How X3M Ideas became Nigeria’s hottest Ad Agency

X3m

As at 2005 when I first met Steve Babaeko, I knew there was something different about him. Steve now runs X3M Ideas, an advertising agency that has grown to become one of Nigeria’s most sought after agencies.

Give it to Steve, he was very clear in his vision and goal. One thing that also strikes me about him is his down to earth and unassuming posture. A visit to his Lagos headquarters will not only humble you but inspire anyone in whatever calling.


How were you able to scale your agency to this enviable level within four years?

If you don’t understand the process; you will miss the point. What we were focused on are just the core processes. How do you set up different processes to make the system work? If the systems work, everything will fall into place. It’s just all of those core processes from finance policy, HR policy, critical work has to be done to getting contracts signed. This is cascaded to the bigger team, audit team, tax team, counsel, etc. Everything has to be in place. If you don’t have all those things in place, you are still going to go down.


How easy was it to put your team together?

The advantage I had from day one was that before I started the company, I had spent 17 years working in a structured environment for other people. So when I started my own, I am not going to be stupid enough to say I don’t want structure.

You’ve learned about corporate governance, getting audit processes, tax processes, structuring of finance, you have learned so many things along the line, so once you start; you’ve started. From day one, we already had workplace insurance, when we opened; I promise you, we had to negotiate payment on the premiums because we couldn’t even pay at once. But those are basic things for us, it was important that we had it.

So all of those things had been implemented from day one because we have a strong HR team that looks into all of those policies and laws to make sure that we are on the right track.

So looking at the business model of the advertising business now, will you agree that it has changed? And how have you adapted to it?

To know how bad or how good it has changed, the difference between the agencies that are so called “doing well” and the agencies that are not so doing well is the realization that this model has changed, and how quickly the agencies that are supposedly doing so well adapted to the change.

Before, it used to be either retainer or service fee, but all of those things don’t work anymore. Today, we are getting to a point where agencies should own their platforms. For agencies who don’t own platforms, the future is bleak. Not only that, they are out of the game! You can imagine with the little recession we’ve been in,  there are deep cuts in clients’ spending. What else do you do when clients will continue to cut spending; whether that’s the right or wrong thing to do, that’s entirely another debate. But that is the reality everywhere that once the economic crisis hits, advertising budgeting is usually the first to go.

Did you foresee that rapid change when you were starting?

We started at the point where digital was already ravaging everywhere. To think that different industries will be structured by technology and feel that advertising will be excluded from the decision is to bury your head in the sand because it’s going to affect everybody.

So unless you are a quick thinking person, you will probably still think; that’s how we used to do it in Timbuktu in 1971 and then you will go extinct.

So the moment we came in, we already saw these changes and we have positioned ourselves differently to be able to adapt and tweak the model a bit and customize(d) it for ourselves.

In terms of your ranking, viz-a-viz Nigeria and West Africa, how would you position yourself?

I would rather (other) people do the ranking. Billing is not the best metric of measuring success. As someone once said, “billing is vanity, profit is sanity”. You will see a company billing billions with a lot of liabilities but you see a company billing 400 million that is far profitable. So don’t let us fool ourselves. We would do the billing metrics but then we would still do the margin metrics. Let’s see, how much margin are we making in this business? What is the profit of the business?

If you want to scale out of Nigeria, where will you go? Where would you start?

I think we would start with West Africa first. If you look at Nigeria, we always see our educational system needing a lot more work and how many people are unemployed these days, etc.  If you still look at it, Zimbabwe and Nigeria are probably the most educated countries in Africa – where you take it for granted that almost everyone you meet has a second degree. It’s not like that in every part of Africa, so there are so many skills inherent in the population.

We can deposit what we have in Nigeria today within the context of Africa that we can still explore, this is why I say that the biggest asset Nigeria has is actually not the oil but its people and human resources. So until we begin to pay attention to that as a country, we are wasting our time.

X3M Ideas
Source: X3M Ideas

If you are going to let’s say Cote d’Ivoire for instance, are you going to partner with a local company or buy out out-rightly?

