How to start an ad agency—founders share tips from incorporation to branding

This is part of a recurring series of stories aimed at educating readers on how to break into advertising and marketing or land a new position. Read the first installment here. A seemingly never-ending stream of advertising executives are opening their own agencies, often driven by a determination to do things differently than the traditional shops that dominated the industry for decades. New agencies announced in the past year include X&O, Flower Shop, Someplace, Quality Experience, Mel, Magic Camp, Local Heroes, FiveO, Schaaf, Creyentes and Dang. Ad Age Agency Report 2024 Revenue and analysis for agency companies Click here There were 13,998 ad agencies in the U.S. in 2023, up 2.4% from 2022, according to an Ibis World report. That number is likely to be even higher in 2024, given the amount of new shingles hung so far this year. But for some, it may not seem entirely clear how to go about opening your own agency. Where do you start? How do you register your business? What resources do you need? What should you expect? Ad Age asked 18 agency founders and experts to answer these critical questions and others, mapping out a guide to help executives navigate the process. Also read: New agencies are opening rapidly “It’s the highest highs and the lowest lows, being a business owner,” said Keith Cartwright, an alum of agencies including 72andSunny and Wieden+Kennedy who opened his Los Angeles-based, WPP-backed shop bearing his name in 2020. While working for other agencies, Cartwright said that he often felt frustrated by founders and creative leaders “who want to give you the reins, they really want you to make it your own, they might even use that language, but truthfully, it’s their vision and it’s their shop. It’s actually your responsibility to take their vision and expand it, not change it. “I realized that if I have these great ideas, I need to go and exercise them and do it myself,” said Cartwright, who is also chief creative officer of his agency. “To anyone who wants to start their own business, are you running up against that same frustration?” If the answer is yes, Cartwright said, it’s time to consider opening up your own shop. Agency Review Tracker Stay up to date with the latest account reviews Click here What is your business idea? Before you go about setting up your company (and we’ll get into how to do that, too), you first have to determine if you have a unique business idea that is in demand and worth pursuing. “The paperwork is the easy part,” said Kendra Schaaf, formerly the managing director for Mojo Supermarket, who launched a creative consultancy bearing her last name in February. “The hard part is defining your company, your offering, your service and then finding [clients] who are willing to take a chance on you.” Schaaf, who also serves as the CEO of her agency, said she put her name on the door “because I wanted to commit to this company,” which is set up to go beyond traditional creative and instead focus on solving business problems through strategy. “You have to be confident and you also have to be a little f—king stupid, because if I knew how difficult it was to start this thing, I’m not sure if I would have started it,” Schaaf said. “It’s important to be real about how difficult it is to start a business. Anyone can establish a company. What’s hard is persevering—day after day, when people don't return your phone calls, don’t return your LinkedIn messages, when people cancel meetings on you five minutes before; that’s the hard part.” But if you believe in your vision and keep at it, the clients will come. Schaaf launched with clients including Meta, Planned Parenthood Federation of America, Savage X Fenty and sustainability nonprofit GrowNYC. New agency founders should be wary of building a business around a trend, said Jordan Warren, a serial entrepreneur who has founded several agencies including Eleven, Argonaut and TBD Advertising. He currently is a fractional CEO for agencies including Hogwash Studios, a hybrid production and creative shop founded in 2019. Warren said agency founders should ask themselves, “Does this idea ultimately make sense in a couple of years, or does it just make sense right in this moment? If it doesn't answer that question, I’m not sure if it would be a forever solution.” He suggests founders be wary of trends that could be short-lived, such as agencies that formed around mobile advertising or Web3. “Ultimately the most important thing is to understand what clients’ real needs are and what problems you can solve for them.” Magic Camp Founder and CEO Holly Willis said she “spent about six months researching” what her business proposition would be. “I talked to old clients, old colleagues, consultants, procurement teams. I looked at disruptor companies, I looked at disruptor brands. I was trying to understand what structurally was so different about the agency model versus most businesses that have found success,” she said. See America's Hottest Brands 20 brands that are trending in 2024 Click here Willis said she wanted to build Magic Camp into a place employees wanted to stay, in an industry notorious for its high turnover. It did that by implementing a four-day workweek and a deliverables-based compensation model, versus how agencies traditionally get paid, on