By Judy Shapiro. Published In AdAge November 16, 2017.

Editor comment: The headline question “Is your firm ready for this challenge” is AgencyFinder’s. As Judy points out and as I suspect you know too, your agency is challenged like never before, to integrate the technologies and media alternatives. The question might be – when will you find the time?

In a recent Ad Age post, I heralded a new era for agencies where “quality scale” was new revenue created through the design of trusted user experiences that can be deployed at scale. This level of sophisticated marketing design is beyond the scope of ad tech platforms or management consulting firms with their limited executional, real-world experience; presenting agencies with a potent new growth area.

That vision set the stage so now let’s turn our attention to the practical details which will require, perhaps, challenging almost everything we think we know about how agencies are run today.

Align to clients’ new “trust” value equation
A staggering 60% of top 100 advertisers plan to review their agencies in the next 12 months, clearly reflecting clients’ radically changing expectations of their agencies. More than ever, brands need their agencies to be experts at creating trusted digital experiences while remaining operational and financially transparent. This complex dance of positioning, creative, data and technology is new terrain agencies must conquer.

Yet this requires highly trained people not easily monetizable via typical agency fee structures. The answer lies in disrupting old fee structures in favor of industry certifications of people, not technology, similar to certified engineers from tech companies. We have the foundation for standardized accreditation with strong leadership from IAB, 4As and ANA, among others. An added benefit of standardization is that the industry can be more transparent and comprehensible in tackling complex disciplines like programmatic, predictive modeling, AI and data.

Re-invent agency structure to excel at the art and science of modern marketing
It’s no surprise that the pendulum is swinging in favor of reintegrating tech, media and creative under one roof so that agencies can focus on contextual user experiences within an agile campaign architecture. Unfortunately, this goal cannot be easily achieved by clinging to the traditional agency structure that was built 30 years ago.

It’s time to rebuild the agency model from the ground up with an emphasis on agility, measurability and efficiency. In this vision, there are three competency areas making up a core team:

Progress planners. This is where the strategy and campaign planning responsibilities are. Within this is team are account planners; creative and technical campaign planning; experiential designers — translating experiential design into workable campaigns — and social engagement planners.
Performance planners. This new expertise will plan the performance of all marketing programs with a new set of tools and competencies; media planning (all platforms), campaign proforma modeling, fraud management and customer experiential journey mapping.
Platform planners. This is where agencies connect the dots between platforms, programs and business results. This team owns predictive modeling, audience data, privacy compliance, transparency and platform auditing. This is also where clients get support with their technology challenges such as data integration.

As campaigns become a seamless integration of online and offline experiences, this new structure allows agencies to operationalize this revenue-rich experiential vision.

Pick a tech “trust” side and own it
Traditionally, agencies were neutral arbiters of tech, refraining from owning or even advocating for specific technologies. But neutrality came at high cost, leaving agencies underpowered in understanding ad tech well enough to protect clients. The opportunity for agencies of all sizes to become guardians of clients’ budgets against fraud and inefficiencies by mastering all the science behind ad tech; programmatic, content syndication, social, etc. By taking the side of transparency, agencies have an opening to reclaim their role as trusted advisors.

Agencies lost a lot in the preceding 10 years; talent, tech edge, advertiser trust and huge profits that went from agencies’ pockets into the pockets of VCs and tech ventures. To avoid the next ten years looking like the last ten, agencies must disrupt themselves to become masters of the trusted experiential world.

Judy Shapiro is CEO and founder of engageSimply.

Guest Author – Blair Enns, Win Without Pitching

Agency business development has evolved over the years as technologies and media alternatives have evolved.  Most agency “business development” employees have little-to-no formal sales training, so imagine their frustration as they face many things “new” each and every day. To that, now add the seven-year chokepoint as Blair explains … Ed

In running a creative firm, everything appears to change around the seven-year mark. There’s a chokepoint at about that time that requires a change in strategy to get through. Some make it and some don’t.

The seven-year chokepoint was perhaps the first pattern I spotted soon after launching Win Without Pitching in 2002 (as a consulting practice, initially). So many of my new clients had been in business for seven years that at some point in my initial conversations I would venture, “Let me guess, you started the firm seven years ago?” I was correct far greater than chance would have predicted, and that pattern has held for 15 years. Even today, my guess is that more than 25% of the firms in our training program came to us somewhere around their seventh birthday. There seems to be something about being in business for seven years that precipitates the need for help in the new business department. But let’s back up.

In The Beginning
It’s likely that you started your career as an employee, working for someone else and thinking, “If it were my firm, I would do things differently.” Then in a moment that The E-Myth author Michael Gerber refers to as an entrepreneurial spasm, you went out on your own. There’s a good chance your first client was one you took with you from your employer, or perhaps it was your old employer, who used you as an overflow valve or chose to purchase your more specialized offering instead of staffing it in-house.

