How to beat the zombie business blues: why you should be building assets

Last week we talked about buying assets through M&A as a route out of agency flatline. I reminded you that income always follows assets. That there's a direct link between asset deployment, increasing income and EBITDA growth. Assets are the key to beating the flatline blues.

This week we're talking about building assets. First off, here's a TLDR.

What happens on stall?

Before we get to the building, we need to talk about what flatlining agencies do when things get hairy. In my experience, building assets isn’t even a consideration that crosses their minds. Nope. When growth stalls, leaders tend to reach for one of two lifelines.

Firstly, they push harder at what's already not working; more outbound, more pitches, more activity, more meetings, more noise, more desperation etc.

The second is to ignore sloppy positioning and diversify. They open new service lines or chase adjacent sectors on the assumption that broader equals safer. Or because one client asked for it.

Action only matters if its the correct action

Both lifelines above feel like action which must be a good thing? On the basis that we’re often told that doing something is better than doing nothing, I guess that could be true. It’s not too surprising that leaders opt for one or the other without realising there are other options. In my opinion, both of these options make the underlying problem worse.

Pushing harder burns the team out and produces ‘system load’. Briefs might still be coming in, but they are from wrong clients, with the wrong briefs and at the wrong price/value. In my parlance, they are the wrong invitations.

Diversifying dilutes margin and stretches capability past the point where it can be considered a strength. Long term, the creep to full service (unless you're in a small regional market) is a killer.

Of the two, I think diversification is the more dangerous so I\m going to spend most time there today, before that, indulge me on a short detour.

There are times when you need to push harder, but you can only do it for short sprints.

In my spare time, I'm a rower. It's a brutal sport because it's a unique mix of strength and endurance. In a 1000m race, we'll do around 120 strokes. The proper pain starts at about stroke 30. The crews that win either go hard all the way (because they've trained and found a route to superior performance), or they find a cruise rate that looks comfortable but is devastatingly effective. The crews that win almost always think they go faster and further be calling for pushes: "20 stroke push now" and again, and again. In agency, we need to find a cruise rate. We need to find a way of operating within our own comfortable capabilities while being devastatingly effective.

OK - back to the issue with diversification.

Quick ways to zombify a business

Ansoff and (Geoffrey) Moore both warned about leaving core markets to early decades ago. I guess strategy models are out of fashion these days? Very few agency leaders I speak to have either heard of the models (Ansoff's Matrix, Moore's Bowling Alley) learned them or put them into practice. Which is a little weird given that quite a few have been selling strategy to their clients (I'd insert a shocked face emoji if I knew how right here).

Ansoff's matrix puts diversification in the highest-risk quadrant for a reason. New product, new market, two unknowns multiplied together. Moore's bowling alley logic says something related but easier to digest: you only earn the right to move into an adjacent market once you have genuine power in your core one. You can see me speaking to Geoffrey Moore about this stuff here and here.

The flatlining agency that diversifies too early is doing the equivalent of leaving the first pin standing while trying to knock down the second. This agency just halved the attention it gives to each product or market, halving its impact too. The point of the model is to knock over the first pin - to win genuine market dominance or market power in a tightly defined category - and then seek to dominate another category. Until the first pin is down, nothing else falls. Until the first proposition is dominant, nothing must distract.

Diversifying too early a slow and painful way to kill or zombify a business. I know because I did it to myself around 20 years ago. It's how I learned the lesson. The hard way.

These are the things to look for if you’re worried you might be in flatline mode:

• No growth, struggling margins, volatile sales

• A poor enough win/loss ratio that you decide you won't attend pitches any more

• You can't articulate your superpowers in a way that make clients interested

• Capacity strain in some boredom in others

• Your people only stay because they like the parking arrangements.

If you experience any of these - or things like them - you might be looking to new markets or to new services too early. Remember, You have to build market power before you earn the right to look to adjacencies.

How to beat the blues

Let’s be a little more positive. If pushing harder doesn't work and diversifying makes things worse, what does a flatlining agency leader need to think about to get back on the growth curve?? It comes in a sequence; one thing, then the next, then the next. It looks like this.

First off, build out or rebuild your market-based assets. Then, look at your proprietary assets. Only when you have the first two in place AND you can genuinely claim to have market power should you consider diversification third. Let me give you a first-hand real experience.

I used to work with an agency that the market looked at with envy. Young, vibrant, super creative, huge award winners, yada yada yada. These were the cool kids in their sector. When they hit a flatline, they cycled quickly through the things I discussed above. New offerings, new positioning, new this, new that. None of it appeared to work. Then, one the day MD came to me and told me he thought the agency needed to be in the USA if it was going to thrive.

I pushed back.

