Stagwell CEO: The data said keep the Sydney Sweeney ad running

People always make the mistake of thinking that new technology [music] is about simplifying the stuff we used to do. New technology is about doing things we always wish we could do but couldn't do [music] in the past. Our business today is about 13 and 1/2 thousand people, close to $3 billion of revenue, free cash flow in the >> All from you. Like well you start 10 years ago, you started this company with one person? Two people? >> I had [music] an idea. But what you really have to have, you have to have a good strategy, really good creative, a good data set, and then you have to have good implementation of it. >> Welcome to a new episode of Power Players. Really excited to welcome in my next guest. Uh I haven't seen him in a while, but uh I have him here in the flesh. That is Mark Penn, Stagwell CEO. Good to see you. It's been a while. I think the last time I talked to you was uh it was during the pandemic. Uh we did an interview with uh I was at my I don't know, kitchen table, which was totally weird time. >> Well, that was a long time ago. >> a long time ago. Um for those not familiar with with Stagwell, what what what do you do? >> Well, Stagwell is a marketing company. We we were set up as the challenger marketing company. Uh we I really started this 10 years ago with a single person. Uh and then in in in uh 2021, we merged in with a company that was on the market. And that's kind of that reverse merger kind of put us on the market. And but we are the challenger company in marketing services. Differentiated from the other companies, which frankly no one had come along for 40 or 50 years or more into this industry and made it to be a real competitor to these three or four big companies. And we today are a real competitor and in that space. >> What did you see 10 years ago when you started this company? And and why weren't there more challenger brands being founded? >> Well, a a lot of them would start out with the idea that I had, but uh they didn't make it. Uh but but the idea was look, you you you looked at the companies and they were clear clearly behind technologically. Marketing was transforming. It was going from great sports tickets by the people that gave you media, you know, one or two ads and placement into a really complex, scientifically oriented, online performance marketing system. And that was something that I was really prepared to understand and implement. And then I just saw the whole business practices that internally the holding companies have gotten too big, too bureaucratic, and too internally competitive to really, I think, hit the mark for clients. >> Where is the business today? >> Our business today is about 13 and 1/2 thousand people, close to 3 billion dollars of revenue. You know, we're we're projected [clears throat] to do about 500 million of EBITDA. We have free cash flow in the >> All from you? Like Like when did you start 10 years ago? You started this company with one person? Two people? >> I have 13,000 people. I had an idea. And you know, it's great great to have an ideas, but you got to implement them. And you got to make them happen. And I had a great team that I assembled from many of the people with me have been with me 20, 30 years across across all the marketing services. And I think we had really deep expertise both in marketing and in kind of the emerging digital infrastructure that you really need that underpins marketing and consumer interaction. It's just not It's not marketing. Even what we're doing here today is so radically different from how you would have communicated, you know, 10 or 20 years ago that you really need to have companies that understand modern marketing for the modern CMO. >> How is marketing different today? Of course, we have AI out there doing its thing. How is it different today compared to when you started the company? >> Uh I was I was at Microsoft before I started the company, so >> Chief strategy officer. >> I was chief strategy officer, and before that, I had a $2 billion budget and all the advertising. And I used to used to joke, 70% of what we did then went on television. And then the digital ads consisted of something like get Office 365. >> Buy this disk. >> But that was pretty much pretty much it. And And so, when you look at the transformation today, that really 60 or 70% now is spent online. That you really have to have a kind of incredible data set. You have to you know, I I always use the analogy. I tell companies, are you Coke or you diaper? Okay? And by that, I mean, if you're Coke, you sign 100 of millions of people, sponsor big sporting events, get out there and be at the forefront of huge uh huge mass events. You don't have to do that much targeting. If you're diaper, there're only 3 million births uh in this in this country. Uh only 2 million let's say a million from someone who had a child in the past. So, maybe they're only making a decision, 2 million people out of 330 million people in a 45-day period. You better have an amazing data digital operation to reach people when they make that decision. And that's what you can do and have to do today with marketing. >> What makes a breakthrough campaign today? >> Uh a combination of elements that that kind of hit and take off. Like we did a lot of work uh with with American Eagle, right? And and the whole uh Sweeney controversy. >> on the What's in the Sweeney? >> Yes, we we Well, we didn't do the ad, but we did the analysis that said, "Don't pull the ad." That keep it going. And and there you have kind of something that ran countercultural, that took off in the in the really the digital ecosphere, or what whatever you want to call it, hit every social media channel everywhere. Uh and and a campaign like that was worth billions of dollars. And so people don't understand I think the power of marketing. I I always find that Americans and American companies, they view marketing as evil. They basically think their products should sell without marketing because they're so good and people should just come and buy them. >> [snorts] >> But the truth of the matter is you have to make your products attractive. You have to underscore the real features of them. And then you need to do it with some element of interest or panache or or uh something that really strikes a chord. And