billable hours. “We also do quite a bit more operational marketing consulting and strategy consulting at the beginning of a project versus emphasis on just the end product,” Willis said, explaining its differentiator for clients. “So, by the time that we get to that creative output, we’re really focused on what it is that we're trying to do to move the needle forward for their business.” Also read: Agencies help employees recharge this summer What is on the to-do list? There is what might feel like an endless list of tedious tasks you need to do when starting a company. Take it one step at a time and, remember, Google is your friend, according to many of the executives who spoke with Ad Age. One of the first things on the checklist should be to figure out what kind of company you’re starting: an S Corp, C Corp or LLC. Per LegalZoom, setting the business up as an S Corp is a good fit for small organizations with up to 100 shareholders; owners are not personally on the hook for business liabilities, are taxed once and shareholders pay only on profit. C Corp is good for larger businesses that may go public one day; they can issue shares to founders, employees and investors, but are taxed twice (the company pays at the corporate level and shareholders pay on income received). With an LLC, you can have an unlimited number of owners, you are also not on the hook for business liabilities and you can be taxed once or twice (that can be determined based on whatever helps minimize taxes). Of note, LLCs are also not recognized globally and can never go public. Warren advised agency founders to hire a lawyer to help determine how to incorporate their company. You must then determine whether you want real estate (many agencies these days are fully remote) and where you will set up shop. Flower Shop Co-Founders Al Merry, who is also the agency’s chief creative officer, and CEO Mary Lou Bunn landed on the first office they checked out: a former plant shop on the Lower East Side in New York. While the office space made for great press, Merry said it actually wasn’t the most financially sound decision given “retail storefronts have a higher per-square-foot cost than traditional office space, which I did not know at the time. But it has worked out and it just feels totally right.” Merry said Flower Shop is living proof that the “right way” isn’t the only way. He and Bunn recalled having their first client meeting when their office was a construction site and a worker had to use a crowbar to open a bathroom. “Thank God [the clients] were cool,” Merry said. “Start with the real estate,” Cartwright said. “Finding space, security, WiFi, making sure you have equipment and equipment loans if you need them, making sure that someone is readily available to come in and repair that equipment. Understanding the importance of HR, whether you’re vending that out or you're borrowing it from a network.” Business insurance is not always something agency founders, especially those with a creative background, think about, said Eric Segal, co-founder of X&O, a consultancy that relies on a network of anonymous freelance executives such as chief marketing officers, creative leads and strategy experts to work on client projects on an as-needed basis. “You just go out there and then you work with your first client and then they tell you, ‘Hey, we require our vendors to have X amount of insurance,’” Segal said. “It’s a lot of Googling and a lot of stuff that’s probably outside of the core skills of the people starting these [agencies].” Because X&O relies on freelancers, Co-Founder Brett Banker said the firm had to work with a lawyer to create contracts. He advised agency founders to be as prepared as possible to handle “stuff you’ve just never done before.” “I get a ton of mail that’s HR-related, insurance, administrative stuff,” Banker said. “Filing your company's annual report. We have an employee dealing with worker’s compensation and disability that you just don't know [about], but you need to stay on top of.” Consider trademarking your agency name and “you obviously need a website,” advised Tori Nygren, creative director and founder of Hogwash Studios. “And then you need to establish values and a handbook of forms,” Nygren said. “It’s not the sexiest thing, a handbook, right? But it’s really helpful. Map out the things that people who are working for you are going to want to know like, ‘Hey, when do I get to go on vacation? If I’m sick, what do I do?’ These are very basic things, but they’re really important.” Warren emailed a helpful checklist to Ad Age: There are also online resources agency founders can use to source certain necessities including HR and recruiting. X&O, for example, uses Gusto’s cloud-based payroll, benefits and HR management software. Chris Mele, co-owner and managing partner of independent digital product studio Siberia, which spun itself out from United Talent Agency in June 2023, said he used LegalZoom to register his business and payroll and compliance provider Deel to hire global teams. “The software and service stack has never been better for SMBs to get the ball rolling,” he said. How will you finance your agency? Figuring out how to finance your agency is a big step, too. Options include securing a bank loan, finding investors or self-funding it. Self-funding works for small startups with little overhead. “We