Selling in Fragmented Markets


Andrew Ishimaru

Low-code tools are going mainstream

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Multilingual NLP will grow

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Combining supervised and unsupervised machine learning methods

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Automating customer service: Tagging tickets and new era of chatbots

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Detecting fake news and cyber-bullying

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Fragmented markets are wonderful places. If you can understand why the market is so fragmented, many opportunities present themselves for your benefit as a player in that market.

After all, what is growth but the realization & capitalization of opportunity?

Let's illustrate this with some examples from the agency space.

I used to run a marketing agency. In my career so far I've worked at three marketing agencies. One where I got my start in the agency business, one I founded and sold, and one that bought my agency. So I know agencies very well.

Famously, the agency landscape is very fragmented. There are thousands of firms in the overall market landscape.

Why is this the case?

For one thing, the nature of agency services changes quickly and there's a low capital barrier to entry to start a new firm.

Print magazine advertising used to be the dominant form of marketing. Later, television. Then digital ads. All in a relatively short time frame for the life of a company.

And a single employee of a large agency that gets good at using AI to create Facebook Ads can leave, start a new agency, and quickly secure $10k - $83k/mo in marketing contracts without needing millions of dollars to invest in the new business like you might with, for example, a SaaS company.

Then, there is a hyper local component to winning in the market. The firms who can operate closest to the customers do better marketing. So for a local landscaping business, a (good) local marketing firm can probably help them better than a national conglomerate that knows nothing about their community.

Similarly, a German marketing firm probably knows the German market better than an American firm. So this happens at all levels of scale and segmentation; by geography, by industry, by specialization, etc. etc.

And ultimately, marketing is an uncertain bet on the future. If the company already knew what to do in their marketing, they wouldn't need to hire an agency, would they?

So the agency can come with a perfect marketing strategy that's worked for thousands of clients before that one specific client, and that one client can become the exception to that perfect strategy, for any number of reasons, simply because performance is not guaranteed. Tough, but the reality of marketing.

That's why CMOs get a lot of press for having the shortest tenure in the C Suite. Because they represent an uncertain bet on growing future revenue that may or may not play out.

And even with a well-executed strategy, in my experience working with over 100 marketing clients from startups to multinational enterprises, good work doesn't always mean client retention.

Sometimes agencies do great work but have poor client service, and lose clients. Other times their work doesn't get results, but their client service is excellent, and they keep the client.

Yet other times, a VP of marketing quits or gets fired or a new person is hired who likes a different agency; and the firm has to fight to keep the business or get pushed out.

Employees leave agencies and clients follow them.

Companies take marketing in-house to save money.

Then outsource to agencies when in-house teams don't perform.

In other words, it's not so straightforward that good firms keep clients as a default matter of practice. Brand loyalty is not easy. Services are thought of as an expensive commodity from the clients' perspective.

And to complicate this even further, there is a lot of agency-side internal pricing pressure to raise prices as agencies move up market.

As agencies grow bigger, contracts that were previously good money become too small and not worth the time, opening up opportunities for smaller, hungrier firms to win the business.

And in a labor-driven service business, there is also an inevitable tension between agency staff and client demands.

I have heard this so, so many times from my employees when I had an agency. And I've heard this from other agency owners I've talked to over the years. At every level of scale from $2k/mo contracts to $20k/mo contracts.

It's the nature of the business model of paying X for your team's salaries and charging 3X - 4X to the client.

Clients will always demand more work for less money, and employees feeling squeezed will complain about getting paid too little and not having enough resources at the agency to handle the volume of client work. Purely because your margin in the service business is the difference between what you pay your staff, and what you charge clients. It's a labor-driven business just the same as general contractor, just with a different set of tools.

So! If the market for hiring marketing agencies is all the companies out there in the world who have marketing dollars to spend, the flow of business every day looks like:

  • constant continuous churn among all clients and agencies
  • minting of new startups and small companies and new executives and business owners who have never worked with a marketing agency
  • older executives and CEOs and business owners retiring and contracting the market of available individual buyers of services

And all this, represents expansion in the supply of in-market buyers at a given time, and contraction of off-market clients who are happy with their current services.

Even large F500 companies that probably work with the handful of consolidated agency giants at the top of the market, will hire a ton of smaller agencies for specialized work or specific divisions or product lines.

Companies are made up of people and certain people have needs that a large agency for the whole company may not be able to address with the right resources, speed, results, or expertise.

So how do you sell in fragmented markets?

  • Relationships.
  • Spreading case studies.
  • Taking over a niche in the market (industries, tech implementation, specializations, etc.)
  • Winning fresh business with startups and new execs as the market expands
  • Undercutting on prices vs larger / entrenched competitors
  • Promising better results than larger / entrenched competitors
  • Better client service
  • Proprietary tech / systems to improve the efficiency of service delivery

I like fragmented markets because there are always opportunities to win fresh business.

If you do great work, get an edge on your competition, and push that edge as hard as you can, you can grow quickly and profitably.

That's a great place to be in.

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