Employing people in a time of high inflation (pt. 2)

We're looking at a time when two powerful forces — high inflation with stagnant (or worse) economic growth, and a tight labour market in which people have altered expectations — are super-charging each other. As many agency leaders are finding, it's a particularly tough time to be an employer.

In part 1 of this post I took a long look at the key factors driving the talent shortage.

If you've not read that piece yet, pause here now and review that item.

We turn now, in this second part, to look at the practical actions that agency leaders can take as employers in a time of high inflation — to find, attract and retain talent in the agency, but also to go further and further build a healthy workplace, opportunities for professional growth and development for those in your team, and a resilient and sustainable business.

Whilst a number of the things could (and probably should) be considered evergreen practices for employers, the focus here is specifically on what's important as an employer in a time of high inflation (and probably with stagnant growth, or even recession). We're exploring here what's particular about uncertain times.

Let's dive in.

Understanding the Team's Concerns

It's an obvious place to start, but it's also probably useful to actually name the things that are at worrying the staff of your agency. Of course, the business is full of individuals, and so there's lots of nuance and variety in the things that are causing anxiety. Some will want lots of transparency on these subjects, while others will want less or none. But here, at least, is a view of the things that are running hot in people's minds:

The cost of living — fuel prices are up, food is up, entertainment is up, everything's up, and that means …
Personal and household costs are rocketing — with inflation so high, the bills are getting bigger, and all kinds of household costs feel like they're reaching for the stars.
- Some of these are step-wise increases, such as household utilities bills, which have just had a big increase and are set to have another one in the autumn.
- There may be some merit in tracking this beyond your national headline indicators, such as consumer prices inflation (CPI) rate (e.g. UK | US | Euro area). This is important because, whilst everyone is experiencing rapid cost increases, those on lower wages are much more exposed as the latest ONS inflation data indicates for the UK.
Is my wage still competitive? — with so many job ads now offering inflation-busting salaries, many who stay in their posts are concerned about being overlooked.
- They're asking, if only to themselves, 'If I stay here, am I keeping pace with my industry/sector peers?'.
- Be wary of people feeling like they're taken for granted. Find opportunities to express appreciation, offer praise, show off talents and achievements, and so on.
Is the business steady? — people are concerned about the stability of the business, and wanting to get as sense of the what the short-, medium- and long-term prospects for the agency are.
- Can I trust the projections from the CEO and management? Is what they say wishful thinking, just bravado or is it genuine?
- More than that, is my salary secure? Can I trust my rent/mortgage can be paid this month, next month, etc.?
How are my colleagues doing? — you should take it as read that there are discussions going about workplace welfare, about which you have no idea. People will be wanting to keep a finger on the temperature of the business, sizing up the mood amongst their colleagues. They'll be asking:
- What’s the chatter?
- Who’s moving on (and why)? Who’s staying (and why)?

Though that's an overview of the likely things on the mind, you'll only know about your own team if you ask them and find out. So, keep having those impromptu chats, natural and easy, whether they're catch-up conversations or digressions in meetings — they're all important to have. If you're looking for discussion-starters, there are articles in the media most days about things related to the high inflation or the cost of living — one morning, post something new in a chat channel and offer space for people to reflect on it, to express their worries or concerns.

Work colleagues sitting on chairs in front of a table — A worried discussion amongst anxious colleagues. Photo by Kindel Media from Pexels

With your minds on what's concerning your agency's team, let's turn now to what you can do as their employer.

Task Zero: Keeping the Business Afloat

The primary task for being a good employer is to run a good business. If the business is healthy and stable, you're in the best position you can be to look after the team.

That's why the first two blogs about agency life in a time of high inflation were about leading the agency. If you haven't read those yet, pause here and jump off to read them.

Part 1 looks at the horizon, what's happening and what's ahead, and what that means for agencies and agency leaders.

The recent memo from Y Combinator to its portfolio of startup founders about the economic horizon, advising them to 'plan for the worst', is a powerful reminder about the importance and timeliness of this subject. (In fact, Y Combinator have created a video that's worth watching: Save Your Startup during an Economic Downturn.)

Part 2 turns to what you can do about it, the actions and practical steps you can take to safeguard your business in a time of high inflation.

The truth is, clients need agencies now more than ever — they're facing the same challenges, but they're likely bigger than you are and slower to change. They need you to navigate the difficult times ahead. That means that this is primetime for agencies, this is a new golden age, the moment for you to really shine.

