The Nimble Agency
By Mike Carlton
Describing an Agency
It wasn’t so long ago that when someone wanted to learn about an agency the first question asked would be, “What are their billings?” The underlying issue was, “How big are they?”
And the answer usually came back as the agency’s figure for annual capitalized billings.
But capitalized billings, as distinguished from actual billings, was an artificial number. It was an arcane calculation based on a multiple of the agency’s gross income. The intent was to rationalize differences between agencies that placed a lot of media and those that didn’t.
Still it was a fake number. While the industry seldom acknowledged it, using capitalized billings seriously misrepresented the size of many agencies.
As a result the use of capitalized billings slowly lost credibility. And faded from being a popular metric for an agency’s size. That measure was gradually replaced by headcount. “How many people does the agency have?”
Headcount had its problems too. Headcount figures initially only counted full-time employees. Individuals who were totally dedicated to just that one agency.
But what about freelancers, part-time people and independent outsource providers? To include them some agencies started using the number indicating their FTEs (full-time equivalents).
Yet this was also a number that could be something of a fiction.
Bigger Was Better
And under both metrics conventional wisdom dictated that the bigger the capitalized billing and the bigger the headcount the better. Marketers and agency leaders placed high value on size. It mattered. And an agency’s size certainly provided an important bragging point.
Yet this continuing quest to rank an agency by size begged an important question. Did a bigger agency do a better job for its clients? Or return more psychic and financial rewards to its staff? Or its owners?
Was size, regardless of how it was measured, the right metric to be looking at in the first place?
Was size just for the sake of size a false aspiration?
An Interesting Reality
Perhaps the most wonderful thing about the advertising agency business is that it historically has regenerated itself from within. There is an old saying that every time a big agency lays off two people a tiny new agency is born.
New agencies provide fertile ground. More often than not, agency innovation has sprung from the upstarts rather than the big established firms. It has always been an industry in which the freshest work can come from small new agencies. Often located in areas outside traditional advertising centers.
And just about anyone can start a new agency. It doesn’t take much capital or equipment or experience. All it takes to create breakthrough ideas are a few bright, talented, passionate and energetic people.
When you stop and think about it ideas are what are really important. Almost everything else in the agency business is just window dressing.
From the very beginnings of this industry a pattern of creative reinvention has been repeating itself. And it is a pretty good bet that this pattern will continue into the future.
The Price of Size
It is an almost immutable fact that the bigger an organization gets the less flexible and responsive it becomes. Like it or not, bureaucracy creeps in. And some might even say that size and innovation are mutually exclusive.
Some time ago the leader of a very hot and rapidly growing young agency was asked by the trade press how big he wanted his agency to become. His reply was, “I want to see how big we can get before we get bad.”
A few years later when he sold the then much larger and more mature agency to a holding company he told his friends, “I have now found the answer to my question.”
A World of Change
Gut-wrenching change is upon advertising agencies. Greater than anything the industry has seen in anyone’s memory. The means for reaching the consumer expand almost daily. And consumers are constantly shifting how they accept commercial information and how they interact with marketers. The customer is now firmly in charge of that dialog.
So in addition to dealing with this power shift, to be successful an agency has to have at least minimum fluency in all the various communications tools available and to know how and when to apply them.
This is an incredibly complex job.
And unfortunately, one that a lot of marketers feel is beyond the abilities of many agencies. This is validated by the fact that marketers are increasingly going directly to specialized marketing communications providers thus bypassing their primary agencies.
Thus many agencies which used to be the custodians of their clients’ broad-based market communications needs are finding themselves relegated to only the more traditional media advertising tasks.
Their share of the client’s total marketing spend is declining.
The reason for this is simple.
The fact is that no agency, no matter how big, can afford to have full-time experts for every communications tool or specialty that clients might need. Even the holding companies have great difficulty economically, cohesively and harmoniously fielding all the diverse talent needed to effectively address complex client requirements.
Yet the quest for agency size and stature continues. Offices are plush. With lots of smiling faces. And lots of conference rooms for those people to gather in. All backed up by complex processes and procedures. Within this environment internal silos have flourished. So have bureaucracies. And overhead costs.
The need for a continuing stream of cash is unrelenting. Payrolls are fixed. So are most other costs. To support these requires a steady flow of income.
