• by Eran Gefen , September 12, 2011

Most advertising agencies are still run along the same lines as they were during the "Mad Men" era -- only with less smoking and drinking. It's especially curious because, despite all the new technology introduced over the past few years, most ad agencies are still managed like they were in the old days.

 

Lately, I've been wondering if there is something ad agencies can learn from the start-up community. As someone who established an ad agency, sold it and then launched a start-up company, I often ask myself what I would do differently if I decided to create another agency.

Here are some of the lessons I've learned:

Put the product and technology people in the driver's seat

I would ensure that at least half the company is made up of technology and product people. Take a look at what has happened to the media industry. The largest publishers in the world aren't driven by editors and writers, but by engineers. Take Facebook and Google -- classic media companies based on the advertising model of selling exposure. They are triumphing over content producers, such as newspapers, because they put the tech people at the heart of the business model. The same applies to the music industry under the leadership of Apple, which is a company of engineers and product people. Today, the technology people are hidden in interactive sub-departments, whereas in the future they will occupy front-row seats.

Share company ownership with employees

Looking back, I regret not having a stock options program for all of my employees. I learned the principles and advantages of the method only when I established a start-up company. Ad agencies often flinch at giving their employees any real ownership in the company. But if you want to attract technological talent, especially in this highly competitive environment, you have to offer employees a stake in the long-term success of the business. Today, your biggest competitor isn't the advertising agency across the road, but tech giants like Apple and Google.

Less research and more real-time data analysis

Focus groups and qualitative research sessions are tools from the old days. Today, there are tons of new technologies out there that provide real-time analysis that allows for better decisions about what works in the marketplace. Facebook and Google don't ask their users whether they will use a certain product or new feature in the future. They simply launch the product to a small group and follow its behavior in real-time.

This is how every modification to the Google search engine algorithm is tested. Even the font color and design of the search results were tried in 50 different versions until the field data indicated which one was preferred by the users. Along the same lines, advertising agencies can broadcast dozens of versions of the same advertising campaign on television or online, and learn in real-time which is more effective. With time it will be possible to expand the trial model and measurement to all of the agency's products.

Ask for payment compatible to the creation of value

Every start-up quickly learns that it's far easier to receive payment according to the success it awards its clients rather than for the abstract service it provides. Why should the advertising agency charge percentages from the media or work by the hour when it can ride along with the success of the product as sales increase? In fact, this is the result that the advertising agency is selling.

Don't let borders be a boundary

One reason that ad agencies trade at a lower price-to-earnings ratio than tech companies is because they are believed to be limited in scale. This is because traditional ad agencies only sell their services in one country. A local Dutch advertising agency, for instance, would not approach a customer in Thailand. Why not? During the first days after launching our start-up, we received leads from all over the world: Thailand, Singapore, Holland and Mexico. The same applies to advertising agencies. Ideas have no boundaries or limits.

Speak truthfully. No emotional manipulations

Sergey Brin is quoted as saying that the need for branding was born from failed products. According to this rationale, if the truth is strong and convincing, there is no need for elaboration and emotional manipulation. The advertising sector has used puffery in their pitches in order to increase a product's value. People recognize that this trick has run its course; today, thy are far more sophisticated and aware. The only way for advertising to become relevant is by connecting to the truth and by examining what genuine value can be awarded to customers' needs.

Create value for the world

Silicon Valley is deterred by advertisers. It's not surprising that Mark Zuckerberg sent his partner to New York to deal with advertisers, or that he shies away from the ad industry. The new wave of start-ups and companies, such as Tesla Motors and Better Place, are trying to do something useful for the world, beyond just making money.

To paraphrase Fred Wilson's advice to start-ups, I shall give one piece of advice to the founder of the future agency: First create value for consumers, workers and the world, and the brands will follow.