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.

 TERRY COLLISON is a co-founder of BLUE ROCK CAPITAL. Previously, through 11 years of work as an advisor to entrepreneurs, young companies, and investors, Terry helped a wide variety of companies develop commercialization strategies, management teams, marketing programs, formal business plans, and new financing. BLUE ROCK CAPITAL makes venture capital investments in high-growth seed-stage and early-stage companies from New England to the Carolinas.

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 entrée 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.

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.

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.