Did you know that the most commonly used currency for startups, other than sweat equity, is real equity?
It’s understandable because most startups don’t have the money needed to survive, which is why almost half of them fail. You may think that trading part of your company to the work of a big marketing firm is a smart idea. But this could be a huge mistake.
Marketing firms can be useful. They could have helped institutions like Baylor University avoid the bad reputation they gained recently. And if UC Davis had the help of some smart marketers, their scandal wouldn't have gone viral. But here are 3 indications that this isn’t the right move for your startup:
1. A Trust Issue
A successful relationship between a startup and the marketing firm relies on trusting each other. Whenever you work with a marketing firm, you need to vet them just like any other investors. Without trust, nothing good can come out of such a relationship.
Similarly, marketing firms have to be sure that they can trust the people managing the startup. It’s in their best interests to trust the startup as well.
The telltale signs of distrust are a lack of communication, incomplete communication, and a dialogue that involves pointing out problems with no solutions attached. This is something that works both ways. But what if you don’t know about these issues prior to your agreement with a marketing firm?
The key is in an earn-out contract in which you only pay out any equity based on results. Unless the marketing firm yields a minimum result, you won’t send them anything, motivating the marketing firm to execute even better.
2. Placing Wants Over Needs
Are you ready to start a relationship with a marketing firm? 90 % of startups fail so marketing firms want to make sure that you have everything in place.
Entrepreneurs are often accused of being dreamers. They may want to release a great product, but they may be at the stage where their idea is still on a piece of paper. If you have your head in the clouds, this relationship is bad for the marketing firm.
Furthermore, a marketing firm that accepts an offer like this may get equity for diminished results, even if those results are mainly your fault. The fact is shortcuts can kill your business, so don’t get caught up with them.
3. Culture Clash
Startups shouldn’t offer a stake in their company to marketing firms if they don't share the same work culture or values. You may decide to outsource certain services, but if you are allowing them a share in your company, you need to ensure that they are going in the same direction.
You cannot have two separate business models. Otherwise, you will be conflicted in the long term.
Before you give away any equity, discuss with the marketing firm what vision they have for your company. The answer they give should be roughly the same as the answer you had in mind.
Once you know their goal, you need to discuss how you are going to get there. It’s okay to have disagreements, but how those disagreements play out is crucial. If you can’t resolve your differences amicably, forget about working with them.
Last Word – Other Ways to Deal With Marketing Firms
Bootstrapping is becoming increasingly popular. You don't need a huge marketing budget to grow your company. Don’t compromise your company and make a huge startup mistake by giving part of it away. If you can’t find the right partner, don’t partner with them. You will come to regret it later.
Will you partner with a marketing firm today? Let me know your thoughts in the comment section.