Want to Start an Ad Agency? Have You Considered a Franchise?
After 19 years in the radio-sales business, 40-year-old Stephen Facenda decided to start fresh and open an ad agency. He had saved $100,000 for expenses, overhead and whatever else he might need to jump-start his venture. He then set out to win business through the relationships he had spent years cultivating in the Philadelphia area.
But he didn't invest in his own logo, talent or infrastructure. Instead he joined ViaMark, a local ad agency on the east coast, as the owner of a franchise. Working independently, he paid an annual and monthly franchise fee, much like a Denny's or McDonald's franchise owner. But unlike the fast-food chains, he didn't buy into the brand. "Nobody knows Viamark," he said.
Instead, the franchise gave him access to infrastructure and automated billing services -- the "systematic, boring stuff I don't want to think about," he said. He was also gaining remote creative and media-buying resources to tap into -- for an extra cost, on an as-needed basis -- as well as Viamark case studies.
Eight years later, Mr. Facenda has two account executives and an administrative assistant and 13 clients, including car dealers, a jewelry franchise, a plastic surgeon and a local credit union.
Now, Viamark is placing its bets on people like Mr. Facenda. It announced this summer it will roll out its small-scale operation nationally with a goal of 50 new franchises by the end of 2014.
Viamark currently has 12 agency franchises across the east coast. Its total headcount of 35, including a corporate staff of nine employees split between Boston and North Carolina. The majority of clients range from $100,000 to $2,000,000 each in annual billings, said Glenn Anderson, a Viamark partner and franchise owner. Though he wouldn't share specific revenue for privately held Viamark, he said the agency has seen year-over-year growth for the past three years: 13% in 2010, 31% in 2011 and 8% in 2012.
Viamark opened in North Carolina in 1995 and in 2004 began testing the "franchise" concept. Initially, it gained traction in a few locations along the east coast. "We got traction very quickly in 2005, 2006 and 2007," said Mr. Anderson. "Within two to three years there was no doubt that the model would be successful. People were coming on with good relationships and representation in their market."
But when the recession hit in 2008, Viamark stopped offering new franchises. By 2011, though, most of its existing 11 franchises had come through the recession with some growth, so the partners decided it was a good time to reinstate the expansion process. They brought on a CFO; hired franchise consultants and built a new web platform for franchises.
Here's how it works. As with McDonald's and Dunkin Donuts, each of Viamark's franchisees controls its own P&L and pays annual and monthly franchise royalties based on revenue. Each taps into Viamark's infrastructure for automated services like bookkeeping and billings, but like Mr. Facenda they all pay for their own overhead, as well as creative, media and production resources as needed. If Viamark partners accept the owner after a months-long vetting process, that owner then sets out to win local business. Viamark declined to disclose its franchise fees, but Mr. Anderson noted that less than 10% of its franchises fail within the critical first six months to a year.
"We're not going after Coca-Cola or Chevy's national advertising," said Mr. Anderson. Among Viamark's largest clients, he lists Maola Milk, Planet Fitness franchises, regional Mills stores and a handful of Bojangles' franchises.
While the franchise model might satisfy a niche for local clients that are looking for a good deal but aren't necessarily hankering for groundbreaking creative, it still has potential shortcomings. For example, there's an inherent risk and loss of control in entrusting one's brand to an independent operator.
Charles Day, president and founder of The Lookinglass Consultancy, also noted there's a "natural cap" on the level of creativity the franchises can achieve with a remote creative team. "Great work comes out of really talented and committed people working collaboratively and following some ethos," he said. However, "if this is well-run and they really are able to provide economy of scale and consistency and reliability of service, it will absolutely fill a niche in the marketplace."
Mr. Facenda said the economy of scale advantage is part of the sell. "If we can get good creative to a client that really works, as cheap as possible, it's better to spend on the buying. That's [my] pitch," he said.