Having completed a year's gardening leave after departing Euro RSCG, Ben Langdon went on a deal-clinching frenzy in the digital direct space.
And before the recession kicked in, Langdon was well on his way to making DMG the pre-eminent digital direct marketing group in the UK, culminating in that number three ranking in Marketing's 2009 DM agency league table.
DM agency Dig for Fire, digital agency Inbox and telemarketing provider HSM were acquired in 2006, followed by digital agency Cheeze, data company Alphanumeric (trading as Jaywing), Graphico New Media and digital creative agency Hyperlaunch in 2007.
The acquisitive pace continued in 2008, with DMG buying e-commerce specialist Cybercom and customer service firm Gasbox.
Problem is, by Langdon's own admission, not many people have heard of DMG. It’s a situation Langdon, labelled "outspoken" and "ruthless" by his peers, intends to change.
Q: Digital Marketing Group has grown rapidly over the past three years – up from 16th place in Marketing magazine’s 2008 league to 3rd place this year. Is it all acquisitive growth?
Langdon: We’ve gotten big through a combination of organic growth and acquisition. We have actually grown about 20% year-on-year organically.
Q: You haven’t bought a company for a while. Raising cash must be a lot harder now…
Getting finance through the banks is hard and if you [acquire] through giving away stock, you’d have to part with twice as many shares as last year. The biggest spotlight in public companies is watching net debt – ours is very small and I want to keep it that way. We’re tiny compared to the likes of WPP – we still only make £8m profit and so have to be very circumspect about using our money.
Q: When you started building DMG back in 2006, what was on your mind?
When I worked for big holding companies, businesses that tended to grow were in the digital arena. But those holding companies had to lug around huge investments in ad agencies that were essentially in decline. Take WPP with its agencies JWT, Ogilvy & Mather, and Grey. The core is still advertising and it’s where thousands of people are still employed. Those companies hope that the declines in advertising [revenue] will be offset by growth in digital.
It won’t work like that, though for the past five years digital marketing has been growing like a train – 40-60% growth year-on-year. While digital spend levels will go up, the revenues will never compensate and that’s why I didn’t want to get into traditional media.
Q: You noticeably bought businesses that were based outside London in the regions
A lot of agencies I acquired weren’t in London – Cheeze [in Ipswich and London], Inbox [in Swindon and Bristol], Graphico [in Newbury]. Regional agencies tend to make more money than London-based ones because of lower overheads and a better entrepreneurial spirit. This means better client and staff retention, which means better business.
You have to persuade investors why your business is different. And they’re quite cynical about London-based agencies. They associate them with huge egos and expense.
Q: DMG’s companies are physically quite spread out. Isn’t that an issue?
We try and act as one company as much as possible. If your day job is doing the best in email marketing, your night job is being DMG. A client brief has a centrifugal force, if you like. The core of their marketing needs may be web design and build, or a need to build an eCRM programme or an issue related to media. There is a natural home within DMG for all this.
Q: Can you give us an example, for instance, in how you manage Vodafone?
Before we bought Inbox in Swindon, Vodafone was a client. In general, accounts are run based on the client need they bring to us. If that need is acquisition of new customers via search, for example, that client will be managed from Ipswich because that’s where our core search expertise is. Matt Ramsay [CEO of Inbox] will run the account if the brief is eCRM. He will run that business out of Swindon where he’s got 70 people expert in that area, and then co-opt creative services from other parts of the group.
Q: How did you choose the businesses to acquire?
You need to have breadth and depth in your workforce – LBi talked about this recently and they’re one of our competitors. If you want to do e-commerce properly you can’t just have one guy [doing it] in the corner. Inbox is good in viral and eCRM, Cheeze is expert in search and Graphico in design and build. So when I go to clients I can say I’ve got 30 people who are good at eCRM, rather than just two.
