Friday, July 29, 2005

Would you invest in this business?

Imagine you're pitching an idea for a business to a group of venture capitalists. This is your basic pitch.

People ask us to make things. We make a number of different things in the hope that one of these things will be the precise thing they want. If it is, they'll continue to pay us to make things for them. Except that the other things won't be the same. They'll be similar, perhaps, but they will have to be different. There might be some efficiencies gained from the previous things we made, but they'll be marginal. Of course, we'll also have to maintain a vast array of resources that most of our clients will use only on an intermittent basis. In fact, many of our clients will use only a very small amount of our resources. Our fundamental business involves constantly making new things that our clients will expect to be original and exciting. In order to succeed, we'll have to do this over and over and over again. Oh, and we'll have to regularly upsell our clients on the value of those aforementioned resources.

Yes, you're pitching the standard advertising agency business model. And by the end of your pitch, you're speaking to a very empty, very quiet, very lonely room.

There's been no shortage of talk about the ad agency business model in the last few years. Still, I'm amazed by the slow pace of change. As the media landscape has shifted, the agency model has proven intractable. Agencies continue to work towards success through the basic model — working diligently, I might add. Fact is, there are many extremely smart agency people working very hard to succeed with a fundamentally flawed business model. Of course, clients who continue to shift accounts from one holding company agency to another holding company agency don't exactly force the issue either.

But I think business realities are going to force the next generation of shop to emerge. I'm sure you'll be shocked to hear it's hardly an agency and a bit like our startup. Seriously, I think agencies have to morph into being companies that create interesting stuff — harnessing the power of the talented people who work for them to produce films, web content, books and whatever else they can dream up. Including, on occasion, advertising. Sometimes it will be on behalf of existing clients and sometimes it will be speculative. Media buying arms will be the distributors and separate entities.

The venture capitalists still might not like this kind of creative enterprise — they tend to like widgets and software and anything with the prefix bio. But I think at least a few of them would stick around and listen.

6 Comments:

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8:52 PM  
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6:43 PM  
Blogger Dan said...

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11:31 PM  
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3:21 AM  
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