Article on Marketing Communication News – Published on January 4th, 2018
The early years for any agency are tough. Everyone knows that. However, what is less recognised is that the really hard times often come when an agency has broken through to the medium-sized point.
JFDI’s 2017 New Business Barometer survey of nearly 100 agencies highlighted this issue: once you reach the 50 to 150 people stage, life does not suddenly become much easier. In reality these “adolescent” years are often even tougher than the childhood days.
Get through it – keep on growing – and you can come out the other side as a large agency. Here, you benefit from efficiencies of scale, an established reputation, bigger marketing budgets, and life does often become easier.
So, the question is how to make it through that tough phase of between 50 to 150 people. What should those agencies be doing to make it more likely they emerge successfully to the other side, and what should the smaller agencies be preparing to do so that their adolescent years are as trouble-free as possible?
The Problems of Youth
The challenges small agencies face are well known, but no less real for that. For many a start-up agency they become fatal. In broad terms they lack reputation and portfolio, and typically have neither expertise in sales nor the time to figure out how to do it well.
The portfolio they can show will be small. They can fudge the issue, and show work done by the team earlier in their careers, but clients tend to be wise to this tactic. Equally, small, new agencies often have a very strong reputation, but among a tiny number of people.
These launch clients can become valuable sources of referral and recommendation – the lifeblood of any new start-up agency – but they rarely provide the ongoing pipeline of opportunities required for sustained growth. That requires a professionally run and properly resourced new business function, which precious few small agencies can afford.
So, new business tends to fall to the agency founder. It is rare these come from a new business background, and they often struggle to translate their creative brilliance or client service skills to new business competence. However, in many cases it does work. Whether they discover a hitherto hidden commercial side, they bulldoze through with sheer charisma, their creative pitches are so outstandingly good, or they just get plain lucky, many times small agencies do survive and even thrive.
The Difficult Adolescent Years
Yet it is in these adolescent years that the going gets tough. Many of the advantages they enjoyed as a small agency become challenges. The niche they carved out starts to become a restriction or a pigeon-hole. Where once they could win clients by pointing to the highly experienced and talented founders working on their account, now they worry about having good enough people on their accounts.
The biggest issue though is that the beast starts to become very hungry. Small agencies can pick their battles carefully, going only for pitches they are confident of winning, but medium-sized agencies, with at least 50, and up to 150 people to keep busy and fed, need to pitch for more. They also need a fuller pipeline and this means investment in professional PR, marketing and lead generation.
All of this means that costs escalate. Our 2017 Barometer revealed that small agencies are spending an average of just £20,000 a year on marketing, compared to £80,000 for medium-sized agencies. Furthermore, 65% of the times other agencies win pitches, clients report that it was because of a dislocation between strategy and creative. To complete against the big agencies, these medium-sized ones have to invest in their strategy and creative teams. This further fuels the need to fill the pipeline.
These problems are compounded by new, smaller agencies who spot the agency’s success and start emulating it. Small agencies win 52% of the £220k-£1m projects – the size of work you would expect medium-sized ones to win. Medium-sized agencies lose this type of work to smaller agencies but do not make up for it by winning larger projects from large agencies.
Smoothing the Journey
So, how can agencies push through this difficult phase, and emerge as larger agencies? First and foremost they need to get smarter at working out where to position themselves. Will they be an agency that delivers a complete, joined-up service or do they offer a niche, nimble and agile solution? Both will be in demand, and the smartest agencies are able to switch between them, pinpointing what each client wants and then delivering that.
Central to success at this stage is developing a professional sales and marketing process and team. It needs to evolve beyond the owner’s black book. The agency head needs to identify the people in the team who can play a role in sales and marketing. Who has contacts they can develop into opportunities? Who will add to pitches and increase conversion? Who could deliver the thought leadership around which the agency can build a reputation?
Often this sort of delegation is challenging for the agency founder. It is, though, essential. As is a more professional view of the cost of sale. Smaller agencies need only focus on the win and the resulting revenue. Medium-sized agencies need to factor in the cost of sale, and of course delivery, to prevent celebrations at a win turning into troubles with profitability and cashflow.
Agencies of this size need to expand their prospecting strategies, but keep doing so in a focused, efficient way. Broadly speaking there are 11 prospecting tactics any agencies can follow. Large agencies can do all 11, but medium-sized ones need to focus in on the two or three that are right for them at that moment in time.
Equally, they need to find tailored solutions that will allow them to upskill and develop quickly. They need to contact previous clients, maximise LinkedIn profiles, write blogs, promote through Twitter – all the simple, obvious things that too many agencies at this stage ignore to their cost. Many choose to engage an interim business development director who can put in place specialists with the many skills required for a modern agency sales and marketing programme.
An Age of Consolidation
There is much to do to break through beyond the 150-person mark but once there, new business genuinely does become easier. A big reputation and industry profile attracts opportunities. They get invited to pitch for the sort of high budget work smaller and mid-sized agencies would never be considered for. They can properly resource their sales and marketing function, and so fill the new business pipeline even further.
Finally, they can put more people onto each opportunity so they convert more of them: while small agencies have an average of one person dedicated to new business, and medium-sized agencies have two, the large ones have four. They convert nearly 50% of pitches, compared to 40% for small and medium-sized rivals.
They hold many of the cards, so it is little surprise that they win time after time. This has been a key driver of the recent wave of consolidation we have seen in the market with Publicis and Havas joining that committed acquirer, WPP, in building ever greater economies of scale.
Our latest Barometer findings suggest that this trend is likely to continue. New technologies and shifting attitudes among buyers will further accentuate the benefits enjoyed by the largest agencies. This perhaps lies behind the marked increase this year in the number of small and medium-sized agencies that point to filling the pipeline as their number one priority this year. The race is on for market share and the smaller agencies are having to run ever faster to keep up.