But many clients are moving away from the agency of record concept. And away from long-term agency commitments. They have an increasingly short-term project orientation. They want to accomplish measurable objectives quickly, and at the very lowest possible cost.
Smart marketers are not looking for agency flash, show and stature. They are seeking effectiveness, speed and economy.
Do we have the makings of a big disconnect here? Have we lost our way in the quest for bigness? Are we now in a new age that requires new thinking?
Have we in fact let advertising agencies become dinosaurs?
Enter the Nimble Agency
Dictionary.com defines nimble as:
Nimble. That doesn’t sound like a bad handle for a 21st Century agency. There is no question that the best clients and the best talent both place high value on nimbleness as it is defined above.
So the important question is would they use the word nimble to describe your agency? And would you?
So, What Does a Nimble Agency Look Like?
A nimble agency looks and behaves a lot differently than a traditional agency. Yet some evolved from traditional agencies while others started from scratch. And many of them don’t even call themselves agencies. Nor do the clients that use them. But they usually have a number of characteristics in common.
Here are some of those characteristics:
1. Solving Business Problems
While they use communications tools to accomplish their goals they see them as the means to the end, not the end itself. The agency is driven by marketplace outcomes not just the creation and production of stuff.
2. Effectiveness is the Metric
This is a lot different from the traditional agency metric of selling hours of staff time. The focus is on results, not on billable hours.
3. Tiered Staffing Strategy
The Core staff is a small cadre of agency principles. Often partners and/or owners. They are responsible for the agency’s vision and values as well as relationships with clients, staffers, suppliers and prospects as well as the agency’s work output and financial well being. They are strategic. The drivers. The permanent part of the agency. Their personal compensation is variable and closely linked to the agency’s profitability.
The Support staff is also small and generally made up of bright, young, highly energetic full-time talent. These folks implement the client work under direction from Core leaders. While they have client contact they are primarily tactical. And not necessarily expected to stay with the agency for the long-term. Their personal compensation is also variable and closely linked to the market success of the projects they participate in.
The Contingent staff are individuals or organizations with specialized skills who are not employees of the agency. They are independent contractors who are engaged as needed to advise and implement client activities within the scope of their expertise. They can be lone practitioners or specialized companies. They are generally brought in just for discrete projects with their compensation linked directly to the successful implementation of each project.
The good news here is that there are an increasing number of highly talented specialists working as freelancers or as part of separate specialized businesses. These resources generally have greater experience and capabilities in their special skill set than anyone the agency could hire full-time. And, they only cost money when they are being used.
4. Project Based Business Model
It is important to note that this business model delivers a less predictable income stream than what many traditional agencies would like. And sales costs are generally higher than are typical in agency of record status.
On the flip side, however, the cost structure of a nimble agency tracks quite closely with the agency’s income. When income goes up, costs go up. When income goes down so do costs.
5. Profitability Trumps Billings
Thus, its key financial metric is profit not billings. It has inherently flexible talent costs coupled with low overhead. This gives it great financial flexibility.
6. A Fun Environment
The kind of place that the best talent, both internal and external, wants to be associated with. Same for the best clients, too.
In short, a nimble agency may not be big but it is very good.
The Hard Part
Starting a nimble agency from scratch is not particularly difficult. Market forces and limited capital almost dictate nimbleness. In fact, a startup agency’s very survival usually depends on nimbleness. It is intuitive.
What is much more difficult is transitioning a traditional agency into a nimble agency. Much of what a nimble agency is can be directly counter to what people expect from a traditional agency. So there can be lots of ingrained resistance.
With many of the biggest changes needing to come from agency leaders and existing employees.
In addition, developing and cultivating a pool of specialized external talent is not easy. It takes lots of time and effort. But it is a necessary requirement. In fact, it is not uncommon for a nimble agency to view building and maintaining their external talent pool as a top priority, even ahead of new business development.
Yet with all the challenges, a nimble agency can be a lot more successful, a lot more rewarding and a lot more fun than a traditional agency. And it fits with the changing times.
Bigger Isn’t Better
And wouldn’t it be nice to have someone say about your agency, “They aren’t big but are very, very good. And amazingly nimble!”