Growing agencies can’t afford not to invest in their own systems
Following S4 Capital’s earnings warning, Green Square’s Nick Berry warns growing agencies not to ignore the work needed to build support systems and infrastructure.
Revelations about S4 Capital’s “chaotic accounting” last month not only dampened its share price and future growth expectations, but also provided a timely reminder to businesses of all sizes that it is worth holding on. a mirror of your own systems and operations and ask if they are fit for purpose.
S4 has since hired Colin Day as chairman of its audit and risk committee and promoted Chris Martin to chief operating officer – the first of several appointments which Sir Martin Sorrell says are the first steps to restore trust.
A strong system is essential for success / Unsplash
As a young founder of my first company, I was once told that “business is easy, except for customers and staff”. It’s about perfect, but I’d add an extra challenge to the mix in the form of systems.
Edwards Deming, a renowned 20th century American engineer and businessman, claimed that “94% of problems in business are systems-related, but only 6% are people-related.”
I’d say that might be overkill for the people-centric, service-driven marketing industry, but it still underscores that people are often constrained by the systems and processes they’re tied to.
Within Green Square, we are heading towards one hundred years of combined C-suite experience in the hot seat. We all have war stories about system implementations and how a poor process inhibited growth at certain stages. This experience is essential as we help companies examine their M&A options and aim to achieve maximum value.
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Most companies work hard to preserve a swanlike appearance, where serenity on the surface is supported by frenetic activity underwater. Things were even more strained at S4, as auditors discovered when assessing their financial operations. Consequently, the failure of systems and processes to demonstrate a strong audit trail and reporting led to late filing of accounts.
Many marketing and creative agencies focus all their attention on being brilliant at what they do while ignoring the back-office platform. This can be reckless because the first can only evolve and flourish if the second is robust.
Systems and the ability to scale become essential in companies approaching 50+ employees. It is then that the tools for financing and managing the resources of small businesses become inadequate. In the recent 2022 census from independent agency The Drum, there are six financial factors on which they rate performance: revenue, revenue growth, percentage revenue growth, revenue business per head, gross margin and gross margin growth.
These factors are clearly fundamental to the underlying health of any business, but on their own they don’t necessarily provide insight into the sustainability and scalability of a business’s operations. This is often related to sales processes, account management, service delivery, customer experience, business practices and employee turnover. These factors and more are all intrinsically tied to strong, unified systems and processes from front to back of the house.
As agencies grow in size and begin to evolve, they often fall into the trap of seeing the solution to every problem as more people. In the words of Michael Gerber, the American author who is evangelical about business processes, “systems run the business and people run the systems” – so throw more bodies at a problem instead of investing. in the underlying systems is rarely the right approach.
Entrepreneurs, by their very nature, often hate the detail and complexity involved in building operational systems. They are frustrated and see it as a waste of time and money. But an efficient process not only reduces reliance on people and removes single points of failure, it also eases stress levels and increases the time available for creativity and innovation.
From an M&A perspective, strong systems mean that the knowledge and ability to “get things done” is not tied to a few people. This is a huge value factor in the eyes of a buyer. People are key, but when mixed with quality operations, you get a secret sauce that attracts buyers and can often differentiate you from the competition.
For example, it is reasonable to expect a business to have access to key management data that ultimately aids in decision-making and profitability. This includes the ability to assess the profit margin of individual customers, projects and service lines. But it’s surprising how few companies have this at their fingertips. When analyzing this due diligence, it often becomes apparent that there are significant imbalances and certain business relationships or services that add limited value.
Other processes related to recruitment, staff onboarding, and ongoing management of HR matters should also be systematized in a way that positively supports your culture and sets you apart from the competition, attracting and retaining the best talent available. . There is strong evidence to prove that haphazard approaches to staff hiring and onboarding, as well as ongoing employee engagement, will reduce tenure longevity and increase staff turnover.
A buyer won’t expect you to have the same systems or approach as them, but if they see a culture that relies on solid processes and data to support effective decision-making, they will view you as a mature company with a growth – centered management ethic.
On the other hand, when there is a fundamental process problem like with S4, it can take a long time to repair and rebuild reputation. Sorrell not only admitted that the fall in S4’s share price will affect acquisition activity, but also conceded “customers and potential customers may be less inclined to work with the company in the future. , given the chaos,” according to the Times.
Following that admission and following the new appointments, Sorrell said: “In a way, we’re starting over, not from where we were at the start, which was zero, but we’re starting to build that trust again after being gone by an event. unacceptable.
It proves that internal systems can be as important to success as being at the forefront of a new trend or having a great sales strategy, so investing time and money in systems can generate positive results. excellent long-term returns, while leverage to leverage when considering an M&A.
Investing in operations needs to be driven from the top, and those who don’t will suffer in the long run. In the words of American author Orison Swett Marden, “a good system shortens the road to the goal”.
Nick Berry is a partner at Green Square.