I’m a partner in a start-up agency called Pomegranate.

Like many of my brethren in the industry, we’re working hard to address the question of the business model as well as the compensation model. I think plenty of agencies have tried to address the compensation model (which in some instances led to huge industry shifts e.g. the segregation of media) but few have tackled the actual business model.

We’re not necessarily sure we’re going to create the template for the “agency of the future” but we’re certainly hoping to not look anything like a “traditional” agency. This is probably easier said than done but we’ll die trying and hopefully all remain housed, fed and clothed in the process.

Our bet is that it will look something like what Joseph Jaffe proposed which is sort of a hybrid model. Incidentally, Bud Caddell did a great blog post rounding up the latest and greatest pontifications on what the “agency of the future” will look like.

One of our key goals is to address the issue of extensive overhead. And not necessarily so we can put it back into our own pockets. Of course we’d like to make a nice living but don’t feel a need to be obscene.

In any event one of the first people recruited was a CFO. He’s hardly the CFO type actually but his acuity with all things dollars and cents (and other things too) is astounding. We also wanted someone from outside of the ad/marketing business. This was very much by design.

In recruiting someone with no real marketing experience let alone advertising experience required me giving him a sort of Agency 101 tutorial. This was a wonderfully helpful exercise for me because looking at the model of yesterday really got me to think about how and why we will do it differently today.

I’d love to get feedback and encourage discussion about what’s missing or am I completely off my rocker?

What drives costs at agencies is overhead. Space and people. Roughly 6-10% of an agency’s revenue goes to space. Every big agency is in A-class space and spends a boatload on it. Then it’s people who drive costs and everything essentially boils down to billable hours. (New business pitches drive costs as well but that’s a whole other blog post.)

Agencies have traditionally been built based on mediums (ways to reach the consumer) and there were four basic mediums:

· Advertising (TV and print)
· Direct marketing (direct mail, direct response, 800# call to actions)
· Public relations
· Digital (web sites)

There are also media companies which are responsible for buying ad media (places where the ads go e.g. TV, online magazines, sponsorships).

All of this is based on what’s known as disruption marketing. In other words, I as the consumer am interrupted from a program and fed an ad, like it or not. These days the world is moving more towards permission-based marketing. This is where I as the consumer am largely in control of which “content” ads or otherwise I’d like to see. There may still be some disruption marketing there but companies have to be much smarter about placement because if marketing is not aligned with content appropriately I’ll find something else to watch.

So what does this have to do with the hybrid approach? It’s acknowledged that for any client it’s imperative that we know our client’s business inside and out and we understand their customers and everything about those customers. However, gone are the days where we “push” a message out to the broadest amount of people and hope that they’ll respond which is basically what :30 (thirty second) TV spots are.

Now, for any given effort we may decide to develop say… a mobile phone application. This requires idea creation and oversight from the principals, a little art direction and then programmers to develop it. The heavy lifting is done by the programmers but that’s not a function we want to own, nor should we because every client is different every client’s need is different and every client’s customer is different and how we reach them is inevitably going to be a broad mix of mediums.

I’ll use Sunoco as an example. Sunoco’s retail strategy for the past several years has been “The Official Fuel of NASCAR”. So they put the signage on everything and then some and do a few ads with NASCAR drivers and sprinkle it with a loyalty program and presto everyone comes running. Not so much. They’ve effectively made NASCAR “the” strategy as opposed to being a part of “a” strategy and in all likelihood have probably alienated anyone who isn’t a fan of NASCAR.

An approach might be to have NASCAR as a part of a greater motorsports strategy. Sunoco is also the official fuel of Porsche Club of America (not sure how many Porsche Club folks are NASCAR fans). This is a great affinity group and ones who are likely to evangelize the brand. Sunoco also happens to be in Philadelphia within maybe two hours of something like a good 3-4 nationally known Porsche tuners. Another part of the strategy might be supporting those groups with a little more TLC and letting them organically help to grow a loyal base of customers. The bottom line is it’s an effective strategy that doesn’t require the full-time hierarchy of agency staffing that you need to find ways to keep busy.

Typical agency staffing looks something like this:

CEO

Creative (develops ads/strategy)

· Chief Creative Officer
· SVP Creative Director
· VP Creative Director
· Associate Creative Director
· Art directors
· Copywriters

Account Management (client relationships/strategy)

· SVP Group Account Director
· VP Account Director/Management Supervisor
· Account Supervisor
· Account Executives
· Assistant Account Executives

Account Planning (customer insight)

· SVP Account Planner
· VP Account Planners

Studio (prepares creative for production)

Traffic (manages timelines and information flow)

Broadcast Traffic (manages timelines and insures that TV ads get to the right networks/stations/etc)

Then of course there are the support functions for all of this (HR, admins, finance/accounting).

Mirror all these people for all of the different mediums I told you about and you’re talking about a lot of frickin’ money in which people scramble with timesheets to account for the billable hours agreed upon. As advertising agencies battle with corporate procurement, agencies are now butting up against the evil they’ve in essence created.

Our CFO also asked how long clients stayed with agencies.

It used to be forever. Literally. Up until the 80s, accounts stayed with shops for 20+ years. Now days, agencies are lucky to hold onto business for more than a few years. This is largely a result of a three things. 1) Quarterly earnings – if you’re not moving the needle, you’re out. 2) CMO tenure – on average I believe it’s less than 24 months. This is also tied to quarterly earnings. 3) When the CMO goes or there’s a significant shift in the agency such as a creative talent leaving, business often shifts with it. There is very little loyalty left in the business anymore. There are other reasons why client’s part with agencies related to poor client service management or not delivering solid creative product as well but the bottom line is agency/client relationships are often pretty tenuous.

Now after re-reading all of this I’m wondering why I signed up to help these guys?

Oh yeah I love it.

Oh and while I can’t fully predict the success or failure there is one thing that I do know and that is for an agency like thisto succeed is going to require a first client who is willing to take a risk to help the industry evolve and know that mistakes will be made but figured out. Kind of like this whole social media thing.