Editor’s Note: This is part I of a three part series on scaling startup marketing. Stay tuned for future posts or download the complete Startup Marketing eBook here.
Startup marketing is incredibly challenging. Finding product market fit, building a brand from scratch, and ramping revenue from zero to millions, these fundamental startup marketing problems are absolutely daunting. As if they weren’t enough though, the difficulty of scaling startup marketing is compounded by incredibly tight marketing budgets, changing market conditions, rapid organization growth, high expectations and an uneven understanding of marketing’s role in the business.
As a career CMO and now CEO of my own marketing management startup, Markodojo, I’ve repeatedly confronted the startup marketing challenge. Yet, it doesn’t get any easier. Every startup is unique and the individual startup marketing challenges vary accordingly. However, there are some common themes that startup CMOs and CEOs can rely on as the business scales from A-round to B-round to C-round and beyond. These are the ABC’s of scaling startup marketing.
Adapt or Die: Scaling Startup Marketing in Round A
The point of the A-round is to go from proof of concept to proof of business. From a marketing perspective, you are searching for the elusive product market fit, or rather the minimum viable product to early customer fit. The salient fact here is that there are two sides to this equation: product and market. As such, the primary marketing challenge is to align your product’s value proposition with a lucrative market segment of potential customers. This can be accomplished by altering said value proposition or by altering said market segment.
Startup Marketing Math
Congratulations! You’re funded. Time to ramp marketing and make some money. Hold on a minute; let’s do the math. A typical A-round startup might bring in $5M in funding on top of a revenue run rate of about $500K. Assuming a two year ramp and a 10% marketing spend, we’re left with an A-round startup marketing budget of…drum roll…$300K. Let’s call it $250K to $500K, depending on sector. Once you hire a marketing person or two, you’ll probably have at most 50K-150K per year to spend on programs, and it goes fast.
Realizing Repeatable Revenue
Achieving initial product market fit usually requires multiple adaptations to your marketing mix: promotion, product, channel and price. However, regardless of the marketing mix variables you tweak, the overarching A-round startup marketing goal is to realize repeatable revenue. You are looking for a marketing recipe that sells your product again and again, and puts your startup on the path to sustainable revenue growth.
Make Your Own Luck
Our startup marketing math clearly shows that you don’t have much money with which to work in round A. As a matter of necessity, you will have to focus on marketing channels that are cheap or free, such as SEO, content, email, social, affiliates, speaking, public relations, product trials, viral features, and referrals. Paid channels, such as advertising and events, are cost prohibitive until you establish a solid revenue base. The worst thing you can do is blow your entire marketing budget on one or two bad, paid marketing ideas.
Since you can’t drive revenue with quantity, your best offense is to focus on quality. Place lots of little bets in order to find what works, then double down. Get your target right. Get your message right. Get your channels right. Get your product right. Make your own luck through a combination of creativity, agility and a voracious appetite for customer feedback. You don’t know what will work, so you must try many different ideas, adapt quickly and work your way into that very first sweet spot.
Let Your Customers Be the Judge
Once people really start responding to your marketing and using your product, everything changes. What you thought was great might not be so in the eyes of your customer. Customer focus is a good thing for any marketing organization, but in A-round startup marketing, it is a do-or-die proposition. If your customers can’t find you, don’t understand your value, or aren’t motivated to buy your product, then your startup will fail.
Chances are you’ve spent a lot of time thinking about your product, your website, your promotions, etc. It’s time to let your customers be the judge. In fact, there is no better time than the A-round to begin building a customer-centric marketing culture. As you scale your startup marketing organization, it will become harder and harder to hold onto that ideal. It’s best to develop the habit of making the customer the center of everything you do from the very beginning.
