Start-ups do not need a marketing budget, or do they?

Two deservedly well-regarded investors, Fred Wilson and Brad Feld, have written about why they think start-ups do not need a marketing budget. Both are deliberately a little controversial. Fred Wilson writes, for instance, that: “I believe that marketing is what you do when your product or service sucks or when you make so much profit on every marginal customer that it would be crazy to not spend a bit of that profit acquiring more of them (Coke, Zynga, Bud, Viagra)“. Brad Feld says that “every time I hear the word “marketing” I throw up a little in my mouth“.

Par for the course for the intertubes, the nuance is lost. Take a look at the reactions on those two posts, and you will see people agreeing with the top-line idea they seem to see: start-ups do not need marketing budgets.

Which is patently not what Fred Wilson and Brad Feld are saying. For instance, later in his post, Fred Wilson goes on to say: “Early in a startup, product decisions should be hunch driven. Later on, product decisions should be data driven”. … Clearly people like that rule. Here’s another. Early in a startup you need to acquire your customers for free. Later on, you can spend on customer acquisition“. And Brad Feld goes on to say: “When I think off (sic) all of the companies in our portfolio that are growing like crazy, they all spend money on marketing. However, it’s driven by an obsessive focus on the customer and the product, rather than a “marketing budget” or “marketing initiative.””.

My view on the matter? Every business, no matter what stage of life it may be, needs marketing. And all marketing costs money. It is smart to budget for it. Smarter still to ensure you deliver what you promise.

In its essence, marketing is no more than:

a. promoting your product/ service,
b. to a group of people who either need it or are amenable to be convinced they need it, and
c. who have the ability to pay for the product/ service.

Ben Casnocha and I are in agreement when he says good marketing is good, bad marketing is bad. What is bad marketing then? “Bad marketing” could simply be if any of the above three elements is missing, or if any or more of the following is true:

a. you don’t have a product/ service properly defined and developed,
b. the audience has or knows no need for it, despite all your efforts to persuade them otherwise,
c. the audience cannot pay for it which means you are talking to the wrong people,
d. You get the attention of the right people, who can afford to pay, but you fail to deliver.

Fred Wilson’s examples are all about how to use the web to market your offering. The internet is but one channel to promote one’s product/ service; it is seductive because it is perceived as “free”. In the end, nothing is free, including the time one spends on the web. So it is smart to have a budget or notional cost allocated to the time you cannot spend writing code or checking the air-tightness of the fruit juice bottle you plan to sell. Especially crucial for a start-up that is promising something but nobody has seen it yet.

Fred Wilson points out that he is only referring to consumer internet companies and not those that may sell to enterprises. I add another rider to it. There is a vast world out there where people do not spend their time online 24X7 as some of us do. These people are buying real things whether influenced by friends and family, or by a coupon in print media, or a promotion in their local bazaar. Such influence does not come for free. Smart companies and their investors plan for those costs.

So why bother with that marketing budget, if what John Wanamaker says is indeed true: “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half”? Replace advertising with sales, or with marketing, or with hiring and you will know that this is no more than a thumb rule. A rule that says we cannot predict how some of our spend will yield or not yield expected results. Some adverts just won’t work; some networking contacts one develops will never yield a tuppence of business; some promotions or give-aways in a mall will be just people seeking freebies and nothing more. But each of these activities need real or notional money to be spent. If there is no headline item in the business plan, it may come from cannibalising some other headline spend. That is hardly clever.

We can however increase the probability of a desirable outcome if we prioritise our activities and focus, just as Brad Feld says, on the customer and the product.

And on making good on delivering what we promise.

Lost opportunities: Mahatma Gandhi and Gwen Thompson

To most people, Mahatma Gandhi stands for truth and non-violence. There is also a subtext of renunciation, austerity, simplicity and community. There was a predictable outcry when Montblanc announced a limited edition, 18 carat gold pen with Gandhi’s image and a saffron garnet on the clip. Only 241 gold pens would be made available for the price of Rs1.1M (or $23,000, €15,800, £14,400). Gandhi walked 241 miles in the Salt March of the 1930s.

Gandhi’s great grandson Tushar Gandhi had opposed the auction of Gandhi’s spectacles earlier in the year. He however sees nothing wrong with the pen and his charity will receive a small sum from each pen sold. Montblanc’s CEO says the company wanted to talk about Mahatma Gandhi’s values including non-violence, peace, education and tolerance. There is now, however, a court case in India for Montblanc’s violation of the Emblems and Names (Prevention of Improper Use) Act, 1950 which specifically cites Gandhi’s image. So much for discussing Gandhian values – between commerce, marketing, image rights, blame and counter-blame.

Let’s talk about Gwen Thompson then. She is a doll launched by the American Girl Doll company in 2009 and costs $95. What’s so special about Gwen? Well she is homeless and lives in a shelter with her mother. Her deadbeat father has apparently abandoned them. Beside the obvious ‘homeless people cannot spend $95 on a doll’ argument, the doll faces other flak too such as portraying men as irresponsible, women as helpless and the fact that some people are homeless as just another reality of society.

American Girl Doll company, who will not be donating any proceeds from the sale of the doll to shelters or charities helping the homeless, says: “Our singular goal with these stories is to help girls find their inner star by becoming kind, compassionate and loving people who make a positive and meaningful difference in the world around them.”

The similarity between both stories is that companies sought – whether strategically or as an after-thought – to spark a broad conversation about certain values. And that the way they went about it backfired. The companies look cynical and exploitative and their noble explanations a hasty ex post rationalisation.

Why? In Montblanc’s case, they have misread how Gandhi’s memory is revered in India. I say this with confidence as an Indian who also recognises the cynicism which makes it legitimate for some to exploit the Gandhi name more than for others. But in the case of the American Girl Doll company, I only offer a working hypothesis. The company underestimated the conflict between the American value of self-help and the collective guilt a society feels about not helping its unfortunate members enough.

Leaving aside the question of taste, in both cases, genuine opportunities were lost for the brands to get more real, more involved with the issues at hand. With my sceptical hat on, I would not be surprised to know if both companies are secretly rubbing their hands in glee over the free publicity and dialogue generated about them and their products. Very Skokie-like. Not very smart.

So, should companies not touch some topics and some people? That is definitely not my suggestion. But it is wise to pick the person, the message, the timing, the marketing message and any beneficiaries carefully. All public conversation should not be sought or courted. Sometimes the best conversations are those that are private, low-key and purposeful without publicity.

Related reading:

Gandhi sells and how (from India Today; may require registration)

Top 10 Dubious Toys where no. 1 is Homeless American Girl (from Time magazine)

Beyond privilege: managing information asymmetries

Is your business missing a trick?

These are tough times. For most businesses. Whilst large organisations such as banks are worried about survival and solvency, smaller businesses are collapsing for want of short-term loans, suppliers collapsing or bills receivables remaining unpaid.

The simplest management 101 type solution is two-fold: maximising the revenue opportunities and minimising costs, without cutting into the flesh of the business. But are the businesses really doing all they can? 

Earlier this week, I was looking for gift coupons or vouchers. On Twitter, Shel Israel suggested Dell and Starbucks. That was a useful suggestion but I was looking for something more personal, such as a fashion or lifestyle brand in the UK. So I continued looking.

Surprise! I found that most of the UK’s big-name fashion and lifestyle brands came up croppers when it came to purchasing electronic gift coupons. The “luxury-is-for-a-special-few” etc argument does not apply here because all of these brands are big on e-commerce; indeed some businesses exist entirely as web businesses. 

There is no way to purchase a gift voucher or coupon at the  well-known fashion department store Browns. The search for ‘gift voucher’ or ‘gift coupon’ returns partial results, i.e. those that focus on the word ‘gift’ rather than on ‘voucher’ or ‘coupon’. For some reason, Selfridges distinguishes between a gift card which can only be bought in-store and a gift voucher, which apparently is another gift card which will be physically delivered. As a favour to customers, next-day delivery is available for £5.50!  At my favourite store – MatchesFashion – too, they want me to go in-store. Their online shop is a great experience and their service is fabulous but why this extra requirement? Multi-brand skincare and cosmetics store SpaceNK wants you to email them for a gift voucher or buy in-store, but at any rate, the vouchers cannot be redeemed online.  Net-a-porter, the online-only mecca of high fashion brands, has no gift vouchers or coupons. Shame, seeing as it is a web-only business selling products worth a few hundred pounds to a few thousand pounds so it is not as if people wouldn’t like to buy gift vouchers from them! Their outlet business, The Outnet, where average price tags are far lower, isn’t doing any differently. 

These businesses, all with a solid online presence and customer base, are missing a trick by not using their web stores to ‘spread the love’ so to speak.

Electronic gift vouchers are easy to do. They can make pre-existing customers spend more; they can bring new customers; and since vouchers may not fully cover what the customer ends up buying, they can increase the retailer’s share of the customer’s wallet. By enabling electronic delivery, you are reducing the customer’s effort in making the purchase. Please don’t ask us to come in-store when the real reason why we are seeking vouchers is to avoid making that trip. Make it easy for us to buy, ok? 

