Back To Blog
Marketing for Startups
05.29.11

When I first started working with startups, probably the most frequent topic of discussion initially was around marketing. This is a pretty broad question but the question would usually come from a place of:

We're about to launch, we have a little bit of money, how do we make sure people use our product?
We've launched, we have a little bit of money, how do we get people to use our product?
We have lots of money, I hear about this marketing thing, how do we go about doing it?
Marketing is a pretty large and squishy world -- so to help myself conceptualize it, I created a little 2x2 matrix covering off the various marketing options.

So here's what you're looking at:

Y-axis: Cost from low to high
X-axis: Return on investment from low to high
Bottom left quadrant: this is where startups start out (thus labeled "launch") -- and F+F stands for Friends + Family. I've put this tactic in low cost / low ROI though one could argue that it could be in low cost / high ROI (cost per acquisition to email out to your friends + family is low.) 
Bottom right quadrant: startups move from bottom left to bottom right -- they're starting to build traction here so they start using higher ROI vehicles like SEO, E-mail, and PR. The cost is relatively low.
Top right quadrant: startups now have more money and want to drive more traffic so they start investing in things like SEM / AdWords -- maybe even display ads or direct mail.
Top left quadrant: this is the quadrant that is typically known as "marketing". TV, Radio, Outdoor, Print, Events, etc. All of this is super high cost and relatively low ROI. It's often known as "branding."

Think of the arrows as moving a company throughout its life stage -- bottom left is starting out, bottom right is getting a little traction, top right is getting a lot of traction, and top left is a big company.
So now that's out of the way -- what's the point of this? I think a lot of work around startups is around sequencing -- doing the right things at the right time. Think back to the dotcom boom. What were many of the dotcoms known for? Besides being unprofitable -- they were known for launching massive marketing campaigns -- Super Bowl ads, expensive TV campaigns, etc. However, at what stage were these startups at? They were at launch or shortly thereafter -- so the bottom two quadrants even though they were running campaigns more befitting for the top left quadrant.
 
The question now is -- you have a startup, how to effectively spend money on marketing? The first question I would ask around marketing is why are you marketing your product? I think the obvious answer, "To get customers!" is a little insufficient. The reason is because I suspect the answers are more nuanced. Here are some examples. Startups sometimes ask me if they should start contacting TechCrunch, Mashable, and other tech publications. The question is why? If you've got a great product and want to raise a round -- by all means. I know a startup that raised a small seed round exclusively based on people who saw them in an article written up in TechCrunch. But if you're trying to build up a large customer base? TechCrunch is widely read in the tech community but unless you have a very tech specific product -- you're probably looking for a broader audience. Remember -- you're looking for a match between your product and potential audience -- so who out there has that audience?
 
Alright, so now that we've moved that portion out -- what type of customers are you trying to get? Do you have a product that is trying to reach two types of customers? For example, at Google -- Google is made up of users (people who use the search engine) and advertisers (people who use AdWords to advertise across Google and its affiliated sites.) One is B2C marketing and one is B2B marketing -- both very different. B2C marketing is generally very mass market (e.g. TV, Radio, Print, etc. -- think about the type of ads you see from Apple) whereas B2B marketing is generally very high touch (think events, marketing collateral, high end direct mail campaigns, etc.)
 
Let's get back to the 3 questions I posed at the beginning:
 
We're about to launch, we have a little bit of money, how do we make sure people use our product?
The reality is most people probably won't use your product -- especially if you don't have a lot of money but probably even if you do have a lot of money. The idea here I want to encourage is to think about an exponential curve. With an exponential curve, it takes forever to get traction, but once you get it -- it takes off like a rocket ship. So you're constantly investing and working and iterating to find something that gets that traction. Mentally -- it's have some patience, because you might be in this for a haul. There are some exceptions -- probably the most recent one is Groupon -- but if you think of the history of even startups that people think of just bursting on the scene like Facebook and Twitter -- both of them had pretty long lead times before they broke through.
 
So what would I do in this case? Frankly, I would continue working on the product to establish a beachhead. Find out what about your product is so useful and what segment of people love your product and really build off that niche. Build the ability for that segment to easily and effectively share the product (e.g. referral $, gaming components, sharing functionality, etc.) An example in the music world is Lady Gaga. If you read some profiles that cover her rise -- when she was still relatively unknown, the community that really consistently gave her a base was the LGBT community. So she (and to this day still does this) -- really cultivates that community, makes sure she engages and thanks them, and appreciates the fact that that community helped really establish her -- because without a base, without a foundation, it's impossible to build from there.
 
Am I saying save your money? Kind of. I would probably dabble with some SEO and maybe some PR -- almost anything as long as it was reasonably cheap and easy to test. I would also dabble to the extent that then you know the exact CPA of various marketing tactics and also have some institutional knowledge of how it works -- but beyond that? Wait and see.
 