Managing the margin squeeze

It's essential in this phase of high inflation, stagnant growth, and possible recession, that you are watching your margins closely — you need to know what headroom you have between the income you're getting and the costs you're expending.

All agencies are part of the knowledge economy, and your services are delivered by virtue of the talent in your team. That means that your largest cost is a consequence of being an employer — the team costs: wages; income taxes; pension and healthcare contributions; HR and admin costs associated with employment; and so on. And as the cost of living continues to escalate, that cost will necessarily increase — in essence, wages need to keep track with inflationary pressures, as a bare minimum.

As a good employer, you will already be working hard on looking after you team in this aspect. But you will also understand the squeeze that occurs when the business costs rise faster than your income from the stuff you sell, the work you do for your clients — it does no one any good if costs overtake incomes and take the business to the limit, or push it over.

You will be keeping a very close eye on this margin squeeze with your financial tools, and reports from your CFO if your business has one. However, here's some other things you might consider to manage the margin squeeze:

Get your fixed costs under control.

The salary bill is only area where your costs will be increasing. You have a range of other costs as well. Office space is likely to be one of those, if you have it. There may be others as well — professional services, SaaS fees, etc. Take the time now to reassess these fixed costs. Trim what you can.

Look for efficiencies and other ways to lower the cost of production.

As a knowledge economy business, it's your knowledge that your clients are pay for, the time your team spends on their work. However, a review of recent projects may reveal inefficiencies that have crept in, ways in which you're scoping the work, configuring your team, hidden duplication, replication or repetition — find it and root it out. Streamline what you can.

Maintain ample cash reserves, where you can.

If your reserves aren't that big at the moment and your income is currently good or even strong, then take the time to build up your reserves. I heard recently about a fairly large agency I know well, that I had understood to be on a good footing and doing many of the 'right things', with a great sales track record, out of nowhere had a drought of new business, and simultaneously lost a very large client account. It can out of the blue, and you'll be glad then that you have reserves you'd previously thought were a little large. Save up what you can.

Consider diversification.

Even if you don't have all your eggs in one basket, beware of the predicament of having too few baskets. The warning sign — one main/big client that dominates all other concerns. If they walk away, will you be in the similar sticky place to the business I mentioned above? Obviously, be careful not to go to a different extreme and spread yourself too thin. But a healthy bit of breadth is, well, healthy.

This is a unique way of engaging your team in the challenges presented by a period of high inflation. More on this below.

Be willing to make difficult decisions.

In the name of maintaining your margins, you may need to make some difficult decisions. Those parts of your business that are low-profit+low-growth are the things that are most tricky, and you may need to consider exiting from them completely. That will probably mean some doing very difficult things, like losing people if they can't be redeployed.

Maintain good operating credit.

Make sure the conversation channels with your bank, other commercial lender, or your owner(s) or investors, are very open and clear, ahead of any actual moment of need — getting support will be all the harder if you have to do it suddenly and abruptly. Be very careful of how and when you use this channel, of course, especially as interest rate rises are part of the common tools used to combat high inflation.

Exploring avenues to income

So, I'll return now to the question of diversification, or at least broadening the business.

When the margins in your core business are being squashed, having new ways you can bring income to the business may be timely or even essential. It presents challenges, of course, spinning up a new service or developing a product … but this may be exactly the context in which your employees are likely to be absolutely vital. Here's what I mean:

You may well have within your team, in individuals, small groups or teams, distinct qualities, specific capabilities, special interests and abilities — things that they are currently not using at their full power, specialisms that are underplayed, and so on. This has the potential for several highly beneficial outcomes:

First, given time and support, these are things that could be turned into a new offering for your agency, maybe full-fledged services, even new products. And that means new sources of income, of course.

This plays to strengths you already have in your team, giving you a head start on developing them and, hopefully, shortening the time to market.

Second, it has an important benefit for retention. When employers think about the how to reward their team and create reasons to be content at work, thoughts often move first to ways of offering more pay, most frequently through increased seniority. There is a place for that. But the 'higher' you climb in responsibility, the fewer roles there are available — just in terms of 'space', not everyone can be a senior manager.