didn’t require significant funding to start,” said John Geletka, founder and chief experience officer of Chicago-based agency Geletka+. “We began with a few consulting contracts that covered essential expenses like legal and accounting fees. We’ve avoided taking on outside money, investors or significant debt, except for standard operational liabilities such as credit card expenses.” Corner Table Creative Founders Rachel Brandt and Madeline Meade said they each put $20,000 into the business when they started it this year, but that amount isn’t necessary. They said their startup costs were under $10,000. “There are some brilliant small businesses that I admire in agency land that are five or six people that I would imagine have, apart from their staff costs and a little bit of rent, really small overheads,” said Cade Heyde, global partner at independent creative group Special, which is completely self-funded. “As soon as you’ve got a couple of clients and the money’s coming in, you can either choose to scale or you can choose to stay the size that you are.” Special has chosen to scale. The agency was originally founded in 2007 in New Zealand and has expanded globally, including to the U.S. in 2020. Heyde said the agency chose to do that without the help of investors because then it would feel “beholden” to them. Warren said you have to weigh the pros and cons of raising money from investors. He said he did take money from investors in the past when starting one of his agencies and wouldn’t do that again. “There are advantages if it’s a strategic partnership where it’s with an investor who you feel fill a need for you, not just money but potential source of leads; could they provide you resources and the ability to scale?” Warren said. “Obviously, the disadvantages are giving up equity, having additional stakeholders that you're responsible for and more pressure to deliver profits. When you control your own destiny, you can make different decisions than you can if you're accountable to an investor.” Warren also advised new agencies to “avoid unnecessary fixed costs,” one mistake he said he made when opening some of his earlier agencies. “This is much easier today than before COVID as new agencies no longer need to invest in a vanity office space,” he said. “It is also no longer necessary to make expensive senior hires outside of your leadership team as there is so much incredible freelance talent available.” Cartwright said many people advised him not to get backing from a holding company when he was starting his firm, because “being fully independent means you have full control.” But he said the “peace of mind, experience, connections to clients” that WPP provides Cartwright were more important to him. Plus, he said his relationship with WPP is built on trust, which makes the partnership successful. Dang, which was formed by Karan Dang, Walmart’s former head of brand creative, and Shruti Dang, former senior product designer for software company BlackLine, to help marketers target Gen Z and Gen Alpha consumers, has been mostly self-funded with some help financially from family investors, Karan Dang said. The most important thing is finding the right partners—from your co-founders to your investors. (Karan and Shruti are married.) “It's literally finding people who align with your values, have shared interests and can match each other's ambition and aspiration,” he said. The agency’s board of directors are “our mentors, as well, in our career,” Shruti Dang added. “Having those kind of people who are happy in your success and who are looking forward for you to grow is very, very important.” Schaaf said she got a bank loan to cover costs including attorney fees and to pay for a design firm to build her website. She said the cost to start an agency is far-ranging because every business has different needs. Either way, she said the reality is, that starting a company takes a village, and a village costs money. “I get really tired of hearing other agency founders boast that they started their agencies with zero in funding, zero clients,” she added. “Zero this, zero that. The truth is, to start something is to do it with other people, whether they’re on your payroll or not. You can’t do it alone and it takes a huge investment of time and resources. People need to hear that it takes a lot of sweat to build something new and that's awesome and it's not for everyone, and that’s OK, too.” How senior do you have to be to start your own agency? 4A’s CEO and President Marla Kaplowitz said that you typically need a large network of peers to start a successful agency. Someone who is young, perhaps a Gen Z professional with the entrepreneurial itch, could carve out a “niche-oriented” business, Kaplowitz said, but “that’s why it’s important to have partners. Sometimes you don’t have to leave your current agency. You might have a great idea for a new division or department. Try to build that within the confines of your existing agency with the support to do it within a safer structure that will give you the financial backing, too.” Banker said he believes if you truly build something that is unique and in demand, it doesn’t necessarily matter how connected you are in the industry. “If you created something that’s truly rooted in a mission and a vision that's unique and a bit differentiating, my advice would be build that