It will help you to start with partnership; you can do a long- term if the relationship works very well. The reason why it is advisable to start with a merger is that the local scene is different, you will be dealing with different local laws, dealing with different tax laws and everything; so to manage those things effectively, it is good to partner with people who are like locals and indigenes that will help to guide you in the right direction.

When it comes to the advertising business and the global scheme, you discover that most agencies now belong to modern/ foreign agencies that are quoted public companies. In this part of the world even in South Africa, I don’t think there is an ad agency that is quoted except Afromedia in Nigeria. Do you think Nigeria advertising will get to that level? Are you looking at listing X3M Ideas in the nearest future?

We wanted to be one of the first advertising agency to be quoted. We are already talking to the Nigerian Stock Exchange to get information and we are doing our paperwork, we are working with consulting companies to do our valuation and we are doing a lot of work to prepare ourselves if you look at it, it’s in the interest of all.

The whole world knows what we have done, what we’ve achieved, we have a story that we can tell. So if we go public, accountability becomes more important as well as corporate governance because people are watching and you can’t just do what you want. As they say, the chance of such company out living the founders is more guaranteed. The banks are doing it, what do the banks have that the advertising agencies don’t have? We simply need to put our acts together.

What is the difference? There are certain banks in this country that you begin to wonder who is the owner or who is the founder? It’s already done and maybe you dig deep you will be able to find it but it’s public property because people out there bought into the vision and bought stakes in it, etc. and the banks are still thriving. In Nairobi, the Scan Group has been listed for years so, I see no reason it can happen here as well.

With the amount of the value of the investment that you put into this business, have you been able to break even, although we know you can’t disclose actual numbers?

It is difficult because, we are just four years old going to 5, this year. When you start a business and you are talking about how you are going to break even, it is not in the first 5 years.

This is a business with a very low margin. The margins are quite small, so it is going to take a lot of work, which is why every day you see us, we work harder, every opportunity we get to work on the network of the group, we put our best foot forward and try to disrupt the entire industry like we’ve done by putting out imaginative campaigns so that we can be able to expand our horizons.

In terms of growth, where do you want to focus on, are you looking at other platforms, acquisition or still the traditional model?

This is the thing, whatever you say, digital has taken over. It’s like what happened when TV came and people felt that TV came to kill radio. How many years later, Radio and TV still exist, so that’s the same thing with digital and traditional. There is still opportunities)  in space of traditional and we are well positioned to take advantages of those opportunities but of course, we are not unmindful of the fact that the future as of right now is absolutely digital and of course owning our platforms. And of course, we have readjusted ourselves, to be able to cash-in on whatever benefits that those platforms present.

Are you looking at the possibility of acquisitions?

Right now, we have acquired 30% interest in another company that I can’t say, unfortunately, but we are looking at digitalization and new media platforms.

Affiliation has always been an approach for some agencies to have access to big business and “dollars”! But it is becoming less interesting lately.  Creative agencies are beginning to realize that many of these multinationals are no longer tightly controlled by central operations, some of them have ceded major ownership to local shareholders. Are you looking at affiliation or do you believe in standing alone?

Having affiliations even back in the days were not guaranteed business. The bedrock of those affiliations was very faulty to start with. This is somebody cut out of nowhere from some other country then gives you their names to trade within Nigeria. And you assume that it automatically means a lot of business coming here. It depends on how strong the network is in Africa to start with; they may be strong in a different region but they are not strong in Africa.

So if they are not strong in Africa, you just have a name to tag on and no business.  That’s one. When they finally say that they want to take your business, it’s not like they will give you money. Back in the days they just say; YES, we are going to train your people and give you more accounts,  convert all of those to equity capital! For God’s sake who does that today?

They don’t do that in other parts of Africa and that is exactly why it has failed in Nigeria.  Because now, people come and say; “oh, I want 51% of your company, how much are you asking?” Whatever percentage is offered, both parties are business partners and at the end of the day, the major cardinal reason why someone sets up a business is to make profit.

