So You Want to Run an Agency?

A few months back I finally got round to writing an eBook about my views on running (and selling) agencies. It’s available as a free download on this site. I make it clear at the beginning that I don’t regard this as a seminal work. It’s just my views based on my experience from running The Added Value Group and working with many other agencies and consultancies over the years.

I always made it my business to quiz people in other businesses about all aspects of building and managing an agency, to see what I could learn. And some people have been kind enough to ask me. I have gladly offered my advice with the proviso that it’s just one point of view and that, like me, they should get lots of different perspectives and cherry pick what they think will work for them. For better or worse I have now written this all down and made it available, for FREE, to anyone who is interested. It covers all the important aspects, as I see them, from managing the people, winning and keeping clients, to the more prosaic stuff like what to call the agency and how to design the offices. There’s a chunky section on financial management and how/whether/when to sell the business.

A few heads of agencies I know have now read it and have recommended it to their colleagues – there are a few nice twitters floating around about it this week. So it can’t be complete rubbish. I stress it is a personal view, an input into a debate all good agencies should continually have – only the curious win. Stame’s eBook is funnier (and more profane) but if you run an agency, or aspire to, mine is perhaps more useful.

Game Theory and the Retailers’s dilemma

As Christmas approaches a number of retailers, whether they realize it or not, will participate in a game of “Prisoner’s Dilemma”. They will have to decide whether to hold their nerve and their prices until after the main holiday season, when traditionally the ‘sales’ period starts, or whether to introduce discounts before Christmas in an effort to hit top-line targets and steal a march on competition. The decision they take has to take account of what they think their competitors will do. If every retailer holds their nerve everyone will enjoy a higher bottom line, if everyone launches their ‘sales’ early everyone loses (except the consumer) because it is a zero sum game. But if one retailer moves ahead of the others they win relative to their competitors.

This kind of strategic decision is inter-dependant – the outcome depends on the actions or inaction of others –  and is the basis of Game Theory developed in the 1940’s by Neumann and Morgenstern for economics. In 1950 Flood and Dresher developed the example of the prisoner’s dilemma to illustrate the use of Game Theory. You can read the full version of this in Wiki but the basic idea is that 2 prisoners are held in separate cells accused of a crime. If both confess they get a 5 years sentence. If neither confess they get 6 months. If one betrays the other he goes free and the other guy gets 10 years. On the assumption that less prison time is better and there is no honour among thieves it is better for both to choose to confess. If the game is repeated eventually people can figure out that it is better to ‘co-operate’ and stay silent.

In 1995 Harvard Business Review carried an article by Brandenburger and Nalebuff (crazy names, crazy guys) which tried to re-launch the use of Game Theory in business strategy since so many business decisions have outcomes that depend on the decisions of others – like the prisoners dilemma. There don’t seem to be many takers for this very mathematical branch of business science. Decisions are discussed taking into account opinions on what competitors may or may not do, but it is rare for this to involve the kind of complex matrices and algorithms advanced by the purest disciples of Game Theory.

So you can expect the ‘sales’ to start early this year as every retailer takes the pre-emptive retaliation route. The retailers and their shareholders will lose out, consumers will win and no-one will learn. When the Prisoner’s Dilemma scenario was tried out among a sample of ‘ordinary people’ 40% took the ‘say nothing’ option. In other words they assumed that everyone realizes it is better to co-operate. Suckers.

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