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Friday, April 21, 2017

The Death of the Small Ad Agency

Goldilocks says to choose just the right size agency...
With all of my awards show and hockey talk lately, I've heard from quite of few loyal readers, that I haven't given enough attention to the nuts and bolts of the ad business as of late. This got me thinking of my current passion [read: not working inside an agency and the grind that comes with it.] And, my 30-year career has seen me inside an agency for 23 of those years, so maybe I know what I am talking about. Maybe...

I've done the drinking lunches (now a no-no - see bullet #5 below), been promoted through anger management, and worked on both coasts. Working at an agency is a roller coaster ride of epic proportions. An adrenaline rush that defies imagination. but sometimes, you need to step away because the burnout factor is just as intense.

Three-plus years ago, I had reached my limits at an ad agency. I went to work running a communications department at a top secret location in Hollywood. I still run it like an advertising agency, but all of the politics and manipulations have been replaced with colleague camaraderie and a different kind of marketing angst. It's difficulty to articulate why working at an advertising agency is similar to being in the circus. Trust me, it is. Down to the carnies and the freak show stories you might see in The Elephant Man or an episode is Law and Order. This all led to rumored demise of the small- to mid-tier agency.

Looking in my rearview mirror, I have to tell you that the death of smaller agencies has been greatly exaggerated

Since the 1980’s, the anticipated shrinkage in numbers of the small-  (less than 25) to mid-tier ad agencies (less than 100 people or so) has not happened. If anything, there are more of them! While worldwide mega-agency groups (starting with Saatchi & Saatchi back then) have continued to grow, merge, morph, and control more media dollars, the small, independent shops stubbornly remain. There are several reasons why even worldwide brands, as well as local or regional brands, prefer working with small- to mid-tier shops.
  1. Relationships matter - Most businesses are small themselves, and those large enough to seek the help of an ad agency, PR firm or web shop prefer to do so, in most cases, with similarly-sized companies. In RFPs, a common question is about the agency's client roster and where the prospect's account would fit in the pecking order. Mattering to an agency's business translates to a certain amount of leverage, regardless of the added services or bench strength the larger agency promises it would give access to. All that added firepower that's promised sounds good, but in reality, how much will actually be used on your business?
  2. The age of specialization - Almost as common as in the field of medicine, many small shops have become known for their areas of expertise, whether based on creative, or digital media, by client, or channel experience and reputation. Very often advertisers want the particular ingredient for which the small shop excels. It’s not uncommon for marketing departments of larger advertisers to manage several “boutique” agencies to keep ideas fresh and flowing.
  3. The digital age - The advent of personal computers and the Internet have been the great equalizer between large and small agencies. As long as a small shop stays current with technology, they can compete with agencies twice their size; provided the brain-power and desire is equal to the task. The search ability of the Internet, affordable survey programs, and niche market research available off the shelf, has also leveled the playing field of category knowledge and competitive intel.
  4. An appreciation for experience - Make no mistake; the ad business is a young business. Always has been and always will be. That’s because historically, many consumer brands (which constitute the bulk of advertising dollars) are aimed at a young adult demographic. But as the population has aged, the number of active, senior-level ad execs has also increased. Many of these are found as the hands-on ownership or leadership in small agencies that they themselves have started. Clients, in turn, benefit enormously from direct access to their tried and true wisdom and insight.
  5. The end of the three-martini lunch - The move toward a more accountable approach to client service began in the 90’s, as accounting systems and MBA’s began to take hold. The recent Great Recession cemented this new, more austere reality. Clients, on the whole, are simply more overhead sensitive nowadays. They know intuitively they will ultimately be paying for all of those assistant’s assistants, lavish offices, and entertainment. Small- to mid-tier agencies, on the other hand, run leaner operations out of necessity. And smart clients appreciate the obvious stewardship of money – their money.
  6. Demand for better service - As the ad business has matured, the associated mystery and mystique has diminished to a certain extent. Clients are less inclined to suffer aloof, prima donna creative directors, disorganized media buyers or absent-minded account executives. They want and expect more service for their marketing dollar. They have seen "the man behind the curtain." It’s been our experience that small- to mid-tier shops, even with smaller “bench depth,” deliver as good if not better service for most clients than shops that are much larger.

The Horrifying Chuck E. Cheese Promotional Video

In honor of the company going public, I dug up this nugget of advertising. Yes, Chuck E. Cheese is about to go public. The IPO is estimated to generate over a billion dollars. The animatronic-filled pizza palace was created in 1977 by Atari founder Nolan Bushnell and is now controlled by the New York private equity firm that owns Caesar’s Palace and Harrah’s. That company, whose art-loving CEO spent $120 million on this painting, has added booze to more locations and smoothed over some of the rough edges of Chuck E., making him more extreme skater dude and less streetwise street rat.

Back in the days of this training video you might want to cross the street to avoid these characters: