If you look at successful blue chip companies, you’d be hard-pressed to find one that behaved in the rather strange, frantic, panicked and peculiar way that Netflix did in the past two months. That’s because Netflix has not left its startup mentality behind: it’s still trying to steer a speedboat when it should be steering a cruise ship. If you turn a cruiseship too quickly, it will capsize, which is almost what Netflix did when it inexplicably decided to lop off half its business into a new unit called Qwikster.

So how did they arrive at even the opportunity to screw up in such a huge way? Let’s look back to the beginning of online streaming. Possibly one the guttsiest moves a company of its size could make, Netflix gambled its future on the idea that DVDs were going away and consumers would prefer to watch videos online. And it worked – huge. The problem is, in the cases of startups, sometimes we don’t plan for success. Twitter keeps crashing because they can’t keep up with the demand for servers. A local retailer sells a Groupon and goes out of business because “we sold HOW many hour long massages for ten dollars?” Netflix didn’t plan for success. Their online streaming model relied on cheap royalties paid out to content providers. However, once the service was a runway success, and the content providers saw that, they naturally raised their rates through the roof once the contracts expired.

Netflix’s first of many mistakes was not anticipating how these content providers would react if the service was wildly successful. The next mistake is, when realizing that their costs were going to rise dramatically, they failed to communicate with their customers. This is because in wild, runaway success startup mode, Netflix really never bothered to get to know what its customers wanted. Like going to the dollar pizza guy vs. a fine dining establishment, Netflix is whipping you hot slices for cheap to fill up your hunger for content. They don’t have a chef coming by your table to shake your hand and ask how the risotto is. A while back, Netflix had added community features to its site, then suddenly removed them, alienating thousands of people who had not only gone to the trouble to provide free content in the form of reviews, but cut them off from contact with the likeminded people they had met on the site. Of course, there was backlash. But who is going to cut the cord with Netflix when it costs 5% of what your cable bill does and arguably has better content?

So with this combination of startup mentality and runaway success, you breed arrogance. And arrogance makes a company like Netflix believe that they can steer a cruise ship like it’s a speed boat.

The perplexing new DVD and Streaming pricing model that stemmed from the licensing price hikes that Netflix should have anticipated and planned for led to  a huge consumer outrage. But instead of reacting to this outrage directly and asking their customers what they wanted, they instead waited until the shareholders started to punish the stock out of fears that subscribers were going to start to leave in droves. Investors LOVE companies with subscription models. As opposed to a company that makes items for sale and has to plan for inventory, subscriptions are essentially guaranteed, bankable revenue. Once you get a sense of what the attrition rate is, you can borrow against these future earnings like you have them already, which fuels faster growth. So losing a subscriber isn’t just $9 a month that Netflix isn’t getting, it’s the possibility that it assumed it would have $90 from that customer, borrowed against it, and now must replace that customer to pay it back.

A customer revolt is one thing for Netflix, but a shareholder one is something the CEO would pay more attention to and it was blatantly obvious that it was the true motivation behind their weird Qwikster solution was to get that stock price up. They could have cared less about their customers, and it showed. Why? Because it was not when consumers expressed outrage at this additionally insensitive decision that they reversed it, but only through continued declining stock prices that they went back to their old model.

Which brings us to that fateful decision: Qwikster.  A publicly traded company that does not have a “startup mentality” would do consumer focus groups and perhaps, if they were really advanced, ethnographic surveys to see how Netflix DVDs and Streaming fits into their customers’ lives. Following that research, they could float the idea with some carefully vetted consumer advocates of Netflix to get their opinions on how such a change might fly. If that went well, they could hire a naming company and a branding agency to come up with a new brand identity, and some UI/UX experts to make sure the two sites could work together in harmony even if they were a separate brand. Personally, I don’t think they needed a whole new name – they could have incorporated Netflix into it, such as NetflixHome, NetflixNow (for streaming).

