Cash flow woes crippling independent digital agencies: Atul Hegde

Cash flow management continues to be one of the most significant challenges for independent digital marketing agencies, often diverting founders' focus from their core operations. At the IDAC Summit 2024, organized by exchange4media, Atul Hegde, co-founder of Rainmaker Ventures, addressed this challenge and shared valuable insights, along with key strategies for the future of independent digital marketing agencies.

“Cash flow issues can cripple an agency’s growth. Founders need to focus on running their business, not chasing payments,” Hegde said. Founders, while talented, often require financial management support to prevent operational distractions and ensure sustainable growth, he added.

Hegde also emphasised that the strength of the founders is crucial in a people-centric business like digital marketing. In an environment where funds tend to chase valuations, Hegde urged investors to focus more on the capabilities and pedigree of founders. Citing a CB Insights survey, he noted that 23% of startups fail due to team issues, underscoring the importance of leadership in determining success.

“Investing in the founder is the key. If they’re strong, the business will eventually succeed, even if valuations are secondary,” Hegde stated.

While venture capital is a well-known funding source, Hegde recommended that agencies with a turnover of Rs 1-20 crore explore alternative avenues. Building strong relationships with banks can open opportunities for loans without the stringent scrutiny that often comes with venture funding. Government schemes like the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) also provide loans to businesses, especially women-led startups, without collateral, offering a lifeline to agencies struggling with capital constraints.

Entrepreneurs should seek partnerships with other agencies to combine strengths, broaden service offerings, and attract larger clients. This approach can lead to more significant opportunities, especially when bidding for government tenders, where startups are welcomed.

The current consolidation trend in the agency landscape offers a unique opportunity for independent agencies. Instead of losing their identity, these agencies can maintain their autonomy while collaborating with or being acquired by larger firms. This shift reflects a growing appreciation for the innovative and agile capabilities of smaller agencies. "Coming together is really the strength for this community," the branding veteran said.

Independent agencies have an edge over traditional brands due to their flexibility and ability to innovate. Many brands now actively seek to partner with smaller, nimble agencies to stay competitive and tap into disruptive ideas.

"It’s the best time to go to an independent agency, especially because of this consolidation... Independent agencies are out there hungry, looking for smart, upcoming independent agencies to either acquire, to collaborate." he said.

The funding winter appears to be easing, particularly in India, where the market is attractive for investors. Independent agencies can thrive without the need for extensive capital investments, focusing instead on sustainable business models that generate cash flow.

Looking ahead, Hegde believes that agencies excelling in creative work will continue to be in demand.

Additionally, he said influencer marketing is an emerging category with massive growth potential. According to Statista, the global influencer marketing industry is set to grow from $16.4 billion in 2022 to $21.1 billion by 2024. Agencies specializing in creative storytelling and influencer-driven campaigns are expected to thrive in this evolving landscape, Hegde noted.