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Vanity Project or Value Driver?

Agencies need to constantly innovate and change in order to survive. Doing what you’ve always done isn’t always good enough.

Maybe it’s a geographic expansion or a complementary service. Whatever it is there are always a few questions the Finance Director should ask to ensure that these start up projects add to rather than destroy value.

Start-ups by nature are lean. Agencies generally start with little money but lots of enthusiasm and talent. This is balanced by the freedom of being your own boss and the promise of future riches.

However, if you need to bring someone in to manage a start-up you need to weigh up carefully the balance between basic remuneration and bonus/equity. Try to replicate the initial hunger for success in the start-up. Keep running costs to a minimum and try to incentivise with bonuses/ownership. M&C Saatchi built an international network by offering 20% equity to local management.

If you don’t need anyone else to manage the start-up you still need to ask whether the opportunity cost of people’s time is worth the potential upside. There is always a risk the core business gets neglected. At the same time the start-up won’t succeed with time and effort from senior managers.

You need to retain the ability to pivot and change direction quickly. This could mean stopping and starting again, perhaps in a totally different direction. The decision to cancel a start-up shouldn’t leave you with lots of long notice periods to pay out. Again, keep it lean.

You’ll also need to build in multiple review points early on so you can track progress. Think creatively about what metrics are important in the early stages of a start-up, it’s unlikely to be just about the P&L.

Business plans that are either too optimistic about sales or take too long to cover their costs should be questioned – you should be making money by the end of the first year if not sooner if you’ve done it right.

If it’s geographic expansion the risk increases as you’ll need to think about the local market, local support and reporting as well as the system changes needed. Don’t burden your start up point person with admin – they need to network, to sell, to develop, they don’t need to worry about payroll.

It’s also here that corporate vanity is a risk. You need to be realistic about whether your proposition will work and give you a competitive advantage especially if you’re going into a mature market. If you’re going into a less mature market you may need to repackage your offer to fit in with that market’s needs. Wherever you go you need to do your due diligence here; but more importantly there. Visit, talk to clients, partners, anyone you can network with.

Understand the proposition, who your customers are and why they need your service; what is the going rate for the new market; how you are going to find your customers and sell to them and how you are going to resource the business. Most importantly make sure you go over with some client cover from day one.

I’ve been surprised over the years at how some of these fundamentals seem to be overlooked sometimes. Maybe these simple, hard-nosed questions are hiding behind the marketing jargon but it is the FD’s job to make sure there are good answers to them.

Inevitably this is about entrepreneurial management. Without enough talent and drive good management won’t be enough whilst without proper management the entrepreneurial flair won’t translate into enough profit. Balance both by weighting rewards to success and focusing on measures that are appropriate to a start-up rather than a mature business.

Business as usual may get less interesting over time but it has to be protected. Done properly a new venture can add great value to the existing business. It should drive greater revenue, greater efficiency and more profit. Done in an unfocused way it will eat up time and cash and put the core business at risk.

During the last 20 years I’ve helped Agencies grow organically as well as through well thought out start-ups. If you’d like help with either then email me on simon@novemberfriday.wpengine.com.