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Why the ‘Untidy Jumble’ of Agencies Will Remain So: Antifragility

Posted December 27th, 2012 by Andrew Goodman

I recently tried to envision the future of agencies with a series of posts on the Acquisio blog, and in the process of trying to do so, realized I could not.

Bringing tidy logic to any such predictive task might create a soothing, pat, “smart”-sounding narrative, but in business, deductive logic rarely bears much resemblance to real-world outcomes.

Instead of trying to “predict,” I looked at what kinds of service organizations (ad agencies, mainly) have had uncanny staying power in the rough-and-tumble of “creative destruction” in the marketplace, and saw that some very boring, uncoordinated “holding company” models were amazingly persistent in our industry. Add to that the relatively common practice of large holding companies in industries other than advertising or digital media buying up newer types of marketing services organizations as means of diversifying their holdings. Either these unusual-seeming acquisitions work out despite seeming like bad fits, or they don’t work out (as in Microsoft acquiring agencies for a very high price, later selling them to more appropriate ad agency holding companies, who presumably got to build on their strengths by picking up discarded units at a discount). Either way, evolution is at work, and the initial mistakes either lead to surprisingly robust forms of diversification, or they lead to some units being selected “out” of the gene pool. Perhaps — to push the ‘DNA’ theme a bit further — genetic mutations are also part of the picture. Say, when an organization sits for a time within the confines of a high tech company that is good at using and/or creating certain tools, maybe when it ultimately moves on to join ranks with a more appropriate parent company, that parent company nonetheless acquires some important DNA (in this case, in the form of technological capabilities that prove useful for survival down the road).

At a very high level, then, some of the “epistemic takeaways” from the “Future of Agencies” thought exercise included:

  • People claim to hate “siloes” in business, yet they persist. So mightn’t they serve some useful function?
  • When non-monolithic holding company organizations consider their planning, they don’t sneeze at the unsexy parts as long as they work financially. They optimize financial performance in specific units rather than trying to force a unified logic across all units. They “swap out” the worst-performing parts, after careful consideration. They “swap in” technologies and acquired companies that seem like they fit well with the long-term plan, but they don’t fold all the assets into the whole. They just let them operate, and try to improve them where they can.
  • The models that work are working because of trial-and-error orĀ experience, not “planning.” As such, evolution (a la Seth Godin’s Survival is Not Enough) is at work, not “strategic planning” by know-it-alls with certain kinds of business or academic training.
  • The “best technologies” don’t automatically win, perhaps because technology depends on how you apply it. Specific teams do well applying technologies. But more importantly the quality of relationships determines the length of client retention. Quality relationships don’t “scale.” Which means slower growth in organizations that are cobbled together out of hundreds of projects and relationships, but such organizations are robust, if not anti-fragile.

It was only after having the good fortune of reading Nassim Nicholas Taleb’s important new book, Antifragile: Things That Gain from Disorder that I realized how much my thinking on this particular issue resembles the way Taleb frames his arguments about financial markets, politics, lifestyle, and just about any domain that can apply the concept of the “convexity of risk” (which is to say, just about any domain).

(The good fortune was only doubled in that I spent some of that reading time bumping along in a bus to a mountain hike on a Caribbean island; the book stayed on the bus for the part of the hike that was down a mountain river over slippery rocks, “Rambo Style.”)

So it struck me, in comparing my brief remarks with Taleb’s system of thought, that in our field we have over here on one side, grand pundits who will typically make rather monolithic predictions about what “we’d better adjust to lest we be left behind, become toast, etc.” [Taleb amusingly refers to such types as the "Soviet-Harvard elite"]; and here on the other side — the side I chose to adopt — which was to say, as individual experts, we’re really limited in our predictive powers, and moreover, neat and tidy answers tend to be given by totalitarian thinkers who don’t give us nearly enough scope to try many different routes and fail (or succeed) in our own way.

What I probably did not see was the additional ingredient Taleb injects, which is the need for individuals, organizations, and systems to expose themselves to “small stressors” to become strong. At every level, living in a “bubble” creates an increasingly fragile organism or system until it’s obliterated in spectacular fashion. That’s one potential explanation for that weird, ho-hum organization (think of a major hotel chain or marketing services agency staffed by pretty average people and older technologies) to persist and reinvent itself constantly such that it stays in business for a remarkably long time. A knee-jerk reaction could be to simply compare the superficial impression such organizations give off to the “shiny new thing” organization that should “eat its lunch,” but somehow doesn’t. Can the explanation for the persistence of the dull organization come down to its exposure over time to trial-and-error, “many small stressors,” such that it has learned and adapted thousands of times in thousands of ways, without ever crowing about it?