We've launched, we have a little bit of money, how do we get people to use our product?
This is going to be similar to the above response -- but this is probably where it's hardest mentally. You have a good product and you would have tons of users... if only people knew about it! There's a digital content production startup out here in L.A. that's really killing it -- multiple properties that have millions of views on YouTube. I was curious how this came to be -- I mean, I understand a single hit -- but multiple hits? So I asked one of their investors. The answer? They had a single hit and then used that hit to drive traffic to their new properties. This is like the Zynga model. (Farmville -> Mafia Wars -> Frontierville, etc.) In short, it's really hard to start from scratch. What these companies are doing (and what even the large companies like Amazon do too) -- is to use a gigantic property (e.g. amazon.com) to drive traffic to a new product (e.g. Kindle). They're basically taking a bath on marketing expenditure but because this isn't cash dollars out the door (they're just losing money on an opportunity cost perspective) -- it can be really deceptive.
 
But the core question here is -- without having a major property to drive traffic to a nothing property, how do you build from the nothing property? I have no answer here other than basic blocking and tackling. Working every day at trying to get a little more traction. Think of it like baseball. You have 27 outs and 9 hitters. Your leadoff man is supposed to get you on base. The #2 batter usually is really flexible -- he can bunt over the leadoff man, play hit and run, etc. You have maybe 1 or 2 guys who are primed to hit the 3-run home run. And then you try and hide the weaker players towards the bottom of the lineup. Not everyone on the team is best suited to going for the 3-run homer. My advice here is to do all the small things right and invest across the board. Take the example of Groupon and LivingSocial. Both of them eventually figured out the product really well -- how the images should look, how the copy should sound, how to build an email list, etc. These are the walks and singles. At the same time, they also had folks going out for the 3-run home runs. They don't happen all that often, but when they do -- they can be a game changer. What's an example? Groupon really hit the next level when they ran a promotion with the Gap. Why? Suddenly Groupon went from this cute little coupon provider to something that big brands might run huge deals with -- if the Gap would work with Groupon, wouldn't that mean pretty much all of business was open to them? Same with LivingSocial? They ran a deal with amazon.com and sold millions of deals -- that changed the perception of them from being a permanent #2 to someone that might be able to overtake Groupon one day.
 
We have lots of money, I hear about this marketing thing, how do we go about doing it?
Focus groups! Brand studies! Surveys! TV ads! Events at SXSW! This is what I would say here -- relax. Marketing is an investment, just like everything else. The weird thing about marketing is most companies don't seem to look at it like an investment. They seem perfectly content to spend money on things where it's basically impossible to measure the return.
 
Hold on though -- what about a *great* company like Apple. They spend money on billboards and TV ads and things that are really hard to measure the ROI. Or Coca-Cola? They spend many millions on huge brand awareness campaigns -- surely they know what they're doing and this money isn't lost? So, of course, it does make sense that those brands spend that money. But why? Why is it acceptable for them and not acceptable for startups? The reason is because those companies are massively profitable. They can afford to lose money on any individual campaign. They can afford to even not measure the effectiveness of their campaigns. It's not necessarily going to be the most efficient use of their money, but their business model supports it. Let me give a clear counter to it though -- auto companies. Auto companies are one of the top spenders of mass market campaigns -- TV ads galore. But think back to what happened during the auto crisis. They started pulling back on those campaigns and instead invested it in specific financing deals -- 0% financing, $ cash back, etc. Their business model, at that time, no longer supported their ability to run massive marketing campaigns and they needed something more measurable. That then begets the question whether or not those broader, non-measurable campaigns, should be used in good times regardless -- but that's a different question for another post.
 
Here's one more example. My first job was with amazon.com in their Electronics store. The Electronics store was relatively new and would only get occasional traffic bumps from amazon.com (i.e. homepage promotion) -- everything else would just come from people stumbling across it via site navigation. But what is one of the biggest ways that Electronics stores advertise? Sunday circulars! Best Buy, Circuit City, Good Guys -- all of those players had them back then. So we launched them too. I was in charge of running the numbers. No matter how I ran them -- there was no logical way I could figure out that the circulars were profitable for us. None. The added revenue from them barely was more than the cost. (and margins in Electronics are tight) But you know what was both profitable and really drove revenue? Free shipping promotions. Why? Back then (this was before Amazon Prime and free shipping on $25 or more) -- shipping rates were nuts. You would put a DVD player or camera or whatever else and the shipping costs might be $5 or $25. And they would vary across websites -- you just never knew. It created a huge problem with respect to uncertainty and drove down sales. It was also expensive -- even on a $100 item, no one wants to pay $5 more -- it just feels like an added tax. 
 
So if you have a lot of money -- here's what I would recommend, and it's no different than what I recommend with product. It's still about testing and finding out what actually works. Circulars, no. Free shipping, yes. Maybe it's having an awesome referral campaign (Groupon is up to $30 in Groupon bucks for every friend you recommend) or maybe it's holding super high end events (the Robin Hood foundation has shown that this can raise tens of millions for a non-profit), or maybe it's SEO (tons of under the radar companies make enormous sums doing this.) Try everything as long as everything doesn't cost too much relative to how much you can spend. Build up that institutional knowledge -- be open that some of the tactics available to you will change over time. The marketing tactics that might be effective for Quora is different than what might be effective for Twitter. It's about the life stage of a company, how much money you have, and how profitable your business model is. Weigh all of them, see what makes sense, and then go experiment.

Comments