Rich Jachetti, Senior Partner, The Stevens Group
If you’re the CEO of a small-to-medium sized public relations firm, it’s very possible that a good part of your thinking about the future growth of your agency focuses on formulating a strategy for the sale of your firm someday. That day may not come this year, or in the next five years, or even in the next decade. But you’re likely thinking about it. And, the fact is it’s never too early to begin laying the foundation for a successful, and lucrative, transition in ownership.
For the hundreds of agency CEOs we at The Stevens Group know, their primary concerns– those that keep most of them up some nights – are retaining top talent, generating strong cash flow, and building a loyal, diversified client base. If you neglect any of these essential management concerns, you do so at your peril. They are responsibilities CEOs do by rote or you wouldn’t have made it this far. But when your thoughts turn to building equity to one day attract a buyer, you should be paying particular attention to the way in which you provide your clients with the digital and social media marketing services they are undoubtedly demanding from you. From an agency valuation standpoint, for those CEOs whose growth strategy includes a possible acquisition, if you’re continuing to outsource your firm’s digital media offerings, bringing those capabilities in-house now is one of the smartest things you can do in order to build value for your firm in anticipation of an eventual sale, regardless of the current size of your firm.
Here, we’ll examine why making digital capabilities a core part of your in-house service offerings is an absolute imperative when planning for future growth and increasing agency value.
Keeping Up With the Times
By any measure, the pervasiveness of digital media today cannot be underestimated. Pew Research Center reports that as of August 2017, two-thirds of Americans are using social media channels as an ever-increasing source of the news they read and watch. McKinsey & Company’s year-end Global Media Report 2016 predicts that by 2018, digital media spending will actually exceed traditional media spending. Even traditional media outlets now devote a significant amount of time and space to covering content borne via social media channels.
Therefore, it should come as no surprise that the public relations industry is endeavoring to stay one step ahead of this trend. Clients are increasingly shifting the bulk of their marketing dollars to digital media. And in our company’s recent 2017 online survey of 800 PR firm CEOs – the majority of which head up firms earning $4 million and under in annual net revenue – more than half cited digital marketing capabilities as their single greatest priority in remaining competitive.
What did surprise us, however, is the proportion of PR firms in this segment that presently lack the requisite in-house digital marketing capabilities: One-third of the respondents to TSG’s survey are outsourcing this critical function to external companies or freelance personnel. That’s tantamount to an auto-repair business admitting to its customers: “Sure, we do all kinds of work here, but we outsource brake jobs, powertrain problems and electrical issues. We send that stuff down the street, add a markup, and you’re none the wiser.” Is that really the message you want your firm sending to clients, prospects and one day to a buyer?
The Façade of Strategic Alliances
For sure, using vendors makes sense for certain routine tasks at your firm, such as servicing the photocopiers, emptying the wastebaskets and recycling bins, and administering the company’s 401k plan. Your clients don’t really care how you tend to most operational tasks. However, with the role of digital media only increasing in importance within the public relations industry, it makes little sense to rest your firm’s long-term success and reputation on subcontractors that provide the digital/social services your firm should really be allocating its resources to be able to provide in-house.
You may not personally know the first thing about building a smartphone app, what a wireframe is, how hashtags work, or what MySQL does – and that’s okay. But your clients expect you to have professionals on staff who do. Putting digital capabilities under your own roof helps to ensure maximum efficiency and integration. It also can become a real profit center for your firm, rather than just a dreaded monthly ordeal of cutting checks to subcontractors. And from the standpoint of virtually every buyer agency we work with at TSG, it will put much more money in a your pocket if/when the time is right to sell your firm.
If you’re pitching digital media capabilities to potential clients as a core competency of your firm, and you don’t actually employ people to provide those services, any so-called “strategic alliance” is merely a thin veneer on your firm’s brand. That window dressing will become painfully evident once a potential suitor begins conducting due diligence on your company’s overall financial health.
Originally published on O’Dwyer’s.