when that happens, wow. >> What did you see in your data as it pertains to Sydney Sweeney that would you would tell American Eagle's I guess C-suite that they need to stick with this? >> Well, because the customer is like that. The customer is like that. And and what you have to be careful of always is, okay, is there somebody doing a podcast that doesn't like it? Is social media reacting? Are you are you getting tied into a small niche group of vocal uh people online who are creating a distorted picture? And and so there was no question in the research that came back. Uh and I did a I did a a nice event, you know, with at the CMO that sometimes you have to understand when to kind of run in a different direction than everybody's telling you. Uh and and this was one of those cases. >> Are companies taking risks on marketing? Or should they be taking more? >> Um it's I don't view it as risks. I think companies have to look at a wide range of how they're going to market, what the right mediums are, how they say something, you know, significant about what their products. And I always tell them don't shy away from pointing out the flaws of the competition. Maybe it's my political background. You know, where politics has gotten too negative. Often times commercial marketing is too positive because a lot of the competitors are flawed. And they're [snorts and clears throat] getting away with a bad product. And and I I I do think that they have to look at it, be totally balanced, they have to be uh look at all the different mediums, and they have to kind of figure out where they fall on between Coke and Diaper, how much of it should be big sporting events, and you know, uh sponsor Formula 1, or how much of it should be really super targeted down to a very uh individualized group of people. And so, there's so many decisions here. But you know what you really have to have? You have to have a good strategy, you have to have really good creative, then you have to have a good data set, and then you have to have good implementation of it. And if you're on track, a good marketing campaign can outproduce a bad one probably eight to one, because you probably can go two to one on every one of those aspects. And so, what we try to do at Stagwell is hit all of those services together with unified teams who are used to working together. One of the big things that I found in the other holding companies was that not only did the teams not know each other, not work with each other, but they more or less hated each other. >> so big, and they were just so different, and we we all know the names. We see you WPP and what IPG, whatever's left of those companies. Um but why weren't they talking together? What what was going on in these places? >> Uh I was in there because because new business was like feeding piranhas. They created a deliberately over competitive environment. Now, some of them have gone so far the opposite direction that they wipe out all the brands, and then they create a homogeneous [clears throat] environment. We had a balance. I had a Noah's Ark rule, no more than two of a kind, uh so that I wouldn't have too much internal competition. Uh and then I made everybody meet and and work with all of the other companies on a continual basis. Even today, I'm going to talk to uh a group of 30 up and coming executives across about 10 or 15 of the of the companies who are going to for the next week work together on big marketing problems. So we embedded collaboration into the culture, but also embedded the idea that their individual brand, like an agency like 72 that has special creativity, should not be homogenized. >> What are What are some of those biggest problems you anticipate hearing from this next generation of marketing zig's? >> Well, I would Everybody needs to figure out how to break through, right? What the right balance is, how to solve the problem. I I think I think there are a lot of interesting problems. Remember consumer behaviors are shifting dramatically. If you're in the alcohol business, all of a sudden alcohol is declining, right? And you know, health and wellness are are are are really surging, and marketing itself I always I always joke now. I say it used to be good, better, best. Now it's good, better, best and Wagyu. Right? So Wagyu is what is it that you can sell really rich people that that is really stupid, but has incredible high margins? >> What can marketing overcome the challenges the alcohol industry is facing? >> Well, I I that's that's going to be up to the alcohol industry to kind of I think in many ways figure out where consumer tastes are changing, and a lot of them have come up with new drinks. You know, a lot of interest in things like tequila that that wasn't interested before. I think the beer industry is defending itself, and then then they also have to come up with alternative products. Just as the just as the carbonated soda industry basically sells more probably more water today than carbonated soda. They've They've come up with a with a balance of products. But I think that that industry is going to kind of have to look look deeply [clears throat] into that, and I do think though marketing plays a role in what become the favorites. How do you tie into changing tastes? >> One story that I've been tracking and it is very it's very marketing led. I think it's Starbucks and the turnaround over there. Um you know, I I look, their new CMO, Tracie Lieberman, used to work Lieberman used to work for Yahoo. So, she's a friend of the show, so to speak, but she's leading the CMO function over there at Starbucks. What do you make of their turnaround and their marketing? How have they been able to just so quickly turn on a dime and reconnect with people? >> Well, they hired us to do that. So, so that was that was the That was the very guy that walked into that one, but Thank you for that, man, because we really really what happened was they had actually appointed WPP and Tracie then went into the job and they had just finished the pitch and she said, "Well, wait a minute, let me take a look at all the pitch decks." And she looked at our pitch deck from one of our one of our groups, The Anomaly group and said, "Well, this is fantastic." And and called called called them in and and we really worked on all that stuff that you know, obviously with with