Looking Forward, Looking Back
Anecdotes from 2003, Crystal balls for 2005

by Jim Osterman

There was once a relentlessly optimistic soul who labored in the front office of the New York Yankees during that organization's successful run in the 70s. One day when it looked like a key game was going to be rained out, one of the players ran upstairs and poked his head in this man's office and asked if he thought it would stop raining.

For companies in and around the communications business, the game of guessing when the economic pendulum is going to finally swing back in their financial favor has become about as easy to predict as guessing how many grains of sand are going to wash up on to the beach on a given day.

"It always does, " he said, before getting back to work. Left out of his prognostication was when it would dry out, a rather important factoid.

Stage One: The economy would tank and pull agencies down with it. That was usually good for a couple of years, if you factor in the aftershocks.

Stage Two: Then there would be another few years where things started to recover, and after that a steady climb over several years.

Stage Three: During that recovery period established agencies would grow and the environment was ripe for new agencies to open. Clients were feeling good and making money and were willing to reinvest in their brand image.

Stage Four: The the economy would tank again, and the dance would begin one more time.

Indeed, the business climate was in one of those climbing-out-of-the-rubble stages when the events of Sept. 11 took place three years ago and since it's been anyone's guess as the rules of what makes up a recovery is under siege.

That also assumes that it's going to swing back, or there is a place for it to swing back to.

The classic historical rules that business people have labored under for years no longer apply. There was a time, many ad execs say, when there seemed to be an approximate 10-year cycle.

While it could be painful to go through as a manager/owner of a business, the cyclical nature at least provided some comfort and a sense that things would get better sooner more than later. As that laconic baseball man would have said: "Always does."

Business leaders find they can no longer look at the conventional markers (Wall Street, manufacturing orders, hiring, etc.) to divine when things will truly begin to look up.

Agency chiefs have tried reading the tea leaves and the message depends entirely on who is doing the reading.

Some of the old truisms are still there:

Those agencies in good financial shape going into the recession hit were better able to weather hard times.

The smaller agencies are more able to get through the tough times because their overhead tends to be lower and more flexible.

Mid-sized agencies get crunched the hardest. They lose business to smaller agencies when clients downsize, or to larger agencies when clients seek the comfort of a big, multi-national player.

However, the wise no longer try and link a series of good events into a trend they simply rejoice in the fact that they have had anything good happen.

It all seems to turn on those who would be clients both present and future. And a client is only as bold and innovative as the business landscape and/or shareholders will allow them to be. Sometimes what trickles down economically isn't all beer and skittles.

"My theory is that when the Dow is over 10, 000, companies do things, " said Ian Latham, chief executive with Latham & Co., a brand-consulting firm.

"They are less worried about their valuations and they have confidence. But when the Dow goes below 10, 000, they do nothing."

Latham's thesis is as valid as any, because one area that always gets cut in hard times is the advertising and marketing budget. Thus, if a company is performing well below expectations, they can create a short-term fix by trimming the ad budget.

However, if the Dow is not willing to stay above the 10, 000 mark that doesn't necessarily mean that there aren't dollars being invested. The money spigot has been turned on again, even if the pressure is not as it once was.

"Cash is flowing once again, " said Bill Thompson, vice president of post production for Crawford Communications. "Business is up among all client segments, from agencies to production companies to broadcast and cable networks. Even the corporate market is coming back. And don't forget 2004 was a Summer Olympics year and it's an election year, both events which drive dollars into production and post production."

Other agencies are seeing clients coming back to the market, but at a crawl. One ad man, who requested anonymity, said that his shop is doing everything on a project basis because clients seem too scared or too financially stretched - to commit dollars to a retainer relationship.

The result is good as some money is flowing through the agency. The down side its that its hard to plan for the future when those projects may not be renewed, or new projects may not appear. Agencies have to hire carefully, because salaries have to be matched against what is forecast to flow in. Projects throw those projections out the window.

According to yet another, “We're happy for the [project] work, but it'd hard to grow a relationship with a client that way. Even with clients who hire us time after time. You can't, or shouldn't, count on that work to be there.

"There continues to be challenging pressure on fees, " Latham said. "Clients want change, they want results and they want value. If you can deliver value, you will do fine. But there is no free ride and there is certainly no luxury in fees. We can do a lot of things ourselves. When we need help, we make decisions based on people and their skills, and we bring them in on a project basis."

And, as ever, the business (advertising, marketing, public relations, design, production, et al) remains a reactive entity in constant need of someone to create a market for their services. In a bad economy those chances get few and far between.

