Avoiding Agency Legal Pitfalls with Sharon Toerek | Agency Journey

All right, welcome to this week's episode of Agency Journey. I am joined by Sharon Torick from Toric Law, and we're going to dive into some of the issues. I wish we could get to all of them, but that conversation would take forever. Some of the issues around creative firms, really digital agencies of any ilk, and some of the common issues that they face. And a couple specific questions I've got for you, Sharon. But anyways, welcome to the podcast. I appreciate you coming on and joining me.

Thanks, Gray. I'm excited to be here and have.

A conversation with you, so I'm thrilled.

To have you on, but I happen to be plugged into a couple groups here locally that have a good number of attorneys as part of them, and I have yet to run into anyone else who focuses on the creative space or the agency space. How did that, like, maybe just kind of brief history here of how that specific focus came about for you?

Yeah, it is, it's an interesting niche. And I, you know, I kind of had a gut feeling that it was going to be a fairly blue ocean when we started targeting agencies. And it's proven to be accurate. There's really a lot of great agencies that were in a position to help. And so it happened because of a couple of reasons. I'm an IP lawyer, trademark and copyright lawyer, sort of by training. It's sort of how I was raised. And, you know, my first job opportunities were learning opportunities in those areas. And when I started my own firm in early days, it was a lot of me relying on that expertise to get new business in. And I was just getting a lot of marketing related business, especially for trademark protection, new brands, new product releases. And so I started working with marketers, really enjoyed the pace of their work, enjoyed the creativity. It's the only industry really that blends popular culture and creativity and ingenuity in a way that you don't really see in a lot of other places. And I just, I loved working with these people and the stuff they would throw at you was just so challenging. So I started working with marketers in general and then narrowed it down to an agency practice probably about a dozen years ago. And we focus on the intersection of IP and marketing law and the agencies that provide those services who are independent and tend to be small or mid market in size.

Yeah, when you say small to mid market, I think probably one of the first questions that comes to mind is like, what's the average side of a firm who works for you? Or kind of what's the range in terms of agency size?

Well, we have agencies that are what I will call micro in size. You know, fewer than five people. I would say on average the team size of an agency we work with is around 25 to 50 people. We have some that are larger than that. And a lot of times the legal issues end up being fairly common regardless of the size of the agency. You just have to sort of customize or peel back your approach depending upon resources and things like that. But that's. That is the average.

Yeah, that makes sense. I think at least a lot of the conversations that I by no means give legal advice to anybody. I'm certainly not qualified to. But when we run into areas where. So we're focused obviously on the operational side of agencies and run into client delivery problems and are helping agency owners with that all the time. And oftentimes those conversations can come back to contractual obligations and asking for advice. And when the response is, I'm not an attorney, you should go talk to an attorney. It's rare to see those micro firms often say, well, I want to go do that. Because the perception around having to pay the price to work with an attorney is pretty high. And then in that two to $10 million range is probably where a lot of those 25 to 50 person agencies wind up. It's kind of an established business at that point. There's a higher willingness to pay.

Right. And I appreciate that. You know, in early days when you're just getting your start, the investment and the kind of process, and I'm sure you've seen this on things, making those sorts of investments and the kind of, you know, the foundation that you need so that you can play that bigger game, you'll be ready to play that bigger game from a legal perspective once you get there. It's hard to do. And I totally appreciate that. But I also know that taking steps early to prevent legal issues later also saves time and money in a big way. And that's super important for small and mid sized agencies as well, for sure.

So are you ever getting involved or are you. It sounds like it's not the focus to get involved at the super early stages, business formation, operating agreements, that type of stuff. It sounds like it's more around the IP side later down the road, but kind of what's. Do you just give us a sense of the gamut of services that you're providing and kind of where that sweet spot is? That might be.

