For Digital Marketing and Advertising Technology, 2016 will be the Year of the Wheat

Originally appeared on DMA’s Data-Driven Marketing Blog.

By David Kohl, CEO, Morgan Digital Ventures

Many of us frequently use the phrase, “separating the wheat from the chaff.” But I’m willing to bet that few of us really know what it means — unless you happen to be a grain farmer. Farmers know that chaff is the inedible husk surrounding a seed, and that it is frequently thrown away. I know I’ve used the phrase when distinguishing between something valuable from that which is not, or comparing individuals that have a track record of getting the job done vs. those with whom I have much less confidence. A purist might use this phrase to compare useful to useless, but in the vernacular, most refer to wheat and chaff in a less binary fashion.

I find myself recalling the phrase when my clients ask about the plethora of well-intentioned, innovative startups that dot the landscape between marketer, agency, publisher and consumer. Here’s a marketplace of literally hundreds of young companies with names that sound strikingly similar to words in the dictionary, sometimes ending in “ly.” More often than not, these early-stage startups tout the power and growing size of their datasets, and they reference their respectable list of brand-name clients while issuing press releases that suggest they’re “the global leader” in something or other. This is not to diminish the value that many innovate adtech and martech startups provide within the digital ecosystem. In fact, these companies are the engines of innovation. But for so many seeking to buy products and services in this market, when looking out across the field, it isn’t easy to distinguish the incredibly powerful disrupters from those that are, well, not so much. It’s hard to separate the wheat from the chaff.

It hasn’t always been this way.

A decade ago, the marketing and advertising ecosystem was smaller and simpler. Terry Kajawa’s original LUMAscape (an internal LUMA Partners reference until 2009) highlighted less than 100 display-advertising companies. That compares to 11 separate LUMAscapes today boasting thousands. And Scott Brinker’s Marketing Technology Supergraphic featured roughly 150 companies in 2011 compared to 3,874 logos across 3,500 separate organizations in its 2016 revision. The explosion in the number of smaller, more nimble innovators reflects the last decade’s unquenchable thirst for the next new thing.

But something has changed.

“Ten years ago, digital marketing and advertising was considered experimental. And in an experimental market, our members didn’t always feel compelled to justify trying out a new adtech or martech product with a quantifiable plan to generate returns,” said Lindsay Hutter, DMA’s SVP of Communications and a co-producer of their HOT ZONE startup competition.

A decade later, however, the term “digital” is mainstream. “Now, digital is at the center of all things media, marketing and customer experience. Digital is business … it’s about results. And results are measured,” Lindsay continued. “Which means that marketers, agencies and publishers are losing their appetites for trying out innovation that fails to perform.” This is why it’s harder for startups to get in front of potential customers, and why it’s harder for these customers to invest without a higher-degree of confidence in the potential returns.

So what can these two players do to increase the odds of success? What can the startup do to get in the door, and what can the customer do to increase efficiency in finding performers, while lowering the risk of wasting valuable time and money?

Let’s start by understanding the customer.

“In a typical week, I’ll receive a dozen or more unsolicited emails from startups trying to get an audience with my team,” Kelli Parsons shared with me when we last spoke on the subject. Kelli is SVP and Chief Communications & Marketing Officer at New York Life, an organization that is deeply interested in data-driven, cross-channel consumer engagement. Kelli said that she typically spends her Friday commute scanning email pitches, and that she’ll sometimes pass one of the week’s more promising solicitations to a colleague or two for their opinions. In the course of a year, Kelli estimates that her team invests time for calls with ten startups, and invites about a third for a deeper look, sometimes resulting in a project. Only occasionally do the results lead to a long-term relationship.

“Working with startups can be rewarding, but it’s very time-consuming to find the performers. The earlier-stage companies can be incredibly innovative, and they’re motivated to adapt to our needs.” But Kelli’s team applies the same rigors – including an anticipated ROI calculation – in evaluating a startup’s solution as it does any other potential partner.

“This is why we built DigiTech,” explained Cary Tilds, GroupM’s Chief Innovation Officer. “We wanted to help our agencies improve the signal-to-noise ratio.” DigiTech is GroupM’s internal repository of highly detailed, searchable information on adtech vendors, networks, exchanges and apps. “Before DigiTech,” Cary explained, “it felt like every account team in every agency was burning hours evaluating business partners and vendor solutions independently.” The process is now far more efficient, and the agencies are consolidating their spend with fewer, but higher-quality partners and vendors. “The business is focused on productive testing and learning, rather than on random experimentation.”

Which is why fewer startups are getting invited to the dance.

A decade ago, a startup with some capital and some cool tech could make it through the door. Marketers, agencies and publishers were having fun playing with shiny new objects. Buyers were willing to throw a little time and money behind these ventures with only the smallest regard for ROI-generating performance. High performers still won in the long term, but even the disappointments got an audience. Over time, the bar has been rising slowly. In this past year, it’s been much more dramatic.

Which doesn’t bode well for the chaff.

