Startup Crashes: It's the Marketing, Stupid.

December 17, 2017

 

Startups and tech companies crash and burn all the time.  That's just the nature of fast moving technology.  But often, the crash is due to a single, frequently repeated mistake: Poor, non-existent or sloppy marketing.   As  business / executive coach who works with startup CMO's / VP's all the time, I see this problem in nearly every company I've worked with.  It's not because startups lack the talent, though some underinvest in marketing, or because marketers are clueless, though clearly some might be.  It's more due to how startups and tech companies broadly define the role of marketing in their companies and how they don't define it.  

 

The true purpose and role of marketing

 

Philip Kotler, a famous marketing professor at Northwestern considered by many as one of the gurus of marketing, defines marketing it as follows:

 

"Marketing is the science and art of exploring, creating, and delivering value to satisfy the needs of a target market at a profit. Marketing identifies unfulfilled needs and desires. It defines, measures and quantifies the size of the identified market and the profit potential."

 

Another famous marketer, E. Jerome McCarthey developed what's widely known today as the 4-P's of classical marketing. These are Product, Place, Price and Promotion.

 

The 4P's and their lack of standard application, lie at the root of many marketing mistakes in tech.  Organizationally, product in technology is usually owned by product management / engineering team (and in early-stage companies, by the CEO / founders).  Place, more commonly known as distribution, is usually owned by business development and sales. Price is owned by sales or by product management.  Which leaves marketers with...you guessed it "Promotion."  More commonly known as advertising or growth hacking here.  Now I'm not saying marketing should own all of the above.    The complexities and skill sets needed are too great and you're not going to change the culture in which tech companies operate.  However, not having marketing deeply involved in all these aspects of the business can result in products not fit for market, wasted marketing dollars spent acquiring the wrong consumers, brand erosion, and reduced profitability.  Let's look at each of these in turn:

 

Product

 

All too often I've seen startups fail because founders build cool tech in search of a market.  This happens because you have incredibly smart technical teams that love to build cool things but aren't close enough to consumers or customers to understand what problem they're actually solving or whether those people actually even need this technology (Oculus or Google Glass ring a bell?).  I own both a Google Daydream headset as well as a Gear VR.  They've been sitting collecting dust in my closet for the past 6 months.  I never use them.  I don't really need them.  They don't really solve a pressing need /problem that I have.  When I look around, nobody is really talking as much about VR today.  The market, with some exceptions, hasn't really taken off as planned.  Why?  There's no massive problem to be solved.  There's no real killer use case yet.  (Tweet This)

  

Another problem you get when marketing isn't involved in product is "feature creep".  I often see great products crammed with tons of cool features which end up really harming the end user experience.  What makes products like Whatsapp, Instagram or Amazon Echo great isn't all the cool features. It's that they actually solve a real problem and do it extremely easily (Tweet This).  Argentineans have a saying which is "A prueba de boludos."  Translated into gringospeak as "idiot proof."  Too often products (whether B2B or B2C) are too complicated, lack clear tutorials or onboarding and/or don't directly address a particular need.  The result: cool tech that's so complicated to use that customers simply throw up their hands in despair.  The rule of thumb, especially in B2C businesses is build for the lowest common denominator then improve over time.  After all, when was the last time you were in love with you cable TV remote?  (Tweet This)

 

 

How Marketing can help Product

 

The key to nailing product-market fit and avoiding feature creep is having product teams and marketing work together from product concept through launch.  Don't build a product, throw it over the wall and expect marketing to "acquire users."  What's worked for me is what I simply call D2; the "dynamic duo".  This duo is a PM (product manager) and PMM (product marketing manager) who develop the product together from the onset.  While the PM develops PRD's (product requirement docs) and works with engineering to build, test and iterate on the product, the PMM's role is to look at the market, consumers and competition and ensure that 1.) We're solving a real pressing need 2).  We can differentiate against what's out there currently and 3). We have a solid go to market plan when we're ready to launch.  Good PMM's are both technical enough to understand how products are built but also business savvy enough to understand the economics of the business and where there is an opening to position the product uniquely to have a competitive advantage.  This structure worked for me both in games (studio heads + PMM's) and even at Google (PM's +PMM's).  If you're interested in understanding more about product marketing and how it works with product you can check out my full post here.