Sure. So we are on the intellectual property side. We will help agencies who do branding work for their clients with Trademark due diligence, trademark advising and protection. On the copyright side, we help agencies navigate copyright issues that come up with their client, work with their, work with contractors just in work delivery. And then on the business affairs side of the house, as I call it, we help clients develop, negotiate and just put into place good contracts. So whether that's a master service agreement or whether it is just a firm set of terms and conditions that you include in a proposal, we help them with their client relationships, we help them to make sure that they're putting in good processes relative to their independent contractors. Because agencies at this size, every single one of them I have yet to meet a one that doesn't work with some sort of freelance or independent contractor talent augmentation. So you need strong agreements in place for those people. For lots of reasons, IP related just there's a whole list, laundry list. So that's another area where we help agencies and then on the marketing law side of things, we help agencies that run social media campaigns, influencer campaigns with the legal issues that come up there and some privacy compliance stuff as well.

Okay, wow. So it's a, it's a wide range.

That'S helpful to get sense. I want to drill into one thing.

That you mentioned there around contracts or master services agreements. If I gave you your druthers, you got to choose for an agency and they can well around having a master services agreement and then using separate scope of work agreements or whatever the right way to draw that up is versus just having terms and conditions or some contractual terms involved in an initial contract. Is there a preferred way to set that up for agencies?

I'm going to say yes. And my experience is that most agencies need two versions of their agreement. They need a master services agreement for those bigger dollar projects or for those longer term relationships that cover and go more deeply into sets of issues. If it's a small one off project or a lower dollar project, then I like to tell agencies you're usually better off handling it with a well drafted set of legal terms and conditions that you put right in your proposal or your estimate and then the whole thing together becomes your contract once it's signed off. So I really feel strongly that most agencies need both of those things in their toolkit and then you need to pick the one that works for you, depending on the size, nature and type of project that you're engaged with with your client, or if, you know, if you're one of those lucky few agencies that still gets a retainer based relationship with a brand, you know, you're a good fit probably for the MSA. If you're doing a one off $10,000 project, you're probably in good shape using the legal terms tucked into your other documents. Then if you're using a master service agreement, the scope of work or statement of work documents can be exhibits to those and you'll do a new one every time you have a new project with that same client. But it's much shorter in form.

Right. That makes sense. That's helpful. So kind of along those lines, I'm sure that I remember with our first agency Guava Box like lots of time going back and forth on what legal stuff was and just having no clue around even what like someone would say MSA and be like what is that? Is that or sow and not even knowing if the beginning. I'm curious to see kind of from your experience what the most common legal I know your services span a gamut. Are they the same? I'm sure there's the same group of kind of Pareto's principle, same group of issues that come up over and over. What are some of the most common legal foibles you see from agencies?

So I would say that in the realm of dealing with clients, the most frequent issues that arise in working out your deal with them, whether it is with your master service agreement or legal terms or whether it's the client's agreement. Because if you're working with an enterprise sized client in a lot of cases they're going to want you to sign as an agency their version of the agreement. So it's working out who owns the intellectual property and not so much who's going to own it in the end because it's kind of commonly understood in most cases that intended the client is going to own but the issue is one of timing and making sure that the agency times the transfer of the rights to the work to getting paid. That is a common thing that we have a lot of conversations about. Along with that liability and requirements and the agreements are things we spend a lot of time talking about. Not because we think it's unreasonable for agencies to be responsible for the work that they produce, but because in many cases clients expect agencies to take on liability for things that are not within the control of the agency. You need to be careful about what those are and who's doing what and adjust those parts of the agreement. And then I would say the third thing is this comes up a lot and it seems like it should be such a minor issue. But portfolio display rights the ability of the agency to actually promote the fact that they've worked with a particular client or to display examples of work that they've done for that client. And their portfolio comes up a lot, a lot of times. And the bigger the client, it seems like the more a challenge this is. But either they don't want the agency showing the stuff at all, or if you can show it, you've got to ask them every single time. And so we try to work hard to get that negotiated in the beginning so that you know you're not going to a former client every time you want to update your website and put some new example of work on it.

Right, that makes sense.

And I haven't bought into that a lot, but could definitely see that being an issue where context change the company, someone has no idea who you are anymore. Like running into permission issues, trying to. Trying to get access.

