Business Development:

Start-Ups

The 4-1/2 Marketing Issues

that Entrepreneurs Absolutely Must Get Right

By Terry Collison, Blue Rock Capital. Used by permission.

  

Marketing Issues for Young Growth-oriented Companies

  1. Initial marketing focus: A venture's first strategic marketing issue involves potential founders rather than customers. Without support, no company can succeed.

  2. Marketing the company vs. promoting products. A young unknown company has to be accepted within its marketplace before it can effectively market to targeted end-user customers. Young companies must be what they are. Not every prospect will value innovation and agility. But the right ones will. To find enough of the right ones, you may have to kiss a lot of frogs.

  3. Marketing had better feed selling. Once a young company is positioned, if its marketing program isn't specifically designed to fulfill its current sales objectives, its marketing effort should be re-evaluated. Only current results can create future possibilities.

  4. Exit strategy is a marketing issue. If the company succeeds and gains value, who would eventually want it (or a piece of it)? And for what reasons? A company should begin addressing this question early as part of its overall marketing effort.

"1/2". A niche market is not the same as a true marketing opportunity. Until a true marketing opportunity is explicitly demonstrated, the venture opportunity is not concrete. In other words, don't start marketing until you are certain that the effort makes sense.

Of all possible topics, why another article on marketing? After all, if you search Lexis-Nexis for entries related to "marketing," you will find a whole bunch of them. General business magazines present such articles on a regular basis and trade publications run articles keyed to readers in their respective industry groups. Even "small business" columns in local newspapers feature marketing as a recurring theme.

 

Venture Financing Funnel    

  Venture Financing: Key Documents

 

Books on marketing are sold at virtually any retail bookstore while weighty (and sometimes pricey) textbooks are available in campus bookstores at Penn, Temple, St. Joseph's, Villanova, and Penn State (to mention just a few of the local resources). And, of course, you can get courses on marketing at each of these schools as well as programs offered through the Wharton SBDC, the Entrepreneurs' Forum of Greater Philadelphia, and other local organizations. In short, the topic of marketing is not exactly "unexamined."

So why write about marketing as part of this year's Philadelphia 100™ celebration?

For company founders, members of the management teams at young growing companies, and entrepreneurial wannabes, this article serves as a reminder that there are a handful of "basic" marketing issues that act as a foundation for a young company's survival in a competitive world.

Critical Marketing Issue #1 – A venture's first strategic marketing focus should not be end-user customers or, in fact, the commercial marketplace at all. Especially for launch-stage companies, the first critical marketing issue is not cozying up to end-user customers. The first critical issue is being able to market the venture opportunity to appropriate sources of funding for the company itself. The most appropriate initial funding source may be employees, family and friends, third-party angel investors, the Ben Franklin Technology Center, a venture capital fund, a corporate partner, a licensee, or some combination of these. Given the fact that "walking around money" is usually scarce for entrepreneurs, it is surprising that companies often pursue funding from sources that clearly represent a mis-match. For example, it is well understood that banks are not in the business of providing equity-type funding at all and that banks generally do not provide loans to very small companies with very short histories, limited assets, and slender cash-flow. For a young company, its first challenge is to identify the types of funding sources that match its situation and then to market specifically to potential funders in these categories.

Entrepreneurs may rationalize any funding arrangement that allows them to proceed by believing that any problems (A) will lie in the future and (B) can always be fixed by (take your choice) (1) eventual positive cash-flow, (2) attracting more funding, and/or (3) landing a big customer or achieving a major technical breakthrough. Here's an alternative viewpoint: until a company can assemble an appropriate funding program, perhaps the marketplace itself is trying to give the entrepreneur an important message. If a company tries to compete with inadequate resources or with resources that do not match its situation, the result may be worse than delaying implementation long enough to work out this issue.

Critical Marketing Issue #2 – In the commercial marketplace, before you can be effective in marketing to targeted end-user customers, you should market the company itself. Young ventures, especially brand-new companies, often overlook the fact that the marketplace has never heard of the company and that this can truly make a difference. Many young entrepreneurial companies offer strongly competitive product performance, features, and pricing that are meaningful to prospects. But they feel at a strong competitive disadvantage due to their company's relatively small size or its newness.

An entrepreneur recently talked to me about this issue and reminded me of the time-tested marketing adage: "If you can't fix it, feature it!" He wasn't the least bit defensive or apologetic about his company's situation; he actually took pride in it. To provide comfort for targeted prospects, he markets his company at the outset of the marketing message. He pointed out that newness, innovation, and the pioneering spirit are positive marketing messages. In western business culture, it is well-accepted that these values are more likely to be found in smaller, younger, less traditionally structured companies. As Pop-Eye existentially observed, "I yam what I yam." So is a young venture. No sense in disguising that fact (it doesn't work). Or in apologizing for it. As noted above, that is throwing away the chance to claim "newness" and entrepreneurial agility as assets.