If your agency business model doesn’t work here, why will it work there? Fix the model first, then export because opening a new office won’t solve a broken business model, it will exacerbate it.

So, that’s what they did: they fixed the basics. At the time of writing, the agency is back on the growth path and they haven’t got past the first part of the sequence.

Market Based Assets (MBAs)

To me, market-based assets in the Ehrenberg-Bass sense are about mental availability and category entry points; the situations in which the market thinks of you at all.

These are the assets that determine whether you get invited into the room. They're built through tight category definition, repeated proof in that category, public IP that signals what you're for, and presence at the moments that trigger client consideration.

I love this maxim - one sector client is exclusive, two is a conflict, three is a specialisation. It speaks to how I think. Specialisation, or more particularly a public reputation for being a specialist, is about the strongest asset an agency can build.

I go into great detail about MBAs for agencies in my Growth System. Ask me for a copy. Nothing is difficult, it just needs to be applied consistently.

Proprietary Assets

Proprietary assets are the things that are uniquely yours; frameworks you own, methodologies you've named, products you’ve developed, data you've gathered, AI capability that's demonstrable rather than claimed, service lines built around what you're genuinely excellent at rather than what a client once asked you for. These are the assets that determine what you can win once you're invited, and at what margin.

Another example if you’ll bear with me?

In recent years, agencies have taken some flak from client-side marketers for their proprietary processes. Those who shout loudest appear to want us all to work the same way, presumably so we can be interchangeable?

As long ago as 30 years, I was working in agency and we were struggling to stand out. Our identity was highly distinctive and we had hard working outbound campaigns (social media didn’t exist). But, when we got into creds meetings, my observation (encouraged by my then MD to see it) was that we were saying the same thing as everyone else. Enthusiastic, incisive, creative etc. It was clear we needed our own IP, something only we could deliver, something that the client believed could achieve their outcomes. We would sell the system, not the people running it. It was hugely successful and we doubled in a year winning clients that previously we would have had no right to win.

That was then. Today, agencies have so many more accessible ways of creating proprietary assets. (I’m always up for chatting through asset development. If you’re doing something exciting, please ping me.)

Why in this order?

The reason the sequence runs market-based first and proprietary second is worth spelling out. I know of agencies right now who are doing this the wrong way around and they’re wondering why traction is slow.

The cleverest IP in the world is going to sit unused if no one is thinking of you at the moment they need it. Please read that sentence again. The cleverest IP in the world is going to sit unused if no one is thinking of you at the moment they need it.

Proprietary assets only compound for your business once the market-based assets are doing their job, because compounding requires repeat exposure inside a defined market. If you don't get repeat exposure, if the market doesn't know what you're for, if you don't get the right invitations, your amazing IP goes unnoticed.

Diversification comes last because it requires both prior layers to be working. Without market power, you have nothing to diversify from; without proprietary assets, you have nothing to diversify with. Most agencies that diversify out of flatline are doing it from a position of weakness in both.

This is the part that I think tends to get missed, so it's worth saying plainly.

Cut to the chase

The route out of flatline is almost always counter-intuitive. It involves doing less, not more. It involves narrowing the market definition, not broadening it. It involves saying no to invitations that don't fit, not chasing more invitations of any kind. It involves investing in the boring discipline of repeated proof in a defined category, rather than the exciting work of launching something new.

If you're a flatlining agency leader, I want to leave you with this.

1. You have permission to stop.

2. Permission to narrow rather than broaden.

3. Permission to ignore the voice telling you to add a new service line, open a new office, chase a new sector.

4. Permission to do less, in a tighter market, with more conviction.

5. Permission to pass on the next pitch that doesn't fit your sharpest definition of what you're for.

6. Permission to tell the team that the answer to the flatline isn't more activity but better focus.

Growth will come back when you’ve got the sequencing right; when your growth system is working to spec. It won’t come back because you’re trying harder at the wrong things (ed. it tends to come back slower if at all), because pushing harder at the wrong things uses up the energy you need for the right ones.

Build the market-based assets. Then build the proprietary ones. Then, and only then, think about diversifying.

Post note: I’m keen to point out that in all of my blogs, my agency systems and other IP or advisory I write about, I am a codifier, not an inventor. I have analysed hundreds and hundreds of agencies in minuscule detail and I still follow their fortunes. Along the way, I started to codify what makes agencies work and tried to share observations with my peers through blogs and podcast. Some listen, some don’t. Some engage, some don't. It's the process itself that interests me becasue it's become the basis of all my IP – underwritten by a very detailed knowledge of strategy models, strategy in practise and why strategy fails.

If you’d like to comment on or challenge any of my assertions, I would love to engage. If we can improve systems for agency owners, we should.