Building a Deep Moat: The Power of Positioning in a Commodity World

david c baker

David C. Baker, speaker, advisor, five-time author, and principal at ReCourses (Nashville, Tennessee), has consulted with over 900 creative firms and trained 20,000, providing the tools for them to make better business decisions. In this interview, David discusses issues around agency growth and differentiation.

For firms with fewer than 45 employees, David believes that positioning is often critical . . . and that smaller generalist firms suffer because generalist services become a commodity, forcing the agencies to compete on price and execution. He proposes positioning as a solution because it allows an agency to find better clients, operate in its area of core expertise, see patterns, and develop competence relevant to its clients. Strategic work is based on insight, which comes from positioning.
Vertical positioning is focusing on an industry segment—or even further differentiating your offerings by narrowing to a particular service for that segment—and drilling down so deep that your company is the only one with the expertise for that segment at that deep of a level.
Horizontal positioning spans different verticals, but focuses either on a demographic or a particular practice area.

David extends the concept of positioning to internal positioning—company culture—and recommends developing a lead generation plan for recruiting new talent. He also questions why more companies don’t package their data- and science-based insights and black box license this proprietary intellectual property as a salable product.

David’s most recent book is The Business of Expertise: How Entrepreneurial Experts Convert Insight to Impact and Wealth, was recently featured in The New York Times. To learn more about the book, go to: expertise.is

David can be contacted on his website at www.davidcbaker.com.

 

 

ROB: Welcome to the Marketing Agency Leadership Podcast. I’m your host, Rob Kischuk, and I am joined today by a special guest: David C. Baker, who’s a speaker, advisor, a five-time author, and principal at ReCourses based in Nashville, Tennessee.

 

His most recent book is The Business of Expertise: How Entrepreneurial Experts Convert Insight to Impact and Wealth, which was recently featured in The New York Times. Welcome, David.

 

DAVID: Thank you. It’s very good to be here. I’ve been looking forward to it.

 

ROB: Likewise. Thanks for making time for this. Why don’t you start off by telling us about yourself, possibly about ReCourses, and what your own expertise is? Perhaps on topic.

 

DAVID: Sure. The prison warden allowed me to do this recording today. I have to go back to my cell when we’re done. No, I’m kidding. [laughs]

 

I live in Nashville, Tennessee. I don’t really have any clients to speak of here, but for the last 24 years, I’ve been advising principals of creative firms—advertising, PR, design, digital, and so on, everything under that umbrella. I owned my own firm for 6 years before that, up in Indiana. When we moved to Nashville is when I began my consulting practice.

 

I do this worldwide from here. I’ve worked in about 42 countries. My work life is divided into three big buckets, the ones that you mentioned: speaking, writing, and then advising. They’re all tied together pretty well.

 

The only folks I work with are creative entrepreneurs in this marketing space, and I absolutely love it. You’re in touch with the same people that I am—in fact, looking over the podcast guests that you’ve had, I knew about half of them—so you know how strange this world is. [laughs]

 

But they’re such interesting people, who are so curious and hardworking that I absolutely love the field that I accidentally stumbled into, really. I’m not consulting because I ran some amazing firm. It was a pretty average, pretty pedestrian firm. Most of what I’ve learned has come from seeing inside so many firms—about 900 of them now.

 

So that’s a brief introduction to what I do.

 

ROB: That’s really interesting. When you moved, what was it when you did move that made you decide when you landed to go more of a consulting route rather than spinning up a new firm? Was that temporary at the time, or was that intentional from Day 1? How did that emerge?

 

DAVID: It was really intentional from Day 1. While I didn’t understand positioning as well then as I think I do now, I said to myself, “Does the world need another marketing firm?” I didn’t know how many there were at the time; now I know there are about 45,000 of them of different stripes across North America. I just knew there were a lot of them, and I didn’t think that the world needed another one of those.

 

But I knew that I had struggled so many times over the years in finding good advice about how to run my firm. So, it was a courageous positioning decision. I already had a whole bunch of interest from my peers in helping them navigate some of what they were facing, so that’s how the decision came about.

 

The reason we moved was because, when I was a pilot, when I was flying myself, it wasn’t a problem to live in northern Indiana. But when I had to fly further afield, it was a long drive to either O’Hare or Indianapolis. Moving here was a choice, and it was one of those great moves where you can just look across the country and move wherever you want.

 

We wanted a place with four seasons, that had some hills, and that was central. So that’s why we’re here and that’s what I’m doing.

