For any startup, the two most important things are Scale & Cash-Flow, unfortunately many a times both part ways during its growth journey. When you come across casual attitude towards vendor payments or large cycle on clearance of bills, this journey of Scale and Cash-Flow together ends very soon. It’s no surprise why an alarming percentage of startups fail; although there are numerous reasons, Cash-Flow Issue in the Ad Industry is one of the biggest killer in the startups. Having involved with different industries over a decade and half, I come to realize that the this is a generic problem that prevails in most of the industry sectors in India, and has its dents in small as well as big companies.

Speaking of the Ad Industry in India, the problem is no different. Fierce competition in the leading agencies is resulting in heavy discounting in the media fees and extended payment terms with the Advertisers. With the top agencies trying to win or retain customers through these means of providing additional benefits, a severe problem of cash flow and lean margins is trickling downstream on the networks, publishers and other smaller agencies that support in delivery. This is resulting in many smaller players resorting to volume discount deals with bigger agencies, invoice discounting financing methods and other unprofessional ways like kick-backs & manipulated deliveries to keep up the scale and required cashflow for sustenance. Ultimately this is again eating up their gross margins and leading to the same vicious cycle. Many others have started focusing on other geo markets which have a more stable & reliable payment cycle standards. The end result? – Loss of value to the Advertisers. This is because not every dollar spent by the Advertiser is utilized in bringing a value add to their brand.

Ad Industry in India, and especially big agencies, need to re-evaluate the end-to-end picture today and it will be clear that this industry (as some of the leading consultants have already described) is turning into a “loser’s game” for all parties. Fair Pricing, Fair & Reliable Payment Terms and equally Fair Business Policies by the upper layers in this value chain only can help the industry to grow and sustain in the long term while at the same time providing optimal ROI to the Advertisers & Brands.

Coming back to startups, I think that while Scale is undeniably important, it is equally necessary to keep a bird’s eye view on the Cash-Flow in the Ad Industry at all times. For this, if the industry at large is not stable with reasonable payment cycles then we need to look at other geo or parallel industry options sooner than later. While there as options like Receivables Discounting, it is more of a short term good and a long-term harm.

Startup Founders & team must spend most time in Innovating and Implementing new ideas that solve real-life problems, but unfortunately factors affecting an unhealthy cashflow are keeping them busy in looking for ways to sustain. I feel it is a moral responsibility of big players to drive the market discipline in terms of reasonable, timely and reliable payment cycle and maintain sanctity of the business ecosystem.

Contact Rohit Bagad for Adgebra‘s unique advertising solutions.