Episode 77 Transcript

Brent Trimble: Hi everyone. Welcome to the Professional Services Pursuit, a podcast featuring expert advice and insights on the professional services industry. I'm Brent and today I'm just here to introduce a great session we did with SoDA, the Society of Digital Agencies. Tom Beck interviewed me, Deborah Heslip, and Louise Martens from the agency formerly known as MediaMonks, now Monks. We had a really fascinating conversation about agency transformation, current trends and influences that are sparking that transformation, the role AI is playing and some of the risks associated with inaction in the current market dynamics. We hope you enjoy it.

Tom Beck: We're going to start with the market environment right now, what you're seeing out there in terms of economic opportunity, client pressures, et cetera. Brent, I'm going to start with you on that one. I know at Kantata, you work obviously with a lot of agencies and see into their businesses to some extent. We'd love to hear your perspective on the current market environment and what you're seeing.

Brent Trimble: Sure, absolutely. Thanks for having me; I look forward to the discussion. We'd categorize this year as one of two halves, some a bit of tepid trepidation coming into the first half of the year and then more enthusiasm certainly building toward the second half. Industry indices, certainly economic data, and client spend certainly point to that.

There's this notion that, not just in agency but in consultancy, fee-to-service consulting, management consulting hybrids that things like media spends are trending upward, and of course, that has a trickle down effect to the rest of the spend, there's still a lot of caution we're seeing like extremely rigorous client rationalizations before big spends, big investments, and I'm sure that translates to what Deb and Louise will speak to around actual digital marketing and those types of investments.

But there's an uptick in M&A activity there with media and fee, a little bit of hiring uptick, and of course, now we're all on pins and needles around the Fed cutting rates, maybe reducing a little bit of the price of capital, and then ultimately, 50 or so days to go to the resolution of an election.So, cautious optimism is how we're seeing it on our side.

Tom Beck: I'm curious, Brent, even in your own business, you don't have to share a lot of detail here, but agencies and professional service providers buy from you. That’s what I would imagine the extent to which their businesses are impacted that you probably see similar trends just in selling Kantata into agencies. Do you see that with agencies? There's some hesitancy. There are some longer sales cycles even on your side of the business. I talked to a lot of agencies, but also service providers, technology providers into the ecosystem, and it seems like we're all having the same experience because it trickles down.

Brent Trimble: It's a great question, and obviously my context is going to be a little different. But I think when agencies feel secure in their offering and their positioning, the future, and this will be the topic of a lot of the conversation today, they will double down and say, now is the time we feel comfortable investing in ourselves and cleaning up operations because growth is on the horizon.

This year, we've had a really good uptick. In any given year at Kantata, we'll sell to a bunch of agencies of different shapes, stages, and sizes.We've seen a good uptick in inbound that’s coming to us. But interestingly, we've also seen—I call these boomerang and double back clients—agencies that a couple years ago were thinking about an investment, and then, of course, it's such a dynamic business, something happened, maybe they lost a large client or something unexpected, and they said we're going to put our evaluation on pause.They're now doubling back. Well, that's great for us.I think it's a nice bellwether harbinger for the overall market that clients spending again.

Tom Beck: Yeah, absolutely. I use that too, and even just in my own work and analysis that we do throughout the community of getting anecdotal feedback from consultants who sell. It could be financial people on the finance side, people on the operations side, people on the M&A side. Again, it’s another indicator because if agencies are starting to spend money, as you point out, on themselves, you know that is an indication that they're perhaps-- obviously, they feel the need to do these things, but they're feeling one, that they're more essential, and two, that they have some room to do that financially. Thank you for that, Brent.

Deb, first of all, introduce yourselves.Tell the group a little bit about Monks, if they don't know who you are. Obviously, you're on the client side, so we'd love to just hear some of your perspective on how the market's been this year, what the current climate looks like.You don't have to go into great detail. We'll get into aspects of that conversation.

Deborah Heslip: Sure. I'll keep it brief, and then we'll dive deeper. Deb Heslip, Chief Client Officer for Monks. I've been with the company about four years, work very closely with Louise, who you'll be introduced to in just one moment. But at the highest levels, I love the idea of cautious optimism. I think that's a great way to describe it. But we're coming off of a year where our clients were looking for efficiencies, and I don't think that we're ever going back. I think we need to get our heads wrapped around the fact that this is how we're going to be operating with our clients moving forward, and we have to be really proactive in how we're developing our models and how we're engaging and how we're being really proactive in delivering solutions to them. It's more now than it ever has been before.

