27 June 2011

Agencies... Learn from Start-ups (Pt. I)

-- This is part one of a planned multi-part series --

I've been described as a funny-shaped peg. Now... there are a number of valid reasons for this description, but the one that matters for this particular post is that I seem to bounce between the Services world (agencies, consulting firms, design studios, development shops) and the Product world (in particular high tech internet start-ups).

Over the last 20 years I've worked at a half dozen or so service firms (from tiny firms of less than 6 people to publicly traded global ones) - at another five product companies - and have started three companies.

In looking back at my time in these various firms there are two things that stand out to me.

First - it seems like people tend to settle into one of the two company types. I'm a little surprised to see how few people actually slip back and forth between them the way I have.

Second - perhaps in part as a result of the point above, service firms in general (but Agencies in particular) don't seem to learn from the folks in the product start-up world.

So, the question then becomes... is there anything for Agencies to learn from start-ups?

Yeah, that's one of the more obviously dumb rhetorical questions ever. I doubt there is a single executive working at an agency anywhere in the world who would answer No if asked that.

In fact - if you follow the agency world you'll see a ton of press about agencies becoming involved in start-ups; about agencies becoming more entrepreneurial; about agencies getting into venture investing... Basically agencies saying that start-ups are important and are doing something important and need to be paid attention to in many different ways.

But the one thing that agencies seems to not be doing is trying to learn from start-ups when it comes to how business is done within the Services world. Sure you get the fuseprojects and Anomalies of the world - but I would argue that even they are learning how to better work with start-ups rather than learning from start-ups how to work better.

And the reality is that there are a lot of legacy methods, philosophies, structures and principles in the agency world that simply don't make sense anymore. Again... I doubt that many executives in the agency world would argue this point (though god knows they probably wouldn't admit that in public).

My most recent switch back to the start-up world has given me some perspective and made me realize that nothing would help agencies deal with a number of the frightening and potentially crushing risks that arise from these legacy models than looking at how start-ups go about doing business, creating products and running their companies.

So, over the weekend I decided that it would be worthwhile for me to write a series of posts about the things that I've learned in switching sides over and over -- and how agencies can learn from start-ups in making their businesses more effective, efficient and successful. This first post is effectively just an intro to all this.

That said - to make this intro worth reading for you (the few people who read this blog), I'm going to give to illustrative examples to point to why I think this is so important.

Example One

About a month ago a business contact at a very large digital agency contacted me. He wanted to validate an estimate on timeframe, staffing and cost for a project they were being asked to do. The reason he was a bit uncomfortable in this case was that they were being asked to estimate not the development of a campaign or a marketing effort of some sort but rather an internet technology product. So once he had the estimate from his team and before the bid went to the client, he thought it would be smart to ask a few people who were doing internet product development outside of the agency world.

Now... to be honest, I assumed (or perhaps knew) that his team's estimate was going to be higher than my estimate. Agencies are deeply conservative when it comes to estimating - for good reasons in many cases.

So when I went through the goals of the product as well as the constraints, audience, definitions of success - I intentionally padded my results. My conclusion that a start-up (not an agency) could probably create what he was looking for with a 2 person team in about 5 weeks. So I told him 3 engineers working for 6 weeks.

He was stunned by this.
And he was even more stunned when the other two people he sanity checked with came back with similar estimates.

His team had estimated 5 engineers working for 5 months. And a UX lead. And a project manager. And visual design for part of the project.

The difference in cost estimate between what his team was saying and what external (start-up) subject matter experts were saying was roughly 10x.

So what was the problem? Where was the disconnect?

In analysis it became clear that there were a number of inter-connected and amplifying issues that were causing a massive ballooning of effort -- and perhaps most of all, the larger the project started to become the faster it ballooned out of control.

First - in an agency it is not okay to fail. Failure is not an option, ever. In a start-up, on the other hand, failing is how you learn and how you get better and how you end up winning. Learning from your failings is, in fact, built into the way you do work. By building a culture and a model around an unwillingness to fail agencies not only massively decrease the odds of doing something interesting and innovative - they also massively increase the cost and effort of doing anything at all. -- Building willingness to fail and ability to learn from failure into your agency will be a future post in this series --

Second - to be frank, agencies don't have the same level of technical talent that start-ups have. I've worked with some truly great engineers in the service world, but they are rare. Worse than that, the average within agencies is dramatically lower than the average in start-ups. In fact, an average engineer at my last agency job would be fired for gross under-performance in my current start-up company. -- Figuring out how to get great engineers involved with your agency is another future post in this series --

Third - there are realities of working with clients that constrain agencies in manners that start-ups simply don't have to deal with. Now... that being said, many clients these days are wishing and in some cases demanding that agencies change their behavior in this area. But agencies are simply unwilling most of the time to do so. Many agencies at this point are more conservative than their clients - which is a disaster. Agencies have become risk-averse to a degree that is stifling them (and their clients).

Finally - agencies have become trapped by the cruft of advertising. While the work being demanded and the hopes and dreams of clients have evolved - and while the opportunities have shifted almost unrecognizably - agencies still are structured, managed and run as if they were JWT in London in the 1970s. Work is still executed as if it were an old broadcast radio spot or periodical print ad. As the work of agencies and the reality of marketing drifts from the old ad model to be closer and closer to product development, the models behind the work need to change to reflect this. But agencies absolutely refuse to be able to make this fundamental shift. -- Another future post in the series will cover how you could either radically transform your agency to be able to deliver this new work and these new experiences or how you could at least evolve over time to be able to do so successfully. --

Needless to say, the agency did not get the work.
When my contact told me how disappointed they were I shocked him by telling him that they should be glad. I told him that, had they won the work, they would have most likely failed and would have failed at such a high cost to their client that the odds of recovering the relationship were going to be low. In addition, the morale and reputation cost of this kind of failure had the potential to be poisonous for the team and the company.

