How Ad Agencies Can Act More Like Tech Startups

Agencies: if you really want to emulate a tech startup, create utility, put skin in the game and ask, What Would Edison Do?

The "Why ad agencies should act more like tech startups" meme has been making the rounds for some time in the form of provocative tweets, panel discussions and blog posts. The conversation tends to focus on social media strategy and incorporating tech talent into creative teams. But this sidesteps the bigger picture: If agencies really want to act like startups, they need to reassess their relationship with ideas. To take the best of both models, it's worth first considering how they differ:

Tech startups are based around automation and efficiencies.
Agency business models are based around increasing billable services.

Agency creatives are paid on retainer to ideate. Outside the walls of agencies, freelance creatives are paid when an idea is produced. Both freelancers and tech startups understand that only the strongest ideas have value, and therefore they invest time accordingly.

Retainer-based relationships, by nature, encourage bureaucracy and inefficiency (anyone that’s ever had to pay a lawyer can attest to this). In advertising, its a vicious cycle: Clients demand heaps of work because they pay an arm and a leg each month for service. This heightened demand, in turn, increases the need for more agency resources.

This approach is becoming unsustainable. The media landscape is shifting from one in which marketing requires singular, broad ideas to one requiring multiple, hyper-targeted messages. Marketers still have big budgets and still need to speak to multiple demographics. But rather than spend a million dollars for a single message that speaks to everyone, they will spend a million dollars for 1,000 messages that speak to 1,000 mini-audiences. In order to facilitate this, how can agencies retool to increase volume without decreasing quality controls?

Using the Web 2.0 approach, we envision agencies becoming aggregates: decentralized networks of ideas and specialized talent where creative directors work more like creative curators, able to tap into an eclectic database at need rather than relying on a single, convenient team that must continuously justify their cost.

Hollywood agents have long known how to make a lucrative career out of identifying a great idea from within their network and building the perfect executional team around it, and like tech startups (but unlike agencies) money doesn’t change hands until the idea is a go.

Tech startups connect data: math is objective.
Agencies make emotional connection: creativity is subjective.

The business of buying media is already well on its way to automation thanks to the web. Though media agencies and tech startups swim in the currents of quantifiable data, emotional connectivity can’t be created via algorithms. Powerful, nuanced storytelling—copywriting, filmmaking, graphic design—communications strong enough to influence people’s habits, well, this simply won’t ever be automated. And it’s here that creative agencies are irreplaceable.

Tech startups exist to service an opportunity in the marketplace.
Agencies exist to service a client’s opportunity in the marketplace.

Startups and agencies alike always ask themselves, "What is the problem we’re solving?" If agencies want to think more like tech startups, they might focus less on clever storytelling and more on utility. In today’s media rich, attention-poor world, offering people something of use is the best way to cut through the noise.

Advertising that services a market need is nothing new: Michelin Tires created the Michelin Guide in the early days of the auto industry as way to get people driving from the city to the countryside. National Life Insurance created The Grand Ol’ Opry during the radio industry’s inception as a way to reach rural customers. As paved roads and radio connected the global village at the turn of the last century, what value can agencies provide consumers as the web builds new villages today? What keeps Nokia’s agency from creating the next Foursquare? Or Petco’s agency from making the next Angry Birds? Nike’s "Write the Future" and the Old Spice guy were the year’s best ad campaigns. I loved them as much as anyone. But I didn’t spend more than a few minutes with either—I was too busy devoting my spare moments to a relationship with Angry Birds and Foursquare.

Tech startups begin with the big idea, then seek to monetize.
Agencies start with a budget, then seek the big idea.

Tech startups are led by entrepreneurs with an appetite for calculated risk. They understand the need to keep costs low and generate market value. The successful ones are then rewarded by the marketplace. Agencies are led by marketers who are encouraged to increase (billable) costs and whose incentives aren’t directly tied a return on the investment. Instead, their reward comes from industry accolades. This is a conflict.

If agencies really want to act more like tech startups, they should be willing to personally invest in their ideas. Tech startups accept failure as part of the process. Understandably, trial and error isn’t well-regarded when working with someone else’s budget, But why aren’t more agencies willing to put skin in the game in exchange for a fair performance-based compensation? One where remuneration is tied to data-driven, quantifiable results? Lawyers, freelancers, Hollywood agents, and tech entrepreneurs are happy to work on contingency for winning ideas. If your agency (or client) isn’t willing to invest heavier in risks and rewards, then the answer is clear: Your agency shouldn’t act more like a startup. It’s simply not the model for you and there is no shame in that.

But if you have ideas that you believe are strong enough to survive in the marketplace without the patronage of a client’s budget, ideas worthy of earning consumers’ increasingly demanding attention, then put it to a WWED test—What Would Edison Do—in honor of America’s most successful tech entrepreneur who once said: "Sale is proof of utility, and utility is success."

Adam Glickman is the founder of The IdeaLists, a creative platform that matches ideas with talent.

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11 Comments

  • Al Moffatt

    Interesting direction, but clients are the issue, not agencies, when it comes to trying new compensation models.  Plus, tech companies have an actual product to sell and reap upwards of 25-50% gross margin on.  Agencies don't sell tangible products that are mass produced nor purchased in bulk like computers, phones, etc., and thus don't have tech-company kind of models.  Plus, tech start-ups are backed with venture money so they can afford to not be profitable for many years while getting their products ready to go to market.  Venture or private-equity money doesn't find its way into agencies, if at all, until after an agency has proven itself for many year, which is just the opposite of tech startups.  A better model is to tie agency profitability and agency employee incentive compensation to the top-line goals of each client so that the agency, it's employees and the clients are all pulling in the same direction.  Direct costs are covered, but incentive bonuses for the agencies and its employees are tied directly to how the client and its decision makers are also bonused.  

