How To Start, Grow and Sell An Advertising Agency
“How To Start, Grow and Sell An Advertising Agency.” I figure this is a good Google-friendly headline. It is also the core of my advertising agency consultancy. I help agencies do all three.
In fact, I had two interesting conversations yesterday about selling an agency.
One agency owner informed me that he sold his agency to his employees. Everyone wins. Especially since this a profitable agency that the employees now own and run. The owner gets some cash, knows that his baby is in very good hands and he can move on to his true love – commercial real estate.
The other owner of a northeast agency is considering selling after 25 years of building up a profitable agency. We discussed the buyer’s offer, and all of the time-consuming back and forth. The buyer recently hired an agency sales expert who has now, of course, moved from just discussing the financial terms to how to merge and market the “new” agency. All of a sudden, a new to the party consultant is mucking up the works.
After discussing the deal, I brought up the angst associated with selling. There is always an emotional side to selling. In this case, the owner could hang in for a few more years, pocket the earnings and then sell at a lower, price, a price that would be easier to close. He is running the numbers and just might come out ahead by sticking around for another 36 months.
Having run my business development business for six years, I am beginning to see a cyclical pattern.
My advertising agency (that’s many of you) lead gen (which for any of you considering consulting, is fairly steady due to my high-level position on Google and personal brand awareness that comes from sales of my book – buy it!) starts to slow down a bit for six weeks around the beginning of November or start of the summer. I must assume that this is because of the impending holiday/kids+recreation season.
This slowdown is nuts because this is exactly the time to build that kick-ass advertising agency sales program. Plus this is a great time to do some direct marketing because some of your competitors would rather be wrapping gifts or water skiing.
OK, enough pontificating.
Here are the three most important questions that agency managers ask me every week.
- What is the best – most efficient – way to grow my advertising agency?
- What is the best way to start an advertising agency?
- How can I sell my advertising agency?
First, a definition. While I work with digital, PR, hybrid, experiential and other forms of agencies, I use the generic term advertising agency because “advertising” is still the universal term for marketing communications agencies. It is also the term that clients, and other industry people, search (see my post about how clients find agencies to see some research that supports the use of the advertising word).
This is a look at a couple of marketing communications search terms from Google. They are ‘Advertising Agency, ‘Digital Agency’ and ‘PR Agency’. People still dig the universal term.
OK, back to the three questions and what I’ll call topline answers.
What is the best way to grow my advertising agency?
Every advertising agency has to grow. That may sound like a ‘duh’ but, believe me, only 60% or so agencies run, I mean consistently, run a smart business development plan. I’ve written on this before. Here are my main points.
You will eventually lose most of your clients. You have to have more clients coming in the front door than going out the back.
Most agencies do not have a business plan. Simply put, these agencies have not done the hard work of thinking through what they are selling, to whom and how they should price their offer. I see this in action because many agencies will go after any client that raises their hand. Most agencies will pitch whatever comes over their transom. I’m sure you are saying, “Not us.” But, that is probably BS because I’ve seen both large and small agencies rationalize why they should waste their time pitching the wrong clients. A bet: show me the clients you’ve pitched in the past couple of years and I can probably show you that you wasted your time pitching one-third of them.
Many agencies have not defined a competitive, distinctive, ambitious positioning. I stress competitive. OK, I also stress distinctive. There are essentially four agency positionings: geographic location (San Francisco); expertise (mobile); category concentration (healthcare); demographic concentration (Gen Y). Whatever works for you, I advise having a specialist or expert positioning to stand out. This means… get past talking about your agency being full-service. An expert positioning will help you get found by the clients that are looking for you (think of the positive benefits of being an expert in respect to your social media programs) and desired. Need more rationale? Experts get paid more than generalists. Experts have fewer competitors. Experts get past geographic constraints. I’d hire a mobile advertising expert even if they were in North Dakota. Even Oshkosh.
Most agencies do not have a business development plan that they run on a consistent basis. Based on industry research, only about 60% of agencies have an on-going well-managed sales program. Poorly run agency sales programs lack one or more of the following: clear objectives; a manageable agency system and process; sales leadership; the right positioning; messaging that stands out (critical, see being unignorable below); social media that is not me-too; and an understanding of how to run an Account Based Marketing program.
Agency websites are generally not designed as sales tools. They are good looking brochures, but not strategic sales machines. This is insane for many reasons. Here’s one… many agencies are examined on the Internet without ever knowing that they have been in a client’s consideration set. Non-lead oriented online brochures simply don’t cut it.
Agency social media programs generally suck. They feel as if the agency believes that they just needed some form of social media to show clients that they ‘get it’. But, these perfunctory programs tend to be very bland – and sound way too me-too. Worse, they are created and maintained without a clear strategic and operational plan. A key failure… agencies do not allocate the right amount of time to run inbound-oriented / marketing-oriented social media programs. It is better to go narrow than wide.
Please be UNIGNORABLE. Agencies need to have being ‘unignorable‘ as a brand, voice, content and sales objective. If an agency doesn’t demand attention, they can become just another one of the 4,000 interchangeable creative services options.
What is the best way to start an advertising agency?
Before you decide to start an advertising agency, ask yourself why you want to do this? If this question sounds ridiculous – it isn’t. Believe me, I talk to enough burgeoning agency entrepreneurs to know that many do not spend the time to really think through the WHY. Here are some of the questions I ask and advice I give.
