Hacking Agency Compensation - Jason DeLand, Founding Partner, Anomaly

1. HACKING AGENCY COMPENSATION JASON DELAND | FOUNDING PARTNER, ANOMALY | MAY 2013 @jasondeland © ANOMALY 2013

2. DISRUPTIVE HONEST ENTREPRENEURIAL GUTSY DARING CAPITALISTS WELCOME © ANOMALY 2013

3. INNOVATION From one dominant system that levels the playing ﬁeld, to more dynamic supply/demand system. © ANOMALY 2013

4. LIBERATION From second guessing if the agency has the best interest of the client in mind, to knowing fully that the agency is motivated, incentivized and eager to deliver. © ANOMALY 2013

5. BRAVERY From being uncomfortable talking about money to being conﬁdent and empowered. © ANOMALY 2013

6. ENTREPRENEURIAL From the safety of thin, capped margins to the higher proﬁt potential of risk & reward. © ANOMALY 2013

7. HONESTY From hiding behind the comfort of legacy input costs to the naked truth of market forces. © ANOMALY 2013

8. SWINGING OR DUCKING From being nice and weak to being strong and principled. © ANOMALY 2013

9. Given all the issues facing mankind today, it can and should be argued that IDEAS MATTER NOW MORE THAN EVER. In government, in culture, in business – ideas are all we have left. An idea is capable of transforming the existence of our species, our economy and certainly the businesses we work to build. But this talk is not about the idea, how to achieve ideas, or even how to execute ideas. THIS TALK IS ABOUT HOW TO VALUE IDEAS IN NEW AND DIFFERENT WAYS. Something we have never truly understood or done particularly well as an industry. WE ARE IN A POSITION OF STRENGTH © ANOMALY 2013

10. I WANT TO HIRE YOU FOR YOUR EXPERTISE AND YOUR ABILITY TO CREATE AND EXECUTE TRANSFORMATIONAL BUSINESS IDEAS FOR MY COMPANY. Excellent, we are ideal for that challenge. YES BUT BEFORE I HIRE YOU I HAVE A FEW IMPORTANT QUESTIONS. Okay, shoot. What do you mean? WHY $1 MILLION? WHAT WILL YOU CHARGE ME? $1 million dollars for our ability to work with your organization to create the idea, and then if we move it forward another million because truly transformational business ideas are valuable and in limited supply. I NEED TO KNOW WHY YOU CHARGED ME A MILLION. Why? WELL IF I DON'T KNOW HOW YOU ARRIVED AT YOUR PRICE, HOW DO I KNOW IT’S FAIR? I don’t understand. What diﬀerence does it make how I arrived at the price? © ANOMALY 2013

11. WELL IF I UNDERSTAND HOW YOU ARRIVED AT IT, THEN I CAN NEGOTIATE IT DOWN. But I do not want you to negotiate it down. That is money out of my pocket. YES, BUT IT IS A PRIVILEGE TO WORK ON MY BRAND AND YOU WILL GET LOTS MORE BUSINESS FROM IT. I will? Can you guarantee that? The team I said will do the work... and it will take as long as it takes until we have an outcome that everyone is happy with. OH, BUT I NEED MORE THAN THAT. I NEED TO KNOW WHO WILL DO THE WORK... AND THE AMOUNT OF TIME IT TAKES FOR THEM TO DO IT. NO. BUT I STILL NEED TO KNOW HOW YOU GOT TO YOUR PRICE. Well OK...I looked at the size and scope of the opportunity and considered the value of us addressing it for you and calculated a price that I am willing to do it for. A price that I believe to be competitive in the market and a price that aﬀords me the peace of mind that I can make a bit of money. YES...BUT WHAT IF JUST ONE PERSON CRACKS IT IN ONE DAY...AND YOU THEN EXECUTE IT WITH A SMALL TEAM IN 3 WEEKS – THAT IS NOT WORTH A MILLION DOLLARS. You’re 100% correct. It’s worth more.... If that happens, we will double it! © ANOMALY 2013

12. TODAY, MORE THAN EVER, MONEY IS HARD TO COME BY © ANOMALY 2013

13. A QUICK HISTORY OF AGENCY ‘COMMODITIZATION’ MODELS © ANOMALY 2013

14. 15% © ANOMALY 2013

15. 15% 1985 © ANOMALY 2013

16. COSTS & FTE’S15% 1985 © ANOMALY 2013

17. INCREASING DISTRUST INCREASING FEAR DECREASING ‘WORTH’ DECREASING PROFIT FOUR BIG AND BAD TRENDS © ANOMALY 2013

18. IF YOU NEEDED MORE PROOF HOW MANY PEOPLE, BY SHOW OF HANDS, HAVE NEVER LIED ON A TIME SHEET? HOW MANY PEOPLE, BY SHOW OF HANDS, HAVE NEVER FELT THE PRESSURE TO LIE ON A TIME SHEET?

