v2.5.97

$1 is too much for most startups to spend on marketing

Marketing can’t help most startups. Here’s why: most startups are mediocre—mediocre product, mediocre operations, mediocre support. How else do you explain the fact that over half of all startups are gone within five years, and only 30% ever make it to 10 years? The truth is that investing scarce capital in the marketing of “mediocre” rarely pays back very well.

There is an old saying in marketing that goes: “nothing kills a bad company faster than good marketing.” Spending your next dollar on marketing may temporarily boost sales, but if your business is exhibiting shades of mediocrity, you may not get the return on your investment that you expected.

 A quick story.

A few years ago we worked with a large interior design company whose customers were homeowners that numbered in the thousands. The design company’s business had grown substantially over the years on the strength of referrals. As sales slowed in 2007, the company asked us to develop a marketing program to help reignite sales among a broader audience.

Before spending their money, we recommended to the CEO that we do a bit of customer research, which was approved. The survey asked customers if they would be willing to refer the services of the design firm to friends or colleagues and gave those customers a scale of 0-10 to express their support (10 being “extremely likely”). The CEO struggled with the findings. The conversation went something like this:

Us: Only 33% of your customers love you.

CEO:  I don’t get it. Our customers rave about the work we do. Every job!

Us: But sales are slowing. The referrals are slowing.

CEO:  Maybe we have to go after new markets.

Us: Maybe there’s something else going on.

The next step was to dig deeper into the 37% of customers who gave them a seven or an eight, and the 30% of customers who gave them six or less. The next conversation went like this:

Us: The majority of your customers love your design work, but really don’t like your billing and collections. Apparently, there have been a lot of screw ups. As a result, you received more sevens and eights in the survey than your design success would suggest.

CEO: Accounting is really boring.

Us: Yeah, we noticed.

If we’d charged ahead with a full-blown marketing campaign, the design company would have spent a lot of money exposing its weakness to a greater number of people. That would have been the path to a saw-toothed sales curve instead of an upward, hockey stick-type sales curve. Talking to customers in a very simple, quantifiable way forced the company’s weakness out into the open where the CEO was able to deal with it.

Sometimes, spending money on marketing is the wrong thing to do. Spending money on finding out who you really are—how your customers see you—is the right thing to do.

So here are three simple questions you should ask your customers:

  1. What should we stop doing?
  2. What should we keep doing?
  3. What should we start doing?

Simple, to the point, revealing, and very easy to do. Try it with one customer and see what happens. And then make the call on whether to spend that $1 on marketing.

You can follow Drew on Twitter at @FeedYourBeast. We welcome your comments at ideas@qz.com

Top News

Powered by WordPress.com VIP