Agency of the Future

A New Business Plan For An Advertising Agency

October 15, 2020 By Peter Leave a Comment

An Advertising Agency Business Plan Thought Starter.

Ten years ago I was the owner and CEO of Citrus, a Portland and Bend Oregon advertising and digital agency. Just so you get the picture, our clients included AOR work for Nike; the Montana Lottery; Harrah’s; Providence Health & Services (5 states), and lots more. As you will see below, I knew that we needed to change our approach to the business. We needed a new advertising agency business plan. A radical shift from what was starting to look like a way too traditional advertising agency business model. My team and I looked at different approaches and ultimately, I determined that I (that means me) did not want to make the required revisions. At that point, I decided to craft the agency for sale. I wrote about how I sold the agency in my 57-page PDF, “How To Sell An Advertising Agency.” Links to it are on this page.

2020. Is It Time For You To Invent A New Business Plan?

I talk to lots of advertising agencies. Many are looking very hard at how to reinvent their agency. This is driven by ongoing factors like waves of recessions; clients asking for more and more for less money; lower profits; unhappy and overworked staff and, of course, the results of the pandemic. I talked yesterday with a New York agency buddy that is shutting down his office, asking his landlord for rent concessions, and will go full-time virtual. He is not alone. Again, in many cases, the need for a new business plan is being forced on agency leaders. Being forced is OK. Not changing is not OK.

Back to my past as one model for the future.

10/12/10: Twas Time For A New Business Plan

Before I sold my Portland agency, I spent some time thinking through what a new, an evolutionary, a smarter, competitive, and higher profit advertising agency business plan might look like. Simply put, how could we make more money? This is what I was thinking a few years ago.

I think that my thought process at that time might help you think hard about your agency’s business plan.

A bit of background. Citrus was a successful Northwest agency. We had offices in Portland and Bend, Oregon. Our clients included Nike (we were an AOR agency for major league baseball and college sports); Oregon State Football, Harrah’s Las Vegas; Wildhorse (a large Oregon casino); the Montana Lottery; LegalZoom; a couple of major west coast banks and Providence Health and Services (a multi-state hospital and healthcare company) and a range of leisure accounts.

Background

I bought the majority share of Oregon’s full-service advertising agency Ralston Group in 2002. I had just left being CEO of ActiveBuddy, a serious natural language company that proceeded Siri and Alexa. It was time for me to get out of New York and get some fresh air. Over the course of the next 8 years, we bought Portland’s Citrus, renamed the agency, and grew our account base across the USA.

However, by 2008, after the horrible recession, clients driving down profits, the increase of workload from digital and social media, the increasing cost of running a marketing company (ala healthcare costs), I decided that we had to either reinvent the agency or I’d move on.

The Birth Of “Portland”

Ok, what should we do? I needed to reinvent the agency via a new advertising agency business plan to be more competitive; leaner; more nimble; lower cost; and NEW. As in, new and improved to get the attention of more of the high-profit clients we wanted.

Here is the document, the 2010 think-piece that I used to help guide me. I hope you find it, um, maybe inspiring.

My 2010 Plan – A New Agency Model: Food-For-Thought For Your Agency

Citrus needs to change.

The agency industry (especially full-service agencies) knows it must explore new business models. The old 15% commission + 16.5% mark-up is so long gone. Plus, we know that finding a way for clients to pay up for “big ideas” is difficult.

Within this context, clients are confronted by fast-paced changes, are skittish and are understaffed. Media options have grown exponentially, clients are asking for program metrics, they need smart digital solutions, can’t figure out how to manage integration and do not fully understand social marketing. They still want big ideas but want all of this for less. All of this is compounded by the view that “agencies” are costly and inefficient. Many prospects don’t even want to take our calls.

To further compound the issues, a sea of agency industry sameness and lack of clear brand and service differentiation confronts us. It is very difficult for small full-service agencies to stand out from the crowd. Defining a unique and focused agency brand for a non-specialist agency isn’t easy.

Citrus shares these issues and at present does not have a clear and compelling brand story. We have our “Move” positioning but we need to express this beyond just words.

There must be a new way.

An idea…Move To Small + Smart.

In my mind, a Small + Smart Citrus is the smartest customized agency in the world.

