How To Start an Advertising Agency. Next: How to Grow and Eventually Sell it.

The decision to start an advertising agency in the current business environment requires a judicious evaluation of industry dynamics and market forces. While the advertising sector has demonstrated resilient growth, propelled by burgeoning digital ad expenditures and the escalating demand for specialized services like influencer and even TikTok marketing, the landscape is punctuated by countervailing headwinds.

On the upside, the normalization of remote work paradigms in the post-pandemic era has engendered a set of lean agency models, facilitating access to a geographically dispersed talent pool while mitigating overhead costs. Simultaneously, niche players adroitly carve out specialized verticals or service offerings could potentially unlock unique value propositions.

However, the macroeconomic uncertainty looming on the horizon poses a formidable challenge. Advertising expenditures have historically been among the first casualties when corporations undertake cost-cutting measures during periods of economic contraction. This cyclical vulnerability could potentially dampen demand for agency services. That said, my having lived through multiple recessions has shown me that agencies have continuously prospered over time.

Moreover, the industry’s competitive intensity cannot be overlooked. There is no one count… but clients have thousands of agency skill-set choices – from networks to savvy ex-creative directors. Plus, attracting and retaining top-tier creative, strategic, and digital expertise is an ongoing battle. The era of in-house agencies has not helped here.

Concurrently, client acquisition for fledgling agencies and freelancers that lack extensive portfolios and industry networks can be a tough undertaking in a sector characterized by market saturation and consolidation trends.

Ultimately, while opportune windows may exist for adroit entrepreneurs, a circumspect strategy that astutely navigates the sector’s headwinds is imperative. Meticulous planning, a persuasive value proposition that transcends competitors, and an acute alignment of the launch timeline with propitious economic conditions could elevate the probability of enduring success for the intrepid agency founder.

One could even give me a shout.

One Solution: Be Unignorable.

 

Another Big Picture Solution: Buy My Book… “How To Build a Kick-Ass Advertising Agency.”

 

 

 

 

Digging Into How To Start an Advertising Agency

Create a one-page business plan. its in the book.

Sales Cycles

Having run my business development consultancy for ten years, I see a cyclical pattern. Here are the three most important questions that agency managers ask me every week.

• What is the best way to start an advertising agency?
• What is the best – most efficient – way to grow my 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 a 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).

But, But: Digital Agencies have taken over search: This is a look at a couple of marketing communications search terms from Google Trends: ‘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 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. I talk to enough burgeoning agency entrepreneurs to know that many do not spend the time to think through the WHY. Here are some of the questions asked and advice I give.

WHY? #1: It’s Fun

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 multi-years, it has gotten harder to run a high-margin marketing communications enterprise. The profitably of the industry has been negatively affected by:

• The eons ago loss of the15% commission (ah, the good old days).
• Recessions, which roll back pricing.
• The complexity and time to run digital programs.
• Client uncertainty. CMO types are more skittish today than ever before.
• And finally… Agencies also compete with the DIY nature of the Google and Facebook advertising platforms. Plus, the growth and efficiency of artificial intelligence-related marketing tools.

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. Good news, the world is your staff.

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 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.

BIG ONE: 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. Go back to my reference of building out a one-page business plan.

Write your 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. Go to my blog post list. Many answers there.

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.

Positioning.

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.

Yes, a great positioning to help future clients want to work with you. But, that but again, make sure that what you project is unignorable. There are simply too many sound-alike position statements.

24/7: 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 ongoing, 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’. 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. Plus, pay attention to the changes in inbound marketing that shift every month due to AI search tools.

Please be UNIGNORABLE. Agencies need to have wanting to be ‘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.

How can I sell my advertising agency?

I had two interesting conversations this year about selling an agency.

One agency owner informed me that he sold his agency to his employees. Everyone wins, especially since this is 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 can move on to his true love—commercial real estate. FYI: I did this. Everyone was happy.

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.

OY.

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 stupid acquisitions) and I 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 and low-margin business; its value may be based on YOU and your client base. 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).

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 the University of California; gaming clients (Harrah’s, the Montana Lottery, and a huge 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 Northwest 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 bought us if one of their execs wanted to buy Portland’s second best agency (after Weiden & Kennedy) and really just dug Portland’s 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 somewhere 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 Mirum 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.

Work with a smart accountant who 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, digital, or whatever agency can be very stressful. Think hard about how to start an advertising agency agency.

Make sure that whatever you do, know that you’ll run that agency because it is fun.

• Do the kind of work that is fulfilling.
• Work with great people.
• Work with great clients.
• Work with clients that value what you do for them. $$$ is a good thing.
• Keep your costs down.
• Aim to be unignorable. Or you’ll be ignored.
• Build an agency culture that makes you and your people want to go into the “office” every day.

If money is way important, many other ways exist to make big bucks. However, most of them are much less fun than advertising.

And why not talk with me?

Visit my hundreds of blog posts on how to grow your agency here.