Blockbuster is often cited as the poster child of companies that got blindsided by a new rival. In just six years, Blockbuster went from $6 billion of revenue to bankruptcy, while Netflix went from a few hundred million to $2.2 billion.
Blockbuster no doubt made a lot of mistakes on the way to their bankruptcy, and I’m sure that many a business case study has covered these in great detail. My summary of Blockbuster’s folly is that they forgot one simple rule of business: Businesses operate in a state of perpetual warfare.
The more successful a business, the more likely it is that hungry competitors are working relentlessly to take away its clients. This can be accomplished by selling the same product for less, providing better service, taking advantage of economies of scale, making a better product, hiring a better sales team and so on.
Businesses that don’t act like they are constantly under attack from the competition won’t be prepared to defend their business when the attack comes. And it will come!
In this article, I’ll talk about two frustrating examples where marketing teams underestimate the seriousness of the threat. First, I’ll show how this manifests itself with in-house marketing teams, and second, within agencies themselves.
In-house marketing teams: No, thanks, we can fight alone
About the most frustrating experience for an agency is to do amazing work for a client, exceed every goal imaginable, provide great strategy, and then have the client announce that they have decided to fire the agency and bring everything in-house.
In most instances, when pressed for the reason for this decision, it usually comes down to a “feeling” or “belief” that “we just need to run this piece of marketing in-house.”
Imagine if Winston Churchill had told Roosevelt in 1943 that American help with World War II was no longer needed because he just had a feeling that the Brits were going to be able to handle everything on their own. We might be speaking German in London today!
Churchill, like all great leaders, sought every advantage he could, understanding that the battle against Nazi Germany was literally an existential fight.
I’m not suggesting that in-house teams should never replace agencies with in-house teams; my point is that in a war, leaders shouldn’t make cavalier decisions based on gut, nor should leaders replace a strength with an unknown — at least not without a lot of data and analysis.
Again, imagine that an agency is achieving 3x the expected performance for a marketing campaign. Replacing that agency with the in-house team without any “bake-off,” or testing of the in-house team’s performance vis-à-vis the agency, is a huge risk for the company. If the 3x performance disappears, the company’s competitors may get the boost they need to win.
There is no room for “feeling” or “politics” or “empire-building” in war. Companies that allow these qualitative factors to cloud their decision-making will not lead their armies to victory.
Agencies: I’m too busy to look for better weapons
Time management is a major struggle for agency employees. Most employees work with numerous clients — all of whom deservedly expect to be treated like the most important client — in addition to internal management, cross-functional teams and vendors. As a result, there’s a strong urge to say no to any new idea/software/partner that gets introduced to the agency, simply because the agency teams just don’t want to deal with something new when they already feel overwhelmed.
Imagine an air battle where one side is using single-prop fighters a la World War II and the other has F16s. Which side do you think will prevail? If the general with the prop planes is called in front of his country’s leader and remarks, “We just didn’t have time to consider alternatives to the single-prop planes,” what’s the likelihood that he or she still has a job after that meeting?
Agencies (or agency staff) that say no to new ideas because they just want to push things off their plate — or are followers of the “Not Invented Here” philosophy — don’t understand that other agencies will embrace innovation and overtake them.
Exponential consequences
Companies that embrace constant warfare don’t just make decisions based on data and maximum leverage; they also seek out agencies that continually push them to improve. This creates a multiplier effect because the company is benefiting from both internal smart decision-making and a cutting-edge agency.
Thus, there are four potential combinations of companies and agencies. “At Peace” in this instance is a euphemism for “Lazy or Undisciplined.”
“At Peace” Company + “At Peace” Agency: Neither party is particularly motivated to improve performance. In some cases, the company fires the agency and brings the business in-house based on “gut”; in others, the company keeps the agency despite lackluster performance. The company and the agency eventually get crushed by the competition and die.
“At Peace” Company + “At War” Agency: The agency pushes the company to change and innovate, but the gatekeepers at the company just see the agency as a nuisance and either fire or marginalize the agency. The company eventually gets crushed by the competition and dies; the agency finds better clients and flourishes.
“At War” Company + “At Peace” Agency: The company asks the agency to constantly justify its fees by showing quantitative evidence that the agency is driving maximum performance. The agency sees this as annoying and too much work and either resigns the account or gets fired. The company finds a better agency and does well, and the agency eventually gets crushed by the competition and dies.
“At War” Company + “At War” Agency: The company and the agency push each other to get better and better. Decisions are made based on data and careful analysis, which means that over time, the company and agency find the right balance of in-house and agency support. The company and the agency crush their competition.
This all seems so obvious, doesn’t it? And yet, companies and agencies that relentlessly seek measurable improvement without gatekeepers, politics and gut are the exceptions to the rule, even in Silicon Valley.
Just 50 years ago, companies could easily defend a geographic territory or use branding to sell commodity products. Those days are over. Friendster gave way to MySpace and MySpace gave way to Facebook — in about five years. The cemeteries are filled with indispensable men, companies and agencies. We are always at war!
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