Instead, it seemed like, in startup mode, they went “we need a new name for the DVD business? Any ideas?” “DVDster?” “Nah, someone owns the domain.” “Hey, how about Quickster?” “Hey, that’s good. It says ‘fast!’” “Oh crap, the domain is taken, too.” “But what if we spell it differently? How about Qwikster? With a Q and a W?” “Done! Register it! I’ll have the ad agency whip up a logo over the weekend.”

Decisions like this have little consequence in a startup. I’ve worked on plenty that have those panicked moments when they realize they have 5 business models and start to name all of them. Except, without traction no one notices. And maybe they come back to their senses before anyone does.

To contrast how absurd Qwikster was to someone in the communications field, think about how similar decisions in other huge companies would look:

APPLE

“Due to the increasing revenues online, Apple has decided to use the Apple brand online only. As always you may purchase shows, music, books,  and apps in the Apple Store. The physical Apple Store locations will be renamed ‘HardWhere Depot’ and continue to stock physical Apple products, which will be renamed at a later date.”

FORD

Ford has decided to only make electric cars from now on, splitting off its gas-based brands into a new brand called GZZLRZ. The new GZZLRZ Mustang gets an impressive 21.2 MPG highway and is available at 0.1% interest at your local GLZZLRZ dealer.”

Customers have a voice – when you screw up you’ll hear it loud and clear. But smart brands have a conversation with their customers before that’s ever allowed to happen.

Half Fiction has been a digital agency since we opened in the fall of 2009. Recently, we helped launch a startup and one of my partners has decided to stay on with this exciting new venture. This lead me to reflect on the past two years and look at our business model and try to see what we can do differently, now that I have a clean slate. And while we’ve been making money, what I realized was that in many cases, we had become a vendor, rather than a valued partner for many clients. We’re capable of many things, but too often we’d be assigned an app here, a micro site there. Where we shine is taking many different aspects of marketing, both online and offline and combining the efforts into something greater than the sum of its parts. It works well when we have the opportunity, but it was frustrating we did not get a seat at the adult’s table when the planning process was happening. Making difficult choices between revenue and doing something we believed in was not a circumstance we wanted to continue for much longer.

The initial contact with a client always seemed so promising. They’re enamored with our expertise – they spend hours with us on the phone talking about our social media philosophy. If we did something more mundane that wasn’t so “new,” it’s likely a lot of clients never would have bothered with us. But with all the mystery of “how does my brand use social media?” we’d get excited to work with a brand in a medium they’d never used. In that excitement, we propose lots of ideas we believe in. We create elaborate presentations, do research into the market, learn a company’s business and spend a great deal of time with them to help acclimate them to the new marketing environment.

The result in most cases was we did a lot of free work, had some great conversations, gained the admiration of the client, and that was about it. Not only is it abad idea to waste a lot of time on “opportunities” like this, but it cheapened what we did. It also meant putting existing client work in jeopardy. It’s stressful to worry about an arbitrary deadline from a client you don’t have yet competing with a real deadline from an actual client.

Why were we doing this? Because everyone else was too. And it’s insane. And it needs to stop – now. 

Many years ago I wanted to change the agency model because I thought big agencies were slow and inefficient.  I created a “virtual agency” and went around to clients with the whole “we’re the same people you get in the big agencies without the bureaucracy!” line. Ten years later, there are lots of “agencies” polishing that turd. The problem with these “agencies” is that there’s a lack of consistency in who does the work. This is a business built on a relationships – not just the relationships between client and agency, but the team within the agency as well. When you’re telling a client “Oh, Bob was a freelancer, so he got another gig, but here’s Jane, she’ll be taking over” – the client starts to question the value of this new modern system if it looks like the agency is constantly getting someone new up to speed. The other problem is if these virtual firms are successful, they are usually very quick to abandon their model and become traditional. All they need is the lure of revenues from one big account before they staff up and become big, bloated and inefficient.

