Agency Forward

Chris DuBois 0:00
Hey everyone, today I'm joined by Sharon tourek. Sharon is the founder of legal and creative, where she advises agencies on legal strategy, contracts and IP protection. She is also the host of the innovative agency podcast, and is a frequent speaker in the agency space. Now I wanted to have Sharon on because most agencies overlook legal as a lever of profitability, and it's actually costing them right? There's also just a ton of agencies that don't even consider legal structures until they run into a problem. So in this episode, we discuss turning legal protections into profit centers, navigating client exclusivity without killing your niche, how to protect your ideas in sales, proposals and more. No one was asking for another community, but I've made one anyway. So what's different? The dynamic agency community is designed around access, rather than content, access to peers who've done it before, access to experts who've designed solutions, access to resources that have been battle tested, and right now, the price for founding members is only $97 a year. Join today, so your agency has immediate access to everything you need to grow. You can join a dynamic agency dot community and now Sharon torek,

Sharon Toerek 2:26
So I think that typically, agencies are great about being crisp and clear on their payment terms and a contract. I think they usually nail their pricing down pretty decently. They don't nail scope creep down. But that's not my area of expertise. I hear about it a lot as we're talking with agencies, but they

Chris DuBois 1:21
it's easier than ever to start an agency, but it's only getting harder to stand out and keep it alive. Join me as we explore the strategies agencies are using today to secure a better tomorrow. This is agency forward looking. What's the biggest legal blind spot that agencies overlook today? I

Sharon Toerek 1:43
think that's a great question, and I have so many answers in my brain, Chris right now, but I think the one that comes to mind is that agencies don't realize that legal is a profit center, and because they don't realize that they're focused on the hard cost of putting good legal foundation in place for their agencies, more than they're focused on what the risk reduction will save them or earn them, or what a strong contract can do for their profit. Bottom line,

Chris DuBois 2:19
yeah, I'm interested in diving deeper in that. Yeah, yeah. How? How does it actually influence their profit?

Sharon Toerek 2:49
are missing the opportunities to clarify. How do we recapture our costs for rush work? How do we stop and re scope when we have to and these are all things that the contract will enable you to do if you create it properly. There are missing opportunities for restart, expense, recapture. You know, for a client who lets a project go dormant, they're not addressing their intellectual property with enough sort of depth so that there may be ways to be learning licensing revenue on top of the fee for service revenue, and moreover, it's their key risk reduction tool, especially that agent, client. MSA,

Chris DuBois 3:37
yeah, yeah. The man, yeah, there's so much that we could get into on this. The I even, I have a client right now who, they had a project that was probably going to be two ish months. They knew it might run a little over, but now they're on month four, because the client keeps having other issues within the contract, or, I mean, sorry, within the contract, they're just adding scope to things, but it wasn't kind of pre addressed to be able to facilitate any of these changes and like, here's how we actually handle it, I guess. How do you recommend hitting that right from the start?

Sharon Toerek 4:10
I think it starts with having a good baseline set for what your benchmarks are, and the client engagement performance wise and financially. And the reason I say that is because that's what helps you anticipate what issues you might have to address. And your standard agency contracts. And a lot of agencies have multiple versions of their standard agreement because they do different things. Right are they have a regular Master Agreement and then different schedules or statement work and things like that. So if they don't have those in place, and they haven't thought them through carefully, maybe they don't anticipate all these issues that might occur, like a delayed project and having team members sitting, you know, twiddling their. Comes because they can't get anywhere, because they don't have the approval they need yet, or the answers they need yet, or they haven't thought about recapturing that cost for you know, being idle are having to expand the scope of the work. So I think if you sit down initially, I think about, what are those patterns that we see and how we serve clients, and how do we accommodate those in a contract, so that we remember to communicate upfront with our clients about them, because contracts only get you so far. It's and that's where sort of our jurisdiction ends for agencies, but the communications that you have during the sales process, and then the account servicing process should dovetail with the terms of the agreement, so that the complaint agreement is doing its best and hardest world for you, in case go sideways.

Chris DuBois 5:52
Are there any terms that you kind of lean on, like, as a I guess, best practices that you would say, hey, just like, if you at least do these things, it'll protect you from a lot of the issues that agencies normally run into.

