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Ad Agency 9thWonder Syncs Internal Incentives With Unmet Needs Of Marketers

This article is more than 4 years old.

Among major trends in marketing, two aren’t getting as much attention as they deserve, and the advertising-agency business hasn’t responded to them effectively, according to one agency CEO and innovator who believes he’s found a solution.

Jason Fitzgerald

The trends, says Jose Lozano, CEO of Houston-based 9thWonder, are the decline of the CMO’s influence within companies, and the need for a broader range of marketing specialization.

About five years ago, Lozano, says, he sensed a disconnect between what agencies provide and what clients need. He commissioned both qualitative and quantitative feedback from clients. Among the questions: What do marketers want from an agency partner? What are the major trend lines in the industry—is there a gap? More importantly, where are the problems and what are the challenges?

Lozano’s hunch about the disconnect proved right. “There was a devaluation of the marketing function,” he says. “CMOs are no longer in that inner circle. When you scratched the surface, you found they needed a partner who could help re-empower them in their own organizations.”

Just as important, CMOs needed specialized partners skilled in various facets of marketing—CRM, data, branded content, martech, SEO, events, web development, video and more, Lozano says. “They need to bring in specialties that drive business, and they need to empower the marketing function,” Lozano says. “These are the least-talked-about significant issues to face our business in the last 10 years.”

9thWonder

Even more interesting, Lozano says, the ability to meet these marketing needs didn’t exist on the agency side. Holding companies, co-ops and collectives with specialized skills have long existed in various forms. But Lozano says the economics have never properly aligned with the underlying purpose, which is for local shops to stay entrepreneurial and also to share in the broader upside. The common conglomerate model is for the parent company to own all the pieces—which becomes just a bunch of different agencies that have been strung together. The collective model is better in theory, Lozano says, but indie motivation suffers. “As soon as they become one part in a larger agency, they lose that edge,” Lozano says. “CMOs told us what they needed doesn’t exist. We set out to build it ourselves.”

Lozano’s solution was build a collective of independent specialists that together could meet the twin goals. Starting around three years ago, he made a series of acquisitions of agencies covering key specialties: strategy, web development, production, talent and creative. The terms of the acquisitions were simple—each agency would continue operating its own shop, under its own name, but also effectively get a piece of the other agencies.

But it turned out that model was too loosely connected. CMOs struggled with the idea of hiring a string of different agencies. Others said they couldn’t differentiate from larger agencies.

So, last October, Lozano’s firm, then named The Company, gave way to 9thWonder, a single agency with a network of specialized units. Each of the former semi-independent agencies became an office of 9thWonder, retaining significant equity in their local operation, while also gaining equity in a global fund. This effectively strengthened the overall company while also enabling it to assemble a suite of diverse services for any assignment. ““We have little to no redundancy from one client to the other,” Lozano says. “If I’m in Houston, and I need a specialty, I call one of the other offices.”

9thWonder’s economics are unique, Lozano says, and allow the specialist model to work where it has failed elsewhere. Compensation is tiered to both local and corporate success, with global success accounting for 65% of all bonuses. Teams are paid corporately first and only after that for individual-office performance. It’s important, Lozano says, that the individual offices retain a significant portion of ownership, so they stay nimble and drive their specialty.

“To the best of my knowledge, this is a unique model,” Lozano says. “People have done it in pieces. There’s a reason people don’t do it. We have to be willing to give up a lot. We bring our partners along for the entire ride. When and if we sell the company, all partners participate in the equity at the same multiple I get. If I get six, they get six for whatever the value of their current equity is.”

The model works, Lozano says. Since last fall, 9thWonder has moved three accounts from one office to another, with no issues and no complaints. In one instance, a packaged-goods client working with the Houston office was struggling. “It wasn’t meshing,” Lozano says. “She didn’t feel like she was getting the specialties that a packaged-goods company should be getting. But we had that in Los Angeles.” The account was shifted to L.A. and 9thWonder kept the business.

“We have depth now,” Lozano says. “This isn’t shallow. And that creates great perspectives for our clients.”

Going forward, the plan is to use the first part of 2019 to consolidate and build the infrastructure to deliver on 9thWonder’s promises. Longer term, Lozano says, is to continue with M&A and build up a global family of agencies that want to operate in this new framework.