Level 1: Validation
Things went well and time flew by. One client led to another and another. You added people and capabilities, making it all look easy if a little harried. New clients kept coming in. And then they didn’t. Somewhere around the seven-year mark, your network just seemed to tap out, and everything slowed right down. This spawns an introspective moment for many firm principals. Where am I? How did I get here?

If you were to look back on your seven-year journey, you would see your path leading from your starting point to where you stand now. Along the way, you would see binary switches, like railroad switches, each representing an opportunity that came your way. They’re all switched to “On,” or “Yes,” leading to where you are now.

Those opportunities were random, arising from your reach or network. Some came to you easily and some you had to hustle for, but by saying yes to all of them, you ended up in a random place dictated by those random opportunities. That’s okay because along the way you learned a lot, including the confidence that you can be successful in business. Validation. But right here, usually at about the seven-year mark, the wild randomness that was the hallmark of the first level of your business needs to be replaced. That first type of success is not coming back, nor would you want it to come back. It’s time now for level 2.

Level 2: Life-Changing Success
Beyond the chokepoint at which your business quits growing organically, the journey, if it is to continue, must be more deliberate. From here on out you must set your course to a specific destination. That requires a visioning exercise of not only where you want the business to be at a set point in the future—perhaps another seven years out—but what you want the business to be.

Positioning the firm for this journey is vital. Positioning is the word we in the creative professions use for strategy, and strategy, according to Michael Porter, the Bishop William Lawrence University Professor at Harvard Business School, is the answer to the question, “How are we going to become, and remain, unique?”

Think of the primary components of your positioning as the answers to the questions, “What will we do?” and “For whom will we do it?” While keeping Porter’s definition in mind, the answers to those questions posed today should paint a picture of a global leadership position in seven years. My personal belief is that if you’re not aiming for global leadership then what’s the point? You and your firm can be anything in seven years, so why would you aim for anything other than the very best of something? If you cannot imagine being a global leader in this new area, then you must narrow either the discipline (what you will do) or the market (for whom you will do it) until you can imagine it.

Once you have your vision of global leadership, it’s time to pursue it steadfastly. The traits or tools of the first level of success are hard work and saying yes to everything. But these admirable traits are not the tools that enable the second level of success. Worse, once hardened into habits these traits work against you, because the tools required to get to the next level are saying no, and innovation, which I define as a combination of creativity and risk.

From Yes to No
“The difference between successful people and really successful people is that really successful people say no to almost everything.” -Warren Buffett

Saying yes to everything ensured your survival at level 1. It put money in the bank at a time when any dollar was a good one. But now you must view every new engagement as a strategic decision that will take you one step closer to your strategic vision.

Think back to your journey. Standing in the present, turn your attention away from the starting point 180 degrees to your new destination seven years ahead of you. You will get from here to there one step at a time, with each new client representing one of those steps. So how many steps do you think it takes to get from here to that future version of your specialized global leader firm? The answer is no more than 28.

For reasons I have covered elsewhere, your new business goals should be framed around managing a healthy churn of clients at a rate of about one new one per quarter. Every three months, on average, an old client fades away and, if your new business machine is working, a new, better one comes on board. Whether you like it or not, each client will take you one step closer to, or further from, that strategic vision of a global leader. So you must choose your new clients wisely. Seven years equals 28 quarters, 28 new clients, 28 steps away from where you are now. If you were to say yes to the next 28 clients that came along, where would that get you? The answer is somewhere that looks a lot like here. But few get to stay here, at the seven-year chokepoint, for long. They either figure out the next level, or they go out of business. There are exceptions—lots of them—that stay in this purgatory for years, decades even, but nobody wants to be stuck here, past the point of validation but well short of life-changing success. The first key is discernment: saying no to engagements that do not further your vision.

You must also bring the same level of discernment to your role. What functions does it make sense for you to hold onto, and which ones should you shed? And it doesn’t stop there. This ruthlessness of delegating, cutting loose, or otherwise saying no to things and people that do not advance the firm to its strategic target of global leadership needs to become the new habit, replacing the one where you would say, with a smile on your face, “Yes, we can!” Just because you can, doesn’t mean you should. And increasingly, in level 2, you shouldn’t.

From Hard Work to Innovation
My wife will occasionally observe that someone “is very successful. She must work very hard.” Recalling Peter Drucker’s observation on the source of all profit, I respond like a robot, “No, she must take a lot of risks.”

