Packing up and moving

Like many people these days I am stretched too thin. While agile marketing is a great topic I’ve decided to consolidate my blogs and focus on an area that I think spans some of the areas I have been trying to cover. The new blog is called “Soul of a New Business” and it will track on a daily basis what is happening in my life and my company’s life as I get a new business off the ground. This will be my second start up. My first is a custom fly rod eCommerce site at www.flycatcherinc.com which is doing very well.  Join me at my new home at http://soulofanewbusiness.wordpress.com

 

The question was asked, “what is the right split for spending on marketing vs development?”.  The answer as you might imagine is “it depends”.  Anybody that would give you a straight answer to a question like that is someone I wouldn’t want to be receiving advice from.

Of course, there are some industry averages for companies in specific industries, but we’re talking about a start up here.  Averages are just that, averages.  What a start up needs to spend in marketing depends a great deal on the type of company it is, the rate of growth desired, the level of competition in the market, the readiness of the product for specific market segments and many other things.

Most of the companies I deal with fathom themselves to be technology companies.  But while they think of themselves as technology companies, they really aren’t.  They really tend to be dealing in software systems.  You might think they are ’software companies’ then.  But they really tend not to be that either.  They really are companies that are providing services delivered online where software is a major tool for delivering the service.  These are companies like photo services, education, and social networking.  I have specific warnings for companies like this.  Be careful not to over-rely on the software at the exclusion of sales, marketing and other disciplines.

I was in a start up venture where we completed a great social networking service.  Our runway was getting short and we were having trouble bringing in a second round of financing.  We tightened the belt and cut back in all areas, which was prudent.  But we kept a substantial software develpment capability.  In retrospect this may have been a mistake.  The product was solid and it performed all the critical functions customers were interested in.  We, perhaps, should have dropped software development to a skeleton and focused our resources at driving revenue.

I think we didn’t do that because we fundamentally thought of ourselves as a software company.  So, if you are a ’software company’, I caution you to not get caught in this wrong headed thinking.  Constantly evaluate where your money is going, what your goals are, and where to deploy your money for maximum results.  Don’t be afraid to gut a function if that is what you need to create success.

 

Test Your Idea All Along the Way

Forget stealth. Once you have decided who your target customer is and what benefit you are bringing them go out and talk to people, lots of people. You can’t shortcut this. There is no real substitute. When you look someone in the eye and explain what you are doing you can read reaction in their eyes.

This is why I have used this approach at companies like NCR, Traveling Software, and Door to Door Storage. No matter what else I was doing I set up a goal and schedule for face to face customer and prospect meetings. At Traveling Software we actually had a routine of holding group customer meetings once a month. At NCR we did a series of blind interviews with IT executives using a research firm. We wanted to do it blind to eliminate bias. I accompanied the researched on the interviews under the guise of being with the research company. I wanted to personally see the reactions.

The feedback you get is invaluable. Don’t mix up one on one discussions with statistics. You are not looking for percentages and don’t try to turn them into percentages. You want insights. You want validation or rejection of gut feel. You want the “oh, I didn’t realize that” thoughts. In researching consumers for a photo sharing company I found out through discussions like this that customers with 2 megapixel cameras thought they couldn’t print quality prints. As a result we had to educate them and prove to them the opposite.

So, don’t formalize your discussions into structured market research. Let your discussions be free flowing, but have a punch list of topics that are key areas you want to get feedback on. Just make sure you have covered them before you are done. Here are some typical things you’ll want to know:

• Is this concept interesting?

• How would it make your life better?

• What words would you use to describe it?

• Would you tell others about it? Who? What would you say to them?

• Where might a discussion of this product come up? Business meeting, etc.

• What else might this product do that it doesn’t appear to do as described?

• How would that improve your life?

• Would you buy this product? Why?

• Would you be the person to decide on a purchase?

• Who else would be involved?

• Would anyone else have to approve this purchase? What aspects would they be interested in before they approved?

• What purchase would you have to forgo to make this purchase, or in other words, what are the competing purchases for your dollar?

• Who else should I talk to? Can you introduce me?

 

NWEN Event and Guerilla Marketing

by Mark Waldin, Agile Marketing Executive What is guerrilla marketing and how do you do it? That was one of the core questions being asked by a group of entrepreneurs last night at the Think Tank event hosted by the Northwest Entrepreneurs Network (NWEN) last night on the Seattle University campus in Seattle.

