PR and the digital dilemma: Stockopedia speaks to Tim Dyson, CEO of Next Fifteen Communications

In 18 years at the helm of public relations group Next Fifteen Communications Group (LON:NFC) , Tim Dyson has pulled off a string of acquisitions, expanded globally and made a smooth transition from pure play technology PR into the consumer market. While he is the first to admit that niche “inevitable markets” have been central to Next Fifteen’s success, he also knows that the group can’t stop growing if it is going to meet the requirements of its clients today, next year and in five years. With that in mind, 2009 saw Dyson set up a new digital consultancy called Beyond in order to help deal with what has now emerged as the dominating factor expected to reshape global PR, marketing and advertising in the coming years – digital media.

That is not to say that digital isn’t already influencing every aspect to Next Fifteen’s businesses. The group’s operating companies – including, among others Text 100, Bite Communications, Lexis, The Outcast Agency and 463 Communications – represent some of the biggest brands in the world, counting among them IBM (NYSE: IBM), Microsoft (NSQ: MSFT), Cisco (NASDAQ: CSCO), Facebook, HP (NYSE: HPQ), AMD (NYSE: AMD), Unilever (NYSE:UL) and Coca-Cola (NYSE: KO). 

Advising those companies, and many other growing business in the tech and consumer space, on how to deal with digital and how the media landscape will change in the near future is, by Dyson’s own admission, far from straight forward. Indeed, the likelihood is that the companies surrounding his base in Palo Alto, in the heart of California’ Silicon Valley, will end up playing a very substantial role in the way his own industry will evolve in the coming years.

Putting longer term strategising to one side, the here and now of Next Fifteen is far easier to understand. Shares in the group have rallied since the end of the summer, pulling nicely away from a 58p low in July to spend most of the autumn well above 70p. The price reflects a business performance during 2009 that shook off concerns about the economy on both sides of the Atlantic and delivered an 11% rise in sales to £72.3m and an adjusted pre-tax profit up 68% to £5.3. Earnings per share were up 84% to 6.75p and the total year dividend increased by 9% to 1.85p. During the year the company notched up a seriesof acquisitions, including New York PR firm M Booth & Associates, a 55% stake in the marketing communications arm of Upstream Asia and an additional holding in US policy communications business, 463 Communications, up from 36% to 76%. More recently, it purchased an 85% stake in The Blueshirt Group, a financial communications company based in San Francisco serving the technology sector.

Tim, before we talk about Next Fifteen and what you have been up to over the last year, tell me what a typical day for you involves?

Well, unfortunately the day with an iPhone or a Blackberry or whatever it is, is a very long one and one of those where it starts at 6 o’clock in the morning and it ends close to midnight every day. I’m not sure that’s a typical person’s day but unfortunately it’s mine and it’s one where you are basically never out of communication with what the company is doing or what the issues are that are surrounding the company. It may be news surrounding one of the clients, it may be some news surrounding a prospective client, it might be an employee you’re trying to hire or an employee you’re trying to keep happy, whatever it might be. Certainly with a company like ours that has grown up with technology at its core, it’s just how life is run these days.

It sounds like you are still very much hands on with the clients, despite being chief executive for the last 18 years.

Yes, I think in our business you have got to be rather hands on, I think it is pretty difficult to do the job if you don’t really understand the kind of work that our people are doing. My first proper meeting of the day was with one of our biggest customers and it’s not me just meeting them and saying ‘How’s it going then?’, it’s me working on a specific issue that they are trying to deal with and I much prefer it to be that way. I don’t want to be the politician holding a baby, I want to be somebody who is adding value and if I can’t add value then I don’t want to be there.

The thing that’s interesting to me about our industry right now and the challenge of running a business in our space right now is that we’re going through this huge change with digital where it is completely transforming everything that we’re doing. We are dealing with social media, social networks, search, building properties for the internet, be it social games, be it other social properties, be it building iPhone applications, Facebook applications, things we would never have dreamed that we would be doing – hiring HTML5 programmers. The kinds of individuals that are coming into the organisation now compared to five years ago is drastically different and that throws a very interesting challenge at our industry because for the prior 20 years all of the people who got to the top of our industry, myself included, did so by learning, broadly speaking, the same job. You learnt how to deal with the media and you learnt how to deal with analysts and you got to grips with an industry, say the technology industry, and you learnt its ins and outs so that you could give good counsel. Whereas now, all of a sudden, the job that somebody coming into our industry is doing is not the job that we did.

So in many ways you can almost argue that some of the people at the bottom of these companies know more about what they’re doing than the people at the top, which is a little frightening at times, and it certainly has made me feel like: ‘Okay, I really need to get my hands dirty with digital’. I’m on Twitter a great deal, I’m on Facebook a great deal, I spend time with a whole bunch of start ups over here that build vertical social networks. I’ve spent an awful lot of time with our Beyond business trying to make sure I really understand everything that they’re doing so I feel, if you like, well placed to run the business. Frankly, I could just say: ‘We’re doing some stuff with digital’ and leave it to that and say to myself: ‘The vast majority of our business is still the traditional media relations, analysts relations business’. I think if I took that mindset I’d be running blind for our customers and for our shareholders, it would be a very bad move because in five years time we will be a radically different company to the one that we are today.

You have put a lot of effort into acquisitions, expansion projects, new offices all over the world. How do you begin to formulate a strategy for the future?

I’d love to tell you I had this crystal ball and had a really clear insight into exactly what it was going to be in five years time. I can tell you in broad terms where and how I think digital will affect us. What exactly that will mean, I think anybody that tries to pretend that they absolutely know what’s coming on this stuff is either foolish or is lying. I think we can all see the revolution coming. Exactly who wins, from an advertising versus PR perspective, is hard to say. None of us know entirely how the media is going to change over the next five years. I think we can make some educated guesses but we don’t really know and that will have a profound effect on what we do.

You see this steady decline in traditional media, this shift towards online media, social media and so on and everybody argues now that there really is only social media, for example, that all media is becoming social. Well fine, that is all well and good and it’s a pretty easy broad brush statement to make but what does it really mean, what’s the real end result out of all of that? I grew up with the Telegraph, the Times, the Mail, the Mirror, all these newspapers in the UK but where do they end up? Do they disappear in 10 years time, are they gone? I’ve seen wonderful demonstrations here where they use electronic paper, digital paper, where you wake up in the morning and what was your newspaper is effectively this electronic paper and it just reconstitutes itself around the content that it knows that you like. It’s going to be radically different on everybody’s different newspaper, for example, incredibly personalised media and some of it is video, when you pick it up it actually has a moving image on it, it’s not just a still photograph, or the story will update with Twitter comments and so on. All of that is technically possible but what do customers really want? I think what we’ve seen in the digital space is that there is a huge amount of trial and error going on, people are experimenting, they’re throwing different ideas at things and saying: ‘What sticks, what works?’, and until all of that really plays itself out I think our industry is going to be in this mode of: ‘Yes, let’s try all of these different avenues and one of them will be hugely successful, a bunch of them will not’.

We’re seeing all the hallmarks at the moment of a new industry in that the pricing models are all completely at sea, the product briefs, in terms of what customers are asking for, is all completely at sea, the staffing that you want to put against it is different every time. In other words there’s no consistency to it and they are all of the signs that you get when you’re moving into a new industry. It’s like you’re starting again, which is fantastic from an opportunity perspective but obviously it creates a bit of risk. So it just says to yourself: ‘To some degree all bets are off’ and it’s now how brave are you prepared to be, how much are you prepared to invest in these new areas knowing that some of that investment will be flushed down the toilet, other parts of it could be exponentially successful. You could see some very interesting new companies arise out of this shift, people that were tiny players a couple of years ago could become monsters in the next two or three years because they made the right bets.

All of this comes on the back of an economic downturn that has been a real shock for many businesses, not least the PR and advertising industry and its clients. How, as a chief executive, do you respond to something like that?

