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They have long been dominated by their bigger, more famous cousins but small and medium-sized agencies have fresh, new value proposition that makes them more viable competitors.
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Big Value: A Study of Small & Medium Sized Adver8sing Agencies
SWYSTU
N COMMUNICAT
IONS
June, 2014
On May 8, 2014 it was reported that the proposed Publicis-‐Omnicom merger would not proceed. The reasons included regulatory approvals, leadership succession and taxaDon issues. John Wren, CEO of Omnicom, cited divergent cultures as a primary reason, “There are strong corporate cultures in both companies that delayed us from reaching an agreement.” The culture conundrum is a lesson that is constantly relearned. The combined balance sheet may look great but if the combining cultures do not mix then the majority of benefits envisioned fail to materialize. I learned this firsthand as a strategic consultant at Price Waterhouse who ensured a focus on cultural integraDon when advising on mergers and acquisiDons. MarDn Sorrel of WPP had firm views on his two compeDtor’s intended merger and did not hold back from offering comment when it fell apart. What failed to be noted during these high stakes maneuverings to be ever bigger was the WPP strategy of buying small to medium sized businesses specifically in digital and emerging markets. The holding companies have largely combed the globe and have already snapped up the larger agencies.
Analysts suggest growth in adverDsing will come from small and medium sized agencies, as well, as digital and analyDcs specialists. Many of the smaller agencies toil in near obscurity but when discovered they reveal aUracDve aUributes. They possess a combinaDon of entrepreneurial zeal, high levels of client service, innovaDve passion and scrappy creaDve talent. They are far from complacent and wake each morning to the realizaDon that there is no room for coasDng. In May, 2014 Swystun CommunicaDons conducted a research study of small to medium adverDsing agencies. The study was funded by a private equity firm who is buying assets in the category. With permission, we were allowed to share a porDon of the study including trends and insights that challenge the commonly and historically accepted percepDon of these players in the industry. Cheers! Jeff Swystun
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We surveyed 850 agencies online receiving 502 responses. The 25 quesDon survey was completed by agency owners, leaders and senior execuDves in the United States.
Responses Employee Size 109 1-‐10 323 11-‐75 70 76-‐150
Telephone interviews were carried out with willing parDcipants post survey. The report referenced secondary research.
AdverDsing
InspiraDon
Board
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Contents SecDon 1: Advantages | Disadvantages SecDon 2: Challenges | OpportuniDes SecDon 3: The Big Learning SecDon 4: Insights SecDon 5: In Conclusion
SecDon 1: Advantages | Disadvantages
Top 5 Reasons Clients Choose Small to Medium Sized Agencies 1. Responsiveness
2. Client care 3. Agility
4. Content over creaDve 5. Willingness to build the business around them
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Associated comments from survey parDcipants
“Most of our clients and prospects claim that size doesn’t maUer then they ask us about how many offices we have, total number of staff and more. But, if we win, we win based on the quality of our ideas and the chemistry we create. Not dots on a map.”
“In my twenty year career I have never worked for a giant agency but the one consistent thing I have heard from clients who have worked with all sizes is that inevitably the big guys will let you down in service. Small fries cannot let that happen given the client poreolio.”
“We become defacto employees of our clients without losing our objecDvity. It may sound old school but we know each other’s kids
birthdays, support each other’s chariDes. We invest in the relaDonship and that is appreciated and valued.”
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Top 5 Reasons Clients Do Not Choose Small to Medium Sized Agencies
1. Ability to stay on top of trends 2. Research and analyDcs depth 3. Proving return-‐on-‐investment 4. Geographic reach 5. Resource scalability
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Associated comments from survey parDcipants
“There is no way we can claim that we do the full soup to nuts when there are nine people in our agency. Anyone who tries that is flirDng with disaster. Like any business, smaller agencies have to ride a credible point of difference.”
“We love to compete and we love to delight. We don’t care who we come up against. We will put our ideas up against anyone’s and we will be clear on how we can creaDvely execute through partnerships and other ways to be big without charging big.”
“Clients are way more sophisDcated now than even five years ago. This is saving everyone Dme and money in the client courtship and
servicing. ExpectaDons set at the beginning make for a happier, longer and more producDve relaDonship.”
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SecDon 2: Challenges | OpportuniDes
Top Challenges Facing Small to Medium Sized Agencies
1. Staying on the cuing edge of technology 2. InvesDng for growth 3. Balancing new business with service 4. AUracDng the aUenDon of agency search consultants 5. Overcoming the “generalist” sDgma 6. CompeDng with larger agencies 7. Client success (they get big – they go to a bigger agency)
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Associated comments from survey parDcipants
“I omen think we are our own worst enemies. We allow ourselves to be measured and compared against bigger players. The reality is our work is first-‐rate, our clients happy and profitable, and our margins are awesome. We should be the benchmark.”
“Big or small, whatever. We are both in a volaDle and fickle industry. It is a jaded category. We all take risks but the one difference I have noted is my bets are huge. Dumb, poor bets by the big boys can be distributed or absorbed.”