19. The vast majority of communications agencies – from design companies to startups to the largest agencies on the planet – do not actually understand value because they price time. The unintended consequence is you end up in a conversation about what your time is worth as opposed to what your solutions are worth. WHAT YOU PRICE IS WHAT YOU VALUE TIME IS FINITE VALUE CREATED FROM OUTPUT CAN BE INFINITE © ANOMALY 2013

20. “A commodity has a value, because it is a crystallization of labor. The greatness of its value, depends upon the greater or less amount of that social substance contained in it; that is to say, on the relative mass of labor necessary for its production. The relative value of commodities are, therefore, determined by the respective quantities and amounts of labor, worked up, realized, fixed in them.” - Karl Marx, 1877 © ANOMALY 2013

21. MAN POWER “A commodity has a value, because it is a crystallization of labor. The greatness of its value, depends upon the greater or less amount of that social substance contained in it; that is to say, on the relative mass of labor necessary for its production. The relative value of commodities are, therefore, determined by the respective quantities and amounts of labor, worked up, realized, fixed in them.” - Karl Marx, 1877 © ANOMALY 2013

22. MAN POWER MAN HOURS “A commodity has a value, because it is a crystallization of labor. The greatness of its value, depends upon the greater or less amount of that social substance contained in it; that is to say, on the relative mass of labor necessary for its production. The relative value of commodities are, therefore, determined by the respective quantities and amounts of labor, worked up, realized, fixed in them.” - Karl Marx, 1877 © ANOMALY 2013

23. MAN POWER FTE’s MAN HOURS “A commodity has a value, because it is a crystallization of labor. The greatness of its value, depends upon the greater or less amount of that social substance contained in it; that is to say, on the relative mass of labor necessary for its production. The relative value of commodities are, therefore, determined by the respective quantities and amounts of labor, worked up, realized, fixed in them.” - Karl Marx, 1877 © ANOMALY 2013

24. INPUT-BASED PRICING IS A BLACK BOX © ANOMALY 2013

25. INPUT-BASED PRICING IS A BLACK BOX BENCHMARKS © ANOMALY 2013

26. INPUT-BASED PRICING IS A BLACK BOX BENCHMARKS JUSTIFICATIONS © ANOMALY 2013

27. INPUT-BASED PRICING IS A BLACK BOX BENCHMARKS STANDARDIZATION JUSTIFICATIONS © ANOMALY 2013

28. INPUT-BASED PRICING IS A BLACK BOX BENCHMARKS STANDARDIZATION COMMODITIZATION JUSTIFICATIONS © ANOMALY 2013

29. INPUT-BASED PRICING IS A BLACK BOX BENCHMARKS STANDARDIZATION DISTRUST COMMODITIZATION JUSTIFICATIONS © ANOMALY 2013

30. INPUT-BASED PRICING IS A BLACK BOX BENCHMARKS STANDARDIZATION DISTRUST COMMODITIZATION JUSTIFICATIONS LIES © ANOMALY 2013

31. REFRAMING HOW WE THINK ABOUT MONEY © ANOMALY 2013

32. NOT FOR EVERYONE I CAN ONLY SPEAK BASED ON WHAT HAS WORKED FOR US © ANOMALY 2013

33. YOU WANT TO BE THE BEST VALUE THE CLIENT’S EVER HAD © ANOMALY 2013 AND...CLIENTS WANT YOU TO BE THE BEST VALUE THEY’VE EVER HAD

34. 5 PRINCIPLES © ANOMALY 2013

35. THEREFORE WE DO NOT SELL TIME, EVER. It encourages more people to take longer – which is not in the client’s best interest and is a commoditizing & demoralizing force. ALL AGENCIES ARE NOT EQUAL. © ANOMALY 2013

36. EMBRACE ANY MECHANISM THAT REWARDS THE DIFFERENTIATION BETWEEN THE QUALITY OF IDEAS. This aligns our interest with our clients/business partners © ANOMALY 2013

37. OWN INTELLECTUAL PROPERTY. This increases commercial instincts and liberates the concepts of value, risk and reward for all client conversations. © ANOMALY 2013

