Risk and reward: A Wall Street approach to marketing.

At the ad:tech San Francisco 2015 conference, financial services behemoth Charles Schwab revealed a new approach to marketing they call “venture marketing.”

Julian Aldridge, Schwab’s VP of brand evangelism and activation, explained that the term is based in the principles of venture capitalism, where investors prosper despite high failure rates – often as high as 75%. In contrast, marketers have far less leeway and are expected to produce success every time. Hence, venture marketing was born. Aldridge described the approach as “test and learn, test and learn, test and learn.”

I wholeheartedly agree with the venture marketing philosophy. Particularly in a discipline that seems to change by the week (or even the day), as marketers, we need to remain nimble and experimental in our approach, and sometimes that means we will fail. What’s critical is that we recognize and embrace failure as a healthy part of growth, and understand that by dissecting our failures to better understand what went wrong we can refine approaches for the future and ultimately be more successful. The challenge is a cultural one – we have to be willing to accept our failures along the way.

And that’s why we take the concept one step further – if we’re going to approach marketing like a venture capitalist, why wouldn’t we be paid that way? If investors are paid only when their investments pay off, why shouldn’t marketers and agencies be paid based on the results we produce?

This leads us down the path to pay-for-performance accountability. Technology has reached a tipping point, turning significant amounts of data from unknown (and daunting) to an insightful tool for marketing optimization and sales indicators. Because technology is so pervasive in our marketing approach – whether it be digital, programmatic, automation or social – we can far more easily quantify the impact of a marketing investment than we could just a handful of years ago.

At Nelson Schmidt, we define performance-based accountability as an approach that mitigates financial risk for underperformance (to the marketer), and rewards over-performance (to the agency). It’s not right for everyone – I mentioned the cultural aspect, but it also requires the right infrastructure and the foundation of a trusted partnership. With the technological advances we’ve seen over the last several years, I’m surprised more marketers aren’t clamoring for a performance-based compensation model with their agencies.

Xaxis’ recent launch of Light Reaction was a great sign to us that the market is finally ready to adopt and implement more of these models.

Ultimately, it’s a shift in mindset about marketing spend – rather than thinking about marketing “expense” we need to look at our long-term marketing “investment.” As Charles Schwab so aptly noted in revealing their venture marketing approach, if we think in investment terms we allow ourselves to focus on the long-term big picture value versus getting caught up in short term wins and losses.