Key points:

• RXP Group is an ASX-listed firm where 80 per cent of work by revenue is digital transformation. It turned over $141m in the year to 30 June. RXP bought digital creative shop The Works in 2017 for a deal worth up to $33m.
• CEO Ross Fielding says corporates may opt for the Big Four “because no one ever got sacked” for taking a “safe” approach, but clients are “increasingly willing to break bigger jobs into smaller components, the $5-$10m jobs in full execution. That is where we play – and the goal is to work our way up that chain”.
• Bastion Collective bought creative agency Banjo last October, and has amassed a 10-agency stable since launching in Melbourne in 2009. It claims to be the biggest independent agency network in Australia and is now expanding into the US.
• CEO Jack Watts believes the market is “entering an era of the independent agency” with a “huge gap” to fill between the holding group big fish and the small fry.
• “The market now is less about volume and more about value,” suggests Watts. “That’s why you see WPP and the others merging agencies.”
• Will Lavender founded what is now CX Lavender in 1997. He thinks the future is in-housing, for those agencies that can scale without becoming simply recruiters of talent.
• Lavender thinks start-ups and smaller independents may struggle to gain traction because clients are still unsure what they want, what is required of them in a changing landscape.
• Fielding and Watts agree – and suggest consolidation may be ahead for those unable to access capital.

Bastion Collective: Value over volume

Bastion Collective has amassed a multidisciplinary set of agencies under one umbrella.  Ten years since launching in Melbourne it now claims to be the largest independent agency group in Australia and has recently expanded into the U.S.

It doesn’t buy agencies with overlapping expertise, only adding units that better enable end-to-end services. All agency heads within Bastion Collective have skin in the game and CEO Jack Watts says he is “extremely optimistic on what’s possible for an independent”.

While holding groups struggle to adapt, “I think we’re entering an age of the independent agency,” he says, adding that those who succeed must have “the agility to move as fast as your clients want you to move and the ability to service them appropriately.”

Taking the middle ground

Watts says Bastion aims to fill the “huge gap in the middle” between the holding groups and small indy shops. He thinks the era that once favoured “the big end of town” is over.

“The media market has fragmented so much, it’s less about volume and more about value,” suggests Watts. “That’s why you see WPP and the others merging agencies - because you can’t deliver an integrated service when the agency’s biggest competitor is their next door neighbour.”

On the flip side, small agencies might have the expertise and the service levels, “but they don’t have the breadth,” says Watts. “Our strategy is to be a hybrid between those big and small agencies. We’ve got 10 mid-size independent agencies that work together as one big unit to deliver clients everything in one place - but with the level of service and expertise you can only get from owner-operator.”

Full service

The fragmenting media landscape means brands require expertise in every channel and consistency across the piste, says Watts, which is why he thinks end-to-end networks will win.

“It’s very hard to do things in silos with different agencies, because communication to the end consumer has to be so consistent across the board.

You need to communicate for a brand, but what if you say the wrong thing?  It blows up very, very quickly,” says Watts.  

“So I think clients are looking for simple solutions to their complex communications problems and that’s why we focused on having everything in one place.”

Of its current client roster, “about 40 touch more than four [agencies within the group]. So they are truly integrated clients that come through one point of contact and work across the service space,” says Watts. “So that’s the key for me.”

Lavender: In-housing is the future

“What do we see in five years? I honestly haven’t a clue”, says CX Lavender founder, Will Lavender.

But he says one thing is certain: Legacy models are over. Setting up a traditional agency today “is like setting up a combustion engine car company. You just wouldn’t.”

The reason agencies can’t see a clear path ahead is because clients are also struggling to adapt to change, Lavender suggests.

“Agencies have always followed clients … but I don’t think agencies yet know what they are following.”

Lavender’s solution is to get closer to clients. Literally.

“We’ve been getting heavily into in-housing, we’re at least 60 per cent committed to it.”

But that brings its own problems, he admits.

“As you become more successful at it, scaling becomes an issue.  You can have an empty agency if you are not careful. You don’t just want to become a recruiter or [talent] provider.”

Lavender, however, is confident the agency is striking the right balance – simultaneously embedding Lavender at the heart of marketing departments.  He sees it as the shape of things to come.

“I think our future is working more in-house. The problem is going to be supply and scale but I think we will get through that.”

While holding groups or can help provide the funds to enable scale, Lavender insists he is not interested, having rejected one or two overtures since founding the agency in 1997. Asked if Lavender CX is staying ‘indy forever’, his answer is succinct.

“Yes. I think the future is independent.”

RXP Group: End-to-end wins

Ross Fielding, CEO at RXP Group, thinks independent networks are a match both for holding companies and the consultancies muscling in – if they can deliver end-to-end.

What does the agency model look like in five years? “I don’t think anyone knows,” says Fielding.

“But what I do know is that we’re going to see more and more of this end-to-end requirement from clients,” he says. That means, in every discipline, “making or coming out with simple solutions for complex problems and making sure that we do that with value.”

Hiring one of the big four consultants is a "safe" choice for risk averse corporates. But Fielding says RXP, as a listed entity, is taking market share within that space.

“More and more clients are willing to break bigger jobs into smaller components, and that is where we can really play, the $5m-$10m jobs in full execution. We do that extremely well and we can definitely hold our own,” says Fielding. “The goal is to work our way up that chain.”

He believes “human centricity” will be key in driving that growth.

“Most of our clients have [in the past] spent a lot of money on digital technology but have not really got the benefits of the investment.  In the main, that’s because the technology hasn’t been human focused … and hasn’t really been creatively used,” says Fielding.  

“So I think that’s the biggest opportunity for all of us: having an end-to-end capability where you have an ability to execute technology but more importantly, seeing things from a human perspective and then putting creativity around that.”

Capital hurdles, consolidation: a tough place for start-ups

While Fielding, Lavender and Watts agree that independence is the future, they believe the environment is becoming harsher for smaller independents – particularly start-ups - given an increasing demand for end-to-end execution and the investment required to unlock that capability.

“Capital investments are really important for independent agencies,” says Watts.  “It is very capital intensive and very hard to get funding for a service business. The barriers to entry are higher than they used to be and clients have broken away from retainers – retainers just don’t exist anymore.”

RXP’s Fielding agrees capital intensiveness “creates a challenge”. As such, he suspects some may struggle. “I think there will be consolidation.”

There also appears to be reduced upside for independents when it comes to an exit. The traditional route of leaving a big company to start an agency – and ultimately selling it back to the big company is diminishing, says Fielding.

“The cycle is changing because the acquisition of smaller agencies isn’t happening. There’s very little competition in the acquisition market because the big multinationals aren’t buying anymore. They’re merging businesses and combining brands as opposed to making acquisitions - particularly in this country.”

Meanwhile, brand marketers are also struggling to adjust to a changing climate. As Will Lavender suggests, “it’s really hard to touch the market right now” because clients don’t yet know what they want.

“So if you’re going to start something up,” says Lavender, “you really got to have a good clue what that’s going to be.”