In this episode, Chip and Gini dive into the topic of agencies doing subcontracted work for other agencies.

Both share their personal experiences of starting and growing their businesses through such work. They discuss the advantages, such as faster decision-making processes and the opportunity to work with big clients without direct procurement hassles.

However, they also highlight significant risks like delayed payments, the potential for relationship conflicts, and the importance of clear contractual agreements. The hosts stress the need for transparency, proper onboarding processes, and clear communication channels to mitigate these challenges.

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 Gini, we’re recording this just after the start of the new year, and I just, I don’t have a cutesy, fun, entertaining, awful, whatever you want to call it, opening, no, no. So we’re just going to, we’re just going to dive right into the topic, which is the idea of agencies doing work for other agencies.

And this is something that, that I know you’ve done, I’ve done it as well. And a lot of agencies, particularly as they’re getting started as they’re growing, end up doing subcontracted work for larger agencies or sometimes even similarly sized agencies that just, you know, need some excess capacity or the skills that you have to offer.

And I think there are, there are certainly some upsides to this, but there are some risks that go along with it as well. And so I think this would be a good topic for us to use to kick off the year, even though it’s the second episode people will hear in the new year, it’s the first one we’re recording.

Gini Dietrich: This is the first one we’re recording of the new year. You know, it’s, it’s interesting to think about this because that’s like, this is actually how I started my business. I was freelancing. I had quit my agency job and I was freelancing just to get through my wedding and get my, my then fiance moved to Chicago, like all this life change.

 And so I was doing work for other agencies, through other agencies on some of the bigger clients that I was accustomed to working with. And that’s how I built the firm. Like it was. I, the big agencies here in Chicago, I’d built such great relationships with people that worked there that they would say, Oh, well, this half a million dollar business is too small for us.

You should go talk to Armand Dietrich. Or this 250, 000 potential client new business is too small for us. You should go talk to Armand Dietrich. And they would send business to us pretty consistently. And that’s how I built the firm. You know, that, that died down after the Great Recession a little bit.

And then when we started to get a little bit bigger and they started to go, Oh, wait a sec. Maybe, maybe you could be seen as competition in, in, in some cases. But I, I probably spent three or four years just working through other agencies, in that, that way so that they, they were sort of the lead agency, but we were doing all of the work.

Chip Griffin: Yeah. I mean, I, I have a similar story when I first got started. I would say at least 50 percent of my business was subcontract work for larger agencies. I, I had a bit more of a mix of, of direct work, at the time, but you know, it still was an important piece of the business. And frankly, even as I grew, it still was a piece of the business because there were always larger agencies out there that I had relationships with and I had specialized skill sets or team members who could do certain things that were beneficial.

So it can be a good way to get started and it can be a good way to continue to grow, but you do have to think about it because the things that make it easy to get in are also some of the things that can also create some pitfalls for you, right? It’s easier to get in because you know their world.

A lot of times it’s an agency that maybe you had a relationship with before. You kind of know how they work. They know you. And so it tends to be a quicker, decision making process than it is for an ultimate end client that you’re going to work for. Because the agency that’s hiring you usually has a specific need and it tends to be pretty urgent. Because we’re in the agency world ourselves and we know that we don’t often have the resources at hand.

And so when we need it, we need it yesterday. And so that’s really appealing if you’re a small agency and looking for additional work.

Yeah.

Gini Dietrich: And I also think there’s, you know, you, you think about it from the perspective of large companies, most large companies don’t typically hire contractors, freelancers, or boutique agencies.

And there’s the idea that nobody ever got fired for hiring a big PR firm or a big ad agency, right? But they would get fired if they took a risk on a smaller one. And so there’s something to be said for continuing to, to sort of learn the ropes of running your own agency and processes and onboarding and all those kinds of things that you have to learn, hiring, hiring the right people, making sure that they’re the right fit, all those kinds of things that you have to learn as you’re building your agency. But doing it in sort of a low risk way where you’re getting a really good consistent revenue from a larger agency and still being able to work with those big companies that you probably wouldn’t get to work with otherwise.

Chip Griffin: Yeah. And it, I mean, it, it really makes that process a lot easier because you don’t have to go through procurement. You don’t have to deal with all of the headaches.

Gini Dietrich: Yes.

Chip Griffin: That come along with working directly for a large company, who in most cases won’t hire you directly anyway. In part because they know all of that bureaucratic stuff is going to weigh you down.