We have to deliver on what we're here for, and in our case, it's digital and digital marketing and digital transformation, but it's also operational efficiency. So, I find myself working really closely with Louise in an operations role more than ever in the past. Operations and business leadership coming together to really focus on how we're structuring business for clients to deliver the best people, the best talent, the best thinking is more crucial now than ever.But I think our clients are also going through a huge transformation, so being a proactive partner to them is really critical in this current era that we're in.

Tom Beck: Deb, I think you're right in pointing out 2023, and this started with a lot of the big tech companies in terms of coining 2023 was going to be the year of efficiency. We had everything from Facebook to Amazon to X, all these places going, we got bloated over COVID and coming out of COVID. Yes, there's lots of demand out there, but we're really going to hunker down and focus on being efficient and making money. That was certainly the theme in 2023. Are you seeing in 2024 at least some inklings of some more opportunity? Again, as you said, it's like the opportunities now are probably mixed between, ‘we're just investing in growth’ versus ‘we're investing in growth, but with also a real efficiency mindset.’

Deborah Heslip: It's interesting because I don't think they're themes. I think they're an evolution of our business. I don't think clients are going to go back to the same level of budgets and spending as historically we've seen, and I don't think that's the bad thing. I don't think it's a bad thing, and I don't think it's the wrong thing, because if you think about how AI is impacting our business and our ability to do work efficiently and effectively for our clients, how could it change?

We should be thinking that way.How can we use technology to continue to deliver efficiencies and effectiveness for our clients? I try not to look at it as like, oh, that was the theme in 2023, 2024. What's going to happen in 2025? It's an evolution of that.How do we keep moving that forward and driving the right solutions for clients ? If we sit and wait for something to go back to two, three, four years ago, we're kidding ourselves.

Tom Beck: Yeah, that's a great point. I just want to add for you guys on the call. I'm going to add just some quick data to this conversation. SoDA has been doing a quarterly pipeline tracking and market outlook study. We started this in the beginning of 2023, and it gives a good pulse check of where things are at. We're in the midst of this. We typically do it mid to late quarter, so that we get a retrospective on the previous quarter and how that closed out what the current quarter is looking like and then what the rolling market outlook is.

This is still a smaller sample size, and we're not wrapping the study up for a couple weeks, but I pulled the initial data before this call. But I think that this emphasizes the variability in the market because what you're going to see is that there are definitely a set of agencies that are feeling some upswing in 2024, and that's a positive thing, but there's still a healthy percentage, at least within our membership, that are still seeing it as a pretty challenging market.

We have Q2 revenue, about 50 percent are reporting that it was Q2 revenue.Well, and it's closer to 60 if it was even, but that revenue is even or up from Q2 of last year, which is good, so revenue growth returning for some, but that still means that there's 40 percent that have actually seen revenue decline from where it was last year.

The Q3 outlook within this community, 60 percent said revenue was on track or actually exceeding expectations or exceeding the forecast.Again, Brent, that's a little indication that maybe things have been picking up throughout the year. Then we always have on a rolling basis a projection of where the year end will net out. That obviously gets more accurate as we get closer to the end of the year. But right now, about 60 percent are reporting that revenue will be up in 2024 relative to 2023.

The good news is that 50 plus percent are reporting net margins of 10 percent or greater as a forecast.So, businesses are getting into a healthier shape.I know in our community, there were a lot of staffing adjustments and cost adjustments that happened in 2023, and that a lot of our members feel like even if the market is tougher that from a bottom line performance, we feel like we're in decent shape, even though we may not be seeing the revenue growth that we want.

Then about 70 percent of our members right now are saying that they feel their business is very healthy.So again, just to put a punctuation point on that, I think the signs are positive, cautiously so, but it is also still a very mixed picture out there.In previous years, and Brent, you've been in this business a long time, there's been a scenario, particularly in the digital landscape, where it's like all boats rise with the economy. Yes, some agencies are doing better than others, but it's not been uncommon prior to 2020.

Then, certainly in a big year like 2021 or 2022 where we're seeing 90 percent are reporting revenue growth and 70 percent, 80 percent are reporting margins of 10 percent or greater. We would see that fairly consistently pre-pandemic. I think we're in an area where there is some more volatility, and we may not see consistent performance across the agency ecosystem like we have in the past.I think that's something that we’ll dive into. It goes into some of the transformation. I think that's required.For SoDA members who are on the call, we'll have that data in a couple of weeks, and we'll release that out to the community.

