{"id":6460,"date":"2023-11-06T10:57:00","date_gmt":"2023-11-06T10:57:00","guid":{"rendered":"https:\/\/forest-1041a2.ingress-bonde.ewp.live\/challenges-in-growing-an-agency\/"},"modified":"2024-07-26T11:10:21","modified_gmt":"2024-07-26T11:10:21","slug":"challenges-in-growing-an-agency","status":"publish","type":"post","link":"https:\/\/benrmatthews.local\/challenges-in-growing-an-agency\/","title":{"rendered":"Challenges in growing an agency"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_68_1 ez-toc-wrap-center counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >On this page<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/benrmatthews.local\/challenges-in-growing-an-agency\/#Scaling_An_inherent_service_business_predicament\" title=\"Scaling An inherent service business predicament\">Scaling An inherent service business predicament<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/benrmatthews.local\/challenges-in-growing-an-agency\/#Growing_competition_from_everywhere\" title=\"Growing competition from everywhere\">Growing competition from everywhere<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/benrmatthews.local\/challenges-in-growing-an-agency\/#Differentiation_Both_necessary_and_a_hurdle_to_growth\" title=\"Differentiation Both&nbsp;necessary and a hurdle to growth&nbsp;\">Differentiation Both&nbsp;necessary and a hurdle to growth&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/benrmatthews.local\/challenges-in-growing-an-agency\/#Difficulty_in_providing_proof_before_buying\" title=\"Difficulty in providing proof before buying\">Difficulty in providing proof before buying<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/benrmatthews.local\/challenges-in-growing-an-agency\/#First_to_get_cut_when_the_economy_sours\" title=\"First to get cut when the economy sours\">First to get cut when the economy sours<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/benrmatthews.local\/challenges-in-growing-an-agency\/#Digital_Marketing_Both_an_opportunity_and_a_threat\" title=\"Digital Marketing Both an opportunity and a threat\">Digital Marketing Both an opportunity and a threat<\/a><\/li><\/ul><\/nav><\/div>\n\n<p>Once upon a time, marketing agencies were profitable businesses.&nbsp; They were tough to get into and get the first few accounts, but&nbsp; competition was reasonable and the business model provided&nbsp; sufficient profit margins.&nbsp;<\/p>\n\n\n\n<p>Today, that is no longer the case. It is very easy to get into the&nbsp; business, but it\u2019s very hard to grow an agency and make money for&nbsp; many reasons. <\/p>\n\n\n\n<p>Here are six of the toughest challenges to growing an agency.<\/p>\n\n\n\n<h2 class=\"&quot;wp-block-heading&quot; wp-block-heading\"><span class=\"ez-toc-section\" id=\"Scaling_An_inherent_service_business_predicament\"><\/span>Scaling: An inherent service business predicament<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The most profitable businesses scale very well \u2014 the cost of both&nbsp; adding more customers and servicing customers drops as more&nbsp; customers are added. This is not the case with service businesses.&nbsp;<\/p>\n\n\n\n<p>The only two ways to scale a service business are to land large,&nbsp; multimillion-dollar projects or to offer repeatable services sold in mass&nbsp; quantities. The first is very difficult in a field saturated with firms and&nbsp; new entrants, especially since the marketing field is shifting away from&nbsp; retainer contracts to individual projects. The second method, inspired&nbsp; by product companies, is just as difficult to pull off as it requires the&nbsp; particular service to have a large customer base and resemble a&nbsp; product that can be componentised and mass produced.&nbsp;<\/p>\n\n\n\n<p>By definition, service businesses offer a custom solution for each&nbsp; customer. Therefore, a project done for one customer cannot be resold&nbsp; to another, at least not without significant customization and changes&nbsp; that result in significant new costs. According to a report by&nbsp; The Economist, the traditional marketing skills of creative, graphics,&nbsp; advertising, and branding are resistant to scaling.&nbsp;<\/p>\n\n\n\n<p>This is in direct contrast to the software companies that compete in&nbsp; digital marketing. For example, consider Facebook\u2019s native advertising&nbsp;platform. Facebook must hire software engineers and graphic&nbsp; designers to create the platform, but it does not need to hire them at a&nbsp; rate directly proportional to the number of clients using its advertising.&nbsp; Revenues can grow much faster than costs.&nbsp;<\/p>\n\n\n\n<p>Similarly, small agencies must find ways to increase their ability to&nbsp; scale, meaning they must efficiently find new customers and service&nbsp; them at a much lower cost than they currently are.&nbsp;<\/p>\n\n\n\n<p>For marketing agencies, the threat of competition is acute: A 2019&nbsp; study on digital agencies by website builder Wix found that competition&nbsp; is the top challenge. There are relatively low costs to setting up a new&nbsp; digital marketing agency, so it is easy for new competitors to appear&nbsp; at any time. Fifty percent of agencies named competition as an issue,&nbsp; while the second greatest challenge noted was adapting to new&nbsp; technology.