A powerful alternative direction is to support people's paths to rock-stardom. Create ways for the people in your agency's team to become known as specialists, experts and even rockstars. That means training and professional development opportunities, obviously. It also means being public about those developing skills, learning, specialisms and capability — through videos, podcasts, blogging, webinars, publishable material (like open-source software projects, say, or the equivalent for their sector), a social media persona, and so on. Your team can grow their sense of pride in their abilities, their sense of respect within the business and outside, and that's powerful stuff for retaining your top talent.

But (and this is where it ties into leading the agency through a period of high inflation), that also means opportunities within the business — building a new specialist unit around those skills and capabilities, in which the person or people can shine with their expertise. They'll probably work best as a skunkworks team, without being swamped under managerial responsibilities, too — that can come in due course, as you support turning this into a thing that generates revenue for the agency.

Happy diverse colleagues working on laptop — Agency colleagues collaborating on a new skunkworks project. Photo by Ketut Subiyanto from Pexels

There's more below with some wider thoughts and suggestions about professional development as part of being an effective employer, and consequently, maybe, helping to insulate yourself against the worst impacts of trading in a time of high inflation and a tight labour market.

We're all in this together

The challenge of being an employer in a time of high inflation and stagnant growth is not just one for the employer. Everyone is experiencing the pressures of high inflation — it's hitting the business, absolutely, but it's also hitting everyone who's finding their wage packet being squeezed harder every month.

There are a couple of things to say about that.

First, on pay …

When looking at the question of hard-hit salaries in a time of high inflation, your instinct may be a wholesale increase in everyone's pay packet. On a practical scale it's probably the simplest thing to do. Diplomatically, it's probably the easiest, too. But, it substantially increases pressure to your costs, and the beneficial impact will be felt by some more than others — those higher up the pay scale will likely be better insulated from inflationary effects.

Indeed, the Office for National Statistics (ONS) in the UK has just released the latest British inflation figures, for April 2022, putting CPI in the UK at 9%. The ONS's own analysis shows that the largest contributing factors are fuel and food — these are a larger proportion of outgoings for people on lower incomes, meaning that inflation is actually higher for people further down the pay scale, at almost 11% for the poorest tenth of the population and under 8% for the richest tenth, according to analysis from the Institute for Fiscal Studies (IFS).

So, instead of just lifting everyone's salaries, you might consider a weighted approach. For example, you might set a minimum acceptable salary for your agency.

With large increases in the cost of living in countries everywhere, it may be more important to assess what you deem to be a minimum salary that is acceptable for people on your agency's team.
Are the lowest-paid roles in your business high enough that people in your team will not be having to make difficult decisions, between heating and eating, say, as the cost of living increases?

Second, on working together …

It's common for agency leaders to shoulder the burden alone for the things I've just covered. But, now maybe more than any other time, it's not an inviolable rule of leadership that you work alone at the top. Now could be just the right time for fresh perspectives and different insights — there are people in your business who know things about your business that you don't know, and can never know … unless you ask.

So, this is a prime time to draw on the whole agency team for ideas, for ways that you can respond as one team to the challenges ahead. One way you can do this is with a Notes Day.

Notes Day

This is an idea from Pixar, outlined by Ed Catmull in his book, Creativity, Inc. It's a fantastic book for anyone in agency leadership, so take the time to check out our fuller review:

Notes Day is a company-wide feedback exercise, which Pixar ran in March 2013. Here's what I said about it in the review above, for those who are not able to access the full piece:

It was arranged much like an unconference, with the subjects drawn from the participants — the whole Pixar staff — rather than pre-determined by management or invited speakers. The main difference from an unconference, though, was that ideas were gathered in advance of Notes Day, in order to make sure there was enough space allocated in rooms, similar subjects combined, popular topics not allowed to clash in the schedule, and so on. Regular work closed for a day, and instead, 1095 people discussed ‘106 topics in 171 sessions managed by 138 facilitators in 66 meeting spaces across our three buildings.’ Notes Day happened because Pixar wants to be a company that never stands still, that never rests on its successes, but continues to learn, to adapt, to grow. They continue to do so.

There are ideas within your business for how your agency can act and respond in the specific circumstances you find yourselves in. Your team are best placed to understand your business — your capacities, your clients, your market, etc. So, why not have your own Notes Day, and throw a light on all those fresh insights.

