firm to counter the tides of what's happening to you.

If you want to keep making money, you've got to re-examine everything. Now's the time to do that. Hopefully, you're doing that from a position of financial strength at your firm and hopefully you're not ignoring the most obvious advantage, and that's a very tight positioning. At some point, we got to talk about that.

Blair: If you're being affected by this right now, if you're feeling like all of a sudden we've become too expensive in the marketplace, everybody's saying we're too expensive, business is going down, you've really got two options. Number one, you can finally take your positioning seriously and you can use your services, your disciplines to solve a specific set of real expensive and urgent problems for a specific client type. You can get out of the we are a design firm, we are a dev shop business and frame what you do around specific clients' problems where design and development, they're just tools in your toolbox and you're going to need other tools. You get serious about your positioning.

If you do that, then you will become strategic. Then you can charge lots of money. Then you're not tied to this hourly rate that is being driven down by offshore labor and AI, or if you don't do that, you have to pursue some sort of production advantage. You have to lower your costs because your competitors, some competitors you don't even know exist yet, they're doing good work at cheaper prices.

David: They're not burdened with some of the philosophical underpinnings of the things that we scream about in this industry. There was an example you gave about an architectural firm. You could picture an architectural firm that they went to years of training, they have to be certified, they have to do continuing education to maintain it, and they're tired of their work not being valued the way it could be. They stand on this rock and proclaim it, or they could rethink everything they're doing. It's not capitulating, it's being agile.

Blair: Yes, I agree.

David: This story you tell about the engineering firm and how they do drawings and so on and how they're using different tools, I love those kinds of stories because they're innovative.

Blair: Yes. That's under the AI front. You and I have a friend, a former client, who he said to me-- This is in the pre-transformer AI days. It was like AI was a thing, was talked about, but it was a pre-transformer. I didn't believe him. I scoffed at him, maybe not outwardly. He said to me, "Engineering is going to be one of the first industries disrupted by AI, so I might as well be the person to do it." He's launched a new business a few years ago. It was just on the website. It says, "Get your plans engineered and certified in 15 minutes." What used to take weeks, they now do in 15 minutes.

Yes, it's interiors today, but it's bridges tomorrow. That's a production advantage in the engineering sector. That's going to go crazy, not just that business, but other businesses like it. Those of us who work in the creative fields, we see all the tools. We see them all coming out, new tools every week. Some of them still aren't very good. Some are pretty good. It's not long before they're great. We've got to use these tools regardless.

Again, the core message is, if you see yourself as a service provider, these two elements of offshore labor and AR are driving the cost of those services maybe not to zero, some of them to zero, but low. You've got to escape this. You either play that game and seek a cost advantage of your own, or you have to escape it. As you and I say, you have to take your positioning seriously, not just add strategic to the word that you've used for the last 10 years.

David: Yes. Right. We are done now for another six years. Will this be strategic? I can't help but think using your example of it used to take weeks to do this and now it takes 15 minutes. That's a pretty strong argument to uncouple your pricing from time. [laughs]

Blair: Yes.

David: You're not just trying to lower the cost to clients, but you could also be beefing up margins with doing some of this as well.

Blair: Yes, absolutely. You could be beefing up margins.

David: This I feel like is going to be an episode that we're going to want to reluctantly listen to a few years from now. It could also be a turning point in how we think about bringing all of these forces together, leading clients, charging what we should, making enough of a margin, rethinking our operations and our business services and all of that. It feels like we've just barely scratched the surface, but if your goal was to rile people up, mission accomplished.

David: Thank you, Blair.

Blair: You're welcome.