"This has definitely been a year in which marketing rebounded, " said Mike Tyre, director of strategic planning at Cole Henderson Drake. "We're seeing a continued emphasis on justifying return on budget. Budgets have grown somewhat, but the number of ‘new' account pitches still seems to be off."

Indeed, some agencies are feeling the sting of a client that is not as savvy about what they are looking for, where they should be looking and what they will need to bring to the relationship when they get there.

"We found ourselves in a real estate-related review, pitching against a major multinational and a widely respected consultant, " said once agency executive who asked not to be unidentified. "There were some other [good agencies] in the pitch as well. What we found out after winning the account was that the client was in no position emotionally, experientially or financially to support the promised endeavor."

But the client holds all the cards, as this executive went on to relate: "This is a review all parties would have passed on four years ago."

And this is not an isolated incident. Another shop, no longer in business, won a piece of business on referral. The agency resigned the account 45 days later when it became apparent that client had no idea what they wanted, what they had to spend and what the goals and objectives of the effort should have been. While agencies can learn from such situations, it still cost that shop billable man-hours that resulted in a zero return.

As such, savvy practitioners are busting their own business models to make their bottom lines increase.

"2004 was a good year for [the agency], but not in the usual way, " said public relations executive Melissa Libby, principal at Melissa Libby and Associates. "While business was up over last year, it was more of an internal growth year, where we focused on the skills of the entire team and made some strategic alliances."

Still others are seeing the wisdom of doing the best work they can for existing clients on the chance that a side benefit will be additional work to replace the new business opportunities that are not be as plentiful as they once were.

"I had written a proposal for a project for a client, " said Mitch Leff, principal of Leff & Associates. "I'd gotten a good response on the plan. A week later I got a call from someone in another department at that same client. She had seen the proposal I'd written for her colleague and wanted to see if I could write a similar proposal for a project she needed some help on. Best way to build business is by doing good work for your existing clients."

Or, as some have discovered to their betterment, by having patience.

"Clients are spending more, but interestingly many of them are making spending decisions in real time, " said Joe Snowden with McRae Communications. "October and November are no longer when budgets are finalized for the next year that's when they're approved. [Budgets] are finalized with the client on the day the job is to start. This is very understandable behavior, given the past few years. It makes agency management all the more exciting."

"For the first 11 years of this business, I'd get a new-business call from someone wanting to meet tomorrow if not sooner, " said Libby. "And then we'd close the deal at the initial meeting. This year I saw a more cautious approach with potential clients, which is actually good because they are spending more time educating themselves to make sure they make the right decision."

And if there is a silver lining to this situation in flux, it would be that the old way of doing things is more easily set aside by clients as they seek other avenues to reach out to their desired consumer markets.

"Companies today know that marketing successfully just isn't about advertising, " said Latham. "The Web has taken over a lot of the low-grade communication that once fell to advertising. And a lot of companies are committed to doing a lot of other stuff they market with conferences, sales people and partnerships, for example.

"Our work neatly dovetails. We shape the brand, define its future and develop its customer connections. We give direction and motivation to the company, [then] the company executes however it executes."

And hard times can be used to re-shape a company that allows it to thrive down the road. One agency head has used the time to trim some underperforming staffers. His agency is leaner, but more productive. Others have altered their companies and emerged more able to compete.

‘We spent the last three years controlling expenses and reducing overhead, " said Crawford's Thompson. "Then, in 2004, we saw the benefits of improved margins through increased sales coupled with reduced costs. Although managers' responsibilities have increased, there is a strong entrepreneurial spirit again with a visibly good vibe in the post house."

Looking ahead, agencies are expressing optimism, but it is optimism filtered through some lessons learned the hard way the past few years.

No one is stepping up and predicting their coffers will be flush next year, but many are expecting to see the business environment improve. “Hiring seems to have gone up a little bit, " said Leff. "Some clients opened their purses a little bit more. Some kept them open about the same as last year."

And then there are factors beyond the business world that are being carefully watched something else that agency mavens didn't spend much time fretting over in the past.

"Perhaps post-U.S. elections, and hopefully, post Iraqi elections, there will be enough good news in the media to make analysts and investors feel better and more positive, " said Latham. "That will make the Dow look good, and the Dow will make everything look good."

"The swami wrap fell off my head in 2002 and I haven't had it dry cleaned, " said McRae's Snowden. "That said we are the most bullish, the most optimistic that we've been in three years. I'm hearing a lot of the same things from agency chiefs and client. We just need to pray for peace."