Well it’s a very good question. I think all forms of marketing, advertising, PR, you name it, have all been in this cyclical marketing environment for a very, very long period of time. In many cases you can argue that the reason that we’ve been so cyclical is because our products, actually all they do is mildly accentuate the cycle that the businesses themselves are going through. In other words we’re not having enough influence over the business cycles to avoid ourselves being cyclical. If we could actually create products that genuinely changed the cycle for the companies then we would no longer be cyclical, we would have the ability to be counter-cyclical and control our own destiny to a larger degree. So I think that, again, is where digital offers another opportunity to us to say: ‘Are we in a place where we could genuinely make a real difference to the cycles that our customers are going through or are we simply amplifying the good or the bad news around our customers’ activities?’ If a company is having a bad time then maybe our efforts are designed to take the focus and attention away from them but that’s not helping them be more successful, that is simply stopping people from finding out how badly they’re doing. At the heart of all of this is, in truth, what we have to be there for is to make companies more successful and that’s got to be the goal of everything that we’re trying to do. So I think we’ve never really, as an industry, succeeded in that goal, if we had then we wouldn’t go into these troughs when the economy goes into a trough, or we certainly wouldn’t go into such a deep trough. I think digital does offer that opportunity, it absolutely does, and it’s there. It’s a question of us having the talent to solve it.

In spite of that, Next Fifteen’s performance, certainly in the last year, has been impressive. How satisfied are you with what the company is delivering?

They’re not bad, they’re pretty good. These results reflect the fact that we’re in some good markets and we have some good people and we’re very specialised and so we’ve been long believers in being a specialised organisation. If you are very broadly based it’s very difficult to differentiate yourself. We’re not trying to be Wpp Group (LON:WPP) or Omnicom (NYSE: OMC) and when we succeed it’s actually when we stick to that and we say: ‘We’re not just trying to copy the big guys and be these very broad based general organisations, we’re trying to be very specialised’. The only thing we have in common with those very big agencies is how global we are but beyond that that’s where the similarities end and from that perspective we then offer a very different choice for the customer. When we appear in a pitch list with a customer we stand out because we are very different to one of the Burson-Marstellers or the Edelmans, or whatever of this world, but we’re also very different to the local boutique in that we offer the ability to scale in a way that they do not. I believe that’s a great position for us to be in and it certainly helped us in the last year. The trend on global just continues, it doesn’t seem to be going in the opposite direction, it just seems more and more and more companies are wanting to manage their communications globally and, again, digital, sorry to bang that drum, but again digital is driving that. If people look something up online, if Google (NSQ: GOOG) is the point of entry into the brand then they don’t say: ‘Only give me the Google results for this country’, they say: ‘Give me the Google results for this search’, so everything has become global and you have to accept that. So then if it’s a global playing field then it’s a question of how you compete on a global playing field and in our case we’ve said specialisation is the way to do that, and it seems to be working.

Clearly you’re not adverse to the idea of spreading a little bit. You acquired a stake in Blueshirt during the year and that represents a move into investor relations. What was the thinking there?

We built our business around the technology industry and when we stood back and looked at that and said to ourselves: ‘What was it about that business?’ Like every business you get into these things and you don’t really know why you’re being successful, you just are, you work hard and good things come out of it and then at a certain point you step back and say: ‘So why is this working?’ One of the reasons why it was obvious that it was working was that we were fortunate that we picked an industry that was itself a natural growth market. The world gets bigger, more people use technology, more technology gets created, therefore we’re playing in a very good market. We describe it as an inevitable market, there is very little chance that we will use less technology over the next 20 years and a very good chance that we’ll use a lot more, therefore if we can simply maintain market share in that industry then we should grow, it just should happen, if we can expand our market share then we can grow really rapidly.