Example Two

A former co-worker of mine works at a medium sized agency that has been spending an enormous amount of energy positioning itself as experts in using social media for marketing and advertising. Their work has won various ad biz awards, and for about 9 months they were getting more work than they could handle. After this 9 month period they started to see a steadily increasing decline in demand - and worse than that (for them) increased push-back on their costs for doing work.

I was asked to come in and talk to the executive team about what they could do to better compete in the market. It seemed that their executives had concluded that the reason behind the decline was increased competition from other agencies.

Before going in I reached out to a number of the agency's clients (current and former) and asked three questions:
  1. were you satisfied with the work done?
  2. would you work with them again for this kind of work?
  3. if not, would you do this sort of work again (and who would do it for you)?
When I presented the results to the agency, they were stunned.

Their clients nearly universally said the work was acceptable, but "failed to move the needle in any real way." As one client put it - "the program was cool but we didn't get any business value from it."

More than 3/4 of their clients said they probably wouldn't have the agency do another project like this.

But every single one said they were going to do similar projects going forward. Just not with the agency. And... not with a competitive agency either. "Agencies don't understand this stuff," one CMO said. "They think it's another kind of advertising." When asked how they would execute going forward, some said they would use speciality consulting firms, while the majority said they were building out internal teams to handle the work.

So... how would a start-up have handled this differently?

Well... first of all (and perhaps the only point needed) is that start-ups pretty much only care about moving the needle. In fact, an employee of a start-up who doesn't in their own job and in every decision they make focus on moving the needle tends to get fired. Nothing else really matters. -- Yeah... this too is going to be part of a future part of the series. --

Secondly, a start-up would understand that this kind of work is experimental, exploratory and high risk and would have built an approach that assumed a high probability of (initial) failure and would have assumed that there would have been multiple attempts with multiple rounds of (public) change in order to gather data as quickly as possible and then adjust direction based upon this data. Agencies, meanwhile, tend to arrive at a conclusion and build it as if it were going to succeed. -- See above point about willingness to fail; but also see future post about agencies and their fear of data driven decision making. --

These are two perfectly illustrative examples of situations where agencies were acting like agencies and, as a direct result, were failing. And in each case, if they were to learn from the way start-ups act and operate their odds of success would have dramatically increased.

Stay tuned for part two... coming soon.


At 6:11 PM, Blogger Driving Instructor said...

This is a great line of thinking. Some quick thoughts:

• The other big difference between a start-up and an agency is the promise of upside so the 10x differential is probably about right (that's likely lose to what expectations of engineers, etc. in start-ups expect as a return for the same time and energy). Of course, agencies can't provide upside--or can they.., but the competition for person-time is still the same (just like the competition for attention on the audience/user side).

• Many small agencies don't "get" customer value any better than large ad agencies (too many of them think it's all about cool work, too). My guess is that it's roughly about the same, though it's much less risk to hire a cool small agency than a huge one (from a client's perspective) since the cost is less and the likelihood that they'll do something new is higher. I bet there are some smart, big firms (or smart people/teams at big firms), though they're likely rare.

• Agencie cultures are crushingly bad, even compared to the worst start-up. Simply changing their expectations of what kind of skills and roles they need in order to better do the kind of work they're losing won't help--especially with the Millennials, as they wont keep them for long unless they can transform the culture under which they work.

At 7:48 PM, Blogger chris said...

Well said indeed. I agree with all your points, though to be honest I think that a lack of understanding of business fundamentals like "customer value" is far from limited to the smaller firms.

At 9:08 AM, Blogger Gong said...

It's really rather wonderful and painful at the same time having experienced life on both sides of the fence. I was on the buy side once a few years ago, interviewed a bunch of firms, made visits, issued an RFQ, blah blah. Having been on the agency side, I could see all the tricks and flaws in their presentations, all the bullshit, etc. One firm, which we ended up hiring and then firing on the same day, spent roughly half of my intro time with them talking about how one of the principals is a pro photographer and gets published in NatGeo and all the fabulous travel he does. Were they trying to communicate fabulousness? Fortunately, their work was good, so we hired them, and scheduled a kickoff about a week later. They came with their "A" Team (aren't they all?) and I spent 6 six hours explaining our business. Not even 12 hours later, I received an invoice for $13K, for each of the "A Team" and their time listening to me. I showed this to my CEO, and he just said, "Get rid of them. They are not willing to roll the dice on us, so we won't on them." They were fired moments later.

What I learned from this experience were a few things. Agencies, like you said, are deeply conservative. They live in an economy of billable hours and awards. Startups (and I was working for a financial services startup at the time) live in a risk-reward economy. Any sense of "time" they have is that there isn't enough time. Agencies want to have lots of time to bill against. It's really not about the cost (indulge me) -- it's about how fucking radically good you can be with limited resources, pluck, agility, severe constraints, and NO TIME.

On balance, I think agencies as an institutional construct cannot be like startups, for the express reason that their economic constructs are incompatible. That is not to say that *individuals* from agencies cannot adapt or even thrive in a startup environment, but they are rare and they are rare because they are A) fearless, love risk, understand risk, B) constraints are what they are, B) don't care about awards because they the friends they actually keep in life don't give a shit, C) know the difference between developing "the thing" and marketing "the thing", and can honestly do both fluidly, which is extra-high value to the company, D) hangs out with developers authentically and not merely strategically, E) knows the price of failure intimately and doesn't fuck around when it comes to iterating on the fly.

Looking forward to your continuing this series. It exposes a lot of important issues, ones that get really glossed over.


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