That is the second shift required for level-2 success—to no longer equate success with your own hard work, but with innovation, which I define as a combination of creativity (the ability to see an opportunity) and risk (the willingness to make large bets). Don’t misread that to think you should never work hard or that working hard is not a desirable attribute. As the principal, working harder may have been the answer to the question in the first seven years of your business, but it rarely is afterward.

The hard work habit becomes ingrained, though. Boxer was the noble ploughhorse in Orwell’s Animal Farm whose solution to every problem was “I will work harder,” even when the escalating crisis increasingly called for creative problem-solving or risk. The problem with hard work is it is consuming, and creativity—the ability to see new opportunities for your firm and clients—requires waste in the form of time to think. That’s why every firm that pursues efficiencies must trade some level of innovation to do so.

Entrepreneurship Is Risk
The propensity for risk is a highly personal thing, varying from person to person, but it is the one characteristic that defines entrepreneurs. They are always making bets. The size or frequency of those bets can puzzle or even terrify non-entrepreneurs. I need a certain amount of risk to make my life on earth meaningful to me, but I notice that the entrepreneurs I admire most tend to take more risk more easily than I do. I wish I could match them, but alas, if I want to sleep at night, I cannot.

We all find the risk-reward tradeoff that’s right for us, but some of us tend to settle into too comfortable a zone, and as a result, quit growing. Your firm needs to grow its way through this chokepoint. It’s delusional to think you will do so without taking more risk.

When creative firm principals at that seven-year chokepoint consider a new positioning to take them to the next level, some of them want guarantees. “How can I be certain this (the new positioning they are considering) is the right one,” they ask? “You can’t,” is the answer. There has to be some risk in the decision. Those seeking certainty before making the shift will likely find that game-changing success will always elude them. Their challenge is to push their own capacity for risk, which brings them closer to failure as well as success.

One Level at a Time
Business is a game with hidden levels. By succeeding at one level, you get invited to play the next. The common mistake is to bring those first-level tools to the next level. Not only do they not work here, but they also work against you. Many of the habits you learned you will now have to unlearn. Accepting this inevitable obsolescence of tools is the key to obtaining all the advanced levels of success.

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By Guest Author Tim Williams, Ignition Consulting Group

Tim Williams has consistently looked at the agency world and the agency model as needing change. Today’s media alternatives demand agencies find new ways to explain and sell, and Tim makes some good points about both. When the time comes for a client to search a new agency, our AgencyFinder.com model still prevails.

The way to win more business is not to offer the best price, but rather the best pricing approach.

Many firms will argue their clients are “price shoppers,” and it’s true undiscriminating buyers can be found in every market. But most smart clients understand you get what you pay for. The reason some of them seem prone to “buy on price” is much more about how we sell than how they buy.

Based on the hourly rate system, what most agencies sell is their costs (buckets of hours), so it’s no wonder their clients are focused on costs. But what would happen if agencies decided to sell their services in a different way?

Are you creative or aren’t you?

To stand out in a competitive pitch, inject as much creativity into your compensation proposal as you do in your proposed concepts and recommendations Give your prospect multiple ways to buy your services, not just a take-it-or-leave-it total of your estimated hours.

Car washes demonstrate more creativity in pricing than agencies do. They offer multiple options (silver, gold, platinum), various versions of car wash packages, premium add-ons, monthly or annual memberships, and more. Honestly, is adding up your estimated costs the best you can do?

You can’t really claim to be “a different kind of agency” without taking a different approach to the economic foundation of your success. Ron Gibori, co-founder of agency start-up BGO (Blinding Glimpse of the Obvious), puts it this way “There are no new models, just more talk, without a new approach to the money.” Ron’s partner Mark Beeching elaborates:

“We embrace shared risk and reward with clients in a variety of ways — from pinning significant fees to agreed performance criteria through to joint ventures with clients and shared or even full-risk ownership and funding of new IP by BGO. We’d rather apply our inventive business brains to new win-wins with clients than endless wrangling over budgets and billable hours …”

Changing your pricing changes the dialogue

At a minimum, decide you’re going to join the rest of the business world in selling outputs instead of inputs. (Can you imagine paying for a new laptop based on the number of hours it took to build it?) Then commit to replacing your standardized rate card with a spectrum of pricing approaches designed around customer value instead of agency cost. This can range from fixed price options to licensed programs; from royalties to outcome-based agreements; from dynamic pricing to usage of IP (the way Hollywood makes money).

Not only does a creative approach to pricing help you stand out from the firms creaking under the outmoded hourly rate system, it changes the dialogue you have with your clients when in comes to compensation. Would you rather be talking about something clients want to minimize (costs) or something they want to maximize (value in its many forms)?

