ATL and BTL, have you forgotten?

Hey there, advertiser, and agency owner, have you forgotten what you learned in college about the concepts of Above the Line (ATL) and Below the Line (BTL)? Let me remind you!

Whenever I approach a topic about the business of digital agencies, I try to bring more strategic reflections. You must have noticed that I speak little (almost nothing) about tactics and formulas. I prefer to discuss a deeper understanding because that is what I miss nowadays in the "digital crowd", which tends to leave things very shallow and superficial. Due to the absence of entry barriers, the market has become highly saturated and of low quality. Therefore, I always hit the following keys: innovation as a form of differentiation and clear and well-defined positioning.

Getting back to the point: why do several "digital agencies" fail - miserably - along with their relationships and contracts with clients? Because there is a huge misalignment of expectations and deliveries. They don't deliver what they promise. And why don't they deliver? It is not because of incompetence, but because of a lack of maturity. Nowadays, many who start a digital agency are adventurers - of course, not all, but many. This is because, basically, you need a computer and a little knowledge - and, at best, a client - to open a "digital agency". The "digital marketing" industry has become like this: no barriers to entry, no regulation, no need for capital, etc. This generates what I call the "weed effect" (I'll talk more about this in another post).

Remember I asked you to keep the concept of positioning in RAM? So, let's process: what do ATL and BTL have to do with positioning? Well, if you, an advertiser or "IT guy", decided to create your agency without doing a business plan, strategic planning, and a marketing plan (I'm not judging; in 2008, at 21 years old, when I founded my first agency, I didn't do it either and had no idea what I was doing), you probably didn't understand your "positioning". That is, who you are, what you do and sell, and to whom.

And this is where the question comes in: the business model of digital agencies is in the Below the Line, period. If you try to navigate Above the Line, the chances of shipwreck are great. It took me a while to understand this, you know? What do I mean by that? The business model of a "full-service" digital agency does not exist! (Not that it can't be created; who knows, one day it might work... lol). Are there full-service agencies? Of course, there are! But if you call yourself a "digital agency", you have given up full service. And you need to understand this, or you will continue to fail. To complicate matters further, there are branches of digital agencies: those that are more focused on "communication" (usually founded by advertisers, focused on content, social media, etc.) and those that are more focused on "technology" (usually founded by the "IT guy", with a focus on development, integrations, etc.). These branches give rise to the "third business", which are web producers - which can work with websites, applications, landing pages, and other digital products. All of this creates enormous complexity in managing the digital agency's business model.

I usually say (jokingly) that digital agencies are ducks: they don't run, swim, or fly well. Why? Because they are a hybrid; they were born from the "mating" between advertising and propaganda agencies and information technology companies. The digitization of the advertising business created digital agencies (but that's also a topic for another post). Therefore, if you choose to be a digital agency, you have already positioned yourself in BTL. Now that you understand that your business is not: television, radio, outdoor, newspapers, and magazines (in short: mass media), you can start focusing on what is - in fact - your business as a digital agency: converting leads into customers.

"But that's oversimplifying!" I agree. So let's explore: Starting to separate the wheat from the chaff: branding and performance. Brandformance (the crowd loves acronyms and Anglicisms. Me too!). The more brand awareness the brand has, the better it performs in campaigns. Do you think digital agencies can do institutional campaigns focused on branding? I think so. But that's not "branding". Can digital agencies do social listening? Of course, they can. This also enters a little into the realm of PR.

Can you create an agency that does everything? You can, sure! You can (and should) do whatever you want with your life and your company; but then don't say I didn't warn you. Making mistakes and learning from mistakes is part of the journey and is inevitable, but it costs time and money. Learning from those who have already walked the path tends to be more efficient. The problem with creating a digital agency, which is born small, and positioning itself as full-service (in Portuguese, "faz tudo") is that this is extremely complex, mainly because it is multidisciplinary. Balancing all these little plates can be impossible for a startup company or for the entrepreneur, who tends to concentrate everything. Hiring a team with this breadth and with the necessary level of seniority is impossible at the beginning. Imagine that you need, in the context I am describing, the following profiles: creative director, art director, designer, writer (or copywriter, depending on your positioning), developer, IT/DevOps, analysts (marketing, SEO, etc.).

For companies (not just digital agencies) in the early stages, I strongly recommend "hyperfocus", that is, niching. Not just niching clients, but also services. This is related to maturity and understanding of positioning and the market. Looking at the startup model and, by analogy, doing the same with a digital agency, can make sense. But here I am talking about smaller agencies, which are the majority in the ecosystem. At Abradi, for example, most of the associates are small agencies. Which is typical, like a pyramid, where the base is larger. For medium and large agencies, the conversation is a little different.

I will try to define some classifications for our reasoning, based on the number of people on the team, following Sebrae's standard for service companies:

• Microenterprise: up to 9 employees

• Small business: 10 to 49 employees

• Medium business: 50 to 99 employees

• Large company: more than 100 employees

It is much more advisable, in my opinion, and from the point of view of the scale of the business, even from a medium or large size, that the team is more homogeneous than heterogeneous, thinking about disciplines and skills. But at this stage of maturity, you have the capacity to open up the range of offers a little and sell more diversified or complementary services. The company has already validated the business model and passed the "valley of death", understanding its customers well. Anything other than that is boutique and doesn't scale. So the concern here becomes profitability. It's no use having a lot of revenue, having a huge cost with little margin. This tends to happen with less specialized agencies, including (but not exclusively) because of the multidisciplinary problem I mentioned. The cases of more profitable digital agencies that I know are those that have specialized.

In fact, it is rare to find a medium or large digital agency. At this size, they have probably already ceased to be "just" digital to finally become full-service, and they haven't even realized it.

We can also talk about the different business models of agencies in general, which are:

• Remuneration based on media investment (the old "standard discount")

• Monthly fee, whether per package of deliverables or man-hour

• Performance-based pay or success fee

• Launches (info products)

• Projects

Each of these provides a different gain of scale for the business of agencies. The first, based on media investment, is a legacy of advertising agencies. These, yes, scaled (they were almost banks), but digital agencies never managed to position themselves there. The second, which is the most common among digital agencies, does not scale. Not that "monthly fees" don't scale, but the positioning and delivery of "digital agency" won't scale. For example, if you are an IT or MarTech outsourcing service company, you can probably get bodyshop contracts with large clients, with very interesting margins. But if you are a "pastry" digital agency, you will never succeed.

The third model, of success fee, is almost a legend; it doesn't work in the long run! It's great to start the conversation, the client loves it, but it's too complex to design and, in the end, it will go wrong even when it goes right. And why? Because if it works and the agency is making a lot of money, the client will eventually question: "do you want to be my partner?" and the business will go downhill. Exceptions can happen.

PS: I won't talk about launches and projects here so as not to extend myself much further. Therefore, my conclusion is: that if you are a digital agency, understand who you are and focus on BTL. It will be much easier for the company to grow and be profitable. The reflection here is to make entrepreneurs and clients aware of a problem that I have identified for a long time: the misalignment of expectations and deliveries. This generates frustration, but there is a lack of awareness of the problem on both sides. Maturity on the client side is also important, to know what to hire.

I strongly believe in the digital agency business—so much so that I invest in it—but the model and ecosystem need to mature. The VUCA scenario we live in makes this maturation challenge even more difficult, but it also creates momentum for innovation. And here is the gold that digital agencies have not yet discovered!

Conclusion: Understand your capabilities and unique skills, position yourself (preferably where there is less competition), and say more no than yes, and things will work out.