Should owners use agents when selling their agencies?

Seems my last post has annoyed some of the agents who represent sellers of agencies.  So I thought I should address the issue of whether agency owners are better off using agents, or whether they should fly solo.  Here’s my take:

  1. Not all agents are sharks – some actually help firms understand the value they have created and get them to realize what would constitute a good buyer.  In other words they add value to the process.
  2. Not all agents charge on a commission basis.  Put another way they are not necessarily focussed on the price but rather the sale itself.  Some even argue with owners that they are not ready for sale.  These are the ones you should hire as they are giving real counsel.
  3. Not all agents are in a hurry to make the sale – some appreciate that the right deal may take a long time.  This could mean as long as a year if there are complexities to sort out on equity holdings and or tax.
  4. Not all agents ignore chemistry and culture – some appreciate that there has to be good chemistry and a cultural fit between buyer and seller.  After all, they are going to be working together for years to come.

Of course there are agents who do quite the opposite on all of these, just as there are real estate agents who will happily sell houses that are about to fall down.  In other words, there are good agents and bad ones.  The good ones are worth their fees and will earn them, the others are not.  My bigger issue with the use of agents is when they effectively auction off businesses.  I completely understand why this happens but in the people-based industry we live in, this creates challenges.  When buyers pay top dollar for a business, they will need that business to perform at its peak for quite a few years to come.  This often means running a business for short term profit.  This often means the staff who work there feel they are being pushed too hard and the clients in the business can sometimes feel they are getting a lesser service.  Put another way, buyers can only pay what a business is really worth, so if a seller demands an inflated price, then the buyer will demand inflated performance to cover that price.  Good agents will respect this and make it clear to the seller what the consequences of the best price are, some will not.

So should owners use an agent?  Only if they find the right one.

Is now the time to sell your PR business?

Few agencies live forever.  Most eventually get bought as the founders seek to cash in on their years of investment.  Every year, as a result, these people sit down and ask themselves: “is this the year to sell?”  So is it?  Is 2011 the year that agency owners should cash in?  Here’s a simple check list that may help:

The questions you want a ‘Yes’ to:

  1. Is your agency growing faster than the average?  10% growth means yes btw.
  2. Is your agency likely to carry on growing for the next few years?
  3. Is your agency making decent profits? (15% margins and above)
  4. Is your agency positioned well in the digital transition?
  5. Do you have a strong leadership team or is it all dependent on you?
  6. Could you carry on working hard for another 3 to 5 years?
  7. Is your agency REALLY positioned well in the digital transition? (no lies please)

The questions you want to answer ‘No’ to:

  1. Does any client account for more than 25% of revenues?
  2. Is the equity in the agency only held by the founders?
  3. Is price what really matters in a sale?
  4. Are you in a hurry to sell?

Now Next Fifteen has bought quite a few agencies in the last decade.  We love the agencies that are now part of the Group.  In every case we acquired firms that weren’t ‘For sale’.  They were firms we spent ages getting to know.  First and foremost we had to have good chemistry with the people and vice versa.  We jokingly say that we’ll never buy a business run by people that we’d hate to spend an evening with.  Actually it’s not a joke.  And in truth, in the PR world anyone who sells their firm to people they don’t like is crazy.  Stephen Elop, who just took over running Nokia, recently reprised a Drucker quote: “culture eats strategy for breakfast.”  Agencies that put strategy before culture will fail.

So is 2011 the year?  There are certainly a LOT of businesses that think it is.  We get approached by agents selling firms every week.  We tend not to buy these businesses because a) they are ‘for sale’ and b) agents want to rush a process that is best done more slowly.  They also simply want to get you to pay the highest multiple to justify their fees.  I get it but I’d much rather find firms that we connect with, rather than firms who have agents that connect us.  So if 2011 isn’t your year, let’s talk.

Should PR agencies hire experience or raw talent?

The race is on for agencies to build their digital assets.  Get it right and PR firms will grow faster than they have in decades.  Get it wrong and they’ll have a struggle on their hands.  So as agency heads look at their talent base and their potential new hires, they have a tough question to answer.  Do they hire experienced marketing professionals who have some digital skills or the typically younger, more digitally literate who have only limited experience?  Sadly for the more experienced group, the answer appears to be that agencies are trending towards hiring younger digerati, rather than grey hairs.  This in turn is reshaping agency structures, product offerings, and pricing.  To twist an old saying, we are who we hire.  With agencies moving from a classic pyramid model towards something that looks more like a coat hanger, the opportunities for today’s experienced professionals are becoming fewer by the day.  Is this fair?  Probably not but this drive to hire younger, cheaper talent is in part the result of another force, not just digital.  Client procurement departments have acted like sand paper on PR budgets for years and have increasingly made it more desirable to hire doers over strategists.

Most agencies are racing to build a ‘new’agency on top of their existing one.  While they do need some experience to prevent the thing from collapsing in heap, what they need most is staff that can get on and ‘do’ at a price point that makes the investments the agencies are making viable.  This effectively forces agencies to hire lower cost staff.  These of course tend to be kids from college who have no real experience but can tell you anything you want to know about Facebook and Twitter.  For this generation, SEO is a form of grammer and html was a choice alongside Spanish and French at school.  Given a brand is now defined by the size and strength of its social network, it’s hardly surprising that many agencies will value these skills over someone who has known the editors at a business publication for a decade.

So is it all doom and gloom for us oldies?  Far from it.  We can start and build these new agencies, they do after all need some adult supervision.  We can also explore the boundaries of owned, earned and paid media.  These are the places where real value lies and where experience can really come to the fore.  But we cannot assume that because we have decades of experience that our futures are secure.  We have to bring something of value to the transition to digital.  Identifying what this is is crucial and could yet save the careers of many.  We are in an era of marketing where the value of experience is trending downward.  In years to come that will of course change as digital becomes the norm but for now the digital natives are set to become the new leaders.  That may not be what people want to hear but our industry is, like many, Darwinian.  In our case the fittest are the digerati.

Digital is a massive opportunity for PR but…

We all have our favorite way of getting a point of view across.  This includes the structure of our arguments and the channels we prefer.  Yet if the digital revolution has taught us anything it’s that people want to consume content and conversations through their favorite channels, not the ones we may prefer.  So it concerns me that so many social media gurus are almost exclusively using Facebook and Twitter to help drive interaction with customers.  My fear isn’t that these are the wrong channels but rather that we are in danger of simply replacing an old set of channels (traditional media) with a new and arguably narrow set (social media).  In other words we are moving from people that were good at getting news media to get our news out, to people that are good at tweeting.  There is surely a lot more to digital than this?  Done right digital is about creating channel agnostic content and by engaging with the customer through their preferred channel (rather than ours).  By driving people to Facebook and Twitter we are being sensible in that a lot of people are hanging out in these places BUT we are missing a huge opportunity that digital creates and that is to be where the customer wants to have a dialog, rather than insisting they play on our pitch.  Some will argue that brands have simply followed customers to these places.  That is only partly true.  Much of the growth of Facebook and Twitter is because brands have adopted these sites.  My message to you is not that you abandon Facebook et al but rather that you shouldn’t assume that these channels are the starting point.  Digital is without doubt the biggest opportunity our industry has seen in decades. Let’s not waste it.