thing, prove it out and then go get some attention for it,” he said. “Even if your network isn’t big enough, if you build it, they will come.” Kaplowitz said agencies should be started with two to three founders with different but complementary skills. Bunn, CEO and co-founder of Flower Shop, said that having different strengths works for her and Merry, who met while working together at TBWA. They also aren’t afraid to ask for help, she said. “There are people who have watched this industry change and have solved a lot of problems with ingenuity and they managed to be leaders, too, and you're crazy if you don't go to those people humbly and ask for their advice, help, anything,” Bunn said. Warren said one mistake he made when opening one of his earlier agencies was not building a diverse enough founding team. “This is not just about gender, race, religion, age and sexual orientation, although that is important,” he said. “You should seek talent with diverse backgrounds and experiences. Too often agencies are launched with a promise to do something different, but the founders have all worked together at a previous agency and their early hires tend to be staff that follow them. Inertia is tough to escape, and familiarity influences how things are done, especially in the early days of a new shop as the ways of working are being established.” Karan Dang said the small agency community is also very supportive of each other and he often calls on people including Mojo Supermarket Founder Mo Said for advice. “There's so much camaraderie, everybody wants to collaborate with each other,” he said. A big network helps build a business, but even more critical is an entrepreneurial spirit, said Kelsey Hodgkin, CEO and partner of Special U.S. “That entrepreneurial thing is probably something that's in you or isn't in you and you probably know relatively early on if that's a career motivator or not,” Hodgkin said. “Even mentoring people, I find it quite a fundamental question.” When do you announce your new agency? After you have a website, insurance and a few clients, you’re probably wondering if it’s time to pitch Ad Age your launch story. The unanimous answer is: Don’t rush it. All of the founders interviewed for this story said they waited at least a few months until they were fully operational with client work to showcase before promoting their shop through the media. “You can feel a lot of pressure to announce because you need your name out there, and you need revenue and, ‘Oh my God, your loan is drying up and what are you going to do next?’” Schaaf said. “Hold steady and focus on building and building and building, and then when you can sit on the phone with someone and tell them what you've built and feel really positive about that, that's when you're ready to announce.” Willis said she hired a PR lead early on in starting Magic Camp, even months before the agency was ready to speak with the press. “We wanted to make sure that we had a really clear understanding of what it is that we wanted to say and what we wanted to be known for,” she said. “We brought [the PR lead] in well before we wanted to go [live with the news]. We wanted to make sure that when we were developing our positioning, that the story made sense to other people and that there was some clarity there.” What is the end game? It’s never too early to plan ahead. As you’re mapping out your business, think about what your vision is for the company five and 10 years into the future. “It’s funny to ask in the beginning, but always something to think about is: Do you have an exit strategy?” Warren said. “Is this something you want to do for the rest of your career, or is it something you want to do for some number of years and then either sell or move on to something else? It's almost like having a prenup when you get married; you contemplate things that you hope never happen or that are far in the future, but it’s much better to do that sort of thinking upfront than it is to find yourself downstream and that there's differences in terms of people's goals and values.” If you eventually want to expand globally, there is an endless list of tasks awaiting that, as well, Heyde said. “There’s a whole lot of administration. It starts with the basic stuff like business registration, getting your tax ID and all of those things and that's different in different states in the U.S. and certainly different countries. You start to find that particularly in some markets that are more conservative than even just setting up a bank account without having an address or a director that is American can be a bit difficult.” What can you expect? Having an understanding of where your agency is headed helps the planning process. Still, you can only plan so much. “You can plan as much as you want but who knew COVID was coming?” Cartwright said, referring to launching right before the pandemic hit in 2020. “You do the best you can, but 90% of the time those plans are thrown out the window by the end of the year.” Merry reiterated that there is no one “right” way to start an agency. “There’s how we started and a million different ways, and that’s kind of what’s great about it as well,” he said. Check out the latest Ad Age events and award programs

How to start an ad agency—founders share tips from incorporation to branding

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