 

Place

 

More commonly known as distribution.  Distribution can make or break a product. Regardless of whether it's hardware or software.  You can have the best product in the world but if you're competitor has a slightly weaker product but is more widely available you're probably going to lose (Tweet This).  When I worked at Pepsi in the 90's (yes, totally dating myself) one of the big reasons why Coke kicked our ass wasn't advertising but because they had much better distribution.  The joke in the industry is that you can find Coke more easily around the world than drinkable water.  Sadly, that's also statistically true (ironically, they also sell a lot of bottled water as well).  

 

Distribution can make or break your business.  Coke rules after more than 120 years because it's more widely available today than drinkable water.  And that's no joke.  (Tweet this).

 

The same is true in tech.  You have to be where your customers are and even where they aren't.  The more consumers see you the more brand "recall" you have (ie. the first brand they think about when they are considering a purchase). Twitter and Facebook aren't massive just because of their product and virality. They are successful because you "see" them everywhere.  They are distributed by 100,000's of 3rd party brands on their websites, apps and in the press.  In effect, their ubiquity is a reflection of their distribution.  It's the power of being everywhere.   Coke and Pepsi have enjoyed a duopoly in the soft drink market since the 1890's mostly due to distribution not just advertising.  

 

 

 

How Marketing can help distribution

 

The key to unlocking distribution is to identify all your possible distribution channels: ie, where are users / clients going to find my product and figure out how to market to each based on their own, unique characteristics.  Once you establish the different channels or partners you have then marketing usually works with your BD teams to develop channel marketing plans.  That's marketing-speak for marketing programs specifically tailored to the needs of that channel.  Here's an example.  When I managed Google Play marketing, one of our programs was called "Comes with Google Play." It was a program targeting handset vendors and carriers where we provided them with programs, assets and tools to communicate to users that Android devices came with Google play content.  The goal was to ensure that consumers considering Android wouldn't buy an iPhone because Android lacked content.  So we developed the program to provide those channel partners with assets and programs to help carry that message to prospective users.   

One of the best known programs of that sort was Intel's famous Intel Inside campaign (developed in 1995).  Not only did it help users understand what a processor was and why it mattered but, more importantly it told users why they should only consider PC's running with Intel processors.  It also got the Intel brand in front of millions of users who otherwise, would never have heard of it.  

 

Price - show me da money!

 

Usually the domain of sales or senior management effective pricing can dramatically increase profitability, extend product life cycles and destroy competition.  

Getting pricing wrong can also have dramatic consequences on your sales.  In 2011 Blackberry introduced their first tablet: The Playbook.  Aside from having a terrible name which had nothing to do with the product (they had virtually no games or entertainment content and were targeting business owners) they priced the device initially at $499 to $699 which was the same price as the market leader: the iPad.  The result was a dismal flop.  It should have been intuitive.  After all why would I buy an inferior product, with less content at the same price from a company with little expertise in tablets?  Blackberry's fall from grace had many contributing factors but a large one was marketing or the lack thereof.  

 

 

The other thing to consider when thinking about pricing is your business model.  One of the biggest challenges when I started working in mobile gaming back in 2005 was that we were effectively asking consumers to fork over 4-5$ to experience something they had never experienced before.  Consumers, especially when considering new products and services, often are hesitant to shell out money for something they've never experienced.  At glu mobile we solved that by providing Try-b4-u-buy versions of our java games.  Years later, this eventually morphed into free-2-play games which is now the standard and has helped turbo charge the entire industry.  For years what held the mobile industry gaming back wasn't just shitty distribution but also bad pricing.  Once games became free to play, a big reason not to download them suddenly melted away and the market exploded. 

 

Marketing and pricing

 

Let's go back to our dynamic duo - D2.  Ideally, both the PM and PMM who own your product should have a pricing strategy not just for launch but for the entire duration of the lifecycle of the product before you launch it.   This pricing strategy should reflect the competitive landscape, the introduction of new features (and whether you're going to charge for them) and the planned obsolesce of a product to pave way for a new one.  In the Valley not only do teams spend insufficient time on pricing but they often will either underprice a product (our competitor charges X so we should charge X-1) or fail to identify features that should justify higher pricing.  Pricing is important not only for profitability but also as an indicator of perceived brand value / strength.  

Let's say your positioning your firm as the "market leader" in X space.  What does it say if your pricing is the same as everyone else's?  It says you don't have enough confidence to charge more for it.  If you don't have enough confidence to charge more for it, then is it really better than what's out there?  It might be, but that's not what your customers are going to be left asking.