But that is the. Those are the common patterns we see with client relationships. We spend a lot of time counseling our agencies on the fact that if you are working with talent that does not get a payroll check from you, which is just about everybody listening to this. Probably you need to have a solid written independent contractor agreement in place. And the most important reason why you need to do that is because without one, you don't own the work that that contractor does for you, even if you paid for it. A lot of agencies, it doesn't seem commercially reasonable. Right. But it's the way our copyright law works. So we spent a lot of time assisting them and understanding that. And then I would say we're seeing an increasing amount of attention being paid to influencer marketing compliance. FTC rules and data and privacy is obviously a bigger and bigger issue, especially for digital marketers every day.

Yeah, that makes a lot of sense. So I've got a couple different places I want to go. I want to talk a little bit about your own growth strategy. Obviously, you've been podcasting now for a couple years.

Yeah, thank you.

Thanks for playing.

Well, you've got a good amount of content up on the site. And so what I'd be curious to know, and I've got a couple other legal questions I want to bounce back to, but I can't pass up the lead generation side of things since every services provider listening to this is trying to figure out, especially in the era that we're in right now, what does effectively generation look like and how does it work? So you've been playing the content marketing game and I'm curious to know how the podcast, maybe you can tell us just a Little bit about the podcast itself, the site, and what your marketing looks like. But what you've seen from podcasting, has it been a direct source? So there's a couple different ways that I see this commonly play out occasionally, but usually not. The bulk of it is it's a direct source of leads where you're inviting, in many cases, agency principals onto the podcast to speak with you. Is that ever direct prospecting and leads to direct. To direct business? I know for us, in some cases it has that's not the intended strategy, but it's worked that way. Or is most of it just through reach of podcast listeners? How often do you hear in conversations with guests or with prospects who are speaking to you? Hey, I listen to the podcast and found you that way. I know for us, that's been impactful, but I'd be curious to know how big a role that content marketing through the podcast has played in your own lead generation and business development.

Yeah, thank you for that. Well, plug the name. It's the innovative agency. And you know, we originally created the podcast because I needed a cornerstone, if you will, of our content strategy. And I knew it was going to be easier for me to have conversations and use that sort of as the base for our content creation strategy than for me to try to commit to a writing schedule, because I tried that and it just wasn't fitting in. And it's created that and also the double benefit of for relationship development. So I would say the strategy initially was to use the podcast as sort of the base of our content creation efforts, but it has had the residual effect of being on the basis for some relationship that wouldn't have occurred if somebody hadn't heard a particular interview. And I'm still surprised. I mean, we don't have a huge listenership for the podcast. It's very niche. It's for agency owners, as yours is, but from a different angle. And it. It's always surprising to me with somebody still, two years later when someone contacts me and says that they've heard an episode of it, I still kind of get a bit of a throw out of that. I'm not gonna lie. And so from that perspective, yes, it has gotten us some traction in terms of seeming like we're in more places than a small firm like ours could otherwise be. And it has given us an opportunity to also up our game in terms of understanding what our clients go through and what issues are on their mind, which helps us be better at our work. So, yes, it's been a direct. It's Been a direct relationship building pool. Has it been a one on one client recruitment tool? I wouldn't say that so much, but I would also say it could be if we worked it differently. You know, you make a choice about how you leverage your opportunities and sometimes those choices shift and change. But for anybody who's thinking about it, I would say you've got to focus on the people who need the content and don't speak to your peers, speak to the people who you're trying to help. Which is why my podcast is not a legal podcast. Because you know better than I that agency owners don't want to listen to a legal podcast every week. So it would have just been me and my microphone. And that's not any fun, but I love it. I've learned a lot. And it's also created a lot of residual content for us that we wouldn't have otherwise had the resources to create. And so it's been a good experience.

That's awesome. Yeah, that makes a lot of sense. I do think. Yeah, I think if it was purely legal, I think there'd be some value and there'd probably be a few nerd super fans.

We'd have five listeners.

Right. But you're right if you, you know, it's. The challenge of marketing is if you talk about what people ultimately need, but it's the thing that they dread. All of us by nature are just going to put that off and unsubscribe as quickly as we can. So we don't have to deal with that until we absolutely have to deal with that.

Exactly.

But I do think building that established relationship through the podcast around the interest that people have builds a name and a brand around being a go to person in that specific space.

Thank you. Well, and I think it's helped them see, by seeing perhaps the firm in a new light, or me personally in a new light, it helps them maybe be a little more broad minded about being proactive with their legal issues as an agency. Instead of waiting till something's on fire, which is the natural impulse of really any small business owner, but especially an agency owner, they're just not interested until they absolutely have to be in many cases.

So I think that's the nature of a lot of client servicing, especially where there's a relationship is we, you get more of whatever habits we train is more of what we. What we get. So when you're trained to respond to client fires that pop up, that kind of carries over to the rest of the business as well. Like, I'll pay Attention to my finance when there's things like a problem and I can't make payroll or I realize three years later someone's been embezzling for me for three years. Like at that point we put in the audits and checklists and checkpoints and stuff. And it's kind of the same thing across the board. So that makes sense.

Let me ask you this, and I.

Mentioned this to you before we hit recording or before we hit record here I've seen in the wake of COVID 19, I guess we're still actively going through it, but since it initially came up, obviously there's been, and you mentioned earlier, you kind of hinted at the reduction in number of retainers being signed, especially larger or long term retainers. So I've seen a lot of requests from clients and some agencies proactively going forward towards this. This is not something new, but the volume of it has increased pretty significantly, at least in the world that I'm seeing in profit sharing or revenue sharing agreements between clients and agencies. And I struggle with it because obviously from a client perspective you're looking to reduce risk.

At some point. So initially the agency is going to be putting in more work than they're getting paid for with the hope of long term payoff. And rarely do clients remember or value the work that goes into it down the road when the agreement has turned, has shifted if it's one of those rare cases where it actually works out well. So I'm just curious to see if you have any thoughts about how to set up those agreements in a way that might work better if you're seeing the same thing in terms of it being a struggle to make work well, where incentives align not only in the short term, but also in the longer term. And any advice you'd have for agencies who are considering going down that path where they're paid on the performance rather than set fee for the activity that they're doing.

Yeah, I mean, it's an option that sounds super attractive depending upon the opportunity that the client's putting in front of you. I would say, and this is my experience and we've helped a couple of agencies create these sort of, you know, document these opportunities with their clients. First of all, for agencies that are mid to small in size, my first thought is that you've got to separate out the cost of production from the cost of, or the investment of your ideation. And what I mean by that is it is one thing to provide your consultative smarts, your ideas, your strategic contributions. It's one thing to Provide those and invest them on, you know, a speculative basis. But if you're engaged in not only that, but also production, you know, creative work, asset creation, campaign creation, you got to carve that out and you got to get those costs covered. So most of these arrangements really need to be hybrid, where you're putting some of your compensation at risk based on how something performs from a strategic point of view, but you are not putting your ability to cover your basic costs at risk. So that's the first observation is most of them are going to need more than one component of compensation. Part of it can be speculative, but part of it's got to be good old fashioned cash because you have payroll to make and other bills to pay. As a business owner, then the next thing I would say is that you need to be in a position and the contract that you sign needs to say this. You need to be in the position of having access to financial information of the client. And they need to understand up front that they're going to be expected to provide that to you. And you need to have access to the most senior decision making people at the client because they're the ones who are going to make the decisions that could affect whether or not your strategic contribution works or not, matters or not. So access to financials, access to leadership, a seat at that table where strategic decisions are being made so that you can have an impact on them. Because otherwise you can provide the greatest strategy in the world. But if it's not implemented the way you envision it, then it's hard to be held responsible for the results, upside or downside. And you got to have access to the information because otherwise how are you going to know if you're being compensated fairly? So those are sort of the upfront things that I would ask agency owners to think about when they're considering going into a relationship like this with their clients.

