When Adding a Specialty, Is It Better to Buy or Build?
To evolve and stay relevant, agencies need to add new disciplines and skill sets. Yet bringing those disciplines and skills in-house is especially challenging for small-to-mid-size agencies. Do you build organically by hiring one or two key people, or buy a firm and tuck it into your shop?
Business headlines are filled with strategic acquisitions. Tech firms like Yahoo! snap up Tumblr to add critical buzz and attract new eyeballs to their platforms. Banks gobble up their competitors as easily as they accept deposits, to increase their financial and geographic presence. Law firms acquire competitors to add new skill sets and client revenues.
Yet smaller advertising agencies are often left behind when it comes to making acquisitions. In my experience, agency owners are gifted either creatively or in landing and serving clients. But they falter at pulling off successful acquisitions; the x's and o's it requires are simply not a strength of most communication pros.
As a result, many agency owners start a new discipline by hiring someone with that specific talent and growing it from scratch. As with any business that starts from scratch and has to prove itself, this can be an arduous task. Those small-agency leaders who pursue the "buy" route have many advantages -- as well as things to be cautious about. Let's evaluate both strategies.
Buying an agency for strategic purposes
- Getting out of the gate quickly with the right talent
- Adding revenue and clients in that new discipline right away
- Ready credibility for your story with your new product
- Faster incremental growth, because you are acquiring a brand with a reputation that you can build upon
- Small agency CEOs rarely have the skill sets to engineer an acquisition
- Costs of purchase can add debt to your balance sheet or deplete precious cash
- No guarantee the new people and clients will stay once they have been acquired
- Potential disruption to your culture, which can impact client thinking and service
Building a new discipline organically
- Easy for small agency CEOs to pull off; plays to their strengths attracting talent
- Low risk, as the only cost is the salaries of the new people, and perhaps some recruiting fees
- Integrates easily into the agency culture
- Go-slow approach allows the agency to test and learn as you go
- Can take forever to gain revenue and client traction
- No street cred in the new space
- Requires a bigger marketing and sales investment to create awareness of the new service
- The rookie mistakes you'll make that established agencies would know to avoid
We small-agency leaders are dynamic businesspeople, in an artistic business that attracts people with communications strengths, not math. That is why we hire others who who are good at math, and mergers and acquisitions.