Richard Houghton, co-author with Crispin Manners of Grow, Build, Sell, Live: A Practical Guide to Running and Building an Agency and Enjoying It, talks to Ben Smith about the ins and outs of running your own PR firm.

Ben Smith: Do you think most independent PR firms could be better run?

Richard Houghton: All agencies can improve on the business side of their operations. I do not think it is just independants. One thing we need to do better is to train people on how to run the business side of agencies. There is a plethora of training for the practice of PR, but a relatively small amount on how to actually make money.

BS: What are the common mistakes most independent PR firm owners make when starting up?

RH: Overestimating the level of fees and underestimating costs in the first year.

BS: And common mistakes made In the growth phase?

RH: Balancing recruitment against fee levels. Failure to have a differentiated proposition. Relying on existing services rather than innovating to match changing client demands.

BS: What about the mistakes they make when trying to sell their business?

RH: Here are my top four mistakes agency sellers make:

1. Not paying themselves a market salary. Buyers want the agency to be making solid profits with realistic costs. 
2. Not having the next level of management in place to take over the leadership role and grow the agency post-sale and the departure of the owner. 
3. Not having a clear growth plan in place for any earn-out period. 
4. Selling too late when the owner’s drive and passion has dissipated.
   

BS: For about the last 10 to 15 years the average fee income per head of a PR consultancy has been about £100K per employee. Does that mean client fees haven't increased in that time? Or that it's taking more PR people to do the same amount of work (by value)?

RH: It depends on where you are in the market. Financial agencies are making solid profits on higher income per head, while pure-play consumer agencies are often struggling to hit £100k per year. There is no doubt that there are plenty of briefs for £3k a month programmes and I was working on these in 1987. With starting salaries trebling in the last three decades and rent increasing by the same amount it’s pretty clear that whilst the sector has grown up and can command much higher fees in some areas, a good proportion of the agency sector is trying to balance stagnant fees with increasing costs.

BS: In the book you identify seven elements that PR firm owners need to get right for their business to fly. Can you briefly talk me through what those are and why they are important?

RH: These are the key levers that agency leaders have to balance to manage an agency consistently and try and smooth out some of the inevitable ups and downs of agency life:

1. Purpose – why does your agency exist beyond making money? This differentiates in eyes of prospects and aids recruitment.

2. People – the right people in the right jobs. Without your team, all you have is an expensive lease and some depreciating PCs.

3. Client service – productive, evaluated and expert. This is what pays the bills.

4. Proposition and marketing – a differentiated proposition that is consistently promoted to selected relevant prospects. It is much harder to grow a vanilla fancy that does not stand out. But not everyone is a prospect.

5. New business – a robust and effective sales process that converts leads into profitable clients. Pitching is expensive and the lifeblood of an agency – you need to be good at it.

6. Commercial management – actionable financial information that allows for ‘what if’ questions to be answered to aid decision making.

7. Innovation – if you are developing your services you are being left behind and your team needs to feel that the agency is evolving.

BS: What should be on an agency CEO's to-do list?

RH: Running an agency successfully over an extended period is tough. You have to balance a number of different factors. I favour a to-do list that covers the seven growth drivers. Put it on paper and you’ll see immediately where you are spending most of your time. You need to make sure you keep on top of the ‘important not urgent’ stuff like marketing the agency.

BS: Do successful PR people tend to make successful business owners?

RH: No reason why they shouldn’t, but many don’t. If you are promoted into a business role because you are good at the practice of PR you’re going to need some training and development on the business side of things, along with learning to say no and a willingness to be unpopular at times.

BS: How has the Americanisation of the PR market over the last 40 years changed the PR agency model?

RH: I don't think that it has changed the model directly, but I do think that it has changed how it is run. I’d argue that we are more professional on the agency management side of things because of the US influence. Although, let’s be clear the UK sector is still the most creative and competitive in the world, despite what our American cousins suggest.

BS: Presumably, if PR firms can better show the impact of their work, they will be able to move up the value chain and be paid more for their work. The tools, techniques and KPIs are all already out there aren't they – so what's holding them back?

RH: We are a sector of people pleasers and a sizeable minority of the sector is not convinced that PR actually works. 

This often results in silly levels of over-servicing and an unwillingness to evaluate transparently. As you say, there is no shortage of methodology, but low fees and over-servicing means that evaluation gets pushed to the bottom of the list.

I am sure if clients demanded evaluation and assigned a budget to do it we would see a dramatic increase.