From treadmill to virtuous circle

If you need some extra motivation, consider that transforming your pricing strategies is really the only way you’ll be able to create and sustain the “virtuous circle” that is the basis of every extraordinarily successful firm:

The elements of this cycle are interdependent. You can’t expect “effective work” to sustain your success if you don’t also have an effective way to get paid for it. In fact, without a pricing strategy that produces healthy margins, you’ll forever be swimming against the currents. As the late great Stephen Covey preached, “No margin, no mission.”

Guest Author – Blair Enns, Win Without Pitching (He’s on a roll)

No, this isn’t a rant about how things were better before everything was digital. Rather, it’s an observation on how principals of creative firms have borrowed some of the wrong things from the cultures of technology businesses and startups, in particular.

First, The Good
The buzz of innovation and deal flow coming out of Silicon Valley and other technology startup hubs is infectious. There’s so much that’s good about it and, in recent years, creative firms have borrowed some good things from tech:

1. They’re more open to exploring alternative business models
2. Some firms are launching their own start-ups or spinning off some of their internal innovations into other businesses
3. Principals are lifting their eyes to the horizon, being more tuned in to what’s likely to happen next, well before it starts to happen
4. Firms are fostering culture as a means of recruiting and retaining good people
5. Some firms have their own labs or R&D divisions
6. All great stuff. But I also see problems created by the wholesale adoption of some practices and viewpoints from the tech startup world in the culture of creative firms. There are two in particular that I think have been the most damaging.

Then the Bad

1. A Tendency Toward Productizing
Look at a few websites of firms that do some form of technology marketing. Many are taking too many cues from the SaaS companies whose marketing automation products they’ve aligned their businesses to. Specifically, they’re productizing their services in a bid for scale without stopping to consider the myriad of other implications of such a strategy. I’m a fan of Hubspot–the company and the technology–but I can’t discuss this topic without pointing out that the ecosystem of Hubspot partners firms is an egregious example of unnecessarily productizing what should usually (not always) remain a customized service: marketing.

Hubspot has served their partners well by providing so many resources to them to help them build their businesses, but the price seems to be that Hubspot has attracted firms that really want the model of success to be told or handed to them rather than those willing to innovate their own way forward in the quasi-paranoid, quasi-isolated way that is typical of an entrepreneur.  Hubspot partners, and other firms like them who resell other software, package and price their services like software companies, not recognizing that theirs is a dramatically different type of business requiring different pricing and business models.

The trade-offs between these business types are many. You can watch my talk at Hubspot’s Inbound Conference last year where I discussed it at length.

2. A Focus on The Exit
Is there anything more ridiculous than someone you’ve just met asking you, “What’s your exit strategy?”

As I’ve previously written, my exit plan is death, and I think yours should be, too. I can be talked into seeing the merits of a technology company spinning up and then selling so that their own little technology becomes a small part of some larger technology that takes over the world and makes all the players rich. But in truth, I think most (certainly not all) of those sales and stories are vacuous nonsense. Regardless, in an independently-owned, knowledge-based business, having one eye on the exit is about the best way to neuter your business. Watching a creative firm principal ease into retirement while the firm slides into irrelevance has always been one of the most painful things to witness. But now the young owners have this disease too, except their exit is a short-term sale.

Again, maybe if yours is a technology company developing a real proprietary technology, a short-term sale is something to shoot for. But if you’re still in the service or expertise business then a sale is unlikely. Build a great firm that allows you to go deep into your client’s problems on a customized basis and reap the rewards of such a business along the way. Having one eye on the exit in this business is the wrong thing to do, no matter what your age.

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By Lesley Klein as appeared in ADWEEK

The advertising industry has never been hit as hard as it’s being hit today. It’s facing economic, technological and even geopolitical disruption across the board. Add the complicating factors and steep learning curves around new tech-driven touch points—artificial intelligence, augmented reality, virtual reality, voice command, chatbots—and you can see why marketers are scrambling for footing and pushing their agencies to prove their value. The unprecedented volume of advertising budgets—more than $30 billion—that has recently changed hands during what many referred to as “Mediapalooza” is a clear indicator of this disruption.

It’s no secret the agency model needs to evolve. As an advisor to some of the world’s biggest brands on priorities ranging from organizational transformation to agency reviews and client-agency “therapy sessions,” I have a front-row seat to what marketers want and need from their agency partners—a new set of skills and capabilities best represented by what Adweek has dubbed “Agencies 3.0.” RFPs today solicit competencies that reach beyond the traditional agency mandate and include integrated content and distribution strategies, greater operational agility, transparency, data science and analytics, and programmatic expertise.

Those requirements might seem like a tall order, but there are a few things agencies can do to meet them. The first is simple: simplify. Agencies can flatten their structures and tear down silos that separate integral disciplines. Agencies 3.0 demand a rebundling of disciplines that were historically unbundled—creative, media and analytics. Creative and media practices should be built upon a strong data and analytics foundation and be woven closely together.