The Fast Lane … or, Finding People, Retaining People, Launching People

As the Great Resignation continues, this question is creating a vast amount of anxiety for agency leaders — we see it in our networks, hear about it in anecdotes in discussions, and read about it in blogs, articles and reports.

Resignations happen. It's a natural feature of being a business: people move on when their time is up … but higher numbers of people seem to be leaving. When jobs are advertised, it's getting harder to attract good people to apply, especially at senior levels. And leaders are increasingly anxious about people leaving, resigning unexpectedly, or worse, being poached, especially those in key roles or whose talents are essential to the agency.

There's no silver bullet, no magic insight or action that fixes everything. But here's some suggestions.

Road Crew on the Fast Lane

Recently Steve wrote about an important different perspective on employing people in your agency. He called it 'the fast lane'.

The long and the short of it: it's healthier to see your agency as a place where good people spend part of the prime of their working life. To quote Steve:

At their best, agencies are an incredible career accelerator for good people. Where else can you get such broad experience on so many projects, with so many companies, at the cutting edge of the profession? Where else do you get to dive in and contribute in such a broad range of tasks? Where else can you get so close to the thinking and creation work for cool brands, so early in your career?

Then, all we need to do is to be honest about the modern workplace. That people are more mobile than ever, changing roles, companies, sectors, even countries, now more than ever before, and that's a good thing.

Finding People

Part of your job in attracting people is to show them the benefits of that — of spending part of the prime of their working life at your agency, to position yourselves as a place that gives people an immense boost in their personal and professional development. They should see that working with you is an amazing place where they can get that huge career acceleration.

In order to do that, then, your communication should to be multi-pronged:

As much as you have case studies on your work to attract and persuade potential clients, you should have case studies to attract people. That includes:
- team members talking about their work on projects — people will want to see what they might get to do for clients, how they'll be able to sharpen their skills
- views of the career acceleration that people get in your agency — stories of where people started, where they've got to, and the steps in between
Give clear views about the progression support and opportunities in your agency. That's more than just the standard bullet points of 'a generous training budget' on job ads. We're talking here of actual examples of what people have done, and how they've been supported in getting there:
- How they've become a renowned expert in their field, or
- How they've built up a unit or strength within the agency, or
- How they've found training as they've moved into management roles, or
- How they've been supported in switching disciplines as they discover new skills of capacities, or
- … you get the idea.
When team members have important moments in their career — joining, sailing though a 'probation' period, work anniversaries, contracts won, presentations at events or conferences, and so on — then use those career moments as an opportunity to praise them publicly and externally (assuming they're happy with that).
- A social media post or two about what's happened, or how people have progressed in a time interval, say, can be powerful — for the respect shown to the person themselves, and for what it says to prospective joiners.
Added to that is the stuff you'd do ordinarily:
- a good overview of the culture and vibe in your agency and your workplace norms.
- a good summary of all the perks of working at your agency, and not just the quirky ones — Friday pizza, yoga classes, or a company-wide, week=long annual retreat in the sun are great, but things like flexible working hours, remote working support, the generosity of holiday policies, parental leave, workplace wellbeing, and things that may work in your/their national context (e.g. extensive healthcare plans are important benefits in the US, but not so important in European countries, for example) are all very important dimensions to communicate —
  - … and don't forget to portray why you have them in place as an employer.

Who is out there?

When you're looking to find people in order to attract them to working at your agency, there are a number of ways you might look at that beyond simply putting out a job ad.

Steve's outlined several in an earlier newsletter:

Another avenue might be to get involved in the professional communities in your market area.

For example, if your clients are mostly in the local or national government digital space, you might look at ways you can participate in the government digital and design communities. You're likely to come across skilled and capable people working in-house in government departments who might've never thought previously about an agency career.

The same is true with the B-Corp movement — participation in the B-Corp community will bring you into touch with a wide variety of people who might be intrigued by opportunities at your agency.

There are similar professional communities in most sectors and specialisms.

Retaining People

Retention is a challenging subject, and one that's definitely a two-sided coin.

Obviously, too much churn can be damaging to a business. To borrow from agile project management for a moment, your 'velocity' is affected every time there's a change in personnel, with lost knowledge and skills, and then bringing new people in and getting them up to race pace.

On the other hand, as I said above, some degree of change is entirely natural and should be both expected and, when approached properly welcome. You should expect talented people to join for a period of the working career, and then naturally to move on. At the same time, it's very healthy for an agency to bring in new ideas, fresh perspectives and dynamic energy on a regular, managed rhythm … and to allow people to leave who are not (or no longer) a good fit in your business.

We asked the Agency Senate about retaining top talent, and in particular the conundrum of rockstar talent that, from time to time, is saddled to a problematic ego. Their insights are brilliant, as always.

There are lots of things you can do to help to retain people in your agency, many of them we've indicated above in. However, professional development is maybe one of the most crucial:

On professional development as part of a retention strategy

Here's some key rules of thumb on professional development in your agency, and in particular how that fits into creating a place where people are keen to stay for a good portion of their working lives:

Begin it early — It’s most obvious to start professional development cycles with those earliest in their careers or newest to the business. It's aslo essential as part of deepening and broadening their skills so they're better equipped for their work.
Do it often — Make sure people make the most of opportunities and are learning regularly. Fast and relevant learning is vital in all aspects of the business — you'll know that if you're using agile methods, such as OKRs in your business. For example, your team could be triggered by something they're working on — if there's something difficult and they're not sure how to do it, they probably should be encouraged to follow the curiosity and learn.
Make it a ritual — Keep a rhythm to professional development in your agency — it's one of the secrets to making it happen, and to having a real impact. If it becomes ad hoc training, or is restricted e.g. to bench time, then it's less likely to happen. 20% time, or taking several days a month — both are good ideas.
Don’t restrict people to their silo — Let people take training in whatever makes sense for their interests. Even if there’s no direct link to the day job, learning anything has huge benefits.
- Indeed, supporting interests outside work can be hugely beneficial, too, often bringing similar benefits to training that's more directly work-related.
Keep doing it — Its much easier to focus on those who are more junior in their working lives or experience level, but it's actually really important to make it happen all the way through the career, coaching all the way up to and through the board/CxO level.
Share what you learn — <ake sure people can talk about what they've learnt —they should show off about it! That might mean internal talks or presentations, or externally at conferences or events, webinars, videos, blogs, through releasing toolkits or usable materials, or whatever.

Launching People

The working climate has changed a lot in recent years, thanks in part to VC-funded start-ups and big tech companies who are able to make eye-watering financial offers to poach people, so that the off-ramps, the ways that people can leave a business, are more plentiful and easier to take.

However, as we've said your agency should in fact be in the business of launching people into the next phase of their working lives.

Just as a university or college celebrates its alumni, your agency should have a similar pride in the people that have worked with you, developed and grown with you, done great things with you, and then moved onto to do great things elsewhere, too. Your business will carry on doing great things, even as these people are launched into the next stage of their working lives.

Just remember: when they do that, stay in contact with them — you never know when they might fancy coming back.

In summary

Being an employer in a time of economic turbulence, as we're currently experiencing and will be for the time ahead, anything from 6–18 months most likely, is extremely challenging. It's demanding for leaders of all agency businesses, even those whose company is in a comfortable financial position or is fairly well insulated from recessionary effects.

It's demanding because it affects the agency's team in a huge variety of ways, some foreseen and others, of course, completely unexpected. Trying to understand the actual pressures on your team — through both some educated foresight and listening attentively to people — is where you begin.

The demands made on you, as founders or leaders of your agency, will be coming at you from all directions. That means that your responses will therefore multi-directional also, out of necessity. And only some of those are directly to do with employing people. Many, in fact, are about running the business on a steady course through the stormy weather, because that's vital so that you can be a good employer.

Taking that steady course through the long storm of what is potentially a global recession will likely take the whole team to get you there. All hands will be needed: undoubtedly, it will be important that you don't get isolated at the top of the business.

There's no doubt that one of the biggest concerns for agency founders and leaders is the changing dynamic of career expectations and norms for people. That will only be amplified as the pressures of high inflation and a stagnant market start to bite. In the midst of that, you'll find it rewarding to take a little time out and review why people come to work at your agency, and how you can portray the acceleration their career will gain from spending a crucial part of their working life in your team.

As we look forward to the turbulent economy of the year or so ahead, you likely feel extremely anxious about being an employer. The practical suggestions I've set out here, though, should help you to take stock, focus on what's important, form your plans, and then take the actions you need to look after your team and your business in the most healthy way.

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Talent Turbulence / Employing people in a time of high inflation (pt. 2)

Understanding the Team's Concerns