The document discusses the evolution of agency metrics from capitalized billings to headcount, revealing the challenges agencies face in demonstrating their effectiveness amidst changing client expectations. It advocates for 'nimble agencies' that prioritize solving client business problems, effectiveness over size, and a flexible project-based business model, emphasizing the importance of talent and adaptability in a rapidly changing industry. The traditional focus on agency size is questioned, promoting a shift towards innovation and profitability as key success factors.

1. The Nimble Agency
by
Mike Carlton
Describing an Agency
It wasn’t so long ago that when someone wanted to learn about an agency the
first question asked would be, “What are their billings?” The underlying issue
was, “How big are they?”
And the answer usually came back as the agency’s figure for annual capitalized
billings.
But capitalized billings, as distinguished from actual billings, was an artificial
number. It was an arcane calculation based on a multiple of the agency’s gross
income. The intent was to rationalize differences between agencies that placed
a lot of media and those that didn’t.
Still it was a fake number. While the industry seldom acknowledged it, using
capitalized billings seriously misrepresented the size of many agencies.
As a result the use of capitalized billings slowly lost credibility. And faded from
being a popular metric for an agency’s size. That measure was gradually
replaced by headcount. “How many people does the agency have?”
Headcount had its problems too. Headcount figures initially only counted full-
time employees. Individuals who were totally dedicated to just that one agency.
But what about freelancers, part-time people and independent outsource
providers? To include them some agencies started using the number indicating
their FTEs (full-time equivalents).
Yet this was also a number that could be something of a fiction.
Bigger Was Better
And under both metrics conventional wisdom dictated that the bigger the
capitalized billing and the bigger the headcount the better. Marketers and
agency leaders placed high value on size. It mattered. And an agency’s size
certainly provided an important bragging point.
Yet this continuing quest to rank an agency by size begged an important
question. Did a bigger agency do a better job for its clients? Or return more
psychic and financial rewards to its staff? Or its owners?
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2. Was size, regardless of how it was measured, the right metric to be looking at in
the first place?
Was size just for the sake of size a false aspiration?
An Interesting Reality
Perhaps the most wonderful thing about the advertising agency business is that it
historically has regenerated itself from within. There is an old saying that every
time a big agency lays off two people a tiny new agency is born.
New agencies provide fertile ground. More often than not, agency innovation has
sprung from the upstarts rather than the big established firms. It has always
been an industry in which the freshest work can come from small new agencies.
Often located in areas outside traditional advertising centers.
And just about anyone can start a new agency. It doesn’t take much capital or
equipment or experience. All it takes to create breakthrough ideas are a few
bright, talented, passionate and energetic people.
When you stop and think about it ideas are what are really important. Almost
everything else in the agency business is just window dressing.
From the very beginnings of this industry a pattern of creative reinvention has
been repeating itself. And it is a pretty good bet that this pattern will continue into
the future.
The Price of Size
It is an almost immutable fact that the bigger an organization gets the less
flexible and responsive it becomes. Like it or not, bureaucracy creeps in. And
some might even say that size and innovation are mutually exclusive.
Some time ago the leader of a very hot and rapidly growing young agency was
asked by the trade press how big he wanted his agency to become. His reply
was, “I want to see how big we can get before we get bad.”
A few years later when he sold the then much larger and more mature agency to
a holding company he told his friends, “I have now found the answer to my
question.”
A World of Change
Gut-wrenching change is upon advertising agencies. Greater than anything the
industry has seen in anyone’s memory. The means for reaching the consumer
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3. expand almost daily. And consumers are constantly shifting how they accept
commercial information and how they interact with marketers. The customer is
now firmly in charge of that dialog.
So in addition to dealing with this power shift, to be successful an agency has to
have at least minimum fluency in all the various communications tools available
and to know how and when to apply them.
This is an incredibly complex job.
And unfortunately, one that a lot of marketers feel is beyond the abilities of many
agencies. This is validated by the fact that marketers are increasingly going
directly to specialized marketing communications providers thus bypassing their
primary agencies.
Thus many agencies which used to be the custodians of their clients’ broad-
based market communications needs are finding themselves relegated to only
the more traditional media advertising tasks.
Their share of the client’s total marketing spend is declining.
The Dilemma
The reason for this is simple.
The fact is that no agency, no matter how big, can afford to have full-time experts
for every communications tool or specialty that clients might need. Even the
holding companies have great difficulty economically, cohesively and
harmoniously fielding all the diverse talent needed to effectively address complex
client requirements.
Yet the quest for agency size and stature continues. Offices are plush. With lots
of smiling faces. And lots of conference rooms for those people to gather in. All
backed up by complex processes and procedures. Within this environment
internal silos have flourished. So have bureaucracies. And overhead costs.
The need for a continuing stream of cash is unrelenting. Payrolls are fixed. So
are most other costs. To support these requires a steady flow of income.
But many clients are moving away from the agency of record concept. And away
from long-term agency commitments. They have an increasingly short-term
project orientation. They want to accomplish measurable objectives quickly, and
at the very lowest possible cost.
Smart marketers are not looking for agency flash, show and stature. They are
seeking effectiveness, speed and economy.
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4. Do we have the makings of a big disconnect here? Have we lost our way in the
quest for bigness? Are we now in a new age that requires new thinking?
