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.’