An Advertising Agency Survival Guide

June 17, 2020 By Peter 3 Comments

My Advertising Agency Survival Guide. 2020 Version.

I am republishing this April Advertising agency survival guide blog post. Why? The Association of National Advertisers, the ANA, is going to pass it along to their membership. So, I figure why not try to make sure that you as an advertising agency has a chance to see it or better, re-read it.

Frankly, I thought that there has been too much “what to do about the Covid-19 pandemic and the future of the advertising agency”… But, I think that this is a good summary that has stood the test of time.

Tough Question. Will Your Advertising Agency Survive?

Here is my educated take on which advertising agencies will survive and how they will make it happen. It is my advertising agency survival guide.

Having gone through the 2007 – 2008 recession as an agency owner, I saw approximately one-third of advertising agencies fail or shrivel. My current survival advice is based on watching that storm as well as recent deep conversations with small and medium-sized agencies. I did not choose to rush out my thoughts. I actually thought about my thoughts. LOL.

Plus, this is not short and sweet. You will actually have to read all of it. OK, it is sweet.

Quickie… I am giving away my 30 years of huge and small agency experience, guidance and coaching for free – for awhile – the right thing to do. If you want smart advice, go here. It will open a new window for this offer.

Two Quick & Very Important Points.

How long will the shit-storm last?

Like you, I have no clue when any semblance of normality will return. I have to assume it will. Plan accordingly.

Chamath Palihapitiya is one of my most respected “advisors”. He has said that companies should be able to adjust and make new plans to survive 36 months. 36! Yes.

He says, think like this is another depression. Whoa. Are you ready?

This is what I do know… If you want to be in the top 1/3, you can’t lose all or even some marketing energy or brand awareness. Why make your voyage back too uphill?

You will get my marketing recommendations below. But first, the big question.

Will Your Advertising Agency Fail?

Here is what an advertising agency principle should be doing right now. I admit that this is generalized given the diversity of the types of advertising agencies. But generalized does not mean its not an effective how-to for virtually any agency.

Two Definitions

“Advertising Agency”: This is my universal term for most types of communications marketing firms.
“Client”: A client is a company that has consistently used any form of advertising or digital marketing. In your case, it is a client that meets your target criteria (you have that, right) and you think would want to hire you. Sorry, Nike and Adidas do not want to hire you.

OK, Advertising Agency… What Are You Going To Do About it?

I am going to be tough here. At least 30% of advertising agencies will fail in the next twelve to eighteen months.

This post provides my take on how to survive, my advertising agency survival guide. For the winners, how to set yourself up for growth.

6 Advertising Agency Pain Points – I Know You Know This. But, It Is Worth Restating.

Your current and future clients are freaked out.
Some current clients have already reduced or canceled advertising and project spend.
Agency profitability sucks.
You will be too slow to manage your costs.
Agencies, too many, are already poorly positioned, and, worse, are unbelievably ignorable.
Prospective clients “probably” do not want to hear from you.

Advertising Agency Survival Guide Strategies

I know what I am talking about. I’ve won and lost. My advertising agency survived the 2007-2008 recession. My $30 million VC funded digital business did not survive the 2001 dot-com bust. Don’t feel bad for me, Microsoft eventually bought our technology.

Current Client Opportunities

Sir Martin Sorrell And Ad Age

April 19, 2020 By Peter 1 Comment

Sir Martin Sorrell And Ad Age On The Coronavirus Advertising Market

Yikes. So much to listen to and watch. A couple of days ago I watched an Ad Age interview by Senior Editor Jeanine Poggi and Sir Martin Sorrell. Sorrell was an early player at Saatchi & Saatchi, the founder of WPP and now runs S4 Capital. S4 is his new “agency” The strapline = “A Communications Business For The New Marketing Age”.

Need to hear from a smarter dude…. FAHGETABOUTIT.

Let’s start with a quote. Read on past this. But, start here. Do you ask clients to spend more during a “recession”? from Sir Martin:

Well listen, the traditional agency response is spend, spend, spend, you know?

They quote statistics. I think my former colleagues are quoting a statistic, 84% of consumers will be watching carefully or will appreciate those companies that behave well during… Well look, everybody’s going to behave well. Everybody right-mindedly will behave well. But it’s going to be a good thing to spend, spend, spend.