I know most of my clients are not in the consumer retail business, but some of them were missing similar tricks. 

What about you? Is your business missing the obvious tricks too?

It's when you deliver that counts…

The title of this post is a snowclone of the title of a book on investing, published in the late 1990s. Writing before the dot-com crash, the author talked about the importance of, not buying, but selling stocks at the right time, at the right price, so as to realise profits. Amid the dot-com frenzy, he delivered a sanguine message that if you did not sell in time to appropriate the cash, it did not matter how high the stock price went.

Back to the post.

Communities and conversations are at the core of Web 2.0. Profitable businesses are harder to come by. When they do, they do so using principles, which can best be described as Web 1.0 or even pre-Web.

Pre-web, my first post-MBA job was in a cosmetics firm in India. In the summer when I began, the company launched a product, India’s first one to be sold as a ‘sunscreen’. Our competitor, Hindustan Lever, had a similar product, but it was sold as a ‘fairness’ cream. The ‘sunscreen’ position in the consumer’s mind was ours for the taking. The print and TV advertisements were aspirational and sophisticated. The demand sky-rocketed. I was a sales trainee with the unfortunate job of booking wholesale and retail orders week after week. Why unfortunate? Because we could not fulfil those orders! We didn’t have enough product, thanks to a production glitch, resulting from several factors including unanticipated demand and inadequate supplier management; yet the TV ads continued.

That was the most distressing summer of my life. Our wholesalers and retailers weren’t the only ones upset; my friends and family were upset too because they could not get the product. Meanwhile I continued using my supply of Oil of Olay, hoarded in the previous summer as a summer trainee at P&G.

The lesson?

If you want and indeed strive to create a demand, make sure you deliver. A consumer ‘primed’ to purchase a product is easy to lose, and difficult to regain.

But do these old-fashioned things still apply? Very much so.

Pat Phelan writes about how Bank of Ireland’s has failed to close the loop with their marketing partners O2 and CarphoneWarehouse. This has led to not just a lost customer for O2, but also a lost young savers account for Bank Of Ireland and lost commission for Carphone Warehouse. He describes them all as ‘muppets’, a description with which I find hard to disagree.

The lesson?

If you have a complicated product concept, make sure all the parties can deliver. A disappointed, irritated consumer is very difficult to woo back, especially in a competitive market where others are willing and eager to serve him.

Which brings me to Chris Brogan’s post, on promoting one’s book online. Chris writes about how Seth Godin just launched his new book ‘Tribes: We Need You to Lead Us’, using a whole slew of innovative marketing tricks. He gave free copies to some bloggers to give away; he made available a 0.99c audiobook on iTunes; and he built a social community, called Triiibes, ahead of the launch. Readers of his blog were invited to send him the electronic receipts of their advance orders and their snail-mail addresses. A certain number were then invited to register ahead of others on Triiibes. So far, so ideal.

The book was launched on October the 8th. As I write this post, on October the 20th, Amazon-UK tells me I won’t receive my ‘advance-ordered’ copy before November the 6th. I am not alone. Others who ordered with Amazon-UK are also waiting. So much for participating in the conversation about the book on Triiibes and for the advance-ordering hoopla.

Not just that – and I write this to complete the argument – our snail mail addresses were required as something special was to be sent to advance purchasers in October. May be, I am jumping the gun. May be, something will arrive in the next 10 days remaining in October. But when the book itself hasn’t arrived, I wouldn’t be holding my breath for anything else.

The lesson?

If your supplier screws up, it is unlikely you will benefit from the advance community building and promotion. A disappointed customer will not forget the experience.

Not very much unlike my first employer’s fiasco with the sunscreen, is this? Before ‘Tribes’, I had never bought any of Seth Godin’s books. The trend looks set to continue, unless a copy of Tribes somehow arrives, before I give up and cancel my pre-order.

It does not matter how many cycles of awareness-interest-desire-action you take your customer through or how many communities you create. The conversation just won’t start until the customer’s demand – whether of his own realisation of a ‘need’, or a latent need articulated through clever marketing – is fulfilled. Delivering the promises of marketing requires operational excellence. Whatever version of the Web we are at, and however creative our marketing, human expectations don’t change. They get more demanding, not less so.

In other words: it’s when you deliver the promised product/ service that counts.

What are your experiences of good service delivery and bad ones in the Web 2.0 world? Do use the comments link to share your stories.

Interesting reading:

Universal-McCann’s report ‘When did we start trusting strangers?