In one recent pitch, the client demanded a truly integrated approach to media and creative, intricately linked to one another and built upon insights in near real time. Look to Omnicom’s McDonald’s win last year for another clear example of an astute Agencies 3.0 approach weaving together content, data, strategy and social through one aperture. And it’s not just McDonald’s.

Honda recently returned its media buying assignment to RPA to more fluidly synchronize content production. Other recent industry moves indicate the demand for new agency configurations as a real and growing trend. According to Advertiser Perceptions, 64 percent of U.S. brands will review their media agencies in 2017.

Recalibrating to become an Agency 3.0 also requires a killer content strategy. Marketers spent more than $72 billion on TV ads in 2016, but they spent just as much on digital content across Facebook, Google, Instagram, YouTube, Amazon and other content-distribution platforms. In one recent agency review, the client specifically focused on the creation, distribution and ultimate monetization of content. They didn’t want to merely create their own content; they wanted to profit from it. In a world in which everyone is a content creator, Agencies 3.0 help clients maximize the value of that content.

A third, and perhaps most critical, requirement for Agencies 3.0 is transparency across all economic elements of the client-agency relationship. In the past month, the world’s largest marketer, P&G, announced a review of all agency contracts—but it’s not alone. In fact, according to the World Federation of Advertisers, or WFA,” a trade body that represents brands including L’Oréal, Emirates and P&G, 90 percent of advertisers are taking a closer look at contracts to demand more transparency. Agencies 3.0 are going to have to be accountable as marketers demand more granularity around every element of their investment and agency compensation in media, production, staffing and technology.

Finally, Agencies 3.0 will have to be savvy to what MediaLink calls the “Four Ts”: trust, technology, talent and time.

Trust: At its core, the agency-client relationship is a partnership. Metrics should be verifiable, and ROI and operating costs should be transparent. These are fact-based conversations.

Technology: Tech fluency is table stakes in a world where the explosion of devices, platforms and innovation have forever transformed the way consumers receive content and messaging.

Talent: Our industry runs on people and competes on talent. In the past two years alone, the ad industry has lost approximately a quarter of its global talent to competing industries. Marketers tell us they need more “athletes,” meaning those who can deliver, or orchestrate, multidisciplinary solutions across the data, tech, media, marketing and monetization of it all. That won’t happen if we can’t attract, train and retain more and smarter people across the board.

Time: “Always on” is an overused, yet under-appreciated phrase. Consumers are tech-empowered, device-rich and content-weary. Agencies 3.0 run at the speed of people.

It may feel daunting to stand at the starting line and see the finish so far away. But agencies are resilient, and they are packed with smart, creative thinkers accustomed to solving big problems for their clients. Now agencies need to turn that brainpower inward to resolve their own challenges, and speed is of the essence. The same changes that have rapidly and dramatically reshaped our clients’ industries require agencies to move quickly to fortify their own before they are swept away.

Lesley Klein is a managing director at MediaLink.

You should see them! Each and every day new agency registrations flow across the transom. A full registration will take an agency a day or two to finish (not all at once but a bit here and there). In the meantime we always check out their websites. We “land” at each with the eyes of a client, hoping our experience is positive. And these days it is!

What an incredible array of graphic and executable genius! Gone are the days of horizontally-centered tiny-type mono-tone pages, now replaced with full-width, full-color, animated or video sequences with an indescribable variety that is unrelenting and entertaining. I pity the poor client that has to choose these days. But remember, your agency profile (as in data elements) is what will make your first connection; your website makes the second, and your due-diligence interview makes the third.  From that point on, their site visit, your guided agency tour and your team chemistry help seal the deal.  Here’s to a great presentation!

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By Tim Williams, Ignition Consulting Group

If your firm uses the term “full service” on its website, here are two good reasons you should stop.  First, “full service” is one of the phrases that has officially joined the lexicon of expressions so overused they’ve lost their meaning — words like “quality” and “excellence.”  So saying you’re full service throws away the opportunity you have to say something else that is actually defining and differentiating. It’s a waste of space and a waste of time.

But the other equally important reason is that it doesn’t mean what you intend it to mean. No company of any size could ever be “full service” in the sense that it offers every possible service in the category. If you’re an agency that describes itself this way, you probably don’t mean to imply that you’re staffed to provide every conceivable advertising and marketing solution. What you likely mean is that you can produce a piece of work from start to finish. That’s not “full service,” it’s vertical integration.

Vertically-integrated companies exist around the globe in many different categories. ExxonMobile is a vertically integrated company. They own almost every piece of their own supply chain: the oil wells, the pipelines, the ships, the refineries, and many of the retail outlets.

