If you don't know the answer to these questions, you are not alone.
An agency's growth is usually organic. You win a client. And another client. Then, you lose a client. You bring on a specialist in content marketing or SEO so you add a new service to your offerings.
Eventually, you look around and the agency is much different than what you imagined. And you've got a lot of things to consider that have nothing to do with creativity or strategy.
Swystun Communications recently released the report "Big Value: A Study of Small & Medium Sized Advertising Agencies," which highlights the advantages, disadvantages, challenges, and opportunities small and mid-size agencies face as reported by 850 agencies in the U.S.
One of the most interesting parts of the report outlines seven main struggles agencies feel they face in the current environment. The list includes:
- Staying on the cutting edge of technology
- Investing for growth
- Balancing new business with service
- Attracting the attention of agency search consultants
- Overcoming the “generalist” stigma
- Competing with larger agencies
- Client success (If the client grows, then they will go to a bigger agency.)
The challenges identified had nothing to do with being able to produce brilliant ideas. These are about agency branding and marketing and the difficulties of running a business — even if it is focused on the creative industry. I've outlined three of these major challenges and why they are important for small agencies to prepare for.
Challenge No. 1: Balance New Business With Service
One of the benefits of hiring a small- or mid-size agency is the level of service directed towards a brand. Clients want to be the center of attention, and smaller agencies tend to pull all their resources together and focus it on that one "golden" client. The problem is that this often saps the time of the founder or new business professional, who is too involved with working to maintain this sought-after account. Agencies that fall into this trap are risking their business every day. Learn from this example: Sonic's account had been with Kansas City, Mo.-based Barkley for more than 17 years when it announced it would launch a review in 2010. The account was responsible for more than 50% of the agency's revenue. While Barkley was able to replace the revenue by adding 12 new accounts, there are many agencies that would and have faltered when faced with these circumstances.
Challenge No. 2: Competition
Agencies want to compete with larger agencies, but they have to overcome the perception they don't have the in-depth experience or expertise, lack the resources and staff (and therefore creative ideas), or are unable to scale with the brand as it grows.
The reality? It is the small shops that are specializing and gaining deep knowledge of specific services or categories. Check out the Marlin Network, which represents more than 70 food and beverage brands or Cargo, which has unique insight into the retail banking industry.
One respondent in the study said: “I often think we are our own worst enemies. We allow ourselves to be measured and compared against bigger players. The reality is our work is ﬁrst-rate, our clients are happy and profitable, and our margins are awesome. We should be the benchmark.”
Agencies need to specialize to stand out. This is how you remove size from the equation.
Challenge No. 3: Success
Agencies worry that the more profitable their clients become the more likely it is that they will jump ship and land in the pocket of a larger agency — the one they couldn't afford 10 years ago. On the other hand, one of the reasons brands said they don't choose small- and mid-size agencies is because they can't prove ROI. If your agency can showcase that it increased leads, conversions, and customers by 50, 100, or even 200%, then there is very few brands that would jump ship for a few more hands on deck. Clients don't want the cheapest or most flashy agency. They want the agency that can show them the best results. As the report states: "Clients prize quality and are willing to pay whoever provides differentiated value."
Top Insights From the Study
1. Smaller agencies are no longer seen as generalists. They are focusing on depth in industry, service, and medium. [Click to Tweet]
2. "Commoditization may be the biggest threat facing ad agencies." [Click to Tweet]
3. "Focus on service has been a longstanding differentiator for smaller agencies and it has manifested itself in a culture of nurturing client relationships for the long term."
4. "These agencies are adept at turning client requests into new lines of business, and trends into revenue, yet still suﬀer from a perception of only offering traditional services."
5. "Size of agencies will always be a consideration, but new models that deliver scale without comprising quality and cost present the greatest opportunities to compete."
6. "Small- to medium-sized agencies need to get better at their own branding." [Click to Tweet]