&nbsp;<\/p>\n\n\n\n<h2 class=\"&quot;wp-block-heading&quot; wp-block-heading\"><span class=\"ez-toc-section\" id=\"Growing_competition_from_everywhere\"><\/span>Growing competition from everywhere<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Competition especially affects smaller firms: <strong>94% of digital agencies&nbsp; have fewer than 50 employees<\/strong>. Yet, competition for clients among&nbsp; these firms is greater than that statistic implies. The majority of large&nbsp;&nbsp;<\/p>\n\n\n\n<p>firms are agency holding companies that own a number of specialized&nbsp; agencies. Consequently, these large companies can work with&nbsp; competing businesses and capture different segments of the market.&nbsp;<\/p>\n\n\n\n<p>New technologies are constantly revolutionizing the face of digital&nbsp; advertising, while new businesses launch in response to innovation.&nbsp; Recessions actually increase competition as laid-off workers start&nbsp; their own businesses. Despite current economic turbulence and&nbsp; high unemployment, the rate of new business growth remains high.&nbsp; <\/p>\n\n\n\n<p>According to the U.S. Census Bureau\u2019s Business Formation Statistics&nbsp; (BFS), new business applications grew each year from 2013 to the&nbsp; present.&nbsp;<\/p>\n\n\n\n<p>In 2020, business applications increased <strong>54.2% <\/strong>over 2019. The scale&nbsp; of the competition is daunting: The Digital&nbsp;Marketing Agency Industry Report estimated a <strong>23% <\/strong>increase in the&nbsp; number of new firms since 2019.<\/p>\n\n\n\n<p>Given this striking growth, small agencies must find ways to compete&nbsp; and win in the face of such relentless competition from everywhere.&nbsp;<\/p>\n\n\n\n<h2 class=\"&quot;wp-block-heading&quot; wp-block-heading\"><span class=\"ez-toc-section\" id=\"Differentiation_Both_necessary_and_a_hurdle_to_growth\"><\/span><strong>Differentiation: <\/strong>Both&nbsp;necessary and a hurdle to growth&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In software and other product companies, the differentiation scales&nbsp; with the product. Whether a vendor produces one or one million&nbsp; softwares or products, each one contains the same differentiating&nbsp; feature.&nbsp;<\/p>\n\n\n\n<p>With service, the differentiating feature is the service provider \u2014 the&nbsp; intellectual capital found within the individual doing the work. The&nbsp; differentiator, the creative work, is custom and doesn\u2019t scale. This is a&nbsp; paradox in that to compete and win business, marketing agencies must&nbsp; differentiate from competitors and demonstrate value beyond what&nbsp; in-house marketing teams can provide. Yet, this differentiator becomes&nbsp; the hurdle to scaling and growing.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<p>There is also a skills gap in the marketing world between&nbsp; agencies that need employees with technical and soft skills and the&nbsp; job candidates on the market. A report by The Economist and Marketo,&nbsp; which surveyed marketing executives worldwide, predicted this talent&nbsp; gap would drive the marketing world.6 The report states that CMOs&nbsp; \u201c<strong>want people with the ability to grasp and manage the details (in&nbsp; data, technology, and marketing operations) combined with a view&nbsp; of the strategic big picture<\/strong>.\u201d <\/p>\n\n\n\n<p>Another report by Econsultancy and SmartFocus surveyed 500 marketing agencies and found that <strong>30% <\/strong>of respondents rated \u201c<strong>finding marketers with the right skills<\/strong>\u201d as highly&nbsp;difficult.&nbsp;<\/p>\n\n\n\n<p>This labor shortage creates another major problem: <strong>high churn rate<\/strong>.&nbsp; According to a 2018 LinkedIn analysis, the turnover rate in marketing is&nbsp; the highest of any industry.&nbsp;<\/p>\n\n\n\n<p><strong>500 marketing agencies <\/strong>found <strong>30% of&nbsp; respondents <\/strong>rated \u201cfinding marketers with&nbsp; the right skills\u201d as highly difficult.<\/p>\n\n\n\n<h2 class=\"&quot;wp-block-heading&quot; wp-block-heading\"><span class=\"ez-toc-section\" id=\"Difficulty_in_providing_proof_before_buying\"><\/span>Difficulty in providing proof before buying<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A barrier to attracting new clients is the difficulty of proving&nbsp; competency. Clients only hire agencies they trust. In the absence&nbsp; of reassurance before jumping into a contract, corporations tend to&nbsp; choose in-house marketing. CMOs believe it is easier to track ROI&nbsp; internally, and when they do hire outside agencies, performance&nbsp; matters most.<\/p>\n\n\n\n<p>Once a marketing agency takes on a project, ROI is still difficult to&nbsp; prove, yet clients need quantifiable results. Finding new clients&nbsp;is difficult, as shown by a HubSpot survey, which found that&nbsp;<strong>60% <\/strong>of agencies struggle.<\/p>\n\n\n\n<p>As a result, most agencies rely on referrals&nbsp; and repeat business, which is not scalable.