Apr 19, 2012 · 2 minutes

A Toronto tech startup that spends its own money on ads for clients has seen its revenues grow 600 percent in its first two years. Siren Advertising creates online ad campaigns for clients at its own expense and then takes a cut of any revenue generated at the other end.

While it’s a risky model, it seems to be working out just fine. In its first year 2009, the company made $600,000. But last year it upped that number to $3.7 million, according to founder Max Entin. Not bad for a team of six full-timers.

Traditionally, both publishers and agencies have thrived on a model that obscures the details on just how effective ads are. “I know half my advertising is wasted,” John Wanamaker once famously said, “I just don’t know which half.” And that’s how everyone liked it.

But then the Internet came along and stuffed it all up. All of a sudden Google was telling everyone that they shouldn’t have to pay for ads that didn’t work. Now publishers cringe at the words “cost per click” and are coming up with new, vaguer terms like “cost per exposure.” (That one was coined just yesterday.)

So while Siren is still a small operation, its model could potentially have a big impact on an industry that relies on an element of mystery for its success. Indeed, traditional media agencies, who buy ad space for major clients on thin margins, should be watching closely. Entin says it’s time they changed their model, so that they’re accountable for the financial results they deliver their clients.

“Imagine a car mechanic telling you to pay him $X,” says Entin, in a poetic burst via email, “and in return he will work on your car, which may or may not fix the problem. And then that mechanic will show you pretty charts explaining why fixing this problem is a 'process,’ and why you should ‘invest’ more money into your car to get to the solution.”

It’s crazy, says Entin, who has a background in software development but found he could make more money selling advertising. “But that’s how most of the industry works. We work differently. Our clients want to profitably acquire new customers, and we do it for them by taking a cut of their revenue. If we can’t do it, our client doesn’t lose any money. But if we can, then both we and the client make money."

Siren’s clients to date have included Groupon, Universal Technical Institute, and Beyond the Rack, and its work has focused mainly on customer sign-ups. So far the company has been using its technology as an add-on to third-party advertising platforms, but it’s now building its own ad network that it expects to unveil in about a year.

The traditional agencies better be keep an eye on that, too.