So it does open those doors. I think, you know, one of the challenges when you are taking on this subcontract work, particularly if it’s for a large client at the end of the line there, the large clients tend to abuse their own agencies. They pay them slow and those kinds of things. And so that trickles down to you.

And so most of the agencies that subcontract with you, they’re going to want to wait to get paid by the client before they pay you. And so if the, the big client is taking 90 days to pay them or more. You’re then going to be probably at least 120 days before you start seeing money. So it is, it is something that you need to go into at the very least with your eyes open that this is something that may happen and you need to get clarification over what those payment terms are. Because I’ve seen many times a small agency goes in and they don’t realize that that, that the larger agency is going to sit on payment until they get paid.

And, you know, we’ve had episodes where we’ve talked about how other agencies shouldn’t do this to, to smaller agencies, but they do. Some of the absolute worst clients that I’ve ever worked with in my career were other agencies, large agencies who basically inherit the bad practices of their clients and then magnify them.

And that’s just wrong. But it’s reality. And so if you’re going to go down this path of doing subcontract work, you need to understand that risk and either plan for it or say no, because you’re not willing to accept that.

Gini Dietrich: Yeah, and I think there are some things you can do in those instances, too, and I know that this is not what this episode is about, so I’ll just make this really quick note, but there are some things you can do, especially at the beginning of the relationship when you have leverage. And you can negotiate some of that stuff for sure.

You know, we have, we had a situation last year where the, a client, an agency that we’re working through for a really large client, wanted to pay us in six months. And I was like, no, no, no, like if you want to work with us, that’s absolutely not going to work. And so we figured out a way, it still ended up being 60 days, but 60 days is better than six months.

Still not my ideal, but. You know, if, if I had gone in, we’d still be working for free right now.

Chip Griffin: Right. Right.

Gini Dietrich: And it’s not happening. It’s, you can’t, you can’t run an agency like that. You can’t run a business like that.

Chip Griffin: Yeah. And I, I think it’s important to make sure that you’re asking these questions up front so that you understand what the relationship is going to be, because it’s really easy when you’ve got, you know, the, that, you know, mid sized or larger agency calling you up and saying, Hey, we need help.

We need to start yesterday. And you get excited because you’re going to be doing work for a big logo client and it’s kind of fun and it’s more money in the door, which is good. And so you just kind of jump in and then you start asking questions after the fact, because maybe you don’t vet another agency in the same way that you would an end client.

Gini Dietrich: Yes, you absolutely need to.

Chip Griffin: You absolutely need to because they are your client. While there is someone downstream, your client is that agency. And so you need to treat it with the same scrutiny that you would with any other client and make sure that it’s a good fit and that you understand what the terms are and that you don’t do work before there’s an agreement signed.

Because this is another. Agencies are very abusive when it comes to this. They’ll say, well, we’ll take care of the paperwork. Let’s just, can you just hop on a couple of calls this week and we’ll get this squared away. Don’t do it.

Gini Dietrich: No, the answer is no.

Chip Griffin: You need to go through the same process because as exciting as it is, you can get yourself into a world of trouble. Because it becomes a lot harder to extract yourself after you’ve already been on a few calls.

Particularly if those calls are with the end client.

Gini Dietrich: Yeah. Yeah. Yeah. And you have, you have to go, that’s a really great point. You have to go through the same onboarding, the same contracting, the same everything, you know, we, this, this one I mentioned before, they wanted to send us their contract and I was like, nope, nope.

We’re going to treat you just like we would our clients, even though the end client is your client and you are our client. So we, we did it. We did the same process and we were able to, like I said, at the beginning of the relationship is when you have the leverage. So you can’t do it, you know, two months from now or six months from now.

You have to do it at the very beginning of the relationship.

Chip Griffin: And I think it’s important to, you know, just as you’re trying to get expectations squared away on things like payment terms. You need to get expectations squared away on other important details, particularly communications. Because sometimes when you subcontract with another agency, they want to have you with a seat at the table communicating directly with the client.

It’s fully transparent. Other times they want you more behind the scenes so that they own the relationship. They’re protective of it. They don’t want you. I mean, if we think about agencies and their own small agencies and their own subcontractors, it’s the same thing. Sometimes you allow the contractor into the meeting.

Sometimes you want to keep them behind the scenes and, and own the relationship yourself. You need to understand what the expectations are here because it may change how you go about things. And I can tell you, it is really difficult to play that game of telephone where the client is talking to agency A that then talks to agency B.

