When Picking Partners, Think Like An Investor

Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by John Nardone, CEO at Flashtalking.

In the wake of Sizmek’s bankruptcy filing and pending acquisition of its ad server and dynamic content optimization solution by Amazon, there’s been no shortage of post-mortem analyses of how and why things went wrong.

Of course, hindsight is always 20/20 when it comes to this sort of upheaval, but the magnitude of the Sizmek bankruptcy – and the number of concerned companies that have had to carefully consider their next moves – underscores a deeper underlying deficiency within our industry.

Many brands, agencies, publishers and vendors simply aren’t asking the questions necessary to confirm that prospective partners are reliable in the long term. That anybody in the ad tech ecosystem is surprised by Sizmek’s filing is unfortunate, but it should at least represent a long-overdue wake-up call for our industry.

Asking the tough questions

When vetting prospective partners, companies need to do so from the standpoint of an investor, because that’s exactly what they are. When a company partners with another company, whether it’s an agency, vendor or publisher, they are effectively putting their own business equity into that company’s hands.

So what do they really know about that potential partner? What have they looked at beyond the materials that they were handed? Did they really ask any of the foundational questions that would enable them to pressure-test the validity of the partner’s claims?

The sudden dissolution of any piece of the supply chain can be immensely problematic for agencies, advertisers, publishers and vendors. That’s why it’s so important to investigate the overall health of companies. Investors are adept at spotting red flags within a company’s financial and business models, and clients would do well to evaluate the same parameters.

Follow the money: This should be a no-brainer, but it’s perhaps one of the most-neglected avenues of inquiry when companies vet new partners. They have every right to ask tough financial questions. If a company is not willing to share financial information in terms of their cash position and burn rate, that’s a red flag.

It’s also worth taking a look a company’s investor list and history. How long has it been since the company raised its last round, and who invested? That information can speak volumes. But investment information should not usurp questions about a company’s cash position. Given the lack of foundational investment in ad tech and media companies these days, it should be assumed that any company that isn’t cash flow positive and self-sustaining at this point is going to go out of business.

Listen to the market: Don’t take testimonials at face value. How recently has someone said something nice about the company? Be sure to ask how many clients a company has and how that’s grown (or not) in recent months. You want to know that a company has happy clients now – not just once upon a time.

Look at the positioning: This is a complex industry in which players are constantly trying to align themselves with the latest trend. But a firm that is constantly racing to reposition itself within the market has not found its true footing and value. If a company has changed its description of itself three times in the last 18 months, it’s flailing for a position in the marketplace.

Listen for the over promise: Be suspicious of a company that promises to solve all that ails your organization. It’s natural to want someone to provide an answer to all challenges, but over-the-top claims of comprehensive remedies to every digital marketing pain point are a sure sign of a company that’s desperate to close a deal. Every company should be able and willing to discuss its weak points. Every client should listen with a skeptical ear.

The fallout from Sizmek’s bankruptcy filing serves as a hard reminder of something our industry should already know: Finding the right partners is critical to success and requires significant due diligence. Agencies, brands, publishers and vendors need to ask the tough financial questions – lest they put their own financials at risk.

Follow Flashtalking (@flashtalking) and AdExchanger (@adexchanger) on Twitter.

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