“We are sDll having to tell prospecDve clients that we do a lot more than tradiDonal stuff for the local car dealership or chain of drycleaners. We are forty people in one office and have been working with a European retailer based in Paris and a South
American liquor company. It is frustraDng.”
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Top OpportuniDes Facing Small to Medium Sized Agencies
1. Leveraging agility and flexibility 2. Culture supporDve of risk taking 3. Select consolidaDon that actually benefits clients 4. AUracDng talent craving a collegial culture 5. Finding an aUracDve niche 6. TranslaDng passion into profit 7. Featuring senior level aUenDon to clients
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Associated comments from survey parDcipants
“We are new idea incubators. We just need to find a way to moneDze it more. I see bold collaboraDons with clients in the future where we build businesses together.”
“We will buy, we will combine, we will grow but I am scared that we will sacrifice a bunch of our special sauce along the way. At some point in business we confused bigger with beUer and that ends up leading to the same bowl of slop.”
“Do you want to bust your ass in NYC or San Fran for long hours, a compeDDve paycheque and the promise that one day you will be unceremoniously dumped by people less talented than you? Or do you want a forty hour work week, challenging
work on cool clients, and more say in your desDny?”
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SecDon 3: The Big Learning
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The debate has become boring….. Historically, the small versus large debate has had two primary threads. Small to medium sized agencies have been characterized as faster, more nimble and lower in cost. Larger agencies were seen to be safe, possessing broader services and geographic advantage but were slow and expensive. How uIerly boring. The debate should focus on smarts, creaDvity, ingenuity and the ability to conceptualize and deliver big ideas. Not to menDon the intangibles of relaDonship chemistry and tangibles of claimable results.
This research reveals a three alteraDons in the debate. First, crea8ve quality has greatly improved in percepDon and reality in small to medium agencies. Next is a shiN in focus to content crea8on versus creaDve for creaDve sake. This is aUributed to the inDmacy small and medium agencies enjoy with their clients. These two developments coupled with the longstanding advantage held by smaller agencies when it comes to client service and the whole value proposiDon has changed. This is substanDated because price is talked about less. Clients prize quality and are willing to pay whoever provides differenDated value.
The value proposiDon has changed…..
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SecDon 4: Insights
The percepDon that small to medium sized agencies will do whatever work comes in the door, that they only do tradiDonal adverDsing and that they play it safe is fading. These agencies are specializing more and more. They are focusing on depth in industry, in service and in medium. This is nuanced as becoming too specific sDll can result in missed opportuniDes but they realize pretending to be something to everyone is inauthenDc and unsustainable.
No Longer Generalists Insight One
VS. 18
Swystun CommunicaDons works extensively with professional services including adverDsing agencies. If there ever was an irony in the business world it is how poorly these agencies are at differenDaDng themselves. Mike Fromowitz, President and Chief Brand Officer, Mantra Partners contends, “CommodiDzaDon may be the biggest threat facing ad agencies today, and yet we hear precious liUle about it, and few are taking strategic acDon to combat it.” Small to medium sized agencies need to get beUer at their own branding. The vast majority seem to encapsulate their difference in the same vague claim, “Big agency experDse with bouDque service quality.”
Too Much Me Too Insight Two
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Big, medium or small agencies all want to hold onto a client. The same goes for acquiring new clients. Yet, there is a nuance claimed by small and medium agencies. They believe that a sale is something that happens when your are already deeply immersed in serving the client and that new business is not a one Dme event. This focus on service has been a longstanding differenDator for smaller agencies and it has manifested itself in a culture of nurturing client relaDonships for the long term.
Loyalty Rules Insight Three
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Long accused of being followers and emulators of larger agencies, increasingly small and medium agencies are proving to be hotbeds of innovaDon. These agencies are adept at turning client requests into new lines of business, and trends into revenue, yet sDll suffer from a percepDon of only offering tradiDonal services.
Not Credited with InnovaDon Insight Four
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Survey respondents and interview parDcipants were largely in agreement that the status quo was not an opDon. Small and medium agency leaders idenDfied two growing opDons for survival and growth. The first is to assume the role of valued “General Contractor” whereby they act at the center of a hub of different agencies that delivers on a range of services to clients. The other development is not new but is taking new forms and that is consolidaDon. This presents an irony as combining for size takes away from what made these agencies successful in the first place. SDll, new models of any shape and size may be just what are needed. As John Winsor, Chief InnovaDon Officer at Havas, points out, “Agencies are typically closed systems that are being challenged by open systems and an open way of doing things”.
Where We Are Heading Insight Five
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SecDon 5: In Conclusion
Owners and leaders of smaller agencies are bullish on their future. They are recognizing the change in the value proposiDon but need to creaDvely rebrand to take advantage. Size of agencies will always be a consideraDon but new models that deliver scale without comprising quality and cost present the greatest opportuniDes to compete.
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