29 May, 20222 minute read

Advertising is for losers, building better products is for winners

You know what the inventor of the refrigerator probably did after finishing up the first prototype? I imagine he sat back and counted his millions—seriously, everyone would have been looking at this guy in disbelief because he had cold beer, and beer is way better when it’s cold.

The three Ps of business are people, process, and product. If you want to run a successful company then you need a great team, you need solid processes let you run efficiently and guard you from building worthless things, and you need a fantastic product which customers love. Advertising doesn’t come into the picture.

Advertising spend—outside of recessions like in 2008–has skyrocketed over the past couple of decades. In recent years growth in advertising has even managed to outpace the rest of the economy’s growth. The amount spent on advertising doesn’t seem sustainable, and the numbers bear that out.

A 2017 study found a negligible relationship between advertising spend and a business’ profitability. Far more important, they found, was brand value and spending on R&D. At best, advertising is a kind of force multiplier: if your business sucks then you’ll just wind up burning cash faster, and if your business is good then you’ll grow faster.

Advertising is for losers, and building better products is for winners. Bumping up your ad spend likely won’t change the trajectory of your business, but iterating on your product probably will. People make purchasing decisions to solve a need—not because of flashy banner ads.

Look at a company like Monday.com: for a long time, it was impossible to exist on the Internet without seeing ads from this company. They’re currently down 75%—one of the companies worst hit by the 2022 tech selloff.

Monday.com tanking makes sense: their product sucks. It’s slow, complicated, and full of broken integrations. It attempts to do everything, and winds up doing none of those things particularly well. Monday.com is a clunky to-do list for nontechnical people, and there are vastly better products available on the market which fill that role.

When the chickens come to roost and investors get worried about the economic climate, vaporware like Monday.com gets hit the hardest. Big, ambitious advertising campaigns offer no protection.

Does this mean all advertising is bad? Of course not! But it’s important to keep in mind that advertising is just a vehicle buying eyeballs. If those eyeballs are unimpressed by your offering, then they’ll bounce and go spend their money at your competitors.

Product-market fit needs to be found before investing significant capital into advertising. If you haven’t found excited and passionate customers in your key target audience yet, then you’re too early. Do unscalable things to activate those customers, and only once you have a foothold with that key audience should you start advertising to get traction with other customer demographics.

You can’t build a sustainable business on the back of ads.

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