Want to start an agency? Use this checklist first
Seven points to follow to help your new shop be
the 1 in 3 still around in 5 years
By John Emmerling
Advertising Age
January 12, 1998

I’m a private pilot with more than 2,000 hours logged, which means I’m pretty familiar with the complex procedures every aviator must follow. Yet, I’d never wing it. Before any takeoff, to insure safety, I always go through a complete checklist.

Launching a new agency is something like flying. It can be rewarding and thrilling, but it’s potentially risky. Believe me, it will go a lot better if you use a checklist.

My partner and I have successfully co-piloted our agency for five years, and I guided my own shop for a few years before that. Here’s a pre-flight check, based on actual experience. The entrepreneur-in-waiting can clip this for the "new agency" file.
o Find the right partners. Typically, those who start a new agency move from a large supportive environment into cramped, subleased space, with a jumble of desks, phones, computers and printers. The partners must be people who can live with one another—crewmates that will gamely weather the coming storms, and there will be storms.

Their skills should complement, not duplicate, their individual abilities. Two copywriters make great lunch partners, but lousy teammates for a start-up. Both write headlines; neither writes marketing plans.

Start with a real account.

Don’t leave home without one. The agency graveyard is littered with shops launched on a wing and a prayer (they counted on one-shot project assignments and "consulting").

Instead, look for an ongoing account relationship with predictable annual revenue. And don’t rely on glib, off-hand promises ("Sure, kid, hang up a shingle and we’ll give you some business.") Try to sign up the first account before writing the first rent check.

Got enough money?

Cash is crucial in the agency business. Lack of liquidity is what trips up most agencies.
Money is needed for expenses, working capital, and also to cover the salaries the agency founders won’t be taking. (Be prepared to go two years without a paycheck.)
Start by figuring the initial expenses, such as lease deposits, legal fees, furniture, equipment, and insurance. Next, how much for working capital?

The American Association of Advertising Agencies recommends a fund of "quick assets," equivalent to at least two months of monthly operating expenses. (For example, if it takes $20,000 to keep the rent paid, the lights on, and all other monthly bills current—you should have $40,000 in the bank.)

Finally, how much for living expenses while waiting to become profitable? Write down all the numbers, then add $25,000 to cover the "unexpected."

And get ready to downsize your lifestyle.

Accountants and lawyers.

This is not the time to call your brother-in-law, a facile attorney who handles mortgage closings and divorces. Your lawyer and accountant must know the advertising industry. Inside and out.

The ad agency business is a quirky and cash-flow-intensive. Expert, knowledgeable advice is needed. When interviewing these professionals, ask if they have other agencies as clients. No? Keep looking.

You also want a banker who understands the ebb and flow of agency cash streams. Find the rare and savvy banker with ad biz credentials.

Will your product excel?

This "product"—your strategic thinking and creative executions—is what will separate your shop from the competition. To become successful, the new shop must develop insightful strategies, then execute the strategy with engaging, talked-about creative.
Will your charter account approve groundbreaking ideas? If so, count your blessings and get to work.

But if you think a fledgling agency can survive on glib pitches and journeyman ads, think again. Stick with your present job—and put your shingle back in storage.

Plan for growth.

Founders need to grow the agency—and its income—for at least four reasons.
The first is to create new opportunities for your key people. Second is to add another layer of talented employees. Third is to invest in the latest technology and training. Fourth is to reach the critical mass of staff and clients that qualifies the new agency to compete for larger, more profitable accounts.

From Day 1, dedicate the agency’s efforts to helping build the first client’s business. As prospers, so will the new agency. At the same time, begin hunting for the second account. Do whatever it takes to generate leads—write letters, dial-and-smile, attend industry events, get publicity, make speeches. You won’t be getting much sleep.

Beware the agency killer.

The agency is not a bank. Do not extend more credit to clients than is absolutely necessary. Do not accept sole liability for media placement on behalf of a client. (Even if it’s a small client going bankrupt, it can drag you down with it.)

And definitely call the Four A’s to request their "Service for New Agencies." It’s a well-spent $1,500 and includes business and fiscal advice from Four A’s experts, along with access to its research library and a supply of more than 100 informative brochures, reports and sample forms.

Recently, I surveyed a few of my own reliable sources (ad accountants and ad lawyers), asking them for the odds favoring a successful agency start-up. Here’s the consensus: About one out of every three new shops will survive to its fifth anniversary.
Some of the dropouts fail financially. Others lose their charter account and fold quietly. Still others get acquired out of existence.

This may sound grim. But if you do a preflight checklist, the odds will improve dramatically. Use this seven-item checklist and avoid hitting mountains in the fog.

Good luck, have fun—and fly high.

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