Business model innovation in public relations
The business model for the public relations industry hasn’t changed in more than two decades. How do I know? I joined the industry in the last 90s. Nothing has changed fundamentally since that time.
Agencies charge a retainer fee – generally based on a prospective customer’s budget – in return for pre-determined services. The focus is on tactical implementation rather than finding the right strategy to help clients achieve their business goals. While the industry would argue otherwise, this piece by Kevin York, called ‘PR’s Little Strategy Problem‘ explains the reality of how the public relations industry builds strategies. Strategies are little more than a collection of pre-determined product offerings bolted together to match the number of billable hours with a prospect or customer’s budget.
In 2010 I left the agency world. I left because I was leaving the UK and starting a new life in Canada. But, I also left because I had become disillusioned with the industry in which I worked. I was tired of having to justify why the work we did for customers didn’t deliver tangible results – when in reality it was never designed to. Having worked with early-stage and small businesses I decided to look at the existing business model and see whether it could be redesigned to deliver value for both customers and PR companies.
I started by using Alex Osterwalder’s Business Model Canvas to map a traditional agency business model. The canvas enables you to map out the elements of a business model that allows you to see all of the major elements: key partners, key activities, key resources, cost structure, the value proposition, customer relationships, channels, customer segments and revenue streams.
As I mapped a traditional agency model a number of things stood out.
Traditional agencies have a single revenue stream – the retainer fee. While PR agencies also offer bolt on services [for content, social media management, etc.] their primary source of revenue remains a monthly fixed fee.
The primary activity of an agency is still fundamentally the same as it was when I started working in the industry – pitching journalists in an attempt to secure [earned?] coverage on their clients behalf. They are effectively a call center where the primary audience is journalists.
As a result the majority of agencies also have one key partner – the media. I accept it’s not really a partnership in the traditional sense, but media outlets are critical to traditional agencies because they take briefings with agency clients and publish coverage. Without them PR companies could not continue to operate.
Traditional agencies are typically self-sufficient. Increasingly where they outsource services to third-parties it is to companies within their network or group of companies.
Risky Proposition
A typical agency value proposition is also pretty risky. They try to generate earned media coverage [or as earned as it can be when you’re paying a third-party to pitch journalists]. They make few promises and coverage is, on the whole, not commercially-valuable. It’s hard to demonstrate value when [by their own admission] the value of their primary activity is hard to quantify.
The traditional model is resource heavy, has significant fixed costs. This makes it hard to scale. When a successful agency works on margins of anywhere between 10 – 15% capital for growth will be in short supply.
Customer relationships are often fraught. This is, in part, the result of a lack of strategy, expensive monthly retainer fees and a weak [and quantifiable] value proposition. Agencies are always doing business development to replace departing customers [churn is a real issue for traditional public relations agencies].
Building an invincible public relations company
When I started to look at alternative models I had three primary objectives:
- to deliver as much value to startup and small business entrepreneurs as possible and to be able to demonstrate it
- to minimize fixed costs
- to create multiple revenue streams
A huge amount of money is spent by a traditional agency acquiring new clients. The process is typically a beauty parade. Agency pitch presentations typically consume employee time to prepare. The process takes weeks or months.
I’ve tried to find the average cost of acquisition for an agency client – and failed. From years working in agencies my best guess would be a minimum of one month’s retainer fee. In reality it likely costs more.
I wanted to lower the cost of acquisition and find a way to increase the channels available for finding new customers. I spent a significant amount of time learning about Apple’s retail strategy and wondered whether there was a way to adapt its approach. In recent years I’ve included Microsoft’s in my business model work. [Microsoft is moving in the right direction, while Apple heads the opposite way – in my opinion. But that’s another post]
I wanted to find a model that enabled me to help as many entrepreneurs as possible and to provide advice when they need it, rather than weeks or months after the fact. The traditional model means that only companies that can afford $5000 – $10000 retainer fees are ale to get help and that excludes most startups and small businesses.
In addition, the beauty pageant process means PR plans are out of date by the time an agency is appointed simply because the business context has changed since the RFP has issued. I wanted a model that changed that.
