For any agency, deciding when to seek external investment can be challenging. Is exchanging capital for control worth it? When’s the right time to take it? Early on or once established? On an upswing or when times are tough? How will your people react? If you're at the point of investment, you've spent years building an agency, primarily a collection of wonderful, weird, and highly intuitive individuals, so getting it right (as opposed to just getting the investment) is important.
By Ben Ingersoll, Co-founder at minds + assembly
The first question is “Why?”. There are any number of answers, but the simplest one is: growth. Any agency owner will tell you that growth is the lifeblood of their business. The pursuit of new business, through expanding accounts or acquiring new clients, is constant. However, there is a limit to amount and rate of growth that an agency can achieve, especially when the competition is adding new services and expanding their offerings. This is precisely when the prospect of external investment emerges as a strategic move that can accelerate growth and speed objectives.
When approached the right way, the results of external investment can be phenomenal. One example that comes to mind is WPP's successful acquisition of AKQA in 2012. From an external perspective, the agency has grown and thrived while retaining its creative spirit. (Full disclosure: I have no inside knowledge of this agency or this deal.) However, when it goes wrong, the consequences can be disastrous and depressing. I experienced this first-hand, while working at one of the large agency networks. I arrived soon after my agency had acquired a small promotional healthcare agency. As far as I could tell, there was no real strategic reason for the sale, the owners of that agency were saddled with an onerous earnout (delayed payment tied to the achievement of financial benchmarks) that ended up creating acrimony all around.
Balancing capital and control
External investment can speed up service and resource growth, allowing you to offer more value, faster. Yet, for agency owners, the decision to seek external investment involves a critical trade-off—capital for control – and it warrants careful consideration. Of course, the prospect of a cash infusion is exciting. Also, most people feel a justifiable sense of pride at having built something worth selling. But choose the wrong investor and you may end up watching helplessly as your beloved creation becomes unrecognizable.
First, examine your motives. Second, define the need. Third, find the right partners. Going from the land of creative concepts to fleece vests and bankers doesn’t mean you have to leave your instincts behind. As our banker said, at the end of the day, it’s always a people business.
In the vast landscape of possibilities, agency owners have several avenues to explore, including large public or private networks and private equity firms. The key is to assess each potential suitor individually to ensure they align with the agency’s vision and values.
Also, keep in mind that not every deal has to be a total acquisition. In some cases, a minority investment can provide the right amount of capital to achieve your goals. The most important question – which is the same question you probably had when starting your business – is can you rely on the people you are connecting with? Do they instil confidence? Will they advance the agency’s interests and amplify its potential. This also why every agency leader should always have a true understanding of what their company stands for and a clear vision for where it’s going.
Timing is everything
Patience is crucial when considering external investment. While early investment offers may be tempting, waiting is often wise. Establishing a strong foundation of talented people and a stable portfolio of accounts and loyal clients, will provide you with a better a better grasp on the agency’s identity and its long-term direction.
Patience can also lead to more favorable negotiation terms. For example, at minds + assembly, my partners, Joelle Friedland and Stephen Minasvand, and I waited 8 years before we sold our agency to a private equity firm, Amulet Capital Partners. This may not seem like a long time, yet we passed up 2 opportunities to sell within our first 3 years in business. In truth, the idea of selling didn’t enter our minds until we determined that it was the right move to accelerate our growth.
The selection process
Assess your strengths and weaknesses. If it’s a single offering that you lack, a merger or strategic partnership might make sense, enabling both parties to leverage their strengths and align efforts. If global expansion is essential for your growth, prioritize it. Be cautious about potential partners who might view your agency as a mere addition to their structure. We had one meeting with a potential suitor (a large holding company) where their leaders were asking themselves why they might need to buy us and which giant agency might absorb us. Not exactly encouraging.
The bottom line may not be the bottom line
Regardless of the route chosen, it’s crucial to remember that every deal is, at its core, a human exchange. Cultivating a harmonious relationship with your investment partner is paramount. Trust your instincts. If something doesn’t feel right, it likely isn’t. Unless you are in desperate need of capital, be prepared to walk away. In any negotiation, the party with the least need for the deal typically wields the most power (thank you HBS). Investment decisions are a complex terrain but, when timed right and paired with the right partner, external investment can supercharge an agency’s growth in many ways, allowing you to thrive in an increasingly competitive environment—and continue to have fun doing it.