One of the earliest examples of attempted vertical integration was Ford in the 1920s.  Henry’s Ford’s massive River Rouge Complex had not only its own steel mill but even its own electricity plant.  Ford’s goal was to be able to turn raw materials into running vehicles.  Today, you can imagine that’s not a very economically-sustainable approach.

You can do some of it, but not all of it

During the golden age of Hollywood, the big studios were all examples of vertically-integrated companies. Warner Brothers, Paramount, MGM and 20th Century Fox owned their own sound stages, filming equipment, props, costumes, and virtually all the talent required to produce a movie: actors, directors, editors, and even film composers, who were all actual employees of the studio. The biggest of the studios not only produced and distributed films, but even owned and operated their own movie theaters.
Today, movies are made in almost the completely opposite way. The studios own very little and instead film creators assemble best-in-class talent, which then disbands after the film is made. Why the change?  In part because the vertical integration model is tremendously cost intensive. But the second, even more important reason, is that in today’s hyperspecialized world, it makes more sense to employ a best-in-class approach not when making a piece of entertainment but when producing the world’s newest generation of aircraft. The Boeing 787 Dreamliner is made up of sections supplied by specialized producers in countries literally around the world. The wings are made by a manufacturer in Japan. The landing gear comes from France.  Cargo access doors from Sweden. The center fuselage from Italy.

Couldn’t Boeing do all of this by itself? No, actually. Each of these components has state-of-the-art technology that Boeing wouldn’t be able to replicate without a massive investment of resources.

Under one roof?

To bring this back to the world of agencies and professional services firms, it’s simply not necessary to have every resource “under one roof.” This is more the business model of the industrial age, created in the early days of mass production by the likes of Andrew Carnegie in steel and Clarence Birdseye in food.
The argument then was that vertical integration created not only market power (hence the industrial-era monopolies) but economies of scale. But neither of those dynamics apply to knowledge work. What gives agencies market power is exceptional ideation and problem solving, not in-house production resources.  And in knowledge work, adding more services, departments, and people (presumably to be “full service”) actually produces diseconomies of scale. How many professional firms achieve twice the efficiencies with twice as many employees?

Another form of integration — horizontal integration — describes a business with lines of related products in the same category. Coca-Cola, a company whose business is comprised of over 400 beverage brands, is a horizontally-integrated company.

But the type of integration that makes the most sense for professional services firms is what Barry Wacksman and Chris Stutzman of RGA call “functional integration.” Their recent book Connected By Design showcases companies like Apple, Amazon, BMW, and Nike who produce different types of products and services, but which share common functionality.

In the case of Apple, their line-up of smart phones, laptops, online music services and digital watches represent products that aren’t inherently similar, but they’re all connected by a common ecosystem; they are functionally integrated.

Integration as an ecosystem of utility

Its important not to confuse functional integration with diversification.  These are two different strategies. Successful functionally integrated companies develop a limited portfolio of carefully-selected products/services that compliment one another in synergistic ways.  “Every successful Functional Integration effort has utility as a core objective,” say Wacksman and Stutzman.

This type of ecosystem is easiest to understand by looking a companies like Amazon, whose blockbuster online retailing business and dominance in bookselling also supports its Kindle line. The Amazon Cloud Drive business springs naturally from it’s technology and memory-intensive business model.
With some original thinking, similar synergies can be created in the business models of advertising agencies, law firms, research firms, consultancies, and professional services businesses of all kinds. In effect, a strategy of functional integration can make your firm greater than the sum of its parts.

Our guest contributor today is Tim Williams. Tim leads Ignition Consulting Group, a consultancy devoted to helping agencies and other professional services firms create and capture more value.

There’s new money to be made in the agency business, but it lies in the white space of our business model – the unmet needs of today’s marketers. Unfortunately, most firms are too busy selling yesterday’s services to uncover and develop the solutions marketers will need tomorrow.

It’s as if we believe the solution to more profits is more work. More work can mean more revenue, but it doesn’t necessarily mean more profit. Not every dollar is a good dollar. That’s because most agency revenue streams are made up of work that could be categorized as “widely available services.” As a result, most agencies are swimming in overserved markets, offering common services, but hoping to make uncommon profits.

When markets are saturated with providers who all appear to do roughly the same thing (which is how many clients perceive the advertising agency industry) economists call this a state of “perfect competition.” While you may think of competitive markets as good old American capitalism, it’s actually not a very desirable place to be.

Venture capitalist and Paypal co-founder Peter Thiel observes that firms selling homogeneous services in competitive markets have no market power, meaning they must sell at whatever price the market determines. And whereas a competitive firm must sell at the market price, a monopoly owns its market, so it can set its own prices. By monopoly, Thiel doesn’t mean the big bullies of industry, but rather the firms that have such unique products and services that they literally have no direct competition.