The odds have always been bad, even for the most promising tech startups. And when buyers raise the bar, the odds get even worse. Except when you can control the odds.

I recommend that my clients bear in mind five strategies, that when used consistently, not only increase the likelihood they’ll be invited to the dance, but improve the odds they’ll end up in long-term relationships. These steps make it easier for buyers to filter out the noise, and give a significant leg-up where it’s deserved.

1. Start with “why?” I first heard Simon Sinek advocate starting with why in his 2009 TEDx talk, which so clearly demonstrates the effectiveness of this more emotional opening to the conversation. My personal experience is that the typical startup marketing or sales executive will kick off the conversation by saying something like, “We’re an advertising technology company that does this and that.” And frankly, that opening line could describe hundreds of startups. It is totally non-differentiating. Opening instead with why the startup exists and how it solves a customer need will immediately elevate the conversation. Start by answering “why?

2. Really listen to the customer. No matter how good you think you are, the customer is still always right. I’ve heard the argument (often from over-confident startup founders) that customers don’t know what they want or need. I’ll concede that some customers can’t articulate, or even imagine, what an innovative or disruptive solution might look like. But most know when they have a problem that needs solving, and they’ll only buy your services when they believe you can bring a solid solution.

   Every startup CEO and CTO must make it a point to engage directly with current and prospective customers. You’ll better align your capabilities with their needs, and you’ll concurrently develop a reputation as a collaborative organization that adapts to the needs of the marketplace. This stands out.

3. Invest to earn street-cred. Your ability to ramp up your customer base can be dramatically accelerated when your clients and business partners are extensions of your sales team. And while picking some early advocates as initial clients is helpful, if you can engage with organizations that represent pools of potential customers – for example, agencies, consulting firms, trade groups or industry coalitions – go out of your way to do so, and then focus on aligning your capabilities with their clients’ or members’ needs.

   Your demonstration of high-quality capabilities to these groups means access to a pool of future clients. And as a bonus, many of these organizations publish case studies in the trade press, to industry blogs and through internal and external communications across their professional networks. If you’re successful in meeting the organization’s goals, you’ll often get their implicit (and sometimes explicit) stamp of approval.

4. Get rid of the “fail fast” culture. Succeed a bit more slowly instead. Since Ryan Babineaux and John Krumboltz published their 2013 book on the topic, entrepreneurs have been celebrating a culture of trying, failing and quickly moving on. There’s a lot to say for the authors’ advice, but too many startups misinterpret the message.

   We’ve all seen startups go down a well-lit path only to give up because of their own inability to execute. Sometimes, these startups mistakenly substitute their execution problems with a strategy problem. If you’ve listened to the customer, and the market is agreeing with your answer to “why?” then keep at it. Focus on execution while staying the course, and you’ll distinguish yourself for the experience you gained along the way.

5. And speaking of delivery, make sure to do so … every time! In this market, very few startups get a second chance to close the gap between their promise and delivery. Going to market with puffery is only setting you up for failure.

   It is far better to speak the truth and miss an opportunity than to over-promise and disappoint. The number of buyers is significantly smaller than the number of startups. Buyers talk. They confer with one another. Do the diligence on the challenge at hand, and propose a solution you know you can hit out of the park.

 Startups that can operationalize these five strategies will more quickly become noticed in the market, and will enjoy longevity (the wheat) as others are thrown away (the chaff). Some argue that the startup marketplace is consolidating. Along with the slowing of capital we began to witness in 2015, the higher-bar for startups are signs of weakness for marketing and advertising technology. I argue quite the opposite. What we’re seeing are the visible signs of maturation. For those technology companies that have a distinctive value proposition, it’s good news. For those startups capable of demonstrating that value, it’s great news.

Since the birth of the Internet as a commercial media platform, startups have led the market in disruption and innovation. We witnessed the explosion of startups filling up real estate on their respective LUMAscapes and Martech Supergraphics, and we’ve all benefited as participants in this high-growth digital media and marketing economy.

What’s happening in the market today is healthy. We’re transitioning from an age of experimentation to a time when words like “digital” and “mobile” are now an integral part of the holistic marketing and media equation. There’s still innovation, and there’s still a significant playing field for disruptive martech and adtech startups. However, while the competitive landscape in the past may have been more tolerant of the under-performers, in 2016, the market is becoming more discerning. What we’re seeing are buyers applying traditional ROI metrics to their innovation budgets. What we’re seeing is a more conscious movement toward separating the wheat from the chaff.

David Kohl is CEO of Morgan Digital Ventures, a strategy and operations consultancy that grows digital businesses. David has nearly 25 years of experiencing delivering top-line revenue growth and improved operational performance to some of the world’s largest entertainment companies, global advertising agencies, early-stage digital media service providers and several media industry trade organizations, including the DMA, for whom he leads DMA’s HOT ZONE startup competition. David was formerly the Advertising Sector Leader with Ernst & Young’s Media and Entertainment Advisory Practice, and prior, was a member of PwC’s Global Entertainment, Media and Communications Advisory leadership team.