We are a startup that is in the process of manufacturing and distributing Nutricosmetics to the US market. Based on our pilot project, we understand that marketing, especially digital marketing, is key to growth in this highly competitive category. To conserve cash, we are thinking about hiring a marketing agency with experience in the beauty or skincare and offer 75% in equity and rest in cash based on results. Are we being realistic? Are there marketing agencies who will accept equity as payment? From the startup perspective, is this a good idea in the long run?
Hello! This is a very good question, my name is Humberto Valle, and I'm the founder of www.Unthink.me a small globally known inbound marketing agency. We have helped many tech-related companies such as Software Developers who work on equity as well as traditional payments. For our marketing agency, we have also taken equity in combination of 'cash' payment.
So yes, there are many opportunities for startups to hire or partner with an individual or agency on equity. The trick, I would assume is where in your lifecycle do you approach someone to work with you/for you for equity promise?
At the end of the day, marketing agencies are not a hail mary approach to growing or making a company sustainable - its all about management and strategic market fits - if your plan is to hire an agency to have them do what you want, you may not find anyone who would be interested, possibly not even for payment.
It is very understandable that you want to save your burn rate but you have to be respectful of someone's skillset - for example you mentioned doing 75% equity and the rest based on results - so commission? A good established marketing agency is not in the business of a startup, so unless they have a CEO who gets distracted, any good leader will not take on 'external opportunities' from what they are doing right now - aka a marketing agency won't work on hopes and dreams - which is what this is right now. As a business owner, startup entrepreneur and leder of your team you have to make critical decisions and hiring and spending on marketing is one of them.
For example, I would consider myself to be globally recognized ( not a lot but decently enough) on topics that revolve around marketing strategies - my suggestion to you would be to look into marketing agencies and hire them directly while you are also focusing your expertise (is it manufacturing? logistics? sales? what is it? focus on that and outsource/partner the rest such as for example you could look for an existing expert in cosmetic distribution or connections at some of the larger retailers, give them that structure (% equity + commission %) butkeep that that equity to a minimum (don't offer, ask for them to value their own worth and negotiate from there)
Hi, i will like to disagree with most of the answers here that it is a tough sell
If you have the right product with a right vision then it would not be difficult to sell your vision for an equity stake.
You just need to find agency which has the marketing capability to get the product sold in this market.
Running a marketing agency myself, i have invested in quite a few Indian companies for equity stake only and they are doing good. Additionally, when you are a startup it makes sense to have a strong partner which can be a tech person or a marketing agency
Its all about right connect
The attraction is clear, the ability to get top fight services with no cash. Years ago we did exactly that with a manufacturing company we were starting. The challenge becomes as your company grows your need for service providers change, yet it is very difficult to tell a stock holder why you no longer intend to use their services. It also can get complicated around governance issues,
I think this is a pretty tough sell for most agencies because it's a big risk - an agency isn't the same as hiring an employee for part equity because agencies have a lot more overhead at stake. No matter what happens, they are going to need to pay their employees and bills at the end of the day. Coming from both a freelance background and working at an agency for several years, I was always skeptical of an offer for equity (especially when it's all or mostly equity).
You will need to find someone who believes in your product as much as you do, because you're essentially asking the agency to take a short term financial hit in hopes for higher gains later.
If I were you, and digital marketing is that important to your growth, you should spend the money you need to in order to get the best results.
Quick answer: Yes it is possible.
Longer answer: But it's a tough sell. You see, the only people who'd work for you this early stage just for equity are people who already know you and trust you and your business.
And so if in your angel investor group you can find someone with marketing knowledge, use them to help you.
In the very short term you can make this work. BUT even in good ole U. S. of A., I fear you'll struggle to get good marketing advisors prepared to meet your terms.
This does not mean you shouldn't try; but have a plan B prepared which should be a smaller budget, longer runway tactic. I can help you develop this.
Results-based payments are 100% effective and as a part-payment they could work well for you. Downside is you need to use open-book accounting and give yourself 100% to the strategies recommended by the agency. Both you and they need skin in the game to make this remuneration work.
Go for it. But have a Plan B.
Possible, yes. Good idea, probably not. This is not a solid growth plan over the long run and the road to shared equity is wrought with tons of problems. Having been on both sides of the equity equation and having had both failure and success from equity arrangements, you need to be very very deliberate and decisive about your approach. On another note, your % is way off base, so much so that it would scare away the best-in-class partners while attracting the losers.
Great question. I'm the founder of https://www.GetFoundMarketing.org and we've done this with select companies/startups.
As it turns out, many of the answers here are on point. And much of the time, a successful marketing group will need some "core stipend", to make it fair for both parties.
With that being said, I think you would need to have an indepth conversation with the marketing company you'd like to propose to get a better idea of your product/service that you are offering to the masses.
Much of the time, we make decisions based on the business climate of the potential product or service. We analyze the value as well, because as superstar marketers, we realize that you still have to have a truly great product or service in order for us to make your message ring loud and clear and make it profitable for both parties.
If you want to discuss, we are an open ear.
I know agencies that have provided marketing services in exchange for equity.
It depends on how much the agency believes in your business. Typically, they will want a unique business with huge growth potential. Your offer of 75% equity may tempt some agencies if they like your business.
A lot of agencies won't except equity because the success of your business relies on too many external factors outside of the agencies control. Do you have the right staff? Do you have enough cash flow to give your business a fighting chance to be successful? Do your staff answer the phones? etc, etc.
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