 

ROB: Nashville is lovely. What part of northern Indiana, dare I ask?

 

DAVID: We lived in Winona Lake, so northeast Indiana, essentially. The firm that we owned was in Warsaw, which was a sister city right next door.

 

ROB: Right on. I was born in Fort Wayne. I lived there 12 years.

 

DAVID: Oh wow, yeah, that’s the big town east of us on US-30, right? [laughs]

 

ROB: Absolutely. People who want to deep dive into some of these ideas can certainly both look at your book as well as—there’s a YouTube video of you talking to some I think HubSpot agencies at Inbound.

 

But broadly, what are some of the things that you think an agency owner who has started and seen some measure of success—they may have a dozen, two dozen people on their team—what are the big blind spots? What are they typically missing, on average, if you just meet someone?

 

DAVID: I don’t help them with the delivery of the services, because they do that so well, typically, and they do it better than any client even expects them to. I help them with everything else, the business side of things. Here are some of the issues that crop up a lot.

 

One is their own positioning, and then of course lead generation. It’s hard to do lead generation until you have the positioning right. The odd thing there is that that’s what they do for a living, for everybody else, but it’s really hard for them to do it for themselves. So that’s one issue.

 

Another would be how to structure their own personal role. What should the other people be doing? How much of each person’s role do we need? How do they interact with each other? Everything about structuring roles, that’s the second.

 

A third would be performance benchmarking. What should we expect from the firm? What are the fee billings per full-time equivalent employee? What should we pay for space? What should our retainer arrangements look like? What should our utilization be? All of those. One of the books I wrote is on that topic.

 

A fourth would be around mergers and acquisitions, so either evaluation or merging with a firm or getting bought by a firm or buying another firm. That often happens towards the latter part of my working relationship with them.

 

Those are the big things that I usually help people with.

 

ROB: You mentioned on the positioning side—I think that can be very challenging. We talk to a variety of people, as you do, and nobody really sets out to be just another digital marketing agency. But what I tell even my own salespeople is, be careful when you look at the website, because everyone’s going to sound like they are a really unique flower, but a lot of times when you get down to the scope of work, it can be pretty similar.

 

I think one thing you would push people and encourage them on is how to escape living and dying by the billable hour that’s just based on delivering commodity services. How do people break out of that from a positioning perspective, particularly in a way that’s true to themselves?

 

DAVID: The answer to that question changes based on how old they are and how long they’ve been in this business. In the earlier days, two things are usually true.

 

One is that they’re scrambling for work, so they tend to be less picky about what they do. When they respond to the opportunities that the marketplace hands to them, that marketplace drags them all over the place. If you looked at it from on top, it would look like they were hitched to four different horses dragging them all over the field, and there’s no rhyme or reason to their positioning decisions. That’s one thing.

 

The other is that they really resist the notion of being bored easily. It seems way too early and premature for them to choose some sort of a positioning.

 

After they’ve gotten over that, what happens there—it’s sort of a zero sum game. They give up this desire for all kinds of variety and they exchange it for this desire for competence. They want to begin earning their keep with clients. They’ve tasted competence and they’ve tasted incompetence, and they can tell the difference, what one feels like versus the other. They never want to go back to that incompetence again.

 

It’s about choosing a positioning—and there’s a lot of science around it as well—that is a meaningful difference. If I sat and interviewed 100 agency principals at random and said, “Tell me why you’re different,” all of them would have an answer for me, but about 97 of those people, the answer they gave me would be meaningless. It wouldn’t really be a difference. They all sound exactly the same.

 

I used to do this with agency principals. I haven’t done it in a while, but I would say, “Write down the three things that absolutely make you different in the marketplace.” I would give them all kinds of ground rules, like it had to be short, three sentences, and so on. They thought they were going to stand up and read these and then we were all going to clap for them and so on.

 

What I made them do instead was swap them with their neighbor, and the neighbor had to stand up and read those things as if they were true of them. In almost every case, they could fully embrace what the neighbor had said.

 

It’s so odd that we don’t understand positioning for ourselves, even though supposedly this is what we do in the marketplace.

 

There are some really good scientific principles to make this less painful. I think it’s a two-pronged fork, essentially, that we’re trying to stab into solving this problem. One is to make more money and the other is to do better work for clients.

 

ROB: Maybe to pull this apart a little bit, you mentioned some principles there. What is an example—and you can brag on a client or not a client here, whatever is helpful—of a good positioning? And then get into the DNA of what makes that a good positioning.

