It’s a good time to start an agency if…

Welcome to 2011!  It’s been a long time since I updated my blog, and I’m hoping to do so with greater regularity this year.  Without further adieu:

I belong to several email groups, virtual places where people can jibjab about topics ranging from the sublime to the ridiculous – and between wine and digital marketing, that more than covers the gamut!  From one list, one person queried the group for their thoughts on whether it is a good time to start an agency business.  As some of you know, a good portion of my adult professional career comes with a healthy dose of professional services, including:

  • A 2+ year stint at (may it RIP), from the days when it was 150 people and two offices to a public company (ACOM) with 17 offices and 1,400 people.
  • A year+ stint as a freelance partner/producer of webcasts for Outrageous Media, including global webcasts of Michael Jackson’s What More Can I Give? charity concert in Munich, Germany, and Paul McCartney’s return to the Cavern Club in Liverpool, England for his Run Devil Run tour.
  • Founding a digital political marketing agency, Pericles Consulting (4+ yrs)
  • Founding (3rd partner) a digital marketing agency, Underscore Marketing (7+ yrs)

(I left the agency business in late 2009 to join Lotame Solutions, Inc., and will share thoughts what I’ve learned in a later post. )

So, back to the question at hand, here’s my list of 8 reasons why it could be a good time to start an agency…if…

1) You don’t mind being a pimp. An agency business — like most services businesses — scales on human capital.  If you’ve never been a pimp before – selling people for time in exchange for money, and ‘taking in’ the profit margin between what you charge and what you pay – think about it carefully first.  Scaling human capital is doable but a tough business (see #2, #5).

2) If you can embrace pimping, you can embrace pimping around the world. There are highly talented pools of foreign resources that are +6 hours ahead (of EST) that speak and write excellent English, have a potentially stronger work ethic than some US employees, and cost significantly less than US resources.  I do not recommend a services labor pool (technology is an exception) that you can’t speak with or have overlap time with during your normal course of business.

3) You emphatically reject the proposition of being paid on a commission basis. The commission model is DEAD.  Repeat…the commission model is dead.  The agency business is a services business and as such, each client engagement needs to be thought of on a project assignment basis (and yes, there are other models – % of upside, get paid hourly based on marginal personnel cost, etc.).  Let’s say you choose digital planning/buying as your forte, and you CRUSH the strat/planning part of the assignment which may eat up 40% of the time of your team, and hope that your commission on the media will pay for the planning time (+ implementation, reporting, etc.).  Then you find out that, for forces beyond your control — even beyond your direct client’s control — that budget gets sliced by 50 – 90%.  Suddenly, your margins get squeezed to just above Kelvin.

4) You can start with one client. The notion of starting your own thing without any existing business – while quaint – is a fool’s errand and one where you can eat up a lot of time/capital searching for that first client to keep the lights on.

5) You are willing to invest in technology that scales beyond human capital. Take your pick of vertical – search monitoring (something I helped build and nurture at a previous agency), mobile, ‘listening,’ BuddyMedia-lite, etc., almost anything you can point to where you can say “I built that, it’s proprietary, it scales with servers and not humans” is a critical requirement for the next successful digital agency.  While you don’t need to build it all, you need to build and stand behind something.

6) You like to sell. As one of my very best friend’s in this business told me once a long time ago, “the phone doesn’t ring on its own, you make it ring.”  You need to be out there selling, picking up the phone, and generating demand.  No matter how smart you are, or how smart you think you are, you still need to be the phone everyday and work your network, your extended network, and in many cases, cold call with a warm proposition.

7) Don’t front-load the business with Chiefs…hire Indians quickly. Compartmentalizing the work ensures that you have time to run the business (build the plane) while others manage the work (fly the plane), and some of that work can potentially be completed overseas (re: #2 above).

8 ) Cash is king. If you are in the media business, get paid up front for any new client assignment.  You pay a lawyer a retainer, and typically a good law firm asks for the first payment upfront and won’t do business otherwise.  So can you. If, as with my old company of < 20 people, we were able to get a multi-billion dollar company to pay for media and services within 45 days or less, you can too.  If you embrace this notion from the start you will save yourself inordinate amounts of time and money chasing fiscal phantoms.

If I had to do it all over again, there are definitely some things I would keep/quit/start from the get-go.  Hopefully the above provides some helpful tips for the would-be agency entrepreneur.

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