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.

%d bloggers like this: