Last email I introduced the topic of launching secondary (or tertiary) agency brands outside of the ‘main’ agency. I’ve done exactly that before, which I went into detail on. If you missed it, you can read it here.
I’ve landed on 6 Qs to be answered before going ahead with the new-agency-plan. The first 3 are more business strategy questions, the final 3 more operational.
- Is the customer different?
- Is the solution/offer different?
- Is the business model different?
- Are you able to market both?
- Are you able to run both?
- Is there benefit to a different ownership structure?
Today’s edition is on the first 3.
One: Is the customer different?
I think the most obvious reason to consider a secondary agency brand is where the customer/client is totally different.
If you’re a creative agency currently working with enterprise clients on effective but mostly safe campaign work, you’re unlikely to pick up work from that disruptive startup who wants to take a risk and stir controversy. So launching a more progressive second agency might make sense.
Data from the agency growth report suggests that this might be the right move. We looked at agencies on two axis - how broad their service offerings are, and how broad their target industries are.
Agencies narrow on industries grew at an average rate of 13.4% when offering broad services (the slowest of the 4 segments), and 26.7% when offering narrow services (the fastest).
Of course different size/maturity customers within the same industry can look totally different - that scrappy startup v enterprise incumbent. While the report did look at client sizes and found that mid-market brands are great drivers of agency growth, we weren’t able to get down to that level of segmentation for this section.
It’s worth noting that one of the major factors in this much stronger growth rate was that agencies who are narrow/narrow had much more effective marketing running for themselves. Our conclusion was that this narrowness is what made that possible, because when you know exactly who you are talking to, being in the right place with the right message gets much easier.
Two: Is the solution/offer different?
Similar to the first Q, but more on the ‘services’ side of the equation (if we can use the service offered as a proxy for the problem being solved).
The highest growth agencies offered 5.4 services on average, whilst the lowest growth offered 6.6. We drew two main conclusions from that:
- More services erode differentiation
- More services increase delivery complexity
Point 1 brings us back to the agencies that are narrow/narrow in industry/service.
Full service agencies (broad/broad) were the largest segment of respondents at 45%. They also grew at 15.7% (compared to 26.7% for narrow/narrow).
In the report, we cautioned against a full-service agency suddenly culling a bunch of revenue-generating service lines in an effort to appear more specialised. That kind of positioning work takes much longer to start generating returns, and unless the agency also cut costs in line with the revenue that could put them in a tough position.
Instead, the report suggests these agencies niche their marketing - figure out what you’re best at and known for, and focus on that for your marketing activities. I think this works particularly well where that’s a ‘front door’ solution/service, that naturally leads into all of your other offers (eg a rebrand->website->marketing).
The report doesn’t raise the potential of instead launching a separate agency brand to do the same thing. Assuming you’ve got the capacity to manage two different brands/businesses, I think that’s well worth considering here as a way to capture the full benefit.
Three: Is the business model different?
This wasn’t really in the report and is based on my own experience.
An agency working with growing mid-market brands and sizable budgets has an entirely different business model to one working with low-value SMEs (for example). To illustrate:
- A $2m turnover agency working with mid-market brands might have ~15 clients (at about $10k p/client p/month)
- A $2m turnover agency working with small local businesses might have 165 clients (at about $1k p/client p/month)
Clearly, running those two businesses is going to be very different. The former is focused on a smaller number of high-value clients, likely requiring customised solutions and servicing and consistent strong (and high-touch) relationship management. The latter is all about volume and scale, working to minimise differences between client engagements, standardise work, and reduce the amount of 1:1 servicing.
I’ve seen inside both of these, and the systems are different, the employee profiles are different, the type of work is different…. They’re just totally different businesses. Not right/wrong - just different.
So if the question starts becoming “how do we service these low-monetary-value clients in our existing mid-market agency?” that’s a different business model. Volume v High-value. Standardised v Customised. And that was a big part of our decision to launch Springboard in my previous agency. It’s just a different business model.
To me this is the most obvious reason to launch a different agency - because we’re talking about a different business. That flows through to a different customer profile AND different services offered.
Next time:
I don’t know many agency founders/leaders who are struggling with having too much spare time, and obviously launching a second agency will take time. The next edition will focus on this, as well as some other more structural questions:
- Are you able to market both?
- Are you able to run both?
- Is there benefit to a different ownership structure?
Cheers, Sam
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