The Chasm Is Opening in the Agency Market. Which Side Are You On?

There is a moment in market disruptions that many established businesses miss completely. To be fair it is an easy to miss moment. There’s no hint of blame here. Firms that are running smoothly can see the hype around new technology, and privately their leaders know change is needed, but it just doesn't feel like a crisis. Yet.

In the cases I’m seeing, revenue is holding up, clients are renewing, the team isn’t going anywhere and the pipeline looks strong enough to deliver. But, in moments of disruption, like the moment we are in, technology is rewriting the economics of whole sectors in the background. Our sector is no different.

The seed for this piece was not mine. It was a post by Peter Lang, who set out a pattern I haven’t been able to put down since: in a disruption, the prepared end up buying the unprepared. He pointed to the dot-com crash, the 2008 banking crisis and COVID, and to the way each one quietly transferred value from the operators who couldn’t adapt to the ones who could.

His argument, in essence:

Every significant market dislocation produces a gap between operators who can adapt and operators who cannot. The dot-com crash did it, the 2008 banking crisis did it, and COVID did it too, in its own compressed and unusual way. What followed each dislocation was a redistribution of assets from the non-adaptors to the adaptors, often at prices that would have seemed impossible just eighteen months earlier.

We are now facing the most disruptive technology to reach agencies in my working memory. We all know it, and we all know change is coming; it just doesn’t yet feel like a crisis.

Lang describes what happens. Geoffrey Moore’s work explains why, and where, because underneath it all, this is a chasm problem. If you’ve studied Moore as closely as I have, this is where it gets interesting for some and dangerous for others. Let me spell it out. There will be a transfer of assets from those who can’t or won’t adapt to those who can and do. Which side are you on?

The Chasm Isn't Just a Tech Problem

Moore's Crossing the Chasm is usually read as a framework for technology companies trying to scale sales into mainstream markets. His landmark observation was that adoption doesn't flow smoothly from early enthusiasts to the pragmatist majority. There is a gap between the two groups, a chasm, where momentum stalls and businesses of all sizes fail. Often the failure has nothing to do with how well the tech works. It happens because the psychology of technology procurement and adoption is fundamentally different on either side of the chasm.

You can hear me talking to Geoffrey Moore about the chasm here.

Chasm theory may be a framework aimed at software products, but few apply it to the businesses that use them. Perhaps they should because the chasm exists there too.

In the creative agency market, we are currently at the chasm between early adoption and the early majority when it comes to AI. A minority of agencies have genuinely rebuilt their operating models around AI capability; I hear that delivery costs are down, margins are up, and the work they can take on has changed in scale and complexity. The rest I encounter are at various stages of experimentation, some enthusiastic, some cautious, a few dismissive. Few are failing, they are probably not even struggling, they just haven't crossed.

The trouble is that the chasm often isn't apparent until it's too late. It reveals itself after the fact.  We’ll look back one day and realise that some early adopting agencies separated themselves from the rest and ask ourselves how we missed it.

The Disruptee Problem

Moore returned to the topic of disruption in Zone to Win, where he made an observation that is also worth thinking about. You can hear me talk to Geoffrey about Zone to Win here.

If all a business is doing is optimising its current position, he argued, it is a sitting duck. Not because the current position is bad, but because optimising a performance zone in the middle of a transformation wave is the wrong kind of discipline to be exercising.

Agency owners are, by both nature and necessity, brilliant performance-zone operators. They manage client relationships, protect margin, retain talent, and keep the revenue engine running. Right now, in a genuinely turbulent market, it’s hard work and it needs real skill. But, in a disruption cycle, it’s also the operating mode that leaves you most vulnerable.

That’s because transformation requires a different kind of attention, different investment decisions, different tolerance for short-term cost. It doesn't sit easily alongside running a tight ship. And for subscale, undercapitalised agencies without the runway to do both, the choice becomes increasingly stark. That’s where Peter Lang’s observation becomes clearest.

Where the M&A Window Comes From

It’s this dynamic that is creating the once-in-a-cycle acquisition opportunity for those who are ready.

The chasm, applied to agencies rather than technology products, produces a fork in the road. Some agencies rebuild their commercial agreements, models and economics; they become more efficient, more scalable, and ultimately more valuable. Others don’t, because the investment required to cross is one they can’t make while simultaneously keeping the current business above water.

Many of those owners won't be distressed today. They have clients, revenue, and a team. But their unit economics are slowly deteriorating, their ability to pitch certain types of work is narrowing, and the gap between where they are and where the market expects them to be is widening.

That gap is where acquisition conversations become possible on terms that reflect uncertainty rather than wishful projection.

The buyer who understands the Moore framework isn't looking for agencies in crisis. Turnarounds sap time and money and are highly risky. What acquirers should look for are agencies approaching the chasm with insufficient runway to cross it alone. Then, they should be investing in making a trusted relationship before the pressure becomes obvious and tangible.

The Timing Is the Point

By the time the chasm is obvious, the opportunity has largely repriced. The assets worth acquiring will have found homes, or found investment, or found a way through.

Which brings me back to Lang’s work. The effective activity right now for the ambitious is to build a pipeline. It is identifying where targets sit on the adoption curve, understanding their economics, and building the kind of trust that makes you the first call when the conversation becomes their choice not yours.

Building the Pipeline

Pipeline in this context means a set of relationships at different stages of maturity, with owners you understand well enough to know when their situation is changing, and with whom you have enough established trust that they'll tell you before they tell anyone else. It’s not just a list of agencies you'd like to buy.

Warning: it requires the patience to have conversations that don't convert, the consistency to stay present without being transactional, and the selflessness to be useful to someone even when the timing isn't right. Founders remember who showed genuine interest before the pressure arrived. They also remember who only appeared when it did.

Doing this isn’t as onerous as it might sound. A manageable pipeline at any given time might involve twenty to thirty agencies at different stages of familiarity: some where you've checked out Companies House filings and marked a baseline, some where you've had an initial conversation, a smaller number where you have real visibility into the business. The goal is coverage across the part of the market where the chasm is most likely to bite, not volume for its own sake.

How to Identify Who Can't Bridge the Gap Alone

This is why I’ve brought Moore into the thinking, to give us some pointers. After all, he wrote the book on how markets cross these gaps.

The agencies most likely to find themselves chasm-challenged aren't necessarily the weakest. They are often ones that built something genuinely good, but under the old model, and it was that very success that gave them less reason to question it. It’s Clayton Christensen’s innovator’s dilemma in real life.

The indicators tend to cluster in three or four areas.

Economics.

Flat or modestly declining revenue is less revealing than where the pressure is coming from. An agency losing ground on project fees while retaining retainer clients is in a different position to one losing retainers. Margin compression without an obvious external cause, a lost client, a difficult hire, a one-off cost, is worth investigating. In many cases it reflects an efficiency gap that is widening rather than a temporary dip. Companies House filings are a curse and a blessing at the same time if your interest is small agencies. Small firms exemption and long filing windows make it hard to get a clear picture of financial health, but there are clues there to see. Cash at bank and trade debtors are reported by all. Look at the movement of these two balances over time. (If you want to know how, message me on LinkedIn).

Services.

Agencies whose core revenue sits in the services AI is repricing fastest have the shortest runway. Content production at volume, media planning and reporting, SEO, traditional PR measurement, templated creative work; these are not dead services, but their unit economics are moving quickly. Agencies that haven't rebuilt their delivery model around that shift are absorbing the margin impact now, whether or not they are attributing it correctly. An agency that still pitches mainly on craft and relationships, with no substantiated AI capability in its offer, is competing on a cost base that is deteriorating relative to the market.

Owner profile.

Consider an owner in their mid-to-late fifties without a credible management layer beneath them. The business is likely to be dependent on their relationships, which limits scalability and valuation regardless of AI. And the investment required to cross the chasm, in time, capital, and organisational disruption, arrives at the moment when their personal appetite for that kind of effort is declining. They may not put it this way. They may genuinely believe they'll work it out. But a deteriorating model and a shortening personal runway together produce a specific kind of openness to a conversation, one that typically surfaces eighteen to twenty-four months before any formal process begins.

Digital signal.

A website unchanged for three years, no meaningful thought leadership, no case studies featuring AI-assisted work, no senior hires from adjacent technology disciplines; these are reasonable proxies for an agency that hasn't entered Moore's transformation zone. They don't confirm it, but they warrant a closer look. Absence of evidence isn't evidence of absence, but in an environment where forward-thinking agencies are actively publishing how their capability is evolving, silence is at least informative.

So what next?

None of this translates into a cold approach that leads with acquisition intent. Productive early conversations are about the market, not the business. What are they seeing from clients? How are they thinking about AI in their own delivery? What do the next two years look like strategically?

Owners who are genuinely navigating this well will tell you so, in specific and convincing terms. Owners who are not will often reveal it through vagueness, deflection, or a confidence that doesn't quite match what the numbers suggest. Both responses are informative.

The goal at this stage isn't to identify distress. It's to understand where each business sits on the adoption curve, what the owner's personal ambition looks like over the next three to five years, and whether there's a plausible scenario in which your platform is a better outcome than going it alone. Sometimes that scenario doesn't exist yet. The point of the pipeline is that you are already in conversation when it does.

Hope is not lost... come back next week

One last thing, because the view from the buyer’s side of the table is only half the story. If you run an agency and you’ve recognised yourself in the wrong column here, this is not where it has to end. This piece sets out the problem and the opportunity. The next one is the antidote: how an agency builds the capacity to cross the chasm under its own steam, drawing on Ben Bensaou’s work on making innovation a routine discipline rather than a rare, heroic event. Read both before you decide which side of the transfer you intend to be on.