I want to just get Louise engaged in the conversation.I want to have you pick up on that point from Deb a little bit of how the operational side is now working even more closely with the client side of going ‘They've got work that needs to be done. We need to be more efficient or smarter or different about how we do it. It's not just a matter of Deb coming in and going, hey, we just sold this multi million- dollar project to so and so and so and let's get it done. I'm imagining that there's more back and forth of going, how can we do this? How can we adjust to some of the demands that are coming in from the clients, the budgets that they have? Could you share just a little bit of perspective from an ops side, how you're seeing some of this dynamic play out ?

Louise Martens: Yeah, totally.Hey, everyone.I'm Louise. I'm EVP Operations at Monks.I'm, working closely with Deb on all things process, team, profitability, tools, all of the less sexy stuff, I think, a lot of spreadsheets.

Tom Beck: I don't know, I think a lot of people find profitability sexy.

Louise Martens: It depends on the result, isn't it, whether it’s sexy or not? What I'm seeing, and I think what is maybe different, to the last couple of years is you have to just always right - size your business, meaning are you running the most efficient as you can be, but then comes AI.You have a normal operational flow and all of a sudden, you need to become experts at lightning speed to make sure you can service these newer demands that are coming from clients.

I think that's particularly difficult because it means that all of a sudden, teams tend to be lean, and I think nobody's overstaffed at any point this year.But all of a sudden, there's a level of energy that needs to go to procuring new tools, training people, transforming your workforce to be super equipped and reaching that expert level in AI as soon as possible. How do you balance that next to the day to day?

I think that is a particularly challenging operational landscape, but really interesting as well.This is the first time this is happening.I think it's a really interesting thing to live through. I do think the world of marketing will never be the same again. So, I'm very focused on, Hey, always get better in the day to day, but then at the same time, we need to completely transform our business, our go - to - markets, our capabilities, our trainings, the way we hire, the tools, the software we buy to make sure that we're the most future proof we can be.

I think that's where Deb gets the signals from the market. We, of course, keep a very close eye of what's happening in the industry with the big tech players predominantly, but to grab those data points and make sure that we keep evolving and we keep being a step ahead, and I think often it's hard. Some agencies have a certain reluctance where they go, let's see how this plays out before they maybe plan and activate against that.

But we know that change takes time.You need to make the decisions today if you want to be in a good spot maybe in a year or two years from now.I think there's a level of risk and a level of nobody truly knows what's going to happen.It doesn't keep me up at night, but it's definitely a pressure point that I think every ops person is now feeling.

Deborah Heslip: Well, it's a good thing it’s not keeping you up at night.

Tom Beck: Yeah, me too.

Deborah Heslip: Just to add to what Louise was saying though, it's interesting because it feels like if I look back at the past several years, we spent a lot of time talking about the transformation that's happening in our clients’ business and not a lot about the transformation that's happening in our own business and our own industry because it's massive. It's not negative, but it's something that we need to be really attentive to, and it ties back to what I was saying earlier. We have the client conversation and then we have the internal conversation. That's where I see partnering really closely with business operations is more critical than it's ever been for us to be successful and allow our clients to be successful working with us.

Tom Beck: We'll keep it on the client side for a couple more minutes, and then we'll shift into some other operations-related questions. But I'm curious what other signals you're getting in the market in terms of pricing pressure. Are clients interested in or pushing for new models of how teams are assigned, or work is broken up, all of that. Again, you don't have to get into every facet of it, but to use Louise's term from market signals, I'm curious just on pricing, business model, resourcing and teams, impact of the work that needs to be done, maybe we could spend a minute or two of just pulling out some of the key things that you're hearing pretty consistently, and again, for the audience reminding them that Deb is primarily working on very large-scale, often global, accounts and pieces of business.

Deborah Heslip: I think it's balanced between what we're hearing, what we're seeing, and where we're innovating because I think the most important thing for people on our side of the business, whether it's advertising, traditional advertising, digital, is to rethink our commercial models. A lot of it is very-- I don't want to say it's archaic because I don't think that's the fair word for it, but it's very historical ways of operating.

Tom, you and I worked together many years ago and to think that some of our commercial models are still very similar from they were 10, 15 years ago, I think that's something that we should be attentive to. Clients are open, willing, and expect us to be thinking about those things consistently, but they're not going to come and tell us that we need to do it.We need to be delivering that.

I always look at it like in this industry; somebody is going to be delivering on it.We all should be delivering on it.We should all be thinking this way.But I definitely think the pricing models, the commercial models of how we're working with clients historically founded in people and hours is now more driving against outputs and outcomes, which I think is the right place for our industry to be. Not every client will be structured to be able to support that, but I think that's where we need to be looking at and helping them be able to operationalize that within their own business.I think that's one really big driver.

Tom Beck: I love that topic, so I want to stick on that for just a second and get Louise and Brent's perspective on that. The shift to outputs and outcomes, it's been in the conversation for many years, and I think a lot of us in the business have struggled to figure out one, how to do it. How do you appropriately value an outcome, especially one that's not easily tied to something like an increase in sales or certain margin performance for a business? There's complexity in how you tie outcomes to economic value.

We struggle with that, I think, on the agency side, but on the flip side, clients struggle with it, too.They might want that.They might want to price in terms of outcomes and outputs, but they don't necessarily have their own model for how do you value that kind of stuff? Are you seeing, Deb, at least some clients that are getting more serious about that and actually having some competency to figure that out? It still obviously has to be mutually beneficial. Agencies have to remain profitable to be able to provide services to these companies. You're seeing some positive movement there.

Deborah Heslip: Yeah, we're definitely seeing it. I'm not suggesting it's happening across all of our clients. The clients that are set up for it, great. It's easy. It's turnkey. The clients that are interested in having it and moving forward with those types of models really need partnership and collaboration with their agencies to be able to understand how to define it, how to make it mutually beneficial, but they're willing to have the conversations, which I think is really exciting. When you have that, the level of partnership and investment you have both ways is really strong, and it really delivers great outcomes for both sides of the business. I think it's going to evolve the way that we operate, the way that we partner, and the trust that agencies and clients have with one another.

Tom Beck: Yeah. That's cool.

Louise Martens: Tactically, I think the biggest thing we all want to mitigate is this scope creep.If you go per asset, you need a quite formulaic, almost menu of services where you go product A equals this, product B.Brands that have a very good grip on their pipeline and the volumes and the number of assets or initiatives they’re doing, the more mature that part is, the less stress it introduces throughout the day to day.

I think the level of maturity in pipeline forecasting and knowing what they need really improves that type of asset-based model.Not every brand or client is there yet.How can we help them define something to be fixed - price friendly ? Also, there's some muscle memory around how they have been historically serviced. How do you train clients to go, okay, but what will stay the same and what will not stay the same? I think it's a really intricate balance.We're definitely seeing a push towards it.

For me, from an operational point of view, it's almost like gamifying efficiency. Not all financial models drive efficiency. The time and people model sometimes does the opposite. Well, the moment you introduced that, your teams also really unlock an extra hunger to go, okay, well, how can we become smarter? Maybe it's more automated, more templatized, less operational waste in the workflows.The commercial model doesn't tolerate it anymore, and it's an interesting incentive.

Tom Beck: Brent, you've been in the business a long time. You're out there talking to lots of agencies. You’ve probably, like me and all of us, have been in these conversations for a decade now of going, we got to get away from the billable hour, we have to stop pricing in this particular way, etc. I would say by and large, there's been very little movement on that in a decade. I think that AI and some of the other technology advancements are making that more inevitable and enforcing us. But what are you seeing in the landscape right now? Are you seeing some more movement on the commercial model actually changing, seeing agencies willing to do it and find ways and also seeing clients that have an appetite to at least have that discussion?

Brent Trimble: We are. You made reference of changing the commercial model, and there are great thinkers in the industry. You think of the work Tim Williams has done, and we've had him on our pod or Caroline Johnson and her firm in the UK talking about just changing the business model. For the first time, I think, I've seen a lot of agencies really moving there.

Look, the reality is at the macro level, the percentage of spend on fungible media that clients are willing to pay on things like adaptation and strategy planning has trended lower.The billable hour threshold, the value you put on expertise to build up a retainer or a project has also trended lower.The challenge, of course, for the agency business in consulting, frankly, is that the cost of talent has risen, so margins are shrinking.

Then you drop generative AI into the mix and suddenly the things that you may have used to mitigate margin like TVC production, long - form video adaptation is no longer there.Maybe 20 percent of that's now gone. I have seen, for the first time, many agencies saying, we're going to carve out a piece of our business, and we have clients who are willing to really begin to think through with us pricing value, expertise, and outcomes, not billable hour.That's really been a shift, and I’ve seen more of that.

Then we get into weighty discussions around, how do we restructure contracts and the commercials where we’re ASC 606 compliant for in the US, and we're measuring revenue recognition based on accrual? There's a lot operationally, and I see Louise and Deborah nodding.There's a lot in that sauce that you've got to unwind.But ultimately, I think it's forcing a sea change. We don't all want to be in the AI - enabling adaptation business.We're in the business to delight and transform and to move client business and build brands, and it's forcing that.But I would say quantifiably this year and say, dozens of shops that we've talked to, many of them are moving that.

I'd say the tail end of last year calendar, second half, we had some very notable named brand shops even within hold codes that are saying, we're moving them.Michael Farmer with his huge model, the book that came out last year, we've also had him on the pod, and it's been great.It’s more of that.Okay, the band aid is ripped off.We can no longer make this up in volume.We really have to transform.We are seeing more of that.

Tom Beck: Yeah, absolutely. Interestingly, for SoDA colleagues on the phone, Caroline Johnson will be at our global summit next week in Copenhagen, so that will be when she's there.

Brent Trimble: She’s great. She's fantastic.

Tom Beck: Yeah, she's awesome.

Brent Trimble: We’ve got a preview of her on our pod, and we had a great conversation, but she's fantastic.

Tom Beck: Yeah, because I think there's an aspect of this where we are really now, as you’ve said, we’ve ripped the band aid off on the commercial model stuff, and now there's a lot of practical hard work to do to figure out what does that actually mean? And also, then what operational shifts do we need to make? If we redefine a new commercial model, it isn't just about pricing something differently. That's a component of it, but it always then requires a certain operational shift underneath it.

Louise, I think you rightly pointed out, commercial models have different incentives and disincentives built into them, and so it's going to take some time to move away from a model that incented spending more hours in a lot of ways or trying to sell more hours to trying to sell more value. That will fundamentally change the way that your teams work together and some of the guardrails that get put in place to do that work.

I want to shift into AI just a little bit, especially since and I know Louise has a has a lot of expertise right now in this area.It's occupying a lot of your time. I'm interested in two things because we brought up this theme in the report as like the cost of inaction, so there is a cost at this point, or if it's not a cost in real terms immediately, it's certainly a risk of agencies holding on to a legacy way of business that may not come back in the way that we had it in 2017, 2019, 2010, et cetera.There is a cost to inaction.

Interestingly, in the short term, I think this is true in any transformation, I've been calling it the AI tax. The reality is that we think that AI will make us more efficient over time, and I think that is true. In the short term, there's a lot to do to figure out what it means to test it, to experiment it, to change workflows, to change tools, and I would say that most members I talk to would say, introducing AI into the equation right now is actually adding more time for the most part.Yeah, every once in a while, we get a super efficient outcome, but for the most part, because we just don't know how to use it yet, the technology obviously isn't quite there yet, there's all of these, so we’re in a little bit of an investment mode, too. There's a cost to inaction on one hand, which is scary, but there's also investment that's required right now.This is not just going to happen organically.

I want to turn it back to you, Louise, a little bit just to talk from Monk's perspective because you're working pretty heavily on the AI side.Talk about some of the practical reality of what you're doing and how you're really trying to bring this into the organization.

Louise Martens: Oh, totally, and what you're saying really resonates. It's a lot.It's a lot to figure out on our side, but also on the client’s side, because there's all this enthusiasm and all of a sudden, you hit the legal team and legal is like, whoa, hold your horses, guys.What does this mean ? There are so many first times here that there's a lot of anxiety about doing something wrong.

I think maybe I'll share a little bit on what I feel has worked well for us. It's my observation that innovation, you don't do that in big teams. It's just not the right vehicle for innovation.If you're in a position to carve out a small team or a task force with perhaps the most savvy, most interested, most keen individuals, let them test, test, test, prototype, prototype, prototype and just keep going until you feel like the product, the process, or the training, whatever, is stable enough to scale to a wider team.

When everything first started blowing up on LinkedIn and everyone's like, this is made by AI. AI is coming after our jobs. Everybody was like, oh, we now all need to get onto this. I don't think that's the right strategy. Of course, that's my personal opinion.If you look at your design team, your editing team, your color team, your development team, your QA team, section off time, bandwidth of the most savvy individuals and let them then infect the larger teams.It takes a lot of practice.For instance, photorealistic visuals in AI—I’m just going to ignore the legal side of it for a second, but it took us roughly a year to get to a space where hair looks realistic, but now, we're finally there. Okay, and now, that will unlock a whole other set of business opportunities or whatever. But if you're not going to spend the time on iterating and iterating, it's just really hard. It is an investment.

