For years, agencies have talked about creating their own products and side businesses outside of the work they do for clients. Few have really succeeded in doing so. That hasn’t stopped the debate on whether this is a another case of creative dilettantism or a sign of the future.
A glace at sessions during Advertising Week indicates the ad world certainly hopes this is more than a blip. Multiple panels were dedicated to themes like “agencies as entrepreneurs” and “products, process, and progress.” The heart of the matter, speakers agreed, is whether agencies bridge the divide between “cool idea” and “viable product with a rock-solid business plan.”
“Agencies go into these things well-intentioned, but the scary part for a lot of agencies is there’s the underbelly of operations that they really don’t want to think about, and the costs involved with things like tooling, distribution and sales,” said Craig Dubitsky, CEO of product development shop Hello Products.
In other words, agencies can come up with great ideas but aren’t necessarily equipped or inclined to execute on them. It’s one thing to create a new brand and to sell a few t-shirts, for example but another to build a legitimate standalone clothing business while balancing it with client work.
The fundamental issue agencies face is they’re in the services business, which is at odds with the notion of investing their time and money on in-house projects. Ultimately, every hour spent on something other than billable client work is money out the door, and many find it difficult to dedicate significant resources to them as a result. Digiday has explored this problem in the past.
Karina Wilsher, a partner at Anomoly New York, spoke to this issue, suggesting agencies’ reluctance to take the risk and invest in a product initiative is why most of them end up failing. ”You can’t try to do these things without taking a stand and committing. It’s easy to talk about doing it, but you have to be prepared to jump in and invest in yourself and the idea,” she said.
Anomoly operates its own product incubator, dubbed Anomoly IP, and has found success with brands including women’s shaving and skin care line eos and Avec Eric, a joint venture with Eric Ripert.
Brooklyn-based agency Huge is taking a slightly different approach and is separating its startup efforts as much as possible from the rest of the business. The agency’s product-development arm, Huge Labs, chooses to spin off entirely new companies with its own profit and loss accounts, office space and, in some cases, outside investors. It’s essential to keep that distance to ensure staffers are focused solely on the task at hand, he suggested. The jury, however, is still out on whether that approach will work. Huge Labs officially launched its first spin-off, Togather, just two months ago. Rockfish Interactive has followed a similar path with its own product endeavors, spinning off companies such as coffee brand Silver Joes and online coupon site CouponFactory.com.
There’s always the option to partner, too. Paul Earle, executive director of Leo Burnett-owned new venture arm called Farmhouse, suggested this approach is often overlooked, as agencies struggle with the idea of handing over their ideas to third parties.
“It’s better to have 50 percent of something successful than just a hobby,” he said.