Beyond The Billable Hour
"NO ONE WHO CALLS BURSON-MARSTELLER," says Paul Franson, head of a California public relations agency, "expects to meet with Mr. Burson or Mr. Marsteller."
Burson-Marsteller, the world's largest public relations agency, has 1,800 employees, 45 offices in nearly two dozen countries, about 300 clients, and $105 million in billings. Founder Harold Burson, 65, as good as he is at public relations, just wouldn't have the time to give every client a piece of his day.
More surprising, however, is the fact that few people who call The Waggener Group Inc. expect to meet with Ms. Waggener.
The Waggener Group, of no immediate threat to Burson-Marsteller's preeminence in the industry, has 21 employees in a single office, serves close to a dozen clients, and will probably bill $2.5 million this calendar year. As good as she is at public relations, founder Melissa Waggener, 32, also lacks the time to render professional service to every client.
Burson's company, headquartered in New York City, is 33 years old; Waggener's, in Portland, Ore., is barely 3. B-M seeks multinational corporate clients like AT&T and Union Carbide; TWG so far serves only such West Coast technology companies as Microsoft Corp. and Sequent Computer Systems Inc.
For all their differences, however, the firms are alike in this respect: their founders have managed to overcome the obstacles that keep most professional-service firms -- in public relations, law, architecture, accounting, and other areas -- from ever growing beyond the limits imposed by the time constraints of the founder. It's no small feat.
Any professional-service firm has just one thing to sell -- time -- and usually that means the founder's time. "My rate is $200 an hour," says Ted Pincus, a public relations veteran, "and even if I doubled it, there's only so much I can earn working a certain amount each day."
This singularity -- time as product -- makes professional-service firms easy to start. Tag "& Associates" to your name and you're in business. Nor will you need much seed capital. "What does it take to get into this business?" asks the head of a large agency. "A typewriter and a telephone." Up to a point, such companies are easy to run. An independent accountant, say, who bills at $100 an hour might gross $170,000 a year -- enough to support himself and a good secretary/assistant. A former White House official turned lobbyist can probably afford a staff of three or four on what he will bill. In either case, the organization is small, and there is very little to manage.
The point that often escapes the professional's notice, however, is that very little value is being built. He or she is getting paid for the time, but where is the equity growth? So long as the professional stays in what amounts to a solo practice, says Steven Appel, managing director for small business at Arthur Andersen & Co., the accounting firm, "he or she is the business. There's nothing to sell."
"It's sad," adds Paul Alvarez, chairman and chief executive officer of Ketchum Public Relations, a $14.5-million agency that expands through acquisition. He sees lots of small-agency owners who try to sell, often so they can retire. But unless the owner wants to stay with the agency after the sale, Alvarez says, the business he may have spent years building has no value to an acquirer. "What would we be buying?" he asks. "Some word processors, some desks, and a lease."
There's a difference, in other words, between delivering a professional service and building an organization to deliver the service. The Waggener Group built that distinction into its operations from the beginning.
Steve Ballmer, vice-president of systems software at Microsoft, a major account for The Waggener Group, called Melissa Waggener one day to say that he couldn't work with Pam Edstrom, the account manager. He wanted Waggener herself. Waggener went to Edstrom and told her she had a problem at Microsoft. "I could have argued with Steve," says Waggener, "saying Pam is good; I'll work with her. Or I could have done the work myself. But that's not my reponsibility. My responsibility is to say to Pam -- and it was a horrible conversation for me -- 'There's a high-level person at a client who has trouble dealing with you. You've got to fix it." Edstrom fixed it.
The story suggests a good deal about how The Waggener Group is building value, and how it has been able to accommodate growth that would tax a single professional's limits.
Waggener has three partners, Edstrom and two other women, and the sum of this particular three plus one is greater than four. To its clients, as the Ballmer-Edstrom incident illustrates, and to its potential clients, The Waggener Group presents a company face, not any single person's. "We believe it should be unimportant to the client," says Edstrom, "who [among us] does their work."
Conditioning clients to think that way begins in the first two or three meetings, while both companies are still sniffing each other. Waggener herself may be at one meeting.Edstrom and another partner may take the second; another combination of partners, the third. All four will have met with the prospect before they meet together to decide whether to take the prospect on as a client. On the other side of the contract, the prospect will decide to be a client or not depending upon how it feels about The Waggener Group, not Waggener.
If that sounds simple, ask other agency heads about the problem of being the name on the door. "What a huge pain," says Paul Franson, who founded his own high-technology PR firm, Franson & Associates Inc., a few years earlier than Waggener. His agency recently lost a longtime client, Franson says, because the new vice-president of marketing there preferred to work personally with the president of another agency. Should you give in to clients' demands to deal only with the name on the door? "You have to decide," says Franson, "if you want that limit put on you."
One afternoon a memo appeared on Waggener's crowded desk from Barbara Robison, who used to be The Waggener Group's banker and is now its manager of finance. In her memo Robison reminded Waggener that the deadline was approaching for her task team's report on a specific strategic planning issue for which Waggener had taken responsibility. Other partners got similar memos."If you're constantly positioning today for a company that will be significantly larger in the future," says Robison, referring to TWG's planning efforts, "by the time the company is that size, people are already used to it."