That’s nonsense.

The Ad Age interview is a 45-minute video and you can see it at the bottom. I had the key bits transcribed and include what I think are the important points from the perspective of an industry leader – in today’s ad market. Read on, especially about the critical to most agencies – question…

“What should you say to clients about their coronavirus advertising budget?”

Here you go. Note that I edited the interview for brevity and clarity.

Sir Martin Sorrell On The 2020 Market

Martin Sorrell:

Generally, it will be very difficult in Q2. I think we’ll see a recovery from lower levels in Q3, and then into Q4 it’ll get better. As we go into 2021 I think things will get better. There are things that will knock us off course, but I think generally…

On Digital

Martin Sorrell:

And S4 is a purely digital business. We’re totally focused on that holy trinity of first-party data, digital lab recognizing content, and programmatic, and we’re in the sweet spot.

I mean what we are seeing at the moment, even with the cuts in advertising budgets, shifts in money into digital.

And the digital platforms, the six big ones, Google, Facebook, Amazon, Tencent, Alibaba and TicTok, are in my view going to get stronger and stronger. They may have some problems around small businesses because that’s the part of the economy that’s going to be hardest hit by these in the liquidity issues. But once we get through Q2 and Q3, those platforms are going to be even stronger in the future, driven by data as well.

I mean, the first-party data is going to become more important, and third party cookies have been nixed or will be nixed over the next two years by Google.

On Advertising Spending Now – Do It? Or, Nonsense?

Jeanine Poggi:

And I have a question from Toby Jarvis on Facebook: How are you persuading your clients to continue advertising, especially since people are watching TV and online more than ever? And I want to add to that question, should advertisers keep advertising during this time? Should marketers still be advertising right now?

Martin Sorrell:

Well listen, the traditional agency response is spend, spend, spend, you know?

They quote statistics. I think my former colleagues are quoting a statistic, 84% of consumers will be watching carefully or will appreciate those companies that behave well during… Well look, everybody’s going to behave well. Everybody right-mindedly will behave well. But it’s going to be a good thing to spend, spend, spend.

That’s nonsense.

When companies are facing existential crises in Q2, when they are not sure that they will have enough money to survive, it’s ridiculous, and I would put it as strongly as that, to say “spend, spend, spend.” That’s nonsense.

It’s right to say that, for example, the tech companies who have budgets that were built around say sporting events around Tokyo 2020, or Euro 2020, or the Premier League… they should divert that spending to doing good to the purpose-driven campaigns.

On Altruistic Advertising

Martin Sorrell:

But those campaigns should be of highly practical altruistic purpose. They should be focused on equipment, on vaccine development, on therapy development, on supporting those on the front line in the NHS in the UK, or doctors or nurses, or whatever to be. It shouldn’t be self-serving.

And I think to suggest that spend, spend, spending is the answer, is really ridiculous. So the answer to this question, I think, is that you have to encourage clients to deploy their resources more effectively in the way that I outlined.

The tech companies up until now have held their budgets in our experience, some actually… Amazon hits a new high on the stock exchange, Netflix, it’s a new high. We are seeing budgets being expanded with those companies that have been positively affected. Obviously, travel and tourism would be the other end of the spectrum, but the tech companies have diverted money from those sporting events that I mentioned, for example, to doing good and purpose campaigns. We’re also starting to see some postponement, I think, by tech companies from half one into half two, because they count spend all that money, all those budgets, and they’re seeing some pressure on their own advertising revenues as the SMBs come under pressure. I think we’ll see that in the platform results as we get into them in Q2, as they report on Q1 and talk about Q2 and beyond. We’ll see the SMBs are being put under extreme pressure.

On What’s Next? TV? Nah.

Martin Sorrell:

So I think what we’re saying to clients is, “Understand that you may have to cut. But, move money into digital because that’s more effective.”

I think we’re seeing a heavy increase in streaming, not just at Netflix, but at the competitors like a Disney+, you see the Disney+ subscription figures, which are huge. Must be one of the most successful new product launches for a long period of time.

