Agency

Agency. Services firm. Creative services. Consultancy. Studio. So many different terms that all come to the same point: you are growing your craft into something larger than you.

Why do you want to start an agency?

Before you get started running your business out in the big, cold world, you need to know what your company stands for. This is not an academic exercise. Doing this right can have a profound impact on your business as it grows. Doing it poorly—or not doing it all—can have a wildly detrimental impact on your company.

Your company is going to have a culture one way or another. Your company may develop a culture of fear, paranoia, and political infighting, or it may develop a culture of mutual trust, productivity, and fulfillment. While you cannot dictate the culture of your company, you have massive influence over the direction in which it progresses.

Great culture springs, logically and seamlessly, from your company’s vision. The vision and the culture of your company need to exist in harmony. The importance of this cannot be overstated. A culture that’s at odds with the vision of the company is one that is more expensive and less effective. Employees question why they are at work. In a seminal Harvard Business Review article, Rob Goffe e and Gareth Jones extensively researched what makes some companies more ideal for employees to work at than others. They find, unsurprisingly, that workers need purpose. Your company needs to give your employees compelling, powerful motivators for why they give you their energy.1 We’ve talked about the importance of establishing a unique and compelling vision for your company. That vision will be the wellspring of your culture, which is one of the reasons why it is important to shape that vision as early as possible, preferably before you go into business. Let us consider the multiple levels at which the simple question “Why?” can work. A coherent explanation can answer multiple levels of “Why?” without contradicting itself.

There is no culture without communication. You will need to communicate with your employees regularly, and they will need to communicate with one another. While in an early stage company the tendency is to rely primarily on quick emails and oral communication, this is problematic. First off, it does not scale, and secondly, it does not create an archive of cultural communication for new employees to rapidly get up to speed. Before too long, your company’s communication will need to be something that scales.

We now turn to the work at hand, the work that your firm will be doing for your clients. Your craft.

In no industry will you find so much talk about ideas. The power of ideas. The importance of ideas. The value of ideas. But before too long, you’ll realize that, at its core, an eternal debate permeates the advertising industry. Is it the idea? Or the execution. Witness the following quotes: There’s just a tremendous amount of craftsmanship in between a great idea and a great product. —Steve JobsBut the truth is, it’s not the idea, it’s never the idea, it’s always what you do with it. —Neil GaimanA really great talent finds its happiness in execution. —Johann Wolfgang von GoetheGenius is one percent inspiration, ninety-nine percent perspiration. —Thomas EdisonOriginality is nothing but judicious imitation. —VoltaireGood artists borrow. Great artists steal. —T.S. Elliot, Pablo Picasso, Igor Stravinsky, and God knows who else.The secret to creativity is knowing how to hide your sources. —Albert Einstein (apocryphal)1

Before you get too far along in your company, you’re going to have to think about process.

Depending on the type of consultancy you are thinking about creating, there is a very good chance that you will find yourself working with other agencies and consultancies as your clients. Indeed, if you plan on being a specialist shop, you may always find yourself working with agencies as clients. But even if you’re trying to build the next BBDO, you’re going to be working with other agencies, with them as the vendor and you as the client. The marketing ecosystem is phenomenally interconnected. On any one large brand today, there are literally dozens of agencies working on various aspects of the business. Some have direct relationships, but more often the agencies work together in a web of contracting and subcontracting.

There will come a time when every shop such as yours is given the opportunity to do some pro bono work. This is work, typically (but not always) for a nonprofit organization, that you do at a reduced rate or without charge.

This is the immutable truth: the work you have already done is 90 percent of your new business effort. Every marketer looking to hire a company like yours should want good work, and ignoring the past work of a company would be, to put it mildly, idiotic. This should go without saying.

Any good advertiser knows that the emotional side of the brain is nirvana when attempting to influence the purchase decision. The emotional side is where we can appeal to factors that cannot be quantitatively measured. The advantage here is that the potential upside result of any argument could far outweigh its expense. So too is this the case in selling your agency. I can say with firsthand knowledge that appealing to the emotional side of the purchase can be tremendously powerful and profitable when trying to sell your company. At The Barbarian Group, we literally had clients who dreamed of working with us and would go out of their way to find projects to do with us. Winning these jobs cost us nothing.

