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Tuesday, May 2, 2017

Eight Advantages Of Independent Vs Publically Owned Ad Agencies




There are fewer and fewer large independent ad agencies. That is possibly due to the fact that as an independent agency matures and the owners are looking for an exit strategy, selling to one of the publically owned network agencies is an obvious and easy choice. Unfortunately, if you ask any former owner of an independent agency, they will tell you that they happy with the payout and are unhappy by the constraints placed upon them by their new owners.  This is especially true if the agency was successful as an independent; suddenly having someone poking through the business is difficult.

David McCall (McCaffrey & McCall) sold out to Saatchi (at that time WPP).  He confessed to me that he would give them back their money.  He hated the idea that he couldn’t even hire a senior administrative assistant without Saatchi’s permission.  While his agency had been immensely profitable, with the restrictions placed on them, he was actually making less money than before and with no incentive to make more.   Independent agencies can make profit and loss decisions with no consequence except to the owners. David McCall lasted through his contract and then retired.

Here is what I have observed about independents vs network owned:

1) Fear of Being Fired
If an independent agency loses an account, they do not necessarily have to cut staff.  When Deutsch lost the profitable Tri-State Pontiac Dealers in the mid-1990’s, prior to being owned by IPG, they kept the staff on hand and used those people to help them pitch several automotive accounts until they finally won Mitsubishi.  There are many examples of that kind of horse trading.

2) Freedom to Hire and Give Raises
Independent agencies don’t have absurd restrictions about hiring or giving raises.  The networks have dictated the timing and amount of salary increases that can be made. While those rules are breakable under certain circumstances, the HR department and management rarely do so unless a candidate gets an offer from another agency.  When that happens, there is generally an available budget to make counter-offers. The network agencies have ridiculous salary restrictions on hiring; most have to get specific permission to hire candidates at pre-ordained salary levels.  WPP, for instance, will not allow its agencies to hire people above $150k without specific permission.  That permission requires time-consuming paperwork and can often take weeks to complete. Meanwhile, both clients and the agency suffer.  These arbitrary rules hinder agency operations, and in some cases have actually affected the agency and client relationship.

3) Control of Expenses
Independent agencies do not have restrictions put on them for new business or other expenses.  Just last week, WPP asked its agencies to cut back on spending for non-billable expenses, including Cannes.  Cannes?  Give me a break.

4) Control of the Culture
Face it, the holding companies only care about the bottom line.  There is no real concern for culture.  That is why so many agencies have been bought and disappeared.  As I have often said, one plus one is often far less than two.

5) Less Fear About Clients Being Bought
Independent agencies may be limited to only domestic U.S. accounts – the international affiliated independent groups are only effective on a very limited basis. And big, worldwide brands tend to be handled by the big worldwide network agencies.  But, on the other hand, unless and until their client brands are sold to the international conglomerates, they are pretty much protected from corporate shifts in marketing policy – consolidation vs. decentralization, which occur constantly with the huge multi-nationals. This is all true unless, of course, their client companies are bought or sold.

6) More Objectivity
Independent agencies probably give better, more objective creative and strategic advice to their clients because they are not under pressure to keep an account.  I have heard many stories about holding companies forcing agencies to retain bad accounts for any number of reasons.  Independent agencies don't face this pressure.  I can think of Cramer-Krasselt resigning Panera Bread a few years ago because they did not agree with the client. It was great for the agency and may have also been good for the client.

6) Better Access to Senior Clients
Somehow, independent agencies seem to have more access to the management of their accounts.  One former independent agency owner whose agency was taken over by one of the top five holding companies told me that their agency had far more contact with the top brand people when it was independent. I am not sure why this is, but it is.