All these streaming devices will put pressure on linear TV, along with the switch to digital. And I think that’s the… Not used to be the $64,000 question, as to what is going to happen to linear TV. I think we see continued compression there, and not quite as high.

I remember I did a session at CES with Bill Konigsberg of Horizon, who runs the most successful independent media agency in America. It’s number three in the market after Publicist and Omnicom.

I remember him saying at CES that he thought some of the dayparts would be down by 45%, and that was before C-19.

I think there will be continued pressure on linear TV, and again, is it going to be as bad as what happened to newspapers and magazines? No. It will be better than that, but I think there will be continued pressure of some significant degree.

On The Big Digital Shift

Martin Sorrell:

So there is this change that we’re seeing, and just to amplify a little bit, as we come out of this, as we come into Q4 and 2021, three things are going to happen.

Consumers are going to switch even faster to digital.

They will learn to educate their kids, buy online, communicate with one another on social on video, whatever it happens to be, during C-19.

And we’re going to see media owners switch to digital even faster as well.

The Ad Age Interview

Got 45 minutes? Here you go. Oh, LOL, tell me what the “Maltese Falcon” looking thing is on Sorrel’s left.

So, what are you telling your clients to spend? And, on what?

The Advertising Agency Of The Future

February 22, 2020 By Peter 2 Comments

What Does The Advertising Agency Of The Future Look Like? How About Your Agency?

The advertising agency of the future needs some serious planning and agility. No surprise here. But, what is surprising to me is the lack of attention paid to how to craft an advertising agency for the future.

Just for the hell of it. I’ll start with the good old days.

My first job in advertising was at Dancer Fitzgerald & Sample. Back in the 1980’s DFS was New York’s largest advertising agency. We were sweetly based in the iconic Chrysler Building. At that time, we did not spend lots of gray matter on thinking about the future of the advertising agency business because we were making a 15% commission on media and 16.5% on production. We had a sweet client list that included General Mills, P&G, RJR Nabisco, Sara Lee, Northwest Airlines (I ran the account and our annual profits were $6 million on $9 million in revenues), HP and Toyota. As you might expect, we were not too concerned about reinvention. All this client and revenue firepower helped Saatchi & Saatchi love and buy Dancer in 1986.

Today advertising is a radically different business and ad agencies need to be thinking about how to be positioned for a future where multi-year AOR clients; 15% media commissions; three primary media types (TV, print, radio); a positive global network effect and loyalty are attributes of the past.

Not to get too down, but today the advertising world is about project work, crazy price consciousness, competition from all sides (large consultancies, in-house agencies and your ex-Creative Director who does just fine as a freelancer).

Bummed Out?

Look, for many agencies, it is kinda fucked up out there. As the famous Chinese curse says,

“May you live in interesting times”.

But, but, there are still agencies that grow and make bucks. You can too.

So, in preparation for this blog post – yes, it is ultimately about how to position your agency for the future – I read a bunch of articles on “the advertising agency of the future.” Not too surprising, this is a hot topic.

Interesting (as in ‘Uh Oh’) the first page of Google has articles on your future from traditional agency killers like Deloitte, Accenture, Adobe, CMO.com (an Adobe site).

The agency industry perspective is not on Google’s page one. It isn’t until page two that Inc., AdAge, The Drum and the ANA get to chime in.

I stopped trying to find an actual advertising agency perspective delivered via this search term by the time I got to page four. Do the big guys (even WPP, Publicis, Omnicom, etc.) not want to discuss the future?

Some Findings On The Future on Advertising

Here are some of the highlights from my research. I’m listing these in random order. I’ll have my personal thoughts a bit later. [Read more…] about The Advertising Agency Of The Future

Advertising Agency Outsourcing: An Opportunity and… New Competition

February 17, 2020 By Peter 2 Comments

I wrote this post about advertising agency outsourcing seven years ago. I am resurrecting it for a couple of reasons.

First, the use of outsourced freelance talent, as in not full-time employees (FTE), is a solid part of running a 2020 agency in a world of business uncertainty:

Will I win that new client? Will I lose our largest client? Will I ever get an agency of record client again or just get used to living with projects?