I think it’s that saying, if you want to go fast, go alone.Basically, it's that. Within your teams, look at accelerator units, small scrappy testing. Last time, I said, break all the things. It's break all the things, see where the limits of the software are.There's AI apps being launched every day, literally every day, so just staying on top of that is already a lot. But if you section that off and then all of a sudden, you see, okay, this is now stable and now, we're going to educate a larger team or even build a go - to market or a sales presentation around that.You see the team graduate as we go and as tech also evolves.A year ago, hands were weird, and now, we're looking at really photorealistic Will Smith with eight fingers per hand. Now, look at the speed. We're working with really big brands, and it's just like fantastic quality. Being very savvy and on top of it with small crews, I think is for me, the most effective way.

Tom Beck: I'll play back a little bit, Louise, because we had a good conversation a couple weeks ago on this, but play back a couple of the key pieces and some advice, I think, for the folks on this call is like a digital transformation initiative you would take on with your clients for your own internal digital transformation, this needs to be structured as a real thing and as a real project with real people tasked with accomplishing real things. If you're still in the mode of just you've got people playing with tools and going, oh, cool, we can do this, we can do that, I'd say you're already falling behind. There has to be a mechanism to evaluate what the potential impact of a tool or a new process or workflow is to evaluate it and then have a plan and a strategy to bring it into the production workflow of your company.

I know in talking to Louise that you guys have a very structured approach on this, and I don't think that enough agencies are at that level yet. For instance, Louise shared they've been going through, and you probably had a lot of this already, but it's like, you really are like micro breaking down workflows and production processes for every task, every deliverable, every capability, if those things aren't documented, documenting them, and then really rebuilding how some of this stuff can happen.

My sense is that there's too many of us that are just hoping these things will organically take shape within our business, and yes, I think some of that is true, but I think we're missing the boat as agencies if we're not treating this very seriously as our own strategic transformation initiative in allocating time and resources in oversight, in actual objectives to the initiative. My guess would be that if we surveyed the agency community at large, we would see probably less than half of the agencies out there that have a legitimately funded, resourced, strategic approach to AI.

Deborah Heslip: That goes back to what I was saying earlier is it's always been about our clients’ transformation, and now it's about our transformation and our clients’ transformation and how we're managing both of those at the same time and making sure that nothing breaks. I know Louise says or you guys were talking about breaks. I think you're going to break and you're going to want to break things, but not as it relates to how we're delivering for our clients.

Tom Beck: Please don't break all the things. Whatever you do, don't break all the things.

Louise Martens: Don't break everything; just R&D. To your note of what does it take to deliver something from A to Z? There are maybe 200 micro steps. What are the steps? It could be finance. It could be administrative. It could be design, could be QA, and then basically identify goals around that.

One of the things that has worked really well for us is that we mandate our key capabilities to quarterly present commitments.This quarter, we're going to commit to figuring these things out, testing these tools, redoing this process. Then the next quarter, they come in, present their progress to the highest level, the C-suite, and then, okay, what's your next commitment ? Sometimes it was like, okay, we are going to build an ethical guideline around this or whatever the problems may be in the area you're dealing with.

I think just giving it really high exposure and showing top down that this is not something you can be hesitant about, I think has been really nice because not every team is incentivized to completely transform their way of working because there's some anxiety around it like certain job categories that want to protect the job that they currently have. Well, the truth is we need the same level of talent, expertise, taste, aesthetics but in an AI-empowered way. We had a moment where we got over that, and then the teams became really enthusiastic when they feel like, okay, we're really going for this.

Deborah Heslip: What they're seeing is they're not seeing that clients want less with AI. They're seeing that clients want more. It's really driving efficiencies and how our teams were able to operate. Going back to what Louise said about making sure that we're keeping the innovation focus with a smaller part of the organization and having them roll out training, educating people, it's super critical that everybody that's in the business understands what this transformation means for our business and for our client's business and how to talk about it. Our roles have evolved more in the last year in a client services capacity than I've seen over 10 years of my career, so making sure that the people that are in front of the clients, and more people are in front of clients, can talk to it knowledgeably and feel comfortable and confident in it, so that it doesn't impact our ability to grow and transform.

Tom Beck: Brent, I'm going to get your perspective on this. I commented a couple of minutes ago that I don't have data on this, but my sense is that there's still a large percentage of agencies that are just in experimentation mode, just playing around with these things, and then in some ways hoping either the vision will become clearer, things will organically sort themselves out. Are you seeing similar things? My guess is that there's only a smaller percentage of agencies who are really radically committed to transforming proactively rather than being buffeted by the winds and the waves of the market. Does that seem like a fair assessment from what you're seeing out there?