Why are you doing this? Running an advertising agency can be fun for all the right reasons. It can also be a total pain in the ass. Today’s advertising market can be is a difficult business. In the past ten years, it has gotten harder to run a high margin marketing communications enterprise. The profitably of the industry has been negatively affected by:
- The loss of the 15% commission (ah, the good old days).
- The late 2000’s recession, which rolled back pricing.
- The complexity and time to run digital programs.
- Client uncertainty. CMO types are more skittish today than ever before.
- And, last but not least… Agencies also compete with the DIY nature of the Google and Facebook advertising platforms.
Back to you. Have you studied the market and its needs? What are the market gaps do you think that you will fill?
Do you really have the expertise to meet client needs and stand out from the pack of thousands of agency options?
Do you have the right people? Better to have fewer of the best.
You’ll need the right name. I know that this sounds simplistic but it is rather important. Here is some advice from Paul Venables of Venables Bell & Partners (he took his own advice)…
It’s not that clients aren’t impressed with your witty agency moniker, it’s that — oh, you got me, I’m lying. They aren’t impressed. But the better reason to name your agency after real humans is a marketing one. Everything you do, every tweet you make, every lame article you stumble through with dubious advice for startups, every panel you sit on immediately gives credit back to the agency. It doesn’t require two connections. You are a brand. Your agency is a brand. Makes life easier (especially in the beginning) when they’re one and the same. Plus Dan, Jeff & Rich, Alex, David, Pat and Sir John agree with me.
Need a name. Here is some brilliant agency naming advice.
Keep your costs low. Costs are the only thing that you can really control. Do you really need that flashy office?
Before you get going, write that business plan and have one or more of your smarter buddies vet it. Be rational.
Write that business development plan today. Know who you want as clients and… why they should want you. Do some simple research on this before you do the much more expensive and complicated learning that comes from running your actual business development program, I mean, sales program.
How can I sell my advertising agency?
First things first. You will probably not be able to sell your agency. I know this because I’ve seen the buy /sell world from both sides. In addition to talking with lots of agency owners (and potential buyers), I worked at Saatchi & Saatchi Advertising Worldwide during our agency acquisition years (and saw both smart and really stupid acquisitions) and bought and sold three agencies myself. Sure, why not want to create something of value that another agency guy will want? However, this is difficult. Why? Advertising is a low asset business; its value may be based on YOU and not your staff; marketing communications is a low margin industry and there are simply too many agency options. Yikes.
Let’s be real. You have to ask yourself… Why would someone want to buy my agency? Start here: Would you buy YOUR agency and why? Be realistic.
Will WPP or Accenture buy you? Probably not. They might take the bait if you are a super specialist or very well known agency in your category (it also helps to have a great client list). By the way, As of this writing, Accenture Interactive is in final negotiations to buy Paris-based digital commerce / brand experience agency Altima. Here’s why.
The 370-person Altima agency creates and adapts experiences for e-commerce, mobile and in-store commerce, and has offices in France, Canada, China and the U.S.
“Experiences are where brands win and lose customers, today more than ever,” says Anatoly Roytman, Accenture’s global digital commerce lead and head of Accenture Interactive Europe, Africa, Middle East and Latin America.
Will another agency across the country buy you? They might if you have a great client list or you are a category specialist plus you have that great client list. If you are in a city with a robust agency scene, I’d think about selling to a competitor.
A quick story. I owned and sold a two-office Oregon agency before I started my consultancy business. While we had a great client list that included Nike (a AOR client, not just projects); college sports clients including Oregon State and University of California; gaming clients (Harrah’s, the Montana Lottery and a native American casino); two major west coast healthcare / hospital clients… we were simply put, a standard full-service agency. Full-service agencies are not that attractive. Did I sell the agency? Yes. In our case, we sold to another local agency that took our client list and, sweetly, all of our staff. There was no way an Accenture would have bought us. (Well, they might have bught us if one of their execs wanted to buy Portland’s second best agency and really dug craft beer and pinot noir).
One more. You could get bought if you have magically have high revenues and a high gross margin.
Ok, one more. You might be based someplace that another agency owner or wannabe wants to live.
The bottom line. If you want to sell your agency, start to think through the process at least one year ahead. Begin to do the following:
Examine what agency attributes the market views as valuable. Study the past couple of years of agency sales to see what has been bought. One of my bets would be having deep mobile expertise.
Begin to groom your agency for a sale. Hone that expertise. Become distinctive. Get more famous. Tighten up your staff. Mitch Joel’s Twist Image was bought by WPP’s Miurum in 2015 because Twist Image delivered a Canadian office; smart digital chops and Mitch and his Six Pixels of Separation blog and podcast. Mitch was famous. Read about him and his social media prowess here.
Work with a smart accountant that knows the industry to sharpen your P&L and balance sheet.
Most of all… Be realistic.
Last Point – Fun Rocks
Owning and running an advertising agency can be very stressful.
Make sure that whatever you do, know that you run that agency because it is fun.
Do the kind of work that is fulfilling.
Work with great people.
Work with great clients.
Aim to be unignorable.
Build an agency culture that makes you want to go into the office every day.
If money is important, there are many other ways to make big bucks. However, most of them are much less fun than advertising.