Sharon Toerek 6:06
Yeah, I think the key issues to hit in any master service agreement, or your equivalent of that, is the intellectual property, ownership and transfer. You want to be clear about, what's mine, what's yours, what's ours, and frankly, what will never be the clients, because there's some IP that every agency owns and creates. They use for every single client, and that's their secret sauce, right? That cover is owned by the client. So the IP ownership and transfer is key. Obviously your liability limitations are key. Your ability to prevent and protect your team members from being poached or solicited. That's one so fair competition covenants are important to put in the master service agreement, client responsibilities. I mean, everybody thinks in contract as something that is the do's and don'ts roadmap for the agency, but it really should be committing the client to certain behaviors. Well, that's important. I can tell you some of the side issues that may or may not be under contract that we see on repeat are exclusivity requests. So an expectation by the client that your agent won't serve other brands that compete with them. And increasingly, we're seeing the need to address AI. Usage of AI, and whether your contractors or your vendors are going to use AI to create any deliverable that you're going to be turning over to the client. Also another critical area,

Chris DuBois 7:43
right? Actually, I want to dive into those, those two first, with the AI, is that more of a hey, we just want to know that this is made by AI so that we have any copyright issues or things like that we were just aware of ahead of time, or companies kind of hoping that their agencies aren't using AI.

Sharon Toerek 8:02
It's a little of both. And we're honestly in earlier days. And I think many of us realize, because if you're following, if you follow marketing, press or agency, press, AI is everywhere. And so it's just natural to assume that you're living in a cave if you're not, you know, using it every single day in very, very big ways. But the truth is, these are really very early days. And if you're an agency, just because you're small doesn't mean your clients are and so if your clients are not, or if they're very conservative, or if they're government agencies or publicly held entities, they may have a no AI usage policy corporate wide that your agency needs to know about so that it's in compliance with our policy. Beyond that, sometimes, yes, it is simple as saying we want you to know that we're using AI to create either concepts or inspiration or actually weaving it into the deliverables. Whatever your level of use and whatever your use case might be, we want you to know it. We want you to acknowledge that, and we would like you to sign this document that says that we had conversation. Sometimes it's that simple. Other times it's about making certain that whatever you've committed to in your client agreement around using AI is mirrored in your contracts with your contractors, with your vendors. The last thing you want is a freelancer turning over a piece of work to your agency that they use AI for without telling you that, and then you talk to another piece of work handed over the client, and you haven't made that disclosure that you need it. So sometimes it's waterfall between them, all the contracts. So can be any or all of those things, I think, looking at it systemically in your agency, from a perspective of your contract language. Change written policies around how you use AI in the agency, what platforms you're using, what the use cases are that you're making out of it, so that you explode in that in the conversation with the client. It's a key risk reduction opportunity that not only touches the contract we were just talking about, but it touches issues like imp fringe, right? You know, data privacy compliance, all those other things, right?

Chris DuBois 10:27
Yeah, that is interesting where, I mean, every agency right now is looking for every opportunity they can to include AI within their operations so they can deliver better, faster, like all these things. So like to know that you should be protecting yourself as well, right? Is pretty

Sharon Toerek 10:44
important. And also, I think agencies are in a unique spot to be able to really be educators and trainers and innovators around AI. Most people listening to this podcast know way more about what AI can do for their clients, and their clients understand right now. So you are in a unique spot to be a leader in this role, no matter how slow or big your agency is, and so this is kind of a honeymoon period for agencies to take advantage of that. And you know what I'm here to do, and my team is here to do, is to make sure we've got some legal infrastructure sort of tucked around that make sure that the right conversations are happening

Chris DuBois 11:29
right so the other piece I wanted to dive into is around exclusivity, where so a lot of the work I'm doing with agencies is we're trying to get them to niche down, focus On one audience with one problem and one solution. The challenge of that is, if now your clients all want exclusivity, it's like you have no one else you can work with. Is, are there ways to give them the exclusivity that they want while still giving yourself the freedom to actually find other clients within that space? It's 100%

