What We Learned in 2022 That Will Help Agency Owners Be More Successful in 2023
When it comes to growing your agency, knowledge really is power.
At Prosper Group, 2022 was a year filled with many significant lessons we learned for marketing communications agencies. Working with the owners of independent firms throughout the United States, we experienced first-hand their most important challenges and opportunities.
The purpose of this piece is to share our key findings from 2022 so that agency owners can be even more successful in 2023. These are organized into two sections below:
1. Operational issues which have been a struggle for many firms.
2. Observations about M&A today.
Five Significant Operational Issues Which Get in the Way of Agency Growth, Market Value and Owner Wealth
Many agencies are struggling (or not fulfilling their potential) due to one or more of these problems. Fortunately, they’re all fixable if you truly commit to doing so.
1. The agency doesn’t have a strategic plan. To be successful long-term, agencies need a strategic plan which goes beyond simply the financials to drive decisions, investment and culture. Many agencies don’t understand where their owners wish to take the firm and how they’re going to get there. This seriously inhibits the ability to grow, sell and maximize wealth creation. And it’s not enough just to have a “plan”. Your strategic plan needs to be thorough, reviewed in detail at least twice each year and regularly updated.
2. There’s no clear exit path for the owner. The ideal path allows owners to exit their agencies on their own terms and timing. However, many of them wait too long to plan their exit and then are often stuck for even more years figuring it out. To compound the problem, most owners don’t have the right compensation plan and equity path needed to attract high quality successors. (On the other hand, many owners in their 50s and 60s are now more open than in the past to sharing equity with their senior team.)
3. The agency still isn’t competitive in digital. The digital arena is a cash cow for many agencies, particularly the creation and placement of digital advertising. Unfortunately, many other firms lack the digital programming skills to take full advantage of this. These agencies try to get by with junior or mid-level talent instead of investing in the senior, proven people required to compete effectively in this area and attract larger budgets.
4. There is no coherent strategy and process for organic growth. Generating growth from existing clients can be much more achievable and efficient than trying to attract new ones. Yet most agencies are too often passive and disorganized in this regard and leave it to account leaders to do whatever they feel comfortable doing. This generally means being satisfied with the status quo. The most successful agencies view organic growth opportunities to be as important as new business and execute carefully crafted plans, processes and the allocation of resources for pursuing both.
5. Second-tier account leaders aren’t being trained to become business generators. Where that’s the case, the agency is hurting itself two-fold by a) missing out on additional new business opportunities today and b) seriously damaging longer-term prospects when these same people become directly responsible for growing the firm.
These leaders need to learn now (not tomorrow) how to network and then convert those relationships into viable leads that generate revenue. They may need to be pushed to change their mindset from being farmer to hunter. Agency owners must understand that achieving this monumental change in this group’s behavior is vital to the owner’s ability to monetize and exit the business (via sale or passive ownership).
Finally, when a second-tier leader has demonstrated his/her ability to consistently win business, agency owners are often too slow in locking them in for the long term. Don’t be one of them. Recognize and reward their value by developing an appropriate compensation plan.
Five Important Findings That We’ve Experienced in the M&A market.
During 2022, Prosper Group was involved in 21 M&A transactions. Here are some of the most noteworthy findings to pass on to you agency owners.
1. These categories are the most attractive to buyers. Healthcare and digital marketing agencies are the two high growth/high margin categories which continue to attract the most interest from buyers. Other emerging categories include public affairs and social good. Even very small agencies which focus on biotech or the science of healthcare are being pursued. For example: We’ve seen firms with less than $2,000,000 in revenue attract serious interest from viable buyers.
2. Private equity and management consultancies buy for strategic reasons. Both continue to be interested in acquiring the right communications agencies which fit their strategies and fill holes in their portfolios. Private equity firms in particular are very interested in agencies which have productized their offerings because this makes them less dependent upon specific people for success. Further, private equity’s “A second bite at the apple” model has definitely attracted attention. To take advantage of being able to cash in twice for selling their firm, many younger agency owners are now considering selling earlier in the agency’s evolution than in the past.
3. More mid-sized agencies and larger independents are becoming viable buyers. These firms often have financial backing from sources including venture capital and private equity. This has allowed even agencies with less than $10,000,000 in annual revenue to be credible buyers of smaller independents.
4. Foreign buyers have become more active. We’ve been seeing more transactions involving buyers from the United Kingdom, Europe and Australia.
5. If you want to sell, make sure your numbers are reliable from the start of the process. Sellers who go to market without a seasoned CFO are at a disadvantage. Too often, agencies’ projections and financial guidance are inaccurate. This scares buyers away or causes dramatic changes to the Letter of Intent.
If you’re thinking about selling your agency, take the time to do it right.
To learn how to maximize your agency value, click here to review Part 1 of our recent in-depth piece on this critically important subject and click here to review Part 2.
In Closing
Whether you’re faced with any of the operational challenges noted above (or whatever the issue might be) or considering a sale, merger or acquisition, Prosper Group helps agency owners solve problems and take full advantage of opportunities.
Please feel free to contact us at any time so that we can learn more about you, your goals and situation.
We’re here to help you prosper.
Prosper Group exists to help the owners of independent marketing communications agencies achieve their ambitions and maximize the value of their life's work.
Our team of former agency leaders and owners focus their deep experience on implementing proven proprietary methodologies across our three practices of agency performance, owner exit planning and M&A transactions in order to drive owner and agency success.
To learn more about us, please visit our Services section.