At the event was a panel of very good marketers: Rip Warendorf – Senior Vice President of Worldwide Sales at Zango, Steve Brodie – Chief Product and Marketing Officer of Skytap, and Sally J. Vilardi – Co-Founder and President of Do My Reminders. I thought they were all well spoken marketeers. But I think the topic of guerrilla marketing went underplayed. So, here is my take.

What these people were asking was about marketing promotion and advertising – that is, creating awareness and interest in their product among their target audience. What they were adding to the equation was I don’t have the capital to fund it. This of course is a common occurrence among entrepreneurs. Further to that is that most people think of marketing dollars as risk money. They invest it but they may not see the return on it they were hoping for. This makes them skittish on borrowing to invest in marketing.

To get marketing without spending (much) money one has only one option: spend labor. This is the one thing that entrepreneurs have that they consider (almost) free because it is somewhat elastic (I can work longer and harder!). That’s it in a nutshell. Spend your labor dollars.

But guerilla marketing exists at the intersection of labor and low hanging fruit. There is nothing magical about marketing and like many activities the curve on expenses vs return is logarithmic. To get a few customers the cost per customer is relatively low but as you try to scale up to big numbers the costs increase exponentially to a point where spending more money yields almost nothing. Guerilla marketing exists near the origin of this graph where cost per customer is low or common parlance, the low hanging fruit in terms of marketing expense per acquisition.

To exercise your low hanging fruit one must look at each situation individually. It becomes a combination of determining a) who are the people with the most pressing need for my product/service, b) which ones are easiest to reach, and c) what low cost marketing vehicles exist for me to reach (some of) these people. Low cost marketing vehicles include using some of the following criteria:

• geography – people physically close to me are cheaper to connect with than those far away
• events and conferences – doing speaking engagements at organized events is free if you can sell your expertise to the organizers
• editorial – exercise the media to get articles written about what you are doing
• product reviews – if your product is of the right type you can get it reviewed by a publisher
• networking – also known as direct selling, work your network to make connections with potential buyers or people who know potential buyers
• flyers, door drops, sandwich boards – for the right product, cheap direct marketing pieces with a lot of labor can be effective
• blogs and industry pundits – work the blogs, online media, and the movers and shakers in your specific industry
• web site – create a web site, add useful content and make it a place people want to come to stay current
• forums – work forums, add your comments and suggestions and always leave breadcrumbs back to your site
• referrals – use the customers you acquire to get new leads. Being a small company is advantageous. Use being small as a tool to solicit help from your customers to get bigger. You’d be surprised at the results.

Bottom line is that guerilla marketing is good for a boot strap to get you going. It is not a scalable marketing method but is great when you are small and cash strapped. It is extremely hard work and labor intensive; be prepared to sweat. Realize that this is not a quick start method. Rather it is a convenience for people who don’t have the money to make a rabbit start. Plan accordingly. Last, plan your business beyond the guerrilla phase. Determine how long the guerrilla phase is going to last, how far it will take you, what you will do next, and what it is going to cost you when you do.

 

How to select a target market

When you go about narrowing your target market, there are a few important things to keep in mind. Following these guidelines will drive success over the long run.
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Well defined – make sure your target is well defined with clear boundaries. The worst thing you can have is a mushy target definition that can be stretched and contorted to fit your needs. Such a target statement will cause you to begin including additional targets because they seem attractive at the time. A tight target will help you keep your discipline intact.

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For example, I started a business selling custom fly rods. Since I had all the components in inventory I decided to sell them as well. My target market was upscale serious fly fishermen. At times I thought about compromising the home page to push components in addition to the custom rods. I was tempted to work hard on improving the components section of the web site rather than enhancing the custom rod section. By having my target in focus I was able to avoid both of these distractions.

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Measured reach -make certain your target market is defined in a way that you can both quantify the audience AND especially that there are marketing vehicles to reach them. When I was VP Marketing for a major on line photo sharing site, we found that our best customers were sentimentalists. These are the people that create scrapbooks, save everything, and cry at weddings. It was great to know this but it also created a huge challenge to figure out marketing vehicles that reached this target cost effectively. Usually, the cost of reach increases when you can’t find a vehicle that targets that market without targeting a large group of others. For example, coupon mailers can be a good vehicle to reach home owners. If you are looking to reach people needing a new roof you have to realize that only one in twenty of those home owners is likely to be in the target audience. Do your best to select your market in a way where there are efficient marketing vehicles to reach them.

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Appropriate size – narrow your target in such a way as to have a market that is not to big and is not too small. In many cases geographic segmentation may be an answer. If the market is too small then the rewards and returns will not match your revenue requirements. If the market is too big then the required marketing investment could break the bank. Marketing is a game of reach and frequency. You have to repeatedly hit your target market with your message at a frequency that creates awareness and comfort so that when they are moving into a buying mode you get considered. If the market is too big then the cost of doing that could be onerous.

