Andy Fletcher, President and CEO, was kind enough to write-up the following case study of his agency’s transition to what we at VeraSage call a Professional Knowledge Firm. Here is Andy in his own words:
About two years ago I began to wonder if there was any hope left for the advertising agency industry. Really. Any hope at all?
It seemed to me that our industry was in a freefall nosedive and we just weren’t strong enough to pull up and out of it. Agency/client relationships had slipped to an all time low of less than three years, major advertisers had relegated the agency selection process to search firms and our compensation was put in a queue in the purchasing department. Agencies had finally become interchangeable. Surely not a commodity, but all too close for comfort.
Obviously I had become a bit overly dramatic. Our industry is as alive and well as most any could be considering the current economic climate. More importantly, I have realized it will do me or my company very little good to try and change the entire industry.
My agency, Fletcher Martin, is located in Atlanta. We are majority owned by a holding company somehow headquartered in both Toronto and New York. Of the multiple entities that make up the MDC Partners dynasty, we are somewhere in the middle in terms of size. When it comes to fame, we pale by comparison to our wildly successful big brothers in Miami and Boulder. Crispin Porter + Bogusky casts a long and foreboding shadow throughout our corporate family and the industry at large. For this I am surprisingly grateful. The attention they garner on a regular, if not daily basis, has allowed my agency to embark on an entirely new approach to our business. Our success will provide a possible template for other MDC agencies to explore. Our failure (perish the thought) would cause no over arching financial effect.
In a nutshell, we changed everything about our business model. We weren’t stupid or even fool-hearty. For our existing clients, we continue to operate under the terms and conditions that were in place at the time they selected us as their agency. To expect them to adopt our new approach after the fact would be both unfair and ungrateful. We hope, however, that some will explore that option as our success continues to mount. For this particular discussion, I will focus solely on our new approach to compensation. It is not entirely new or totally unique, but it is nonetheless rare.
There were five critical factors that shaped our new compensation plan. First, our steadfast belief is that clients actually don’t value “free” even though they may seemingly ask for it all the time. We took a candid look at our recent (i.e. about the last ten years) recommendations to our clients. We eliminated those that our clients paid us to develop. We selected what we thought was the best strategic advice we had offered. Sadly, we determined that none of our best counsel had been implemented. Now I know you could say that that our thinking was blatantly flawed and rightfully rejected. You could also conclude that our clients showed insight and wisdom to select alternative approaches. But the fact remains, we instituted and executed the strategies that they put forth. We did so honestly and with honorable intent. After all, the execution of their existing approach was our only opportunity for compensation. To no one’s surprise, we failed, they failed and a new agency appeared on the horizon.
Second, with failure having been confirmed with a client’s current agency and failure almost assured within three years with whomever they hire, everyone is looking for a better deal. I actually used to be amazed at this one simple fact—when a marketer fires their agency, they automatically want to pay the next one less money. They actually seek success for less than they paid for failure.
Third, agencies make the same amount of money whether their work performs for the client or not. We have become somewhat like professional athletes. It doesn’t matter if we help our team win or lose, we will still get the same check. Unfortunately, it appears most all of us in our industry are willing to accept the league minimum rather than those headline generating, multi-year contracts.
Fourth is the always stated desire for a “partnership” between the client and their agency. It would seem that this little topic would be the most easily achieved. After all, clients routinely include their desire for an “agency partner” in their RFP, and agencies mention “partnership” in their capabilities about as often as they as they do “integration.” I acknowledge this as a noble goal, but it is none-the-less unachievable. In a true partnership, one partner does not pay the other. They share. In a true partnership, one partner does not fire the other. Normally one buys the other out of the partnership. You get my drift.
The fifth and final factor is the actual assignment or “scope of work.” Too often agencies are asked to provide the next executions of failing strategies. Marketers jump to the conclusion that a new agency will breathe new life into a tired brand message. They skip the often painful process of reexamining their product, service, distribution and ultimately the customer expectations that have no doubt shifted in their marketplace. This all but assures the new agency will fail. We tell our clients it just doesn’t matter how well you say the wrong thing. So, what did we do? We eliminated the assumption of failure. Shocking, I know. We only engage with a new client on the following terms.
We will only work with clients who allow us the opportunity to fundamentally affect their strategy. We will not produce any speculative recommendations or “initial thinking” until we are engaged. Subsequently the client must allow us to challenge their current strategy and provide us full access to all senior management within their firm, current customers, channel partners and market data and research. This evaluation will result in a fully executable strategy in detailed plan form. To assure success, the client must pay for this plan. The price we charge is based on complexity of the assignment and degree of difficulty. We believe that the more differentiated our client’s products or services are, the less difficult it is to develop the strategy. The reverse is obviously true if the client lacks meaning inherent differentiation. In those cases we charge more. It has been proven that our new clients are much more attentive to the planning process and place high value in the ultimate deliverable due to their financial commitment. Because the client paid for the plan, they own it. They can give it to any agency to execute. If they want us to execute it, we move to a new phase. We will risk our entire compensation going forward against success of the new strategy.
It really is simple. If our client doesn’t achieve greater success (make more money) with us than they did before us, we shouldn’t get paid any more money. None. If they make a little more, then so should we. But if they make a lot of money, then so should we. We should be paid based solely on success. Not based on how many hours we spend or on a percentage of how much our clients spend in advertising. We are still not a “partner” but we are unquestionably in the same boat.
There is real upside for the client. Failure is cheaper than ever before and success is the only result that costs them money. We love it because we can make real money for our work, but only if the client succeeds.
As you can imagine, many companies we present this to push back. Their greatest fear is that we will somehow get credit for their success that was not our doing. That’s fine. If there are so many things going right for their sales unrelated to our efforts, they probably don’t need a new strategy any way. Others have mentioned they have no way to truly measure success. For instance, what if top line growth is as important as other criteria? No problem. I have never known a CEO that didn’t know if his or her company wasn’t more successful one year to the next. However they judge it, we’ll make it work. Frankly, we’ll use their personal compensation deal. However they calculate their incentive plan is good with us.
To pull this off, we had to change a lot. We no longer participate in traditional agency reviews. They almost always require spec work. We have to say “no” and that is almost unheard of in our industry, let alone our previous culture. We hear frequently that there are “plenty of agencies out there that don’t charge for the strategy.” We eliminated timesheets to eliminate any temptation to charge hourly “just one more time.” We have to stick to our guns. Our clients pay half of the strategy cost before we even begin. That almost always generates spirited discussion.
So far we are more than pleased. We have been hired by good new clients. Our work is improving because it is based on solid strategies. Our clients really like the reality of our success being solely tied to their success.
Congratulations to Andy and his entire Team at Fletcher Martin for being another brave penguin, among the first in the profession, to leap off the iceberg!
