Art
Siegel

Hiring An Advertising Agency For Your Small Business

Many small businesses develop and place their own advertising. But at some point, it pays to bring in professionals who know how to make your advertising dollars deliver greater results. This case study describes the potential pitfalls (and how to avoid them) when Hiring An Advertising Agency For Your Small Business. 

This case study describes events that took place in a real company, when it decided the time was right to hire an advertising agency. The name of the company and a few minor facts have been changed to preserve confidentiality.

MiniVox Corporation (not the company's real name) developed an innovative desktop workstation designed to meet all of the user's communications needs. It integrated a terminal which could be used to access in-house mainframe and mid-sized computers, Internet access, telephone and intelligent fax into one compact desktop package not much larger than a typical office telephone. The primary market was executives and managers who need access to many kinds of information and communications, but don't need a full-blown PC on their desks.

The Problem

As with many venture-funded startups, our sales forecast had been determined primarily by manipulating a Lotus spreadsheet until the numbers said the investors would receive an acceptable return in an acceptable period of time. We had done our best to assess the potential market; but since we were introducing a somewhat unique category of product, it was difficult to estimate what the actual market demand would be.

We began our sales effort by hiring a direct sales force assigned to regions. We hired people who had established track records selling office products in their regions, on the premise that they could capitalize on their existing contacts and prior customers to develop the sales called for in our plan. Eventually, reality caught up with us. The product was excellent and filled a genuine need not met by other products in the market, but the sales force quickly used up their base of existing contacts. Volume sales would call for our getting the word out more broadly.

To build greater awareness of our innovative product, our marketing staff took a fresh look at the sales forecast and developed a lead generation program that we believed would help achieve it. It called for a combination of public relations, direct mail, and a modest advertising campaign. Altogether, the plan called for spending about $180,000 over a 6-month period.

We scheduled a meeting of the company's executives to lay out the plan and seek approval to proceed from Winston Gander, the company's chairman. Now, if you know Winston, you know that he is a brilliant man capable of spontaneously delivering profound ideas and facts in many subject areas. But for the first time in the year that I had known him, Winston was absolutely silent. We all sat and waited for a response to our plan.

Finally, Winston rose from his chair and spoke: "If you asked me to spend $180,000 on a machine to manufacture circuit boards, I could understand that. You can touch it and kick it. And if it doesn't work out, you can sell it. But advertising? As far as I'm concerned, you might as well stand on a bridge over the Mississippi and pour bags of money into it. A little while later, the money is gone, and you have nothing tangible to show for it. But . . . if all of you think you need it, I guess you'll have to do it. Just don't tell me what you are doing. The whole idea of advertising makes me sick." With that, Winston walked out of the room.

What We Did

After Winston left, there was a strangely subdued tone in the room. On the one hand, we were pleased that our marketing budget had been approved. On the other, there was a huge "I told you so" waiting for us if we failed to produce results from all this money. We quickly agreed that we needed first-rate professional help to carry off our plan. We would conduct a search of local advertising agencies, have each of them submit their proposals, and then select the best of the best of them.

The first step would be to build a list of candidates and have each of them come in to give us their pitch. I had the task of conducting the initial screening interviews with each agency.

Agency 1
We knew that Agency 1 had several technology product clients and should be a credible contender. (This was one of three agencies I spoke with that claimed to be personally responsible for the launch and success of Lotus 1-2-3.) The president of the agency came alone and brought only a few relevant samples. After I described our product and our goals, I asked if he would come back and make a presentation to our executive committee outlining in detail what he would do for us, and what it would cost.

His response was: "I'm sorry, but I can't do that 'on spec.' First you have to sign a contract with me, and then I'll tell you what you need." Not being a complete fool, I did not present that agency to the committee. One down and counting.

Agency 2
My phone meeting with the agency's representative was solid, so we made an appointment, but the rep never showed. Two days later, he called to reschedule with only the weakest of apologies. Was this an example of the responsiveness I could expect from this firm? Can't take the chance. Number two is out.

Agency 3
My conversation with Agency 3 was very brief. These were truly nice people, and they were very successful. They were also overbooked. They said they might be able to work us into their schedule in 6 to 8 months, but in fairness to us and their existing clients, they didn't have the capacity to take on another assignment. We couldn't wait 6 to 8 months. Scratch number three.

Agencies 4 - 9
Every one of these had their own twist, but they were all similar in that they were big agencies with strong backgrounds in technology products. And all of them turned down our business for one, or both, of these reasons:

• The minimum budget they were prepared to deal with was much higher than our $180,000
  
  
• Our product in some way overlapped a current or planned product from one of their current clients; since those clients spent a fortune with them, they didn't want to jeopardize the relationship.

Fine, the big high-tech agencies don't want to take our money. Knock out agencies four through nine.