Have we in fact let advertising agencies become dinosaurs?
Enter the Nimble Agency
Dictionary.com defines nimble as:
1. Quick and light in movement; moving with ease; agile; active; rapid
2. Quick to understand, think
Nimble. That doesn’t sound like a bad handle for a 21st Century agency. There
is no question that the best clients and the best talent both place high value on
nimbleness as it is defined above.
So the important question is would they use the word nimble to describe your
agency? And would you?
So, What Does a Nimble Agency Look Like?
A nimble agency looks and behaves a lot differently than a traditional agency.
Yet some evolved from traditional agencies while others started from scratch.
And many of them don’t even call themselves agencies. Nor do the clients that
use them. But they usually have a number of characteristics in common.
Here are some of those characteristics:
1. Solving Business Problems
Nimble agencies focus in a laser-like way on one purpose; to solve client
business problems. And they do that by changing the behaviors of people
in the client’s marketplace. They think and act in a high-level strategic
way while often leaving the implementation tactics to others.
While they use communications tools to accomplish their goals they see
them as the means to the end, not the end itself. The agency is driven by
marketplace outcomes not just the creation and production of stuff.
2. Effectiveness is the Metric
Nimble agencies measure themselves by effectiveness not size. Size and
heft are immaterial. What is important are the behavioral changes they
are making with the client’s publics. Tangible, measurable results matter.
This is a lot different from the traditional agency metric of selling hours of
staff time. The focus is on results, not on billable hours.
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5. 3. Tiered Staffing Strategy
Nimble agencies usually have a three tier staffing strategy. Those tiers
are Core, Support, and Contingent.
The Core staff is a small cadre of agency principles. Often partners
and/or owners. They are responsible for the agency’s vision and values
as well as relationships with clients, staffers, suppliers and prospects as
well as the agency’s work output and financial well being. They are
strategic. The drivers. The permanent part of the agency. Their personal
compensation is variable and closely linked to the agency’s profitability.
The Support staff is also small and generally made up of bright, young,
highly energetic full-time talent. These folks implement the client work
under direction from Core leaders. While they have client contact they are
primarily tactical. And not necessarily expected to stay with the agency for
the long-term. Their personal compensation is also variable and closely
linked to the market success of the projects they participate in.
The Contingent staff are individuals or organizations with specialized skills
who are not employees of the agency. They are independent contractors
who are engaged as needed to advise and implement client activities
within the scope of their expertise. They can be lone practitioners or
specialized companies. They are generally brought in just for discrete
projects with their compensation linked directly to the successful
implementation of each project.
The good news here is that there are an increasing number of highly
talented specialists working as freelancers or as part of separate
specialized businesses. These resources generally have greater
experience and capabilities in their special skill set than anyone the
agency could hire full-time. And, they only cost money when they are
being used.
4. Project Based Business Model
Nimble agencies use a business model built around precisely defined
client projects rather than agency of record status. Now this doesn’t mean
that a particular client does not use the agency on a continuing basis.
What it does mean is that each project and each engagement is viewed
individually and is priced on its value, not necessarily just its cost.
It is important to note that this business model delivers a less predictable
income stream than what many traditional agencies would like. And sales
costs are generally higher than are typical in agency of record status.
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6. On the flip side, however, the cost structure of a nimble agency tracks
quite closely with the agency’s income. When income goes up, costs go
up. When income goes down so do costs.
5. Profitability Trumps Billings
Nimble agencies are designed for continuing profitability rather than
continuing income. This is a hugely different way of thinking. They expect
income to fluctuate quite widely as projects come and go. But costs also
fluctuate right in line with project activity. A nimble agency essentially
expands and contracts in sync with client demands.
Thus, its key financial metric is profit not billings. It has inherently flexible
talent costs coupled with low overhead. This gives it great financial
flexibility.
6. A Fun Environment
Doing innovative highly effective work is fun. And that is an almost natural
focus of a nimble agency. The result is that they can be expected to be a
fun organization to work with. As the definition states, they are quick and
light in movement; moving with ease; agile; active; rapid. And quick to
understand, think.
The kind of place that the best talent, both internal and external, wants to
be associated with. Same for the best clients, too.
In short, a nimble agency may not be big but it is very good.
The Hard Part
Starting a nimble agency from scratch is not particularly difficult. Market forces
and limited capital almost dictate nimbleness. In fact, a startup agency’s very
survival usually depends on nimbleness. It is intuitive.
What is much more difficult is transitioning a traditional agency into a nimble
agency. Much of what a nimble agency is can be directly counter to what people
expect from a traditional agency. So there can be lots of ingrained resistance.
With many of the biggest changes needing to come from agency leaders and
existing employees.
In addition, developing and cultivating a pool of specialized external talent is not
easy. It takes lots of time and effort. But it is a necessary requirement. In fact, it
is not uncommon for a nimble agency to view building and maintaining their
external talent pool as a top priority, even ahead of new business development.
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7. Yet with all the challenges, a nimble agency can be a lot more successful, a lot
more rewarding and a lot more fun than a traditional agency. And it fits with the
changing times.
Bigger Isn’t Better
And wouldn’t it be nice to have someone say about your agency, “They aren’t big
but are very, very good. And amazingly nimble!”
Copyright 2011 – Carlton Associates Incorporated
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