Agencies As Incubators

Does it make sense for an ad agency to launch an incubator for tech start-ups? You could (and many no doubt would) say that this was merely a distraction from the day job. An unnecessary aberration from what agencies are meant to be doing. Personally, I think it makes a bunch of sense. Here's why.

This year's Cannes Lions seemed to be a marker in the sand of how the tech and ad worlds are increasingly colliding (or 'marrying on the beach', as Mel eloquently put it). But as Olivier Blanchard points out, whilst agencies don’t need to become technology innovation engines, there undoubtedly is a need for ongoing collaboration with technology pioneers, for staffers to become tech savvy, and just for them to keep up: "Technical innovation can increase agency capabilities, cut costs, accelerate the campaign development process, and blow everyone’s socks off (consumers and clients). Who wants to turn that down? You?"

The Portland Incubator Experiment has been going for a couple of years, actively supported by Wieden & Kennedy, and serving "as a hub for community, entrepreneurship, and creative thinking." Startups get access to upto $18,000 of seed funding, office space in Portland for a three month period, and get to collaborate with and learn from other startups in residence, industry mentors, successful alumni and Wieden & Kennedy staffers. PIE also offers access to "thoughtful" investors, and exposure to Portland's mobile and open source development communities. It's a lot like Paul Graham's excellent Y-Combinator model, except this year W&K are involving several brand clients including Nike, Coca-Cola, and Target (brands who "aim to find unexpected solutions, accelerate new business, and keep innovation at the forefront") and PIE are looking for startups which have emergent opportunities that are brand and business aligned.

This reminded me of this rather intriguing (and anonymous) answer on Quora about how Apple uses its significant cash reserves to maintain a decisive advantage over its competitors in product quality. When new component technologies first arrive, says anonymous, the upfront capital expenditure required to produce them can be so huge, and the margins so slim, so as to make it prohibitive for manufacturers. Apple steps in and uses its cash to help pay for the building of manufacturing capacity in exchange for exclusive rights to the production output for an agreed period of time (6 - 36 months perhaps), and following that for a discounted rate. This enables Apple access to new technologies far ahead of its rivals, which it can use to create products that cannot be duplicated. Once competitors catch up, and the technology becomes commoditised, Apple still has advantage through the special pricing it has already agreed. This means that once the product line is no longer premium, it can still be produced more cheaply, yielding higher margins and more cash, which can then be reinvested in continuing the cycle. They are in effect "creating an unrivaled exclusive supply chain of advanced technology literally years ahead of anyone else on the planet".

What Apple have foreseen, is the advantage that comes from building a unique pipeline of smart cutting-edge technology. And to draw a parallel, what W&K have seen is the advantage that comes from mixing it with smart, cutting-edge technology talent. W&K's involvement in PIE is part of a series of experiments, they say, to help transform the industry, redefine brand experiences, and build new relationships with the communities they reside in.

That last one - the opportunity (particularly in these difficult times) to invest in entrepreneurs and to give something back - is reason enough to do it. But I think they realise many other advantages in engaging with people and thinking at the forefront of technology. Not least a point of difference for their business. Access to new and interesting tech. But most of all, access to the talent and to new and different thinking applied in creating solutions to problems. No, agencies shouldn't be technology innovation machines, but the smart thing about what W&K are doing is that they are making themselves a contributory part of the local tech scene, making connections, and no doubt soaking up some of the culture, more than a little of the expertise, and a healthy dose of that startup pixie dust. It's a model that other businesses, and not just agencies, could learn from.

Image courtesy

Comments

[NewBusinessHawk]

I agree with your points, and would only add another thought.

Marketing firms have made enormous progress in defining brand development. The next chapter is how to apply all of the knowledge of a particular brand. Most in marketing are just starting to understand how to use brand insight to touch every piece of brand communication - and more importantly how to respond to the new level of communication FROM the consumer. With this focus on all dimensions of brand communication, information will play an increasingly important role in its ability to develop and execute brand strategies.

Agencies must be prepared to implement creative new approaches to reach and communicate with clients and consumers.

So I approve of what W&K are doing! And I agree it doesn't have to be a tech start up, but rather any new idea on establishing a new business model. The future belongs to the firms that attempt many new ideas, and then follow those that stick.

Bob Sanders
Sanders Consulting Group
Blog: http://sandersconsulting.com/newbusinesshawk/
Twitter: http://twitter.com/newbusinesshawk

[Stuart Eccles]

In contrast to the normal expectations, when anyone every asks me about Agencies as incubators, or as funds or creating their own IP, I am in fact a huge sceptic.

