Don't sell your soul for financial security

In the beginning

When we set out to start our agency we did so by following the advertising agency model. Our plan was simple: pitch great ideas to a few great clients and get them to sign large AOR agreements. For anyone who hasn’t come across this acronym an AOR or Agency of Record agreement is basically a contract between a company and an agency that stipulates a right of first refusal on any work that falls within the services the agency provides. It often includes a guaranteed annual budget and a high level overview of what the money will be spent on.  This seemed very sensible as having two or three big clients who all were committing to large annual budgets would give our company financial security and allow us to focus on the work and growing the agency rather than finding the next job. Unfortunately for us this plan didn’t work, despite making some great pitches with some big ideas we couldn’t get anyone to sign an AOR. We did get a few projects but these only lasted a few months each which hardly gave us the long term security that we wanted.

Our plan was simple, pitch great ideas to a few great clients and get them to sign large AOR agreements

The hard realization

It wasn’t long after that we discovered that our concept of the AOR just didn’t make sense for a digital agency like Playground. The AOR’s that we were used to seeing in the advertising world made sense because companies already had annual marketing budgets set aside and advertising agencies had procedures to help spend that money. We discovered that companies typically have almost no annual digital budget; instead, any money spent on web products and platforms came out of the existing marketing budgets. The issue here is that since advertising agencies often have small digital departments, a very small percentage of the annual marketing budget has traditionally been spent on digital work. This is especially true if you understand the distinction between digital advertising and digital products and platforms. When an ad agency did spend money on digital it was in support of a campaign in the form of banner ads, microsites, splash pages, etc. It is rare that an ad agency suggests updating a company’s website or digital product since they make most of their money from buying media and from other high margin services. What this all means is that companies have no budget set aside for web and when they do, it is often much smaller than it should be.

The fork in the road

This meant that if we wanted to get an AOR agreement signed, we would have to sell advertising services not just product and platform services. This clashed with our core values as we only wanted to take on work that was challenging, innovative, meaningful, long lasting and had fair timelines and budgets. By contrast most digital advertising was simple, repetitive, cheap, disposable, and had extremely short timelines and small budgets. The only upside, if it could be called one, was that there was a lot of it and if you wanted to take on this tedious work and you were good at it, companies would give it to you in droves. Playground did not want to take this work and so we started working on a concept for an AOR that was not advertising based.

we thought we could change corporate budgeting to account for digital as more than just advertising

A brave new AOR

We were thrilled and thought that we could turn the agency world on its head if we could create one of the first true digital AOR agreements and change the way businesses think about digital. We thought we could change corporate budgeting to account for digital as more than just advertising and that we could work with the agencies rather than against them. Well that was the idea anyway… What we set out to create was an agreement that would provide recurring annual budgets, identify opportunities and goals, outline a few key deliverables and metrics and leave room for experimentation, prototyping and iteration. It would be the perfect contract giving our team the freedom to explore new ideas, test concepts, and deploy great products with time to iterate and improve them after. For organizations it would give them a team of forward thinking consultants, designers and engineers who would help them capture the digital world and set the benchmark for what a company could do with digital. Despite all these high hopes there still were a few major issues.

Why our brave new AOR didn’t work (for us)

1. Many companies don’t really need that much built.

If you look at many large organizations, they really don’t need much to have an effective online presence. Most companies only need one website, and even if that website is large and complex, once it’s done, it’s done. While they may need to update parts of it once in a while, if you’ve done your job right, it likely won’t need to be completely changed for several years. This means that one year you will have a lot of work to rebuild this main site but then for a couple of years there won’t be much to do.

2. Many interesting digital ideas just don’t have the ROI.

While I often find that we come up with interesting things a client could build to complement their digital presence, it often appears that they won’t provide much of a return on investment. Interesting new app ideas or online experiences often take a lot of work to get right and often are not worth doing for the client.

3. If their business is primarily in the digital space, they will replace you.

Often the companies that need the most on-going work are the ones whose businesses is wholly or primarily digital. This would be a businesses in the e-commerce, SaaS, publication, etc. The issue here is that these companies already have large internal teams of engineers and even designers. So while they may want your help from time to time, they likely will not want to give you everything as they are capable on their own.

4. Maintenance work sucks

A common service that you can sell after you have built a large portal or platform is maintenance. I’m not talking about the kind of maintenance and support an agency should provide shortly after launching a new project, I’m referring to long term ongoing maintenance. You can have retainer agreements or even have full-time staff working to improve, fix and support what your agency has built. While this service can account for a decent amount of income, it is not desirable work. The same top tier employees who built a platform do not want to spend years making small tweaks to it. the work is tedious and not very challenging. This either means you have to be prepared to have your best people quit or you have to hire second tier employees who will accept this kind of work and I don’t like either option.

5. It is still the marketing budget

Despite our best efforts, it seems that this kind of work is still allocated from a company’s marketing budget. This means that we often find ourselves in competition with the client’s advertising agency who would not like it if we were to take a large portion of the budget that used to go to them. This leads to bureaucracy and conflict that we don’t like dealing with.

commitments are based on large scale projects or multi-project endeavours

The solution?

So we have learned a lot about how not to work with clients but we have also learned a bit about how to work with them. While we still do not have AOR style contracts or annual budgets, we have found that clients will still make commitments. The only difference is that these commitments are based on large scale projects or multi-project endeavours. Unlike AOR agreements, they are project based and end after the project is finished rather than being guaranteed annual budgets. This means we work with clients in cycles where we are deep in a big project for around a year but then we might not do much with them for another 1-2 years until we take on something big again. While it’s not as secure as running a traditional advertising agency business model, our project model is still very predictable and allows us to deliver honest value every time we engage our clients.