&nbsp;<\/p>\n\n\n\n<h2 class=\"&quot;wp-block-heading&quot; wp-block-heading\"><span class=\"ez-toc-section\" id=\"First_to_get_cut_when_the_economy_sours\"><\/span>First to get cut when the economy sours<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Marketing services are price-elastic. When demand is high, marketing&nbsp; agencies can charge high prices, but when demand drops, the price&nbsp; that clients are willing to pay drops. In a downturn, marketing budgets&nbsp; are the first to go. Beyond severely curtailing budgets, economic reces sions change the nature of the marketing field itself. The 2008-2009&nbsp; financial crisis accelerated the pivoting of B2B marketing to online&nbsp; marketing, social media, and analytics.&nbsp;<\/p>\n\n\n\n<p>The current 2020 economic recession created by the global&nbsp; coronavirus pandemic dramatically differs from previous downturns&nbsp; due to its cause. While unemployment remains at a historic high, the&nbsp; S&amp;P 500 also remains high and retail sales grew by <strong>1.2% <\/strong>in July. The&nbsp; long-term effects on the marketing world are still unfolding, but the&nbsp; impact is uneven. The tenure of CMOs is decreasing, yet a small part of&nbsp; the market is growing. The Association of National Advertisers found&nbsp; that <strong>36% <\/strong>of CMOs have increased their technology investments and&nbsp; <strong>12.5% <\/strong>have increased their media budgets.&nbsp;<\/p>\n\n\n\n<p>Still, consumer spending in general continues to decline. This, in turn,&nbsp; causes marketing budgets to shrink. Competition for remaining busi ness is intensified by the high number of new firms.&nbsp;<\/p>\n\n\n\n<h2 class=\"&quot;wp-block-heading&quot; wp-block-heading\"><span class=\"ez-toc-section\" id=\"Digital_Marketing_Both_an_opportunity_and_a_threat\"><\/span>Digital Marketing: Both an opportunity and a threat<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>On the demand side, technology such as <strong>SEO<\/strong>, <strong>Google AdSense<\/strong>,&nbsp; <strong>Facebook Ads<\/strong>, and other platforms has caused an increase in com panies doing in-house digital advertising instead of outsourcing it to&nbsp; digital advertising agencies.&nbsp;<\/p>\n\n\n\n<p>Digital marketing has contradicting implications for small marketing&nbsp; agencies. On one hand, more of the marketing is done digitally, and&nbsp; technology improves scalability and turns insights into results. On the&nbsp; other hand, digital marketing lowers the barriers to entry. Small&nbsp; agencies must not only compete with new competitors, but also with&nbsp; in-house marketing departments that feel they can do marketing&nbsp; themselves.&nbsp;<\/p>\n\n\n\n<p>The COVID-19 pandemic accelerated the shift to digital marketing, and&nbsp; e-commerce is one area of digital marketing that\u2019s currently growing.<sup>15<\/sup>&nbsp;<\/p>\n\n\n\n<p><strong>Janet Balis, Ernst &amp; Young\u2019s Americas <\/strong>marketing practice leader,&nbsp; stated that the current recession:<\/p>\n\n\n\n<blockquote class=\"&quot;wp-block-quote&quot; is-layout-flow wp-block-quote-is-layout-flow\">\n<p>\u201chas created a dramatic acceleration,&nbsp; first and foremost in terms of customer behaviour, and then in terms of&nbsp; leadership priorities, where things that would\u2019ve taken years are now&nbsp; taking a matter of weeks or months with respect to digital marketing.&quot;<\/p>\n<\/blockquote>\n\n\n\n<p>Digital marketing increases competition for clients, forcing marketing&nbsp; agencies to struggle to distinguish themselves. With social media, it&nbsp; is easier than ever for rival marketing companies to copy social me dia approaches and online strategies. New players with technological&nbsp; solutions often offer low prices in order to enter the market and attract&nbsp; clients, and more companies take advantage of digital tools to conduct&nbsp; in-house marketing.<\/p>\n\n\n\n<p>As we have seen above, small marketing agencies face a number of&nbsp; challenges and must find viable, cost-effective strategies to compete&nbsp; and win profitable business in this new age. The next section provides&nbsp; an effective guide for addressing these challenges.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Once upon a time, marketing agencies were profitable businesses.&nbsp; They were tough to get into and get the first few accounts, but&nbsp; competition was reasonable and the business model provided&nbsp; sufficient profit margins.&nbsp; Today, that is no longer the case. It is very easy to get into the&nbsp; business, but it\u2019s very hard to grow [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2567],"tags":[],"class_list":["post-6460","post","type-post","status-publish","format-standard","hentry","category-agency"],"_links":{"self":[{"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/posts\/6460"}],"collection":[{"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/comments?post=6460"}],"version-history":[{"count":1,"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/posts\/6460\/revisions"}],"predecessor-version":[{"id":10843,"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/posts\/6460\/revisions\/10843"}],"wp:attachment":[{"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/media?parent=6460"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/categories?post=6460"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/tags?post=6460"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}