The agency model is being challenged more than ever and margins are being squeezed. This is a problem for agencies or networks and all sizes but, for independents, it can be a difficult environment to scale.
One option is to stay small, stick to what you are good at. Another is to sell, but this is increasingly less attractive as the big networks such as WPP, Publicis, Omnicom and IPG, also find themselves squeezed, striking less appealing deals with independents.
Alternatives are starting to emerge in the industry, one of which plays on an agglomeration model and goes by the self-explanatory name of The Marketing Group. An agglomeration model essentially pulls a set of complementary businesses together under an umbrella organisation which then floats on a stock market, allowing the smaller agencies to sell shares and gain much needed capital to grow.
The Marketing Group (TMG) is the brainchild of SME mergers and acquisitions specialists The Unity Group, which is creating these agglomeration models under different categories or verticals. The Marketing Group was the guinea pig in this and it is now looking at launching other ‘clusters’.
Callum Laing, head of Asia at Unity Group and non-exec director of The Marketing Group, said the idea behind the model was to level the playing field for small agencies against bigger players.
He said being part of a bigger PLC helped smaller businesses in pitching new business as well as attracting better talent: “one of the reasons small businesses struggle is something called the scale paradox, so as a small agency you can’t go for the really big pitches and because you can’t do that, you remain a small agency. Often what happens is a big agency wins the business, then outsources it to you because you are better at delivering but creams-off all the profits. On the client-side it makes sense; procurement best practice is to never give more than a third of your revenue to a company, an arse-covering exercise. So for small businesses, when they have reached the pitch process they can say they are a small independent but are part of a big network and it opens a world of pitches they couldn’t go for.”
“The second thing and biggest hurdle for small agencies is attracting talented staff to help them grow. Talented staff are expensive and often risk averse. There is a lot of talent working for big corporates, at a WPP for example, that would love to work at a small agency and make a bigger difference but perceive it, rightly so, as a risk. Again, if you can say come to work at a small agency and have those advantages but also here are some shares in a publicly listed company, it de-risks it for employees,” he added.
Outside of the practical advantages, something that unites the people working at the group and the agencies that have joined is the ambivalence towards the future of the more traditional network agency model and a very negative attitude towards selling out.
The Marketing Group, after a vote by TMG board members, appointed Adam Graham to the role of chief excutive last year. Graham has run agencies at different stages of their journey from independent to part of a group, including Weapon7 (BBDO) and Saint (Rainey Kelly Campbell Roalfe/Y&R, and now believes alternative models are important to explore.
“It's a disruptive new model which is totally aligned to my beliefs that there is a better way than the lumbering bureaucratic monoliths who currently dominate the space. This model encourages entrepreneurs to continue to be entrepreneurial. We want our agencies to thrive within our light touch infrastructure that encourages them to maintain all the characteristics that made them the great agency they are today, forever more.
How many times do we see the networks sucking in a cool agency only to then homogenise it? So many great agency brands either disappear or become pale reflections of their former selves. This model is different and I believe it is the future for independent agencies who want to realise some value without feeling like they have sold their soul,” he argued.
This sentiment is echoed by founders of agencies that are now part of the group. Laurent Verrier, founder of Singapore-based social media agency One9Ninety, said his experiences of acquisitions in the past had put him off that route for the agency.
“Giving my company, staff, brand and putting it into the hands of a bigger company that is working towards a very hypothetical earn-out was not too attractive. Having autonomy was important to us because we think we know better as to how to run our little business in our geography than somebody in London or New York imposing rules that don’t always make sense,” said Verrier.
Another agency in the group is LinkedIn marketing specialists Black Marketing, which is run by founder Chris Reed, who agreed that being able to be entrepreneurial and retain a personality that didn’t fit into corporate groups is essential.
“You remain an entrepreneur and that’s the fundamental point of an agglomeration model. I have heard horror stories of people joining the likes of WPP and Dentsu, whereby they are on four year earn-outs but get fired by the end of two years and don’t get any money; everyone leaves, the clients leave and the culture is gone. Whereas TMG effectively leaves us alone and doesn’t get involved in the day-to-day decisions,” he said.
Reed also discussed how collaboration worked practically, citing an example of where his agency would work with One9ninety to pitch a full social media piece of business with a media company in Singapore; Black Marketing being LinkedIn specialists and One9ninety plugging in its Facebook expertise.
It is still early days for the model and The Marketing Group isworking hard to add more agencies and diversify the portfolio in order to continue to mitigate risk for the members. However, Graham is bullish that the concept will be financially rewarding, as well as culturally.
“TMG [was one of] the most successful flotations on Nasdaq [last] year. We are currently at EUR 100m market capital. The first milestone I am focusing on is a 1 Billion Market capital, and that’s just for starters,” he enthused.