If you’re agency B, you’re not hearing the complete message. You’re not able to convey the complete message back. It slows things down. It can lead to misunderstandings. It can lead to hurt feelings, all sorts of things. So you really, I would encourage you to try to avoid you know, being that hidden white label behind the scenes solution in most cases. Not every case, there’s there are instances where the work you’re doing is delineated enough that it’s fine. But a lot of times, if you don’t have that kind of direct contact with the client, it’s going to make your job a whole lot more difficult, and at a minimum, you need to figure out how to compensate yourself fairly for that, set the right goals and expectations with the agency so that you’re not, nobody is surprised six months down the line.

Gini Dietrich: Yeah, I totally agree with that. And I also think there is some risk in that because, from your perspective, if you are white labeled under the agency and you have direct client contact, I have a client who’s going through this right now, the client might prefer you. Over the agency or some of the people they’re working with at the, the larger agency, and that can create some pretty big issues for you.

It’s nice. It’s a nice ego boost, but it can create some real issues for you with your client, which is the larger agency. And then on the agency side, like if I had a subcontractor or a freelancer that had a better relationship with the client than, than we did, that’s also a problem. So. There, you have to kind of look at all of this and understand, you know, the, the pros and cons, the risks and, and rewards, and it’s a great way to, to build your business for sure, but it doesn’t come without some risk.

Chip Griffin: Yeah, and, and the one thing I’d be really careful of is the hybrid, where you’re half in, you’re half out, you’re sort of half pregnant. Doesn’t work. Don’t do it.

Right. If, if you can’t be in a situation where you’re having direct contact with the end client, but you’re pretending to be part of the agency that’s in the middle.

It gets really, really complicated, really fast to do it that way. If they want you to use, you know, one of the large agency email addresses or something like that, fine, but make sure that you’re, you’re still communicating to everybody that you’re doing this in partnership with them or something. We’re just such close partners.

We have an email address, but don’t try to be in a situation or don’t put yourself in a situation where you are being perceived as an employee of that agency when you’re not. Because that, I guarantee you at some point, there’s going to be a misunderstanding. There’s going to be something where the, the client feels like, well, they, they’ve asked an employee of this agency to do something and it didn’t.

Because your boundaries are different and that needs to be clear to everybody. So to be really, really careful, you can either be fully behind the scenes and only dealing with that agency in the middle, or you can be fully in contact with the client and they know that you are a partner agency or something like that, but that, that, that straddle, that’s, that is where you run the highest risk of problems.

Gini Dietrich: Yeah. And you know, I would think of, I would really think of this through because I think since the pandemic, we’ve been, we’ve, the, the business world has become more accommodating and more, what’s the word I want, like, accepting of contractors, of remote employees, of hybrid relationships, like, they, we’ve all become more accepting of that.

And it used to be that you would have to hire a contractor and white label them and have them work under your umbrella. So if you’re working with a larger agency, you would work under their umbrella. We haven’t, that’s not the case anymore. Like, I don’t think anybody cares anymore. Clients just want the work done and they want to know that it’s being done well.

They don’t care if it’s, you know, with a group of subcontractors or another agency, or, you know, like we don’t have any web experience. So I have a preferred web vendor that we bring into almost every client. They don’t care that it’s not our, agency, they just care that it’s, that’s it’s not our employees.

They just care that their websites are being built and on time and all of that. They don’t have to worry about it. Right. So I think it’s less today needed that you have to white label and more and so you have better, you have more leverage and a better opportunity to say, let’s go in as partners versus us working underneath your umbrella.

Chip Griffin: Yeah, absolutely. I mean, it, it, it’s as you say, nobody really cares, they don’t care where you work, they don’t care who you work for as long as you’re getting the work done for them that they’re paying for. And that is, that is generally speaking the benchmark that, I mean, everybody in or outside the agency world is using today.

And so you should leverage that to your advantage and try to structure it in such a way where you can have the direct transparent contact because that’s in most cases going to work out better for everyone involved.

Gini Dietrich: Absolutely.

Chip Griffin: Now, one thing you had touched on earlier, though, when you do have that is that that does run the risk that the client may like you better.

And so one of the things that you absolutely need to do if you’re subcontracting with another agency is be really clear about what your obligations are. And what your restrictions are on that sort of thing. In other words, typically if, if another agency is subcontracting with you, they ought to be insisting upon language in the contract with you that says that you cannot work for them directly without their pre approval.