Note, though, that it is Robison, not Waggener or one of her partners, who drives the strategic planning process. "Strategic planning," Robison says, "is a method of keeping the partners tuned to the business side of the business." But the business side of the business is not where the partners spend most of their time. By choice, and by design, they concentrate on client work, while an operations and financial-management system that is probably more sophisticated than necessary for today's business works to move the company toward tomorrow.
Robison makes financial projections, does market research for new-business development, and heads up due-diligence investigations of potential clients. "She does what I tried to do at 2 in the morning for the first year and a half of my business," says Waggener, "and she does it better at 2 p.m."
General manager Jim Buchanan manages the company's hiring, financial control systems, production, operations, and quality control, as well as its routine relations with bankers, lawyers, and accountants. He joined the company when it was less than a year old. That may sound soon, but it was later than the business plan called for. "When I first talked to them," says Buchanan, "Melissa and Julie [McHenry, another partner] could list 50 things they didn't like about [Regis McKenna Inc., the PR agency where both had previously worked] -- not the PR things, but operational things. But they didn't have any interest in operations. They wanted to concentrate on PR. . . . This company's growth has not been constrained because the principals have had to worry about operational issues."
And if that sounds like an easy and sensible decision for professional founders to make, check with Ted Pincus, founder of The Financial Relations Board, a 25-year-old agency with 72 employees that represents public-company clients to the financial community. Who runs his firm? "I do," says Pincus. "There's more administrative pressure than ever, and yet I still have a yearning to remain involved with the clients. . . . On the one hand, there's the desire to do a good professional job, and on the other, the urge to be an entrepreneur. The two are not necessarily compatible unless you're working 24 hours a day. . . . I've gone through two marriages."
Julie McHenry objected to a regional magazine's plan to put Waggener's photograph on its cover last spring. The story was about the agency, McHenry held, not about Waggener herself.
Pam Edstrom once suggested that they consider changing the name of the firm to something besides The Waggener Group. "The response," she says, "was, 'Change it to what?' I couldn't think of anything."
These and similar issues are not trivial. To dismiss them is to forget that people have egos, but to dwell on them every time they arise is to divert productive energy from the real business of the firm. The Waggener Group has grown as much, and as quickly, as it has partly by creating an environment in which four people, not just one person, can exercise professional creactivity and judgment. In client work, the partners are equals. The organizational structure of the agency helps to promote this equality, but attitude is the key.
"The only concern that I had about being a partner in this agency," says Edstrom, "was the danger of its becoming a one-woman show. There are no examples in our industry where that has not happened. Melissa and I talked about it before I joined. The fact that we could talk about it suggested that it would be less of a problem than I thought."
"Melissa never said, 'I'm going to start a PR agency. Do you want to work for me?" says Jody Peake, the fourth partner. "It was always, 'Would you be interested in starting an agency? Here's what we need to do. What would you like to do?' Ownership was never an issue for me."
An organization chart of The Waggener Group would have four boxes at the top -- the top line of one of them, Waggener says, raised just the tiniest part of an inch above the other three. The altitude difference is not insignificant. Waggener sets the compensation for her three partners and controls the distribution of equity. She holds the majority of the stock.
Aah, you say, so in the end it's Waggener's company? She runs it after all? Yes, but not exactly.
She could, if she chose, assert authority by wielding her equity club. She could, if she wanted, control the company the way a typical CEO might. But Waggener says she doesn't want the burden that that kind of control imposes on the individual wielding it. Nor is she willing to accept the limitations it puts on the firm's capacity to grow.
In structuring her own company, Waggener seems to have achieved a more subtle, if no less effective, way of influencing the organization. "I planned from the outset," she says, "to bring in partners who could share the responsibility, horror, and credit of growing the business." If the way people talk about TWG is any indication, she has succeeded. Waggener, not surprisingly, occasionally refers to the company as hers. But so do her partners. "The frustration at Regis McKenna," says McHenry, "was that I had to spend time on nonprofessional work that was not where I could add the most value. With my own agency, I can control that."
"The equality of their professionalism," says general manager Buchanan, "is more important that any differences in their equity or compensation or their length of service. . . . They're willing to listen to each other, share with each other, take the time to reach a joint decision. They recognize each other's differences and allow for them. Julie is intense. Melissa is extremely intuitive, and usually right.Jody is tremendously deliberate and tends to look for most of the facts. Pam has a strong positive personality. . . .You can't replicate this agency's style easily."
"At meetings," says Waggener, "we've learned a lot about one another, when to pay particular attention to someone. If we're talking about a personal-computer company, for example, we take Pam's advice very seriously. She knows the industry. . . . We decided not to make what would have been a very important hire for us. Not because anyone had a big problem, but because there wasn't enough comfort level in the group with this individual." When Microsoft was more than a year late delivering Windows, a major new software product, Waggener proposed to introduce the product to the press by inviting reporters to a roast of Microsoft executives. Though two of her partners had qualms, even after long discussion, the roast was eventually held. "They couldn't have vetoed the idea," Waggener says, "because the word has no meaning in our organization. But if their objections had been strong enough, we'd have asked more questions. . . . I'm comfortable that this group makes very good business decisions."