In the “fragilista” lexicon of Silicon Valley and university-trained business strategists, “scale” is the answer to everything. In the language of advocates of antifragility, a failure to “scale” isn’t a shortcoming — it might in fact be an important way to inoculate a whole economic system against profound shocks. Certainly, a “winner-take-all” economy (in any realm) will pay handsomely for the winners — and is pretty good for a few related organizations that benefit from their success, certain kinds of journalists and experts who love a good “winner take all” narrative almost as much as a “collapse story.” But is it good for everyone?

Remember, Black Swan events aren’t common and by definition, you’ve never seen one of its exact type before. So “I’ve never seen a black swan” (absence of evidence) is not the same as “there are no black swans” (evidence of absence). What seems to be scalable, impressive, compelling and obviously superior to mere common-sense practices is often “proven” to be so — as Taleb evocatively points out, much like the turkey can show a beautiful Powerpoint slide of “the life of turkeys is incredibly safe, with increasing levels of statistical confidence”… each day until Thanksgiving, when the lives of turkeys become markedly less safe.

Fragility is a problem in any system or industry, and it is a problem that can be confronted and addressed. While most of us can’t affect how an entire economy works, we can assess the relevance of Taleb’s concepts to our personal finance or individual company strategies, for example. Online marketing and new types of digital companies are particularly susceptible to neomania, another Taleb bugaboo. Chasing fads and thin strategies that may have a history of all of several weeks isn’t “foresight,” it’s in fact out of step with what most sane individuals and organizations have done to govern their affairs over the past four millenia or so. What’s so wrong with combining elements of the old, tried and true, with the elements of the “new” that seem like they might have potential? Why are some pundits encouraging otherwise sane individuals and organizations to toss out almost everything that worked for them in the past and to put too many of their chips on the latest trendy tactics?

To quote Taleb at length:

“…Statistically, the ‘young’ do almost nothing. This mistake has been made by many people, but most recently I saw an angry ‘futuristic’ consultant who accuses people who don’t jump into technology of ‘thinking old’ (he is actually older than I am and, like most technomaniacs I know, looks sickly and pear-shaped and has an undefined transition between his jaw and neck). I didn’t understand why one would be acting particularly ‘old’ by loving things historical. … So by loving the classics (‘older’) I would be acting ‘older’ than if I were interested in the ‘younger’ medieval themes. This is a mistake similar to believing that one would turn into a cow by eating cow meat.” (Antifragile, p. 320.)

Online marketers and businesses looking to set priorities in customer acquisition strategies are even more fragile, typically, than they imagine. The practice of slavishly watching and relying on one’s organic rank for a single keyword, for example, would seem imprudent in the extreme, even by the measurement standards of the most “wild west” of financial-industry speculators. But in our world, that’s not uncommon at all! Imagine a bank that derived 100% of its income from loans to a single customer, at an increasingly high interest rate. That wouldn’t be a business… it would be a “Black Swan event” waiting to happen.

And consider the painful tendency of those in the SEO world to conflate one thing (the thing they obsess about) with a much more important thing; namely, their apparent tendency to equate “SEO” with “business success” in a 1:1 manner, with the latter being fully a function of the former. Anyone who actually runs a business knows that the petty obsessions of the SEO community do not map directly to business strategy and/or profitability; to cite Taleb’s archetypal Fat Tony, “they are not the same ting.” (Or as Fat Tony had it, the war about a country called Kuwait was an important development, and the price of oil definitely matters to traders. It’s just that you needed to have enough perspective to know how much the latter was a function of the former. As it turned out, they were not the same ‘ting’.) As Taleb himself adds, when considering the interrelationships among diet and lifestyle, cholesterol blood values, computed risks of cardiovascular events and death, and actual cardiovascular events and death, there isn’t anything particularly wrong with considering cholesterol blood values as a potentially useful marker. At some point in the medical literature, though, the interrelationships are assumed, and the “actual cardiovascular events and death” sort of drop out of the conversation, making it convenient to hawk potentially harmful drugs to lower borderline “blood values” in otherwise healthy patients, as if these ‘scorecard’ readings were untrammelled goods in and of themselves.

Our sector is full of fragilities that are seen as commonplace by those practicing in it. You don’t have to follow the herd, though.

More on all this shortly.

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