Famed stoic Marcus Aurelius said,” A setback has often cleared the way for greater prosperity.”
Within the advertising industry, this seems to be most pertinently true.
To start, here’s a list of advertising companies founded in 2007–2009 as the economic meltdown was annihilating everybody’s ad budgets:
And let’s not forget one of the largest advertising acquisitions of all time — SAP’s acquisition of Qualtrics for $8 billion in cash (Qualtrics was founded in 2002, right in the heat of the dot-com bubble crash).
So why is it the case that the best outcomes for advertising companies tend to be born in the fire of recession?
With each recession, there are industries that take a massive gut punch, and others that flourish. The ones that take the gut punch will cut ad spend drastically and this will be devastating to their vendors. Most of the folks taking the biggest hit will be large enterprises (most Fortune 2000 companies) and their vendors will likely be larger and older adtech incumbents (read: older adtech companies ripe for disruption). We can call these ‘legacy businesses’ and ‘legacy adtech companies’ — they will take a haircut against their will.
Simultaneously, each recession also sparks a specific cohort of companies who now need to rapidly increase their ad spend to levels that are unprecedented to them. These suddenly empowered ad buyers will be eager, trigger-happy, and tend to spray spend across anything that looks nice and shiny. Their responsiveness to pitches and urgency to engage is at an all time high during this period. Based on the data we’ve seen from Marpipe, here are a few sectors that fit this exact profile right now:
During the Great Recession in 2007-09, the adtech companies launching this period had no choice but to identify the sectors that were trending up, roll up their sleeves, and pitch to these new eager buyers. As it turns out, a lot of anecdotal evidence seems to show that pitching these buyers wasn’t difficult — they were responsive and if they were interested, deals closed fast.
This is a distinct and profound advantage startups have during these times, since enterprises don’t have the nimbleness to retool their sales processes quickly. As ‘legacy adtech companies’ divest from their own business by aggressively cutting burn (layoffs, etc.), startups that win invest in refocusing to a new sales approach to new buyers. Assuming the startups have good products, they’ll retain these new buyers and ride their growth coattails well after the recession, positioning them to replace their predecessors.
The ‘legacy businesses’ who need to cut ad spend have a unique problem — not only are they short on money now, but they’re also short on time because they’re laying off employees and contractors.
All successful advertising companies have one thing in common above all — their product saves their customers either time or money. Sometimes both.
In other words, the only reason companies will invest in your offering over the long term is if it proves to generate more revenue than the investment, or if it saves them enough time to be worth it.
At a time where the ‘legacy companies’ will be running low on time and money, the right product positioned the right way (read: not in an exploitative way, do NOT be that guy) is exactly the solution that they’ll need.
Know of a company that needs to cut back on their creative team? A product that automates creative production would be perfect.
Know of a company that is cutting Facebook ad spend by 75%? A new ad network that offers cheaper CPMs while using pixel data would be perfect.
This requires a nuanced contextual understanding of how a ‘legacy company’ is reacting to a recession, which requires deep research or conversations with insiders. Do not expect or push for the typical types of deal sizes that these companies are known for — the whole reason they’re interested is to save money without making any big commitments.
Anecdotally, I’ve seen many instances of startups that manage to ‘coincidentally’ show up at the right time with the right product — not only do they save the day, but companies build operations and practices around these products, which entrenches startups into long term enterprise contract relationships.
Truth is, ‘legacy companies’ don’t have much of an interest to look at startups when everything is going great. Why take the risk? Is there really that much to gain? But we all know how things change when s**t hits the fan and people need to find new answers to new problems.
Recessions create an environment where ‘legacy companies’ are willing to seriously evaluate new solutions and technologies that save time/money. They have an appetite for low-stakes experimentation, so be there for them when they need it, and they’ll stick around when the economy turns around.
In the end, we can reflect on Darwin’s observation of nature that,” It is not the strongest of the species that survive, nor is it the most intelligent. It is the one that is most adaptable to change.”
Now go help build the next billion dollar advertising venture!