No part of advertising has been as romanticized as the pitch. From Don Draper’s meandering, bordering-on-incomprehensible emotional journeys during pitches on Mad Men, to the horrible reality show The Pitchy to every book ever written on advertising, the pitch seems to exude an aura of romance, gladiatorial battle, and excitement. Witness John Hegarty’s florid prose when talking about the pitch: “We love pitching—it brings out our competitive spirit like nothing else. We snort the energy of battle.…When a ‘big pitch’ is on you can feel the adrenaline running through an agency. There are endless ideas, positionings, strategies and flow charts pasted on to walls, late-night meetings and discarded boxes of half-eaten pizza scattered around the building. There are cancelled social lives and late-night taxis home and then a quick shower and a clean shirt before a rapid return to the frontline. We thrive on this kind of energy. Failure is not an option.”1

This is where we focus on the nuts and bolts of sales for a services company, and develop a library of tools and tactics that allow us to routinely win new business.

The act of choosing a partner is a peculiar ritual. Basically, you’re choosing someone with whom you will spend as much time as you would your spouse, and often you’re doing it on little information. You may have just met them. You may have only ever hung out with them in social situations, and never seen them under pressure. Yet you throw our lot in with them, with little more than a hope and a prayer, and try and build something lasting and beautiful with someone that, very often, whom you barely know. You consciously give up some measure of control to this person, making yourself less omnipotent in the process.

The small shop is all about flexibility. Everyone does multiple things. As services firms grow, the trend is toward increased specialization. If you are excited about the prospect of only being a graphic designer, for example, and look forward to the day that all of the other job functions have someone else in charge of them, then this will dictate what kind of team plan you develop (though I question why anyone who only wants to be a graphic designer started their own company. Know that you will never 100 percent succeed, given the entrepreneurial path you have set upon). If, however, you view yourself as more of a Renaissance person, then think about which areas of the company you’ll need to keep a hand in, and which you will not.

In terms of human resource matters, we can broadly break things down into two categories: employee retention and employee departures.

Now let’s turn to the sadder side of HR—employee departures.

So maybe you started your company in your living room, or you rented an office share in a communal work environment. But now you aspire to a real business, an agency with your name on the door. What about our office? What about those sleek desks with the dashing receptionist and the Eames chairs? What about the rows of gleaming MacBook Pros?

For all the reasons that people think about starting consultancies, getting rich seems to be one of the more popular ones.

I often talk to people who have grown their freelance business into an agency without quite understanding why. They’re not sure why they ever went beyond freelancing, other than some vague belief that it would be cool to “own their own company.” If you want to run what is called a “lifestyle” business, then by all means go for it. If you want your business to outlast you, want to make a dent in the world or culture, or want to make a decent amount of money, you’re going to need to grow your company.

After a few years, if everything is going well, you’ll start to notice something. You’ll notice that at all times the primary constraining factor of growth is the number of people on staff. You’ll realize that if you had more people now, you could get more work now. If the company’s humming along according to plan, eventually you’ll be able to predict with a pretty high degree of confidence exactly how much more revenue you could bring in with X number of additional people now. It will seem very obvious, and mathematical. Growth is constrained only by head count. Head count is constrained by your cash balance.

From a legal standpoint, the first order of business is to turn your freelance business into a real business entity.

It’s inevitable that in the early years of your company, you will be making up your prices out of thin air. Odds are good you’re coming out of the freelance culture, where you could say things like, “Oh, I bill $150 an hour, and I think this will take 4 or 5 hours” and your client would say, “Whatever, that’s fine.” They are treating you like a freelancer, and they have a line item budget range. They can see your costs are probably going to fall within it, or close enough, and they don’t need to worry about it.

Now that you’ve pitched the job, gotten the proposal out, worked out pricing, and won the job because you are such a great company, with values and a vision aligned with the work you do, it is time to start the job. This means you need to get the client to sign something.