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When I ran marketing for a storage company we found that the best we could do to reach a prospect was about $.10 per impression but the closest we could narrow our market was down to relatively affluent adults. With 50 million people in our target market in the United States our cost of advertising at a frequency of 12x per year was $60 million. This was too rich for us. Instead we targeted pockets of population in specific geographic markets.

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High urgency – Sort your candidate markets for those that fit your product or service offering the best. Go for the audience that exhibits the highest need for the solution. Go for the one that will be most excited about getting the fix. You need to get through the evaluation, assessment and denial phases with your prospect as quickly as possible. The more obvious the solution to a known thorn the faster this will occur.

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When I was product manager at Texas Instruments we launched a calculator that did nothing but convert numbers between decimal, octal, and hexadecimal. At the time the only solution software developers had was to do the math by hand (or IBM mainframe). The product was a huge success and literally sold itself because the need was so great and the solution so perfect.

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Good channels of communication -look for a market that has good avenues of communication. The way you are going to lower your marketing costs over time is through word of mouth. This is why companies that own market share have trouble losing it, even when the screw up. You want to build word of mouth fast. Word of mouth is a factor of how interesting your product or service is to the audience and how much and frequently the audience communicates among themselves.

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At the storage company, we found that communications about moving and storage was not strong. There were few web sites, no affinity groups, and people didn’t talk about it at cocktail parties. What we did find was that real estate agents do talk about it, especially with their clients and we found that having a storage box sitting in a person’s driving spurred conversation that wouldn’t otherwise have occurred.

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With efficient communications you will have to invest less in marketing and you will be able to drive your marketing costs down more quickly than otherwise.

 

When you launch, narrow your market focus

by Mark Waldin Agile Marketer - You have a solution that is clearly superior to other solutions a customer can choose from and you are looking at launching the product or service.  Now comes the hard part: marketing your product.  Whether your product is revolutionary or evolutionary it is going to be expensive to market it. To limit the cost of marketing and improve your chances for success it is best to narrow your market focus.

There are a number of advantages to doing this:

• Total promotional costs are reduced – because the population is smaller the dollars you need to spend to create awareness are reduced
• You can position your product better – you can tightly focus the selling proposition and benefits to the smaller market and make your proposition even more compelling
• You establish a beachhead – you gain a significant market share in a smaller market quicker creating a reputation and momentum
• You can leverage viral marketing – you gain critical mass within the market more quickly so that you can leverage word of mouth

 

My Solution is Better than the Other Guys

What if your product or service is providing a better solution into a well defined market space with known competition and known solutions? You think you have a far superior solution to a problem that people are already buying solutions to.

In many ways, this is the ideal situation in which to be. The main reason is that people already understand the problem exists, have already consigned themselves to spending money to solve the problem, and are already on the look out for a solution that best fits their needs. What could be better?

The downside is that you are forced to spend energy (and money) altering the perception of the prospect. People will either have created a perception in their mind about the solution to a problem or they will be ambivalent. If they have developed a perception, then you have a harder battle.

People almost always hold only one core solution to a problem in mind. You say, “lawn service” and they say “tru-green”. You say “lawn mower” and they say “Toro”. You say “cruise line” and they say “Princess”. You get the idea. They may know of many solutions but only one emotes an immediate response. If you want to play in the consumer’s decision process you have to gain mind share at the expense of the core solution.

Doing this takes more than just being a little bit better. Because they have mind share you have to overcome all the intangible benefits that the consumer has subconsciously assigned to the incumbent. These include items like trust, value, quality… Your solution had better be so much better than the incumbent solution that it resets the playing field. If you don’t, it is going to be an expensive and difficult journey you are embarking on.

 

The guys with the arrows in their back

If you are looking to educate the market about a new product or solution you must understand that you are planning to provide a product or service that nobody is currently looking for. People who aren’t looking for things tend not to find them. Fundamentally their mind is closed and you have to work on creating a space where the potential buyer will listen. In today’s market where consumers are bombarded by messages at every turn, this is very difficult.

There are exceptions to this and they tend to run along viral marketing lines. In the late 70’s when I was working at Texas Instruments we introduced a calculator that did conversion from decimal to hexadecimal. Nothing like it existed and the adoption was immediate and swift. The size of the problem was so large, the solution so elegant, the market target so well defined and so communal in nature, that the product took off like a rocket. So you can do it but I would caution that this is the exception, not the rule.