Better to be blue than red

The question Thiel advises businesses to ask is “What valuable company is nobody building?” That’s a pretty profound question, because the answer points us in the direction of the uncharted waters of the “blue ocean.” One thing that’s increasingly clear is that there is very little profit to be derived from the “red ocean” (red from the blood of competitors fighting for every shred of business).
Agencies need new revenue streams, not just more of the old ones. To start heading in this direction, we should be asking questions like:

1. What new services or solutions could we offer to help clients successfully navigate through the continually changing multichannel universe?

2. What are the persistent frustrations (beyond cost) that marketers have with agencies, and what new approaches could we develop that would solve them?

3. In addition to strategic innovation, could our firm also be characterized by operational innovation?

4. What keeps our clients up at night, and how could we develop products or services that would help them sleep better?

5. Which service areas provoke the least amount of price sensitivity among our clients? How can we develop and provide more of these types of offerings

6. What are the capabilities that most client organizations would never attempt to develop in-house?

The tyranny of “best practices”

What holds us back? Certainly the pressures of day-to-day client-related tasks, which all masquerade as “urgent.” But at a deeper level it’s the ingrained belief that the job of management is to study and adopt “best practices,” as if mimicking another firm’s current approach is the pathway to future success. As Jules Goddard & Tony Eccles write in their insightful book Uncommon Sense, Common Nonsense, “Best practices are simply plagiarism on an industrial scale.” While continual improvement is important, it’s not nearly important as continual innovation.

That’s because tomorrow’s profit pools will not be derived from today’s services. So instead of sliding further down the client’s value chain, muster the courage to go where no agency has gone before. There is tremendous value in first-mover advantage, and the first agencies to move into new territory will not only have a competitive advantage; the best of them will be able to do what the planet’s very best companies (like Apple and Google) have done; create “monopolies” in the best sense of the word.

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This provocative piece by Shareen Pathak appeared in the May 14th issue of DIGIDAY. As you might imagine, I can’t go without comment, so I’ve posted my thoughts at the bottom. How do you feel? In some respects, this topic represents a turning point in our industry and it will affect your firm.

Agency search consultants long played a classic middleman role: They helped clients narrow the field of potential agencies in order to find the right fit.

But now, like most middlemen, search consultants are feeling the pinch, caught in a fast-changing agency landscape where penny-pinching clients are questioning their value.

“We’re all becoming a commodity,” said Lisa Colantuono, co-president at AAR Partners, one of the oldest consultancies in the business. “One big reason is because we’re all pitching on price.”

One major trend affecting the consultant business is the move away from agency-of-record models and toward project-based processes. Many brands like Best Buy, Mondelez and, most recently, Frito-Lay have moved to a brand-by-brand, project-by-project model that focuses on the medium rather than the agency. That means that for consultants, whose bread and butter has long been long drawn-out search processes that involve RFIs and longlists and shortlists and pitches, things just don’t look the same any more.

“It’s become incumbent on us to diversify our businesses beyond search,” said Meghan McDonnell, co-president at one of the largest search consultants, Boston-based Pile & Company.

To make up for the change — the search side used to take up as much as 99 percent of the business just a few years ago — Pile is diversifying, focusing more on management consulting, agency databases and performance reviews. It’s the same story at Ark Advisors, which is offering services such as agency-consolidation consultations.

“What we are doing is seeing ourselves less as managers of a process and more as consultants,” said partner Ann Billock. “We need alternate revenue streams.”

Another trend is procurement. One consultant said that his biggest headache is when procurement departments at clients lead the search. “It’s process-driven and rigid, and a consultant can’t differentiate themselves, and neither can the agency.” He recalled one process where it took around eight weeks until people from the marketing department were finally in the room with the consultant — a testament to how slow some clients can be to adapt.

How agencies feel about consultants can be a toss-up. Mention some of them and C-level executives are quick to admit that they’ll never even participate in a pitch if that consultant is involved. That’s because they may have a reputation for being unfair and, more commonly, for limiting client access. Billock is especially cognizant of that. “If clients want to talk to agencies, then we want to leave that unfettered,” she said.

One consultant said that the fact that compensation is going down for agencies has changed how the company charges for their fees as well. This consultant has instituted a system that charges the winning agency a percentage of the fee, for the first year. Others choose to go a different way: They’ll start asking shops to “pay to play.” “When you pay to be on a database, you pay for them to basically get to know you, which means you’ll get on a list,” said one CMO.

