The Changing Face of Agency Networks
Independent agency networks have been around for decades, but many face a battle of declining relevance in the face of market changes and new competition. I think some of them have no more than five years left unless they make quick, radical changes. In this article I look at the forces driving change to the network model, the new places agency principals are getting their needs met and the changes I think the established independent networks need to make to survive.
A Growing Relevance Gap
The first independent agency networks were formed as a means of providing greater geographic reach to the clients of the smaller firms of the founding members. The cross-border relationships gave members a foothold to serve clients with expansionist plans and pursue prospective multinational clients. For years, membership into these networks of independents was based primarily on geography, with each member firm occupying a territory and having veto power over the inclusion of other firms in their own backyard.
The two main reasons for joining such a network have always been, first, this added geographic reach for clients and prospects and, second, the peer-to-peer learning that comes from being connected to a group of like-minded owners of similar businesses. The first reason has all but disappeared putting enormous pressure on the second.
The Boundaries Have Changed Form
“The world is now too small to segment geographically.”
A colleague of mine said that to me… eleven years ago. It was true then and it’s even more true now. This model of a network of firms with protected geographic areas made sense in the age of the generalist full-service firm, but not today. In this, the Google-driven era of hyper-specialization, it takes just one generalist network member to decide to specialize in a narrower market (e.g.: healthcare) or a discipline (e.g.: experiential marketing) to throw the whole network into disorder. As soon as the boundaries that define a firm’s trading area become a vertical market or a discipline, most geographic barriers dissolve. Clients are willing to travel further for more specialized expertise and agencies have to travel further because specializing reduces their local client pool. In a network built on geographic boundaries, friction ensues.
Some of today’s independent networks have navigated this transition, encouraging members to effectively give up their territory in exchange for the peer group value, but many still divide up the world geographically, which keeps the younger, innovative, specialist firms out of their ranks. These networks are the most threatened.
Clients Increasingly Trade Local Presence for Expertise
Against this backdrop of increased friction within geography-based networks, fewer clients demand from their agencies an on-the-ground presence in all the markets they serve, at least from specialist firms. Of course there are exceptions where being on the ground is extremely valuable (experiential marketing being a great example), but clients generally see the trade-off clearly: we can have a generalist on the ground or work with a specialist via distance. Specialists have more power in their client relationships and are more able to push back on demands that don’t suit them, like the request to staff up in Kyoto.
Language Barriers Are Disappearing Rapidly
In addition to the 400 million or so native-English speakers, there are about a billion people who speak English as their second or third language. That’s 20 percent of the world’s population and growing – and it’s the business 20%. I’ve seen firsthand in Europe alone that language as a barrier to doing business is not nearly the issue it was even ten years ago. In ten more we won’t even remember that it once was. We will be having real-time, simultaneously-translated conversations via our smartphones well within a decade – perhaps as soon as 24 months.
Increasingly, you don’t need to be on the ground or even speaking the local language to serve a market on the other side of the world. Of course there are exceptions and always will be but the general trend is clear: yours can be a global firm with just one office.
Pressure on the Peer Group
Turning allies into competitors has strained the peer group element of some of the networks. Most networks have some requirement to share financial information. Some disclose anonymously, some aggregate and disclose only the group averages and some demand full disclosure. In each case there are firms that have left because they no longer want to share sensitive information with others in the network that they now see as competitors or potential competitors.
In many networks, the open and frank discussions aren’t quite as open and frank. Into this backdrop of declining relevance and increased friction some new competitors to the networks have arisen.
The Rise of the New Peer Groups
I recently spoke at Owner Summit, run by Bureau of Digital, who also runs Owner Camp and other peer-groups and events for owners and key employees of digital marketing firms. Owner Camp was started as a sideline initiative by the owners of digital agency Happy Cog when they couldn’t find an existing peer group to meet their needs. Bureau of Digital spun out of that and now delivers good value to an appreciative audience through their thriving for-profit business.
In the same vein as Owner Camp & Owner Summit is Digital Mastermind Group, to whom I spoke late last year and The Founders Assembly whose ‘members’ I’m addressing in London in April. None of these groups existed six years ago. None of their ‘members’ are members in the way that the traditional networks would view membership. Without the promise of, or need for, formal alliances based on geography or any other boundary, firms flow into and out of these groups as suits them. Some of the smaller groups are by invitation only whereas the larger ones tend to be event-specific and open to all but together they represent a new breed of peer groups that come together quickly to mutual benefit then they dissolve or reshape, and little appears to be lost in the fluidity of the groups.
What many veteran network members might find surprising is the event participants communicate with each other far more than do the members of the traditional networks who’ve known each other for years. And they share – boy do they share! They don’t feel the need to be locked into a long-term network arrangement to solicit and offer feedback. They help strangers and expect to be helped by strangers.