Agencies 10 - 12
We were beginning to get the point. Successful agencies that typically handle budgets of at least $1,000,000 were not going to take us seriously. Let's find a smaller agency for whom our budget would be more significant. Each, in turn, came in and showed me a portfolio consisting primarily of consumer product promotions. But since they were really committed to getting into high technology, we could count on their doing a great job for us. (Remember that Aamco transmission commercial in which they depict a gas station mechanic saying, "Gee boss, I always wanted to work on an automatic transmission"?)

Well, each of these smaller agencies, in their own way, asked me some of the same questions, such as: "What exactly is an MIS director?" "What's the difference between a terminal and a PC?" "Could we recommend a good book that would teach them all about computers?" And each of them explained that advertising is advertising. Learning what they need to know to sell multi-protocol terminals shouldn't be that tough. I was not convinced. Dump agencies 10 through 12.

Agency 13
As we were close to giving up all hope, one of the company's executives suggested we bring in Agency 13, the president of which was a recognized pro in high-technology promotion. And our first meeting with him convinced us that he knew just what to do. In fact, Bob knew just what to do with an account having a budget of just $180,000. He assigned our account to his most junior account executive, supported by his daughter, who had just graduated from college. Here we go again, another loser.

But the plan they put together sounded almost to good to be true. We would get to be big by thinking big. Rather than piddling away our budget on a series of one-quarter-page ads and unnoticed direct mail letters, we would launch the company and our products with a gigantic splash at an elaborate press conference at one of the fine hotels on Central Park South in New York. All the top computer and telecommunications editors and consultants would be in attendance, and MiniVox would become an instant household word.

The agency sent incredibly elaborate invitations to their guest list, followed by telephone calls to get as many influential people as possible to come. No event had ever created so much excitement around MiniVox. As the morning of the press conference arrived, we were ready. 130 chairs had been set up in the hotel's finest meeting room to accommodate the anticipated onslaught of press and consultants. The agency provided three people at the reception desk to greet guests, and waiters in tails stood by carts of fine wines and foods.

What Happened

A total of nine guests showed up for the press conference. Perhaps two of them were people who really mattered. The rest were freelance writers or lesser consultants. The "Event" was a total bust.

As it happens, we were in a period of austerity in the company at that time. Our customer support manager had lobbied long and hard for two high-speed modems so his people could conduct various software tests from the field. Their request had been shot down; we didn't have the $8,000 in our budget. As the last of the handful of guests left the meeting room, we all stood with blank faces as the waiters began to roll away carts laden with caviar, imported wines, exotic cheeses, out-of-season tropical fruits and delicately smoked meats. Our customer support manager gestured to the wasted food and commented to Winston, "There goes my pair of modems."

Winston fired the agency that day, right there in the hotel meeting room, before he found out that we had spent just shy of $110,000 to generate 46 column inches of coverage in the trade press, about 100 times more than we would have spent by simply placing ads in the same publications.

What We Learned That Can Help Your Company

We read stories about con men who convince little old ladies that they need $10,000 in chimney repairs to keep their houses from burning down, or about well-educated celebrities who purchase worthless investments, and we say it can't happen to me. Wrong! I helped my company waste $110,000 of our precious advertising budget by allowing myself to get caught up in the excitement of a plan that was really too good to be true. Now, I'm not saying that the president of our ad agency was a con man, but he did lead us to believe his promotional plan would be wildly more successful than it actually was.

Here's what I learned from this experience, and from a careful examination of the bills we received from the agency:

• If you can't find an agency that has sufficiently relevant experience and an attitude you are comfortable with, don't hire them. They may not have worked with an identical type of business, but they must have at least some relevant background dealing with your type of customers. Otherwise, you're better off adding the staff you need to develop your own ideas in house. Your initial results may be modest, but you'll spend less and learn more.
  
  
• If you do find a good agency to hire, ask for and expect a proposal including a detailed breakdown of all expenses prior to approving any action. Look for line items that are unnecessary, as well as for items that simply cost too much. After the fact, we discovered that the agency had made many outside purchases and then added hefty markups plus their time to make the purchases. For example, even if all our guests had shown up, we could have made do with 2 receptionists instead of 3, and saved a lot of money by contracting directly with the temp agency.
  
  
• Insist on references, and not just any references. You want to speak with companies for whom the agency has performed exactly the same services that are being proposed for you. You need to understand what worked, what didn't, and why.
  
  
• Ask the agency to share in the risk. No agency will give you an ironclad guarantee, but will they agree to a fee reduction if results are below a certain threshold? Or will they offer to redo their creative at no charge if you're not satisfied?
  
  
• Most important, ask yourself: "Does their plan make sense? Do I believe in my heart that it will achieve the intended results? If it doesn't work as planned, will I have enough of my budget left to try a different approach?"

SeaBird Associates Inc
3011 NE 7th Drive
Boca Raton, FL 33431
Phone: 561-750-9233
E-mail: Art Siegel

About Art Siegel