Over the last 10 years I have accumulated a few “rules of thumb” about the new media businesses. I use these tips to screen investments, and I figured that they might be useful for entrepreneurs before they launch a new company:
1.) Avoid research teams at agencies and publishers.
The research department is purgatory for start-up companies – it is where good ideas go to die. I have even heard decision makers send companies to research because it is easier than telling an entrepreneur “no”. It doesn’t help that research teams find job security by making things increasingly complex and obscure.
2.) Don’t expect media companies to be your primary source of revenue.
Media companies are poor customers for software. The sales cycle is long, they have major NIH (not-invented-here) bias, and they have surprisingly small budgets for experimental technology. The industry is moving towards barter deals with media companies where vendors get advertising inventory in exchange for technology.
3.) Advertising solutions should be easy to measure.
This sounds obvious but there are a lot of start-up ideas that are difficult to measure. For instance, the entire “out of home” category remains a difficult sector.
4.) Build your ad sales team in New York City.
70% of US advertising is managed out of NYC. Companies that build sales headquarters here get more meetings and scale faster.
5.) Build on other people’s tech.
I would rather see a company running campaigns than building basic code. To that end I am surprised when start-ups build new ad servers out of the gate. There are 100 different ad servers out there. At least one of them is good enough.
6.) “Be a vitamin, not a pill.”
Products that increase revenue are easier to sell than products that save money. This is particularly true in the media business, where measurement is uncertain and waste is factored into budgets. Security, safety, and verification are nice additions to ad serving, but advertisers want ROI.
7.) Don’t underestimate the effect of industry tailwinds and headwinds.
The rise of portals, search, and social media have all been accompanied by agencies pushing their clients into these new formats. This had the effect of providing a sales team for every company in the market. Similarly, when technologies fall out favor it is hard to counter-act the trends.
8.) Direct sales outperforms channel sales (at least in the media business).
If you can’t cost-effectively sell your product on your own than it will be hard to find someone else to do it for you.