Build a Foundation for Growth: Scaling Startup Marketing in Round B
Startup Marketing Math
The average B-round startup is doing $5M in revenue on top of a funding infusion of about $10M. With a 10% marketing spend over a two year ramp to a C-round, we get an annual marketing budget of about $1M, give or take $500K depending on industry and whether your startup is B2B or B2C. Typical B-round marketing headcount will range from 4-8. While there is considerably more breathing room in series B startup marketing than in series A startup marketing, the marketing goals are also commensurately higher.
In the B-round, the rubber really meets the road. Revenue expectations are high and forgiveness is scarce. The business has proven that there is money to be made, but doesn’t have an entirely clear picture of how to make it. The customer base has a handful of strong buyer segments with inklings of others that hold great promise, provided marketing can get to them. The challenge is to scale a couple of things that work, while mining for new revenue streams to meet aggressive revenue growth goals.
Once Is Never Enough
Having discovered at least one vein of repeatable revenue in the A-round, the B-round startup marketing challenge is to do it again, and again, and again. A classic B-round marketing strategy is to map out each potential market segment and attack them one after the other. This approach was popularized by Geoffrey Moore as the ‘bowling alley’ strategy in his classic ‘Crossing the Chasm.’ However, industry segmentation is just one way to divide and conquer the marketing mix. You may find that new marketing channels, new product capabilities or new pricing plans also provide access to new revenue streams.
The Marketing Innovation Engine
B-round startup marketing is a game with constantly moving goal posts. The biggest risk is that you will run out of energy before you reach the C-round. New marketing ideas must be constantly collected, brainstormed, prioritized, tested, measured and assessed or you will not discover the new marketing programs you need to take the business to the next level. A typical B-round marketing team consists of marketing managers with very different skill sets, for example a product manager, a content marketer, an online marketer and a public relations manager. It looks like several departments of one person each. It is essential that it does not behave as separate departments. To meet B-round goals, you must forge a coherent marketing innovation engine focused on discovering and optimizing new sources of revenue.
Moreover, each successful marketing program must be quickly operationalized, so that your small team can move on to the next great marketing idea without getting bogged down by the last. Each marketing success must be piled upon the last to maintain growth. If you move on to the next big thing without locking down what is already working, you will simply churn your marketing programs without any discernable revenue growth. By the same token, you want to fail fast on programs that are not working, so they don’t eat up precious marketing resources. The good news is that with each successful jump in revenue, you will gain more headroom to increase the size of your startup marketing team and marketing programs spend.
Streamline the Customer Journey
It is during the period between B and C rounds that the true market potential of your business comes sharply into focus. You will start mapping customer segments, buyer personae, pain points, purchase funnel stages and the like to create a clearer picture of your customers and their needs. As you discover the target prospects, marketing messages, communication channels and product capabilities that count, you can begin to construct a coherent customer journey. More importantly, you can begin to automate that journey through marketing, because it is the only way you can lever up. With your marketing innovation engine spewing out one successful marketing program after another, you run the risk of marketing program proliferation, and an equally complex proliferation of marketing processes and technologies. B-round marketing innovation must also lay the foundation for C-round scaling and production efficiency. Enterprise marketing processes and systems that operationalize cross-functional marketing processes, such as prospect databases, website publishing, marketing automation, content management and marketing project management should be built to scale. Otherwise, you will waste precious C-round cycles cleaning up B-round messes
Create a Marketing Machine: Scaling Startup Marketing in Round C and Beyond
Startup Marketing Math
By all marketing budget measures, C-rounds are nice. Let’s be modest and say you are doing $20M in annual revenue with a $20M funding round, giving roughly $30M per year with which to work. That’s a $3M marketing budget at 10% of total spend. Call it a range of $2-4M based on sector and given that this is a modest scenario. Headcount will be in the range of 10-30, and your marketing department is really taking shape. Plus, you have more than $1M to spend on programs, maybe a lot more.
The C-round is all about scale. Having successfully crossed the chasm in the B-round and proven that your product is useful to a broad audience, it’s time to ramp it up and capture the full potential market. Expectations still run high, but you have a track record on which to build. Marketing goals are more achievable and success is more certain. That doesn’t mean you can’t screw it up.