McDonnell said that her biggest concern is making sure the process is fair and objective. “If agencies don’t think we’re running a fair process, then we’re not going to be value,” she said. “We want to be fair. But we also know who our clients are.”

On the other hand, as one West Coast CMO puts it, he will prefer a consultant to a client-led pitch any time because “there’s an objective party we can consult with.” Consultants will also protect agencies from “outrageous” demands — requests for fully baked creative ideas in a matter of days, for example — and they can bridge a knowledge gap. At Ark Advisors, Billock said she spends a lot of time in pre-negotiations, helping agencies and clients negotiate fees so they’re fair.

Davis recalls one client who called her up saying he needed a review. After spending time asking him what the problem was — the work was good, the strategy was on point, the operations were smooth — she figured out it was a small matter of an account lead who just didn’t jibe with the client. “We do a lot of marriage counseling,” she said.

Another global CMO said she spends a lot of her time figuring out who the consultants are and what they are like. “Getting on their long lists is the most important part of my job, so people in my roles spend a lot of time building relationships with them.”

AGENCYFINDER COMMENTS:

A good way to get the ball rolling. More properly, agency search consultants started feeling the pinch long ago. That’s why they started providing a myriad of consulting options specifically for agencies. For years, clients had come to expect a search consultant to be an industry-experienced individual or firm having established contacts with a large field of qualified agencies; whose consulting business was funded only with advertiser fees; that offered no fee-based services to agencies; and that were to remain impartial in representing only the client’s interest throughout the search process.

Some of the “pinch” came as the result of many newbies putting their hats in the ring.  Just as there is no specific industry, State or Federal code or requirement as to what an “agency” is, so too is there no description for what constitutes a “search consultant.”  The changes mentioned here suggest violations of some elements of the long-standing 4A’s Rules of the Road (to which all consultants once agreed). Specifically as to conflicts – “Consultants who participate in new business searches, compensation reviews, or other assignments for advertisers should neither solicit business from agencies nor accept assignments requested by participating agencies.” Then to agency fees – “Agencies should not be required to pay a fee to a search consultant in order to participate in an agency review conducted by the consultant; similarly, agencies should not be required to pay such a fee for winning an account review.”  Note by definition the 4A’s are speaking of consultants under the old definition – the consultant’s fees came only from the advertiser.

In defense of the search consultant (as referred to by the 4A’s), there is no provision or option by which a search consultant can join and/or benefit from 4A membership. Yet the 4A’s apparently believes they are justified in describing, defining and regulating the business models of a collection of non-members, i.e. – search consultants. That’s a real reach!

Finally, some of the “pinch” had everything to do with what the author describes as “whose bread and butter has long been long drawn-out search processes” with emphasis on “long drawn-out.” Certainly doesn’t sound like an efficient or pleasant experience!

As quoted by a female consultant in this article “We need alternate revenue streams.”  Let’s hear it for the agencies – so do they!  I suggest a fair, ethical, experienced search consultant with a well-developed business model with fees coming only from the client or only from the agencies can see it work. Co-mingling or built-in conflicts-of-interest will not.

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There’s apparently little agreement on the role or place of the hired and compensated pricey search consultant in a client’s agency review. And last week (May 1st) as reported in AdAge, “agency search consultants admitted that the process of agency reviews has gotten “totally out of control” during a session at the Mirren New Business Conference in New York. Speaking on a panel called “Why You Are — And Are Not — On Our Radar,” Russel Wohlwerth stressed that the agency search process hasn’t worked efficiently in many years, and is only getting more and more unwieldy. While many in the industry say the (hired and paid) search consultants still manage about 30% overall pitches, Mr. Wohlwerth contended that number is smaller.” I contend that no-cost services like AgencyFinder; sponsored by their member-agencies, have ever-so-slowly drawn business away.

“Another focus for consultants is reconciling the transparency issue. Marketers’ reluctance to disclose the firms involved in a pitch could be harmful to a small agency’s business when that agency is trying to decide whether it’s worth investing in a pitch against a large shop, explained one agency executive during the Q&A session. Panelists agreed that clients should publicize that information.” I noticed there was no mention whether that was something the consultants should do themselves …

“Finally, the consultants advised that in order to get on consultants’ radar, they should provide quarterly updates about their agency, should be active in the blogosphere and on social media, and consider positioning themselves as leaders in specific categories.” I don’t know why they beat this topic to death! The consultants in question and attendance at this seminar were the big boys and girls; those whose fees often exceed the budget of many much smaller clients. Why mislead smaller agencies – you don’t get on their radar by sending stuff; you get on their radar when your capitalized billings are in the stratosphere of multi-millions.

A client with a $40MM budget and able to afford these pricey match-makers, isn’t looking to hire an agency capitalized at much less than $80MM!