Author of Scaling Success: Building Brands that Break Barriers | Marketing & Business Consultant | International Keynote Speaker | Podcast Host | Open to Speaking & Podcast Opportunities
Someone asked me yesterday if I'd consider running another agency and I almost spit out my water 😣 Now don't get me wrong, I had some incredible experiences running an agency and met some amazing people. But the agency model is fundamentally broken and the last two years have proven that without a doubt. Agencies are only valued by their profit margins and the contracts they hold. You have client contracts and employee contracts. So it's built entirely on people and people are bat sh*t crazy (no offense). 🦇 You've essentially built a house of cards. In an economic downturn, this is super apparent. Clients leave and the only way to adjust expenses is to make redundancies, which hurt but aren't effective enough as payroll will never adjust quick enough to respond to market changes. 📉 You're not building a product or anything with real IP so securing investment is pretty much out of the question. You're never going to get a $30 million investment like a tech company. I learned the hard way the pitfalls of running an agency so I won't be going anywhere near an agency with a ten-foot poll. 🛑 Agree? #marketingagency #agencyleadership #agencylife
Dave Barnett
5d
Not all agencies are built the same #December19
Dave Corlett
5d
Hard to disagree with your personal experience, it's obviously taken a toll on you, but I wouldn't say the agency model is broken just because it didn't work out for you. Yes most agencies don't have IP but if you have a niche and you do great work in that niche then you have the opportunity to build a strong pipeline that means you don't have to make redundancies when clients leave. I take your point about downturns but many businesses suffer during downturns, and not because their model is broken.
I’m afraid I would have to disagree. It’s all about the lens and the expectation of the margin of what you are trying to build. I definitely agree that the big agency model is completely broken but building a smaller, sustainable agency with sensible margins and a great culture is completely possible in current times. Small enough to adapt (when you lose a £1m client overnight), adaptable and diverse enough to evolve the offering rapidly when necessary and diverse enough to offer something different, culturally amazing enough to have very limited staff turnover? possible yes because we are doing it. And making a success of it. I didn’t say it wasn’t incredibly, ridiculously hard work though 😉
Bob Abbate
5d
Sorry to hear that the agency life didn't work out for you. I've been navigating agency life for 27 years. It has paid for my life, my vacations, my home, my kids college costs, my tech habit. My IP is considerable, it consists of my relationships, my reputation, my ethics, my skillset, as well as the mortgages and college loans of my team. For that, I am grateful. I'd do it again in a heartbeat.
100% first one was a tech consultancy, different name same model, 2006 its was revenued at 1.8 million with 22 staff, and I was planning on the new house. mid late 2008, it was crushed and buried with massive debts as we could not turn it down fast enough and as the markets crashed and people did not pay us we ended up with 156k of debt and 120k owed to us in 90+ day credit most from the finance sector. Started with a product company 2009 and this one is still going but lost a lot of customers across the Eu via brexit, due ot service and location of data. But we are still plodding waiting like many for the economy to wake up.
Anant Sharma
5d
Not sure this is entirely true. It’s just as difficult maintaining relevance and retaining customers in a product business. Your IP is as defined as you invest in it. I think 10m on the whole a magic number and develop replicability of process, a natural momentum in growth, more predictability. Muscle memory beyond an individual or project. And a path to enterprise value
I can see sense in your assessment if you assume the only reason to start an agency is to build value to exit via a sale of some kind. I would suggest there are other reasons to start an agency where valuation is not important.
Scott Jones
5d
Yeah I’ve got to disagree, although I see the lens you’re looking at this through (and why you almost spat your water 😅). If a service business was treated like a tech company - aiming for investment and fast growth rather than sustainable growth - then sure, an agency is a terrible business model to choose. Personally I’ve tried both service business and product business, and I’m really flippin’ good at building service business, not so buzzed about the idea of begging investors for more money and panicking about my runway. If I started again, I’d go right back to a service business, build something that’s sustainable again, and know lots of ways to speed up the process vs the last time. And since it’s all about people, I’d make sure the very best people were the launchpad. After all, it’s their value we’re selling.
Really thought-provoking post, Kathryn. I kind of agree. Product businesses do attract higher valuations, so if the goal is to build a machine that someone else want to buy that's definitely a better way to go IMO - even if product businesses do have a high rate of failure and require greater levels of up-front investment (compared to a services firm fuelled by the human capital of people it effectively rents). Services firms with IP that lives mostly in its employees' heads won't ever attract close to the kinds of multiples a product business will. I think they are also going to be prone to being disrupted by services companies who take a more managed-service approach i.e. where proprietary AI is doing most of the work, creating space for people to focus on the work that machines can't. But this is very hard. So agencies aren't *dead*, I just think the more successful ones will be those that think more like products businesses.
Founder of MSIX / DOA /Thinkerbell (Campaign’s Global Agency of the Year (2nd)). Author / speaker / radio and podcast host. Consumer psychologist
5dIt sounds like you had a tough time building the agency and sorry it didn’t work out how you hoped. It sounds like it was a tough experience. However There are loads of agencies doing very well and it seems like exactly the right time to start an agency as businesses are looking for new agency models without legacy hang ups. Special Droga 5 The Monkeys Rethink Karmarama Uncommon have all received or been offered backing in the 10’s if not 100’s of millions However perhaps more impressively you also have the W+K’s who say they never want to sell. They just love the culture and focus on creativity. Creating an agency is a brilliant idea if you want to create a wonderful culture that generates creatives ideas and champions creativity in the world. If that’s what you’re into. It can also be financially lucrative if that drives you too? I’ve been in agency / creative consulting world for a while now and I’ve never seen it more vibrant or successful (however I do think the traditional advertising agency is needing to rethink things). Great comments thread here