Sure, big agencies have this type of turnover too when they’re terrible, but there’s usually consistency at the senior management level and clients may not be aware that an anonymous interchangeable flock of assistant AEs and interns are moving in and out of their business.

When I started Half Fiction, I created a hybrid model where we essentially kept few full time employees, and we outsourced most of our assignments to small agencies who specialized. The value we brought to clients was being able to take a big idea and filter it through these partners and manage the whole process. This actually works quite well and we’ll continue doing it. But the evolution is in bringing the idea of vetting and coordinating a series of specialty agencies on behalf of a busy marketing director who is struggling to keep up with all the different facets of their campaign.

Let’s look at a few problems:

1) Marketing directors used to be able to go to 1-2 agencies to get everything they needed. Now they need a traditional agency, a PR firm, a social media agency, a digital agency, media planning and buying, SEO/SEM, and lots of other little niches like SMS, POS, CRM, email marketing, etc. Sure, some agencies do all of this but there’s also a lack of coordination and efficiency when there’s so many moving parts. Unless the client has a large team to make sure everything is consistent, and is able to juggle multiple initiatives, the marketing campaign has a severe case of ADHD.

2) Marketing directors at mid-sized companies have a short shelf life (18 months on average), and are asked to tackle a lot of new things they’re not familiar with using less resources than before. An inefficient internal and external marketing team can’t happen, but often by the team they are able to make any sense of what’s going on, they might be replaced.

3) Coordinating a whole roster of agencies is difficult when you’ve never worked with them before, they’ve never worked with each other, and one bad part can spoil the whole process. In fact, one bad agency makes all the others on the roster work less efficiently when they’re waiting on deliverables from each other.

4) A big agency who does everything will never do it all well. And it’s likely that higher pricing results because one failing division is being subsidized by others.

5) It’s a huge waste of time for a marketing director who may not know the ins and outs of say, SEO, to send out an RFP and then try to make heads or tales of the responses. Plus, RFPs waste agency time and cause prices to go for the client.

So what’s our solution?

We’re going to be what I call a “marketing general contractor.” What’s normal in the home improvement industry becomes insanity once you get to advertising and marketing. If you need to do a major renovation of your home, you call a general contractor. They go find a plumber, electrician, dry wall guy, painter and landscaper. Because what in the world do you know about who would make a good plumber? What questions do you ask?

With the flood of “social media experts” in the market, how do you pick the right ones? There’s a lot more at stake than a drippy faucet.

Half Fiction will be the center of a spoke and hub model. We’ll be a consultant who finds the perfect partners for a client and then coordinates all the initiatives. Essentially, we’re combining a few businesses together:

1. Agency Pitch Consulting: There are businesses that specialize in finding agencies for clients, but once the business is won, the pitch consultant is out of the picture. In our model, we will manage the agency relationship as a project management team on a macro level.
2. Creative Direction: We’re still at our heart, a company built on great ideas. And we’ll have the ability to scale for a client via our agency partnerships to whatever amount of work needs to be done.
3. Recruiting: In some cases, we will need individuals rather than agencies. We’ll be actively recruiting talent on behalf of clients.

Combined, a marketing director has an affordable way of making sure everything is getting done, with the expertise to understand who to hire for what situation. This allows the marketing director to free up the time they normally would spend trying to understand niches of marketing with a high learning curve, so they can work on bigger ideas and goals that determine a brand’s long term success.

In the end, Half Fiction will no longer “pitch” for business. Rather, we’ll be selling our expertise on determining who should be pitching, saving everyone a lot of time and effort. We’ll be bringing clients partner agencies who in a lot of cases have worked with each other; at the very least they’ve worked with us. There’s no “playing nice” because everyone will be nice, or they don’t get to be in the group. In the end, this new efficiency should more than pay for itself.

In the end, we believe this model is apropos for the new economy: flexible, efficient, nimble and collaborative.

What do you think a good agency model would be?