Principal Agent Problem - What I Learned About It

Have you clearly identified your place in the market? Have you selected a core leadership team to help you take the agency to the next level? Do you unknowingly have a principle-agent problem?

After 10 years in the business, one successful agency owner shares the steps he followed to skyrocket growth. He covers everything from the importance of having a top-notch leadership team to communicating the goals and vision and solving the principal-agent problem.

Manish Dudharejia is the founder and president of E2M Solutions, a full-service white label digital agency. His agency works as a trusted partner to scale your agency business behind the scenes. E2M has been serving agencies for 10 years and currently works with about 130 agencies across the U.S.

In their growth process, Manish has had to learn to manage big teams of over 100 people, as well as create a culture that prioritizes employees and identifies leaders within the organization.

In this episode, we’ll discuss:

• Finding your agency's place in the market
• Tips for managing a large team of over 100 employees.
• Identifying the principle-agent problem and how to solve it.

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Finding Your Agency's Unique Proposition and Providing Value

According to Manish, understanding his agency's unique sales proposition was a key factor in its success. He was clear early on that his core expertise was more about sales, branding, and customer service. He knew that is what he needed to offer clients in order to provide value. And, he never stopped learning about leadership. Like most agency owners, Manish didn’t know anything about hiring and training a team when he first started. Now he manages a team of nearly 150 people.

Another key aspect of E2M's growth was understanding what the market needed and how to serve those needs. Manish understood India is one of the countries with the highest number of English-speaking young people. This makes it a great place to outsource services. The resources and opportunities were there to create a company very competitive in this space. It just took having great systems in place and a really professional, prepared team.

It’s about having the self-awareness to identify how you fit into the industry. What are your strengths? How does your expertise fit what clients need from you? Manish saw a gap in the agency space where agency owners didn't have time to invest in hiring and training a team. That’s where his team comes in to white label when agencies need them most.

Finding and Managing Your Core Leadership Team

A lot of agency owners struggle with operations and growing a team as the agency scales and needs to expand its staff. They may go from having a team of five to a team of 20 and feel overwhelmed. Manish now manages a team of nearly 150 and his management philosophy is to have a core leadership team. He usually works closely with his 6-7 leaders and makes sure they know who is responsible for what.

It’s important your team leaders understand and communicate the agency’s culture, vision, and goals. Failing to do this leads to a disconnect between the employees and the overall agency’s goals.

Where can you find top talent to lead and manage your agency team? Manish believes in building leaders within the company rather than hiring outside talent. He believes there is always someone out there who would love to do a job you hate doing. Instead of holding on to tasks you don’t like for fear no one else can do it, find someone you trust that can take it over. He is also against micromanaging and believes that if you chose someone to be part of your leadership team is because they’ve proven themselves and you trust their judgment.

The Principal-Agent Problem and Why You Need to Solve it

Manish recently learned about the theory of the principle-agent problem. Fortunately, he had been taking the right steps to face it. It is the root of most problems related to employee and client dissatisfaction. It is basically a conflict between the priorities of a person you’ve chosen to represent you vs. the priorities of the client. The root begins when the incentives of the agent and the principal do not match.

Manish uses the example of Uber and how their main customer dissatisfaction problem begins when the incentives for the principle (the client) – getting to their destination and enjoying a good service – do not align with the incentives of the agents (the drivers) – completing as many rides per day as possible.

As an agency owner, you are essentially hiring people to provide a service that satisfies the clients’ needs. However, you should always make sure to put the right incentives in place so those employees are also satisfied. Remember your employees are your most valuable asset, so if they’re not happy something definitely must change.

3-Step Framework to Getting the Right People in the Right Seats

Once he found his place in the market, Manish focused on having the right people in the right seats. In short, he attributes his success to implementing this framework:

1. Identify the core leadership. These are employees with key abilities that could be utilized to relieve you of unwanted tasks. If you put the right people in the right seats, you’ll never have to worry about motivating them.
2. Address any principle-agent problems. Incentivize your team that is a win for them as well as for the client in order to produce a successful customer experience.
3. Create a culture where the team feels valued. Help your employees rally around the common goal where they can feel their contribution matter to the overall agency's goals.

Setting Goals to Continue the Agency’s Growth

Manish sets three main goals for each quarter. They also clearly communicate how each team member will contribute to achieving those goals. Sharing the agency’s goals helps every team member feel they share in and are a part of those goals.

Give your employees goals rather than just tasks to do and they’ll feel included, valued, and a part of something. This also help them understand their impact on the organization. Of course, one way to recognize their work is monetary compensation but it can’t be all about money or you’ll end up losing your team.

Interested in Seeing if E2M Solutions Can Help Your Agency?

If your agency can use the help of a white label partner, check out E2M Solutions and join the hundreds of other agencies who have trusted them.  For a limited time, E2M is offering Smart Agency listeners an amazing discount, that you can check out here.