During the past few weeks I’ve had countless conversations about the future of ad- and web agencies. On the one hand, consolidation is at the front of many people’s minds; on the other, the invoicing model is increasingly becoming the central topic. So, quo vadis agencies?
Segments and definitions
When we speak about agencies, then most of us have a different understanding of the term and of course I think it’s wrong to lump all companies together. Too diverse the services, the size of the company and, most of all, the complexity and creativity of the work. Thus, we using the term below, I would like to limit the field to the typical smaller agency with between ten and 50 employees.
These companies usually provide less complex, less infrastructure-driven services for small and medium-sized businesses. At the same time, their services are usually more comprehensive. Customers call such companies, if they want to get ahead in online marketing. Typical services provide: building websites, implementing simple shops, setting up newsletter- and Facebook marketing, etc. That’s what I’m writing about today.
I know a lot of people who work as decision-makers in SMBs and I often hear that their experience is that Internet agencies are too cumbersome and expensive. That projects are completed, but not much more can be expected afterwards. That company owners build trust and convey professionalism during pitches – but that these promises aren’t kept, or only to a limited degree, by the team which follows.
Some complain that the service density is too deep and they don’t feel understood. Of course, one also has to say that there are many customers who simply have exaggerated expectations. An acquaintance of mine, for example, recently told me that he had a newsletter campaign carried out and that not a single order came in via E-Mail. This, he said, is scandalous. And a temerity. After all, the campaign cost more than 2,000 Euros. These are, perhaps, tough nuts we don’t want to crack.
Caught up in best practice
And if I look at all the things agencies do here, I can’t help but think that many of us are caught up in a best-practice mindset. One must, e.g., have a website. One must create a newsletter. One must use AdWords. And Twitter, too. This sort of generalization usually creates poor results, which is exactly the one thing the customer then notices.
Most of the time, though, the issue is more differentiated. When the publican of my local industrial area pub showed up at my table during lunch and asked me what he should do in the Web, I didn’t really know what to say. Instead, I asked him what he thought. His answer: He had inquired at several agencies and all of them suggested he should have a website created. The bids were from 7K – 20K Euros. If, however, he takes a look at his customers, he gets the feeling that Facebook would be more appropriate – as his customers would somehow always be in Facebook before and after eating (and sometimes during).
I thought, “good man”. And answered that he now would know what to do.
Lack of expertise at the customer
His response was that he had no clue as to Facebook and whether I couldn’t help him (his suggested price: “You can eat for free in 2016 and 2016”). For he was unable to find anyone who could – or would – help him.
I think this example is representative for many small customers. They would like very much to spend money, but without a large investment up-front or overhead. Small customers would much rather be supported, accompanied and coached. In such a way that, sooner or later, they are able to do online marketing themselves. Due to the size of the company they are simply not able to hire personnel dedicated to the task. Thus, they have to learn how to do it themselves.
Much too small
As representative of an agency I would say, whoa, keep such small assignments away from me. And I agree with you wholeheartedly, we can’t cover such small jobs with our agency structures. Before everyone writes to tell me they do it anyway; yes, there are those of you who do; the exceptions to the rule. I know.
But, what the industry misconstrues is the gigantic potential that lies dormant there. In Switzerland there are a little more than 500,000 companies in the category 0-10 employees. From a total of approximately 600,000. All of these companies need to shift their marketing, sooner or later, in the direction of digital. So, let us labor under the naïve assumption and say that some 50 percent of the 500,000 have a need and that these can spend 5,000 Euros annually for marketing, on average – which totals a market potential of approximately 1.25 billion. You can downscale the calculation and the number that remains is still a significant one. Please note, solely for Switzerland.
This is definitely interesting. Unfortunately, we have neither the structures nor the business model to handle this at the moment. Let alone the corporate will.
How could one utilize this market potential?
It’s obvious that it’s not possible to unlock this potential using the traditional agency model. For, agency- and software business is usually and simply a handicraft. In this sector we don’t even have industrialization. This is also true for the large software service providers.
In my view, one would have to consider the following factors (list not definitive), in order to create a company which would be able to serve these small customers at the required level of quality:
Fixed product packages, with fixed monthly prices
As a businessman I’m a big fan of subscription models. Small customers logically have an aversion against large one-time payments, but are very open to fixed, small monthly rates. From a corporate point of view this has huge advantages, as revenue can be planned extremely well.
To provide a service for a fixed monthly fee has another big advantage, though. As an entrepreneur you are forced to be as efficiently as possible. Because every Euro you can save in providing the service is a Euro won. This creates the natural pressure to improve efficiency. Something we only cater to on a very limited basis, as this doesn’t bring us anything in today’s “invoicing by time model”.
Systematization & “method congruency”
On a professional level it’s usually no “rocket science” to provide these services. I can hear you object that everything is complicated and individual and that it won’t work this way. And, to a certain extent, I agree with you; after all, when it comes to online marketing, there are things that are very complex. But, this concerns the last 20 percent of the undertaking. What we must do for small customers, though, is to create a foundation and convey information.
Both can be systematized extremely well and also subjected to a generalized methodology. In all that we do, we increase the quality of these services while also lowering costs. Both at a significant level.
Once these processes have been systematized, one can begin to rigorously automated. As a lot of software is involved, this is easier than elsewhere. With this, one can accomplish an “unfair competitive advantage” (I’ll write something about that soon).
Just a few days ago Robert Lindh, one of the founders of the Swedish online marketing factory resultify, showed me a new platform, with which they automate the creation of ad materials (microcontent for social media), management, invoicing and emitting through different channels for their customers. These people take care of in one hour what takes 1.5 days in a traditional agency.
Radically good support and personal care
With that much organization, optimization and automation one could be tempted to think that small customers should rely on self-help – whereupon one should provide online help. At first glance, this would be truly fantastic from an economic perspective. The idea has at least one catch to it, though; the customers don’t want this.
Quite the contrary; the customers are insatiable where direct access, availability via phone, employee competence, etc. are concerned. Not in the actual consumption of this support, but in the expectations. Instead of regarding this as a problem, a new provider should address this issue. Ideally, to clarify things upfront, with e.g. 24/7, 1st level support. All inclusive, of course.
But, truly world-class support is something that has an enormous positive impact. I recently wrote a post on the subject.
You’re probably thinking now, that one could never afford this. I maintain, yes, you can; for a portion of the “profits” gained through improving efficiency by systematization and automation must be reinvested into support. Otherwise the model doesn’t work.
Effects of scale
In my view such a company becomes interesting from approximately 500 customers onward. Only at this level is it worth it to invest time in methodology and automation. To earn truly significant sums of money, one needs to take what one has initially developed and prorate it across as many revenue generators as possible. In this way, one can create a product which would be impossible to provide manually or using more traditional methods.
And this is exactly at the heart of the matter. Not to found the next agency, but to offer the customer a real alternative. Something that cannot really be compared with anything else, but that offers significant advantages to the customer. And, as a nice side effect, it also provides an unbelievable marketing story.
I’m surely not the first to recognize the potential of small customers in the market. Any yet, there is no one who is truly concerning themselves with this segment? Why is that?
I think, that we have a lot of people in our business who are really good at the craft, and only a few really good business people. Whereas the former just begins to work and implement a project, the entrepreneur is interested in creating the structures and to grow conceptually. This means dealing with many unknowns, and to invest upfront while taking risks.
As long as the agency business continues to run so smoothly with the current model, we won’t see any big changes. Unless someone just does it. Venture capital is available in quantity at the moment. So: Entrepreneurs front and center.