Digital marketing is taking over the advertising world. To keep up with this as a digital agency there is only one thing for it: active acquisition of specialist bureaus in the sector. Because organic growth is simply too slow. You really need a full team for new services – here consider sales through virtual reality. Dept digital agency is growing in a controlled way, but at breakneck speed.
Frank Schmid is managing director at Dept. Jacqueline Kos of Legadex talks to him about the tempestuous growth of Dept. And about the data analytics, which lie at the heart of Dept’s work. Jacqueline and Frank have known each other since the beginning of the acceleration in growth. Among other aspects, Legadex takes care of the partnership and contract administration at Dept.
Source of the growth
Jacqueline: ‘It’s great to be allowed to be part of your growth. I can of course see this from the large quantities of documents that come in with each new acquisition. Apart from our regular contact on current legal issues, we are suddenly speaking to each other really often. But I’m curious about your story. What is it that enables your growth?’
Frank: ‘First let me tell you a bit about the changes in our market. Because the world of a digital agency like Dept has changed enormously over recent years. Around 10 years ago, advertising campaigns started with a TV commercial. You made a presentation of what you had come up with to a focus group, asked whether they liked it and then booked broadcast time. Customers saw whether or not their sales rose only millions of euros later. These days, you invest a thousand euros, test the result on a target group, evaluate the data and adjust your strategy if it’s not working properly. One client of ours that does this very well is the Persgroep. They are constantly assessing the effect of their work on their target groups, tweaking it, evaluating the result and adapting it a bit once more. And for that reason, digital marketing will win out over offline marketing: the risk involved in expenditure is simply much lower. If it doesn’t work, you can halt the campaign immediately.’
‘The expenditure by the media on digital marketing is growing at high speed. The concept of “full service” has acquired new significance in marketing land. Campaigns are now going over to completely digital. And that means a lot of different new services: from a Facebook campaign and e-commerce platform to constant data analytics. Our market is no longer growing at a few percent a year, but exponentially. And we are riding this growth wave. We realised last year that we could never keep up organically. By the time that you have collected a team that is able to offer new services – consider something like virtual reality – you are years down the line. We looked for a private equity partner that could help us grow through acquisition. After a brief courtship, Waterland decided to invest in us.’
Digital marketing will win out over offline marketing: the risks are much smaller. You soon see if it will generate anything.
Jacqueline: ‘How is the collaboration with Waterland going? How are they helping you to grow?’
Frank: ‘By demonstrating that we are hard at work and have our affairs in good order, the level of trust is high. A shareholders’ resolution is often taken with a single phone call. For our part, we also have great confidence in Waterland – we are working with the best experts in the M&A field. Together we have launched a Buy&Build strategy. This means that we search out and take over companies that fit with our core business. Then we ensure that they “build”, that they evolve further. For Waterland, the Buy&Build strategy is a proven concept. What is new for them is that an agency is 100% about working with people. You confront completely different risks - not to do with stocks or real estate, but with a service that depends totally on the engagement of the people involved. For that reason, building is especially important to us: we want to boost the companies that we take over. The management team must be committed. They have the room to continue doing things in their own way. In addition, we create a participation model for the staff, so that their involvement is and remains large.’
Jacqueline: ‘You are growing not only in the Netherlands, as we can see from the companies that are joining. What precisely are your goals? In which direction do you aim to grow?’
Frank: ‘Apart from growth by adding skills, we also aim to grow internationally. Our goal is to be Europe’s leading digital agency within five years. If you aim to do that quickly in this market, given the speed at which it is developing, then it is better to look for similar bureaus abroad – just as with the competencies. And not to set up your own little office.’
Jacqueline: ‘It appears to me that a sound purchase strategy is essential here. Do you have a blueprint for new businesses? How do you choose them? Do they have to meet certain preconditions?’
Frank: ‘We are operating in a fickle market. Strategy is essential, but only in outline. Naturally we have a longlist and a shortlist for various countries, but these are not static. With each new acquisition we sharpen our proposition. We arrive at new ideas together. So the answer is no. We do not have a blueprint for growth. And this also has to do with the market. Sometimes there simply is no match up, and you approach 10 bureaus without result. On another occasion you receive an approach out of the blue from a party that was not even on a longlist – but still turns out to be a perfect match. So it’s partially strategy and partly completely opportunistic. When the opportunity arises, you simply have to strike.’
Jacqueline: ‘Back again to the nature of your work. Big data and data analytics are increasingly important themes for lawyers – this has for some time been an area that constitutes a major part of your work.’
Frank: ‘Data is our core business! We are constantly analysing how things are going with our advertising campaigns and technical platforms, monitoring in real time and adjusting. Where previously we had creative staff and technical people, an entirely new species has been added: the data expert. Data experts and technical people are by nature able to get along well, but the relationship with creative staff is on occasion more complicated. They have for example completed an intricate design for a campaign site, and a great red button has to go onto it - because data analysis has shown that a button like this generates the most traffic. Heated discussion at the lunch table is sometimes the result.’
The speed at which a company that we want to take over opens up its documents says a lot about its health.
Jacqueline: ‘Do the business risks change if you are growing so quickly? How do you ensure that the new acquisitions are absorbed properly in Dept’s structure, without losing their individuality?’
Frank: ‘If you know that you will go off the road, you can still apply the brakes and forestall the real problems. Because we are a people-centred business, we work in a decentralised way for the most part. You don’t want to force people into a straightjacket. Nevertheless, our new colleagues cannot go their own way completely. For example there are certain purchase contracts that definitely have to be discussed centrally with Dept. On the one hand there is that trust, if we want to keep things small and empower our entrepreneurs. On the other, the basics have to be fully in order. We are constantly finding the balance. And Legadex helps us in this – for example by implementing the contract management system.’
‘By the way, our new bureaus often have their affairs in good order. Thanks to the due diligence phase – which is often confrontational for entrepreneurs, because entrepreneurs and their administration… For us it is a sign that a company is healthy if it is able to gather all the necessary documents into a virtual data room rapidly. Works Council minutes, alterations to the articles of incorporation, all the management agreements. You name it. If this can be done within two weeks, then a company is already 3-0 ahead for us. With the additional advantage that they, once they are part of Dept, know how important it is to maintain it properly.’
‘We have taken as the basic principle for ourselves: imagine that we had to carry out a due diligence on ourselves - how would we like to have our data room set up? Where do you want to be at the starting line of the next round of investment? I want to have that overview. Following the second acquisition, I knew our own structure by heart. But now, seven acquisitions later, I really don’t always know it any more. Then it is handy if someone points out a displaced management function to me, along with its impact on existing contracts. Keeping the legal administration up to date is important, certainly if you are growing as quickly as we are.’