Sharon Toerek 12:00
a double edged sword. I'm a huge fan of niching, obviously, too. I've, you know, devoted a lot of energy to niching towards agencies in my own business. So yes, you are potentially limiting some of your economic opportunity. And so what I would have to say about that is, first of all, if you're going to agree to exclusivity, make sure you're pricing at a premium, or make sure you are requiring some sort of minimum spend, or there's some economic incentive in there beyond just the contract itself, be able to do so. So tucking that aside, that's more of a business and a legal issue. There's some things you can actually do to limit the scope of an exclusivity demand if you've decided you can live with it, or that you absolutely want to do work for this brand. First of all, you can limit it to certain companies. You can agree to a short list, a very short list, of competitors that your agency will not work for while you're working for this client. Second, you can limit it with specific categories of products or services. So, you know, CPG is a wide open world, so just because we're working on your tooth based account doesn't mean we won't work on their, you know, toilet paper account, whatever it is. Sometimes geography can be a limitation on exclusivity that is helpful to an agency. You can work with this kind of business in this part of the country. We don't want you to do it in this part of the country that can work for regional businesses and agencies. And so there would also limiting the amount of time during which the exclusivity is going to be effective, so only the first six months, only during the term of the agreement. We've seen some brands ask for exclusivity that lasts beyond the expiration of the contract, which is ridiculous, and my free advice today is never agree with that. But there's some ways you can cut down an exclusivity restriction, if you've decided that you know what, we don't like it, opportunity for us to walk away from so let's figure out we can make it work for everybody you know. And then my awesome advice about how to have that conversation with the brand is that you chose us because we've got expertise in your backyard, your vertical, and we can't do that if we can only work with one client in this industry at a time.

Chris DuBois 14:31
Yeah. I mean that last space is literally what I get hung up on the most with some agencies where they focus on, well, who, if I niche down, who can I I'm limiting who I can work with. It's like, yeah. But you also get to, like, develop. This expertise by getting the repetitions in and seeing it so much. And so yeah, the exclusivity would limit that. And so I think it's a fair argument to a client to say, like, you want me for this, but you're gonna limit what I could do for you, yeah.

Sharon Toerek 14:57
And in my opinion, I don't feel like, um. Um, having to prepare for the risk of being asked for an exclusivity clause in your contract is a reason to shy away from niching. I think niching is extremely powerful for agencies. And so just, you know, choose your battles wisely, make sure there's a really great economic incentive for the opportunities that you do take. And there's, you know, contractual ways to sort of blunt the impact as you go,

Chris DuBois 15:25
right? So separate from like, give them the proposal, you get them, client signs off on it, and now you can have when they sign that contract, right? There's protections that are built into that. A lot of agencies will give a proposal to a client and then or to a prospect, then that prospect will take it and kind of run all right, they start ghosting future calls. Are usually handing that off to other agencies to say, well, could you do this at what price point is there a way to protect your agency from that before there's actually any like agreement done for a potential deal?

Sharon Toerek 16:01
Yeah, I hate seeing this happen to agencies. This really disturbs me. I'm I'm an IP nerd, actually, by training. It's how I sort of fell into working with marketers generally, and then agencies more specifically. So I have a really strong point of view about this. The gold standard for protecting yourself in a new business situation with a prospect is to have a mutual non disclosure agreement, and your agency should have one in its toolkit and as part of its process to be to push that across the table as part of this conversation. And I'm not gonna say we don't get pushback from agencies about doing this because they don't want to appear difficult to do business with, or they don't want to create any additional action in the process, or any time in the process. So for all of you, in a second, I'll give you some ideas about how to, how to, you know, hedge against this if you're not going to go the NDA route. And I'm strongly encouraging you to get the NDA and I'm going to remind you all that clients are not as reluctant to sign this as you think they are. It's a mutual document. So if you have the conversation in the spirit of mutuality, we're going to keep your information confidential. You're going to keep our information confidential. They should understand that a client that doesn't understand that will, quite frankly, be a red flag for me. Third, they're not shy at all about pushing their NDA across the table to use. They're perfectly happy to make, you know, to tie your hands. So I think fair is fair, and you just should own their power in this situation. So that's the gold standard of protecting your ideation, your concepts and new business conversations. If you despite everything I just said, If you don't want to do that, then my suggestion is use IP ownership language and copyright statements liberally in your written proposals, your estimates, your responses to RFPs and RFIs. So that's very clear that every you know, piece of ideation, suggestion, strategy or idea that's reflected in the writing is protected. That's hard to do with formal conversations in the face meetings. So those ideas are actually, you know, they're free to take. If you don't have an NDA in place, then that's the those are your nipples stakes for having the conversation with them. And you just have to be comfortable with that as an agency,

Chris DuBois 18:32
right? When it comes to, like, enforcing an NDA like, I know most, I would say a lot of companies have more financial power to throw behind, like any legal defense that they might have. Most agencies probably also don't want the reputation of going after prospects or something for well, forcing that like, is it really just, hey, we're doing this in hopes of good faith, or are there things you can do to actually protect yourself.