Brent Trimble: Well, not necessarily from what we're seeing. As an industry, we've continuously been buffeted by different technology, cultural whiz bangs. I remember going to an agency conference 18 months ago, and there were a bunch of sessions on NFTs were going to transform the business. But with AI, the agency business has been impacted by AI for quite some time. In its formative stages, you have Google's RankBrain, multimedia mix modeling, Bayesian probabilistic types of models put on media, so we've got this, at least, nominal understanding of it, and it's transformative. Then, of course, as generative AI has caught up, there's the obvious impact to the agency business which is we've been asked to create tons of content and tons of permutations and adaptations for this proliferation of modalities that, of course, it makes sense, and it does.

What we've seen, and I've been impressed, frankly, with a lot of shops, very ascendant shops, midsize to larger where they're like, okay, first of all, I think to Louise's point, from a legal perspective, we are the stewards of brand, so it's not ethical wise or really prudent to take a brief on a client's brand and upload it to a public version of ChatGPT and see what it spits out.There's been some good understanding there.

What I've seen are agencies of different stripes saying, okay, there's really two ways we could go.There's the using it as another revenue stream for expertise and value with our clients, like clients coming to us and saying, how is AI going to impact our business? You see that quite a bit. In fact, McKinsey, Accenture, the big consulting firms, they're making a lot of money off of those practices, so there's a little bit there. But then internally, how do we use it to transform the business?

Many are starting incrementally.What are the basic tasks that take up our nonproductive time that are really critical and important but could be AI enabled ? Everything from conference reports to new adaptations and views of media performance spreadsheets.You think of how many practices live in spreadsheets.We're seeing agencies training their own models in their own voice to answer RFIs. There's still human contact that's needed, but gosh, what time saver it is. So, incrementally taking steps, and I'd say I've been impressed with the pace and scale of that. Now internally, we're doing the same thing; we're obviously in a different business, but those incremental steps.

The thing that I think is most important for agencies to understand how it can impact operations is something we've been horrible at for years which is structuring our data. The AI model is only as good as the operational structures of data that you have and some of them understanding that how do we collate data differently so that we can train these models to help accelerate some things? We're seeing that.We're seeing a really good embracing of that. It depends on what business is that agency in. If they're creative adaptation shop, obviously, it's going to be very focused there. If they're more quantitative, doing a lot of data, insights, analytics, they're going to be focused more in that area, but seeing a pretty big uptick.

Tom Beck: That's great. I want to stick with you for another couple minutes on just to bring it back to your own product and what you guys are working on. Kantata obviously has a product that runs across the agency operational layer, and we've spent a lot of time talking about how commercial models will be changing and that's going to be changing the way that teams are structured, perhaps the way that we get to deliverables, et cetera. Brent, I know that you're a product company, so you guys are thinking about this heavily. Maybe you could share with us just a little bit from a Kantata perspective, what are the things you're planning for, building, anticipating in your product that can help agencies adapt in this environment?

Brent Trimble: No, it's great. Of course, we're a technology platform, so for the past 24 months, any client, whether it's agency, consultancy, professional services firm that asks us what's our AI strategy and since the merger and the investment, the pace of innovation has been really great and accelerating, so the first I’d say is we've always had some nominal machine learning capability within the platform, so layering on some AI accelerants hasn't been a steep curve. The data model being streamlined in our insights has been a really great first step because with structured data, you can start to model things and extrapolate things, so agencies using our taxonomy, getting more data in there is a great underpinning.

The first of several AI - enabled empowered innovations is released.We've had it in beta for a while, but it's a sentiment both for agency employee contributor and leader as well as client that has some technology underpinnings.It's called Pulse. It's a way that you can move a little bit beyond a project manager, producer, portfolio manager’s sentiment or observation on how a project is going and really open that up into more of an array of clients, if you so choose, employees, assimilate all that data and then automate that to you.So, you can, I think to Debra and Louise's comments earlier around client satisfaction is really paramount in driving more and more, we can automate that. That's just come out of beta.

That's the first of several, and we have more. We do offer product roadmap conversations with interesting prospects, but usually with some kind of relationship. The first one, it's public, and it's the first in a building-up ladder of enabling data workflows, automation to power more insights into the business. You can check it out. It's on the website.I think it just got released this week.That's the first of several.

But I think that when you think of how we'll help agencies, it is in that notion of we're assimilating data about your business.Your clients, your engagements, your rates, your roles, the demand, the capacity to take on work, the type of work you're doing, how successful were you, and with that structured data, you can do a lot of things pertaining to your operations.

