Price of Growth Might Be Too High For Indies

Midsize Agencies Seek Cash to Expand, Find the Cost Is Giving Up Control

By Published on .

Scott Goodson's having a midlife crisis.
Strawberry Frog's Scott Goodson: 'We frogs have big ambitions for the brand and our team.'
Strawberry Frog's Scott Goodson: 'We frogs have big ambitions for the brand and our team.'

The founder-CEO of Strawberry Frog is coming to realize what most independent shops do after a few years: the way to reach the next level is to add space, talent or capabilities -- and that takes cash. The rub, of course, is that to get it, one must surrender partial or total control.

Lily pad up for grabs?
Mr. Goodson admits he's been talking with "all different forms of investors over the years" but hastens to add: "We remain 100% employee-owned." The question is for how long.

"We frogs have big ambitions for the brand and our team," he wrote in an e-mail. Mr. Goodson said he will be asking potential investors what they can bring in addition to capital and about their passion "for the brand, the culture, the vision and the people of that brand."

For Strawberry Frog, it could make sense to sell a portion of the agency to a holding company. Joining a network offers more to big clients but enables agencies to keep their nimble creative profile. It's a formula that's worked for 180 Amsterdam, which sold a minority share to Omnicom Group after partnering with TBWA on Adidas.

Longer tech legs
Mr. Goodson said a cash infusion would be about growing not physically so much as technologically. But then there's the sticky issue of giving up the control a holding company inevitably will want.

Private-equity funding, which is running rampant in the consumer sector, is another option. A spokeswoman for General Atlantic, which recently purchased a stake in digital-marketing firm AKQA, said the firm's general guidelines for prospective investments are growth opportunities, specifically areas where technology is transformative. General Atlantic invests anywhere from $50 million in equity to $400 million.

Some agency executives believe many private-equity firms have stayed away from the ad industry largely because general-market shops that need capital -- midsize independents -- are too small for most of the large funds.

Partners still a possibility
Strawberry Frog's billings in 2005 were estimated at $30 million. Mr. Goodson told Ad Age that web-based-business wins early this year have already put the company at 30% growth over 2006.

But Strawberry Frog could be poised to pick up a partner. Michael Kassan, who frequently advises private-equity firms on agency investments, said financing firms "want to be on the front end [of an ad industry that's experiencing] a seismic shift."
Most Popular
In this article: