How to get ahead in business

We all know why business needs good public relations. But how do PR consultancies become good businesses?

We all know why business needs good public relations. But how do PR

consultancies become good businesses?



Sandy Anderson must be wondering what hit him.



The pounds 33 million that the former BR terminal manager made from the

sale of rail leasing company Porterbrook, just seven months after its

MBO, must be difficult enough to take in. But the sudden arrival of the

Fleet Street ‘Fat Cat’ squad on his doorstep must seem quite

incomprehensible.



Never mind the fact that he and his fellow managers risked their all on

the MBO of their company, the knives are out. Lottery winners who risk

only pounds 1 on their bid for success receive less envy and name

calling.



It’s tall poppy syndrome again. The British dismiss success,

particularly when everything goes according to plan, because it looks so

effortless. Steve Redgrave’s unparalleled achievement in the Olympic

Games was politely applauded, but it was the exit of half our track and

field stars through injury and blunder which excited the nation.



The most fascinating aspect of all this is the apparent narrowness of

the dividing line between success and failure - the 0.014 of a second

that banished Linford Christie from the 100 metres final. It is as if

the more we examine the slow motion replay, the closer we get to

defining the difference between a gold medal and an early bath.



In truth, we all want to know the secret of success so that we can have

a chance of emulating it. The same goes for the business of public

relations, which has had its fair share of successes and failures over

the last 25 years.



The discipline has matured immeasurably during that time, both in

theory and practice. Clearly a talent for public relations is a

fundamental prerequisite for success, especially now. And, sure enough,

PR’s in-house champions are growing in influence all the time.



But, rightly or wrongly, it tends to be to consultancies that we look

for definitions of success.



For the fact that PR can also be a profitable business is a crucial

factor in its quest for credibility as a business discipline. After all,

how many chairmen of a pounds 1 billion plc would take advice on

business strategy from someone who, while a brilliant consultant, cannot

efficiently manage a company 1,000 times smaller.



The 1980s boom sparked the most dramatic period of growth in the PR

industry’s short history. But when the tide of the Lawson boom finally

receded, it left some agencies high and dry.



The stumbling block for those that failed was almost never a lack of

ability at public relations. It was almost always a failure of business

strategy - often in pursuit of highly geared acquisitions and too rapid

growth.



The same vaulting ambition that propelled the likes of Corporate

Communications and Valin Pollen into the big league eventually brought

them down. When the recession hit they were vulnerable. An overpriced

property deal here and an ill-advised agency purchase there were enough

to end the dream.



Like most of the wisdom imparted in the autobiographies of successful

businessmen, the writing on the wall seems grotesquely obvious with

hindsight. But at the time it was astonishingly easy to get sucked into

the illusion that the boom would never end.



Even Shandwick, that mighty pillar of the PR consultancy world, teetered

for a while. Had its founder Peter Gummer hesitated a moment longer in

restructuring the business and its debt in the early 1990s, it is

questionable whether it would have survived.



So what does he think makes the difference between a winner and a loser?



‘There’s only one way to be successful in this business and that’s to be

resilient,’ says Gummer. ‘In everything one does, one ends up kicked

down and bashed around. You’ve got to be able to dust yourself off and

start all over again.’



One salient piece of advice he has for budding PR empire-builders is

that they should be careful when growing by acquisition. If they

purchase a company by earn-out they must remember it is theirs to manage

(and no longer a toy of the founders) and that this must be reflected in

the management agreement.



Moreover, he warns against trying to merge separate PR companies, taking

the view that their individual cultures would not be able to stand it.



‘The opportunities to start and build a significant agency are

relatively small,’ says Gummer. ‘By significant, I mean that it has to

be an agency which is no longer dependent upon you as an individual -

one that can continue at the same level and with the same growth

patterns once you have gone.’



Shandwick is certainly significant - in 1995 it had a turnover of over

pounds 167 million. Although it hasn’t had to do without him yet, the

sheer scale of the operation fulfils the other part of Gummer’s

equation. No business of that size can be wholly reliant on one

individual.



Naturally such performance also brings rewards for the founder. Gummer

made his own fortune when he took his consultancy public. In addition,

he still has over 9 million shares in the company he founded, now worth

over pounds 4 million.



But although Shandwick is the foremost example of success for a UK-owned

PR consultancy, Gummer was not the first to realise serious business

ambitions for a PR firm.



Good Relations founder Tony Good started his consultancy above a

menswear shop in Canterbury in 1961 - more than a decade before Gummer

put the Shandwick sign over the door. Over the next two decades he

built it into one of the premier PR companies in the land. In 1981 it

became the first PR company to be floated in the UK.