 

DAVID: All positioning decisions fall into one of two categories. They’re either vertical or they’re horizontal, and there are specific advantages and disadvantages of each.

 

A vertical positioning would follow a particular industry segment. We might be working for healthcare or financial services. Those are a little too broad to be very powerful, right? The easy thing about a vertical positioning is you can find your clients.

 

Or you might have a horizontal positioning, which spans the different verticals, but it either follows a demographic or a particular practice area. There we might have CRO for online retail, or we might have marketing communications around employee benefits. There are great firms that are positioned exceedingly well in that space.

 

All that is, is basically giving you a license to hunt. It’s a license to hunt so that we are more likely to find better clients. But not only that, it’s a license to learn. Now all of a sudden we’re faced with seeing situations that are more similar from one to the next, and we can begin to notice those patterns. The most recent book I wrote is around pattern recognition.

 

Without those courageous positioning decisions, we’re not going to be able to notice those patterns and really start to build them into our work and do better work for clients.

 

ROB: That leads very well into something you mention in the book. To a certain extent when you first position your firm, you’re always going to be in maybe a little bit over your depth. You won’t have true expertise there.

 

But the responsibility is then to grow into it and beyond it and be very competent, and then that pattern recognition that you’re talking about. Is that kind of the idea? You’re going to be in over your head a little bit at first?

 

DAVID: You will be at first. But, whatever your position is, it’s going to emerge from work you’ve already done. You’re not completely inventing it. The pain comes in saying “no” to most of the things you’ve done, and then landing on just one or two of the things that you’ve done and saying, “This is where I’m going to plant my flag.”

 

But moving forward, there is this constant mix of competence, primarily, and a little bit of incompetence. That’s the only way that you continue learning. You have your foot just slightly over the line, but most of your foot is on this side of the line and you really do know what you’re talking about, with a little bit of expiration each time. That’s what keeps it really interesting, and it’s why clients keep coming back to you.

 

What I fear is that most agencies are just not doing great work because so much of it is just executional. They’re really not moving the needle on behalf of the client. Execution does not require positioning. There isn’t any need for it. Execution is totally interchangeable. It doesn’t require positioning.

 

But the minute we talk about doing more strategic work, then we have to be positioned because that’s based on insight. The world is way too big to be able to wrap your mental arms around all of that insight. There’s just too much knowledge out there for us to be experts that broadly.

 

So if we’re going to be strategic and move upstream that way, we’re going to have to position so that we can figure out where to start diving deep.

 

ROB: I think you mention in the book essentially that execution itself and focusing on the work that is executing and performing commodity work can be a trap.

 

By contrast, when you’re positioning and delivering with a core of your expertise and a little bit of being in over your head, you’re still able to create better margin on your expertise to learn from the experimentation and to have some budget and margin for that, instead of just being close to the wire.

 

DAVID: Yes, for sure. The more you do that execution work, for one thing, you don’t have a lot of time because you’re at the end of the tail, and things start getting pressed there.

 

But, because it’s so interchangeable with other firms, it holds the price pressure down on that side of things. You have freelancers, you’ve got offshore solutions. It’s really just a commodity market. We don’t care where we buy wheat, right? As long as it’s wheat. That’s the same for execution work.

 

Yeah, there’s a big distinction in my mind between both of those, for sure.

 

ROB: The logical conclusion of doing execution work and commodity work—I was talking to an agency owner today who specializes in very good process-driven work, and he’s focusing on the relationship. I think he’s going to beat most other people who are doing the work that he’s doing that is execution. He’s got an outsourced group that does anything that’s commodity work, and he can beat a lot of people with process.

 

I think that’s kind of the limit. What process can you put in place, what margin can you get on that, and how many people can catch you and compete with you in that game? And arguably, the relationships that you build.

 

Has there been someone, then, who has taken a positioning that you just did not expect, and they surprised you with how they grew from it? Is there anything that stands out?

 

DAVID: Probably so, yes. In some cases we’re provisionally choosing a positioning—provisional only because we don’t have enough information. We don’t know if the marketplace is big enough for it.

 

I remember working with a firm that was a generalist, and they were in a small market. They had a hard time not only finding work from clients, they had a hard time finding employees who wanted to live there. It was outside of the big, cool city.

 

They decided that they would make a choice, but they didn’t know what the choice needed to be yet. So, they experimented with luxury tourism, and then they experimented with the credit union field. It took I don’t remember how long—I think it was about a year or maybe less before it was obvious that there was more opportunity in the credit union space.