And if you were subcontracting, you would want the same sort of protection. So, so I wouldn’t, you know, look askance if, if they’re asking for that sort of protection, but you need to understand what are the rules that are in place. But even once you understand what the, the obligations are. You still need to also understand how is it going to be perceived?

So let’s say you don’t have that kind of restriction in place and the client comes to you and says, we want to work with you directly. Be aware that if you agree to do that, even if you are legally permitted to do it, you’re basically burning that bridge with the other agency.

Gini Dietrich: Absolutely.

Chip Griffin: Do you really want to do that.

I would encourage you in most of those cases, you probably want to talk to the larger agency and say, Hey, look, I got this approach. Can we work something out? Can I pay a referral fee to you or something like that so that we keep you whole? Is there something we can do? But it’s not just the direct relationship with that client, too.

You need to, to understand, is this agency expecting that you’re not going to compete with them anywhere? Again, It may not be in the actual letter of the agreement that you have, but if you go out and you are now, you know, essentially bidding against this agency on another project with another client, it has nothing to do at all with the work that you’re doing with them, they’re probably not going to react positively to that if they find out.

Gini Dietrich: Probably not. Probably not.

Chip Griffin: You, you need to think those things through carefully as well, because they will perceive it very differently than an end client who’s really only going to compare care typically about direct competitors or, or things like that. Whereas the agency, they’re going to care about you touching anything that they either have a client in or that they’re touching on or that they’re bidding on or anything like that.

And so it does create particularly the, the closer the two of you are in the kinds of clients that you’re going after, it can be a problem. And so that’s, that happens more when you have small to mid sized agencies subcontracting. If they’re mid to large, you’re probably fishing in different ponds anyway.

So that’s probably not something that’s as big a deal. But you still need to be aware of it and understand again, what your legal obligations are, but also what the perception might be.

Gini Dietrich: And I think, you know, in the case of my, my clients specifically, they, they do something very different than what the agency does.

So it’s sort of like my web firm relationship, right? And a client has come to them and said to my client and said, Hey, we’d rather not pay you through the agency. We’d rather work with you directly. And my client’s like, Ayeee, which from the client’s perspective is probably the right thing to do because they’re probably going to save money by working with the two agencies.

Maybe. But then they’ll have to manage two agencies. So I think there is some, you know, definitely having the conversation with your direct client, which would be the agency in this case, and say, Hey, they’ve approached me on this. I know we don’t do the same kinds of work. What do you think is the right approach?

And in some cases, the agency owner may be like, Okay, That’s fine with me. That means I don’t have to manage you.

Chip Griffin: And look, I mean, at the end of the day, if there’s going to be an issue, I’d rather it be because I brought it up proactively and we can address it head on. I’m not, when it’s these kinds of relationships, I’m not a fan of ask forgiveness rather than permission.

Gini Dietrich: Yeah. Yeah.

Chip Griffin: And there are times and places where ask forgiveness, not permission.

Gini Dietrich: Yes.

Chip Griffin: When you’re doing subcontract work and you’re threatening that relationship, most of the time, that is not something that I would handle in that way. Particularly if you think there’s the possibility of doing future business with that agency. Because now you’ve not only put at risk your current work, but also potential future work and revenue.

So get it out of the way, come to them proactively, say, here’s, here’s the situation that’s developing. Just want to make sure you’re cool with that. Or at the very start of the relationship, say, Hey, you know, I, I typically do these kinds of projects. I know it may touch a little bit on what you, how do you want to handle those things in the future?

Or just tell them how you plan to handle it, but at least get it addressed up front and don’t wait for the issue to explode in your face. And then you’re like, what do I do now?

Gini Dietrich: Yeah, I think it’s, there are, like I said, there are risks and rewards, there are pros and cons to this kind of relationship. It is definitely how I built my agency.

So I, I am a big fan of doing it that way, if you can find the right relationships. But understand that that is your client, they need, you need to go through the same process that you would if it was a, you know, a typical, I will put in quotes, typical client. But, and understand what the pros and cons are before you go into that relationship.

Chip Griffin: So lots of opportunities to work with other agencies, there’s plenty of upside, but you’d also need to make sure that you’re aware of the potential pitfalls and protect yourself against them.

Gini Dietrich: Absolutely.

Chip Griffin: So with that, that will bring us to an end of this episode of the Agency Leadership Podcast. I’m Chip Griffin.

Gini Dietrich: I’m Gini Dietrich.

Chip Griffin: And it depends.