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Agency mindset and business model

MM: Well, first of all, you’re dealing with both a mindset, a business model and — specifically — a value-capture mechanism. So first of all, let’s deal with the mindset. Really, what we’re talking about here is way beyond the agency mindset.

Yes.

MM: The agency — for the most part — is a service firm. A professional business service firm where it takes on projects or programs, and basically charges for them, based on “How many expensive powers of my people did we consume?”

MM: As a service business, their resource base tends to be fairly flat. It’s basically project-management, communications — the telephone and a database, maybe. Right?

Right.

MM: So there’s a certain amount of risk and effort associated with creating an agency. And markets generally reward risk and effort, in terms of a fair — if not intuitively derived — margin of profit.

Yes.

MM: You’re talking about — first of all — a center of excellence. It’s an autonomous business unit that uses its P&L — and more specifically, working capital — to drive investments in new processes that shorten cycle time and reduce costs. That reduce labor — content from the overall deliverable. Increasing quality and increasing effectiveness.

Right.

MM: That really gets to the business model. It’s a new concept or a new distinction of a business model. First and foremost, you’re a digital service factory or a digital services platform. There are certain inputs and you kind of do your stuff, and there are outputs. Those outputs have a more tangible, measurable economic value.

Right.

MM: It seems to me that you have to say, “First of all, we’re not an agency. We’re a digital services platform. More specifically, we’re an engagement platform. If you didn’t have our sauce on your steak, your revenue line would look like this, and your future free cash flows would be this.

Yes.

MM: With our sauce on your steak, your revenue line is “this,” and you’re future free cash flows are “this.”

Yes.

MM: So we want to get a percentage of the economic contribution that we bring to you. We’ve got the analytic rigor by which to create some fairly effective, predictive models.

Yes.

MM: So ultimately, our value capture — and I’m going to introduce a radical. Been around a while, but nonetheless — radical notion of “revenue and profit per database record.”

Yes.

MM: At the end of the day, that’s all. There’s no other purpose for a firm than to find and keep a customer.

Right.

Instantiation of a customer as a database record

MM: If you accept that premise, then the instantiation of a customer is a customer database record. Now it’s shame that most companies have really crappy customer databases.

Yes.

MM: It’s even a bigger shame that they don’t know the cost of creating a customer, nor do they have any longitudinal data in terms of what they do with us.

Right.

MM: As our friend Mike Fischer at Alterian likes to say, “Well, how long have you been lying to your boss?”

[laughter] Yes.

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