 

None of that surprised me. But he made a positioning decision later, and he said to me, “Listen, this is not bold enough. I need to narrow even further.” I’m thinking to myself, how do you go narrower when you’re already focusing just on credit unions? He decided to work just on social media for credit unions.

 

I can give you dozens of examples of position decisions that surprised me where neither one of us would’ve expected at the beginning that there was a deep enough opportunity in that space, but it’s plenty deep enough.

 

People have the strange idea that there’s not going to be enough opportunity, and that’s a crazy notion in this world. I’ve worked with 900 firms through the total business review process; I’ve had two clients who chose a positioning that did not work out because it did not have enough opportunity. The rest of them discovered way more opportunity than they could possibly address.

 

ROB: One other thing I think I recall hearing from you in a talk was a little bit of a criticism of growth for the sake of growing.

 

DAVID: Right.

 

ROB: Elaborate on that. What should people be thinking about instead of just growing? What do you think is a healthier perspective there?

 

DAVID: I think profit isn’t the most important thing in a business, but it’s way up near the top. I think culture and doing good work is more important, but profit would follow that.

 

Then, to me, framing the decision around growth is around one thing in particular. There are other smaller things that relate to it, but the primary decision around growth is: what do you want your role to be as the principal? Do you want to be further from the work and doing more recruiting and managing people and so on? If you do, then growth makes a lot of sense.

 

But to me, growth is a completely neutral decision. I just don’t care one way or another. There’s no correlation between making money and having a bigger firm. If anything, there might be an inverse correlation.

 

In fact, when you look statistically at firms in the 10 to 16 person range, they tend to make less money than firms that are smaller and firms that are bigger. So there’s something about trying to figure out how to make money at that size.

 

Both you and I live in the U.S. I’m sure you have listeners outside the U.S., but in the U.S. we tend to worship growth at all costs, and it’s crazy. “I want to be on the Inc. 5000 list!” I think it’s so silly. Being the same size, making a lot of money, doing great work—what’s wrong with that? I think that’s a fantastic choice if that’s the one you want to make.

 

If the choice is to grow, that’s also fantastic, but it’s not a better decision than deciding to stay the same size or be a one-person job, either.

 

ROB: I think a key point there is with the proper thinking, positioning, strategy, personal and team growth, there’s almost nobody listening to this who could not possibly find a customer to pay them more than their existing customers.

 

DAVID: Right.

 

ROB: It’s really a question of whether they want to do the change it would take. Is it orthogonal to growth? Are they almost unrelated, the positioning and the growth?

 

DAVID: It could be. That’s a very interesting point. I should clarify that one tier above (about 40, 45, 50 people, somewhere in there), the rules around positioning change.

 

So we have to answer that question a little bit differently in that there is an inverse relationship between the need for tight positioning and the size of your firm. The smaller the firm, the more important positioning is—kind of.

 

That’s almost a misnomer, because a large firm is positioned, and it’s just as important that it be positioned, but the positioning is by default that we are big enough to be a full-service agency, to be an agency of record. That equation doesn’t happen unless you’re bigger than 40, 45, 50 people. So the rules change a little bit.

 

But otherwise, below that—and I would say many of your listeners are below that—the rules of positioning are very, very specific.

 

ROB: Sure. Positioning to be AoR for a very large brand is a sort of audacious positioning. At a certain point it’s not credible to do that, but at a certain point it also makes sense for Coca-Cola to position itself as selling “happiness.” As crazy as it is that sugar water is happiness, they can do that because that’s their brand. Fair?

 

DAVID: Right. Yeah, and the idea of selling some audacious promise like that as a 12 person firm is a little comical.

 

ROB: [laughs] For sure. Since you wrote the book and since you put those thoughts out there, what are some of the ideas, whether through you or just broader market trends that you see, gaining traction? And what are some things that maybe have not been as widely adopted that you really want to reemphasize and get people to consider more deeply?

 

DAVID: I’ve been doing this for 24 years, and I ran a firm for 6 years before that, so that’s 30 years. So I’ve had three decades to look at what’s happening.

 

I would say that agencies are run better than they ever have been. The positioning decisions they’ve made are better than ever. The cultures are better than ever. I don’t know that there’s anything worse about the agency world; everything is generally better.

 

I still am a little surprised by some things, though, and here’s one of them. You and I have talked for 20 minutes now about positioning and lead generation all around new client acquisition. I’m surprised that we don’t talk more about internal positioning, which is really the culture, and then have a lead generation plan for employees.

