CLOSE-UP: Live Issue/Young Agencies - Why independent agencies are finding it easier in downturn than global giants

A newer breed of creative agencies are doing best in recession, Bob Willott says.

There used to be a theory that a recession favours the muscle of large established businesses, while the smaller upstarts get squeezed out. In the agency business, nothing seems to be further from the truth.

Are Clemmow Hornby Inge, Miles Calcraft Briginshaw Duffy, Soul, Delaney Lund Knox Warren or the now maturing Mother fawning at the feet of their bank managers, begging for their overdrafts to be preserved? It seems not. All these young agencies reckon the current year is looking better than the last, or at least no worse. Some talk of growth rates and profit margins that Bates Worldwide would die for (and probably will).

Of course, no-one pretends that it's easy to make money in the present climate when the industry is so obviously over-supplied. Winning new business is harder, takes longer and gobbles up more resources than ever before. One agency chief reckoned he was now doing as much work to get on to a pitchlist as was necessary in the past to win the business itself.

So why is the new breed sporting a smile while the old guard is wearing a worried frown? Some of the answers are fairly obvious. For example, everyone in a young agency tends to be enthusiastically committed to the cause - and it shows. This creates a positive ambience within the agency, exudes confidence to existing clients and attracts new ones. Mark Lund has seen the effect from two perspectives, first in charge of his agency when it was owned by True North and later when it bought its independence.

The ability to give people a real interest in the business with suitable incentives has been one of the three key contributors to DLKW's success, he says.

Jeremy Miles of MCBD believes that the independents have the ability to attract and motivate the best talent, despite the global networks having theoretically deeper pockets. Profit-sharing and equity participation, linked to being able to play a significant role among a smaller team of people with a shared vision, can often be more appealing than money alone.

DLKW did not face the same challenges as a typical start-up, but some of Lund's experiences strike a chord with agencies that started with nothing, such as money taking on a new significance. "In our first year, our absolute focus was on cash management," he says.

Most new agencies sought arrangements with clients for regular payments on account or similar. Rather than this being seen as a sign of weakness by the clients, it was usually viewed as a sign of an agency with sound business people running it. But the secret of success lies less with any unique focus on financial control than with their creative product. As Stef Calcraft of Mother puts it: "We put a strong, robust, creative culture first. If you grow too quickly you risk diluting that culture." Nevertheless, Mother has experienced impressive growth.

Miles links the importance of the creative culture to another ingredient - the pedigree of the founders: "All the creatively led independents have done well."

Calcraft claims there is no direct link between size and quality, yet others would argue that the smaller size can make it easier for creative quality to reach the client, unimpaired by the bureaucracy and caution that sometimes envelops larger agencies.

Lund also believes the independent agencies benefit from the absence of any of the detracting agendas that plague many of the global groups. Priorities can be different too. Miles says: "We haven't had to respond to shareholder pressure to deliver short-term numbers. We are able to manage the business for the longer term."

While the quality and effectiveness of the creative product must be the top priority, the financial aspect cannot be completely ignored. Most of the young agencies admit to having had to learn the financial side very quickly.

The biggest lessons learned by Miles were about the importance of cash flow, client contracts and keeping a close eye on costs. He became increasingly aware of the need to promptly recharge items incurred on clients' behalf and to monitor the time spent on each client. Soul chose modestly priced premises, reflecting the importance of taking a realistic approach to overheads.

Most of the agencies recognised the importance of monitoring key financial ratios but hardly any employed a qualified finance chief on a full-time basis from the outset.

Most had access to a part-timer initially and the typical pattern was to upgrade the role to full time - normally at board level - within a year or so. MCBD has Simon Ellse. Mother has Matthew Clark.

The dark horse is CHI. The agency started with just £926 of permanent capital and, despite trading at a healthy profit, still had a weaker balance sheet than most last June. So far, no bean-counter has emerged on the board. Undoubtedly successful, CHI preferred not to share the secrets of its success with us.

So, where do the agencies turn for advice and guidance? MCBD has the benefit of David Abbott's experience. Campbell Doyle Dye has Peter Mead on the board. Others tend to rely on more informal advice - the names of Bartle, Bogle and Hegarty are frequently mentioned.

So what can we conclude?

Creatively led young agencies are indeed doing well. They are closer to their clients, and less encumbered by the institutionalised characteristics and internal politics of many global groups. They seem to have won market share from the big players, despite the pressures of an over-supplied market on margins and new-business opportunities. The absence of a global network seems to be no handicap. And there is no special financial magic, but financial management is taken seriously.

With some facing serious financial problems, the global groups are no longer seen as a safe haven for clients in an economic storm.

Bob Willott is the editor of Marketing Services Financial Intelligence (www.fintellect.com) and a special professor at the University of Nottingham Business School

PROFILES OF THE NEW TYPE OF AGENCY

Latest post- Positive Year

tax profit net current ended

pounds assets

Campbell Doyle Dye n/a n/a n/a

Directors: W Campbell, S Doyle, D Dye, A Hoad, P Mead, C Thykier.

Shareholders: W Campbell, S Doyle, D Dye, A Hoad, C Thykier

Clemmow Hornby Inge 109,288 1 No 30/6/02

Directors: S Clemmow, J Hornby, C Inge, P Mandelson. Shareholders: S

Clemmow, J Hornby, C Inge, R Gormley, P Mandelson, E Watson, M Wood

Delaney Lund Knox Warren 2 929,000 Yes 31/12/01

Directors: M Ansell, G Delaney, J Elsom, W Fletcher, M Green, M

Griffiths, A Hick, C Hickson, P Kew, T Knox, A Kuropatwa, M Lund, J

Pool, A Ravan, K Sara, C Snow, R Warren, RJ Warren. Shareholders: G

Delaney, M Lund, T Knox, R Warren, G Betts, M Green, M Griffiths, C

Crawford, T Knight, J Simpson, G Champney, True North UK

Miles Calcraft Briginshaw Duffy 337,656 Yes 30 /6/02

Directors: D Abbott, P Briginshaw, H Calcraft, J Carr, M Duffy, S Ellse,

A Gosling, M Horn, J Miles, A Nairn, H Pearson, M Pring, H Weavers.

Shareholders: P Briginshaw, H Calcraft, M Duffy, S Ellse, J Miles, D

Abbott, J Carr, A Nairn, H Weavers

<

Mother 618,269 Yes 31/12/01

Directors: A Medd, S Calcraft, M Clark, R Saville, M Waites.

Shareholders: R Saville, M Waites, A Medd, S Calcraft, M Clark

Soul Advertising 67,000 1 Yes 31 /3/02

Directors: A Bird, D Bird, K Brown. Shareholders: B Crouch, S O'Farrell

NOTES: 1 Profit earned before dividends not publicly available. 2.

Buyout from True North rather than start-up.

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