Can't resist working with startups? Here's how to protect your agency!

Can’t resist working with startups? Here’s how to protect your agency!

Can’t resist working with startup clients at your agency? You’re taking a number of risks, often without a commensurate reward… but you can reduce the pain by making smarter decisions along the way.

My worst startup client

Nearly a decade ago, my then-agency worked with a startup that wanted to become “Facebook for sports fans.” (Spoiler: There are several out there.)

Our job was to develop the web app, including both front- and back-end systems. The startup badmouthed their previous agency as incompetent, yet claimed they didn’t have any assets they could bring over. (Sounds like someone hadn’t paid the other agency…)

The “Facebook for sports fans” startup talked our salesperson (one of the agency owners) down from a proposed $100K budget to a sparse $40K development budget… but the owner didn’t insist on a commensurate scope reduction, because he was excited about the project (at first) as a “portfolio piece.”

The fixed-fee project ultimately went over-budget by 50%… but my successor at PM didn’t request or secure any change orders. And the startup never launched the site publicly—they’d planned to have an intern serve as Marketing Director. (Their intern was an above-average college student, but he wasn’t competent to lead a national product launch.)

Since the startup didn’t launch the site we built, our agency never added it to the agency’s active portfolio. And ultimately, they shut down the business after being unable to find traction. In the end, no one was happy.

As I shared last month, most agencies should avoid working with startups in the first place. Startups are an inherently poor fit as clients—due to undersized budgets, unproven business models, and more. (Here are all 12 risk factors.)

Can’t resist startup clients? Read on for my tips!

15 tips to protect your agency when you’re working with startup clients

You don’t need to follow every single tip here—but they’ll help you increase your odds of getting good results… and getting fewer headaches.

  1. Read my earlier article, on why most agencies should avoid working with startups. If you choose to focus on early-stage startups, it’s a bit like being a VC—you’re making bets on which ones will succeed. If they do, you’re along for the ride. If they don’t, you need to sell-into a new client to replace them. Unlike VCs, you don’t have big upside—but you also have relatively low downside, since you’re getting paid along the way (and can choose to stop delivering services if they stop paying).
  2. Choose a positioning beyond just “we focus on startups.” The reality is that “startup” isn’t a narrow enough niche. For instance, a B2B biotech startup isn’t the same a B2C direct to consumer retailer. There’s some targeting, but it’s dangerous to pursue a “market” that isn’t entirely a market. Along those lines, there are bigger potential budgets if you focus on “intrapreneurship,” based on engagements within existing companies.
  3. Define your ideal-fit and minimum-fit prospect qualifications. One option is to limit an agency’s target market to Series A startups only, since it means they’re more mature, they have outside money, and they’ve validated market demand.
  4. Avoid bootstrapped (owner-funded) startups. Some startups do have money to spend. But when they’re bootstrapped, the client acts like everything they spend is coming out the owner’s pocket (which it often is).
  5. Don’t do “equity-only” deals. I recommend you maximize cash, or perhaps a mix of cash and equity. But consider: if the equity were ultimately worthless, would you still be OK with the amount of cash you received? (I bet not.) I’m not saying that equity is always worthless, but now you’ll be worried about their cap table, equity dilution, and other things that have nothing to do with getting paid for your work.
  6. Design a service that leads startup clients to follow-on business. Sometimes, startups will ask for an initial deal… and swear they’ll “make it up to you later.” Don’t fall for that… but likewise, make sure you have something to offer them later. For instance, what’s a recurring service you can provide (that doesn’t turn into “staff augmentation”)?
  7. Evaluate the startup’s business plan…. especially the assumptions. Startups often aren’t even sure if there’s a market demand for their product or service. Someone needs to help them… but it doesn’t necessarily have to be you. Beyond the projections, look at the underlying assumptions—and compare those assumptions to what you know to be reasonable.
  8. Evaluate their team’s competence and culture. Are the founders competent? What’s their track record? Past failures aren’t inherently bad, but have they learned from their mistakes? Consider employees and key contractors, too; choosing to work with a startup is—in part—your choosing to “invest” in their team.
  9. Think twice about whether to build a startup’s core product. Remember the “Facebook for sports fans” I mentioned at the beginning? My agency’s work was a super-high-risk project for the client, because the website and web app were their product. Until we finished, they couldn’t launch. (And even after we finished the initial phase… they still didn’t launch.) This meant lots of micromanaging, and lots of cooks in the kitchen. This also dramatically increased the client service and PM overhead.
  10. Be careful about doing “nice to have” work for startups. It’s risky when your project or retainer is mission-critical to the startup. But it’s also dangerous to do something that’s too ancillary, too—because they’re likely to pull the plug if their situation shifts.
  11. Avoid people who are “playing” business. Are they interested in building a viable business, or living a startup fantasy? For instance, are they in a coworking space (good) or insisting on a dedicated office before they’re profitable (bad)? Watch out for signs of conspicuous consumption, like ping pong tables and Aeron chairs.
  12. Vet their marketing plan (or at least their marketing budget). Are they investing enough time and money to actually market their product or service? If they’re hiring you to create their first marketing plan, do their initial budget assumptions seem reasonable? Should they be hiring an employee instead, or several?
  13. Think twice about being the startup’s first agency. Every startup has to start somewhere. But has their team hired agencies in previous roles? If there’s no marketing employee yet… why not? Are the founders unwilling (or unable) to do the marketing in the meantime? It’s a bad sign if the founders are unable to persuade a marketer (or developer or designer) that their startup is a smart career move.
  14. Build-in terms to stop work if payments become past-due. Don’t work ahead unless you can afford to “void” the invoice. If the startup’s idea is really so good, someone should be willing to put cash into the business—whether it’s the founders, outside investors, or someone else. The investor “step” between founders and angel investors is known as “FFF” or “Three F’s”—“friends,” “family,” and “fools.” And consider a short financial “leash”—don’t hire a bunch of people to service a risky account, no matter what the client promises, and don’t be too flexible on payment terms. Otherwise you’ll find yourself six months into working with the startup, only to realize they haven’t really paid you yet.
  15. Consider offering a limited-scope “phone call only” service to scratch your startup itch. In this case, you limit the scope to a call or two. That is, you’re not building something, and you’re not doing an ongoing retainer. You might opt to do a few calls during the year, but you’re ultimately a strategic advisor rather than an ongoing implementer (“Think” and perhaps “Teach,” rather than “Do”).

Not every startup is the same; some will be easier to help than others. You’ll need to weigh the pros and cons, and those will likely shift over time.

Early-stage agencies: How I help startup agencies

Most of my clients have 20-100 employees and have been in business for several years. But I love helping agencies at the beginning, too—I enjoy seeing the impact I can help them make, even if they can’t afford an Agency Roadmap™ or Executive Coaching.

My solution for helping startup marketing agencies? The last point in the list above—doing a “phone call only” option. Early-stage agencies can get high-value strategy advice via a Clarity.fm call… and I know I’m guaranteed to get paid for the call. Some startup agencies benefit from my Agency Profitability Toolkit™, too, with 50+ DIY tools. Anyone benefits from the free advice in my newsletter—and it keeps me top-of-mind for when an agency can afford my boutique help in the future.

Question: What’s your experience working with startup clients at your agency?

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