Marketing teams need to be assessing how sales and volumes change over time as a function of pricing.  They should be looking at one-off sales promotions targeting specific times of the year and they should be planning price reductions when products are being phased out and pricing increases when products add valuable features. Lastly, if you're selling physical products your marketing teams should be working with sales to identify opportunities to price discriminate according to different channels.  Ever notice how a can of Coke (or Pepsi) costs more in a restaurant than in a gas station?  There's a reason for that.

 

 

Last but not least Promotion (aka Advertising, Growth Hacking, UA)

 

Advertising does remain a core function of the marketing team. But here's the catch: It's not as effective as it used to be - particularly among millennials.  Why? There's simply too much noise and too many fragmented channels to chose from. Too many ads, too little time,  coupled with consumers and clients who are often lazy and usually irrational (if you don't buy this read Dan Ariely's book "Predictably Irrational").  Consumers are filtering out all the noise and are basing purchasing decisions based on other things (friends, the latest fads, what they've used before, the first thing that comes to mind etc.).   Even Google admitted in 2015 that possibly up to 50% of Adwords clicks were accidental.    

On the B2B side, many customers are saying that they are actually more into buying products and services from companies who they trust and who "help" them with their business.  The translation in B2B is a greater focus on content marketing and developing materials that actually teach customers something that helps their business as opposed to trying to sell them something.  Content marketing has become all the rage and an increasing number of marketers are finding that this is the friendliest path of least resistance to building relationships that eventually translate into greater sales and longer retention.  

The key to understand advertising is simple:  advertising is a process and a journey. I've often used a framework to help explain this journey ALTR: Awareness, Likeability, Trial, Repeat.  In tech, the major problem I see is too many companies focusing just on step 1 (Awareness) and step 4 (Repeat).  That's why startup marketing if often a bit like bad sex:  It starts with a kiss and goes straight for the sex without any foreplay. (Tweet This).  Consumers, especially if they haven't heard of your product, need foreplay so get used to it and do it right.  Before a consumer is going to buy your product they have to have heard of it (for a new product, the rule of thumb is they usually need to have been exposed to an ad 8-12 times to have any recall of it). Once they've heard of it,  they need to "like it" or accept it as part of their consideration set among other products they might buy.  Third, they have to try it, usually in a manner that is a risk free and painless as possible.  They may buy it or try it but that doesn't mean they will stick to it.  The rule of thumb among marketers is that a customer you already have is always worth significantly more than a new one you have to acquire. That's why many VC's are placing so much emphasis on retention.  Acquiring a user on Facebook at $5-7 is one thing but losing 92% of them after 30 days is another.  

 

What your marketing team should be doing in regards to advertising

 

Good marketers will develop advertising strategies that capitalize on each stage of the consumer journey as outlined above.  Successful marketing strategies will have different messaging, different creative applications and different advertising channels depending on the goals at each phase.  Each step of the process should be measured and evaluated based on its own metrics.  For example, awareness should be measured in terms of aided versus unaided brand awareness, visits to your website, shares, posts etc.  Trial can be measured in terms of the number of consumers / clients that signed up for a free trial or purchased a sample of your product and the duration during which they used it while retention is a function of how long a consumer continues to pay for and use your product after the first purchase.  

Different advertising strategies need to employed depending where in the consumer journey you're targeting users.  Billboards or display ads may be good for awareness but not for trial.  Re-targeting is effective for consumers already considering your product but not for those already using it.  Blog posts, white papers and webinars are only effective if the content is tailored to the right audience at the right point in their customer journey.  If you're writing posts on your product features and expecting leads than you're simply wasting keystrokes.  

 

The good news in all this?  There's still a ton to do to improve tech marketing in the Valley.  The Valley is in many ways building the future of consumer and enterprise products across many different industries.  Better marketing will result in better products, solving problems for the right audiences, with the right message, at the right price,  available wherever those consumers expect the product to be available. It's a good time to be a marketer in the Valley (if you have a thick skin) and never before has marketing been more important then it is today.  Marketers should embrace this opportunity while CEO's and VC's should encourage both their marketing and product teams to work more closely together before they actually launch their products.  Consumers, tech companies and investors will be much better off of for it.  

 

So that's it for me folks.  I hope this post has been useful.  If it's been helpful please like, share and comment below. 

 

Also remember that mad mork stories is now on audio so check out my podcasts. 

 

If you're a senior marketing executive and feel like you might benefit from some coaching, feel free to book a session here (first session is complimentary) or visit my Facebook page for more info. 

 

Mad Mork

 

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