Time to Grow Up
C-round marketing is all about harvesting the crops that you’ve sewn in the B-round. You know what works and you are ready to step on the gas. A-round and B-round marketing investments are risky long shots to discover what works. In the C-round, money pours into blue chip marketing programs where you expect a healthy, predictable return. From a marketing management perspective, it’s time to grow up. Not just good marketing, but good management will determine your success of failure.
In the A-round, marketing management consists of talking to the marketer next to you. In the early B-round, you can manage by walking around. By late B-round, C-round and beyond, management-by-walking-around doesn’t scale and can become a critical point of failure. Complexity quickly turns controlling managers into bottlenecks. Loss of a key marketing manager can bring an entire function to a halt and put revenue at risk. To scale marketing in the C-round, you must weave marketing management processes into the very fabric of the business.
Operationalize Marketing Management
Most marketing departments gravitate toward a functional structure as they mature. Early stage marketing generalists give way to marketers with specialized skills, such as product management, product marketing, content marketing, online advertising, community marketing, field marketing, public relations, marketing ops and so forth. The marketing organization begins to look less like a nimble work team and more like a factory composed of many different types of machines. To get anything done, these machines must be linked together assembly-line fashion. Consider the number of people that might touch a simple email before it ends up in the hands of a customer: a product marketing manager, a copywriter, a designer, a web developer and an online marketing manager would not be unusual. In the B-round, we figured out what kinds of email campaigns work. In the C-round, we have to send out 1000’s of emails per week, while increasing marketing ROI. And by the way, it now takes five people to do it instead of one.
Innovation is still an important element of C-round marketing management, but the focus shifts away from discovering entirely new marketing programs to optimizing current marketing programs. Your marketing management processes should produce consistent, timely, high quality results and no single component should be able to bring down the line. You can’t just send out those emails. You must define your marketing management processes, codify best practices, automate routine tasks, enable cross-functional collaboration, establish performance benchmarks, continuously improve and integrate programs to present a seamless experience to your customer.
Make Marketing a Hub of Expertise and Enablement
As a discipline, marketing is the process of aligning customer needs with business capabilities to create value and drive growth. That’s quite a statement. In reality, only about half of the marketing discipline occurs inside marketing the department. Every time a sales rep speaks to a customer, she is delivering a marketing message. Product managers might be in a separate group, dispersed among divisions, or sit inside engineering. Marketing creative might be outsourced to agencies. At scale, marketers must reach well outside the marketing department to enable marketing as a discipline throughout the company.
At the highest level, marketing must offer strategic leadership to the business grounded in solid marketing expertise and an unparalleled understanding of customer needs. The marketing department cannot allow itself to become isolated. It must reach out to customers, sales, product, finance, vendors, industry influencers and the like to communicate marketing plans, collaborate on marketing programs and enable marketing to function outside the marketing department. Finally, marketing must strive to make customer knowledge the lifeblood of the marketing organization through pervasive customer feedback and customer-centric performance metrics.
In the End, It’s All about Leverage
The most straightforward way to grow revenue in any business is to sell every deal directly: prospecting, qualifying, educating and closing. Unfortunately, 100% pure direct selling doesn’t scale well for things like chewing gum, smart phones, software, automobiles and office equipment. Without marketing, most products would never make it to market. There is really only one reason to rely on marketing over sales: it’s cheaper. That’s marketing leverage.
Financially, marketing leverage can be defined as simultaneously increasing both revenue and marketing ROI. Sell more for less. Increasing marketing leverage over time requires a balance of ongoing innovation and increasing production efficiency in your marketing management process. Ongoing innovation sources new revenue streams and optimizes existing marketing programs. Increasing production efficiency improves marketing ROI. In the end, scaling startup marketing is just the endless quest to increase marketing leverage.