 

In some parts of the country or in certain specializations, it’s actually harder to find good people than it is to find good clients. So I am a little surprised that we don’t emphasize that a little bit more.

 

I am also surprised that even though we’ve made pretty strong positioning decisions, I’m surprised that people are not licensing their IP more. I’m surprised that they’re not taking defined proprietary processes to start selling packages, sort of black boxes of their insight that’s really based on data and science.

 

I actually consider myself a data scientist masquerading as a consultant, and I’m surprised that more people don’t do that. It’s a very rare firm, 1 in maybe 50 firms, that even understands how to do that. Most of the rest of the firms are basically just selling time, selling implementation with a little bit of strategy. They’re not taking their IP and taking it to a higher level. So that would be another area that’s surprising to me.

 

ROB: What would a licensed chunk of IP look like? What’s an example? Is that like an SEO process? What’s a prototype that you might think of?

 

DAVID: Yeah, it could be that. It has to be based on a very tight positioning, and then all kinds of pattern recognition. It also has to be math-oriented.

 

I’m surprised that we have the Net Promoter Score, NPS, on how highly customers think of companies. Why haven’t we done something like that for employees and employee alignment? That would be an example of a black box. I have three of them in my business, and I’ve helped about 30 clients develop their own.

 

But most people are not really good at being honest about how lame their process is. [laughs] They look at it and say, “We do this, this, this, this. It’s a four-step process, there’s interlocking circles, they’re all named, there’s alliteration, and somehow we’re different than everybody else.” It’s _____, honestly.

 

They’re not really good at putting a process in place that’s founded on science. I think there’s a lot more room to do that legitimately in our field.

 

ROB: Sure. I mentioned SEO; I think one of the big things we’ve seen as a struggle in the SEO, maybe in the vendor space, is that it’s been really hard to articulate differentiation. I’m not sure whether it was a problem with special sauce or a problem of positioning. You had one of the SEO firms down the road from you acquired somewhat recently, and it’s been tough for a lot of those companies.

 

DAVID: Yeah, for sure. I look across all these different sub-industries under the marketing umbrella, and I wonder if some of them will even exist in 10 years. And SEO, that’s one of those examples to me—I don’t think SEO will exist in 10 years. Or at least if it does, it won’t look anything like this. It will be much more AI-driven.

 

I think the reason SEO firms struggle with differentiation is because there’s very little to differentiate. They’re basically saying, “I’m just going to throw good people at the problem every day,” and they’re not developing many unique things that no other SEO firm does. Now, they could specialize and apply it to a particular segment and maybe understand it better that way.

 

But I think if I were starting from scratch and I was going to decide what kind of a firm I wanted to create under the marketing umbrella, an SEO firm is not one of the choices I would make. I think the future is a little bit murky in that space.

 

ROB: So what would it be?

 

DAVID: It probably would be a UX, but in a broader UX sense, or it might be a CRO firm. One of those two. Or could be digital media planning. I’m not sure. I’m too old to start over, so who knows? It’s a hypothetical question.

 

ROB: [laughs] For sure, and we won’t hold you to it. David, when someone wants to get in touch with you, how should they find you?

 

DAVID: They could go to davidcbaker.com. I just redid the website, and all that presence is new. There’s tons of free stuff there. They can sign up for emails if they’re interested. If they want to know more about the book, they can go to expertise.is. One of those two places will get them connected.

 

ROB: Excellent. David, thank you for coming on the podcast and sharing what you’ve learned from talking to—really hundreds of firms, right?

 

DAVID: Yes, 900 firms, and then about 20,000 have been through the training. It’s been a fun ride all these years.

 

ROB: I probably should’ve mentioned that upfront as the big attention-getter, but I think you’ve kept everyone’s attention just fine.

 

A special thanks today to Alex Membrillo from Cardinal Digital Marketing for this introduction. That’s how we met David, and I’m grateful for that. David, thank you for sharing. I hope folks will check out the book and some of your talks and get in touch with you.

 

DAVID: Thank you, Rob. I appreciate you having me on the podcast. Take care.

 

ROB: Thanks so much. Take care.

Thank you for listening. The Marketing Agency Leadership Podcast is presented by Converge. Converge helps digital marketing agencies and brands automate their reporting so they can be more profitable, accurate, and responsive. To learn more about how Converge can automate your marketing reporting, email info@convergehq.com, or visit us on the web at convergehq.com.

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