PR agency paralysis is sector wide problem, claims Spint Partners founder James Thomlinson

Summary

This PRmoment Podcast discussion with James Thomlinson centered on the theme of agency paralysis within the PR industry due to economic pressures and the increasing complexity - of both the PR market and the PR agency business model.

Agency paralysis discussed
James Thomlinson argues that agency paralysis is a trend within the Public Relations industry caused by increased simultaneous pressures and the extensive number of required leadership decisions. These decisions cover flexible working policies, AI platform adoption, strategic sector choices, and new offerings for the business.

AI and decision-making frameworks
Your profit and loss statement is the critical starting point for agency decision-making, covering revenue and cost sides, with workplace culture and client management following. Agencies should analyse all business functions to determine where AI is applicable, selecting tools that improve efficiencies and free up time for strategic or creative tasks.

Agency Model Polarization Predicted
The PR industry is predicted to polarise into 2 main types of agencies due to AI influence: agencies providing platform access and agencies focused on superior culture and original strategic thinking. James Thomlinson believes a 15% profit margin for PR firms is now considered good, and 10% revenue growth is the target for top-performing agencies.

Transcript

• Introduction of this week's huest and a reminder about the PRmoment Awards: Ben Smith, the host, welcomed James Thomlinson, founder and CEO at Sprint Partners, to the PRmoment podcast, noting Thomlinson's previous roles at One Green Bean, Havas, Consulum, and Bell Pottinger. 
• Ben Smith, the host reminded listeners to attend the PRmoment Awards in London on April 16th and in Manchester on April 30th.
• Discussion of agency paralysis trend: The initial topic of conversation was the concept of "agency paralysis," which James Thomlinson has observed as a trend within the PR sector. While agencies are generally busy and "doing okay," agency paralysis refers to the challenge of being an agency leader due to various simultaneous pressures, which James Thomlinson attributed to economic conditions and competition from creative agencies entering the PR space.
• Causes of agency paralysis: Agency paralysis is caused by the large number of decisions agency leaders must address, which James Thomlinson suggested is more extensive than ever before. These decisions cover areas such as flexible working policies, the adoption of AI platforms, strategic choices regarding market sectors, and whether to launch new offerings or rebrand the business. James Thomlinson advised that leaders must make decisions rather than being "drowning in information," cautioning that indecision can lead to a gradual decline or "death by a thousand cuts".
• Increasing difficulty of senior agency roles: Both Ben Smith and James Thomlinson agreed that the senior agency role has always been demanding, involving client demands for more value at lower cost, talent issues, and the need to manage business financials. James Thomlinson confirmed that the role has become tougher in recent years due to the challenging economy, which necessitates more difficult and frequent decisions, and the rapid pace of industry evolution driven by the development of social media, and now, AI.
• Key decision-making themes for agencies: James Thomlinson identified the profit and loss (P&L) statement as the critical starting point for decision-making. Decisions involve the revenue side (e.g., focusing on existing client growth versus new business acquisition, repositioning the business) and the cost side (e.g., salary systems, compensation structures, managing general expenditure like parties and office snacks). Other critical decision areas include workplace culture, client management (e.g., handling overservicing, setting competitive rates), and technology policy, particularly concerning the use of AI platforms.
• Decision framework regarding AI technology: The discussion focused on how PR businesses should approach AI, specifically whether to build a proprietary platform or use external tools. James Thomlinson suggested that agencies, especially those in early stages of AI adoption, should analyze all business functions, determine where AI is applicable, and select the best tools to improve efficiencies. This efficiency should ideally free up time to be redeployed into strategic or creative tasks. They noted that many independent agencies are correctly investing in generative AI tools as it provides a new service offering that clients are interested in and spending money on.
• Future polarization of the PR agency model: James Thomlinson shared a hypothesis that the PR industry will polarise into two main types of agencies due to AI's influence. One type will be "tech agencies" that provide clients with access to sophisticated platforms and agents, such as WPP's Open Pro, which may lead to massive cost cuts at large networks. The second type will be agencies focused on superior culture, real people, and original strategic thinking. Ben Smith suggested that this could also lead to changes in the role of agencies versus in-house teams, possibly seeing both models continue to evolve.
• Future opportunities for public relations: Public relations has benefited over the last decade from trends like social media, Google's prioritisation of earned media content for SEO, and the increased importance of reputation and trust. James Thomlinson expressed optimism for PR's future due to the need for original, real stories in a world flooded with AI-produced content, but they noted that short-termism remains a problem due to decreasing CMO and CEO tenure. They pointed to regulatory changes, such as the HFSS regulation in the food sector, as examples of shifts driving budgets toward earned media.
• Competition and gaency differentiation: The PR market is highly competitive with consistently high standards of work, which makes winning new business and awards difficult. James Thomlinson noted that the number of agencies is increasing as senior people leave larger agencies and start new, leaner, more efficient businesses utilizing AI. To succeed in this competitive environment, agencies must have a very clear and distinctive proposition and be memorable to stand out.
• Characteristics of top-performing PR agencies: James Thomlinson cited PRCA data suggesting that approximately 20% of agencies are achieving double-digit growth, 20% are in decline, and 60% are achieving low single-figure growth. Top agencies are ambitious, aggressive, and proactive with their marketing and networking, engaging in thought leadership, events, and social media. For James Thomlinson, the definition of a top-performing agency ultimately centers on profit, stating that margin is critical, even though many focus on revenue and headcount growth.
• Financial benchmarks and growth obstacles: James Thomlinson indicated that current profit margins have decreased from previous highs, noting that a 15% margin is now considered good in the sector, citing the Kingston Smith report. A good revenue growth rate for a PR agency is aiming for a minimum of 10%. Poorly performing agencies are often too inwardly focused, suffering from paralysis, and are inhibited by overservicing clients, which consumes time that should be spent on new business and marketing.
• Talent trends and growth sectors: Talent is highly important, especially in the context of AI, as agencies need original strategic, creative, and insightful thinking to stand out. James Thomlinson observed that there is an opportunity to hire good people as top talent leaves larger agencies. The sectors currently seeing the most growth include travel and tourism, food due to shifting media budgets, and the corporate space for crisis and reputation management.