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Why Agencies Should NOT Act More Like Startups

“Agencies should act more like tech startups,” a recent article in Fast Company proclaimed. The basic argument was that agencies needed to embrace the culture of creating software to remain relevant. Having worked at both a large media agency as well as a small software startup, I don’t agree. Here’s why:

Agencies are the startups that have made it. In the late 1960s, at the height of advertising’s creative revolution, ad agencies were the startups of their day. Jerry Della Femina, the infamous New York creative director and one of the original Mad Men, estimated that back then up to 200 ad agencies were started each year. Like today’s startups, only a handful would ultimately make it.

Flash-forward a couple of decades to advertising’s next revolution, the rise of the media agencies, and the startups were the new planning and buying agencies. Whether it was Irwin Gotlieb in New York forming what today is known as MediaVest or Chris Ingram in London building CIA (now the “C” in MEC), media was the hot place to be in advertising.

The creative and media shops that made it are now decades old. To think that these successful, mature businesses are now going to behave like adolescent companies blowing through cash and changing their business model every month is as improbable as it is impossible.

Agencies make for lousy software companies. With the possible exception of Avenue A giving birth to the ad server Atlas, the record of agencies developing and then supporting a great software product is mostly unblemished by success. The reason isn’t that people at agencies don’t have good ideas for products. They know better than many entrepreneurs what software the marketing industry actually needs. After all, it was Irwin Gotlieb who taught himself how to program in Fortran in 1973 so he could build modeling software for his agency.

The problem is that most agencies aren’t structured to develop software. Software companies require years of funding before they can turn a profit. Agencies must make a profit consistently or they will go out of business. The big agency holding companies measure their agencies on the compensation they pay to employees versus the revenue they bring in from clients. If that ratio gets too far out of whack, heads will roll.

Even if an agency carves out a special budget for software development, often it doesn’t have the flexibility to maintain the product. Winning and keeping accounts is essential to an agency and takes up management bandwidth. Wooing software engineers often depends on being able to offer stock options. Mature agencies typically don’t have the kind of time and resources available to then continually improve a tech product.

Clients make for lousy agencies. Marketers long ago accepted that it’s not possible to have all the necessary expertise in-house, whether it’s in creative, media or social. Just as an agency can’t become a software company, a marketer can’t become an agency. There are too many structural and financial impediments to make that happen at any kind of scale.

Agencies are more important than ever. The pace of change in media is faster than it has ever been. A couple of years ago it appeared that every marketer should be building a mobile WAP site. This year is all about social platforms. What does the recent Facebook product release mean to marketers? Should clients continue to embrace Twitter? What about Foursquare, Google+ or Tumblr? These kinds of questions are best answered by the people working at the intersection of marketing and technology: namely, the people who work at agencies.

Agencies provide a service that is more valuable today than ever before.

This post originally appeared in Mediapost.

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