ANALYSIS: Client losses need not be insurmountable for firms

While client losses hurt, especially major ones, Andrew Gordon finds that preparation and focusing on the positives of those relationships can help agencies move forward.

While client losses hurt, especially major ones, Andrew Gordon finds that preparation and focusing on the positives of those relationships can help agencies move forward.

Breaking up is hard to do. Surviving can be even harder. And no one knows that better than TSI Communications. After a 10-year relationship with IBM, TSI tumbled from a 150-person-strong agency, with offices in New York, London, and Silicon Valley, to barely six people in San Francisco after Big Blue ended its relationship with the firm in its major consolidation of 2001. "We formulated a plan to try and develop as much new business as best we could," says Barbara Hagin, EVP of TSI Communications Worldwide. "But things were going downhill pretty fast at that point. We just went dark." Agencies know all too well that nothing lasts forever. But that doesn't mean the loss of a beloved account doesn't sting. Just ask Access Communications about Siebel Systems, Phase Two Strategies about PeopleSoft, Applied Communications about Oracle, or the Hoffman Agency about Hewlett-Packard. There's much more on the line when a client leaves than pride or ego. An agency's finances and reputation are at stake, as is the staff's morale. And it's something all firms need to be ready for, especially in an economy that has made fierce competition for any client a blood sport. Too many eggs in one basket "There's no question about it - we grew up with HP," says Lou Hoffman, president of the Hoffman Agency. Hoffman began working with HP one month after opening his shop in 1988. But he saw that relationship come to an end late last year, when HP consolidated its PR work with three firms. "We learned a lot in our interactions with them. We dealt with a lot of smart people. "But I think anyone in business will tell you that it's not healthy to be so beholden to one client or customer," adds Hoffman. "It's just common sense. But we had a relationship with HP that had evolved to where we were beholden. As you work with a large client, there's no such thing as the status quo. When you do great work, you're bound to see it grow. And for 15 years we did great work, and, in turn, they offered us more and more. We couldn't turn it down because that would be admitting we couldn't scale with them." Still, Hoffman recognized the danger he faced by letting HP represent so much of his agency's income. And while he worked to change that, "I was never able to make significant inroads, for a good reason: HP just kept giving us more work." Hoffman isn't the only one who recognizes the bittersweet problem of having a client provide too much of the revenue stream. Phase Two tries not to have any one client represent more than 20% of its revenue. But even the best intentions don't always work out, as CEO Bill Boehlke found out with PeopleSoft. "They provided marquee value, along with significant billings," says Boehlke. "They were highly visible as a troubled company, and their turnaround was also highly visible." Much like Hoffman and HP, the bond between Phase Two and PeopleSoft also grew over two-and-a-half years. "[The account] did become bigger than our target of 20%," says Boehlke. "But we knew it would end someday. Anything over two or three years is a nice ride. But it was more of a shock than anything else, since we had done an annual review, and they told us we were doing a good job. But the CEO wanted a global agency." Both Phase Two and Hoffman had to cut staff, although not nearly as severely as TSI. Planning is the key to survival, says Applied Communications CEO Alan Kelly, who lost Oracle in 2001 and some HP business in 2002, but has since picked up key clients including Cisco, BEA, and E.piphany. "With big relationships, those clients usually send signals of intention," argues Kelly. "You know if things are degrading. You know if a relationship is going away. So you should have time to make it right. You need to plan to replace that lost business, and set the expectations of the staff. In the case of HP, we were certainly ready for it. In fact, I haven't found that the losses of HP and Oracle have been ruinous to our reputation." But there are also benefits to giving so much attention and resources to one client. Kelly asserts that one of the best decisions he made was giving such a "disproportionate" amount of attention to Oracle, because "aligning with large, prestigious clients helps set standards and expectations." The Hoffman Agency also benefited from its tight relationship with HP, which enabled the firm to build its global infrastructure, while giving the firm "instant credibility," says Hoffman. Preparing for the inevitable All good things must end, however. And Hoffman is a good example of how planning for the inevitable and unfortunate pays off. By remaining an independent agency, Hoffman says he doesn't have "bean-counters in New York telling me I need 5% profitability this quarter." Hoffman built a "war chest" over the years, which now enables him to hang onto talent he might have had to let go of otherwise. And having healthy operations in Asia and Europe also allows the agency, which is operating in the red in the US, to get though this period. "I know that without our war chest and global infrastructure, we'd be just another dinky agency trying to get to the next day with the lights turned on," asserts Hoffman. But money can only help with so much. There's also the emotional damage a client loss can inflict, and that's nowhere as easy to prepare for. "We had some people who resigned, because the shock was so great," says Boehlke. "They had dedicated themselves to PeopleSoft, and they just didn't understand what it was going to be like not working on that account anymore." By using his war chest to keep staff, Hoffman not only has an experienced team in place ready to hit the ground running when new clients sign up, but it also sends a message that he values the time and effort they gave. "The staff sees us doing everything possible to keep the team in place," says Hoffman. "You must immediately establish honest communications with the staff. You can't just say your piece, come back in 24 hours, and expect it all to be the way it was." But things will never really be the same, and this is a reality TSI's Hagin knows all too well. "When the primary revenue-generating client goes away, people wonder what will happen," says Hagin. "There's lots of under-the-radar gossip. But it's very rare for clients to stick around for more than five years. A wise agency should have a contingency plan. You have to be smart about it. But when clients leave, it still hits you like a ton of bricks." And while the loss of a big client can hurt an agency's reputation, Boehlke hopes people remember when the firm still had that client, and how that great work is still possible. "The impact on the agency was not at all negative," says Boehlke, of losing PeopleSoft. "It's a positive when you have the right staff, and people see both the work, and the way you interact with that client." And Hoffman knows that while his agency has seen better days, people will not solely remember that his relationship with HP came to an end, but they'll focus on the work his agency produced. "For a long time, everything went our way," says Hoffman. "Life isn't like that. It doesn't always go your way. But we are of the right ilk. When things don't go our way, we'll fight through, and get back on track. It's a unique challenge, but I know we're up for it."

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