As an ex-agency owner, I know that keeping FTE costs down is a good idea. Given ad agency gross margins, having a bunch of FTE’s at a 70% utilization rate is not sustainable. Duh. That’s why I was initially intrigued by Victor’s & Spoils agency model. If there ever was an industry that needed to explore new models… it was/is advertising.

Second, it is worth noting that the Vistors & Spoils’ outsourced advertising agency model (actually crowdsourcing model) discussed below did not work. The agency, which was acquired by Havas in 2012, closed in August 2018. Why did it close? There are lots of thoughts about what happened. Consider…

Was crowdsourcing itself simply unmanageable? Is crowdsourcing a tool versus the basis for an agency? Was it’s possibly brutal system too unfair to freelancers? Did clients not get it? Is it simply too difficult to build and manage a complex marketing program using “anonymous” outsourcing?

And, on.

Finally and just an FYI. Here is the Victor’s & Spoils crowdsourcing competition that netted the agency’s logo. So, $2,400 to the winner of an advertising agency logo? That’s it? No comment.

Advertising Agency Outsourcing

Note: This blog post was originally posted in 2013. The primary points remain relevant.

The advertising industry has been outsourcing for decades. Freelancers are woven into our daily fabric. We use copywriters to write website copy and gun-slinging art directors to beef up new business pitch concepts. In the past few years, advertising agencies have gone beyond the traditional freelancer to add technologists and digital service firms to work in the background to make us look like sharp database, mobile, and social media experts.

Our outsourcing options have grown exponentially through the use of digital tools. We now have easier access to more talent marketplaces which have also resulted in new threats to the advertising agency model itself.

There is the power of emerging market labor: Ogilvy, Wieden+Kennedy, and Sapient all have offices in India that tap into the subcontinent’s skilled lower-cost talent. Most multinational ad agencies also use into their vast systems to find talent in other lower-cost countries. According to Firstpost, “Group FMG produces video, print, digital and mobile ads and has more than half its employees based in India. “We are applying all the clichés of Thomas Friedman’s “The World is Flat” to the advertising world,” Aditya Sharma, co-founder and chief business development officer at Group FMG. And, why not? The latest rounds of Clios have been won by art directors in faraway lands.

Interest in crowdsourcing is on a growth spurt, see Google’s trend line for the term “crowdsourcing” on the left, and has become a new freelance agency model. Victors & Spoils is known for its use of distributed problem solving to create advertising campaigns for blue-chip clients like Axe, General Mills, Harley-Davidson, and Levis. For sure, despite the benefits from having a more open market, freelancers have had issues with this model. However, the efficiency of freelance crowdsourcing works for clients. I suspect that Victors & Spoils is finding the middle ground.

Online freelance markets are booming. Elance reported 345,000 new freelancers and 826,000 jobs posted in 2012. Behance reported serious growth last May when they received an infusion of VC capital. According to their blog, “Users’ projects have received over 1 billion views and over 75 million views in just the past 30 days. Behance now showcases more than 2 million creative projects – after passing our first 1 million-project milestone just eight months ago.” I can imagine that many agencies are posting projects in this heavily trafficked marketplace.

The new world of freelance services may become one of the tools that agencies use to resolve the social media beast – social media authorship and management is, to put it mildly, labor-intensive. I have been using an ODesk freelancer in the Philippines to assist me with pinning “every advertising agency” website to my Pinterest agency site. In this case, I have a simple task that can be easily managed. In just a couple of weeks, he has efficiently pined over 1,000 ad and digital agency websites. This has freed up my time to write mini-website reviews.

On the SEO side, I have worked with a search engine marketing company based in Budapest that uses excellent English speaking writers across the globe to help their clients write guest posts.

The opportunities for agencies to leverage the flat-earth marketplace of freelance services are clear. Given the current and expanding outsourcing options, agencies need to continually explore how the Internet has dramatically expanded their freelance network, talent base, technology resources and can lower the costs of doing business.

On the other hand, many of these new services pose a significant threat. Just as the Victors & Spoils model is often criticized (feared?), we need to keep up with and continually review new Internet-powered services because they represent a growing form of competition. Just like you, savvy clients can directly outsource their work to India, Behance and 99 Designs too.

Advertising Agency Models

If you are interested in exploring new advertising agency models, give me a shout. I’ve examined many options.