Posts Tagged b2b tech marketing
The secret to business success is easy to describe and hard to get right:
- Make something people want
- Sell it to them
Or as Peter Drucker said “the aim of Marketing is to know and understand the customer so well the product or service fits him and sells itself”.
I was lucky enough to attend a recent one-day seminar on growth strategies for startups, hosted by Sean Ellis, formerly VP of Marketing at DropBox. The seminar focused on Product Market fit i.e. “making something people want”. The key points were:
- Product market fit is essential – you need to understand it when introducing a new product
- Get your product market fit sorted out before you pull the trigger on your full product launch
- You can test for product-market fit at low cost
- One you have achieved product market fit, stamp on the accelerator pedal and drive up customer acquisition as quickly as you can, using scalable channels (i.e. online and automatable).
I thought it was worth writing a post on the subject, because I think technology startups commonly get product market fit half-right and then hit the road too early trying to build a customer base. I’m not suggesting that you slow things down – fast is always better than slow in startups. But by using the Lean Startup approach and the advice from Sean Ellis you can continue to make progress in your business, in a way that is likely to lead to product market fit.
What is Product Market Fit?
Product Market fit is the point when your product closely matches the urgent needs of a well defined and large group of customers. They have to have it. This is still a pretty vague definition – how can you be sure you’ve reached product market fit?
Sean Ellis proposes a more precise definition. He suggests that you survey your customer base and ask the question “How would you feel if you could no longer user our product?”, with the response options of (a) very disappointed, (b) disappointed and (c) not disappointed. If you get 40% or more respondents saying “Very disappointed” then you are achieving product market fit. If you’re at 40% or less then you have to iterate and experiment to identify a different blend of features or services or a different target customer group. You are trying to achieve what Ellis calls the MHX or ‘must have experience’ – that stage where your customers use your product on a daily basis, see and appreciate the value it produces for them, and don’t think it’s easy or desirable to switch to an alternative solution.
Don’t Pull the Trigger On Your Product Launch Until You Reach It
If you are lucky enough to have access to sales and marketing resources, it may be tempting to throw money into acquiring customers. However, you’ll quickly burn through that money without having identified the secret to meeting a target customer group’s needs. When the money runs out, you will still have the product-market fit problem to solve. Instead, you should hold that money in reserve until you’re sure you have a winning product for your target customers.
How Do You Get to Product Market Fit?
It is unusual for a startup to hit the ground running with a new product that immediately presses all your customers buttons. There are usually a few hurdles to jump first. It is more likely that you will have to:
- Tweak your product’s features and how you promote it until it starts to achieve “traction”
- Redefine who your target customers are, or
- Do both
Using the Lean Startup approach you should run a series of controlled experiments that give you insights into your customers and what they actually need (the key step in achieving product market fit).
Eric Ries’ “Lean Startup” book uses the example of a company that thinks a new feature could improve customer traction. He suggests that rather than building and deploying the feature, which could take months, the company could instead promote the new feature from their product website as if it already existed, driving web traffic with online ads to test the response, at comparitvely low cost. (This is known as ‘smoke testing’).
Additionally, Sean Ellis suggests running a customer survey to calibrate how they perceive your product’s value versus what you think the value is. He recommends writing out 5 very different statements of the value your product delivers to customers e.g. “Our system reduces your IT management costs by 30% in 9 months”. Then send a questionnaire to your customers, asking them to pick their favourite of those 5 statements, and to explain their choice. This is a quick way to verify that what you’re thinking matches what they’re thinking. When you have a match, make sure your website and all outbound communications consistently promote that value.
Now Hit The Accelerator
Once you’re confident you’ve achieved traction (i.e. 40% of your customers will be distraught if you unplug your servers and join a monastery) then it’s time to shovel in some resources. You want to identify scalable, automatable channels for customer acquisition, ranging across paid search marketing, search engine optimization, email marketing, social media and any other channels you think could work.
Carefully monitor and compare performance of campaigns, and watch what your competitors are doing. When you get a tactic that works, then “double down” on it – don’t just increase it by 10% or 15%, double it and double it again while you can see straight line growth.
Finally, Sean Ellis emphasizes that it’s a competitive world out there so tactics that worked last year may not work so well this year. Keep measuring, improving and testing new tactics.
A quick overview of why web marketing is critical for promoting technology products, for both B2C and B2B products and across all industry sectors. 24 hours a day, some of your potential customers will be looking online for your type of product or service. If they don’t find you they’ll find a competitor. This is a presentation we gave to campus-based companies for the Ignite Technology Transfer Office at the National University of Ireland, Galway (NUIG).
It’s a question you ask yourself when you run a business or first take over a marketing team – how much should we spend on marketing? There are a few ways you can get to the right answer.