Sharon Toerek 19:03
You can certainly go after a prospect for breaching the NDA and using your work or enabling another party to use work. I frankly, don't see it happen often and probably one hands and the amount of times that an agency has ever proceeded so me, it is more about setting the table with the prospect of you being equal parties to the conversation. You elevating the level of what you're bringing to the table with your ideation and also creating the expectation that you are going to be a partner in this process with the client. So it's as much about those things as it is about the legal leverage, you know, to have an important claim if you ever want did want to pursue it. And honestly, most agencies who I've talked to, they said. Happened to they're more ticked off at the agency who got the account than they are at the brand. They tend to be less angry about brands who internalize this, maybe give it to their in house agency or their in house marketing team, than they are about another competing agency getting access to it. I think all those things you know, having good legal process in place is as much about discouraging bad behavior as it is about having protections in place if you need to pursue that

Chris DuBois 20:35
right. And say, a competing agency does do something with that, and there's really no way to legally hold them unless you have the IP in like legalities in place. So I

Sharon Toerek 20:46
think if, well, you've got a breach of the contract with the brand. If they've given your work to another agency without your permission, you might have an infringement claim against the other agency. It just depends on the degree and level to which they've, you know, duplicated, you're not going to get far probably trying to get them to account for taking your idea. This is why having as much of your ideation in the proposal phase or the new business conversation phase documented somehow, you know, storyboards, sample assets, presentation decks, written proposals, those sorts of things. Yeah,

Chris DuBois 21:31
it makes sense, yeah, I guess, I guess cease and desist might, uh, might help, but

Sharon Toerek 21:36
it does that usually gets their attention, um, and may or may not, depending upon their level of knowledge. I mean, most of them don't really know this came from another agency, honestly, and so it's about more of us sitting at the table with the brand. Is about beating up on the agency who took the work and, you know, made something out of the client relationship with it. But I hate seeing it when it happens. I really do

Chris DuBois 22:08
so shifting gears from client focused legalities to team focused. I know a lot of agencies now are trying to work with contractors just because of the the financial benefits of having contractors on your team. Are there things you should be looking for within your contracts to support your agency while still giving you know, the contractors flexibility to run their own business and do their things, but they kind of protect you, or even just work in your favor from a profit perspective, again,

Sharon Toerek 22:39
you know as to the profitability of the contractor versus the in house team member who's a w2 employee of your agency, I think it's a numbers game, right? It's all about volume. How much volume of work are you going to push that person's way? That's more of an accounting or a finance issue than it is a legal issue. But what I can say is that the landscape out there, legislatively and tax wise, for the 1099 relationship is not getting any easier in many states for agencies and so that said agencies still need the flexibility of being able to staff up, staff down with, you know, contract help to augment their team. So the keys here that I see agencies missing or blowing past in this, you know, in the heat of getting business done as they're not documenting these relationships with the contractors at all. It's an email back and forth, or it's a call to say, Can you help us out with this project? So the biggest missed opportunity for most small agencies here is they don't have a decent, written independent contractor. So that's the first place to start. The second is with the terminology, the term contract employee is not a thing. You're not a bit more plain about it than that. You are one or you are the other. You could be contract talent. You might be a contract worker, but you're not a contract employee. The reason pointing this out is because I see too many agencies treating the agency the same way they would treat an employee in terms of things like access to their their management systems, their timekeeping systems, or project management workflow systems. They'll give them email addresses at the domain of the agency, etc, etc. Every additional thing you do to position your contractor to the world as if they are an employee of you ratchets your risk up of that person being misclassified as an employee or contractor, and the risk is all on. Do, because the truth is, nothing's going to happen to the contractor if you end up getting a letter saying you've misclassified this person, and nothing's going to help you if you get a workers claim for them or an unemployment claim for them, if they decide to file those documents because they've been working for you 30 hours a week at the contractor and you don't need them anymore. So this is where having the contract in place is really, really critical, and needs to address all the regular things the IRS is looking for, like you make your own schedule, you decide when and how you perform your work, all the other things. What's also helpful is if your contractors have their own entities, like their own LLCs or corporations set up, and you put the agreement together, brand to brand, right company to company. But the things the agencies tend to miss the most is they're treating these people like they're treating their employees because it's easier to do and they're not talking relationships properly. So the best first step for most of you listening, is pull out your contract that you use for these relationships and really look at it and see if it is addressing things like IP ownership, AI usage, non solicitation of your clients or your talents. There are other things. Those are kind of the top three. And if you're not sure, then it's probably a good sign that you ought to refresh, update up level this critical agreement, because it is one of the pillar agreements for every small agency, your client agreement, your independent contractor agreement, your agency agreements, employee agreements, those are your kind of your pillar documents,