her, but in terms of the turnaround. And so, that's a really good example of Stagwell you know, basically supplanting the majors, coming in with what I always call fourth generation, more culturally relevant creative and winning in the marketplace. >> I always thought that the the CMO function is one of the more important in the C-suite and but it doesn't I don't still don't think doesn't get the respect it deserves. What why is that? >> Uh it's it's true. Well, I'll go back to my first point, which is which is in most companies marketing is isn't as respected as product development. Right? And >> [laughter] >> I remember [clears throat] I remember we did such a good job at marketing a particular it was a movie and then and then everybody came and threw shoes because they threw at the screen because the movie itself was terrible, but the marketing was amazing. So so you can have a great product which doesn't sell without good marketing. You can have a bad product that oversells cuz you have good marketing, but I don't think the marketing function, which is about 13% of like the whole you know of a typical company, is as appreciated as it as it in most companies for for what it does and can do for companies. And so you get a lot of even flow. I used to My general rule when I was at Microsoft was to avoid the CFO at all costs. It would always cost me about 10% of my budget anytime I would run into a hallway. See them in the hallway and just look down the floor. But I I would say I would say [clears throat] that that CMOs like the job fundamentally changed. And so it was it was a job that was more about the art and art of creativity. And now it has to be a combination of art and science. And so you have to get exactly the right person there. Uh but that person has to make it in the C-suite now when things you know sometimes things go badly because the economy changes and or taste change. And so you've got to adapt the marketing to those changes and I I I hope that that CMOs will now get more confident in the next generation of CMOs cuz they've been very hard on the last generation. >> Should the CEO give more room to the CMO to run, cut them more slack? Because I in the same breath, I mean the turnover for CMOs and I don't have any data, but to me seems like uh they always get the blame first if something goes wrong and then they're out the door. >> Uh yeah, I mean information we have is typical CMO tenure is like 18 months which is like that means like a typical CEO is there 10 years, he's going to go through four or five CMOs and and uh I I think that and that process is highly highly disruptive because new CMO comes, everything that was good is bad, everything that was bad is good. And and so that that that kind of that change [clears throat] sometimes works. But like look, Starbucks was a good example where they needed a new CMO. Tressie came in, but hopefully now that she'll be there for the 5 or 10 years that could really chart the course for the company because brand is not becoming less important for a company. It's becoming more important. >> [snorts] >> People's connection with the company now, which is primarily often Look, it can be in in Starbucks' case, it's a physical connection right with the product itself, but it's still now technology intermediates a lot of the connections that companies have with consumers. And that's why a large part of Stagwell is actually digital transformation. Our digital transformation, we have several thousand engineers and designers, and we're we're really a tech company's tech company because every interaction that a company has with people now is being redesigned because of AI. And and that is a process of you're going [clears throat] to talk to fewer people. You're going to talk to more AI, and the question is how satisfied are you going to be with that? And what kind of image is that going to convey as that happens? >> Why do you think more CMOs are getting the nod to become CEOs? It's always the COO, the CFO tapped. Why what what is going wrong here? >> Well, I I think we've got, you know, because you've got to have a big success, right? And and also CMOs, you know, generally wouldn't be schooled in the in in the elements of of production of the products, right? And so I think it is important, right, that that CMOs do more than just CMO in in their kind of corporate history. And like even, you know, when I was at Microsoft, I had a SWAT team, then I was I was really co-CMO, and then I was chief strategy officer. So I had a kind of a ring >> the shining example. Now you're the CEO. You started with like literally one person, they have 13,000 people, and it's a sizzling stock price. I mean, you're like right there on the pantheon of greats. Um, why is your stock price so hot? I thought AI was going to crush the whole ad industry. >> Well, AI is more much more of our friend. Actually, AI came along at an ideal time for Stagwell because I I was sitting there with one of the principles was we're going to be far more digital. We had innovation groups from the beginning. We had AI products that we'd been developing uh for years and I had the background at Microsoft. So, we were able, I think, to seize and create now a series of products we call the machine, the knowledge machine, the targeting machine, and the media machine. And these AI-based products both are what we're running internally and what we're making available to clients to run on their tech stack. So, we are really going into the AI application business. And I was sitting there with the right organization at the right time. And I think that people people doubted whether us and companies like us would be wiped out by AI. And really quite the from from our perspective, quite the opposite. We we have more people looking for premium creative, which I think is emphasized, and more people looking for digital transformation than ever as we hit a scale that is genuinely competitive against the majors. And so that we're not taking small assignments anymore, but we're taking whether it's a Mondelēz, a Heineken, an IBM, a Starbucks, we're moving up into those leagues that were formally the province just of these three or four other companies. >> These big companies that you mentioned, how are they using AI in how they market to us? And will we be able to even tell the difference? >> Uh