So that’s the obvious thing that’s at stake there and then when you look at the technology industry and say to yourself: ‘Okay, there are two ways that we could also expand the business. One is we could pick other so-called inevitable markets, and we’ve signposted healthcare as another one of those that we think has a lot of the same characteristics, and it’s certainly a market we would love to get into and there’s also some overlap between technology and healthcare, which is nice, so it makes sense for us to move in that direction. Then the other ways that we are looking at growing the business is saying to ourselves: ‘Okay if you were looking at an industry like the technology industry what are the services that you could sell to those customers that you don’t sell already?’ Take that technology customer base and just simply say: ‘You don’t buy this from us today, we’ll offer it to you’, and the logical areas for us have been in the cases of consumer, in the case of policy communications or public affairs and corporate and financial. You have seen moves from us in terms of moving into the consumer space. More and more technology companies want to sell to consumers, we learnt that lesson the hard way 10 years ago when we tried to help them do that and they looked at us and said: ‘Look, you understand the technology industry, you do not understand the consumer’. We thought that we did and we were wrong, they were right, and so we’ve moved in that way and it has been very successful.

Then the other areas that fit in the same way, as I mentioned, things like policy and corporate and financial – corporate and financial we’ve long wanted to do but the way that we’ve always approached every new area is you’ve got to find the right people and that’s either a case of hiring those people or buying those people. In Blueshirt’s case we’ve known them for quite a long time, we’ve partnered with them in various situations, they’re very well known in Silicon Valley, they do a lot of the tech IPOs. So they fit very naturally with our tech businesses and they then give us quite a good insight, once we get to understand that business even better, and could open the door for us to bring on other businesses of similar nature that have different customer bases. So from our perspective it’s a very logical step, it adds to our tech prowess but it also gives us a doorway into another market that we don’t really have.

As a UK based business with strong ties to the US, what are your views on the performance and strategy of those countries’ respective governments on dealing with their economic deficits. How do you read the economic situation on both sides of the Atlantic?

In terms of - is the UK right to go on this austerity binge, whip itself into a frenzy and lash itself and say: ‘No, we absolutely have no money and we cannot spend any money’, and so on, versus the American approach, which seems to be: ‘We have no money so let’s print some more’? Who knows which government has it right. I’m certainly not best placed to say. What we can do is to look at our large customer base because they give us a pretty good insight I have to say. The Ciscos, the IBMs, the Hewlett Packards of this world, these are companies that have incredible global reach and have very direct impact on large economies. If they’re doing well then that economy tends to do well, if they’re doing badly that economy tends to do badly. So we get some pretty good signals out of those companies as to how they’re feeling about various economies, be it at macro level or one country in particular, and I have to say they’re getting really good at indicating where things are going. If they’re saying to us: ‘We’re not feeling too good about the next nine months’, then we know that they’re probably right and we certainly saw that when it came to the global financial crisis a month or so before it really became a public issue. They were already giving us indications that they thought things were about to turn very sour. Of course we didn’t particularly want to listen to that but they were absolutely on the money and the same was true in terms of the reverse. They started to say: ‘Actually things are improving and we think this thing will turn itself around, we’re not seeing a double dip, we think it won’t be great but it won’t be awful, it will be a slow, steady climb out’, and, again, they seem to have been, thus far, on the money. So ironically we tend to listen to our customers more than anything because they seem to give us a much better indicator as to what we should expect.

With that in mind, what can we expect to see from you over the medium term?

Good question. We’re still very ambitious; we still have lots we want to do in the next year. There are some other acquisitions that we want to do. We’ve other moves into areas like healthcare that we’re actively exploring right now and whether or not they will neatly fit into a financial year, who knows, because that’s not the way we tackle our acquisitions, we don’t say we have to get it done by a certain date or we don’t do it. If we find the right people we’ll take forever to do it.

There’s a lot of natural growth that we think will come in the business in the next year, in large part because of this digital shift and we think that’s certainly opening the doors to different parts of our customers’ budgets. Marketing budgets used to be incredibly demarcated, this part is for advertising, this part is for direct mail and so on. With digital it’s becoming far less clear, Chief Marketing Officers are saying: ‘Look, I have this pot of money, I just want to spend it the best possible way, if somebody’s got some really good ideas I want to hear them’, and you’re hearing more and more that to be the case. Very often, when we’re pitching on things now, we’re pitching against the ad agency or the direct marketing agency and so on and that’s great, we find that very exciting because, quite honestly, those parts of the business tend to have an awful lot of money, more than we do, so it’s good.

Thank you very much for your time.

Thank you.