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Removing Barriers to Scale – Marketing Before Raising Capital

by / Monday, 28 January 2013 / Published in Featured, Startups
Growth is easy
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As an entrepreneur raising capital, you expect the inevitable question about growth. From where are you going to acquire customers? Such a question, though expected and appropriate, is as laden with ignorance as the typical answers. At the end of the day, no one needs to know how, nor model from, where you will acquire customers; what needs to be clear is how your venture will scale.

Growth is easyHere’s a simple truth about any small business or startup. Facebook advertising works. So does search engine marketing. And email, you can do that too. Does your strategy account for content marketing and SEO? Of course it does. Perhaps direct mail? Sure, it’s old fashioned, but it works. The simple truth is that any amount of money allocated to any marketing channel will work. When fund raising, modeling that you intend to acquire customers through said channels, requiring X amount of money, is about as experienced as saying that you intend to put up a blog through WordPress. Duh. Your sophistication as an entrepreneur does not come across in referring to lead gen, advertising, and marketing channels as the means of growing your business. But to be frank, that lack of sophistication is equally apparent in the person asking the question.

So where do entrepreneurs and investors usually turn in exploring more creative marketing techniques? “We’re going to get featured in the iTunes store.” “Our developers have a creative integration with Facebook to increase word of mouth through viral marketing.” “We plan to target the largest industry blogs and we’ll even pay for great reviews.” “We have a launch plan for SXSW.” “We’re introducing the app to the community at the upcoming demo day.”

Of course you are.

Entrepreneurs Need to Remove Barriers to Growth

If the fundamentals of marketing your startup aren’t ingrained in the DNA of your culture, you’re already off to a rough start. You can’t hire an email marketing professional to put your startup on the map – well, you can, but you’ll get as far as email marketing alone will get you and you are merely paying for the privilege of growth. Your job, as the cofounder, CTO, CEO, lead developer, customer service manager, designer, business development consultant, or team mascot (does that cover everyone on a startup team?), is to eliminate the barriers to scale.

  • If your app depends on retail partners or merchants to be compelling for users, figure out how to sign up thousands such that they don’t expect traffic or results from the partnership. How can you possibly, efficiently, acquire users AND merchants at the same time?
  • Invest in exceptional user experience and design as an audience passionate about your product or service is the audience that pays off in dividends, drives PR, and spreads the word. If you’ve failed to foster a passionate audience, or worse, don’t know if you have one or what it’s going to take to get one, you’ve failed period.
  • Are you clear about who, why, and how users remain engaged and are you fostering that engagement?  You can pay to acquire millions of users but if they use it once and are done, you’re done.
  • Do you have a technology that gets better when other users are on the platform?  Does it depend on users before the app is compelling for anyone?  Figure out how to make it work for me regardless of others being there!

THIS is what marketing does for your venture. Your marketer(s) must be responsible for keeping the organization focused on eliminating barriers to scale. More than anyone else in the organization, they should understand how to evaluate the impact of any marketing activity holistically, frankly, anything that touches your audience, and be held to an expectation of efficiency in growth – not the performance of any particular program.

Growth Hacking

Growth HackingWho doesn’t love a good Venn diagram?  Sean Johnson, partner at Digital Intent and organizers of the Chicago Growth Hacker meetup whipped up the simplest representation of how (or rather who) is capable of having this kind of impact on your organization. In looking at this diagram, ask yourself if you are hiring marketers, developers, or those that can capably play a role in both.

“There are two primary reasons startups fail. The first is they create a product no one cares about, a solution that doesn’t meet a need for a large enough market. This is a problem the Lean Startup movement has been working to solve,” shares Sean. “The second problem is they don’t know how to get customers. While they probably pay attention to traffic, the number of users who sign up, and the amount of revenue they generate, it’s likely they don’t know what happens in between. And even if they do, it’s likely they aren’t sure what to do about it.”

Traditional Marketers, the likes of which most people hire, serve customer growth, adoption, awareness, traffic, and other business metrics classically associated with reach or the size of your market. If you hire a good one, you’ll benefit from a holistic approach to marketing and an understanding of the impact everything you do has on your reach. More often than not though, entrepreneurs hire direct marketers who focus on sales, leads, and an inappropriately defined end-goal for your market – the point of conversion.

Growth is Easy, Hacking Scale is Hard

Growth hackers are constantly seeking ways to increase acquisition, adoption, retention, revenue, and referral. These pirates are rigorous in their use of data and methodology to determine what will scale the business and remove barriers to your success. Most importantly, they aren’t afraid to fail and they leverage their breadth of experience to ensure an efficient use of your resources. Their audience, the audience they can reach, is already millions of times greater than yours as they know how to use technology to reach everyone appropriate to your business and they add value to your organization by demanding that the team appreciate that your web service, your product, or your app, is the most valuable marketing tool.