This embracing of the temporary nature of these relationships and alliances is refreshing and appears to keep the groups from stagnating. (More on that below.)
The Open Agency Network (OAN) is a self-organized, loosely affiliated group of socially-minded, mostly-digital firms that arose out of the Web of Change conference. Members of this network are as likely to be competing with each other as they are to be teaming up or learning from each other. Their spirit of co-opertition is striking. They use the network to learn and grow together, discussing the issues facing them all; they build alliances and yet they still compete against each other. It’s a relationship that an ad agency owner in his fifties or sixties might have difficulty comprehending.
OAN has no executive director and no website, but they exist!, as do other self-organized agency peer groups. ReCourses founder David C. Baker has regularly put about 20 agency principal clients at a time together into self-operating groups of which he has no involvement and takes no management fee.
Should A Group’s Obsolescence Be Planned?
I’ve noticed the self-organizing peer groups tend to peter out after about five years, suffering momentum loss unless there’s an ongoing curriculum to the organizing framework that pushes them to keep evolving or rigorous standards for membership that are enforced and thus provide a steady managed churn of the membership base. Just like in your employee base or client roster, a certain amount of churn is healthy. Too little leads to stagnation and too much leads to instability. Most networks and many peer groups don’t have enough churn, forcing the more progressive firms to depart on their own as they flee the inertia created by the laggards. This causes the pool of remaining firms to become less innovative and less ambitious over time. Are the best firms that were ever in your peer group or network still there? My guess is they are not, but there are some who shouldn’t be there, aren’t there? Weak members push the strong ones out.
Baker himself recommends a three-year life span to these self-organizing peer groups, but most try to soldier on longer, fighting the entropy that eventually builds as they try to capture the incredible benefits from the early years. They should all disband, in my opinion, and then regroup with new members. Then do it again in three more years. That or set staggered, three year term limits.
The need to build in an end date can only be averted through strong leadership, good operating frameworks, and enforced standards that allow for healthy churn. That’s where the old networks could step up, but many still think the value of the network is in geographic-based alliances. Some still sell as a major benefit the idea that the independent network can win global business that would otherwise go to the holding company-based networks. Privately, they all acknowledge that there’s value to the network in serving clients but less so in winning new ones. Today’s reality is you don’t need to be in the same network with another firm to team up with them to serve a client, you just need to know who to call. Hello Google, social media and the odd conference.
Competition from Other Non-Industry-Specific Peer Groups
Vistage, Entrepreneurs Organization (EO), Gazelles, Strategic Coach and The Alternative Board (TAB) are just some examples of owner peer groups and business frameworks that are not specific to creative businesses. I see a significant increase in participation in such groups among agency principals, as I do with adoption of business frameworks outside of peer groups like the Entrepreneurial Operating System (EOS), Touchstone Business System and E-Myth. The nature of the businesses in these groups vary – that can be a good or a bad thing at different times – my point is the market for peer-to-peer support for agency owners remains underserved and yet many of the old networks still struggle. (So do many of the trade associations, who are fighting many of the same pressures, but that’s an article for another day.)
The Future of the Independent Agency Network
I don’t mean to paint all the independent networks with the same brush – there are clearly different levels of coming to terms with the changing forces, and I know some of the initiatives that some of them are taking are pretty novel and interesting but as a whole they’re getting their lunch eaten by other peer groups, conferences and technology-enabled communication platforms. They need to blow up their models rather than tweak them or they risk being the place where old generalists go to reminisce about the glory days of advertising.
For the existing decades-old independent agency networks to regain their relevance I think they should take two steps.
First, the top four, five or six networks should merge. This would bring some critical mass to their regional and global conferences, improving the quality of content and collision-based learning in an environment that doesn’t call for mandatory sharing with direct competitors. The large, main events would just be conferences for the purpose of education and networking. One network insider I know who shares this idea thinks the critical mass from a merger would significantly defray costs by attracting bigger sponsors.
Second, within the larger conference network there should be smaller pods or peer groups of 8-15 firms hand picked for the purpose of managing conflict. These peer groups would also meet, in person and virtually, and it is only within these pods that the kimonos are opened, financials are shared and the intimate problems are put on the table for group problem solving. These group meetings can be facilitated by network staff or members can run their own meetings, following a framework created or adopted by the network. Standards for membership in these pods need to be enforced.
I don’t really think my two-step proposal will be acted upon, nor do I think it’s the only solution to the networks’ problem of declining relevance. I do think the people who run these networks would probably like to see this or some other bold plan enacted because they’re the ones who deal with the increasing number of members questioning the annual dues. They’re the ones trying to persuade the younger principals of newer firms in what is a harder sell every year. They manage the new conflicts that arise every time a member firm narrows its focus. They face the decline in relevance and the rise of more vibrant models and they know a revolution is necessary. The question each network has is are there enough members left that still have an appetite for revolution?