In addition, it can be helpful for young ventures to use a "buddy system" in approaching the market. Smaller entrepreneurial companies can often be useful (and welcome) partners for larger, better established (and well-recognized) companies. Sometimes the relationship can be formal (as in a corporate development or co-marketing partnership) and sometimes the relationship can be informal (for instance, when key individuals serve together on a trade or industry committee). Sometimes the relationship can be merely the result of a straight commercial transaction ("although you probably haven't heard of our company before, I am proud to tell you that one of our early customers is GE/L.L. Bean/IBM/NIH" etc.). Brand names are effective validators. If your company's name is not yet recognized, you can often derive benefit from your key accounts. By taking advantage of such relationships, many small growth-oriented companies have leveraged their marketing programs and have gained entrιe to prospects that they could not have reached by themselves.

Critical Marketing Issue #3 – Once your company is being effectively positioned in its marketplace, if your marketing program isn't specifically designed to fulfill the objectives of your current sales program, the whole effort is virtually worthless. Tough info, huh? Too often, young innovative companies put lots of faith in the inherent (and, they believe, self-evident) attractiveness of their products or service offerings. Such companies have an eerie anticipation that the functionality of their products or services will be recognized and appreciated by potential customers. Now if this were actually true, just think how many more companies would be around to celebrate their fifth birthdays. The fact is that many young companies with superior products just don't make it in the competitive market environment. This should be a lesson to companies that are now in the pre-launch or early growth stage.

Synergistic Selling: 3 Pillars

Selling Is Problem Solving

When a company offers a functional, attractive product with meaningful features that are competitively priced, why would its marketing program fail to generate actual sales? One answer is that prospects and customers do not care directly about the functionality of products. Prospects and customers care about benefits. And, more specifically, prospects and customers have to go past the benefits to deal with the value of those benefits in their own organization.

In terms of marketing, the world's most important radio station is WII-FM. Why? Because the call-letters stand for "What's-In-It-For-Me?" – the central question that any prospect or customer will be dealing with (whether consciously or unconsciously) while receiving your company's marketing message. The entrepreneur must address this question while, at the same time, providing a marketing message that (1) helps inappropriate prospects take themselves out of consideration (dealing with inappropriate prospects costs money and wastes valuable time), (2) prepares true prospects to be receptive to the sales message they will eventually get from you, and (3) leads them directly into the selling cycle. Take a look at your own company's situation. Are all of these issues being addressed by your marketing? Is the process designed to cause this to happen? If you were to make modifications to improve the effectiveness of your program, what would you change? Why? Look at companies that are clearly succeeding. What do they appear to be doing right? How could you apply some of their techniques to your own company?

Critical Marketing Issue #4 – Your "exit strategy" is actually a marketing issue. Right at the outset, it's important to understand (and be able to explain) how you (and, more importantly, your funders) can get "out." Given your expectation that your company grows and prospers, if you cannot yet describe which type of purchasers would eventually want to buy into it (or acquire it outright), you have a marketing issue. Dealing with this issue should influence the way you organize your young company, the type of funding you go after, and the way you operate the company to get it positioned for that ultimate exit opportunity.

Remember that the objective behind a venture is to create not just products but a company which is itself valuable. And ultimately to be able to realize the value of the company itself. Effective marketing results don't just happen. They must be carefully planned in advance.

Surprise To Win: 3 Strategies

Differentiation Strategies

That peculiar "1/2" Marketing Issue – Who says that there is a marketing opportunity in the first place? In the venture fund where I am involved, one of the four criteria for investing in a portfolio company involves the basic market opportunity for that company. Specifically, we look for companies involved in markets where the size of the market is significant. There have to be "enough" total customers for a given company to gain a share which will prove to be meaningful in its own right. It is equally important that the company be in a market that is growing. Obviously, it is much more difficult to create a successful venture in a stagnant or a contracting market. Finally, it is critical that the market structure be compatible with the entry of a new, initially smaller competitor. Markets that are locked up – for whatever reason – mean that young companies will, in general, have far greater difficulty in reaching and signing up customers.

Some eager entrepreneurs launch a new venture without actually talking with a single prospective customer or with anyone else who might be truly knowledgeable about the characteristics of the market in question. A niche market is not necessarily a marketing opportunity. The issue is validation.

Looking over its portfolio, one early-stage venture fund analyzed the characteristics of companies that had become successful. In all but one case, the CEO of every successful company had previously "carried a bag" (i.e., had had experience in actually calling on prospects and customers). And in all but one case, the CEO of every successful company had actually called on deal-targeted companies as a basis for creating the company's business plan and its marketing program. The information and candid feedback that can be provided by prospective customers is invaluable. Access may be easier than you might imagine. Yes, sometimes even before you have either a product to sell or even have formed the company.


Virginia G. Bonker
230 Lackawanna Dr.
Andover, N J   07821-4113
 Tel 973 426-1767  Fax 973 426-0224
virginia@bluerockcapital.com

 Terry Collison
5700 Kennett Pike
Wilmington, DE  19807-1312
Tel 302 426-0981  Fax 302 426-0982
terry@bluerockcapital.com