First, though, it’s good to decide what the purpose of marketing is in your business. I think the primary purpose of marketing is to help you acquire customers. In B2C, marketing helps you do that directly; in B2B, marketing helps you acquire contacts that you subsequently convert to leads which your sales team then converts to customers. So, if you want to acquire more customers and grow your business in either B2B or B2C you’re going to have to increase your marketing efforts. Companies that don’t spend on marketing don’t grow.
But back to that first question – how much should you spend? You can develop an answer using a mixture of a ‘top-down’ and ‘bottom-up’ approach.
“Top down” – using industry benchmarks for marketing spend
Using this approach, you look at benchmark figures for your industry as a guide. For example, MarketingSherpa produce an annual Technology Marketing Benchmark Survey for B2B marketers. In the 2008 survey, the average share of revenue spent on marketing by technology organisations of between 100 and 1000 employees was 7.9%. IDC also produce an annual Marketing Investment Planner and in 2007 reported the average share of revenue spent on marketing by 95 large technology firms was 3%, with software vendors spending 5.5%. There’s a good white paper on some other benchmarks published by Marketo http://www.marketo.com/library/selling-marketing-budgets-to-cfo.pdf. They mention a 2006 report by Blackfriars that found B2B companies planned to spend 4.3% of revenue on marketing compared to 6.8% for B2C firms. There’s also a good post at http://www.imageworksstudio.com/client-lounge/articles-tips/setting-a-marketing-advertising-budget.html which quotes the US Small Business Administration as defining the correct percentage to be between 2% and 10% of sales, noting that for B2C, retail and pharmaceuticals the spend can exceed 20% during peak brand-building years.
So with a little bit of homework you should find a benchmark for your particular industry sector that gives you a ballpark indication of what your peers are spending.
But of course just because most of your peers spend, say, 5% of revenue on marketing, that doesn’t mean you should simply aim to spend the same percentage in your business without some further justification. Spending 5% of revenue on golf umbrellas and t-shirts won’t necessarily deliver you an increase in customers.
“Bottom up” – using your understanding of your business and current capacity
Most of us are not starting from a blank sheet when planning our marketing spend – there has usually been some level of marketing going on in the past that we can use as base for future planning. The tricky bit is to connect your past marketing spend to the number of new customers you’ve acquired in previous years. Can you analyse previous spend to get an idea of which expenditure produced new sales and new customers? For example in a B2B company, can you do a rough calculation such as “last year we spent X thousand dollars to produce Y leads which in turn produced Z customers”? Do you have any data that indicates which marketing activities do or do not contribute to sales outcomes? Ideally, you would like to understand your “cost of customer acquisition” – how much you have to spend to acquire each customer – and the “customer lifetime value” – how much each customer is worth to you on average.
Using a bottom-up approach you try to project future spend based on current results produced with the existing budget.
Some additional factors to consider
So you can use a bottom approach to calculate the kind of budget you think is required to hit your customer acquisition targets this year; then you can cross-check this figure with the top-down industry benchmark figures.
However, there are some other factors to consider before setting a budget, including:
- Life-stage of your company – if you are an early stage company trying to grow aggressively then you need to be prepared to spend disproportionately on marketing. The Marketo paper gives the extreme example of Salesforce, which in their first year of revenue-generating operations spent $25.4m on sales and marketing with revenues of $5.4m.
- Profit margins – if company A has $100m in revenue and a 20% margin and company B has $100m in revenue but 2% margin, it makes sense that they may not both spend the same percentage of revenue on marketing. Try to compare your company to peers who have both equivalent revenues and equivalent margins.
- B2B versus B2C – spending in B2C marketing is different than in B2B. For example, consumer branding campaigns are potentially a big budget item in B2C but should not generally be a big element in a B2B marketing unit.
- Available market – are you selling into a new market with lots of customers to acquire, or is it a mature market that is dominated by large incumbents? If it’s a mature market, increased marketing spend won’t automatically lead to new customer acquisition.
So now you have a number, what next?
So now you’ve developed a ballpark figure, say 5% of revenue, what should you spend it on? Yes, I know, holding a massive party is the obvious answer but may not be the correct one. Your choice of what you spend money on should be refined quarter by quarter. If you find that $10,000 spent on online ads produces $100,000 worth of new business, then double that spend. If you find that $10,000 spent on attending tradeshows produces no new business, then cut down on your tradeshow attendance. I’ll come back to marketing budget allocation at some point in the future because it touches on a lot of areas, including marketing processes, conversion rates, analytics, marketing attribution and much more.
The way people buy high-tech, complex B2B products has changed dramatically in the past 5 years. More of the initial buying process happens online, and more of it is controlled by the customer, not your sales team or marketing unit. Buyers typically initiate their research online before launching a formal procurement process. This means that by the time your sales staff meet a potential buyer face-to-face the buyer will have already visited your website, downloaded your product information, looked at competing vendor sites, checked your analyst ratings and studied your blog. In this white paper we look at the characteristics of complex high tech B2B sales and marketing; we review how marketing has changed in the era of inbound digital marketing; and we outline how sales and marketing units at B2B technology firms should address the new environment.