It's a really helpful checklist in the practice of having that conversation and talking about what's the term that we're going to agree to this? For most of the time in the marketing space for most providers, you're putting in some amount of legwork on the front end that's going to pay dividends down the road. So two years from now that may still, that asset may still be paying off from that initial investment that's been made. Are you still going to be in the picture two years from now? I think to your point of, hey, we need to talk through all these things and have these things in place, at least in the agreements that I've had visibility into most of the time that would probably discourage a lot of these relationships from even getting started that are going to end poorly in many cases anyways. I do think it's hard to align. It can often seem like from an agency perspective, especially if it's 100% speculative, it can seem like you get into it and there's no way this is going to work and you under allocate resources and perform poorly or you allocate resources and it goes well and the client gets to a point where they no longer want to keep that agreement because at this point it would be, at this specific moment in time it would be more fiscally profitable for them to take the agreement and work with someone else or work on a separate basis. So I think it's hard to make the incentives align over the long term. It really is a partnership essentially.

Right, well. And there's a difference between making your compensation incentive based on performance versus actually taking equity in a client, which is almost, which is almost never a good idea for a small or mid sized agency. I know it's sexy. I know there are examples here and there where it pays off big time. And look, I would say if you're in a position where you have the bandwidth to take a risk like that, I'm not going to tell a client not to do it, but we are going to have a conversation about risks before they do it so that they at least understand what they're, you know, what they're putting on the table and what they might be sacrificing. And after that it's a business decision which everybody who owns a business is entitled to make for themselves. Just, you know, understand and think about the risks going into it. And I know it's kind of a buzzkilly conversation to have at the beginning of the relationship because you're dating and it's very exciting. Exciting. But how are you going to feel two years from now when it's kind of going sideways? You're still going to be buzz killed, but you're going to be out a lot more money. So think about it sooner. You're never going to be in a better position as an agency than at the beginning of these conversations. You will never have more leverage than you do then. So use it. Use it appropriately.

Very true.

Speaking of risk, I want to flip the topics completely and I want to talk just briefly about what you mentioned to me about potentially rolling out a separate product or service subscription from your end of things. And I'll let you explain the actual idea. But I guess what I'm curious about is I think attorneys in my experience have for, haven't been around for forever, but in my relatively short experience, very hesitant to recommend boilerplates or any type of templates. And I realize obviously there's a self serving motivation behind that. If they endorsed boilerplates or templates out there, the need for attorneys would be lessened. And the flip side, there's also legitimate reasons why that stuff's like why you would need to customize things if you're in a unique situation. That makes total sense. So I'm curious about a, what the offer is and kind of be what the path was that led you to get to a point where you're looking at deviating from kind of the normal path in the attorney space.

Well, you know, I have spent a lot of time talking with agencies about monetizing their IP to create additional revenue streams. And most agencies have the ability to do this, but they either haven't had the urgency to do it because of the press of day to day client service or are just not seeing the possibilities necessarily. And so I would say part of our plans are sort of a walk your talk, you know, experiment. But I would also say that we have seen, we did industry research at the beginning of this year among we talked to a couple hundred agency owners and it's very clear to them that if they don't have a self serve option, they were going to do one of two things. They were just going to hunt and peck for resource on the Internet that wasn't vetted or tailored for their industry or they were going to steal the work of some other agency and sort of punch it up to match what they thought that their deals should be with their clients, for example, and the example of a contract. So you know, we realize that there is a need out there and we can help more people by creating a way for them to have access to some things that would serve as a legal foundation for their agency and in marketing and IP specific areas. We're not going to, you know, put an incorporation guide on our site or anything like that. But so we're creating a subscription offering that will be for agencies and it is going to be populated with templates of frequently needed agreements and things that agencies need. It will have learning, education, model modules, checklists, things that you need to really have a base, a foundation for your legal processes as an agency. And it's a sister company, it is entirely self serve. So if you need to talk to somebody about it, you're going to have to engage your legal counsel to do that. But it is a way for us to help more agencies who we would rather have them get their information from a source that derived from somebody who spends time in this space than going to a legal zoom or somewhere where they wouldn't really know if the tools suited their specific needs. So yeah, Agency Protection System is going to launch in about, we hope, 60 days from when you and I are talking. We're finalizing some things on it and I'm really excited about it because again, it's an opportunity for us to use our IP to help more agencies and it's an opportunity for them to get access to some things to take a self serve approach where they otherwise wouldn't have a resource and won't engage a lawyer for various reasons.

