Digital Marketing Agencies for Startups: Why they always Fail!

Startups are Firing their Digital Marketing Agencies!

Should you too?

I have had over 20 conversations this past month with early stage Founders.

More than 50% have fired or are planning to fire their marketing agency!

Why are digital marketing agencies failing?

To understand this better let’s look at a typical digital marketing agency engagement:

1. The Pitch: Delivered by the charismatic CEO or a Senior Partner of the agency, who has built the agency from ground up. They bring decades of experience of working with large brands and hardcore proof of work. 

The Founders are sold, finally someone who can add value and be their growth partner!

2. Project Launch: The CEO introduces the talented team who have worked on multiple similar clients and can deliver results with their eyes closed. The CEO promises 10x growth in the next few months, like they have done for many clients.

The Founders believe the CEO and start looking forward to getting results from this talented team.

3. Month 1: The agency calls this the “setup phase”, where they are just getting a lay of the land. Check account settings, get a few creatives ready to test, have multiple discussions with the Founders on what they are selling and who the customer is.

Founders believe that we are progressing but are still worried when the results will start showing of this investment. Agency CEO skips the check-in calls due to other urgent meetings.

4. Month 4: The agency has exhausted their experimentation playbook, some were a success but the CAC is still high and they are nowhere near the scale the CEO had promised the Founders.

Founders start getting nervous, they have spent lakhs and now the pressure starts to build. The agency suggests increasing the budget to achieve scalability, leaving the founders with little choice but to comply. Founders have little choice so they give in. The agency CEO is nowhere to be found in this chaos.

5. Month 6: Scale is still low but now the CAC has gone up even higher, fueling the founder's frustration. Founder is furious, and demands an explanation. The CEO steps in, gives a lot of industry benchmarks and how the Founders wanted to scale fast which led to lower efficiencies. He urges Founders to focus on impressions and traffic, not to be obsessed with only CAC/ROAS.

This script plays out word-to-word way too often.

Here’s what’s wrong with the current agency model and why it is not suited for early stage startups:

  1. Lacking a User first Approach: If Founders are honest, they are not sure if they have hit PMF. But agencies assume that PMF is there and they don’t explore the user's needs independently. They need to take ownership of the users' needs and lead marketing with consumer research, value proposition testing, and finding market-channel fit for each startup. Rarely do marketing agencies do on-ground consumer research which is like oxygen for early stage startups!

  2. Short-Term Thinking: Agencies are detached from the startup’s success or failure. They have their own retainer fees irrespective of their performance. They are not incentivised to solve for the long-term. Example, agencies prefer running discount led campaigns to improve performance, ignoring the fact that it might lead to lower retention rates.

  3. Fixed Playbook: Startups are a moody beast, what works today might not work tomorrow. Taking a fixed playbook approach to digital marketing is like studying the same books for school and university exams!
    Startups need an agile way of operating, agencies need to adapt to that. Adapting playbooks to the startup and their industry is crucial to solve for the 0-1 journey.

  4. Not a Strategic Partner: Early stage Founders have a 100 problems to solve everyday. They hire an agency to solve the growth problem, not to add another one to the list.
    They don’t just want the results but also want to understand the “why” behind the results. This helps Founders understand their consumers better, improve the user journey, build new product features, adjust pricing and value propositions. The ideal growth partner should add value on all of the above fronts.

  5. Incentivized for Scale not Depth: Agencies are incentivised to add as many clients as possible: It increases revenue and reduces salary cost per client, hence increasing margins. This does not allow them to go deep into one client's problem, hence limiting the value add to not only early stage Founders but any business relying heavily on their agency.

There are countless poor experiences out there and many more reasons why agencies don’t work for early stage startups.

So what’s the solution, should every early stage startup just fire their digital marketing agency?

Startups rely on one of three:

  1. Hiring an digital marketing agency
  2. Hiring a Freelancer
  3. Hiring a Full-time Employee

In our next article we will deep dive into who should a startup hire based on startup stage and Founders skills.

Stay tuned!

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