Paul Simons on starting an ad agency: how much market share do you need to be be successful?

This is the first of a number of excerpts adapted from Paul Simons’ book Day 1 to Day 2555 (or 7 years in the life of an advertising agency) which explains that, although starting an agency is as much an art as a science, it is possible for science (in this instance maths) to play a role. The book is based on Paul’s own experience in starting the highly-successful London creative agency Simons Palmer Denton Clenmow and Johnson which merged with Omnicom’s TBWA seven years later.

“Start as you mean to go on,” was John Hegarty’s advice to Chris Palmer (Simons Palmer creative partner, now a successful commercials director). What has this to do with maths? We’ll see a bit later.

In 2010 Abbott Mead Vickers BBDO remained the number one agency in the UK based on ‘billings’, i.e. the media turnover attributed to their client base. At £388.6m this represents about 2.8 per cent of the total spend in the UK (based on the PWC report on the UK advertising market published in June 2010 where they stated the total value of the market was £14bn).

So the biggest ad agency only has a 2.8 per cent share? The tenth largest agency in 2010 was Ogilvy with £175.3m of billings which means they have just over a one per cent share of the total market.

Turn this in to real money, i.e. the cash coming in to the agency, then AMV would have around £39m of income from advertising (crudely ten per cent of media spend. A big agency like AMV would have other non-advertising income too) and an operating profit of around £8m (20 per cent of income).

What this all means is that in the advertising business, market shares are tiny; a one per cent share equals around £175m of billings and around £17m of income. Every start-up can only dream about £17m of income, but this is a good thing because it means you don’t need to own 99 per cent of the market to get semi-rich.

So returning to John Hegarty’s advice the point is very helpful. If the objective is to get a one per cent share of the market it means you can be very focussed and therefore very clear about your product because there is no need to be ‘all things to all men.’ You really can start as you mean to go on. At Simons Palmer for example, we never pursued clients who didn’t fit our ethos. However, we did feel enthused about new product launches or challenger brands, usually because they need to make a splash.

So we ended up launching Goldfish (credit card), PlayStation, and Nike, then a niche brand in Europe. We knew we could be selective and we tried to match our experience to appropriate clients. This was very liberating for us because everyone in the agency understood what we stood for and therefore what was expected of them.

Our core belief (and to this day I firmly believe in the same philosophy) was that exceptional creative solutions lead to exceptional commercial results for the client. Therefore we embraced creative awards as a support to our endeavours and we were fortunate enough to win truck loads.

In our case this became our virtuous circle. Because all of this was based on the simple fact that we didn’t need 99 per cent of the market; a point I always made to prospective clients and every time they understood and respected our approach.

Day 1 to Day 2555 (or 7 years in the life of an advertising agency) is available here, price £19.95p.

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