Vertical Expansion

The Art of In-House

For fifty years the advertising food chain was linear and static. Agency. Advertiser. Production. You could fight within your peer group. But not above or below. A state of competition that comforted and restricted in equal measure. 

Today that food chain has been blown up. Advertisers produce. Producers develop. And agencies try and figure out at which table they want a seat, while trying to make sure they're not the ones standing when the music stops. 

Seismic evolution or revolution? Your choice. The future being restricted only by your vision of what it holds and your capacity for change.  

For many companies, the vision includes adding new services. A strategy which is flawed only if you believe that the ease with which your suppliers provide them is an indicator of the simplicity of adding them yourself. Which is the same as deciding to extract your own tooth because you have a great dentist. You save the money. But the results are messy.

Service businesses - the definition of every creative company - need to successfully add new capabilities if they are to grow. Indeed, it is a strategy so tried and tested it has a chapter of its own in every MBA textbook: ‘Vertical integration.'

For creative companies, successful vertical integration is the result of making a clear strategic choice about how best to do so based on the structure of your organization and its capacity for change. There are two models:

  • Immersion: in which the new capabilities are fully integrated into the core business. This structure is often seen in new companies that incorporate multiple capabilities into a holistic organizational structure from startup.

  • Independent: in which the new capabilities are built and developed in their own right, using intimate understanding of the needs of both the company and its clients to maximize the value of the new In-House offering.

Of these, by far the most common is the Independent approach. The successful deployment of which requires avoiding five mistakes. 

Succumb to them - as many companies do - and you throw away brand empowerment, operational scalability, marketing gravity, profitability, creativity and ROI.

Here, in the order in which they are most likely to occur, are the mistakes to avoid when adding In-House:

1. In-House as Add On

Creative companies often act tentatively when moving outside their base capability. This often manifests itself as a failure to commit fully to the operational foundations necessary to ensure the investment in new services will produce a return.

When In-House is built as an add-on, you:

  • Cede the advantage to the competition - your former suppliers - for whom your 'add-on' business is their only business; a full-time commitment your competitors invest both heart and soul into every day.

  • Expect your staff to behave as clients, while you treat them like staff. The fastest way to have them end up being neither.

2. In-House As Department

For companies that make it past their fear of commitment, the next most common mistake is to treat the newly formed business as a department. Here, the parent commits serious resources - usually time, money and space - but then imposes its own traditional management structures and operating practices. 

This works as well as having your mother select your spouse. She has a lot of knowledge about important issues. But not necessarily those that determine the success of your marriage.  

3. In-House as Subsidiary Brand

This is a stumbling block for so many creative companies who have successfully navigated hurdles 1 and 2.

Fearful that the success of the new business will undermine the brand value of its parent owner, the parent inevitably inserts their name into that of its new offspring. 

This is the equivalent of thinking a take-off powered by a Rolls Royce engine somehow diminishes American Airlines.

That Rolls Royce is a premium brand in its own right requires Rolls Royce to keep making better engines. 

That American Airlines picks you up and safely sets you down using Rolls Royce technology is a win-win-win.

4. In-House as Requirement

Avoiding mistakes 1-3 eliminates the biggest obstacles to turning new in-house capabilities into a successful business. 

What happens next is the pivot point.

Parent companies have awesome influence. Influence that can be misdirected into requiring that its staff will use the In-House services.

This removes the greatest advantage that the new business has - proximity to its potential clients - by exchanging choice for edict; the surest way to motivate creative people to do exactly the opposite of what you want.

Deliver extraordinarily and market gravitationally. The rest will take care of itself. 

5. In-House as Holding Company Aggregator  

Holding companies offer many benefits. A subject for another day.

But not one has yet successfully built powerful, aggregated In-House production services. 

Typically this is because holding companies design from the top down, a view that brings virtually no understanding of the needs of the creative team. 

Or from the middle sideways. Which ensures the business is built to service only the needs of one company. As opposed to those of many.

Adding In-House should take place from the bottom up, and from the future back. Two perspectives from which to ensure you have one eye on the road beneath you, and one eye on the horizon.

Unlocking Potential: 3 Investment

No business is complete. For the simple reason that a company can exist only in two states. Growing. Or dying. 

If you are not actively investing in your business, your company is decaying. Perhaps not yet in ways you can see. But inevitably and with growing impact. The cost of repair increasing exponentially.

Investment comes in many forms. Money being the most obvious. And often the least impactful. For the simple reason that much of it is misspent. Typically on initiatives that feel strategic, but are often simply reactive.

In today’s business environment, many companies are seeking ways to expand their income stream. Extending new services to existing clients is one strategy that most business leaders explore. It appears reassuring and feels instinctively right, building on existing capabilities and relationships.

But vertical expansion has limitations. Its very familiarity luring us into quick justification for the decision to act, while obscuring the need for more comprehensive analyses.

When building a business, the most imperative investment if that of our own ego. The question of what we do, and whether that is the best use of our company’s assets and experiences, requires a willingness to see ourselves as something other than that which our success has been built on.

Great business leaders ask themselves these questions every day. Their concern being not whether their past defines them as a success.

But whether the future they have planned is the best return for the most precious investment they have to make.