At least for the massive majority of agencies (and i'm talking 90% here) going down the IP route and/or incubating startups will be bad for their business and bad for any entrepreneurs business. I have a few reasons why I think this may be the case.

1. I believe that, generally, the idea that agencies can add creative capital to entrepreneurs is ill-founded. The type of creativity needed to produce advertising compared to starting businesses is very different. The creativity is nearly all agencies is geared towards producing advertising/marketing (as it should be). We need to stop pretending all creative skill is equally applicable to all problems.

2. The culture and process of large agencies is developed to deal with large, incumbent clients not startups. To quote Steve Blank, startups are not smaller versions of large companies. The "help" an agency gives may be quite a hindrance.

3. The idea of supporting startups to give an competitive advantage in utilising the platforms they may create seems like a large leap. Generally B2C orientated mass-consumer products must first achieve significant traction before advertising is really viable and pre-empting this would damage the ability to gain traction. If Twitter had advertising from day one, do we really think the user experience would have gained the traction it needed to be successful. Additionally this is a rather large bet in terms of user attention when an agency would have to wait for a long time to see traction at which point its clients, strategy may have changed. Surely in any mass-market approach (and lets face it advertising needs to be mass-market to work!)

I wish the best to all who try this but i'm betting against anyone seeing huge success and a decent return on investment. I'm totally for seeing more entrepreneurial culture and especially more technology at all agencies, but for this I say Hire More Coders!

Stuart

[neilperkin]

Hi Stuart
Thanks for the really thoughtful comment. You make some good points. I rather liked the way that Johnny Vulkan put it over on Ben's G+ post about it ( http://bit.ly/qC35xG ) when he said that it was all in the balance: "Being part of the incubation process is a great place to be, but very different than trying to be the incubator". I guess my point here is that WK seem to have that balance right - they are an active partner rather than attempting to be the whole thing. I take your point about ill-suited large corp processes, but I think that done right this is not about imposing incumbent process, more about soaking up learnings from a partner. A potentially more important benefit than access to new build tech is, I think, the opportunity to work with talent that is solving problems in new/different ways.

[Alistair Vince]

Having just launched a start up, I have been lucky enough to have benefited (all be it on an informal basis) from the agency world helping me out in exactly the way you describe above. If it had been formal, then the development would no doubt have been faster. So I’m all for this. I think it’s a shame that the US again have to lead the way on this. We have a huge creative base in the UK and it was only due to superb generosity from friends of friends that I was able to call upon this resource.

That said, the challenge for us became (and probably remains) much more one of lawyers and accountants (seriously), than creative time. It would be great to have a set up where there is a group of non-execs all working in an advisory capacity for these businesses. I know I could use this now, and use it going forward. The initial stage is always the most frustrating and worrying and so this is when help is needed. Sometimes you just want to ask someone a question and get an answer. Plus it should be a great place for the agency world to be able to see new companies they may want to work with or try as early adopters. It can very easily be a win win.

[neilperkin]

Nicely put Alistair. Your point about lawyers and accountants is an interesting one. From what I know, I believe the kind of offering you describe is part of the approach adopted by Y-combinator. As you say, sometimes the real value is in just having a third party to bounce stuff off or get a question answered.

[seth]

love the premise that W&K is promoting. Think incubation is fantastic for brands to be a part of. Wish agencies werent so casually and consistently painted as being inhibitors to creativity, especially when the lines continue to blur and agencies (big and small, media and creative) are taking on more and more tech-related executions.

Not sure how i feel about the Apple Quora post -- any reason to surmise it is pretty accurate Neil?

Love the blog, keep up the good work.

[neilperkin]

Thanks for the comment Seth. Don't know for certain that the Apple/Quora post is accurate but it intuitively feels as though it is. Either way, it's an interesting concept and way of approaching the world I think.

[sam]

Not to toss a bucket of cold water on this, but, I'll add ice water.

First, it's an extremely risky deal for a developer. You are giving up equity and limiting your market (if Coke passes on your project, Pepsi aren't likely to meet with you). You are limiting which agencies you can pitch to (if W+K are your investors, will any other agency work with you?).

Next, let's be clear about PIE. It was free office space for a group of start ups, if you had an "in" with a certain tech crowd in Portland. It did not incubate anything. The new offering is entirely new. It has ZERO track record despite the illusion it tries to paint.

If you can live on $2K/month for three months in Portland and don't mind having an equity partner who will limit your market reach, go for it. It's a one-shot deal. Very risky.

W+K could have achieved far more by not creating such an invasive deal structure.