38. LEVERAGE DATA TO PROVE VALUE. The technology exists to prove eﬀectiveness and therefore the value you create year-over-year. © ANOMALY 2013

39. COMMUNICATE VALUE IN EVERYTHING FROM CREDENTIALS PRESENTATIONS, PROPOSALS, TO EVERY MEETING, EVERY EMAIL, EVERY CONVERSATION. The vocabulary of value will also infuse into the culture of the agency. © ANOMALY 2013

40. 3 MODELS © ANOMALY 2013

41. OUTPUT-BASED COMPENSATION This revolves around reaching agreement on what your potential services (and ideas) are worth to the client and what the opportunity is worth to agency. For each party that value will vary according to their situation, choices, the need, their desire for change, the opportunity cost, the qualitative benefits, etc. All the pressure is then on the agency to drive up the market value: better work, better people, better results for your clients. This is almost the purest form of client/agency market forces. WILLING BUYER & WILLING SELLER © ANOMALY 2013

42. OUTPUT-BASED COMPENSATION This revolves around reaching agreement on what your potential services (and ideas) are worth to the client and what the opportunity is worth to agency. For each party that value will vary according to their situation, choices, the need, their desire for change, the opportunity cost, the qualitative benefits, etc. All the pressure is then on the agency to drive up the market value: better work, better people, better results for your clients. This is almost the purest form of client/agency market forces. ENTREPRENEURIAL MODELS Your return is based entirely on, and proportionate to, the performance of your ideas in the market place. These include: ‣ Sharing in the revenue generated by our ideas ‣ Licensing ‣ Equity participation This is the purest form of market forces in the service industry. RISK & REWARD © ANOMALY 2013

43. OUTPUT-BASED COMPENSATION This revolves around reaching agreement on what your potential services (and ideas) are worth to the client and what the opportunity is worth to agency. For each party that value will vary according to their situation, choices, the need, their desire for change, the opportunity cost, the qualitative benefits, etc. All the pressure is then on the agency to drive up the market value: better work, better people, better results for your clients. This is almost the purest form of client/agency market forces. ENTREPRENEURIAL MODELS Your return is based entirely on, and proportionate to, the performance of your ideas in the market place. These include: ‣ Sharing in the revenue generated by our ideas ‣ Licensing ‣ Equity participation This is the purest form of market forces in the service industry. OWNERSHIP OF IP Even more than money this outlet ensures an entrepreneurial culture where all the focus is on the commercial success of an idea. This is the purest form of market forces in any industry. PURE MARKET FORCES © ANOMALY 2013

49. SETS CLEAR METRICS OF WHAT SUCCESS IS AND WHAT WINNING MEANS. THIS APPROACH IS NOT FOR ALL, BUT IT DOES HAVE ITS BENEFITS © ANOMALY 2013

50. ALLOWS FOR A RANGE OF ENTREPRENEURIAL STRUCTURES. THIS APPROACH IS NOT FOR ALL, BUT IT DOES HAVE ITS BENEFITS © ANOMALY 2013

51. DOESN’T COMMODITIZE THE AGENCY, THEREFORE DOESN’T COMMODITIZE ITS CULTURE. THIS APPROACH IS NOT FOR ALL, BUT IT DOES HAVE ITS BENEFITS © ANOMALY 2013

53. INCENTIVIZES THE CLIENT TO SEE THE AGENCY AS AN INVESTMENT. THIS APPROACH IS NOT FOR ALL, BUT IT DOES HAVE ITS BENEFITS © ANOMALY 2013

57. ALAS, IT ALL COMES BACK TO VALUE AND CREATING MORE OF IT, EVERYWHERE ‣How you talk about value. ‣How to quantify it. ‣How you practice it. ‣How you increase it. ‣How you judge it. ‣How you incentivize it. ‣How you sell it. ‣How you price it. © ANOMALY 2013

58. AN EXERCISE new client new contract new practice areas new sources of revenue, especially ‘found revenue’ stop collecting timesheet data dramatically increase exposure to bonuses embrace royalties and profit-share create IP VS. EVOLUTION OF YOUR PRACTICES REVOLUTION OF YOUR BUSINESS MODEL © ANOMALY 2013

59. A PRINCIPLE IS NOT A PRINCIPLE UNTIL IT COSTS YOU MONEY © ANOMALY 2013 THANK YOU JASON DELAND | FOUNDING PARTNER, ANOMALY | MAY 2013 @jasondeland

Hacking Agency Compensation - Jason DeLand, Founding Partner, Anomaly

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Hacking Agency Compensation - Jason DeLand, Founding Partner, Anomaly