How to Keep Minority-Owned Agencies From Disappearing

The Landscape of Minority-Owned Agencies

Studies such as D. Parke Gibson’s “The $30 Billion Negro” in 1969 were some of the first to shine a light on the burgeoning Black consumer market. Black- and minority-owned advertising agencies brought rich perspectives to an industry that historically misrepresented and excluded minorities.

The importance of minority-owned agencies cannot be understated: they have increased the number of minority professionals in the industry and crafted relevant and meaningful messages to connect with diverse consumers.

The landscape of minority-owned marketing agencies that have scaled their business paints a picture of businesses ripe for acquisition. Many of these Baby Boomer-run businesses are motivated to sell, and they are selling an asset poised for exponential growth due to their expertise in a growing consumer market.

We must ask the question: with the U.S. becoming a majority-minority population, what is the effect of not having any large marketing agencies owned by minorities?


Previously published in Spin Sucks

How to Preserve Black- And Minority-Owned Agencies

We don’t want to lose Black-owned agencies, yet those agencies are becoming folded up into white-dominated spaces.

With that in mind, here are three things we need to prioritize to preserve Black- and minority-owned advertising agencies.

 

1. Reject the System of Ethnic-Only Marketing

According to Merah Stuart’s economic detour theory of enterprise development, racism and segregation have historically driven Black entrepreneurs to cater exclusively to Black consumers.

The original theory was used to describe Black insurance companies in the ’40s and ’50s, which flourished because white-owned companies ignored Black consumers. As a result, Black-owned insurance companies filled the gap.

Decade after decade, minority agency owners have realized that they must play in a separate but unequal league to grow their businesses. Minority owners should build independent creative firms that don’t subject them to a limiting system in which they can only develop marketing that’s targeted to people based on their ethnicity.

However, this needs more dedicated action from clients and minority owners in the advertising industry. Here are three simple action steps that can lead to systemic changes:

  • Clients should invite diverse agencies to pitch their business. The selection criteria used to select agencies for business pitches do not usually include diversity in the leadership ranks, so clients can motivate their agency partners to be more diverse and inclusive by making it a requirement to do business with them.

  • Minority owners should diversify their expertise away from ethnicity. When you position your agency based on specific expertise, people start believing you at some point.

  • Minority owners should take advantage of the consolidation trend and create holding companies. The scale benefits of a holding company increase your chances of being invited to agency pitches with enterprise-level corporate clients.

 

2. Protect Ownership With a Bigger Emphasis on Business Succession Planning

Black- and minority-owned agencies reached people of color with much-needed authenticity and validity. But many of these legacy businesses built in the ’80s and ’90s are owned by folks who are now eyeing retirement.

Almost 70% of Black folks have no will or estate plan in place and 86% of corporate leaders believe leadership planning is an urgent or important priority, but only 14% believe they do it well. Without plans to transfer ownership, many minority-owned agencies could close — stamping out the possibility of generational wealth transfer in the process.

To ensure agencies continue to prosper well into the future, owners need to create robust business succession plans. Here’s a blueprint:

  • Conduct a business valuation: partner with a trusted advisor to determine how much your business is worth. The current value of your business will provide insight as you explore transition options.

  • Explore transition options for when you leave your business. This may look like selling your ownership stake to a business partner, key employee, or outside buyer. You may also choose to transfer your legacy to your heirs or close your doors completely.

  • Find trusted advisors. This consists of your financial planner, accountant, attorney, and business consultant with expertise in succession planning.

  • Document the succession plan. Leveraging the advice of your advisors, put your succession plan in writing. A succession plan is a long-term process and not simply an event. Once documented, you will need to revisit and update this plan to reflect changes in your business, such as the departure of key employees or faster-than-expected growth.

 

3. Plug the Drain on Black and Minority Ownership

The rise of the Black-owned advertising agency was a much-needed antidote to a historically whitewashed industry, and many of them have been hugely successful. Selling is the natural evolution of a successful agency; it is analogous to a company going public to reward early investors. But when the sale goes to the highest bidder, many of these agencies (which were started to combat the dangerous homogeneity of the advertising industry in the first place) end up being rolled into either white ownership or white-led umbrella agencies.

They’ve been able to do so because investment capital is still concentrated in white spaces. The typical Black household has only a fraction of the wealth of their white peers ($17,600 vs. $171,000), and the fact is that starting, expanding, and sustaining a business requires existing wealth.

Black agency owners cannot invest in their companies or secure collateralized business loans without it. Sadly, experts estimate that the racial wealth gap has led to the forgoing of more than one million new companies owned by minorities, which translates to the loss of more than 9 million jobs and $300 billion in new income for workers.

We lose out on so much innovation when minority-founded businesses are no longer run by minorities, which is why more minority-owned agencies should consider buying other firms. These are the decisions you need to consider during the business acquisition process:

  • Type of business. Are you looking to run a professional services company built on selling a service, or do you want to sell products?

  • Are you a strategic buyer or a financial buyer? A strategic buyer has the existing infrastructure to complement a specific business. A financial buyer is looking at cash flow to determine the sale price.

  • How much business can you afford? Similar to buying a house, you simply need a down payment of about 10–20%, and you can finance the rest with debt.

Black- and minority-owned advertising agencies are a net positive for society. They create jobs, strengthen economies, help close the racial wealth gap, and celebrate diverse cultures. But more than that, they renounce the stereotypical portrayals of marginalized people that have prevailed for centuries in their pursuit of diversity in marketing and advertising.

That is worth preserving — and we should take steps today to ensure that these legacy agencies survive and thrive long-term.

DEIJeff Meade