Time sheets are a joke. They are an outright lie. They are, first and foremost, a massive fraud, contentedly perpetrated and affirmed by all parties in the ecosystem—the employer, the client, and the employees. Finance knows it. Your client knows it. Your client’s finance department knows it. Your boss knows it. His boss knows it. Everyone knows it, but no one cares. There is zero accountability or incentive to discover the truth. Time sheets are supposed to perform one job—to accurately track time—and they don’t accomplish this. People lie. People forget.

Collections in services companies face unique challenges. Recurring revenues are more and more rare these days. Advance bookings are rare. We rely on getting paid, promptly, for the work we do specific for a certain client. Law firms and accounting firms, most notably, rely on similar systems. Whereas the law industry has been billing by the hour for centuries, advertising agencies have only been doing it for perhaps 50 years, and in that time, they’ve been doing it in a few different ways. Established norms don’t exist. What worked well with television advertising has not yet been replicated on the Internet. In many ways, you are on your own.

Depending on your disposition and specific industry, you may or may not make heavy use of freelancers. The use of freelancers is common at agencies of all sizes, including your size and is an important tool of effective agency management. In today’s freelance economy, most clients understand that your company will be using freelancers for certain portions of the job. Nonetheless, many clients are absolutely firm that the leadership on the job—the top account, creative, strategy, and tech people—are full time and committed to the job. The exception is for certain high-level consultants, such as senior content strategists or information architects, whom the client understands are a different beast.

Your employees are going to need to spend money. This is necessary. You will also need to closely account for this money and keep this spending to a minimum. Here are some tips.

Inevitably in the course of your business, there will come a time when you will find yourself offering a service that you did not offer at the beginning. Often this will creep up on you—a developer might branch out to another coding language, or start accepting Photoshop documents for design, and doing some light CSS and graphic production work, whereas before you had strict guidelines on what you accepted. It might be more profound: your clients say they trust you on building websites, but it’s time you also took on social media content. You may even find yourself one day with a client who trusts you and loves you, for whom you’re suddenly doing print ads or a TV spot. It happens. Everything’s possible in this mixed up twenty-first century. Digital agencies doing print ads. Dogs and cats, living together. Mass hysteria.

Given that any time for the next several years of your life much, if not all, of your net worth will be tied up in the value of your company, it is not an unreasonable question to ask, “how much is my company worth?” If you are in this business to eventually get rich, this means you will need to sell your company in due course. And you’ll need to sell it for an amount that will hit your personal financial goals, which, again, means that you need to know how much your company is worth.

By now, you may be thinking that a start-up sounds like a potentially vastly more pleasant endeavor than a services company. You’re sitting there on a treadmill of endless pitches, billing, payroll, and cash flow management. Meanwhile, you’re looking over at your friend at some start-up with $10 million of venture capital in the bank, head down, building something awesome. You might start to wonder why you shouldn’t build one of those start-ups as well. Never mind that a start-up might be insanely more lucrative as a business. They also seem a lot more fun and, well, maybe even easier.

Throughout my travels and conversations in advertising, when talking about building product within services firms, and who has done it right, I invariably point to Modea. Odds are that you have never heard of the shop. Despite its founder, David Catalano, sitting with First Lady Michelle Obama at the State of the Union as a symbol of job creation throughout the recession, Modea has by and large stayed under the radar of most of the pundits and students of digital advertising. Its relatively remote location in Blacksburg, Virginia, has helped with this, but so has the attitude of the founders. “Modea has always been outside the industry,” says CEO Catalano.1

When working for a tech start-up—that is, a venture backed start-up—there is the opportunity to work for equity, or ownership in their company, in addition to, or in lieu of payment in cash. This can be tempting. You could do the work, for some money, and then on top of that also get some equity in the start-up for which you are working. It might be the next Facebook, and who knows how much that equity might be worth one day. Some words of caution, though.

Let’s start this chapter with more than the usual caveats. Ignore this chapter completely if you don’t want to sell. Good for you. Whether to sell your company or not is a deeply personal decision. It is up to you and your partners. We’ve had an arc through this book of a certain type of company plan—one in which you create and grow a great company in order to sell it one day so that you may reap the reward of your years of effort. I don’t think there is anything immoral about this plan, but it is not for everyone. Your company will change after a sale. Selling your company does not come without a cost.

So. There you have it. Go forth, be fruitful and multiply.