Why Are Aussie Indies Doing So Well?

There has been extensive coverage both in Australia and abroad about how well independent agencies are currently doing compared to their multinational/Holdco counterparts. Whilst accounting for a 10 per cent market share globally, some reports suggest indie media agencies won a third of all new business last year.

But why? In an age when you could argue that indie agencies should really struggle to survive, they thrive.

Having been on both sides of the media agency ownership fence I think there are several practical reasons why this is happening.

Holdcos Are Profit Extraction Businesses

One of the most telling descriptors of Holdco media agencies I have read was ‘Profit Extraction Businesses’. Nail hit on head. Sure, every business sets out to make a profit, but too much focus on this is detrimental to investment. Try naming a single piece of market-changing IP developed in-house by a Holdco that has significantly changed the industry. The same goes for acquisition. For example, if holdcos were serious about developing their data credentials, one of them would have bought Quantium (where I also used to work). Too much focus on short-term profit means they lack the ability to invest. Net outcome? A democratisation of the industry lowering barriers to entry.

Short-term results have evolved from being the output of delivering great service to being the key driver of behaviour. A ‘do whatever it takes to achieve the numbers’ culture rules which is detrimental to client outcomes.

The Peril of Beryls

There is a lady in Singapore called Beryl who unwittingly became the straw that broke the camel’s back when it came to me staying at a Holdco. I’ve got no reason to suspect that Beryl is malicious person. So what did she do? Beryl’s role at my old Holdco was to review business plans and revenue forecasts for the ‘Analytics’ divisions in Asia-Pacific. Beryl had never worked in Australia and she wasn’t a data analyst. Yet she repeatedly refused to accept my business plan for the discipline due to it not satisfying certain ratios. To compound the situation – I was paying Beryl to tell me this. Holdco agencies are taxed anywhere between five per cent and 15 per cent of their revenue to fund the non-revenue generating aspects of regional and global structures – including the Beryls of the world. Her role was to kick me up the arse to do better against targets (targets which ironically I would have reached if I wasn’t paying for her in the first place…)

This approach has another big knock-on effect operationally. If you were expected to deliver a 20 per cent margin, you actually had to deliver up to a 35 per cent margin due to paying for Beryl. At the same time, these agencies are somehow meant to compete against indies where there isn’t a Beryl in sight.

Show Me The Money

A big, big, issue Holdco agencies face is that many of their clients simply do not understand their business model. Yup – clients don’t know how their agency makes money. This is ridiculous. Clients should know both how and how much money their agency makes.

The seeds of this situation were sown 25 years ago when media agencies were spun out of full-service agencies. The initial driving force was efficiency and the tool was scale. Scale is important for several reasons, but only to a point, and holdcos have gone way beyond this. All significant efficiency gains have been realised long ago, so revenue and margin is being searched for elsewhere. Clients can smell an alternative agenda (and nefarious behaviour) a mile off, which leads to trust in their agency relationship being significantly undermined.

Lack of Local Logic

I sympathise with local Holdco agency management as the commercial pressure they are put under lacks local logic. What do I mean? It is common for holdcos to publish market reports outlining how much global ad markets will grow by. Forecasts for Australian growth in 2023 range from GroupM’s estimate of just 0.2 per cent, to Dentsu’s 3.2 per cent, up to glass-half-full Magna with four per cent. But do you think the management of any of these agencies have local growth targets of less than 10 per cent? Yeah right.

Of course, every agency wants to grow more than the market, but these three groups account for 50 per cent of the entire market. So where is this growth meant to come from? Local logic doesn’t exist in setting local agency business targets. And let’s be clear – aggressive targets have no more a bearing on aggressive growth than my underpants do.

…cos Shit Happens

There are reams of column inches on work-life balance within indies and the importance of workplace flexibility which I’m not going to regurgitate. However, a key test of how truly flexible an organisation is occurs when bad things happen. The child of a pitch-lead gets sick or has an accident the day before a big pitch? What happens? If an agency has its balance right, it will have a stable team that is resourced appropriately. This means a rare, unfortunate incident like this does not de-rail either the pitch or the affected family as there isn’t a last-minute sprint to get good work done. Balance and stability are the foundations of flexibility, and indies have done a very good job here. This means the shit doesn’t hit the fan when…um… the shit hits the fan.

Partnership and collaboration are two of the most over-used terms by agencies because they are important to the success of a service business. But true partnership and great collaboration involve grey areas of operation, blurred lines of scope and different operating speeds from project to project. In wanky terms – it is a fragile ecosystem.

Such fragility breaks down if there is not unity of purpose – a shared vision for success. However, the above points combine to wreak havoc on this system. This ultimately fuels an openness in clients to consider a different type of agency.

Internally many talented people at holdcos feel the same things which only compounds the situation. Clients want to work with skilled and experienced people in stable teams motivated by a desire to solve their business challenges. Many of these types of people have been seeking out independent agencies for years and this has powered their rise. Any Holdco agency that is still doing a good job (and there are some) is doing so despite how they are structured rather than because of it, and this is why indies are having a good time of it at the moment.

Read More: Why Are Aussie Indies Doing So Well?

2023-09-01 00:26:24

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