Don’t Let A Future Investor Ask Why Your Agency Hasn’t Got An AI Strategy
Agency owners looking to sell up must have a response to the questions posed by AI, writes Martin Ward of Waypoint Partners.
Selling your agency is all about putting your best foot forward. Until recently, it was clear what a potential investor or buyer was looking for. But with the recent huge advances in AI, the goalposts have changed. According to a private equity house that is active in the marketing services space, if you don’t have an AI strategy as part of your IM (the information memorandum, a core sales document), you’re unlikely to impress.
In effect, you will be broadcasting to the world that you are either behind the times or simply arrogant enough to believe you can ignore the impact of the technology. Both are as bad as each other. An agency that gets it will know that, depending on how they navigate the technology, it represents either the biggest existential threat or the greatest opportunity.
But if the requirement to get on board with the opportunity presented by AI is clear to most, the decision-making journey the leadership team needs to go on is by no means straightforward. And that’s because the business world likes to deal with certainties: if I do A plus B, the result will be C.
We can also blame Richard Herrnstein’s hyperbolic discounting theory, which, simply put, means we humans are much more likely to opt for today’s clear but smaller reward over a future, larger reward that is not yet quite tangible. Effecting behavior change to mitigate climate change is tough for the same reason.
When it comes to embedding generative AI in your organization, whether to make efficiencies or to develop new products and services, you can’t be sure of the endgame until you’re well on the way and deeply committed in terms of resources. That’s because this technology is so new, so powerful and so sensitive to the data you feed it that what you get out of it comes down to what you put into it.
Embarking on your corporate AI path can seem like a leap of faith, a voyage into the unknown, and most of us are deeply uncomfortable going in on a wing and a prayer. Without careful management, this can see inertia take hold of the organization. Everyone knows the potential size of the prize, but when no one quite knows what it will look like or what great it is, no one wants to commit spend to it – it goes against everything we’ve been taught. And so, a business gets left behind.
Bypassing this inertia requires a different approach to project management where everyone understands they are in experimentation mode and a new set of rules applies. It’s about building enough self-belief in the team to go do it and then learn and scale. It’s also about being brave enough not to give in at the first hurdle when the nature of the task means there’s a great deal of uncertainty around the final outcome. Essentially, you need to develop a digital mindset.
Maybe a team will find that AI can automate a lot more of the company processes than they originally thought – or, conversely, fewer. Unless you are prepared to go on the journey to find out, you may never know.
When it comes to offering a level of certainty to the team, it’s helpful to point to an outcome in another organization or in a lab-style environment where there is a proven impact. The transition from the current state to an agreed future state is usefully addressed by mapping common practices and processes within the business, either in terms of vulnerability or opportunity. Then one or two of these processes can be reimagined in terms of how AI might impact them via a proof of concept to see how well they work. This allows the team to dip a toe in the water, tweaking concepts as part of a considered change process.
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By now, it should be clear that if you are planning to secure investment or embark on a trade sale any time soon you need to be clear on what the community you are targeting understands as value.
Profitability and future growth potential are still the name of the game, but M&A is changing fast and increasingly it will be looking for agencies that have unlocked the power of AI and other kinds of technology to deliver profitably to customers at scale. But here’s the kicker; the businesses that currently do this may lose that ability if they can’t stay ahead of the changes AI is bringing, losing out to a new cohort of agencies that can.
Many agencies will no longer be able to charge for people in the way that they did or for practices such as media or SEO that can be automated or taken client-side because technology allows that to happen. Instead, they will need to learn how to charge for something that’s driven by technology, something that’s always on and moderated by humans or something that only humans can do.
Inertia is simply not an option and leadership teams need to adapt fast to this new and unsettling (for some) decision-making environment to work out what they want to be and how they want to do it. The agencies that are able to make the leap to the right kind of business models are the ones that will get the strongest multiples.
Martin Ward is a partner at Waypoint Partners.
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