Arun Sudhaman 03 Apr 2012 // 11:00PM GMT
It has become fashionable among PR industry types to characterise their current mindset as “cautiously optimistic” amid continued economic malaise. In the Bay Area, though, no such caution exists. And much of that is down to a startup culture that is proving richly rewarding for the area’s PR agencies.
We have, of course, been here before. 11 years ago, the region’s PR industry imploded after the dotcom bubble burst. This time around, there is enough evidence to suggest a more solid footing to these efforts, thanks to a general preference for startups that possess genuine prospects of making money.
“This wave of startups are more tangible,” says Atomic PR CEO Andy Getsey. “A lot have revenue, they are approaching break-even, even profitable and their business models are clearly ripe for acquisition or an IPO.”
Even if some semblance of sanity currently prevails where business models are concerned, sky-high valuations are ensuring that there is money for startups to spend on PR. Alan Soucy, whose firm Sparkpr works largely with startups, says that the situation is reaching “fever pitch”. There are obvious risks for any firm that staffs up in response to business that may disappear tomorrow, but Soucy, and others in the Bay, do not appear overly concerned.
“There’s always a risk to that - but the quality of what we see is much better than what we’ve seen before,” explains Soucy. “Business plans are understandable, they are much more thought-through and more carefully-vetted.”
For all of the capital sloshing around Silicon Valley, it is clear that money is not the main attraction for PR firms taking on startup business. For one thing, the average retainer, according to Getsey, is only around $12-15k per month. The other, more important, factor is this: startup PR work is simply more exhilarating than the comparatively humdrum fare on offer at bigger, better-established companies.
“There’s something downright invigorating about building the public profile for a start-up venture,” says Hoffman Agency CEO Lou Hoffman. “We find working with startups energizes the agency.”
That is a point echoed by many. Surrounded by so much entrepreneurialism, agencies find that startup business is one version of a very effective staff retention strategy. Says Soucy: “Once we start building that culture, some of the larger established brands that come to us are harder for the team to get excited about.”
Yet big companies should not feel too left out. As Next Fifteen CEO Tim Dyson points out, “working for startups really reminds you of some of the really good things in comms - it’s a great experience and makes you think a little differently and do better work for bigger clients.”
A leap of faith
The “good things” that Dyson refers to are many and varied. New companies often turn to a PR agency as a cost-effective method of building brand recognition in an increasingly noisy marketplace. “You are going to have a limited marketing budget, and you never have enough to go deep in any part of your marketing mix,” says David Karel, VP of marketing at Bizo. “It’s even more important to startups where there is not natural brand recognition - it helps to elevate your brand and put it in context with the topics that you care about.”
This results in PR agencies being charged with a much broader array of tasks than they would typically handle on a bigger client. “You can do the most experimentation - they tend to be really open to your ideas,” says Borders & Gratehouse principal Kathleen Gratehouse. “With big brands, there’s a lot of layers between execution and idea.”
Becoming a company’s de facto marketing department also explains some of the trends at play among firms in this space. Silicon Valley darling The OutCast Agency has, for example, expanded its design, branding and digital capabilities, while new Bite North America president Andy Cunningham is launching a venture focused specifically on marketing Series C companies.
Whatever tools are employed, the basic aim is the same: help a new company create some distance between itself and the plethora of startups that are also searching for attention and funding. For experienced PR people, that is a relatively straightforward equation, but for a new venture built by engineers or coders, it can amount to a leap of faith.
Accordingly, says Karel, support from senior management is a critical first step. “It can be a little bit of a challenge sometimes, because your investment in PR is not as measurable as, say, your investment in paid search.”
That dynamic can put pressure on even the most experienced PR firm. “They need to see results and an agency like us is an obvious line item on the budget,” explains Soucy.
To make the case internally on the client side, adds Elance marketing director Carrie Stuart, requires a long-term focus and an understanding that an effective public relations program, boosting word-of-mouth and visitor traffic, is more valuable than a high-priced advertising blitz.
“Budget is a part of it,” says Stuart. “It also humanises the leadership team and gives people their perspective.”
Turbulence at the top
A supportive senior client is a factor in any successful PR engagement. But where startups are concerned, the opportunity to work directly with the founders is viewed as a particular attraction, while also ensuring that corporate vision is better connected to brand positioning and messaging.
“With big companies, day-to-day you’re at a low level of the company,” explains Dyson. “With startups, you’re interacting with the company leaders.”
Even Dyson is aware, though, that the founding team may not remain in place for that long. Management changes are a feature of the startup cycle, demonstrating the peculiar level of turbulence that accompanies these types of accounts.
“Every VC who backs a startup ends up changing the management,” points out Dyson. “It’s very unusual for a startup to stay with the same agency.”
Even on a day-to-day basis, potential volatility should not be underestimated. To some extent, says Hoffman, every startup is making it up as it goes along. “Inevitably, the reality doesn’t match up with the theory which can cause chaos,” he adds. “Things are extremely fluid where company direction can change weekly. This dynamic can also wreak havoc with the budget.”
The irony, perhaps, is that a PR firm’s best efforts can sometimes contribute to this upheaval. “There’s the possibility the assignment will come to an end sooner than you think,” states Soucy. “Maybe a funding milestone or some event in the marketplace. Sometimes our best work turns into a reason for our work to stop.”
One recent development likely to moderate this unpredictability is the increasing presence of comms directors at leading VC funds. Perhaps the best example of this is OutCast founder Margit Wennmachers, now a partner at Silicon Valley powerhouse Andreessen Horowitz. Others include ex-Hulu comms head Christina Lee at Kleiner Perkins, and former Google PR exec Andrew Kovacs at Sequoia.
Gratehouse believes this trend has helped to “champion” the role of PR, providing startups with insight and helping them bring in the right comms and marketing talent.
“It’s a recognition of the value that a smart comms programme provides to a startup,” she notes. “Having that brain-trust available is very valuable when you are looking at a number of firms investing in your companies.”
Not that firms can simply rely on a strong VC relationship to help them secure startup clients. “Entrepreneurs like to make their own decisions,” says Getsey diplomatically, and many agencies note that VC-assisted introductions are often fruitless.
It is easy for PR firms to lose themselves in arcane deliberations over profitability and client servicing margins. At its heart, the industry depends on motivated people working on inspiring assignments. Nothing, it appears, fulfils that criteria as often as today’s wave of startups.
“Because you’re starting from ground zero, you can clearly see the difference you make in building the startup’s brand which is very satisfying for the account team,” explains Hoffman.
There is an undeniable element of risk involved, but much of it is being managed by agencies that remember the last bubble only too well.
Many firms, for example, take a portfolio approach. They may allow, say, up to 30 percent of their business to be startup-related. Some do not work on retainers, recognising that the unpredictability of startup life does not always lend itself to a monthly budget. Almost all, unsurprisingly, have staggered payment terms that call for a reasonable proportion of fees to be paid upfront.
Very few, meanwhile, are willing to accept equity in return for cash. “There’s a danger it might corrupt the whole business model,” explains Dyson, pointing out that a return in five years’ time is unlikely to match the career cycle of your average PR executive.
Balanced against the risks, as Dyson notes, is the chance that you will “find the next Facebook or Apple.” Realistically, you probably won’t, but the exhilaration of startup business is difficult to deny. Or at least it is for now, if you believe the cautionary note sounded by Allison & Partners CEO, and Valley veteran, Scott Allison: “The parties are great, but the hangovers are worse.”