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Wednesday, Feb 28, 2024

Independent Streak Keeps Firm Alive

Imagine an industry where many decisions are minute to minute, and where 80 percent of most companies’ revenue is concentrated in fewer than 10 clients. Now imagine the pressure of having your important decisions approved in a timely fashion by someone who doesn’t know these clients, is in a different time zone and might be more focused on pleasing stockholders in the short term than your clients in the long term.

Those are just a few of the reasons why our company, Phelps, has remained independent for 33 years. Over the decades, as one of California’s largest independent integrated advertising and PR agencies, we’ve received inquiries from multinational marketing conglomerates. But it has never made sense to me to sell our company to one of them. Right now, the world’s two largest agency holding companies, Omnicom and Publicis Groupe (each of which own a few agencies in Los Angeles), are undergoing a merger that could have an effect on many in the business community.

Mergers and acquisitions are very common ways to grow in our industry. We’ve acquired five small agencies over the past 15 years. And we’ve been on the receiving end of many tempting offers to sell. So why not? When the subject comes up, some of my first thoughts are: “Life’s too short.” “Too much stress.” “It’s not all about the money.”

For a longer life: Heard that middle management carries the most stress in companies? Well, when a small to medium-size agency sells to a public company, the management of that agency becomes middle management. My guess is that negative stress in a fast-moving, quickly changing industry shortens lives. One of my objectives is to live a long, healthy life.

At 33 years, I’m the longest-running chief executive on the Business Journal’s list of biggest local advertising agencies, and the third longest for PR firms. I would have burned out years ago had I been focused on increasing profits for a public corporation at the risk of decreasing our client satisfaction and longevity.

It’s the culture, stupid: Folks today have increasingly higher expectations in terms of what they want from their jobs. In addition to fair compensation, they want a healthy working environment. Culture is king. Two-income households and the digital age have dramatically changed lifestyles. People want flexibility and personal satisfaction in the work they do. The larger the company, the more the employees have to endure explicit, restrictive policies. In smaller companies like ours, it’s mostly, “Do what’s right for your client and treat people like you believe they’d like to be treated.” We’ve found that if you hire smart, caring people and encourage them to stay in those boundaries, you don’t need a lot of other rules.

More advantages of staying independent: The following advantages are reasons independents can provide better client service than large, slow-moving, siloed public companies.

• Fewer layers of hierarchy: Faster delivery, more personal satisfaction and clarity of accountability.

• No financial turf wars among conglomerates’ profit centers: Recommendations can be for what’s best for the client, not for the best way to divide revenue among agency profit centers.

• Decisions are made locally: More alignment with local cultures with fewer layers of hierarchy.

• Sensitivity to longer-term client welfare: As compared to catering to shorter-term stockholders’ demands for profit.

• Feelings of ownership and accountability: The results of working on smaller teams.

• The agility to adapt to a quickly changing business environment: Battleships turn faster than aircraft carriers.

• Better pricing for the client: Resulting from a higher percentage of employees actually providing client service vs. administration; i.e., less overhead from more simple operations and no Sarbanes-Oxley or mountains of accounting required for a public company.

And the biggest advantage – in my opinion: Freedom. Freedom to choose clients carefully without pressure to grow the company because of revenue projections made to shareholders and stock analysts. Freedom to promote “balanced lives” for our associates. Fewer evenings and weekends at work, resulting in less associate and client turnover – and a more stable environment.

This freedom attracts Talent with a capital T: Increasingly, smart people are figuring this all out and they are attracted to smaller companies where they can make their mark. Talented people working in an unencumbered environment deliver better work. And that’s what clients look for.

So, “Why such longevity as an independent?” A lack of financial pressure from outside stockholders and a more streamlined, balanced organization allows us to provide the quality of service necessary to build a client-retention record that includes: Panasonic, 26 years; Tahiti Tourism, 21 years; City of Hope, 15 years; Whole Foods Market, 12 years – to name a few. Our associate-retention record is also impressive. It’s this stable, healthy environment that has helped us weather 33 years of increasingly accelerating change and numerous economic recessions. And our continued success gives us hope that will continue for many years to come.

I hope this is helpful to you.

Joe D. Phelps is the founder of Phelps, an advertising and public relations agency in Santa Monica.

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