'Going Where the Money Is' Is Not a Strategy, It's the Lack of a Strategy

A couple of weeks ago I advised businesspeople to focus on their strengths and not get into their customers' businesses. I was thinking--because this is the situation that presents itself to me most frequently--of marketers, really good professional services people, deciding that the real money is in owning a piece of the product they are pushing.

The thinking is, if you're really good at selling a product, you get paid (essentially) by the hour while the owner of the product makes bazillions off of your marketing genius. Examples abound: Snapple, Vitamin Water, all those annoying kids' fad toys, etc.

Some marketers have come to me with the idea of buying busted brands and fixing them. Others want to be paid in equity by their clients. In my experience, it always ends in tears, either way.

The latter case is the subject of an article in the September 3 Forbes, "Squeezed: Prowling for new revenue, ad agencies are buying stakes in the brands they advertise." Advertising types asking their clients to pay with equity rather than cash.

Now anyone over the age of 24 is entirely aware that when people start to ask to be paid in illiquid equity rather than cold, hard cash, it's the biggest sell signal ever. Biggest Sell Signal Ever. Even more than the apocryphal taxi driver/shoe shinesman talking his portfolio while he works.

The article is unForbes-like in its passivity towards its subject. The penultimate paragraph has the money quote, though: Martin Sorrell says "adding equity causes all sorts of stresses and strains."

Sorrell is a piece of work, isn't he? One of the smartest men in professional services, a financier who built the second largest marketing company in the world through hard work and smarts. He doesn't really think equity causes stresses and strains. He's all about equity. What he's saying to his people is this: if the work is worth $100, get the $100 in cash; don't get $100 in illiquid equity. If the company can't sell that equity to someone else and get the $100 to pay the marketers, then it isn't worth $100, now is it? Conversely, the private equity firm that pays $100 for the equity knows how to manage the investment; the equity is worth $100 to them (but not to you.) Managing investments is a job, and being good at it is just as hard as being good at any other job. If you're good at marketing, market. And charge a fair rate and get it in cash that someone whose job is investing has put into the company.

Stresses and strains. When all the equity you've taken for your work turns out to be worth nothing, that's a formidable stress indeed.