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Big Value: A Study of Small & Medium Sized Adver8sing Agencies
Ins)tute of C
ommun
ica)
ons A
gencies
Forum of Ind
epen
dent Agencies
Background
Private equity client
Mini – holding companies
New value proposi)on
Interes)ng )mes
"Our thesis is that pre-‐ and post-‐ the Omnicom-‐Publicis merger and lack of comple)on, there's a real opportunity to create a middle-‐market player in the space.” Lake Capital co-‐founder Terry Graunke said as the company bought Engine, defining mid-‐market as an opera)on with revenue from $500 million to $2 billion.
Project Worldwide, the 30th largest agency holding company announces its latest acquisi)on, Pitch
We surveyed 850 agencies online receiving 502 responses. The 25 ques)on survey was completed by agency owners, leaders and senior execu)ves in the United States.
Responses Employee Size 109 1-‐10 323 11-‐75 70 76-‐150
Telephone interviews were carried out with willing par)cipants post survey. The report referenced secondary research.
Adver)sing
Inspira)on
Board
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Contents Sec)on 1: Advantages | Disadvantages Sec)on 2: Challenges | Opportuni)es Sec)on 3: The Big Learning Sec)on 4: Insights Sec)on 5: In Conclusion
Sec)on 1: Advantages | Disadvantages
Top 5 Reasons Clients Choose Small to Medium Sized Agencies
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Top 5 Reasons Clients Choose Small to Medium Sized Agencies 1. Responsiveness
2. Client care 3. Agility
4. Content over crea)ve 5. Willingness to build the business around them
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Associated comments from survey par)cipants
“Most of our clients and prospects claim that size doesn’t mafer 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 poriolio.”
“We become defacto employees of our clients without losing our objec)vity. It may sound old school but we know each other’s kids
birthdays, support each other’s chari)es. We invest in the rela)onship and that is appreciated and valued.”
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Top 5 Reasons Clients Do Not Choose Small to Medium Sized Agencies
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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 analy)cs depth 3. Proving return-‐on-‐investment 4. Geographic reach 5. Resource scalability
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Associated comments from survey par)cipants
“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 flir)ng 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 crea)vely execute through partnerships and other ways to be big without charging big.”
“Clients are way more sophis)cated now than even five years ago. This is saving everyone )me and money in the client courtship and
servicing. Expecta)ons set at the beginning make for a happier, longer and more produc)ve rela)onship.”
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Sec)on 2: Challenges | Opportuni)es
Top Challenges Facing Small to Medium Sized Agencies
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Top Challenges Facing Small to Medium Sized Agencies
1. Staying on the cukng edge of technology 2. Inves)ng for growth 3. Balancing new business with service 4. Afrac)ng the afen)on of agency search consultants 5. Overcoming the “generalist” s)gma 6. Compe)ng with larger agencies 7. Client success (they get big – they go to a bigger agency)
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Associated comments from survey par)cipants
“I onen 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 vola)le 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 s)ll having to tell prospec)ve clients that we do a lot more than tradi)onal 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 frustra)ng.”
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Top Opportuni)es Facing Small to Medium Sized Agencies
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Top Opportuni)es Facing Small to Medium Sized Agencies
1. Leveraging agility and flexibility 2. Culture suppor)ve of risk taking 3. Select consolida)on that actually benefits clients 4. Afrac)ng talent craving a collegial culture 5. Finding an afrac)ve niche 6. Transla)ng passion into profit 7. Featuring senior level afen)on to clients
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Associated comments from survey par)cipants
“We are new idea incubators. We just need to find a way to mone)ze it more. I see bold collabora)ons 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 befer 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 compe))ve 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 des)ny?”
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Sec)on 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 uBerly boring. The debate should focus on smarts, crea)vity, ingenuity and the ability to conceptualize and deliver big ideas. Not to men)on the intangibles of rela)onship chemistry and tangibles of claimable results.
This research reveals a three altera)ons in the debate. First, crea8ve quality has greatly improved in percep)on and reality in small to medium agencies. Next is a shiG in focus to content crea8on versus crea)ve for crea)ve sake. This is afributed to the in)macy 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 proposi)on has changed. This is substan)ated because price is talked about less. Clients prize quality and are willing to pay whoever provides differen)ated value.
The value proposi)on has changed…..
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Sec)on 4: Insights
The percep)on that small to medium sized agencies will do whatever work comes in the door, that they only do tradi)onal adver)sing 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 s)ll can result in missed opportuni)es but they realize pretending to be something to everyone is inauthen)c and unsustainable.
No Longer Generalists Insight One
VS. 18
Swystun Communica)ons works extensively with professional services including adver)sing agencies. If there ever was an irony in the business world it is how poorly these agencies are at differen)a)ng themselves. Mike Fromowitz, President and Chief Brand Officer, Mantra Partners contends, “Commodi)za)on may be the biggest threat facing ad agencies today, and yet we hear precious lifle about it, and few are taking strategic ac)on to combat it.” Small to medium sized agencies need to get befer at their own branding. The vast majority seem to encapsulate their difference in the same vague claim, “Big agency exper)se with bou)que 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 )me event. This focus on service has been a longstanding differen)ator for smaller agencies and it has manifested itself in a culture of nurturing client rela)onships 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 innova)on. These agencies are adept at turning client requests into new lines of business, and trends into revenue, yet s)ll suffer from a percep)on of only offering tradi)onal services.
Not Credited with Innova)on Insight Four
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Survey respondents and interview par)cipants were largely in agreement that the status quo was not an op)on. Small and medium agency leaders iden)fied two growing op)ons 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 consolida)on. This presents an irony as combining for size takes away from what made these agencies successful in the first place. S)ll, new models of any shape and size may be just what are needed. As John Winsor, Chief Innova)on 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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Sec)on 5: In Conclusion
Owners and leaders of smaller agencies are bullish on their future. They are recognizing the change in the value proposi)on but need to crea)vely rebrand to take advantage. Size of agencies will always be a considera)on but new models that deliver scale without comprising quality and cost present the greatest opportuni)es to compete.
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