The Advertising Agency Model Is Broken: Here’s One Way to Fix It

Colin Alsheimer is VP of Strategy and Integrated Solutions at Alipes, where he helps clients solve business challenges with holistic and strategic marketing campaigns. When not geeking out on the latest digital trends, you can often find him manning the flippers at Boston’s many pinball haunts. Follow him on Twitter @colinize or send a note to to chat.

Marketing agencies occupy a unique and vital role in the corporate marketing landscape––they have the benefit of access to high-quality marketing and creative talent, and often provide a more time- and cost-efficient alternative to building fully staffed in-house teams. Which is why it can feel surprising to see the regularity with which the industry has been proclaimed “dead” or “dying.” From this practitioner’s standpoint, the industry certainly feels as vibrant and rewarding as it has ever been. But, that doesn’t mean the industry is without its flaws.

Corporate consolidation, tightened marketing budgets, poor work, and missed expectations has led some companies to leverage their growing economies of scale to mimic the agency model with their own pseudo agency structures, or by creating internal marketing centers of excellence responsible for everything from creative production to media buying.

In addition, corporate demand for robust expertise across many marketing disciplines has led to massive consolidation at the agency level. Where brands may have once sought out leaders and innovators within a specific practice area, they now go straight to large holding companies that can do it all.

If that weren’t enough, the problems that agencies face extend beyond the simple realities of shifting client demands. At the agency level, there are many limitations inherent in a business structure that relies on selling blocks of time. Time is a finite resource. One employee has (at most) 160 available hours each month. Once that time has been fully allocated (sold), the only mechanism for an agency to increase its available supply of hours is to hire more people or ask their employees to work more hours.

To compensate for these realities, running a profitable and growing agency often means an extreme focus on new business acquisition, reactionary staffing fluctuations, and a workplace culture that tends to encourage long hours and heavy workloads. Too often, agencies are understaffed, overworked, while important client work rests on the backs of too-junior employees who are easiest to leverage (low salary costs + time availability = great returns on human capital).

For clients, their business is more likely than not to be staffed by a collection of overworked, exhausted and entry-level marketers who will provide far less value than their hourly rate might suggest (or that an equivalent in-house hire might provide). Not only does this get in the way of producing great work, but it can lead to mistakes across all areas of the business, including forming the kinds of mutually beneficial relationships that lead to more successful business outcomes.

From the perspective of the employee, their agencies are asking them to work longer hours, wear multiple hats, maximize their billable time, produce work above their experience level, help keep costs down, and make meaningful creative contributions to the projects they are assigned.

It’s no wonder that the agency life that so many of us love frequently ends in burnout or jumping ship to more lucrative and less demanding client-side roles. Combine that with a client pool that is increasingly wary of working with agencies, and it’s easy to see why many would conclude that the agency model is broken and without remedy; particularly when few have offered a feasible path forward. In 2017, Forrester came closest when they issued a report that laid out a four step plan to fix client/agency relationships; primarily focused around breaking down silos and forming deeper relationships.

Taking that framework as a starting point, I believe that we can take things several steps further by rethinking the entire business structure agencies are built upon. In order for an agency to truly thrive, in the face of the realities covered above, we need employees who are both willing and able to act more like business owners and CEOs, making the interests of the business their own (and sharing in the rewards of success).

An owner is willing to go above and beyond. An owner is willing to work overtime and wear multiple hats. An owner is willing to sacrifice luxuries in the name of a more sustainable business. Say what you will about teamwork, purpose and camaraderie; at the end of the day an employee is there for a paycheck to provide a means for a lifestyle that incentivizes working as little as possible for as much as possible; everything a healthy agency does not need.

By making changes to the business structure I believe we can more closely align the needs of the employee with the needs of the business. Instead of simply rewarding employees for a job well done, we reward based on business outcomes that result in healthier, more sustainable organizations and happier clients.

All of this is predicated on the idea that for an agency to consider these changes, they are more likely to be both independent and on the small-to-medium size scale. Most of those independent agencies tend to be set up as a sole proprietorship, LLC, corporation or partnership that places a few key players (such as a founding team) at the top while staff falls in line at various points below. While these structures have been time tested, for reasons outlined above, they don’t fit the needs of today’s agency.

Instead, I propose that these smaller, independent agencies take a very hard look at structures that are built around Employee Stock Ownership Programs, otherwise known as ESOPs. By transferring ownership of the company to its employees, you encourage owner mindsets by allowing employees to share in the rewards of a successful business, in ways that move beyond a steady paycheck. An ESOP also allows the business to enjoy a slew of tax breaks, plus founding members can structure them in ways to maintain important decision making rights or cash out when they are ready, without needing to sell the business or push for acquisition. Plus, in the case of a leveraged ESOP, the business can access a new source of outside capital, helping to smooth out the waves of client work and reduce the occurrence of reactionary staffing decisions, allowing the business to inject more long-term planning into the mix.

Finally, ESOPs provide a new competitive edge for agencies in the battle for talent. The recruiting pitch shifts from highlighting a fun and interesting office environment and a chance at working with notable brands to one that focuses on becoming a part owner of a thriving business entity who shares in its failures and successes (hopefully more of the latter), and translates blood, sweat and tears directly into extrinsic and intrinsic rewards.