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January 26, 2017

How to Scale Creative Agencies in 2017: Focus on Value

Creative Agencies

Having spent the last decade working for agencies I can say, from experience, it is a tough business - especially when the goal is to scale creative agencies.  Digital agencies, marketing agencies, PR firms, management consulting or any other flavor you can think of, there comes a time when leadership focuses on remaining relevant and revenue growth.

Some of this is due to changes in the market, other times it is a result of a desire to be more than they are today.  It makes sense.  It is a natural evolution.  The question is always, how?  Especially when time is running out.

Brands are moving creative agencies internal, knowing there is value there for their business.  Accenture and Deloitte and other large consulting firms are acquiring creative agencies at break-neck speed.  And for the agencies that remain or who have been recently required don't make the necessary changes - 2017 may make 2016 look like 2008.

 

The Acquired Are Legion

The number of acquisitions of creative agencies in the last four years would take too much space to detail here, but the names and logos of these well-respected firms - firms with once bright futures - are legion.  2016 was another year full of acquisition as discussed in a recent Ad Age article.  But let's just use one example.

"Mergers and acquisitions targeting digital agencies, ad tech companies and analytics firms surged worldwide in the first half of 2016…There were 204 M&A deals in the first six months of the year (2016), totaling an estimated $6.8 billion, up from 85 deals valued at $2.1 billion in the equivalent period of 2015."

AdAge, R3 Consulting Group

Many from the digital agency space will remember the story of Teehan+Lax - a digital agency that was recognized globally, assembled an unparalleled team of practitioners, developed a reputation for being one of the leaders in designing true experiences and were on the forefront of digital innovation - even having designed and built the first prototype of 'Medium'.  They were, for many, a bellwether in the digital space.

Yet in 2015 they shut their doors unexpectedly and posted a letter on their website saying some of the team were joining Facebook.  When you read the letter they explicitly said they had reached a size where to continue to grow and scale was outside of their skill set and would run counter to the culture and values of the company the partners had founded.  Many of us in the space were shocked.

But Teehan+Lax were not then, nor are they today, alone.  The natural process of commoditization in a market combined with a desire to remain relevant and grow requires an evolution of the business.  Over the last decade I have seen and worked with agencies that struggled with this - resulting in a decision to sell to a larger company, merge with a different company to expand market appeal, remain static and accept flat revenues or, in the worst cases, close their doors.  But there are four things I believe will turn the tide for any creative agency.

 

ONE: Creatives Need to Become Consultants... And It’s OK

Penny Price, VP of LinkedIN Marketing Solutions, just a few days ago published a piece entitled "Why Creative Agencies Need to Think Like Consultants in 2017" .   I have seen first hand how this transition often creates a great deal of strife and can turn an agency's valued team members against the organization if not done correctly.

Designers, programmers, data architects, developers, organizational experts - the list goes on.  The roles, these top-level practitioners, need to be enabled to be truly consultative.  They spent years learning their craft, working to be the best in their fields and they love the work they do.  Their passion and ingenuity shine through.

"Given their expertise in business strategy, consultants have been more successful in acquiring creative talent and companies than vice versa. But agencies have an opportunity to reinvent themselves, and doing so could open up new lines of business."

Penny Price, VP LinkedIN Marketing Solutions

But the days of 'taking-orders' are over.  As one CEO of a large creative agency recently said to me, 'The fish are no longer just jumping in the boat.'  The market has changed.  The large consulting firms with the trusted and established brand names are swimming in the same stream.  There may be reasons to still utilize a 'boutique firm', but the reasons are getting thinner, as are the margins.

If agencies want to remain relevant and independent, even if they want to remain a respected and contributing force once acquired by a larger entity, they need to become true consultants.  They need to be able to connect their unique skills and their projects to business value; they need to understand the personal value of their clients; and they need to understand this is a way to enhance what they do, not a compromise or dilution of their skill sets. They also need to feel comfortable telling their leadership they were never trained to be a consultant but are willing to learn.

