In the previous installments of this series, we’ve looked at the move that independent media agencies have been making from in-housing to outsourcing partnerships and talked with agency heads about the impact this has had on their people and their access to technology. In this installment we explore the ways in which those partnerships have enabled both growth and profitability.

As the founder of Austin-based agency Stiletto Collective, Ly Tran is surrounded by a vibrant music scene. “We definitely see a lot of startup bands that have solo albums or have been at South by Southwest or have collaborated with other bands or have created a new band because the other band didn’t work out,” she says.  And she sees parallels not only between how those bands operate and how she runs her agency, but also in the ways in which those bands and her agency define success.

“We are profitable,” she says, “because we always extend. We always bring in a collective team around a client’s business, and we only bring in the people we really need.” Those people, she explains, include not only the members of her “collective,” but also her agency’s collaborators at Pathlabs, a media execution partner.

As Tran describes it, it’s the ability to “extend” that fosters growth and allows for profitability. And at Salt Lake City-based Penna Powers, says Marc Stryker, the agency’s vice president of channel management, Pathlabs is seen “as an extension of us.” There are “capabilities they can bring” to an assignment that Stryker’s small local agency doesn’t have—and doesn’t have to have—in-house.

Recently, Stryker says, “an RFP came our way for new business—in the travel industry,” an industry in which Penna Powers had not worked recently. At the new business meeting, with Pathlabs on the call, “we were able to tap into some of Pathlabs’ travel-specific knowledge, which we wouldn’t have been able to do before” and more confidently pitch the business.

Becoming Elastic

What this extension of capabilities has also done for Penna Powers, Stryker says, is to extend the agency’s reach beyond full-service clients. “In the past,” he says, if the agency were to try to get clients for whom they’d provide less than full service, that might create “an imbalance in the agency’s resources.” There were clients, he says, “that we could have gone after, but I would have had to ramp up a bunch of people and add employees, so the incentive wasn’t there to build that out.” Having established a relationship with Pathlabs, Stryker’s agency is now “elastic. We can stretch out and extend our capabilities to clients with a larger customer base in multiple markets.”

The ability to stretch and serve a variety of clients without necessarily ramping up has been critical for Brent Barbee, CEO of Conquer, an Atlanta-based media agency. “We do have ambitious growth goals,” he says, “but I would never want that to become a negative part of our culture because people see that as just more work piled on them. I’m constantly trying to demonstrate that we’ll find ways to meet the capacity and achieve our goals.” And to do that, he adds, “without having to scramble to hire more FTEs.” With Pathlabs, he says, “we get to have a team of experts run alongside us.” That, Conquer Executive Vice President Evann Bishop says, “gives us the ability to scale new business really well,” with growth increasing year over year. 

The Performance Factor

Much of the growth—and profitability—that Birmingham, Alabama-based Cayenne Creative has experienced since establishing an outsourcing partnership with Pathlabs has come, says principal Sam Burn, “not from adding new clients, but from providing higher performance to the clients we have.” What makes this work is “the ability to match strategy and execution in a way that elevates performance. It’s the ability of the whole team.” And the result, he says, is that “the investments keep flowing. Nothing makes a client want to spend more than high performance.”

What makes the connection between performance and profitability work is an understanding of the client’s needs—and the time to focus on meeting them. As Jordan Person, managing partner at New York City-based Town Hall, puts it, “the more I can make sure that my team and I are focused on really understanding what the problems are that we’re trying to solve and what can have the most significant impact on our client’s businesses and keeping our eye on that, the more profitable we’re going to be.”

Burn underscores the direct line between client success and agency growth when he says, “our purpose is the growth of the client and, ultimately, the growth of our business through the growth of the client.”  And that direct line, he says, is at the root of Cayenne’s relationship with Pathlabs. The first thing Pathlabs asked, Burn recalls, “was ‘How can we help you grow your business?’ That approach allows them to be involved on a much deeper level and to be ingrained across our organization.” Often with outsourcing, he explains, “you throw the problem to somebody, and they save you. Here, we share it with somebody, and we grow together.”

All of this—the higher performance, the growth of both the client and the agency businesses, and the outsourcing partnership—leads to long-term relationships. And “profitability,” Burn stresses, “comes from having long-term relationships.” What helps those relationships survive is “solving problems consistently, being reliable, and delivering value beyond the client’s spend.”

The Linchpins of Profitability

In looking at how moving beyond in-housing to establishing an outsourced media partnership contributes to both growth and profitability, there are many factors at play: the ability for an independent agency to reach beyond its core competencies; avoiding not only overhead but the painful need to hire and fire as clients come and go; access to tested technology without substantial investment; and an expanded team to not only focus on client needs but to execute solutions. Most of these come down to the ability, as Pathlabs Chief Service Officer Cortland Fondon puts it, “to operate with a much leaner team and thereby weather bigger storms as an agency.” This translates into “greater security and stability,” which, he notes, is critical given that most independent agencies are operating with no more than a 5% to 10% margin room for error.

It's working within that margin that makes it critical, Fondon notes, that agencies are able to control their cash flow, which, he points out, the single invoice approach that Pathlabs offers its partners helps make possible. Similarly, notes Pathlabs CEO William Lapointe, it’s important that agencies “not have money tied up in working capital to run all the platforms that are filling their cards.” Pathlabs, Lapointe says, is “paying the vendors and then billing the agencies, which are then paying us 30 to 45 days later.” The result, he says, “is that you’re getting your receivables faster than your payables.” Add to this the fact that since Pathlabs, as the technology partner, has all the technology contracts, risks such as legal liability and overspend are also minimized.

For Stryker, all of this opens up new frontiers for his local agency. “Right now,” he says, “we’re busy with what we have, so we haven’t had the need to proactively market ourselves outside of Utah.” But, when they’re ready, “this makes it easier to go out there and sell this technology or that capability. It definitely enhances our potential for going outside of Utah and building out our client base.”

For many independent agencies, the ability to take advantage of an outsourcing partner’s people and technology resources has enhanced opportunities for both growth and profitability. But it’s also had a significant impact on how agency employees do their jobs. In the next installment, we’ll take a close look not only at how this arrangement has affected work-life balance, but also, and more significantly, at how it’s allowed employees to pursue their professional passions, doing the work that drew them to this industry in the first place.