Is advertising important? I would probably guess that most would say that it is. Well, today we are going to explore advertising, as a business necessity, on a more sophisticated level. Afterall, this is Leonard Innovation.

Now before we get started, I would like to share with everyone a free video training where I break down how I started my business in 1998 with very little money, while serving in the United States Air Force, and grew it to a highly successful enterprise that is still around today. In the video, you will learn about some pretty incredible business strategies that can help you make more money. The video training is suggested even if you are not a business owner. Again, this is a free video workshop that anyone serious about growing their business is definitely going to want to see.

I recently had someone tell me advertising was very important. If it wasn’t, then why are companies such as McDonalds, Walmart, and Amazon advertising so much?

Now, generally speaking, I agree with the statement that advertising is important, but I also noted that it was not important for some businesses. So I am going to break down some high-level advertising concepts.

Over the years, I have tested virtually every form of advertising, including national TV ads.

Advertising For Large Businesses

A point to make is that large businesses which are publicly traded tend to have slightly different reasons or motives for advertising than small businesses. Let’s explore a few.

The first reason a larger firm might advertise is to maximize shareholder profit. Once a company becomes publicly traded, there is constant pressure to demonstrate growth and meet or exceed earnings estimates. One way this can be done is through advertising, whereby the amount you spend on ads is a function of revenue. Example: For every $20 spent on advertising, $100 is generated. Or, the [advertising] cost to acquire a new customer is X. In this case, whatever X is can be extrapolated for an entire year to make revenue predictions.

The second reason is to introduce new products or services. When a national chain introduces a new menu item, they use advertising to inform us about it.

The third reason is because people can forget you exist if you are not regularly in the spotlight. Or sometimes, there is a new shiny object that consumers become fixated upon. So it’s a constant battle to stay relevant. Sometimes large firms will take their market capitalization for granted. At one point, Intel was the king of computer chips, but their dominance has since been waning for the past few decades and now the new shiny objects are NVIDIA, Advanced Micro Devices, and Taiwan Semiconductor.

Advertising For Small Businesses

Now let’s look at small business to see how advertising needs might be different. Generally speaking, small businesses should not try to replicate the advertising strategy of a larger, publicly traded business. They typically don’t have a need to constantly show year over year growth like publicly traded businesses. What usually happens with smaller businesses is revenue growth tends to be slow or may remain constant.

Earlier, I said that advertising was not important for some business. The reason has to do with proximity and population density. So we are talking about brick and mortar. If you can strategically position your business to be where the action is, you probably don’t have to advertise. I never once saw ads for the many restaurants I checked out in the past year. Each one of them was discovered either while driving around town or were referrals from associates. If you open a restaurant near national tenants (e.g. McDonalds, Taco Bell, Starbucks, etc.), you will probably do well by virtue of proximity to those larger brands. A city is designed to be communal. Everything that is meant to be consumed is always situated in a cluster that is in close proximity to other resources.

Some small businesses generate most of their revenue from referrals. The handyman trade is often set up that way. Again, sometimes you don’t have to advertise.

New Technology May Eliminate the Need for Advertising

And since we are in the 21st century, we have to discuss how emerging technologies are funneling customers directly to businesses, without the establishment having to ever spend a penny on advertising. If you can appear on Yelp, for example, there’s a good chance you will have visitors if you are a local business. Google has business listings that work in the same way as Yelp. Now, an establishment can even be discovered via maps and elsewhere.

Technically, appearing on one of these larger platforms has an affect which can be likened to advertising. However, no money is being spent to acquire the customer. Sometimes the business owner doesn’t even know how their listings appeared on some of the larger directory websites. What happens is when a business registers a new address, either with an internet service provider or maybe the secretary of state, their contact info becomes validated and finds its way onto these websites automatically.

Mobile service companies like the food couriers make it so that your presence within the app serves as an advertisement. No money is paid to be listed there, but there is a fee paid out on the backend if the referral generates a sale.

Shopping aggregators are another example where the majority of revenue might come from sources that require no advertising: eBay, Walmart, Amazon, Etsy, and many others. The semi-organic product listings that appear on these websites, again, can have an effect that mimics paid advertising, and can even outperform paid advertising. In this case you have several data points that factor into how products are displayed, which might include geo location, product and/or service ratings, and keyword relevance. If there are hundreds or maybe even thousands of mostly positive reviews on a single product, it can be equivalent to striking gold. And what makes it even better is that it was done without spending money on advertising.

Advertising Can Put You Out of Business

Sometimes, our efforts to boost sales can have unintended consequences. It is possible that no matter how hard you try, your advertising campaigns may not result in a profit. Often, for small businesses especially, advertising can be tricky because you will blow through cash trying to figure out which advertising strategy works and doesn’t work. For a small business, the whole point of advertising is to generate sales. It is possible that you may have high engagement with your ads, but not enough sales or conversions. A continuum of failed advertising attempts will invariably erode sales and can be devastating for some businesses.

To summarize, it is true that advertising is here to stay. However, many businesses may no longer have a need to advertise. We went over how large businesses tend to advertise for different reasons than smaller businesses. If you are not publicly traded, you should not attempt to replicate the advertising strategy of a large business. We also discussed how traditional advertising may no longer be needed because of new technology. Directories, mobile apps, and shopping aggregators are more sophisticated now. As we become lazier, more impatient, and more dependent on mobile technology, think about how such platforms might continue to make businesses who never advertise more discoverable. “Hey, Google… show me pizza restaurants that I’ve never tried before.” Now, let that sink in. So you can see how technology might continue to negate the need for traditional advertising as we head into the future.