Why Ad Agencies Should Act More Like Tech Startups

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As the agency world crumbles (a bit too dramatic?), everyone's scrambling to determine how agencies should change to meet the shifting tides of consumer behavior and the radically altered methods agencies use to reach consumers.

In a SXSW panel entitled Why Ads Agencies Should Act More Like Tech Startups, AKQA Chief Creative Officer Rei Inamoto shared some analysis and interviews he has done over the past year that examined whether or not agencies should act more like tech startups. The comparison being, of course, agencies are slow, lumbering ships saddled with bloated, creative-killing process and startups are nimble and free thinking.

Inamoto focused on three areas: structure, compensation and process. Drawing comparison between agency and startup, Inamoto noted, structurally, startups are flat. Agencies are not. They are hierarchical which can lead to a slower process.

Countering the widely held belief that the bigger an agency gets, the worse (less creative) it gets, Inamoto suggested scale doesn't necessarily have to result in layers of hierarchy. Now it's not like this hasn't been tried a millon times over but Inamoto urged the audience to create smaller, flatter teams. But honestly, the ad business is one of the most risk avers out there. Do we really thing anything can get done without seven layers of ass-covering approval?

In terms of compensation, it was argued that cash compensation, whether project-based or retainer-based is what kills creativity. Comparing this to startups where most if not all the money comes from equity that doesn't come to fruition unless you work your ass off to make it come to fruition, Inamoto argued cash is a bad incentive. He says it puts no skin in the game. It leads to laziness, status quo, no risk-taking.

Focusing on the retainer aspect of agency compensation, Inamoto noted this form of compensation has led agency management to think in terms of headcount. In other words, if an agency gets a bigger retainer if can add more bodies and it can call itself bigger. And in the and world, bigger has always been better.

While a bit of doublespeak, Inamoto says agencies should think less about headcount and resources and more about talent. But it is an important distinction. It's a size mentality versus a quality mentality. While retainer-based compensation allows an agency to comfortably project costs and profit, it also results in a scenario in which the money comes in whether or not the work was any good or not and with complete disregard to whether or not it moved product.

In terms of process, Inamoto noted the linear process of an agency doesn't allow for changes in direction which might lead to a better end product. Inamoto cited the example of Instagram. Originally conceived as Burbn, the product was intended to be a bit like Foursquare with pictures. But along the way, it was discovered that the ability to easily and simply take and share photos was, by far, of more interest and use to beta testers.

Granted, this is product development and a product should change to meet market demand, making an ad campaign for an established product has less wiggle room. But that doesn't mean that halfway through the development of a social media-heavy ad campaign it can't be shifted more towards, say, a traditional approach if it's discovered the different approach will yield better results.

While Inamoto and many people in the audience felt agencies should, indeed, act more like a startup, there were several who disagreed noting an agency can't simply go off and do its own thing like a startup because agencies have and serve clients. Always have and always will. There's an inherent lack of freedom that keeps an agency from morphing too far from its origins.

Will ad agencies ever change? Of course they will. Like any business that wants to stay afloat, they will follow the money. If the money encourages them to act more like a startup then they'll act more like a startup. If the money dictates they act like an ad agency, they'll continue to act like an ad agency.

This SXSW coverage has been brought to you by Red Square, a small national agency that just happens to be located in the SXSE.