Reflections on a 10 year client partnership

I've only done this twice in my career at Good. We made two 'partnership' investments. One flamed out, the other was successful and delivered a decent return on investment. Now that we’re out of both enterprises and with the benefit of hindsight, I thought it was worth highlighting some points from the agency owner perspective.
 

In my experience agencies are desperate to describe their regular client relationships as partnerships. I’ve done it. It makes us feel like valuable and equal stakeholders in the alliance. The thing is, it’s nonsense and the sooner we all realise it the better. Clients hire agencies for all sorts of reasons, but the key point is that you’re being hired as a supplier, and you’ll be paid regardless of how the client project performs. 
 

At Good, the agency I founded with partner Keith Forbes nearly 20 years ago, we only had two experiences where we could genuinely say that we became ‘partners’ with the client. That means we negotiated a share of the business and did the brand / creative / consultancy without fees.
 

They were both very different businesses: one in drinks, one in software and we took the plunge with them at the same period, about 10 years ago. At this time, I think we’d matured as a design firm and were graduating to a bigger brand picture, appreciating how much of an asset a well-managed brand could be for a business. Looking back, it was the right time to be trying new things as we transitioned into a more strategic consultancy. Nowadays, there would be nowhere near as much wide-eyed naivety around the risk and reward dynamic for our own business. 
 

Fortunately, the risk paid off for us and the software business was sold last year delivering a welcome return. Since the completion I’ve been reflecting on the whole experience, and I’m triggered every time I see agencies talking about developing partnerships with their clients. So I wanted to highlight some of the learnings with the benefit of hindsight.
 

1. It’s a long haul.

I would estimate that the return on our investment has taken at least a decade. I’m not sure we even thought about the timelines in any serious detail at the start – perhaps we were just too keen to get stuck in. Given that most agencies run on a tight credit control cycle and there’s always a fair degree of ambiguity of where the next quarter’s revenues are coming from, a decade long cycle of investment with no guarantee of payment doesn’t seem like a good option. These are two competing philosophies and I often found it difficult to reconcile them while on the journey.
 

2. Don’t underestimate the risk.

It’s easy to get carried away with a sense of entrepreneurial excitement. I know we did. See above:10 years investment with no guarantees. If we’d been a bit more mature or experienced, I think we’d have been able to boil it down to exactly this proposition and recognise that from the agency’s point of view, it’s not a particularly good bet. 
 

3. Once you’re in. You’re in.

It doesn’t matter what you agree in terms of scope – you’ll exceed it to a degree that makes it almost pointless writing it down in the first place. This looks so obvious to me now, and although I’m sure we expected a little bit of creep, we massively underestimated. And when you factor in the 10-year timeline it’s inevitable. 

To be clear, I’m not saying we were cheated. I’m saying that we did most of the over investment willingly because what’s the alternative? We did what any other owner would do, we just got on with it and put the effort in because we wanted a return. Welcome to a real client / agency partnership.
 

4. It’s likely you’ll be diluted.

I’m not saying we were naïve, but we thought dilution was what you did to orange squash! I don’t suppose every start up project’s the same, but many of them (particularly in the tech space) have had to raise money and offer additional shares to other investors at various stages of their growth. When this happens your initial ownership share is diluted in proportion with the new ownership of the company. This happened in both of our partnership projects and multiple times with the software company. You must be prepared to watch your shareholding fall to fractions of where you started, at the same time as you’re doing all the work with no immediate cash benefit. With hindsight, I don’t think there’s an absolute right or wrong with this stuff, but it is worth thinking about. With the drinks business, we had a relatively small chunk and were diluted away to something meaningless. The software example was better, but we still took a fair hit over the period.  
 

5. Working for free affects the team.

Although we weren’t technically working for free, to many of the team it felt as though we were. This affects the spirit around the project in some subtle but important ways. In our agency the Client Service Team has been encouraged and trained to report on their billings in a very precise and structured manner. When you ask them to look after a project that has zero billing against it, they can be less than enthusiastic about getting involved. This is understandable and perhaps demonstrates what a good job we’d done in creating a commercial culture within our business. 
 

The creative team had some different challenges. Because we were part owners, there were no expensive photoshoots or illustration – we had to make do with stock and rights-free content. The other issue was just a function of time. With a project that spans a decade it was picked up and put down so many times, by so many creatives, it struggled with a lack of ownership and style. Again – nothing insurmountable, but these issues were just not seen at the outset. 
 

6. Who are the founders?

I guess this is a more generalised piece of advice, but it’s worth repeating because it had an impact on our own investments. Our drinks start-up was led by a relatively young man with limited experience in business. He’s an impressive individual with limitless energy, but I think even he’d acknowledge that the opportunity came too early for him. Conversely, our software investment came with two mature guys who’d worked in the sector and had a very clear idea about where they were going. This wasn’t the only reason, but it certainly made a difference to our role and how hands on we needed to be throughout the life of the project. Worth factoring into the decision-making process.
 

So, was it all worth it I hear you ask?

Well, as an experience both from a professional development and personal fulfilment point of view, it was brilliant. I look back on it now and feel wiser, more confident, and well-rounded as a person and consultant. But I’m not so sure I can say the same as an agency owner. The bottom line is that we poured a lot of time and effort into both enterprises. We were lucky, one of them paid off but in reality, we had little influence here. It was mostly down to the skill and judgement of the business leaders. The fact that it paid off means that over the course of both initiatives, we probably broke even in terms of time and effort. Not a great result if you were to evaluate its impact on growing the value of your agency over a decade.
 

So, having experienced the highs, lows, and realistic timeframes of working in a real client partnership, I can confidently state I’m quite happy to be called a vendor, supplier, incumbent or whatever the client wants. It’s a fairer and more descriptive reflection of the relationship than ‘partnership’.