The key thing to remember is that adoption will be slow, marketing expenses will be high, and you had better have a plan to lock out competition because they will wait like vultures for you to educate the market at your expense and then come in on your heels and steal your prospects.

Let me give you one more example of this. In 2001 I was VP of Marketing for PhotoAccess, a startup Internet company providing digital photo storage and print making. In late 2001, we and several others, including Ofoto and Snapfish, had spent significant money educating the market about photo hosting. We had attempted to form a relationship with District Photo who was the largest independent photo finisher in the United States. Wisely, District Photo didn’t bite and instead sat on the sidelines as the flurry of start ups built market awareness. In late 2001, the venture capital market dried up and start ups were forced to sell out. PhotoAccess was sold to Photoworks, Ofoto was sold to Kodak and Snapfish was sold to District Photo. To my knowledge, none of these companies recouped the investment that was put into them, while companies like District Photo got market awareness at bargain basement prices.

Does this mean you shouldn’t introduce products and services if you have to educate the market? No, but it does mean that you better have a plan on how to leverage your investment and maintain your market dominance once competitors come swooping in.

 

Testing defensibility of your idea – no direct competition

You now have a value proposition and well defined target customer set that you believe has a high need for your solution.  Before you move forward you need to determine what the customer’s alternative solutions are.  Is someone already providing a solution to this problem that directly competes with you?  If so, then there are several questions you need to ask yourself.  But for now, let’s stick with a situation where there are no obvious alternative solutions that compete directly with your plans.

You need to ask yourself how people are solving the problem today.  Don’t say that they don’t have a solution because they do.  They are finding a way to live with or to mitigate the problem.  This is your current competition and it is what you will have to displace.

To do that you will have to create a new category of product or service in your customer’s mind.  Said another way you will have to educate them that this new category exists.  They are not looking for it because they think they have to live with what they have.  You have to interrupt their train of thought and get them to pay attention long enough to show them they have a problem they didn’t know they had.

This can be an expensive proposition to go through in terms of both expense (in advertising) and calendar time to break through.  You must ask yourself  a) is it compelling enough to get the customer to stop and pay attention, b) do I have enough dollars to establish that position in the customers’ minds, c) does the money spent provide and adequate ROI, and d) do I have a way to capitalize on the money I will spend to educate in a way that keeps other companies from capitalizing on MY expenditures?

To lock out other potential competitors from cannibalizing your educational efforts you either need to move extremely rapidly  in educating the market, b) have a patent position that protects your interests, or c) have a technology advantage that provides a clear time advantage over potential competitors.

Traditionally, entirely new product categories have taken on average ten years to reach maturation.  This is true for refrigerators, desktop computers, television sets and many other products.  In today’s hyper-accelerated Internet society it appears that the adoption curve has accelerated dramatically.  This is especially true of online services delivered by the Internet.  Many companies have chosen to drive to rapid adoption using “free” as a tactic because of the low marginal cost of production.    While this may be a good and valid strategy  one must realize the difficulty in changing customer behavior down the road when you seek to institute a pay for service model.  Consider this one carefully.

 

Before you do the market research

You have an idea for a new service or product (I am going to refer to it as a product for simplicity’s sake).  god forbid you’ve already built the service or product.  You think it is a great idea and you don’t know of anybody doing it or doing it as well as you plan.  Now, sit down and take the time to think through the buying process.

First thing is who do you expect to buy your product?  Don’t say everybody.  You need to articulate very, very clearly who you are going after and who will be attracted to your product.  Try to delineate the target by easily measurable criteria as it will be easier to find data to quantify the size of the market and it will be easier to target your advertising and promotion later on.

Let’s use a hypothetical example.  Let’s say you have an idea for an internet service that provides “human spam filtering” for email.  You plan to combine automated spam filtering with a human back up and radically improve the user experience.  Since virtually everyone uses email and has some kind of spam filter, you believe everyone is your target.  Think again.

To narrow the target, consider what unique benefits you are bringing and what segment is likely to benefit the most from it.  In this case, while everyone might benefit some, it might be the well-paid middle to upper level manager in a business setting that might benefit the most.  A flood of junk mail in the inbox might mean a missed email that is critical while an incorrectly spammed email might result in similar consequences.  The criticality of missed opportunity among lower paid workers or consumers may be too low to drive demand in these groups.

Notice that this exercise results in a better definition of the value proposition and crystallizes the product requirements around the ideal customer.

Iterate this process several times.  Identify several target customer segments if it makes sense.  Refine the value proposition and the target definition.  The more concrete you can be about this the better you will be able to move forward with confidence.