Thousands of ad agencies open and close every year. And according to the SBA, while about 600,000 new businesses start every year, 626,000 businesses close!
Although ad agencies represent only a portion of those dismal statistics, it’s a sobering reality that more businesses fail than succeed.
Which is why as frustrated as you may be with constraints on your creativity, the ineptness of your colleagues, lack of control, or insufficient compensation, there’s a lot to think about before you give up that regular paycheck. Here’s what we’ve seen the most successful new agencies tackle before launching their dreams:
What’s Your Burning Why?
When you first start out adrenalin kicks in from the fear and exhilaration of being out on your own. It gives you the initial energy and drive to succeed. But a few weeks down the road when you’re not getting the clients you needed, the clients you do get are driving you nuts, you’re losing money, the bank won’t extend your loan, your spouse kvetches daily about your work hours, or a hundred and one other things that go wrong six ways from Sunday – what will keep you going?
What’s the burning why deep inside you that will sustain you through thick and thin? Without your "why" fused into your DNA, don’t even consider starting your own agency. Otherwise, it will become the job you just left.
How Big Is Your Life Raft?
Conventional wisdom says to have six months to a year’s worth of living expenses plus six months of business expenses saved. The bigger your life raft, the less likely you’ll make desperate decisions you’ll come to regret. The last thing you can afford to do is compromise the quality of your work, your agency’s reputation, or your core values. And all three can be sorely tested when the work you need to fund the business doesn’t show up as planned.
What Makes Your Agency Different?
The last thing the world needs is one more ad agency that can’t be picked out from all of the others. Stand out and be remarkable. Focus on attracting a specific type of client to solve gnarly problems that only you can solve in your unique way. The more you specialize — the more you can charge for your services and the more selective you can be about clients you take. Differentiation is the key to your freedom. You preach this to your clients. Time for you to put your money where you mouth is.
Who Will You Serve?
Once you’re out the door, landing clients becomes tough. It’s rare that clients from your previous agency will jump ship and join you in your life raft. Besides burning bridges with your former employer, it could land you in a lawsuit for poaching clients or violating any non-compete clauses in your contract.
But there are two more fundamental pieces to this question: 1) What kinds of clients will you “click” with and 2) How will you find them? The right clients aren’t just warm bodies with money. Every agency needs the right mix of clients: Those that provide the bread and butter, those that make you soar for new heights, and those that touch your heart and soul. All of them should compensate you well, and fairly, for the work that you do. But what’s your plan for finding them? The smartest agencies that last beyond the 18-month countdown to failure treat themselves like clients and market themselves accordingly.
Going It Alone?
How will you make money? Seriously. Is it just you selling your genius in creating the best print ads ever and making great media buys? Will you have staff? Will you use freelancers? Bring on partners? How many clients? What services? What will you charge? How much do you need to make? What’s the revenue and profit margin you’re aiming for? What’s the average client worth to your business every year? How big will you grow? How will you scale when will you need to? Don’t just blithely assume you can add freelancers whenever you need them and pay them peanuts because they live in Iowa or Borneo.
Figure out your business model, revenue streams, operating margin, profit margin, price schedule, staffing, legal structure, expenses, etc. All the stuff that most likely either scares you silly or bores you to tears because none of that is advertising nor is it your strong suit.
We get it. Yet this is where the rubber meets the road. Find a trusted resource — either a partner in your business or a group of people you pay to help figure it all out (CPA, lawyer, etc.). The sooner you commit your plan to paper the better. As a business owner, you must become comfortable and familiar with the important financial and performance numbers and visit them often. Or risk becoming one of those 626,000 businesses that fail every year.
It’s Not Just About the Creative
Producing great creative work is crucial to the success of any ad agency. No question. And sadly, most new agencies focus on worrying about the creative and leave all the other moving parts to fend for themselves. That’s a recipe for disaster. If you intend to grow your agency, recognize where you add the highest and greatest value to your agency and responsibly delegate the stuff you suck at or hate to people you trust who are good at it.
Create A Safe Place for Your Team to be Weird
Let’s face it. Anyone who goes into the ad agency business is not your average Joe who loves vanilla ice cream. Ad folks are bent, and in different ways — creative geniuses, passionate, opinionated, analytic, critical, competitive, over-the-top personalities and egos that constantly clash and fuse in the most amazing ways. Ad folks are a tad, well, weird. And they need a work environment that embraces that weirdness and encourages them to express it. Because it is from that wackiness that amazing creative solutions come forth to help clients.
So if you’re a buttoned-up account exec type who wants to have greater control of your destiny and make more money with your agency, that’s cool. Just be sure to provide that safe space for your creative team — nourish them, pick them up when they fall down, and don’t judge them. And it goes without saying that you must love being around creative people with big egos. If you don’t, what the heck are you doing in the ad business?
Starting a business is one of the toughest career choices anyone can make. And the older we are, the harder it can be because we’re usually not alone (spouse, kids, parents, close friends, etc.), which can make things complicated.
Few personal networks can provide unconditional support. The more pressure you put on them for getting it, the more likely the network will break (the source of many a divorce), so be sure to reach out to lots of people, not just the same one or two over and over again. Ruthlessly reduce the time you spend with any people who may mean well, but discourage you or bring you down. Your job will be tough enough without having to tolerate naysayers. And for those who lack a personal network, some agency owners have found that having a mentor is one of the best ways to get the support and perspective they need.
Once You Leap, Stay on Course
Sometimes you don’t have the luxury of advance planning. Lots of agencies got their start from their principals suddenly needing to eat regular meals. Regardless of your leap’s impetus, there are many routes to owning and operating a successful ad agency. You’re more likely to stay on course if you know where you’re headed, why you’re going there, and what’s the best course. While the risks are many, the rewards can be extraordinary. We wish you well on your journey and hope you’ll share your nuggets of wisdom with the rest of us.
Originally published Oct 10, 2014 8:00:10 AM, updated June 28 2019