I’ve been here before.
I know what happens.
In the crash of 2008, we saw Advertising Agency income drop
a ‘mere’ -40% because, put simply, Advertising is the first thing clients
switch off when they struggle. It’s easy. They stop Ad expenditure today,
without the need for even a Board meeting and when they’re looking through
their P&L, they see big Advertising savings sticking out like a sore thumb.
Today, it looks like it might be heading to a shocking figurative
zero.
You can of course, continually tell them that they’re wrong
– brands who advertise in a recession stay stronger blah blah blah – but it’s
like standing on Dollymount strand trying to push out the waves. They’ll cut
Advertising first, and frankly, if I was them, so would I.
When it’s a choice between letting people go or, stopping
Advertising, which would you do?
The 2008 crash looks halcyon, because today, it’s looking
like Advertising is going nowhere now and, when businesses get back,
Advertising will not be top of their list either.
They’ll be more concerned
about getting their machines fired up, people back to work, sales calls, getting
drivers on the road, putting product in the hands of customers to generate
income, to perhaps, advertise then only when they’re paid. So there’s going to
be a time lag.
Added to that, as we sit here in April, it’s looking like a summer
time lag, at best. The 2008 crash took nearly 2 years to right itself.
Which summer coincides, as the horrible Ad gods would have
it, in the annual June/July/August ad shutdown anyway. Most Agencies
traditionally do more business in an October than June/July and August combined and that’s been the way for a
thousand years. The perfect storm.
Like all businesses, Agencies have fixed monthly overheads
(probably 30/40% of income). Rent the obvious one (I know Agencies faced with
100k+ a month rent) but there’s also staff vhi, mobile phone bills, likely 5%
pension contributions, insurance, company cars and so on. Then there’s the salaries
representing 60/70%.
Deferring the fixed overhead now, is possible, to avoid the
constant dip into current cash reserves but in effect, you’re just moving debt
into other months. It’ll still have to be paid, have to be financed from cashflow
later. That day cometh.
Staff salaries can be cut (if they agree), redundancy is a
substantial cash cost now, so you’ll avoid that, and anyway you’ll need those
staff resources too in order to provide a service later. Agencies are a measure
of their staff after all. Your assets go home in the lift every night.
In the short term, the likely course is you’ll finance as
much of it as you can from reserves and defer what you can. See what happens.
Too big to fail. So were we, Ireland’s biggest Agency at the time.
A ‘holding pattern’ in the hope of better days ahead but
with no clients today in the mood or even available for business conversations
(they too have other things on their minds), you’re living in hope. Fingers and
toes crossed.
You cheer yourself up with ‘what if’ healthy looking projections
that do not materialise. Possibly government assistance will help? (They will until they run out of cash too and
bonds will eventually start to wobble). Or bank loans for liquidity? (They
won’t because like you, they don’t know where you’ll be in three months). You
think, but it’s all short-term. Then you open the wine.
We did all of that and in time, it’s worthless.
Because as no bright horizon appears, the debt burden
increases and either you pull the plug or someone else does and, it comes
quickly. We were trading on a Monday, gone on a Thursday morning. Four days. We
should have acted faster and not lived in hope, and kept our reserves.
There is a way out. The change that needs to be taken now, is
structural.
I have been beating this drum for 10 years – all business is
an online business. That includes Agencies and if ever you needed the proof,
look around you today.
The solution for Agencies is to provide their services
online, as much as they can, without the need for high staff (and the
associated other overhead such as cars, pensions, mobile phones, vhi), no high
rent and frankly, better 247 365 delivery. Automate whatever you can and it
makes Clients stick.
Client self-op platforms for Planning, Media buying
(Traditional and Digital) in real time, Automated Invoicing, Online
support/advice via Skype (to home workers in some cases), sophisticated Client
dashboards and even creative uploads of Advertising material. Media Agencies
can do what they do best in person, Media Planning and then automate all Media
buying but with the same margins.
Admatic has that turnkey solution for Agencies.
You start now and you/we build on it. We do it with you
because we know the Agency business. Backwards. We’re here to help.
The game has changed, the time is up, move fast and move
now.
Been there, done that and have the T-Shirt.
It cost me 33 million.
That’s the T-Shirt that you don’t want.
Stu
Fogarty is a former President and Fellow of The Advertising Institute (IAPI);
Board Member and Fellow of The Marketing Institute; Chairman of The Advertising
Press Club; Board member of The Publicity Club; former Ad Agency CEO and Owner
of Ireland’s largest Ad Agency AFAO’Meara/McConnell’s; Founder of Club Internet
(floated Nasdaq March 2000 as Via Net Works); founder of ICAN; Founding
Director Realex payments.
He
currently runs Admatic Ireland and Streamabout The Video Agency.