Chris DuBois 26:40
right? So at what point in an agency's kind of lifespan should they be, not even lifespan, just as they're getting everything kicked off, when should they bring, like a team like yours in to assist with actually setting up the contracts the right way? Right?

Sharon Toerek 26:57
It's a great question, and it's less about the size of the agency, or maybe their life cycle, than it is about the kind of clients you're probably serving, or the size of the team you need to bring on to serve them. Every agency starting every professional marketing services firm needs a good, solid client contract, agreement that's the place to start. And I would really do a thorough audit of the agreement that you're using to make sure that it's getting, you know, all the relevant points that we talked about earlier. That's day one. Honestly, for me, if you're starting off smaller projects as you're getting rolling, the most recent things for you to do might be to create a good, strong set of legal terms and conditions and incorporate that into your estimates or your proposals. If you're not ready to have on the full MSA, are you doing mostly smaller projects to get started once you're working on those retainer relationships, those larger projects are those long term relationships you really your agency needs to have invest in a master service agreement for the for those clients. So you know, client one, client one that falls in that category already in terms of for the contractors, the first one you hire, because it doesn't matter how many any one of them could be, you know, a jeopardy for you,

Chris DuBois 28:31
right? So with this, what is the the 8020 for? Like, I guess, an agency to get started, like to protect themselves. What are those few things that they should be focused on primarily? Right? So just get everything kicked off.

Sharon Toerek 28:46
Your client terms and conditions that's critical, contractor terms and conditions, your employee policies and procedures, even if you have a few people start documenting those things or cattle that's going to be your virtual handbook, right? Or the basis for one, make certain that you are staying on top of rules around the discipline you work in. If you're a digital firm, that probably means data privacy, and if you're an influence firm, that means understanding FTC rules and how they apply to you. So that would be the third sort of low hanging fruit there in the in the 20% if you will, or maybe the 80% I'm not sure which was which, but it's a critical depending on what kind of work your agency specializes in, right? No, because it's impossible to know all the regulatory landscape for every type of project that you work on, so focus on what you do the most in terms of understanding the the laws out there that might relate to it. But yeah, the agency client contract and the agency contractor contract. Those are the those are the key tools that you need. Every agency needs to.

Chris DuBois 30:00
Start with awesome. All right, well, Sharon, this has been a great conversation. I got two more questions for you. First being, what book do you recommend every agency owner should read?

Sharon Toerek 30:12
So this is going to found a little pop culture, but Mel Robbins book, let them, they'll let them. Theory, any leader should read this. And there's actually a digital only teams version of it. There's like some extra chapters and content there about team management, but it is all about how to how to lead and understand people as you do it. So I definitely would read that one. There's two others that are more agency specific. I love David Baker's the business of expertise, which is all about establishing a base head positioning, and, you know, getting yourself out there in the world. And then I also love sell with authority, which is a drew McClellan Stephen Western book, which is about how you create thought leadership and use that as a selling beach head. So

Chris DuBois 31:11
awesome. Yeah, all good recommendations. Yeah. Last question is, where can people find you?

Sharon Toerek 31:17
People can find me? At legal and creative.com I'm also very active in LinkedIn, and they can find me on the innovative agency podcast, where I hope Chris is going to come and join me soon. We'll do a crossover of this conversation and talk about the work that you do for agencies.

Speaker 1 31:35
Awesome. All right. Sharon, thanks for joining. This is fun. It was fun. Thanks for having me. Chris. Great conversation.

Chris DuBois 31:44
That's the show everyone. You can leave a rating and review, or you can do something that benefits. You click the link in the show notes to subscribe to agency forward on sub stack, you'll get weekly content resources and links from around the internet to help you drive your agency forward you.

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