Maybe it does -- but it makes them slowly. If the system sounds like management by committee, it is, and the company pays the customary price. "There have been times," says McHenry, "when we haven't gotten back to new business prospects or potential new employees fast enough."
Could four men do as well working through consensus? Peake thinks not. "There is a feminine technique. The way we ask a question or make a request allows a person to disagree without being defensive: 'Wouldn't it be . . . Don't you think . . .' We give each other plenty of room to disagree, and it allows for different solutions to a problem. I hate to say that there are those kinds of differences between men and women, but there are. We're very nonthreatening to each other."
Waggener disagrees. "Maybe [those characteristics are] female, but I don't want to put males down. I know some males who would [fit] here very well. . . . I think it's just the characteristics we have as individuals that make us unique."
Waggener asked the regional magazine to keep her picture off the cover. "Had the writer figured out what my value added was in the company and written about that," she says, "none of us would have had a problem." And the name? "It's called The Waggener Group," she says, "because I had the reputation, and the group was the group because I thought of getting it together. After that, I started to share. . . . We're equal, but someone has to decide who does what, how decisions get made, and in a crunch who's in charge. . . . There's no doubt in their minds that I'm the leader. I'm a catalyst, an idea person."
If Waggener makes balancing professional equality with shared executive authority in the same firm sound easy, Harold Burson argues that it isn't. In 33 years he has watched scores of agencies blossom and die. "Too many egos," he says, "get in the way, usually the ego of the person who heads it up. Service businesses, when they start growing, usually reflect a highly competent individual who is also entrepreneurial . . . and I think a - person with all that stuff is also almost always egocentric. He builds an organization and a business in which he, or she, wants to be part of every major decision and be included in the process of every major action. What happens is that he is defeated by the clock. He is no longer able to do everything that one has to do in order to sell business, to implement and execute business, so the business grows to a certain point and then doesn't get any larger.
"I think it was [Robert] Woodruff at Coke who used to say, 'There's no telling how far a person can go if he's willing to let other people take the credit."
The Waggener Group minimizes the strains of acquiring new business by counting on existing clients for much of its revenue growth. Fewer but larger accounts require less selling time; account managers can concentrate their creativity. Much more than half of last year's sales growth came from existing clients. The danger, as Buchanan points out, is that a large client can become a significant share of the total business.
Eventually, though, growth from whatever source will provoke TWG's expansion. The first sign of this expansion will probably be a second office, either in California or in Boston, where the science- and technology-based companies that are The Waggener Group's market are clustered. How will the culture of the Portland office be duplicated there? "I don't know yet," says Waggener. "Probably we'll move one of the key people there, at least for a while. It is an issue." And what will happen to the consensus decision making and the informal relationships when four partners become five, six, more?
At some point, Buchanan thinks, people "will get less equal." Robison says consensus may have to yield to majority rule, in order to speed decision making along. Waggener doesn't know for certain. "Six? That might be where we stop and change," she says.
Maybe not six, but somewhere. The appeal of The Waggener Group as a model of success in the professional-service field is not that the partners have solved all their future growth problems. They haven't. They could stumble badly. The loss of one of the current partners or the unwise inclusion of the wrong new partner would be a serious blow to a firm still so young. David Maister, formerly at the Harvard Business School and now a consultant to older, larger professional-service firms, says these more mature companies have their growth and management issues, too."The pattern," he wrote recently in The American Lawyer magazine, "is a familiar one. A successful professional service firm has been led by its small group of founders. . . . Perhaps one individual in particular was acknowledged as the pacesetter. In any event, leadership was not in dispute. . . . Alas, those days are now over. The founders have passed on, perhaps appointing successors. But the new aristocracy, for whatever reason, does not rule as naturally as the old. . . . In earlier days, everyone knew everyone else; influence and legitimacy were developed on a personal basis. Now the firm is large, perhaps far-flung. . . . When the founders were around, the values and directions of the firm were clear. Now the partners have an opportunity to debate what type of firm they want. Calls for democracy, representation, and participation arise. . . . In short, the revolution is on."
For the here and now, however, The Waggener Group can absorb a substantial number of new clients and additional work from existing clients without straining the existing structure. It can do so because the company was organized from the outset to be more than the extension of a single individual.
"I've grown a real business," says Waggener, ticking off the things she's most pleased with, "that is not contingent upon a client's wanting to hire me. People have asked and we've declined. We have avoided the inability to make decisions that depend on a single person.
"We have also avoided appearing inconsistent to outsiders," she continues. "People say nice things about the company, not about Melissa Waggener. We've avoided turnover among employees, and we've avoided turnover in accounts."
Finally, she says, "We've allowed me to be more effective. We've avoided focusing on one person, so that the things I'm not very good at can go to someone else."