Is now a good time to open an advertising agency?
To open an agency, or not to open an agency? That is the question. At least, that was one question posed to a panel of independent agency leaders last week at Advertising Week in New York.
The foundation lying underneath the question is one that pervades the agency and brand business: chaos, confusion and competition.
“Brands need to differentiate themselves from their competition. Competition is coming faster. You have a new product and almost immediately, something else has come up. To me, that hasn't changed at all. What's changed is what you do with that problem,” said Dave Luhr, president of Wieden+Kennedy (W+K).
“There's so many different options. There used to one medium. Now there's tremendous places you can go, all over the place,” he added. “I think that's where the confusion sets in. But I actually feel good about the fact that clients still need us to differentiate products. I look at Lyft and Uber right now. There's a war going on. That's good for our business.”
Adding to the sheer pace and choice are other extenuating factors. Jason Harris, chief executive officer of Mekanism pointed out that, though the job of an agency is to “move units”, everything is highly driven by data and measurement, more than in the past. Additionally, brand purpose is another factor that brands struggle with — and some do a better job of addressing than others — but is a constant refrain today.
To Myles Peacock, CEO of CreativeDrive, those topics are germane to the conversation but three other issues, that of brands wanting quality, speed and cost-effectiveness, adds yet another layer to the morass.
But, to Lisa Clunie, co-founder of Joan Creative, it also comes down to the simple idea of trust.
“I think that level of trust is sadly diminished in our business today and it's the thing that is where real differences are made, not in the incremental views but in the big lateral decisions that you make because you trust each other and you're in it together,” she said.
What is an agency now, anyway?
When pressed by Ronald Urbach, chairman of Davis & Gilbert LLP, who moderated the panel, on what, actually, an agency is today, the responses clearly indicated that the spirit of what an agency is — an agent, working on behalf of a client — should not get lost even as agencies experiment with semantics and labels.
“The title should still be advertising agency,” said Harris. “We started as a production company. We were a digital production company, then we were a creative factory. You can buzzword lingo it to death. Then six years ago, we said, ‘Alright, we're just going to be an agency.’ I think when you try too hard to not call yourself an agency, you're sort of lying about what you are and you're coming up with something to sell something to clients that isn't really true.”
To Luhr, independence, something that W+K has prided itself on for 35 years and underscored recently with its investment in a new Austin indie shop, is another key point of differentiation.
“To me, an agency is two things. It's creative enterprise, creative thinkers and it's independent thought,” he noted. “I think it's always good to be independent, no matter the time, because I think it provides an amazing service to your client to be able to speak your mind, not being afraid to speak your mind, that's what clients value. That was true 35 years ago. It's still true today. That's what they'll pay for.”
Maintaining an agency’s value
Another specter looming over the agency landscape, further defining agencies, is that of compensation and procurement. With money becoming tighter and tighter and procurement determining the value of an agency, there are stresses to consider, though there seems to be an opportunity to prove an agency’s true worth to a brand.
“I think you have to blow out the old constructs, quite frankly. I think the old constructs and FTE (full-time employee) model and all of that is just antiquated. I think you have to blow it up,” said Peacock.
For her part, Clunie noted that Joan’s compensation is different from most agencies, doesn’t take the FTE model into account and allows for some better cost control.
“We charge by deliverables so we don't count hours,” she said. “It helps us very much to manage our own margins. It's actually better for the clients, because when we hire faster, smarter people, it's better for their business but it's also better for our bottom line.”
In Luhr’s experience, it’s about discipline, especially with the money crunch pervading all aspects of the industry.
“You need to watch your overhead,” he said. “I feel sorry for the big networks today, because they have a lot of overhead. The business is just not willing to pay for that business. I think if you're a disciplined organization in providing services to your clients that they need and want and not a lot of extras beyond that, you'll make money.”
Commoditization through procurement has emerged in plenty of areas in the business, but one place in particular, according to Harris, has adversely affected the end product of what agencies are best at delivering for brands.
“It’s really killed production,” he said. “The executional value has gotten really hammered with procurement. I think more than the agency becoming a commodity, production itself has really become commoditized. I've seen that procurement, almost at every big brand, will really kill you on the production side, which makes it hard to execute on great work sometimes. Big creative ideas are still an endangered species. If you're delivering them consistently, you're going to have clients and if you're not, you're kind of out of luck.”
The delicate balancing act between a perceived healthy bottom line and being a legitimate, long-term player for brands could also involve making one of the toughest decisions an agency can make, especially in the era of procurement.
“You have to be willing to walk away from new business,” said Luhr. “We haven't had to do that too often, but you have to be willing to do that. There's too many agencies. There's too many options right now. You play that game, you're playing a real slippery slope.”
When you don't walk away, it never turns around,” concurred Harris. “It never goes the other direction. It always goes the wrong direction, because you're never going to get more money. It's never going to go the other way.”
Should you start an agency now?
With the advent of more in-house creative teams, the aforementioned procurement and compensation issues afoot and competition and chaos coming from all corners, the question of whether or not this is a good time to start an agency, to this panel seemed obvious — and was an emphatic “yes”.
“I think the trend was that clients wanted to have 12 partners. And I think the trend is going back to one neck to choke,” said Harris. “I think clients want fewer people to work with, that they can partner with and not try to manage 12 or 15 different people coming at their brand from different angles. There's a lot of opportunity for independent agencies to get a seat at the table with that brand and then expand what you're offering.”
Added Clunie: “I think it's a funny time. You see everything right now, from clients who are frustrated and have decided to build their own internal machines to clients who have never been more reliant on a trusted partner. I think it's a great moment in that anything's possible.”