 

TWO: Leadership Must Accept the Shift to Consulting and Promote a ‘Value-Focused’ Mindset

Many of the 'creative agencies' were founded by creative people - designers or programmers or practitioners.  I have seen far too many times where the leadership refuses to embrace the reality of today versus the perceived creative freedom of the past.  Just as their employees today, they were not trained in business, they were not taught how to be consultants.  Many actually view this need or these skills with confusion, uncertainty and in the most toxic example, with contempt - which often bleeds into the organization.

The world and business need creative / innovative thinkers.  Leadership needs to understand the true measure of their craftsmanship is to be found in identifying, articulating and reinforcing the VALUE of the solutions they create.  When someone says 'I need an app',  the response should not simply be 'OK'.  There should be a discussion and discovery of 'why' they need an app.  

What is happening in the business to create this need and what is the expected return for the business?  This requires the ability to quantify the value to the business and to the teams assigned to make it a reality.  Creatives need a framework for leading the client, not being led.

Leadership needs to realize they were, in many cases, not trained to be business experts either.  They need to 'know what they don't know' and ensure they get the training they need to enable 'value-based' conversations.  They need to then make 'value creation' and 'value realization' part of the company's DNA.

The most beautifully designed, elegantly coded and seamlessly deployed digital experience or marketing campaign or public relations campaign must provide value in order to be adopted and supported.  Executives in agencies need to make value a core focus for themselves and their employees - and most importantly, they need to put in place a framework for enabling this value focus.

 

THREE: Create a Common Language - It Will Help The Culture

Since the first design agency hired a developer; or PR agency hired a designer, there have been communication challenges. Practitioners often struggle to understand other practitioners from different disciplines.  Add in the need for a common, cross-discipline language based on business and value, and it can seem as if no one is speaking the same language anymore.

Additionally, there is often a primal negative response to anything practitioners perceive to be 'sales' oriented.  Talking about business benefit, revenue growth, market expansion - while core to business - seem to illicit wildly negative and contemptuous responses - from employees and executives in agencies.  I have seen this one element bring down more projects and stall more agencies growth than I can count.

While I would love to believe people can get over their aversion to the word 'sales', I see it being a larger challenge in agencies than other businesses.  (For those who  are interested, I highly recommend Dan Pink's book 'To Sell is Human - The Surprising Truth About Moving Others').  There is a fear that it will 'change the culture'.  And honestly, it might.  But if the company and culture don't change on their own, an acquisition will force it to and not being able to pay the bills will make it a non-issue.

There are ways to do this without the use of the word 'sales'.  There are ways to accomplish this with proven frameworks that enable people to have and drive to value based discussions.

 

FOUR: Train Them, Train Them All

If there is one thing I can say, from experience, that generates a more cohesive, positive, flourishing culture and drives top-line revenue growth, it's training the entire organization on one framework.  I have used ValueSelling throughout my career and when it is embraced by organizations from the top down and not just mistakenly viewed as a 'sales tool' - the results are impressive.  (It is why I choose to join the ValueSelling company bluntly.)

Customer retention rates increase; average size of engagements increase; the client view of the agency becomes that of a truly trusted advisor; everyone begins to contribute to opportunity growth and the speed at which new opportunities are won keeps the competition from having a chance.

But it must be embraced across the organization and from the top down.  If it is used only in one group - viewed and practiced as a 'sales tool', chances of failure increase dramatically.  The truth is, when deployed correctly, the framework provides not only a common language and understanding for practitioners to connect their work to client value; but enables a consulting mindset with little to no disruption.  The ability of everyone in the organization to be on the same page increases efficiency, momentum and client satisfaction.  At the very least, train all the employees who are client facing.

 

The Last Year of Consolidation?

2016 was a rough year for many.  Headed into 2017 there is some hope.  But I know many creative agencies who are struggling.  I truly enjoyed working in the space for the past decade and I want nothing but success for those who remain independent and those who are working to carve out reputations within larger organizations.  Those that will be successful will do what they need to in order to succeed - they will understand 'value' is not a trend but a necessity.  Those who can't make the shift or aren't willing to make the shift…I'd recommend checking out Teehan+Lax's website one more time.