So if I have that kind of tradeoff, I will take part of the organization usually for you to build a vision and see it for like a couple of years before someone will say I buy into  it, it’s because they know that you know what you are doing and they would even negotiate for you to stay for another 3-4 years before you exit so that you can see the transition to fruition. Everybody will be willing to do that, but if people just marched in and it’s like a master-slave relationship, “just give me your business”. I think this has contributed to multiple breakdowns of all of those agreements that were signed in the past. I think the foreign agencies are beginning to realize that in Nigeria, most especially, we have to do it differently. I have to give Nigeria this; we are smarter than we look, we know what we are doing.

To answer the question directly, if you had asked me this question 2 years ago, I would have said “I don’t want an affiliation” because, at the time we started, I wanted to establish X3M Ideas as a local agency with local knowledge and local resource, that can solve global problems, especially for clients that have global reach markets and we deliver on that promise.

So now, we are 5 years old, I would say that what we are looking for is not so much the money alone but the culture. If I find any global agency with the right culture that blends with ours. You can see the way we treat our team here.

We are probably the only agency in this country with a sick bay, with a qualified nurse, hired from one of the best hospitals in Lagos. She is on stand-by to check your blood pressure, check your blood sugar level, just to make sure that our team doesn’t work themselves to death because we take pride in our people. If we could find people with that same type of culture, I can tell you, we will be willing to sit down and have a conversation.

What are the risks that we’ve seen in the industry or outside of the industry that can affect your operations? And how are you positioned to manage them?

I think part of the risk is that you look at the whole macroeconomy, all of the things you see, think of the recession that we went into unnecessarily –  a period of that boom, you could have saved money, you didn’t save and you wasted all your money, you deplete(d) it.

Now that there is oil crash, and we are of course in trouble, which is the challenge, the advertising industry is not explicated from these problems at the macro level so if it happens at the macro level, of course, we at the bottom of the (food chain) ladder, figuratively speaking,  it is going to affect us.

How do you even take insurance for that? You can only do your best.  Anybody that has a client in the oil sector is struggling to survive. The economy hits directly, do your best, plan well, be much more thrifty, don’t go on a spending spree and say “ok let’s throw parties”. There is very little you can do if it is at that macro level.

How are you putting in place a system that ensures your leadership process is sustainable?

We do that a lot, currently, on the board of the AAAN, as you know; they have been trying for years to start an advertising academy but still working on it. Apart from that, I go to Orange academy, O2 Academy, these are advertising academies in Nigeria. Each time they call me, I’ve been there to speak with their people and inspire them. As at last week, I was at the University of Ibadan, the communication and language department. I did the workshop for almost 60 -100 students, it was then it occurred to me that I have been going on the same journey to the University of Ibadan for the past 10 years and you can see that some people who you see in advertising today are product of some of these workshops that I facilitate out there and talked to young students about creativity.  We do workshops, and we give them briefs, award prizes, just to inspire them.

So unless we keep that pipeline of bringing young people into the game of advertising, the game is going to die. So the honest truth is that everybody should find a way to inspire the next generation because we would not always be there and that’s the truth.

I am fascinated by the setting I have seen, this is a business for the long-haul, how are planning for tomorrow?

It is a must. There are certain stereotypes that we wanted to break from day one. All those hogwash about “creative people not being able to run business”, things like “advertising agencies cannot hand over to the next generation successfully”, we want to demystify these. We have a succession plan in place.  We are working hard on it so it doesn’t suddenly dawn on us like when we are 50 something and we have nowhere else to go.

These are the stereotypes that we really want to change, people tying the business to oneself, saying “it’s for me and my family”. This does not create platforms for people that want to invest and take the business to the next level.

There is WPP and he actually started the way you started, even up till now, he is the highest paid CEO in the world, do you buy into his own model?

I think it’s a good model because right now, I don’t think that Martin Sorrell has more than 1.5- 2% of WPP. 100% of N1000 is not the same thing as  2% of 1 billion Naira (NGN), imagine what it is. It is just like the difference between subsistent farming and mechanized farming.

When you do subsistent farming, you plant a few tubers of yam for you and your family to just eat, that’s ok. That’s the old school ways of running a business, but when you go into mechanized farming, now you are not just thinking of what to eat, you are thinking of exploit, and that is when you open your business up for people to come and invest in.

Thank you so much for the time.

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