AI is revolutionizing production, right? But But I I think people always make the mistake of thinking that new technology is about simplifying the stuff we used to do. New technology is about doing things we always wished we could do, but couldn't do in the past. So, I I think that's going to make for more fantastic movies, more fantastic ads, more interesting and interactive content than you've ever had before. Most digital ads are not very good. I mean, they're I mean, you run through hundreds and hundreds of those in a day and they have virtually no impact on you by and large. So, that's why I think there there's more of a premium now on getting the right ad to the right person at the right time with something that is that is really interesting and engaging. And and I think that's really the that's really the challenge that that that has to be met in this age. >> You mentioned on your recent earnings call that it's an exciting time for your business outside of all the tech stuff as you go into the midterm election season, the 2028 presidential election. How did this How does the election period change the financials of Stagwell? And do you anticipate like big brands still being out there very prominently on what will be a very contentious election season? >> Well, I think big brands are going to um appropriately hide under the covers during the election season. >> Uh midterms and presidential? >> Uh midterms and presidential. I think that the companies have learned and I'd always said that politics is difficult enough for the politicians let alone when a corporation gets involved in politics. You have to be very careful. If you want to have an 80% favorable, then you can't get involved in politics because you instantly are in 40 to 50% territory the minute you get involved with politics because it's a divided country. So, I think a lot [clears throat] of companies learned the lesson that they've got to focus on their products and what they and what they deliver to consumers. From a Stagwell point of view, uh we have a political division. It's active in campaigns. We do a lot of low-dollar fundraising. We'll We'll raise like a billion dollars in the in the cycle. Uh I always call them the best marketers we have because in exchange for their money, people get nothing tangible, but they they get to help uh an effort. And so uh so the political cycle, you know, is about 10% of our business. Uh it's an important 10%. We think we're entering a political supercycle. Uh and so you look at sort of the key aspects of this premium creative, the digital transformation, and the political supercycle, which put us in a very favorable trajectory. >> Do you think companies, big brands, big companies will lean one way in particular for midterms and presidential or there's or they're going to stay neutral? >> No, I I I think big companies, like I said, are are really going to stay neutral that uh they're going to find it very difficult to buy any space on television. Uh they're going to be boxed out a lot of things because the amount of money I I used to I used to be very frustrated when I did political consulting, which I did for for many years. I used to be very frustrated. I said, "They spend more on marketing a hamburger than we do on our presidential race." Okay? Now we spend a lot more on the presidential race. I mean, this will be like a $12 billion cycle uh than we do marketing marketing a hamburger. Now that I'm in the marketing the hamburger business, so I managed to be perfectly >> Lastly, I want to leave a little bit of a a couple like a minute or two uh maybe to get some inspirational advice. Now you were the White House pollster for President uh Bill Clinton. Uh you worked for you did some work for for Hillary Clinton as well. How do you survive those pressure cooker moments like at the very high at the very top of the political ecosystem? >> Well, I always used to suggest that the White House was the worst working environment you could ever possibly imagine. So you would survive that environment cuz everyone seeks the attention of one person, and everybody's trying to kill everybody else. Uh and and so >> How do you get anything done? How do you get anything done in this environment? >> But you know, I look, I I I had a very egghead approach, right? Which was which was I had the facts and the science that I tried to bring to help really tough really top decision makers and I worked you know I worked with Bill Clinton, I worked with Tony Blair, I worked with Bill Gates, you know, we did a lot of X work with X when the when Elon Musk you know acquired it and I always try to bring a dispassionate element of science to help really incredible people make decisions that they feel comfortable with. >> [snorts] >> And we're not [clears throat] a we we can solve I always say great clients make make us consultants look good but but we also have to have a temperament. And a and a style and information that helps them make the right decisions and I think that's the principle and what I would try to do is develop a strategy. And we would do what we call leadership by influence. They would make any decisions and then they'd implement it. And so when I created Stagwell I had a strategy. And the strategy was really when we look really how it developed we created a company exactly as I said we would and and that's the implementation of a strategy. And [snorts] so those are really the the two key elements that I tried to take and what I learned what I learned in the White House was look I made a decision I ran with 13 years with the Clintons I was in the White House every day for really 6 years and I said you know I want to go over to business now. A lot of people do their business first and their politics second and I said I could spend the rest of my life trying to get back in the White House or I could take these talents into business and that's what I did in creating Stagwell. Take all the experiences I had whether it was the White House or in business or with corporate clients across all the different mediums and said you know I think I could do something better and I think that's proving out. >> I think you did it all right. Mark Penn good to see you. Thanks for making time for me. I appreciate it. >> Thank you. >> All right, that's it for latest episode of Power Players.