Back in May, I wrote about startups here on The Drum. We at Green Square were wondering why there weren’t more startups, particularly in a creative industry increasingly consolidated among a few international mega-groups. Creative and/or entrepreneurial types are often looking to start anew and afresh with like minds, so it is a source of puzzlement that these breakaways don’t happen more often.
This is a subject we wanted to revisit, because things have changed quiet a bit in the past three months, and I’m going to stick my neck out and say I think we’ll be seeing a rash of startups over the next 12 months or so.
Why? A lot of it, counterintuitively, is to do with uncertainty and, post-Brexit, there’s lots of uncertainty to go around. The result of the referendum was a surprise to just about everyone – business, pollsters, pundits, the public, even the most ardent Leavers. This created a vacuum in government, which was thankfully filled more quickly than anyone expected.
The fact remains that nobody knows exactly what the effects of Brexit will be, so uncertainty will be with us a while yet. There’s also the possibility of the UK slipping back into recession, the slowdown in China and issues surrounding the identity of the next American President (and his or her effect on the global economy) to contend with.
But a recession – if there is one – can sometimes be good for business. Procter & Gamble grew to become the planet’s biggest consumer goods company by continuing to advertise during the Great Depression of the 1930s, when few of its rivals were. And some of our greatest agencies prospered in the dark, recession-ridden days of the 1970s: CDP, Lowe Howard Spink, AMV, Saatchi & Saatchi.
The 70s and early 1980s saw lots of startups too, the most famous being Bartle Bogle Hegarty and WCRS. So, although it seems illogical given humans’ natural desire for security, our current age of uncertainty may herald a new wave of startups.
First of all, in times of uncertainty, businesses tend to become cautious and conservative. There will always be exceptions of course, but an uncertain outlook makes executives nervous and the instinct is to rein everything in. This can make creative types, particularly those with ambition, feel frustrated and trapped. This is especially true of the young and the marketing world, particularly agency side, is generally a young person's game. A lot of the talent will be under 40, perhaps not yet settled with mortgages and families, and still burning with the ambition of their youth. These reasons, coupled with the perils of staying put in a recession – boredom, no pay rises, promotion stagnation – make starting up an attractive prospect.
So, more startups then, but what we can’t say is who will start up what, or where they will come from. But we at Green Square believe there are four guiding principles as to what makes a successful startup:
The first revolves around chemistry and culture. Marcomms is, as we all know, a people business, so the principals being able to get on, having complementary talents and being able to bounce ideas off each other is vital. It’s no surprise that when people leave an agency to form a startup, it’s normally in twos or threes. That’s because they already have the chemistry in place and from that a culture ultimately develops that talent aspires to being a part of.
However, it’s also crucial that roles are clearly defined for the new entity; it can’t be a five year olds’ football game with everyone chasing the ball – so structure is important (more on that later).
The second is a compelling offer. Advertising is a market-driven business and, no matter how good your offer might be, if there’s no demand for it your startup will struggle. Current hot areas for acquirers are content, data, analytics and performance marketing. But whilst these are hot now, they may not be in three years' time (although the drive for proven ROI, content and relevance will clearly remain at the forefront of marketing executives’ minds).
The real key is bringing something new and compelling as part of what you are doing: being the bright new thing in an industry that can sometimes be a little fickle is very important. To paraphrase Jerry Garcia: “It’s no longer good enough being the best at what you do, you have to be the only people that do what you do”.
Recent startups include Talker Tailor Trouble Maker (who I spoke about in the previous article) and whose founding PR partners left M&C Saatchi to set up an agency that works with challenger brands that want to ‘cause trouble’ and disrupt the status quo. Even more recently we have seen a big chunk of the leadership team at Grey London – chairman and chief creative officer Nils Leonard, chief executive Lucy Jameson and managing director Natalie Graeme – leave to set up shop once their restrictive covenants expire. Their potential offering has not been disclosed, but is expected to focus on creating ideas linked to cultural impact and ‘making brands matter’ as these are things that are close to their hearts. Both of these startups are examples of passionate, new ways of thinking that have the power to bring something fresh to the industry.
The third guiding principle for startups is positioning. The UK is awash with agencies – many of them very good – with big reputations. Any agency has to be clear about what it stands for. What makes it unique and differentiates it from everyone else. It might be a specialisation – such as tech, IP, mobile and apps, social – or working only with challenger brands or data analytics. It might be a particular way of approaching brand problems. It might be an outstanding creative or planning offer or a unique approach to insight. But whatever it is, the agency’s got to be different from the others, able to shout about it, and, most importantly, know what it stands for and what it is doing from the start.
Finally, there’s administration. This is how the agency is run and structured. This covers everything from where it’s based to internal systems, shareholder agreement, employment contracts, rewards and incentives, client contracts. All this has to be nailed down from the outset. This is the boring stuff, but if it isn’t dealt with early doors, it will trip you up down the road. We have plenty of experience of agencies ready for sale from an offer, culture and positioning perspective, but with lousy systems, housekeeping, financial controls and key people incentivisation – all things that acquirers want to see. This is because it gives them comfort the business is stable and properly run.
For some agencies, tight discipline will be appropriate, while others may find a more freewheeling culture suits them best. Generally startups are not big corporations and flat management structures that encourage creativity, initiative and entrepreneurialism will tend to work best. But an important consideration is how to ensure that culture remains intact as the agency grows in size, takes on more demanding clients and needs to put in structures that don’t become strictures, structures that enable growth and creativity to flourish, not restrict it.
So, just a few things to think about. Personally, I’m looking forward to seeing more hungry new shops springing up over the next year and my view is the kind of agencies we’ll see will include data and analytics outfits; content creators (particularly in video marketing); and performance marketing (given that we may be entering a risk-averse environment in which ROI will be more important than ever). However, I am hoping we will also see more quirky, exciting and creative agencies bringing a different approach to what has gone before – the offering from Leonard, Jameson and Graeme is one to really watch out for.
We would be more than happy to hear from any readers who agree (or vehemently disagree) with our views above. It’s not a definitive view by any means, but we hope we’ve provided something to think and talk about – and, as always, please feel free to talk to us…
Tony Walford is a partner at Green Square, corporate finance advisors to the media and marketing sector. You can read more advice on startups in our regular column Dear Uncle Mat, written by former Just Eat chief marketing officer Mat Braddy