There is an important appreciation in what Sean Johnson shared with regard to the Lean Startup, “There are two primary reasons startups fail. The first is they create a product no one cares about, a solution that doesn’t meet a need for a large enough market. This is a problem the Lean Startup movement has been working to solve.” He continues that, “The second problem is they don’t know how to get customers.” In finding creative solutions to ensure your scale, and in understanding the breadth of your market, point of conversion, monetization strategy, and reach of your product given the quality and innovation inherent in your product, the best growth hackers recognize that Lean can fall short of big ideas.

“Maybe the reason we don’t have big ideas is because our entire approach to building them is sometimes so frugal with time, money, and belief,” shared Redfin CEO Glenn Kelman in his encouragement of us to appreciate the need for building out the Maximum Beautiful Product, “Lean startup techniques have revolutionized how we build software, but the lean startup has also turned a startup’s only initial asset – the conviction that an idea will work — into a villain rather than the hero. This is why we so often see startups pivot rather than persevere.”

The problem many are exploring in the fanatic dedication to Lean is that it isn’t always the best way to scale innovative, market changing, technologies. Is your team removing such barriers to your success or are you still chasing or discarding ideas without a complete understanding of your market opportunity? Your experience with investors is likely telling.

Your Story or Growth with Investors

If you sell widgets at $10 a pop with a $2 margin, and your conversion rate is 10%, then the answer to the question of how you will grow can be as simple as any way in which you can get 100 clicks at $2 per click. When you’ve saturated that channel, you’ll find another. You need $1M dollars in financing as you’ve determined that there are 500,000 potential customers in said market. Of course, it’s not that simple but sales based marketing is merely math so when it comes time to the story of your marketing plans, a strategy as simple as some marketing channels and a budget, doesn’t impress.

Exceptional marketing takes place, or rather well known startups engage and invest in marketing, before any sizable fund raising.

Unfortunately, far too many investors have taken to avoiding risk by encouraging entrepreneurs to monetize their business first. Personally, such advice is a cop-out from just saying no, you have a terrible idea and I’m not going to fund it but not because it’s a soft no and, indeed, encourages an entrepreneur to figure out how to make money; rather, because, in helping eliminate risk, the entrepreneur now focuses on monetization and usually, as a result, limits marketing (growth) to that simple math.  Don’t misunderstand me, early revenue streams are not a problem and shouldn’t be discouraged, rather, the advice to monetize first and grow later is thrown about like candy and it trains a culture, an economy, to believe that monetization is the path to success.

Ever wonder why Facebook struggled with how to make money for so long?  More, that they didn’t have Facebook Ads in the early days??  They solved for scale first and you certainly can’t fault them for it.  The challenge in doing anything but solving for scale first is that innovations, incredible new technologies the likes of which we’re creating online, don’t have clear markets.   While your market validation at the stage you’re at might reveal that there are indeed 500,000 people who want what you’re doing, there are far more who have no idea that your technology is even possible, plausible, or available. Your focus on acquiring those customers because they are out there and you know how to pay to get them not only limits the size and scope of your business but it short-sells your story with potential investors.  If you heed the advice to monetize too early OR with a solution that stifles growth, THAT becomes your market.  An investor hearing that you are going to acquire said customers through a channel anyone with a budget can penetrate will (and should) say no to you.

Of course you can acquire those 500,000 potential customers; what are you doing to remove the barriers to acquiring everyone?

5 Responses to “Removing Barriers to Scale – Marketing Before Raising Capital”

  1. AriFranklin says :

    Great article. It’s always a big struggle to figure out how much to allocate to marketing, especially pre-seed or pre-launch.  A bigger question in my head if often determining not how much to spend, but what’s necessary. I’m interested in your thoughts on how much user growth is based on pre-launch marketing and promotions.

  2. AriFranklin says :

    Or less how much growth is based on pre-launch marketing, but how much can generally be attributed to pre-launch branding efforts (how effective do you think pre-launch marketing really is?).

  3. seobrien says :

    @AriFranklin great questions.  Here’s a blunt thought and way of looking at it.  25% of your company should be allocated in this regard.  Perhaps more.  In my experience, the most significant and successful companies are those that had this skill set within the first 4 on the team.  Rather than a budget allocation, at least 25% of your company is worth getting this right.What’s practically necessary?  Hard to say as it does depend on what we’re doing, how often, and how much but I’d say you are fooling yourself if you are spending less than $7k per month.  What about pre-launch marketing?  I haven’t experienced that it’s wise to put too much effort here.  Outside of the fundamentals to ensure your analytics, technology, and marketing automation is solid, why spend as much time and resources on marketing that can’t yet yield customers, data, word of mouth, etc.?

  4. MikeAbasov says :

    Just noticed this. Thanks

  5. MikeAbasov says :

    …for the mention!

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