News & Views

Power of three

by Paul Kingsley
1st July 2016
Power of three, post image

The power of three is an idea you’ve probably come across.

It’s a writing principle that suggests that those things that come in threes are funnier, more satisfying or more effective than other numbers of things.

Three little pigs, three blind mice, The Three Degrees—you get the idea. The power of three is everywhere in our lives. And now I’m going to add to the list in my own small way.

I think developing a creative agency with enduring and realisable value requires three steps.

Here’s the trio.

1. Work out the value in your intellectual property (12 months)

2. Work on delivering the growth that fully reflects your value (12 months)

3. Work hard to secure a deal on the best terms (12 months)

Of course, and as I’ve suggested with my speculative timings, this particular one-two-three is no quick fix. It will take time and planning—and you’ll need to work backwards first to understand the journey in store—and, as you can see, it will probably take three years!

Here’s how it breaks down.

One: Work out the value in your IP

Before you can grasp the nettle of delivering strong growth you first need to distil your value proposition. That means carrying out a review of what makes you special and valuable. You should also be able to take steps to capture that value as intellectual property, which is part of the process.

If that sounds like a big piece of preliminary work, the message is that sometimes it will be. But you cannot skip it.

When I talk to agency owners it’s very often clear that this question of capturing the value proposition has never quite happened. And that mostly means there is little that is tangible in the business and is set-up to help the business demonstrate its enduring worth.

Any review process will take a systematic—but also an imaginative—look at the business and its offer. And it will ask the question:

What should and could IP mean to the business? What are the core ideas that sustain the business—and what are its assets?

At the end of the process—and it can be long or short—you will emerge with a definite understanding of what the IP is (within this definition we include your intellectual capital and other intangible assets) and what can be done with it strategically. We adopt a simple approach to aligning IP to your products and services and thus customer market. We call this an Iceberg approach because we aim to ensure that what’s invisible (i.e. ‘the considerable mass below the water line’) is substantive and meaningful.

Part of this journey will engage with wider trends in the marketplace too, because creative and marketing campaign work is changing, as is the distribution. It means that today’s agencies are less focused on campaigns and planning. Next to this there is a far greater recognition of the inherent, long-lasting value in the best content. (That’s something that’s long been recognised in relation to copyrights on music and original writing, but less so in other contexts—until now.)

Two: Work on delivering the growth

OK. Let’s move on and assume that the core work on IP and value has come together, perhaps over 12 months, and helped the business to plot a value-creating way ahead.

The growth phase is more familiar territory for many. With the core offer and value proposition established, and a greater sense of what the business does for its customers, translating that into contract wins and flourishing relationships that grow the bottom line and cement the value of the business at the same time is the objective.

Remember, it’s going to take 12 months, and probably longer. New contract wins, delivered campaigns, a better story about the business, improved revenues and profits—it all takes time to come together in a measurable way. And you naturally may need to look at how you can bring new and additional skills into your management team to achieve this phase.

It’s also a question of looking up all the time in this phase and keeping on track, as the world moves fast. Agility and a willingness to pivot still hold the key.

Three: Work hard to secure a deal

Not every agency owner will immediately be looking for an exit once the business has found its way—but some will because they are now looking to realise value in a set timeframe or it was the objective from the start.

I won’t labour this point, because the question of positioning the business and finding the fit with just the right potential buyer to really deliver value needs space to do it justice. It’s something for another day.

My big idea here is not to change the fundamentals of the deal making and M&A work, but to emphasise that what goes before it needs real structure to ensure that you are in line to achieve abnormal valuation multiples on your revenues or profits.

The other point to make is that this three-step approach isn’t only for the agency owner but for other businesses, too—those in different types of AdTech or with Software-as-a-Service subscriptions models, to mention two. That should be no surprise, since this kind of thinking was born outside of the agency world in the first place. But it maps onto it superbly, as I hope I’ve got across. And, if you are an agency owner, this is definitely a good moment to think about your particular power of three.

by Paul Kingsley

Associate Partner at Waypoint Partners

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