Q: We’ve seen TMW fold its digital business into the main agency recently. You branded your group ‘digital’ from the outset
We set out in 2006 to do what we say on the tin. You meet digital guys and all they want to do is something crazy online and win awards. That’s the pure-play creative game. It’s a dangerous game to play, especially if you’re on the stock market, as we are. I wanted to create a business with substance, where being digital didn’t just mean we make digital ads. Hence we bought the data company Jaywing, which we bring to most new client pitches.
Q: Does ‘direct’ still have relevance as direct agencies morph into digital agencies?
The word ‘direct’ is obsolete – we don’t tend to use it. But the principles of direct marketing are those of good digital marketing.
Q: How is the recession affecting DMG?
To March, we were still around 20% up in terms of profit. Last quarter was challenging, but not all of our businesses suffered. It’s difficult to be specific as we’re public.
We’ve had exposure to financial services but not in every office. We had a banking client, Kaupthing, and we had to negotiate with its administrators and ended up with significant bad debt. We had the Cooperative Bank as a client until last October. Egg is a big client for us, HSBC and C&G. Luckily we’re not too exposed in travel sector.
We’re doing what every other agency is doing – making cutbacks in staff. We assume the worst and plan according to a pessimistic view.
Q: Bob Willott's blog recently highlighted the fact that you’ve hired your third finance director in three years. Why the churn?
We’ve grown considerably over the last three years. The type of FD we needed back in 2006, when we were a small business, was very different to the type we need now, as the UK's largest digital marketing specialist. The appointment of Keith, who is one of the most experienced public sector and media literate financial director's in the UK, reflects how far we have come as a business and the opportunities we see in the future.
Q: Sir Martin Sorrell recently rued the fact that restructuring in Europe is harder than in the US. Would you agree?
Sorrell is right. In a people-based business you don’t need TUPE and the employment rights we currently have. I’ve always thought it an issue when I was at McCann Erickson – to have your employees contracted to you longer than your clients are.
The critical thing is to have a flexible workforce and not have people with long-term notice periods [or] long contracts. It’s easier for us as a regional business. [Staff at agencies in London] are on 30% higher salaries [and] on 3-6 month notice periods. The cost of restructuring [outside London] is lower.
Digital hasn’t had to face this issue before and while it is going through a difficult year, it will come out stronger because clients will realise it’s better value than traditional media.
Q: Do you rate the agency intermediaries as a way of getting new business?
I’ve known all the new business consultants for years and slowly but surely they’ve been getting to know [DMG]. We didn’t win one of the big pitches we did at the end of last year, which was irritating as they told me we did a better credentials presentation than the London agencies. We are a relatively new phenomenon – I want us on more pitch lists and [to get] greater recognition for the talent we’ve got.
Q: Do you ever wish you weren’t publicly quoted?
Wouldn’t it be fun to make all our own decisions? But I wouldn’t have built the business any other way. If I’d done it using private finance – like a lot of businesses I encountered – I would have saddled DMG with debt.
Q: Has DMG had any approaches itself?
If anyone came along to buy us, or to be bought by us, it would have to be in the interests of shareholders, the largest of which is [Conservative party deputy chairman] Lord Ashcroft. He and his consortium own 25% [of DMG] with employees and institutions owning the rest. My share holding is small.
Q: What’s challenging about dealing with the City?
Getting them to understand what digital is. They get TV and direct marketing but most people in the City are digital immigrants. In the early days [of DMG] the people we spoke to were over 50 and so you got used to describing digital in a simple way - that digital is about taking consumers and brands and putting them online.
Q: Your biggest regret?
Not having done this earlier than 2006. While at McCann Erickson I stayed fannying around in traditional media and advertising. People said I was an entrepreneur and told me I should do it for myself.
Q: What does the future hold for DMG? A move overseas perhaps?
Our business model could be taken overseas but in current market it’s about sticking to your knitting. The only reason to go overseas is with a client. If you do so just hoping to pick up business, you’re done.
A lot of people don’t know much about us and suddenly we’ve emerged as number three. We’ll get asked to pitch [more often] when people realise we’re here to stay.