Right.

The aps.

APS is exactly what we're calling it Agency Protection System. We do have a legal toolkit for agencies already available on the site. It's a legacy product of ours and you know, we still sell some occasionally but it's a big sort of all at once whole enchilada eat the whole elephant situation. And based on buying patterns and how we see just the subscription world working, we think that's going to be a better model that fits more into the budgets and also the priorities of our agencies around the country.

So I'm not going to press you on this. Feel free to decline to answer. Do you have a price range in mind?

We do. I can't be too specific but it's going to be very modest. I mean we're talking there'll be a minimum 12 month commitment for it and we're talking a few hundred dollars a month versus a few thousand dollars a month.

So that was my next question for you was whether there was a minimum term on it or not. As I anticipate a lot of the legal needs being a I have a fire right now. I need to get an agreement for this, go grab it and move on. So that makes sense from a business perspective. I think the cool thing is because of being focused in on a niche audience you're able to do this. I mean if it's just a broad firm serving any type of business, then your competition is legal, Zoom or wherever else people get their boilerplates of documents.

Right. And there's no curation or industry understanding with some of those other resources. That's what we think this is going to bring to the table is the authorship and the origin story behind all these tools and things. We're making available is a law firm that works in their industry. Obviously a niched product, but that's my husband who just walked into his office, we had the conversation. Obviously a niched product, but I think that makes it more helpful to people who are going to utilize it.

That's the big power.

I mean, a big part of what we've preached to agencies for years has been power of niching down. And I think one of the many underrated assets that comes out of that is the ability to repurpose what you've created and spin it off into byproducts or other profitable assets because your expertise just builds so much faster than you're seeing the same set of patterns over and over.

Yeah, well, you know, let me just say this, and I really appreciate you giving me the opportunity to talk about the product, but for the agencies that are listening to this, you know, I've been beating this drum for them for a long time. And I have to say that the pandemic has really given some agencies the space to think about what do we have in our four walls that we could productize or use to create a new offering that we're not packaging the way that we could be packaging that could ride alongside our main business and create revenue for us. We're not directly billing a client for something. And so I'm finally starting to see agencies be more receptive to, to this idea for themselves. And I love it because as an IP geek, I love it for obvious reasons, but I also see so much potential in the agencies that we work with who may have a particular niche of client vertical or an industry they understand or maybe they're awesome at research or whatever it is you've got that special sauce. And think about a new way to bring it to the market that doesn't depend upon you and your team, you know, holding the hand of the client all eight hours of the business day. So this is us doing that. And I hope other agencies sort of take that baton and run with it for themselves too.

Yeah, for sure. That's awesome. Well, Sharon, I appreciate you coming on, being willing to share and kind of talk about inside the business, outside the business, what you're seeing in the client space.

I appreciate you being here.

Yeah. Thank you so much for your time. Anything else that we should mention or we missed in the conversation that we should share here?

No, I'm happy to always to chat with people who've got questions. So I'm on LinkedIn. Sharon Torek T O E R E K twitter my emails sharonegalandcreative.com and keep a watch out for agency protection system, which should be available early fall.

APS coming soon APS coming soon.

And check out the agency. Gray's been one of my guests in the past and so we're looking forward to it.

The home and home is completed.

That's right. We're very meta.

Awesome.

Well, Sharon, I appreciate your time. Thanks so much for coming on.

Thanks, Greg. Appreciate it.