8) Better Focus on Creativity
Most of all, as agencies grow and get absorbed, the work tends to become homogenized as well.  Jay Chiat had a wonderful quote.  He said, “I wonder how big we will get before we get bad.”  Truer words have rarely been said. I have written many times that I believe that culture is everything.  It is interesting to note that the agencies which remain independent or which are part of smaller holding companies, tend to be more creatively focused – Wieden+Kennedy, RPA, David & Goliath, Cramer-Krasselt, Droga 5, etc.  When they get bought, they tend to have to conform to whatever network has purchased them and often get merged and submerged into oblivion.

In the past decade, there have been many ad agency start-ups, especially in the digital arena.  These independent agencies have grown well and, ironically, have been able to attract many big-name multi-national clients who are looking for better work.

15 comments:

  1. Paul, I'm posting this to my Facebook page and sharing it on Twitter and LinkedIn. Yes, it's hard to say "No" to a big pile of money (basically to having your life's money problem solved in one transaction)... but there is something still very wonderful about an organization that is accountable only for the client's success and the captain of its own culture. These things are priceless and they don't trade on any markets, which means that like so many beautiful, ephemeral things, they pass, become legends, and are ultimately forgotten, while their impact may live on. Like friendships. Like promises kept. Like life.

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  2. Truly one of the best articles I have read about the declining state of the advertising industry, at least from the creative perspective. Except for rare instances in this business, as well as any other, buyouts merely serve to remove any incentive to take risks with the work, the client, hiring staff etc. Thank you Paul for enumerating the many, many pitfalls of most buyout situations.

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    1. Orson, it comes from my heart. Thank you.

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    2. Orson, it comes from my heart. Thank you.

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  3. Great perspectives, Paul, including some issues that never occurred to me. That's why I'm so happy to be working at independent, Generator Media + Analytics! (Shameless plug; my first in many, many years following you so I hope you'll indulge me this ONE TIME!)

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  4. Great points. I'm intrigued by #7, better access to senior clients. I wonder if that's because when you've got a holding company owner, the perception is that the execs at the holding company are the "real big shots."

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    1. I have thought about this a lot, you may be right. It could also be that when an agency gets bought and merged, the intimacy of the relationship is simply lost.

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  5. For whatever this is worth, just a bit of historical perspective from me … When I started in the agency business in the mid ‘70s, the best of independent agencies were privately held by top management and selected employees. Even the rank-and-file troops often benefitted from employee profit sharing plans. And agencies were compensated on a “fair and balanced” 15% media commission rate, with a 17.65% mark-up on production. And if those privately-held agencies couldn’t turn a profit on that, it was usually their own fault due to mismanagement. In any case, the INTERNAL “shareholders” owned, operated, and controlled their own destinies and everyone had skin in the game. Fast-forward a few years, and the publicly-held “holding companies” (which are really just financial institutions) started buying up the independents; merging & purging; cutting costs, and the rest is history. And not to forget that along the way we abandoned the long-standing commission arrangement for a new cost + fixed fee arrangement, which agency clients have been and still are beating down as I write this. My main point being that today … P&L and earnings are the only KPIs, i.e., ROI, EPS, dividends, whatever, that matter to the new EXTERNAL shareholders. And who exactly are those external shareholders? Could be outside people like your mail carrier, train conductor, lawyer, or accountant with a union pension fund; a personal mutual fund; a 401K; or just day trading portfolio – none of whom might have anything to do with the agency business. And so much for risk-taking creativity, loyalty, and commitment.

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    1. Glad you liked. Guess who? LOL ...

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  6. I've worked in owner managed agencies (in India) and then in a network agency across Asia and this is as true here as in the US. The big groups are buying adtech and specialist startups in order to stay abreast of change, but most of those acquisitions lose their way in the intricacies of red tape and politics in the group. In that context I'm glad to see a few agencies buying themselves back from IPG recently, may others follow suit!

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    1. Great comment. The issue is universal issue.

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  7. well written article. Paul. Lime. others I. am sharing this across channels. I. know too. many people who could not wait to get. out after being bought. you are right, most. of them would give the. money back if. given a choice.

    It is so hard to watch something that you have spent a lifetime building destroyed within a year.

    stay independent people.

    Ben

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