Tom Beck: Yeah, that's awesome. Brent, maybe in this next minute or so, if there's a link that you can share that has anything related to Pulse, that would be cool to get out there. We're just about out of time, so I want to just close with a quick roundtable. Any words of advice or encouragement to those starting their AI journey, just like all of us, bits and pieces of where to focus or how to keep momentum in the organization? I think that'd be awesome.

Louise, any words of encouragement or advice for the group on the call today to keep this going and keep it productive ?

Louise Martens: Go smaller; smaller teams that get the freedom to do this.Free up their time, I think that's ideal. Then the second one is create some focus. Don't try to boil the ocean because it's literally so overwhelming; there's so much happening.Look at core processes that you might want to make more efficient just from an operational point of view internally or what types of services you want to offer your client and just hone in on that.I think choosing to focus on less but deeper penetration into that, I think, is a smart way to go because it's really easy to get paralyzed.

Tom Beck: How about you, Deb?

Deborah Heslip: Embrace change. We have to embrace change as a part of what it takes to be successful in this industry and in our business. As leaders in the business, we need to make sure that we're taking care of our people, and we're going to do that by reassuring them, by guiding them, by training them and helping them be successful in this era of AI and what that means to their careers and to their experience and expertise.

Tom Beck: Thank you. Brent, how about you? Any words of advice for the group and their AI journey?

Brent Trimble: For agencies out there, first of all, focus on doing a few things really well, but the barrier to entry to upskill your teams has never been lower. They’re fantastic. Start small; introduction to large language models on the major platforms that are free and carve out some time for that, but don't try to boil the ocean and change everything overnight. But the barrier to entry to that is low.

A couple of years back, I took one of those continuing education classes, I think it was at Berkeley, around AI because I'd been dabbling in it for years, and it was a couple thousand dollars. It was great. I did some homework and wrote some Python, but the acceleration in 36 months from where we were in those nominal Google models to now has just been profound. But the good news is you can upskill pretty quickly and then use those. Once you get some foundational knowledge, figure out where those intersections are in the shop that you can deploy that and start small and do a few things well.

Tom Beck: Cool. Thank you, guys. I just want to summarize a couple key points that I just thought were great. I loved to hear, between Deb and Louise, this notion of now more than ever, this connection between what your clients want, what you're selling to them, and then actually how you're able to execute that from a business operations is more in flux right now than ever, which means that coordination between sales and account teams and client relationship people and the biz ops people needs to be tighter than it probably ever was, especially because we're in a time of transformation.

That's always been important, of course, but this is different than it's like, oh, we know how we do this.We've done it this way for 30 years, so we're just going to shovel this thing into biz ops, and they'll take care of it. There's a time for that in a business cycle, but we're not in that time right now. I think it’s just really reassessing and looking at that connective tissue between client relationships, the sales side of the equation, and the biz ops side of the equation and making sure that there's very tight collaboration and commitments from each other on how you're evolving and transforming.

Even though it's scary, I like this idea of there's a cost to inaction.There's a cost in real terms, and there's also a cost in potential terms via risk and that at the same time, we're also looking at an investment. AI is not a machine we plug into the wall and then, oh, look, magically, there's efficiencies; that's great. This takes us 30 percent less time now. It's probably going to take you 120 percent more time until you get it to be 70 percent more time.Be prepared to make those investments and understand that it's going to take time to see the benefit in the efficiencies of the new technologies. I don't think if you're ready for that or equipped for that, it's probably going to become very demoralizing very quickly.

Then I think just the advice from all of these guys of continuing to stay focused and start small, and I do agree.I think it's better to develop some tangible wins and some tangible ways that this can make an impact and make progress there rather than feeling like you have an entire understanding of how this is going to completely impact every aspect of your business. You may be swimming in too many possibilities and too many scenarios without actually making any real progress.

Thank you, guys, for the great conversation today; I got a lot out of it myself.I got to get my stuff together with SoDA as well, so I'm going to call Louise and Deb and Brent in as personal consultants to make sure we're moving forward as well.But thank you guys for the wonderful insight and perspective and thank you everyone for joining the call today.We appreciate it.

Brent Trimble: If you enjoyed this podcast, let us know by giving the show a five-star review on your favorite podcast platform and leaving a comment. If you haven't already subscribed to the show, you could do so anywhere you get podcasts on any podcast app. To learn more about the power of Kantata’s purpose-built technology, go to kantata.com. Thanks again for listening.