  • Michael Berliner

    I agree with the comment about "a thousand small ideas." That does not serve the long-term strategic needs of a client. Then you could crowd-source everything and nothing has brand consistency. Philosophically, a freelancer cares not one whit for the client's long term goals - nor does she or he have any moral/ethical responsibility towards the end-client's bottom line. In a true agency-client partnership, the agency should. Yes, agencies need to be willing to tie compensation to performance -- it's only fair (rather than the strict retainer system - and fewer and fewer clients are willing to pay on retainer anyway). 

  • Dina James

    I'm not sure that I fully agree with the article. A tech startup usually needs to be run as a minimum viable product, whereas an advertising agency needs to have some sort of empathy and a deep understanding and and emotional connection to the audience they're trying to reach. Social media is the great equalizer in this regard and all of the companies listed at http://www.buyfacebookfansrevi... that are emerging with just a focus on promoting Facebook pages is the kind of thing that any new type of advertising agency needs to keep an eye on.  Tech startups (as a generality, not a strict rule) don't understand this emotional connection with their prospective audience and this is why hiring others to handle a lot of this stuff might just be a good investment for a lot of startups.

  • A.W. Brown

    I agree with the sentiment in general. Having worked on both sides of the argument, I disagree with 'a thousand smaller ideas. The reason that big brands pay for overarching campaigns is so that they can affect multiple channels and their respective audiences. This helps build brand equity and preference among the noise you refer to.

  • Rafael Cabrera

    Right on target! It's a matter of putting your money were your mouth is.

    I realize that many in our creative field may have a difficulty in wrapping their mind around this concept, but times have radically changed and change has changed our industry.

    This year I negotiated two such deals. Has not having retainers made it financially difficult? Yes. But after 2008, this year feels like a cream puff.

    Best of all, our efforts are now beginning to show fruit. 

    I suggest you take a good look at one of these types of projects for next year. Put on the CEO hat for this "new partner" and get out of this maddening cycle of working ourselves out of work because we helped a company grow to the next level for them to then replace us with an in-house organization they brought in to lower their "expense with the agency".

    After several years of back-to-back national awards for our work, I now focus on my financial "re"wards.

    Success to all!

    Rafael

  • James Ezeilo

    Great article!  The issue is clear. 
    The current ad agency model is not sustainable for the ad agency or their clients.  An agency that takes the initiative and brings to the client new ideas and concepts following their own in-house research will be the winner and thereby create a new more productive business model.  Why not go to company X and say – “a specific demographic is likely to buy your product or service.  We have conducted some research and found that to reach that specific demographic; you should do this….. We can help you reach that market because we have already done the homework at no cost to you.” 

  • Lois Whitman

    You can't cover your overhead by giving away service. Trust me we have been doing that for years and there is very little payback even when you create an award winning campaign. Humans have a way of forgetting who to reward.

     

  • avanwinkle

    I cannot believe Fast Company promotes this as editorial when it is a blatant ad for Adam's enhanced crowd sourcing site.  If it's a one idea one creative product world then his point is valid.  The truth is that agencies do a lot more than produce the final work. The day to day stewardship of the client's brand and how it is perceived as culturally relevant is how a fully engaged agency will out perform and our deliver a band of freelancers everyday.  Tech is quantitative easily defined space that is easy to bid measure and create. 

    Please send Adam a bill for a full page in Fast Company.

    Alex Van Winkle
    President
    Van Winkle & Associates, Advertising and Marketing
    Atlanta, GA
    www.vanwinkleassociates.com
    www.atlantaadblog.com

  • Elizabeth Fuller

    @jumpingship Just asked by @fastcompany "what would Edison do?" answer: file a bunch of patents and screw over every other contemporary inventor. #pass
    The very essence of this conversation is flawed: Tech Startups are high risk high reward.  VCs expect only a small number to succeed but to have 10 to 100x returns.  If an agency takes on high risk, what is the high reward?  Some percentage return on increased sales?  This requires a completely different financial model because the ownership of this property is completely different. 

    If a startup fails, no one knows.  It is a silent death.  If a campaign for Pepsi fails, it's the flop heard round the world.

    Stakes are too high, return is too low.

  • Jeff Jones

    Adam, I hesitated on commenting because I can't stand when people use the comments section as a chance to shill for their own companies, but I couldn't resist here because this column rings so true to how we run our agency that I thought you'd appreciate hearing.  First, in our core agency business, true business-based incentives are the norm and something we've been doing for quite some time.  Also, we encourage all of our people to spend 10% of their time on non-client innovation.  This has yielded a number of platforms and ideas including playspent.org and openhatch.co.  Beyond our core business we have made cash and services investments in three early stage businesses this year alone where we are doing things ranging from developing the tech platform/product to acting as the outsourced marketing organization.  Finally, just this year we spun our first software company out of McKinney.  It is called Motobias (motobias.com) and just this week we launched our first product for the email business.  Motobias has gone from idea to stand-alone company to first product and first paying customer in less than one year. Our location in Durham, NC has long been a quality of life advantage and over the last few years has become quite an innovation advantage as the Triangle has emerged as a Tier 1 market for incubators, accelerators, tech startups and overall entrepreneurship.  Thanks!  Jeff Jones, Partner/President, McKinney (mckinney.com)