His advice is that the quality of the people is the single most

important factor in determining whether a PR consultancy will grow

successfully.



‘Small companies don’t grow because they consist of one person that the

clients all want to deal with. That’s an inhibitor of growth,’ says

Good.



‘My policy was always to bring in people who I thought were better than

me. What you don’t want is for every client to think they have to talk

to Tony Good to feel they’re getting the best the consultancy has to

offer.’



The strategy clearly worked. Five years after flotation, Good Relations

was acquired by Lowe Howard Spink & Bell. Good made an estimated pounds

2 million on the disposal of his shares.



He says that when his consultancy became the first to post profits of

over pounds 1 million there was recognition that PR could be a

profitable business ‘in its own right’ and not just an adjunct to

advertising.



‘You’ve got to work hard,’ says Good. ‘I’ve never believed there is

anything worthwhile you can achieve quickly. A lot of people said to me

when we were a public company, ‘Well, it’s OK for you’ but I said to

them ‘Do you think we started off like this?’’



Sir Tim Bell, whose company Chime Communications now owns Lowe Bell Good

Relations, followed Good’s lead by taking his company public in 1994.



Bell is unique in the consultancy world in having reached the top of

both advertising and public relations. He first came to prominence when

the brothers Saatchi brought him in to run their ad agency, Saatchi &

Saatchi. His tenure marked a period of meteoric performance for the

agency. Shrewdly, Bell had taken a slice of equity and when he finally

sold his stake, it netted him a cool pounds 4 million.



Bell then moved into PR, building Lowe Bell into what is now the UK’s

second largest PR consultancy in a comparatively short space of time

through a mixture of careful acquisitions and organic growth, and by

building on his own reputation as ‘Margaret Thatcher’s favourite PR man’

- the role which earned him his knighthood.



He made around pounds 2 million through the flotation of Chime and still

holds about ten per cent of the equity, worth another pounds 2 million

or so.



He attributes his business success to the simplest of principles.



‘Working hard for 30-odd years and being in the right place at the right

time,’ he says. ‘People rarely earn a million pounds out of salary.

Equity is the way - own some of the business.’



His namesake Quentin Bell is equally clear about what makes a successful

PR business, and his hard-headed philosophy includes knowing when to

take himself out of the equation in order to allow the next generation

to take over.



‘The business side has to predominate over the PR side if your business

is to grow. You have to get the ratios right: the ratio of salaries and

overheads to fees. Most businesses stay small because the founding owner

doesn’t delegate. You have to relinquish day-to-day control to others.’



So the key to success would appear to be starting a business, working

extremely hard and running a tight ship, but in such a way that one does

not become indispensable for the consultancy’s future development.



But does anyone ever have the temerity to venture whether PR’s pre-

eminent entrepreneurs are still as committed to their work as they used

to be?



‘I don’t think anyone has said I have lacked hunger - either clients or

my colleagues,’ responds Gummer. ‘I work harder now here at Shandwick

than I ever have.’



He is not alone. In most cases, the determination, vision, and sheer

bloodymindedness that enabled the UK’s top consultants to reach those

lofty heights shows no signs of abating.



And perhaps it is that stamina, or resilience, as Gummer puts it, which

is the most crucial factor of all - that elusive winning edge.



Aiming High: The Bottom Line



While many aspire to emulate their success, it can be misleading to

assume that the most successful consultancies represent the norm. The

hundreds of consultancy entrepreneurs busting a gut to make even modest

profits give the lie to this illusion. So, how do consultancies perform

as business operations in general?



Overall fee income growth in the Top 150 rose by 15 per cent last year,

signalling a return to steady growth for the industry. But tighter

margins, an increased emphasis on project work, and tougher competition

for work means it is still vitally important to run a tight ship. And

even then, not all succeed. The reality is that most consultancies are

nowhere near profitable enough to make their owners a fortune.



‘To say it is easy to make a million is certainly an exaggeration,’ says

Bob Willott, partner of accountancy firm Willott Kingston Smith, which

undertakes regular research into PR consultancy profitability. ‘Those

who have are few in comparison with those who’ve struggled to make a

profit or indeed those who fell victim to the recession.’



According to the PRCA the average consultancy profit before distribution

and tax is only 11.9 per cent of fee income.



‘The client is one asset, the staff the other -they both come and go,’

says Colin Thompson, financial consultant to the PRCA. ‘So you should be

working on a considerably higher margin than 11.9 per cent. My view is

that you should be working on 30 per cent. But consultancies like that

are few and far between.’



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