I wanted a model with multiple partners – both on customer acquisition and delivering core activities. Partnerships will help customer acquisition, as well as create long-term economic value amongst for other small business working to provide complimentary services.
Measurable value
As part of a new business model I wanted to build a strong value proposition that could be quantified and measured. This would enable me to build a business based on a reputation for delivering quantifiable value rather than caveated promises. [The typical agency plan comes with the caveat that it will take 90 days to deliver value – and there are no guarantees.] While there are exceptions, the fundamental service offerings make this difficult due to time implications that an agency has no control over.
Strategy-as-a-service
One of the fundamental problems with the traditional PR company is the primary activity: media pitching. It’s not public relations – it’s publicity [another topic for another post] – but it has limited value. Earned media isn’t the best way to achieve many commercial outcomes. It’s primary value is for an agency because it consumes billable hours.
As part of redesigning a new public relations business model what if you offered strategy as a service? It would require defining the goal. It would require a way to build and test strategies. It would require a way to measure impact. Most importantly, it would change the pricing model.
Focusing on strategy addresses two fundamental problems with the existing industry business model: the cost [agencies are limited to companies that can afford a $5000 – $10000 retainer fee, and the fact that most traditional PR programs are flawed because they lack a validated strategy.
A new model could build multiple new revenue streams that aren’t currently available to agencies using the traditional business model and make public relations and marketing affordable for the 95% of businesses that can’t currently afford it.
Get out of the building
One of the major resource costs under the traditional industry model is the cost of an office. PR companies traditionally have downtown addresses that are used as part of the sales process. Lavishly-furnishing offices are used to impress potential clients – but they aren’t cheap. A high performing agency has a typical margin of between 10 – 15% – but many operate with far slimmer margins. A new business model could address this problem.
Another problem with public relations offices are only accessible to customers and prospects. There is, effectively a $5000 per month cost of entry. Only companies that can afford a $5000 retainer have access – and these companies make up less than 5% of the economy.
Apple stores allow visitors to use their machines before they buy as part of their customer acquisition strategy. Microsoft stores provide help to visitors irrespective of whether they are PC or Mac users. The focus is on building relationships with the people that visit their stores and selling them something that adds value. Apple has the highest sales per square foot of any retailer – there has to be something that the public relations industry can learn from this model.
What if there was a way to make public relations services more accessible, remove the overhead cost and provide value to everybody? The challenge is to develop products that could deliver value quickly – and measurably so.
A weak bench
Another fundamental problem with the traditional model is the resource cost of staff. The traditional model incurs cost even if employees aren’t delivering value to a business. It also limits the skills an agency and its customers can access.
A weak [or inflexible] bench limits the services that a public relations company could offers and means incurring additional cost in order to add new revenue streams. That’s something that would have to be addressed when building a new business model for the PR industry.
What if there was a way to strengthen a PR company’s bench without incurring additional cost? If would add value to a business – and to its customers, as well as creating an inherent flexibility. Customers could get help from specialists in specific domains, rather than either generalists.
An invincible business model
The work done to date suggests that there are a number of business model innovation opportunities for the public relations industry. Reducing fixed costs is key. Increasing revenue streams is another. Strengthening its value proposition through re-imagining its key activities and being able to quantify the value it delivers is also a critical area the industry needs to innovate.
The work I’ve done has been in the pursuit of making public relations affordable, accessible, transparent and measurable for entrepreneurs. It has focused on democratizing public relations, marketing and publicity so that every startup and small business can benefit. They can use the core disciplines to build, test and measure strategies to find the ones that deliver greatest impact to their ventures.
The work is ongoing. As part of innovating the public relations business model I’ve created resources, tools, workflows and services. I’ve tested them all. I’ve learned from each experiment. Then I’ve re-tested. And tested again.
My current Business Model Canvas is below.
if you work in the public relations industry and have comments, questions or want to talk about business model innovation in our industry please feel free to get in touch.
I can be reached at lyndon@comms.bar, by calling +1 647-773-2677 and on Twitter @THINK_Lyndon